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District Court of Appeal, Third District, California.


Civ. 5154.

Decided: January 30, 1935

Gerald M. Desmond and Ralph H. Lewis, both of Sacramento, for appellant. Clyde C. Sherwood, of Oakland, and Albert E. Sheets, of Sacramento, for respondent.

Defendant appeals from a judgment against him, notwithstanding the verdict of a jury theretofore rendered in his favor upon a counterclaim. The action was brought by plaintiff, a corporation, to recover a balance due upon a conditional sales contract for the sale of a certain power shovel. A portion of the original sales price was paid in cash, the deferred payments being evidenced by a series of promissory notes, executed contemporaneously with a conditional sales agreement, which remained unpaid.

The answer admitted the allegations of the complaint except as to the reasonable amount of an attorney fee. By special defense and counterclaim appellant asserted he was induced to enter into the written contract by fraudulent representations of plaintiff.

The principal point raised on appeal, as stated by appellant, is whether or not a provision in a conditional sales contract to the effect that no representations had been made that were not incorporated in the contract, precluded the defense of fraud.

The conditional sales contract contained the following provision: “This agreement shall not be considered as executed and shall not become effective until accepted by the vendee and executed and approved by the President or Vice President or Secretary of the vendor, and it is hereby further declared agreed and understood that there are no prior writings, verbal negotiations, understandings, representations or agreements between the parties not herein expressed; that same shall not be at any time modified, nor the instalment payments and notes be extended except in writing, executed by the vendee and approved by someone of the aforesaid executive officers of said vendor.”

Counsel have at great pains collected all of the California cases wherein fraud and misrepresentation were practiced by an agent of the vendor. Among these cases is cited and discussed Clancy v. Becker-Arbuckle-Wright Corp., 137 Cal. App. 43, 29 P.(2d) 868; Mooney v. Cyriacks, 185 Cal. 70, 195 P. 922; Campbell v. Title Guarantee, etc., Co., 121 Cal. App. 374, 9 P.(2d) 264; Gridley v. Tilson, 202 Cal. 748, 262 P. 322; Munn v. Earle C. Anthony Inc., 36 Cal. App. 312, 171 P. 1082; Tockstein v. Pacific Kissel Kar Branch, 33 Cal. App. 262, 164 P. 906. It is the contention of appellant that the only exception to the rule that the fraud of an agent might not be relied upon as a defense is where the contract provides notice to the prospective vendee that the agent's authority is limited, and that in the instant case the contract does not purport to limit the agent's authority to make representations, but limits the authority of the agent only as to modification of the contract after execution.

Upon the granting of the motion for judgment notwithstanding the verdict, the able trial jurist, Judge Shields, analyzed the law and the facts here involved very fully and completely, and we adopt that portion of his opinion wherein he discusses that phase of the case:

“The contract for the sale of the shovel involved in this action contained, among others, a provision as follows: ‘This agreement shall not be considered as executed, and shall not become effective until accepted by the vendee, and executed and approved by the president, or vice-president, or secretary of the vendor, and it is hereby further declared, agreed and understood that there are no prior writings, verbal negotiations, understandings, representations or agreements between the parties, not herein expressed.’

“The contract was negotiated by the agent of the vendor who signed it and forwarded it to the vendee. The vendee later signed the contract after which it was sent to the vendors at their eastern office, where it was duly executed by the corporation, on behalf of the plaintiff vendor, and a copy of it later returned to the vendee. In this action to recover the balance of the purchase price of the machine, the vendee over the objection of the vendor, introduced evidence of fraudulent representations, not included in the contract, which he claimed were made to him by the agent of the plaintiff for the purpose of inducing him to enter into the contract of the purchase of the machine, and which he claimed did so induce him, to his damage. The contract was otherwise admitted as correct, and subject to such deductions as might be made on account of the alleged fraud, the sum sued for was not disputed by the defendant vendee. The jury found for the defendant on his claim of fraud and under stipulation of counsel the judgment, if the verdict is to stand, is to be for the plaintiff for the amount sued for, less the damage to defendant assessed by the jury. The matter before me is a motion, made upon the reading of the verdict, for judgment for plaintiff, notwithstanding the verdict; the plaintiff contending that under the provisions of the contract no evidence should have been allowed of representations or statements alleged to have been made by the agent of plaintiff and not communicated to it or included in the contract. The law on this question is now extremely clear. If the seller himself negotiates the contract, or if the contract is negotiated by an agent with power to make and complete the sale, clauses of the kind above mentioned are of no avail to protect the seller from the consequence of having made fraudulent representations, not included in the contract, but which were made for the purpose of inducing the buyer to enter into the contract. If fraud is committed at the inception of the contract it vitiates the contract, including all provisions in it attempting to or designed to relieve the guilty party from liability for any such fraud.

“No one who negotiates a contract either personally or through an agent with authority to complete it, can avoid the consequences of fraud in its procurement, either by himself or his agent by any provisions in the contract of the kind contained in the contract before us. The earlier cases in California held to the contrary. But when the matter came before the Supreme Court in Mooney v. Cyriacks, 185 Cal. 70, 195 P. 922, the court disregarded these cases and adopting the more equitable rule that ‘parol evidence is always admissible to prove fraud,’ applied it to the facts of that case.

“This was said with equal definiteness in Gridley v. Tilson, 202 Cal. 748, 262 P. 322, 323, where Mr. Justice Shenk says: ‘While the Civil Code, § 1625, provides that a written contract supersedes all negotiations and stipulations concerning the matter between the parties, it has always been the law that fraud in the inducement of a contract may be shown.’

“But it will be observed that this rule is limited to cases where the party who made the representations made the contract. The seller who makes his own contract cannot escape this rule. If he procures the contract through an agent, with power to act, he is likewise subject to it. But there is a well-settled exception to this rule. It arises where the party seeking to rely on fraudulent representations of an agent had notice of the agent's lack of authority to make such representations. ‘Therefore a principal is bound only by the representations embodied in the written contract, where a provision in the contract notified the prospective purchaser that the agent's authority went no further.’ Gridley v. Tilson, 202 Cal. 748, 262 P. 322, 323. In the case before us there is no direct statement in the contract that the agent had no such authority, but there is a definite limitation upon the power of plaintiffs' salesman to either execute the contract, or to make it effective and a statement that that power was reserved to certain executive officers of the absent and nonresident plaintiff. Then the buyer, defendant, certified to such absent persons who are to accept or reject the contract, ‘that there are no prior writings, verbal negotiations, understandings, representations or agreements between the parties not herein expressed.’

“The buyer who alone could have heard the representations or been influenced by them states to the seller that there were none; and the seller, who knew of none, accepts his statement. Who then can be heard to claim their existence? The seller in effect says, ‘with the understanding that my agent has made no verbal representations I approve this contract.’ Does he need to say that his agent had no power or authority to make inducing recommendations when he declares there were none, and asks the purchaser to assure him that none were made, before he approves the contract?

“Undoubtedly the provision in a contract that it contains all of the terms thereof, and that no statements or representations not therein contained were or had been made as an inducement to its execution, does not have to state, in terms, that no agent had authority to make any such representations. No such statement was made in the provision involved in Campbell v. Title Guarantee & Trust Co., 121 Cal. App. 374, 9 P.(2d) 264. This case goes much further than Gridley v. Tilson, and unless we conclude that the Realty Service Corporation, the selling agent of the defendant, had no power in the matter, except merely to bring the parties together, the case is in conflict with Mooney v. Cyriacks, 185 Cal. 71, 195 P. 922. Otherwise Campbell v. Title Guarantee & Trust Co. goes back to the earlier cases of Munn v. Earle C. Anthony, Inc., 36 Cal. App. 315, 171 P. 1082; Tockstein v. Pacific Kissel Kar Branch, 33 Cal. App. 262, 164 P. 906, and Pease v. Fitzgerald, 31 Cal. App. 727, 161 P. 506.

These cases hold that a clause in a contract such as the one under discussion does protect from charges of fraud the principal who negotiates the contract in his own behalf or through his fully authorized agent. Mooney v. Cyriacks rejected this doctrine, and held the seller liable notwithstanding this exonerating provision. It adopts the policy that one who directly perpetrates a fraud cannot in this way escape responsibility for it. The decision in Mooney v. Cyriacks is based directly upon the fact that the evidence showed that the principal knew of the fraud in the sale involved, and more particularly upon the ground that the agent who made the sale had full authority in the matter. The opinion states, page 80 of 185 Cal., 195 P. 922, 926, in reference to the principal's knowledge that it must be presumed that just prior to the sale the principal went over the representations that had been made by his agent Graves, and that ‘Graves detailed the facts of the transaction faithfully to him.’ On the question of the agent's authority the opinion is equally positive. ‘As to the question of agency, it is sufficient to point out that the evidence we have set forth shows that Graves had full authority to negotiate the sale for his principal.’ And again the appellant will not now be heard to question the authority of Graves. This is as far as the cases have gone in denying the operation of provisions of the kind we are discussing. In the case before us the principal is not shown to have had any knowledge of the alleged fraudulent representations, and the agent, unlike Graves, did not have power to make the sale. This case, accordingly, does not come within the liberal rule of Mooney v. Cyriacks, and as a consequence the evidence of alleged representations made by the salesman to the purchaser of the power shovel should not have been received. Without such evidence plaintiff's right to recover is unquestioned. Other causes advanced in support of this motion need not be considered. Judgment for plaintiff as prayed for will therefore be given, and an attorney fee of $600.00 will be allowed.”

The remaining question is as to the propriety of awarding attorney fees to respondent. The agreement contained the provision: “The vendee agrees that he will pay to the vendor all costs, charges, expenses and disbursements including reasonable attorney's fees (if allowed by law) incurred by vendor. * * *”

Plaintiff alleged in its answer that $1,200 was a reasonable attorney's fee, and the answer denied that that sum or any other sum was a reasonable amount to be fixed by the court.

It is urged by appellant that the proof introduced at the trial was not sufficient to justify any award. Respondent, for the express purpose of having an attorney fee allowed, introduced all of the papers, records, pleadings, and files in the case, and alleged in its verified complaint, which was not denied, that it had incurred an obligation in the sum of $1,200 therefor. This undoubtedly was sufficient proof to raise the issue under the circumstances. However, the vendee became liable for an attorney fee only if allowed by law. No attorney fee is, under the laws of California, allowed by law in an action of this nature. It is entirely a matter of contract. Respondent apparently seeks to interpret these words as meaning “if permitted by law,” but we cannot read that construction into the contract. The language used is not ambiguous, but if it were, the rules of construction would require that its meaning be construed most strictly against the author of the agreement, the respondent herein. We also believe, that in the absence of a definite stipulation withdrawing the issue of an attorney fee from the jury, the jury should have determined the amount thereof as a special finding. This they failed to do.

The judgment is therefore modified by striking therefrom any allowance to respondent as an attorney's fee, but in all other particulars the judgment is affirmed; the respondent to recover costs.

Mr. Presiding Justice PULLEN delivered the opinion of the court.

We concur: THOMPSON, J.; PLUMMER, J.