Case Law Summaries

D’Ottavi v. Carrafa

• Opinion Date: November 29, 2001
• Real Property Law
• E-Mail

CONTRACTS; FRAUD—A remote seller’s misrepresentation, even by silence, can give rise to a claim from an ultimate buyer, not in privity, if it was foreseeable that the remote buyer would have a reason to rely on the statement, and such a buyer did reasonably rely on the statement.

A developer of a large subdivision created a homeowners association and as the project drew to a close, it offered to convey a single undeveloped lot to the association for a nominal amount. The lot had been designated as a site for a community center. The developer told the association that he knew of a potential buyer, actually a landowner bordering the lot, who would pay fair market value for the lot and build a house on it. The association accepted the offer, paid a nominal amount, and the same day conveyed the lot to the neighbor. The neighbor applied for, and was granted, a subdivision allowing a single family home to be built on the lot. Before the neighbor could build on the lot, he was involved in a divorce and, shortly following his divorce, sold the lot to a third party. When the third party began construction, it was discovered that a great deal of unexpected work was required because the lot had been filled with debris from an old farm structure, likely a barn. The parties alleged that the original developer had told the association that the lot was “buildable,” even though the developer had knowingly buried a barn beneath the surface. After hearing a great deal of testimony about the possibility that a barn was buried by the developer within that particular lot, the lower court concluded that the developer had, in fact, done the demolition and burial, despite the developer’s expressed denials. Further, even thought the lower court did not reach a conclusion that the developer had actually told anyone that the lot was buildable, it did find that the developer had the duty to disclose the buried barn and that “[s]ilence in the face of a duty to disclose, may be a fraudulent concealment.” “A cause of action for fraud has four elements: (1) defendant made a material representation of a presently existing or past fact; (2) defendant knew or believed that the statement was false; (3) defendant intended that the other person rely on the statement; and (4) the other party relied on the statement to their detriment.” Here, the ultimate lot owner urged the theory of “indirect reliance.” This was necessary because it never had any contact with the original developer. Under New Jersey law, “[r]eliance by a plaintiff can be either direct or indirect.” According to the Appellate Division, the developer’s “silence spoke louder than words because, even more than in the case of his affirmative misrepresentation, his silence was insidiously capable of being ‘heard’ and relied upon by subsequent innocent purchasers.” A recent New Jersey Supreme Court decision held that “[i]ndirect reliance allows a plaintiff to prove a fraud action when he or she heard a statement not from the party that defrauded him or her but from that party’s agent or from someone to whom the party communicated the false statement with the intention that the victim hear it, rely on it, and act to his or her detriment.” This view is supported by the Restatement (Second) of Torts. The Appellate Division was careful to point out that it was not “resurrecting the theory of ‘fraud on the market’ ... espoused by” a prior decision that was ultimately rejected by the New Jersey Supreme Court. While the developer’s silence did not affect the price of the lot, “it did affect [] an unsuspecting buyer’s reasonable expectation about the use of the land derived from the information (or lack of it) about the lot on which buyers in the foreseeable succession of buyers had a right to rely and upon which, it was reasonable to find [the buyers] did rely.”

Copyright ©2003. Meislik & Meislik. All rights reserved.