Stephenson v. Capano Development, Inc.

• Citation: 462 A.2d 1069
• Parties: Jane STEPHENSON, Plaintiff Below, Appellant, v. CAPANO DEVELOPMENT, INC., Defendant Below, Appellee. . Submitted:
• Decision Date: 15 March 1983
• Court: United States State Supreme Court of Delaware

Page 1069

462 A.2d 1069

Jane STEPHENSON, Plaintiff Below, Appellant, v. CAPANO DEVELOPMENT, INC., Defendant Below, Appellee.

Supreme Court of Delaware.

Submitted: March 15, 1983.

Decided: May 24, 1983.

Upon appeal from Superior Court. Reversed and remanded.

David S. Lank, Theisen, Lank, Mulford & Goldberg, P.A., Wilmington, for appellant.

Edward M. McNally, Morris, James, Hitchens & Williams, Wilmington, for appellee.

Before HERRMANN, C.J., MOORE, J., LONGOBARDI, Vice-Chancellor (sitting by designation pursuant to Del. Const. art. IV, § 12).

MOORE, Justice:

In this appeal from the Superior Court we address a matter of first impression--the right to and measure of damages under the Consumer Fraud Act (6 Del.C. §§ 2511-26) ("Act") as a result of fraudulent statements, concerning the availability of mortgage financing, in connection with the purchase and sale of real estate.

Following her successful suit in the Court of Chancery for specific performance of an option contract to buy a house, Jane Stephenson sued Capano Development, Inc. (Capano) in Superior Court, alleging that Capano violated the Act and the Uniform Deceptive Trade Practices Act (6 Del.C. §§ 2531-36) in the sale of that house. The trial judge ruled on cross-motions for summary judgment, and held, despite Capano's violations of the Act, that Stephenson had suffered no actual damages. Therefore, judgment was entered for Capano.

On appeal Stephenson claims that the factual findings of the Court of Chancery in the specific performance action established Capano's liability under the Act, and the Superior Court judge erred as a matter of law in failing to give full legal effect to those findings. We agree. The plaintiff also contends that she incurred actual damages by having to pay a higher interest rate on her mortgage than that which Capano falsely advertised was available to prospective buyers.

By virtue of the facts hereinafter set forth, we have no doubt that Capano engaged in false advertising, an unlawful practice under the Act. Thus, we accept the premise that an element of damages in this situation may include the difference between the interest rates which Capano falsely represented were available and the interest rate which this plaintiff is now required to pay. Since the assessment of damages is a factual matter, we reverse and remand for trial on that issue.

I.

We refer to the relevant facts determined in the Chancery action: Capano, operating under a different trade name, was the developer of a residential area known as Londonderry. In January 1980, it advertised in the Wilmington newspapers that it was about to construct and sell townhouses in "section 3" of Londonderry, which was to contain six buildings, each with seven units. Originally, Capano had planned to sell all of the units, but at some point it then decided to retain ownership of all the townhouses and rent them. Later, a change in economic circumstances led to a return to the initial plan of selling the units. The ads specifically stated that mortgage funds, backed by New Castle County, were available on the basis of a 10 per cent down payment at an interest rate of 9 3/8 per cent. The newspaper advertisements also indicated that ninety-five per cent financing was privately available through Capano. Plaintiff was told that Capano had funds to make 30-year mortgages on the basis of 5 per cent down at 10 7/8 per cent interest.

Stephenson, who was responsibly employed, but had modest financial resources, wanted to buy her own house, and was attracted by the possibility of obtaining a low-interest mortgage. Accompanied by members of her family and a friend who was a realtor, she met Mr. Steele, a Capano salesman, at the Londonderry sample house on January 25, 1980. Steele showed her a plan of the proposed development, and gave her a brochure stating that the sales price for interior units was $48,000, and end units were $49,000. Stephenson decided that she was interested only in the end unit (Lot 160) of what was designated Building 17, primarily because of the attractive view which it alone commanded. Steele told her that Building 17 did not exist, though construction was scheduled to start in April. Nonetheless, plaintiff wanted only this end unit. No details about financing were mentioned, but Steele confirmed that money from the County mortgage program would be available for purchasing the townhouse. At the end of the meeting he told her that Lot 160 would be held for her until January 28, and, apparently for that purpose, Lot 160 was marked as "sold" on a wall map.

Returning to the sample house the next day, Stephenson met another Capano salesperson, Ms. Jackson. Again, plaintiff confirmed her desire to buy Lot 160. During the conversation, Jackson acknowledged the existence of the advertised financing plans, indicating that there were sufficient funds for the entire development, but no information was taken concerning Stephenson's qualifications for such financing. Shortly thereafter, Steele told Stephenson that he would prepare Capano's standard form sales agreement for her to sign and would be in touch with her. However, several weeks passed, Steele did not call, and he apparently ignored Stephenson's attempts to reach him.

Eventually, contact was made, and on March 1, Stephenson paid a $1,000 "retainer" on Lot 160, as requested by Steele in a letter dated February 21. Ms. Jackson gave plaintiff a receipt for a $1,000 payment on Lot 160. Stephenson also understood, and evidently agreed, that there would be a potential increase in the quoted sales price of up to 5 per cent to cover unanticipated or increased construction costs that might occur between execution of a contract and completion of construction. This meant that the final sales price could go up to $52,395. However, plaintiff was satisfied with this arrangement and reaffirmed her desire to sign a contract to buy Lot 160. In particular, she was not concerned about the potential price change so long as the low interest, low down payment mortgage financing was available. Still, nothing had been done concerning plaintiff's desire to seek County-backed mortgage financing even though she had made it clear to both Jackson and Steele that she hoped to finance her purchase in this way.

About two weeks later, Capano's management told the sales staff that two of the proposed structures, including Building 17, would be retained for rental and investment purposes instead of being offered for sale. This was another zig-zag in Capano's position on the subject, which apparently was unexpected by the sales staff, since three other people in addition to Stephenson had paid "retainers" for units in these buildings. Later, these buyers either accepted different units or a refund. However, Stephenson was unhappy and demanded her right to purchase Lot 160. Thus, in May 1980 she filed suit against Capano in the Court of Chancery, seeking specific performance and ancillary relief. By this time the County-backed, low interest mortgage money had long since been exhausted, as had the limited supply of 10 7/8 per cent mortgage funds, which Capano had advertised were privately available through it. Yet, even at the time of trial Capano was still advertising the availability of both financing alternatives to prospective buyers.

Two days before trial Stephenson moved to amend her complaint to include alleged violations of both the Act and the Deceptive Trade Practices Act. Because the amendment was untimely, the present Chancellor refused to consider these issues, noting that his action was not to "be construed as any finding on the merits of any such claims". After trial the Chancellor concluded that plaintiff had an option to enter into a contract to buy Lot 160 at a price between $49,000 and $52,395. Contrary to Stephenson's claim, there was no enforceable contract right with respect to financing. A decree of specific performance, compelling transfer of Lot 160, was then entered against Capano. We affirmed in June 1981. Thereafter, Stephenson privately obtained a 30-year mortgage for $47,000 at 12.7 per cent interest.

Following the Chancellor's decision, Stephenson filed the present suit against Capano in Superior Court, raising the same claims of fraud belatedly presented to the Chancellor. She moved for summary judgment on the issue of liability, arguing both that Capano was collaterally estopped from relitigating the Chancellor's findings, and that the decision included a determination of Capano's liability for consumer fraud. The Superior Court judge denied the motion, holding that the findings of fact were to receive collateral estoppel effect, but since the Chancellor did not reach the legal merits of Stephenson's present claims, the doctrine of res judicata was inapplicable. On Capano's cross-motion for summary judgment, the judge held that the Uniform Deceptive Trade Practices Act did not apply to the sale of real estate. In addition, Stephenson had not established actual losses due to Capano's advertisements and misrepresentations. Judgment was entered for Capano, and Stephenson has appealed.

II.

A.

Stephenson first contends that the Superior Court failed to give proper res judicata effect to the earlier decision of the Court of Chancery. However, this argument erroneously assumes that the Chancellor reached conclusions of law on Stephenson's claims of consumer fraud and deceptive trade practices. He did not. The only issue resolved on the merits was Stephenson's contract claim. The plaintiff's allegations of fraud were not considered for procedural reasons, and the Chancellor expressly made no determination of the merits of those questions. Thus, while Chancery's findings of fact must be given collateral estoppel effect, e.g., Winkler v. Balentine, Del.Supr., 254 A.2d 849, 851 (1969), the Superior Court judge was not bound by res judicata, since the Chancellor did not reach any conclusions on the issue...