Opinion
77-552.
January 26, 1979. Rehearing Denied April 6, 1979.
Appeal from the Circuit Court, Baldwin County, Harry J. Wilters, J.
W. Kenneth Gibson, Fairhope, for appellant.
Ron E. Kopesky, Fairhope, for appellee.
The respective contentions of the parties put into focus the dispositive issue here presented: Appellant contends that this is a tort action, and thus barred by the one-year Statute of Limitations; Appellee contends that it is a contract action, and thus governed by the six-year Statute.
This action arose out of the purchase on July 23, 1974, of a mobile home by Comer I. Brunson, Jr., and Mae Brunson from this defendant, Spanish Fort Mobile Homes, Inc. The buyers executed a Security Agreement and Retail Installment Contract form. Those parts of that form relevant here are item 5, "Total Down Payment," and the "Terms of Seller's Assignment."
The "Total Down Payment" clause appears literally as follows:
5. TOTAL DOWN PAYMENT (__________________, (Trade-in Allowance)
minus $ ________________________, plus (Lien payoff)
$1001.50) ............... $ 1001.50 (5) (Cash down payment)
. . . . .
Following execution of the contract, it was assigned by the defendant seller to Sebrite. The Terms of Seller's Assignment contain, inter alia, this language:
Seller warrants that: . . . the down payment was made by the Purchaser in cash and not its equivalent, unless otherwise noted in the contract; . . . Seller makes said warranties for the purpose of inducing Assignee to purchase the contract, and if any such warranties should be untrue, Seller shall buy the contract from the Assignee upon demand, and will pay therefor, the amount unpaid to Assignee thereon, plus any and all costs, expenses, and reasonable attorney fees paid or incurred by Assignee in respect thereto. Said remedy shall be cumulative and not exclusive and shall not effect any other right or remedy that the Assignee might have. . . . (emphasis added)
As stated in Sebrite's amended complaint, "subsequent to the date of July 23, 1974," the contract was assigned to the plaintiff, and "on or about October 20th 1976, Plaintiff became aware that the representations made in the Disclosure Statement were false. . . ." This action was filed on October 13, 1977.
In addition to its assertion that the representations of Defendant were false, Plaintiff alleged "that if the truth had been known . . . the Plaintiff would not have purchased the contract from the Defendant . . . and the Defendant misrepresented to the Plaintiff . . . for the purpose of inducing it to purchase said Contract." Plaintiff then asked "that the contract . . . be rescinded and that Defendant be required to buy the contract back from Plaintiff . . . pursuant to the terms of the contract . . .", costs and attorney's fees.
The case was heard ore tenus by the trial Court without a jury. Its decree granted the relief prayed for, requiring Defendant to pay Sebrite the sum of $12,628.84 — representing Sebrite's incurred costs (the balance due on the contract), including a reasonable attorney's fee, and court costs.
Defendant contends that the action is based upon fraud; that Sebrite offered no evidence of any date upon which it first discovered the "fraud" charged in the amended complaint (§ 6-2-3, Ala. Code 1975); and thus Plaintiff's action is barred by the one-year Statute of Limitations. Responding to this argument, Sebrite asserts that its action, though based on fraud, is ex contractu — the misrepresentation being expressly proscribed by the contract — and thus it is governed by the six-year Statute of Limitations provided in § 6-2-34, rather than § 6-2-39, Ala. Code 1975, the one-year Statute.
Ordinarily, actions to rescind a contract, alleging misrepresentation of material facts relied upon to the Plaintiff's detriment, are statutorily grounded actions in tort provided in §§ 6-5-100, 101, 102, 103, and 104, Ala. Code 1975. Kyser v. Southern Building Loan Ass'n., 224 Ala. 673, 141 So. 648 (1932); Southern Building Loan Ass'n. v. Waldrop, 24 Ala. App. 362, 135 So. 418 (1931). But the election of remedies doctrine takes as its premise: Where the duty — the breach of which is the gravamen of the claim — arises both by contract and by operation of law, the Plaintiff is free to elect his action either ex contractu or ex delicto, and this without regard to Plaintiff's motive. Berry v. Druid City Hospital Board, 333 So.2d 796 (Ala. 1976); Vines v. Crescent Transit Co., 264 Ala. 114, 85 So.2d 436 (1955); and Tennessee Coal, Iron Railroad Co. v. Sizemore, 258 Ala. 344, 62 So.2d 459 (1952).
The question here is not the source of the duty to truthfully disclose the nature of the down payment (cash as opposed to "trade in"); indeed, the material contractual terms — prohibiting such misrepresentation — could hardly have been clearer. Rather, the question is whether the Plaintiff's claim, as framed by the pleadings, tried by the evidence and responded to by the trial Court's final decree, sounds in contract.
We think the answer is equally clear; and we hold that Plaintiff's claim states an action in contract. The language of the statement of the claim tracks the provisions of the contract; avers that Defendant's representations in the Disclosure Statement were false; and prays for the precise relief provided for in the contract in the event of its breach by way of such misrepresentation.
The evidence comports fully with the allegations of the statement of the claim; and the award of the trial Court grants the Plaintiff relief "pursuant to the terms of the contract," i.e., "Seller [is ordered to] buy the contract from the Assignee . . and . . . pay therefor, the amount unpaid to Assignee thereon, plus any and all costs, expenses, and reasonable attorney fees. . . ."
Given the Defendant's contractual duty with respect to the truthful representation of the cash down payment, the Plaintiff could have pursued one of the statutory claims for fraud — subject, of course, to the legal incidences of a tort action (a shorter Statute of Limitations and, in some instances, a broader measure of damages). This option is made unmistakably clear by the provision in the contract: "Said [contract] remedy shall be cumulative and not exclusive. . . ."
As an aside, two observations are appropriate: 1) Whether the tort claim for fraud would have been available absent the express contractual prohibition against such misrepresentation, we need not decide. This is not the issue before us. Fraud in the inception of a contract, as a basis for its rescission, may lay outside and beyond the contract terms (as in the case of implied representations), and each case must be decided on its own facts; 2) The use of the words "that the contract be rescinded," in Plaintiff's prayer for relief, cannot be said to render the action one in tort, because the operative effect of the remedy provided by the terms of the agreement is a complete cancellation or rescission of the contract.
This "cumulation of remedies" clause could hardly be interpreted as words of restriction. Having the right to pursue its remedy in tort or contract, Plaintiff contends it chose to sue on the contract; and, for the reasons stated, we agree. Thus, the trial Court did not err in refusing to apply the one-year Statute of Limitations.
Appellant's other allegations of error are without merit.
AFFIRMED.
TORBERT, C.J., BLOODWORTH, FAULKNER, JONES, ALMON, SHORES and EMBRY, JJ., concur.
MADDOX and BEATTY, JJ., dissent.
Conceding that this case is a close one, nevertheless I believe the majority has confused the legal doctrines applicable to it, and my reasons follow:
Our cases uniformly hold that a contracting party who is the victim of a fraud has an election. He may rescind and sue for his money back, or he may elect to affirm the contract and sue for damages for the deceit practiced upon him. Kyser v. Southern Building Loan Ass'n., 224 Ala. 673, 141 So. 648 (1932); Southern Building Loan Ass'n. v. Waldrop, 24 Ala. App. 362, 135 So. 418 (1931). It has been stated as a general proposition that, should the victim elect to rescind, he must restore benefits he has received under the contract, but that rule is subject to exceptions. See, e.g., Kennedy v. Collins, 250 Ala. 503, 35 So.2d 92 (1948). In any case, when the victim who was induced by fraud to enter the contract later wishes to rescind, the burden is upon him to prove that the discovery of the fraud occurred within twelve months from the date upon which he brought his action. Code of 1975, §§ 6-2-3, 6-2-39 (a)(5). Accord, State Security Life Ins. Co. v. Henson, 288 Ala. 497, 262 So.2d 745 (1972).
The basic issue under the defendant's first contention and these authorities is whether or not the plaintiff's action was ex contractu or ex delicto. In short, the plaintiff maintains that he sought recovery under the contract according to its terms, while the defendant contends that the action was based upon fraud.
Legal fraud which entitles one to elect either to rescind a contract or to affirm it takes several forms. It is fraud to wilfully, or recklessly without knowledge, make a misrepresentation of a material fact which is acted upon by another. Code of 1975, § 6-5-101. Even an innocent misrepresentation made by mistake, but which is acted on by the victim, is legal fraud. § 6-5-101, supra; Hudson v. Moore, 239 Ala. 130, 194 So. 147 (1940); Hall Motor Co. v. Furman, 285 Ala. 499, 234 So.2d 37 (1970). And the suppression of a material fact is under some circumstances legal fraud. Code of 1975, § 6-5-102. This Court has recently quoted with favor an early description of fraud:
Fraud, in the nature of it, implies that the party has been misled and that, by the wrong of another, he is accepting and resting in a false sense of security. A party thus situated is not required to presume fraud or suspect it, until something comes to him leading a just person to suspect and make inquiry. [Johnson v. Shenandoah Life Ins. Co., 291 Ala. 389, 281 So.2d 636 (1973) quoting from Williams v. Bedenbaugh, 215 Ala. 200, 110 So. 286 (1926)].
And this Court has described "legal fraud" in Rudman V. Hooks, 252 Ala. 280, 281, 40 So.2d 866 (1949):
The culpability which stamps misrepresentations of material facts as an inducement to action by another as a `legal fraud,' as defined by the foregoing section [now § 6-5-101], is in the assertion of that to be true which is not true, when made to be relied on and which is relied on to the injury of the party misled thereby. (citations omitted)
I note particularly that the contract between these parties, whose terms required the seller to buy the contract back on demand and to pay all costs, expenses and reasonable attorney fees, also made that remedy a cumulative one, that is, it was not the exclusive remedy. Accordingly, it would have been proper for Sebrite to have followed one of its alternative remedies: affirm the contract and seek recovery according to its terms, which specified that the seller would pay the unpaid amount to Sebrite, plus Sebrite's expenses and attorney fees; or rescind the contract, making the fraudulent representation the gist of the sought-after recovery, and seek to recover his money. The recoveries in each would not be the same because, for one thing, attorney's fees would be recoverable in an action upon the contract which provides for their payment, but not otherwise. Hartford Accident Indemnity Co. v. Crosby, 277 Ala. 596, 173 So.2d 585 (1965).
Here the plaintiff Sebrite sought the latter alternative. Its amended complaint alleged "that on or about October 20, 1976, Plaintiff became aware that the representations made in the Disclosure Statement . . . were false . . ." and that ". . . Sellers made said Warranties for the purpose of inducing the Assignee to purchase the Contract. . . ." It added that "if the truth had been known that no down payment had been made . . . the Plaintiff would not have purchased the contract . . ." and "the Defendant misrepresented to the Plaintiff herein for the purpose of inducing it to purchase said Contract. . . ." The plaintiff then asked for a rescission. In other words, Sebrite actually utilized a cumulative remedy as authorized by the contract. Sebrite sued under the contract but it did not sue on the contract. And taking Sebrite's allegations together they state a cause of action based upon legal fraud under one of the alternatives contained in § 6-5-101. Cf. Berman Bros, Iron Metal Co. v. State Savings Loan Co., 222 Ala. 9, 130 So. 554 (1930).
The defendant has made the point that there was no evidence offered by Sebrite of any date on which it discovered the fraud, and hence there was a failure of proof. Sebrite concedes this argument by insisting that the action was based upon the contract between it and the defendant. Indeed, the record contains a stipulation concerning the person from whom Sebrite learned "of this fraud" (in the words of Sebrite's counsel) but this stipulation did not cover the time when Sebrite became aware of it. Having determined that the action was based upon fraud, the burden as we have stated, was upon Sebrite to offer evidence of the discovery of the fraud within twelve months from the date the action was brought, i.e., within twelve months of October 13, 1977. Henson, supra. Upon Sebrite's failure to adduce such proof, the defendant's motion for a directed verdict raising that ground, made at the conclusion of the hearing, was due to be granted. For the error in refusing to grant that motion the decree should have been reversed and the cause remanded.
MADDOX, J., concurs.