Firm Newsletter - October 2015

 A Half Million Dollar Mistake


Photo by DavidMSchrader/iStock / Getty Images

Photo by DavidMSchrader/iStock / Getty Images

The Texas Supreme Court has ruled on whether fraudulent inducement can be a basis to overturn a release agreement when the executing party to the contract did not read the contract prior to signing. The case originated from a disagreement over the true owner of a 190 acre tract of land.  Westergren had an option contract to buy the land, but found out that the seller of the property had entered into an option contract with other buyers. As a result, he filed an action.

During that time, National Property Holdings (“NPH”) was also interested in purchasing the land, but was unable to do so due to the litigation. The parties and NPH participated in a mediation and entered into a written settlement agreement. The agreement stated that NPH would buy the land and that the other parties would agree to release their rights to the property. Orally, NPH promised Westergren that he would receive $1 million dollars with an interest in the profits when NPH developed the property or sold it. After a portion of the land was sold by NPH, Westergren tried to collect what he was promised.

One of the NPH owners explained to Westergren that they could only pay him half the money “right now.” Westergren accepted a check for $500,000 and a document titled “Agreement and Release” capitalized, bolded, and underlined. In the document, he agreed to relinquish any and all interest in the property in exchange for the money. Westergren signed the document without reading it. Once he finally read the document he filed suit claiming that NPH fraudulently induced him to sign the release in order to recover. Westergren would have to prove 1. NPH made a material representation, 2. the representation was false and was either known to be false when made or made without knowledge of the truth, 3. the representation was intended to be and was relied upon by the Westergren, and 4. Westergren’s injury was caused by the reliance.

NPH argued that the oral agreement was unenforceable and that Westergren released all his claims under the release. Westergren argued that at the time of the signing, NPH representatives told him that they would be making the second payment after more development and that the release agreement was just a “receipt.” Further, he claimed he did not read the release because he “was in a hurry” and “forgot his reading glasses,” so he relied on the NPH’s representation instead.

The jury agreed with Westergren and found that he was fraudulently induced into signing the release, but refused to award damages. The trial court then entered a judgment notwithstanding the jury verdict and entered a take nothing judgement for all parties. The Appellate Court remanded the case for a new trial for Westergren’s claim of attorney’s fees.

The Texas Supreme Court zeroed in on whether there was sufficient evidence to support the jury’s verdict that NPH fraudulently induced Westergren to sign the release. NPH claimed that Westergren’s injury was not caused by any reliance, because he could have read the document but failed to do so on his own volition. The Court agreed with NPH and held that Westergren could not justifiably rely on what NPH stated to him about what was in the release because the release directly contradicted what NPH said in unambiguous language. The Court stated that Westergren did not use “reasonable diligence” and ordinary care to protect his own interest. Accordingly, the Court found that the evidence was legally insufficient for the jury to render its verdict, and thus there was no fraudulent inducement and the release was binding.

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