J. I. Case Threshing Machine Co. v. McKay, 161 N.C. 584 (1913)

April 2, 1913 · Supreme Court of North Carolina
161 N.C. 584


(Filed 2 April, 1913.)

1. Written Contracts — False Warranty — Fraud—Parol Evidence.

The defense of false warrant}"- in a written contract of sale requires that the party relying thereon, being bound by’ the terms of the warranty, must have complied with them in order to ■ recover; but this principle does not obtain where the contract itself is attacked for fraud in the procurement, for if the fraud is established, the contract is void, and hence parol evidence is admissible to establish the fraud, and is not restricted by the written words of the contract, under the principle that they may not be varied by parol.

2. Same — Principal and Agent.

Where in a written cbntract of sale of goods made by an agent there is a provision limiting the authority of the agent to make representations respecting the goods, and the defense is established by the purchaser that the contract itself was obtained by the agent’s fraud, the principal is bound by the representations made by the agent, though contradictory of the writing.

3. Written Contract — Fraud—Parol Evidence — Burden of fcroof.

Where the purchaser of goods seeks to avoid a contract of sale made by the agent of the seller, for fraud of the agent in procuring the contract, he must show (1) that the representations relied on were made by the agent; (2) that the agent knew they were untrue, and made them with intent to deceive; (3) and that he acted in reliance thereon in making the purchase.

4. Same — Principal and Agent — Evidence, Sufficient.

Upon the question of fraud in procuring the sale of a traction engine by plaintiff’s agent from the defendant, there was evidence in behalf of the defendant tending, to show that the agent represented that the engine would haul a certain amount of lumber a day; that it would decrease the cast of defendant in hauling his lumber; that the engine was constantly breaking down and would not haul the quantity of lumber as represented by the agent that it would; that the agent knew that his representations were 'false, as evidenced by his saying the engine was worn out before it was delivered; and it is Held, that the evidence was sufficient to be submitted to the jury upon the question of plaintiff’s fraud, which, if the jury found to be true, would vitiate the written contract of sale.

*5855. Same — Acceptance—Plea in Bar.

Where a contract for tlie sale of a traction engine has been procured by fraudulent representations which vitiate the contract of sale, and it appears that the purchaser, before he has had opportunity to, test the engine, was induced by the agent of the seller to accept it and make a payment thereon, under the assurance that the contract would not bind him if the engine was not as represented, the acceptance, under such conditions, does not bar the purchaser of his defense in an action by the seller to recover the contract price.

6. Same — Fraud and Mistake — “Satisfaction Slip.”

Where the purchaser of a traction engine has established fraud in the procurement of the contract of sale sufficient to vitiate the contract, and has been induced to accept the engine, make a payment on the purchase price and give his notes for the balance thereof upon the false assurance of the seller’s agents that it would accomplish certain purposes for which it was bought, and there is evidence that the purchaser signed what is called a “satisfaction slip*’ at the time he signed the notes, reasonably mistaking it for one of the notes, and in an action to recover upon the notes this “satisfaction slip” is relied on as a bar to the defense of fraud, and there is further evidence that the purchaser, as soon as he reasonably could find out that the engine was not as represented, notified the seller thereof and held the engine subject to his disposition, it is Held that it was for the jury to decide whether or not the defendant signed the “satisfaction slip” under a mistake, and if he did it would not bar his right of rescission upon the ground of fraud in the purchase; and Held further, that the “satisfaction slip” relied on in this case only amounted to an expression that the defendant was pleased with his purchase before he reasonably could have discovered its worthless character.

Appeal by plaintiff from' Webb, J., at September Term, 1912, of RobesoN.

Civil action. Tbe following issues were submitted:

1. Did tbe defendant execute tbe contract, notes, and mortgages alleged in tbe complaint? Answer: Tes.

2. Did tbe defendant accept tbe engine and fixtures after demonstration and inspection of same by bim, as alleged in tbe complaint? Answer: No.

3. Were tbe said notes, contract, and mortgage procured from defendant by false and fraudulent representations of tbe plaintiff’s agent, as alleged in tbe answer? Answer: Yes.

*5864. Is tbe defendant indebted to tbe plaintiff, and if so, in wbat amount? Answer: Nothing.

5. In wbat amount, if anything, is tbe plaintiff indebted to tbe defendant on account of money paid on. tbe machinery to tbe plaintiff by tbe defendant? Answer: $500, with interest.

6. In wbat amount, if anything, is plaintiff indebted to tbe defendant for expenses incurred in tbe endeavor to operate tbe machinery and other expenses incurred in connection'with said machinery, as alleged in tbe counterclaim of defendant as set forth in tbe answer? Answer: $231.

From tbe judgment rendered, tbe plaintiff appealed.

W. D. Turner, Dorman Thompson for plaintiff.

MacLean, Varser & MacLean, McIntyre, Lawrence & Proctor for defendant.

BbowN, J.

This action is brought to recover on notes of defendant aggregating $1,714, given for tbe purchase of a traction engine sold to defendant by plaintiff’s agent, one Crutch-field.

Tbe defendant for answer sets up two defenses: First, that tbe plaintiff warranted tbe quality and suitableness of tbe engine for tbe purposes intended, and avers a breach of said warranty; second, that defendant was induced to enter into said contract by reason of tbe false and fraudulent representations of Crutchfield, tbe selling agent of plaintiff.

Tbe defendant appears to have relied solely upon tbe last named defense, and as no issue was. submitted upon tbe question of false warranty, we will not consider that aspect of tbe case.

There is this difference: A party relying upon a written warranty of quality in tbe sale of personal property is bound by tbe terms of tbe warranty, and must comply with them in order to recover. Piano Co. v. Kennedy, 152 N. C., 196. Whereas tbe defense of fraudulent representations, whereby one is induced to enter into a contract, is not founded on tbe contract, but, when established, vitiates and destroys it, and tbe restrict*587ive stipulations contained in the contract fall with. it. For this reason the contention of the plaintiff that much of the evidence tends to vary the written contract cannot be sustained.

The case of Etheridge v. Palin, 72 N. C., 216, has no application. In that case the attempt was to vary the contract of warranty.

The defense of fraud does not change the contract, but nullifies it, and is competent for that purpose, as held in Tyson v. Jones, 150 N. C., 181; Whitehurst v. Insurance Co., 149 N. C., 273.

In Tyson v. Jones it was held that false and fraudulent representations sufficient to avoid a written contract may be shown by parol as a defense in an action for damages alleged to have been sustained by its breach, as such does not tend to vary or contradict the writing, but to render the entire instrument void.

To same effect, Bank v. Chase, 151 N. C., 108; Basnight v. Jobbing Co., 148 N. C., 350; Gwaltney v. Insurance Co., 132 N. C., 928; Insurance Co. v. Knight, 160 N. C., 592.

It is contended that the contract contains a clause limiting the authority of the selling agent, and that McKay, being able to read, is fixed with knowledge of such clause.

This position might be well taken if the defense was based upon the contract, but it is well settled that a clause in a sale contract exempting the seller from liability for its agent’s representations at variance with the contract, does.not protect the seller where the contract was void by reason of the agent’s fraud. Machine Co. v. Bullock, ante, 1.

In Unitype Co. v. Ashcraft, 155 N. C., 63, it was said: “The declarations made by the agent were made by him ckum, fervet opus, and his principal must be considered as bound by them as much so as if it had made them itself.”

As said in Peebles v. Guano Co., 77 N. C., 233, “A corporation can only act through its agents, and must be responsible for their acts. If a manufacturing corporation is not responsible for the false and fraudulent representations of its agents, those who deal with it will be practically without redress, and the corporation can commit fraud with impunity.” Manufac *588 turing Co. v. Davis, 147 N. C., 267; Food Co. v. Elliott, 151 N. C., 393; Manufacturing Co. v. Feezer, 152 N. C., 516.

Several prayers for instruction bring up for review the sufficiency of the evidence of fraud.

To justify a finding for the defendant upon the third issue, relating to the fraudulent representations of Crutchfield, the agent of plaintiff, the evidence must tend to prove: (1) That the representations were made; (2) that the agent knew they were untrue, and'made them with intent to deceive; (3) that the defendant acted in reliance thereon in purchasing the engine.

We think there is sufficient evidence to be submitted to the jury upon each of these three elements of fraud.

The representations are established not only by the evidence of the defendant, but by that of Crutchfield himself, who testified as follows:

“I was salesman and expert for company; went around selling machines; it was usual to demonstrate their qualities; McKay told me he wanted an engine to haul lumber, and showed me road and said he wanted to haul from 4,000 to 5,000 feet at a load and make two trips a day; if he could get an engine that would do that, he wanted it. He said it cost him $1.50 to haul with wagons, and wanted engine to reduce cost.

“I told McKay I thought that engine could haul 5,000 feet and make two trips per day. I told him this more than once. I told him that it would haul from 4,000 to 5,000 feet and make two trips per day under ordinary conditions of weather and roads, if he would make improvements on road. I thought engine would do what he wanted it to do. I told him so. The only thing he told me he wanted to do was to reduce hauling expenses. After it would not work, we talked about it, and I told him T thought it would do it.”

The defendant testified: “I told him I would buy an engine if it would reduce the cost of hauling sufficient to justify it; told him it was costing me $1.50 per thousand; showed him the road; he told me if I bought this engine I could reduce cost considerably; that it would not cost more than $4 per day to operate it and could make two trips a day and easily carry *5895,000 feet at a trip. ... I would not have bought the engine but for those representations. I told Crutchfield repeatedly that I would have to rely upon what he said about it. I had had no experience in operating traction engines. . . . lie said he guaranteed that it would haul 10,000 feet a day and .make two trips per day and would improve the road in running over it.”

B. F. Faircloth testified: “Crutchfield said to McKay he could haul two trips and make 5,000 feet a trip in one day.”

Jasper Bullock testified: “Crutchfield told him he would guarantee it would give satisfaction; that it would make two trips and haul 5,000 feet in a day; that he would guarantee it.”

R. T. Cobb testified: “Crutchfield said it would haul 5,000 feet and make two loads a day. He said he would guarantee it, and if it did not, it was not McKay’s engine.”

D. F. Hester testified: “McKay told Crutchfield he wanted an engine that would haul 5,000 feet at a load and make two loads a day. Crutchfield said that the engine would do that; that he would guarantee it.”

D. F. McCormick testified: “Heard Crutchfield say damned old thing was worn out before it came here; ought to have been on scrap pile.”

There is abundant evidence tending to prove the falsity of Crutchfield’s declarations; that the engine utterly failed to come up to the representations; that although handled by men pronounced competent by the agent himself, and although the road was properly repaired and weather was good, it never averaged even one trip a day or even 1,500 feet of lumber. Instead of decreasing the cost below $1.50 per thousand, it increased the cost to $10.44 per thousand, not counting the cost of the engine.

In addition to this, in hauling 20 loads, it constantly broke down; the hubs broke; several spokes came out; cog gearing slipped and broke; clutch broke; gearing broke, etc. McKay spent over $150 in repairs in trying to operate it. It was never made to work, and after faithful trial was abandoned and plaintiff was notified to remove it.

*590That Crutchfield knew of tbe worthless character of the engine before he shipped it to defendant is shown by his statement to McCormick, quoted above.

The plaintiff further contends that the defendant accepted the engine after demonstration by Crutchfield, and that such • acceptance is a bar to his defense.

The plaintiff’s evidence tends to prove that after Crutchfield had demonstrated the engine five days, the defendant then signed the written contract, Exhibit “A,” paid Crutchfield $500 in cash and signed the notes and mortgage. At same time McKay also signed the “satisfaction slip” reading as follows:

Hamer, S. O., 11 April, 1906.

J. I. Case Thkéshing Machine Company,

Racine, Wis.

G-ent-Lemen: — Your Mr. J. T. Crutchfield has rendered us the desired assistance in operating the machinery recently purchased from you, and we are well pleased with the same. Engine No. 16013. J. W. McKay.

The defendant’s evidence tends to prove that the engine was operated three days before contract was signed. It did not come up to representations. It was admitted that it rained constantly during that time; that the roads had not been repaired and were in very bad condition. Plaintiff’s agent had to leave, and insisted that the contract be signed. Defendant refused to do so. The agent then assured , defendant that the failure of engine to come up to representations was due to the weather and roads, and guaranteed that it would come up to representations in good weather when the road had been repaired.

He further agreed that if it did not do so, the contract and notes should be returned to defendant and the trade canceled. Defendant told the agent he had no way of knowing what it would do, but that he would sign the contract upon the guarantee that if, in good weather and after repairing the roads, the engine failed to come up to ' specifications, the notes and contract were to be returned to him and the trade canceled.

*591We do not tbink tbe court would bave been justified in bold-ing as matter of law tbat there was a final and unconditional acceptance of tbe engine after examination by defendant himself.

Defendant testified tbat be told plaintiff’s agent wben be signed tbe notes and slip tbat be knew notbing about tbat character of engines, and tbat be relied upon bis representations and judgment.

According to defendant’s version of tbe matter, if he accepted tbe engine, be did it relying upon Crutchfield’s representations, and not upon bis own examination.

But even if defendant was under obligations to make an examination for himself before signing tbe contract, plaintiff cannot set up bis failure to do so in excuse of tbe fraud of its agent. Machine Co. v. Bullock, ante, 1.

See also Griffin v. Lumber Co., 140 N. C., 514; Hill v. Brower, 76 N. C., 125; Leonard v. Power Co., 155 N. C., 15.

As to tbe “satisfaction slip,” tbe contention of plaintiff tbat tbe signing of it bars defendant’s defense cannot be maintained.

There was evidence tbat this slip was of same size and character as tbe notes; tbat they were spread out on a table shingle fashion; tbat defendant was told there were the notes, and be signed under this apprehension.

His Honor submitted this to tbe jury under instructions tbat if defendant knew wbat be was signing be was bound thereby; but tbat if, upon tbe contrary, be signed tbe paper under a belief tbat it was a note, then be would not be bound thereby.

We do not tbink tbe plaintiff can justly complain of bis Honor’s ruling in respect to this so-called “satisfaction slip.” In our opinion, it amounts to notbing more than an expression tbat tbe defendant was pleased with the engine at tbat time, only a few days after its arrival. He bad not then discovered its worthless character, and tbat, as Crutchfield told McCormick, “It ought to bave been on tbe scrap pile.”

It is contended tbat defendant retained tbe engine and tried to work it for such a length of time as precludes him from rescinding tbe contract upon any ground.

*592It was in evidence that as Soon as defendant ascertained the engine would not haul the quantity of lumber represented, even after the road was repaired and the weather cleared off, he at once wrote the company. They sent a man to put it in shape. This effort failed.

The defendant then (as suggested by plaintiff) ordered certain new parts and renewed the attempt to make it operate successfully. This' being a failure, plaintiff’s agent invited defendant to Greensboro for a conference.

As long as a year after the execution of the notes, defendant agreed to pay them, provided the engine could be made to come up to representations.

When he finally ascertained that it was absolutely impossible to make the engine perform the services, he put it aside ■and has not used it since.

He made in all not more than twenty trips with it. He tendered it back promptly to plaintiff. Defendant, having retained the engine under these circumstances, at the request of plaintiff, trying to make it perform the service it was represented as capable of performing, is not barred from asserting his right of rescission upon the ground of fraud in the purchase.

There are fifty-four assignments of error in this record. We have examined them and find them to be without merit. We content ourselves with reviewing the salient points of the case.

No error.