179

Bank (1915) Tex. Civ. App. S. W. 1119, as to the effect of provisions of the contract on the right to show fraud seems somewhat ambiguous and out of line with the weight of authority in that and other states. The action was on a note given for the purchase price of a horse, and the defense was that the note had been procured by the seller by false and fraudulent representations as to the condition and quality of the animal. The court said that, if the written warranty given by the seller of the horse and pleaded by defendant was executed as a part of the contract of sale, "and if it speaks the real agreement of the parties thereto," then the stipulation therein that "this is the only contract or guaranty given" would, even if the suit were by the payee of the note, exclude any warranty not contained in the instrument, and operate to exclude any evidence that the defendant was induced to buy the horse by a representation that it was sound and young, "and that the same was false and fraudulently made."

Nursery stock.

In Griesa v. Thomas (1916) 99 Kan. 335, 161 Pac. 670, although a written contract for the purchase of nursery stock contained a statement that the agents of the seller were not authorized to vary from the printed terms thereof, the court, without discussing the effect of this provision, applied the general rule that parol evidence is admissible to prove fraud inducing the execution of a written contract, where the representations of the seller's agent consisted in false statements as to the length of time it would take the stock to reach a certain size and as to the value or market price of such stock.

See also Bonewell V. Jacobson (1906) 130 Iowa, 170, 5 L.R.A. (N.S.) 436, 106 N. W. 614, set out in the annotation in 10 A.L.R. on p. 1479, involving sale of fruit trees.

Paint.

It was held in James v. Grill (1919) 186 Iowa, 1300, 173 N. W. 897, in an action to recover the price of paint sold to the defendant under a written contract, that evidence was admissible as a defense that, at the time the defendant gave the salesman the order in question, the latter made certain false representations as to the quality or constituents of the paint, although

the contract stated that the order was taken with the understanding that it was positive, and not subject to change or countermand, and that "any agreement not stated on this order will not be recognized." In sustaining a judgment for the defendant, the court said: "It will be noted in this case that the defendant does not plead a warranty, nor does he seek to add to or take from the contract made. He simply says that he was induced to make the contract by representations which were untrue; that, when the goods were received and examined, he found that the representations that induced him to make the contract were not true; that he offered to return the goods to the plaintiff as soon as he ascertained the fact. It is practically saying that the agent of plaintiff's assignor, by a false representation as to the character and quality of the goods, induced him to make the contract; that he had no opportunity to examine the goods before he made the contract; that he relied upon the representations of the agent that the goods were of the character and quality stated, and was induced by such representations to enter into the contract; that, as soon as he discovered that the representations were not true, and that the goods were not of the character represented, he tendered back the goods to the plaintiff. Neither the pleading nor the evidence tends to vary the terms of the contract as entered into. The defendant does not plead any additional agreement. He pleads a misrepresentation as to the character of the goods, made at the time of the sale, that induced the making of the contract, and by this seeks to avoid the obligation of the contract. It is apparent that the defendant was in a business in which he required merchantable paint. It is clear that he wanted merchantable paint. It is clear that this fact was known to the agent of plaintiff's assignor. It is further clear that defendant entered into this written contract on the statement of the agent that the paint was of a character that made it merchantable. Upon trial, it was found not to be of a merchantable character. Upon the receipt of this paint, defendant had two rights, either to retain the paint and sue for damages, or to rescind the contract by returning, or offering to return, the thing received. He chose the latter.

Fraud vitiates all contracts."

In Martin v. Iroquois Mfg. Co. (1918) Tex. Civ. App. —, 207 S. W. 569, it seems that the written contract for the sale of paint contained a stipulation that there were no other conditions of sale than those provided for therein; but the court, without discussing the effect of such a provision, held that parol evidence was admissible to prove false representations of the seller's agent as to the amount required to cover the purchaser's building, since, where fraud exists in a written contract, the same can be shown by parol, notwithstanding it adds to the writing.

Scales.

It has been held that the parol-evidence rule will not preclude evidence, offered to establish fraud, of false representations by the agent of the seller of scales, in an action for the purchase price, to the effect that the scales were accurate and peculiarly fitted for the weighing of flour in the purchaser's mill, notwithstanding the contract of sale stipulates that it contains all agreements concerning the sale, and that no representations not included therein shall be binding. Detroit Automatic Scale Co. v. G. B. R. Smith Mill. Co. (1919) Tex. Civ. App., 217 S. W. 198.

And, notwithstanding a written contract for the purchase of scales provided that no verbal agreement would be recognized, the court in Columbia Weighing Mach. Co. v. McElroy's Drug Store (1927) Tex. Civ. App., 299 S. W. 351, held that, on the issue of fraud in inducing the purchaser to sign the contract, parol evidence was admissible of an oral agreement between him and the sales agent that, wherever the term "thirty" was used in the contract, it should be understood to mean "sixty," and that the purchaser signed the contract under the mistaken belief that this change had been made, whereas in fact the contract as signed purported to allow the purchaser only thirty days' trial, with the right to return the same within that time. The admission of such evidence was held not to violate the rule prohibiting the varying of a written contract by a contemporaneous parol agreement.

Slaves.

It is held in Smith v. Cozart (1859) 2 Head (Tenn.) 526, that stipulations in a contract for the sale of a slave,

that the same was sold as unsound property, and was not warranted sound, would not protect the seller against fraud; and that in an action by the purchaser for fraud on the part of the seller, based on alleged false representations of the latter as to the condition of the slave and the suppression of the fact that he had an incurable disease, evidence to prove the fraud was not objectionable as varying the written contract. It was said: "It is admitted to be true, as a general proposition, that where the contract of sale is in writing, and contains no warranty, or a refusal to warrant, parol evidence is not admissible to superadd a warranty. But this statement of the general rule implies the absence of fraud in the transaction. For, . . if it can be shown that the contract was induced by an oral warranty, which was false, to the knowledge of the party making it, and was made for the purpose of throwing the other party off his guard, and fraudulently obtaining his consent to the bargain, evidence of such verbal warranty is admissible. This is no infringement of the rule which forbids the introduction of parol evidence to contradict, vary, or add to a written instrument. The evidence is received not for that purpose, but, admitting the terms of the written contract, to show that the assent of the party to the contract was obtained by falsehood and fraud, and has, therefore, no legal existence. . . The same principle applies in the case of false and fraudulent representations made under like circumstances. The stipulation that the slave was sold as 'unsound property' was, in itself, an exclusion of all warranty, and, in the absence of fraud, would protect the defendant from all liability. But such a stipulation is no protection against fraud, nor will it prevent the sale from being avoided on proof of fraud. The seller will not be permitted to make use of such an artifice to cover the

perpetration of a fraud, and exonerate himself from the consequences. Such a stipulation will be of no avail where the seller has been guilty of a wilful and intentional false representation, or concealment, or has resorted to any contrivance to deceive and mislead the purchaser. . . . It follows, therefore, that the statements of the bill of sale, that the slave was sold as unhealthy, unsound, and without warran

ty, must be regarded as avoided by fraud; and the case must stand upon the false and fraudulent representations, on the faith of which the purchase of the slave is proved to have been made."

150

Arkansas. Collins v. Southern Brick Co. (1909) 92 Ark. 504, 135 Am. St. Rep. 197, 123 S. W. 652, 19 Ann. Cas. 882 (recognizing rule).

California. California Credit & Collection Corp. v. Randall (1926) 76 Cal. App. 321, 244 Pac. 958; Gridley v. Tilson (1927) Cal. 262 Pac. 322 (recognizing rule).

Georgia. — Bank of Lavonia v. Bush (1913) 140 Ga. 594, 79 S. E. 459; Cunningham v. Huson Ice & Coal Co. (1921) 26 Ga. App. 302, 105 S. E. 860. Illinois.-Briggs v. Reynolds (1912) 176 Ill. App. 420; Steven v. Combination Fountain Co. (1923) 231 Ill. App. 360.

Iowa. Hinkley v. Sac Oil & Pipe Line Co. (1906) 132 Iowa, 396, 119 Am. St. Rep. 564, 107 N. W. 629; Sioux City Tire & Mfg. Co. v. Harris (1922) - Iowa, 190 N. W. 142. See also Gelpcke v. Blake (1863) 15 Iowa, 387, 83 Am. Dec. 418. Massachusetts.

Hashem v. Massachusetts Secur. Corp. (1926) 255 Mass. 29, 150 N. E. 846.

Michigan. Plate v. Detroit Fidelity & S. Co. (1924) 229 Mich. 482, 201 N. W. 457; Plate v. Detroit Fidelity & S. Co. (1924) 229 Mich. 489, 201 N. W. 459; Miner v. Detroit Fidelity & S. Co. (1924) 229 Mich. 490, 201 N. W. 459. Missouri. Metropolitan Lead & Zinc Min. Co. v. Webster (1906) 193 Mo. 351, 92 S. W. 79; Buckman v. Bankers' Mortg. Co. (1924) Mo. App. 263 S. W. 1046.

Nebraska. - Griffin v. Bankers Realty Invest. Co. (1920) 105 Neb. 419, 181 N. W. 169; Schuster v. North American Hotel Co. (1921) 106 Neb. 672, 184 N. W. 136, 186 N. W. 87; Johnson v. Nebraska Bldg. & Invest. Co. (1922) 109 Neb. 235, 190 N. W. 590; Baxter v. Nebraska Bldg. & Invest. Co. (1923) 109 Neb. 748, 192 N. W. 235; Stroman V. Atlas Ref. Corp. (1924) 112 Neb. 187, 199 N. W. 26.

New Hampshire.-Anderson v. Scott (1900) 70 N. H. 350, 47 Atl. 607.

New York. White v. Hiawatha Silver Black Fox Corp. (1924) 123 Misc. 868, 206 N. Y. Supp. 847. North Dakota.

See Raich v.

Texas. Turner v. Grobe (1898) Tex. Civ. App. 44 S. W. 898; Trinity Valley Trust Co. v. Stockwell (1904) Tex. Civ. App. —, 81 S. W. 793 (exchange of stock certificates on misrepresentation of agent of corporation as to stipulations of new certificates); Gough Mill & Gin Co. v. Looney (1908) Tex. Civ. App. —, 112 S. W. 782; Barclay v. Deyerle (1909) 53 Tex. Civ. App. 236, 116 S. W. 123 (purchase of entire capital stock of bank); Commonwealth Bonding & C. Ins. Co. v. Bomar (1914) Tex. Civ. App. —, 169 S. W. 1060; Commonwealth Bonding & C. Ins. Co. v. Cator (1915) Tex. Civ. App. - 175 S. W. 1074 (reversed on other grounds in (1919) Tex. 216 S. W. 140); Le Master v. Hailey (1915) Tex. Civ. App. 176 S. W. 818; Bankers' Trust Co. v. Calhoun (1919) Tex. Civ. App. 209 S. W. 826; Burchill v. Hermsmeyer (1919) Tex. Civ. App., 212 S. W. 767 (recognizing rule); Cattle Raisers' Loan Co. v. Sutton (1925) Tex. Civ. App. —, 271 S. W. 233. See also Clegg v. Galveston Hotel Co. (1877) 1 Tex. App. Civ. Cas. (White & W.) 333.

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Utah. Penn Star Min. Co. v. Lyman (1924) 64 Utah, 343, 231 Pac. 107. Washington. See Miner v. Paulson (1910) 60 Wash. 150, 110 Pac. 994; Ennis v. New World L. Ins. Co. (1917) 97 Wash. 122, 165 Pac. 1091 (subscription contract fraudulent as to subsequent subscribers, and violative of statute). Wyoming. See Bushnell v. Elkins (1926) 34 Wyo. 495, 51 A.L.R. 13, 245 Pac. 304 (recognizing rule).

Where fraud or illegality inheres in a stock-subscription contract, that fact may be shown by parol. Ennis v. New World L. Ins. Co. (Wash.) supra.

In an action for deceit based on a charge of false representations inducing the plaintiff to enter into a stocksubscription contract, it was said in

respect, contracts of subscription for corporate stock stand on the same basis as other contracts. 151 The principle prohibiting the varying of an unambiguous written contract by parol does not preclude admission of eviStevens v. Combination Fountain Co. (1923) 231 Ill. App. 360: "The court admitted parol evidence to prove that what purported to be a written purchase of stock and a note given in payment therefor was not a purchase at all, and appellant contends that this evidence varied and contradicted the terms of a written instrument. This evidence was competent, not for the purpose of varying or contradicting the terms of a written contract, but for the purpose of showing that what purported to be a written contract had in fact never been executed and delivered as a valid, legal, binding contract,"

The rule is implied in such cases as Martin v. Pensacola & G. R. Co. (1859) 8 Fla. 370, 73 Am. Dec. 713, holding that, where a party is sued to recover assessments upon his stock in a railroad company, it is inadmissible to allow oral testimony to be given on the trial as to the inducement and circumstances which led to the subscription and the understanding of the subscribers when they subscribed, "unless such testimony goes to establish fraud or mistake."

151 In Ziliox v. City View Apartments & Storage Co. (Ohio) supra, it is said: "Of course a subscription to the capital stock of a corporation obtained by fraud cannot be enforced; and the rule prohibiting parol evidence to vary the terms of a writing has no application where a subscriber offers such a defense; and, in determining whether a fraud has been committed in procuring a subscription to stock, the same principles are to be applied as in the case of any other contract."

And, in an action for the recovery of an unpaid subscription to the stock of the plaintiff company, in which the defense was false and fraudulent representations of the promoter of the company, inducing the plaintiff to subscribe for the stock, the court in Metropolitan Lead & Zinc Min. Co. v. Webster (1906) 193 Mo. 351, 92 S. W. 79, said: "For the plaintiff it is contended that the order ought to be sustained on the ground that the court committed error in admitting defend

dence to show that a written contract for the purchase of the entire capital stock of a bank was induced by false representations of the seller that the books were correctly kept, and that the same showed the correct amount due ant's parol evidence. It is urged that this was error, because such evidence tended to contradict the written contract of subscription, meaning, of course, defendant's contract of subscription manifested by the articles of association. This contention is based upon an entire misconception of the nature of the defense set up in the answer and of the purpose of the evidence introduced in support of it. The defendant, in his answer, admitted signing the articles of association, did not seek to change or alter the same in any part, and did not introduce any evidence contradicting any of its contractual terms. His defense was that the articles of association were a fraud and that his signature thereto was obtained by fraud, and the evidence which he introduced was for the purpose of proving the fraud. The rule that a written contract cannot be contradicted or modified by parol evidence has never been held to preclude parol evidence tending to prove that the instrument itself was a fraud, or that the signature of a party thereto was procured by fraud, and nothing to that effect can be found in the authorities cited in support of this contention, or elsewhere. 'Contracts to take stock in a corporation stand upon the same footing as all other conventional obligations. If induced by fraud they create no obligation, and the injured party has a right to have them abrogated.""

The latter observation, that stocksubscription contracts stand on the same footing as other contracts, is made also in Vreeland v. New Jersey Stone Co. (1878) 29 N. J. Eq. 188, where, although it was assumed for the purposes of the case that the contract was in legal form, there was no written agreement, and the question under annotation was not therefore presented; and in Raich v. Lindebek (1917) 36 N. D. 133, 161 N. W. 1026, where the fraud which was held to invalidate the contract of subscription consisted in misrepresenting the nature of the paper which the defendant signed; but the applicability of the parol-evidence rule is not discussed.

to it from other banks, although the contract contains no statement in this regard.152

The doctrine, also, that the parolevidence rule does not preclude the admission of parol or extrinsic evidence to show fraud inducing a written contract, notwithstanding special

152 Barclay v. Deyerle (1909) 53 Tex. Civ. App. 236, 116 S. W. 123.

153 In California Credit & Collection Corp. v. Randall (1926) 76 Cal. App. 321, 244 Pac. 958, an action on a note given for corporate stock, in which the defense was false oral representations made by the company's selling agent that the stock was then paying 12 per cent dividends, the court held that proof of such fraudulent representations, inducing the defendant to execute the subscription agreement and the note in suit, was not precluded by statements in the contract that it contained the entire contract between the subscriber and the company, that no agent had any power to change or alter the terms of the subscription, and that verbal or other agreements between agents and applicants contrary to the terms of the contract were not authorized and would not be recognized by the company.

And in an action for cancelation of a subscription to corporate stock on the ground of fraud in its procurement, it was held in Plate v. Detroit Fidelity & S. Co. (1924) 229 Mich. 482, 201 N. W. 457, that the rule permitting the introduction of parol evidence to show fraudulent representations which induced the making of a written contract was applicable, notwithstanding the contract contained a provision that the subscription was not subject to countermand, that no conditions, agreement, or representations, either written or verbal, other than those printed in the contract, should be binding on the company, and that the subscription contained the entire agreement. It was accordingly held that evidence was admissible to show that the salesman induced the contract by false representations as to the dividends paid by the corporation. Regarding the effect of the special provision above mentioned, the court said: "The seal of silence as to actual fraud is not imposed by any such provisions. It is elementary that fraudulent representations inducing a contract will avoid it. Plaintiff does not 56 A.L.R.-10.

stipulations in the contract purporting to make it the sole evidence of the agreement, or to negative extraneous representations or reliance thereon, has been applied or recognized in several cases involving stock-subscription contracts.153

seek to vary the terms of the contract, but claims the contract is void because she was induced to execute it by false and fraudulent representations.

It has long been settled that such provisions in a contract do not prevent showing the contract is void by reason of false and fraudulent representations in its procurement." This decision was followed in Plate v. Detroit Fidelity & S. Co. (1924) 229 Mich. 489, 201 N. W. 459, and Miner v. Detroit Fidelity & S. Co. (1924) 229 Mich. 490, 201 N. W. 459.

So, in White v. Hiawatha Silver Black Fox Corp. (1924) 123 Misc. 868, 206 N. Y. Supp. 847, it was held that a purchaser of corporate stock, in an action brought by him for rescission of the contract, was not precluded from showing false representations by the sales agent as to the market value of the stock, and as to arrangements made for taking over any unsold stock at an advance in price, by reason of a stipulation in the subscription contract that the agreement constituted the entire contract and that the corporation was not bound by any agreement not therein embodied. It was said: "Defendant objected to the receipt of any oral testimony as to statements and representations of the salesmen, upon the ground that it tended to vary the terms of a written contract. But the plaintiff is not seeking to enforce the provisions of any contract outside of the written agreement; he is attempting to rescind a contract which he claims he was induced to enter into in reliance upon facts and circumstances which were untrue, the apparent situation having been created by the false statement of the salesmen, such statements being made pursuant to apparent authority with which the defendant had invested them. In other words, plaintiff claims that he entered into the contract relying upon the apparent state of facts which did not exist. Plaintiff was entitled to introduce the evidence of the false statements for the purpose of showing that there never had been a