Court Opinion

ID: 9568707
Source: CourtListenerOpinion
Date Created: 2023-08-21 20:06:50.042644+00
Date Added: 2024-06-11T10:56:49.863601
License: Public Domain

Phipps, Judge,
dissenting.
I respectfully dissent from the majority’s affirmance of the trial court’s grant of summary judgment to the sellers of a business in this suit against the buyers for nonpayment of purchase-money promissory notes.
1. In Division 1 of its opinion, the majority, in reliance on Jernigan Auto Parts v. Commercial State Bank,6 concludes that the conduct of the buyers, Tresham and Zacharchuk, in making partial pay*750ments on the promissory notes constituted a waiver of any claim of fraud. I cannot agree, and I find Jernigan Auto Parts distinguishable.
(a) In Jernigan Auto, the buyers of a business waived their claim that they had been fraudulently induced to make the purchase “by their silence” after they learned of the alleged fraud and by their subsequent payments on the purchase-money notes.7 Here, the buyers did not remain silent.8 Rather, they protested that the sellers, Wayne Patterson and Robert Rybka, had concealed material facts devaluing the business and made only partial payments on the purchase-money notes. It is true that the buyers’ recognition of the transaction constituted a waiver of any right to rescind it. As held in Jernigan Auto,
It is a well settled rule that if a party who is entitled to rescind a contract because of fraud or false representation, when he has full knowledge of all the material circumstances of the case[,] freely and advisedly does anything which amounts to the recognition of the transaction, or acts in a manner inconsistent with its repudiation, it amounts to acquiescence, and, though originally impeachable, the contract becomes unimpeachable even in equity. It is incumbent upon a party who attempts to rescind a contract for fraud to repudiate it promptly on discovery of the fraud. ... [If he does not, h]e will be held to have waived any objection, and to be conclusively bound by the contract as if no fraud or mistake had occurred.9
However, as recognized in cases such as Conway v. Romarion,10
[a] purchaser who claims that he was fraudulently induced to enter into a sales contract has an election of remedies. The first option is to rescind the contract after discovering the fraud and sue in tort to recover the purchase price and any additional damages from the fraud. Alternatively, the purchaser may elect to affirm the contract and sue for damages resulting from the fraud.* 11
Here, the purchasers elected to affirm the contract, rather than to rescind or attempt to terminate it,12 and to recover their damages *751by making only partial payments on the purchase-money promissory notes. In Atlanta Car Wash v. Schwab,13 the Supreme Court of Georgia sanctioned such a course of action. There, the Court held that partial payment of a purchase-money promissory note does not operate as a waiver of fraud by a purchaser electing to affirm the contract rather than rescind it, unless the purchaser engages in conduct condoning the fraud.14 Here, the purchasers engaged in no such conduct. Under these circumstances, their failure to sue the sellers for damages should not bar them from pleading partial failure of consideration in recoupment of the damages the sellers now seek to recover against them.15 In my opinion, the majority’s holding to the contrary is inconsistent with Atlanta Car Wash v. Schwab, a decision the majority fails to cite.
(b) Another difficult issue presented by this case but not addressed by the majority is whether the buyers’ fraud claim is barred by the merger clause in the parties’ contract. I conclude that it is not.
It is true that if a party claiming he was fraudulently induced to enter a contract chooses to affirm the contract rather than to rescind, “he is bound by its terms, including the provisions of a merger clause.”16 And it has been broadly held that a “merger clause” (a term also used to refer to a disclaimer provision)17
prevent[s] a fraud-in-the-inducement defense unless it can be shown that the party claiming fraud lacked knowledge of the contract’s contents. [Cit.] Where a purchaser affirms a *752contract containing a merger provision, “he is estopped from asserting that he relied upon the seller’s misrepresentation and his action for fraud must fail.” [Cit.]18
There is, however, an exception to the rule that a merger clause bars a claim or defense of fraud.
If there is a concealed defect, known to the seller, in property being sold, the seller is bound to reveal it to the purchaser (cits.); and although the purchaser signs a contract of sale which provides that it contains the entire agreement between the parties and that no representation, statement, or inducement except as therein noted shall be binding upon either party, this provision does not relieve the seller from performing his duty to disclose the concealed defect to the purchaser, either by a statement in the contract or otherwise. Concealment of material facts may amount to fraud when direct inquiry is made, and the truth evaded, or where the concealment is of intrinsic qualities of the article which the other party by the exercise of ordinary prudence and caution could not discover. . . . [Cit.]19
In this case, a jury would be authorized to find that Tresham and Zacharchuk made direct inquiry concerning financial irregularities occurring at the franchisor’s home office, and that Rybka and Patterson evaded the truth and actively sought to conceal it by misrepresenting the reason checks were being dishonored and by preventing Zacharchuk from receiving documentation revealing the truth. Although there may have been no intrinsic product defect in this case, a jury could find that there was a concealment of material facts and evasion of the truth in response to a direct inquiry about the matter concealed and that the language in this merger clause does not bar a claim of fraud based on these facts.20 Under the circumstances, whether the merger clause in the parties’ agreement bars Tresham and Zacharchuk’s fraud defense is a jury question.
2. The buyers also contend that the sellers were not entitled to summary judgment on their defense of partial failure of consideration.
*753In Division 2 of its opinion, the majority refuses to consider the merits of this claim of error on the ground that the buyers have failed to provide necessary record citations to evidence. I cannot agree. Pages 117 and 119 of the record, cited by the buyers on pages 1 and 3 of their brief, contain: (1) testimony by Zacharchuk that in 1991 and 1992, Rybka and Patterson breached the parties’ sales contract by refusing to pay $6,516.37 in state and federal employment taxes and a $10,000 fee for transfer of the franchise, thereby requiring her and Tresham to pay those sums; and (2) the provisions of the contract requiring the sellers’ payment of these items.
“Proof of total or partial failure of consideration entitles defendant to an abatement of purchase price to the extent that the consideration may have failed. [Cits.]”21 Rybka and Patterson do not dispute this proposition. Instead, citing to various parts of the record, they argue that the tax payments Tresham and Zacharchuk contend they made were credited to the unpaid balance of the notes. This argument is wholly without merit. The record shows that Tresham and Zacharchuk were credited with payments of principal in the amounts of $3,441.30 and $1,706.48 in 1993, thereby reducing the principal indebtedness of the $20,000 and $55,000 notes to $69,852.22 (the principal amount awarded Rybka and Patterson by the trial court). The record shows no credit for any tax payment of $6,516.37 in 1991 or 1992, which is the amount and time period of the tax payments claimed by Tresham and Zacharchuk. As to Rybka and Patterson’s nonpayment of the $10,000 franchise transfer fee, they argue that Tresham and Zacharchuk could not have been damaged by that because this fee was payable to Healthcare Recruiters International, Inc. and not to Tresham and Zacharchuk. Tresham and Zacharchuk have, however, presented evidence that they were damaged in the amount of $10,000 because they became obligated to pay the fee to HRI.
3. Finally, in Division 3, the majority rejects the buyers’ argument that the sellers were not entitled to summary judgment on their statute of limitation defense. Again, I cannot agree.
An action on a promissory note must be brought within six years after a note becomes due and payable unless the holder of the note elects to exercise an option to accelerate the maturity of the debt, in which case the statute of limitation begins to run from the time of *754such election.22 Lee v. O’Quinn,23 relied on by the majority, holds that to effectively exercise an option to declare the whole debt due, the creditor
must communicate his decision to the debtor, or manifest it by some outward affirmative act sufficient to constitute notice of his election, such as service of notice of attorney’s fees, the filing of [the] suit for the entire debt, written notice of his exercise of the option, or by advertisement under the power of sale, to collect the entire principal.24
Zacharchuk testified the sellers’ May 1993 letter was followed by numerous telephone calls from the sellers declaring her and Tresham in “total default” on the notes and demanding payment of all sums owed. If this testimony is to be believed, which it must be on motion for summary judgment, the sellers communicated a decision to the debtors to accelerate the debt, one of numerous alternative methods specifically sanctioned by Lee. The sellers brought this suit in September 2000, almost seven and one-half years after the 1993 letter was sent. Contrary to the majority’s holding, in my opinion a jury would thus be authorized to find that the sellers communicated to the buyers a decision to accelerate the maturity of the debt more than six years before bringing this suit. The notes did not require written notice of acceleration.25 And Rybka and Patterson’s assertion of the acceleration clause, even if legally unauthorized, would still have begun the running of the statute of limitation.26
I am authorized to state that Judge Miller and Judge Ellington join in this dissent.
*755Decided December 1, 2003
Reconsideration denied December 16, 2003
Fred L. Cavalli, Christopher J. McFadden, for appellants.
Sturgeon, Harbin & Bowen, Gregory W. Sturgeon, for appellees.

 186 Ga. App. 267 (367 SE2d 250) (1988).

 Id. at 271 (3).

 Compare Woodall v. Beauchamp, 142 Ga. App. 543, 545 (1) (236 SE2d 529) (1977).

 (Citations omitted.) Id.

 252 Ga. App. 528 (557 SE2d 54) (2001).

 Id. at 530 (1).

 Termination of the contract under paragraph 13 would not appear to have been authorized, as there is no evidence that any civil, criminal, or bankruptcy action was brought as a result of misappropriation of funds by Healthcare Recruiters International, Inc.’s president.

 215 Ga. 319, 321 (2) (110 SE2d 341) (1959), citing Tuttle v. Stovall, 134 Ga. 325 (67 SE 806) (1910).

 Accord Camp v. Hatcher, 119 Ga. App. 63 (166 SE2d 422) (1969).

 See Toole v. Brownlow & Sons Co., 151 Ga. App. 292, 294 (1) (259 SE2d 691) (1979); OCGA § 13-7-2.

 (Footnote omitted.) Lakeside Investments Group v. Allen, 253 Ga. App. 448, 451 (2) (a) (559 SE2d 491) (2002).

 See Meadow River Lumber Co. v. Univ. of Ga. Research Foundation, 233 Ga. App. 169, 173, n. 16 (503 SE2d 655) (1998). A merger or entire agreement clause provides in essence that the parties’ written contract contains the entire agreement between the parties and that all prior oral agreements or promises are merged into the written agreement. See Nixon v. Sandy Springs Fitness Center, 167 Ga. App. 272 (2) (306 SE2d 362) (1983) (plaintiff could not claim she had been fraudulently induced to enter into health club membership agreement by health club’s promise to satisfy her outstanding debt to another club where agreement contained no such promise); Spires v. Relco, Inc., 165 Ga. App. 4, 5 (2) (299 SE2d 58) (1983) (lessee precluded from claiming that lessor fraudulently induced him to enter into lease by promising to perform certain services, where such promises were not part of contract). A disclaimer provision in essence provides that no representations, promises, or inducements not included in the written contract bind any party. See Carpenter v. Curtis, 196 Ga. App. 234 (395 SE2d 653) (1990) (plaintiff could not claim that defendant had induced him to enter into purchase agreement by misrepresenting value of equipment and inventory, where agreement contained no representations as to value of equipment or inventory).

 Carpenter v. Curtis, supra, 196 Ga. App. at 236; see Great American Builders v. Howard, 207 Ga. App. 236, 239 (1) (427 SE2d 588) (1993) (notwithstanding variations in language employed in merger or entire agreement clause, it has been generally held that contract containing such a clause bars plaintiff electing to affirm contract from claiming he was fraudulently induced to enter into contract by verbal misrepresentations of other party).

 (Punctuation omitted.) Batey v. Stone, 127 Ga. App. 81-82 (192 SE2d 528) (1972).

 See Gaines v. Crompton & Knowles Corp., 190 Ga. App. 863, 866 (4) (C) (380 SE2d 498) (1989).

 Speir v. Nicholson, 202 Ga. App. 405, 408 (2) (414 SE2d 533) (1992); compare Nat. City Bank of Rome v. Busbin, 175 Ga. App. 103, 106 (3) (332 SE2d 678) (1985) (involving a set-off which must be asserted by way of counterclaim, as opposed to a failure of consideration defense).

 Wall v. C & S Bank of Houston County, 153 Ga. App. 29, 31 (4) (264 SE2d 523) (1980) (citing OCGA § 9-3-24), aff’d, 247 Ga. 216 (1) (274 SE2d 486) (1981), but later rev’d on other grounds, McKeever v. State of Ga., 189 Ga. App. 445, 446 (375 SE2d 899) (1988).

 184 Ga. 44 (190 SE 564) (1937).

 (Citations omitted; emphasis supplied.) Id. at 45 (2).

 See Fuller v. Greenville Banking Co., 230 Ga. App. 63, 64 (495 SE2d 320) (1997); compare Rapps v. Cooke, 246 Ga. App. 251, 252 (540 SE2d 241) (2000).

 See Williams v. Sessions, 171 Ga. App. 662, 663 (1) (320 SE2d 791) (1984) (assertion of acceleration clause based on breach of original terms of note unauthorized, where parties had entered into a quasi new agreement); Wall v. C & S Bank, supra, 153 Ga. App. at 31 (4) (if creditor elects to exercise option to accelerate maturity of debt, statute of limitation begins to run from time of such election).