Case Name: Beers, Appellant, vs. Atlas Assurance Company, Ltd., and others, Respondents
Court: Wisconsin Supreme Court
Jurisdiction: Wisconsin
Decision Date: 1934-05-01
Citations: 215 Wis. 165
Docket Number: 
Parties: Beers, Appellant, vs. Atlas Assurance Company, Ltd., and others, Respondents.
Judges: 
Reporter: Wisconsin Reports
Volume: 215
Pages: 165–199

Head Matter:
Beers, Appellant, vs. Atlas Assurance Company, Ltd., and others, Respondents.
December 6, 1933
May 1, 1934.
William G. Wheeler of Janesville, for the appellant.
For the respondents there was a brief by Wolfe ■& Hart, attorneys for all defendants except the Western Fire Insurance Company, and by Bender, Trump, McIntyre ■& Freeman, attorneys for Western Fire Insurance Company, all of Milwaukee, and oral argument by H. 0. Wolfe.

Opinion:
The following opinions were filed. March 6, 1934:
Rosenberry, C. J..
From the amended complaint it appears that the plaintiff, one Cora G. Beers and the Rock County Insurance Agency, had since October, 1918, conducted a general insurance business. In view of the fact that we do not reach the second ground of the demurrer, which involves the validity of an assignment to the plaintiff of any cause of action which Cora G. Beers and the Rock County Insurance Agency might have, we shall in referring to the contract refer to the parties of the first part as plaintiff, although there were in fact three parties to the contract. This is merely a matter of convenience. The defendant insurance companies were represented by George G. Wright, Byron K. Olinger, Robert K. Meeker, and Cecil L. Davis, who will be referred to as trustee defendants. The insurance companies will be referred to as insurance company de fendants. The complaint is long and contains much evi-dentiary matter. After setting out the corporate character of the insurance company defendants, there is alleged in the complaint in considerable detail the nature of the business carried on by the plaintiff; assignment of the cause of action by Cora G. Beers and the Rock County Insurance Agency; that the year 1932 was one of great financial distress; that the plaintiff had been unable to make collections, the nature of the agency, relations existing between the plaintiff and the insurance company defendants.
The complaint alleges that the defendants falsely and fraudulently represented to the plaintiff that they knew he was having a hard time collecting premiums; that they wished to put the business under a trust arrangement; that the trustees would open a separate bank account, and that no action was desired to be taken that would in any way interfere with plaintiff's control over his property or business ; that during the time of the trusteeship plaintiff was to receive a salary of $150 per month; that plaintiff should continue in possession of the business and property until the accounts owing to the insurance company defendants should be paid.
That on October 12, 1932, the defendants, with intent to deceive and defraud the plaintiff and his assignors, stated that they had prepared a trust agreement in accordance with their previous negotiations which was presented to plaintiff ; that the defendants "falsely and fraudulently represented to plaintiff and his said associates, that the defendants had no desire or intention of interfering with plaintiff and his associates," and repeated all of the false and fraudulent representations made on October 4th; and "in addition they falsely and fraudulently stated that they wished the agreement signed in order that they might open a trustee account at a local bank, in order that the plaintiff, in conducting the business of the agency., might deposit to the-account of the trustees any amounts collected by him." Further, "that while the agreement contained a power of sale, that power would never be exercised as long as plaintiff was faithful in his care of and attention to said business, nor would defendants in any way attempt to oust plaintiff and his associates from the possession, control, and management of said business., or- interfere therein except as to disposition of the income thereof.'.'
It was further alleged that the plaintiff wished-to consult his banker, but-that defendants persuaded him not to, representing that it would block everything, which representations were false and fraudulent.
It is then alleged that plaintiff, in reliance upon the false and fraudulent representations made-by defendants, signed the contract known and described in the case as Exhibit A; that the plaintiff was induced to- rely- upon the representations made because of his long association in business with the defendants. It is then alleged that—
"All of said representations were false'and fraudulent in that the defendants had no -intention of allowing plaintiff, said Cora G. Beers or the Rock County Insurance Agency, to continue said business, or to be connected with it in any manner; or of permitting them to redeem said property from the indebtedness therein mentioned, and for which such ágreement purported to be security; but were made for the fraudulent purpose of acquiring possession of said property and business, in order that they might convert the same to their own use and defraud plaintiff, said Cora G. Beers and said Rock County Insurance Agency of the same."
That the defendants had no intention of carrying out said contract or any part thereof except to gain possession of said property and defraud the owners.
"That the so-called trust agreement was not intended by the defendants as a contract, but was merely an instrument whereby the unlawful and fraudulent scheme of defendants might be accomplished', the possession of said property obtained, and plaintiff, Cora G. Beers, and Rock County Insurance Agency defrauded thereof, and that that was the only purpose of defendants in securing it..
"There was no element of good faith in the negotiation of said agreement, but that the same was intended to deceive and defraud plaintiff, Cora G. Beers, and said agency."
That after the signing of the agreement, the defendants by artifice obtained possession of the key to the office, and immediately after obtaining the key to the. office and the combination to the safe, the defendants informed the plaintiff that they did not want him in the office, that his authority as an agent was at an end; that he was not to touch anything in the office; that he was to collect no bills; and that he was to have nothing to do with the policies. The defendants then ordered the plaintiff to leave the office and compelled him to do so and placed a watchman on guard and took exclusive possession thereof; that on October 26, 1932, the property and business described in the contract was sold without any opportunity on the part of the plaintiff to redeem ; that the defendants have not accounted to the plaintiff for the proceeds of said sale, and have filed no account thereof as required by sec. 241.15, Stats.
Plaintiff further alleges that no actual consideration for the contract passed between the parties thereto..
Plaintiff demands judgment against the defendants in the sum of $150,000 together with his costs and disbursements.
The contract referred to as Exhibit A, after the names of the parties, recites that'the parties of the first part "have now defaulted and have not paid and remitted to said insurance companies the premiums collected' for business written more than sixty'days prior to the execution of this agreement; and are further' indebted for business written during the months of August and September, 1932, and are unable to pay and discharge the liabilities now due and owing to said hereinbefore mentioned insurance companies."
The contract then provides that, in consideration of one dollar and other good and valuable considerations, the first parties have set over unto the trustee defendants all of the business, equipment, etc., including the good-will and right to solicit at expiration, "with the absolute right and privilege given to the parties of the second part, at any.time in their discretion, to sell, transfer, convey, or make other disposition to whomsoever they may desire of the assets hereby conveyed to them."
It is next agreed that if the parties of the first part shall pay the amount due and owing to the defendant insurance companies that—
"if the parties of the second part at such time shall not have made a sale, conveyance, or disposition of the assets or business of the said C. P. Beers or Rock County Insurance Agency, being the insurance business of the parties of the first part, that the parties of the second part will then re-convey, surrender, and deliver the said business and the title to the physical and other assets thereof to the said parties of the first part; but that at any time until such back balances and indebtednesses shall have been paid by the parties of the first part, and the current balances placed on a sixty-day basis, that this sale shall be considered as absolute, and the parties of the second part shall have the unqualified right to sell the business and property herein conveyed to them at either public or private sale, whichever may, in their opinion, be advantageous, and the title conveyed to the purchaser thereof by them shall be absolute, and the parties of the first part shall have no further right or interest therein or thereto."
The proceeds of the sale were to be applied upon the indebtedness of the parties of the first part. The contract then provides for the employment of C. P. Beers at a salary of $150 a month, "which arrangement shall continue until such a time as the parties of the second part may determine, and which, at their discretion, may be terminated forthwith and without notice."
The contract then provides for the making of deposits daily, a trustee account to be opened in a bank. There are other provisions relating to the manner of conducting the business not material here.
The principal contention made here by the plaintiff is that he has sustained damages in reliance upon the promissory misrepresentations made by the defendants. It is a well-established rule of law that fraud must relate to a present or pre-existing fact, and it cannot ordinarily be predicated on unfulfilled promises or statements made as to future events. Tufts v. Weinfeld, 88 Wis. 647, 60 N. W. 992; First Nat. Bank v. Hizer, 189 Wis. 359, 207 N. W. 688. See also authorities cited in 51 A. L. R. 49, note 7; 3 Callaghan's Wis. Dig. Action for Fraud, p. 2557, § 10.
To this general rule there are in most jurisdictions well-recognized exceptions. One of these is that a buyer, who promises future payment for goods, being insolvent and having no intention to pay, is guilty of a fraud which warrants rescission. While there is a division of opinion, the weight of authority sustains a broader rule to the effect that fraud may be predicated upon a promise made with a present intention not to perform the same. This is adverted to in Jeleniewski v. Eck, 175 Wis. 497, 185 N. W. 540, but the decision in that case was rested upon other grounds. See also Legler v. Tyler, 184 Wis. 238, 199 N. W. 149. The logic of the cases in Wisconsin leads to the conclusion- that in this state we have adhered to the minority rather than the majority rule. Whether or not that rule should be re-examined and modified or affirmed, it is not necessary for us to determine in this case. In this case the promissory misrepresentations relate to the identical subject-matter dealt with in the promissory provisions of the contract. By the contract it is provided:
(1) Beers sells the entire insurance business and equipment to trustees with absolute right at any time in their discretion to dispose of same.
(2) Trustees agree to reconvey the business and equipment if Beers pays up before sale is made, but at any time until payment "this sale shall be considered as absolute and that the parties of the second part shall have the unqualified right to sell the business."
(3) That Beers to time of the sale shall devote his full time to the business of the Agency at $150 per month, "which arrangement shall continue until such a time as the parties of the second part may determine, and which, at their discretion, may be terminated forthwith and without notice."
The first false promissory representation is as follows:
"That plaintiff should continue in possession of the business and property and should conduct it the same as before, the only change being as to the custody of the moneys collected and the disposition of the same; and that as thus arranged, the business should be conducted until all unpaid accounts were paid, at which time the trusteeship should cease,"—
which arrangement should continue for whatever time, it would be necessary for plaintiff to carry on the business and to pay off back balances.
The second false promissory representation is as follows:
"That the defendants had no desire or intention of interfering with plaintiff and his associates in the possession, control, and management of said business; that they should continue in the possession, control, and management of the same, but the money taken in should be turned over to the trustees, who would turn over to thé plaintiff $150 per month and other expenses of the business, and the remainder of the income would be applied on the unpaid balances until the same would be extinguished, whereupon the trust agreement should cease."
The third false promissory representation is as follows :
"That while the agreement contained a power of sale, that power would never be exercised as long as plaintiff was faithful in his care of, and attention to said business, nor would defendants in any way attempt to oust plaintiff and his associates from the possession, control, and management of said business, or interfere therein except as to disposition of the income thereof."
While there are other allegations of false representations, they seem to be mere makeweights and intended to fill in the picture. The promissory misrepresentations being by the allegations of the complaint made prior to and contemporaneously with the making of the contract, the plaintiff meets the well-established rule that, when a written contract has been entered into, the parties thereto cannot show an inconsistent contemporaneous oral agreement, the subject-matter of which is covered by the contract. This rule is so fundamental and well established that it seems unnecessary to cite authorities. Authorities if desired can be found in 56 A. L. R. page 6, reference 12, where the cases are cited including the Wisconsin cases.
This rule of law like many other rules is more easily stated than applied. Because of this difficulty, certain tests have been devised to determine when a written contract is in fact an integration of the agreement made between the parties : First, the writing may on its face be obviously incomplete, in which case evidence of a contemporaneous parol agreement not inconsistent with the writing may be shown; second, the writing may on its face as applied to the subject-matter appear to be certain and complete, and yet it may not as a matter of fact express the entire agreement or agreements of the parties, in which event parol or extraneous evi dence may be admitted to show this fact. These tests are stated and amplified and the cases cited and analyzed in 70 A. L. R. at page 770.
An examination of the promises contained in the contract and the promissory misrepresentations alleged in'the complaint clearly disclose that they cover the identical subject-matter and are inconsistent; that is, the promissory misrepresentations promise a performance different from that contracted for. Therefore, in an action at law, they are not susceptible of proof and have no legal existence, being as a matter of law merged in the written contract. The harshness with which this rule may operate when applied in actions at law has led to the exercise of equity jurisdiction to relieve from such situations and so in actions to reform the contract, in order to express the true intention of the, parties as well as in actions to rescind a contract either in law or in equity, such evidence within established limitations may be received.
The plaintiff here brings himself within none of these rules. He does not disaffirm the contract. This action being for fraud and deceit, affirms it. He neither seeks reformation nor rescission. This is not to indicate whether or not under the facts such a right existed, but merely to disclose the position which the plaintiff by his pleading has taken.
The plaintiff is then obliged to take the position that a conterhporary oral promise may be shown, the defendants having no intent to perform it when made as a basis of fraud, even though it is consistent with the terms of the contract. This position strikes at the very vitals of the parol-evidence rule, and it would permit a claim of fraud in every case,where there was a breach of contract, if it could be shown that at the time negotiations were had the defaulting party had no intention to perform. What the measure of damages would be in such a situation, or what would become of the contract which had been in fact knowingly and intentionally entered into, present interesting questions which we pass by. It has been affirmed over and over again that secret intentions of the parties to a contract are wholly immaterial. It is not what the parties secretly intended, but it is what they manifested to each other by words or conduct that determines their rights. In the Restatement of the Law of Contracts, sec. 19, one of the essentials for the formation of a contract is :
"(b) A manifestation of assent by the parties who form the contract to the terms thereof, and by every promisor to the consideration for his promise, except as otherwise stated in sections 85-94;" which have no application in this connection.
By sec. 20 it is said :
"A manifestation of mutual assent by the parties to an informal contract is essential to its formation and the acts by which such assent is manifested must be done with the intent to do those acts; but . . . neither mental assent to the promises in the contract nor real or apparent intent that the promises shall be legally binding is essential."
Without entering upon a' discussion of the so-called objective theory of contracts, it is sufficient to say that it is what the parties manifest to each other that controls and not an undisclosed secret intent. A party to a written contract, which he does not seek to avoid, may not show a contemporaneous parol promise relating to a matter covered by the contract, whether the promisor intended at the time to breach the contract or not. It would be a contradiction in terms to say that an oral promise made in the course of negotiations without intent to perform it, which promise is embodied in the contract, may be proven as a basis of fraud although there is no attempt to reform or rescind the contract. It may be true that where the making of the contract is part of a fraudulent scheme, the party charged having no intention to perform or be bound by the contract, the parol-evidence rule has no application. The facts alleged in this complaint do not bring this case within that doctrine. Here the plaintiff by the form of his action affirms the contract and seeks recovery on the ground that a contemporaneous oral promise relating to a matter covered by the contract was fraudulent because made without intent to perform.
In jurisdictions where the doctrine of promissory, representation obtains, with the single exception of the state of Pennsylvania (see 5 Wigniore, Evidence, p. 309, § 2431),. the promise must relate to a matter not covered by the contract but to some collateral matter. Many cases are collected and analyzed in 51 A. L. R., beginning at page 46. Two examples will suffice to illustrate the rule.
Laing v. McKee, 13 Mich. 124, is said by the supreme court of Michigan to have initiated the rule in that state, the opinion being by that distinguished jurist, Thomas M. Cooley. The facts in that case were that the owner of property had offered to purchase a tax certificate from the owner of the certificate. The owner of the certificate promised that he would send the assignment and accept the amount of the certificate with twenty-five per cent interest. The owner of the certificate delayed performance until the time for redemption from the tax sale had expired. This was held to constitute a fraud and to entitle the owner of the property to relief.
In Deyo v. Hudson, 225 N. Y. 602, 122 N. E. 635, it was held that where an alleged agent had with fraudulent purpose promised to notify the plaintiff if one Carter should resume trading with the defendants, having at the time no present intention to perform the promise, and plaintiffs relied and acted thereon, an action could be maintained for the resulting injury.
While there are cases in this court, see Danielson v. Bank of Scandinavia, 201 Wis. 392, 230 N. W. 83, where the enforcement of contemporary parol agreements has been awarded, this court has as yet not definitely considered to what extent, if at all, it will change the present rule with respect to promissory misrepresentations as a basis of fraud.
It might well be said in this case, so far as a cause of action for deceit is concerned, that the plaintiff had no right, under the circumstances of this case, to rely upon an oral promise, the effect of which was to destroy the legal effect of the contract into which he thereafter knowingly entered. We conclude therefore that the complaint states no cause of action for fraud and deceit.
It is necessary for us to consider, however, whether or not any other cause of action is stated. Olson v. Skroch, 182 Wis. 448, 196 N. W. 767. By the contract the defendants agreed to employ the plaintiff for an indefinite period of time, but reserved the right to continue the employment "until such a time as the parties of the second part may determine and which at their discretion may be terminated forthwith and without notice."
"At their discretion" implies that the promisors will act in the premises upon a sound judgment. It excludes an arbitrary, unreasonable, or oppressive act. Stewart v. Stewart, 28 Ind. App. 378, 62 N. E. 1023.
If the contract had read, "shall continue until such a time as the parties of the second part may determine and may be terminated at will forthwith and without notice," a different situation would exist. In this case the defendants never took the plaintiff into their employ except perhaps in a very technical sense. They did not give him an opportunity to perform services under the contract. Under the facts alleged in the complaint, when they had secured the title to the property, possession of the office, and combination of the safe, they unceremoniously evicted the plaintiff. The act cannot be justified as a discretionary one because no facts arose after the making of the contract upon which the discretion of the defendants could be exercised. The refusal of the defendants to go on with the contract amounted to a breach. It must be held that the complaint states a cause of action in contract. The demurrer was therefore improperly sustained.
By the Court. — The order appealed from is reversed, and cause remanded for further proceedings according to law.