M&D, Inc. v. W.B. McConkey

• Court: Court of Appeal of Michigan
• Writing for the Court: JANSEN
• Citation: M&D, Inc. v. W.B. McConkey, 585 N.W.2d 33, 231 Mich.App. 22 (Mich. App. 1998)
• Decision Date: 31 July 1998
• Docket Number: Docket No. 175201
• Parties: M&D, INC., Donmar, Inc., Donald Gundle, Marie Gundle, and Donna Gundle Krieg, Plaintiffs-Appellants, v. W.B. McCONKEY d/b/a Relenco Partnership, McConkey Real Estate Company, Barbara C. Weed, Lou Ann Hessemer, Richard Paschack Thomas J. Sullivan, Pamela M. Sullivan, Charles C. Aymond, Dana C. Aymond, and State of Michigan, Defendants-Appellees, and Carl Engineers, Inc., C. Donovan Carl, and Linda G. Carl, Defendants.

Page 33

585 N.W.2d 33

231 Mich.App. 22

M&D, INC., Donmar, Inc., Donald Gundle, Marie Gundle, and Donna Gundle Krieg, Plaintiffs-Appellants, v. W.B. McCONKEY d/b/a Relenco Partnership, McConkey Real Estate Company, Barbara C. Weed, Lou Ann Hessemer, Richard Paschack Thomas J. Sullivan, Pamela M. Sullivan, Charles C Aymond, Dana C. Aymond, and State of Michigan, Defendants-Appellees and Carl Engineers, Inc., C. Donovan Carl, and Linda G. Carl, Defendants.

Docket No. 175201.

Court of Appeals of Michigan.

Submitted March 4, 1998, at Lansing.

Decided July 31, 1998, at 9:10 a.m.

Released for Publication Oct. 23, 1998.

Cummings, McClorey, Davis & Acho by Ronald G. Acho and Grogory L. Ulrich, Livonia, for plaintiffs.

Dennis E. Whedon, P.C. by Dennis E. Whedon and Charles H. Aymond, P.C. by JoAnne Rosenfeld, Jackson, for W.B. McConkey, Relenco Partnership, and others.

Frank J. Kelley, Atty. Gen., Thomas L. Casey, Sol. Gen., and Jerome C. Cavanagh, Asst. Atty. Gen., for Mich. Dept. of Transp.

Dickinson Wright PLLC by Jeffery V. Stuckey and Edward R. Becker, Lansing, for W.B. McConkey, McConkey Real Estate Co. and others.

Before JANSEN, P.J., and MacKENZIE, WAHLS, GRIBBS, MURPHY, FITZGERALD, and O'CONNELL, JJ.

JANSEN, Presiding Judge.

Pursuant to MCR 7.215(H), this special conflict panel was convened to resolve the conflict between the prior opinion in this case, 226 Mich.App. 801, 573 N.W.2d 281 (1997), and Shimmons v. Mortgage Corp. of America, 206 Mich.App. 27, 520 N.W.2d 670 (1994). The prior panel in this case held that it was bound by MCR 7.215(H) to follow Shimmons, which held that a plaintiff may allege fraudulent concealment even where the purchase agreement includes an "as is" clause and that fraudulent concealment is established by showing that the hidden defect (which need not be unreasonably dangerous) was known to the vendor and that the purchaser had no knowledge of it. Id. at 29, 520 N.W.2d 670. The panel in the prior opinion of this case noted its disagreement with the rule of law announced in Shimmons, but could not "in a principled fashion distinguish it," and therefore was compelled to reverse the trial court's order dismissing M&D's fraud claim based on Shimmons and to remand the case to allow M&D to pursue the claim below.

Following an en banc order, 226 Mich.App. 801, 573 N.W.2d 281 (1997), invoking the conflict resolution procedure set forth in MCR 7.215(H), this case was resubmitted to this special panel. We now resolve the conflict in favor of the opinion in M&D, Inc., which would have held that plaintiffs could not establish a basis for any claim of fraud because they failed to present sufficient evidence under any claim of fraud to create a genuine issue of material fact for trial. We hold that, in order to establish a claim of silent fraud, there must be evidence that the seller made some sort of representation that was false. It is not enough, as this Court in Shimmons held, that the seller had knowledge of the defect and failed to disclose it; rather, the seller must make some type of misrepresentation. A misrepresentation need not necessarily be words alone, but can be shown where the party, if duty-bound to disclose, intentionally suppresses material facts to create a false impression to the other party. See Wolfe v. A E Kusterer & Co., 269 Mich. 424, 257 N.W. 729 (1934).

In the present case, plaintiff M&D purchased commercial property in January 1991 on an "as is" basis from defendant Relenco Partnership. Defendant McConkey Real Estate Company handled the sale of the property. M&D leased the property to plaintiff Donmar, Inc., for the operation of a pet supplies store. Two months after the store opened, the building flooded after a heavy rainfall. The evidence at trial showed that the property had experienced flooding problems for many years. W.B. McConkey testified at trial that he had witnessed flooding on the property. However, there was no evidence that plaintiffs asked whether the property had experienced any flooding, and defendants never made any representation concerning flooding to plaintiffs. Further, Relenco refused to prepare a seller's disclosure statement and made this refusal an explicit part of the purchase agreement. Rather, on the face of the preprinted seller's disclosure statement, the following disclaimer appears: "Owner has never occupied this property. No representations or warranties implied as to condition. Property being sold in 'as is' condition."

Plaintiffs filed suit in October 1992, raising claims of breach of contract, negligence, innocent misrepresentation, and fraud against Relenco and McConkey Real Estate. ¹ The trial court dismissed plaintiffs' claims of fraud and innocent misrepresentation pursuant to MCR 2.116(C)(10). A trial court's decision regarding a motion for summary disposition is reviewed de novo. Spiek v. Dep't of Transportation, 456 Mich. 331, 337, 572 N.W.2d 201 (1998). A motion brought under MCR 2.116(C)(10) tests the factual support for the claim. Id. The court considers the pleadings, affidavits, depositions, admissions, and any other documentary evidence submitted to it to determine whether a genuine issue of any material fact exists to warrant a trial. Id.

There are essentially three theories to establish fraud: (1) traditional common-law fraud, (2) innocent misrepresentation, and (3) silent fraud. For an excellent discussion of this issue, we repeat Judge Young's opinion from M&D, Inc., supra, pp. 806-809, 573 N.W.2d 281, and adopt it as our own:

1. COMMON-LAW FRAUD

As a general rule, actionable fraud consists of the following elements: (1) the defendant made a material representation; (2) the representation was false; (3) when the defendant made the representation, the defendant knew that it was false, or made it recklessly, without knowledge of its truth as a positive assertion; (4) the defendant made the representation with the intention that the plaintiff would act upon it; (5) the plaintiff acted in reliance upon it; and (6) the plaintiff suffered damage. Hi-Way Motor Co. v. Int'l Harvester Co., 398 Mich. 330, 336, 247 N.W.2d 813 (1976); Irwin v. Carlton, 369 Mich. 92, 94, 119 N.W.2d 617 (1963); Candler v. Heigho, 208 Mich. 115, 121, 175 N.W. 141 (1919); see also Arim v. General Motors Corp., 206 Mich.App. 178, 195, 520 N.W.2d 695 (1994).

In this case, the trial court, in ruling with regard to Relenco's motion for summary disposition, held that, concerning the flooding problem of the property [,] Relenco made no material "representation" of fact to plaintiffs upon which a common-law fraud claim could rest. Indeed, plaintiffs failed to present evidence that defendant made any affirmative representations concerning the nature of the flooding problem on the subject property. We agree with the circuit court's reasoning that, without a representation, plaintiffs could not maintain an action for common-law fraud because proof of some false representation made with an intent to deceive was a necessary element of their prima facie case.

2. INNOCENT MISREPRESENTATION

SB21<470>[3-8] A claim of innocent misrepresentation is shown if a party detrimentally relies upon a false representation in such a manner that the injury suffered by that party inures to the benefit of the party who made the representation. United States Fidelity & Guaranty Co. v. Black, 412 Mich. 99, 118, 313 N.W.2d 77 (1981). The innocent misrepresentation rule represents a species of fraudulent misrepresentation but has, as its distinguished characteristics, the elimination of the need to prove a fraudulent purpose or an intent on the part of the defendant that the misrepresentation be acted upon by the plaintiff, and has, as added elements, the necessity that it be shown that an unintendedly false representation was made in connection with the making of a contract and that the injury suffered as a consequence of the misrepresentation inure to the benefit of the party making the misrepresentation. Id. at 118, 313 N.W.2d 77. Thus, the party alleging innocent misrepresentation is not required to prove that the party making the misrepresentation intended to deceive or that the other party knew the representation was false. Id. at 117, 313 N.W.2d 77. Finally, in order to prevail on an innocent misrepresentation claim, a plaintiff must also show that the plaintiff and defendant were in privity of contract. Id. at 118-119, 313 N.W.2d 77.

In the present case, only M&D was in privity of contract with Relenco, and, therefore, it is the only plaintiff that could raise an innocent misrepresentation claim against Relenco. Moreover, as the trial court concluded, because Relenco made no false, or other, representation regarding the condition of the property, neither corporate plaintiff could maintain a claim of innocent misrepresentation. Id. at 118, 313 N.W.2d 77.

3. "SILENT FRAUD"

SB21<470>[9-13] "Silent fraud," also known as fraud by nondisclosure or fraudulent concealment, is a commonly asserted, but frequently misunderstood, doctrine. This is primarily because most fraud claims are based upon alleged affirmatively stated false representations of material fact. A claim of "silent fraud" requires a plaintiff to set forth a more complex set of proofs. In Lorenzo v. Noel, 206 Mich.App. 682, 684-685, 522 N.W.2d 724 (1994), this Court gave the following explanation of the so-called "silent fraud" doctrine:

" ' "A fraud arising from the suppression of the truth is as prejudicial as that which springs from the assertion of a falsehood, and courts have not hesitated to sustain recoveries where the truth has been suppressed with the intent to defraud." ' Williams v. Benson, 3 Mich.App. 9, 18-19, 141 [231 Mich.App. 29] N.W.2d 650 (1966), quoting Tompkins v. Hollister, 60 Mich. 470, 483, 27 N.W. 651 (1886). Thus, 'the suppression of a material fact, which a party in good faith is duty-bound to disclose, is equivalent to a false representation and will...