Court Opinion

ID: 8032406
Source: CourtListenerOpinion
Date Created: 2022-09-09 03:16:58.122991+00
Date Added: 2024-06-11T16:37:00.876927
License: Public Domain

The following opinion on motion for rehearing was filed December 21, 1921. Rehearing denied.
1. Evidence: Written Contract: Parol Evidencio. Where a written contract for the subscription of stock, which is, on its face, a complete contract, and which, by its terms, declares that no agreements, not expressed therein, shall be binding between the parties, is executed and delivered, parol evidence is not admissible, in an action on the contract, to show an oral agreement made at the time, though the oral agreement may have been an inducing cause to the execution of the written instrument.
2. —-: --: -. The rule that evidence of a parol promise cannot be shown for the purpose of enlarging or changing the written contract, where the action is one to enforce the contract, is not applicable where the action is in fraud for damages or to *680rescind the contract and to prove the oral promise as the fraudulent representation which acted as an inducement to the contract.
3. Corporations: Subscription' fob Stock: Unauthorized Representations by Agent. Where such a contract contains the provision that “no conditions, agreements or representations,” other than those printed in the instrument, shall hind the company, the agents of the company, who sell the corporate stock and procure the execution of the subscription contract, clearly act outside the limits of tlieir ostensible authority when they make an oral promise, as an additional stipulation and obligation of the company, that the company will, upon request, accept a return of the stock and repay the consideration, with interest.
4. -: -: -. A provision in' such a contract, to the effect that the agent cannot bind the company by any representations, statements or agreements, will not relieve the principal from responsibility for the fraudulent representations, made by its agents, concerning the subject-matter of the contract, as distinguished from the agreements and promises which are to be undertaken, for a sales agent has ostensible authority to make representations as to the subject-matter of the sale, and his fraud, committed within the limits of such authority, will fix responsibility upon his principal.
5. -: -: -: Notice. When such an agent makes an oral agreement, as supplemental to the written agreement of the company, and which oral agreement is, by the terms of the written agreement, one which the agent has no authority to make, the fact that he misrepresented the present attitude of the company and did not intend or expect that the promise would be carried out, though this might fix liability for fraud upon him, would •not fix responsibility upon the company, for the purchaser of the stock had notice that the agent was acting beyond his authority in making such an oral promise.
Heard before Morrissey, C.J., Aldrich, Day, Dean, Flansburg and Letton, JJ.
Flansburg, J.
The issues in this case are fully set out in the former opinion. It was a suit based either on fraud or upon contract. From th„e plaintiffs’ petition it is not clear upon which theory the suit was brought.
The plaintiffs had purchased corporate stock in the North American Hotel Company, and, as a basis for their action to recover' back the purchase price of the stock, set *681up two representations made by the agents of the said company; one representation being that the American Hotel Company and the Bankers Realty Investment Company “were the same company and the same people, and the other, an oral promise that the American Hotel Company, if requested, would, after two years return the money paid for the stock, with interest, and alleged that these representations were false. The petition does not allege the -value of the stock, nor the condition of the company, nor does it allege that the plaintiffs were damaged or injured in any way ■ by the purchase, but alleges that plaintiffs tendered their stock to the defendant and requested a repayment .of .the purchase price, that defendant refused, and that there is $2,000, with interest, due from the defendant to the plaintiffs. A motion was made by the defendant to require the plaintiffs to elect upon Avhich theory they desired to-proceed, whether for fraud or upon the-alleged oral promise made by the defendant’s agents. This motion should have been sustained, for the plaintiffs could not both affirm the contract and seek to enforce it, and,-.at the same time, bring an action declaring that the contract had been vitiated by fraud and seek either its rescission or damages. The lower court, on the trial of the case, directed a verdict in favor of the plaintiffs, and the case has been presented here as if it Avere an action based both upon fraud and upon contract. The subscription contract, signed by the plaintiffs Avhen they purchased the stock, contained a provision that “no conditions, agreements or representations, other than those printed above, shall bind the said company.” The subscription contract was complete on its face, and evidence of any parol agreement, to add to or qualify or condition the contract of purchase expressed in the writing, was entirely incompetent. Security Savings Bank v. Rhodes, 107 Neb. -. Any action, therefore, to enforce the alleged oral promise must fail for the want of legal proof to establish such a contract.
Plaintiffs rely upon the case of Griffin v. Bankers *682Realty Investment Co., 105 Neb. 419. In that case it was pointed out in the opinion that there were written provisions in the contract which were open to interpretation, and the opinion says that the company had paid to the plaintiff $300, in recognition of an interpretation placed upon the contract by the parties. The general rule is emphasized “that parol evidence is not admissible to change, add to, vary or modify a written subscription for stock in a corporation.”
Though it is proper to resort to parol and other extrinsic evidence to explain ambiguities or to: interpx-et written contracts, which are plaiixly open to explanation or construction, still we think it is stating the rule too bx'oadly, as seems to have been done in that case, to say that when the execution of a written contract, which is complete on its face and certain iix its terms, has been induced upon the faith of an oral stipulation, made at the time, such oral stipulation xuay properly be shown to supplement the writing, and that such oral stipulation may be enforced as a part of the contract, in ox-der to prevent fraud. -We do not so understand the rule. The very purpose of putting contracts in writing is to attain complete ceidainty of obligation and to px*event fraud. The stipxxlatioxxs of oral contracts depend for their proof, not only upon the memory, but largely xxpon the truthfulness and xnoral character of the parties bound. Hence, oral contracts give xnore opportunity for fraud. To allow ox*al stipulations to be added to written contracts would largely destroy the salutary effect of the parol evidence rule. When fraudulent promises act as the inducement to the execution of a wxdtten contract, the remedy is for fraud, axxd not upon the oral px*omise as a contractixal obligation, for the oral promise as an obligation has become merged ixx the written agreement axxd cannot, as such, legally be proved.
The case of Fairbanks, Morse & Co. v. Burgert, 81 Neb. 465, was a suit to recover the purchase price of machinexy sold, and it is xxot clear whether the defense made was *683based on fraud or upon an oral agreement supplementing the writing. The court said that the machinery sold was represented to be capable of doing certain work, and that, if the machinery did not meet the representation, the defendant had the right to “rescind” the purchase. It does not appear what the terms of the written contract were, but the opinion declares that the writing was simply an order, and did not, on its face, purport to be a complete contract between the parties. The conclusion that parol evidence was admissible to show and to enforce an oral agreement, supplemental to the writing, could not other-' wise have been justified.
Where an agent presents a subscription contract to a prospective purchaser, and whei-e the subscription contract does not provide for a repurchase of the stock, and contains a provision that the agent can make no other agreement or condition than those which are contained in (he subscription contract, the representations by the agent or agreements by him in parol cannot be shoAvn in order to vary the terms of the subscription contract, or to add an agreement that the company will repurchase the stock.
Furthermore, entirely aside from the parol evidence rule, the agents in this case could not have bound the company to an agreement to repurchase the stock, for an attempt to do so Avas clearly outside the limits of their authority as expressed in the subscription contract. Kaley v. Northwestern Mutual Life Ins. Co., 102 Neb. 135; Omaha Alfalfa Milling Co. v. Pinkham, 105 Neb. 20.
The rule that evidence of a parol promise cannot be shoAvn for the purpose of enlarging or changing the written contract, where the action is one to enforce the contract, is, however, not applicable where the action is in fraud to rescind the contract and to prove the oral promise as the fraudulent representation Avhich acted as the inducement to the sale. The question then, if this action is to be considered an action in fraud, is whether such oral promise, being shown, even though made in violation of the limitation of the agent’s authority, as ex*684pressed in the. written contract, will constitute a fraud for which the company is responsible and which will afford the purchaser the basis for an action against the company in rescission or for damages.
It is quite generally held that a provision in a contract, to the effect that the agent cannot bind the company by any representations, statements or agreements, will not relieve the principal from responsibility for the fraudulent representations, as to the subject-matter of the contract, made by the agent, since such representations are within the scope of the agent’s actual or ostensible authority. It is a self-evident fact that, in order that an agent sell corporate stock for a company, he must make representations to the buyer as to the character of the business of the company, the amount of its earnings, its financial condition and assets, and many other representations of fact which materially affect the value or desirability of the stock. An agent, even though the contract which he presents contains a clause declaring that the company will not be bound by the representations that he may make, is known to be an agent sent out for the express purpose of making representations as an inducement to the sale of stock, and the provision in the contract, therefore, is not considered as limiting the scope of his ostensible authority. Where he makes false representations concerning the subject-matter of the contract, as distinguished at least from the agreements and promises which are to be undertaken, the company is responsible, and the buyer, when injured, may rescind the contract on the ground of fraud. General Electric Co. v. O’Connell, 118 Minn. 53; Edward Thompson Co. v. Schroeder, 131 Minn. 125; Shepard v. Pabst, 149 Wis. 35; Roseberry v. Hart-Parr Co., 145 Minn. 142; State v. Dick, 125 Wis. 51; Landfried v. Milam, 214 S. W. (Tex. Civ. App.) 847; Remington v. Savage, 148 Minn. 405; Bent v. Furnald, 359 Ill. App. 552; Jones v. Minks, 188 Ill. App. 45.
In all of these cases just cited it will be noted that the *685fraudulent representations were representations as to the subject-matter involved in the transaction. It is true that in the cases of General Electric Co. v. O’Connell, Remington v. Savage, and Jones v. Minks, the false representations made by the agent were in the form of oral warranties, but those warranties, instead of being purely matters of promissory obligations, constituted also express representations of the capacity and character of the goods to be sold, and were, to that extent, misrepresentations of existing facts and of the subject-matter of the transaction. The agent, of course, had ostensible authority to describe the goods that he was to sell, and when he made representations as to their quality and character he was acting within the scope of his authority.
In the case of Pease v. Fitzgerald, 31 Cal. App. 727, the company was held not responsible for the agents’ representations. In that casé, however, corporate stock was sold through means of a written prospectus. All representations necessary for the information of the stock-buyer were set out therein, and the buyer notified by the terms of the company’s written contract that the-agent had no authority to make representations other than as set out in the written statements of the company. Where the company’s written representations fully cover the subject-matter of the transaction and are declared to be the only ones the company wishes to make, and where these representations are brought to the knowledge of the buyer, further representations by the agent would not appear to be necessary to the performance of the agent’s duties, nor within his apparent authority to make.
It would be quite a different matter to apply this rule so as to make the company, in spite of the written limitation in its contract, responsible for the oral promises and stipulations which the agent should attempt to add to the proposed agreement. The company does not, in any sense, hold out the agent as authorized to make contracts for it, or to. change the proposed written contract. On *686t'lie other hand, the written contract sets, out specifically that the company will assume no other obligations than those expressed in the writing. Though the agent may describe what he has to sell, he has not, in the face of such written limitation of authority, the power to make a- contract or to add stipulations to the written contract which the company has furnished. Clearly, when he fraudulently assumes to act for the company in adding stipulations lo a contract, which the company says shall be the limit of its obligations, he is acting outside the scope of his ostensible authority, and the company will not be responsible for his fraud. Commonwealth Bonding Casualty Ins. Co. v. Bomar, 169 S. W. (Tex. Civ. App.) 1060; Reagen v. National Equitable Society, 202 S. W. (Tex. Civ. App.) 157; Gordeen v. Pearlman, 91 N. Y. Supp. 420; Commonwealth Bonding & Casualty Ins. Co. v. Barrington, 180 S. W. (Tex. Civ. App.) 936; Guth Piano Co. v. Adams, 114 Me. 390; 2 C. J. 857.
The case of Bonewell & Co. v. Jacobson, 130 Ia. 170, relied upon by the plaintiffs, was based on the fraud of the agents of the defendant, they having made, it is true, promissory representations, but among the representations complained of were statements that the defendant company was in the practice of setting out sample orchards, had actually set out orchards in other places, and was desirous of setting out such an orchard in the locality where the plaintiff lived. These representations were more than simple promises which the agents attempted to add to the written contract, but were representations as to the existing business practice of the defendant company. The specific question as to whether promissory representations could be held to come within the scope of the agents’ authority, regardless of a contractual provision that the agents could make no promises or agreements, was not discussed in the case.
•In the case of Jones v. Bankers Trust Co., 239 Fed. 770, the court construed a somewhat similar contractual provision as the one involved here, to cover only representa*687tions amounting to warranties, promissory in character, and not other representations .going only to material existing facts involving the subject-matter of the transaction, and held that, as to these latter representations, the company would be responsible.
We do not mean to say that the principal will never be liable for promissory representations made by his agent, when those promises are fraudulent, and when the agent misrepresents the present attitude of the company and does not, at the time, expect or intend that his promises shall be carried out, for when the agent, in making such promissory representations, acts within its actual or ostensible authority, such fraudulent representations, even though of a promissory character, would be as binding upon the company as any other.
Though a representation, promissory in its nature, when made with the present intention of not carrying it out, may be fraudulent and actionable, it must be remembered that this case is not brought against the agents, avIio actually made the representations, but against the company, and Avhen the company had no knowledge that such representations Avere being made. As pointed out in the former opinion, Avliere the matter has been thoroughly discussed, the plaintiffs were put upon notice as to the limitation of the agents’ authority, expressed in the Avritten subscription agreement, and Avere charged Avith knoAvledge that such a promise, made by the agents, Avas outside the limitation of that authority. The plaintiffs have no right to consider the promise made as being the promise of the company, for the company had restricted its obligation to the stipulations contained in the writing. Promissory representations are considered fraudulent when there is a misrepresentation Of the present intention or attitude of the promisor as au existing fact. Where, however, the principal has put his attitude specifically in writing, so as to expressly describe and limit his intention concerning his willingness to assume promissory obligations, the misrepresentation of that at*688titu.de, so as to become in any way binding upon the principal, is placed beyond the power of the agent to make. Such promissory representations, were they held to be fraudulent in this case, could not, in the absence of •ratification or estoppel, be held to be binding upon the company.
The representation, then, made by these agents, that the company would repurchase the stock, was a promise for which the company was not responsible, and which the company had, by its contract, guarded the buyer against, for the' buyer was bound to take notice that the agent had no authority to make agreements for the company, and that the only agreement the company was willing to make was that expressed in the writing. Though the agents personally may have been responsible for fraud, we do not find that these representations are a sufficient basis for actionable fraud as against the company.
One other representation remains to be considered. The agents represented that the American Hotel Company and the Rankers Realty Investment Company “were the same company and the same people.” Such a representation as this had to do with the subject-matter of the contract. It was a representation going directly to the desirability and value of the stock and was a representation which Avas reasonably incidental to the sale of stock. Such a representation was within the scope of the authority of the agents to make, and the defendant company could not set up the provision of the contract that it would not be bound by the representations of its agents in bar of an action for fraud, based on those representations, were such representations proved to be false and actionable. Rut from the record it appears that the parties have laid little stress upon those representations as being the basis for the suit. Little evidence is developed with regard to them. It is no doubt for this reason that the commissioner, in the former opinion, made no mention of those representations except to set out that such representations were alleged in the pleadings. The plaintiffs knew *689that these two companies were not identically the same, for plaintiffs admitted that they read the name, American Hotel Company, upon the contract and upon their certificates of stock, and received dividends from the Ameri: can Hotel Company. Though it is manifest they knew the two companies were not identical, they may have been led to believe that the companies were operated under the same management and that the same officers were in control; the representation being that they were the “same people.” So far as the record shows, however, it may have been true that the companies were operated under the same management and by the “same people.” No attempt is made to show that so much of the representation was false. What the management or financial condition of the American Hotel Company was, or the value of the stock, is nowhere shown, and the same is true as to the Bankers Realty Investment Company. Whether the fact that the two companies were operated under the same management, and \vhether or not that would have been a benefit or a detriment to the American Hotel Company, does not appear. In fact, the record is entirely silent when it comes to the matter of proving that this representation was false, or that the plaintiffs were injured in any way by it.
For the reasons given, the motion for i'ehearing is
Overruled.