Opinion
September 2, 2003 Session.
January 23, 2004. Permission to Appeal Denied by Supreme Court September 13, 2004.
Appeal from the Circuit Court, Davidson County, Barbara N. Hayes, J.
Lawrence H. Hart, Nashville, Tennessee, for the appellants, David T. Sears and wife, Anita G. Sears, David T. Sears as natural guardian and next friend of M.L.S., a minor and B.S., a minor.
M. Bradley Gilmore and Kathleen W. Smith, Nashville, Tennessee, for the appellees, Charles Gregory, d/b/a Charles Pest Control and Charles O'Brien, individually and severally, Western Surety Company.
OPINION
Plaintiff homeowners sued Defendant pest control operators for negligent misrepresentation and breach of warranty relative to the issuance by the Defendants of a wood destroying insect infestation inspection report pursuant to Tennessee Code Annotated section 62-21-201 to 206. The trial court granted summary judgment to Defendants. Because civil liability is limited by section 62-21-202 and Plaintiffs allege no damages caused by the presence of wood-destroying insects, we affirm the judgment of the trial court.
David T. Sears and Wife, Anita G. Sears, were first time home buyers in the market for a moderately priced home. Mrs. Margaret L. Jones owned such a home located at 3815 Marydale Court in Nashville. This home was located near to Mrs. Sears' place of employment and she observed a Crye-Leike Realtor "for sale" sign in the front yard. At the suggestion of their home loan originator, they contacted real estate agents Sandra Hill and Michelle Thatcher, d/b/a "The Buyer's Agent." The Sears signed a contract with the buyer's agent under which they would pay Hill and Thatcher 3% of the sale price of any home that they purchased. They looked at two or three other properties with their agent but settled on the Marydale Court residence and made an offer of $79,900 for the property. This offer was rejected, but ultimately, Mrs. Jones accepted their offer of $83,000.
As it relates to termites and wood destroying insects, David Sears testified:
Q. As you sit here today, do you have — what is your first recollection of thinking about, hey, we need an inspection or we are going to get an inspection for termites or other wood-destroying insects?
A. What would be my concerns?
Q. What I am asking is when — as you sit here today, when was the first time that you recall even thinking about that issue?
A. At closing.
Q. So prior to closing, you don't have any recollection of even discussing that issue with Ms. Hill or Ms. Thatcher or even thinking about it?
A. No.
Q. Did you and Ms. Hill or Ms. Thatcher or anybody from The Buyer's Agent ever talk about the fact that you should have a home inspection done?
A. Yes.
Q. Tell me about the discussions there.
A. She talked us out of it.
Q. Did you bring it up or did she bring it up?
A. She brought up if we wanted a home inspection.
And I said, Yes. And I said how much would it cost.
And she said $400.
And I said we don't have $400.
And she said you don't really need it. All they are going to do is check out your plugs and stuff.
Q. By who?
A. Ms. Hill.
Plaintiffs made no inspections themselves in the crawl space or by testing the floor boards or probing the walls prior to the closing on March 9, 2001.
The inspection by the Defendants, who provided to the buyers on behalf of the sellers the wood destroying infestation inspection report in issue in this case, occurred on February 22, 2001. Neither of the Plaintiffs ever had any contact with Defendants, Charles O'Brien or Charles Gregory, until well after the date of closing and after they had discovered moisture and mold problems with the house.
The facts up to this point of the chronology are essentially undisputed. Indeed, there is little material dispute as to the facts of the case. However, the facts subsequent to the closing on March 9, 2001 reveal something of a nightmare to Plaintiffs. As this case is before the Court on summary judgment, the recitation of the facts is subject to the caveat that the facts are found and considered by the Court in the light most favorable to Plaintiffs. Byrd v. Hall, 847 S.W.2d 208 (Tenn. 1993).
Within days after moving into the home, Plaintiffs began to experience nasal irritation and severe headaches. These symptoms were accompanied by a burning sensation in the eyes and disagreeable odors. Plaintiffs first removed their newly installed carpet from their bedroom on the assumption that it was a causal factor of their symptoms. They then called Home Depot, who suggested the installation of a plastic vapor barrier in the crawl space under the house. When this did not alleviate the problem, they called Steamatic of Nashville for an evaluation of their house. Next, they called Terminex and, following Terminex' inspection, installed new ventilators and applied timbor, a chemical designed to control excessive moisture.
The basic problem is probably best explained in the report of J. Scott, senior inspector for Inspection Services by Scott. Said Mr. Warrington:
Conclusions And Recommendations: Mold spores are present everywhere except where special "clean room" conditions are maintained. Therefore the mere presence of mold does not mean there is a problem. However, where there is a food source and sufficient moisture the colonies will grow and multiply producing a reservoir of spores. This increased activity can pose a health threat depending on the individuals exposed and the type of mold. This results from exposure to mycotoxins. These are a byproduct of growth and are toxic to humans.
The pattern of moisture in the walls (more dampness near the floor) indicates the moisture is coming from below and wicking into the absorbent material of the drywall. First priority should be given to ensuring that the source of moisture is eliminated. The installation of ventilation equipment and a moisture barrier should be of considerable help in this situation. Treating the effected areas with a sanitizer/mildewcide such as sodium hypochlorite solution is suggested. A supply of dehumidified air to the crawl space would also be helpful.
Commercial dehumidifiers should be used to assist in drying the walls. Baseboards can be removed and holes drilled that allow access to the wall cavity. Using negative pressure, damp air can be sucked out of the wall cavity and replaced with drier air. When the walls are dried to normal level of moisture content and the humidity is maintained below 50% reservoirs of mold growth will no longer be a problem. This drying should be able to be accomplished in approximately 2 days. After drying, the baseboards are replaced covering the holes.
Air removed from the walls should enter a HEPA filter to remove any spores and mycotoxins from the air. Simply exhausting the air into the home can spread the mold spores.
For added assurance, a mildewcide can be applied to the inside of the wall cavity using a sprayer with a nozzle extension that fits through the holes at the base of the wall. These openings can also be used with a fiber optic inspection tool to examine the inside of the wall cavity for mold.
Charles Pest Control is an individual proprietorship owned by Defendant Charles Gregory. At the time of the February 22, 2001 inspection at 3815 Marydale Court in Nashville, Charles O'Brien was an employee of Charles Gregory and was in the process of buying the business from Mr. Gregory. Charles Pest Control was contacted by agents of the seller for the purpose of providing to the buyers a wood-destroying insect infestation inspection report. Charles O'Brien inspected the property on February 22, 2001, after which he prepared and signed the report. The report states that the inspector found " No Visible evidence of a wood destroying insect infestation."(emphasis in original). The report further made exception as to inaccessible areas, same being insulation in the crawl space, fixed ceilings, fixed wall covering, floor covering, and cabinets or shelving. Mr. O'Brien made no notation of any kind on the report about moisture in the crawl space or wide spread mold, although in deposition he acknowledged that at the time of his inspection, 80% of the crawl space was affected by mold.
This specific report is the subject of Tennessee Code Annotated section 62-21-201 to 206 wherein its purpose, contents and effect are specifically set forth.
The only defendants in this case are the two men who operated Charles Pest Control. Their liability for either negligent misrepresentation or breach of warranty depends entirely upon the wood-destroying insect infestation inspection report of February 22, 2001. This particular report is on a form prescribed by the National Pest Management Association and the United States Department of Housing and Urban Development.
In granting summary judgment to Defendants, the trial court held:
As grounds for its decision, this Court finds that the gravamen of the plaintiffs' claims are negligent misrepresentation under § 552 of the Restatement (Second) of Torts, as that section has been adopted in Tennessee, and breach of warranty as set forth in subsection (c) of Tenn. Code Ann. § 62-21-202. To be successful, both claims require the plaintiffs to have detrimentally relied on a misrepresentation or false statement made by the defendants, or on a warranty that has been breached. The undisputed facts of this case show, however, that the defendants did not make any false statement or misrepresentation upon which the plaintiffs relied to their detriment in the Wood Destroying Insect Infestation Report given to the plaintiffs by defendant Charles O'Brien, nor did the defendants breach the warranty created by the statute cited above. The defendants are, therefore, entitled to judgment as a matter of law.
This particular HUD form had been in existence long prior to Chapter 668 of the Public Acts of 2000, effective July 1, 2000. However, the 2000 Act of the legislature was enacted in response to the decisions of this Court in Fuller v. Feingold, No. 02A01-9809-CV-00252, 1999 WL 250182 (Tenn.Ct.App.April 28, 1999), and Walker v. Arrow Exterminators, Inc., No. 01A01-9809-CV-00492, 1999 WL 722639 (Tenn.Ct.App.Sept.17, 1999). Both of these cases involved actual termite infestations and resulted in judgments for the defendants on a basis that the plaintiffs could not prove that the wood-destroying insect infestation was present at the time the report was issued, rather than first appearing at some time subsequent thereto.
This history and origin of Chapter 668 of the Public Acts of 2000 was determined from Representative Odom's remarks to the House Commerce Committee on March 7, 2000 and to the House Session on April 13, 2000. The bill was sponsored by Representative Odom in the House and Senator Henry in the Senate.
Chapter 668 of the Acts of 2000 amended Tennessee Code Annotated section 62-21-102 to add a new definition, same being:
"Wood destroying insect infestation inspection report" means a report written by a chartered commercial pest control operator employing a person licensed in the category of wood destroying organisms. The report shall indicate the presence or absence of visible wood destroying insects and the presence or absence of visible damage caused by such insects and shall be issued after an on-site inspection of the property.
The Act also provided for a new Part to the Code entitled "Wood Destroying Insect Infestation Inspection Reports" and now codified as section 62-21-201 to 206. In pertinent part, this section provides as follows:
62-21-201. Persons authorized to issue reports — Persons authorized to conduct inspections. — Wood destroying insect infestation inspection reports, as defined in this chapter, issued in conjunction with the sale or transfer of any real property shall only be issued by a chartered pest control operator licensed, or employing personnel licensed, in the category of wood destroying organisms. Only those persons licensed in the category of wood destroying organisms or certified in the category of industrial, institutional, structural and health related pest control working under the direct supervision of one licensed in the category of wood destroying organisms are authorized to conduct inspections for wood destroying insect infestation reports.
62-21-202. Contents of report — Warranty — Civil liability. — (a) A wood destroying insect infestation inspection report issued by a chartered pest control operator evidences the presence or absence of visible wood destroying insects and the presence or absence of visible damage caused by such insects noted on the day the inspection is made. Obstructions and inaccessible areas shall be so noted in the report.
(b) The wood destroying insect infestation inspection report shall be submitted on forms prescribed by the National Pest Management Association and the department of housing and urban development. In addition to other information, the report shall include the address of the property, a graph or other diagram showing the layout of the property, the areas of damage or active infestation (if any), the name of the licensed or certified employee conducting the inspection, the pest control operator name, address and charter number, the date of the inspection and any recommendations for corrective action.
(c) Notwithstanding any provision of law to the contrary, a wood destroying insect infestation inspection report is a warranty for ninety (90) days of the accuracy of any representations in such inspection report.
(d) The person to whom a wood destroying insect infestation inspection report is issued may recover from the warrantor for breach of warranty compensatory damages, including all repair costs which are proximately related to the warranty as provided in § 62-21-203.
(e) Any person knowingly issuing a false report or who issues a report without making a physical inspection of the site shall be liable in treble the amount of damages resulting from or incident to the breach of the warranty. The party injured by such breach may bring suit for the breach and for such damages.
62-21-203. Remedies. — Disputes which cannot be resolved between property owners, lenders, and/or trustees and persons issuing a wood destroying insect infestation inspection report may be resolved in a court of appropriate jurisdiction. Prior to filing a suit for compensatory damages, the issuer of the report shall be given an opportunity to inspect the premises and to offer within thirty (30) days of such inspection a proposal for repair and treatment of the premises. Notwithstanding any other provision of law or rule to the contrary, if the property owner files suit prior to offering the issuer of the report an opportunity to inspect and propose repairs and treatments as required by this section, the issuer of the report shall have, in addition to the thirty (30) days in which to answer the complaint as provided in Rule 12 of the Tennessee Rules of Civil Procedure, another thirty (30) days from the service of the summons and complaint within which to inspect and propose repairs and treatments before being required to answer the complaint. No property owner or lender shall be required to engage in an alternate dispute resolution process before filing a suit for compensatory damages.
Tenn. Code Ann. §§ 620-21-201 to 203 (Supp. 2001).
The effect of Chapter 668 of the Public Acts of 2000 is to prevent results similar to Fuller and Walker by casting upon the licensed pest control operator the burden of any wood destroying insect infestation that might occur within ninety days of his report.
How this warranty can be applied in actual practice is difficult to imagine, as the expert proof in both Walker and Fuller establish the potential for rapid growth of termites in the spring and that termites can enter a home over night.
The difficulty for Plaintiffs in this case is that there is not now, and never has been, a wood destroying insect infestation which is proximately related to the damages they seek to recover from Defendants.
The evidence discloses a previous termite infestation, together with an infestation of carpenter bees, but there is no allegation that these wood-destroying insect infestations caused any of the damages resulting to Plaintiffs. All of the damages are alleged to result from extensive fungus mold infestation brought about by excessive moisture.
The expert witness affidavits offered by Appellants seek to establish a standard of care far more extensive than the limitations set forth in Tennessee Code Annotated section 62-21-201 to 206. The affidavit of Philip Hurst, pesticide inspector for the Tennessee Department of Agriculture, asserts in pertinent part:
B. REPORT SECTION IV IX-Mr. O'Brien made no additional comments in Section IV of the report. My inspection of the structure revealed that in the crawl space there was obvious visible evidence of conducive conditions to wood destroying insects which was excessive moisture and insufficient ventilation. In addition, the structure had a faulty grade which contributed to the excessive moisture in the crawl space. The excessive moisture was immediately obvious because of the clearly visible fungus and extensive mold that had developed on a substantial number of the wooden rafters in the crawl space.
While Section IX contains a consumer maintenance advisory for prevention of wood destroying insects, the advice given to consumers regarding factors which may lead to infestation for wood destroying insects also reflects the standard of care, or industry standards, that are part of the inspection and report of a residence. This is because the standard of care for pest control operators, or industry standards, require not only that wood destroying insect infestation inspection and report note the presence of visible evidence of insect infestation, but also conditions that are conducive to insect infestation.
The report in Section II states that the report is "indicative of the condition of the subject property." A pest control operator or technician is trained not only to detect infestation, but also to detect conditions that are conducive to infestation. Detecting conducive conditions allows steps to be taken to prevent insect infestation before it occurs which prevents the damage to structures that results from insect infestation. Like a dentist whose professional practice does not just include the treatment of cavities, but also the prevention of cavities; a pest control operator's professional practice does not just include the treatment of insect infestation but also the prevention of insect infestation.
The most important conducive condition is moisture since insects cannot exist, or infest, without moisture. Moisture is a prerequisite to insect infestation. In other words, there will not be any insect infestation if there is no moisture, however if there is high or excessive moisture, there is a high probability that insect infestation will occur.
Accordingly, an inspection of the condition of a structure must include detecting conducive conditions for insect infestation that exist in the structure relating to moisture such as faulty grade, the presence of excessive moisture, and insufficient ventilation.
The affidavits of expert witness Mike Lefever and the expert witness Tim Green assert the same standard of care relative to moisture as a condition which invites insect infestation. However, such a standard of care simply cannot be imposed in the face of a statutory limitation that "[a] wood-destroying insect infestation inspection report issued by a chartered pest control operator evidences the presence or absence of visible wood destroying insects and the presence or absence of visible damage caused by such insects noted on the day the inspection is made." Tenn. Code Ann. § 62-21-202(a) (Supp. 2001). All of the damage complained of by Plaintiffs is caused, not by wood destroying insects, but by the effects of excessive moisture. If the obvious excessive moisture conditions observed not only by Plaintiffs' experts, but by Charles O'Brien himself, had led to a massive infestation of wood destroying insects, summary judgment would certainly have been improper. If the previous termite infestation observed by the experts or the carpenter bees observed by the experts were causative of the damages asserted by Plaintiffs, summary judgment would, likewise, have been improper.
However, the statutorily limited scope of a wood destroying insect infestation inspection report simply cannot form the predicate to extend liability for the effects of excessive moisture completely divorced from wood destroying insects. The warranty created by Tennessee Code Annotated section 62-21-202 is not available to Plaintiffs except under the limited conditions set forth in that same statute. No misrepresentation of fact has been made within the limited scope of statutory requirement in the wood-destroying insect infestation inspection report.
Assuming, but not deciding, that Chapter 668 of the Public Acts of 2000 as codified in Tennessee Code Annotated sections 62-21-102 to 206 does not displace common law remedies as to the wood-destroying insect infestation inspection report, see Hodges v. S.C. Toof Co., 833 S.W.2d 896, 899 (Tenn. 1992), a negligent misrepresentation case cannot be predicated upon any affirmative misrepresentations of fact made in the February 22, 2001 report. Such case could only be made upon the basis of a failure to disclose information relative to moisture conditions.
Our courts have pointed out consistently that liability for nondisclosure can arise only in the cases where the person being held responsible had a duty to disclose the facts at issue. The Tennessee Supreme court has held:
In all cases, concealment or failure to disclose, becomes fraudulent only when it is the duty of a party having knowledge of the facts to discover them to the other party: 2 Pom. Eq., sec. 902. And this author, in the same section says: "All the instances in which the duty to disclose exists and in which a concealment is therefore fraudulent, may be reduced to three distinct classes:
1. Where there is a previous definite fiduciary relation between the parties.
2. Where it appears one or each of the parties to the contract expressly reposes a trust and confidence in the other.
3. Where the contract or transaction is intrinsically fiduciary and calls for perfect good faith. The contract of insurance is an example of this last class."
Domestic Sewing Mach. Co. v. Jackson, 83 Tenn. 418, 424-25 (1885). See also Simmons v. Evans, 185 Tenn. 282, 285, 206 S.W.2d 295, 296 (1947); Dozier v. Hawthorne Development Co., 37 Tenn. App. 279, 292-93, 262 S.W.2d 705, 711 (1953); Macon County Livestock Mkt. v. Kentucky State Bank, 724 S.W.2d 343, 349 (Tenn.Ct.App. 1986); Shah v. Racetrac Petroleum Co., 338 F.3d 557 (6th Cir. 2003).
The facts of this case disclose no fiduciary relationship between the parties. Plaintiffs had never heard of Defendants prior to the March 9, 2001 closing on the house. There is no evidence that Plaintiffs expressly reposed a trust or confidence in Defendants, and the contract is not intrinsically fiduciary.
Charles Gregory and Charles O'Brien are not parties to the contract of sale, and their liability can only arise from the alleged deficiencies in the wood-destroying insect infestation report. While Patel v. Bayliff, 121 S.W.3d 347 (Tenn.Ct.App. 2003) (app.denied Oct. 6, 2003) avoided Restatement (Second) of Torts Section 551(1) requirements for negligent misrepresentation liability as same was adopted by Macon County Livestock, by applying Simmons v. Evans, the Restatement Section 551(1) requirements were apparently never raised in Patel as to the termite inspector. Summary judgment was granted in the trial court solely on the basis of lack of justifiable reliance on the termite letter. This case was reversed on appeal on the sole basis of a material issue of fact relative to reliance. As to the termite inspector, the Court of Appeals does not discuss the requirements of Restatement Section 551(1). In any event, Patel involved failure to disclose termite infestations, past and present, with resulting damages from such infestations. In the case at bar, the undisclosed conducive conditions did not conduce.
Taking our analysis one step further, as was done in Justice v. Anderson Co., 955 S.W.2d 613 (Tenn.Ct.App. 1997), the mold and moisture conditions under the house were reasonably known or discoverable by Plaintiffs. They did not look under the house prior to closing and expressly rejected a home inspection prior to closing.
It is difficult to stymie first time homeowners when their dreams turn to nightmares, but practical considerations mandate such results. The former owners of the property are not defendants. Plaintiffs had the opportunity to have a home inspection made and were dissuaded from such action, not by these defendants, but by their own real estate agents. Plaintiffs did not purchase a pest control contract from these Defendants or any other pest control operator but relied, alone, on a statutory inspection report, the scope of which is drastically limited by the statute.
The judgment of the trial court is in all respects affirmed, and costs are assessed to Appellants.
WILLIAM C. KOCH, JR., P.J., M.S., filed a dissenting opinion.
The narrow question presented by this appeal is whether Tennessee recognizes the tort of negligent misrepresentation by nondisclosure. While the Sears family's complaint faces a daunting battle on other fronts, I would not extinguish it at this stage of the proceeding by holding as a matter of law that a professional person cannot supply the false information required by Restatement (Second) of Torts § 552 (1977) by silence.
I.
Mr. and Ms. Sears were first-time home buyers when they contracted to purchase the house at 3815 Marydale Court in Nashville. Because the contract required the seller to furnish a standard termite letter, the seller's agent hired Charles Pest Control to inspect the premises and to furnish the report. On February 22, 2001, Charles O'Brien inspected the house and completed a "Wood Destroying Insect Information Inspection Report" which he provided to the seller.
Mr. O'Brien's inspection report was on a standard NPCA-1 form designed by the National Pest Control Association. Despite evidence of inactive infestation and previous treatment, Mr. O'Brien checked a box on the form certifying that "[n]o visible evidence of a wood destroying insect infestation was observed." He did not check the boxes that would have indicated the prior inactive infestation or the previous treatment.
Mr. O'Brien's inspection also included looking for conditions, such as moisture, that could be conducive to an infestation of wood-destroying insects. Moisture can also cause mold. Even though Mr. O'Brien observed water stains on the foundation and the joists and mold on over eighty percent of the floor joists in the crawlspace under the house, he did not note these conditions in his report. Despite the fact that the NPCA-1 form contained spaces for "additional comments" and warned that corrective measures should be taken if faulty grade, insufficient ventilation, or moisture were discovered, Mr. O'Brien did not report the mold or the water stains because "[t]here was nowheres [on the form] asking for me to note it."
Mr. and Ms. Sears were not aware of the mold in the crawlspace when they closed on the house. Mr. Sears had only peered into the crawlspace without a flashlight, and they had not obtained a home inspection prior to signing the contract. They saw the termite inspection report for the first time at the closing on March 9, 2001, and proceeded with the closing after noting that it contained no indication of the presence of wood-destroying insects or conditions conducive to wood-destroying insects.
Within weeks after moving into the house, the Sears family began experiencing health problems that were eventually traced to the mold in the crawlspace. On September 26, 2001, after extensive and costly repairs to mitigate the mold problem, the Sears family filed suit against Charles Pest Control and Mr. O'Brien in the Circuit Court for Davidson County, asserting claims based on negligent misrepresentation, breach of warranty, and common-law negligence. They claimed that they would not have closed on the house if Mr. O'Brien had included in his report the conditions he observed in the crawlspace.
Charles Pest Control and Mr. O'Brien moved for a summary judgment in June 2002 on the ground that "searching for and/or reporting the presence or absence of mold, moisture, or damage caused by either mold or moisture is specifically outside if [sic] the scope of an insect infestation inspection. . . ." The Sears family responded to the motion on August 14, 2002, with the affidavits of a Pesticide Inspector employed by the Tennessee Department of Agriculture Regulatory Services and two other experienced pest control operators. All three of these persons stated unequivocally that inspectors like Mr. O'Brien are required to note moisture and other conditions conducive to insect infestation on the NPCA-1 form and that the form Mr. O'Brien filled out with regard to the residence at 3815 Marydale Court fell well below "the applicable standard of pest control practice or pest control industry standards, in Nashville, Tennessee. . . ."
The Sears family's response to their motion caused Charles Pest Control and Mr. O'Brien to shift their defensive theory. Rather than relying on their earlier claim that pest control inspectors were not required to search for and report conditions conducive to an insect infestation, they now asserted that they were entitled to a summary judgment because "[t]here is no representation in the report that the structure is free from `factors which may lead to infestation from wood destroying insects.'" Essentially, they argued that there could be no recovery for negligent misrepresentation or breach of warranty unless they included "false information" in the report.
On August 30, 2002, the trial court filed an order granting Charles Pest Control and Mr. O'Brien's motion for summary judgment on all of the Sears family's claims. The trial court reasoned:
To be successful, both claims require the plaintiffs to have detrimentally relied on a misrepresentation or false statement made by the defendants, or on a warranty that has been breached. The undisputed facts of this case show, however, that the defendants did not make any false statement or misrepresentation upon which the plaintiffs relied to their detriment in the Wood Destroying Insect Infestation Report given to the plaintiffs by defendant Charles O'Brien, nor did the defendants breach the warranty created by the statute cited above. (emphasis added)
The Sears family filed a timely Tenn. R. Civ. P. 59.04 motion to alter or amend judgment, citing Justice v. Anderson County, 955 S.W.2d 613, 616 (Tenn.Ct.App. 1997), and pointing out that "[n]ondisclosure of a material fact may also give rise to a claim for fraudulent or negligent misrepresentation when the defendant has a duty to disclose and the matters not disclosed are material." The trial court entered an order on October 29, 2002, denying the motion without elaboration.
II.
The Sears family's complaint contains three causes of action: negligent misrepresentation, breach of warranty under Tenn. Code Ann. § 62-21-202(c), (e) (Supp. 2003), and common-law negligence. The language of the summary judgment motion filed by Charles Pest Control and Mr. O'Brien is broad enough to apply to all three claims. The defendants' reply to the Sears family's response to their summary judgment motion undertakes to de-emphasize the common-law negligence claim. It states that:
The plaintiffs allege two causes of action in their complaint: (1) negligent misrepresentation under Section 552 of the Restatement (Second) of Torts as adopted in Tennessee and (2) the breach-of-warranty action specifically granted against pest control companies by T.C.A. § 62-21-202. (Complaint, Section III, Cause of Action). Of course, a general allegation of "negligence" in a case like this cannot camouflage the fact that the gravamen of their case is that the plaintiffs allege they would not have purchased the property but for their reliance on the accuracy of the "termite letter" issued by Charles Pest Control. That is, the plaintiffs' general allegations of "negligence" are superfluous since they have alleged the more specific cause of action of negligent misrepresentation, which encompasses the gravamen of their claim.
In its August 30, 2002 order granting the summary judgment, the trial court found "that the gravamen of the plaintiffs' claims are negligent misrepresentation under § 552 of the Restatement (Second) of Torts, as that section has been adopted in Tennessee, and breach of warranty as set forth in subsection (c) of Tenn. Code Ann. § 62-21-202." While the court did not specifically address the common-law negligence claim, it dismissed the Sears family's "action . . . with prejudice in its entirety."
The Sears family conceded in their Tenn. R. Civ. P. 59.04 motion that the gravamen of their claims is "negligent misrepresentation under Section 552 of the Restatement (Second) of Torts." In light of this concession and the fact that the only standard of legal liability they discuss in their brief is negligent misrepresentation, it appears that the Sears family has effectively abandoned their common-law negligence claim and is relying principally on their negligent representation claim. Accordingly, this opinion addresses only their negligent misrepresentation claim.
Had the Sears family not effectively abandoned their common-law negligence claim, I would hold that Charles Pest Control and Mr. O'Brien violated the applicable standard of care by failing to disclose on the termite report the conditions Mr. O'Brien discovered that were conducive to an infestation of wood-destroying insects.
III.
Tennessee has recognized claims for negligent misrepresentation under Restatement (Second) of Torts § 552 (1977) for over thirty years. The Tennessee Supreme Court adopted the principles that the American Law Institute later incorporated into Restatement (Second) § 552 in Tartera v. Palumbo, 224 Tenn. 262, 271-72, 453 S.W.2d 780, 784 (1970) and has repeatedly recognized and followed the Restatement ever since with regard to actions for negligent misrepresentation. Robinson v. Omer, 952 S.W.2d 423, 427 (Tenn. 1997); Ritter v. Custom Chemicides, Inc., 912 S.W.2d 128, 130 (Tenn. 1995).
Accordingly, the elements of a negligent misrepresentation claim are now well-known. Persons asserting a negligent misrepresentation claim must prove: (1) that the defendant was acting in the course of its business, profession, or employment, (2) that the defendant supplied false information for the guidance of others in its business transactions, (3) that the defendant failed to exercise reasonable care in obtaining or communicating the information, and (4) the plaintiff justifiably relied on the information. John Martin Co. v. Morse/Diesel, Inc., 819 S.W.2d 428, 431 (Tenn. 1991); Trinity Indus., Inc. v. McKinnon Bridge Co., 77 S.W.3d 159, 182 (Tenn.Ct.App. 2001); Addaman v. Lanford, 46 S.W.3d 199, 204 (Tenn.Ct.App. 2000).
This case involves the second and third elements of a negligent misrepresentation claim. Some courts, construing Restatement (Second) of Torts §§ 551, 552 narrowly and disjointedly, have held that nondisclosure of information or the failure to speak can never support a negligent misrepresentation claim. They reason that an essential element of the claim is missing because nothing has been misrepresented. However, other courts have held silence or nondisclosure can support a claim for negligent misrepresentation when there is a duty to speak. Tennessee has already sided with the latter group of courts.
Wilson v. Century 21 Great Western Realty, 15 Cal.App.4th 298, 18 Cal.Rptr.2d 779, 783 (App.Ct. 1993) (based on specific California statutory language); Burman v. Richmond Homes Ltd., 821 P.2d 913, 919 (Colo.Ct.App. 1991); Martin v. Ohio State Univ. Found., 139 Ohio App.3d 89, 742 N.E.2d 1198, 1209 (2000); Hagans v. Woodruff, 830 S.W.2d 732, 736 (Tex.App. 1992); Richey v. Patrick, 904 P.2d 798, 802 (Wyo. 1995) (finding no action under Restatement (Second) of Torts § 552 but recognizing possible liability under Restatement (Second) of Torts § 551 (1977)).
In re Agribiotech, Inc., 291 F.Supp.2d 1186, 1190 (D.Nev. 2003); Premier Bank v. Tierney, 114 F.Supp.2d 877, 886 (W.D.Mo. 2000); Weisblatt v. Minnesota Mut. Life Ins. Co., 4 F.Supp.2d 371, 380 (E.D.Pa. 1998); Masso v. United Parcel Serv. of America, Inc., 884 F.Supp. 610, 616 (D.Mass. 1995); Matthews v. Kincaid, 746 P.2d 470, 471 (Alaska 1987); Alaface v. National Inv. Co., 181 Ariz. 586, 892 P.2d 1375, 1387 n. 3 (App. 1994); Binette v. Dyer Library Ass'n, 688 A.2d 898, 903 (Me. 1996); Lane v. Oustalet, 850 So.2d 1143, 1148 (Miss.Ct.App. 2002); R.A. Peck, Inc. v. Liberty Fed. Sav. Bank, 108 N.M. 84, 766 P.2d 928, 932 (App. 1988).
Restatement (Second) of Torts § 551(1) provides that
One who fails to disclose to another a fact that he knows may justifiably induce the other to act or refrain from acting in a business transaction is subject to the same liability to the other as though he had represented the nonexistence of the matter that he has failed to disclose, if but only if, he is under a duty to the other to exercise reasonable care to disclose the matter in question.
The Tennessee Supreme Court approved this principle approximately fifty years ago, Turner v. N.C. St. L. Ry., 199 Tenn. 137, 144, 285 S.W.2d 122, 125 (1955), and this court has recognized and followed Restatement (Second) of Torts § 551. Patton v. McHone, 822 S.W.2d 608, 615 (Tenn.Ct.App. 1991); Macon County Livestock Mkt., Inc. v. Kentucky State Bank, Inc., 724 S.W.2d 343, 349 (Tenn.Ct.App. 1986). Therefore, even in the absence of a special relationship, a party to a business transaction must (1) disclose enough information to prevent its statements from becoming misleading, Akbari v. Horn, 641 S.W.2d 506, 508 (Tenn.Ct.App. 1982), (2) disclose known conditions or defects that render a product defective or dangerous, General Motors Corp. v. Dodson, 47 Tenn. App. 438, 458-59, 338 S.W.2d 655, 664-65 (1960), and (3) must disclose basic, material information if it knows that the buyer is about to act without knowledge of the information and is without reasonable means to acquire the information. Simmons v. Evans, 185 Tenn. 282, 285-86, 206 S.W.2d 295, 296 (1947).
Accordingly, as the law presently stands, "[n]ondisclosure of a material fact may also give rise to a claim for fraudulent or negligent misrepresentation when the defendant has a duty to disclose and the matters not disclosed are material." Justice v. Anderson County, 955 S.W.2d at 616. This court's opinion in Justice v. Anderson County aligns Tennessee with the jurisdictions that have recognized the tort of negligent misrepresentation by nondisclosure.
IV.
Based on the record before us, I would conclude that the Sears family's negligent misrepresentation claim should survive summary judgment. They have presented competent proof that Charles Pest Control and Mr. O'Brien had a business duty to disclose the existence of conditions conducive to insect infestation on the NPCA-1 report. In addition, they have presented evidence regarding the following three elements of their negligent misrepresentation claim:
1. Mr. O'Brien was acting in the course of his business, profession, or employment when he inspected the Marydale Court house.
2. Mr. O'Brien supplied false information on the report by failing to report prior infestations and treatments and by failing to note the existence of conditions conducive to insect infestation. These nondisclosures were tantamount to representations that these conditions did not exist.
3. The pest control experts have opined that Mr. O'Brien did not exercise reasonable care either in conducting the inspection or in completing the NPCA-1 report.
The fourth element of a negligent misrepresentation claim is that the plaintiff must have justifiably relied on the information or lack of information supplied by the defendant. This element may ultimately prove to be the Achilles' heel of the Sears family's case. As the majority points out, the "moisture conditions under the house were reasonably known or discoverable by Plaintiffs. They did not look under the house prior to closing and expressly rejected a home inspection prior to closing." However, there are two reasons why the reasonableness of the Sears family's reliance is not dispositive of this appeal. First, it is not the basis for the trial court's decision to grant the summary judgment. Second, reasonableness is, as a general matter, just the sort of question that should be left to a jury. I am not prepared to hold, based on the present record, that the only conclusion that a reasonable person could draw is that the Sears family acted unreasonably by relying on the pest control report that effectively stated that there were no prior insect infestations or treatments or conditions conducive to insect infestations.