Brungard v. Caprice Records, Inc.

• Decision Date: 10 September 1980
• Citation: 608 S.W.2d 585
• Parties: John BRUNGARD and Peggy Brungard, P/K/A Peggy Cole, Plaintiffs-Appellees, v. CAPRICE RECORDS, INC., Roe Lewis, and Charles "Chuck" Adams, Defendants- Appellants.
• Court: Tennessee Court of Appeals

Page 585

608 S.W.2d 585

John BRUNGARD and Peggy Brungard, P/K/A Peggy Cole Plaintiffs-Appellees, v. CAPRICE RECORDS, INC., Roe Lewis, and Charles "Chuck" Adams Defendants- Appellants.

Court of Appeals of Tennessee, Middle Section.

Sept. 10, 1980 Certiorari Denied by Supreme Court Nov. 24, 1980.

Rose Palermo and Abby R. Rubenfeld, Cheatham & Palermo, and Lawrence Wilson, Nashville, for plaintiffs-appellees.

H. McKinley Marlow, Jr., and Jack Green, Nashville, for defendants-appellants.

OPINION

DROWOTA, Judge.

This case involves fraud in the inducement and the Tennessee Consumer Protection Act of 1977, T.C.A. § 47-18-101 et seq.

On July 20, 1978, the plaintiff-appellee, Peggy Brungard, filed suit against the defendants, Caprice Records, Inc., Roe (Don) Lewis and Charles (Chuck) Adams, alleging that the defendants induced her to enter into a recording contract with Caprice by means of fraudulent misrepresentations. The case was tried before the Chancellor on June 27, 28 and 29, 1979. In a memorandum opinion dated July 13, 1979, the Chancellor, after making extensive findings of fact and conclusions of law, found for the plaintiff. He rescinded the contract between plaintiff and Caprice, and awarded plaintiff treble damages and reasonable attorney's fees under the Tennessee Consumer Protection Act of 1977, T.C.A. § 47-18-101 et seq. The defendants have appealed from this judgment.

Caprice Records, Inc., a Tennessee corporation maintaining its principal place of business in Nashville, Tennessee, is primarily in the business of producing custom records. A custom record company sells record production services. It is a means by which nearly anyone, regardless of talent or likelihood of musical success, can make a record.

The market for these services primarily consists of unknown, aspiring singers or artists. The artist at the outset pays the recording company to produce the record. The production services provided by the company include musicians, vocalists, studio time, tape, mixing, mastering, and a producer. The contract price paid by the artist also includes the cost of manufacturing the record discs.

The promotional services provided by the company are minimal and clearly insufficient to produce a commercially successful record. The public success of its records, however, is not essential to a custom record company. Its income and profits are derived from the sale of production services, not from the sale of records.

By way of contrast, the vast majority of records are produced by means of a standard contract between the artist and the company. The standard contract is a risky venture from the viewpoint of the company. The recording company pays all the costs of producing and manufacturing the record. It also bears the cost of promotion and marketing which are essential to the success of any record. If a record fails, the record company, not the artist, bears the loss. Only if the public buys the record can the company recoup its investment.

Caprice Records has a very few artists under standard contracts. The bulk of its business is derived from custom records. Caprice contacts potential customers of its custom record services by means of advertisements on radio and in newspapers in regions of the country where country music is popular. In August, 1977, plaintiff, who lived in Albuquerque, New Mexico at that time, answered such an advertisement. She visited a local motel with her husband where she auditioned for defendant Chuck Adams, a Caprice Records talent scout. While there, she filled out one of Caprice's confidential audition forms. Adams told plaintiff that if she was accepted by Caprice, she would be given a contract to record in Nashville. The next day, Adams called plaintiff to inform her that Caprice had accepted her. Plaintiff, her husband and Adams again met to discuss the arrangement. During both meetings, Adams made numerous misrepresentations concerning Caprice and its relationship with plaintiff. According to the Chancellor's findings, the tenor of these representations was that Caprice intended to actively promote and finance the plaintiff's record, as it would any other record under a standard contract. These misrepresentations will be discussed in detail below.

Plaintiff did not sign the contract until October, 1977. At that time, she mailed a signed contract and $500.00 to defendant Don Lewis, president of Caprice Records. The contract was a custom records agreement of the type discussed earlier. It required plaintiff to pay Caprice $2,966.00 for which Caprice would produce a record cut by the plaintiff. Caprice agreed to manufacture 500 records. Plaintiff and Caprice were to receive 100 records each. Caprice's only obligation in the promotion of the record was to send the remaining 300 records to radio stations around the country.

In late October, 1977, plaintiff came to Nashville and recorded two songs in a Nashville studio. The record was then pressed and released on the Checkmate label. When plaintiff received her 100 copies, she detected a distortion on one side. After complaining to Lewis, 100 additional copies were pressed and sent to her at no charge. Around this time, plaintiff also discovered that Caprice was not promoting her record as she had understood it would. She ordered 500 more records which she attempted to sell on her own "to make the best of a bad situation." The instant lawsuit followed shortly thereafter.

Appellants have presented six issues for review. The first two issues concern the parol evidence rule. The Chancellor admitted testimony concerning the first meeting between plaintiff and Adams in Albuquerque in August, 1977. He also admitted a taped recording of the second meeting held a few days later. Both meetings took place prior to the signing of the contract. Appellants assert that this was parol evidence and that the Chancellor erred by permitting its introduction in contradiction of the written agreement between the parties.

Appellants misconceive the nature of the allegations against them. Plaintiff is not bringing suit on the contract. She is asking for a recission of the contract on the grounds that appellants fraudulently induced her to enter into the contract. She seeks damages on the tort theory of fraudulent misrepresentation. The law is well settled in this area.

The Parol Evidence Rule applies to suits on a contract. It has no application to a case involving a fraudulent misrepresentation which induces the contract.

Haynes v. Cumberland Builders, Inc., 546 S.W.2d 228, 231 (Tenn.App.1977). On this basis we hold that the Chancellor properly admitted and considered the testimony and tape recording of plaintiff's meetings with Adams.

In issues three, five and six, the appellants generally assert that the evidence is insufficient to support the Chancellor's findings that the plaintiff was fraudulently induced to enter into the contract.

In all civil actions tried by a court of record without a jury, review of the findings of fact by the trial court shall be de novo upon the record, accompanied by a presumption that the judgment of the trial court is correct, unless the preponderance of the evidence is otherwise. T.C.A. § 27-303, TRAP 13(d). The Chancellor made extensive findings of fact. After reviewing the Chancellor's findings and the record, we find that the evidence supports the Chancellor's judgment.

The plaintiff is suing on the tort of false misrepresentation in a commercial transaction. Under this theory,

One, who in the course of his business, profession or employment, or a transaction in which he has a pecuniary interest, supplies false information for the guidance of others in their business transactions, is subject to liability for pecuniary loss caused to them by their justifiable reliance upon such information if he fails to exercise reasonable care or competence in obtaining or communicating the information.

Jasper Aviation, Inc. v. McCollum Aviation, Inc., 497 S.W.2d 240, 242 (Tenn.1972) (emphasis added). In effect, the scienter requirement of common law deceit has been replaced by a reasonable care standard in business transactions. Haynes v. Cumberland Builders, Inc., supra at 232. Thus the plaintiff only needs to prove that the misrepresentations were made negligently. Nevertheless, the facts indicate that the misrepresentations were fraudulent in that the defendants made them "(1) knowingly or (2) without belief in their truth, or (3) recklessly, careless whether they be true or false." Tartera v. Palumbo, 224 Tenn. 262, 453 S.W.2d 780 (1970); Shwab v. Walters, 147 Tenn. 638, 251 S.W. 42 (1923). Although proof of actual fraud is not necessary to establish liability in this case, it is important with regard to the amount of damages to be awarded.

The evidence of the two meetings between plaintiff and Adams indicates that the defendants induced the plaintiff into signing a custom record contract by means of numerous false representations designed to convince the plaintiff that Caprice was taking a financial risk in signing her to a recording contract and that it would actively promote her record. At their first meeting Adams told the plaintiff that Caprice would invest $3,000.00 in her record, and she would invest $2,966.00. This statement was flatly untrue. Adams knew that Caprice invested none of its own money in a custom record and that it would not put up its own money for the plaintiff. At the next meeting, Adams reminded the plaintiff that "our money's at stake." When the plaintiff pressed Adams about Caprice's $3,000.00 commitment in the venture, Adams hedged by saying "well, whatever." He then said that Caprice would pick up all expenses above her initial investment. Again, Adams knew there were no expenses above plaintiff's $2,966.00.

These misrepresentations misled the plaintiff into thinking that Caprice would make a financial commitment to promote her record. The plaintiff had a ninth...