Real Property Law

Disclaimer Precludes Fraud Claim Against Seller

Laxer v. Edelman

NYLJ 7/22/10, p. 36, col. 1 and 2 AppDiv, Second Dept. (memorandum opinion)

In an action by home purchasers to recover damages from seller and broker for fraudulent inducement, purchasers appealed from Supreme Court's dismissal of the complaint against the broker, and seller appealed from Supreme Court's refusal to dismiss the complaint against seller. The Appellate Division affirmed with respect to the broker and reversed to dismiss the claim against seller, relying on inspection reports revealing the possibility of mold problems, and on the disclaimer clause in the sale contract.

In 2006, seller accepted purchasers' offer to buy a single-family home for $4.2 million. Before signing the contract, purchasers hired an environmental consulting firm, which reported visible mold and warned of a water problem in one room. The report also indicated that the firm had conducted no “invasive procedures” and that there was no guarantee that mold was not present in areas not examined. Purchasers nevertheless signed the contract, which included representations that purchasers were buying the premises “as is” and that they were not “relying on any representations by the seller or the seller's agent.” After closing, purchasers discovered that the mold problems were so severe that they had the home demolished. They then brought this action against seller, the broker, the inspector, and the environmental consulting firm. The broker and the seller moved to dismiss the complaint. Supreme Court granted the broker's motion, but denied the seller's motion. Two separate appeals resulted.

The Appellate Division started by noting that New York law imposes no liability on a seller or seller's agent for failing to disclose information regarding the premises, unless the seller or agent has engaged in active concealment of a defective condition. Moreover, even when there has been active concealment, no liability attaches when purchaser should have known of the defect. In this case, the court held that the inspection reports conclusively established that purchasers were aware of flooding and mold issues, and were aware that the damages might be more extensive than those documented in the reports. Further, the complaint included no allegation that either seller or broker took any steps to thwart purchasers' efforts to determine the extent of the problem. Finally, the court turned to the disclaimer provisions in the contract of sale, and held that those provisions barred any fraudulent inducement claim.

COMMENT

When, by the terms of a sale contract, purchaser disclaims reliance on any representations made by seller or his agents as to any matters that might influence or affect the decision to execute the contract, courts treat the disclaimer as general, and hold that the disclaimer does not preclude fraudulent misrepresentation claims. In Zamzok v. 650 Park Avenue Corporation, 80 Misc. 2d 573, the court held that the general disclaimer in the contract of sale did not support defendant's motion to dismiss purchaser's claim based on seller's alleged failure to disclose disturbing noise conditions in the apartment. The contract for sale of a co-op apartment included a general disclaimer that stated that the purchasers were purchasing the apartment as is and were not relying on any representations made by the sellers except those specifically set forth in the contract of sale. Subsequent to purchasing the apartment, purchasers discovered loud noises, presumably caused by the operation of an elevator for a garage located in the building. They alleged that sellers had defrauded them by failing to disclose the true condition of the premises and by affirmatively representing that there were no problems caused by the proximity of the apartment to the garage. Noting that the contract did not specifically disclaim the existence of a representation as to the noises of the garage elevator, the court denied sellers' motion to dismiss.

By contrast, when the contract's disclaimer provision explicitly represents that purchaser is aware of the physical condition of the premises and is relying on its own inspection and investigation rather than on the seller's representations about physical condition, courts treat the disclaimer as specific, and hold that the disclaimer precludes a fraudulent misrepresentations claim related to the condition of the premises. Thus, in Daly v. Kochanowicz, 67 A.D.3d 78, the court held that the contract of sale's disclaimer was sufficiently specific to require dismissal of purchaser's claim that seller fraudulently represented that the property did not have a history of water problems. Purchaser had sued the sellers and real estate agents, claiming that although purchaser's inspector discovered some evidence of water intrusion, sellers induced purchasers to buy the property by representing that the property did not have a history of water problems. In dismissing the claim, the court emphasized that the contract of sale included a disclaimer stating that the purchaser was fully aware of and accepted the physical condition of the property, and was relying on its own inspection of the property and not on statements made by the seller or its representatives.

No Adverse Possession Without Hostility

Estate of Becker v. Murtagh

NYLJ 7/22/10, p. 38, col. 3 AppDiv, Second Dept. (memorandum opinion)

In an action for a declaration that possessors had acquired title to a boardwalk strip by adverse possession, and for a declaration that neighbors had acquired an easement over the strip, record owners appealed from Supreme Court's grant of summary judgment to possessors and neighbors. The Appellate Division reversed, holding that possessors had not established hostile or exclusive possession, and that the doctrine of “practical location” of boundaries was inapplicable.

Possessors and record owners lease adjacent beachfront land from the Town of Babylon pursuant to long-term leases. In 1965, possessor built a boardwalk and dock on a strip of land located near the boundary between the two parcels. The boardwalk was used by possessors, by record owners, and by two sets of neighbors who owned parcels landward of and adjacent to the two beachfront parcels. Record owners' predecessors also permitted these parties to use the beach on their parcel. In 1984, a survey demonstrated that part of the boardwalk and the entire dock were located on record owner's parcel. Nevertheless, record owners' predecessors took no steps to prevent use of the dock and boardwalk by the possessors or their neighbors. In 2004, record owners purchased their parcel, and sought to prevent use of the facilities and the beachfront by possessors and neighbors. Possessors and neighbors brought this action seeking a declaration that the disputed strip was owned by possessors, and that the neighbors held an easement over the strip. Supreme Court awarded summary judgment to possessors and neighbors. Record owners appealed.

In reversing, the Appellate Division started by noting that because record owners' predecessors used the strip throughout the adverse possession period, the possessors had not raised a triable issue of fact as to whether the ir possession was hostile or exclusive. Moreover, because there was no proof of a clear demarcation of a definite believed boundary line, the possessors could not rely on the doctrine of “practical location” of boundaries. The court then turned to the prescriptive easement claims by the neighbors, and concluded that their use was not hostile to the record owners at the time, but was permitted as a matter of neighborly accommodation. As a result, record owners were entitled to summary judgment.

Lender Adequately Pleaded Creation of Equitable Lien

Ryan v. Cover

NYLJ 7/9/10, p. 39, col. 5 AppDiv, Second Dept. (memorandum opinion)

In an action by lender to recover on a promissory note and to impose an equitable lien on real property, owner of the real property appealed from Supreme Court's denial of its motion to dismiss. The Appellate Division affirmed, holding that lender had adequately pleaded that the parties intended to create a lien on the property.

Lender lent money to borrower, and took back a promissory note that identified the subject real property. Lender alleged that borrower orally pledged the property as security for the note. Borrower defaulted, and lender brought this action to recover on the note, and to impose an equitable lien. Supreme Court denied borrower's motion to dismiss.

In affirming, the Appellate Division started by indicating that imposition of an equitable lien requires an express or implied contract expressing a clear intent to hold, give, or transfer real property as security for an obligation. Here, the court concluded that lender had adequately alleged such a contract precluding dismissal of the complaint.

Disclaimer Precludes Fraud Claim Against Seller

Laxer v. Edelman

NYLJ 7/22/10, p. 36, col. 1 and 2 AppDiv, Second Dept. (memorandum opinion)

In an action by home purchasers to recover damages from seller and broker for fraudulent inducement, purchasers appealed from Supreme Court's dismissal of the complaint against the broker, and seller appealed from Supreme Court's refusal to dismiss the complaint against seller. The Appellate Division affirmed with respect to the broker and reversed to dismiss the claim against seller, relying on inspection reports revealing the possibility of mold problems, and on the disclaimer clause in the sale contract.

In 2006, seller accepted purchasers' offer to buy a single-family home for $4.2 million. Before signing the contract, purchasers hired an environmental consulting firm, which reported visible mold and warned of a water problem in one room. The report also indicated that the firm had conducted no “invasive procedures” and that there was no guarantee that mold was not present in areas not examined. Purchasers nevertheless signed the contract, which included representations that purchasers were buying the premises “as is” and that they were not “relying on any representations by the seller or the seller's agent.” After closing, purchasers discovered that the mold problems were so severe that they had the home demolished. They then brought this action against seller, the broker, the inspector, and the environmental consulting firm. The broker and the seller moved to dismiss the complaint. Supreme Court granted the broker's motion, but denied the seller's motion. Two separate appeals resulted.

The Appellate Division started by noting that New York law imposes no liability on a seller or seller's agent for failing to disclose information regarding the premises, unless the seller or agent has engaged in active concealment of a defective condition. Moreover, even when there has been active concealment, no liability attaches when purchaser should have known of the defect. In this case, the court held that the inspection reports conclusively established that purchasers were aware of flooding and mold issues, and were aware that the damages might be more extensive than those documented in the reports. Further, the complaint included no allegation that either seller or broker took any steps to thwart purchasers' efforts to determine the extent of the problem. Finally, the court turned to the disclaimer provisions in the contract of sale, and held that those provisions barred any fraudulent inducement claim.

COMMENT

When, by the terms of a sale contract, purchaser disclaims reliance on any representations made by seller or his agents as to any matters that might influence or affect the decision to execute the contract, courts treat the disclaimer as general, and hold that the disclaimer does not preclude fraudulent misrepresentation claims. In Zamzok v. 650 Park Avenue Corporation, 80 Misc. 2d 573, the court held that the general disclaimer in the contract of sale did not support defendant's motion to dismiss purchaser's claim based on seller's alleged failure to disclose disturbing noise conditions in the apartment. The contract for sale of a co-op apartment included a general disclaimer that stated that the purchasers were purchasing the apartment as is and were not relying on any representations made by the sellers except those specifically set forth in the contract of sale. Subsequent to purchasing the apartment, purchasers discovered loud noises, presumably caused by the operation of an elevator for a garage located in the building. They alleged that sellers had defrauded them by failing to disclose the true condition of the premises and by affirmatively representing that there were no problems caused by the proximity of the apartment to the garage. Noting that the contract did not specifically disclaim the existence of a representation as to the noises of the garage elevator, the court denied sellers' motion to dismiss.

By contrast, when the contract's disclaimer provision explicitly represents that purchaser is aware of the physical condition of the premises and is relying on its own inspection and investigation rather than on the seller's representations about physical condition, courts treat the disclaimer as specific, and hold that the disclaimer precludes a fraudulent misrepresentations claim related to the condition of the premises. Thus, in Daly v. Kochanowicz, 67 A.D.3d 78, the court held that the contract of sale's disclaimer was sufficiently specific to require dismissal of purchaser's claim that seller fraudulently represented that the property did not have a history of water problems. Purchaser had sued the sellers and real estate agents, claiming that although purchaser's inspector discovered some evidence of water intrusion, sellers induced purchasers to buy the property by representing that the property did not have a history of water problems. In dismissing the claim, the court emphasized that the contract of sale included a disclaimer stating that the purchaser was fully aware of and accepted the physical condition of the property, and was relying on its own inspection of the property and not on statements made by the seller or its representatives.

No Adverse Possession Without Hostility

Estate of Becker v. Murtagh

NYLJ 7/22/10, p. 38, col. 3 AppDiv, Second Dept. (memorandum opinion)

In an action for a declaration that possessors had acquired title to a boardwalk strip by adverse possession, and for a declaration that neighbors had acquired an easement over the strip, record owners appealed from Supreme Court's grant of summary judgment to possessors and neighbors. The Appellate Division reversed, holding that possessors had not established hostile or exclusive possession, and that the doctrine of “practical location” of boundaries was inapplicable.

Possessors and record owners lease adjacent beachfront land from the Town of Babylon pursuant to long-term leases. In 1965, possessor built a boardwalk and dock on a strip of land located near the boundary between the two parcels. The boardwalk was used by possessors, by record owners, and by two sets of neighbors who owned parcels landward of and adjacent to the two beachfront parcels. Record owners' predecessors also permitted these parties to use the beach on their parcel. In 1984, a survey demonstrated that part of the boardwalk and the entire dock were located on record owner's parcel. Nevertheless, record owners' predecessors took no steps to prevent use of the dock and boardwalk by the possessors or their neighbors. In 2004, record owners purchased their parcel, and sought to prevent use of the facilities and the beachfront by possessors and neighbors. Possessors and neighbors brought this action seeking a declaration that the disputed strip was owned by possessors, and that the neighbors held an easement over the strip. Supreme Court awarded summary judgment to possessors and neighbors. Record owners appealed.

In reversing, the Appellate Division started by noting that because record owners' predecessors used the strip throughout the adverse possession period, the possessors had not raised a triable issue of fact as to whether the ir possession was hostile or exclusive. Moreover, because there was no proof of a clear demarcation of a definite believed boundary line, the possessors could not rely on the doctrine of “practical location” of boundaries. The court then turned to the prescriptive easement claims by the neighbors, and concluded that their use was not hostile to the record owners at the time, but was permitted as a matter of neighborly accommodation. As a result, record owners were entitled to summary judgment.

Lender Adequately Pleaded Creation of Equitable Lien

Ryan v. Cover

NYLJ 7/9/10, p. 39, col. 5 AppDiv, Second Dept. (memorandum opinion)

In an action by lender to recover on a promissory note and to impose an equitable lien on real property, owner of the real property appealed from Supreme Court's denial of its motion to dismiss. The Appellate Division affirmed, holding that lender had adequately pleaded that the parties intended to create a lien on the property.

Lender lent money to borrower, and took back a promissory note that identified the subject real property. Lender alleged that borrower orally pledged the property as security for the note. Borrower defaulted, and lender brought this action to recover on the note, and to impose an equitable lien. Supreme Court denied borrower's motion to dismiss.

In affirming, the Appellate Division started by indicating that imposition of an equitable lien requires an express or implied contract expressing a clear intent to hold, give, or transfer real property as security for an obligation. Here, the court concluded that lender had adequately alleged such a contract precluding dismissal of the complaint.