Dallas Farm Machinery Company v. Reaves

• Citation: 158 Tex. 1,307 S.W.2d 233
• Decision Date: 06 November 1957
• Docket Number: No. A-6316,A-6316
• Parties: DALLAS FARM MACHINERY COMPANY, Petitioner, v. Ben REAVES, Respondent.
• Court: Texas Supreme Court

Page 233

307 S.W.2d 233

158 Tex. 1

DALLAS FARM MACHINERY COMPANY, Petitioner, v. Ben REAVES, Respondent.

No. A-6316.

Supreme Court of Texas.

Nov. 6, 1957.

Rehearing Denied Dec. 18, 1957.

Wilbur T. Knape, Dallas, for petitioner.

Cantey, Hanger, Johnson, Scarborough & Gooch, Carlisle Cravens, Ed Reichelt and Sloan Blair, Ft. Worth, for respondent.

CALVERT, Justice.

(1) Writ of error was granted in this case on two of thirty points of error contained in petitioner's application. The two points pose the question of whether parol evidence is admissible, in the face of a 'merger' clause in a written contract, to establish that the contract was induced by fraud. We hold it is.

Petitioner, a partnership, as plaintiff, sought a recovery from respondent, as defendant, of the balance due on a written contract of purchase of an Oliver OC-3 crawler tractor and an Oliver-Ware 3W-I loader. By way of cross-action respondent sought a rescission of the contract and a recovery of the value of a Ford tractor and equipment he had delivered to petitioner as a part of the purchase price of the Oliver tractor and loader.

In a non-jury trial judgment was entered denying petitioner a recovery and awarding respondent the relief sought. Findings of fact and conclusions of law in support of the judgment were filed by the trial judge. The judgment was affirmed by the Court of Civil Appeals. 300 S.W.2d 180.

A completed printed 'Customer's Order For Oliver Equipment' form constitutes the written contract between the parties. It contains the following provision: 'I have read the matter on the back hereof and agree to it as a part of this order as if it were printed above my signature. I also acknowledge receipt of a copy of this order which is understood to be the entire contract relating to the sale and warranty of the above described equipment excepting as to any notes, conditional sales contracts or chattel mortgages entered into as above specified.' On the reverse side of the order and under a heading 'Warranty and Agreement' is the following applicable language: 'Seller warrants that new Oliver goods herein described are well made and of good material, and agrees to replace, F.O.B. sellers place of business, for a period of six months after delivery of such goods to Buyer by Seller, such parts found upon inspection to be defective in workmanship or material. * * * This warranty is made in lieu of all other warranties, express or implied, and no warranty is made or authorized to be made other than herein set forth. * * *'

The judgment for respondent rests upon pleading, proof and findings that respondent was induced to enter into the contract by false representations as to the work capabilities of the Oliver tractor and loader, knowingly made by one of petitioner's partners to respondent, on which he relied, and but for which he would not have entered into the contract. Petitioner objected to the evidence offered to support respondent's plea of fraud on the ground that it would vary the terms of the written contract. In asserting that evidence of oral representations of the work capabilities of the tractor and loader was inadmissible petitioner relies on the holdings in Avery Co. of Texas v. Harrison Co., Tex.Com.App., 267 S.W. 254, Wright v. Couch, Tex.Civ.App., 54 S.W.2d 207, no writ history, Distributors Inv. Co. v. Patton, 130 Tex. 449, 110 S.W.2d 47 and Super-Cold Southwest Co. v. Elkins, 140 Tex. 48, 166 S.W.2d 97. More will be said of these cases later.

A review of the Texas cases on the question reveals conflicting decisions and indicates a resulting confusion which can hardly be resolved or explained away with nice distinctions. Some of the decisions should be noticed.

There are earlier cases dealing with the subject, but a good starting point for purposes of this discussion is Edward Thompson Co. v. Sawyers, 111 Tex. 374, 234 S.W. 873. Suit in that case was on a written contract for unpaid installments on the purchase price of law books. By crossaction the defendant sought rescission and damages on the ground that he had been induced to enter into the contract by a promise of the plaintiff's agent to furnish future supplements, which promise was fraudulently made with no intention that it should be kept. The contract contained a provision that no representations or guaranties had been made by the salesman which were not expressed in the contract. The Court of Civil Appeals, being divided, certified to this court the question of the admissibility of evidence with reference to the oral promises. In answering the question this court said (234 S.W. 874):

'Contracts, though reduced to writing, are avoided when induced by material promises, never intended to be kept, not because one is allowed to very his written contract, but because real assent is essential to a binding contract.

'One who is entitled to avoid an entire written contract because it lacked his assent can no longer be bound by any of its stipulations, including those relating to representations or guaranties which induced its execution.'

In the face of the holding in the Sawyers case, and taking no notice of it, Section A of the Commission of Appeals held, in J. I. Case Threshing Mach. Co. v. Manes, 254 S.W. 929, that a purchaser of an automobile could not, on the basis of fraudulent antecedent oral representations of an agent as to the performance capabilities thereof (see Tex.Civ.App., 241 S.W. 757, 758), rescind and avoid the obligations of a written contract which contained a merger clause and a clause limiting the authority of the agent. The particular holding seems to rest on the fact that there was 'no finding that plaintiff was induced to sign the contract by fraud or deceit.' 254 S.W. 931. ¹

The holding in the Manes case was then made the foundation of the holding, by the same court, in Avery Co. of Texas v. Harrison Co., Tex.Com.App., 267 S.W. 254, relied on here by petitioner, which in turn, was quoted with approval by this court as decisive in Distributors Inv. Co. v. Patton, 130 Tex. 449, 110 S.W.2d 47. It may be said that these cases, aided by the holding of the Eastland Court of Civil Appeals in Wright v. Couch, 54 S.W.2d 207, seemed, for a time at least, to establish firmly in our jurisprudence a distinction between fraud in the excution of a contract and fraud in the inducement of a contract, a distinction subsequently reinforced by the opinion of this court in Super-Cold Southwest Co. v. Elkins, 140 Tex. 48, 166 S.W.2d 97. But that distinction has not always been recognized or enforced, even by this court, as we shall see.

In Avery Co. of Texas v. Harrison Co., supra, plaintiff's suit was for damages growing out of the purchase of a tractor and some plows. The contract for the sale of the machinery contained a merger clause. The Court of Civil Appeals affirmed a recovery by the plaintiff on the ground that the plaintiff had pleaded and proved that he had been induced to enter into the contract by fraudulent representations made by agents of the work capabilities of the machinery. Avery Co. of Texas v. Harrison Co., 254 S.W. 1015. The Commission of Appeals' recommendation that the judgments of the trial court and the Court of Civil Appeals be reversed and that judgment be rendered for the defendant was adopted by this court. In its opinion the Commission of Appeals took notice of the Sawyers case (267 S.W. 257) but said that if the suit before it could be treated as one 'for damages on the ground that plaintiffs were induced by fraud and deceit to enter into the contract' the pleadings were insufficient to sustain such action. In the course of the opinion, however, the court announced the rule that in the absence of allegations and proof that by reason of fraud, accident or mistake the written contract contained something not agreed to by the parties, or by reason thereof omitted some promise, representation or warranty or that by reason of some fraudulent representation, artifice, or conduct the parties were induced to sign the contract, or that when it was signed the parties did not know or were prevented from knowing what it contained, it would be conclusively presumed that the written contract contained the whole agreement of the parties and parol evidence of representations, statements or warranties not disclosed by the contract would not be admissible. 267 S.W. 256. The rule announced precludes a showing of fraud in the inducement of a contract as distinguished from fraud in the execution thereof. The rule thus announced in Avery Co. of Texas v. Harrison Co. became the rule of decision in Distributors Inv. Co. v. Patton, supra.

The Patton case involved a cross-action to rescind a written contract of purchase of a tractor and a wagon because of fraudulent representations of an agent regarding the work capabilities of the tractor and the newness of some of its parts. The written contract described the tractor as 'secondhand', sold 'as is.' It contained a merger clause. A trial court judgment of rescission was entered on jury findings that the contract was induced by the fraudulent representations. The judgment was affirmed by the Court of Civil Appeals in an opinion citing Edward Thompson Co. v. Sawyers, supra, Elliott on Contracts, Ruling Case Law, an A.L.R. annotation and decisions by Texas Courts of Civil Appeals for the proposition that any contract induced by fraud-'as is' or otherwise, and even though containing a merger clause-is voidable and parol evidence is admissible for the purpose of establishing the fraud and vitiating the contract. 83 S.W.2d 782, 786-787. This court reversed the judgment of the Court of Civil Appeals and, on authority of J. I. Case Threshing Mach. Co. v. Manes, supra, Avery Co. of Texas v. Harrison Co., supra, and Wright v. Couch, supra, held that a written contract was voidable only for fraud in its execution, saying (110 S.W.2d 48):

'These representations were specifically negatived by...