Fraudulent Concealment and the Caveat Emptor Doctrine

• Posted on: Jul 10 2023

By: Jeffrey M. Haber

On October 8, 1971, ABC aired an episode of The Brady Bunch, titled “The Wheeler-Dealer”. In the episode, Greg gets his driver’s license and wants to buy a car of his own. He gets snookered by a friend into buying a lemon for $100.

When Greg complains to Mike about how he was conned into the deal, Mike expresses little sympathy and instead gives Greg a lesson on salesmen and the caveat emptor doctrine.

The common law doctrine of caveat emptor is a well-accepted rule of law in New York. Under the doctrine, the courts will not impose liability on a seller of property for failing to disclose information material to the transaction when the parties deal at arm’s length, unless there is some conduct on the part of the seller which constitutes active concealment.[1] “If, however, some conduct (i.e., more than mere silence) on the part of the seller rises to the level of active concealment, a seller may have a duty to disclose information concerning the property.”[2]

“To maintain a cause of action to recover damages for active concealment, the plaintiff must show, in effect, that the seller or the seller’s agents thwarted the plaintiff’s efforts to fulfill his [or her] responsibilities fixed by the doctrine of caveat emptor.”[3] “Where the facts represented are not matters peculiarly within the party’s knowledge, and the other party has the means available to him or her of knowing, by the exercise or ordinary intelligence, the truth or the real quality of the subject of the representation, he or she must make use of those means, or he or she will not be heard to complain that he or she was induced to enter into the transaction by misrepresentations.”[4]

Today we examine Striplin v. AC&E Home Inspection Corp., 2023 N.Y. Slip Op. 03720 (2d Dept. July 5, 2023) (here). Striplin arose from the purchase of real property. Among other things, defendants claimed that plaintiffs purchased the premises “as is” and failed to investigate the condition of the premises at or about the time of purchase. They claimed, inter alia, that under the doctrine of caveat emptor plaintiffs’ fraudulent concealment claim should be dismissed. As discussed below, the Appellate Division, Second Department disagreed and reversed the dismissal of plaintiffs’ fraudulent concealment claim.

In 2012, plaintiffs purchased a home from defendants. Prior to signing the contract of sale, plaintiffs had the home inspected by AC&E Home Inspection Corp. (“AC&E”). Thereafter, on July 13, 2012, plaintiffs and defendants entered into a contract of sale (the “Contract”). The closing was held on September 21, 2012.

In 2015, plaintiffs allegedly became aware of the damage to the home when they listed the property for sale and the proposed buyer “expressed misgivings” as a result of the damage. Plaintiffs claimed that the Acrylic Stucco Overframe or Exterior Insulation and Finish System known as “EIFS” on the home was damaged and allowed for water infiltration. Plaintiffs claimed that defendants had concealed the damage from them by making cosmetic repairs, such as placing new wood on top of rotten wood, in an effort to hide the water damage which the property had suffered.

Plaintiff sued, alleging among other things, fraudulent inducement/fraudulent concealment. Defendants moved to dismiss the fraud cause of action; they also moved for summary judgment as to the same cause of action. The motion court granted the motion to dismiss.

The motion court found that even if plaintiffs’ argument were true that the water damage was peculiarly within defendants’ knowledge and concealed by them, they, nonetheless, had the means available to them of knowing by the exercise of ordinary intelligence the condition of the property. In this regard, the motion court noted that plaintiffs utilized those means by having a home inspection performed by AC&E. Notably, the motion court held that plaintiffs failed to allege that defendants thwarted their efforts to discover the condition of the property prior to signing the Contract.

On appeal, the Second Department reversed to deny the motion.

The Court held that “the amended complaint sufficiently state[d] a cause of action to recover damages for fraud on the theory that … defendants actively concealed extensive water damage to the property.”[5] The Court found that the “amended complaint, as amplified by an affidavit of one of the plaintiffs …, allege[d], among other things, that … defendants took measures to actively conceal the existence of leaks and water damage to the property, including placing new wood on top of rotten wood to hide the extent of the damage.”[6] Thus, if true, said the Court, plaintiffs demonstrated that defendants “might have thwarted the plaintiffs’ efforts to fulfill their responsibilities imposed by the doctrine of caveat emptor with respect to the property.”[7]

[Eds. Note: This Blog examined the caveat emptor doctrine and fraudulent concealment, here.]

Takeaway

Under the doctrine of caveat emptor, the purchaser of real property has a duty to inspect the property and satisfy himself/herself as to the bona fides the transaction. The courts in New York will not hesitate to dismiss a fraud claim by a purchaser of real property where a defective condition exists and was reasonably discovered through an inspection or another form of due diligence. Since the seller has no duty to disclose the pre-existing condition, the seller will be liable only when he/she thwarts or prevents the purchaser from discovering the condition through the exercise of due diligence.

As shown in Striplin, the caveat emptor doctrine will not apply where a purchaser can show that the seller engaged in acts that constituted active concealment of the condition that were intended to thwart the purchaser’s ability to fulfill his responsibility to inspect the property and prevent the discovery of the defective condition.

______________________________

Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

[1] Simone v. Homecheck Real Estate Servs., Inc., 42 A.D.3d 518, 520 (2d Dept. 2007); Razdolskaya v. Lyubarsky, 160 A.D.3d 994, 996 (2d Dept. 2018); Radushinsky v. Itskovich, 127 A.D.3d 838, 839 (2d Dept. 2015).

[2] Hecker v. Paschke, 133 A.D.3d 713, 716 (2d Dept. 2015) (internal quotation marks omitted); see also Daly v. Kochanowicz, 67 A.D.3d 78, 92 (2d Dept. 2009).

[3] Jablonski v. Rapalje, 14 A.D.3d 484, 485 (2d Dept. 2005); Razdolskaya, 160 A.D.3d at 996.

[4]  Rojas v. Paine, 101 A.D.3d 843, 845 (2d Dept. 2012).

[5] Slip Op. at *2.

[6] Id. (citation omitted).

[7] Id. (citations omitted).