Opinion
Filed 28 April, 1965.
1. Evidence 27 — All prior and contemporaneous negotiations will be presumed to be merged in the written contract, and evidence of such parol negotiations is incompetent to vary or contradict the terms of the writing.
2. Same; Fraud 10 — Parol evidence to show that a written contract was procured by fraud is competent and does not come within the purview of the rule that parol evidence is not competent to vary or contradict the terms of a writing, since the evidence of fraud does not challenge the accuracy of the terms of the writing but the validity of the writing itself.
3. Fraud 10 — Mere reference in a contract to source of information cannot preclude as a matter of law right to rely upon representation. Provisions in a contract for the sale of realty that the property was to be conveyed "subject to such conditions, reservations and restrictions as appear in the instruments constituting the chain of title", held not to preclude the contention that the seller's agent made a fraudulent representation that the only business restrictions binding on the property were zoning regulations of the municipality restricting its use to office and institutional use, since the contract does not specify what restrictions should apply but merely refers to the source from which information could be had as to what restrictions were applicable, and therefore the contract and the representation do not deal with precisely the same matter within the provisions of the parol evidence rule.
4. Fraud 5 — Whether the purchaser of realty has the right to rely upon the representation of the seller's agent that the only business restrictions applicable to the property were municipal zoning regulations limiting it to office and institutional use, without investigating the chain of title which would disclose that the property was subject to residential restrictions, must be determined upon the facts upon the basis of whether the representation was of such character as to induce a person of ordinary prudence to rely thereon, and ordinarily the question may not be determined on demurrer prior to the introduction of evidence.
5. Fraud 8 — Allegations that the purchaser desired to purchase property for business purposes, that the seller's agent knew or pretended to know what restrictions on the use of the property were applicable, and for the purpose of inducing the purchase, represented that the only restrictions were zoning regulations restricting use of the property to office and institutional purposes, and that the purchaser executed the contract of purchase in reliance upon such representation, which was material and false in fact, held sufficient to allege all the elements essential to constitute actionable fraud.
6. Pleadings 2 — A pleading should allege the ultimate and not the evidentiary facts.
7. Pleadings 12 — A demurrer admits for its purposes the truth of the facts well pleaded.
8. Pleadings 19 — A pleading will be liberally construed upon demurrer, and where the facts pleaded include all of the essential elements of the purported cause of action, the courts are not permitted to draw inferences contrary thereto.
APPEAL by defendant Southern Appliances, Inc., from Patton, J., January 4, 1965, "D" Non-jury Session of MECKLENBURG.
Ray Rankin for plaintiffs.
Ervin, Horack, Snepp McCartha for defendants.
BOBBITT, J., concurring.
HIGGINS, J., dissenting.
RODMAN, J., dissenting.
Action for specific performance of contract for the purchase of land.
The complaint alleges: On 16 January 1964 plaintiff J. O. Fox and defendant C.D. Mitchell, as agent of corporate defendant, executed in writing a Contract of "Sale of Real Estate" reciting that "Mr. J. O. Fox has this day sold to Southern Appliances, Inc., . . . who has this day purchased that certain parcel of property known as house and lots 12 and 13, block 4, Shenandoall Park, Charlotte," at the price of $24,500, terms cash; that "It is understood that the property will be conveyed subject to such conditions, reservations and restrictions as appear in instruments constituting the chain of title"; that seller agrees to execute and deliver deed "conveying an indefeasible fee simple title to the land . . . with full covenants and warranties"; and that the transaction is "to be closed 90 days from execution of sales contract." Defendants advised plaintiffs that they desired possession of the premises as early as possible. The premises were being used by plaintiffs as a residence. Plaintiffs vacated the property on 4 March 1961. Defendants refuse to comply with the contract, pay the purchase price and accept deed "because the property is subject to residential restrictions." Plaintiffs are ready, able and willing to make conveyance in accordance with the contract.
Corporate defendant answered, admitted the execution of the sales contract, and for "A Further Answer and Defense" alleged: Plaintiffs, through their exclusive sales agent, represented that the property "had no restrictions that would prohibit its use for business purposes except zoning restrictions of the City of Charlotte, North Carolina, which restricted its use to office and institutional use." In fact, the property was subject to covenants appearing in the record title restricting it to residential purposes only. The representations were false and were "made with knowledge of their falsity, or recklessly without knowledge of their truth and as a positive assertion; were made with intention that they would be acted upon by this defendant in execution of the Contract of Sale of Real Estate . . .; and this defendant has suffered damage thereby. The value of the property for residential purposes only is $12,500. This defendant has elected to rescind the contract.
Plaintiffs demurred to corporate defendant's Further Answer and Defense on the ground that the matters alleged therein "rest in parol and contradicts and varies from the terms of the written Contract of Sale of Real Estate." The demurrer was sustained. Corporate defendant appeals.
No verbal agreement between parties to a written contract, made before or at the time of the execution of such contract, is admissible to vary its terms or to contradict its provisions. Insurance Co. v. Morehead, 209 N.C. 174, 183 S.E. 606. It will be presumed that the writing merged therein all prior and contemporaneous negotiations. Neal v. Marrone, 239 N.C. 73, 79 S.E.2d 239. But parol evidence is admissible to show that a written contract was procured by fraud, for the allegations of fraud challenge the validity of the contract itself, not the accuracy of its terms — the instrument itself, on the issue of fraud, is the subject of dispute. Cotton Mills v. Manufacturing CO., 218 N.C. 560, 11 S.E.2d 550; Hardware Co. v. Kinion, 191 N.C. 218, 131 S.E. 579; Miller v. Howell, 184 N.C. 119, 113 S.E. 621; Machine Co. v. Bulock, 161 N.C. 1., 76 S.E. 634; Unitype Co. v. Ashcraft Bros., 155 N.C. 63, 71 S.E. 61. Fraud alleged as a defense to the enforcement of a written contract is not an attempt to vary or contradict the terms of the contract, for if the fraud be proven it nullifies the contract. White v. Products Co., 185 N.C. 68, 116 S.E. 169; Machine Co. v. McKay, 161 N.C. 584, 77 S.E. 848; Tyson v. Jones, 150 N.C. 181, 63 S.E. 734. "It is elementary that where a contract or transaction was induced by false representations, the representations and the contract are distinct and separable — that is, the representations are usually not regarded as merged in the contract . . ." 23 Am. Jur., Fraud and Deceit, 23, p. 775-6.
But plaintiffs stand on the proposition that "where the written instrument itself precludes the representation relied upon, an action on such alleged representations cannot be maintained." 2 Strong: N.C. Index, Fraud, 10, p. 384; Wilkins v. Finance Co., 237 N.C. 396, 75 S.E.2d 118. They contend that the precise subject matter of the parol representation is dealt with in the written contract. The contract provides "that the property will be conveyed subject to such . . . restrictions as appear in instruments constituting the chain of title." Defendant alleges that it was represented that the property "had no restrictions that would prohibit its use for business purposes except zoning restrictions of the City . . . which restricted its use to office and institutional use." We do not agree that the contract deals with the precise matter involved in the representation. Both relate to restrictions, but the representation expressly relates to the extent of business restriction, while the contract merely refers defendant to the source to which he may have resort for information as to what restrictions there are. "Referring a representee to the sources of the speaker's information does not necessarily relieve the representor from liability for false statements, since the representee's right to rely on such statements without an investigation of the sources of information mentioned is not necessarily destroyed by such reference. Whether the representee should have consulted the sources referred to depends on circumstances and is often held to be a question for the jury." 23 Am. Jur., Fraud and Deceit, 158, p. 965. "It is generally held that fraud may be predicated on false representations or concealments, although the truth could have been ascertained by an examination of public records. As otherwise expressed, the general rule is that the mere fact that public records, if examined, would show the representee that representations of fact are false does not preclude his establishing fraud, because he is under no duty to make such examination. This principle is especially applicable where a representation is knowingly false and is made for the express purpose of deceiving and defrauding another who relies on it, where there is a duty of disclosure of information, where the party to whom the representations are made has no opportunity to examine the records, or where such investigation would not reveal the truth. In some of the older cases the scope of the rule has been limited, making its application depend on prudence. It has been held that to excuse an examination of the records, when accessible, the representation must be such as to induce the party to whom it is made to refrain from making such examination, and that the fact that such an examination would have disclosed the facts, although it does not necessarily destroy the right of reliance, is nevertheless entitled to its weight in determining whether the representations are such as would impose on a person of ordinary prudence." Ibid, 163, pp. 972-974. The law with respect to misrepresentations of matters of public record is discussed in an exhaustive annotation in 33 A.L.R. 853-1161, entitled "Fraud — Matters of Public Record," in which cases from the various jurisdictions of the United States and England are listed and annotated.
A purchaser of property seeking redress on account of loss sustained by reliance upon a false representation of a material fact made by the seller may not be heard to complain if the parties were on equal terms and he had knowledge of the facts or means of information readily available and failed to make use of his knowledge or information, unless prevented by the seller. But the rule is also well established that one to whom a definite representation has been made is entitled to rely on such representation if the representation is of a character to induce action by a person of ordinary prudence, and is reasonably relied upon. The right to rely on representations is inseparably connected with the correlative problem of a duty of a representee to use diligence in respect of representations made to him. The policy of the courts is, on the one hand, to suppress fraud and, on the other, not to encourage negligence and inattention to one's own interest. Calloway v. Wyatt, 246 N.C. 129, 97 S.E.2d 881; Keith v. Wilder, 241 N.C. 672, 86 S.E.2d 444; Pridgen v. Long, 177 N.C. 189, 98 S.E. 451. For a case involving misrepresentations as to matters of record in the sale of land, see Whitaker v. Wood, 258 N.C. 524, 128 S.E.2d 753, in which it was held that the question whether plaintiffs might reasonably rely on seller's representations was for the jury.
The legal policy in this jurisdiction with respect to the right of a representee to rely on representations made to induce entry into contractual relations has been long established and has been restated in a number of our recent cases. In addition to the opinion, delivered by Bobbitt, J., in Whitaker v. Wood, supra, we take note of those in Johnson v. Owens, 263 N.C. 754, 140 S.E.2d 311, and Cowart v. Honeycutt, 257 N.C. 136, 125 S.E.2d 382. In Johnson, plaintiff, a prospective purchaser of a house, inspected the house on three occasions. On each occasion there was a fire in the fireplace but the house was cold and the central heating system was not in operation. In response to plaintiff's inquiry, defendant-seller stated that the heating system was in excellent condition but was not operated in the daytime because of defendant's absence at work. The system was in fact so defective that plaintiff had to replace it. Defendant contended that plaintiff could not reasonably rely on the representation since she had full opportunity to inspect and test the system. We held that it was a question for the jury. Sharp, J., speaking for the Court, said: "`The question is whether it is better to encourage negligence in the foolish or fraud in the deceitful.' . . . Just where reliance ceases to be reasonable and becomes such negligence and inattention that it will, as a matter of law, bar recovery for fraud is frequently very difficult to determine. This case presents that difficulty. In close cases, however, we think that a seller who has intentionally made a false representation about something material, in order to induce a sale of his property, should not be permitted to say in effect, `You ought not to have trusted me. If you had not been so gullible, ignorant or negligent, I could not have deceived you.' Courts should be very loath to deny an actually defrauded plaintiff relief on this ground."
Cowart involved a representation made in procuring the execution of a release. Plaintiff was injured in an automobile accident; she was operating her husband's car at the time. She signed a release upon the representation that it covered repairs to the car and medical expenses incurred by her husband because of her injuries, but did not affect her claim for damages. She had had limited schooling but was not illiterate; she did not read the release, but relied on the representation — it proved to be false. We held that whether she should have read the release was a question for the jury. Parker, J., delivered the opinion and stated: "Defendant in his brief admits that there was evidence of a false representation of a material fact which was relied upon by plaintiff, but contends plaintiff as a matter of law was not justified in relying upon such representation, and her reliance was not reasonable. Such a contention is without merit. Our reply to such contention is this: `In Gray v. Jenkins, 151 N.C. 80, 65 S.E. 644, this Court said: "The law does not require a prudent man to deal with everyone as a rascal and demand covenants to guard against the falsehood of every representation which may be made as to facts which constitute material inducements to a contract; that there must be a reliance on the integrity of man or else trade and commerce could not prosper."' Roberson v. Williams, 240 N.C. 696, 83 S.E.2d 811."
In the instant case defendant's Further Answer and Defense alleges all of the factual elements essential to constitute actionable fraud. Early v. Eley, 243 N.C. 695, 91 S.E.2d 919. It alleges in effect that defendant desired to purchase real estate usable for business purposes, plaintiffs' agent knew or pretended to know what restrictions were on the use of the property in question, defendant did not know, said agent as an inducement to the sale represented that the property was not restricted against use for office and institutional purposes, defendant executed the sales contract in reliance on the representation which was in fact false, and defendant was materially damaged as a result of the deception.
The case has not reached the trial stage. We are concerned only with the sufficiency of the pleading. One who tests a pleading by demurrer admits the truth of the facts pleaded, for the purposes of the demurrer. When the case comes to trial and the evidence is in, it may appear, under the circumstances, as a matter of law that defendant could not reasonably rely on the alleged representation, or, on the other hand, it may prove to be a question for the jury. We cannot at this stage determine what the evidence will be. A litigant is not required to allege evidentiary matters and, if he does, such matters will be stricken on motion. As stated by Higgins, J., in Dowd v. Foundry Co., 263 N.C. 101, 139 S.E.2d 10: ". . . the complaint must give . . . `a plain and concise statement of the facts constituting a cause of action without unnecessary repetition . . .' The plaintiff should state the relief to which his allegations of fact entitle him. In a few simple words the pleadings should pinpoint the controversy and disclose the proper issues for its determination. . . . embellishments and banjowork inserted for their effect on the jury" should be omitted. Defendant's pleadings are concise and sufficient ultimate facts are alleged to withstand plaintiff's demurrer. "Upon demurrer a pleading will be liberally construed with a view to substantial justice between the parties, giving the pleader the benefit of every reasonable intendment in his favor. And a demurrer will not be sustained unless the pleading is wholly insufficient or fatally defective." 3 Strong: N.C. Index, Pleadings, 12, pp. 624-5. Where the facts pleaded include all the essential elements of the purported cause of action, we are not permitted to draw inferences contrary to the pleadings.
Reversed.