As I explained in a prior post: “In real property transactions, the doctrine of caveat emptor (‘let the buyer beware’) bars a claim for fraud against the seller for failing to disclose information unless the seller ‘actively conceals’ relevant and material information from the buyer.” The cases show that actually even more is required than the seller “actively concealing” the information. That is, the “concealment” must actually prevent the buyer from learning the information itself, in the exercise of reasonable diligence. Indeed, the element of reasonable reliance factors into this scenario as well. A new decision of the Appellate Division, Fourth Department (Chapman v Jacobs, 2021 NY Slip Op 04794 (4th Dep’t Decided Aug. 26, 2021), amplifies these concepts.
Active Concealment
In Simone v Homecheck Real Estate Servs., Inc., 42 AD3d 518 (2d Dep’t 2007), the Appellate Division, Second Department, summarized the law regarding fraud claims in real property transactions quite succinctly:
New York adheres to the doctrine of caveat emptor and imposes no liability on a seller for failing to disclose information regarding the premises when the parties deal at arm’s length, unless there is some conduct on the part of the seller which constitutes active concealment (see Matos v Crimmins, 40 AD3d 1053 [2007]; Jablonski v Rapalje, 14 AD3d 484, 485 [2005]; Platzman v Morris, 283 AD2d 561, 562 [2001]; London v Courduff, 141 AD2d 803, 804 [1988]). The mere silence of the seller, without some act or conduct which deceived the buyer, does not amount to a concealment that is actionable as a fraud (see Matos v Crimmins, supra; Slavin v Hamm, 210 AD2d 831, 832 [1994]). To maintain a cause of action to recover damages for active concealment in the context of a fraudulent nondisclosure, the buyer must show, in effect, that the seller thwarted the buyer’s efforts to fulfill the buyer’s responsibilities fixed by the doctrine of caveat emptor (see Jablonski v Rapalje, supra; Platzman v Morris, supra).
In fact, the Fourth Department’s decision in Chapman cited and relied upon the Second Department’s nice summary in Simone.
Publicly Available Information
The factual scenario in Chapman was described by the Fourth Department as follows:
Plaintiff commenced this action seeking damages for, inter alia, fraud arising from his purchase of a home from defendants, alleging that defendants represented that there was a certificate of occupancy for a pole barn situated on the property when, in fact, the Town of Farmington (Town) voided the certificate of occupancy when it discovered that the barn encroached on the adjoining property. Although the record establishes that plaintiff was aware of the encroachment prior to closing, plaintiff alleged that he was unaware that the Town had voided the certificate of occupancy and believed that any issue regarding the barn had been resolved through a boundary line agreement between defendants and the adjoining landowner. After plaintiff purchased the home, however, the Town informed him that he would have to relocate or remove the barn, and this action ensued. Plaintiff now appeals from an order that granted defendants’ motion for summary judgment dismissing plaintiff’s cause of action for fraud.
Even though the seller had indeed actually falsely represented to the plaintiff-buyer that there was a certificate of occupancy for the pole barn, that did not relieve the buyer from ascertaining the true facts, thereby dooming the fraud claim. Courts often reject fraud claims when the allegedly false information could have been discovered through publicly-available information (see my posts). The Fourth Department explained:
“New York adheres to the doctrine of caveat emptor and imposes no liability on a seller for failing to disclose information regarding the premises when the parties deal at arm’s length, unless there is some conduct on the part of the seller which constitutes active concealment” (Simone v Homecheck Real Estate Servs., Inc., 42 AD3d 518, 520 [2d Dept 2007]; see Jablonski v Rapalje, 14 AD3d 484, 485 [2d Dept 2005]). “False representation in a property condition disclosure statement mandated by Real Property Law § 462 (2) may constitute active concealment in the context of fraudulent nondisclosure . . . , [but] to maintain such a cause of action, the buyer must show, in effect, that the seller thwarted the buyer’s efforts to fulfill the buyer’s responsibilities fixed by the doctrine of caveat emptor” (Mikulski v Battaglia, 112 AD3d 1355, 1356-1357 [4th Dept 2013] [internal quotation marks omitted]; see Gallagher v Ruzzine, 147 AD3d 1456, 1458 [4th Dept 2017], lv denied 29 NY3d 919 [2017]; Sample v Yokel, 94 AD3d 1413, 1415 [4th Dept 2012]). Here, even assuming, arguendo, that defendants’ alleged representations in the property condition disclosure statement constituted active concealment, we conclude that defendants met their initial burden on the motion by establishing that those representations did not “thwart[ ]” plaintiff’s ability to conduct his own investigation into the property (Mikulski, 112 AD3d at 1357) inasmuch as the status of the certificate of occupancy “was readily ascertainable from the public record” (Matos v Crimmins, 40 AD3d 1053, 1055 [2d Dept 2007]). Plaintiff failed to raise a triable issue of fact in opposition (see id.).
Reasonable/Justifiable Reliance
As an added kicker, the Fourth Department also explained that the fraud claim failed because the buyer could not satisfy the element of reasonable reliance. Since the buyer was aware that the barn did in fact encroach upon the neighbor’s property, the buyer was on notice of a condition about which it needed to inquire further:
Further, an action for fraud requires, inter alia, “justifiable reliance by the plaintiff” (Morrow v MetLife Invs. Ins. Co. [appeal No. 2], 177 AD3d 1288, 1289 [4th Dept 2019]). Here, defendants met their initial burden of establishing the absence of justifiable reliance on defendants’ alleged [*2]representations by submitting evidence that plaintiff was aware, prior to closing, that the barn encroached on the adjoining property (see generally Gallagher, 147 AD3d at 1459). Plaintiff failed to raise a triable issue of fact in opposition (see generally Zuckerman v City of New York, 49 NY2d 557, 562 [1980]).
Commentary
The civil tort of fraud incorporates concepts that require a party claiming it was defrauded to itself act in a prudent and reasonable manner. Despite admitted fraudulent conduct and even egregious misrepresentations and/or concealment of relevant information, the “victim” of these fraudulent efforts still must do its part to avoid being duped or otherwise relying upon the false information. In the context of real property transactions, these concepts are embodied by the well-established doctrine of caveat emptor.