California Court of Appeals, First District, Fourth Division
Superior Court of Sonoma County, No. SCV 248416. Hon. Elliott Daum Judge.
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Arnold & Porter, Steven L. Mayer and Sean M. SeLegue for Plaintiff and Appellant.
Beyers I Costin, Bob Haroche and Peter L. Simon for Defendants and Respondents.
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).
Accordingly, we reverse the summary adjudication. Because we reverse the summary adjudication, we also must reverse the award of costs and attorney fees to the Roches.
FACTUAL AND PROCEDURAL BACKGROUND
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 pet 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
prepared in 1987 1988 by Victor Conforti, and a geological report prepared by Gene Boudreau in 1987, which both identified a fault or fault trace on the land, and which required the Roches to relocate their winery’s building pad from its original planned location in order to provide a 50-foot setback. These reports had been commissioned by the Roches as part of the establishment of their own winery, as required by the county because their property was located in an earthquake zone.
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 ...