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noting that the elements of fraudulent misrepresentation include demonstration that "the defendant's false representation was intended to induce the plaintiff to act or refrain from acting" and that "the plaintiff's action or inaction was taken in justifiable reliance upon the representation"
Summary of this case from Touch of Italy Salumeria & Pasticceria, LLC v. BascioOpinion
C.A. No. K10C-08-017 (RBY).
Submitted: March 4, 2011.
Decided: May 16, 2011.
Upon Consideration of Defendants' Motion to Dismiss.
DENIED.John E. O'Brien, Esq., Brown, Shiels O'Brien, LLC, Dover, Delaware for Plaintiffs.
Kashif I. Chowdhry, Esq., Parkowski, Guerke Swayze, P.A., Dover, Delaware for Defendants.
OPINION AND ORDER
SUMMARY
This matter is presently before the Court on the Motion to Dismiss of Defendants, Garrett and Lisa Conover. The plaintiffs Geoffrey and Collette Oglesby brought action against the defendants seeking rescission of the parties' contract for the sale of land, which contract the plaintiffs allege was fraudulently procured. For the reasons that follow, the Defendants' Motion is DENIED.
FACTS
This action arises from the execution of a written agreement between the plaintiffs and the defendants for the purchase of a piece of real property on August 20, 2007. The plaintiffs agreed to purchase from the defendants, land located at 1436 Fords Corner Road, Hartly, DE 19953. The contract included a merger clause.
Paragraph 21 of the contract states:
NO REPRESENTATION; GOVERNING TIME FRAMES; ENTIRE AGREEMENT: Subject to the provision of paragraph 14 herein, Buyer has agreed to the purchase of the property in its present condition unless otherwise specified in this agreement . . . Buyer and Seller agree that they have read and fully understand this Agreement, that it contains the entire agreement between them, and they do not rely on any oral representation or statement not expressly written in this agreement. Furthermore, this agreement shall not be amended except in writing signed by Buyer and Seller.
Paragraph 8 of the contract reads as follows:
ADDITIONAL TERMS: This agreement is contingent on the determination of wetlands, flood zone and the acceptance of a site evaluation, evaluator to be chosen by the Buyer. In the event that the land will not accommodate a building structure or standard or LPP septic system, or any additional land usage, this agreement will be considered to be null and void with no penalty or forfeiture of the earnest money deposit for the buyer and seller may reserve the right to renegotiate the purchase price. Seller to provide survey of the land.
The plaintiffs allege in the complaint that the listing agreement represented that the property was suitable as a building lot. Furthermore, the defendants knew of the plaintiffs' intent to construct a stick-built home immediately in front of and adjacent to the lot's existing septic system. The complaint alleges that the defendants provided to plaintiffs a plot drawing of the property, representing to the plaintiffs that a stick-built house could be located as set forth on the plot drawing. Additionally, there was a Land Addendum signed by both parties.
The listing agreement states in relevant part:
"Public: Great flagged lot on almost 4 acres of land. Septic approved, standard system. Driveway access permit. No builder tie in. Bring your mobile home or have it stick built. (1436 is NOT the house, it is the vacant lot to the left of the house.)"
The Land Addendum states in relevant part:
NOTICE TO BUYER: If the property being purchased hereunder is an unimproved parcel of land, Buyer should consult with the appropriate public authorities to ascertain whether central sewage and water facilities are available, or, if not, whether the property will be approved by appropriate public authorities for the installation of a well and private sewage disposal system. If central sewage and water facilities are not available, then this contract is contingent upon: 1) a satisfactory site evaluation that will allow the installation of an approved on site disposal system, in accordance with the regulations promulgated by the Department of Natural Resources Environmental Control, that is acceptable to the buyer; 2) the availability of a water supply; and 3) the lot conforming with the local zoning ordinance; or this contract shall become null and void and all deposits shall be returned to the Buyer.
The plaintiffs brought this cause of action to rescind the land contract alleging that the defendants knew or should have known that the property listed for sale as a building lot would not permit the construction of a stick-built house as desired by the plaintiffs because of the location of a one hundred foot Blue Ditch Easement. The plaintiffs contend that they relied upon the listing information and oral representations of the defendants, which (Plaintiff asserts) were false, in purchasing the property. As a result, the plaintiffs claim to have been damaged. The plaintiffs now seek to rescind the contract, requesting that the defendants be ordered to pay the plaintiffs the sum of $89,000 plus consequential damages in the amount of $7,500.
STANDARD OF REVIEW
The complaint defines the universe of facts from which the trial court may draw in ruling on a motion to dismiss. The Court's standard of review on a motion to dismiss is well-settled. For these purposes, the Court accepts all well-pled allegations as true. Well-pled means that the complaint puts a party on notice of the claim's being brought. If the complaint and facts alleged are sufficient to support a claim on which relief may be granted, the motion is to be denied. The test for sufficiency is a broad one. If any reasonable conception can be formulated to allow Plaintiff's recovery, the motion to dismiss must be denied. Dismissal is warranted only when "under no reasonable interpretation of the facts alleged could the complaint state a claim for which relief might be granted."
Loveman v. Nusmile, Inc., 2009 WL 847655, at *2 (Del. Super. March 31, 2009), citing Anglo American Sec. Fund, L.P. v. S.R. Global Intern. Fund, L.P., 829 A.2d 143, 148-49 (Del. Ch. 2003).
Savor, Inc. v. FMR Corp., 2001 WL 541484, at *2 (Del. Super. Apr. 24, 2001), citing Precision Air, Inc. v. Standard Chlorine of Delaware, Inc., 654 A.2d 403, 406 (Del. 1995).
Spence v. Funk, 396 A.2d 967, 968 (Del. 1978).
Id.
Id.
Id.
DISCUSSION
The plaintiffs have brought suit for recision of contract due to fraud and misrepresentation arguing the defendants made oral representations of the prospective location of a stick built house construction. The defendants contend that plaintiffs' complaint should be dismissed pursuant to Superior Court Civil Rule 12(b)(6). Defendants argue that: (1) evidence of the alleged oral pre-contract statement is precluded by the parol evidence rule; and (2) the plaintiffs have contractually waived the right to object to the terms of the contract, because there were no express representations made by the defendants and no express language in the complaint with regard to the location of where a stick built home could be constructed.In this case, the plaintiffs have chosen to pursue a contract claim, also seeking recession as the remedy. Pursuant to contract law, unilateral mistake and allegations of fraud, do not require as high a degree of fault as common law fraud in tort requires. Plaintiffs allege that the defendants made an intentionally and/or reckless misrepresentation inducing the contract.
See Norton v. Poplos, 443 A.2d 1 (Del. 1982) (finding a contract may be voidable for innocent and fraudulent misrepresentations).
Id.
The first issue presented in this motion to dismiss is whether the parol evidence rule precludes the introduction of the defendants' alleged oral misrepresentations. "When a written contract is intended to be the final expression of the parties' agreement, the parol evidence rule bars introduction of evidence of prior or contemporaneous oral understandings that vary the written terms of the agreement." The parol evidence rule is a principle of substantive law, preventing the use of extrinsic evidence of an oral agreement to vary a fully integrated agreement that the parties have reduced to writing.
Carrow v. Arnold, 2006 WL 328952, *4 (Del. Ch. Oct. 21. 2006).
Taylor v. Jones, 2002 WL 31926612, *3 (Del. Ch. Dec. 17, 2002).
Where a written agreement is meant to be final and complete, it is a totally integrated contract. If the agreement is final and incomplete; it is only partially integrated. The parol evidence rule prevents the consideration of oral evidence that would contradict integrated agreements. In order to determine if the parol evidence rule applies, the Court must decide, first, whether the parties' written contract was intended to be the final expression of their agreement; and, second, whether the alleged oral representations would contradict the written terms of the agreement.
Id.
Id.
Id.
Id. at *10-11; See Restatement (Second) of Contracts § 209, 210 (1979).
In this case, the parties' written contract was intended to be the final expression of their agreement. Thus, the parties included a final integration clause. Pursuant to Delaware law, prior oral promises usually do not constitute false representations of fact which would satisfy the first element of fraudulent misrepresentation. A viable claim of fraud must allege misrepresentations of present facts, rather than future intent, which were collateral to the contract, and which induced the allegedly defrauded party to enter into the contract.
Carrow, 2006 WL at * 8
Id.
The plaintiffs in this case allege in their complaint that the defendants, the sellers, made a representation that a stick built home could be located on the property. According to complaint, the Agreement of Sale provided a survey in support of the defendants' written and oral representation that a stick built home could be constructed. According to the plaintiffs, this survey should have been an accurate depiction of the property, as it was clearly an explicit term of the contract. The plaintiffs allege that this survey was not accurate, because it failed to disclose the location of the Blue Ditch Easement which prevented the construction of a stick built house. Hence, it is alleged, the seller's were aware that the survey was lacking.
Under Delaware contract law, a merger clause can be set aside if either of the two exceptions to the parol evidence rule are applicable. The two exceptions are applicable when: (1) ambiguous terms in the contract exist; (2) and fraud exists. The plaintiffs allege that parol evidence should be admitted, because the defendants fraudulently induced the plaintiffs into the agreement, misrepresenting material terms. If so, the fraud exception is applicable in this case.
Carrow, 2006 WL at * 8.
"Courts have long recognized that where fraud or misrepresentation is alleged, evidence of oral promises or representations which are made prior to the written agreement will be admitted." In order for a plaintiff successfully to allege fraudulent misrepresentation, he must show that: "(1) defendant made a false representation, usually one of fact; (2) the defendant knew or believed that the representation was false, or made it with reckless indifference to the truth; (3) the defendant's false representation was intended to induce the plaintiff to act or refrain from acting; (4) the plaintiff's action or inaction was taken in justifiable reliance upon the representation; and (5) the plaintiff was damaged by such reliance."
Anglin v. Bergold, 565 A.2d 279 (Del. Supr. 1989).
Carrow, 2006 WL 3289582 at *8.
The defendants argue that it is undisputed that the contract and all addenda thereto do not contain any reference to the purported right to place a stick built home in a specified location on the property. Therefore, the defendants argue, the parties' agreement must be given its plain meaning, barring the plaintiffs from varying the terms of the fully integrated agreement, which on its face provides no right to construct a stick built home in any specific location.
"Land conveyance consists of two distinct writings: first, the contract for the purchase and sale of land; and second, the deed at settlement." Under the doctrine of merger by deed, the contract is extinguished after title passes by a validly executed deed. However, fraud or misrepresentation precludes the application of the merger doctrine. The defendants argue that Haase v. Grant is similar to this case.
Haase v. Grant, 2008 WL 372471 (Del. Ch. 2007).
Id.; see Carey v. Shelburne, Inc., 215 A.2d 450, 504 (Del. Ch. 1965); see also Pryor v. Aviola, 301 A.2d 306, 308 (Del. Super. 1973).
Haase v. Grant, 2008 WL 372471 (Del. Ch. 2007).
In Haase v. Grant, plaintiff alleged that he was fraudulently induced to enter into a contract with the defendant who promised an ocean view and promised to refrain from obstructing that ocean view. Additionally, the plaintiff alleged that the defendant fraudulently induced the plaintiff to complete settlement by defendant's purported representations of future intent regarding his willingness not to build and block the ocean view. Neither the contract nor the deed contained any express terms or clauses displaying this intent. The Court of Chancery applied basic principles of land conveyance and contract law to conclude that there was no enforceable promise Hence, the defendant's motion for summary judgment was granted.
Id.
Id.
Id.
Id.
Here, the plaintiffs allege in their complaint that as a result of the above misrepresentation they have successfully alleged fraudulent misrepresentation because: (1) the defendants made a false representation that a stick built home could be constructed in a specific location on the property; (2) the defendants knew or believed this was false because of the existing easement; (3) the misrepresentation was intended to induce the plaintiffs to enter the contract; and (5) the plaintiffs were damaged by such reliance. As stated, on a motion to dismiss this Court accepts all facts plead in the complaint as true. When all allegations in the complaint are accepted as true, a reasonable conception could conceivably be formulated to allow plaintiffs recovery. For that reason, and at this early point in the proceedings, the motion to dismiss must be denied. Defendants are certainly not barred from readdressing this issue at a point later in the discovery process.
The defendants' second argument is that the plaintiffs are referring to an oral agreement pertaining to the sale of land which is barred by the statute of frauds. "The Statute of Frauds provides that `[n]o action shall be brought to charge any person . . . upon any contract or sale of lands. .or any interest in or concerning them . . . unless the contract is reduced to writing . . . [and] signed by the party to be charged therewith.'" When all allegations in the plaintiff's complaint are accepted as true, a reasonable conception that there existed a written contract for the sale of land between the parties can be formulated. As such, the Statute of Frauds is satisfied.
Haase v. Grant, 2008 WL 372471 (Del. Ch. 2008) (citing 6 Del. C. § 2714(a)).