Guardian Development Co. v. Jones , 86 S.W.2d 466 ( 1935 )

Adhering to the original decision, the majority overrules appellant's motion for rehearing, but as I have reached the conclusion that the court erred in affirming the judgment, will state, as briefly as is practicable, the reasons for my dissent.

The nominal plaintiff in the suit is the corporation, the Guardian Development Company, but the beneficial owners of the cause of action, the real plaintiffs, are members of the Burt family. The stock of the corporation ($100,000) is owned by Mr. and Mrs. R. E. Burt and their daughter-in-law, Mrs. Joe Burt, a few qualifying shares being held by Mr. Reid, secretary.

I think the findings of the jury show indisputably that the main consideration for the conveyance of the land in question by the Burts to Jones (using the corporation simply as an instrument) was the interest they felt in the welfare of the son-in-law, Alexander, and, of course, his wife, the only daughter of the family; in other words, love and affection was the basic consideration, a sentiment the corporate entity was incapable of entertaining. So, to properly appraise the moving consideration for the deed so sought to be canceled, the fiction of the corporate entity should, in my opinion, be disregarded. The corporation was simply the double of the three Burts just mentioned, who were the beneficial owners of its entire property and assets, with absolute control (rights of creditors not involved), and authorized, using the corporate entity as their instrument, to convey the land upon just such consideration, and for such purposes as moved them as individuals to take the action. The facts present no aspect different from what would have been presented if the corporation had never existed, and the Burts, as individuals, were plaintiffs. The concept of a legal entity, being a mere fiction, should not be extended to lengths that defeat equities existing in favor of the individual stockholders. This proposition seems to be well supported by the authorities. See Bush v. Gaffney (Tex.Civ.App.)84 S.W.2d 759, 762, authorities cited; Taylor Feed Pen Co. v. Taylor Nat. Bank (Tex.Civ.App.) 181 S.W. 534, 538; Home Fire Ins. Co. v. Barber, 67 Neb. 644, 93 N.W. 1024, 60 L.R.A. 927, 108 Am. St. Rep. 716; 7 Rawle C. L. p. 27, § 4, notes; First Nat. Bank v. Winchester,119 Ala. 168, 24 So. 351, 72 Am. St. Rep. 904; Swift v. Smith, 65 Md. 428,5 A. 534, 57 Am.Rep. 336; Hotaling v. Hotaling, 193 Cal. 368, 224 P. 455,56 A. L. R. 734, 743; D. N. E. Walter Co. v. Zuckerman,214 Cal. 418, 6 P.2d 251, 79 A. L. R. 329.

No contention is made that the findings of the jury are not supported by evidence, and in so far as material, are to the effect that Jones induced Alexander, son-in-law of Mr. and Mrs. Burt, to say to Burt that, if he would execute a sales contract, and deed the 210 acres, that he (Jones) would give Alexander two years from August 29, 1932 (date of the option contract between Jones and Alexander), to acquire a 50 per cent. interest in the 210 acres and other properties involved in the option contract, and would allow Alexander credit for $25,000 (the value of improvements placed by Alexander on the property) when he exercised the option, and that he (Jones) would advance necessary amounts to pay notes owing by Alexander as part purchase money for the 151 acres which was also included in the Jones-Alexander option contract. The jury found that these representations were made by Jones with the expectation and intention that Alexander would communicate same to Burt, for the purpose of inducing him to execute the sales contract and deed to the 210-acre tract; that Alexander did make such representations to Burt, who, believing and relying on same, executed the sales contract, and later the deed; that at the time these representations were made they truly and correctly described an existing situation, but were not true, and the prior situation did not exist when Burt, on October 14, 1932, executed the deed conveying the 210 acres to Jones, in that, the option agreement between Jones and Alexander had been previously, on October 4, 1932, abrogated, of which fact Burt had no knowledge, nevertheless was permitted by Jones to execute the deed under the belief that the option agreement between him and Alexander was still in existence; thus in equity rendering the representations originally true, deceptive and fraudulent. Burt had valued the land at $100,000, but the jury found it to be $76,500, so it appears that, by reason of representations, promising material benefits to his son-in-law, Burt was induced to convey the land for about half its market value.

Obviously, the action is one to rescind the land trade between plaintiff and defendant, and is in no sense based on the Jones-Alexander option contract, that being simply an incident, evidencing the collateral agreement that constituted a material part of the consideration for the conveyance sought to be rescinded. I do not think it was necessary that this collateral agreement should have been set up or referred to in the written contract between plaintiff and defendant, in order to admit proof of its existence as an inducing consideration. In Downey et al v. Hatter (Tex.Civ.App.) 48 S.W. 32, 35, the rule is stated thus: "Such evidence is admissible to show an independent agreement made as an inducement to the written contract, and it is not necessary that the written contract should contain any reference to the agreement to authorize the admission of the evidence." The rule is also announced in 22 C. J. p. 1253, as follows: "The rule admitting parol evidence of a collateral agreement is especially applicable where such agreement constituted a part of the consideration of the written agreement, or operated as an inducement for entering into it * * *." Also see 17 Tex.Jur. p. 802, § 358, p. 825, § 370, p. 826, § 371, and authorities cited under these sections. So, I cannot accept as correct the pronouncement in the original opinion, adhered to by the majority, that "It was the duty of appellant, acting through its president, who was a man of large business affairs, once Mayor of the City of Dallas, and a managing officer of large financial enterprises, to have the option agreement, or reference thereto, incorporated in the deed, and the failure to so incorporate the option agreement in the deed, under the circumstances, is sufficient, we think, to prevent the appellant from now saying that the prior negotiations were not merged in the deed itself."

As before shown, the jury found that the inducing representations made by Jones through Alexander to Burt described a true situation when originally made, but that later and before the trade was consummated the situation ceased to exist, of which fact Burt, being ignorant, was permitted by Jones to execute the deed and consummate the trade, without being enlightened as to the changed conditions. In view of the changed conditions, the question presented is: Did Jones owe Burt any duty? The authorities are unanimous in saying that he did. The doctrine is announced in Bower, on Actional Non-Disclosure, at page 128, as follows: "In the latter type of case, where the statement made in the first instance was in fact true when made, that is to say, in substantial accord with the material facts then existing, but, by reason of supervening events becomes false before the contract is concluded, that is to say, becomes in substantial disaccord with the complete facts existing at the latter date, it is no less clear and well established that the party charged, if and when he acquired knowledge of the supervening facts, comes at once under an obligation to reveal them to the other party, by way of correction or modification of his original statement, and, if he fails to discharge this obligation, he is liable at least to the extent to which a non-disclosing party is ordinarily liable, that is, to have the contract avoided * * *." In Slayden-Kirksey Woolen Mills v. Weber et al.,46 Tex. Civ. App. 433, 102 S.W. 471, 473, Judge Fisher made the following comment: "If, however, the former good financial condition of the buyer has been known to the vendor through prior dealings or otherwise, and any sudden or complete change has happened to the buyer, such as his sudden loss of property by fire or other accident, or his sudden insolvency or embarrassment by the failure of others, or a general assignment which he has made of all his property, and the like, he is bound to disclose such facts to the vendor previously to the completion of the sale. His mere silence with respect to such changes in his condition, even when no questions are asked of him, is a fraudulent concealment." Also see Stipcich v. Metropolitan Life Ins. Co., 277 U.S. 311, 48 S. Ct. 512,72 L. Ed. 895; 2 Pomeroy's Equity Jr. (4th Ed.) p. 1838, § 888; 3 Williston on Contracts, p. 2664, § 1497; 14 Am. Eng. Enc. of Law, p. 75.

The court submitted an issue as to plaintiff's negligence in failing to ascertain, before conveying the land to Jones, that the Jones-Alexander option agreement had been abrogated. In answer to issues Nos. 42A and 42B, the jury found that Burt was negligent in this respect, and that such negligence was the proximate cause of the execution of the sales contract and deed in question. The law of negligence, in my opinion, was not invoked by the facts, hence that issue should not have been submitted in any form. A representee owes no duty to the representor to be circumspect or active to detect his fraud or deceit; this being true, negligence could not exist, in the absence of a duty unperformed; in other words, the party deceived cannot be chided because he believed and acted upon deceptive representations.

In Hoyt v. First Nat. Bank (Tex.Civ.App.) 247 S.W. 637, 644, the court said: "Whatever the rule may be in other jurisdictions, we think it well settled in this state that one guilty of such fraud cannot defeat a recovery based thereon by the defense that the one whom he has thus defrauded has been guilty of negligence in failing to discover the fraud. Some of the decisions already cited clearly hold such to be the rule, and we think they are supported by the soundest elementary principles of equitable estoppel. * * * `It is clear, we think, under the authorities, that it was not the duty of plaintiffs to make any investigation as to the truth or falsity of the statements and representations made to them concerning the bonds. Buchanan v. Burnett,102 Tex. 492, 119 S.W. 1141, 132 Am. St. Rep. 900; Griffeth v. Hanks Collins, 46 Tex. 217; Hall v. Grayson County Nat. Bank,36 Tex. Civ. App. 317, 81 S.W. 762.'" Labbe v. Corbett, 69 Tex. [5031, 508, 6 S.W. 808; Sanders v. Hickman (Tex.Civ.App.) 235 S.W. [278], 280; Moore v. Beakley (Tex.Com.App.) 215 S.W. 957.

The jury also found that the reasonable cash value of the improvements placed upon the 210-acre tract of land by defendant, subsequent to October 14, 1932 (date of his deed), and prior to the institution of the suit, was $15,000. By appropriate assignments, plaintiff challenges the sufficiency of both plea and proof to authorize recovery by defendant of valuable improvements, contending that there was no showing that the land had been enhanced in value in any amount by reason of the alleged improvements. Assuming, however, that the plea is sufficient and the proof adequate to support the finding of the jury as to the value of the improvements, yet the question remains, Would defendant, in any event, be entitled to reimbursement for improvements placed upon the land, in view of the finding that his title was acquired as the result of deceit in failing to disclose to Burt the abrogation of the Jones-Alexander option contract? In view of the authorities, I do not think so. A similar situation was presented in Chambers v. Wyatt (Tex.Civ.App.) 151 S.W. 864,866, with reference to which the court said: "As to those assignments relating to the plea of estoppel and the claim for the value of the improvements, it is sufficient to say that if the plaintiff was entitled to recover it was by virtue of fraud practiced by the defendant in obtaining a conveyance of the premises; and, his possession and apparent title being based upon his own fraud, the fact that he went into possession as a result of that fraud, and while wrongfully in possession thereof made such improvements and asserted such ownership, would give him no right to claim the value of his improvements, nor to assert an estoppel. Neither estoppel, nor a claim for valuable improvements made in good faith, could possibly be predicated upon rights which originated in fraud." Also to the same effect, see Garcia v. Zamora (Tex.Civ.App.) 2 S.W.2d 907, 908; Knox v. Earbee (Tex.Civ.App.) 35 S.W. 186, 189 (writ denied); Jinks v. Moppin (Tex.Civ.App.) 80 S.W. 390, 393; 7 Tex.Jur. par. 79, p. 1015; Notes, 81 Am. St. Rep. 179.

The original opinion announced a doctrine with which I am in perfect accord, that, in order for a fraudulent representation to be actionable, it must have resulted in some pecuniary loss to the party acting thereon. But, applying this doctrine, the opinion states that plaintiff suffered no pecuniary loss, saying in this connection that, "True enough, while Burt considered the value of the land at $100,000 to $125,000, and the jury valued it at $76,500, yet the corporation parted with all of its right, title and interest therein, reserving nothing unto itself, thus losing nothing, and expecting nothing other than the recited consideration in the deed. The stockholders, the Burt family, suffered the disappointment of an anticipated benefit accruing to the son-in-law, Alexander, which they surrendered and for which the corporation had no redress for its loss." To this conclusion I cannot agree. The jury found that, by deceit, plaintiff was induced to convey property, of the market value of $76,500, for only $38,000; also, in answer to a special issue, found that plaintiff suffered pecuniary damages separate and apart from any damages which Alexander might have suffered. I think plaintiff's damage was indisputably established, and that the majority is in error in holding that plaintiff's damage is "sentimental."

In answer to an issue submitted, the jury also found that, in the transactions relating to the sale of the 210 acres of land by plaintiff to defendant, Wood R. Alexander was acting for and on behalf of plaintiff corporation. On first impression, this finding was somewhat disconcerting, but in view of other fact findings, I think the finding should be regarded as immaterial. The jury found, in effect, that, in all negotiations resulting in the execution by plaintiff of the sales contract and deed, Alexander acted for and at the behest of Jones and in a sense for himself, in communicating with Burt, who it seems alone represented and spoke for the corporation. Agency is established by the facts and circumstances concerning transactions between the alleged agent and principal, and it is a matter for the court or jury to determine whether or not, in a particular instance, such agency exists; hence, in the absence of some fact or circumstances to which a finding of agency is referable, necessarily the same would be but a naked, unsupported conclusion. The finding that in the premises Alexander acted for the corporation is not, in my opinion, supported by the facts, and is inconsistent and out of harmony with the meaning of all other findings bearing upon the issue. Besides, in answer to special issue No. 60, the jury found that Alexander was not a party to, and did not know of the fraudulent representations charged to have been made by defendant Jones. So I think the answer of the jury that Alexander acted for the corporation in the premises should be disregarded.

Plaintiff presents a number of assignments based upon alleged errors committed by the court during the progress of the trial. I have refrained from commenting on these, for the reason that, if well taken, they would simply require reversal and remand, whereas, in my opinion, as heretofore shown, the case should have been reversed and rendered.

For the reason stated, I think plaintiff's motion for rehearing should have been granted, and the judgment of the trial court reversed and judgment here rendered for plaintiff, rescinding the land trade in its entirety, requiring plaintiff to do equity by restoring to defendant the purchase money paid, together with interest and dividends on stock, if any collected, but as it appears that defendant has been in possession, using and enjoying the property since October 14, 1932, he should be required to account for the reasonable value of its use. Therefore, the case, in my opinion, should have been remanded to the trial court, with direction to ascertain the facts and adjust these equities.