HIXON v. HINKLE

Supreme Court of Georgia1923-07-16No. No. 3589

156 Ga. 341

Summary · law.co

Holding. The grant of nonsuit was reversed. The court held that the plaintiff stated a valid fraud claim and that oral evidence is admissible to prove the fraud defeated the contract, allowing the case to proceed to trial rather than be dismissed at the pleading stage.

The plaintiff loaned money to two borrowers who represented they owned 999 shares of stock in a company and pledged 200 of those shares as collateral. In reality, the borrowers owned no such shares; the 200 shares in question actually belonged to the defendant and were held for his benefit. The plaintiff discovered this fraudulent misrepresentation and sought to recover the bonds he had delivered. The trial court granted the defendant a nonsuit, reasoning that the plaintiff received the 200 shares as promised and therefore had no grounds for complaint.

The appellate court reversed, holding that the trial court's reasoning was flawed because the plaintiff contracted for shares owned by the borrowers themselves, not third-party shares. The borrowers' representation of wealth and financial standing—based on their alleged ownership of nearly 1,000 shares—was material to the plaintiff's decision to extend credit. By pledging shares they did not own and that actually belonged to the defendant, the borrowers committed fraud that induced the loan. Because the borrowed funds ultimately benefited the defendant through the share transaction, the defendant is chargeable with the fraud and cannot retain the spoils of the fraudulent scheme.

Summary generated by law.co from the public-domain opinion. The opinion text itself is public domain.

Key issues

Whether a nonsuit was properly granted when plaintiff alleged fraud in procuring a loan
Whether parol evidence may prove fraud that voids an otherwise valid written contract
Whether defendant is liable for fraud perpetrated by borrowers when defendant received the benefit of the fraudulent transaction

Procedural posture

The case returned to the appellate court after a prior decision, with the trial court having granted defendant's motion for nonsuit.

Authorities cited

No cited authorities resolved to law.co cases yet.

Opinion · public domain

majority opinion

Hines,J.

(After stating the foregoing facts.)

The grant of a nonsuit was error, and requires a reversal of the judgment. Brooks v. Rawlings, 138 Ga. 310 (75 S. E. 157) ; Pierpont Mfg. Co. v. Savannah, 153 Ga. 455 (112 S. E. 462).

The defendant is now estopped by the judgment of this court from asserting, that the plaintiff is not entitled to recover, if the latter proves his case as laid in his complaint, in the absence of evidence traversing or avoiding the case made by plaintiff in his petition. When this case was here before, this court, in effect, held that the plaintiff was induced to make a loan to Eyan and Herbert by- a fraud perpetrated upon him by them, this fraud consisting in their false representation that they were the owners of 999 shares of the capital stock of the Mobile Tractor Co., of which they agreed to pledge 200 shares as collateral security for this loan, when in fact they did not own said number of shares in said company, and when in fact the 200 shares pledged by them to secure said loan were shares which the defendant had agreed to buy’ and which these borrowers had agreed to sell for him on commission; and that upon the discovery of this fraud the plaintiff would be authorized to repudiate the transaction, and recover from the defendant the bonds delivered to these borrowers in lieu of money, the defendant being chargeable with this fraud, if not from active participation therein, from having received the spoils and fruits of the fraudulent transaction. Civil Code (1910), §§ 4410, 4623, 3591, 3593; Lewis v. Equitable Mortgage Co., 94 Ga. 572 (21 S. E. 224).

The trial judge based his judgment of nonsuit upon the ground that the plaintiff was to have 200 shares of the stock of the tractor company as collateral security for his loam, that he got this number of shares, and that therefore he can not complain. Plaintiff was not to have any 200 shares of the stock of this company. He was to have that number of the 999 shares which the borrowers represented they owned in this company. The financial worth and responsibility of borrowers who are able to own 999 shares of the capital stock of a corporation is much greater than that of those who own no stock in such company and are borrowing to invest in such shares. Their financial standing would be appreciably less if the money they were borrowing was to go to a third person to pay for stock of the company for which such third person had subscribed. If the plaintiff had gotten the stock of the borrowers, their financial worth would be the value of such stock plus the amount of the loan. Besides, the value of the stock, if owned by the borrowers, who are officers of the compapy," would be greater as they would have a greater incentive to so manage the affairs of the company as to make it a success. It follows that the plaintiff did not get what he contracted for by way of security; and the borrowers did not possess the wealth and financial standing which they represented to the plaintiff that they enjoyed.

It is well settled and beyond doubt, that where a contract is procured by fraud, parol evidence is admissible to prove the fraud; and if the fraud be proved, the jury are authorized to set aside the contract. Ham v. Parkerson, 68 Ga. 830. The purpose of such evidence is not to add to, take from, or vary the terms of a valid written agreement, but its object is to show that the contract was originally void because of the fraud perpetrated upon the complaining party. This can always be shown by parol. Civil Code (1910), § 5790. The contrary contention is a mere cavil.

But all these matters were considered and passed upon when the case was here before.

Judgment reversed.

All the Justices concur.

concurrence opinion

Beck, P. J.

I concur specially in the judgment of reversal in this case because of the ruling made in the same ease when it was here before by a majority of the court, which decision became the law of the case.