Keller v. A.O. Smith Harvestore Products, Inc.

• Citation: 819 P.2d 69
• Decision Date: 07 October 1991
• Docket Number: No. 88SA397,88SA397
• Parties: 15 UCC Rep.Serv.2d 733, Prod.Liab.Rep. (CCH) P 12,969 Alfred A. KELLER and Martha M. Keller, Plaintiffs-Appellees, v. A.O. SMITH HARVESTORE PRODUCTS, INC., a Delaware corporation, Defendant-Appellant.
• Court: Supreme Court of Colorado

Page 69

819 P.2d 69

15 UCC Rep.Serv.2d 733, Prod.Liab.Rep. (CCH) P 12,969

Alfred A. KELLER and Martha M. Keller, Plaintiffs-Appellees, v. A.O. SMITH HARVESTORE PRODUCTS, INC., a Delaware

corporation, Defendant-Appellant.

No. 88SA397.

Supreme Court of Colorado,

En Banc.

Oct. 7, 1991.

Wood, Ris & Hames, P.C., E. Gregory Martin, Denver, Wilfred R. Mann, Boulder, for plaintiffs-appellees.

The Law Firm of Michael S. Porter, Michael S. Porter, Denver, Francis A. Benedetti, Wray, Katten Muchin & Zavis, Donald E. Egan, Lee Ann Watson, Andrew M. Hale, Chicago, Ill., for defendant-appellant.

Justice KIRSHBAUM delivered the Opinion of the Court.

Pursuant to C.A.R. 21.1, this court has agreed to answer the following questions certified to it by the United States Court of Appeals for the Tenth Circuit:

1. Whether a cause of action for negligent misrepresentation lies against the manufacturer of a product for representations made during the course of the sale of that product despite the execution of a fully integrated sales agreement.

2. If so, whether the existence of a clause in the sales agreement specifically disclaiming reliance on representations made to the buyer prior to the execution of the sales agreement legally precludes a finding that the buyer in fact relied on such representations. ¹

These questions have been certified in connection with an appellate proceeding involving, inter alia, review of a judgment entered by the United States District Court for the District of Colorado on behalf of buyers of a product and against the manufacturer of the product on a claim of negligent misrepresentation. We answer the first question in the affirmative and answer the second question in the negative.

I

The following undisputed facts are pertinent to this certification proceeding. In July 1980, Alfred A. Keller and Martha M. Keller purchased two Harvestore grain storage systems manufactured by A.O. Smith Harvestore Products, Inc. (hereinafter AOSHPI) from an independent Harvestore dealer. Harvestore systems, which include specially constructed silos and unloading equipment, are designed to prevent oxygen from coming into contact with feed stored in the silos, thus enabling ranchers to store feed indefinitely and cut feed losses. AOSHPI owns the design patent for the Harvestore Silo. Prospective buyers were advised that use of the silo would result in the reduction or elimination of protein supplements in feeding dairy herds. AOSHPI provided its distributors with video tapes, brochures, and extensive literature to promote sales of Harvestore Silos.

Based upon the representations contained in video tapes, brochures and literature prepared by AOSHPI, the Kellers signed purchase orders with an AOSHPI distributor in July 1980 for two Harvestore systems. The agreements contained the following pertinent provisions:

This order form is the entire and only agreement between the Seller and Buyer; and no oral statements or agreements not confirmed herein, or by a subsequent written agreement, shall be binding on either the Seller or Buyer.

....

Buyer understands the conditions of use of the products and is not relying on the skill or judgment of the Manufacturer or Seller in selecting them because Buyer acknowledges that farming and livestock feeding results are very much the product of individual effort, combined with various climatic, soil, water, growing and feeding conditions which are beyond the control of the Manufacturer and Seller. Buyer recognizes that any advertisements, brochures, and other written statements which he may have read ... are not guarantees and he has not relied upon them as such.... Buyer understands that the sole warranty, express or implied, which is provided by [AOSHPI] ... is as follows....

....

I [BUYER] HAVE READ AND UNDERSTOOD THE TERMS AND CONDITIONS OF THIS PURCHASE ORDER INCLUDING THE WARRANTIES, DISCLAIMERS AND TERMS AND CONDITIONS HEREIN GIVEN TO ME, EITHER BY THE MANUFACTURER OR THE SELLER. I RELY ON NO OTHER PROMISES OR CONDITIONS AND REGARD THAT AS REASONABLE BECAUSE THESE ARE FULLY ACCEPTABLE TO ME.

The Kellers also executed leases obligating them to pay $1,220.87 per month for ninety-six months for one system and $890.49 per month for eighty-four months for the second system.

After the Harvestore systems were installed and the Kellers began to use them, the milk production of their herd dropped; a large proportion of the herd developed sores, watery eyes, snotty noses, and rough hair coats; and some of the herd died. In addition, witnesses testified at trial that the silos failed to produce the quality of ensilage that had been promised, that at the time they executed the purchase orders the Kellers had no reasonable basis to determine whether the representations made by AOSHPI through its distributor were true, and that the only persons who had knowledge of how the Harvestore systems would operate were employees and distributors of AOSHPI.

The Kellers ultimately initiated a civil action against AOSHPI and the seller in the District Court for Morgan County, Colorado. The case was subsequently removed to the United States District Court for the District of Colorado. See 28 U.S.C. § 1441 (1988); 28 U.S.C. § 1332 (1988). Among the claims asserted by the Kellers against AOSHPI was a claim of negligent misrepresentation based on section 552(1) of the Restatement (Second) of Torts (1965) (hereinafter section 552(1)). ²

AOSHPI subsequently filed a motion to dismiss the Kellers' negligent misrepresentation claim on the ground that such claim was barred by the terms of the purchase agreements. ³ The federal trial court denied the motion. ⁴ At the conclusion of the trial, the jury returned a verdict in favor of the Kellers and against AOSHPI on the Kellers' negligent misrepresentation claim. AOSHPI appealed the judgment entered on that verdict to the Tenth Circuit Court of Appeals.

II

1. Whether a cause of action for negligent misrepresentation lies against the manufacturer of a product for representations made during the course of the sale of that product despite the execution of a fully integrated sales agreement.

It is well established that in some circumstances a claim of negligent misrepresentation based on principles of tort law, independent of any principle of contract law, may be available to a party to a contract. See, e.g., Rosales v. AT & T Info. Sys., Inc., 702 F.Supp. 1489 (D.Colo.1988); Wagner v. Cutler, 232 Mont. 332, 757 P.2d 779 (1988); Raritan River Steel v. Cherry, Bekaert & Holland, 322 N.C. 200, 367 S.E.2d 609 (1988); First Interstate Bank of Gallup v. Foutz, 107 N.M. 749, 764 P.2d 1307 (1988); Hoffer v. State, 110 Wash.2d 415, 755 P.2d 781 (1988). In addition, as we have observed, ⁵ section 552(1) contains a definition of negligent misrepresentation. It is thus clear that a contracting party's negligent misrepresentation of material facts prior to the execution of an agreement may provide the basis for an independent tort claim asserted by a party detrimentally relying on such negligent misrepresentations.

That principle is fully compatible with previous decisions of this court and of our Court of Appeals. See Cosmopolitan Homes, Inc. v. Weller, 663 P.2d 1041 (Colo.1983); Bill Dreiling Motor Co. v. Shultz, 168 Colo. 59, 450 P.2d 70 (1969); Lembke Plumbing & Heating v. Hayutin, 148 Colo. 334, 366 P.2d 673 (1961). See also Wolther v. Schaarschmidt, 738 P.2d 25 (Colo.App.1986); Robinson v. Poudre Valley Fed. Credit Union, 654 P.2d 861 (Colo.App.1982); First Nat'l Bank in Lamar v. Collins, 44 Colo.App. 228, 616 P.2d 154 (1980); Birkenmayer & Co. v. Homestead Minerals, 32 Colo.App. 258, 510 P.2d 449 (1973). Under the particular circumstances disclosed by the record, we conclude that the definition of negligent misrepresentation contained in section 552(1) is persuasive and controls the resolution of the legal issues presented in this case. We also conclude that the Kellers' complaint alleged sufficient facts to establish a claim of negligent misrepresentation against AOSHPI.

AOSHPI argues that, assuming the availability of a negligent misrepresentation claim in the circumstances of this case, the Kellers' execution of a fully integrated sales agreement precludes their assertion of such a claim. We disagree.

Integration clauses generally permit contracting parties to limit future contractual disputes to issues relating to the reciprocal obligations expressly set forth in the executed document. KN Energy, Inc. v. Great Western Sugar Co., 698 P.2d 769 (Colo.1985). See Moore v. Georgeson, 679 P.2d 1099 (Colo.App.1983). Thus the terms of a contract intended to represent a final and complete integration of the parties' agreement are enforceable and parol evidence offered to establish the existence of prior or contemporaneous agreements is inadmissible to vary the terms of such contract. Sentinel Acceptance Corp. v. Colgate, 162 Colo. 64, 66, 424 P.2d 380, 382 (1967). However, as we have noted, claims of negligent misrepresentation are based not on principles of contractual obligation but on principles of duty and reasonable conduct. Cosmopolitan Homes, Inc., 663 P.2d at 1043. The parol evidence rule does not bar the admission of evidence to establish tort claims not specifically prohibited by the terms of an agreement. Agristor Leasing v. A.O. Smith Harvestore Prods., Inc., 869 F.2d 264 (6th Cir.1989) (general release of claims clause ineffective to bar claims of fraud and misrepresentation in the inducement). See Formento v. Encanto Bus. Park, 154 Ariz. 495, 744 P.2d 22 (App.1987). We recognized this distinction in Bill Dreiling Motor Co., wherein we concluded that the parol evidence rule applicable to contract disputes had no force in a tort action alleging fraudulent misrepresentation in the inducement to execute an agreement. See also Lembke Plumbing & Heating, 148 Colo. 334, 366 P.2d 673.

Many other courts have also concluded that the mere presence of a...