Joseph McNulty v. Kristen Chip

Supreme Court
No. 2014-97-Appeal.
(PC 10-3678)
Joseph McNulty et al. :
v. :
Kristen Chip et al. :
NOTICE: This opinion is subject to formal revision before publication in
the Rhode Island Reporter. Readers are requested to notify the Opinion
Analyst, Supreme Court of Rhode Island, 250 Benefit Street, Providence,
Rhode Island 02903, at Tel. 222-3258 of any typographical or other
formal errors in order that corrections may be made before the opinion is
published.
Supreme Court
No. 2014-97-Appeal.
(PC 10-3678)
Joseph McNulty et al. :
v. :
Kristen Chip et al. :
Present: Suttell, C.J., Goldberg, Flaherty, Robinson, and Indeglia, JJ.
OPINION
Justice Flaherty, for the Court. Home is a shelter from storms—all sorts of storms.1
Unfortunately for the plaintiffs, Joseph and Elizabeth McNulty, that was not the case with the
dwelling they purchased from Kristen Chip at 5 Meadowbrook Road, Lincoln (the property).
Within weeks of purchasing their new home, the plaintiffs experienced significant flooding in the
driveway, garage, and basement. The flooding and water-penetration issues persisted over the
next several years, culminating in March 2010, when the plaintiffs experienced extensive
flooding of the property. As a result, the plaintiffs filed suit against the defendants, seeking to
recover under the theories of breach of contract, negligence, and fraud. Before this Court, the
plaintiffs appeal from a judgment of the Superior Court granting the defendants’ motions for
summary judgment. After hearing the arguments of the parties and examining the memoranda
that they submitted, we are of the opinion that the merger and disclaimer clause contained in the
purchase and sales agreement was not drawn with sufficient specificity to bar the plaintiffs’
claim for fraud. As a result, and for the reasons set forth in this opinion, we affirm in part, and
vacate in part, the judgment of the Superior Court.
1
William J. Bennett.
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I
A. Facts
From 1972 until 2002, the parents of the defendant, Kristen Chip (Chip), owned and
resided at the property. Chip herself lived there during her childhood and until she relocated for
college in 1987. In 1998, more than ten years after Chip moved away, her parents experienced
flooding that was significant enough to be the subject of a local newspaper article. The article
included a picture during the 1998 flood that showed Chip’s father walking through standing
water that had pooled in front of the house. At their respective depositions, Chip and her father
each testified that Chip was not living at the property at the time of the 1998 flood. Further,
Chip testified that she had no knowledge of the 1998 flood until plaintiffs’ counsel mailed a copy
of the newspaper article to her after the commencement of this suit. When he was deposed,
Chip’s father was asked whether he had told his daughter about the flood. He testified as
follows:
“I don’t recall. 1998, I don’t even know where she was. She wasn’t living at
home. I’m sure she knew about it, but I didn’t make a specific effort to tell her
about the flood. It’s just common sense that the discussion had to have taken
place at some point.”
Chip’s father also explained that the 1998 flood did not cause significant damage to the property
and that only about one or two inches of wallboard in the basement became wet.
In 2002 Chip purchased the property from her parents. At her deposition, Chip testified
that, during the course of this transaction, she was not represented by a real estate agent, did not
receive a real estate disclosure form from her parents, and did not inspect the property before she
bought it. In addition, Chip testified that she had no knowledge of previous flooding at the
property and asserted that she never spoke with her parents about any flooding issues. However,
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Chip did indicate that she was aware that periodic flooding had occurred at the adjacent
properties, 3 and 7 Meadowbrook Road.
In 2004 Chip became interested in selling the property and she retained Michael Pinelli
(Pinelli) to serve as her real estate agent in that effort. With the assistance of Pinelli, Chip
completed and executed a real estate disclosure form, in which she indicated that there had been
no previous flooding or water penetration at the property. Pinelli testified at his deposition that
Chip did not personally fill out the disclosure forms; rather, he read each question on the forms
to Chip and she provided him with a response, which he marked on the forms himself.
The plaintiffs became interested in purchasing the property and eventually they entered
into a dual-agency agreement with Pinelli that allowed him to act as an agent for both plaintiffs
and Chip. The plaintiffs visited the property on several occasions, both with and without Pinelli.
They also retained Answer Home Inspection to inspect the premises. On July 16, 2005, the
inspection was conducted. Present during the inspection were the home inspector, Tom
Lenahan; the plaintiffs; Elizabeth’s parents; and Pinelli. Significantly, during the course of the
inspection, Pinelli allegedly told Elizabeth’s mother, in response to a specific inquiry about water
incursion, that there previously had been “maybe an inch or so” of water in the basement. 2
The inspection report that was generated by the home inspector was eventful; it noted that
the “moisture level in the basement [is] very high, caution advised.” The inspection report also
indicated that there was evidence of water penetration, dampness, water stains, and
2
At his deposition, Pinelli adamantly denied that he had discussed previous flooding or water
penetration in the basement with any member of the McNulty family. However, in viewing the
evidence in the light most favorable to plaintiffs, as required when reviewing a motion for
summary judgment, we will assume that Pinelli did in fact make the “maybe an inch or so” of
water comment during the home inspection. See Sola v. Leighton, 45 A.3d 502, 506 (R.I. 2012)
(citing National Refrigeration, Inc. v. Standen Contracting Co., 942 A.2d 968, 971 (R.I. 2008)).
-3-
efflorescence 3 in the basement. Lastly, the report recommended that a new sump pump be
installed and that plaintiffs consult with the owner of the property for a historical perspective on
the issue of water penetration. It is undisputed that, despite the recommendations contained in
the inspection report, plaintiffs took no corrective action, nor did they seek additional
information from Chip concerning previous water damage.
On July 25, 2005, plaintiffs executed a purchase and sales agreement, under the terms of
which they agreed to buy the property for $390,000. Section 15 of the purchase and sales
agreement contained the following disclaimer: “The Property is being sold in ‘AS IS’ condition
and Buyer represents that it has not relied on the oral representations of the Seller, or the
Broker(s) or their agents as to the character or quality of the Property.” Further, section 19 of the
agreement, pertaining to inspections, stated that “Buyers have already completed thier [sic]
inspection of the property and are buying it in as in [sic] condition all other conditions stated in
this contract remain in force.” Finally, plaintiffs initialed the following statement: “Having been
informed of the right to test/inspect, the Buyer elects not to have any test(s)/inspection(s)
performed. (Inspection performed 7/16/05.)”
On September 30, 2005, Chip conveyed the property to plaintiffs by deed. In October
2005, after the sale was finalized, but before plaintiffs were able to move into the property, a
heavy rainstorm caused the driveway, garage, and basement to flood to a significant degree. At
her deposition, Elizabeth estimated that between two or three feet of water accumulated in the
basement during the flood. She further testified that when she looked into the basement, she saw
that “the water was very high. I saw things floating by.” As a result, plaintiffs called upon the
3
The inspection report explained that efflorescence is a “white powdery substance often evident
on concrete walls and floors” that is “usually an indication that dampness or water penetration
has occurred at some time.”
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Albion Fire Department to pump the water out of the basement. In the aftermath of the October
2005 flood, plaintiffs received a letter from Greg Jergensen, the son of the developer of the
neighborhood. The letter explained that, since 1968, the area had been susceptible to significant
flooding.
Elizabeth also testified that, from 2006 to 2007, there were “situations where if it rained
hard or if it rained, we would experience water coming in through some foundational cracks, and
it wasn’t just like seepage, it was shooting from the wall and, you know, landing between one
and two feet away from the wall.” As a result, plaintiffs retained Pioneer Basements to perform
waterproofing services, including the installation of five sump pumps in the basement and a
water drainage system around the perimeter of the property. Nonetheless, in March 2010,
another heavy rainstorm, of an admittedly historic proportion, caused significant flooding of the
property, with two feet of water accumulating in the basement.
B. Travel
The journey of this case has been somewhat circuitous as it has made its way to this
Court. On June 24, 2010, plaintiffs filed suit in Providence County Superior Court naming Chip,
Pinelli, RPZ Realty, Inc. (RPZ), RE/MAX, LLC, and RE/MAX of New England, Inc.
(collectively RE/MAX), as defendants. On October 5, 2010, plaintiffs filed an amended
complaint that contained seven causes of action: fraudulent misrepresentation against all
defendants (count 1); negligent misrepresentation against all defendants (count 2); deceptive
trade practices against Pinelli, RE/MAX, and RPZ (count 3); breach of the implied warranty of
good faith and fair dealing against Pinelli and Chip (count 4); breach of contract against Chip
(count 5); negligence against all defendants (count 6); and breach of fiduciary duty against
Pinelli (count 7).
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Hearings of June 19 and 26, 2012
On September 1, 2011, Pinelli and RPZ moved for summary judgment, arguing that
plaintiffs’ negligence claims were time-barred and that the claim of fraudulent misrepresentation
was barred by the disclaimer, or, in the alternative, that plaintiffs could not satisfy the elements
of that cause of action. On June 19, 2012, after approximately one year, and four continuances
that had been requested by plaintiffs’ counsel and consented to by defendants, the motion for
summary judgment finally was heard by a justice of the Superior Court. At the hearing,
plaintiffs conceded that summary judgment should enter on the contract claims, counts 4 and 5,
as well as the deceptive trade practices claim, count 3. Further, the hearing justice determined
that the negligence claims, counts 2, 6, and 7, were subject to a three-year statute of limitations
and that “the discovery rule” should not toll the limitations period because plaintiffs knew, or
should have known, of the water problems as early as 2005 or 2006. 4 Therefore, based on the
statute of limitations, the hearing justice granted summary judgment on counts 2, 6, and 7.
Lastly, the hearing justice took the claim for fraudulent misrepresentation under advisement.
Later, on June 26, 2012, the justice granted summary judgment on that claim because of the
merger and disclaimer clause contained in the purchase and sales agreement. 5 At this point, only
Pinelli and RPZ had been dismissed from the case.
4
The discovery rule provides that “the applicable statute of limitations will be tolled and will not
begin to run until, in the exercise of reasonable diligence, the plaintiff should have discovered
the injury or some injury-causing wrongful conduct.” Martin v. Howard, 784 A.2d 291, 299
(R.I. 2001).
5
Because the hearing justice granted Pinelli and RPZ’s motion for summary judgment on all
counts of plaintiffs’ amended complaint, their pending motion to amend their answer to include
the statute of limitations affirmative defense was passed.
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Hearings of December 4 and 7, 2012
On July 20, 2012, RE/MAX filed a motion for summary judgment arguing that RE/MAX
could not be held liable because the court had determined that there was no underlying liability
for their franchisee, RPZ, and its alleged agent, Pinelli. On December 4, 2012, the RE/MAX
motion for summary judgment was argued before a different hearing justice than had heard the
earlier summary judgment motions. On December 7, 2012, the second hearing justice issued a
bench decision, in which he found that all the claims against RE/MAX were derivative of the
claims against RPZ and Pinelli. The second hearing justice determined that there could be no
liability against RE/MAX as a matter of law because the first hearing justice had previously
granted RPZ and Pinelli’s motion for summary judgment; therefore, the second hearing justice
expressed his opinion that RE/MAX’s motion was rendered moot and he did not decide it on the
merits. The second hearing justice did express concern that issues of fact existed with respect to
the existence, or non-existence, of an agency relationship between Pinelli, RPZ, and RE/MAX.
Nonetheless, the hearing justice did not specifically rule on RE/MAX’s motion; instead, he
instructed RE/MAX to file a subsequent motion asking the court to rule that it no longer faced
liability in this case.
Hearings of February 26, 2013, April 16, 2013, and May 31, 2013
On December 7, 2012, Chip filed a motion for summary judgment. On February 26,
2013, a hearing was held on Chip’s motion for summary judgment, at which the second hearing
justice indicated that he was concerned that issues of fact existed with respect to Chip’s
knowledge, or lack thereof, about previous flooding and water penetration at the property.
However, the second hearing justice also stated that the law of the case doctrine might be
implicated by the first hearing justice’s decision on Pinelli and RPZ’s motion for summary
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judgment with respect to the disclaimer. 6 Accordingly, the second hearing justice reserved his
ruling on the law of the case doctrine, and he denied Chip’s motion on the ground that factual
issues remained concerning Chip’s knowledge of prior flooding at the property.
On April 16, 2013, the parties reconvened, and the second hearing justice explained that
he remained uncertain about the applicability of the law of the case doctrine to Chip’s motion.
The hearing justice requested supplemental memoranda from the parties on that issue. On May
31, 2013, after reviewing those written submissions, the second hearing justice issued a bench
decision on the motions for summary judgment filed by Chip and RE/MAX. The second hearing
justice explained that, pursuant to their supplemental memorandum, plaintiffs were no longer
opposing the preclusive effect of the first hearing justice’s decision under the law of the case
doctrine. Accordingly, the second hearing justice ruled that the first hearing justice’s decision
granting Pinelli and RPZ’s motion for summary judgment established that the merger and
disclaimer clause contained in the purchase and sales agreement was valid and, further, that it
barred plaintiffs from pursuing their claims for fraudulent misrepresentation, negligent
misrepresentation, and negligence against Chip as well. Further, the second hearing justice ruled
that, based upon plaintiffs’ acquiescence in the dismissal of the claim for breach of contract
against Chip, the claim for breach of the implied covenant of good faith and fair dealing must
also be dismissed because it is not an independent cause of action; rather, it is inextricably
connected to the claim for breach of contract. Finally, the second hearing justice granted
6
“The law of the case doctrine holds that, ‘after a judge has decided an interlocutory matter in a
pending suit, a second judge, confronted at a later stage of the suit with the same question in the
identical manner, should refrain from disturbing the first ruling.’” Chavers v. Fleet Bank (RI),
N.A., 844 A.2d 666, 677 (R.I. 2004) (quoting Paolella v. Radiologic Leasing Associates, 769
A.2d 596, 599 (R.I. 2001)). We have explained that the law of the case doctrine is “particularly
applicable when the rulings under consideration pertain to successive motions for summary
judgment * * * .” Ferguson v. Marshall Contractors, Inc., 745 A.2d 147, 151 (R.I. 2000).
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RE/MAX’s motion for summary judgment holding that RE/MAX could not be held vicariously
liable because Pinelli and RPZ were found not to be liable on the basis of the disclaimer. On
June 3, 2013, final judgment entered in favor of all defendants. On June 13, 2013, plaintiffs filed
a timely notice of appeal.
II
Standard of Review
“This Court reviews de novo a trial justice’s decision granting summary judgment.” Sola
v. Leighton, 45 A.3d 502, 506 (R.I. 2012) (quoting Lynch v. Spirit Rent-A-Car, Inc., 965 A.2d
417, 424 (R.I. 2009)). “Summary judgment is appropriate only when the ‘pleadings, depositions,
answers to interrogatories, and admissions on file, together with the affidavits, if any, show that
there is no genuine issue as to any material fact and that the moving party is entitled to judgment
as [a] matter of law.’” Id. (quoting Plunkett v. State, 869 A.2d 1185, 1187 (R.I. 2005)). “Only
when a review of the admissible evidence viewed in the light most favorable to the nonmoving
party reveals no genuine issues of material fact, and the moving party is entitled to judgment as a
matter of law, will this Court uphold the trial justice’s grant of summary judgment.” Id. (quoting
National Refrigeration, Inc. v. Standen Contracting Co., 942 A.2d 968, 971 (R.I. 2008)).
III
Analysis
On appeal, plaintiffs advance two arguments with regard to the statute of limitations.
First, plaintiffs argue that defendants waived the statute of limitations defense because it was not
raised in their answer as an affirmative defense. In addition, plaintiffs contend that genuine
issues of material fact exist with respect to whether plaintiffs timely commenced suit because of
the applicability of the discovery rule. Lastly, plaintiffs argue that genuine issues of material
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fact exist with respect to the fraudulent misrepresentation claim; therefore, the grant of summary
judgment should be reversed.
Conversely, defendants argue that summary judgment was properly granted on the
negligence claims based on the statute of limitations because plaintiffs knew, or should have
known, about any flooding and water penetration issues that may have occurred in 2005 or 2006.
The defendants also contend that the claim for fraudulent inducement was properly dismissed
because the “as is” disclaimer clause in the purchase and sales agreement was sufficiently
specific to demonstrate that plaintiffs could not have justifiably relied on any alleged
misrepresentation as a matter of law. Further, Chip argues that the claims for misrepresentation
lodged against her must fail because there is no evidence that she had knowledge of previous
flooding or water penetration at the property. In addition, Pinelli and RPZ argue that, as a matter
of law, plaintiffs’ reliance on any alleged misrepresentations was not justifiable; therefore, the
claims for fraudulent and negligent misrepresentation were properly dismissed.
A. Negligence Claims: Counts 2, 6, and 7
1. The Failure to Raise the Statute of Limitations Defense
The plaintiffs alleged three negligence-based claims: negligent misrepresentation against
all defendants (count 2); negligence against all defendants (count 6); and breach of fiduciary duty
against Pinelli (count 7). 7 At the outset, plaintiffs argue that defendants failed to plead the
statute of limitations as an affirmative defense; therefore, it was waived. Although the statute of
limitations was not raised in the answer, we have “unequivocally held that the expiration of a
statute of limitations is an affirmative defense that must be raised at or before trial or it is
waived.” Brown v. State, 32 A.3d 901, 913 (R.I. 2011) (citing State v. Lambrechts, 585 A.2d
7It is undisputed that the negligence claims are subject to a three-year statute of limitations. See
G.L. 1956 §§ 9-1-14 and 9-1-14.1.
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645, 648 (R.I. 1991) (emphasis added)); see also Industrial National Bank v. Peloso, 121 R.I.
305, 308, 397 A.2d 1312, 1313-14 (1979) (allowing an affirmative defense to be raised by way
of summary judgment). Here, defendants raised the statute of limitations defense well in
advance of trial, by way of their motions for summary judgment. Further, it does not escape us
that almost a year passed between the filing of the motion for summary judgment and the day
that it was argued. In addition, at the time of the summary judgment hearing, there was a
pending motion to amend defendants’ answer to include the statute of limitations defense, which
was rendered moot by the first hearing justice’s decision to grant summary judgment to Pinelli
and RPZ. Accordingly, there was no surprise to plaintiffs and defendants were not precluded
from arguing the statute of limitations defense.
2. Application of the Discovery Rule
Next, plaintiffs argue that the statute of limitations should be tolled because they did not
know, nor in the exercise of reasonable diligence should have known, that they were injured as a
result of defendants’ negligence until March 2010. The plaintiffs contend that it was reasonable
that they did not discover their injuries until 2010 because they were justified in relying upon the
representations of their fiduciary, Pinelli. However, a review of the record belies plaintiffs’
contentions.
This Court has explained that “[s]tatutes of limitation ‘are designed to promote justice by
preventing surprises through the revival of claims that have been allowed to slumber until
evidence has been lost, memories have faded, and witnesses have disappeared.’” Ryan v. Roman
Catholic Bishop of Providence, 941 A.2d 174, 181 (R.I. 2008) (quoting Order of Railroad
Telegraphers v. Railway Express Agency, Inc., 321 U.S. 342, 348-49 (1944)). “Generally, a
cause of action accrues and the applicable statute of limitations begins to run at the time of the
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injury to the aggrieved party.” Martin v. Howard, 784 A.2d 291, 299 (R.I. 2001) (citing Plouffe
v. Goodyear Tire and Rubber Co., 118 R.I. 288, 293, 373 A.2d 492, 495 (1977)). However, in
certain “narrowly circumscribed factual situations,” this Court has explained that “when the fact
of the injury is unknown to the plaintiff when it occurs, the applicable statute of limitations will
be tolled and will not begin to run until, in the exercise of reasonable diligence, the plaintiff
should have discovered the injury or some injury-causing wrongful conduct.” Id. (citing and
quoting Renaud v. Sigma-Aldrich Corp., 662 A.2d 711, 714 (R.I. 1995)). “The reasonable
diligence standard is based upon the perception of a reasonable person placed in circumstances
similar to the plaintiff’s, and also upon an objective assessment of whether such a person should
have discovered that the defendant’s wrongful conduct had caused him or her to be injured.” Id.
at 300.
In Lee v. Morin, 469 A.2d 358, 359 (R.I. 1983), the plaintiffs filed a negligence action
more than six years after purchasing a house, seeking to recover for undiscovered latent defects
in the property. This Court was asked to determine when the statute of limitations began to run
in a case involving improvements to real property. Id. After considering three different tolling
theories, we held that the limitations period “begins to run when the evidence of injury to
property, resulting from the negligent act upon which the action is based, is sufficiently
significant to alert the injured party to the possibility of a defect.” Id. at 360. That holding was
consistent with prior decisions of this Court that “have consistently held that in situations in
which a reasonable person would not have discovered the legal action prior to the time of injury,
the statute begins to run at the time the injury manifests itself.” Id.In the present case, even before executing the purchase and sales agreement, plaintiffs
had inspected the property and had been informed about water issues relating to the basement
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and that corrective action should be taken. Then, almost immediately after purchasing the
property, indeed, even before they moved into it, plaintiffs experienced significant flooding that
resulted in two to three feet of water accumulating in the basement. Shortly thereafter, plaintiffs
were informed by the developer’s son that, since 1968, the area was susceptible to significant
flooding because of increased water flow. This certainly proved true because, over the next
several years, they experienced multiple instances of flooding or water penetration. Finally, in
March 2010, plaintiffs experienced another major flood, comparable to the October 2005 flood,
that Elizabeth testified caused two feet of water to enter the basement.
Despite the repeated flooding of the property, plaintiffs argue that it was not until they
had a conversation with their neighbors, the Blaises, after the March 2010 flood, that they were
put on notice of defendants’ alleged misstatements. The plaintiffs contend that the Blaises
informed them that, in their opinion, Chip had to have known about previous flooding at the
property. Therefore, plaintiffs conclude that the statute of limitations applicable to their
negligence claims should be tolled because, until their conversation with the Blaises, they had no
reason to believe that they had suffered an injury.
However, in light of the repeated instances of flooding and water penetration, we cannot
agree. Our case law makes clear that the pertinent inquiry is “whether, in the exercise of
reasonable diligence, [the] plaintiff should have discovered the alleged [misconduct].” Canavan
v. Lovett, Schefrin and Harnett, 862 A.2d 778, 784 (R.I. 2004) (citing Richmond Square Capital
Corp. v. Mittleman, 689 A.2d 1067, 1069 (R.I. 1997) (mem.)). When confronted with numerous
instances of flooding and water problems during the years that followed the purchase of the
property, as well as information that the area has been flood-prone since 1968, a reasonable
person would have been put on notice more than three years before suit was filed that a potential
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claim existed. Therefore, plaintiffs are not entitled to avail themselves of the protection of the
discovery rule. 8
B. Fraud Claim: Count 1
The plaintiffs’ next argument on appeal is that genuine issues of material fact preclude
summary judgment from entering on their claim for fraudulent misrepresentation. The
defendants, on the other hand, aver that count 1 was properly dismissed because the disclaimer
clause in the purchase and sales agreement was sufficiently specific to demonstrate that plaintiffs
could not have justifiably relied on any alleged misrepresentation as a matter of law. Chip
argues that count 1 fails because the record is bare of any evidence that she had knowledge of
previous flooding or water penetration at the property. In addition, Pinelli and RPZ argue that,
as to them, plaintiffs’ reliance on any alleged misrepresentations was not justifiable as a matter
of law; therefore, the claims for fraudulent misrepresentation were properly dismissed.
“To establish a prima facie fraud claim, ‘the plaintiff must prove that the defendant made
a false representation intending thereby to induce [the] plaintiff to rely thereon and that the
plaintiff justifiably relied thereon to his or her damage.’” Parker v. Byrne, 996 A.2d 627, 634
(R.I. 2010) (quoting Bitting v. Gray, 897 A.2d 25, 34 (R.I. 2006)). “‘[A] party who has been
induced by fraud to enter into a contract’ may elect either to rescind the contract, or ‘to affirm
the contract and sue for damages in an action for intentional deceit or misrepresentation.’”
8
The plaintiffs also argue that the statute of limitations should be tolled, pursuant to § 9-1-20,
because defendants fraudulently concealed their alleged misconduct. We have explained that
“[t]he key consideration is whether or not the defendant fraudulently misrepresented material
facts, thereby misleading the plaintiff into believing that no cause of action existed.” Ryan v.
Roman Catholic Bishop of Providence, 941 A.2d 174, 183 (R.I. 2008). In sum, the record is
devoid of any evidence that defendants affirmatively “conceal[ed] from [plaintiffs] the existence
of the cause of action[;]” therefore, plaintiffs are not entitled to the protections afforded by § 9-1-
20.
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Stebbins v. Wells, 766 A.2d 369, 372 (R.I. 2001) (quoting Travers v. Spidell, 682 A.2d 471, 472
(R.I. 1996)).
In LaFazia v. Howe, 575 A.2d 182, 183 (R.I. 1990), the parties discussed, at length, the
profitability of a delicatessen before it was sold to the plaintiff-buyers. The buyers sought tax
returns, accounts receivable, accounts payable, and other records so that they could intelligently
assess the profitability of the business. Id. The sellers indicated to them that they were always
paid in cash and, as a result, they “did not keep very good books,” but they nonetheless provided
their tax returns for buyers’ inspection. Id. When they reviewed the documents provided to
them, the buyers at first decided that the business was not viable. Id. However, after further
reassuring representations were made by the sellers as to the profitability of the enterprise, the
buyers entered into an agreement to purchase the business. Id. Significantly, the agreement
included a merger and disclaimer clause that went to the heart of the matter at issue during trial,
providing that “[t]he Buyers rely on their own judgment as to the past, present or prospective
volume of business or profits of the business of the Seller and does [sic] not rely on any
representations of the Seller with respect to the same.” Id.Shortly after the sale was finalized, the buyers realized that the business was not as
profitable as they claimed that they had been led to believe and, as a result, they failed to pay the
balance due on the promissory note. LaFazia, 575 A.2d at 183-84. The sellers initiated suit for
breach of contract, seeking to collect the remainder of the promissory note, and the buyers filed a
counterclaim seeking to recover for fraudulent misrepresentation. Id. at 184. The Superior
Court granted summary judgment to the sellers on the buyers’ fraud claim, and that judgment
was appealed to this Court. Id. We affirmed the grant of summary judgment, holding that “the
merger and disclaimer clauses preclude [the buyers] from asserting that [the sellers] made
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material misrepresentations regarding the profitability of the business * * * prevent[ing the
buyers] from successfully claiming reliance on prior representations.” Id. at 185. The Court
explained that it was significant that the merger and disclaimer at issue was “not a general but a
specific disclaimer” that contained “specific language regarding the very matter concerning
which [the buyers] now claim they were defrauded.” Id. at 185, 186.
In Travers, 682 A.2d at 472, this Court was tasked with determining whether a general
merger and disclaimer clause contained in a purchase and sales agreement barred the buyers’
fraud claim based on the sellers’ alleged misrepresentations. The buyers alleged that the sellers
misrepresented that a home’s well was located within the boundaries of the conveyed property
when, in actuality, the well was on a neighbor’s property. Id. The purchase and sales agreement
in that case also contained a merger and disclaimer clause, which provided that “[w]e, the parties
hereto, each declare that this instrument contains the entire agreement between the parties, and
that it is subject to no understandings, conditions or representations other than those expressly
stated therein.” Id. On appeal, we explained that, unlike LaFazia, the disclaimer clause at issue
was general in nature and was not specific because it “specifically addresses neither the well’s
location nor the boundaries of the property.” Travers, 682 A.2d at 473. For that reason, we held
that the general merger and disclaimer language did not bar the buyers’ fraud claim as a matter
of law. Id.Here, defendants aver that the “as is” disclaimer clause in the purchase and sales
agreement was sufficiently specific to the extent that, as a matter of law, plaintiffs could not have
justifiably relied on any alleged misrepresentation. The merger and disclaimer clause at issue in
this case provides, in pertinent part, that “[t]he Property is being sold in ‘AS IS’ condition and
Buyer represents that it has not relied on the oral representations of the Seller, or the Broker(s) or
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their agents as to the character or quality of the Property.” With respect to inspections, the
parties added a provision that provided that “Buyers have already completed thier [sic]
inspection of the property and are buying it in as in [sic] condition all other conditions stated in
this contract remain in force.” The defendants contend that the above-referenced portions of the
purchase and sales agreement, when combined with the fact that plaintiffs had previously had a
professional inspection performed on their behalf, obviates any claim of reasonable reliance.
However, unlike the disclaimer in LaFazia, 575 A.2d at 183, which explicitly stated that
buyers were relying on their own knowledge concerning the very issue at trial, profitability of
the business, the instant disclaimer provides only that plaintiffs have not relied on oral
representations “as to the character or quality of the Property.” In our opinion, the disclaimer
more closely resembles the more general disclaimer addressed in Travers, 682 A.2d at 472,
which provided that the purchase and sales agreement embodied the entire agreement and was
“subject to no understandings, conditions or representations other than those expressly stated
therein.” Id. The defendants contend, however, that, when combined with the waiver of the
right to inspect, as well as the inspection report that was issued prior to entering into the
agreement, the disclaimer is sufficiently specific as to the very nature of plaintiffs’ fraud claim.
But, it is significant to us that neither the disclaimer clause nor the provisions concerning
plaintiffs’ waiver of their right to inspect, contains any reference to the issues of flooding and
water penetration. Because the disclaimer clause was general, as opposed to specific, with
respect to the nature of the claim at issue, it is our opinion that the first hearing justice’s grant of
summary judgment as to count 1 was improper.
Notwithstanding the absence of an effective disclaimer, Chip argues that the claims for
fraud still must fail as to her because there is no evidence that she had any knowledge of
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previous flooding at the property. However, Chip’s father testified at a deposition that, even
though he was unsure if he told Chip about the 1998 flood, “I’m sure she knew about it,” and
that “[i]t’s just common sense that the discussion [about the 1998 flood] had to have taken place
at some point.” Therefore, and in the context of a summary judgment proceeding, genuine issues
of material fact exist with respect to Chip’s knowledge, or lack thereof, of the 1998 flood.
Lastly, Pinelli and RPZ argue that plaintiffs’ claim for fraudulent inducement fails as a
matter of law as to them because plaintiffs cannot demonstrate that they reasonably relied on any
statement Pinelli may have made or that Pinelli intended to induce them to purchase the property.
However, in light of the allegation that Pinelli said that “maybe an inch or so” of water entered
the basement previously and the fact that he was financially interested in finalizing the sale as an
agent for both plaintiffs and Chip, it is our opinion that issues of fact exist as to the fraud claim
against Pinelli and RPZ. Moreover, because the dismissal of the fraud claim against RE/MAX
was based upon the first motion justice’s ruling that the purchase and sales agreement’s
disclaimer clause was effective to bar the fraud claim, a ruling that we have reversed, and
because of the existence of an agency relationship sufficient to allow vicarious liability to attach
to RE/MAX is an issue of fact, count 1 also survives as to RE/MAX.
C. Remaining Contract Claim: Count 4
The plaintiffs’ last argument on appeal is that they have a viable cause of action against
Chip under count 4, breach of the implied warranty of good faith and fair dealing, because it is a
separate and independent cause of action. 9 This Court has explained that “[v]irtually every
contract contains an implied covenant of good faith and fair dealing between the parties.”
9
During the course of the summary judgment proceedings, plaintiffs voluntarily dismissed count
5, and conceded that summary judgment should be granted on count 4 in favor of Pinelli because
he was not a party to the purchase and sales agreement. Therefore, the only remaining contract
claim is count 4 against Chip.
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Dovenmuehle Mortgage, Inc. v. Antonelli, 790 A.2d 1113, 1115 (R.I. 2002) (quoting Centerville
Builders, Inc. v. Wynne, 683 A.2d 1340, 1342 (R.I. 1996)). The implied covenant of good faith
and fair dealing ensures that “contractual objectives may be achieved,” Ide Farm & Stable, Inc.
v. Cardi, 110 R.I. 735, 739, 297 A.2d 643, 645 (1972), and that “neither party shall do anything
which will have the effect of destroying or injuring the right of the other party to receive the
fruits of the contract.” 17A Am. Jur. 2d Contracts § 370 at 356 (2004). However, we have
explained that a claim for breach of the implied covenant of good faith and fair dealing does not
create an independent cause of action separate and apart from a claim for breach of contract. See
A. A. A. Pool Service & Supply, Inc. v. Aetna Casualty & Surety Co., 121 R.I. 96, 99-100, 395
A.2d 724, 725-26 (1978). Accordingly, the hearing justice properly granted Chip’s motion for
summary judgment with respect to count 4.
IV
Conclusion
For the reasons set forth above, we affirm the grants of summary judgment on the
plaintiffs’ contract claims, counts 4 and 5, and the negligence claims, counts 2, 6, and 7.
However, we vacate the grant of summary judgment on the plaintiffs’ fraud claim, count 1, and
remand the case to the Superior Court for further proceedings.
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RHODE ISLAND SUPREME COURT CLERK’S OFFICE
Clerk’s Office Order/Opinion Cover Sheet
TITLE OF CASE: Joseph McNulty et al. v. Kristen Chip et al.
CASE NO: No. 2014-97-Appeal.
(PC 10-3678)
COURT: Supreme Court
DATE OPINION FILED: June 4, 2015
JUSTICES: Suttell, C.J., Goldberg, Flaherty, Robinson, and Indeglia, JJ.
WRITTEN BY: Associate Justice Francis X. Flaherty
SOURCE OF APPEAL: Providence County Superior Court
JUDGE FROM LOWER COURT:
Associate Justice Brian Van Couyghen
Associate Justice Luis M. Matos
ATTORNEYS ON APPEAL:
For Plaintiffs: Chip Muller, Esq.
For Defendant: Rajaram Suryanarayan, Esq.
Michael J. Jacobs, Esq.