Beijing Metals & Minerals Import/Export Corp. v. American Business Center, Inc. ( 1993 )

UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_________________________________
No. 92-2171
_________________________________
BEIJING METALS & MINERALS
IMPORT/EXPORT CORPORATION,
Plaintiff-Appellee,
VERSUS
AMERICAN BUSINESS CENTER, INC., ET AL.,
Defendants,
AMERICAN BUSINESS CENTER, INC.,
Defendant-Appellant.
_________________________________________________________________
Appeal from the United States District Court
for the Southern District of Texas
_________________________________________________________________
(June 15, 1993)
Before WIENER, BARKSDALE, and DEMOSS, Circuit Judges.
BARKSDALE, Circuit Judge:
This appeal turns on the effect to be given two alleged oral
agreements made contemporaneously with execution of a written
payment agreement. American Business Center, Inc. (ABC),
challenges a summary judgment granted Beijing Metals & Minerals
Import/Export Corporation (MMB) on its severed claim to enforce the
payment agreement, contending, inter alia, that the district court
misapplied the parol evidence rule and, on issues such as
fraudulent inducement, overlooked genuine issues of material fact.
We REVERSE and REMAND on the issue of fraudulent inducement and
those pertaining to the quality and quantity of goods; as to all
others, we AFFIRM.
I.
In 1988, MMB and ABC entered into a business relationship "in
order to cooperatively develop the fitness [weight lifting]
equipment market in the U. S. and Canada".1 ABC agreed to furnish
MMB with "marketing information, customer names, product samples,
and design prints for the research and development of products that
[MMB] may be capable of manufacturing". MMB, in turn, agreed to
"engage in production only" and to "not sell the products designed
and ordered by [ABC] to companies other than [ABC]".
MMB also agreed that goods would be manufactured in accordance
with detailed specifications, and be of the highest quality. But,
according to ABC, from the very beginning, almost every shipment
contained substantial amounts of defective and non-conforming
goods; it notified MMB to that effect; it was assured that
substitute goods would be sent; and it was instructed to retain the
defective goods for later disposition.
For the shipments from MMB to ABC, the agreement originally
required "documents against payment", obligating ABC to pay by
letters of credit or upon presentation of bills of lading, prior to
release of the goods from customs. Accordingly, ABC paid for all
shipments prior to receipt. In 1988, the parties changed the
payment terms to "document against acceptance", allowing ABC 90
1
MMB is a company formed and existing under the laws of the
People's Republic of China.
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days to pay (D/A 90). Of the shipments received on D/A 90 terms,
ABC paid only approximately two invoices, and subsequently refused
to pay for approximately 27 shipments totalling more than $1.2
million.2
In July 1989, MMB notified ABC that if it did not respond with
a payment plan, MMB would not ship scheduled merchandise.
Accordingly, that August, Mike Lian, president of ABC, travelled to
Beijing, China, to meet with MMB.3 After several days of
negotiations, Lian signed an agreement, in which he acknowledged
that ABC owed MMB $1,225,997.78,4 of which $768,529.23 was overdue
as of August 15, 1989. The agreement established a payment
schedule, obligating ABC to pay the amounts owed MMB in specified
installments. Before he left Beijing, Lian made the first agreed
payment ($197,503.43) by check, post-dated to August 30.
ABC maintains that the payment schedule was only part of the
total agreement; that MMB orally agreed to two other items: it
would ship goods to compensate for non-conforming and defective
goods and shortages and would begin making new shipments to ABC on
D/A 90 terms, beginning September 10, 1989. Lian maintains that
MMB representatives admitted that ABC had a substantial claim for
defective and non-conforming goods, but that because the invoices
2
For all shipments, ABC ordered approximately $1.6 million in
goods and made payments of approximately $300,000 - $400,000.
3
Lian, a native of Taiwan, travelled to Beijing in connection
with a trip to Taiwan.
4
The agreement also provided that ABC might owe approximately
$51,000 more.
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had been entered into the accounting and banking system, "the only
way they could make up the problems to ABC was by shipping future
goods on more favorable terms until the offsets were taken care
of". According to Lian, MMB representatives stated that the signed
payment agreement was necessary only to appease the bank and the
controller, which would allow MMB to continue shipments to ABC on
agreed-upon terms; that MMB representatives told him that the oral
agreements, i.e. replacement of goods and future shipments on D/A
90 terms, could not be reduced to writing for "political reasons"
-- that "some people could go to jail over this situation"; and
that he "would not have signed the Agreement had he known that MMB
did not have the intention or the ability to perform their part of
the bargain". Lian estimated that the total amount of defective
goods and shortages was $500,000.
On September 1, MMB sent a letter to Lian by fax, which
stated, in part, that straight D/A 90 terms would not be permitted
and arguably indicated that this issue had been part of the total
agreement.5 Lian replied twice. His first was that he could not
5
The letter provided:
After you left the Peace Hotel Beijing, I
tried very hard to convince the Bank, Finance
Division, and Auditing Division personnel to agree
to the installment plan. They were not satisfied
with the result of our negotiations for the
following reasons: ... (3) the terms of future
payments must be changed to sight L/C.
I told them about: (1) the achievement we have
made so far as a result of our cooperation in
developing the market; (2) the future perspective
of our business; and (3) the temporary difficulties
that you are now facing. Afterwards, they approved
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operate on a letter of credit basis.6 His second, in late
the installment payment plan on the past overdue
amounts. Furthermore, I told them that ... the pay
condition of sight L/C in the future will not work
in this practical situation. After repeated
discussion, they finally agreed to maintain the
favorable condition of D/A 90 days, but must be
under the condition of L/C, so that debt and
delayed payments can be avoided in the future.
I have done my best and hope you will
understand.... Based on my judgment, you have to
accept this condition, otherwise we both will fall
into an unresolvable pit.
(Emphasis added.)
6
The first reply stated in part:
I deeply regret hearing the decision made by
the Finance and Audit Division of MMB. They
probably only looked at this problem from their own
angle ....
Besides, due to the agitation created by other
persons and other companies, we have not received
any shipment from you. Not only did you stop the
source of supply to me, but also provided favorable
D/A conditions directly to my clientele. My loss
is tremendous.
. . .
... Please understand L/C sight or L/C 90 days
is no different from hard cash. I have to spend
hard cash to get the credit. If your corporation
can't fully cooperate with me whole-heartedly, our
teamwork may collapse sadly.
. . .
At this time, I hope your corporation will
once again judge this problem from both finance and
business angles, both yours and my situation, and
the battle that is happening on the market. Then
give me the favorable payment condition of D/A 90
days and resume the supply to me. Only then, the
temporary stoppage of our business can be ceased,
all the needed capital can be gathered, the supply
can be resumed, and the money that my customers
owed me after a discount can be collected.
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September, referenced the alleged oral agreement for D/A 90 terms
and arguably also referenced the alleged oral agreement to provide
replacement goods.7
Because ABC, in early September 1989, stopped payment on the
check issued in Beijing, and informed MMB that it would not honor
the payment schedule, MMB filed suit against ABC (and others not
parties to this appeal) to recover payment on the agreement. The
substantive claim, styled as on a "sworn account", was later
described by MMB as an "account stated". The defendants answered,
asserting various defenses to payment, including (1) fraudulent
inducement of both the payment agreement and the check issued in
Beijing; (2) duress; (3) breach of agreement and breach of
contract; (4) breach of express and implied warranties; and (5)
7
The second reply provided in part:
This company originally planned to increase
capital, circulate cash flow, and smoothly resolve
the difficult situation including making payments
and discounting merchandise. However, what has
occurred was not what I wished. Certain
unfavorable happenings have taken place. I am
reporting to you as follows:
. . .
2) Since your corporation could not follow
what has been proposed in Beijing and could not
make timely shipments to me before Spt. 10, using
D/A 90 days payment condition, this company has to
spend extra cash of $300,000 to purchase goods from
other sources. (cash flow period is 4 to 5 months)
3) Due to bad quality of merchandise,
disagreement between documents and actual arrivals,
and other major reasons, some of my customers have
cancelled their orders, some made returns, and
others delayed payments to us....
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offset. ABC also counterclaimed against MMB (and others not
parties to this appeal) on several of the grounds asserted as
defenses and for a Deceptive Trade Practices Act (DTPA) violation.
In January 1991, the district court stayed the action as to
all parties except MMB and ABC until the basic account claims were
adjudicated. MMB moved for summary judgment. In January 1992,
after a hearing, the district court granted the motion, and
subsequently ruled that "[t]he cause of action based on the sworn
account is severed from the main action" and that the "only issue
remaining and not previously stayed, is the defendants'
counterclaim for breach of the oral agreement for future business".
A final judgment for approximately $1.7 million was entered for
MMB.
II.
ABC contends that the summary judgment is precluded by genuine
issues of material fact relating to its defenses and counterclaims.
It goes without saying that we review a summary judgment de novo,
e.g., Topalian v. Ehrman, 954 F.2d 1125, 1131 (5th Cir. 1992),
cert. denied, ___ U.S. ___, 113 S. Ct. 82 (1992); and it is
appropriate if the summary judgment record "show[s] that there is
no genuine issue as to any material fact and that the moving party
is entitled to a judgment as a matter of law". Fed. R. Civ. P.
56(c); Celotex Corp. v. Catrett, 477 U.S. 317 (1986). Affidavits
must set forth facts "as would be admissible in evidence". Fed. R.
Civ. P. 56(e). Therefore, "conclusory assertions cannot be used in
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an affidavit on summary judgement". Salas v. Carpenter, 980 F.2d
299, 305 (5th Cir. 1992). Finally, we draw all inferences
favorable to the non-movant. Reid v. State Farm Mut. Auto Ins.
Co., 784 F.2d 577, 578 (5th Cir. 1986).
A.
MMB sued to recover the amount stated in the payment
agreement, asserting that it represents a binding contract in which
MMB agreed to extend payment terms, and ABC agreed to pay its
outstanding obligations. For summary judgment, MMB characterized
the agreement as an "account stated", which is "an agreement
between parties who have had previous transactions of a monetary
character that all the items of the account representing such
transactions, and the balance struck, are correct, together with a
promise, express or implied, for the payment of such balance".
Eastern Dev. & Invest. Corp. v. City of San Antonio, 557 S.W.2d
823, 824-25 (Tex. Civ. App.-San Antonio 1977, writ ref'd n.r.e.).
An account stated establishes a prima facie case for obligation
"without other proof of price, value, quantity, or specific items".
Id. at 826.
ABC contested the account stated characterization, contending
that the written agreement reflects only one portion of their
three-part agreement to resolve all disputes regarding payment and
the quantity and quality of the goods: part one (written) -- ABC to
adhere to a payment schedule; part two (oral) -- MMB to ship
replacement goods to make up for non-conforming goods and
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shortages; and part three (oral) -- MMB to resume shipment of goods
on D/A 90 terms as of September 10, 1989.
The district court held that the parol evidence rule prevented
the two oral agreements being a defense to ABC's obligations under
the written payment agreement. It concluded that the written
agreement is an unambiguous "account restatement", and that nothing
in its four corners, or in the surrounding circumstances, indicates
the existence of collateral contingent agreements. The court
focused on the fact that the payment agreement did not refer to
supply, and contained meaningful consideration (extended payment
time); that, at the time of the summary judgment hearing (three
years later), ABC was unable to quantify with specificity MMB's
obligation to ship replacement goods; that MMB's letter denying D/A
90 terms did not refer to the payment agreement; and that Lian's
subsequent letters did not characterize ABC's obligation under the
payment agreement as contingent.8
8
We gleaned the foregoing findings from the district court's
colloquy with counsel during the summary judgment hearing; it did
not make findings of fact and conclusions of law. Although,
pursuant to Fed. R. Civ. P. 52(a), they "are unnecessary on
decisions of [summary judgment] motions", and our review of the
summary judgment record is de novo, we have often emphasized that
findings of fact and conclusions of law are "permissible and often
quite helpful for appellate review". Boazman v. Economics Lab.,
Inc., 537 F.2d 210, 213 n.5 (5th Cir. 1976); see also Wildbur v.
Arco Chem. Co., 974 F.2d 631, 644 (5th Cir. 1992) (stating that a
district court must "explain its reasons for granting a motion for
summary judgment in sufficient detail for us to determine whether
the court correctly applied the appropriate legal test");
Williamson v. Tucker, 645 F.2d 404, 411 (5th Cir.), cert. denied,
454 U.S. 897 (1981) (noting that "an explanation of the basis of
the district court's decision can be invaluable even in cases where
Rule 52(a) clearly does not require findings of fact"). As we
noted in Chandler v. City of Dallas, 958 F.2d 85, 89 (5th Cir.
1992) (bench trial), "the preparation of sufficiently complete
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Under Texas law,9 it is well settled that the parol evidence
rule generally bars enforcement of prior or contemporaneous
agreements introduced to vary, add to, or contradict terms of a
fully integrated written instrument. See, e.g., Tripp Village v.
MBank Lincoln Centre, 774 S.W.2d 746, 749 (Tex. App.-Dallas 1989,
no writ). "[A] written instrument presumes that all prior
agreements of the parties relating to the transaction have been
merged into the written instrument", Weinacht v. Phillips Coal Co.,
673 S.W.2d 677, 679 (Tex. App.-Dallas 1984, no writ); in other
words, written agreements are presumed to be completely integrated.
Jack H. Brown & Co. v. Toys "R" Us, Inc., 906 F.2d 169, 173 (5th
Cir. 1990) (citing Hubacek v. Ennis State Bank, 317 S.W.2d 30 (Tex.
1958)).10 As discussed below, although ABC may rebut this
conclusions of law augments our comprehension of the legal issues
on appeal". This is no less applicable where, as here, Rule 52(a)
does not require the court to make legal conclusions. Accordingly,
when a summary judgment is granted, we urge the district court to
provide findings of fact and conclusions of law.
9
We apply Texas law in this diversity action. Salve Regina
College v. Russell, ___ U.S. ___, 111 S. Ct. 1217 (1991). In its
complaint, and thereafter, MMB relied on Texas law. ABC maintains,
instead, that MMB's claim is governed by the United Nations
Convention on Contracts for the International Sale of Goods (Sale
of Goods Convention), codified at 15 U.S.C. Appendix (West Supp.
1993). MMB insists that Texas law controls. As noted in Filanto
S.p.A. v. Chilewich International Corp., 789 F. Supp. 1229, 1237
(S.D.N.Y. 1992), appeal dismissed, 984 F.2d 58 (2d Cir. 1993),
"there is as yet virtually no U.S. case law interpreting the Sale
of Goods Convention". We need not resolve this choice of law
issue, because our discussion is limited to application of the
parol evidence rule (which applies regardless), duress, and
fraudulent inducement; however, the district court may need to do
so on remand.
10
ABC urges that we apply the parol evidence rule applicable to
the sale of goods, which, unlike the common law, does not presume
that an apparently complete writing is a total integration. See
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presumption, id. at 174, it failed to do so. See id. (court
determines whether written instrument is complete).
1.
In support of its contention that the payment agreement is
incomplete, ABC notes evidence that it had previously complained
about the quality of goods; that it travelled to Beijing to sign
the payment agreement; that in discovery, MMB representatives
admitted that, during the August 1989 meetings in Beijing, Lian
discussed the issues of non-conforming and defective goods in past
shipments (albeit for a minimal amount of time and not with
specificity); and that the earlier referenced fax sent by MMB
shortly thereafter referred to ABC's request for D/A 90 terms in
the context of their negotiations in Beijing.
Although this evidence leads us to question why ABC signed the
payment agreement, we cannot say that it is incomplete. Underneath
the heading (as translated by ABC), "Agreement on installment
payments of overdue merchandise amount",11 the parties itemized the
Tex. Bus. & Com. Code Ann. § 2.202 comment 1 ("This section
definitely rejects: (a) Any assumption that because a writing has
been worked out which is final on some matters, it is to be taken
as including all the matters agreed upon"); Bob Robertson, Inc. v.
Webster, 679 S.W.2d 683, 688 (Tex. App.-Houston 1984, no writ).
Because the agreement, on its face, is limited to a payment
schedule for overdue invoices, and more closely resembles a
settlement agreement, as opposed to a sale of goods, we will apply
the parol evidence rule developed by Texas common law. Cf., Jack
H. Brown & Co., 906 F.2d at 170-173 (applying common law rule to
interpretation of settlement agreement concerning recovery of
damages for breach of contracts to purchase signs and mansards).
11
The parties disagree over the translation of the payment
agreement. MMB contends that the heading should read, in part,
"AGREEMENT ON SETTLING PAYMENT OVERDUE". (Emphasis added.)
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payment schedule, listing amounts due, invoice numbers, and revised
payment dates. And, the agreement in no way intimates the
existence of contingent extrinsic agreements regarding future
shipments of goods. Instead, it specifies that "[b]oth sides
participated in the negotiation, in a friendly manner, on the
problem of the amount overdue by the American Business Center, Inc.
to the Beijing Metals and Minerals Import and Export Corporation.
A unanimous agreement has been reached". (Emphasis added.) Even
accepting ABC's translation of the agreement, ABC's proof is not
sufficiently persuasive to convince us to ignore the clear language
of the written agreement. Compare Jack H. Brown Inc., 906 F.2d at
174 (agreement incomplete where parties admittedly made two
agreements not mentioned and where agreement was facially
incomplete). As this court recently stated:
Both the parol evidence rule and the doctrine of
integration exist so that parties may rely on the
enforcement of agreements that have been reduced to
writing. If it were not for these established
principles, even the most carefully considered
written documents could be destroyed by "proof" of
other agreements not included in the writing.
Id. at 176.
2.
In addition, the two alleged oral agreements are not
"collateral" to the written agreement. Evidence of a collateral
contemporaneous agreement "though it refer to the same subject
matter, and may affect the rights of the parties under the written
contract" may be proven if not inconsistent with the integrated
contract. Conner v. May, 444 S.W.2d 948, 952 (Tex. Civ. App.-
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Austin 1969, writ ref'd n.r.e.). To be collateral, the agreement
must be made for separate consideration, or "must be such as the
parties might naturally make separately and would not ordinarily be
expected to embody in the writing; and it must not be so clearly
connected with the principal transaction as to be part and parcel
thereof". Weinacht, 673 S.W.2d at 680. We examine the two claimed
oral agreements in turn.
First, ABC asserts that MMB conceded that ABC is entitled to
an offset of roughly $400,000 for defective and non-conforming
goods, and thus agreed to ship replacement goods. But, this
extrinsic evidence contradicts the payment agreement, which states
that "[t]he total amount which the American Business Center, Inc.
owed to the Beijing Metals and Minerals Import and Export
Corporation as a result of the D/A 90 day conditions, was U.S.
$1,225,997.78", and is therefore inadmissible. See Rincones v.
Windberg, 705 S.W.2d 846, 849 (Tex. App.-Austin 1986, no writ)
("the parol evidence rule prohibits the admission of oral evidence
which alters the payment terms of a written contract").
Second, ABC maintains that its obligation under the payment
schedule was contingent upon MMB's agreement to resume shipment on
D/A 90 day terms. We agree with ABC that this alleged oral
agreement, standing alone, is not inconsistent with the payment
terms stated in the written agreement, because it is silent as to
future sales. However, evidence of the oral agreement is
nonetheless inadmissible, because its contingent nature is
inconsistent with the unconditional language of the written
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agreement. Cf. Jack H. Brown & Co., 906 F.2d at 176 ("[w]here a
written release is unambiguous, any attempt to prove that the
release was signed in return for additional consideration not
mentioned in the release violates the parol evidence rule").
Moreover, we cannot conclude that a contingency of this nature
would naturally be made as a separate agreement. As our court
stated, when presented with a quite similar factual context in Jack
H. Brown & Co., 906 F.2d at 176:
It is implausible that Toys would have used
explicit, unconditional release language in
Markham's letter, while orally agreeing to make the
release contingent on some vague guarantee of
future business. Nor can we believe that the
alleged oral agreement is one that would be made
separately .... This court recognizes that even the
most sophisticated businessmen often deal with each
other informally and verbally, but in circumstances
such as these, even an unsophisticated businessman
... would either have protested the unconditional
release language or insisted on getting the alleged
oral agreement in writing.
Accordingly, we conclude, as did the district court, that ABC
is barred by the parol evidence rule from introducing extrinsic
evidence to alter the terms of the written agreement.12
B.
ABC asserts economic duress as a defense to its obligations
under the payment agreement, contending that MMB used political
unrest in China to convince Lian to sign it;13 and that MMB refused
12
Because the parol evidence rule bars evidence of both alleged
oral agreements, we need not address the statute of frauds issue.
13
In its answer, it pleaded only physical duress. Then, in
opposition to summary judgment, it asserted, for the first time,
economic duress (and criticized MMB for not addressing it in its
motion). At the summary judgment hearing, the court concluded that
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to reconcile the defective and non-conforming goods unless Lian
signed, thus leaving him with no choice but to do so or lose a
substantial amount of money.
Texas law is well-settled that there can be no duress unless:
"(1) there is a threat to do something which a party threatening
has no legal right to do; (2) there is some illegal exaction or
some fraud or deception; and (3) the restraint is imminent and such
as to destroy free agency without present means of protection".
Deer Creek Ltd. v. North Am. Mortgage Co., 792 S.W.2d 198, 203
(Tex. App.-Dallas 1990, no writ). Additionally, the opposing party
must be responsible for the financial distress. Id.
We conclude that ABC failed to establish a material fact issue
on every element of the defense. Specifically, it failed to
provide probative evidence indicating it lacked a reasonable
alternative to signing the agreement. According to ABC, if Lian
did not sign, it would be forced to accept defective and non-
conforming goods, driving it into financial ruin. In so stating,
it wholly ignores the availability of pursuing its remedies under
Tex. Bus. & Com. Code Ann., §§ 2.711 - 2.717, or, if applicable,
the Sale of Goods Convention (articles 46-52). Aside from a
general reference to "cash flow problems", and a reference to the
difficulty and expense of cover, there is no evidence in the
summary judgment record to indicate that ABC could not pursue its
legal remedies. The above conclusory statements are insufficient
to establish a material fact issue.
there was neither. On appeal, ABC raises only economic duress.
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Therefore, we conclude that ABC failed to establish economic
duress. See Palmer Barge Line, Inc. v. Southern Petroleum Trading
Co., 776 F.2d 502, 505 (5th Cir. 1985) ("the failure or refusal to
pay a contractual debt, without more, is insufficient to establish
economic duress"); Hurt v. Standard Oil Co., 444 S.W.2d 342, 347
(Tex. Civ. App.-El Paso 1969, no writ) (no duress where employee
could have instituted suit rather than accept listed early
retirement benefits).
C.
ABC asserts that the payment agreement is not enforceable
because it was fraudulently induced by MMB's materially false
representations that it would ship merchandise on D/A 90 terms and
ship replacement goods. Of course, parol evidence is admissible to
prove fraudulent inducement. See Zoeller v. Howard Gardiner, Inc.,
585 S.W.2d 920, 922-923 (Tex. Civ. App.-Amarillo 1979, writ ref'd
n.r.e.) (internal quotation omitted) ("When the issue of fraud is
raised .... [a]ll facts and circumstances leading up to and
connected with the transaction are, ordinarily, admissible").
The elements for actionable fraud under Texas law are: (1) a
material representation was made; (2) it was false when made; (3)
the speaker knew it was false, or made it recklessly without
knowledge of its truth and as a positive assertion; (4) the speaker
made it with the intent that it should be acted upon; and (5) the
party acted in reliance and suffered injury as a result. Cocke v.
Meridian Sav. Ass'n., 778 S.W.2d 516, 520 (Tex. App.-Corpus Christi
1989, no writ). Of critical importance here is that a promise to
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do an act in the future is not fraud, unless it is made with the
intent not to perform. M.J. Sheridan & Sons Co. v. Seminole
Pipeline Co., 731 S.W.2d 620, 624 (Tex. App.-Houston 1987, no
writ).
ABC contends that Lian's affidavit and MMB's actions
immediately following consummation of the agreement create material
fact issues on all the elements for fraudulent inducement. We
agree. Lian's affidavit, with all reasonable inferences in his
favor, establishes that MMB representatives promised that it would
ship replacement goods to make up for defective and non-conforming
goods and would promptly begin shipping merchandise on D/A 90
terms; that these representations were false; that MMB made them
with the intent that they would be acted upon; and that they
induced Lian to sign the agreement to his detriment. The difficult
question is whether the summary judgment record reflects material
fact issues on whether MMB made representations with the intent not
to perform, and whether ABC justifiably relied on MMB's
representations. We examine these issues in turn.
1.
Intent not to perform a promise at the time it was made may be
shown by circumstantial evidence, including the subsequent conduct
of the promisor. Pulchny v. Pulchny, 555 S.W.2d 543, 545 (Tex.
Civ. App.-Corpus Christi 1977, no writ). Needless to say,
"[i]ntent is a fact question uniquely within the realm of the trier
of fact because it so depends upon the credibility of the witnesses
and the weight to be given to their testimony" Spoljaric v.
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Percival Tours, Inc., 708 S.W.2d 432, 434 (Tex. 1986); thus,
"[s]ummary judgment is rarely proper". Taylor v. Bonilla, 801
S.W.2d 553, 557 (Tex. App. 1990, writ denied). Although the
failure to perform, standing alone, does not establish the issue of
fraudulent intent, "[s]light circumstantial evidence of fraud, when
considered with the breach of promise to perform, is sufficient to
support a finding of fraudulent intent". Spoljaric, 708 F.2d at
435 (internal quotations omitted).
The summary judgment record contains admissible evidence,
which, with all reasonable inferences in ABC's favor, establishes
that ABC had objected to the goods as defective and non-conforming;
that Lian travelled to Beijing to meet with MMB representatives;
that MMB agreed to resume shipments on D/A 90 terms and replace
defective and non-conforming goods, but stated they could not put
the agreements in writing because "some people could go to jail";
that, as a result, Lian, signed the payment agreement; and that,
almost immediately upon consummation of that written agreement, MMB
repudiated its promise, stating that the bank refused to agree to
D/A 90 terms without a letter of credit (which would require Lian
to procure a commitment from his bank to pay a draft drawn by
MMB).14 We conclude that the above evidence, particularly MMB's
refusal to put the agreements in writing, followed almost
immediately by its repudiation of one of them, creates a material
fact issue on MMB's intent to perform.
14
Needless to say, sellers prefer a letter of credit over D/A
terms, in part, because banks generally are far more solvent than
buyers.
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2.
In addition, we conclude that a material fact issue exists
regarding Lian's justifiable reliance. In order to establish
fraud, ABC must show that its reliance on MMB's representations was
justifiable as well as actual. Haralson v. E.F. Hutton Group,
Inc., 919 F.2d 1014, 1025 (5th Cir. 1990) (applying Texas law),
modified on other grounds, 1991 U.S. App. LEXIS 1029 (Jan. 25,
1991). "``Justifiable reliance' represents a lesser burden on fraud
plaintiffs than what ``reasonable reliance' might imply". Id.
(internal citations and quotations omitted). To determine
"justifiable reliance", courts inquire whether, "given a fraud
plaintiff's individual characteristics, abilities, and appreciation
of facts and circumstances at or before the time of the alleged
fraud -- it is extremely unlikely that there is actual reliance on
the plaintiff's part". Id. at 1026; see General Motors Corp.,
Pontiac Motor Div. v. Courtesy Pontiac, Inc., 538 S.W.2d 3, 6 (Tex.
Civ. App.-Tyler 1976, no writ) (quoted in Haralson, 919 F.2d at
1026) (internal quotation omitted) (plaintiff may not justifiably
rely on "representations which any [person of normal intelligence,
experience, and education] would recognize at once as preposterous
... or which are shown by facts within his observation to be so
patently and obviously false that he must have closed his eyes to
avoid discovery of the truth").
MMB maintains that the summary judgment record reflects that
Lian's reliance was not justified because, in his deposition, he
admitted that he knew that the MMB representatives had no authority
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to bind MMB, and, that approval from both the Chinese bank and the
MMB controller was a condition precedent to future shipments.15 We
15
The testimony reads as follows:
Q: And so you knew that before there would
be any agreement for shipping that [MMB
representatives] Mr. Yong, Mr. Jiang or Mr. Li
would have to go to the bank first?
A: In my best knowledge, yes, they told me
that they would show this and they were [sic] act
right away.
[COUNSEL]: Did you understand that? Could you
repeat?
Q: But you did know that they would have to
go to their superiors before any kind of new
shipping terms could be arranged?
A: In my best knowledge is like this: They
know better about the regulation they have there
and doing like this way, everything going to be,
you know, just go smoothly and can be active right
away.
Q: But you mentioned earlier they said they
would have to go to their superiors and also to the
bank; is that right?
A: Whatever the merchandise coming out, the
document need to go through the a bank and that's
why they need to show the -- show bank something
like, well like case is like this, you know, it's
not a problem, so, you know, they can go through
the paperwork again.
Q: But you knew the bank would have to give
its approval first?
[COUNSEL]: Did you know that?
Q: In my best knowledge is they need to go
talk to the bank and controller in the company,
yes. That's my best knowledge.
A: And so in order to have a written
document that would show the future shipping terms,
you would have had to have gone to either the bank
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disagree. The testimony is arguably consistent with Lian's
affidavit, in which he stated that MMB representatives told him
that the written payment agreement was needed "only for purposes of
appeasing the bank and the controller", and that both would allow
MMB to ship goods to ABC on the agreed terms. According to Lian,
he "would not have signed the Agreement had he known that MMB did
not have the intention or the ability to perform their part of the
bargain" (emphasis added).
In addition, we disagree with MMB's contention that it was
obvious that its representatives had authority to bind ABC as to
the payment schedule, but not as to agreements on future sales.
None of the prior written agreements regarding future business
listed the bank or the controller as a party, or specified that the
terms were subject to approval. Moreover, the actual authority of
MMB representatives was peculiarly within their knowledge. Cf.
Trenholm v. Ratcliff, 646 S.W.2d 927, 930 (Tex. 1983) (pure
expressions of opinion are actionable "where the speaker purports
to have special knowledge of facts that will occur or exist in the
future").
In sum, because ABC established material fact issues on every
element for fraudulent inducement, the district court erred in
disposing of this issue by summary judgment.
or the controller, to your understanding?
A: In my understanding is like this: This
is their internal procedure. Okay....
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D.
ABC asserted defenses and counterclaims based on defective and
non-conforming goods and short shipments, including breach of
express and implied warranties, breach of MMB's and ABC's
underlying contract, and violation of the DTPA. The court
concluded that the payment agreement constituted a novation,
precluding ABC's objections to the goods. Because there are
material fact issues on the enforceability of that agreement, we
conclude that ABC's defenses and counterclaims that pertain to the
quality and quantity of goods received were prematurely dismissed.
Simply put, if the payment agreement was fraudulently induced, it
is not enforceable, and the parties are restored to their prior
positions on the underlying contract(s), to include defenses to the
amount owed on the outstanding invoices.
III.
For the foregoing reasons, the summary judgment as to
fraudulent inducement and to claims or defenses pertaining to the
quality and quantity of goods received is REVERSED; the judgment in
all other respects is AFFIRMED; and this severed claim is REMANDED
for further proceedings consistent with this opinion, to include,
as to the payment agreement, extrinsic evidence not being
admissible to alter its terms, but being admissible on whether it
was fraudulently induced.
AFFIRMED in Part, REVERSED in Part, and REMANDED.
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