Hart Properties, Inc. and Michael J. Hart v. Page Graves

Hart v Graves IN THE COURT OF APPEALS, THIRD DISTRICT OF TEXAS,

AT AUSTIN









NO. 3-92-150-CV





HART PROPERTIES, INC. AND MICHAEL J. HART,

APPELLANTS

vs.





PAGE GRAVES,

APPELLEE

FROM THE DISTRICT COURT OF TRAVIS COUNTY, 299TH JUDICIAL DISTRICT

NO. 91-12711, HONORABLE JOE B. DIBRELL, JUDGE PRESIDING

Appellants Hart Properties, Inc., and Michael J. Hart appeal the rendition of a summary judgment in favor of appellee Page Graves on a promissory note and guaranty agreement. We will reverse the trial court judgment.

Hart Properties purchased Galtronics, Inc., a wholesale electronic parts distribution business. As part of the purchase, Hart Properties executed a promissory note in the principal amount of $125,364.54, and Michael J. Hart executed a guaranty agreement. Page Graves, president and principal shareholder of Galtronics, became the owner and holder of the promissory note and the guaranty agreement. After Hart Properties ceased making payments on the note, Graves brought suit to collect the balance due. The trial court rendered summary judgment for Graves in the amount of $85,269.81.

Appellants' single point of error complains that summary judgment was improper because the record reflects a material fact issue regarding their defense of fraud in their inducment. In their amended answer and response to Graves's motion for summary judgment, appellants raised this defense and claimed they were entitled to an offset of at least $50,000.00. They alleged that Graves induced them to enter the transaction by misrepresenting as "very small" the percentage of Galtronics's accounts that were reserved for minority-owned or female-owned businesses ("set-asides"). Because Hart Properties is neither minority-owned nor female-owned, appellants alleged the company was unable to retain approximately fifty percent of the accounts purchased from Galtronics.

The movant for summary judgment has the burden of showing that there is no genuine issue of material fact and that it is entitled to judgment as a matter of law. Nixon v. Mr. Property Management Co., 690 S.W.2d 546, 548 (Tex. 1985). In deciding whether there is a disputed material fact issue precluding summary judgment, we must take as true all evidence favoring the non-movant and indulge every reasonable inference and resolve every doubt in favor of the non-movant. Id. at 548-49. A party who successfully relies on an affirmative defense to oppose a summary judgment must come forward with summary judgment proof sufficient to raise a fact issue on each element of the defense. Seale v. Nichols, 505 S.W.2d 251, 254 (Tex. 1974).

PAROL EVIDENCE RULE

In reply to appellants' point of error, Graves first argues that the parol evidence rule bars consideration of extrinsic evidence to contradict or modify a negotiable instrument. A showing of fraud in the inducement, however, provides an exception to the rule. Cocke v. Meridian Sav. Ass'n, 778 S.W.2d 516, 518 (Tex. App.--Corpus Christi 1989, no writ); see also Town N. Nat'l Bank v. Broaddus, 569 S.W.2d 489, 492 (Tex. 1978). In the context of suits based on promissory notes, a showing of trickery, artifice, or device, beyond a mere statement by the payee that the maker would not be liable, is necessary to overcome the parol evidence rule. Broaddus, 569 S.W.2d at 494; Wooldridge v. Groos Nat'l Bank, 603 S.W.2d 335, 342 (Tex. Civ. App.--Waco 1980, no writ).

Graves argues that appellants have failed to show evidence of trickery, artifice, or device sufficient to overcome the parol evidence rule. We disagree. The cases relied upon by Graves are distinguishable from the case at hand. In Litton v. Hanley, 823 S.W.2d 428, 430 (Tex. App.--Houston [1st Dist.] 1992, no writ), a businessman executed a promissory note to his partner to buy his partner's ownership in their restaurant. After the maker of the note failed to make any payments, the payee brought suit. Id. at 429. The maker argued that he had been induced into signing the note by the payee's promise that he would not be liable on the note unless the business succeeded. Id. The court of appeals held that the trial court erred in allowing evidence of the promise because the maker did not prove any evidence of trickery, artifice, or device in addition to the payee's promise that the maker would not be liable. Id. at 431.

Similarly, the defendant in Cocke, 778 S.W.2d at 519, failed to show evidence of trickery that would support an exception to the parol evidence rule. In Cocke, the maker claimed that he had been tricked into signing the note because a third party had told him that a subsequent loan, which was never obtained, would pay and satisfy his loan. While the summary judgment record raised a fact issue regarding the parties' expectations to obtain a subsequent loan to pay off the Cocke loan, it did not show evidence of trickery, artifice, or device on the part of the payee. Id.

Here, however, Hart's affidavit goes beyond a mere statement that the maker might not be called upon to pay the note. Hart's affidavit stating that Graves affirmatively misrepresented the percentage of Galtronics's accounts subject to set-asides is some proof of intentional deception sufficient to defeat the parol evidence rule. Thus, Graves failed to prove she was entitled to judgment in the amount claimed as a matter of law.

AFFIRMATIVE DEFENSE

Appellants were required to come forward with proof in support of their affirmative defense. Seale, 505 S.W.2d at 254. The elements of fraud are:

1. a material misrepresentation was made;

2. it was false;

3. the speaker knew it was false when made;

4. the speaker intended that it should be acted upon by the party;

5. the party actually relied on the statement; and

6. the party suffered injury.

Trenholm v. Ratcliff, 646 S.W.2d 927, 930 (Tex. 1983); Cocke, 778 S.W.2d at 520.

Graves argues that appellants failed to present evidence that Graves knew that the set-asides were larger than she had represented. Hart's affidavit contains proof of three circumstances indicating that Graves knew the representations were false when made:

1) As the president and principal shareholder in Galtronics, it is unlikely that Graves would be unaware of any aspect of her business as significant as the extent of her set-aside contracts;

2) Graves was personally involved in the negotiations; no agent of the corporation made the representations without her knowledge;

3) The sheer size of the discrepancy between what she allegedly said was the percentage of minority set-asides ("very small") and what was ultimately found ("approximately 50%") dispels any notion that she was innocently mistaken in her estimate.

We agree that these circumstances, if true, create a fact issue concerning Graves's knowledge about her representation.

Graves also contends that appellants failed to present evidence of materiality. "Materiality" means that the misrepresentation induced the complaining party to act. Manges v. Astra Bar, Inc., 596 S.W.2d 605, 611 (Tex. Civ. App.--Corpus Christi 1980, writ ref'd n.r.e.). Hart stated that many corporate purchasers of electronic equipment set aside contracts for minority-owned and female-owned businesses. Knowing this, he asked Graves in advance about her company's set-asides because "this was important." These allegations create a fact issue regarding the importance of the set-asides to the bargain entered.

Next, Graves contends that appellants provided no evidence that she intended them to rely on her representation. Intent is a fact question uniquely within the realm of the trier of fact because it depends upon the credibility of the witnesses and the weight to be given to their testimony. Spoljaric v. Percival Tours, Inc., 708 S.W.2d 432, 434 (Tex. 1986). Since intent to defraud is not susceptible of direct proof, it invariably must be proven by circumstantial evidence. Id. at 435.

Graves insists that direct testimony is required to show a purposeful state of mind, citing no authority for such a proposition. Under her view, no party attempting to raise fraud as a defense to summary judgment could succeed, as no oral testimony is allowed at this stage. Tex. R. Civ. P. 166a(c). Furthermore, summary judgment seldom is proper when the issues are inherently those for a jury or trial judge, as in cases involving intent, reliance, reasonable care, uncertainty, and the like. Hilton v. Texas Inv. Bank, N.A., 650 S.W.2d 545, 547 (Tex. App.--Houston [14th Dist.] 1983, no writ).

Hart states in his affidavit that Graves falsely responded to a direct question from Hart about set-asides. As a female owner in the electronics industry, she presumably would have known of the importance of this question and that Hart would rely upon her answer, as he would be ineligible for set-aside contracts. A fact issue exists on the question of her intent to cause reliance.

Finally, Graves contends that her statement about the set-asides was merely a collateral promise and therefore appellants cannot avoid the parol evidence rule. Her statement, however, was not a promise; it was a representation in answer to a specific question from Hart. Neither was it "collateral," as Hart's affidavit provides some evidence tending to show fraud in the inducement of the bargain.

Whether fraud can be proven on the merits, the summary judgment record including Hart's affidavit contains evidence sufficient to raise the affirmative defense of fraud in the inducement. Indeed, it is the only evidence in the record regarding the conversation between Hart and Graves. Because material fact questions remain at issue, we sustain Hart's point of error, reverse the summary judgment, and remand the case to the district court for trial.

Marilyn Aboussie, Justice

[Before Justices Powers, Aboussie and B. A. Smith]

Reversed and Remanded

Filed: October 14, 1992

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