Allen v. Sanders

• Decision Date: 30 October 1985
• Docket Number: No. 70871,70871
• Citation: 337 S.E.2d 428,176 Ga.App. 647
• Parties: ALLEN v. SANDERS.
• Court: Georgia Court of Appeals

Page 428

337 S.E.2d 428

176 Ga.App. 647

ALLEN v. SANDERS.

No. 70871.

Court of Appeals of Georgia.

Oct. 30, 1985.

Fred L. Cavalli, Atlanta, for appellant.

Jimmy W. Jones, Marietta, for appellee.

CARLEY, Judge.

Appellant, appellee, and another person entered into a partnership for the purpose of buying and selling real estate. The partnership was subsequently dissolved, and the partners distributed the partnership property among themselves. In connection with the property distribution, appellee executed a note payable to appellant in the amount of $20,000. Additionally, the partners executed a written dissolution agreement which included broad general provisions whereby each partner released the others from all claims and demands which related to or resulted from the partnership, other than the $20,000 note from appellee to appellant. The agreement further provided that appellee and the third partner would share "the $70,000.00 tax loss incurred by the partnership as a result of the foreclosure of" a particular piece of partnership property.

Appellee failed to pay appellant $20,000, and appellant instituted a lawsuit to recover on the note. Appellee counterclaimed, alleging among other things that appellant owed him certain sums pursuant to the terms of the dissolution agreement and an additional sum pursuant to a personal pledge given to appellee by appellant. The case proceeded to trial before a jury. A directed verdict was granted in favor of appellant on the main claim involving the promissory note, and the jury returned a verdict in favor of appellee on the counterclaim. The instant appeal involves only the judgment entered on the jury's verdict in favor of appellee.

The jury's verdict against appellant had two foundations: the tax loss provisions of the dissolution agreement, and a written pledge whereby appellant promised to pay appellee a specified amount in the event that a certain piece of partnership property was used to satisfy a personal debt of appellant. Appellant contends that neither of these bases of liability is viable, and that the trial court erred in denying his post-trial motions.

1. With regard to appellant's written pledge to appellee, there was evidence from which a jury could find that, unbeknownst to appellee at the time, appellant used a particular piece of partnership property as security for a personal debt. Consequently, appellant issued the written pledge to appellee, promising to pay him a specified sum if the partnership property was used to satisfy appellant's personal debt secured thereby. The property was ultimately used for that purpose. However, because the pledge was made prior to the partners' execution of the partnership dissolution agreement, appellant contends that his obligation thereunder was extinguished by the general release provisions of the dissolution document. Appellee's position is that appellant remained liable on the pledge because he fraudulently induced appellee to agree to the terms of the partnership dissolution.

Fraud which constitutes a ground for voiding a contract under OCGA § 13-5-5 must be fraud which induced a party to enter into the contract. Gilreath v. Argo, 135 Ga.App. 849, 851(3), 219 S.E.2d 461 (1975). The elements of fraud are "(1) a false representation made by the defendant; (2) scienter; (3) an intention to induce [the] plaintiff to act or [to] refrain from acting in reliance thereon; (4) justifiable reliance by the plaintiff; (5) damage to the plaintiff. [Cit.] Fraud may not be presumed, but, being in itself subtle, slight circumstances may be sufficient to [sustain a finding] of its existence. [Cit.] It is peculiarly the province of the jury to pass on these circumstances. [Cits.]" Tolar Constr. Co. v. GAF Corp., 154 Ga.App. 127 129, 267 S.E.2d 635 (1980), rev'd on other grounds, 246 Ga. 411, 271 S.E.2d 811 (1980). "Constructive fraud, as well as actual fraud, voids [a] contract at the election of the injured party, and may authorize a rescission of a written release from liability." Southeastern Greyhound Lines v. Fisher, 72 Ga.App. 717, 722(4), 34 S.E.2d 906 (1945).

Although the evidence presented at trial was conflicting, there was some evidence that appellant represented to appellee that the pledged property was a "complete loss," that appellant "lost everything," and that he "got nothing out of" the foreclosure of the pledged property. However, appellant had received something of value in the form of options to purchase certain realty at the time he encumbered the property, and when the foreclosure occurred, appellant received a $50,000 credit on his personal debt. There was also some evidence that, on the day the partnership dissolution agreement was signed, appellant told appellee that appellant had renewed a bank loan against certain partnership property which had been distributed to appellant. However, appellee subsequently discovered that the loan had been renewed against a different piece of property which had been distributed to appellee. Appellant also misrepresented the values of the equities in various partnership properties. Appellee testified that he relied on appellant's representations, and that he would not have agreed to the terms of the partnership dissolution had he been aware of the true state of affairs. As a result of appellant's misrepresentations, appellee not only lost his interest in the partnership property which was the subject of appellant's pledge, but he was also ultimately liable on a loan for which his property was collateral.

Our review of the transcript thus reveals that there was some evidence from which the jury could find that appellant knowingly made false representations to appellee with the intent of inducing appellee to agree to the terms of the partnership dissolution agreement, and that appellee relied on those representations and incurred damage as a result. There...