Weintraub v. Krobatsch
64 N.J. 445, 317 A.2d 68 (1974) (1974)
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Rule of Law:
A seller of real estate has a duty to disclose known, substantial latent defects to the buyer that are not readily observable by the purchaser. Deliberate concealment or simple nondisclosure of such a condition, where justice and fair dealing demand disclosure, can constitute fraudulent concealment justifying the buyer's rescission of the contract.
Facts:
- Natalie Weintraub listed her six-year-old home for sale through The Serafin Agency, Inc.
- Donald and Estella Krobatsch inspected the house while it was fully illuminated and found it suitable.
- On June 30, 1971, the Krobatsches signed a contract to purchase the house, which included a clause stating they had inspected the property and were satisfied with its physical condition.
- The Krobatsches paid a $4,250 deposit to be held in escrow.
- On the evening of August 25, 1971, prior to closing, the Krobatsches entered the unoccupied house.
- Upon turning on the lights, the Krobatsches discovered that the house was severely infested with cockroaches, which were "literally running in all directions."
- The following day, the Krobatsches' attorney sent a letter to Weintraub rescinding the contract on the grounds that the infestation rendered the house unfit for human habitation.
- An exterminator subsequently confirmed a severe cockroach infestation throughout the entire house.
Procedural Posture:
- Natalie Weintraub (plaintiff) sued Donald and Estella Krobatsch (defendants/purchasers) and The Serafin Agency, Inc. (defendant/broker) in the Law Division, a state trial court.
- The Law Division granted summary judgment for Weintraub, awarding her the $4,250 deposit, but held the broker's claim for its commission for trial.
- The Krobatsches appealed to the Appellate Division, an intermediate appellate court.
- The Appellate Division affirmed the judgment for Weintraub and modified it to also grant summary judgment to the broker for its $2,550 commission against the Krobatsches.
- The Krobatsches (appellants) petitioned for and were granted certification to appeal to the Supreme Court of New Jersey, the state's highest court.
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Issue:
Does a seller's deliberate concealment or nondisclosure of a significant, latent defect, such as a severe cockroach infestation, constitute fraudulent concealment sufficient to justify the buyer's rescission of a real estate contract, despite a contract clause stating the buyer had inspected and was satisfied with the property's condition?
Opinions:
Majority - Jacobs, J.
Yes. A seller's deliberate concealment of a significant, latent defect can constitute fraudulent concealment justifying rescission of the contract. The court rejects the traditional doctrine of caveat emptor (let the buyer beware) in favor of modern principles of justice and fair dealing. The court holds that silence can be fraudulent when a party is bound in conscience and duty to disclose a material fact that is not readily observable by the other party. In this case, the Krobatsches alleged that the cockroach infestation was a significant latent defect known to the seller, Weintraub, and that it was concealed from them, as the nocturnal insects would not have been visible during their inspections of the illuminated house. Such an allegation, if proven, is sufficient to establish a claim for fraudulent concealment. The contract clause stating the buyers had inspected the property does not shield a seller from liability for fraudulent nondisclosure. Therefore, the lower courts' grants of summary judgment were improper, and the case must be remanded for a full trial on the factual issues of the seller's knowledge and the materiality of the infestation.
Analysis:
This decision represents a significant shift away from the traditional rule of caveat emptor in real estate transactions, imposing an affirmative duty of disclosure on sellers. By holding that nondisclosure of a known, material, latent defect can constitute fraud, the court aligned real property law with modern notions of fair dealing prevalent in other areas of contract law. This precedent empowers buyers to seek remedies when sellers conceal serious problems that are not discoverable through a reasonable inspection. It effectively warns sellers that an 'as is' or 'inspected' clause in a contract may not protect them from liability for deliberately hiding a significant defect.
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