Kannavos v. Annino

Cutter, Justice

. . . Mrs. Annino . . . had bought the Ingersoll Grove properties in 1961 and 1962. At that time there was a single family house on each property. Each house was, under the Springfield zoning ordinance, in a Residence A district, where multi-family uses are prohibited. This zoning has remained in effect at all times since 1961. Despite the zoning provisions, Mrs. Annino converted each single family house into a multi-family apartment building. Each was furnished and rented as a multi-family dwelling. All the work of conversion was done "without obtaining any building permit," as each trustee of the realty trust knew. Each trustee also knew that the use of the buildings for multi-famil purposes was in violation of the zoning ordinance.

In 1965 Kenneth F. Foote was retained as real estate broker "to try to sell the properties." He caused advertisements, of which the following is an example, to appear in Springfield newspapers: "Income gross $ 9,600 yr. in lg. single house, converted to 8 lovely, completely furn. (includ. TV and china) apts. 8 baths, ideal for couple to live free with excellent income. By apt. only. Foote Realty." Each advertisement clearly advertised, in some form of words, the particular property as being income property of multi-family use.

Kannavos, a self-employed hairdresser, about thirty-eight years old, read one advertisement. He "wanted to acquire some income real estate." He got in touch with Foote . . . Kannavos executed a purchase agreement to buy 11 Ingersoll Grove. The vendees had no lawyer representing them with respect to the negotiations, the agreement, or the final closing. An attorney representing a mortgagee, under a mortgage obtained by the vendees, drew and recorded the papers used at the closing, at which the vendors were also represented by an attorney "to check the adjustments."

"No statements were made by the . . . [vendors], by . . . Foote . . . [or by either attorney] at any time during the negotiations or closing, to the . . . [vendees] with respect to zoning or building permits. The . . . [vendees] made no inquiry of the" vendors, Foote, or the vendors' "attorney at any time before or during the closing with respect to zoning or building permits. All statements made by the" vendors, Foote, or the vendors' attorney to the vendees "were substantially true and the . . . [vendees] do not complain of any spoken misrepresentation."

Mrs. Annino and Foote both represented to the vendees "that the property . . . consisted of eight . . . furnished apartments which were being rented to the public for multi-family purposes. They knew that Kannavos' reason for buying the property was to rent the apartments to the public. . . . Kannavos had no prior experience with real estate. He was unaware of any zoning or building permit violation and would not have purchased the property if he had known of any such violation."

The sale of the other properties . . . occurred in substantially similar circumstances . . .

. . . The city . . . Kannavos . . . that the property was being used for multi-family purposes in violation of the building code and zoning ordinance . . .

. . . We assume that, if the vendors had been wholly silent and had made no references whatsoever to the use of the Ingersoll Grove houses, they could not have been found to have made any misrepresentation. The court indicated that it was applying a long standing "rule of nonliability for bare nondisclosure."

As in the Swinton case, the parties here were dealing at arm's length, the vendees were in no way prevented from acquiring information, and the vendors stood in no fiduciary relationship to the vendees. In two aspects, however, the present cases differ from the Swinton case: viz. (a) The vendees themselves could have found out about the zoning violations by inquiry through public records, whereas in the Swinton case the purchaser would have probably discovered the presence of termites only by retaining expert investigators; and (b) there was something more here than the "bare nondisclosure" of the seller in the Swinton case.

(a) We deal first with the affirmative actions by the vendors, their conduct, advertising, and statements. Was enough said and done by the vendors so that they were bound to disclose more to avoid deception of the vendees and reliance by them upon a half truth? In other words, did the statements made by the vendors in their advertising and otherwise take the cases out of the "rule of nonliability for bare nondisclosure" applied in the Swinton case?

Although there may be "no duty imposed upon one party to a transaction to speak for the information of the other . . . if he does speak with reference to a given point of information, voluntarily or at the other's request, he is bound to speak honestly and to divulge all the material facts bearing upon the point that lie within his knowledge. Fragmentary information may be as misleading . . . as active misrepresentation, and half-truths may be as actionable as whole lies. . . ."

The master's report provides ample basis for treating the present cases as within the decisions just cited. The original advertisements in effect offered the houses as investment properties and referred to them as single houses converted to apartments. The investment aspect of the houses was emphasized by Foote's action in furnishing income and expense figures. There was an express assertion that Ingersoll Grove was "being rented to the public for multi-family purposes" and that Kannavos and Bellas "could continue to operate . . . [the other properties] as multi-dwelling property." The master's conclusions indicate that this statement applied to all the properties. The buildings were divided into apartments. The sales included refrigerators, stoves, and other furnishings appropriate for apartment use, as well as real estate. The vendors knew that the vendees were planning to continue to use the buildings for apartments, and yet the vendors still failed to disclose the zoning and building violations. We conclude that enough was done affirmatively to make the disclosure inadequate and partial, and, in the circumstances, intentionally deceptive and fraudulent.

(b) The second difference between these cases and the Swinton case is the character of the defect not disclosed.

In the Swinton case, the presence of predatory insects threatened the structure sold. In the absence of any seller's representations whatsoever, there was no duty to disclose this circumstance, even though doubtless it would have been difficult to discover. In the present cases, the defect in the premises related to a matter of public regulation, the zoning and building ordinances. Its applicability to these premises could have been discovered by these vendees or by the vendees' counsel if, acting with prudence, they had retained counsel, which they did not. The bank mortgagee's counsel presumably was looking only to the protection of the bank's security position. Nevertheless, where there is reliance on fraudulent representations or upon statements and action treated as fraudulent, our cases have not barred plaintiffs from recovery merely because they "did not use due diligence . . . [when they] could readily have ascertained from . . . records" what the true facts were. \There this court allowed rescission because of the negligent misrepresentation, innocent but false, of the current assessed value of the property being sold. Here the representations made by the advertising and the vendors' conduct and statements in effect were that the property was multi-family housing suitable for investment and that the housing could continue to be used for that purpose. Because the vendors did as much as they did do, they were bound to do more. Failing to do so, they were responsible for misrepresentation. We think the situation is comparable to that in Yorke v. Taylor, even though there the misrepresentation was "not consciously false" and here it was by half truth.

We hold that the vendors' conduct entitled the vendees to rescind . . . There was, in our opinion, much more than "bare nondisclosure" as in the Swinton case.

. . . The interlocutory decrees overruling the demurrers are affirmed. . . .

So ordered.