Contract Disclaimer Clause and Misrepresentation Claims in Real Estate Sales: A Case Study, Lecture notes of Law

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In the event of discrepancies between the electronic version of an opinion and the print version appearing in the Connecticut Law Journal and subsequently in the Con- necticut Reports or Connecticut Appellate Reports, the latest print version is to be considered authoritative. The syllabus and procedural history accompanying the opinion as it appears on the Commission on Official Legal Publications Electronic Bulletin Board Service and in the Connecticut Law Journal and bound volumes of official reports are copyrighted by the Secretary of the State, State of Connecticut, and may not be repro- duced and distributed without the express written per- mission of the Commission on Official Legal Publications, Judicial Branch, State of Connecticut. ****************************************************** ANDREA MARTINEZ ET AL. v. AMEDEO D. ZOVICH ET AL. (AC 25166) Foti, McLachlan and Hennessy, Js. Argued December 1, 2004—officially released March 8, 2005 (Appeal from Superior Court, judicial district of New Britain, R. Robinson, J.) Jacek I. Smigelski, for the appellants (plaintiffs). James V. Somers, with whom were Carl R. Ficks, Jr., and, on the brief, Jeffrey F. Gostyla, for the appellee (named defendant). Opinion FOTI, J. The plaintiffs, Andrea Martinez and Made- lyne Martinez-Ramos, appeal from the summary judg- ment rendered by the trial court in favor of the defendant Amedeo D. Zovich.1 On appeal, the plaintiffs claim that the court improperly concluded that the defendant was entitled to judgment as a matter of law on the basis of a disclaimer clause in a contract for the sale of certain real property because they ‘‘asserted claims in tort on the theory of fraudulent or intentional misrepresentation or fraudulent or intentional omission of material facts.’’ We agree and reverse the judgment granted the defendant’s motion for summary judgment. We agree with the plaintiffs. The factual situations in Gibson and Holly Hill Hold- ings are inapposite to the facts of the present case. In Gibson v. Capano, supra, 241 Conn. 726, the defendants owned a house in Norwalk. During the time that the defendants owned the house, John Capano performed extensive remodeling and redecorating in the house. Id. In December, 1986, the plaintiffs entered into a binder agreement with the defendants for the purchase of the house. Id., 727. Under the terms of the binder agreement, the sale of the house was conditioned on satisfactory building and termite inspections. Id. Fol- lowing the inspections, the plaintiffs learned that the house had previously been treated for termites. Id. Thereafter, the plaintiffs asked the defendants ‘‘about the nature and extent of the earlier termite treatment and whether the chemical chlordane had been used to treat the premises for termites.’’ Id. Capano informed the plaintiffs that he only observed termite damage in one area of the house and that chlordane was not used to eradicate the termites. Id. Subsequently, the parties entered into a contract for the purchase of the house. Id. The contract provided in relevant part: ‘‘The Buyer further agrees that he has examined the premises and that he is fully satisfied with the physical condition thereof and that neither the Seller, nor any representative of the Seller has made any representation upon which the Buyer relies with respect to the condition of the property covered by this agreement, except as hereinbefore expressly set forth.’’ (Internal quotation marks omitted.) Id. The contract also provided that it constituted the entire agreement between the parties and that ‘‘no oral statements or promises and no understanding not embodied in this Contract shall be of effect.’’ (Internal quotation marks omitted.) Id., 728. Following the purchase of the house, the plaintiffs discovered, contrary to Capano’s representations, that there had been extensive termite damage and that chlor- dane had been used to eradicate the termites. Id. There- after, the plaintiffs brought suit, alleging fraudulent and innocent misrepresentation. Id. Following a trial, the jury found for the plaintiffs on their claim of innocent misrepresentation. Id. On appeal, our Supreme Court noted that its resolu- tion of the appeal was guided by ‘‘the general principles governing the construction of contracts.’’ Id., 730. The court stated: ‘‘It is established well beyond the need for citation that parties are free to contract for whatever terms on which they may agree. This freedom includes the right to contract for the assumption of known or unknown hazards and risks that may arise as a conse- quence of the execution of the contract. Accordingly, in private disputes, a court must enforce the contract as drafted by the parties and may not relieve a contracting party from anticipated or actual difficulties undertaken pursuant to the contract, unless the contract is voidable on grounds such as mistake, fraud or unconscionabil- ity. . . . ‘‘Parties are free to bargain for disclaimer clauses in a contract for the sale of real property. . . . We have held that [j]ust as the parties to a contract for the sale of goods are free to disclaim warranties; see General Statutes § 42a-2-316; the parties to a contract for the sale of real property are free to disclaim responsibility for known environmental risks. Indeed, the agreed upon contract price for the property typically reflects an allo- cation of the known risks that attend the ownership of property. . . . In addition, in the absence of a claim of mistake, fraud or unconscionability, a clause dis- claiming reliance by the buyer on the seller’s representa- tions is a valid contract term.’’ (Citations omitted; emphasis added; internal quotation marks omitted.) Id., 730–31. The court, on the basis of the ‘‘clear and unambiguous disclaimer of warranties in the contract,’’ held that the plaintiffs’ breach of warranty claim was precluded. Id., 732. The court rejected the plaintiffs’ reliance on War- man v. Delaney, 148 Conn. 469, 172 A.2d 188 (1961), because ‘‘Warman involved a claim of fraudulent mis- representation rather than innocent misrepresentation . . . .’’ Gibson v. Capano, supra, 241 Conn. 733. Rather, the court held that its decision in Holly Hill Holdings v. Lowman, supra, 226 Conn. 753, governed its resolu- tion of the case. In referencing its earlier decision in Holly Hill Holdings, the Gibson court stated: ‘‘In Holly Hill Holdings, we held that a party who purchases property ‘as is’ could not thereafter maintain a claim based on an alleged nondisclosure of known facts. . . . In that case, the buyers, prior to agreeing to purchase the property, had actual knowledge of the existing underground gasoline storage tanks that were associ- ated with the property’s previous use as a service sta- tion. . . . The buyers raised the seller’s alleged failure to disclose the underground storage tanks as required by statute as a special defense and counterclaim in a subsequent foreclosure action. . . . Because the buy- ers were aware of the property’s prior use before enter- ing into the contract, we rejected their argument that they were induced to agree to the clause because of the seller’s misrepresentations.’’ (Citations omitted; emphasis added.) Gibson v. Capano, supra, 241 Conn. 733. Accordingly, following its decision in Holly Hill Holdings, the court in Gibson rejected the plaintiffs’ argument that they were induced to agree to the con- tract as a result of the defendants’ misrepresentations because the plaintiffs, ‘‘well aware that the property previously had been infested by termites and had been chemically treated by professionals,’’ still agreed to entered into the contract for the sale of the house, even though it contained a clause disclaiming their reliance on any representations made by the defendants. (Emphasis added.) Id., 734. Thus, our Supreme Court’s decisions in Gibson and Holly Hill Holdings relied on the fact that the plaintiffs had actual knowledge of the truth of the alleged misrep- resentation prior to entering into the contract for the sale of property containing a clause disclaiming any reliance on any prior representations made by the defendants. In the present case, however, there has been no allegation that the plaintiffs had any prior knowledge that the house that they were purchasing was legally only a two-family dwelling, as opposed to the three-family dwelling that was represented to them. Further, in Gibson, our Supreme Court was faced with a claim of innocent misrepresentation. In uphold- ing the validity of the disclaimer clause, our Supreme Court stated: ‘‘[I]n the absence of a claim of mistake, fraud or unconscionability, a clause disclaiming reli- ance by the buyer on the seller’s representations is a valid contract term.’’ (Emphasis added.) Id., 731. Con- versely, in the present case, the first count of the plain- tiffs’ complaint stated that the defendant’s fraudulent misrepresentations induced them to enter into the contract. This case is further distinguishable from Holly Hill Holdings by the fact that in that case, in addition to the buyers having actual knowledge prior to entering into the contract that the property they intended to purchase contained underground gasoline storage tanks, the disclaimer clause was not boilerplate lan- guage contained in the preprinted contract; rather, the clause ‘‘was explicitly added to a preprinted contract form during the negotiations for the sale of the prop- erty.’’ Holly Hill Holdings v. Lowman, supra, 226 Conn. 756. In the present case, however, the disclaimer clause was merely part of the preprinted contract that the parties executed. Accordingly, the defendant’s reliance on Gibson and Holly Hill Holdings is misplaced. The crux of this appeal is whether the disclaimer clause in the contract prevented the plaintiffs from bringing this action. We conclude that it did not. In Foley v. Huntington Co., 42 Conn. App. 712, 682 A.2d 1026, cert. denied, 239 Conn. 931, 683 A.2d 397 (1996), the plaintiff entered into a contract with the defendants for the purchase of a nursing home in Fair- field. Id., 715. Under the terms of the contract, the sale was for 3.74 acres of land. Id. The nursing home was located on a 10.09 acre tract of land. Id. The plaintiff subsequently learned that the 3.74 acres of land that the nursing home would occupy was in violation of Fairfield’s zoning requirements. Id., 716. The plaintiff then brought suit alleging, inter alia, negligent and fraudulent misrepresentation. Id., 718. Following a trial,