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Kargol v. Somlenyak

SOM-L-1754-02 (N.J. Super. Law Div. 2003) (Unpublished)

CONTRACTS; FRAUD—Just because a buyer makes its own property inspection doesn’t mean that its seller hasn’t acted fraudulently when it knew of a defect neither discovered by the buyer’s inspector nor readily visible to that inspector and failed to disclose the defect.

Property owners sued their seller for fraud for concealing a defective sewer system. They claimed that the prior owners knew that the system was malfunctioning and had added an illegal overflow pipe to conceal the extent of the damage. In order to prove fraud, one must show: (1) a material misrepresentation of a past or present fact; (2) knowledge or belief by the defendant that it is false; (3) an intention that another person rely on it; (4) reasonable reliance by the other person; and (5) resulting damage. Essentially, the current owners claimed that the prior owners knew the septic system was defective and did cosmetic repairs to make it appear that it was fully functional while knowing that the system required replacement. The prior owners, in moving for summary judgment, argued that the new owners could not claim detrimental reliance because they had the septic system inspected and re-inspected prior to closing of title. As a general rule, a person who undertakes his own investigation is deemed to have relied on his own investigation and not the representation of another. The current owners argued that the rule did not apply because the prior owners withheld information that they knew was inconsistent with their report. They claimed that the prior owners knew that the damage was more extensive than was readily visible to the inspector and intended for the owners to rely on an incomplete report while knowing of its falsity. The lower court agreed, finding that the issue of whether or not the prior owners misrepresented the condition of the septic system was one to be decided by a jury.

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