## Facts

- First NH Banks (the bank) owned a lakefront bowling alley and worked with La-Sal Properties of New Hampshire, Inc. (La-Sal), a real-estate agency, to sell the property.
- Peter Gray and his family negotiated to purchase the property. Gray first offered $225,000; the bank countered at $325,000, and Gray did not accept that counteroffer.
- After the initial negotiations, Gray’s coworker, Philip Stone (a former employee at the bowling alley), told Gray about significant defects in the property’s septic system.
- Gray stated he intended to use the septic problems as a bargaining device to lower the purchase price.
- Gray then submitted a new purchase proposal for $275,000 that acknowledged the septic-system defects.
- A few days later, Gray and the bank executed a purchase-and-sale agreement that did not expressly mention the septic issues.
- The Grays closed on the property and received title from the bank. Shortly after closing, they experienced severe septic-system problems, including offensive odors.
- The Grays learned of RSA 485-A:39, which required the seller of developed waterfront property to have a sewage-disposal site evaluation prepared before offering the property for sale.
- When the Grays obtained the site evaluation, it was dated one day before closing—after the property had been marketed and after negotiations had occurred.
- The Grays sued the bank and La-Sal seeking (1) rescission based on the statutory violation and (2) money damages for alleged fraudulent (and negligent) misrepresentation regarding the septic system.
- The trial court ruled for the defendants, finding that the Grays’ prior knowledge of the septic problems defeated their claims. The Grays appealed.

## Issues

1. Whether a seller’s failure to obtain the RSA 485-A:39 waterfront sewage-disposal site evaluation before offering property for sale entitles a buyer to rescission without proof that the statutory violation caused the buyer’s harm.
2. Whether buyers who knew of septic-system defects before purchase can recover damages for fraudulent or negligent misrepresentation about those same defects, including the required element of justifiable reliance.

## Decision

- The Supreme Court of New Hampshire affirmed the trial court’s judgment for the bank and La-Sal.
- The court held that noncompliance with RSA 485-A:39 does not automatically justify rescission; the buyer must show the violation caused the claimed injury.
- The court upheld the trial court’s finding that the late site evaluation provided no new information to the Grays beyond what they already knew about the septic system, so causation was not shown.
- The court rejected the misrepresentation claims because the Grays’ prior knowledge of the septic defects defeated justifiable reliance and the required causal link to any pecuniary loss.
- Applying deferential appellate review, the court declined to disturb the trial court’s factual findings because they were not clearly erroneous.

## Legal Principles

- A statutory violation may support rescission only when the plaintiff proves the violation caused the harm; timing noncompliance alone is not enough.
- RSA 485-A:39 is aimed at informing prospective buyers about sewage-system conditions that are not readily apparent from a basic site inspection.
- Fraudulent misrepresentation requires, at minimum, pecuniary loss caused by the plaintiff’s justifiable reliance on the misrepresentation (consistent with Restatement (Second) of Torts § 525).
- Negligent misrepresentation likewise requires reliance and causation; a plaintiff who already knows the complained-of defect cannot establish that a misstatement about that defect caused the loss.
- On appeal from a bench trial, factual findings will stand unless clearly erroneous.

## Conclusion

Because the Grays knew of major septic-system defects before buying and the belated RSA 485-A:39 site evaluation did not add material information or affect their decision to purchase, they could not show causation for rescission or justifiable reliance for misrepresentation; the judgment for the bank and the broker was affirmed.


Gray v. First NH Banks, 640 A.2d 276 (1994)