Robinson v. Tripco Investment, Inc.

• Decision Date: 29 June 2000
• Docket Number: No. 990490-CA.,990490-CA.
• Citation: 21 P.3d 219,2000 Utah Ct. App. 200
• Parties: Michael S. ROBINSON, Trustee of the Cardiomed, Inc. Profit Sharing Plan and Cardiomed, Inc. Money Pension Plan, Plaintiff and Appellant, v. TRIPCO INVESTMENT, INC.; Stephen L. Tripp; and Does 1 through 10, Defendants and Appellees.
• Court: Utah Court of Appeals

21 P.3d 219

2000 Utah Ct. App. 200

Michael S. ROBINSON, Trustee of the Cardiomed, Inc. Profit Sharing Plan and Cardiomed, Inc. Money Pension Plan, Plaintiff and Appellant, v. TRIPCO INVESTMENT, INC.; Stephen L. Tripp; and Does , Defendants and Appellees.

No. 990490-CA.

Court of Appeals of Utah.

June 29, 2000.

Rehearing Denied August 3, 2000.

Brett P. Johnson, McKay Burton & Thurman, and Lynn B. Larsen, Salt Lake City, for Appellant.

Donald J. Winder and Gerry B. Holman, Winder & Haslam, Salt Lake City, for Appellees.

Before JACKSON, Associate Presiding Judge and BENCH, and BILLINGS, JJ.

OPINION

BENCH, Judge:

¶ 1 Appellant Michael S. Robinson, as Trustee of the Cardiomed, Inc. Profit Sharing Plan and the Cardiomed, Inc. Money Pension Plan (collectively "Cardiomed"), challenges the trial court's grant of summary judgment in favor of appellees on Cardiomed's claims of negligent misrepresentation and fraud in the sale of an apartment building. Cardiomed asserts: (1) a cause of action for negligent misrepresentation is not precluded by the merger doctrine; and (2) genuine issues of material fact exist, which preclude summary judgment on its fraud claim. We affirm in part and reverse in part.

BACKGROUND

¶ 2 Because this is an appeal from a grant of summary judgment, we recite the facts in the light most favorable to the nonmoving party.¹ See Glover ex rel. Dyson v. Boy Scouts of Am., 923 P.2d 1383, 1384 (Utah 1996)

.

¶ 3 In 1978, Stephen L. Tripp Construction Company (Tripp Construction) built a fifteenunit apartment building. Tripp Construction acted as the general contractor, and hired subcontractors to perform the actual construction. The building's plans and specifications called for a pan structural support system, but workers were not available to build that type of system. Tripp Construction therefore subcontracted to build a post-tension support system. Cardiomed contends that this type of system was not appropriate for this building.

¶ 4 In February 1992, Cardiomed and Tripco Investment, Inc. (Tripco) entered into an Earnest Money Sales Agreement in which Tripco agreed to sell the apartment building to Cardiomed. Stephen L. Tripp, either individually or through entities he controlled, had owned or managed the building for the first five or six years after its construction and for two years immediately preceding its sale to Cardiomed. The Earnest Money Sales Agreement included the following provisions:

B. Inspection. Unless otherwise indicated, Buyer agrees that Buyer is purchasing said property upon Buyer's own examination and judgment and not by reason of any representation made to Buyer by Seller or the Listing or Selling Brokerage as to its condition, size, location, present value, future value, income herefrom or as to its production. Buyer accepts the property in "as is" condition subject to Seller's warranties as outlined in Section 6. In the event Buyer desires any additional inspection, said inspection shall be allowed by Seller but arranged for and payed by Buyer.

....

L. Complete Agreement—No Oral Agreements. This instrument constitutes the entire agreement between the parties and supercedes and cancels any and all prior negotiations, representations, warranties, understandings or agreements between the parties. There are no oral agreements which modify or affect this agreement. This Agreement cannot be changed except by mutual written agreement of the parties.

¶ 5 When Hannes Robinson, the manager of Cardiomed, first inspected the building while being accompanied by Tripp, he observed a sloping of the concrete floor, cracks in the plaster, gaps between the walls and the ceiling, and some ill-fitting doors. Robinson asked Tripp about these noticeable defects, and Tripp represented that the building was strong and free of any structural problems. Tripp also indicated that he was involved in the engineering and construction of the building, and that it was over-engineered and over-built. Tripp further told Robinson that the building would withstand earthquakes that many other buildings would not. After making these representations, Tripp provided Robinson with an inspection report he had previously obtained, and which did not identify any problems with the support system.²

¶ 6 Tripco disputes the facts as stated. Tripco alleges that Tripp represented to Robinson only that Tripp had been told that the building was a strong structure; that "he merely passed along what he had been told by those who worked in this particular construction system." Tripco also denies that Tripp produced an inspection report, arguing instead that it was Robinson who obtained the inspection report.

¶ 7 In any event, Cardiomed subsequently purchased the building for $375,000. After the city forced Cardiomed to either repair the building's support structure—at a cost of approximately $165,000—or face condemnation, Cardiomed brought suit against Tripco alleging breach of warranty and fraud.

¶ 8 Tripco filed a motion for summary judgment, arguing that the merger doctrine and lack of evidence respectively defeated those causes of action. In its memorandum in opposition to summary judgment, Cardiomed argued that Tripp negligently misrepresented the condition of the building. In reply, Tripco argued that Cardiomed failed to allege negligent misrepresentation in its original complaint, and thus, should be barred from asserting it. Cardiomed there-upon filed a motion to amend its complaint to allege negligent misrepresentation. The trial court granted Tripco's motion for summary judgment as to breach of warranty and fraud, but also granted Cardiomed'; motion to amend its complaint to allege negligent. misrepresentation. Cardiomed then filed an amended complaint alleging negligent misrepresentation. Tripco again moved for summary judgment, arguing the merger doctrine precluded this claim too, and the trial court granted the motion. This appeal followed.

STANDARD OF REVIEW

¶ 9 A party is entitled to summary judgment only when there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. See Utah R. Civ. P. 56(c). "'On an appeal from a grant of summary judgment, we review the trial court's legal conclusions for correctness and grant them no deference.'" Holmes v. American States Ins. Co., 2000 UT App 85,-119, ¶ 9, 391 Utah Adv. Rep. 16, 1 P.3d 552 (citation omitted).

ANALYSIS

1. Negligent Misrepresentation

¶ 10 Cardiomed argues that the trial court erred in granting summary judgment on its negligent misrepresentation claim because "negligent misrepresentation is a species of fraud and is therefore excepted from the merger doctrine." We disagree.

¶ 11 "It is well settled that the merger doctrine applies in Utah." Maynard v. Wharton, 912 P.2d 446, 449 (Utah Ct.App. 1996).

"The doctrine of merger .... is applicable when the acts to be performed by the seller in a contract relate only to the delivery of title to the buyer. Execution and delivery of a deed by the seller then usually constitute full performance on his [or her] part, and acceptance of the deed by the buyer manifests his [or her] acceptance of that performance even though the estate conveyed may differ from that promised in the antecedent agreement. Therefore, in such a case, the deed is the final agTeernent and all prior terms, whether written or verbal, are extinguished and unenforceable."

Id. at 449-50 (omission and alterations in original) (quoting Stubbs v. Hemmert, 567 P.2d 168, 169 (Utah 1977)). However, the doctrine "has four discrete exceptions: (1) mutual mistake in the drafting of the final documents; (2) ambiguity in the final documents; (3) existence of rights collateral to the contract of sale; and (4) fraud in the transaction." Id. at 450. Because Cardiomed urges this court to determine that negligent misrepresentation falls under the "fraud in the transaction" exception, our analysis will focus specifically on that exception.

¶ 12 The fraud exception "applies when the party seeking to avoid merger can prove by clear and convincing evidence that the other party committed fraud in the real estate transaction." Id. In order to prevail under the fraud exception, "all the elements of fraud must be established." Secor v. Knight, 716 P.2d 790, 794 (Utah 1986). The elements of fraud in Utah are:

"(1) a representation; (2) concerning a presently existing material fact; (3) which was false; (4) which the representor either (a) knew to be false, or (b) made recklessly, knowing that he [or she] had insufficient knowledge on which to base such representation; (5) for the purpose of inducing the other party to act upon it; (6) that the other party, acting reasonably and in ignorance of its falsity; (7) did in fact rely upon it; (8) and was thereby induced to act; (9) to his [or her] injury and damage."

Maynard, 912 P.2d at 450 (emphasis added) (alterations in original) (quoting Dugan v. Jones, 615 P.2d 1239, 1246 (Utah 1980)). Thus, for Cardiomed to prevail under the fraud exception to the merger doctrine, it must necessarily provide clear and convincing evidence that any misrepresentations Tripp made about the building were made knowingly or recklessly.

¶ 13 The tort of negligent misrepresentation, which Cardiomed argues falls within the fraud exception, carries a lesser mental state, requiring only that the seller act carelessly or negligently. See Price-Orem Inv. v. Rollins, Brown & Gunnell, 713 P.2d 55,

59 & n. 2 (Utah 1986) (stating that "by its very terms, negligent misrepresentation does not require the intentional mental state necessary to establish fraud"). Although fraud and negligent misrepresentation are related, they embody two different states of mind. Thus, "all of the elements of fraud [cannot] be established" through proof of negligent misrepresentation. Secor, 716 P.2d at 794. Therefore, in Utah, negligent misrepresentation does not fall within the discrete fraud exception to the...