CITY DODGE v. GARDNER

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Docket Number

28676.

Attorney(S)

Webb, Parker, Young Ferguson, Paul Webb, Jr., John Tye Ferguson, for appellant. Harmon Smith, Archer D. Smith, III, Tyrone M. Bridges, Mathew Dwyer, for appellee.

Judges

INGRAM, Justice.

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Smart Summary

Factual and Procedural Background

This case arises from a tort suit by a buyer against a seller for alleged fraudulent misrepresentation by the seller's agent. The buyer purchased a used automobile under the belief it had never been wrecked. The seller denied that such a representation was made. The buyer signed a sales agreement containing a merger clause stating that no other agreements or promises pertaining to the purchase would be recognized and that the car was sold "as is." After discovering the vehicle had been wrecked, the buyer rescinded the contract unilaterally and brought a fraud and deceit action. A jury found for the buyer, and the Court of Appeals affirmed the judgment. The Supreme Court of Georgia granted certiorari to review the decision and ultimately affirmed the Court of Appeals' judgment.

Legal Issues Presented

Whether the buyer's tort action for fraudulent misrepresentation remains available under Georgia law after the adoption of the Uniform Commercial Code (UCC).
Whether the merger clause in the sales contract effectively barred the buyer from relying on the alleged oral misrepresentation by the seller's agent.
Whether the "as is" language in the sales agreement negates an express warranty regarding the condition of the vehicle.

Arguments of the Parties

Appellant's (Seller's) Arguments

The seller argued that no fraudulent representation was made by the agent to the buyer.
The seller contended that the buyer was bound by the contract terms, including the merger clause and "as is" provision, which negated any claim of reliance on oral representations.
The seller asserted that the disclaimer language prevented the buyer from proving reliance, a necessary element of fraud, thus barring the tort claim.

Appellee's (Buyer's) Arguments

The buyer maintained that the agent knowingly misrepresented that the vehicle had never been wrecked.
The buyer contended that the merger clause and "as is" language did not negate an express warranty or bar the tort claim based on fraud.
The buyer argued that the tort remedy for fraud and deceit remained available despite the UCC and that the contract was voidable due to antecedent fraud.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Central R. Co. v. Ferguson Melson, 63 Ga. 83, 85	Acceptance of jury's factual determination regarding misrepresentation	Supported the finding that the seller's agent knowingly misrepresented the car's condition.
M. G. Textile Co. v. West Point-Pepperell, Inc., 126 Ga. App. 43 (189 S.E.2d 878)	Support for factual findings related to misrepresentation	Reinforced the acceptance of the jury's determination on misrepresentation.
Jacobs Pharmacy Co. v. Gipson, 116 Ga. App. 760, 762 (159 S.E.2d 171)	Express warranty under UCC § 2-313	Used to conclude that the representation about the car was an express warranty.
Brown v. Ragsdale Motor Co., 65 Ga. App. 727 (16 S.E.2d 176)	Availability of tort remedy for fraud and deceit; voiding contract for antecedent fraud	Supported the proposition that a contract voided by antecedent fraud renders disclaimer clauses ineffective.
Eastern Motor Co. v. Lavender, 69 Ga. App. 48 (24 S.E.2d 840)	Same as above regarding tort remedy and contract invalidity due to fraud	Reinforced the availability of tort claims despite contractual disclaimers when fraud is proven.
Wade Ford, Inc. v. Perrin, 111 Ga. App. 794 (143 S.E.2d 420)	Recognition of tort remedy for fraud post-UCC adoption	Confirmed that tort remedies remain available under Georgia law after the UCC.
Rogers-Farmer Metro Chrysler-Plymouth, Inc. v. Barnett, 125 Ga. App. 494 (188 S.E.2d 122)	Same as above	Supported the continued availability of tort remedies for fraud.
Floyd v. Woods, 110 Ga. 850, 36 S.E. 225	Cases holding disclaimer clauses bar reliance and tort recovery	Referenced as cases where disclaimer clauses prevented tort recovery, contrasted with the Court's view.
Holbrook v. Capital Automobile Co., 111 Ga. App. 601, 142 S.E. 288	Same as above	Used to illustrate cases rejecting tort recovery based on contract disclaimers.

Court's Reasoning and Analysis

The court accepted the jury's factual finding that the seller's agent knowingly made a fraudulent misrepresentation that the vehicle had never been wrecked. It characterized this misrepresentation as an express warranty under UCC § 2-313, rejecting the seller's argument that the "as is" clause negated such warranty under UCC § 2-316(3)(a).

The court analyzed whether the merger clause in the contract barred the buyer's tort claim. It recognized that while the UCC allows merger clauses to prevent false claims of oral warranties in contract actions, Georgia law traditionally permits a buyer to sue in tort for fraud and deceit to rescind a contract induced by fraud.

Interpreting UCC provisions, including § 1-103 and § 2-721, the court concluded that the UCC did not displace the historic tort remedy for fraud in Georgia. The court cited Georgia cases post-UCC adoption and authorities from other jurisdictions to support the continued availability of tort claims for fraud.

Regarding reliance, the court rejected the seller's contention that the merger clause prevented the buyer from proving reliance. It held that reliance is a question of fact for the jury and that a disclaimer clause cannot negate reliance in a tort action where the contract is alleged to be void due to antecedent fraud. The court emphasized that if the contract is void, the disclaimer clause is ineffective because there is no valid contract to enforce.

Therefore, parol evidence of the alleged misrepresentation was admissible, and the tort action was not controlled or barred by the contract terms. The court held that a tort action based on fraudulent misrepresentation inducing the sale remains viable under Georgia law when proven by a preponderance of the evidence.

Holding and Implications

The judgment of the Court of Appeals is affirmed.

The court held that the buyer's tort remedy for fraudulent misrepresentation remains available under Georgia law despite the adoption of the Uniform Commercial Code. The merger clause and "as is" language in the contract did not bar the tort claim because the contract was voidable due to antecedent fraud. The decision affirms the jury's verdict in favor of the buyer and clarifies that disclaimers in contracts cannot negate reliance or bar tort claims where fraud is proven. No new precedent was created beyond affirming the continued availability of tort remedies in such circumstances, and the direct effect is to uphold the buyer's recovery in this case.

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CITY DODGE, INC. v. GARDNER.

INGRAM, Justice.

A suit in tort by a buyer against a seller for an alleged fraudulent misrepresentation of the seller's agent resulted in a jury verdict and judgment for the buyer and on appeal by the seller the Court of Appeals affirmed. Certiorari was granted to review this decision and we have determined the judgment of the Court of Appeals should be affirmed.

In this case, the buyer contended that he purchased a used automobile with the understanding that the vehicle had never been wrecked. The seller denied that this representation was made by his agent (salesman) to the buyer. The buyer signed a sales agreement which contained the words, "no other agreement, promise or understanding of any kind pertaining to this purchase will be recognized." In addition, the purchase agreement stated that the car is sold "as is." Subsequent to the purchase, the buyer discovered that the automobile had been wrecked, tendered the car to the seller, unilaterally rescinded the contract and brought the present action in tort for fraud and deceit.

In our review of the case, we accept the jury's factual determination that the seller's agent knowingly misrepresented the car as never having been wrecked. See Central R. Co. v. Ferguson Melson, 63 Ga. 83, 85; M. G. Textile Co. v. West Point-Pepperell, Inc., 126 Ga. App. 43 ( 189 S.E.2d 878). In addition, we conclude this representation that the car had never been wrecked is an express rather than an implied warranty. Code Ann. § 109A-2-313; Jacobs Pharmacy Co. v. Gipson, 116 Ga. App. 760, 762 ( 159 S.E.2d 171). See also, White, Sales Warranties under Georgia's Uniform Commercial Code, 1 Ga. State B. J. 191, 192 (1964). We, also, conclude that the "as is" language used here is ineffective to negate an express warranty. Code Ann. § 109A-2-316 (3) (a).

The decisive issue we address is whether the language of the merger clause that "no other agreement, promise, or understanding of any kind — pertaining to this purchase will be recognized," was legally effective to prevent the buyer from claiming that he relied on the seller's misrepresentation. It has been recognized that § 2-202 of the Uniform Commercial Code (Code Ann. § 109A-2-202) was intended to allow sellers to prevent buyers from making false claims of oral warranties in contract actions. See, Note, 54 Minn. L. Rev. 846, 849 (1970). Thus, in contract actions the effect of merger and disclaimer clauses must be determined under the provisions of the Uniform Commercial Code.

However, under Georgia law, traditionally two actions have been available to a buyer in which to sue a seller for alleged misrepresentation in the sale. The buyer could affirm the contract and sue in contract for breach or he could seek to rescind the contract and sue in tort for alleged fraud and deceit. See, Brown v. Ragsdale Motor Co., 65 Ga. App. 727 ( 16 S.E.2d 176); and, Eastern Motor Co. v. Lavender, 69 Ga. App. 48 ( 24 S.E.2d 840). Our threshold question in this tort case is to determine whether the adoption of the Uniform Commercial Code (Code Ann. Title 109A) left available in Georgia a buyer's historic remedy in tort. The passage of the Uniform Commercial Code by the legislature evinced an intent to have that body of law control all commercial transactions. Code Ann. § 109A-1-102. However, while the Code is an attempt to make uniform the law among the various jurisdictions regarding commercial transactions, the draftsmen realized that it could not possibly anticipate all situations. Thus, § 1-103 (Code Ann. § 109A-1-103) states: "Unless displaced by the particular provisions of this Act, the principles of law and equity, including the law merchant and the law relative to capacity to contract, principal and agent, estoppel, fraud, misrepresentation, duress, coercion, mistake, bankruptcy, or other validating or invalidating cause shall supplement its provisions."

In addition, Code Ann. § 109A-2-721 provides that: "Remedies for material misrepresentation or fraud include all remedies available under this article for non-fraudulent breach. Neither rescission or a claim for a rescission of the contract for sale nor rejection or return of the goods shall bar or be deemed inconsistent with a claim for damages or other remedy."

The commentary by the drafters of the Uniform Commercial Code on this section states: "Thus the remedies for fraud are extended by this section to coincide in scope with those for nonfraudulent breach. This section thus makes it clear that neither rescission of the contract for fraud nor rejection of the goods bars other remedies unless the circumstances of the case make the remedies incompatible." See, Official Comment, Uniform Commercial Code, § 2-721.

We conclude from this language that neither the draftsmen nor the legislature intended to erase the tort remedy for fraud and deceit with the adoption of the Uniform Commercial Code in Georgia. In support of this conclusion, we find many Georgia cases subsequent to the adoption of the Uniform Commercial Code which recognize the tort remedy. (E. g., Wade Ford, Inc. v. Perrin, 111 Ga. App. 794 ( 143 S.E.2d 420); Rogers-Farmer Metro Chrysler-Plymouth, Inc. v. Barnett, 125 Ga. App. 494 ( 188 S.E.2d 122)). No authority to the contrary has been cited to us, and we note that many of our sister states also provide a tort remedy. See, e. g., Clements Auto Co. v. Service Bureau Corp., 444 F.2d 169 (8th Cir. 1971); Sauerman v. Stan Moore Motors, Inc., 203 N.W.2d 191 (1972); Chester v. McDaniel, 504 P.2d 726 (1972). For additional supportive authority, see 3A Bender's UCC Service, § 14.10, and White Summers Handbook of the Law under the Uniform Commercial Code, § 8-1, p. 248. The latter treatise notes that, "[A]lthough their meaning is not crystal clear, it appears that the draftsmen contemplate a cause of action for fraud in which the buyer would have the right to return the goods purchased and get his money back. Presumably, this right to return the goods and get his money back is a right to `rescission' which exists outside the Code." White Summers, supra, p. 248, Fn. 9.

Having decided that a remedy in tort still exists in Georgia for actual fraud, we turn next to the seller's contention that the disclaimer language used here prevented any reliance by the buyer on the alleged fraudulent misrepresentation, and consequently the buyer's action must necessarily fail. The seller contends that there is no fraud on which the buyer relied that prevented him from knowing the contents of the contract, and, therefore, the buyer is bound by the terms of the contract. Some Georgia cases have held that a disclaimer clause in the contract prevents the buyer from asserting reliance, one of the requisite elements of fraud and deceit, and have rejected a recovery in tort for fraud. (E. g., Floyd v. Woods, 110 Ga. 850, 36 S.E. 225; Holbrook v. Capital Automobile Co., 111 Ga. App. 601, 142 S.E. 288). Other Georgia cases have indicated that when the rescinded contract is found by the jury to be void because of antecedent fraud, the disclaimer therein is void and offers no protection to the seller. (See, Brown v. Ragsdale, supra; Eastern Motor Co. v. Lavender, supra; and other cases noted in 36 ALR3d 125, 151-172).

The five elements of fraud and deceit in Georgia are: (1) false representation made by the defendant; (2) scienter; (3) an intention to induce the plaintiff to act or refrain from acting in reliance by the plaintiff; (4) justifiable reliance by the plaintiff; (5) damage to the plaintiff. See Eastern Motors Co. v. Lavender, supra, p. 52.

We believe the better view is that the question of reliance on the alleged fraudulent misrepresentation in tort cases cannot be determined by the provisions of the contract sought to be rescinded but must be determined as a question of fact by the jury. It is inconsistent to apply a disclaimer provision of a contract in a tort action brought to determine whether the entire contract is invalid because of alleged prior fraud which induced the execution of the contract. If the contract is invalid because of the antecedent fraud, then the disclaimer provision therein is ineffectual since, in legal contemplation, there is no contract between the parties. In this case, parol evidence of the alleged misrepresentation was admissible on the question of fraud and deceit. As the antecedent fraud was proven to the satisfaction of the jury, it vitiated the contract. We hold, therefore, that the Uniform Commercial Code (Code Ann. Title 109A) does not preclude an action in tort based upon fraudulent misrepresentation inducing the sale where the plaintiff proves by a preponderance of the evidence the elements of fraud and deceit recognized under Georgia law, and that such a tort action cannot be controlled by the terms of the contract itself.

The judgment of the Court of Appeals will be affirmed.

Judgment affirmed. All the Justices concur, except Jordan, J., who dissents. Hall, J., disqualified.