Opinion ID: 1248085
Heading Depth: 1
Heading Rank: 14

Heading: admissibility of defendant's testimony

Text: Even if this Court were persuaded that the Defendant made representations which were sufficiently specific to supply the Plaintiffs with full and complete knowledge as to the true financial condition of the corporation, the parol evidence rule serves to bar the introduction of the statements by the Defendant. In reaching this determination, the Court was called upon to decide whether the parol evidence rule applies to the situation where a seller who has given written warranties seeks to introduce oral statements made by himself in order to show that the Buyer had knowledge of the falsity of the written warranties. In an action for damages for breach of a written warranty, South Carolina Courts have long refused to allow the Seller to escape liability because the Buyer knew of the falsity of the written warranty: Both parties were aware of the unsoundness at the time of the contract, but both perhaps ignorant of the extent of the injury. Hence the cause and the necessity of the warranty to indemnify the purchaser against the possible and even probable result, that it might become, as it actually has, permanent and incurable. It was a matter of contract on the part of the Defendant, and whether the Plaintiff knew of the unsoundness or not, was immaterial; the Defendant is bound to perform his contract. Wallis v. Frazier , 2 Nott & McC. 516, 517 (1820). See also, Kimbrell v. Taylor , 135 S.C. 321, 133 S.E. 829, at 830: The appellant argues, with considerable force, that the purchasers of the stock had superior knowledge to her as to the value of the stock, since she was not acquainted with the business of the corporation. The testimony bears out her claim in this respect. But since the appellant signed the written agreement, and it appearing that her execution of that paper was done fairly, freely, and honestly, she is, of course, bound by its terms. Also, South Carolina has long recognized the right of a buyer to sue for rescission for breach of warranty. Yancey v. Southern Wholesale Lumber Co. , 133 S.C. 369, 131 S.E. 32, 35 (1925): If all that the Defendants have alleged and endeavored to prove with reference to the quality and adaptability of the machinery had been true, the Defendant would have had either of two remedies, as expressed in the case of Ebner v. Haverty Co. , 128 S.C. 151, 122 S.E. 578: (1) He (the buyer) may, upon discovery of the misrepresentation, within a reasonable time which the law allows for an inspection, return or offer to return the property, and demand a rescission of the contract and a return of the purchase price paid by him; or (2) he may retain the property, and demand damages for a breach of the contract. When a written agreement containing a warranty has been entered, the Buyer may not show an additional oral warranty. Sanders v. Allis Chalmers Co. , 237 S.C. 133, 115 S.E. (2d) 793 (1960): We are of opinion that the warranty runs to the purchaser; that oral representations, if any, which may have been made at the time of sale were superseded by the contract in writing and, therefore, inadmissable for the purpose of varying the terms of the written agreement; It can be seen from the foregoing authorities that in an action for breach of warranty, whether for damages or for rescission, the existence of the written warranty fully satisfied the Buyer's burden to show reliance. When the Buyer was proceeding on a written warranty, the courts made short work of the warrantor's claims that the Buyer knew the warranty was false. For a learned discussion of the general subject matter with which the Court is concerned, see J.S. Strahorn, Jr. , The Parol Evidence Rule and Warranties of Goods Sold, 19 Minn. L. Rev. 726. Of particular interest is the Section of the Article entitled Extrinsic Evidence to Eliminate Warranties Which Result From the Writing Itself, found at pages 749 and 750 of the Article: Certain warranties are said to be expressed in a writing whenever the parties see fit to write out the statements which serve as operative facts to create ... liability.    To what extent can any of these warranties be deprived of effect by extrinsic evidence of facts not themselves incorporated into the writing? Examples are: ... any express agreement, disclaimer, waiver or similar activity of the buyer limiting a warranty which would otherwise exist. The few cases which have dealt with the problem exclude... specific activity, usually a statement, particularly limiting the warranty which would otherwise follow. Authority for the above statement is cited at footnote 57 as follows:    The following cases hold that it cannot be shown by parol that the buyer was aware of a defect allegedly warranted against: Watson v. Roods [Roode] , (1890) 30 Neb. 264, 46 N.W. 491, and Hogan's Exr. v. Carland and Rutledge , (1833) 5 Yerg. (Tenn.) 283. Some cases involving the sale of land likewise suggest useful analogies: Miller v. Desverges , (1885) 75 Ga. 407; Harlow v. Thomas , (1833) 15 Pick. (Mass.) 66; LaFrance v. Kashishian , (1928) 204 Cal. 643, 269 Pac. 655. There is, of course, a well established exception to the parol evidence rule which allows extrinsic evidence by the party attacking an instrument on the ground of fraud. Allen-Parker Co. v. Lollis , 257 S.C. 266, 185 S.E. (2d) 739 (1971). This exception has been invoked by Federal Courts to allow Plaintiffs suing under Section 10(b) of the Securities Exchange Act of 1934 to assert oral misrepresentations outside of a written contract. Allen Organ Co. v. North American Rockwell Corp. , 363 F. Supp. 1117 (E.D. Pa. 1973); Vanderboom v. Sexton , 460 F. (2d) 362 (8th Cir.1972); Kardon v. National Gypsum Co. , 83 F. Supp. 613 (E.D. Pa.1947). Defendants assert that extrinsic evidence is allowable both to prove and disprove fraud, citing 37 C.J.S. Fraud § 104, p. 410. The citation does not support the proposition, but on the contrary contains the following passage: As discussed in Evidence, § 979, the fact that the transaction effected by fraud is evidenced by writing does not prevent the introduction of parol evidence as to fraud, the attack of a written instrument for fraud being a well recognized exception to the general rule prohibiting the introduction of parol evidence . (Emphasis Added) In the instant case, Defendants attack the written instrument, but not on the ground of fraud. Nothing has been alleged or proved to indicate that any act of deceit, fraud or even innocent misrepresentation was made by others to induce the Defendants to enter the agreement containing the written warranties. Hence, the exception plainly does not apply. It can be seen from the foregoing that parol evidence is generally admissible to show fraud in the inducement of a writing but not to show warranties or representations extrinsic to the writing. Addressing this seeming inconsistency, Professor Wigmore has offered the following explanation: The explanation seems to be that the vital additional element in fraud is the party's state of mind, which neither can be nor is intended to be embodied in the written document, and that hence the rule does not forbid considering it wherever it is the vital element of the claim. In other words, in an action of deceit , or in a proceeding of rescission of contract wherever this by the law depends upon the promissor's conscious falsity, the present rule interposes no obstacle; although in an action of contract upon an alleged warranty as a part of it, or in a proceeding of rescission for breach of warranty or innocent misrepresentation, the same representations could not be considered. IX Wigmore, Evidence , Section 2439, p. 125 (3rd Ed. 1940). From authorities quoted above, it has been seen that an action under the Uniform Securities Act, like an action at common law or equity for rescission based upon breach of warranty or innocent misrepresentation, does not depend upon a showing of the Seller's conscious falsity. There being no issue as to the Seller's conscious falsity, there is no need for resort to parol evidence. In regard to the parol evidence issue, the Court must also consider the terms of the written agreement entered under date of March 18, 1974 and of evidence in the record. The agreement contained an integration clause as follows: This agreement contains all of the terms agreed upon between the parties with respect to the subject hereof. The parol evidence rule is particularly applicable when the written agreement contains a recital of this nature. 30 Am. Jur. (2d) 155, Evidence , Section 1019. Finally, the Court is of the opinion that even if not barred by the parol evidence rule, as such, Defendants are estopped to assert the untruth of their own misrepresentations. The point is generally stated in 32A C.J.S. Evidence § 979, at Page 475, as follows: Introduction of evidence if fraud by wrongdoer . Only the victim of fraud can be permitted to show such fraud by extrinsic evidence; one is estopped to show his own fraud to impeach a writing which is sought to be used against him. For all of the reasons set forth above, I conclude and hold that the testimony of the Defendant Paul Hullander given to prove that the Plaintiffs had knowledge of the untruth of written representations and warranties made by Defendants in the Agreement of August 18, 1974 is inadmissible under the parol evidence rule and the doctrine of estoppel. It follows, and I so hold, that the only admissible evidence as to Plaintiffs' knowledge of said untruths is the testimony of the Plaintiffs that they did not know of such untruth.