Berving v. R & R Co.

• Decision Date: 22 January 2002
• Docket Number: No. ED 79054.,ED 79054.
• Citation: 70 S.W.3d 10
• Parties: Alfred A. BERVING and Cyrilla Berving d/b/a Rockport, Inc., and Rockport, Inc., Appellants, v. R & R COMPANY and R & R Company d/b/a R & R Sign Company and Rita L. Patrick, Respondents.
• Court: Missouri Court of Appeals

70 S.W.3d 10

Alfred A. BERVING and Cyrilla Berving d/b/a Rockport, Inc., and Rockport, Inc., Appellants, v. R & R COMPANY and R & R Company d/b/a R & R Sign Company and Rita L. Patrick, Respondents.

No. ED 79054.

Missouri Court of Appeals, Eastern District, Division One.

January 22, 2002.

Motion for Rehearing and/or Transfer to Supreme Court Denied March 13, 2002.

Mark A. Kinzie, Sandra J. Wunderlich, James M. Meister, St. Louis, MO, for appellant.

Ted F. Frapolli, Cynthia Garnholz, St. Louis, MO, for respondent.

ROBERT G. DOWD, JR., Judge.

Alfred A. and Cyrilla Berving (collectively "Appellants") appeal from the September 19, 2000 Judgment of the Honorable Patrick J. Clifford of the Circuit Court of St. Louis County, and December 18, 2000 judgment of the Honorable Robert S. Cohen of the Circuit Court of St. Louis County. Appellants brought an action against Rita L. Patrick and R & R Sign Company (collectively "Respondents") for rescission of a purchase contract based upon misrepresentation. Respondents filed a counterclaim for breach of contract and requested attorney's fees and expenses. Judge Clifford, sitting in equity, ruled in favor of Respondents, finding no misrepresentation and denying Appellants' claim of rescission. After transfer of the legal claims by Judge Clifford, Judge Cohen ruled in favor of Respondents on their breach of contract claim and awarded Respondents attorney's fees, royalties, and damages. We affirm in part and reverse and remand in part.

Reviewing the record in light most favorable to Respondents, we find in April 1998 Appellants purchased the assets of R & R Sign Company ("R & R") owned by Rita L. Patrick ("Patrick"). R & R was engaged in the electrical and neon sign business. At the time of purchase, Appellants had no experience in such business. Patrick had seventeen years of experience in the electrical sign business and had operated R & R since 1985. Appellants observed Patrick's operation of the business and reviewed her business files prior to signing the purchasing agreement. Appellants and Patrick met approximately twenty to twenty-five times to discuss the operation of R & R. Patrick informed Appellants that an electrical permit and licensed electrician was needed for all major repairs and the final connection of new sign installations. Patrick further stated that unlicensed electricians could not run any new electrical lines, but they could perform replacement work on the signs; they could take out a part and put in a new part as long as it was a simple replacement of the same components. Appellants also had conversations with Chuck Poling ("Poling"), a licensed electrical contractor that Patrick worked with on numerous occasions. Poling told Appellants that Patrick's interpretation of what work could be done without a licensed electrical contractor was correct. Alfred A. Berving ("Berving") also had a conversation with a Mr. Stevens ("Stevens") who owned a sign company in the St. Louis area. Stevens told Berving that he had done repair work on electrical signs without a licensed electrical contractor for government buildings.

During the course of her business, Patrick employed unlicensed electricians and contracted with licensed electricians to obtain electrical permits and handle major electrical work. Her bills and invoices reflected rates of $47 per hour for licensed electricians and $19 per hour for unlicensed electricians. Richard Schmidt ("Schmidt"), Appellants' accountant, examined R & R's tax returns and financial statements for 1995-1997 and determined that expenses paid to licensed electricians was 8.54 percent of its gross revenue. This represented about twenty hours of licensed electrical contractor services per month. Relying upon this financial information, Schmidt projected revenues Appellants might expect to generate from the business and based upon these figures he recommended that Appellants purchase the business.

On April 11, 1997, the parties executed and entered into the purchase and sale contract ("contract"). In the contract, Patrick provided a warranty, which stated in part: "Seller has complied with and is not in violation of all federal, state, and local statutes, laws and regulations affecting seller's properties or the operation of seller's business."

After the April 11, 1997 closing, Appellants began operating R & R with Patrick's consulting assistance, for which she was to be compensated as stated in the contract. In the first year of operation, Appellants were successful in continuing the business near the level at which it had operated during the year prior to purchase. Judge Clifford found, however, that shortly after the purchase of the business, Berving asked Patrick to take back the business due to family and personal problems and because the business was requiring more hours of work than he had anticipated, but Patrick refused.

On April 10, 1998, Berving and his employee, Rick King ("King"), were removing an old neon sign from a building with the intention of installing a new sign. Dennis St. Clair ("St. Clair"), an assistant electrical inspector for St. Louis County, saw Berving and King working on the sign and began questioning Berving. When St. Clair arrived, the sign had been completely disassembled and was lying in pieces on the ground. St. Clair told Berving that he could not handle certain electrical components unless he was a licensed electrician. Neither Berving nor King was a licensed electrician. St. Clair issued Berving a citation charging him with installing electrical equipment without a permit by unlicensed persons in violation of St. Louis County ordinance. Berving pleaded guilty to the violation and paid a $250 fine.

On April 13, 1997, Rick Hill ("Hill"), Chief Electrical Inspector of the St. Louis County Electrical Inspections Office, sent a "Notice of Violation—Stop Work Order" to Berving along with the applicable St. Louis County ordinance and a letter stating that Berving had been cited for "violation of St. Louis County ordinance 17337-93 in that you have started construction which has not been authorized by the required permit." On that same day, Berving met with St. Clair and St. Clair explained the work Berving could and could not perform as an unlicensed electrician.

After this conversation, Appellants believed that all electrical work on a sign must be done by a licensed electrician and they would need a licensed electrician for ninety to ninety-five percent of the work they were doing to comply with St. Louis County Ordinances. They estimated that his would cost approximately $55,000 to $70,000 annually as opposed to $35,000 annually to use unlicensed electricians. Evidence adduced at trial demonstrated this belief was mistaken. Hill testified that St. Louis County ordinances are interpreted to allow certain electrical work to be performed by unlicensed electricians, like minor repairs. St. Clair testified that electrical component parts could be replaced with like component parts by unlicensed electricians. This testimony is consistent with Patrick's representations.

Appellants met with Patrick on May 2, 1998, and again asked her to take back the business. Patrick refused. Thereafter, Appellants finished the work they had started or already agreed to before April 10. They subcontracted out all additional work to Davis Maintenance Service.¹ On May 15, 1998, through his legal counsel, Berving sent a letter to Patrick requesting rescission of the contract. Patrick once again refused. Thereafter, Appellants made no further payments to Patrick.

Appellants filed suit against Respondents for rescission, alleging that Patrick made material misrepresentations about when a licensed electrical contractor needed to be used, and Patrick breached the warranty provided in the contract by conducting her business without a licensed electrician on staff. Respondents filed a counterclaim alleging Appellants breached the contract by violating a non-compete clause and failing to make payments and royalties as specified in the contract. Appellants now appeal the judgment of Judge Clifford, finding Patrick made no misrepresentations, and Appellants failed to prove that Patrick breached the warranty in the contract. Appellants also appeal the judgment of Judge Cohen, granting Respondents' breach of contract counterclaim and awarding Respondents consulting fees, royalties, attorney's fees, and damages for violating a non-compete agreement.

Appellants' first four points basically argue Judge Clifford erred in finding that Patrick made no misrepresentations or breach of warranty. Appellants claim that the alleged misrepresentation allows for rescission of the purchase agreement under Missouri law. Because we find no misrepresentation or breach of warranty, we affirm Judge Clifford's judgment denying rescission.

At the equity hearing, Patrick testified that she told Appellants that they would need a licensed electrical contractor to make the final connection and all major repairs. Berving confirmed Patrick's testimony. At trial he testified that Patrick told him that h...