Judges Opinions, — April 19, 2017 10:00 — 0 Comments

Rodger L. Geisel v. Michael Ott and Michelle Ott; No. 2016-00111

Civil Action-Law-Real Estate-Preliminary Objections-Breach of Contract-Agreement of Sale-Seller Disclosure Statement-Defects-Integration Clause-Fraudulent Misrepresentation-Parole Evidence-LeDonne Test-Violation of Unfair Trade Practices and Consumer Protection Law

Plaintiff, who purchased a residence from Defendants, brought actions against Defendants in Breach of Contract, Violation of Seller Disclosure, Fraudulent Misrepresentation and Violation of the Unfair Trade Practices and Consumer Protection Law (“UTPCPL”), 73 P.S. § 201-1 et seq., on the basis that Defendants failed to disclose several defects of the residence including active knob and tube electrical wiring in portions of the residence, water leaking into the basement during heavy rain fall and water accumulating in the bottom of the refrigerator. Defendants filed Preliminary Objections asserting that Plaintiff failed to plead valid causes of action.

1. Preliminary objections in the nature of a demurrer test the legal sufficiency of the complaint and should result in dismissal of a cause of action only in cases in which the law will not afford the plaintiff any recovery on the facts pleaded.

2. In order to sustain a claim for breach of contract, the plaintiff must establish the existence of a contract, including its essential terms, a breach of a duty imposed by the contract and resultant damages.

3. In interpreting the terms of a contract, the cardinal rule is to ascertain the intent of the contracting parties. If the contractual terms are clear and unambiguous on their face, the terms are deemed to be the best reflection of the intent of the parties. If the contractual terms are ambiguous, resorting to extrinsic evidence to ascertain their meaning is proper. A contractual term is ambiguous if it is subject to more than one (1) reasonable interpretation when applied to a particular set of facts.

4. Contracts often contain an integration clause, which is specific language establishing that the written agreement is the final and complete expression of the agreement between the parties. An integration clause ensures that the written contract, if unambiguous, is held to express all of the negotiations, conversations and agreements made prior to its execution and that no oral testimony or other writings are admissible to explain or to vary the terms of the written contract.

5. Plaintiff cannot sustain a cause of action for Breach of Contract based upon the alleged failure to disclose defects in the residence in the Seller’s Disclosure Agreement where Plaintiff in the Agreement of Sale waived the right to inspect the property and specifically released Defendants from any claims for defects of the property and the Agreement of Sale signed by the parties failed to incorporate the Seller’s Disclosure Agreement and contained an integration clause indicating that the Agreement of Sale was the complete agreement between the parties.

6. The elements of Fraud are a representation that is material to the transaction at hand that is made falsely or recklessly as to whether it is true or false with the intent of misleading another into relying upon it, justifiable reliance on the misrepresentation and resultant injury that proximately was caused by the reliance upon the misrepresentation.

7. In real estate transactions, fraud arises when the seller knowingly makes a misrepresentation, undertakes a concealment calculated to device or commits non-privileged failure to disclose.

8. The parole evidence rule functions to bar the introduction of evidence concerning alleged prior misrepresentations when a writing is adopted by the parties as the final and complete expression of their agreement.

9. While parole evidence is not admissible to vary the terms of an agreement, it may be admissible to show that no valid agreement came into being since fraud is alleged to have induced the agreement. However, a party cannot justifiably rely on prior representations yet sign an agreement denying the existence of those representations. In order to determine whether evidence of fraudulent misrepresentations is barred by the parole evidence rule, the Court must apply the LeDonne test set forth in LeDonne v. Kessler, 389 A.2d 1123 (Pa.Super. 1978), which requires a balancing between the extent of the parties’ knowledge of objectionable conditions derived from a reasonable inspection against the extent of the coverage of the contract’s integration clause in order to determine whether that party justifiably could rely upon oral representations without insisting upon further contractual protection or the deletion of an overly broad integration clause.

10. In light of the fact that Plaintiff averred in his Amended Complaint that the defects were evident immediately upon taking possession of the residence such that the defects would have been revealed by a reasonable inspection of the property had he taken advantage of his right to do so, Plaintiff cannot establish that he justifiably relied upon prior representations made by Defendants in the Seller Disclosure Statement in light of the extent of the Agreement’s integration clause and thus cannot sustain a cause of action for Fraudulent Misrepresentation.

11. The general purpose of the UTPCPL is to protect the public from fraud and unfair or deceptive business practices.

12. Since Plaintiff signed the Agreement of Sale despite the fact that the Seller Disclosure Statement was not made a part of it and specifically agreed in the Agreement of Sale that he was relying upon no prior representations with regard to the sale of the property, Plaintiff is unable to establish the existence of any misrepresentations with regard to the sale of the property so as to sustain a cause of action for a violation of the UTPCPL.

L.C.C.C.P. No. 2016-00111, Opinion by John C. Tylwalk, President Judge, January 6, 2017.

IN THE COURT OF COMMON PLEAS OF LEBANON COUNTY

PENNSYLVANIA

CIVIL DIVISION NO. 2016-00111

RODGER L. GEISEL

v.

MICHAEL OTT and MICHELLE OTT, Husband and Wife

ANDREW J. RACE, ESQUIRE FOR RODGER L. GEISEL

REILLY WOLFSON

TIMOTHY T. ENGLER, ESQUIRE FOR MICHAEL OTT

STEINER & SANDOE, LLC AND MICHELLE OTT

OPINION, TYLWALK, P.J., JANUARY 6 , 2017.

This matter involves Plaintiff’s purchase of a home located at 17 East High Street, Lebanon, from Defendants. The Agreement of Sale (“Agreement”) was executed on July 3, 2015. Simultaneous with the execution of Agreement, Plaintiff was provided with a Seller Disclosure Statement. The Agreement included the following language:

12. BUYER’S DUE DILIGENCE/INSPECTIONS

Home/Property Inspections and Environmental Hazards (mold, etc.)

Buyer may conduct an inspection of the Property’s structural components; …appliances,; electrical systems; … water penetration; … .

(Agreement, ¶ 12(c)) Next to this language, Plaintiff indicated that he waived this right with his initials dated July 3, 2015.

The Agreement further provided:

25. Representations

(A) All representations, claims, advertising, promotional activities, brochures or plans of any kind made by Seller, Brokers, their licensees, employees, officers or partners are not part of this Agreement unless expressly incorporated or stated in this Agreement. This agreement contains the whole agreement between Seller and Buyer and there are no other terms, obligations, covenants, representations, statements or conditions, oral or otherwise of any kind whatsoever concerning this sale. Furthermore, this Agreement will not be altered, amended, changed, or modified except in writing executed by the parties.

(B) Unless otherwise stated in this Agreement, Buyer has inspected the Property (including fixtures and any personal property specifically listed herein) before signing this Agreement or has waived the right to do so, and agrees to purchase the Property IN ITS PRESENT CONDITION, subject to inspection contingencies elected in this Agreement. Buyer acknowledges that Brokers, their licenses, employees, officers or partners have not made an independent examination or determination of the structural soundness of the Property, the age or condition of the components, environmental conditions, the permitted uses, nor of conditions existing in the locale where the property is situated; nor have they made a mechanical inspection of any of the systems contained therein.

(Agreement, ¶ 25(A)-(B)

Paragraph 28 provides:

28. RELEASE

Buyer releases, quit claims and forever discharges SELLER, ALL BROKERS, their LICENSEES, EMPLOYEES and any OFFICER or PARTNER of any of them and any other PERSON, FIRM or CORPORATION who may be liable by or through them, from any and all claims, losses or demands, including, but not limited to, personal injury and property damage and all of the consequences thereof, whether known or not, which may arise from the presence of termites or other wood-boring insects, radon, lead-based paints hazards, mold, fungi or indoor air quality, environmental hazards, any defects in the individual on-lot sewage disposal system or deficiencies in the on-site water service system, or any defects or conditions on the Property. Should Seller be in default under the terms of this Agreement or in violation of any Seller disclosure law or regulation, this release does not deprive Buyer of any right to pursue any remedies that may be available under law or equity. This release will survive settlement.”

(Agreement at ¶28) The Seller’s Disclosure Statement was not made a part of the Agreement. (See Agreement, ¶ 32)

Plaintiff alleges that after he moved into the home, he noticed several defects, including active knob and tube electrical wiring in portions of the home, water leaking into the basement during heavy rainfall, and water accumulating in the bottom of the refrigerator he bought with the home on a daily basis. None of these problems were disclosed in the Seller Disclosure Statement. Plaintiff alleges that he has already been required to undertake steps to remedy these problems and will also be required to take additional remedial measures in the future. In his Amended Complaint, Plaintiff sets forth causes of action in Breach of Contract, Violation of the Seller Disclosure, 68 Pa.C.S.A. §7304 et seq, Fraudulent Concealment, and Violation of the Unfair Trade Practices and Consumer Protection Law, 73 P.S. §201-1 et seq (“UTPCPL”). Defendants have filed Preliminary Objections asserting that Plaintiff has failed to plead valid claims for Breach of Contract, Fraudulent Concealment, and under the UTPCPL.

Preliminary Objections in the nature of a demurrer test the legal sufficiency of the complaint and should result in the dismissal of a cause of action only in cases where the law will not afford the plaintiff any recovery on the pleaded facts. National recovery Systems v. Frebraro, 430 A.2d 686 (Pa. Super. 1981). The court must view all evidence in the light most favorable to the non-moving party and against the moving party. Ambrose v. Cross Creek Condominium, 602 A.2d 864 (Pa. Super. 1992).

Breach of Contract

Plaintiff alleges that Defendants failed to disclose problems with water leakage in the basement, knob and tube electrical wiring, and the refrigerator in the Seller Disclosure Statement. He alleges that Defendant had knowledge of these defects because Plaintiff noticed water marks on the basement floor, had concealed the knob and tube wiring while leaving regular wiring revealed, and that water accumulation in the refrigerator was evident from the time he took possession. In Count 1, Plaintiff alleges that he relied on the representations contained in the Disclosure Statement when he entered the Agreement. Plaintiff contends that Defendants are in breach of Agreement for failing to disclose the defects. He sets forth his cause of action for Breach of Contract, with reference to Paragraph 28 of the Agreement and the Seller Disclosure Law.

In their Preliminary Objections, Defendants argue that Plaintiff has failed to state a claim for breach of contract by virtue of the integration clause and release in the Agreement. Plaintiff counters that these clauses do not preclude his cause of action for breach of contract, arguing that Paragraph 28 of the Agreement still imposes a duty of disclosure upon Defendants and also specifically preserved causes of action for breaches of this duty.

In order to sustain a claim for breach of contract, a plaintiff must establish (1) the existence of a contract, including its essential terms, (2) a breach of a duty imposed by the contract, and (3) resultant damages. Sullivan v. Chartwell Investment Partners, L.P., 873 A.2d 710 (Pa. Super. 2005).

In interpreting the terms of a contract, the cardinal rule followed by courts is to ascertain the intent of the contracting parties. If the contractual terms are clear and unambiguous on their face, then such terms are deemed to be the best reflection of the intent of the parties. If, however, the contractual terms are ambiguous, then resort to extrinsic evidence to ascertain their meaning is proper. A contract’s terms are considered ambiguous if they are subject to more than one reasonable interpretation when applied to a particular set of facts.

Commonwealth ex rel. Kane v UPMC, 129 A.3d 441 (Pa. 2015) (internal citations omitted) The entire contract should be read as a whole to give effect to its true purpose. Id. A contract must be interpreted to give effect to all of its provisions. Id.

The parole evidence rule functions to bar the introduction of evidence concerning alleged prior misrepresentations when a writing is adopted by the parties as the final and complete expression of their agreement. Rock v. Voshell, 397 F.Supp.2d 616 (E.D. Pa. 2005), citing Blumenstock v. Gibson, 811 A.2d 1029, 1037 (Pa. Super. 2002). Contracts often contain an integration clause, which is specific language establishing that the written agreement is the final and complete expression of the agreement; it ensures that the written contract, if unambiguous, is held to express all of the negotiations, conversations, and agreements made prior to its execution, and neither oral testimony, nor prior written agreements, or other writings, are admissible to explain or vary the terms of the contract. Rock v. Voshell, 397 F.Supp.2d 616 (E.D. Pa. 2005), citing Paxson v. Asensio, 2003 WL 2107684 (E.D. Pa. 2003).

We believe this case is similar to the situation in Rogers v. Wilson, 2008 WL 8200763 (C.C.P. Lancaster Cnty. 2008). In that case, the buyer of residential property sued the seller for breach of contract, negligence, negligent misrepresentation, fraud and violation of the UTPCPL for failure to disclose the existence of a water infiltration problem and elevated bacteria levels in the property’s well water. Although the buyer did inspect the property and the seller did include some related deficiencies in the disclosure statement, as in this case, the sales agreement did not incorporate the disclosure statement and included an integration and “as is” clause. In granting summary judgment on the breach of contract claim, the Court explained:

At Count I of the complaint, Plaintiff Buyers allege that pursuant to the “first introductory paragraph of the Disclosure Statement, Defendants … had a contractual duty to disclose to Plaintiffs … all known material defects about the Property that are not readily observable.” … Plaintiffs further allege that Defendants “breached the Disclosure Statement by failing to disclose the existing water infiltration problem with the Property.”

Initially, we note that the Disclosure Statement is not a contract between the parties which can be breached. Rather, the court must look to the Agreement of Sale which is a fully integrated document which the Disclosure Statement was not made part thereof. In the Agreement of Sale, the parties explicitly agreed that Plaintiffs were purchasing the property based upon their own inspection of the property and not in reliance upon any representation, oral or written, made by Defendants. Further, Plaintiffs explicitly released, quit claimed and discharged Defendants from “any and all claims, losses or demands … whether now known or not, which may arise from … any defects or conditions on the Property.

Plaintiff Buyers’ claim of breach of contract is void of merit, and Defendant Sellers are entitled to judgment as a matter of law.

 

Id. at p. 3.

We believe the same reasoning is applicable here. Plaintiff waived his right to inspect the property, specifically with regard to appliances, the electrical system, and water penetration in Paragraph 12(c), and elected to purchase the property “in its present condition” in Paragraph 25(b). In addition, in Paragraph 28, Plaintiff specifically released Defendants from any claims for defects or conditions of the property.

While it is true that the last two sentences of paragraph 28 preserve causes of action for Plaintiff, including some for breaches of the agreement, we do not believe that a claim for breach of contract for failing to disclose defects in the property is one of them. The Agreement contained an integration clause and did not incorporate the Seller’s Disclosure Statement. Paragraph 28 preserves only those claims for which seller is in default “under the terms of this Agreement.” Since the Disclosure Statement was not made a part of the Agreement, Defendants cannot be in breach for failing to make such disclosures. Any misrepresentations alleged to be contained in the Disclosure Statement cannot be the basis for a cause of action in breach of contract. Thus, we will sustain Defendants’ Preliminary Objection as to Plaintiff’s breach of contract claim in Count 1.

Fraudulent Concealment

Defendants also object that Plaintiff has failed to state a cause of action for fraudulent concealment. The elements of fraud are (1) a representation (2) which is material to the transaction at hand (3) made falsely, with knowledge of its falsity or recklessness as to whether it is true or false (4) with the intent of misleading another into relying on it (5) justifiable reliance on the misrepresentation, and (6) the resulting injury was proximately caused by the reliance. Gibbs v. Ernst, 647 A.2d 882, 889 (Pa. 1994). Fraud must be pled with particularity. Youndt v. First National Bank of Port Allegheny, 868 A.2d 539, 545 (Pa. Super. 2005).

In real estate transactions, fraud arises when a seller knowingly makes a misrepresentation, undertakes a concealment calculated to deceive, or commits non-privileged failure to disclose. Fraud is a generic term used to describe anything calculated to deceive, whether by single act or combination, or by suppression of truth, or suggestion of what is false, whether it be by direct falsehood or by innuendo, by speech or silence, word of mouth, or look or gesture.

Blumenstock v. Dibson, 811 A.2d 1029, 1034 (Pa. Super. 2002).

In Paragraph 41 of the Amended Complaint, Plaintiff alleges that Defendants knew of the water leakage, defective refrigerator, and the existence of the active knob and tube wiring, but failed to include these items on the Disclosure Statement. He points to Paragraph 28 in support of the viability of this claim. Defendants again point to the Agreement’s integration and “as is” clauses as barring this cause of action.

In addressing a similar claim, the Court in Rogers noted:

Plaintiff Buyers allege that they were fraudulently induced to enter the Agreement of Sale by Defendant Sellers’ failure to disclose the alleged water infiltration problem. Defendant Sellers respond that the parole evidence rule acts as a bar to Plaintiff Buyers’ claim. The admissibility of parol evidence is at issue in this case because the signed Agreement of Sale contained integration and release provisions stating that the written Agreement comprised the entire agreement between the parties and that there were no other terms or conditions, oral or otherwise, pertaining to the sale of the property. The purpose of the parol evidence rule is to preserve the integrity of written agreements by prohibiting the contracting parties from altering the import of their contract through the use of contemporaneous or prior oral declarations. LeDonne v. Kessler, 255 Pa. Super. 286, 286, 389 A.2d 1123, 1126 (1978)

.

Pennsylvania case law, however, makes a distinction between barring parol evidence to vary the terms of the agreement and admitting parol evidence to prove fraud in the inducement. Blumenstock v. Gibson, 811 A.2d. 1029, 1036 (Pa. Super. 2002) (citing 1726 Cherry St. Partnership v. Bell Atlantic Properties, 439 Pa. Super. 141, 150 n. 2, 653 A.2d 663, 668 n. 2 (1995)).

In the latter case, the theory holds that since fraud induced the agreement no valid agreement came into being and parol evidence is admissible to show that the alleged agreement is void. Id. Nevertheless, the case law clearly holds that a party cannot justifiably rely upon prior representations yet sign a contract denying the existence of those representations. Id. at 669. An exception to this general formulation of the impact of the parol evidence rule has been created for “real estate inspection” cases. See LeDonne v. Kessler, 256 Pa. Super. 280, 389 A.2d 1123 (1978), and its progeny. Id. This exception, commonly referred to as the LeDonne test, requires a balancing between “the extent of the parties’ knowledge of objectionable conditions derived from a reasonable inspection against the extent of the coverage of the contract’s integration clause in order to determine whether that party could justifiably rely upon oral representations without insisting upon further contractual protection or the deletion of an overly broad integration clause.” LeDonne, 256 Pa. Super. at 294, 389 A.2d at 1130.

Application of the balancing test to the facts presently before the court leads to the conclusion that evidence of the fraudulent misrepresentations is barred by the parol evidence rule. Here, Defendant Sellers disclosed on the Disclosure Statement that they were aware of “water leakage, accumulation, or dampness within the basement or crawl space.” Again on the Disclosure Statement, Defendant Sellers disclosed dampness which was found in the basement of the Property on August 25, 2004. More importantly, Plaintiff Buyers’ own professional home inspector noted in the Building Analysis Report that there was “[e]vidence of past dampness” in the basement. The inspector made several recommendations to help prevent further infiltration, including, reinstallation of part of the gutter/downspout system, elimination of the underground leaders, and re-grading the Property because of water being trapped on the Property. Based on the foregoing, it is impossible to conclude anything other than that the water infiltration was not only ascertainable by reasonable inspection but, in fact, was known by Plaintiff Buyers at least one month prior to Settlement. Yet Plaintiff Buyers refused to insist upon contractual protection, instead expressly waiving all right to rely upon outside representations or to remediation of the conditions to which they were alerted.

 

Moreover, the integration clause in the Agreement of Sale provides in pertinent part that: (1) the agreement contains the whole agreement between the parties; (2) the Plaintiff Buyers inspected the Property and agreed to purchase the Property and agreed to purchase it as a result of said inspection and not in reliance upon any representation made by the Defendant Sellers; and (3) the Plaintiff Buyers agreed to purchase the Property in its present condition unless otherwise specified in the Agreement. This contractual integration clause covers those conditions reasonably apparent from an inspection of the premises. Given Plaintiff Buyers’ knowledge of the water infiltration problem both from the Disclosure Statement and from the property inspection report, and the integration clause, this court must conclude that the integration clause bars evidence of the alleged fraudulent misrepresentations.

2008 WL 8200763 at p. 5.

 

As in Rogers, the integration clause here provides that it is the parties’ entire agreement. Plaintiff specifically waived his right of inspection, agreed to purchase the property in its present condition, and agreed that there were no other representations concerning the sale. Although in Rogers, the sellers disclosed the conditions of which the buyer complained, the LeDonne test focuses on the parties’ knowledge of objectionable conditions derived from a reasonable inspection against the extent of coverage of the integration clause.

Here, the integration clause was comprehensive such that it would cover the conditions complained of by Plaintiff. Plaintiff alleges that there was no disclosure and that he had no knowledge of any of the defects at issue. However, in the Amended Complaint, Plaintiff alleges that the water leakage in the basement was evident due to the presence of water rings on the concrete basement floor: “… when Plaintiff took possession of the Property, there existed water marks on the concrete floor of the basement, evidencing previous water infiltration.” (Amended Complaint, ¶ 31) Plaintiff also acknowledges that the problem with the refrigerator was evident immediately upon his taking possession. With regard to the knob and tube wiring, Plaintiff alleges, in part:

 

32. Regarding the knob and tube wiring, Defendants exposed portions of the basement ceiling that used regular wiring and had disconnected knob and tube wiring while keeping concealed the portion powered by active knob and tube wiring.

 

34. It is averred that knob and tube wiring is or was attached to the main breaker panel which is open and obvious, requiring no investigation whatsoever to be aware that portions of the Property are powered by knob and tube wiring.

 

(Amended Complaint, ¶¶ 32, 34).

 

In these allegations, Plaintiff acknowledges that these defects would have been revealed by a reasonable inspection of the property, had he taken advantage of his right to do so. Thus, he cannot justifiably rely on any prior representations made by Defendants in the Disclosure Statement. After our application of the LeDonne balancing test, we believe that Plaintiff has failed to plead a claim for Fraudulent Misrepresentation with regard to the defects given his acknowledgement of the open and obvious nature of the defects and in consideration of the extent of coverage of the integration clause. Thus, we will sustain this Preliminary Objection to Plaintiff’s cause of action in Fraudulent Misrepresentation in Count 3.

 

Violation of UTPCPL

Defendants next object that Plaintiff has failed to state a claim under the provisions of the UTPCPL. The Rogers case also addressed a similar claim:

 

The general purpose of the UTPCPL is to protect the public from fraud and unfair or deceptive business practices.” Neal v. Bavarian Motors, Inc., 882 A.2d 1022, 1029 (Pa. Super. 2005). “The UTPCPL’s ‘underlying foundation is fraud prevention.’ ” Weinberg v. Sun Co., Inc., 565 Pa. 612, 618, 777 A.2d 442, 446 (2001). In this case, Defendant Sellers did not misrepresent the condition of the Property. Defendant Sellers disclosed the existence of past water infiltration into the basement in the Disclosure Statement. Even assuming, arguendo, that Defendant Sellers did misrepresent the condition of the Property, Plaintiff Buyers did not rely upon Defendant Sellers’ representations, as Plaintiff Buyers went so far as to acknowledge this in the Agreement of Sale. Furthermore, Plaintiff Buyers’ subsequent actions in obtaining their own professional inspection further support Plaintiff Buyers’ intentional decision to not include the Disclosure Statement in the fully integrated Agreement of Sale. Without reference to the Disclosure Statement in this case, there can be no violation of the UTPCPL.

2008 WL 8200763 at p. 6.

The same is true here. Plaintiff signed the Agreement knowing that the Disclosure Statement was not made a part of it. In the Agreement, Plaintiff specifically agreed that he was relying on no prior representations with regard to these conditions. Without reference to the Disclosure Statement, Plaintiff will be unable to establish the existence of any misrepresentations with regard to these items. Thus, we will also sustain this Preliminary Objection.

1) Counts 1 through 4, respectively.

2) In the Amended Complaint, Plaintiff incorporates the Disclosure Statement by reference.

 

About the author

Ben has written 980 articles for Lebanon County Legal Journal

Search