Ward Development Co. v. Ingrao

GETTY, Judge. This action arose when thirteen plaintiffs, all homeowners in the Foxhall North Subdivision in Montgomery County, sued three defendants — Ward Development Co., Inc., the developer of the subdivision; Long and Foster Real Estate, Inc., Ward’s real estate broker; and William Conrad Behrens, a selling agent with Long & Foster — for fraudulent and negligent misrepresentation. In a separate count the ⁶⁵⁰ homeowners sued Ward for breach of contract, but this claim was later withdrawn. Prior to trial, Behrens and Long & Poster filed a cross-claim against Ward seeking contribution and indemnification.

The trial court granted a motion for summary judgment on the cross-claim against Ward and in favor of Behrens and Long & Foster. After a three week trial in the Circuit Court for Montgomery County, a jury returned a verdict for the homeowners on the negligent misrepresentation count and assessed damages against the defendants totaling $55,048.00. Appellant Ward now appeals from the judgments entered on the jury verdicts and from the trial court’s granting of a motion for summary judgment on the cross-claim. In the interest of simplicity, we shall treat Ward’s claims separately.

Negligent Misrepresentation The Foxhall North Subdivision is a residential real estate development constructed by Ward Development Co., Inc. On March 2, 1978, Ward employed Long & Foster Real Estate, Inc., to sell thirty-eight homes located in the subdivision. On April 3, 1978, Long & Foster employed William Conrad Behrens to be the selling agent for the homes. The homes involved in the present suit were sold by Behrens for Long & Foster and Ward between May 27, 1978 and March 6, 1979. As the issue presented here is in the context of a motion for directed verdict (former Rule 552), the evidentiary background will be stated in a light most favorable to the homeowners.

See Impala Platinum Ltd. v. Impala Sales (U.S.A.) Inc., 283 Md. 296, 328 , 389 A.2d 887 (1978). During the bargaining period for the purchase of the homes Behrens told the homeowners that the neighborhood would consist of only 38 or 39 homes and that the road going through the subdivision, Rippling Brook Drive, would dead-end and terminate permanently at the edge of the subdivision. Shortly after the homeowners purchased their homes, however, Rippling Brook Drive was extended and construction was begun on additional homes in the area. In ⁶⁵¹ addition, the homeowners’ contracts of sale contained the following clause: “The estimated cost of deferred water and/or sewer connection charge for which the purchaser is liable is $_payable over a period of 35 years.” Each homeowner’s contract was filled in with an estimated cost of the sewer and water connection charge; the amounts varied between $250 and $900, “payable over a period of 35 years.” When the homeowners received their Montgomery County tax bills for 1979, however, they discovered that their annual sewer and water connection charges were much greater than their contracts had indicated.

For example, the contract of one homeowner, Arnold Kaplan, contains an estimate that his deferred water and sewer connection charge would be “$400.00 payable over a period of 35 years” (roughly, an $11.42 annual charge). Kaplan’s actual deferred water and sewer connection charge for 1979 was $71.59. The other homeowners testified to similar discrepancies between the sewer and water connection charge as stated in their contracts and the charge which was actually assessed. In order to explain the reason for the discrepancies, some background information on water and sewer benefit charges in Montgomery County is necessary.

Each property owner in Montgomery County is subject to two water and sewer benefit charges. The first charge is termed a “front foot benefit assessment” and is levied to repay bonds sold by the Washington Suburban Sanitary Commission to finance the costs of main water and sewer lines constructed during a given year. The second charge, termed a “house connection charge,” is levied to recover the construction costs for connecting water and sewer lines to individual homes. The front foot benefit assessment is an annual charge for 33 years but may also be paid off at any time in one lump sum.

The house connection charge is in the nature of a lump sum, but may be deferred and paid off in installments over a 33-year period. ⁶⁵² In the instant case the amount Behrens stated in each property owner’s contract to be the “sewer and/or water connection charge ... payable over 35 years” was actually Ward’s estimate of a combined total of the property owner’s house connection charge plus his front foot benefit assessment for one year (1979). At the conclusion of the trial, the jury returned verdicts in favor of the homeowners as follows: (a) No finding of fraud as to any defendant; (b) $6,006 against all defendants (jointly and severally) for damages incurred as a result of negligent misrepresentation as to the extension of Rippling Brook Drive; (c) $13,494 against all defendants (jointly and severally) incurred as a result of negligent misrepresentation as to the sewer and water annual assessments; (d) $41,554 against defendant Ward solely, incurred as a result of negligent misrepresentation as to the sewer and water annual assessments. Ward now asserts that the trial court erred in denying Ward’s motion for directed verdict as to the homeowners’ claim for negligent misrepresentation of their sewer and water connection charges. 1 Ward argues that the homeowners’ evidence of a negligent misrepresentation was legally deficient in two respects, to-wit: A. The homeowners failed to show a misrepresentation of a material fact. B. The homeowners failed to show a misrepresentation as to a past or existing fact.

For the following reasons, we find that the trial court did not err in denying Ward’s motion for a directed verdict. The tort of negligent misrepresentation is one of recent origin in Maryland. The Court of Appeals initially recognized the cause of action in 1938, in Virginia Dare Stores, Inc. v. Schuman, 175 Md. 287 , 1 A.2d 897 (1938). In ⁶⁵³ Virginia Dare, the plaintiff, who was employed to clean the walls of the defendant’s store, stepped on a glass display case in reliance upon the store manager’s assurance that it was safe to do so.

The display case collapsed, causing the plaintiff serious personal injury. In allowing the plaintiff to recover for negligent misrepresentation, as a cause of action separate from one in fraudulent misrepresentation (deceit), the Court of Appeals stated: “No Maryland case has been found directly upon the subject, but the weight of authority in other jurisdictions seems to be that such action is not necessarily confined to injuries arising from contractual relations; that the action lies for negligent words, recovery being permitted where one relies on statements of another, negligently volunteering an erroneous opinion, intending that it be acted upon, and knowing that loss or injury are likely to follow if it is acted upon.” Id. at 291-92 , 1 A.2d 897 . The Court of Appeals later extended negligent misrepresentation to compensate economic loss as well as physical injury. See St. Paul at Chase v. Manufacturer’s Life Insurance, 262 Md. 192 , 278 A.2d 12 (1971); Brack v. Evans, 230 Md. 548 , 187 A.2d 880 (1963).

In both St. Paul at Chase and Brack , the Court noted that the parties had a special relationship with each other which justified the plaintiff’s reliance on the truth of the defendant’s statements. In Brack , the plaintiff sued his stockbroker for negligently and incorrectly advising him concerning a stock purchase. 230 Md. at 554 , 187 A.2d 880 . In St. Paul at Chase , the Court allowed a mortgage broker’s client to recover losses he incurred relying on the mortgage broker’s advice. 262 Md. at 219 , 278 A.2d 12 . Most recently, the Court of Appeals reaffirmed the existence of the tort of negligent misrepresentation and extended the application of the cause of action to include arms-length commercial transactions.

In Martens Chevrolet v. Seney, 292 Md. 328 , 439 A.2d 534 (1982), the Court sought to clarify seeming confusion regarding the viability ⁶⁵⁴ of the tort of negligent misrepresentation in Maryland. The Court overruled a prior decision, Delmarva Drill Co. v. Tuckahoe, 268 Md. 417 , 302 A.2d 37 (1973) to the extent that case cast doubt on the existence of negligent misrepresentation as an avenue for tort recovery in Maryland. Martens Chevrolet, 292 Md. at 336 , 439 A.2d 534 . The Court then outlined the principal elements of negligent misrepresentation as follows: (1) the defendant, owing a duty of care to the plaintiff, negligently asserts a false statement; (2) the defendant intends that his statement will be acted upon by the plaintiff; (3) the defendant has knowledge that the plaintiff will probably rely on the statement, which, if erroneous, will cause loss or injury; (4) the plaintiff, justifiably, takes action in reliance on the statement; and (5) the plaintiff suffers damage proximately caused by the defendant’s negligence.

Id. at 337 , 439 A.2d 534 . The Martens Court went on to hold that the buyer of an automobile dealership could bring an action for negligent misrepresentation against the seller for allegedly misinforming the buyer regarding the dealership’s financial status. Id. at 337-38 , 439 A.2d 534 . Turning now to the present case, Ward argues that the trial court erred in denying Ward’s motion for a directed verdict because the homeowners failed to prove that the misrepresentation regarding the sewer and water connection charge was a material one.

We note first that nowhere in the Martens opinion does the Court of Appeals specify that the misrepresentation of a “material fact” is an element of the tort of negligent misrepresentation. An element which is specified, however, is that the plaintiff must justifiably take action in reliance on the misrepresentation. See id. at 337 , 439 A.2d 534 . The requirement of justifiable reliance is, by implication, inextricably bound up with the requirement of materiality.

See Restatement (Second) of ⁶⁵⁵ Torts § 538(1) (1977) (fraudulent misrepresentation); Babb v. Bolyard, 194 Md. 603, 609 , 72 A.2d 13 (1950); compare Restatement (Second) of Contract § 164. An immaterial representation could not, by definition, influence the reasonable man. We conclude, therefore, that for a plaintiff justifiably to take action in reliance on a statement, that statement must be a representation of a material fact. See also Fleming, J. and Gray, 0., Misrepresentation, 37 Md.L. Review 488, 497-502 (1978) (hereinafter Fleming and Gray).

In defining what is meant by a material fact, Ward quotes the following language from Babb v. Bolyard, 194 Md. 603 , 72 A.2d 13 (1950): “[t]he fraud must be material, by which is meant, without it, that the transaction would not have been made.” Id. at 609 , 72 A.2d 13 . We find a better definition of what constitutes a material fact in Restatement (Second) of Torts, § 538 (1977): “The matter is material if (a) a reasonable man would attach importance to its existence or non-existence in determining his choice of action in the transaction in question; or (b) the maker of the representation knows or has reason to know that its recipient regards or is likely to regard the matter as important in determining his choice of action, although a reasonable man would not so regard it.” In the instant case, at least one of the homeowners testified that had she known that the actual sewer and water connection charge was as great as it was, she would have contemplated the contract further or at least have done additional comparative shopping. This testimony and the evidence as a whole compels us to conclude that the question of whether the misrepresentation regarding the sewer and water connection charge was one of a material fact was one properly submitted to the jury. Ward next asserts that the homeowners failed to show that the misrepresentation of the sewer and water connection charge was a representation of a past or existing fact.

Ward argues that the statement regarding the charge was ⁶⁵⁶ merely an estimate and cannot therefore be the basis for a suit for negligent misrepresentation. We disagree. The Court of Appeals has stated that an action for fraudulent misrepresentation will not lie for the unfulfillment of promises or the failure of future events to materialize as predicated. Delmarva Drill Co. v. Tuckahoe, 268 Md. 417, 427 , 302 A.2d 37 (1973); Appel v. Hupfield, 198 Md. 374, 379 , 84 A.2d 94 (1951); see Levin v. Singer, 227 Md. 47 , 175 A.2d 423 (1961).

The present case is distinguishable. We recognize the difference between a promise of future events and an estimate by one knowledgeable in a particular field. In the latter situation, redress may be had for representations as to future facts and not merely as to past or existing facts. See Stewart v. Phoenix National Bank, 49 Ariz. 34 , 64 P.2d 101 (1937).

As stated by the commentators Fleming and Gray, supra, at 503, “[i]t is not surprising ... that courts have been increasingly willing to hold predictive statements material where the circumstances indicate to the addressee that the speaker has a factual basis for his predictions so that the existence of facts is implied by the representations.” In the instant case, the homeowners relied on Ward and its agents