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Defendants Scott and Christina Lees appealed a trial court decision that found in favor of Plaintiff Stephen Wyle on his claim of negligent misrepresentation. In 2002, Defendants purchased a two-unit apartment building. Defendants wished to expand the building, and approached a contractor to add a third apartment to the back of the property. Conditional approval for the site plan was granted in November 2003 and final approval was obtained in January 2004. However, Defendants did not obtain the proper permits prior to building or occupying the unit. As a result, the town's building inspector never inspected the unit. The Lees again hired the contractor both to complete a second addition to the property. Defendants again failed to secure the necessary building permits. After the completion of construction, town officials visited the property a number of times in 2006 and 2007. The town informed Defendants that "[s]ave for acceptable field changes[,] the site plan requirements have been satisfied." Defendants listed the property for sale in 2007. After entering into the agreement, Plaintiff had a comprehensive home inspection performed and sent a list of specific concerns regarding the property to Defendants. The concerns were either remedied by the Defendants or waived by Plaintiff prior to closing. Approximately six weeks after closing, the entire property was inspected by the town building inspector and fire chief which revealed numerous building and life safety code violations. Plaintiff was ordered not to occupy the unit until he corrected the violations and made the site compliant with site plan regulations. After correcting the violations, Plaintiff then brought a single claim against Defendants for negligent misrepresentation. Following a two-day bench trial, the trial court issued an order awarding damages to the Plaintiff. Upon review of the trial court record, the Supreme Court found that the evidence at trial established that Defendants negligently misrepresented that the premises were licensed for immediate occupancy and that they had obtained all the necessary permits. Accordingly, the Court found that the trial record supported the decision in favor of Plaintiff, and the grant of damages.Receive FREE Daily Opinion Summaries by Email
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THE SUPREME COURT OF NEW HAMPSHIRE
STEPHEN C. WYLE
SCOTT LEES & a.
Argued: June 16, 2011
Opinion Issued: September 20, 2011
Melendy & Lee, P.A., of Conway (Fay E. Melendy on the brief and orally),
for the plaintiff.
Cooper Cargill Chant, P.A., of North Conway (Christopher T. Meier on the
brief and orally), for the defendants.
DUGGAN, J. The defendants, Scott and Christina Lees, appeal a
decision of the Trial Court (Houran, J.) finding in favor of and granting
damages to the plaintiff, Stephen C. Wyle, following a bench trial on his claim
for negligent misrepresentation. We affirm.
The trial court found the following facts. In 2002, the defendants
purchased a two-unit apartment building located at 38 Oak Street in North
Conway. The defendants lived in one unit and rented the other for income. In
2002 or 2003, the defendants sought to expand the building and Scott Lees
approached a contractor to add a third, larger apartment to the back of the
property. This new unit was to include a two-car garage underneath it. Lees
hired the contractor to accomplish all construction work, including the
In August 2003, Lees and the contractor submitted a building permit
application for a “28 x 28 2 car garage with upstairs apartment with a 10 x 8
breezeway attached to existing [building].” The town informed the contractor
that site plan review was necessary prior to adding a third unit and issued a
permit for the garage only. Conditional approval for the site plan, which
provided for six parking spaces including the two-car garage underneath the
unit, was granted in November 2003 and final approval was obtained in
January 2004. Both notices of approval provided that a building permit and a
selectman’s certificate of occupancy were required prior to any use. However,
the defendants did not obtain either prior to building or occupying the unit.
Additionally, because the defendants did not obtain a building permit, the
town’s building inspector never inspected the unit. The contractor completed
construction in the spring of 2004, at which point the defendants occupied the
In the summer of 2004, the defendants approached the contractor
regarding the possibility of adding more space to the new unit. The contractor
recommended transforming one of the two new garage bays into a bedroom.
Lees again hired the contractor both to complete construction and obtain any
necessary permitting. However, the construction methods used to complete
the renovation did not meet building and life safety codes. Additionally, the
defendants again failed to secure the necessary building permits and the
construction reduced the number of parking spaces below the minimum
required by the site plan approval.
After the completion of construction, town planning and zoning board
officials visited the property a number of times in 2006 and 2007. These visits
related to whether there were fewer parking spaces on the property than
required by the site plan approval. Nonetheless, the town returned the
defendants’ bond money for the project on July 6, 2007, and informed the
defendants that “[s]ave for acceptable field changes[,] the site plan
requirements have been satisfied.”
The defendants listed the property for sale in 2007. As part of the listing,
they completed a property disclosure statement, which included the question,
“Are you aware of any modifications or repairs made without the necessary
permits?” The defendants answered, “No.” During visits to the property prior
to purchase, the plaintiff met with Lees, who assured him that he had done
“everything the Town asked me to do.” The plaintiff also reviewed the property
tax card for the property prior to purchase.
The defendants and plaintiff executed a purchase and sale agreement on
May 1, 2008. After entering into the agreement, the plaintiff had a
comprehensive home inspection performed and sent a thirty-one item list of
specific concerns regarding the property to the defendants. The concerns were
either remedied by the defendants or waived by the plaintiff prior to closing.
The defendants deeded the property to the plaintiff on July 1, 2008.
Approximately six weeks after closing, the plaintiff received a letter from
the town code enforcement officer raising questions regarding the legality of the
removal of a garage door from the new unit. The entire property was inspected
by the town building inspector and fire chief in September 2008, which
revealed numerous building and life safety code violations. As a result, the
plaintiff was ordered not to occupy the unit until he corrected the violations
and made the site compliant with site plan regulations. After correcting the
violations, the plaintiff requested a conditional occupancy permit on October 7,
2008, which was granted on October 21.
The plaintiff then brought a single claim against the defendants for
negligent misrepresentation. The plaintiff based his claim upon two alleged
misrepresentations: (1) statements on the defendants’ property disclosure form,
which provided that all building modifications were done with the necessary
permits; and (2) Lees’s verbal representation that, “I did everything the town
asked.” The defendants filed a special plea asserting comparative negligence
pursuant to RSA 507:7-d (2010), a DeBenedetto statement, see DeBenedetto v.
CLD Consulting Eng’rs, 153 N.H. 793 (2006), and a motion in limine seeking
apportionment to a number of parties, including the plaintiff. The defendants
also filed a motion in limine seeking to preclude economic loss damages.
Following a two-day bench trial, the trial court issued an order awarding
damages to the plaintiff. This appeal followed.
The defendants first challenge the trial court’s award of damages.
Specifically, they argue that the economic loss doctrine precludes the plaintiff
from recovering damages. The economic loss doctrine is a “judicially-created
remedies principle that operates generally to preclude contracting parties from
pursuing tort recovery for purely economic or commercial losses associated
with the contract relationship.” Plourde Sand & Gravel v. JGI Eastern, 154
N.H. 791, 794 (2007) (quotation omitted). The doctrine “is based on an
understanding that contract law and the law of warranty, in particular, is
better suited than tort law for dealing with purely economic loss in the
commercial arena.” Id. (quotation omitted); see Barton, Drowning in a Sea of
Contract: Application of the Economic Loss Rule to Fraud and Negligent
Misrepresentation Claims, 41 Wm. & Mary L. Rev. 1789, 1796-97 (2000)
(explaining that while contract law presumes that contracting parties “are able
to allocate risks and costs of the potential nonperformance,” tort law provides a
remedy where “it is impractical or impossible to negotiate either the terms of a
sale or each party’s duty to the other” (quotation and ellipsis omitted)).
As such, the rule precludes a harmed contracting party from recovering
in tort unless he is owed an independent duty of care outside the terms of the
contract. Plourde Sand & Gravel, 154 N.H. at 794. While the doctrine emerged
with the advent of products liability, many states, including New Hampshire,
have expanded its application to other tort cases. Id. However, it remains one
of the most confusing doctrines in tort law. Barton, supra at 1789.
As we explained in Plourde Sand & Gravel, many courts have expanded
the doctrine to apply even in the absence of a contract between the parties.
Plourde Sand & Gravel, 154 N.H. at 795. However, we noted that economic
loss recovery may be permitted in such a situation only where there is: (1) a
“special relationship” between the plaintiff and the defendant that creates a
duty owed by the defendant; or (2) a negligent misrepresentation made by a
defendant who is in the business of supplying information. Id.
While we have recognized an exception to the economic loss doctrine for
a negligent misrepresentation claim when the plaintiff and defendant are not
parties to a contract, we have never addressed the issue presently before us –
whether the economic loss doctrine bars recovery for such a claim between two
contracting parties. Courts in various jurisdictions have struggled with this
issue. See Barton, supra at 1814; see also Apollo Group, Inc. v. Avnet, Inc., 58
F.3d 477, 480 n.3 (9th Cir. 1995) (noting the lack of consensus among courts
that have faced the issue). The source of this struggle is the inherent tension
“between negligent misrepresentation, which allows for the recovery of
pecuniary loss, and the economic loss rule, which forbids recovery of economic
loss in tort.” Barton, supra at 1814 (footnote omitted).
Many courts have distinguished those negligent misrepresentation
claims that center upon an alleged inducement to enter into a contract from
those that focus upon performance of the contract. Id. at 1815; see Rich
Products Corp. v. Kemutec, Inc., 66 F. Supp. 2d 937, 977 (E.D. Wis. 1999)
(explaining that a plaintiff may plead tort claims “stemming from
misrepresentations which induce them to enter into a contract, so long as the
representations . . . do not concern the quality or characteristics of the subject
matter of the contract or otherwise relate to the offending party’s expected
performance”), aff’d, 241 F.3d 915 (7th Cir. 2001). This approach is entirely
consistent with the principles behind the economic loss doctrine. Indeed, it
differentiates between negligence claims based merely upon the breach of a
contractual duty, the risks of which could have been allocated by the parties in
their agreement, and those claims that are entirely separate and distinct from
the material terms of the agreement. See Marvin Lumber and Cedar Co. v. PPG
Industries, 223 F.3d 873, 894 (8th Cir. 2000) (Lay, J., concurring in part and
dissenting in part) (collecting cases and explaining that the misrepresentations
frequently barred by the doctrine “either restate the underlying defect that is
the basis for the breach of contract claim or reiterate the breaching party’s
failure to perform under the contract”). In other words, “[w]here the
misrepresentation of present fact serves as an inducement for the contract, it is
not duplicitous of the breach of contract claim.” Id. at 891.
Where a negligence claim is based only on breach of a contractual
duty, the law of contract rightly does not punish the breaching
party, but limits the breaching party’s liability to damages that
naturally flow from the breach. It is an altogether different
situation where it appears two parties have in good faith entered
into a contract but, in actuality, one party has deliberately made
material false representations of past or present fact, has
intentionally failed to disclose a material past or present fact, or
has negligently given false information with knowledge that the
other party would act in reliance on that information in a business
transaction with a third party. The breaching party in this latter
situation also is a tortfeasor and may not utilize the law of contract
to shield liability in tort for the party’s deliberate or negligent
United Intern. Holdings v. Wharf (Holdings), 210 F.3d 1207, 1226-27 (10th Cir.
2000), aff’d, 532 U.S. 588 (2001).
Here, the evidence at trial established that the defendants negligently
misrepresented that the premises were licensed for immediate occupancy and
that the defendants had obtained all necessary permits. The evidence further
established that these representations induced the plaintiff to enter into the
purchase and sale agreement and that he relied upon these representations
when purchasing the unit. The plaintiff’s allegations do not merely relate to a
breached promise to perform the terms of the contract or attempt to
recharacterize a breach of contract claim as a negligent misrepresentation.
Such allegations would be barred by the economic loss doctrine. See GBJ
Corp. v. Eastern Ohio Paving Co., 139 F.3d 1080, 1088 (6th Cir. 1998) (barring
the plaintiff’s tort claim based upon the defendant’s alleged promise to enter
into a multi-part deal because the complaint “name[d] the terms of the contract
as the relevant promises” and was thus “indistinguishable from the contract
claim”); Home Valu, Inc. v. Pep Boys, 213 F.3d 960, 964-65 (7th Cir. 2000)
(barring plaintiff’s fraud claim where parties entered into a contract for the sale
of real property with an agreed upon closing date and the defendant
subsequently backed out of the sale); Kreischer v. Armijo, 884 P.2d 827, 829
(N.M. Ct. App. 1994) (dismissing plaintiff’s claim for negligent construction
work because the obligation to construct the house was created by contract).
Instead, the plaintiff alleged that the defendants’ misrepresentations,
unrelated to any material terms of the actual purchase and sale agreement,
induced him to enter into the agreement. In other words, the plaintiff’s claim
alleged “independent, affirmative misrepresentations unrelated” to the
performance of the contract. Marvin Lumber and Cedar Co., 223 F.3d at 895
(Lay, J., concurring in part and dissenting in part); see Closed Cir. Corp. of
Amer. v. Jerrold Electronics, 426 F. Supp. 361, 364 (E.D. Pa. 1977)
(distinguishing the plaintiff’s fraud claim – that the defendant misrepresented
that its electronic transmitter had received FCC-type approval – from his
breach of contract claim). Accordingly, the trial court did not err in awarding
the plaintiff economic loss damages.
The defendants also argue that the trial court erred by failing to address
their request for apportionment of damages among all negligent parties,
including the plaintiff. The defendants filed both a pre-trial DeBenedetto
statement and motion in limine seeking apportionment of damages. RSA
507:7-e, I(a) (2010) provides that “if there is no jury [the court] shall find, the
amount of damages to be awarded to each claimant and against each
defendant in accordance with the proportionate fault of each of the parties.”
While the trial court did not make specific factual findings regarding the
negligence of any other parties, the court did not adopt the defendants’
requested ruling of law that damages “must be apportioned on a percentage
basis among all negligent parties, including the plaintiff himself, the plaintiff’s
building inspector, and the defendant’s contractor.” Instead, the trial court
found the defendants alone liable.
Based upon this determination and the record before it, the trial court
implicitly concluded that the defendants failed to prove their allegations of
comparative negligence. See Demers Nursing Home, Inc. v. R. C. Foss & Son,
Inc., 122 N.H. 757, 761 (1982) (noting that “in the absence of specific findings,
a court is presumed to have made all findings necessary to support its decree”
(quotation omitted)); see also DeBenedetto, 153 N.H. at 804 (explaining that a
defendant “may not easily shift fault” under RSA 507:7-e and allegations of
comparative negligence must be supported by “adequate evidence” before a
court may consider it). Accordingly, we reject the defendants’ argument that
the trial court failed to address their request for apportionment of damages.
The defendants next argue that the trial court erred in finding that the
plaintiff proved the elements of a negligent misrepresentation claim, including
that the defendants negligently made false representations, that the plaintiff
justifiably relied upon those representations, and causation. The elements of
such a claim are a negligent misrepresentation of a material fact by the
defendant and justifiable reliance by the plaintiff. Snierson v. Scruton, 145
N.H. 73, 78 (2000). It is the duty of one who volunteers information to another
not having equal knowledge, with the intention that he will act upon it, to
exercise reasonable care to verify the truth of his statements before making
The defendants essentially contend that the evidence was insufficient to
support the plaintiff’s claim. We review sufficiency of the evidence claims as a
matter of law and uphold the findings and rulings of the trial court unless they
are lacking in evidentiary support or tainted by error of law. Guyotte v. O’Neill,
157 N.H. 616, 623 (2008). We accord considerable weight to the trial court’s
judgments on the credibility of witnesses and the weight to be given testimony.
When viewed in the light most favorable to the plaintiff, see id., the
evidence was sufficient to support his claim. Although the defendants claim
that they were not actually aware of any modifications or repairs accomplished
without the required permits, the trial court found that both the conditional
approval and final approval for the site plan stated that a building permit and a
certificate of occupancy were required prior to any use. Thus, as the trial court
found, the defendants knew or should have known of the falsity of their
representations. Cf. Snierson, 145 N.H. at 78.
The record also supports the trial court’s finding that the plaintiff
justifiably relied on the misrepresentations. The plaintiff had a professional
building inspection performed and also relied upon tax bills for the units,
which showed that they were being taxed and occupied. Based upon this
record, the trial court could reasonably have found that the plaintiff did not
undertake further investigation because of the defendants’ representations,
and that such reliance was justified. See Colby v. Granite State Realty, Inc.,
116 N.H. 690, 691 (1976) (“A purchaser generally is justified in relying on
material statements of fact concerning matters peculiarly within the seller’s
own knowledge.”). Additionally, while the defendants claim that both the
purchase and sale agreement and disclosure form warned that they did not
constitute warranties, such a warning does not preclude the finder of fact from
concluding that the plaintiff justifiably relied upon the written disclosures. See
Snierson, 145 N.H. at 78. The record also supports the trial court’s finding
that the plaintiff proved causation, as the defendants’ failure to obtain the
necessary permits required the plaintiff to make the property compliant
following his purchase. Accordingly, we uphold the trial court’s findings.
Finally, the defendants briefly contend that a merger clause in the
purchase and sale agreement shields them from liability for any oral
misrepresentations. The merger clause provided that “[a]ny verbal
representation, statements and agreements are not valid unless contained
herein.” We first note that even if we were to agree with the defendants, the
merger clause at issue applies only to verbal representations and would not
shield them from liability for their written misrepresentation. Moreover, the
defendants devoted only one sentence of their brief to this argument, which we
conclude is not sufficiently developed to warrant appellate review. See State v.
Blackmer, 149 N.H. 47, 49 (2003). Accordingly, we express no opinion as to
whether a merger clause may shield a party from liability for a negligent
DALIANIS, C.J., and HICKS, CONBOY and LYNN, JJ., concurred.