Jones v. Cartee

• Decision Date: 16 July 1997
• Docket Number: No. A97A0191,A97A0191
• Citation: 489 S.E.2d 141,227 Ga.App. 401
• Parties: , 97 FCDR 2842 JONES v. CARTEE et al.
• Court: Georgia Court of Appeals

Page 141

489 S.E.2d 141

227 Ga.App. 401, 97 FCDR 2842

JONES v. CARTEE et al.

No. A97A0191.

Court of Appeals of Georgia.

July 16, 1997.

Andrew & Threlkeld, Reid A. Threlkeld, Vidalia, for appellant.

Joseph M. Hall, Savannah, for appellees.

SMITH, Judge.

Daniel Jones brought this action for breach of contract and fraud in the inducement against Mary Nell Cartee and Cartee Enterprises, Inc. d/b/a Meadow Lakes Golf Course. Jones sought to recover the payment of $25,000 earnest money made pursuant to a purchase and sale agreement for the golf course owned by Cartee Enterprises, Inc. Following a bench trial, the court entered judgment in favor of defendants. We agree with the trial court's conclusion that Jones is not entitled to recover, and we affirm.

Mary Nell Cartee and James Cartee managed a golf course in Bulloch County owned by Cartee Enterprises. In September 1992, Jones and Andy Pittman began negotiating with the Cartees about buying the course. Pittman was the primary negotiator for the prospective purchasers. During the September negotiations, James Cartee provided Pittman with a two-page handwritten estimate of income and expenses of the golf course, which he had prepared at Pittman's request. Cartee testified that the estimate was not accurate and that he prepared it off "the top of my head." On behalf of Cartee Enterprises, Mary Nell Cartee subsequently executed a purchase and sale agreement with Jones and Pittman for the golf course on October 1, 1992. The purchase price was $1.4 million, with Jones's aunt, Virginia Stewart, providing the $25,000 earnest money required by the contract. After the contract was executed, Jones went on a month-long vacation. Stewart's accountant, McClain, examined the records of the golf course and discovered a large discrepancy between the income shown on the handwritten income and expense statement and that reflected by the business records of the golf course. According to McClain, the income reported on the records was less than half of the income reported on the estimate prepared by James Cartee. After learning of the material discrepancies, Jones filed this action seeking return of the $25,000 earnest money.

In his complaint, Jones claimed that the Cartees fraudulently induced him to enter the contract by making false representations concerning the income of the golf course and that he relied on these representations to his detriment by paying $25,000 in earnest money. He also alleged that the discrepancies between the income/expense statement provided by James Cartee and the actual business records constituted a breach of contract. Jones appears to have based the contract claim in large part on a provision of the contract providing that no seller representations, warranties, or written statements or securities contained untrue statements of material fact or omitted necessary statements. The trial court concluded that a merger clause in the contract prevented Jones from recovering on his breach of contract claim and that Jones's fraud claim failed both because he could not show justifiable reliance on Cartee's estimate and because he waived that claim. We agree with the trial court's conclusion that Jones is not entitled to recover, but for different reasons.

1. In general, a party alleging fraudulent inducement to enter a contract has two options: (1) affirm the contract and sue for breach; or (2) rescind the contract and sue in tort for fraud. Mitchell v. Head, 195 Ga.App. 427, 428, 394 S.E.2d 114 (1990); Potomac Leasing v. Thrasher, 181 Ga.App. 883, 886(2), 354 S.E.2d 210 (1987). "[D]epending upon which of the two actions is ultimately pursued, the presence of a merger clause in the underlying contract may be determinative as to the successful outcome. If the defrauded party has not rescinded but has elected to affirm the contract, he is relegated to a recovery in contract and the merger clause will prevent his recovery. [Cit.] If, on the other hand, he does rescind the contract, the merger clause will not prevent his recovery under a tort theory." Id. at 886, 354 S.E.2d 210. The trial court concluded that Jones did not properly rescind the contract once he learned of the alleged incorrect income statement prepared by James Cartee and that he was precluded from recovery because of the merger clause. We do not reach the issue of whether recovery was permitted under the contract terms because the evidence shows that Jones did rescind the contract. ¹

The evidence presented shows that once Jones learned on November 6, 1992, ² of the great discrepancy between James Cartee's estimate and the actual business records, he no longer wished to proceed with purchase of the golf course at the agreed-upon price. On and after that date, he agreed to purchase the golf course only if the price were reduced to $1.1 million. Pittman and McClain renegotiated with the Cartees on Jones's behalf on November 9 to reduce the purchase price, and the Cartees indeed agreed to lower that price to $1.1 million. Despite the fact that the purchase price was lowered, however, on November 24, Jones ultimately indicated via letter from his attorney to the Cartees' attorney that he did not wish to complete the purchase.

Although Jones claims that he indicated his desire to rescind the contract at the November 6 meeting, we must consider the evidence that renegotiations were undertaken on his behalf after that date. Those renegotiations, however, were not indicative of affirmance of the contract. This evidence instead demonstrated Jones's refusal to agree with the terms of the original contract once he learned of the material discrepancy between the information provided by James Cartee and the business records. He would agree to purchase the golf course only if the material term of price changed. In effect, Jones was attempting to extinguish the original contract.

Jones took action in response to his discovery of discrepancies in James Cartee's estimate, but once he learned of the discrepancies he never affirmed the original contract or took action under the contract to pursue the agreement as provided by its terms. Instead, he explicitly rejected the contract as written by insisting on a reduced purchase price. This behavior was not consistent with affirmance of the original contract. See McNatt v. Colonial Pacific Leasing Corp., 221 Ga.App. 768, 770(1), 472 S.E.2d 435 (1996) (lessees' attempt to have defective computer equipment corrected not affirmance of contract). Consequently, the trial court erred in concluding that Jones did not rescind it. ³

We recognize that Roller-Ice v. Skating Clubs of Ga., 192 Ga.App. 140, 384 S.E.2d 235 (1989), cited by the trial court for the proposition that Jones's "attempt to renegotiate the contract amounts to an affirmative recognition of the contract," conflicts with our holding. In Roller-Ice, we concluded that appellant could not claim rescission because it offered to renegotiate certain contracts with appellee. We stated that these renegotiations were "an affirmative recognition of the contracts" and concluded that appellant did not rescind the contract. Id. at 142, 384 S.E.2d 235.

We note first that because all three judges on a three-judge panel did not concur fully in Roller-Ice, we are not bound by it. See Court of Appeals rule 33(a). Roller-Ice has been cited, however, in full panel cases. ⁴ We therefore examine the principle of law from Roller-Ice relied upon by the trial court. Language in Roller-Ice stating that renegotiation of the contracts was tantamount to contract affirmance is not a correct statement of Georgia law.

The cases cited by Roller-Ice for the broad proposition that renegotiations always indicate recognition and affirmance of an existing contract do not state such a principle. In fact, the theory advanced in Roller-Ice actually conflicts with the language of Gibson v Alford, 161 Ga. 672, 673, hn.5, 132 S.E. 442 (1926), one of the cases cited in Roller-Ice. Gibson cites general, well-settled law that a party who "freely and advisedly does anything which amounts to the recognition of the transaction, or acts in a manner inconsistent with its repudiation" acquiesces in the contract. (Citation and punctuation omitted.) Id. at 685(5), 132 S.E. 442. It further states that a party seeking to avoid a contract based on fraud "must, upon the discovery of the facts, at once announce his purpose and adhere to it." (Citation and punctuation omitted.) Id.

Depending on the character and substance of the renegotiations, they may sometimes indicate affirmance of the contract. They may also indicate that a party does not affirm the original contract, or that a party is unwilling to proceed under the terms of the original contract. Gibson simply does not support the principle announced in Roller-Ice that renegotiation in every case indicates recognition of a contract. ⁵ To the extent that Roller-Ice conclusively states that every attempt to renegotiate any term of a contract must constitute an affirmative recognition, it is overbroad and must be disapproved. In this case, as discussed supra, the record indicates that the substance of the renegotiations showed that Jones did not affirm the contract.

2. Although the trial court erred in concluding that Jones failed to rescind the contract, the trial court nevertheless reached the correct conclusion that Jones is not entitled to recover.

Having concluded in Division 1 that Jones rescinded the contract, it follows that Jones did avoid the merger clause. See Thrasher, supra at 886, 354 S.E.2d 210. But his rescission required him to proceed under a fraud theory; no contract existed upon which he could claim breach. ⁶ The tort of fraud requires proof of five elements: (1) a false representation; (2) scienter; (3) intention to induce plaintiff to act or refrain from acting; (4) justifiable reliance by plaintiff; and (5) damage to plaintiff. Lykins v. Nationwide Mut. Ins. Co., ...