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McNulty v. Chip

Supreme Court of Rhode Island

June 4, 2015

Joseph McNulty et al.
Kristen Chip et al

Page 174

Providence County Superior Court. (PC 10-3678). Associate Justice Francis X. Flaherty.

For Plaintiffs: Chip Muller, Esq.

For Defendant: Rajaram Suryanarayan, Esq., Michael J. Jacobs, Esq.

Present: Suttell, C.J., Goldberg, Flaherty, Robinson, and Indeglia, JJ.


Page 175

Francis X. Flaherty, Associate Justice

Home is a shelter from storms--all sorts of storms.[1] Unfortunately for the plaintiffs, Joseph and Elizabeth McNulty, that was not the case with the dwelling they purchased from Kristen Chip at 5 Meadowbrook Road, Lincoln (the property). Within weeks of purchasing their new home, the plaintiffs experienced significant flooding in the driveway, garage, and basement. The flooding and water-penetration issues persisted over the next several years, culminating in March 2010, when the plaintiffs experienced extensive flooding of the property. As a result, the plaintiffs filed suit against the defendants, seeking to recover under the theories of breach of contract, negligence, and fraud. Before this Court, the plaintiffs appeal from a judgment of the Superior Court granting the defendants' motions for summary judgment. After hearing the arguments of the parties and examining the memoranda that they submitted, we are of the opinion that the merger and disclaimer clause contained in the purchase and sales agreement was not drawn with sufficient specificity to bar the plaintiffs' claim for fraud. As a result, and for the reasons set forth in this opinion, we affirm in part, and vacate in part, the judgment of the Superior Court.


A. Facts

From 1972 until 2002, the parents of the defendant, Kristen Chip (Chip), owned and resided at the property. Chip herself lived there during her childhood and until she relocated for college in 1987. In 1998, more than ten years after Chip moved away, her parents experienced flooding that was significant enough to be the subject of a local newspaper article. The article included a picture during the 1998 flood that showed Chip's father walking through standing water that had pooled in front of the house. At their respective depositions, Chip and her father each testified that Chip was not living at the property at the time of the 1998 flood. Further, Chip testified that she had no knowledge of the 1998 flood until plaintiffs' counsel mailed a copy of the newspaper article to her after the commencement of this suit. When he was deposed, Chip's father was asked whether he had told his daughter about the flood. He testified as follows:

Page 176

" I don't recall. 1998, I don't even know where she was. She wasn't living at home. I'm sure she knew about it, but I didn't make a specific effort to tell her about the flood. It's just common sense that the discussion had to have taken place at some point."

Chip's father also explained that the 1998 flood did not cause significant damage to the property and that only about one or two inches of wallboard in the basement became wet.

In 2002 Chip purchased the property from her parents. At her deposition, Chip testified that, during the course of this transaction, she was not represented by a real estate agent, did not receive a real estate disclosure form from her parents, and did not inspect the property before she bought it. In addition, Chip testified that she had no knowledge of previous flooding at the property and asserted that she never spoke with her parents about any flooding issues. However, Chip did indicate that she was aware that periodic flooding had occurred at the adjacent properties, 3 and 7 Meadowbrook Road.

In 2004 Chip became interested in selling the property and she retained Michael Pinelli (Pinelli) to serve as her real estate agent in that effort. With the assistance of Pinelli, Chip completed and executed a real estate disclosure form, in which she indicated that there had been no previous flooding or water penetration at the property. Pinelli testified at his deposition that Chip did not personally fill out the disclosure forms; rather, he read each question on the forms to Chip and she provided him with a response, which he marked on the forms himself.

The plaintiffs became interested in purchasing the property and eventually they entered into a dual-agency agreement with Pinelli that allowed him to act as an agent for both plaintiffs and Chip. The plaintiffs visited the property on several occasions, both with and without Pinelli. They also retained Answer Home Inspection to inspect the premises. On July 16, 2005, the inspection was conducted. Present during the inspection were the home inspector, Tom Lenahan; the plaintiffs; Elizabeth's parents; and Pinelli. Significantly, during the course of the inspection, Pinelli allegedly told Elizabeth's mother, in response to a specific inquiry about water incursion, that there previously had been " maybe an inch or so" of water in the basement.[2]

The inspection report that was generated by the home inspector was eventful; it noted that the " moisture level in the basement [is] very high, caution advised." The inspection report also indicated that there was evidence of water penetration, dampness, water stains, and efflorescence[3] in the basement. Lastly, the report recommended that a new sump pump be installed and that plaintiffs consult with the owner of the property for a historical perspective on the issue of water penetration. It is undisputed that, despite the recommendations contained in the inspection report,

Page 177

plaintiffs took no corrective action, nor did they seek additional information from Chip concerning previous water damage.

On July 25, 2005, plaintiffs executed a purchase and sales agreement, under the terms of which they agreed to buy the property for $390,000. Section 15 of the purchase and sales agreement contained the following disclaimer: " The Property is being sold in 'AS IS' condition and Buyer represents that it has not relied on the oral representations of the Seller, or the Broker(s) or their agents as to the character or quality of the Property." Further, section 19 of the agreement, pertaining to inspections, stated that " Buyers have already completed thier [sic] inspection of the property and are buying it in as in [sic] condition all other conditions stated in this contract remain in force." Finally, plaintiffs initialed the following statement: " Having been informed of the right to test/inspect, the Buyer elects not to have any test(s)/inspection(s) performed. (Inspection performed 7/16/05.)"

On September 30, 2005, Chip conveyed the property to plaintiffs by deed. In October 2005, after the sale was finalized, but before plaintiffs were able to move into the property, a heavy rainstorm caused the driveway, garage, and basement to flood to a significant degree. At her deposition, Elizabeth estimated that between two or three feet of water accumulated in the basement during the flood. She further testified that when she looked into the basement, she saw that " the water was very high. I saw things floating by." As a result, plaintiffs called upon the Albion Fire Department to pump the water out of the basement. In the aftermath of the October 2005 flood, plaintiffs received a letter from Greg Jergensen, the son of the developer of the neighborhood. The letter explained that, since 1968, the area had been susceptible to significant flooding.

Elizabeth also testified that, from 2006 to 2007, there were " situations where if it rained hard or if it rained, we would experience water coming in through some foundational cracks, and it wasn't just like seepage, it was shooting from the wall and, you know, landing between one and two feet away from the wall." As a result, plaintiffs retained Pioneer Basements to perform waterproofing services, including the installation of five sump pumps in the basement and a water drainage system around the perimeter of the property. Nonetheless, in March 2010, another heavy ...

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