Guernsey Petroleum Corp. v. Data General Corp.

• Citation: 183 Ga.App. 790,359 S.E.2d 920
• Decision Date: 09 July 1987
• Docket Number: Nos. 74159-74161,s. 74159-74161
• Parties: GUERNSEY PETROLEUM CORPORATION v. DATA GENERAL CORPORATION et al. COHEN v. GUERNSEY PETROLEUM CORPORATION. DATA GENERAL CORPORATION v. GUERNSEY PETROLEUM CORPORATION.
• Court: Georgia Court of Appeals

Page 920

359 S.E.2d 920

183 Ga.App. 790

GUERNSEY PETROLEUM CORPORATION v. DATA GENERAL CORPORATION et al.

COHEN v. GUERNSEY PETROLEUM CORPORATION.

DATA GENERAL CORPORATION v. GUERNSEY PETROLEUM CORPORATION.

Nos. 74159-74161.

Court of Appeals of Georgia.

July 9, 1987.

Rehearing Denied July 24, 1987.

Certiorari Denied Sept. 24, 1987.

Stephen M. Forte, Atlanta, for Guernsey Petroleum.

Frank W. Virgin, Atlanta, for Data Gen.

David D. Blum, Atlanta, for Cohen.

BEASLEY, Judge.

These appeals arise out of a controversy which resulted when Guernsey Petroleum Corporation (a petroleum developer) entered into a contract with Interactive Systems Corporation (a computer software and hardware marketer) on July 13, 1982. The contract was executed by Cohen, president of ISC, and Freedman, president of Guernsey. In return for a stated consideration ISC agreed to supply Guernsey with a computer system, including hardware manufactured by Data General and software customized by ISC. The contract provided that time was of the essence and ISC guaranteed that the software programs would be ready and operable before January 1, 1983. According to Guernsey, ISC failed to complete their part of the agreement on time and had not completed performance some fifteen months after the due date so that Guernsey was forced to undertake completion of the contract at its own expense.

The litigation began when Data Concepts, Inc. d/b/a ISC filed suit against Guernsey contending Guernsey had breached the contract by failing to pay $4,000 of the purchase price and that ISC had performed extensive modifications and enhancement to the software programs valued at $25,000. The complaint also alleged Guernsey had interfered with ISC's employment agreements with its employees and had cost ISC lost profits by failing to comply with the provision of the contract for marketing the software programs to other oil and gas companies.

Guernsey filed a separate action in Cobb County which was voluntarily dismissed when it was permitted to file an amended counterclaim to the action brought by ISC. Named as defendants in the counterclaim were Data Concepts and Interactive Consulting Systems, two corporations of which Cohen was president and which did business as ISC, Cohen individually, since he acted as purported president of ISC, a non-existent corporation, and Data General, the manufacturer of computer hardware provided to Guernsey under the contract. Recovery of damages was sought for breach of contract, breach of express and implied warranties, and fraud.

Data General joined in by filing an amended answer to the counterclaim which included a counterclaim against Guernsey for malicious abuse of process. By counterclaim Data General alleged that it was neither a party to the contract nor a party to the preliminary negotiations to the contract, and that Guernsey's claim against it was a bad faith effort to force Data General to gratuitously provide it with goods and services.

After extensive discovery, various motions for summary judgment were filed by the parties. This culminated in an order which: 1) granted Cohen's motion for summary judgment as to three counts of fraud (V, VI, and VII) alleged against him by Guernsey in its counterclaim; 2) granted Data General's motion for summary judgment as to Guernsey's counterclaim against it; 3) denied Cohen's motion for summary judgment as to the allegations of Guernsey's counterclaim which sought recovery against him individually; 4) granted Guernsey's motion for summary judgment as to Data General's counterclaim against it alleging malicious abuse of process. Numbers 1 and 2 are the subject of appeal 74159, and numbers 3 and 4 are the subjects of appeals 74160 and 74161 respectively. They are considered seriatim.

1. Case No. 74159 involves Guernsey's complaint insofar as it seeks to recover for alleged fraud on the part of Cohen and Data General.

We consider first whether the trial court properly granted partial summary judgment to Cohen and dismissed those counts (V, VI and VII) which alleged he was guilty of fraud in the procurement of the contract entered into on July 13, 1982. "Where fraud in the inducement is alleged, the pleader has a choice between rescinding the contract or affirming it. If he rescinds he is not bound by any of its provisions, but in order to rescind successfully he must return or offer to return the subject matter of the sale in order to place the seller in the same situation in which he was prior to the transaction. If he affirms and suffers damages he is entitled to recover those damages which he can prove, but he is bound by the contract, having elected to stand upon it." [Original emphasis.] Garrett v. Diamond, 144 Ga.App. 428, 430(2), 240 S.E.2d 912 (1977).

Guernsey has not offered to restore the items it received under the contract and has not rescinded it. Instead, it has chosen to affirm and seek damages under the contract. Condios, Inc. v. Driver, 145 Ga.App. 537(1), 244 S.E.2d 85 (1978). Guernsey contends that it can affirm and still sue in tort for fraud. In so reasoning Guernsey misconstrues Garrett, supra.

By choosing to affirm, Guernsey eliminated fraud as a cause of complaint against Cohen. "[W]here the purchaser affirms a contract which contains a merger or disclaimer provision and retains the purchased articles, he is estopped from asserting that he relied upon the seller's misrepresentation and his action for fraud must fail." Roth v. Bill Heard Chevrolet, 166 Ga.App. 583, 305 S.E.2d 31 (1983). Having elected to affirm the contract Guernsey is bound by its provisions, including the merger provision, and cannot assert reliance on alleged false representations made prior to the contract's execution. Kot v. Richard P. Rita Personnel, 134 Ga.App. 438, 214 S.E.2d 690 (1975); Nixon v. Sandy Springs Fitness Center, 167 Ga.App. 272, 273(2), 306 S.E.2d 362 (1983).

No error appears from dismissing the counts charging Cohen with fraud.

2. In Case No. 74159 error is assigned to granting Data General's motion for summary judgment. Guernsey asserts three bases for Data General's liability to it: a) an agency relationship between Data General and Cohen; b) Data General's actual or constructive fraud through concealment or statements made with reckless disregard for the truth; c) Data General's duty both in tort and contract to Guernsey.

a) Under the circumstances here, could Data General and Cohen be considered partners or did the relationship of principal and agent arise so as to impose liability upon Data General on the contract?

The existence of agency may be proved by showing circumstances, apparent relations, and conduct of parties. Browning v. American, etc., Travel Co., 163 Ga.App. 110, 294 S.E.2d 362 (1982). "It has long been the Georgia rule that one who is a party to the [alleged] relationship (the principal or agent) may testify as a fact as to the existence or non-existence of the relationship and that such testimony would not be subject to the objection that the statement was a conclusion or the ultimate fact." Commercial Union Ins. Co. v. Taylor, 169 Ga.App. 177, 180, 312 S.E.2d 177 (1983). The denial of the existence of any agency relationship may thus constitute an uncontradicted fact which will sustain a motion for summary judgment. Where the other party attempts to controvert this fact by circumstantial evidence "it must be evidence sufficient to support a verdict." Allen Kane's Major Dodge v. Barnes, 243 Ga. 776, 780, 257 S.E.2d 186 (1979). "The circumstantial evidence ... must tend to establish the conclusion projected while rendering less probable all inconsistent conclusions." Cohen v. Hartlage, 179 Ga.App. 847, 850, 348 S.E.2d 331 (1986).

Tested by the applicable principles we find no evidence sufficient to establish that relationship. Both Cohen and Data General denied they operated either as a partnership or that there was a principal-agent relationship. Having no direct evidence as to agency the burden was upon Guernsey to introduce circumstantial evidence sufficient to carry the case to a jury.

It is axiomatic that neither an interest in the success of an enterprise, McCulley v. Dunson, 149 Ga.App. 551, 553(1), 254 S.E.2d 877 (1979), nor a close relationship, Hinely v. Barrow, 169 Ga.App. 529, 531, 313 S.E.2d 739 (1984), establish an agency relationship. Although the term "partnership" regarding Cohen/ISC and Data General may have been used during negotiation, there is no evidence that Guernsey believed it was entering into an agreement with Data General. It is evident that Freedman, Guernsey's executive officer, who made the decision to enter into the contract with Cohen/ISC, recognized that Cohen and Data General were separate entities and that Data General was in no way a party to the contract. It was perfectly clear to Guernsey that the contracting party was Cohen/ISC. At most the only function of Data General, as manufacturer of the end use product, was to stand behind Cohen. It should be noted that Guernsey does not rely on any manufacturer's express or implied warranty or failure of the hardware as a ground for recovery from Data General.

b) The question as to whether certain statements made by Data General's representatives at a presentation on April 21, 1982, amounted to fraudulent misrepresentations or concealment is more difficult to resolve. "[E]ssential elements of an action for fraud are: ... (1) the defendant made the representation; (2) he knew the representation was false at the time; (3) he made it with the intention and purpose of deceiving the plaintiff; (4) the plaintiff reasonably relied upon the representation; (5) the plaintiff sustained the alleged loss and damage as a proximate result of the defendant's representation." Morrison v. Hayes, 176 Ga.App. 128, 335 S.E.2d 596 (1985). See City Dodge v. Gardner, 232 Ga. 766, 769, 208 S.E.2d 794 (1974).

In our view the crucial issue here is whether the chief...