RUVOLO, P. J. —
Appellant Ram's Gate Winery, LLC (Ram's Gate), bought a property in Sonoma County from respondents Joseph G. and Genevieve Roche (the Roches) upon which it intended to build a new winery. The sellers had agreed in the "Purchase and Sale Agreement" (Purchase Agreement) to disclose facts having a "material effect on the value of the ownership or use of the Property," including geological hazards. After escrow closed, Ram's Gate discovered an active fault trace on the property that substantially increased the cost of development, and it sued the Roches for, among other things, breach of contract. The trial court granted summary adjudication on that cause of action, finding the warranties in the Purchase Agreement merged with the recording of the deed and thus, did not survive the close of escrow. Ram's Gate voluntarily dismissed its other causes of action, and the court awarded the Roches costs and attorney fees. Ram's Gate then appealed both the judgment and the subsequent award of attorney fees and costs.
We conclude the court erred in granting summary adjudication. First, the trial court relied on the wrong legal standard in determining the doctrine of merger extinguished the Roches' contractual duty to disclose geotechnical reports allegedly known by them discussing potentially hazardous seismic conditions on the property. Second, evidence from Ram's Gate's representative, which was admitted into evidence by the court, raised a triable issue of fact as to whether the intent of the parties was to have this duty of disclosure merge with the deed upon escrow closing. Third, Ram's Gate's cause of action for breach of contract accrued at the time of the breach; therefore the Roches' liability for that breach was fixed before escrow closed, even though Ram's Gate was unaware of its right to sue and damages had not yet been incurred. Fourth, even if the doctrine of merger applied in this case, the collateral obligations exception prevented the merger doctrine from extinguishing the disclosure duty. Last, the trial court erred further in deciding as an alternative ground for granting summary adjudication that the buyer had improperly pleaded inconsistent theories of liability (breach of contract and fraud).
In the late 1980's the Roches began work on what would become the Roche Family Winery outside the city of Sonoma on Highway 121. By 2005 the winery had gone bankrupt, and as part of the plan of reorganization under chapter 11, the property on which the winery was located was put up for sale.
On November 15, 2006, Ram's Gate entered into a Purchase Agreement to buy the Roches' winery property with the intention of building a new, separate winery on it. As part of the agreement, the Roches agreed to provide "[w]ithin ten days of the Effective Date" "written disclosure" of any "information known to Seller" regarding violations of "building, zoning, fire, health, environmental statutes, ordinances or regulations; [and] any known geological hazards; ... soil reports, ... geotechnical reports, ... and all other facts, events, conditions or agreements which have a material effect on the value of the ownership or use of the Property...." (Purchase Agreement, ¶ 10.) Thus, by November 25 the Roches were required to make the disclosures. Ram's Gate then had until December 8, 2006, to inspect the property, during which time Ram's Gate could issue its "written approval or disapproval of the condition of the Property" and would be "entitled to terminate" the Purchase Agreement "solely in [Ram's Gate's] discretion." (Purchase Agreement, ¶ 9.)
Ram's Gate evidently approved the condition of the property and escrow closed on December 14, 2006, with the grant deed being recorded that date. On October 12, 2010, Ram's Gate filed a complaint against the Roches and the brokers involved in the purchase of the property, alleging fraud, negligent misrepresentation and breach of contract. On February 14, 2011, it filed a first amended complaint, which is the operative complaint. The gist of the lawsuit is that the Roches failed to provide information within their knowledge and possession relating to earthquake issues on the property prior to the close of escrow. For the breach of contract cause of action, Ram's Gate relied on paragraph 10 of the Purchase Agreement, the substance of which is quoted above.
Ram's Gate alleges it found out in mid-2007 about the existence of documents relating to an active fault trace on the property, which had been documented in two reports available to the Roches, namely a site plan
The Roches contend that Ram's Gate knew about the earthquake issues before escrow closed on the property in part due to the Roches' discussion with Ram's Gate principals and agents, and in part due to the presence of the Conforti and Boudreau documents in the county's files, which they assert Ram's Gate either knew or should have known about as part of its due diligence during the inspection period.
Despite this factual dispute, the Roches filed a motion for summary judgment or summary adjudication on December 7, 2012. They claimed summary adjudication of the breach of contract cause of action was appropriate because paragraph 10 of the Purchase Agreement could not, as a matter of law, be enforced against the Roches after the close of escrow. (See Code Civ. Proc., § 437c, subd. (c).) Because the Purchase Agreement did not specifically provide that the warranty relating to disclosures would survive the close of escrow, the Roches claimed its obligations "merged" into the deed and were not actionable after Ram's Gate accepted the deed.
On March 1, 2013, in a 14-page written order, the court granted the Roches' motion for summary adjudication of the breach of contract cause of action on two separate grounds. First, the court held: "According to well settled California Law, a buyer of real property who has been induced to enter into a contract to purchase by fraudulent representations of the seller has two inconsistent remedies," either (1) to affirm the contract, retain the property and sue for an action in deceit; or (2) to rescind the contract for fraud, restore possession to the vendor, and recover the purchase money paid. (See Kaluzok v. Brisson (1946) 27 Cal.2d 760, 763 [167 P.2d 481].) Observing that "[t]hese remedies are inconsistent and Plaintiff cannot do both," the court concluded, "Here, Plaintiff cannot both sue in fraud and sue for damages on the contract."
The court next ruled, "`[W]hen a contract does not provide that the representations and warranties survive the closing of a transaction ... the representations and warranties made in the agreement are treated as extinguished as of the closing date, and cannot thereafter give rise to liability.... For a party to be able to sue for a breach of a representation or warranty..., it is necessary that those representations and warranties survive the closing.... Here, the Agreement expressly provided that certain warranties and
Ram's Gate thereafter voluntarily dismissed its fraud and negligent misrepresentation causes of action and instead pursued this timely appeal. Thereafter, the trial court granted motions brought by the Roches seeking attorney fees and costs. Ram's Gate appealed separately from those ruling, which we have ordered consolidated for briefing and decision.
Summary judgment and summary adjudication provide courts with a mechanism to cut through the parties' pleadings in order to determine whether, despite their allegations, trial is in fact necessary to resolve their dispute. (Code Civ. Proc., § 437c, subd. (f)(2); Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 843 [107 Cal.Rptr.2d 841, 24 P.3d 493] (Aguilar).) A defendant moving for summary judgment or summary adjudication may demonstrate that the plaintiff's cause of action has no merit by showing that (1) one or more elements of the cause of action cannot be established, or (2) there is a complete defense to that cause of action. (Code Civ. Proc., § 437c, subds. (f)(2), (p)(2); Aguilar, supra, 25 Cal.4th at p. 849.) This showing must be supported by evidence, such as affidavits, declarations, admissions, interrogatory answers, depositions, and matters of which judicial notice may be taken. (Code Civ. Proc., § 437c, subd. (p)(2); Aguilar, supra, 25 Cal.4th at pp. 850, 855; Collin v. CalPortland Co. (2014) 228 Cal.App.4th 582, 587 [176 Cal.Rptr.3d 279].)
After the defendant meets its threshold burden, the burden shifts to the plaintiff to present evidence showing that a triable issue of one or more material facts exists as to that cause of action or affirmative defense. (Code Civ. Proc., § 437c, subd. (p)(2); Aguilar, supra, 25 Cal.4th at p. 850.) The plaintiff may not simply rely on the allegations of its pleadings but, instead, must set forth the specific facts showing the existence of a triable issue of material fact. (Code Civ. Proc., § 437c, subd. (p)(2).) A triable issue of material fact exists if, and only if, the evidence reasonably permits the trier of fact to find the contested fact in favor of the plaintiff in accordance with the applicable standard of proof. (Aguilar, supra, 25 Cal.4th at p. 850.)
"We review an order granting summary judgment or summary adjudication de novo. (Aguilar, supra, 25 Cal.4th at p. 860.) We independently examine the record to determine whether a triable issue of material fact exists. (Saelzler, supra, 25 Cal.4th at p. 767.) The trial court's stated reasons for granting summary judgment or summary adjudication are not binding on us because we review its ruling, not its rationale. (Carnes v. Superior Court (2005) 126 Cal.App.4th 688, 694 [23 Cal.Rptr.3d 915] ... [`The sole question properly before us on review of the summary judgment is whether the judge reached the right result ... whatever path he might have taken to get there....'].)" (Collin v. CalPortland Co., supra, 228 Cal.App.4th at p. 588, italics omitted.)
Accordingly, some cases have described the merger doctrine as a specific application of the principle of integration in contracts. (Roffinella v. Sherinian (1986) 179 Cal.App.3d 230, 238-239 [224 Cal.Rptr. 502] (Roffinella); Szabo v. Superior Court (1978) 84 Cal.App.3d 839, 843 [148 Cal.Rptr. 837] (Szabo); see Code Civ. Proc., § 1856, subd. (h).) Others have identified its jurisprudential underpinnings in doctrines of waiver or estoppel. (Smiley v. Read (1912) 163 Cal. 644, 646-647 [126 P. 486] [estoppel]; Burnand v.
The Roches argue that the subsequent issuance, and Ram's Gate's acceptance, of the deed foreclosed relief based on the Purchase Agreement. Their interpretation is a rigid one in which the parties' antecedent contractual obligations merged into the deed essentially by operation of law.
The trial court adopted the Roches' analysis, supporting its merger ruling by citation to Herring v. Teradyne, Inc. (S.D.Cal. 2002) 256 F.Supp.2d 1118 (Herring), a case upon which the Roches also heavily rely. As quoted by the trial court, that case stated the rule expansively: "[W]hen a contract does not provide that the representations and warranties survive the closing of a transaction ... the representations and warranties made in the agreement are treated as extinguished as of the closing date, and cannot thereafter give rise to liability." (Id. at p. 1126, italics omitted.)
Second, the quoted passage relied on by the trial court was dictum because the contract in Herring did contain a survival clause. Moreover, the holding in Herring that the survival clause represented an agreement of the parties to shorten the applicable statute of limitations was overturned on appeal, with the Ninth Circuit finding "no clear and unequivocal language in the survival clauses that permits the conclusion that the parties have unambiguously expressed a desire to reduce the statute of limitations." (Herring v. Teradyne, Inc. (9th Cir. 2007) 242 Fed.Appx. 469, 471; see Western Filter Corp. v. Argan, Inc. (9th Cir. 2008) 540 F.3d 947, 951-954 [reaching result opposite to Herring].)
In addition to examining the contract and the subsequent deed for inconsistencies, courts also focus on the intentions of the parties. (Roffinella, supra, 179 Cal.App.3d at p. 239 ["`"The crucial issue in determining whether there has been an integration is whether the parties intended their writing to serve as the exclusive embodiment of their agreement."'"]; Szabo, supra, 84 Cal.App.3d at p. 843 [same].) "All courts agree that the starting point in the search for the parties' intent is the language of the deed." (9 Thompson, supra, § 82.13(a)(4), p. 704, fn. omitted.)
In analyzing whether the contractual provisions at issue are inconsistent with the provisions of the subsequent deed, the deed is correctly described by Ram's Gate as a rather pedestrian instrument addressing only "the mechanics of transferring title" and containing a legal description of the property conveyed. Thus, from the face of the deed itself it appears that not all of the terms that were explicitly intended to survive escrow were "merged" into the
The Roches contend on appeal, and the trial court agreed, that paragraph 10 of the Purchase Agreement unambiguously expressed the parties' intention that the Roches' duty to disclose did not survive escrow. The Roches construe paragraph 10 so that the "essence and sole purpose of the Roches' disclosure covenants and warranty were to assist Ram's Gate in its due diligence investigation, in furtherance of its purchase of the property." Once Ram's Gate determined to go through with the purchase, the Roches argue, it relinquished any claim for violation of the disclosure obligation or warranty.
The Roches also note that paragraph 23 of the Purchase Agreement specifically provided that the buyer's warranty of authority "shall survive the Close of Escrow and execution and delivery of the Grant Deed and Bill of Sale." By expressly providing for the survival of the warranties described in paragraph 23, while omitting any such provision in paragraph 10, they argue the Purchase Agreement (in the court's words) "evinces a very clear intent of the parties" to make the paragraph 10 warranty nonsurviving.
But, disputing this interpretation, Ram's Gate submitted, and the court admitted into evidence, extrinsic evidence concerning Ram's Gate's understanding of the disclosure covenant and warranty. Jeff O'Neill, the "Managing
Finally, as Ram's Gate points out, regardless of whether the disclosure covenant and warranty merged with the deed on closing, the Roches' disclosure obligation arose on November 25, 2006, and was allegedly breached on that same date by their failure to disclose the Conforti site map and Boudreau geological report. Ram's Gate claims the breach occurring prior to the close of escrow gave rise to a cause of action that was not extinguished by the merger doctrine.
Ram's Gate takes the position the "collateral rights" exception applies whenever the disputed provision is "collateral to the deed," rather than collateral to the "sale transaction itself," as argued by the Roches. We agree with Ram's Gate. (Stiles, supra, 43 Cal.App.2d at p. 843; Mills, supra, 56 Cal.App. at p. 775.)
"Given the fact that the main function of a deed is to convey title, collateral agreements are usually those matters not related to title." (9 Thompson, supra, § 82.13(d), p. 724, fn. omitted.) One commentator has suggested that provisions most clearly merged in the deed are those that are deed-related (i.e., those that "have a close relationship to the function that deeds perform"), including those concerning "title, possession [and] quantities or emblements[
As we have already discussed, the evidence presented in connection with the summary judgment motion, particularly the O'Neill declaration, directly conflicted with the assertion that the parties intended the Purchase Agreement's disclosure warranty to merge into the deed. Certainly, the text of the deed itself, when compared with the Purchase Agreement, suggests no merger was intended as to paragraph 10 of the Purchase Agreement.
Moreover, while disputed by the Roches, Ram's Gate claims that it found out about the existence of documents relating to an active fault trace on the property only in mid-2007. These potential seismic problems were documented in the two reports prepared by Conforti and Boudreau, which had been available to the Roches since the late 1980's.
If the fact finder ultimately determines that Ram's Gate's version of the facts is true, it would be inequitable not to apply the collateral promises exception in this case. In this regard, Ram's Gate correctly observes the such inequity would occur because "the trial court's ruling gives the sellers a perverse incentive to breach the contract; if they conceal relevant information despite their warranty, and the buyers don't discover the breach in the limited period before escrow closes, the sellers can reap excess profits without having to worry about future liability."
For example, in Szabo, the California case most closely analogous to ours, a warranty in a purchase and sale agreement that the property was properly zoned for four rental units was enforced despite the fact that no such warranty appeared in the deed. (Szabo, supra, 84 Cal.App.3d at pp. 841-842.) The court summarized its holding this way: "At issue is whether a buyer of real property may enforce a warranty contained in the agreement for sale notwithstanding the absence of any reference to it in the grant deed that conveyed title. We have concluded that the deed does not necessarily preclude enforcement, and that the trial court erred in making a pretrial order summarily adjudicating that issue against plaintiffs." (Id. at p. 841.)
For all of the reasons discussed above, the trial court erred in concluding that, as a matter of law, the merger doctrine precluded Ram's Gate from prosecuting a claim for breach of the Purchase Agreement.
As noted above, the trial court also grounded its ruling on the notion that a cause of action to enforce contractual obligations is inconsistent with a cause of action alleging fraud, and that Ram's Gate may not pursue both causes of action. The Roches argue this rationale on appeal, as well, relying on Kaluzok v. Brisson, supra, 27 Cal.2d at page 763 (change of venue); Paolini v. Sulprizio (1927) 201 Cal. 683, 685-686 [258 P. 380] (fraud may be set up as a defense against payment of remainder of purchase price); Stiles, supra, 43 Cal.App.2d at page 844 (statute of limitations and laches do not apply to fraud claim asserted only defensively); Pavlovich v. Neidhardt (1954) 128 Cal.App.2d 559, 560-561 [275 P.2d 836] (defrauded buyers could not offset their damages against purchase price of property, but must offset it against amounts due under the contract, including accrued interest). These cases deal
For these reasons, we also reject the alternative ground articulated by the trial court for granting summary adjudication.
The order summarily adjudicating the breach of contract cause of action is reversed. Because we reverse the judgment we also reverse the trial court's award of attorney fees and costs to the Roches. The case is remanded to the trial court for further proceedings consistent with this opinion. Costs on appeal are awarded to Ram's Gate.
Reardon, J., and Rivera, J., concurred.