On certiorari we are asked to determine whether the trial court erred in granting summary judgment in favor of appellees, the Birds. Appellant Coleman contends the trial court’s order was premature as material fact questions concerning his defenses to plaintiffs’ action were controverted and directly at issue. Coleman additionally argues that the trial court’s holding in favor of Birds on Coleman’s counterclaim is erroneous as their motion for summary judgment did not include the counterclaim and Coleman’s allegations therein had not been controverted or even addressed by Birds.
Coleman contends the trial court erred by treating this action as if it were brought to enforce the terms of a note for a loan of money and refusing to consider the underlying transaction which both sides agreed was a contractual relationship. In so doing, the trial court (and in turn the Court of Civil Appeals) refused to consider his contractual defenses and counterclaim to an action brought against him for breach of contract.
We agree with Coleman. We vacate the Court of Civil Appeals’ decision affirming the trial court’s order denying Coleman’s motion for new trial, motion to vacate and motion to reconsider. The judgment of the trial court in favor of Birds is reversed and the matter is remanded for further consideration. Cer-tiorari was previously granted.
In April of 1987, Birds conveyed all their outstanding stock in Moon-Petro, Inc., an oilfield chemical company, to Coleman for $800,000, consisting of $300,000 down and $125,000 a year for the next five years. The parties did not have a written contract incorporating all the terms of their agreement. A draft was prepared by the Birds but it was never executed. Pursuant to their oral agreement, Coleman paid Birds $300,000 and took possession of the business in May, 1987. Subsequently, Coleman signed a promissory note which reflected the outstanding balance owed under the oral contract in favor of Birds for the principal sum of $500,000 to be paid in annual payments of $125,000. Coleman made all the payments required under the oral contract, as evidenced by the note, from 1988 until 1990 when he withheld $60,-000 from the last payment and tendered the balance to Birds.
The Birds, who still held the note, gave notice to Coleman that they would not accept any setoff and when Coleman was not forthcoming with the $60,000, they sued him for defaulting under the terms of the note seeking the balance due, attorney fees and costs.
Before Coleman filed his answer, Birds moved for summary judgment asserting the uncontroverted facts established that Cole-mans had executed and delivered the note, that there was a balance due on the note for which demand had been made for payment, but Coleman was in default.
Later Coleman answered and set forth the affirmative defenses of fraud and failure of consideration and he counterclaimed against the Birds for fraud, breach of contract and failure of consideration. Coleman admitted that he signed the note as consideration for Birds selling him all the outstanding shares of the corporation and also, he asserted, all its assets. He alleged that Birds breached the contract by failing to convey free and clear title to the subject property. In his counterclaim, Coleman asserted that the Birds sold him all the stock of the corporation and all its assets and fraudulently represented to him that the subject property was owned free and clear of any encumbrances and the corporation had marketable title. He alleged the Birds knew at that time the representations were false and that they fraudulently induced him to enter into the contract and he had relied to his detriment on the fraudulent misrepresentations.
In his response to the Birds’ motion for summary judgment, Coleman asserted that the action pending before the trial court was not an action on a note for a loan or funds advanced, but was based on the underlying contract for sale of stock and assets of Moon-Petro Chem, Inc. He set forth in detail the agreement between the parties and the alleged failure of consideration by reason of failure to convey clear title, fraudulent misrepresentation, allegations of fraudulent inducement and his detrimental rebanee thereon, all supported by affidavit and supporting documents including the written contract draft originally prepared by Birds but never executed. That agreement repeatedly mentions that the sale of the corporate stock includes ab the corporate assets, which encompass “lands and buildings,” which strongly imphes that Birds did intend to convey all the corporate assets in this sale.
In their reply to Coleman’s response to their motion for summary judgment, the Birds admitted a contractual arrangement between the parties was the basis of the note, but contended that the contractual transaction was limited to the sale of stock and did not include the purchase of corporate assets. They argued that Coleman received all he bargained for, the outstanding stock, and therefore his claim of failure of consideration did not present substantial controversy as to a material fact requiring trial by the court.
In their reply to Coleman’s counterclaim the Birds denied that a misrepresentation was made, but they presented no evidentiary materials to refute Coleman’s evidence of his claim of fraud in support of his defense and counterclaim of fraud.
The trial court granted summary judgment in favor of Birds on their claim on the note and on Coleman’s counterclaim. The trial court found that Coleman had defaulted under the terms of the note, that no genuine issue of fact existed to be tried and Birds were therefore entitled to judgment on their claim for collection of an unpaid promissory note in the amount of $87,000 and $10,700 in attorney’s fees and costs.
There are numerous material facts at issue that make this summary judgment inappropriate: whether the corporate assets were included in the contractual agreement of the sale of Moon Petro-Chem to Coleman; whether the Texas property was unencumbered and the corporation had clear title; whether that representation was made by the
Coleman has alleged that he was damaged (1) because liens devalued the real property and thus the value of the corporation was below what he bargained for, and (2) because the Birds represented that the property was free and clear of all liens and caused him, in reliance, to misrepresent the status of the property on resale and be sued. Coleman argues the Birds’ sale of the Moon Petro-Chem, Inc., with these misrepresentations was therefore a partial failure of consideration as well as breach of contract and fraud.
Coleman asserted that in evaluating and reaching a price for the purchase of corporation, he looked at the assets of the corporation and the corporations’s income. Thus, because the Birds misrepresented the value of the stock, and because of the deficiency in the title which cost him to clear, he was damaged as a buyer and then as a seller for the Birds’ partial failure of consideration. This Court held that “a partial failure of consideration is ... a defense in an action on a note by the payee.” See
Hart Industrial Supply Co. v. Craig,
In addition to pleading affirmative defenses, including fraud, Coleman alleged counterclaim for fraud. The Birds never moved for summary judgment on the counterclaim. It was not addressed by their brief on summary judgment and Coleman’s allegations of fraud were never refuted. Despite the failure of Birds to even address the counterclaim of fraud, the trial court nonetheless granted them summary judgment on the counterclaim.
Coleman alleged with sufficiency a counterclaim based on fraud.
Johnson v. Eagle,
A counterclaim is a distinct and separate cause of action from the original action. Because the defendant becomes the plaintiff when a counterclaim is interposed, our pleading code recognizes that a reply to a counterclaim is required just as an answer is required for the petition.
Coleman alleged that fraudulent material representations by the Birds, on which he relied, have damaged him. Actual fraud is always a question of fact.
“The elements of actionable fraud are that the defendant made a material representation that was false, that he knew when he made the representation that it was false, and that he made it with the intention that it should be acted upon by plaintiff, and that plaintiff acted in reliance upon it and thereby suffered detriment.”
In
Dalton v. Hopper,
“In a transaction involving the sale of stock in a corporation, representations as to the financial condition of the company ... the value of its stock ... made with the view to induce another to subscribe therefore, are representations of matters of fact ... and when relied upon by the purchaser of said stock, if false, constitute actionable fraud.”
The material facts surrounding the terms of the contract, Coleman’s affirmative defenses to Birds’ claims and Coleman’s entire counterclaim were in sharp dispute. Accordingly, we hold that summary judgment was premature and improperly granted to the Birds on their claim for recovery against Coleman.
The judgment of the trial court is reversed and the matter is remanded to the trial court for further proceedings not inconsistent with this opinion.