Little Mountains Enterprises, Inc. v. Groom
A material misrepresentation, when made in connection with the sale of land, may be an innocent misrepresentation and the party defrauded has the option of electing either to rescind the contract or to claim damages for breach of contract. The plaintiff, Little Mountain Enterprises, Inc., purchased from the defendants, including David, Dwight and Thomas Groom, trustees of the McKinney charitable trust, undeveloped real property in Weston for $1.25 million. The defendants represented and warranted that the land consisted "of two building lots each approved for a five bedroom single family dwelling," relying on an opinion of Robert Turner, the town's zoning enforcement officer. Following closing, Turner notified the plaintiff that upon further information, he could not issue zoning permits. The plaintiff, without notifying the defendants, applied to the planning and zoning commission and obtained approval for a two lot subdivision. The plaintiff then filed this action against the defendants alleging, relevantly, breach of contract and innocent and negligent misrepresentation and claimed expenditures of $262,987.23 in obtaining subdivision approval. The trial court concluded that the defendants breached the sales contract by failing to convey two building lots, but the misrepresentation was innocently made. Considering such factors as the plaintiff's failure to notify the defendants to provide an opportunity to cure the defect in a cost effective manner, the court awarded $77,741.60 in damages. The plaintiff appealed contending that the court failed to apply the proper measure of damages. Agreeing, the Appellate Court reversed the judgment, in part, and remanded. In the 1978 case of Johnson v. Healy, the Supreme Court addressed the scope of a defendant seller's liability for innocent misrepresentation regarding the condition of the house sold and avoiding unreasonable economic waste. The Court concluded that "[t]he proper test for damages was the difference in value between the property had it been as represented and the property as it actually was." Here, the trial court, not having evidence of the diminution in value and unwilling to award the costs claimed, essentially awarded the damages recoverable had the plaintiff elected to rescind the contract upon learning of the zoning problems. Such an award was clearly erroneous. The plaintiff never sought the remedy of rescission. The court failed to apply the proper measure of damages for the breach of contract.