Schuster v. North American Hotel Company

• Decision Date: 21 December 1921
• Citation: 186 N.W. 87,106 Neb. 679
• Parties: JULIUS SCHUSTER ET AL., APPELLANTS, v. NORTH AMERICAN HOTEL COMPANY, APPELLEE
• Court: Nebraska Supreme Court

186 N.W. 87

106 Neb. 679

JULIUS SCHUSTER ET AL., APPELLANTS, v. NORTH AMERICAN HOTEL COMPANY, APPELLEE

Supreme Court of Nebraska

December 21, 1921

Motion for rehearing OVERRULED.

Heard before MORRISSEY, C.J., ALDRICH, DAY, DEAN, FLANSBURG and LETTON, JJ.

OPINION

FLANSBURG, J.

The issues in this case are fully set out in the former opinion. It was a suit based either on fraud or upon contract. From the plaintiffs' petition it is not clear upon which theory the suit was brought.

The plaintiffs had purchased corporate stock in the North American Hotel Company, and, as a basis for their action to recover back the purchase price of the stock, set up two representations made by the agents of the said company; one representation being that the American Hotel Company and the Bankers Realty Investment Company "were the same company and the same people, and the other, an oral promise that the American Hotel Company, if requested, would after two years return the money paid for the stock, with interest, and alleged that these representations were false. The petition does not allege the value of the stock, nor the condition of the company, nor does it allege that the plaintiffs were damaged or injured in any way by the purchase, but alleges that plaintiffs tendered their stock to the defendant and requested a repayment of the purchase price, that defendant refused, and that there is $ 2,000 with interest, due from the defendant to the plaintiffs. A motion was made by the defendant to require the plaintiffs to elect upon which theory they desired to proceed, whether for fraud or upon the alleged oral promise made by the defendant's agents. This motion should have been sustained, for the plaintiffs could not both affirm the contract and seek to enforce it, and, at the same time, bring an action declaring that the contract had been vitiated by fraud and seek either its rescission or damages. The lower court, on the trial of the case, directed a verdict in favor of the plaintiffs, and the case has been presented here as if it were an action based both upon fraud and upon contract.

The subscription contract, signed by the plaintiffs when they purchased the stock, contained a provision that "no conditions, agreements or representations, other than those printed above, shall bind the said company." The subscription contract was complete on its face, and evidence of any parol agreement, to add to or qualify or condition the contract of purchase expressed in the writing, was entirely incompetent. Security Savings Bank v. Rhodes, 107 Neb. 223, 185 N.W. 421. Any action, therefore, to enforce the alleged oral promise must fail for the want of legal proof to establish such a contract.

Plaintiffs rely upon the case of Griffin v. Bankers Realty Investment Co., 105 Neb. 419, 181 N.W 169. In that case it was pointed out in the opinion that there were written provisions in the contract which were open to interpretation, and the opinion says that the company had paid to the plaintiff $ 300, in recognition of an interpretation placed upon the contract by the parties. The general rule is emphasized "that parol evidence is not admissible to change, add to, vary or modify a written subscription for stock in a corporation."

Though it is proper to resort to parol and other extrinsic evidence to explain ambiguities or to interpret written contracts which are plainly open to explanation or construction, still we think it is stating the rule too broadly, as seems to have been done in that case, to say that when the execution of a written contract, which is complete on its face and certain in its terms, has been induced upon the faith of an oral stipulation, made at the time, such oral stipulation may properly be shown to supplement the writing, and that such oral stipulation may be enforced as a part of the contract, in order to prevent fraud. We do not so understand the rule. The very purpose of putting contracts in writing is to attain complete certainty of obligation and to prevent fraud. The stipulations of oral contracts depend for their proof, not only upon the memory, but largely upon the truthfulness and moral character of the parties bound. Hence, oral contracts give more opportunity for fraud. To allow oral stipulations to be added to written contracts would largely destroy the salutary effect of the parol evidence rule. When fraudulent promises act as the inducement to the execution of a written contract, the remedy is for fraud, and not upon the oral promise as a contractual obligation, for the oral promise as an obligation has become merged in the written agreement and cannot, as such, legally be proved.

The case of Fairbanks, Morse & Co. v. Burgert, 81 Neb. 465, 116 N.W. 35, was a suit to recover the purchase price of machinery sold, and it is not clear whether the defense made was based on fraud or upon an oral agreement supplementing the writing. The court said that the machinery sold was represented to be capable of doing certain work, and that, if the machinery did not meet the representation, the defendant had the right to "rescind" the purchase. It does not appear what the terms of the written contract were, but the opinion declares that the writing was simply an order, and did not, on its face, purport to be a complete contract between the parties. The conclusion that parol evidence was admissible to show and to enforce an oral agreement, supplemental to the writing, could not otherwise have been justified.

Where an agent presents a subscription contract to a prospective purchaser, and where the subscription contract does not provide for a repurchase of the stock, and contains a provision that the agent can make no other agreement or condition than those which are contained in the subscription contract, the representations by the agent or agreements by him in parol cannot be shown in order to vary the terms of the subscription contract, or to add an agreement that the company will repurchase the stock.

Furthermore, entirely aside from the parol evidence rule, the agents in this case could not have bound the company to an agreement to repurchase the stock, for an attempt to do so was clearly outside the limits of their authority as expressed in the subscription contract. Kaley v. Northwestern Mutual Life Ins. Co., 102 Neb. 135, 166 N.W. 256; Omaha Alfalfa Milling Co. v. Pinkham, 105 Neb. 20, 178 N.W. 910.

The rule that evidence of a parol promise cannot be shown for the purpose of enlarging or changing the written contract, where the action is one to enforce the contract, is, however, not applicable where the action is in fraud to rescind the contract and to prove the oral promise as the fraudulent representation which acted as the inducement to the sale. The question then, if this action is to be considered an action in fraud, is whether such oral promise, being shown, even though made in violation of the limitation of the agent's authority, as expressed in the written contract, will constitute a fraud for which the company is responsible and which will afford the purchaser the basis for an action against the company in rescission or for damages.

It is quite generally held that a provision in a contract, to the effect that the agent cannot bind the company by any representations, statements or agreements, will not relieve the principal from responsibility for the fraudulent representations, as to the subject-matter of the contract made by the agent, since such representations are within the scope of the agent's actual or ostensible authority. It is a self-evident fact that, in order that an agent sell corporate stock for a company, he must make representations to the buyer as to the character of the business of the company, the amount of its earnings, its financial condition and assets, and many other representations of fact which materially affect the value or desirability of the stock. An agent, even though the contract which he presents contains a clause declaring that the company will not be bound by the representations that he may make, is known to be an agent sent out for the express purpose of making representations as an inducement to the sale of stock, and...