Myers & Chapman v. Thomas G. Evans
1988 N.C. LEXIS 696, 374 S.E.2d 385, 323 N.C. 559 (1988)
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Rule of Law:
Actionable fraud requires a distinct element of intent to deceive, separate from reckless indifference as to the truth. However, a corporate officer can be individually liable for gross negligence when signing a sworn payment application, implying personal knowledge, without conducting reasonable inquiry into the truth of its contents.
Facts:
- Myers & Chapman, Inc. (plaintiff general contractor) entered into a written subcontract with Thomas G. Evans, Inc. (corporate defendant) to furnish and install the heating, ventilating, and air conditioning system for a shopping center.
- The contract required Evans, Inc. to submit periodic 'Applications for Payment' which contained a certification signed by individual defendant Thomas Evans and notarized by individual defendant Brenda Evans, stating that 'to the best of his knowledge, information and belief the Work covered by this Application for Payment has been completed... and that current payment shown herein is now due.'
- Thomas and Brenda Evans were the sole directors and officers of Evans, Inc.
- Evans, Inc. submitted Application for Payment No. 2, requesting $33,227 for equipment purportedly ordered and stored in a local bonded warehouse, including $11,247 worth of specialty items.
- Myers & Chapman, Inc. paid Evans, Inc. for all materials claimed in Application for Payment No. 2.
- Evans, Inc. recertified that the specialty items had been purchased and stored in Application for Payment No. 3.
- Thomas Evans decided to wind up Evans, Inc.'s business, and Custom Comfort, Inc. was contracted to finish the Westside Plaza project.
- Custom Comfort, Inc. was unable to locate the $11,247 in specialty items, leading Myers & Chapman, Inc. to reorder and pay for them a second time.
- Thomas Evans admitted under oath that he had no knowledge on which to base the certification in the applications.
Procedural Posture:
- Myers & Chapman, Inc. (plaintiff) brought suit against Thomas G. Evans, Inc. (corporate defendant) and Thomas G. Evans and Brenda Evans (individual defendants) in trial court on theories of intentional fraud and gross negligence.
- The trial court submitted nine issues to the jury, which found Thomas G. Evans liable for intentional fraud and gross negligence, Brenda Evans liable for gross negligence, and Thomas G. Evans, Inc. liable for unjust enrichment.
- On the basis of these jury findings, the trial court concluded the defendants' actions constituted an 'unfair and deceptive trade practice,' trebled compensatory damages to $35,193, and awarded attorney fees and costs, entering judgment jointly and severally against all defendants.
- Defendants appealed the judgment to the North Carolina Court of Appeals.
- The Court of Appeals reversed the trial court on the intentional fraud issue regarding individual defendants and awarded a new trial to the individual defendants on the gross negligence issues due to erroneous jury instructions, while finding no error as to corporate defendant Evans, Inc.
- Myers & Chapman, Inc. (plaintiff) petitioned the North Carolina Supreme Court for discretionary review, which was granted.
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Issue:
1. Does the element of 'intent to deceive' remain a distinct and essential component of actionable fraud in North Carolina, separate from reckless indifference as to the truth? 2. Can a corporate officer be individually liable for gross negligence when signing a sworn payment application without personal knowledge or inquiry into the truth of its contents? 3. Is a notary public liable for the truthfulness of representations in a document she notarizes, when acting solely in her notarial capacity?
Opinions:
Majority - MEYER, Justice
1. No, the element of 'intent to deceive' remains an essential and distinct component of actionable fraud in North Carolina, and conscious or reckless ignorance of the truth does not, by itself, satisfy this intent element. The jury's finding that Thomas Evans committed fraud was inconsistent with its finding that he did not knowingly submit a false application, and his admitted lack of personal knowledge negated the requisite scienter (knowledge and intent to deceive) for intentional fraud. The court disavows prior cases that may have implicitly omitted the essential element of intent to deceive from the definition of fraud. 2. Yes, a corporate officer can be held individually liable for gross negligence when signing a sworn 'Application for Payment' if they certify work as completed 'to the best of his knowledge, information and belief' without possessing actual knowledge and failing to inquire of those who do. The Applications for Payment are solemn, sworn documents intended to induce reliance, and Thomas Evans' total lack of knowledge and failure to question his project manager constituted sufficient evidence of gross negligence, even while officers are permitted to rely on trusted employees. 3. No, Brenda Evans should not have been included as an individual defendant. The record shows she signed Applications for Payment Nos. 2 and 3 solely in her capacity as a notary public. A notary's role is to verify the signing of a document, not to certify the truthfulness of the document's contents, and there was no evidence she acted as an officer with responsibility for verifying the applications.
Analysis:
This case significantly clarifies the elements of actionable fraud in North Carolina by firmly re-establishing 'intent to deceive' as a necessary and distinct component, explicitly disavowing prior case language that may have blurred this with 'reckless indifference as to truth.' This decision raises the bar for plaintiffs alleging intentional fraud, demanding specific proof of fraudulent intent beyond mere recklessness. Concurrently, it broadens the scope of individual liability for corporate officers under a gross negligence theory when they sign sworn documents implying personal knowledge without conducting reasonable inquiry, underscoring the serious responsibility attached to such certifications in commercial transactions. It also reinforces the limited role and liability of a notary public, clarifying that their certification does not extend to the veracity of the document's content.
