Defendants appeal from an order denying a new trial in an action for the rescission, because of fraudulent representations, of a contract for the purchase of defendants' summer resort.
Defendants, father and son, in 1940 acquired Jameson's Wilderness Resort located 18 miles north of Hovland, Minnesota, on Lake McFarland. They continued to own and operate the resort until it was sold to plaintiffs by contract for deed December 17, 1947, for $95,000, with a down payment of $10,000 and with the principal balance of $85,000 payable as follows: $20,000 on or before February 15, 1948; $15,000 on or before April 15, 1948; $2,500 on or before July 15, 1948; $2,500 on or before October 1, 1948, and $2,500 on or before July 15 and October 1 of each year thereafter until paid in full. The contract provided that all sums paid prior to a default
In addition to a finding that defendants had fraudulently concealed the fact that they had lost money each year, the trial court specifically found that during the negotiations and talks had between the parties prior to entering into the contract for deed defendants represented to plaintiffs:
(1) That defendants were making good money out of the resort;
(2) That plaintiffs could make good money out of it; and
(3) That plaintiffs could make all future payments on the contract out of the profits.
There are further findings that said representations:
(1) Were known by defendants to be untrue when they were made;
(2) Were made by defendants for the purpose of deceiving and inducing plaintiffs to enter into the contract for the purchase of the property at a price clearly in excess of its real value;
(3) Were relied upon by plaintiffs; and
The trial court also found that defendants at all times knew that plaintiffs were young and inexperienced; that they had no property; that they wished to acquire this property as a means of livelihood; and that, in order to make future payments on the contract, they would have to make them out of the profits from the resort business. Pursuant to its findings, the court ordered judgment for rescission of the contract and for a return to plaintiffs of the $36,000 which they had paid, with interest. Defendants then moved for amended findings or a new trial, and, upon denial thereof, we have this appeal.
1-2. We need consider only the first representation, namely, that defendants represented to plaintiffs that they were making good money out of the resort business. If the court's finding thereon is supported by the evidence, its order denying a new trial must be sustained, and it will be wholly unnecessary to consider the validity or factual basis of the other two representations or of the finding that defendants, when there was a duty to disclose, fraudulently concealed the material fact that they had lost money each year. It is well established that:
"A person is liable for fraud if he makes a false representation of a past or existing material fact susceptible of knowledge, knowing it to be false, or as of his own knowledge without knowing whether it is true or false, with intention to induce the person to whom it is made to act in reliance upon it, or under such circumstances that such person is justified in acting in reliance upon it, and such person is thereby deceived and induced to act in reliance upon it, to his pecuniary damage." 3 Dunnell, Dig. § 3818. See, Gaetke v. Ebarr Co. Inc. 195 Minn. 393, 263 N.W. 448.
A false representation as to past or present income and profits is a false representation of a past or existing material fact within the
There is ample evidence — although it is conflicting — to sustain the findings that defendants did misrepresent the past income and profits of the resort. We have testimony, which the court could accept as true, that plaintiff Lowell Spiess, when a price of $100,000 was asked, specifically inquired of one of the defendants how long it would take to pay off that amount out of resort profits, and he was told that it could be paid off in five operating seasons. This answer obviously involved something more than a prediction of possible future earnings, in that it would have relation to defendants' past earning experience. Reasonably, there could be no basis for the answer other than that of defendants' past experience. This is corroborated by more specific testimony when Lowell, in response to his direct inquiry, was told that defendants in 1946 "took in" $25,400 with expenses of $6,000. This would indicate net earnings of $19,400 for 1946, which on a five-year basis would practically amount to the asking price of $100,000. One of the defendants admitted that he had stated that the gross income for 1947 was around $19,000. The undisputed facts are that defendants had lost money every year of their operation, inclusive of the years 1946 and 1947, which were generally conceded to have been the most prosperous years in the history of Minnesota's resort business. Defendants also told Lowell Spiess that they were making "good money," and the making of "good money" does not in any man's language — when addressed to persons seriously considering the purchase of a business — square with an undisputed record of substantial loss year after year. We are not here dealing with the mere puff talk of an enthusiastic salesman, but with a statement of
3-4-5. Defendants' representations of making "good money" and of having taken in $25,400 in 1946 with expenses of $6,000 were made without qualification and were made as of the defendants' own knowledge. An unqualified affirmation amounts to an affirmation as of one's own knowledge. Schlechter v. Felton, 134 Minn. 143, 158 N.W. 813, L.R.A. 1917A, 556. Whether the representations were made innocently or knowingly, they would equally operate as a fraud upon plaintiffs when made unqualifiedly or as of defendants' own knowledge. A bad motive is not an essential element of fraud.
6-7. The rule that "The recipient in a business transaction of a fraudulent misrepresentation is not justified in relying upon its
8-9. Not only did plaintiffs have the right to rely upon the truth of defendants' representations, but they did so in fact. It was both natural and reasonable for them to do so. At the time of the transaction, plaintiffs, Lowell and Maurice, who were brothers, were of the respective ages of 21 and 26 years, and they had not had any experience in operating resorts, either large or small. Lowell, the young brother, had operated a motion picture theater under the friendly tutelage of his father. Plaintiffs' visits to the resort, with some insignificant exceptions, were primarily recreational and did not give them a knowledge of the business. Defendants, on the other hand, were mature men of considerable experience in the resort as well as other business. Although the element of disparity in business experience is not of itself a sufficient ground for relief, nevertheless, the law does not ignore such disparity, especially where, as here, the inexperience of youth is coupled with an added factor of special trust and confidence growing out of a reasonable assumption by plaintiffs that a genuine and close friendship existed between them and defendants. See, Gable v. Niles Holding Co. 209 Minn. 445, 296 N.W. 525. On various occasions
The materiality of defendants' representations is so obvious from what has already been said that no discussion thereof is needed.
There was no unreasonable delay after the discovery of the fraud before commencing an action for rescission. Plaintiffs, who had been denied access to the books, were not in a position to learn the facts until they had a reasonable opportunity to observe the resort under operative conditions. They had no opportunity to commence operations until the spring of 1948. The evidence fully justifies a finding that plaintiffs discovered the fraudulent representations within a reasonable time after they had the opportunity to do so. We attach no significance to the fact that the action for rescission
10. Defendants contend that the trial court's decision does not conform to either the pleadings or the proof, in that it is based primarily on the finding that defendants, in violation of a duty to disclose, had fraudulently concealed that they had regularly lost money. It is unnecessary to consider this contention, in that the trial court's decision is sustained upon a different and wholly independent finding, namely, that defendants fraudulently represented to plaintiffs that they were making "good money." Where a trial court has made two or more independent findings of fact, and one of these findings of fact — the making of which has manifestly not been influenced or controlled by an error of law
Much ado has been made about the finding that plaintiffs lost money on their operations of the resort in 1948. Although the evidence reasonably sustains the finding, it is of no material consequence, for two reasons. In the first place, we are not concerned in an action for rescission with a question of damages. Kirby v. Dean, 159 Minn. 451, 199 N.W. 174; Gaetke v. Ebarr Co. Inc. 195 Minn. 393, 263 N.W. 448. In the second place, if the particular finding was used for any purpose other than that of throwing some light upon the rental value of the premises, as indicated by the subject of the paragraph in which it is embodied in the findings, such other purpose obviously must have been limited to the function
11. Defendants assert that the trial court's finding that the improvements made to the resort premises by plaintiffs offset its rental value during the period of their occupancy is arbitrary and without support in the evidence. They alleged that the court failed to find the resort's fair rental value and that no proof was offered on the issue. Apparently defendants overlook the fact that, insofar as the defrauding parties are allowed any rental for the use of the premises in rescission for fraud proceedings, such allowance is made not by reason of any legal right, but purely as an equitable obligation of the parties each to the other to restore the status quo ante by each receiving substantially the property with which he parted without enjoying any unjust enrichment by retention of that of the other. It is simply a rule for meting out substantial justice, so that one may not enjoy unconscionable enrichment at the expense of another.
12. The evidence has been conflicting, but it is clear, in the light of the evidence as a whole, that the findings are sustained by a fair preponderance of the evidence. The rule requiring clear and convincing evidence to justify a rescission of a contract for fraud is merely a rule of caution against setting aside written instruments upon weak and inconclusive evidence. A fair preponderance of the evidence is sufficient. McCarty v. New York L. Ins. Co. 74 Minn. 530, 77 N.W. 426; 1 Dunnell, Dig. & Supp. § 1202.
The order of the trial court is affirmed.
PETERSON, JUSTICE (dissenting).
While I concur in the views of the majority as to the rules of law stated in their opinion, I dissent upon the ground that, in
The evidence conclusively shows that it became known that defendants were willing to sell the property in question for about $100,000. Plaintiffs were familiar with the property. They started negotiations to purchase it. Before defendants made any representations concerning the property, and consequently when plaintiffs were uninfluenced by any such representations, they made an offer to purchase for $90,000. After some negotiations, the parties agreed on $95,000 as the purchase price. The increase in the purchase price as a consequence of the negotiations was a little less than six percent of plaintiffs' offer before any representations had been made. A sale price increased, as a consequence of negotiations, such a slight amount above the buyers' offer, uninfluenced by any representations, cannot be said to be the result of fraud. As a practical proposition, the sale here was at plaintiffs' own price.
A painstaking reading of the record produces the conviction that the trial judge was influenced to find fraud because plaintiffs were young and inexperienced. Neither is a ground for finding fraud. While it is true that they were young, they were not inexperienced. As a consequence of experience, they had acquired unusual business acumen.
THOMAS GALLAGHER, JUSTICE (dissenting).
1. I concur in the dissent. The property was sold to plaintiffs for $95,000. There was substantial testimony, not seriously in dispute, that the reasonable value of the property was in excess of $100,000. In addition to the expert testimony on values submitted by the parties, the trial court, on its own initiative, called three neutral expert witnesses, owners and operators of similar resorts in the same general area, who were familiar with the property involved, to give their opinion as to its value. Their testimony thoroughly substantiated the opinions of defendants' experts as to value, and it clearly indicated that the property, if operated efficiently, was capable of producing a good net income. Under
2. The evidence submitted in support of plaintiffs' allegations as to misrepresentation relative to earnings would hardly seem to sustain a finding of fraud. The statements claimed to have been made by defendants relative thereto to future prospects. Most of them were made prior to the time when either plaintiffs or defendants contemplated a sale of the property. The most that can be drawn therefrom was that defendants had at times stated that they were "making good money" or that they had a "darn good business."
Prior to the letter of September 26, 1947, in which plaintiff Maurice Spiess offered to purchase the property for $90,000 (some $5,000 less than the price finally agreed upon), he had had but one conversation with defendant William Brandt and no conversations whatever with defendant John Carlos Brandt. His talk with William Brandt was immediately after he and plaintiff Lowell Spiess had talked over the matter of a purchase. Nothing was said at that time by either of the Brandts as to earnings of the resort for the year 1946. The conversation reflected only the expectations of William Brandt as to future prospects, in the light of full resumption of auto transportation after the war.
3. A written instrument executed with due formality and known to be executed for the purpose of embodying the agreements of the parties should not be set aside on the ground of fraud unless the proof is clear and strong. First Nat. Bank v. Schroeder, 175 Minn. 341, 221 N.W. 62; 3 Dunnell, Dig. & Supp. § 3839. Opinions expressed as to future prospects of a particular business cannot be used as a basis for fraud. Eurich v. Bartlett, 151 Minn. 86, 186 N.W. 138. Representations made after a decision to purchase cannot be regarded as inducements toward making the purchase agreement, since there could have been no reliance thereon. Nilsen v. Farmers State Bank, 178 Minn. 574, 228 N.W. 152; Rien v. Cooper, 211 Minn. 517, 1 N.W.2d 847.
5. The court placed much reliance on the ages of plaintiffs, their lack of experience, and the fact that they had not operated properties of this type. John Carlos Brandt, one of the defendants, at the time he purchased the resort was not much older than plaintiff Lowell Spiess when he originally purchased it. Both plaintiffs had had experience in the operation of other properties. Lowell owned an interest in and operated a theater, while Maurice owned real estate in Newport. Both of such properties were to be sold by plaintiffs so that the proceeds might be used as part of the purchase price herein. Their parents and older brother were interested in this transaction and counseled and advised them in connection therewith. The parties were at all times dealing at arm's length.
6. It is asserted that defendants sustained a loss during prior years. This may be largely explained by the extensive capital expenditures made by them in improving the resort. For example, in 1947, $14,231 was put back into the properties in improvements. This, in itself, would indicate that defendants were making "good money" in the business. Many of such improvements were not of a recurrent nature and could be depreciated over a number of years.
7. No allowance was made for the use and rental value of the property during plaintiffs' possession thereof. During 1948, they not only had their living provided, but they were also able to acquire an automobile, an airplane, and at least $1,630.54 in cash from their operation of the resort. The trial court found that the improvements made by them offset the rental value of the property. No finding was made as to fair rental value. The improvements
8. I cannot subscribe to the theory that this contract, made pursuant to an offer freely given, should be set aside on any of the grounds above outlined. If it may be thus rescinded, I fear that few contracts will withstand the onslaught of another business depression or the disappointment following an optimistic but inefficient purchaser's unsuccessful operation of property purchased.