Fox v. Southern Appliances, Inc. , 264 N.C. 267 ( 1965 )

141 S.E.2d 522 (1965) 264 N.C. 267

J. G. FOX and wife, Ella C. Fox
v.
SOUTHERN APPLIANCES, INC., and C. D. Mitchell.

No. 279.

Supreme Court of North Carolina.

April 28, 1965.

Ray Rankin, Charlotte, for plaintiffs.

Ervin, Horack, Snepp & McCartha, Charlotte, for defendants.

MOORE, Justice.

No verbal agreement between parties to a written contract, made before or at the time of the execution of such contract, is admissible to vary its terms or to contradict its provisions. Jefferson Standard Life Insurance Co. v. Morehead, 209 N.C. 174, 183 S.E. 606. It will be presumed that the writing merged therein all prior and contemporaneous negotiations. Neal v. Marrone, 239 N.C. 73, 79 S.E.2d 239. But parol evidence is admissible to show that a written contract was procured by fraud, for the allegations of fraud challenge the validity of the contract itself, not the accuracy of its terms—the instrument itself, on the issue of fraud, is the subject of dispute. Anderson Cotton Mills v. Royal Manufacturing Co., 218 N.C. 560, 11 S.E.2d 550; Hardware Co. v. Kinion, 191 N.C. 218, 131 S.E. 579; Miller v. Howell, 184 N.C. 119, 113 S.E. 621; White Sewing Machine Co. v. Bulluck, 161 N.C. 1, 76 S.E. 634; Unitype Co. v. Ashcraft Bros., 155 N.C. 63, 71 S.E. 61. Fraud alleged as a defense to the enforcement of a written contract is not an attempt to vary or contradict the terms of the contract, for if the fraud be proven it nullifies the contract. White v. Fisheries Products Co., 185 N.C. 68, 116 S.E. 169; J. I. Case Threshing Machine Co. v. McKay, 161 N.C. 584, 77 S.E. 848; Tyson v. Jones, 150 N.C. 181, 63 S.E. 734. "It is elementary that where a contract or transaction was induced by false representations, the representations and the contract are distinct and separable —that is, the representations are usually not regarded as merged in the contract * * *." 23 Am.Jur., Fraud and Deceit, s. 23, p. 775-6.

But plaintiffs stand on the proposition that "where the written instrument itself precludes the representation relied upon, an action on such alleged representations cannot be maintained." 2 Strong: N. C. Index, Fraud, s. 10, p. 384; Wilkins v. Commercial Finance Co., 237 N.C. 396, 75 S.E.2d 118. They contend that the precise subject matter of the parol representation is dealt with in the written contract. The contract provides "that the property will be conveyed subject to such * * * restrictions as appear in instruments constituting the chain of title." Defendant alleges that it was represented that the property "had no restrictions that would prohibit its use for business purposes except zoning restrictions of the City * * * which restricted its use to office and institutional use." We do not agree that the contract deals with the precise matter involved in the representation. Both relate to restrictions, but the representation expressly relates to the extent of business restriction, while the contract merely refers defendant to the source to which he may have resort for information as to what restrictions there are. "Referring a representee to the sources of the speaker's information does not necessarily relieve the representor from liability for false statements, since the representee's right to rely on such statements without an investigation of the sources of information mentioned is not necessarily destroyed by such reference. Whether the representee should have consulted the sources referred to depends on circumstances and is often held to be a question for the jury." 23 Am.Jur., Fraud and Deceit, s. 158, p. 965. "It is generally held that fraud may be predicated on false representations or concealments, although the truth could have been ascertained by an examination of public records. As otherwise expressed, the general rule is that the mere fact that public records, if examined, would show the representee that representations of fact are false does not preclude his establishing fraud, because he is under no duty to make such examination. This principle is especially applicable where a representation is knowingly false and is made for the express purpose of deceiving and defrauding another who relies on it, where there is a duty of disclosure of information, where the party to whom the representations are made has no opportunity to examine the records, or where such investigation would not reveal the truth. In some of the older cases the scope of the rule has been limited, making its application depend on prudence. It has been held that to excuse an examination of the records, when accessible, the representation must be such as to induce the party to whom it is made to refrain from making such examination, and that the fact that such an examination would have disclosed the facts, although it does not necessarily destroy the right of reliance, is nevertheless entitled to its weight in determining whether the representations are such as would impose on a person of ordinary prudence." ibid, s. 163, pp. 972-974. The law with respect to misrepresentations of matters of public record is discussed in an exhaustive annotation in 33 ALR 853-1161, entitled "Fraud—Matters of Public Record," in which cases from the various jurisdictions of the United States and England are listed and annotated.

A purchaser of property seeking redress on account of loss sustained by reliance upon a false representation of a material fact made by the seller may not be heard to complain if the parties were on equal terms and he had knowledge of the facts or means of information readily available and failed to make use of his knowledge or information, unless prevented by the seller. But the rule is also well established that one to whom a definite representation has been made is entitled to rely on such representation if the representation is of a character to induce action by a person of ordinary prudence, and is reasonably relied upon. The right to rely on representations is inseparably connected with the correlative problem of a duty of a representee to use diligence in respect of representations made to him. The policy of the courts is, on the one hand, to suppress fraud and, on the other, not to encourage negligence and inattention to one's own interest. Calloway v. Wyatt, 246 N.C. 129, 97 S.E.2d 881; Keith v. Wilder, 241 N.C. 672, 86 S.E.2d 444; Pridgen v. Long, 177 N.C. 189, 98 S.E. 451. For a case involving misrepresentations as to matters of record in the sale of land, see Whitaker v. Wood, 258 N.C. 524, 128 S.E.2d 753, in which it was held that the question whether plaintiffs might reasonably rely on seller's representations was for the jury.

The legal policy in this jurisdiction with respect to the right of a representee to rely on representations made to induce entry into contractual relations has been long established and has been restated in a number of our recent cases. In addition to the opinion, delivered by Bobbitt, J., in Whitaker v. Wood, supra, we take note of those in Johnson v. Owens, 263 N.C. 754, 140 S.E.2d 311, and Cowart v. Honeycutt, 257 N.C. 136, 125 S.E.2d 382. In Johnson, plaintiff, a prospective purchaser of a house, inspected the house on three occasions. On each occasion there was a fire in the fireplace but the house was cold and the central heating system was not in operation. In response to plaintiff's inquiry, defendantseller stated that the heating system was in excellent condition but was not operated in the daytime because of defendant's absence at work. The system was in fact so defective that plaintiff had to replace it. Defendant contended that plaintiff could not reasonably rely on the representation since she had full opportunity to inspect and test the system. We held that it was a question for the jury. Sharp, J., speaking for the Court, said: "`The question is whether it is better to encourage negligence in the foolish or fraud in the deceitful.' * * * Just where reliance ceases to be reasonable and becomes such negligence and inattention that it will, as a matter of law, bar recovery for fraud is frequently very difficult to determine. This case presents that difficulty. In close cases, however, we think that a seller who has intentionally made a false representation about something material, in order to induce a sale of his property, should not be permitted to say in effect, `You ought not to have trusted me. If you had not been so gullible, ignorant, or negligent, I could not have deceived you.' Courts should be very loath to deny an actually defrauded plaintiff relief on this ground."

Cowart involved a representation made in procuring the execution of a release. Plaintiff was injured in an automobile accident; she was operating her husband's car at the time. She signed a release upon the representation that it covered repairs to the car and medical expenses incurred by her husband because of her injuries, but did not affect her claim for damages. She had had limited schooling but was not illiterate; she did not read the release, but relied on the representation—it proved to be false. We held that whether she should have read the release was a question for the jury. Parker, J., delivered the opinion and stated: "Defendant in his brief admits that there was evidence of a false representation of a material fact which was relied upon by plaintiff, but contends plaintiff as a matter of law was not justified in relying upon such representation, and her reliance was not reasonable. Such a contention is without merit. Our reply to such contention is this: `In Gray v. Jenkins, 151 N.C. 80, 65 S.E. 644, 645, this Court said: "The law does not require a prudent man to deal with everyone as a rascal, and demand covenants to guard against the falsehood of every representation which may be made as to facts which constitute material inducements to a contract. There must be a reliance on the integrity of man or else trade and commerce could not prosper.'" Roberson v. Williams, 240 N.C. 696, 83 S.E.2d 811."

In the instant case defendant's Further Answer and Defense alleges all of the factual elements essential to constitute actionable fraud. Early v. Eley, 243 N.C. 695, 91 S.E.2d 919. It alleges in effect that defendant desired to purchase real estate usable for business purposes, plaintiffs' agent knew or pretended to know what restrictions were on the use of the property in question, defendant did not know, said agent as an inducement to the sale represented that the property was not restricted against use for office and institutional purposes, defendant executed the sales contract in reliance on the representation which was in fact false, and defendant was materially damaged as a result of the deception.

The case has not reached the trial stage. We are concerned only with the sufficiency of the pleading. One who tests a pleading by demurrer admits the truth of the facts pleaded, for the purposes of the demurrer. When the case comes to trial and the evidence is in, it may appear, under the circumstances, as a matter of law that defendant could not reasonably rely on the alleged representation, or, on the other hand, it may prove to be a question for the jury. We cannot at this stage determine what the evidence will be. A litigant is not required to allege evidentiary matters and, if he does, such matters will be stricken on motion. As stated by Higgins, J., in Dowd v. Charlotte Pipe & Foundry Co., 263 N.C. 101, 139 S.E.2d 10: "* * * the complaint must give * * * `[a] plain and concise statement of the facts constituting a cause of action, without unnecessary repetition * * *.' The plaintiff should state the relief to which his allegations of fact entitle him. In a few simple words the pleadings should pinpoint the controversy and disclose the proper issues for its determination. * * * embellishments and banjowork inserted for their effect upon the jury" should be omitted. Defendant's pleadings are concise and sufficient ultimate facts are alleged to withstand plaintiff's demurrer. "Upon demurrer a pleading will be liberally construed with a view to substantial justice between the parties, giving the pleader the benefit of every reasonable intendment in his favor. And a demurrer will not be sustained unless the pleading is wholly insufficient or fatally defective." 3 Strong: N.C.Index, Pleadings, s. 12, pp. 624-5. Where the facts pleaded include all the essential elements of the purported cause of action, we are not permitted to draw inferences contrary to the pleadings.

Reversed.

For concurring opinion of BOBBITT, J., and dissenting opinions of HIGGINS and RODMAN, JJ., see 141 S.E.2d 929.