Weintraub v. Krobatsch

Supreme Court of New Jersey · 1974 · Contracts

Contractsfraudulent concealmentnondisclosurerescissionsale of real propertyfraudulent concealmentnondisclosurelatent defect

Facts

The seller agreed to sell her six-year-old home to the purchasers, and the contract stated that the purchasers had inspected the property, were satisfied with its physical condition, and that the seller made no representations and assumed no responsibility for the property's condition. Before closing, the purchasers entered the unoccupied house at night, turned on the lights, and allegedly saw roaches running throughout the house; an exterminator later reported that cockroaches had infested the entire house and that carpeting would have to be removed to treat all infested areas. The purchasers rescinded, asserting that the infestation rendered the house unfit for habitation. They alleged that the seller knew of the infestation and concealed or failed to disclose it, while the seller denied any duty to speak and asserted lack of knowledge.

Issue

Whether purchasers of residential real property are entitled to rescind based on the seller's alleged deliberate concealment or nondisclosure of a latent roach infestation known to the seller and not observable by the purchasers, notwithstanding contractual clauses stating that the purchasers accepted the property's condition and that no representations were made. Also, whether summary judgment for the seller and broker was proper on this record.

Rule

On summary judgment, the court must accept the nonmovants' factual allegations and favorable inferences. In the sale of residential real property, silence may be fraudulent where the seller deliberately conceals or fails to disclose a latent condition that is known to the seller, not observable by the buyer on inspection, and sufficiently material that justice, equity, and fair dealing require disclosure; if such concealment or nondisclosure is proved and is significant enough, equitable rescission may be granted. Clauses stating that the buyer inspected the property, accepted it in its present condition, or that no representations were made do not bar a rescission claim grounded on fraudulent concealment or nondisclosure.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

Maya and Luis Ortega agreed to buy a townhouse in Newark from Helen Draper. The contract stated that the buyers had inspected the property, accepted it in its present condition, and were not relying on any representations. After signing but before closing, they learned from a contractor that the basement had repeatedly flooded during heavy rains because water entered through concealed foundation seams, a condition Helen had experienced several times and never mentioned.

If Maya and Luis seek equitable rescission based on the seller's silence, which is the best analysis?

Explanation. The majority recognized that in the sale of residential real property, silence may be fraudulent when a seller deliberately conceals or fails to disclose a latent condition known to the seller and not observable by the buyer, if the condition is materially significant enough that justice, equity, and fair dealing require disclosure. It also rejected the idea that inspection, no-representation, or present-condition clauses automatically defeat such a rescission claim. Thus the buyers may pursue rescission if they can prove those elements.