Fraudulent inducement to enter a contract

Georgia Court of Appeals Reports

DONCHI v. ROBDOL, A07A0209 (Ga.App. 1-3-2007) DONCHI, INC.
v. ROBDOL, LLC et al. A07A0209 Court of Appeals of
Georgia, Third Division. January 3, 2007.

BLACKBURN, Presiding Judge.

In this action arising from a sale of property, plaintiff
Donchi, Inc. sued defendants Robdol, LLC, Robert Steele,
David McQuary, and Florida Commercial Exchange (“FCE”),
alleging fraud, breach of contract, and unjust enrichment.
Robdol and Steele successfully moved for summary judgment
as to all claims, and Donchi now appeals. For the reasons
set forth below, we affirm.

Summary judgment is proper when there is no genuine issue
of material fact and the movant is entitled to judgment as
a matter of law. OCGA § 9-11-56 (c); Britt v. Kelly
& Picerne, Inc.[fn1] A de novo standard of review applies
to an appeal from a grant of summary judgment, and we view
the evidence, and all reasonable conclusions and inferences
drawn from it, in the light most favorable to the
nonmovant. Matjoulis v. Integon Gen. Ins. Corp.[fn2]

So construed, the evidence shows that David McQuary, the
principal of FCE, approached Leonard Morris, Jr., the
president of Donchi, to express an interest in purchasing
its golf course and surrounding undeveloped property (the
“property”) located in Tift County, Georgia. In February
2003, McQuary and Morris negotiated a purchase agreement in
which Donchi would convey the property to FCE and McQuary
for $2,250,000. The agreement further provided that
$300,000 of the purchase price would be paid by conveying
McQuary’s beach house in Wakulla County, Florida, to
Morris.

Shortly after the agreement was executed, McQuary informed
Morris that Robdol, a limited liability corporation with
Robert Steele as its managing member, would be providing
the financial backing for the transaction. Steele had
previously provided McQuary with financial backing for
other transactions, and at the time the purchase agreement
was negotiated and executed, McQuary owed Steele
approximately $400,000. Steele agreed to have Robdol
provide the financial backing for the purchase of Donchi’s
property with the hope that development of the property
surrounding the golf course would allow McQuary to repay
some of his debt while also providing a return on Robdol’s
investment.

In May 2003, to memorialize Robdol’s involvement, the
parties executed an addendum to the original purchase
agreement, which assigned nearly all of McQuary’s and FCE’s
rights and obligations as buyers of the property to Robdol,
including payment of the majority of the purchase price.
However, with respect to the transfer of McQuary’s beach
house, the addendum included a condition which provided
that

[r]egardless of the assignment to Buyer’s assignee, Buyer
shall remain fully responsible for the transfer of the
Shell Point, Florida, beach home (the “Beach Home”) to
Seller, and for all covenants, costs of transfer and
payments relating thereto. Buyer’s assignee shall have no
obligations or liability in that regard, except that, if
Buyer fails or refuses to transfer the Beach Home to
Seller simultaneously with the Closing, then Seller may
elect to terminate the Contract by returning the Deposit
to Buyer’s assignee . . . without the Beach Home,
understanding that Buyer’s assignee shall have fully
performed under the Contract by delivering at Closing the
sum of $1,600,000.00 and the Second Mortgage and
$350,000.00 promissory note secured thereby, and by paying
all of Buyer’s closing costs required under the Contract
(except costs in connection with the transfer of the
Beach Home).

On the same date that the addendum was executed, McQuary and
Robdol entered into a separate Assignment and Development
Agreement, which also memorialized the assignment of
McQuary’s rights as buyer of the Donchi property to Robdol
and stipulated how the property was to be managed. The
Assignment Agreement further provided that the $400,000
debt, which McQuary owed to Steele, would be satisfied upon
the closing of the purchase agreement with Donchi and the
transfer of the beach house to Morris.

At the closing of the transaction in August 2003, Robdol
paid its portion of the $2,250,000 purchase price in the
form of $250,000, an assumption of Donchi’s existing debt
on the property, and a second mortgage in the amount of
$350,000. That same day at a separate closing, McQuary
executed a warranty deed conveying the beach house to
Morris, which seemingly completed the transaction.
Approximately one month later, however, Morris learned that
the beach house was foreclosed upon and sold during that
month. Acting on behalf of Donchi, Morris initiated this
action against McQuary, FCE, Steele, and Robdol, alleging
numerous claims including fraud, breach of contract, and
unjust enrichment. After discovery, Robdol and Steele moved
for summary judgment as to all of Donchi’s claims. The
trial court granted their motion, and this appeal followed.

1. Donchi contends that the trial court erred in granting
summary judgment as to its fraud claim, arguing that
defendants provided false oral assurances that the mortgage
on the beach house would be maintained and that defendants
failed to disclose that the beach house was being
foreclosed upon. We disagree.

“In general, a party alleging fraudulent inducement to
enter a contract has two options: (1) affirm the contract
and sue for damages from the fraud or breach; or (2)
promptly rescind the contract and sue in tort for fraud.”
Ainsworth v. Perreault.[fn3] In this case, Donchi’s
complaint alleges fraud and breach of contract but does not
include a claim for rescission. It is therefore apparent
that Donchi has elected to affirm the purchase agreement
and seek damages arising from the alleged fraud and breach
of contract. See id. at 472 (contract affirmed where
complaint did not include claim for rescission); Markowitz
v. Wieland[fn4] (plaintiff affirmed contract in complaint
by seeking only money damages and failing to seek
rescission).

(a) Wilful Misrepresentations. In cases “where the
allegedly defrauded party affirms a contract which contains
a merger or disclaimer provision and retains the benefits,
he is estopped from asserting that he relied upon the other
party’s misrepresentation and his action for fraud must
fail.” Authentic Architectural Millworks v. SCM Group
USA.[fn5] See Ainsworth, supra, 254 Ga. App. at 472 (1).
Stated another way, a merger clause “operates as a
disclaimer, establishing that the written agreement
completely and comprehensively represents all the parties’
agreement.” (Punctuation omitted.) Herman Homes, Inc. v.
Smith.[fn6] Thus, the viability of Donchi’s oral
pre-contract misrepresentation claim hinges on whether the
purchase agreement contained a valid merger clause.

Construction of a written contract is a question of law for
the trial court based on the intent of the parties as set
forth in the contract, which question we review de novo.
Deep Six, Inc. v. Abernathy.[fn7] “If the language of a
contract is clear and unambiguous, we enforce those terms
and need not look elsewhere to assist in the contract’s
interpretation.” Mariner Healthcare v. Foster.[fn8] Here,
paragraph 16 of the purchase agreement, titled “Other
Agreements,” provides: “There are no agreements, promises,
or understandings between the parties except as
specifically set forth herein. No alterations or changes
shall be made to the Contract except those in writing,
signed, initialed and dated by all parties.” Contrary to
Donchi’s assertions, the language of paragraph 16, as well
as its heading, evinces the intent of the parties involved
to have the entirety of their agreement represented solely
by the written contract, and thus constitutes a valid
merger clause. See Herman Homes, Inc., supra, 249 Ga. App.
at 132-133 (1); Walden v. Smith;[fn9] Rivergate Corp. v.
McIntosh;[fn10] Giles v. Nationwide Mut. Fire Ins.
Co.[fn11] (clause language must be read together with
clause heading when construing contract). Cf. Authentic
Architectural Millworks, supra, 262 Ga. App. at 829 (2)
(clause found not to be a merger clause based on its
language and “Limited Warranty” title).

Donchi also contends generally that merger clauses are
inapplicable to claims of fraud. Citing Rasmussen v.
Martin[fn12] and Woodhull Corp. v. Saibaba Corp.,[fn13]
Donchi specifically argues that even if the purchase
agreement contains a valid merger clause, the doctrine of
merger is inapplicable here because defendants’ alleged
fraudulent misrepresentations were involved in the
transaction. We disagree.

In Rasmussen, the Georgia Supreme Court held that “[t]he
doctrine of merger is applicable where there is no evidence
of mutual mistake (or actionable fraud).” Rasmussen, supra,
236 Ga. at 269. However, that case did not involve fraud
but whether a contract and a deed with conflicting
references to the property at issue were evidence of mutual
mistake. Id. at 268. In Woodhull Corp., we held that the
merger clause in the relevant contract did not bar
plaintiff’s fraud claim because the defendant’s
misrepresentations became terms of the actual contract.
Woodhull Corp., supra, 234 Ga. App. at 712 (2). See also
Authentic Architectural Millworks, supra, 262 Ga. App. at
828 (2) (a).

Here, Donchi argues that fraud was a part of the
transaction generally but does not argue that there is
evidence of mutual mistake as to the parties’ understanding
of the purchase agreement’s terms or that McQuary’s alleged
assurances that the beach house’s mortgage would be
maintained were actually integrated into the terms of the
written agreement. Accordingly, the merger clause contained
in the purchase agreement is applicable, and Donchi’s claim
alleging that McQuary’s oral assurances regarding the
maintenance of the mortgage on the beach house constituted
wilful misrepresentations fails. See WirelessMD v.
Healthcare.com Corp.;[fn14] Ainsworth, supra, 254 Ga. App.
at 472 (1); Herman Homes, Inc., supra, 249 Ga. App. 132-133
(1).

(b) Nondisclosure. Where a buyer affirms a sales contract
and sues claiming that the seller actively or passively
concealed damage or defects in the purchased property, a
merger clause in the contract will not serve as the basis
for a defense to the suit. Browning v. Stocks.[fn15]
Nevertheless, Donchi’s contention that the defendants
committed fraud by failing to disclose the fact that
McQuary’s beach house was being foreclosed upon is also
without merit. “While concealment of material facts may
amount to fraud if the other party could not by exercising
ordinary care discover the facts concealed, a person has no
obligation to disclose information that is equally
available to both parties.” Rhone v. Bolden.[fn16] See
Southern Intermodal Logistics v. Smith & Kelly Co.;[fn17]
Ross v. Smith.[fn18] Generally, whether ordinary care was
exercised is a question for a jury to resolve; however, one
may fail to exercise ordinary care as a matter of law. See
Klusack v. Ward.[fn19]

Here, there is no evidence that Donchi or Morris made
efforts to determine the mortgage status of the beach house
deeded as part of the purchase agreement. Indeed, Morris
conceded that he never contacted the mortgage company
regarding the status of the loan and further conceded that
he did not attempt to record the deed to the beach house at
any time between the closing and his discovery of the
foreclosure nearly one month later. Given the failure by
Morris and Donchi to exercise ordinary diligence to
determine the status of the mortgage, the trial court did
not err in granting summary judgment as to Donchi’s
fraudulent concealment claim. See Rhone, supra, 270 Ga.
App. at 720 (5); Klusack, 234 Ga. App. at 180 (1); Southern
Intermodal Logistics, supra, 190 Ga. App. at 586 (1); Ross,
supra, 173 Ga. App. at 385 (1).

2. Donchi contends that the trial court erred in granting
Steele’s and Robdol’s motion for summary judgment as to its
breach of contract claims, arguing that Steele and Robdol
did not fulfill the terms of the purchase agreement. We
disagree.

As previously stated in Division 1, supra, in our de novo
review of a written contract, if the language of the
contract is clear and unambiguous, we enforce its terms as
written and do not look elsewhere to assist in the
contract’s interpretation. Mariner Healthcare, supra, 280
Ga. App. at 409-410 (2). See Woody’s Steaks, LLC v.
Pastoria.[fn20] Here, the addendum to the purchase agreement
required Robdol to fulfill all of the payment obligations
in the transaction to purchase Donchi’s property, with the
notable specific exception being that McQuary was still
responsible for the transfer of his beach house. Donchi
does not dispute the fact that Robdol fulfilled the
specific payment obligations it was required to make
according to the terms of the purchase agreement and the
addendum, but nevertheless maintains that McQuary’s failure
to transfer the beach house constituted a failure by Robdol
to pay the full purchase price of the agreement. However,
given the explicit language in the addendum stipulating
that transfer of the beach house remained McQuary’s
responsibility and that Robdol had no obligations or
liability whatsoever with regard to this transfer, the
intent of the parties could scarcely have been more clearly
and unambiguously expressed. See id. Accordingly, the trial
court did not err in granting summary judgment as to
Donchi’s breach of contract claim.

3. Donchi also contends that the trial court erred in
granting summary judgment as to its fraud claims, arguing
that Steele and Robdol are liable for any fraud committed
by their alleged partner, McQuary. Specifically, Donchi
argues that the Assignment of Contract and Development
Agreement executed by McQuary and Robdol, as well as
McQuary’s representations regarding his relationship with
Steele and his company, constitute evidence of a
partnership. However, regardless of whether McQuary’s
relationship with Robdol could be characterized as a
partnership, this contention is without merit.

As discussed in Division 2, supra, the addendum to the
purchase agreement explicitly stipulated that Robdol had no
obligations or liabilities with regard to the transfer of
McQuary’s beach house. Given the parties’ clear and
unambiguous intent to hold McQuary solely responsible for
all aspects surrounding the transfer of his beach house,
Donchi cannot now ignore the terms of the purchase agreement
and seek to hold Robdol and Steele liable. See id.

4. Donchi further contends that the trial court erred in
granting Steele’s and Robdol’s motion for summary judgment
as to its unjust enrichment claim. We disagree.

“An unjust enrichment theory does not lie where there is an
express contract.” Pryor v. CCEC, Inc.[fn21] Here, none of
the parties involved dispute the fact that a legal contract
(the purchase agreement and addendums) was executed, which
memorialized each parties’ obligations and benefits.
Accordingly, the trial court did not err in granting
summary judgment as to Donchi’s unjust enrichment claim. See
Cox v. Athens Regional Med. Center.[fn22]

Judgment affirmed. Ruffin and Bernes, JJ., concur.

[fn1] Britt v. Kelly & Picerne, Inc., 258 Ga. App. 843 (575
SE2d 732) (2002).

[fn2] Matjoulis v. Integon Gen. Ins. Corp., 226 Ga. App. 459
(1) (486 SE2d 684) (1997).

[fn3] Ainsworth v. Perreault, 254 Ga. App. 470, 471 (1) (563
SE2d 135) (2002).

[fn4] Markowitz v. Wieland, 243 Ga. App. 151, 153 (1) (532
SE2d 705) (2000).

[fn5] Authentic Architectural Millworks v. SCM Group USA,
262 Ga. App. 826, 828 (2) (586 SE2d 726) (2003).

[fn6] Herman Homes, Inc. v. Smith, 249 Ga. App. 131, 133
(1) (547 SE2d 591) (2001).

[fn7] Deep Six, Inc. v. Abernathy, 246 Ga. App. 71, 73 (2)
(538 SE2d 886) 2000).

[fn8] Mariner Healthcare v. Foster, 280 Ga. App. 406,
409-410 (2) (634 SE2d 162) (2006).

[fn9] Walden v. Smith, 249 Ga. App. 32, 33 (546 SE2d 808)
(2001).

[fn10] Rivergate Corp. v. McIntosh, 205 Ga. App. 189, 193
(421 SE2d 737) (1992).

[fn11] Giles v. Nationwide Mut. Fire Ins. Co., 199 Ga. App.
483, 484 (1) (405 SE2d 112) (1991).

[fn12] Rasmussen v. Martin, 236 Ga. 267 (223 SE2d 663)
(1976).

[fn13] Woodhull Corp. v. Saibaba Corp., 234 Ga. App. 707
(507 SE2d 493) (1998).

[fn14] WirelessMD v. Healthcare.com Corp., 271 Ga. App. 461,
470 (3) (610 SE2d 352) (2005).

[fn15] Browning v. Stocks, 265 Ga. App. 803, 806 (2) (595
SE2d 642) (2004).

[fn16] Rhone v. Bolden, 270 Ga. App. 712, 719 (5) (608 SE2d
22) (2004).

[fn17] Southern Intermodal Logistics v. Smith & Kelly Co.,
190 Ga. App. 584, 586 (1) (379 SE2d 612) (1989).

[fn18] Ross v. Smith, 173 Ga. App. 384, 385 (1) (326 SE2d
527) (1985), rev’d on other grounds, Smith v. Ross, 255 Ga.
193 (336 SE2d 39) (1985).

[fn19] Klusack v. Ward, 234 Ga. App. 178, 179 (1) (507 SE2d
1) (1998).

[fn20] Woody’s Steaks, LLC v. Pastoria, 261 Ga. App. 815,
817 (1) (584 SE2d 41) (2003).

[fn21] Pryor v. CCEC, Inc., 257 Ga. App. 450, 452 (4) (571
SE2d 454) (2002).

[fn22] Cox v. Athens Regional Med. Center, 279 Ga. App. 586,
593 (3) (631 SE2d 792) (2006).