Opinion ID: 1266353
Heading Depth: 2
Heading Rank: 1

Heading: Claim of Fraud

Text: With regard to the claim of fraud, the Appellants allege that the lower court's grant of summary judgment was improper based upon the following: (1) there is no dispute that misrepresentations were made that the property extended to the riverfront; (2) genuine issues of material fact exist regarding whether the alleged right of way to the river would permit the construction of boat docks at river's edge; (3) genuine issues of material fact exist regarding whether the lease/purchase agreement would have been entered into if the Appellants had known that the property did not included riverfront; (4) genuine issues of material fact exist regarding whether the Appellants were on notice concerning the status of the property; (5) it is uncontested that the Appellants did not have a title search conducted prior to signing the lease/purchase agreements; and (6) Appellants made improvements to the property during the lease period after they decided to exercise their option to purchase. It is also apparent from the record that the evidence is conflicting regarding Appellants' requirements when searching for property and how Appellees responded to Appellants' requirements and inquiries. In syllabus point one of Lengyel v. Lint, 167 W.Va. 272, 280 S.E.2d 66 (1981), this Court explained: The essential elements in an action for fraud are: (1) that the act claimed to be fraudulent was the act of the defendant or induced by him; (2) that it was material and false; that plaintiff relied upon it and was justified under the circumstances in relying upon it; and (3) that he was damaged because he relied upon it. Horton v. Tyree, 104 W.Va. 238, 242, 139 S.E. 737 (1927). See also Cordial v. Ernst & Young, 199 W.Va. 119, 483 S.E.2d 248 (1996); Muzelak v. King Chevrolet, Inc., 179 W.Va. 340, 368 S.E.2d 710 (1988). In Lengyel, as in the present case, the appeal involved questions relating to an action for fraud arising from a real estate transaction and the appropriateness of summary judgment in such a case. 167 W.Va. at 273, 280 S.E.2d at 67. In dealing with issues surrounding the distinction between a mobile home with additions and a modular home, this Court in Lengyel observed: This alone created a genuine issue of fact. Which was it, a mobile home or a modular home, or are they the same thing? The question cannot be resolved on this record unless you accept the testimony of one party and ignore the testimony of another party. This is not the type of determination to be made on a motion for summary judgment. Id. at 281, 280 S.E.2d at 71. In the case sub judice, the existence of the essential elements of an action for fraud, as outlined in Lengyel, can only be determined by resolution of several key factual issues, all ardently disputed by the parties. The parties produced conflicting evidence regarding issues as fundamental as the character of the ownership of the property in question. While the Appellants were informed that the property included the riverfront, there was disagreement regarding whether a right of way existed and, if so, whether it could include the right to build a boat dock on the right of way. [6] Despite this incongruity in the evidence, the lower court concluded as follows: The unrefuted evidence [Mr. Gardner] in this matter discloses that the 40 foot strip of property is a right of way that goes with the subject property, provides access to the Ohio River, and legally authorizes the Plaintiffs to build boat docks. The Defendants, therefore, made no material misrepresentations to the Plaintiffs. Based upon the evidence then before the lower court, we find the court's conclusion, in the context of summary judgment, simply erroneous. Aside from the conflicting evidence regarding Appellants' announced requirements for suitable property to rent and possibly buy, as well as conflicting evidence regarding how Appellees responded to such announced requirements, if any, the record is in disarray as to the actual state of the title to the riverfront access. Most particularly, the record lacks any definitive evidence as to what title Grave Creek Enterprises, an absent party, in fact claimed or held with respect to the riverfront access property and the ability of the Appellants to construct permanent buildings on that riverfront access. Finally, the opinion of Appellees' counsel [7] as to the state of the title is hardly dispositive of these critical issues at the summary judgment stage. Clearly, further development of the facts was desirable to clarify what law was to be properly applied in all these circumstances. [8] As emphasized above, syllabus point three of Aetna Casualty explains that  summary judgment should be granted only when it is clear that there is no genuine issue of fact to be tried and inquiry concerning the facts is not desirable to clarify the application of the law. 148 W.Va. at 160, 133 S.E.2d at 771 (emphasis supplied). The lower court's conclusion also ignores the reality that regardless of any ultimate determination of whether Mr. Mull owned the riverfront property or simply enjoyed a right of way to the riverfront over Grave Creek property, Appellants were provided with a map of the property prior to the lease term which expressly indicated that the property included riverfront property. Even a legitimate mistake does not negate a cause of action for fraud, as this Court specified in syllabus point one of Horton v. Tyree, 104 W.Va. 238, 139 S.E. 737 (1927), as follows: Where one person induces another to enter into a contract by false representations which he is in a situation to know, and which it is his duty to know, are untrue, he, in contemplation of law, does know the statements to be untrue, and consequently they are held to be fraudulent, and the person injured has a remedy for the loss sustained by an action for damages. It is not indispensable to a recovery that the defendant actually knew them to be false. In similar vein, this Court specified in Cordial that by definition, fraud does not require in all circumstances that its perpetrator have actual knowledge of the material falsity of a statement. 199 W.Va. at 130, 483 S.E.2d at 259. Further, in holding that no genuine issues of material fact existed, the lower court appears to have credited the Appellees' argument that the Appellants were not justified as a matter of law in relying upon the Appellees' representations because the Appellants did not attempt to independently ascertain the actual ownership interest being offered to them by the Appellees, through title search or survey. Such argument is premised upon the essentially equitable principles encompassed within the independent investigation doctrine and the doctrine of constructive notice, examined below. The independent investigation doctrine was adopted by this Court in syllabus point five of Jones v. McComas, 92 W.Va. 596, 115 S.E. 456 (1922), wherein this Court held: Though a purchaser may rely upon particular and positive representations of a seller, yet if he undertakes to inform himself from other sources as to matters easily ascertainable, by personal investigation, and the defendant has done nothing to prevent full inquiry, he will be deemed to have relied upon his own investigation and not upon the representations of the seller. 92 W.Va. at 597, 115 S.E. at 456 (emphasis supplied). In syllabus point two of Staker v. Reese, 82 W.Va. 764, 97 S.E. 641 (1918), this Court recognized that one to whom a representation has been made as an inducement to enter into a contract has a right to rely upon it as true quoad the maker, without making inquiry or investigation to determine the truth thereof. See also Morrison v. Bank of Mount Hope, 124 W.Va. 478, 20 S.E.2d 790 (1942); Gall v. Cowell, 118 W.Va. 263, 190 S.E. 130 (1937). That underlying principle is well settled in this jurisdiction, and it is only where the purchaser does undertake further inquiry into the facts that he is charged with and presumed to rely on everything his investigation uncovers. Rockley Manor v. Strimbeck, 181 W.Va. 313, 315, 382 S.E.2d 507, 509 (1989). The Appellants in the present case did not undertake personal, independent investigation; [9] consequently, the principles of the independent investigation doctrine are not dispositive of our decision herein. Moreover, even if the doctrine of independent investigation were directly implicated in this case, this Court's decision in Trafalgar House Construction, Inc., v. ZMM, Inc., 211 W.Va. 578, 567 S.E.2d 294 (2002), clarifies that [t]he `independent investigation' doctrine is not an absolute defense... within the context of a fraud claim. Id. at 585, 567 S.E.2d at 301. The Appellees cite Somerville v. Jacobs, 153 W.Va. 613, 170 S.E.2d 805 (1969), and Dawson v. Grow, 29 W.Va. 333, 1 S.E. 564 (1887), in support of their contention that the Appellants were not justified in relying upon any representations made by the Appellees. First, neither Somerville nor Dawson dealt directly with a claim of fraud, as we have in the case sub judice; second, Somerville explicitly carved the issue of fraud out of the equation by specifying that the controlling question for decision involved the competing rights of parties where a mistake had been made not induced or permitted by the owner of the property who is not guilty of any fraud or inequitable conduct.... 153 W.Va. at 616-17, 170 S.E.2d at 807. Of greater assistance in this evaluation are the decisions of this jurisdiction and others regarding the doctrine of constructive notice, placing a purchaser on constructive notice of all facts which could have been discovered by searching records of duly recorded instruments, and its impact upon an action for fraud. Syllabus point five of Martin v. South Bluefield Land Co., 81 W.Va. 62, 94 S.E. 493 (1917), crystalized this issue as follows: Where a vendor of land, through an agent, falsely represents as true a fact peculiarly within his knowledge, which if true is disclosed by a public record, and the vendee is misled thereby to his detriment, his failure to examine such record to verify the representation will not preclude his right of action or claim to equitable relief for the fraud and deceit. This Court also observed, in Brannon v. Riffle, 197 W.Va. 97, 475 S.E.2d 97 (1996), that the doctrine of constructive notice did not preclude factual inquiry into the issue of when the parties gained knowledge of the validity of a lease at issue. In Brannon, the Appellants, as purchasers of the property in question, argued that summary judgment was improper where factual issues existed regarding when the Appellees had knowledge of the lapse of certain oil and gas leases. In addressing this claim, this Court observed as follows: The circuit court reasoned that even if there had been a mutual mistake of fact with regard to the validity of the Eddy lease, the doctrine of constructive notice precluded any reliance on such mistake. Conversely, Appellants maintain that these factual inquiries are not precluded by the doctrine of constructive notice. We agree. 197 W.Va. at 100, 475 S.E.2d at 100. Other jurisdictions have also addressed claims such as those made by the Appellees in the present case. In ECC Parkway Joint Venture v. Baldwin, 765 S.W.2d 504 (Tex.App.1989), for instance, the Texas court encountered the issue of whether the purchaser's constructive notice from deed records regarding height restrictions on the property was a defense to the purchaser's cause of action against the vendor and broker for fraud, negligent misrepresentation, breach of fiduciary duty, and violation of the Texas Deceptive Trade Practices Act. The court evaluated the defendants' contentions, forwarded in motions for summary judgment, that the plaintiff could not recover for any concealment since the plaintiff had constructive notice from deed records regarding the existence of a height restriction. 765 S.W.2d at 508-09. In examining the principles underlying the applicable law, the Baldwin court noted that deed records afford notice of interests conveyed in real property for the purpose of protecting those interests and subsequent grantees, not for the purpose of protecting perpetrators of fraud. Id. at 509; see also Ojeda de Toca v. Wise, 748 S.W.2d 449, 451 (Tex.1988). The Baldwin court therefore concluded that constructive notice was not a bar to the purchaser's cause of action. 765 S.W.2d at 509; but see Bache v. Owens, 280 Mont. 106, 929 P.2d 217 (1997) (holding that vendors had no affirmative duty to disclose existence of easement where easement was matter of public record). Similarly, in Fireison v. Pearson, 520 A.2d 1046 (D.C.App.1987), the District of Columbia Court of Appeals explained that a real estate purchaser is not required to examine land records and clearly has a right to rely on the vendor's representations as to the boundaries and acreage of the land. 520 A.2d. at 1050, citing Piper v. Jenkins, 207 Md. 308, 113 A.2d 919, 921 (1955). The Fireison court explicitly held that [e]ven when the means of ascertaining the falsity of the vendor's representations are known and accessible, the purchaser's failure to review the land records will not bar his recovery. Id. Only when the purchaser actually undertakes to make an investigation of the records will his recovery be jeopardized. Id. Thus, the crucial question is whether [the purchaser]by himself or through his agentundertook an examination of the land records. Id. This is based upon the logical principle that once the purchaser assumes the burden of an examination he cannot say that he was deceived to his injury where such examination discloses the correct information. Ryan v. Brady, 34 Md.App. 41, 366 A.2d 745, 753 (1976). The Iowa court succinctly summarized this concept in McGibbons v. Wilder, 78 Iowa 531, 43 N.W. 520 (1889), as follows: This court has repeatedly held, in effect, that a party may rely upon representations as to the ownership of property, its location, and the like; and that, to entitle him to recover for fraudulent representations, he is not bound to show that he instituted inquiry by consulting records or plats, or employing a surveyor, or the like. 43 N.W. at 522. This method of reasoning is also embraced by the Restatement (Second) of Torts § 540 (1977), in its recognition of the following: The recipient of a fraudulent misrepresentation of fact is justified in relying upon its truth, although he might have ascertained the falsity of the representation had he made an investigation. Comment b further provides: The rule stated in this Section is applicable even though the fact that is fraudulently represented is required to be recorded and is in fact recorded. The recording acts are not intended as a protection for fraudulent liars. Their purpose is to afford a protection to persons who buy a recorded title against those who, having obtained a paper title, have failed to record it. The purpose of the statutes is fully accomplished without giving them a collateral effect that protects those who make fraudulent misrepresentations from liability. See also W. Prosser & W. Keaton, Torts (5th Ed.) § 108, p. 752 (The plaintiff is not required... to examine public records to ascertain the true state of title claimed by the defendant). In Kavarco v. T.J.E., Inc., 2 Conn.App. 294, 478 A.2d 257 (1984), the Connecticut court, relying in part upon the Restatement, held as follows: To shield a seller with a buyer's negligence in not finding out whether the representation was true or false would be to give the seller the fruit of his falsehood. 478 A.2d at 262. Restatement (Second) of Torts § 541 (1977) presents an additional element, recognizing that [t]he recipient of a fraudulent misrepresentation is not justified in relying upon its truth if he knows that it is false or its falsity is obvious to him. [10] This recognition is consistent with this Court's statement in Tri-State Asphalt Products, Inc. v. McDonough Co., 182 W.Va. 757, 391 S.E.2d 907 (1990), to the effect that one cannot rely blindly upon a representation without suitable investigation and a reasonable basis. 182 W.Va. at 762, 391 S.E.2d at 912, quoting Elk Refining Co. v. Daniel, 199 F.2d 479, 482 (4th Cir.1952). Further, it fully comports with the primary language in syllabus point one of Lengyel, establishing that one of the elements of a fraud claim is that the plaintiff relied upon the misrepresentation and was justified under the circumstances in relying upon it. 167 W.Va. at 273, 280 S.E.2d at 67. These principles were also utilized over a century ago by the United States Supreme Court in Shappirio v. Goldberg, 192 U.S. 232, 24 S.Ct. 259, 48 L.Ed. 419 (1904), a case involving a claim of fraud wherein the purchaser alleged that the vendor falsely represented that an adjacent property was included in the sale of the subject property. A correct description of the property was provided in the deed and the recorded chain of title. Further, an agent for the purchaser had knowledge of the actual extent of the property being purchased. In making its ruling, the Supreme Court noted two distinct types of cases; those in which the purchaser has undertaken independent investigation and those in which he has not. The Court explained: There are cases where misrepresentations are made which deceive the purchaser, in which it is no defence to say that had the plaintiff declined to believe the representations and investigated for himself he would not have been deceived. Id. at 241, 24 S.Ct. 259. This is exactly the type of case we presently have before this Court. In evaluating the contentions of the parties and the guiding precedent, we conclude that utilization of the doctrine of constructive notice in this context would defeat most real estate fraud actions by resulting in a finding that the component of justifiable reliance, identified as the second component of the essential elements of fraud, is absent where a plaintiff fails to discover legal realities which could have been discovered upon reasonable investigation. That is clearly not the intent of the West Virginia cases examined above; nor is it consistent with the intent of the apposite cases from other jurisdictions or the Restatement of Torts. We consequently hold that the doctrine of constructive notice will not defeat a cause of action for fraud or negligent misrepresentation where the entity asserting the cause of action did not undertake independent investigation to ascertain the truth of the allegedly fraudulent representation. Based upon that conclusion, we reverse the summary judgment granted by the lower court on the Appellants' fraud claim and remand this case for further proceedings on that cause of action.