Wise v. Pena

• Decision Date: 19 May 1977
• Docket Number: No. 1144,1144
• Parties: Gary WISE, Appellant, v. Frank I. PENA, M. D., Appellee.
• Court: Texas Court of Appeals

Page 196

552 S.W.2d 196

Gary WISE, Appellant, v. Frank I. PENA, M. D., Appellee.

No. 1144.

Court of Civil Appeals of Texas, Corpus Christi.

May 19, 1977.

Rehearing Denied June 9, 1977.

Knox Jones, McAllen, for appellant.

Asa V. Bland, Atlas, Hall, Schwarz, Mills, Gurwitz & Bland, McAllen, for appellee.

OPINION

NYE, Chief Justice.

This is a cause of action for damages for fraudulent misrepresentations in a real estate transaction. Appellee Dr. Frank Pena brought suit in the trial court against Gary Wise, Charles Haywood and John Western for fraudulent misrepresentations regarding the lease purchase of the Queen Isabel Inn in Port Isabel. Trial was to a jury. Upon return of the jury verdict, judgment was entered for Pena against Wise and Western for $27,000.00 actual damages, plus $8,000.00 punitive damages and in favor of Pena and against Haywood for $14,676.00. In addition, the trial court ordered Haywood to convey the real property in question to Pena. Only Gary Wise has perfected his appeal to this Court.

Although there were many disputed issues during the trial, the following is a fair summary of the facts which lead to the litigation now before this Court. In August of 1973, Gary Wise and John Western approached Dr. Frank I. Pena concerning the possible purchase by Pena of the Queen Isabel Inn in Port Isabel. Prior to this meeting, Western had received the consent of John Haywood, the owner of the Inn, to sell the property for $203,000.00, $60,000.00 as a down payment and the assumption of an outstanding Small Business Association loan of $143,000.00. Mr. Western was not a licensed real estate agent or broker. Western then contacted Wise, who was a licensed real estate broker, about a prospective purchaser of the property. Wise suggested Pena for whom he had previously bought and sold property and who was his partner in the ownership of an apartment complex and a grove. At the meeting between Wise, Western and Pena, a schedule of income and expenses was presented to Pena which showed that the property was generating a net income of $37,025.00 per year. It was represented to Dr. Pena, however, that the purchase price of the property was to be $230,000.00 with $87,000.00 as the down payment and the balance to be the assumption of a $143,000.00 S.B.A. loan.

Dr. Pena tentatively agreed to purchase the property at this price, subject to obtaining the necessary financing. At this time the possibility of setting up the purchase as a lease-purchase was also discussed so that Dr. Pena could expense the down payment as rental payment for tax purposes. Dr. Pena quickly arranged for financing of the down payment through the McAllen State Bank. A few days later, the transaction was closed at the office of the Honorable Perry Jones, who was Pena's attorney at that time. Dr. Pena then entered into a lease-purchase agreement with Haywood wherein Pena paid $87,000.00 as a down payment and assumed the $143,000.00 remaining outstanding on the S.B.A. loan. The option portion of the agreement provided that the down payment was to be applied to the purchase price if the option to purchase was exercised within two years.

After the closing of the deal, the $87,000.00 was distributed, $60,000.00 went to Haywood as the down payment and the remaining balance of $27,000.00, went $17,000.00 to appellant Wise and $10,000.00 to John Western. Shortly thereafter, Dr. Pena visited the property and soon discovered several discrepancies between the schedule of income and expenses and the actual income being produced by the property. Dr. Pena found out that the rents and income as represented were not true. Dr. Pena then complained to Wise about the discrepancies. About two weeks after the original agreement had been executed, an addendum to the lease-purchase agreement was executed between Dr. Pena, the buyer, and Haywood, the seller. Neither appellant Wise nor Mr. Western were parties to the addendum agreement. This addendum agreement provided that Haywood would supplement any deficiencies in rental income for nine months and would repay the $87,000.00 down payment if Pena did not exercise his option to purchase within 24 months. However, Haywood defaulted and no supplemental payments were made. On January 29, 1974, this suit was filed.

Pena's suit sought to rescind the agreement for fraudulent misrepresentations, and to have his $87,000.00 returned. In the alternative, Pena sought to recover actual and exemplary damages under § 27.01 of the Business and Commerce Code from Wise and Western, plus the amount guaranteed by Haywood in the addendum agreement and a warranty deed on the property from Haywood.

Based on these pleadings, the jury made the following findings:

1) That Wise and Western made a false representation to Pena of the lease-purchase price of the property.

2) That Wise and Western made a false representation to Pena as to the income from the Hotel prior to execution of the lease-purchase agreement.

3) That these representations were made by Wise and Western to induce Pena to enter into the lease-purchase agreement.

4) That Pena relied on these representations.

5) That the representations were willfully made by Wise and Western to Pena.

6) That Pena did not know the income from the Hotel prior to execution of the lease-purchase agreement.

7) That Wise did not knowingly benefit financially from the false representations by Western of the lease-purchase price or the false representation by Western as to the income of the Hotel.

8) That Western did knowingly benefit financially from the false representations by Wise as to the lease-purchase price and the income of the Hotel.

9) That Haywood owed Pena $10,000 as provided in the addendum agreement.

10) That the difference between the value of the property as represented to Pena and its actual value was $27,000.

11) That Pena was entitled to $8,000 exemplary damages.

Appellant does not attack the findings of the jury concerning the fraud or the amount of the damages. Appellant in his points of error one and two does complain that the trial court erred in overruling his motion for summary judgment and his motion for judgment non obstante veredicto predicated on the theory of ratification and waiver by Dr. Pena. The appellant did not, however, request or obtain any special issues on ratification and waiver. He did not file a motion for new trial, therefore, the only posture in which those two points of error can be considered are as law questions.

A party whose motion for judgment non obstante veredicto is denied may forego the filing of a motion for new trial and predicate his points of error on appeal on the matters included in such motion. Wagner v. Foster, 161 Tex. 333, 341 S.W.2d 887 (1960). However, errors of the trial court in refusing to render judgment non obstante veredicto raise only no evidence questions for appellate review. McDonald v. New York Central Mutual Fire Insurance Company, 380 S.W.2d 545 (Tex.Sup.1964); Burt v. Lochausen, 151 Tex. 289, 249 S.W.2d 194 (1952); Shelton v. Ector, 364 S.W.2d 425 (Tex.Civ.App. Dallas 1963, no writ).

The first question that we must decide is whether or not the evidence demonstrates that, as a matter of law, Pena ratified the fraudulent acts of Wise. Ratification is the adoption or confirmation by a person with knowledge of all material facts of a prior act which did not then legally bind him and which he had the right to repudiate. Kunkel v. Kunkel, 515 S.W.2d 941 (Tex.Civ.App. Amarillo 1974, writ ref'd n. r. e.). Ratification occurs when one, induced by fraud to enter into a contract, continues to accept benefits under the contract after he becomes aware of the fraud or if he conducts himself in such a manner as to recognize the contract as binding. Daniel v. Goesl, 161 Tex. 490, 341 S.W.2d 892 (1960); Rosenbaum v. Texas Bldg. & Mortg. Co., 140 Tex. 325, 167 S.W.2d 506 (Tex.Com.App.1943, opinion adopted); Payne v. Baldock, 287 S.W.2d 507 (Tex.Civ.App. Eastland 1956, writ ref'd n. r. e.). Ratification can also occur where the defrauded party, after he becomes aware of the fraud, enters into a new agreement by which the rights of the parties are adjusted. Fox v. Miller, 198 S.W.2d 776 (Tex.Civ.App San Antonio 1946, writ ref'd n. r. e.); Risley v. McAdams, 108 S.W.2d 443 (Tex.Civ.App. Amarillo 1937, no writ); Minneapolis-Moline Power Implement Co. v. Gatzki, 57 S.W.2d 593 (Tex.Civ.App. Eastland 1933, no writ). Once a contract has been ratified by the defrauded party or a new agreement adjusting the original fraudulent acts has been consummated, the defrauded party waives any right of recession or damages. See Shaddock v. Grapette, 259 S.W.2d 231 (Tex.Civ.App. Waco 1953, no writ); Fox v. Miller, supra; Risley v. McAdams, supra.

Unquestionably, the key element which must be proven to establish ratification and waiver of the fraudulent conduct is that the ratifying party had full knowledge of the fraudulent acts at the time he ratified these acts. Most Worshipful Grand Lodge Free & Accepted Masons of Texas v. Hayes, 82 S.W.2d 411 (Tex.Civ.App. Dallas 1935, no writ). See also Rourke v. Garza,530 S.W.2d 794 (Tex.Sup.1975); Viracola v. Dallas International Bank, 508 S.W.2d 472 (Tex.Civ.App. Waco 1974, writ ref'd n. r. e.); Norman v. Safway Products, Inc., 404 S.W.2d 69 (Tex.Civ.App. Dallas 1966, no writ); Risley v. McAdams, supra; Woods v. Fisher, 106 S.W.2d 774 (Tex.Civ.App. Texarkana 1937, no writ); Green v. Hopper, 278 S.W. 286 (Tex.Civ.App. Eastland 1925, no writ).

The question of ratification of a contract is usually a mixed question of law and fact. Briggs v. Briggs, 337 S.W.2d 753 (Tex.Civ.App. Amarillo 1960) rev'd on other grounds, 162 Tex. 177, 346 S.W.2d 106. If the evidence of ratification is uncontroverted or uncontrovertable, then the question of ratification could be determined as a matter of law. Rosenbaum v. Texas Bldg. & Mortg. Co., supra; Powell v. Rockow, 127 Tex. 209, 92 S.W.2d 437 (Tex.Com.App.1936,...