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Mango v. Pierce-Coombs

370 N.J. Super. 239, 851 A.2d 62 (App. Div. 2004)

HOME INSPECTORS—A septic tank inspection service can’t limit its certification to the day of inspection because the customer clearly expects to receive an opinion as to how the system will operate in the future.

An agreement of sale for a previously owned and occupied home called for a septic system certification. At the buyer’s request, the real estate agent arranged for the inspection. A cesspool service company uncovered the septic tank and pumped it down to see if water flowed back from the septic field’s bed. No water came back and the cesspool company did not dig up the distribution boxes or the field beds. After successfully flushing a toilet in the house, the company concluded that the system was flowing suitably and its certification was issued, but only as of the date of inspection. After closing, the septic system malfunctioned. The cesspool company returned to the property and re-pumped the tank, but this proved to be only a temporary solution. The new owner then hired a contractor who concluded that a new field bed was needed and the owner hired yet another contractor to do the work.

As the work was being done, the local health department inspected the system and then ordered a system redesign. The redesign was done and the owner changed contractors once again. The project was finally completed, whereupon the owner hired an expert to review the original inspecting company’s work. The expert engineer criticized the original inspection as inadequate. It further opined that the inspector’s certification lacked details as to what was tested or observed, or how the inspector concluded that the system was functional. The report concluded that the system was in a state of failure at the time of its original inspection. Based on the report, the owner sued the original inspection company for consumer fraud and common law fraud and sued the real estate agent for consumer fraud because it had recommended the original inspector.

The lower court granted summary judgment against the owner, dismissing her complaint. As to the consumer fraud and common law fraud claims against the cesspool inspection company, it focused on the literal wording of the certification, which limited its effect to the day of the inspection. According to the lower court, to prove consumer fraud under the Consumer Fraud Act, the owner needed to show an affirmative misrepresentation by the original inspection company, or show that it had made a statement of fact found to be false, and that either action induced the owner to buy the property. Here, the lower court found no evidence that the company’s certification that the system worked on the day of inspection was false.

The Appellate Division disagreed, holding that the contractual provision limiting the certification to the day of inspection was “unconscionable.” According to the Court, the limitation obliterated the underlying purpose for which the company was hired: to provide guidance to the prospective purchaser as to the suitability and condition of the septic system after closing. What the buyer needed was a reliable evaluation as to whether the septic system would work in the reasonably foreseeable future. When the Court “eliminated” the time limitation in the certification as unconscionable and unenforceable, the certification then could be read to say that the septic system would be suitable for the reasonably foreseeable future. Given that the owner had made a prima facie showing that the septic system was not in good working order even a little after the certification was issued, the Court held that the cesspool company’s certification was false. For that reason, the Court overturned the lower court’s dismissal of the owner’s claim against the original cesspool inspection company and remanded the claim.

The owner also alleged that the real estate agent had committed consumer fraud by recommending the cesspool company. Here theory was that the two had an arrangement in which the cesspool company would conduct inadequate tests of the septic systems and still offer certifications. Under the Consumer Fraud Act, a seller’s broker may be liable for non-disclosure of a defective condition if the condition was known to the broker, but not readily observable to the buyer. To prove consumer fraud, one must show that the broker intentionally concealed a material defect with the intention that its client would rely on the concealment. The lower court rejected the owner’s contention, finding insufficient evidence to support the claims. The Appellate Division agreed. The lower court also noted that the buyer had the right to choose the septic system inspector. Here, she simply deferred to her realtor. Even though the cesspool inspection company conducted several inspections and certifications each month for the broker, this fact, standing alone, did not prove a fraudulent relationship.

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