Steiger v. Commerce Acceptance of Oklahoma City, Inc., 41271

• Decision Date: 29 April 1969
• Docket Number: No. 41271,41271
• Citation: 455 P.2d 81,1969 OK 78
• Parties: A. R. STEIGER and Marie N. Steiger, Plaintiffs in Error, v. COMMERCE ACCEPTANCE OF OKLAHOMA CITY, INC., a corporation, Defendant in Error.
• Court: Oklahoma Supreme Court

Page 81

455 P.2d 81

A. R. STEIGER and Marie N. Steiger, Plaintiffs in Error, v. COMMERCE ACCEPTANCE OF OKLAHOMA CITY, INC., a corporation Defendant in Error.

No. 41271.

Supreme Court of Oklahoma.

April 29, 1969.

Rehearing Denied June 10, 1969.

Syllabus by the Court

1. A demurrer does not admit conclusions of fact or law unattended by allegations of fact to support them, and only admits facts well pleaded and the inferences or conclusions to be reasonably and logically drawn therefrom.

2. Fraud is never presumed, but it must be affirmatively alleged and proven by the party who relies on it, and cannot be inferred from facts which may be consistent with honesty of purpose.

3. To render the nonperformance of a promise to be performed in the future fraudulent, the promise to perform must be accompanied by an intent not to perform.

4. A distinction is drawn between 'waiver' and 'estoppel' when the two doctrines are discussed in their purely technical aspect. Waiver involves the notion of an intention entertained by the holder of some right to abandon or relinquish instead of insisting on the right. An estoppel arises when the purpose or natural consequence of a person's representations or conduct is such as to induce another person to do or to omit some act the doing or omission of which would turn out to his detriment and to the inducing party's benefit if the latter were permitted to take advantage of it. Such estoppel more often carries with it the implication of fraud than does waiver.

5. The rule that affirmance of a contract, with knowledge of fraud, does not bar an action for damages, is subject to the limitation that the defrauded party, after discovering the fraud, must stand toward the other party at arm's length and must not make any new agreements or engagements respecting it. If he does so, he condones and waives the fraud.

6. Where defendant fails to offer evidence which, with logical inferences to be drawn therefrom, is sufficient to support verdict for defendants there is nothing to submit to the jury and trial court properly sustained plaintiff's motion for directed verdict.

Appeal from District Court of Oklahoma County; W. R. Wallace, Judge.

Suit for money judgment upon promissory notes endorsed with recourse and supported by defendants' personal guaranty. Trial court sustained demurrer and motion for directed verdict upon conclusion of defendants' special affirmative defense and defendants appeal. Affirmed.

Baker H. Melone, Melvin J. Spencer, James A. Jennings, of Miller, Melone, Wilson, Adams & Spencer, Oklahoma City, for plaintiffs in error.

Roy C. Lytle, William D. Curlee, James C. Chandler, Lytle, Soule & Emery, Oklahoma City, for defendant in error.

BERRY, Vice Chief Justice.

Plaintiffs in error were defendants in an action brought by Commerce Asseptance of Oklahoma City, Inc., designated Commerce, to recover money judgment allegedly due under a written guaranty. The trial court sustained Commerce's demurrer and motion for directed verdict at close of the evidence. This appeal presents only the question of correctness of the trial court's action.

Commerce is a finance corporation engaged in the business of purchasing negotiable, commercial instruments supported by customary security agreements. Superior Products, Inc. was the Steigers' family owned corporation engaged solely in sale of household appliances. Superior's operations were conducted exclusively by means of a sales program known as 'referral selling.' Under this plan prospective purchasers signed contracts but received no merchandise until a credit application was approved. During the period involved Superior's sales were so extensive as to necessitate considerable credit financing, theretofore not fully available.

April 7, 1960, Commerce and Superior concluded a Dealer Agreement contract under which, so far as pertinent here, Commerce agreed to purchase Superior's commercially acceptable paper endorsed with recourse, unconditionally guaranteeing payment by purchaser-debtors. In event of default, return, rejection or repossession of merchandise, Superior agreed to pay the balance due, costs and expenses upon demand. Contemporaneously, Steiger and wife individually executed a Guaranty and Waiver, unconditionally guaranteeing Superior's performance of all obligations under the Dealer Agreement.

Under Superior's operation salesmen called upon named prospects who were induced to sign notes, conditional sales contracts and credit applications without any merchandise being delivered. Each day Steiger, his wife, or their son employed by Superior, would take these papers to Commerce, whose employees then would conduct a credit investigation of the prospective debtor. Within a short time, usually the following day, Commerce would notify Superior which applicants were acceptable credit risks, and merchandise then would be delivered. Checks issued by Commerce for amount of accepted notes, less 10% 'holdback', then would be picked up by Steiger, and by Mrs. Steiger after he became ill and unable to transact business. After inauguration of the Dealer Agreement most of Superior's commercial paper was sold to Commerce, although arrangements had been made with other sources of finance.

Although evidence is indefinite, the record indicates Superior was not doing any great amount of business prior to execution of the agreement with Commerce on April 7, 1960. The parties stipulated, however, that from May 1960 through January 27, 1961, Commerce purchased $441,755.00 commercial paper from Superior products. Of this total $159,007.00 was purchased between May and October, prior to Romontio becoming manager and gaining full control of Superior's operations. Also this was prior to the side agreement with Commerce's manager, to act as a collector for Superior. The aggregate amount of paper purchased prior to Romontio's employment directly contradicts testimony that Superior did little business and was losing money before he became manager. These matters justify comment later.

Commerce brought suit upon the guaranty, alleging Superior's breach of the Dealer Agreement by failure to pay upon demand the balance of approximately $130,000.00 remaining due on 185 defaulted promissory notes. In the same action Commerce sought judgment against Steigers upon their guaranty, and other relief not important to the issue on appeal.

Defendants' answers admitted execution of the Dealer Agreement and Guaranty. Defendants asserted numerous affirmative defenses and cross-petitioned for actual and punitive damages alleged to have resulted from variety of fraudulent acts committed by plaintiff and Superior. The affirmative defenses were abandoned at the trial, except for two urged on appeal: (1) failure of consideration because of Commerce's failure to fulfill alleged 'contemporaneous oral conditions precedent to liability'; (2) fraud in the inducement of the contract by oral representations plaintiff never intended to perform. Each defense is a separate approach based upon the same factual situation, since alleged contemporaneous oral conditions, precedent to liability under the first asserted defense, likewise constitute the alleged fraudulent representations relied upon as grounds for the second defense. Allegations as to fraudulent representations were greatly enlarged by amendment permitted immediately before trial.

Defendants' amended answer alleged one Bizzell, agent and manager for Commerce in Oklahoma City, entered into a scheme with Superior's manager (Romontio) for purchase of obligations from Superior without proper approval of credit and credit investigation as required by the original understanding and agreement between Commerce and defendants. Further, defendants' manager had agreed, without Steigers' knowledge, approval or consent, to pay $50.00 weekly to Bizzell, who proceeded to approve purchase of Superior's obligations without regard for proper credit considerations and thus exposed defendants to liability upon the guaranty. After alleging a further scheme between the same parties, to defraud defendants by excessive purchases of paper during December 1960, defendants asserted perpetration of fraud and deceit resulted in total failure of consideration for the original guaranty and waiver.

During presentation of defendants' evidence Steiger testified that prior to execution of the guaranty Bizzell had promised Commerce would buy only 'gilt edged' paper and there would be no bad paper; defendants would be in no danger from paper being assigned with recourse, because recourse would be exercised only when the creditor could not or did not pay. In event standard collection procedures failed, Commerce would turn collection over to its attorney to bring suit and recover such portion of the account as possible. Defendants were not to be liable upon personal guaranty until case decided, and then only the lost or uncollected portion would be charged back to Superior and become defendants' liability as guarantor.

At close of defendants' evidence plaintiff demurred and moved for directed verdict as to the cause of action based upon the guaranty, upon grounds any attempt to vary terms of the original guaranty violated the parol evidence rule by reason of statutory inhibitions, and because there was no evidence of fraud and inducement in execution of the contract.

Defendants immediately requested, and were granted leave to amend their answer to conform to the proof, '* * * including therein all of the evidence as to misrepresentation made by Bill Bizzell on April 6, 1960, immediately prior to the execution of the guaranty agreement on the latter date.' This permitted change in the pleadings injected the affirmative defensive allegation that, as an inducement to sign the guaranty, Bizzell fraudulently represented Commerce would bring suit upon defaulted notes before these obligations would be recoursed to Superior with demand for payment....