Bevins v. Livesay

• Decision Date: 15 March 1949
• Parties: BEVINS v. LIVESAY et al.
• Court: Tennessee Court of Appeals

221 S.W.2d 106

32 Tenn.App. 1

BEVINS v. LIVESAY et al.

Court of Appeals of Tennessee, Eastern Section.

March 15, 1949

Certiorari Denied by Supreme Court April 26, 1949.

Appeal from Chancery Court, Hamilton County; Alvin Ziegler Chancellor.

Suit by Ola Bevins against R. J. Livesay and another to rescind the purchase by complainant from defendants of a dry cleaning plant, equipment, and good will. From decree from complainant, the defendants appeal.

Affirmed.

Schoolfield & Graham, of Chattanooga, for appellants.

Goins & Ganmon and Wilkerson & Wilkerson, all of Chattanooga, for appellees.

McAMIS Judge.

This is a suit to rescind, by reason of alleged fraudulent misrepresentations of the earnings of the business, the purchase by complainants from defendants of a dry cleaning plant, equipment and good will valued at $10,000. After a hearing, the Chancellor granted a recovery for $5,000 paid in cash by the purchasers and decreed a cancellation of a $5,000 note and conditional sales contract. The defendants appeal insisting by the assignments: (1) That the defendants-sellers made no false representations, (2) that representations as to the past earnings of the business were not material, (3) that complainants-purchasers had no right to rely upon the representations and did not rely thereon and (4) estoppel laches and ratification growing out of the continued operation of the business by the purchasers.

A few days prior to July 21, 1947, defendants through a real estate agent with whom they had listed the business for sale furnished complainants a prospectus showing tangible assets of $8,013 and concluding with the following:

'For the past seven wks. average

Gross $767.43

Expenses $218.76

Net $558.67

'I added 7 wks. work as a Total 5,372.01 took 1/7 of this & got these Figures you understand work is off quite a lot these Summer Months.'

On July 21, 1947 complainants deposited $200 with the agent and executed an offer to purchase at $10,000 to be paid $5,000 in cash and $5,000 by note. The conditional sales contract and note bear date of July 29, 1947. They were acknowledged and delivered on Friday, August 1, 1947, after complainant Frank B. Penick, Jr., a son-in-law of the complainant Ola Bevins and one of the purchasers, had spent four or five days at the plant largely for the purpose of learning dry cleaning methods. Mrs. Bevins had theretofore visited the plant on two occasions and had made a rather cursory examination of the records exhibited by defendants. We understand from her testimony that the records were in the possession of Mrs. Livesay who was the book keeper and that the portions pointed out tended to confirm the weekly earnings indicated by the prospectus.

After the contract was executed and delivered the defendants stayed at the plant through the following day, which was Saturday, August 2, 1947. While they were out to lunch Penick says he made an examination of the daily record book showing the volume of business for the preceding week and that he became suspicious that the volume was much less than he had been led to believe. However, he said nothing to defendants on their return but within a few days, possibly the following Monday, he began to insist upon being permitted to examine the other records which defendants had taken to their home on Saturday afternoon. He says that although his suspicions had been aroused he made no complaint on Saturday intending to make a thorough examination of the records and consult an attorney. When he examined the records on Saturday complainants had already invested $5,000 and executed a note for an additional $5,000.

Defendants, on one pretext or another, though frequently promising to do so, failed to comply with complainants' request for the records and within a few days complainants consulted an attorney who was visited at his office by defendants. When the attorney renewed the demand to see the books, he was advised by defendants that they had been burned. The present suit was filed September 8, 1947, approximately five weeks after the note was executed. In the bill complainants renewed their offer previously declined by defendants to turn the business back to them upon being reimbursed for the $5,000 invested in cash and the delivery of their title retained contract and note.

From the prospectus above quoted, the gross average weekly income over a period of seven weeks was $767.43 with a net of $558.67. For the five weeks between August 1, 1947 and the filing of the bill the gross receipts were (per week) $240.75, $277.51, $218.65 and $286.78. A number of employees who continued at the plant after complainants purchased testified that the volume immediately before and immediately after July 21, 1947, was practically the same. As we have seen, Penick testified that for the last week before it was taken over by complainants the records at the plant indicated that the receipts were far less than represented. Defendants introduced a ledger (not an original record) showing the net income, gross receipts and amount paid out for each week of the seven months of 1947 during which they operated the business. The prospectus, as we have seen, was based upon the last seven weeks before the plant was sold. Running back seven weeks from, but including July 12, 1947, it is to be seen from an examination of the book that the gross receipts and net earnings for the weeks of June 14, 1947, and July 12, 1947, have been raised from $590 and $590.10, respectively, to $690 and $690.10 with a corresponding increase in the net earnings of $100 for each of these weeks. In view of the fact that the original records were burned by defendants, we think it fair to assume that these amounts have been purposely raised, since no explanation of these manifest alterations have been made by defendants. So assuming, and taking the book at its face value otherwise, it appears that the total earnings for the seven weeks in question were $4,600.40 or $607.20 per week. The average expense per week during that period was $241.81, leaving as the net average earnings $415.24 or $133.43 less than the net earnings indicated by the prospectus. Translated to a monthly basis this would have made a difference in earnings amounting to $433.73 per month. If we accept the income tax return made by defendants for the seven months the business was operated by them the business showed an average net profit for the twenty-seven weeks period of only $122.36 per week as against a represented net income of $548.67. In addition, the undisputed proof shows that the dry cleaning business is much better during the winter and spring months.

As the Chancellor commented, the burning of the records engenders doubt as to defendants' position and we believe enough has been said to indicate beyond serious dispute that the evidence of a fraudulent...