Zimmerman v. Kent

• Decision Date: 18 July 1991
• Docket Number: No. 90-P-25,90-P-25
• Parties: Richard G. ZIMMERMAN et al. 1 v. Michael J. KENT et al. 2
• Court: Appeals Court of Massachusetts

Page 70

575 N.E.2d 70

31 Mass.App.Ct. 72

Richard G. ZIMMERMAN et al. ¹ v. Michael J. KENT et al. ²

No. 90-P-25.

Appeals Court of Massachusetts,

Barnstable.

Argued Feb. 14, 1991.

Decided July 18, 1991.

Michael D. Ford, Hyannis, for defendants.

John B. Hopkins, Barnstable, for plaintiffs.

Before WARNER, C.J., and DREBEN and IRELAND, JJ.

IRELAND, Justice.

This case involves rescission of a sale of real estate and an accompanying award of damages to the buyers. We draw our facts from the findings of the trial judge. The Zimmermans and the Kents resided in Connecticut. The Kents owned two summer rental properties in Chatham, Massachusetts, the subject property on Oyster Drive purchased in 1985, and another property on Morris Island purchased in 1981. The Zimmermans rented the Morris Island property for one week in each of the summers of 1984, 1985, and 1987. In the latter part of the summer of 1987, the Zimmermans sought to buy a home in Chatham. At the same time, their friends, the Kents, sought to sell their Oyster Drive property; they were asking $195,000 with a broker, or $175,000 without a broker. The parties do not dispute that they were aware that, upon a transfer of improved property, a bylaw of the town of Chatham apparently required an inspection of the property's septic system and, if the system failed inspection, the installation of a new system complying with Title V of the State Sanitary Code. ³

The Zimmermans rented the Oyster Drive property over the Columbus Day weekend in 1987, to see if it would be suitable. On their return to Connecticut, they told the Kents they were interested in the property and arranged to rent it for the weekend of October 23-25. During their second weekend stay, the Zimmermans discussed with the Kents possible terms of sale. The Zimmermans said that $195,000 was too high a price, and they offered $150,000. The Kents rejected that figure as too low. Mrs. Kent said the lowest figure they could accept would be $170,000, as they were setting aside $10,000 to "take care of" the septic system. ⁴

At the time the Kents sought to sell their Oyster Drive property, an engineer was replacing the septic system at their Morris Island property. The Zimmermans knew about this work and also knew that it might be necessary for the Kents to raise the grade level of the Morris Island property to accommodate a new septic system. The trial judge found that Mrs. Kent told the Zimmermans that the engineer who was working on their Morris Island property had examined the Oyster Drive property and that he felt the actual replacement cost for the septic system there would be $5,000, and probably no more than $2,000 to $3,000. ⁵ In reality, the engineer had not examined the Oyster Drive property. Rather, he had engaged in a single conversation with the Kents, in which he told them that the Oyster Drive property was at a higher elevation than the Morris Island property and that a septic system would not be as difficult to install on the former. He further said that he thought the yard would need to be raised but not the house.

Mrs. Kent proposed that, if the Zimmermans were willing to undertake the septic renovation themselves, the purchase price would be $160,000. The Zimmermans agreed, and the parties executed a binder. On October 27, Mr. Zimmerman engaged Coastal Engineering, a firm recommended by Mrs. Kent, to design a new septic system. By November 11, Mr. Zimmerman sent that firm a deposit and a signed proposal and estimate of cost of services form.

During the weekend of November 14, 1987, the Zimmermans visited the Oyster Drive property. In the course of a discussion about the purchase of the property, Mrs. Kent told Mrs. Zimmerman that the installation of a septic system might require raising the backyard as much as eighteen inches. When Mrs. Zimmerman expressed concern, ⁶ Mrs. Kent said that the elevation was more likely to be no more than six to nine inches.

On November 16, 1987, the parties signed a purchase and sale agreement, which was drafted by an attorney originally retained by the Kents and who then represented both of the parties in the transaction. Under the terms of the agreement, the Zimmermans agreed to install the new septic system. The Kents insisted on closing before the end of the year, claiming that they would lose significant tax advantages if they waited. The Zimmermans wanted to wait until the spring of 1988 but acquiesced to the Kents' wishes. On November 18, the Kents engaged an engineer to test the septic system at the Oyster Drive property and, as expected, it failed. The Kents forwarded the engineering report to the Zimmermans, who sent it to Coastal Engineering. In a telephone conversation, Mrs. Kent told Mr. Zimmerman that he was "in luck" because of the ground water level the engineer had observed in a test just over the property line, behind the house. Mrs. Kent apparently believed that the ground water level would lower the cost of replacing the septic system. The trial judge found that she was comparing it to what she thought she knew about a similar but lower level reading at the Morris Island property. ⁷

The parties closed in mid-December, 1987. On January 27, 1988, the Zimmermans received what the trial court judge characterized as "catastrophic" news from Coastal Engineering. The backyard needed to be raised at least three feet. Further, correcting the septic system would require construction of a large retaining wall, blocking the view of the water. Finally, the cost would be more than triple the outside figure ($5,000) represented to the Zimmermans by Mrs. Kent. ⁸

The Zimmermans contacted the Kents, seeking to rescind the purchase. They told the Kents that they had returned all the summer rental deposits they had received because they were advised by counsel not to rent the property with an inadequate septic system. The Kents responded that two clauses in the purchase and sale agreement bound the Zimmermans. ⁹ The Zimmermans filed an action in Superior Court seeking rescission of the purchase and damages on the theories of fraudulent misrepresentation and mutual mistake of fact. ¹⁰ The trial judge found that Mrs. Kent provided information which was "factual in nature ... [that] carried with it a suggestion that it came from an authoritative source" and "was intended to quell anxiety and did so." He ordered rescission of the agreement and awarded out-of-pocket damages to the Zimmermans. ¹¹ Finding that the Zimmermans received no benefit from the property after acquiring it, the judge denied the Kents' claim to offset the out-of-pocket damages award with lost rentals.

1. The misrepresentation claim. The Kents argue that the trial judge erred when he determined that Mrs. Kent misrepresented the cost and characteristics of a new septic system to the Zimmermans. To sustain a claim of misrepresentation, a plaintiff must show a false statement of a material fact made to induce the plaintiff to act, together with reliance on the false statement by the plaintiff to the plaintiff's detriment. Powell v. Rasmussen, 355 Mass. 117, 118-119, 243 N.E.2d 167 (1969). Danca v. Taunton Sav. Bank, 385 Mass. 1, 8, 429 N.E.2d 1129 (1982). Acushnet Fed. Credit Union v. Roderick, 26 Mass.App.Ct. 604, 605 & n. 1, 530 N.E.2d 1243 (1988). The speaker need not know "that the statement is false if the truth is reasonably susceptible of actual knowledge, or otherwise expressed, if, through a modicum of diligence, accurate facts are available to the speaker." Acushnet, supra at 605, 530 N.E.2d 1243. Where the plaintiff proves "a statement made, as of the party's own knowledge, which is false, provided the thing stated is not merely a matter of opinion, estimate, or judgment, but is susceptible of actual knowledge ... it is not necessary to make any further proof of an actual intent to deceive." Snyder v. Sperry & Hutchinson Co., 368 Mass. 433, 444, 333 N.E.2d 421 (1975), quoting from Powell v. Rasmussen, supra, 355 Mass. at 118, 243 N.E.2d 167, in turn quoting from Chatham Furnace Co. v. Moffatt, 147 Mass. 403, 404, 18 N.E. 168 (1888). We examine each of these components to determine if the trial judge reasonably could have concluded that the statements by Mrs. Kent to the Zimmermans constituted the tort of misrepresentation.

The first requirement to sustain a claim of misrepresentation is that the representation made must be false. See Kotler v. American Tobacco Co., 731 F.Supp. 50, 52 (D.Mass.1990) (failure to show statements were untrue defeats claim of misrepresentation). There was no evidence that the engineer ever said that the backyard of the Oyster Drive property would have to be raised six to nine inches but no more than eighteen, or that the cost of overhauling the septic system would be no more than $5,000 but probably $2,000 to $3,000. Instead, there was testimony that the engineer made some general comments to the Kents about a new septic system at the Oyster Drive property. See supra, note 5. Mrs. Kent's representations about the price and characteristics of a new septic system were, apparently, her extrapolations from information the engineer had provided her about the Morris Island property. These representations turned out to be wrong. Her representation that the engineer had made the particularized factual statements about the cost and characteristics of a new system was altogether false.

The next requirement to sustain a claim of misrepresentation is that of "materiality," which has been defined as whether "a reasonable man would attach importance [to the fact not disclosed] in determining his choice of action in the transaction in question." Rogen v. Ilikon Corp., 361 F.2d 260, 266 (1st Cir.1966). See Restatement (Second) of Torts § 538(2)(a) (1976). The parties began their negotiations $45,000 apart and were unable to agree on a purchase price until the Zimmermans agreed to be responsible for the septic system. Mrs. Zimmerman had wanted...