After 25 years in business, Ryan Tedder decided to sell his hardware store in Nashua, New Hampshire. Tedder was approached by Sarah Potenza, a resident of Lawrence, Massachusetts, to inquire about buying the business. They met at Tedder's home in Lowell, Massachusetts from which Tedder commuted to work in New Hampshire. Negotiations ensued in Massachusetts and after an inspection of the property in Nashua, they completed arrangements to sell both the business itself and the real property. In the course of the negotiations, Tedder showed Potenza the company books and made a number of oral representations about its profitability. They signed the sales contract in Lowell, Mass. and three months later did the closing at the registry of deeds in Nashua New Hampshire at which time ownership of both the business and the real property switched from Tedder to Potenza.
Shortly after taking possession of the property, Potenza realized that Tedder had lied to her in the negotiations. Not only had he represented the business as profitable in their conversations but he showed her books that backed up that assertion. Upon taking possession, she found a second set of books with different (and more accurate) figures that showed the business costs as much higher than Tedder had represented. Potenza promptly sued Tedder in the Middlesex County Superior Court in Massachusetts seeking rescission of the agreement and damages for fraud. The trial court ruled in her favor, applying Massachusetts law. The agreement contained merger and nonreliance clauses; the merger clause stated that the written agreement was the entire agreement between the parties and the nonreliance clause stated that neither party was relying on any representations not included in the contract itself. The trial court held that such clauses are unenforceable when a contracting party commits fraud even if done verbally. Under Massachusetts law, the contract can be rescinded and the business and real property returned to Tedder and Potenza can recover damages for fraud. The statute of frauds generally requires a writing for transactions involving the sale of real property but oral promises may be enforceable to avoid fraud when necessary to avoid injustice. Similarly, the agreement is not enforceable in accordance with its terms if fraud induces the agreement.
On appeal, the Court of Appeals reversed. It applied New Hampshire law as the situs of the business (where the business was located) and the place where the contract was to be performed. Under New Hampshire law, the contract is enforceable as written despite any fraudulent statement made orally or in writing not included in the contract itself. Thus the contract could not be rescinded given Potenza's promise that she was not relying on any extracontractual assertions. The New Hampshire statute of frauds requires any representations in the sale of real property to be in writing to be enforceable. In addition, under New Hampshire law, Potenza cannot recover damages for fraud because the nonreliance clause sever proximate cause. Potenza could not show that the fraudulent statements caused her any harm because she had disclaimed any reliance on them.
Potenza appeals to the Supreme Judicial Court seeking to reinstate the trial court ruling on both the contract/property claim and the tort (fraud) claim. Alternatively, if the court finds the contract enforceable under New Hampshire law, she asks for depeçage, applying Massachusetts law to allow her to recover damages for the fraud.
π = Sarah Potenza
∆ = Ryan Tedder