Court Opinion

ID: 9844633
Source: CourtListenerOpinion
Date Created: 2023-09-24 03:05:47.478411+00
Date Added: 2024-06-11T09:15:39.346671
License: Public Domain

DISSENT FROM THE DENIAL OF APPELLANT’S PETITION FOR REHEARING
BISTLINE, Justice,
dissenting from the denial of appellant’s Petition for Rehearing.
Hopefully there will never be a case where a party litigant has been treated to such a display of judicial error as has been visited upon Wayne Hudson, the plaintiff. In a nutshell, the district court destroyed his case by trying to help him — notwithstanding that he was represented by competent counsel. The district court, of its own volition and aided by a law clerk and certainly acting on no instigation by the defendants or their counsel, came to the conclusion that Mr. Hudson’s counsel was pursuing redress on what the district court, with the extensive help of the law clerk, believed to be the better and the proper theory, to wit, the theory of negligent misrepresentation. Over the objections of all counsel, representing both the plaintiff and the defendants, at the close of the trial, the court gave the jury the court’s instruction as to the elements necessary to determine liability for negligent misrepresentation and damages.
The jury found for the plaintiff, utilizing the court’s instruction. Thereafter, the court, on reflection, determined that, well, shucks, counsel had been right after all, and the theory of negligent misrepresentation had been erroneously submitted to the jury. Accordingly, having led the jury into error, over well-voiced protests in the form of objections, the court threw out the jury’s verdict and entered a judgment non obstante veredicto favorable to the defendants. Thereafter the court denied Mr. Hudson’s motion for a new trial, a new trial at which a jury would be allowed to decide the defendants’ culpability and liability for damages according to Mr. Hudson’s (and his counsel’s) theory of liability upon which they had relied beginning with the first pleading.
How did such a strange affair come about? Only because the district court on an abrupt change of mind decided that there was not in Idaho a recognized cause of action for negligent misrepresentation. So, the district court concedes there was error prejudicial to the defendants in having allowed that theory to be presented to the jury. It would not have any lingering prejudicial effects on the defendants, however, because the jury’s verdict and judgment thereon were set aside as just stated.
All considered, the district court was so diligent in correcting the error which the it saw that it had visited upon the defendants, that in doing so the court completely overlooked what has always been done in such circumstances, namely, tender apologies to all concerned, set a new trial date, try the case a second time on the theories that able counsel for both sides had presented, and await the verdict of the jury. Judicial history is replete with cases which have had to be tried more than once before an error-free trial was had. Sometimes the error is caused or invited by counsel, but not in this case. It was the court’s error, plain and simple, and it was by the district court so conceded and admitted.
If there is lurking somewhere a valid precedent, or even a reason for the strange happenings in district court, i.e., the court on its own initiative giving the jury instructions on a theory of negligent misrepresentation, and thereafter granting a judgment n.o.v. without simultaneously setting the case for a second trial, I am unaware of it. District courts are capable of being both right and wrong. A district court, which is one judge unlike the appellate courts which are comprised of three or five members, does not enjoy the luxury of input of either three or five points of view, which is a great advantage. In this particular case, as a matter of routine, it is believed that one thousand out of one thousand attorneys would have expected that an appeal would have resulted in a routine reversal of the district court, and a remand with di*514rection for a new trial. At one time when the case first came before this Court an opinion did issue which reversed the district court and remanded the case back to the district court for a new trial, a not unusual happenstance where a collegial court of five members reviews the rulings of a one-member trial court. Had the case ever gone again to the jury in an error-free trial, all would have ended well. By a jury verdict justice would have been done, such being true no matter who prevailed. However, a rehearing was petitioned for and for reasons unknown was granted. A new opinion was issued by the Court which by that time had become differently constituted. The earlier opinion was cancelled without explanation as to why, or how error was discovered in the first opinion’s statement of facts or application of the law. The Court now concludes that a new trial was not merited. How the Court arrived at that conclusion I know not, am unable to discern, and will never understand. What is known was that it cannot be the law that a party who presents his case to a jury and prevails, and then finds his success overthrown by reason of the error committed by district court, is certainly entitled to a new trial free of the district court’s improper interference.
My humble efforts at swaying the court in a proper direction had little effect. Worse yet, the effort on my part must have been extremely shabby, as not one of the four comprising the majority felt obliged to write one word in response, thereby acquainting me with wherein I was misguided or mistaken. Now, counsel for Mr. Hudson have had their try at causing the Court to do the ordinary, i.e., recognize how grossly inappropriate it was for a district court to grant a judgment n.o.v. because of the district court’s own error in forcing both parties to go to trial on a theory of defendants’ liability which was wholly the making of the district court itself.
One can tell at a glance that considerable time and effort has gone into Mr. Hudson’s brief supporting his petition for a rehearing. Rather than to attempt paraphrasing its content, a labor for which presently there is no allottable time, and which might do that brief an injustice, I append it as Attachment A, hoping that it might give the other members of the Court some pause, but confident that it will enlighten any of the trial bar who may have doubted my credulity in what I earlier wrote.
The issue is not debatable. Error was committed, and it was not chargeable to Mr. Wayne Hudson. What is more bothersome is the Court’s insistence at perpetuating this monumental miscarriage of justice by not doing as it has often done — simply remanding to the district court with the request that the district court, now three or more years the wiser and experienced, reconsider. For my part there is no doubt that the district court would relish the opportunity, especially as against being forever saddled as the author of a most unfortunate decision which threw out a jury’s verdict and dismissed the case, thereby specifically precluding a second jury trial at which the plaintiff could have the jury reach a decision on his theory of the case instead of on the theory imposed on both parties by the district court.
Attachment A.
I.
STATEMENT OF THE CASE
A. INTRODUCTION.
In its second opinion in this case, filed June 19, 1990, this Court summarily concluded that the facts of this case were not sufficient to establish a duty necessary to make out a prima facie case in tort and so affirmed the judgment n.o.v. entered in favor of Defendants Cobbs and Kennevick. Plaintiff Hudson petitions this Court for rehearing and submits that this Court erred in its conclusionary opinion. The facts of this case establish that Cobbs, Kennevick and Mark Bazeghi owed a duty, independent of contract, to Hudson and the Idaho First National Bank (“the Bank”), as defined by the common law of negligent nondisclosure and constructive fraud. This *515duty was breached and Cobbs and Kennevick should be held liable in tort.
Hudson also submits that he was denied his right to a fair jury trial, free from prejudicial error, when the trial court, on her own motion and over Hudson’s objection, submitted the negligent misrepresentation cause of action to the jury and then granted judgment n.o.v. as the result of such submission and the verdict of the jury.
B. CLARIFICATION AND SUPPLEMENTATION OF THE STATEMENT OF FACTS.
Hudson disputes the Statement of Facts set forth in the Court’s second opinion because of the glaring omission of relevant facts and relevant legal doctrine, as discussed below.
SIGNIFICANCE OF THE LEASE TO THE PROFESSIONALS, INC. IN CONJUNCTION WITH COBBS-KENNEV-ICK LEASES.
No mention is made of The Professionals, Inc. The lease to The Professionals, Inc., in conjunction with the two Cobbs/Kennevick leases, was a composite in the plan to induce Hudson to conclude that Webster # 3 had met the Bank’s preleasing requirements. These three leases were to have generated the sum of $4,784.14 per month in rental income, which represented 72% of Hudson’s monthly $6,645.83 loan payment to the Bank. (Exh. 89) Prior to submitting these three leases to Hudson for his approval, Mark Bazeghi had proposed that Webster #3 lease 12,200 square feet of the office space with the right to sublease. In the alternative, Bazeghi proposed that Webster #3 pay Hudson $50,000.00 in cash if Hudson would assume the leasing requirement. (Tr.Vol. 3, p. 405-407; R.Vol. VII, p. 1833, L. 14-21; Exh. 9) Hudson rejected both alternatives. The Bank would likewise have rejected these alternatives. (Tr.Vol. 3, p. 407-408; R.Vol. VII, p. 1833, L. 21-26) The leases to Cobbs/Kennevick cannot be considered in isolation from the lease to The Professionals, Inc. Each was used as intended to make up the deficiency in fulfilling the preleasing requirement. The lease to The Professionals, Inc. shows the intent and purpose of Cobbs in aiding Mark Bazeghi. See the discussion covering The Professionals, Inc. at p. 29.
BETHLAHMY AND TUSCH — THE GOVERNING LAW
The Court has omitted discussion of the governing law as expressed in Bethlahmy and Tusch, each of which involved a contract and in each a duty in tort was found to exist. These cases cannot be distinguished from the present case. No lawyer worth his keep would have advised Hudson to sue in contract on the “straw leases” and not in tort. See the discussion on this point at p. 16.
NEGLIGENT MISREPRESENTATION INSTRUCTION SUBSUMES TORTS OF NEGLIGENT NONDISCLOSURE AND CONSTRUCTIVE FRAUD
This Court ignored the fact that the “negligent misrepresentation” instruction given by the Court, Instruction No. 40, when considered with Instruction No. 43, was broad enough to subsume the torts of negligent nondisclosure and constructive fraud. See the discussion on this point at p. 23.
JOINT TORT-FEASORS
The fact that Cobbs/Kennevick and Mark Bazeghi were joint tort-feasors in their concerted effort to induce Hudson to complete the purchase of the office building has been ignored by this Court in its opinion. The entire complexion of this case is affected by this fact. Surely the Court does not intend to extend the benefits of this doctrine to some litigants and not to others. See the discussion on this point at p. 25.
TRIAL COURT’S FINDINGS IGNORED BY COURT
The trial court found that Mark Bazeghi advised Cobbs “that there was a construe*516tion loan which needed to be converted to long term financing and that the leases would be used for that purpose.” (R.Vol. VII, p. 1834) Cobbs also testified that, at the time he entered into the leases, Mark Bazeghi had told him that there was a purchaser who desired to buy the building and that he (Bazeghi) was trying to get the building leased so that long term financing could be consummatéd. Cobbs also knew that if enough square footage were leased, the long term financing would be approved by the Bank. (R.Vol. VII, p. 1837) Cobbs also testified that Mark Bazeghi told him that the leases would be used to secure a buyer. (R.Vol VII, p. 1838)
In addition, the trial court found that during the course of this transaction, Hudson was diagnosed as having a malignant brain tumor in October, 1980. Surgery was performed in late November. Hudson underwent radiation therapy in February, 1981. He underwent additional surgery on March 6,1981, which was followed by more radiation therapy. Mark Bazeghi was aware of Hudson’s brain cancer. (R.Vol. VII, p. 1833) Cobbs testified that Mark Bazeghi had told him “that the potential buyer was ill and unable to obtain any leases and that Mark Barzeghi was obtaining them for him.” (R.Vol. VII, p. 1837)
The trial court concluded that neither Hudson nor the Bank was ever advised of the secret arrangement between Cobbs and Kennevick and Mark Bazeghi and that, “had the Bank been aware of the nature of the agreement, it would not have approved the long term financing ...” because the preleasing condition would not have been met. (R.Vol. VII, p. 1836)
WEBSTER # 3’S PAYMENT OF RENT
The Court states in the opinion that on July 1, 1981, Webster # 3 and Hudson entered into their final agreement, under which “Webster # 3 agreed to pay rent on any preleased space not actually occupied by lessees or sublessees.” This is incorrect. The last agreement was on June 24, 1981, the import óf which was that Webster # 3 agreed to guarantee the rent payments of nonoccupying lessees. Webster # 3 also agreed to manage the office building and collect the rent from the lessees. In Webster # 3’s accounting for the month of July, 1981, it shows rent having been paid by Cobbs and Kennevick in the amount of $4,033.72. (Exh. No. 19) Hudson never at any time agreed to look solely to the credit of Webster # 3, but instead relied on the credit of the primary obligors under the leases. The jury so found.
It is important to note that Kathy Bazeghi, an attorney, was the principal draftsman of the June 24, 1981, implementing agreement. As Hudson testified, he was substantially distracted during the period of his illness and felt it was imperative to trust the people with whom he was dealing. (Tr.Vol. 3, p. 400-401, 404, L. 15-24; R.Vol. VII, p. 1833, L. 7-13)
COURT’S ERRONEOUS ASSUMPTION THAT HUDSON BROUGHT NEGLIGENT MISREPRESENTATION ACTION
This Court states in the opinion that “(a)t the close of the jury trial on Hudson’s fraud and negligent misrepresentation action ...” Hudson did not plead a cause of action based upon negligent misrepresentation, nor did he consent to the trial of this cause of action. Hudson also objected to the giving of Instruction No. 40. The jury, in answers to Special Interrogatories, found that Cobbs and Kennevick had negligently made false representations of past or existing facts to Hudson, that Hudson was not aware that such representations were false, that Hudson relied on these false representations, that he was damaged thereby and that the acts of Cobbs and Kennevick were an extreme deviation from reasonable standards of conduct, and were performed by these individuals with an understanding or disregard of their likely consequences. (R.Vol. VI, p. 1513-1517, Q. Nos. 12-17) The failure on the part of Cobbs/Kennevick to disclose their intent not to be bound under the leases and the true financial condition of The Professionals, Inc., constituted negligent nondisclosure and/or constructive fraud. See the discussion on this point at p. 32.
*517II.
ISSUES PRESENTED ON REHEARING
A. This Court’s ruling presents the following issues:
1. Was there a duty in tort owed to Hudson by Cobbs and Kennevick, apart from the contractual duty of performance of the lease agreements? If so, was this duty breached?
2. Were Cobbs/Kennevick and Mark Bazeghi joint tortfeasors?
3. Do the acts and omissions of Cobbs, Kennevick and Mark Bazeghi constitute “mere nonfeasance, which is insufficient to establish a duty in tort” when Cobbs, Kennevick and Mark Bazeghi, acting jointly failed to disclose to the Bank and Hudson the intent of Cobbs and Kennevick not to be bound by the Cobbs/Kennevick lease agreements, the existence of the hold harmless agreements and the facts relating to The Professionals, Inc.
4. Was the jury adequately instructed on negligent nondisclosure and constructive fraud?
B. Was Hudson denied his right to a fair jury trial, free from prejudicial error? The trial court, on its own motion and over the objection of Hudson, submitted to the jury the “negligent misrepresentation” cause of action, which was neither pleaded by Hudson nor tried with his consent, and then granted a judgment n.o.v. on the grounds the Court erred when it submitted the “negligent misrepresentation” cause of action to the jury? Hudson’s requested jury instructions covering negligent nondisclosure were refused.
III.
ARGUMENT
A. THIS COURT’S RULING THAT COBBS, KENNEVICK AND MARK BAZEGHI DID NOT OWE A DUTY IN TORT TO HUDSON IS NOT SUPPORTED EITHER BY THE FACTS OR BY CASE LAW AND IS ERRONEOUS.
Hudson submits that this Court should reconsider its conclusions that “the facts of this case were not sufficient to show the duty necessary to make out a prima facie case for negligent misrepresentation,” and that “while Hudson could have sued Cobbs/Kennevick in contract for breach of their lease agreement, he had no cause of action in tort.” These conclusions were based upon an abbreviated quotation from Carroll v. United Steel Workers of America, 107 Idaho 717, 719 (1984):
An alleged failure to perform a contractual obligation is not actionable in tort____” to found an action in tort, there must be a breach of duty apart from nonperformance of a contract.” [Quoting Taylor v. Herbold, 94 Idaho 133, 483 P.2d 664 (1971) ]____ Mere nonfeasance, even if it amounts to a willful neglect to perform the contract, is insufficient to establish a duty in tort. 1990 Opinion No. 90, pp. 8-9. (Emphasis in original)
Hudson asserts that these conclusions are erroneous for the following reasons:
First, the facts establish that Cobbs and Kennevick owed a duty to Hudson and the Bank, separate and apart from the performance of the contractual obligations under the lease agreements. The jury verdict, when considered in light of Instructions No. 40 and 43, establishes that Cobbs and Kennevick wrongfully invaded an interest of Hudson protected by law, as defined by the torts of negligent nondisclosure and constructive fraud, if not negligent misrepresentation.
Second, the facts of this case fall within the exception to the general rule that mere nonfeasance is insufficient to establish a duty in tort, as Cobbs and Kennevick made a representation without the present intent to perform and then failed to disclose such intent or the hold harmless agreements or the true facts about The Professionals, Inc., thereby breaching the duty defined by the torts of constructive fraud, negligent nondisclosure, negligent misrepresentation and fraud.
Third, the cases relied upon by the majority, including Carroll v. United Steel *518Workers of America, 107 Idaho 717 (1984) and Taylor v. Herbold, 94 Idaho 133 (1971), are not applicable to this case, as not one of the cases cited by the majority involved the making of a promise when the promisor had no intent to be bound by the promise at the time the promise was made.
Fourth, the majority’s decision in this case that there was no duty in tort directly contradicts its holdings in Tusch Enterprises v. Coffin, 113 Idaho 37 (1987) and Bethlahmy v. Bechtel, 91 Idaho 55 (1966), that the party to a contract has a duty in tort to exercise reasonable care to disclose known material facts.
Fifth, this Court improperly denied to Hudson the application of the law governing joint tort-feasors, without any explanation.
Sixth, this Court disregarded, without explanation, the material facts involving The Professionals, Inc. and Lyle Cobbs, acting in his capacity as a licensed real estate broker for Hudson.
1. COBBS AND KENNEVICK BREACHED A DUTY INDEPENDENT OF THE LEASE AGREEMENTS, AS THEY MADE AN OFFER (A REPRESENTATION) AND THEN FAILED TO DISCLOSE THE SECRET HOLD HARMLESS AGREEMENTS AND THEIR INTENT NOT TO BE BOUND.
As noted in the Court’s second opinion, an action in tort requires a showing that there is a breach of duty imposed by common law or statute, independent of the contract. This Court, in Carroll v. United States Steel Workers of America, supra, described this requirement:
A tort requires the wrongful invasion of an interest protected by law, not merely an invasion of an interest created by the agreement of the parties. Carroll v. United Steel Workers of America, 107 Idaho 717, 719 (1984), quoting Just’s, Inc. v. Arrington Construction Company, 99 Idaho 462 (1978).
Prosser & Keeton characterize this requirement as follows:
Tort obligations are in general obligations that are imposed by law — apart from and independent of promises made and therefore apart from the manifested intention of the parties — to avoid injury to others. By injury here, is simply meant the interference with the individual’s interest or an interest of some other legal entity that is deemed worthy of legal protection. Keeton, Prosser & Keeton on the Law of Torts, 5th Ed., (1984) § 92 p. 655.
This Court recently held that “a breach of a separate duty to act reasonably will suffice” to establish a cause of action in tort, independent of the contract. Reynolds v. American Hardware Mutual Insurance, 115 Idaho 362, 365 (1988). Therein, this Court concluded that a tort action can be sustained against an insurance company which negligently fails to timely settle an insurance claim.
This duty has also been defined as a duty of reasonable care:
One owes the duty to every person in our society to use reasonable care to avoid injury to the other person in any situation in which it could be reasonably anticipated or foreseen that a failure to use such care might result in such injury. Gibson v. Hardy, 109 Idaho 247, 250 (App.1985), quoting Alegeria v. Payonk, 101 Idaho 617, 619 (1980).
The majority, in its opinion, failed to consider the clear and definite distinction between a promise and a representation.
Contract obligations are created to enforce promises which are manifestations not only of a present intention to do or not to do something, but also of a commitment to the future. They are, therefore, obligations based on the manifested intention of the parties to a bargaining transaction. Generally speaking, there is a fundamental distinction between a representation and a promise. A representation is a statement by the representer as to his existing state of mind regarding the existence of a past or present fact. Therefore, such liability as is im*519posed on a representer for stating something that proves to be false must be based on a tort theory. Keeton, supra, § 92 p. 656. (Emphasis Added).
This distinction is important, since contract actions “are created to protect the interest in having promises performed.” Just’s, Inc. v. Arrington Construction Company, 99 Idaho 462, 468 (1978) quoting W. Prosser, Handbook of the Law of Torts, § 92 at 613 (4th Ed. 1971).
Thus, in a contract action, a manifestation of consent is a prerequisite to the contract claim. But, in the case at bar, the purported manifestation of consent by Cobbs and Kennevick was the tort itself. That is, the tort occurred when Cobbs and Kennevick delivered the lease agreements, signed by the lessee, but not yet signed by the owner, to Mark Bazeghi, without disclosing to the Bank or Hudson, or without causing Mark Bazeghi to so disclose, the existence of the hold harmless agreements, or that at the time of the delivery of the leases, Cobbs and Kennevick considered them to be “straw leases” not-intending to be obligated under the leases to Hudson, the Bank or any other person. The tort occurred not at the time the contract was formed, i.e.,- when Hudson signed the leases, but when Cobbs and Kennevick made the offer by signing the leases and delivering them to Mark Bazeghi. The contracts were formed when Hudson signed them, relying on the representations of Cobbs and Kennevick that the leases were valid contracts under which they intended to be obligated. The leases were the instrumentality used by Cobbs and Kennevick to make the representation, but the contract was not the basis of the liability. Cobbs and Kennevick's decision to execute and deliver the lease agreements created “a state of things which furnish[ed] the occasion for a tort.” Taylor v. Herbold, 94 Idaho 133, 138 (1971). The failure to disclose the known facts was negligent and constructively fraudulent.
Instruction No. 40 did properly set forth this distinction. The jury was instructed that it must find “that the leases signed by Lyle Cobbs and Jack Kennevick constituted a statement of past or existing facts to Wayne Hudson” and that “the statement was false” when made. Instruction No. 43 was supplementary and prescribed the duty to disclose known material facts.
Stated simply, if Cobbs and Kennevick had not failed to disclose to Hudson and the Bank the fact that neither of them intended to be obligated under the leases, there would have been no leases entered into between Hudson and Cobbs/Kennevick. If Cobbs and Kennevick had not failed to disclose to Hudson the true facts about The Professionals, Inc., Hudson would not have signed that lease. But for the tort of negligent nondisclosure or constructive fraud, there would have been no lease contracts for this Court to discuss.
This case involves the breach of a duty imposed by law, i.e., the duty to disclose known material facts and thereby avoid injury to others. This duty is defined with particularity by the torts of constructive fraud and negligent nondisclosure, as will be discussed below, leaving negligent misrepresentation aside. If the Bank had not elected to bid the debt at the foreclosure sale, it too, as well as Hudson, could have brought a tort cause of action for breach of the duty for any damage it suffered.
2. THIS COURT ALSO ERRONEOUSLY CONCLUDED THAT THIS CASE INVOLVES ONLY NONFEA-SANCE, I.E., THE FAILURE OR NEGLECT TO PERFORM A PROMISE, AND DOES NOT INVOLVE A BREACH OF AN INDEPENDENT DUTY.
The second leg supporting the majority’s conclusion is its application of the principle that “mere nonfeasance, even if it amounts to willful neglect to perform the contract, is insufficient to establish a duty in tort.” This Court, however, failed to consider the longstanding exception to the rule of nonliability for nonfeasance — “that a promise made without the intent to perform it may be fraud for which a tort action in deceit will lie.” Keeton, supra, § 92, p. 664.
In Idaho, this distinction is defined as an exception to the general rule that a repre*520sentation consisting of a promise or a statement as to a future event will not serve as the basis for fraud:
As in many cases, the general rule has almost become the exception. Idaho recognizes two exceptions to the general rule about statements or promises in futura; (1) fraud may be predicated upon the non-performance of a promise in certain cases where the promise is the device to accomplish the fraud. Pocatello Security Trust Co. v. Henry, supra; Miller-Cahoon Co. v. Wade, 38 Idaho 484, 221 P. 1102 (1923); (2) in cases where promises are blended or associated with misrepresentations of fact, there is fraud if a promise is accompanied with statements of existing facts showing the ability of the promisor to perform the promise without which it would not have been accepted or acted upon. Pocatello Security Trust Co. v. Henry, supra; Keane v. Allen, 69 Idaho 53, 202 P.2d 441 (1949). Opinions or predictions about the anticipated profitability of a business are usually not actionable as fraud. However, when there is an affirmative promise or statement that a certain act will be undertaken, such a statement is actionable providing the other elements of fraud are shown. Sharp v. Idaho Investment Corporation, 95 Idaho 113, 122-123 (1972). (Emphasis Added).
Although the courts frame this exception in terms of a promise made without the intent to perform, what is actually involved is a representation, as that term is defined by Keeton, supra, § 62 p. 656. A promise made without the present intent to perform is actually a statement by the actor, “as to his existing state of mind regarding the existence of a ... present fact” — his present intent to perform. Keeton, supra, § 92 p. 656. In contrast, promises are manifestations of a present intent as well as a commitment to the future. Keeton, supra, § 92 p. 656.
As noted by Harper, James & Gray in their treatise:
... the promise itself is generally regarded as a representation of a present intention to perform. Hence, such a promise, made by one not intending to perform, is a misrepresentation — a misrepresentation of the speaker’s present state of mind — and is actionable as a misrepresentation of fact. Harper, James & Gray, Law of Torts, Vol. 2, § 7.10, p. 447 (2d Ed., 1986).
Accord, Keeton, supra, § 109, p. 763.
Here, Cobbs and Kennevick misrepresented to Hudson and the Bank their existing state of mind regarding their present intent to be bound by the leases. Cobbs and Kennevick, by making the offer to Hudson to enter into the leases, made representations to Hudson that they intended to be bound by the agreements. They failed to disclose the falseness of these representations.
Moreover, the conduct of Cobbs and Kennevick involves active negligence or misfeasance. Cobbs and Kennevick decided, of their own free will, to deliver the signed leases to Mark Bazeghi, knowing at the time that the Bank and Hudson would rely upon the representation of Cobbs and Kennevick that they intended to be bound by the leases, while at the same time, failing to disclose to Hudson or the Bank the hold harmless agreements and their intent not to be bound. The tort was committed before the lease contracts were formed, when Cobbs and Kennevick undertook an affirmative act, the delivery of the signed leases to Mark Bazeghi. This case involves not a question of nonfeasance, but a question of misfeasance, the affirmative act of delivering the leases, knowing at the time that they intended not to be bound and that they would rely upon the secret hold harmless agreements to protect them from liability.
3. THE CASES RELIED UPON BY THE MAJORITY, INCLUDING CARROLL V. UNITED STEEL WORKERS OF AMERICA, 107 IDAHO 717 (1984) AND TAYLOR V. HERBOLD, 94 IDAHO 133 (1971) ARE NOT APPLICABLE TO THIS CASE.
Not one of the cases cited by the majority to support its conclusions involve the *521making of a promise when the promisor had no intent to be bound by the promise at the time the promise was made.
Taylor v. Herbold, supra, involved the breach of a promise by the buyer to purchase potatoes. After formation of the contract, the defendant buyer assured the plaintiff on several different occasions that he would perform under the contract and buy the potatoes. 94 Idaho 135. The plaintiff did not make any allegation that the defendant potato buyer misrepresented his intention to be bound by the contract at the time the contract was formed.
Steiner Corp. v. American District Telegraph, 106 Idaho 787 (1984) involved the allegation that the defendant failed to performed its contractual duty to inspect and maintain the fire alarm system. The contract was originally entered into in 1964 and then a new contract was entered in 1970 by the parties. Again, there was no allegation that the defendant had any intent not to perform the contract when it was entered into.
Carroll v. United Steel Workers of America, 107 Idaho 717 (1984) involved a Collective Bargaining Agreement. The plaintiff alleged that the defendant union had failed to perform under this agreement, but again, there was no allegation that the defendant union did not have the intent to perform its contractual obligations when the agreement was formed.
Brown’s Tie & Lumber v. Chicago Title, 115 Idaho 56 (1988) arose from the failure of the title insurance company to disclose, in a verbal update, a deed of trust which was recorded after the formation of the initial contract, the issuance of a title insurance commitment. There was no allegation that Chicago Title did not have the intent to perform its contractual obligations when the contract was formed.
In contrast, this Court has held that nonfeasance by an insurance agent, i.e., the failure to procure insurance, gives rise to both a breach of contract action and to a tort action arising from the negligent breach of a professional duty to provide insurance. McAlvain v. General Insurance Company of America, 97 Idaho 777 (1976); Keller Lorenz Company v. Insurance Associates Corporation, 98 Idaho 678 (1977).
4. THIS COURT’S CONCLUSION THAT THERE WAS NO DUTY IN TORT IS IN DIRECT CONFLICT WITH ITS HOLDINGS IN TUSCH ENTERPRISES V. COFFIN, 113 IDAHO 37 (1987) AND BETHLAHMY V BECHTEL, 91 IDAHO 55 (1966). A PARTY TO A CONTRACT HAS A DUTY IN TORT TO EXERCISE REASONABLE CARE TO DISCLOSE KNOWN MATERIAL FACTS.
a. Bethlahmy and Tusch.
This Court has held that a party to a contract has a tort duty, independent of the contract, to disclose to the other contracting party “a fact that he knows may justifiably induce the other to act or refrain from acting.” Restatement of Torts, 2d, § 551(1), as adopted by this Court in Tusch Enterprises v. Coffin, supra, and Bethlahmy v. Bechtel, supra. Yet, for some inexplicable reason, this Court did not even discuss in its current opinion the duties defined by the torts of constructive fraud and negligent nondisclosure. It is impossible to reconcile this Court’s opinion in the Hudson case, with its earlier opinions in Tusch and Bethlahmy.
In Bethlahmy, this Court found that the defendant home builder had a duty to disclose to a home buyer that there was a ditch running under the lot and garage of the house and that the basement was not of waterproof construction. This failure to disclose, in combination with the defendant’s representation that the house would be a quality home, breached the duties defined by the common law of constructive fraud and negligent nondisclosure. The Court concluded that the plaintiff had the right to rescind the contract, because the defendant committed these torts.
Similarly, this Court concluded in Tusch Enterprises, supra, that the seller had a tort duty under the common law of constructive fraud and negligent nondisclosure *522to disclose to the buyer that a duplex was built upon fill dirt and that problems with the duplex’s foundation were likely to occur because of the use of the fill dirt. In Tusch, the Court also concluded that the plaintiff could not maintain a contract action based upon the breach of an express warranty, as the parol evidence rule precluded the introduction of any oral evidence to establish the making of an express warranty in derogation of the written agreement.
Additional support for the holdings in Tusch and Bethlahmy is found in a very recent case Petry v. Spaulding Drywall, 117 Idaho 382, 788 P.2d 197 (1990), wherein this Court concluded that “silence may be construed as a representation where the other party might be led to a harmful conclusion.” Silence may be the basis for constructive fraud. (788 P.2d 199-200)
Thus, Bethlahmy, Tusch and Hudson present the inherently contradictory decisions that a contracting party has a duty in tort to disclose matters deemed material to the making of the contract, but does not have a duty in tort to disclose his intent not to be bound by the contract. It is submitted that there is no fact more basic to the formation of a contract then the party’s representation that he intends to be bound by the terms of the contract. If it constitutes fraud to make a promise without the intent to perform — how can it be argued seriously that the person making such promise has no duty in tort to disclose his intent not to be bound?
b. Why This Gross Result?
A reader of this Court’s opinion would conclude that this Court believes for some unstated reason that Hudson is not entitled to be compensated for his tremendous monetary loss in this case — all caused by the gross negligence of Cobbs and Kennevick — even when his additional out-of-pocket expenses for attorney’s fees and costs are in the hundreds of thousands of dollars, all of which have been paid. The same reader would also conclude that this Court must have overlooked or completely disregarded firmly established precedent of this Court — the settled law covering negligent nondisclosure, constructive fraud and joint tort-feasors. One must respectfully ask, how can the above result be reached if this Court did apply such settled law to the facts of this case and the gross misconduct of Cobbs and Kennevick?
Perhaps this Court believes that since Hudson had already paid his $250,000.00 down payment on the purchase of the office building prior to the execution and delivery of the lease by Cobbs/Kennevick and The Professionals, Inc., he was not relying on those leases in deciding to complete the purchase of the office building. Cobbs and Kennevick so argued in their Responsive Brief and in oral argument on appeal. This argument has no merit. What amounted to an interest free loan to Webster # 3 was part of the quid pro quo in the transaction. It was not until Hudson had checked into the financial capacity of Cobbs and Kennevick and had been advised of the financial capacity of The Professionals, Inc. that he decided to complete the purchase of the office building by entering into the June 24,1981, implementing agreement. These facts were before the jury, which decided the issue. The foregoing is discussed in detail at pp. 19-21, and 35 of Appellant’s Brief.
In addition, Hudson proved at trial that if he had brought a rescission action on July 1, 1981, as he testified he would have done, but for the loans to Cobbs/Kennevick and The Professionals, Inc., he would have prevailed in the action and been restored to his original position. The jury found, after having been properly instructed on the issues of proximate cause and reliance, that the grossly negligent misconduct of Cobbs/Kennevick was the proximate cause of all of the damages caused to Hudson as enumerated in Question No. 14 of the jury’s Special Verdict. There was ample evidence addressed at trial from which the jury could properly so conclude. This issue is discussed in detail at pp. 8-9 of Appellant’s Reply Brief.
Or, perhaps, as indicated by the Court’s statement that “Webster # 3 agreed to pay *523rent on any preleased space not actually occupied by lessees or sublessees,” the Court misconceived the facts and believes that Hudson was looking solely to Webster # 3 to pay the rent payments due under the leases to Cobbs and Kennevick. That Hudson relied on the leases to Cobbs and Kennevick in making his decision to complete the purchase of the office building on June 24, 1981, is beyond question, and the jury so found. As pointed out at p. 2 hereof, prior to the delivery of the Cobbs/Kennevick leases, Hudson had refused Webster # 3’s offer to lease the 12,200 square feet of office space the Bank had required to be pre-leased, and he had refused Webster’s $50,000.00 cash offer if he would assume the leasing requirements. While Webster # 3 agreed to guarantee the rent payments of nonoccupying lessees, in the June 21, 1981, implementing agreement, Hudson assumed and relied on the fact that Cobbs and Kennevick were primarily responsible for the payment of approximately $4,034.00 per month for their two leases. This sum alone represented 61% of Hudson’s monthly debt service requirement!
c. An Example.
An example will demonstrate how absurd it is to argue, much less to conclude, that the present facts do not create a separate duty in tort. Assume that a major developer in Boise desired to construct and sell a ten story office building. The developer could not obtain financing for the project unless and until he obtained and delivered to the lending institution leases covering 80% of the space in the building. The developer has a purchaser who has committed to purchase the building, once constructed, if, but only if, the developer has in place good leases covering eight of the ten floors in the building. The lender will not commit to the loan until it knows that the rental income from the building will be sufficient to insure that the loan will be repaid. The buyer will not commit to purchase the building until he knows he will have sufficient rental income guaranteed in order to service his debt. The developer can construct the building for $10 million and can sell it to the buyer for $12 million — if the developer can secure the leases covering eight of the ten floors.
Assume further that the developer has received an assurance from an out-of-state major business that it will commit in the future to lease eight floors, but that it cannot sign the appropriate lease for 90 days. Interest rates are rising, however, and the developer wants to obtain the lender’s commitment for financing now — before the increase occurs. The developer therefore meets with two substantial firms in Boise, explains his predicament to them, and asks each of them to sign a lease covering four floors in the building. He assures each that the out-of-state tenant will lease the eight floors in 90 days, that neither of the Boise firms will be obligated under the leases, and that he just needs to use their two leases in order to obtain the necessary financing and to conclude the sale of the building to the prospective buyer. Both of the Boise firms trust the developer, believe him and want to help him, so each signs a multi-year lease covering four floors of rental space in the building. Neither of the Boise firms intends to be obligated under the leases, and each fully expects the out-of-state firm to sign a lease 90 days later covering the eight floors. The two Boise firms sign the leases and deliver them to the developer, knowing that that the developer will use them to induce the bank to finance construction of the building and to induce the buyer to purchase same. Neither the developer nor either of the two Boise firms informs the bank or the buyer of the true state of the facts. Relying on these leases, the bank loans the $10 million and the buyer signs a contract to purchase the building for $12 million. The out-of-state business which had indicated it would lease eight floors in the building fails to do so, and the two Boise firms advise the bank and the buyer that the leases they signed were only “straw leases” to be used by the developer to obtain financing and sell the building, and that they never intended to be obligated under the leases.
Under existing Idaho law, is the only recourse for the bank or the buyer to sue *524under the leases for breach of contract? Do the two Boise firms who signed these “straw leases,” each having no intent to be bound under same, owe any duty in tort to the buyer? Do the two Boise firms owe a duty to disclose to the bank and the buyer facts which were known only to them and the developer and which they knew to be necessary in order to prevent the leases from misleading both the bank and the buyer?
The answers to these questions appeared to be obvious prior to the latest opinion in this case. It is submitted that no bank or buyer involved in a fact situation as presented above would elect to sue on the “straw leases.” Until this opinion, it is submitted, no attorney practicing law in Idaho would advise his client to sue on the leases — much less advise his client that no duty in tort existed to disclose such facts. Negligent nondisclosure and constructive fraud, as enunciated in Bethlahmy and Tusch, apply. Just as obviously, the same principles are applicable to, and should be dispositive of, the fact situation in the present case.
d. Instructions Given Subsumed Negligent Nondisclosure and Constructive Fraud.
It is submitted that what the trial court designated as the “negligent misrepresentation” instruction, Instruction No. 40, when considered with Instruction No. 43, was broad enough to subsume the torts of negligent nondisclosure and constructive fraud. Instruction No. 40 (copy in Appendix) is more restrictive — imposes a greater burden on Plaintiff to prove his case — than should be required for negligent nondisclosure. Instruction No. 43 (copy in Appendix) supplemented Instruction No. 40, and instructed the jury that a party has a duty to disclose known material facts when he knows that such facts are neither known by nor readily accessible to the other party. Instruction No. 43 also instructed the jury that “where one party is under no duty to speak, but nevertheless does so, he is bound to speak honestly and not to engage in misleading half truths.
For actual fraud, the plaintiff must prove that the speaker acted with an intent to deceive. Proof of this element is not required in negligent nondisclosure or constructive fraud. As the court stated in Bethlahmy: “Assuming, as the trial court found, that this representation was not made with knowledge of its falsity or with intent to deceive, it was sufficient upon which to base an action in constructive fraud ...” Bethlahmy, supra, at p. 61. (Emphasis added) Instruction No. 40, as supplemented by Instruction No. 43, more than adequately instructed the jury on the torts of constructive fraud and negligent nondisclosure, both of which are, as this Court depicted in its first opinion, “lesser included torts of fraud.” Restatement (Second) of Torts § 551; Bethlahmy and Tusch, supra. See California Jury Instructions — Civil, 7th ed., BAJI No. 12.36, covering fraud and deceit — nondisclosure of known facts. (Copy in Appendix)
After considering all of the extensive evidence introduced during a trial lasting over a month, and after considering all of the instructions given by the Court, the jury found that Cobbs and Kennevick were grossly negligent in failing to disclose to Hudson material facts which were known to them but unknown to Hudson, and that such gross negligence was the proximate cause of Hudson’s damages. The jury having been adequately instructed on the torts of constructive fraud and negligent nondisclosure, as alleged by Hudson in his Third Amended Complaint, and having found Cobbs and Kennevick to have committed said torts in a grossly negligent manner, this case should be concluded once and for all and the jury verdict reinstated.
Hudson’s detailed argument covering the issue of negligent nondisclosure and constructive fraud is presented at pp. 59-69 and 69-77, respectively, of the Appellant’s Brief, as augmented and expanded on at pp. 13-16 of the Memorandum in Support of Appellant’s original Petition for Rehearing.
*5255. THIS COURT IMPROPERLY DENIED TO PLAINTIFF APPLICATION OF THE LAW GOVERNING JOINT TORT-FEASORS, WITHOUT ANY EXPLANATION.
The trial court’s Memorandum Decision and Order and this Court’s opinion are silent on the joint conduct of Mark Bazeghi, Cobbs and Kennevick. All acted in concert with each other to deliver “straw leases,” including the lease to The Professionals, Inc. Each was delivered for the express purpose of inducing the bank to grant permanent, long-term financing and inducing Hudson to complete the purchase of the office building. The law governing the liability of joint tort-feasors is so established in our judicial system that nothing further should have to be said. However, since this Court has, for some reason not disclosed, elected not to discuss the issue, further elaboration seems appropriate.
It is difficult to conceive a factual situation in which it would be more obvious that the law governing joint tort-feasors should be applied. Mark Bazeghi testified that he had advised first Kennevick and then Cobbs of Bazeghi’s desperate need for help prior to the signing of the leases by Cobbs and Kennevick. Bazeghi testified that “I explained to him that I needed some leases to comply with a lender requirement, and we were short, and seeking the solution for it ... and we had a deadline on the conversion of the construction financing to permanent financing” and that the deadline “was very close.” (Tr.Vol 14, p. 2445, L. 8-11, 15-19, p. 2446, L. 1-3) Bazeghi testified “so I asked for his help. I asked him (Cobbs) to find tenants for me or perhaps come up with some kind of straw lease so we would comply with the bank’s requirements ...” (Tr.Vol. 14, p. 2246, L. 6-7, L. 21-25)
Kennevick testified that the leases signed by Cobbs and Kennevick “were straw, meaningless documents, signed strictly to help Mr. Bazeghi to be able to get his long-term financing and that would be the end of it,” (Tr.Vol. 8, p. 1166, L. 9-14) “were never intended from the start to be an enforceable lease,” (Tr.Vol. 8, p. 1180, L. 1-4) and that the invalid and unenforceable leases would be useful “only to the extent that it would be able to let Mr. Bazeghi be able to get his minimum square footage rented on paper.” (Tr.Vol. 8, p. 1181, L. 10-17) Cobbs likewise testified that the leases were signed by him and Kennevick so that Mark Bazeghi could get his long term loan, that Cobbs/Kennevick leased the property for that purpose “but with no intent to be liable on the lease to (Mark Bazeghi) or anyone else.” (Tr.Vol. 8, p. 1269, L. 19-25, p. 1270, L. 1-5)
It seems apparent that there was “no intent to be liable” because they thought Bazeghi’s hold harmless agreements would protect them. Asked whether he had any objection to Mark Bazeghi using the leases to obtain long term financing, Kennevick testified “No, I really didn’t. I knew Mark Bazeghi very well. I knew Abbass and the other people involved with that in Webster 3. I knew them to be successful developers.” (Tr.Vol. 15, p. 2624, L. 3-13) Cobbs obviously agreed with Kennevick’s perception of Mark Bazeghi’s financial capacity. Cobbs was shown Mark Bazeghi’s silver and gold holdings prior to signing the leases. He testified “he (Mark Bazeghi) showed me his holdings at that time, and I know of his personal wealth. He showed it to me in cold silver, as well as gold, and hundreds of thousands of dollars.” (Tr. Vol. 8, p. 1272, L. 7-16) Cobbs testified that when Mark Bazeghi opened up the safety deposit box and showed Cobbs his gold “(t)here were hundreds and hundreds of Kruggerands, and at that time they were selling, I recall, mentally figuring out that it represented close to half a million dollars in gold, Kruggerands, ... and I knew right then that this man, you know, was very wealthy.” (Tr.Vol. 16, p. 2749, L. 13-23) When asked at trial whether Mark Bazeghi’s display of wealth caused Cobbs to take more risk in the lease transaction than he normally would take, Cobbs testified “I think it played a part in it.” (Tr.Vol. 16, p. 2819, L. 14-19)
Kennevick testified that he had assumed that Mark Bazeghi would be selling the office building and that he understood that a seller needed to have long term financing *526approved in order to make it a marketable project. (Tr.Vol. 8, p. 1179, L. 2-5, 13-16) Cobbs testified that he was aware, when he signed the leases, that there was a possible purchaser for the building who had been ill. (Tr.Vol. 8, p. 1270, L. 6-12, 20-25) Cobbs also testified that he knew that if long term financing could be obtained on the office building, “it would be a help to consummate the sale somewhere down the line” to a prospective buyer. (Tr.Vol. 8, p. 1279, L. 11-24) Cobbs didn’t even recall whether he had signed leases for two or three suites in the office building. He testified “I was there at the request of Mr. Bazeghi, and I would have at that time been willing to lease whatever he requested.” (Tr.Vol. 16, p. 2777, L. 13-24)
The jury did not find that Cobbs and Kennevick intended that Hudson would be deceived as a result of their “straw leases” and their other representations acting in concert with Mark Bazeghi. This is irrelevant to a determination as to whether they, acting by themselves or jointly with Mark Bazeghi, committed the torts of negligent nondisclosure or constructive fraud.
Suffice it to say, Mark Bazeghi, Lyle Cobbs and Jack Kennevick acted jointly and in concert in their endeavors to present the Cobbs/Kennevick “straw leases” and the worthless lease to The Professionals, Inc. in order to induce the Bank to grant permanent financing and to induce Hudson to conclude the purchase of the office building. The jury, while finding that Plaintiff failed to prove the elements of common law fraud on the part of Mark Bazeghi, Cobbs and Kennevick, found that all three of them were guilty of gross negligence which was the proximate cause of Hudson’s damages. In the words of the trial court, in commenting on certain of the evidence which had been introduced relating to the actions of Cobbs and Kennevick, that for Cobbs and Kennevick to sign the leases, knowing that they would be presented to a bank and that the bank would rely on them in deciding whether to grant permanent financing would be “at a minimum the kind of gross negligence, putting it in its kindest light, the kind of gross negligence that Cheney would be designed to deter.” (Tr.Vol. 11, p. 1722, L. 19-25, p. 1723, L. 1-5)
It seems inconceivable that this Court can overlook these facts, as well as the law governing joint tort-feasors, and fail to conclude as a matter of law that the torts of negligent nondisclosure and constructive fraud, if not negligent misrepresentation, were committed by Cobbs and Kennevick and in so doing they were acting jointly with Mark Bazeghi.
The law governing the commission of torts by joint tortfeasors is discussed at pp. 56-58 of Appellant's Brief and pp. 16-20 of Appellant’s Reply Brief.
6. THIS COURT DISREGARDED, WITHOUT EXPLANATION, THE MATERIAL FACTS INVOLVING THE PROFESSIONALS, INC. AND REAL ESTATE BROKER LYLE COBBS.
Neither the trial court’s Memorandum Decision and Order nor this Court’s substituted opinion takes into consideration the following facts concerning the procurement by Defendant Lyle Cobbs of the leases to the Professionals, Inc.:
a. Mark Bazeghi advised Hudson that Cobbs had procured a lease from The Professionals, Inc., which was a substantial firm of long standing with numerous clients.
b. Cobbs and Kennevick, with Neil Langrill, had been instrumental in forming the corporation.
c. It was Cobbs’ and Kennevick’s attorney who had formed the corporation, and some of the attorney’s expenses therefor were billed to Cobbs’ real estate firm.
d. Cobbs and Kennevick knew, at the time the lease was obtained, that the corpo*527ration had no assets or capital, but they failed to disclose such facts to Hudson.
e. Cobbs received a commission for procuring the lease.
f. Mark Bazeghi paid The Professionals, Inc. the sum of $4,500.00 to induce the corporation to sign the lease — an amount equal to six months rent under the lease. Although Cobbs testified at trial that he did not participate in this payment, he later admitted at trial that the $4,500.00 check had been made payable jointly to his real estate firm and The Professionals, Inc., and that he had personally endorsed the check.
g. Cobbs was a licensed real estate broker and knew that Hudson would be the owner of the building, once the preleasing requirements were met. Cobbs testified that as a real estate broker, he only procures the tenant — that it is the owner’s responsibility to check on the credit of the tenant, not his.
A detailed description of the material facts involving the lease to The Professionals, Inc., with citations to the transcript, is set forth at pp. 33-37 of Appellant’s Brief, and pp. 23-24 of Appellant’s Reply Brief.
Again, it seems inconceivable that this Court can conclude as a matter of law, and do so without even the slightest reference or discussion, that Cobbs and Kennevick, and especially Cobbs, had no separate duty in tort to disclose these materials facts which were known by them and unknown to Hudson. There is no contract between Hudson and Cobbs/Kennevick in connection with The Professionals, Inc. lease. This Court cannot relieve Cobbs and Kennevick of responsibility for damage they caused to Hudson, when they induced him to rely on the lease to this sham corporation, by ruling that their only duty to Hudson was in contract. Instead, it is respectfully submitted, this Court must face the facts and deal with The Professionals, Inc. judicially. The Court must discuss the affirmative duty in tort to disclose known material facts in a business transaction, in accordance with the principles enunciated by the Court in Bethlahmy and Tusch.
B. HUDSON WAS DENIED HIS RIGHT TO A FAIR JURY TRIAL, FREE FROM PREJUDICIAL ERROR, WHEN THE TRIAL COURT GRANTED A JUDGMENT N.O.V. ON THE GROUNDS THAT THE NEGLIGENT MISREPRESENTATION CAUSE OF ACTION SHOULD NOT HAVE BEEN SUBMITTED TO THE JURY. THE COURT SUBMITTED THE CAUSE OF ACTION TO THE JURY OVER HUDSON’S OBJECTION. HUDSON DID NOT PLEAD NOR CONSENT TO THE TRIAL OF THE NEGLIGENT MISREPRESENTATION CAUSE OF ACTION.
The trial court imposed upon the litigants its own theory of the case, negligent misrepresentation, over the objection of both parties, and instructed the jury upon its view of negligent misrepresentation with Instruction No. 40. The Court did agree to supplement this instruction with Instruction No. 43, which prescribed the duty to disclose known material facts. The jury rendered a verdict for Hudson. The trial court, seven months later, no doubt from cold notes and faded memory, concluded that the trial court erred when it instructed the jury on negligent misrepresentation, and granted judgment n.o.v. to Cobbs and Kennevick.
The trial court’s action resulted in prejudicial error to Hudson for two reasons:
(1) Hudson was denied his right to have the jury instructed upon his theory of the case, negligent nondisclosure and constructive fraud. (See Plaintiff’s Requested Jury Instructions Nos. 57 and 58, in Appendix.)
(2) The jury was given a “false choice.” The jury was led, by the trial court’s own sua sponte instruction, to believe that it had two alternative legal theories, either of which could be the basis of liability against Cobbs and Kennevick.
*5281. THIS COURT INCORRECTLY ASSUMED THAT PLAINTIFF HAD REQUESTED THE TRIAL COURT TO SUBMIT THE “NEGLIGENT MISREPRESENTATION” CAUSE OF ACTION TO THE JURY.
At page 6 of its second opinion, the Court states: “At the close of the jury trial on Hudson’s fraud and negligent misrepresentation action ...” Hudson did not plead a “negligent misrepresentation” cause of action in his Third Amended Complaint, he did not request the Court to instruct the jury on said cause of action, and, in fact, objected to the Court’s submission of the cause of action to the jury. (Tr.Vol. 18, p. 3229, L. 19-25, p. 3230, L. 1-8) Negligent nondisclosure and/or constructive fraud was the thrust of Plaintiff’s negligence cause of action. Consistent with such theories, Hudson submitted Requested Jury Instructions Nos. 57 and 58. (R.Vol. IV, p. 1178-1179) Copies of these requested Instructions are in the Appendix. The trial court refused to give Hudson’s requested instructions specifically covering the failure of Cobbs and Kennevick to disclose to Hudson their intent not to be bound by the leases and essential information about The Professionals, Inc. Over the objection of Plaintiff and Defendants, the Court submitted Instruction No. 40 to the jury. While the trial court noted on Hudson’s Requested Instructions Nos. 57 and 58 that they were given, these instructions were neither given nor covered by other instructions. Hudson did not request, consent to or acquiese in the submission of the case to the jury on what the trial court and now this Court refer to as the “negligent misrepresentation” cause of action.
2. HUDSON WAS DENIED HIS RIGHT TO HAVE THE JURY INSTRUCTED ON HIS THEORY OF THE CASE.
The relevant principles were summarized by this Court in Garrett Freight Lines v. Bannock Paving Co., 112 Idaho 722, 730-731 (1987):
Litigants have a right to have the jury instructed on every reasonable theory presenting a basis of a claim or relief, or defense thereto, where such theory finds support in the pleadings and evidence. Messmer v. Ker, 96 Idaho 75, 524, P.2d 536 (1974); Rosenberg v. Toetly, 94 Idaho 413, 489 P.2d 446 (1971); Hodge v. Borden, 91 Idaho 125, 417 P.2d 75 (1966); Domingo v. Phillips, 87 Idaho 55, 390 P.2d 297 (1964); Jones v. Mikesh, 60 Idaho 680, 95 P.2d 575 (1939). Failure to instruct upon a party’s theory of the case constitutes reversible error. Sulik v. Central Valley Farms, Inc. 95 Idaho 826, 521 P.2d 144 (1974); Messmer v. Ker, supra.
In this case, Plaintiff’s Requested Instruction Nos. 57 and 58 were supported by the pleadings, the evidence, and the relevant case law. Yet the trial court elected to impose upon Hudson her own theory of the case and then, when the trial judge decided that she had selected the wrong theory of the case, she chose to correct the error by granting the judgment n.o.v. The trial court’s failure to instruct upon Hudson’s theory of the case constitutes reversible error, especially when the trial court’s decision to impose her own theory of the case, over the objection of both parties, is considered.
See, Robertson v. Richards, 115 Idaho 628 (1989) wherein this Court ruled that the inadvertent omission of a proximate cause instruction in a medical malpractice case was prejudicial error, requiring a new trial, even though the jury found that the defendant doctor was not negligent.
3.HUDSON WAS DENIED HIS RIGHT TO A FAIR TRIAL, FREE FROM ERROR, ON THE FRAUD CAUSE OF ACTION, WHEN THE TRIAL COURT GRANTED A JUDGMENT N.O.V. ON THE NEGLIGENT MISREPRESENTATION CAUSE OF ACTION, WITHOUT ORDERING A NEW TRIAL ON THE FRAUD COUNT.
The trial court submitted the case to the jury on theories of fraud (Instruction No. 16a) (R.Vol. V, p. 1439-1440) and “negli*529gent misrepresentation” as defined by Instruction No. 40 (R.Vol. V, p. 1465-1466) and Instruction No. 43 (R.Vol. V, p. 1469) Copies of these instructions, and a side by side comparison of Instructions Nos. 16a and 40, are in the Appendix. Instruction No. 40 was given over the objection of Hudson. (Tr.Vol. 18, p. 3229-3330). The fraud instruction and the “negligent misrepresentation” instruction were essentially the same, except for the element of the Defendants’ knowledge of the falsity. The fraud instruction stated, “that when the Defendants made the promise or representation, they knew it was false.” The “negligent misrepresentation” instruction stated “that when Lyle Cobbs and Jack Kennevick made the statement, they acted negligently.” Instruction No. 43 advised the jury of a party’s duty to disclose known facts.
The negligent misrepresentation claims and the fraud claims as presented to the jury by the Court’s instructions, are inherently intertwined and related. The trial court, in its instructions, drew two subtle distinctions between the causes of action— the burden of proof and whether or not Cobbs and Kennevick knew, at the time the representation was made, that it was false.
A majority of this Court, in the earlier opinion, accurately characterized the negligent misrepresentation cause of action, as submitted to the jury, as a “lesser included tort of fraud.” The jury verdict in favor of Hudson on the negligent misrepresentation issue, and against Hudson on the fraud count, could have easily been accepted by those jurors who also believed that the evidence established fraud, as this finding had the same result, i.e., liability on the part of Cobbs and Kennevick. The proper standard for this Court is whether prejudice could have reasonably occurred, not whether prejudice actually occurred. Roll v. City of Middleton, 115 Idaho 833, (Idaho App.1989). If error was prejudicial and “it reasonably could have affected the outcome of the trial,” then a new trial must be granted. Pierson v. Brooks, 115 Idaho 529, 534 (Idaho App.1989)
The jury’s verdict in this case turned upon its interpretation of the subtle distinctions between the two torts. The jury concluded that Cobbs and Kennevick were grossly negligent. If the jury had not had this option, then we can only speculate as to what the result might have been. But a party’s right to a fair trial, free from prejudicial error, should not be determined by speculation.
See pages 5-9 of Hudson’s Memorandum In Response to Memorandum in Support of Respondents’ Petition for Rehearing, in which this issue is discussed in more detail.
In order to provide Hudson with his constitutional right to a fair and impartial jury trial, this Court, at the very least, must adhere to its original opinion filed on August 11, 1989, reverse the judgment n.o.v. and remand the case for a new trial, free from the prejudicial error made by the trial court on its own motion and over the objection of Plaintiff and Defendants.
CONCLUSION
The facts of this case and the applicable law mandate, and the interest of justice require, that this Court reverse the trial court’s judgment n.o.v. and determine the following as a matter of law:
a. Whether the jury instructions given by the Court adequately covered the torts of negligent nondisclosure and/or constructive fraud.
b. If this Court concludes that either negligent nondisclosure or constructive fraud was adequately covered by the jury instructions given, then this Court determine whether the jury’s answers to the interrogatories set forth in the special verdict establish that Defendants did commit the torts of negligent nondisclosure and/or constructive fraud. If this Court so determines that either such tort was committed by Defendants, the jury verdict should be reinstated.
c. If this Court finds that the jury instructions given did not adequately cover either the tort of negligent nondisclosure or the tort of constructive fraud, or that the jury did not find *530that either of such torts was committed by Defendants, this Court should order a new trial, on the common law fraud, negligent nondisclosure and constructive fraud causes of action.
In the alternative, this Court should remand to the trial court for the foregoing determinations.
DATED this 23rd day of July, 1990.
Respectfully submitted, KENNETH & THOMAS By FRED KENNEDY
Fred Kennedy, Of the Firm Attorneys for Wayne D. Hudson Plaintiff/ Appellant
CERTIFICATE OF MAILING
I HEREBY CERTIFY that on the 23rd day of July, 1990,1 caused to be served a true and correct copy of the foregoing MEMORANDUM IN SUPPORT OF APPELLANT’S PETITION FOR REHEARING OF 1990 OPINION NO. 90 upon PETER J. BOYD and TODD J. WILCOX, Elam, Burke & Boyd, P.O. Box 1539, Boise, Idaho 83701, Attorneys for Lyle Cobbs, Jack Kennevick and Cobbs/Kennevick Partnership, by depositing same in the United States mail, postage prepaid, in an envelope addressed to said attorneys at the foregoing address.
FRED KENNEDY
Fred Kennedy
APPENDIX TO APPELLANT’S MEMORANDUM
COMPARISON OF ELEMENTS OF INSTRUCTION NOS. 16a and 40 COVERING FRAUD AND NEGLIGENT MISREPRESENTATION
Instruction No. 16a
In order for the plaintiff to prevail on his fraud claim asserted against defendants Cobbs, Kennevick, and Mark Bazeghi, the plaintiff has the burden of proving each of the following propositions:
■ 1. That the defendants made to plaintiff a statement or promise of existing fact;
2.That the promise or representation was false;
3. That the promise or representation was material under all the circumstances;
4. That when the defendants made the promise or representation, they knew it was false;
5. That the defendants intended that the plaintiff should act on the basis of the promise or representation in about the manner in which he did act;
6. That the plaintiff did not know that the promise or representation was false;
7. That the plaintiff did rely on the truth of the promise or representation in his subsequent actions;
8. That the plaintiff acted reasonably under all the circumstances in relying upon the promise or representation.
9. That the plaintiff suffered damages that were proximately caused by his reliance on defendants’ promise or representation;
10. The nature and extent of the plaintiff’s damages and the amount thereof.
R., Vol. V, p. 1439
Instruction No. 40
The plaintiff has the burden of proving all of the following propositions on his claim for negligent misrepresentation against Lyle Cobbs and Jack Kennevick:
1. That the leases signed by Lyle Cobbs and Jack Kennevick constituted a statement of past or existing facts to Wayne Hudson.
2. That the statement was false.
3. That the statement was material under all the circumstances.
4. That when Lyle Cobbs and Jack Kennevick made the statement, they acted negligently.
5. That Lyle Cobbs and Jack Kennevick intended that Wayne Hudson should act on the basis of the statement in about the manner in which he did act.
6. That Wayne Hudson did not know that the statement was false.
7. That Wayne Hudson did rely on the truth of the statement in his subsequent actions.
*5318. That Wayne Hudson acted reasonably under all the circumstances in relying upon the statement.
9. That Wayne Hudson suffered damages that were proximately caused by his reliance on Lyle Cobbs’ and Jack Kennevick’s statement.
10. The nature and amount of Wayne Hudson’s damages, if any, that were proximately caused by the statement.
R.Vol. V, p. 1465
INSTRUCTION NO. 16a
In order for the plaintiff to prevail on his fraud claim asserted against Defendants Cobbs, Kennevick, and Mark Bazeghi, the plaintiff has the burden of proving each of the following propositions:
1. That the defendants made to plaintiff a statement or promise of existing fact;
2. That the promise or representation was false;
3. That the promise or representation was material under all the circumstances;
4. That when the defendants made the promise or representation, they knew it was false;
5. That the defendants intended that the plaintiff should act on the basis of the promise or representation in about the manner in which he did act;
6. That the plaintiff did not know that the promise or representation was false;
7. That the plaintiff did rely on the truth of the promise or representation in his subsequent actions;
8. That the plaintiff acted reasonably under all the circumstances in relying upon the promise or representation;
9. That the plaintiff suffered damages that were proximately caused by his reliance on defendants’ promise or representation;
10. The nature and extent of the plaintiff’s damages and the amount thereof.
If you find from your consideration of all the evidence that each of these propositions has been proved by clear and convincing evidence, then your verdict should be for the plaintiff; but, if you find from your consideration of all the evidence that any of these propositions has not been proved by clear and convincing evidence, then your verdict should be for the defendant. However, the plaintiff does not have to prove the amount of his damages by clear and convincing evidence; the plaintiff need only prove the amount of damages by evidence that is more probably true than not.
If you find by clear and convincing evidence that a false representation was made to the plaintiff by one of these defendants as a result of a concerted action, then you need not find that all of these defendants made false representation to the plaintiff. It is sufficient for you to find by clear and convincing evidence that at least one of the defendants made a false representation as part of a common plan or scheme to defraud the plaintiff since all those who, in pursuance of a common plan or scheme to defraud, actively take part in the scheme or plan are equally liable as the defendant who actually made the false promise or representation.
INSTRUCTION NO. 40
The plaintiff has the burden of proving all the following propositions on his claim for negligent misrepresentation against Lyle Cobbs and Jack Kennevick:
1. That the leases signed by Lyle Cobbs and Jack Kennevick constituted a statement of past or existing facts to Wayne Hudson.
2. That the statement was false.
3. That the statement was material under all the circumstances.
4. That when Lyle Cobbs and Jack Kennevick made the statement, they acted negligently.
5. That Lyle Cobbs and Jack Kennevick intended that Wayne Hudson should act on the basis of the statement in about the manner in which he did act.
6. That Wayne Hudson did not know that the statement was false.
7. That Wayne Hudson did rely on the truth of the statement in his subsequent actions.
*5328. That Wayne Hudson acted reasonably under all the circumstances in relying upon the statement.
9. That Wayne Hudson suffered damages that were proximately caused by his reliance on Lyle Cobbs’ and Jack Kennevick’s statement.
10. The nature and amount of Wayne Hudson’s damages, if any, that were proximately caused by the statement.
If you find from your consideration of all the evidence that each of these propositions has been proved by a preponderance of the evidence, then your verdict should be for the plaintiff; but, if you find from your consideration of all the evidence that any of these propositions has not been proved by a preponderance of the evidence, then your verdict should be for the defendants.
INSTRUCTION NO. 43
A duty to disclose known facts arises where one party knows of material facts and also knows that such facts are neither known nor readily accessible to the other party.
Moreover, where one party is under no duty to speak, but nevertheless does so, he is bound to speak honestly and not to engage in misleading half-truths.
PLAINTIFF’S REQUESTED JURY INSTRUCTION NO. 57
The plaintiff also claims that defendants Lyle R. Cobbs, Jack Kennevick and the Cobbs/Kennevick Partnership were negligent in signing the incomplete leases covering Suites 101 and 103 of the Wildwood Office Center and delivering the same to defendant Mark Bazeghi, knowing that Mark Bazeghi intended to present such leases to Idaho First National Bank and plaintiff when they knew, or should have known, that said Bank and plaintiff would rely on said leases, that they were negligent in failing to notify Idaho First National Bank and plaintiff of their intention not to be bound by said leases, and that defendant Lyle R. Cobbs was negligent in the manner by which he failed to notify plaintiff and Idaho First National Bank of essential information in connection with the leasing of Suite 202 to The Professionals, Inc. Plaintiff also claims that such conduct on the part of defendants Lyle R. Cobbs, Jack Kennevick and the Cobbs/Kennevick Partnership was in wanton disregard of the rights of Idaho First National Bank and plaintiff and constituted gross negligence. Plaintiff alleges that he was damaged as a proximate result of such negligence on the part of said defendants.
GIVEN X
REFUSED _
MODIFIED_
COVERED _
OTHER _
PLAINTIFF’S REQUESTED JURY INSTRUCTION NO. 58
For the Plaintiff Hudson to establish that the Defendants Lyle R. Cobbs, Jack Kennevick or the Cobbs/Kennevick Partnership was negligent, the Plaintiff Hudson has the burden of proving each of the following propositions by a preponderance of the evidence:
1. That the defendants Lyle R. Cobbs, Jack Kennevick, and/or the Cobbs/Kennevick Partnership were negligent in connection with their participation, conduct or omissions in the leasing of office space in the Wildwood Office Center.
2. That the plaintiff Hudson was damaged.
3. That the negligence of the defendants Lyle R. Cobbs, Jack Kennevick and/or the Cobbs/Kennevick Partnership was a proximate cause of plaintiff Hudson’s damages.
4. The nature and extent of plaintiff’s damages, the elements of damage, and the amount thereof.
If you find from your consideration of all the evidence that each of the propositions has been proved by a preponderance of the evidence, then your verdict should be for the plaintiff; but, if you find from your consideration of all the evidence that any of *533these propositions has not been proved, then your verdict should be for the defendant.
IDJ[ 270-1, as modified
GIVEN
REFUSED
MODIFIED
COVERED
OTHER
X
*534Part 12 FRAUD AND DECEIT 12.36
BAJI 12.36
FRAUD AND DECEIT — NONDISCLOSURE OF KNOWN FACTS
Except as you may otherwise be instructed, where material facts are known to one party and not to the other, failure to disclose them is not actionable fraud unless there is some relationship between the parties which gives rise to a duty to disclose such known facts.
A duty to disclose known facts arises where the party having knowledge of the facts is in a fiduciary or a confidential relationship.
A fiduciary or a confidential relationship exists whenever under the circumstances trust and confidence reasonably may be and is reposed by one person in the integrity and fidelity of another.
[A duty to disclose known facts arises [in the absence of a fiduciary or a confidential relationship] where one party knows of material facts and also knows that such facts are neither known nor readily accessible to the other party.]
USE NOTE
The decisions enunciating the rule stated in the last paragraph are in cases involving nondisclosure by the seller. Whether the same rule would apply to a nondisclosure by the buyer is uncertain.
If last paragraph only, is given, strike out inner bracket.