Farmers & Merchants Bank v. Petty

CONNER, Judge,

concurring.

I reluctantly concur in the conclusion reached by the majority, but disagree with the holding in several respects.

First, I believe this court (and by denial of appeal, the supreme court) has already recognized the doctrine of promissory fraud in Brungard v. Caprice Records, 608 S.W.2d 585 (Tenn.App.1980). Then Judge Drowota stated that “[i]t is apparent ... that the Tennessee Supreme Court wül adopt the majority rule if the party alleging promissory fraud produces evidence supporting the allegation,” 608 S.W.2d at 590 (emphasis supplied). Finding that such evidence existed in Brungard , this court expressly found that the plaintiff’s recovery could be predicated on promissory fraud. Id.

However, I must agree with the majority’s finding that the supreme court has indicated an unwillingness to apply the doctrine except in those cases where there is direct proof of a misrepresentation of actual present intention. There seems to be considerable reluctance on the part of the court to infer a false intent from the subsequent failure to follow through on a promise. See Fowler v. Happy Goodman Family, 575 S.W.2d 496, 499 (Tenn.1978). In Brun-gard there was overwhelming evidence that the defendant knew its statements regarding future intent were false at the time they were made. 608 S.W.2d at 588-590 . Such is not the situation here.

Because of the ambiguous nature of the alleged declarations of the bank president, Mr. Brown, inducing Mr. Petty to sign the guaranties, I must concur that there is insufficient evidence of the type required by Fowler and Brungard to find that the statement of intention was false when made. However, I do so with great reluctance, because I would be comfortable with a much more liberal approach to the doctrine of promissory fraud and the evidentiary requirements thereof. There are inherent and often insurmountable problems in proving “state of mind” at the time the repre *83 sentation is made as to its then truthfulness or falsity. Therefore, I would favor a construction that would allow an inference of original false intention to be made from evidence of subsequent actions. Assuming such intent was inferred by the jury in this case, I would be inclined to affirm the verdict. Nevertheless, given the language in Fowler , I must agree with the majority that this does not appear to be the type of fact situation in which the supreme court would apply the doctrine of promissory fraud.

Moreover, I have trouble rationalizing the present approach to promissory fraud with the standards applied by the Tennessee courts in cases of negligent misrepresentation. This court has stated:

In commercial transactions the law has recognized a less stringent standard of liability for fraudulent misrepresentations than the common law action for deceit. One who, in the course of his business, profession, or employment, or during a transaction in which he had a pecuniary interest, supplies false information for the guidance of others in their business transactions, is subject to liability for pecuniary loss caused to them by their justifiable reliance upon such information, if he fails to exercise reasonable care or competence in obtaining or communicating the information. Jasper Aviation, Inc. v. McCollum Aviation, Inc., 497 S.W.2d 240 (Tenn.1972); Hunt v. Walker, 483 S.W.2d 732 (Tenn.App.1971). This standard of liability substitutes a reasonable care standard for the common law scienter requirement. In other words, in business transactions, a defendant can be held liable for negligent misrepresentations.

Haynes v. Cumberland Builders, 546 S.W.2d 228, 232 (Tenn.App.1976) (emphasis supplied).

Thus, we have recognized that knowledge of falsity and fraudulent intent are not necessary to prove a cause of action under a theory of negligent misrepresentation. Yet we cling to those requirements and require strict proof of their existence if a similar set of facts is labeled “promissory fraud.”

For instance, in Brungard it was stated that the plaintiff sued “on the tort of false misrepresentation in a commercial transaction” and therefore the doctrine of negligent misrepresentation was said to apply. 608 S.W.2d at 588 . As for misrepresentation of existing fact, the court emphasized a reasonable care standard. However, when the discussion turned to misrepresentations of intention, the court considered liability in light of the requirements of promissory fraud and at least implicitly required a showing of false intent at the time the promises were made.

If the general theory in such a case is that of “negligent misrepresentation,” what logic is there in distinguishing between misrepresentation of existing fact and misrepresentation of future intent? In either case, the statements involve, in the words of Haynes , “false information for the guidance of others in their business transactions” resulting in “justifiable reliance upon such information.” 546 S.W.2d at 232 . In the instant case, assuming that Mr. Brown told Mr. Petty he would never be held responsible under the surety agreement as the jury found, could it not be said that at a minimum Mr. Petty was negligent in making such a representation? Surely, he would have known that if the son defaulted, with the father’s guaranty in the file the bank would have no choice but to attempt to enforce it. In the area of “fraudulent and/or negligent misrepresentations” I believe existing precedent is confusing. I hope the supreme court will re-address the entire subject lest we sink into a legal quagmire that could destroy the fairness and credibility of our decisions in cases of this type.

The majority also indicates that the doctrine of promissory fraud should not apply in this case because it would, in effect, be contrary to the parol evidence rule. This might be true if this were purely a contract case. However, this action also involved a counter-claim sounding in the tort theory of fraudulent misrepresentation. The parol evidence rule “has no application to a case involving a fraudulent misrepresentation *84 which induces the execution of a contract.” Haynes, 546 S.W.2d at 231 ; see also Brungard, 608 S.W.2d at 588 . However, even with the parol statements admitted into evidence, they are, as already noted, insufficient to meet the test of Fowler .

In summary, I believe we have previously recognized the doctrine of promissory fraud, but existing caselaw in Tennessee would apply the doctrine on an extremely limited and conservative basis. While I disagree with this approach, I am bound by stare decisis and must concur in the final result reached by the majority as to the first issue on appeal.

As to the second and third issues, I concur in the majority opinion in its entirety.