DRC Parts & Accessories, L.L.C. v. VM Motori, S.P.A.

112 S.W.3d 854, 2003 Tex. App. LEXIS 6766, 2003 WL 21804311

Opinions

MAJORITY OPINION ON REHEARING EN BANC

RICHARD H. EDELMAN, Justice.

Appellant’s motion for rehearing en banc is granted, the majority and dissenting opinions issued in this case on October 17, 2002, are -withdrawn, and the following majority and dissenting opinions on rehearing en banc are issued in their place.

In this breach of contract and fraud case, DRC Parts & Accessories, L.L.C. (“DRC”), appeals a summary judgment entered in favor of VM Motori, S.P.A. (“VM”) on the grounds that its summary judgment evidence raised a fact issue on each of its two claims against DRC. We affirm.

Background

Before 1995, VM, an Italian manufacturer and seller of industrial diesel engines, parts, and accessories, contracted with DRC, among others, to distribute its products in North America. However, in 1995, VM was purchased by Detroit Diesel Corporation (“DDC”), an American manufacturer and distributor of diesel engines, parts, and accessories that had an existing network of sales representatives in North America. Despite the resulting decrease in its need for DRC to distribute its products, VM agreed to continue the relationship because of DRC’s extensive knowledge of VM’s products. On May 14, 1996, VM and DRC entered into a written contract (the “contract”) containing the following provision (the “provision”):

VM ... grants on a non-exclusive basis ... DRC ... the right to purchase and sell VM diesel engine ORIGINAL SPARE PARTS for engine series and/or engine model versions not in-eurrent production by VM and VM ORIGINAL ACCESSORIES for current and non-current series of engines, in the USA or Canada, hereinafter referred to as the TERRITORY ....

The contract further provided that it “substitute[d] and invalidate^] any other former agreement.”

Thereafter, DRC filed suit against VM for breach of contract, alleging that: (1) the contract gave it the exclusive right to sell parts for engines that were no longer being produced by VM, and that VM had breached the agreement by selling such parts to others; and (2) in the alternative, if the contract granted DRC only a nonexclusive right, then VM fraudulently induced DRC to enter into and continue performance under the contract by nevertheless misrepresenting that DRC’s right would be exclusive. VM moved for summary judgment against these claims¹ on the grounds that: (1) the contract unambiguously gave DRC only a non-exclusive right to distribute non-current production engine parts; and (2) as a matter of law, DRC could not rely on the alleged misrepresentation because it directly contradicted the unambiguous terms of the contract. The trial court granted VM summary judgment against both of DRC’s claims.

Standards of Review

A traditional summary judgment may be granted if the motion and summary judgment evidence show that there is no genu-me issue of material fact and the moving party is entitled to judgment as a matter of law on the issues expressly set out in the motion or response. Tex.R. Civ. P. 166a(c). In reviewing such a motion for summary judgment, we take all evidence favorable to the nonmovant as true and resolve every doubt, and indulge every reasonable inference, in the nonmovant’s favor. Tex. Commerce Bank, N.A. v. Grizzle, 96 S.W.3d 240, 252 (Tex.2002).

A no-evidence motion for summary judgment must be granted if: (1) the moving party asserts that there is no evidence of one or more specified elements of a claim or defense on which the adverse party would have the burden of proof at trial; and (2) the respondent produces no summary judgment evidence raising a genuine issue of material fact on those elements. See Tex.R. Civ. P. 166a(i). In reviewing a no-evidence summary judgment, we review the record in the light most favorable to the nonmovant to determine whether more than a scintilla of evidence was presented on the challenged elements of the nonmov-ant’s claim. See Wal-Mart Stores, Inc. v. Rodriguez, 92 S.W.3d 502, 506 (Tex.2002).

Breach of Contract: Ambiguity

DRC’s first issue challenges the summary judgment on its breach of contract claim on the ground that the contract is ambiguous, raising a question of fact. In particular, DRC contends that the term “non-exclusive,” as used in the provision, can reasonably be interpreted to mean either that: (1) YM retained the right to sell parts for engines not in-current production through entities other than DRC; or (2) DRC had the exclusive right to sell such parts.

Whether a contract is ambiguous is a question of law for the court to decide. Lopez v. Munoz, Hockema & Reed, L.L.P., 22 S.W.3d 857, 861 (Tex.2000). A contract is not ambiguous if it is so worded that it can be given a definite or certain legal meaning. Wal-Mart Stores, Inc. v. Sturges, 52 S.W.3d 711, 728 (Tex.2001). Conversely, a contract is ambiguous if its language is subject to two or more reasonable interpretations. Monsanto Co. v. Boustany, 73 S.W.3d 225, 229 (Tex.2002).

However, an ambiguity does not arise simply because the parties advance conflicting interpretations of the contract. Wal-Mart Stores, 52 S.W.3d at 728. Rather, for an ambiguity to exist, both interpretations must be reasonable. Id. If so, a fact issue is created concerning the parties’ intent. See Columbia Gas Transmission Corp. v. New Ulm Gas, Ltd., 940 S.W.2d 587, 589 (Tex.1996).

In this case, the contract unequivocally grants DRC the right, on a “non-exclusive basis” to purchase and sell the engine parts in question. DRC has cited no language in the contract that remotely supports an exclusive right to sell those parts or is in any way inconsistent with a non-exclusive right. Although DRC relies on the circumstances surrounding the formation of the contract to establish that its interpretation is reasonable, such parol evidence is not admissible for the purpose of creating an ambiguity in an agreement. Kelley-Coppedge, Inc. v. Highlands Ins. Co., 980 S.W.2d 462, 464 (Tex.1998). Rather, it is only when the language of a contract is ambiguous, either on its face or when applied to the subject matter of the contract,² that a court may consider extrinsic evidence to determine the meaning of the instrument. See Nat’l Union Fire Ins. Co. v. CBI Indus. Inc., 907 S.W.2d 517, 521 (Tex.1995). Because the contact in this case is not ambiguous in either respect, DRC has not demonstrated a fact issue on its contract claim (that VM breached the contract by selling the engine parts in question to others). Accordingly, we overrule DRC’s first issue.

Fraudulent Inducement

DRC’s second issue contends that, if the contract term “non-exclusive” is unambiguous (as we conclude above), then a fact issue was raised on its fraudulent inducement claim by evidence that VM falsely represented to DRC that it would have an exclusive right to distribute parts for non-current production engines.

One of the elements of a fraud claim is that the plaintiff actually and justifiably relied on the misrepresentation to suffer injury. Ernst & Young, L.L.P. v. Pac. Mut. Life Ins. Co., 51 S.W.3d 573, 577 (Tex.2001); Restatement (Second) of ToRts § 537 (1977). In this regard, a party to an arm’s length transaction must exercise ordinary care and reasonable diligence for the protection of his own interests, and a failure to do so is not excused by mere confidence in the honesty and integrity of the other party. Thigpen v. Locke, 363 S.W.2d 247, 251 (Tex.1962). Therefore, reliance upon an oral representation that is directly contradicted by the express, unambiguous terms of a written agreement between the parties is not justified as a matter of law.³

This principle is also dictated by policy and practical considerations. If written contracts are to serve a purpose under the law, relative to oral agreements, it is to provide greater certainty regarding what the terms of the transaction are and that those terms will be binding, thereby lessening the potential for error, misfortune, and dispute.

By contrast, the approach advocated by DRC and the dissent would, in effect, create a contractual relationship that is governed by its written contract only to the extent it does not contradict a previous oral agreement between the parties. This is because a party’s exercise of a right under the written contract, which is contrary to the oral agreement, would subject that party to a fraudulent inducement claim based on the oral agreement. In that event, however, the party who entered into the written contract while relying on a contrary oral agreement would have thereby itself entered into the written contract with an intent not to perform it. Thus, in order to show its reliance on the oral agreement to sustain its own fraudulent inducement claim, that party would necessarily prove that it was guilty of fraudulent inducement as well.⁴

The essential issue, then, is not whether that party’s evidence of the contrary oral agreement is admissible or sufficient to prove that agreement,⁵ but instead whether the law will deem such reliance to be justified and thereby favor that party to the detriment of the other contracting party, which has at least declared its intent in the contract and sought to abide by its terms. Because such an approach would defeat the ability of written contracts to provide certainty and avoid dispute, the prevailing rule, recited above, is instead that a party who enters into a written contract while relying on a contrary oral agreement does so at its peril and is not rewarded with a claim for fraudulent inducement when the other party seeks to invoke its rights under the contract.

In this case, therefore, even assuming DRC’s evidence to be admissible and sufficient to show its actual reliance on a contrary oral agreement, that reliance could not, as a matter of law, have been justified. Accordingly, we overrule DRC’s second point of error and affirm the judgment of the trial court.

Chief Justice BRISTER and Justices YATES, ANDERSON, FROST and SEYMORE join the Majority Opinion.

Justice J. HARVEY HUDSON filed a Dissent in which Justices FOWLER and GUZMAN join.

J. HARVEY HUDSON, Justice,

1

. Although VM moved for a traditional summary judgment on both claims and also for a no-evidence summary judgment on the contract claim, the difference is not material to our disposition.

2

. Such a "latent ambiguity” would exist, for example, if a contract called for delivery to the "green house on Pecan Street,” but there were two green houses on that street. Nat'l Union Fire, 907 S.W.2d at 520 n. 4.

3

. Scheduled Airlines Traffic Offices, Inc. v. Objective Inc., 180 F.3d 583, 590 (4th Cir.1999); Republic Nat’l Bank v. Hales, 75 F.Supp.2d 300, 315 (S.D.N.Y.1999); Lowe v. Amerigas, Inc., 52 F.Supp.2d 349, 361 (D.Conn.1999); Schwaiger v. Mitchell Radiology Assocs., 652 N.W.2d 372, 377 (S.D.2002); Abboud v. Michals, 241 Neb. 747, 491 N.W.2d 34, 41-42 (1992).

4

. See Formosa Plastics Corp. USA v. Presidio Eng’rs & Contractors, Inc., 960 S.W.2d 41, 47-48 (Tex.1998) (recognizing that a promise of future performance constitutes fraud in the inducement if the promise was made with no intention of performing).

5

. See Town N. Nat’l Bank v. Broaddus, 569 S.W.2d 489, 492, 493-94 (Tex.1978) (holding that a payee’s representation to the maker of a note, that the maker would not be liable thereon, in the absence of trickery, did not constitute fraud in the inducement (so as to fall within an exception to the parol evidence rule)).