Carrel v. Lux

• Decision Date: 17 November 1966
• Docket Number: No. 7919,7919
• Citation: 420 P.2d 564,101 Ariz. 430
• Parties: Frank B. CARREL and Clariece Carrel, his wife, Appellants, v. Walter E. LUX and Irene L. Lux, his wife, Russ Lyon, dba Russ Lyon Realty, Townsend C. Shields, and Robert Hubbard, Appellees.
• Court: Arizona Supreme Court

Page 564

420 P.2d 564

101 Ariz. 430

Frank B. CARREL and Clariece Carrel, his wife, Appellants, v. Walter E. LUX and Irene L. Lux, his wife, Russ Lyon, dba Russ Lyon Realty, Townsend C. Shields, and Robert Hubbard, Appellees.

No. 7919.

Supreme Court of Arizona, In Division.

Nov. 17, 1966.

Rehearing Denied Dec. 6, 1966.

Powers & Rehnquist, Phoenix, for appellants.

D. Kelly Turner and Lewis B. Moore, Jr., Scottsdale, for appellees Lux.

Carson, Messinger, Elliott, Laughlin & Ragan, Phoenix, for appellees Lyon, Shields, and Hubbard.

UDALL, Justice.

Frank and Clariece Carrel, the plaintiffs, brought suit against the defendants, Walter and Irene Lux, Russ Lyon, dba Russ Lyon Realty, Townsend Shields, and Robert Hubbard, to recover damages caused by alleged fraudulent representations in connection with the sale of a piece of real property. The case was tried before a jury and, at the close of the evidence for plaintiffs, the court granted a motion for a directed verdict in favor of each of the defendants, on the ground that plaintiffs had failed to sustain their burden of proof and had not as a matter of law made out a prima facie case against the defendants. Judgment was rendered on the verdict and thereafter this appeal was taken.

The assignment of error presented to us on this appeal is that the trial court erred in directing a verdict for the defendants at the close of plaintiffs' case for the reason that plaintiffs' evidence was sufficient to make out a claim for relief on the basis of fraud against each of the defendants. More specifically, as against all defendants, there was evidence from which the jury could have concluded that defendants Shields, Hubbard, Lyon and Lux had made a material misrepresentation as to the amount of acreage which the property contained, which representation and the circumstances surrounding it contained all the necessary elements of actionable fraud. Secondly, as against defendants Lux, there was evidence from which the jury could have concluded that they had made a material misrepresentation as to the operating income of the property during the years it was owned by them, which representation and the circumstances surrounding it contained all the necessary elements of actionable fraud.

In deciding if there was sufficient evidence to have the case submitted to the jury for a verdict on the merits, we must take the evidence as a whole and construe it in the light most favorable to plaintiffs. The plaintiffs came to Arizona from California in August, 1959. Mr. Carrel had recently retired from business so they were looking for a place to live and for some income property which they might purchase with their savings. Responding to an advertisement in a newspaper, plaintiffs went to the office of Russ Lyon Realty Company, and were met there by Townsend Shields, a salesman employed by the realty company. He showed them the property advertised in the newspaper but it did not appeal to them. Mr. Shields then told plaintiffs that a piece of property known as La Vista Grande Resort was for sale and suggested that they look at it. The plaintiffs, accompanied by Shields and Mr. Lux, the owner of the property, toured La Vista Grande that same day. During the tour, Shields, in the presence of Lux, told Mr. Carrel that the property consisted of 7.8 acres. Plaintiffs expressed an interest in the property and asked Lux to furnish an operating statement covering the time during which he and his wife had owned it. Mr. Lux furnished them such a statement a day or so later through Shields and it showed an annual net operating income from the property of some $12,600.00.

The Luxs' asking price for the property, of $160,000, was thought by plaintiffs to be a bit beyond their reach. After further negotiation, however, they entered into an agreement of sale whereby they contracted to purchase it for $152,500. It was agreed that they were to make a $25,000 down payment, and make monthly payments totaling $800 on the existing first and second mortgages and to pay off the Luxs' third mortgage by an annual lump sum payment of $10,000 principal plus interest, the first payment to be due in March, 1960. Plaintiffs put up the $25,000, which was paid out at the close of escrow and they took possession of the property on September 15, 1959. Once in possession, plaintiffs invested an additional $7,000 in remodeling and refurbishing the existing rental units, but in the following seven month period the property produced a gross income of far less than what the Luxs' income statement reflected they had obtained in the previous year. In fact, plaintiffs sustained an operating loss of approximately $9,000 in those seven months. By reason of the substantial mortgage payments and the absence of operating income, plaintiffs were forced in early 1960 to put the property up for sale and finally sell it in May, 1960. In the previous March, however, plaintiffs had instituted this action after learning that the acreage in their property was not 7.8 as they had been told, but was instead 5.3. Plaintiffs also made the further discovery that the Luxs' income tax returns revealed operating losses for each year they had operated the property.

The elements necessary to establish fraudulent misrepresentation are well settled in this state. In Moore v. Meyers, 31 Ariz. 347, 253 P. 626, 628, we set them out as follows:

'(1) A representation; (2) its falsity; (3) its materiality; (4) the speaker's knowledge of its falsity or ignorance of its truth; (5) his intent that it should be acted upon by the person and in the manner reasonably contemplated; (6) the hearer's ignorance of its falsity; (7) his reliance on its truth; (8) his right to rely thereon; (9) his consequent and proximate injury.'

Since the case at bar is one in which the trial court directed a verdict for defendants, the weight of plaintiffs' evidence does not concern this Court. Our task is merely to determine if there was evidence upon which a reasonable person could conclude that each of the elements of fraud were present. Joseph v. Tibsherany, 88 Ariz. 205, 354, P.2d 254. Therefore, we will examine the evidence adduced by plaintiffs to see if it would support a finding by the jury as to each of the respective elements of actionable fraud for one, misrepresentation as to income and two, misrepresentation as to acreage.

As a general rule, a false representation as to past or present rents, profits, or income is held to constitute a sufficient basis for an action for damages or recission on the ground of fraud. See Annot., 27 A.L.R.2d 14 (1953). It is clear from an examination of the record and not argued otherwise by defendants Lux that there was sufficient evidence presented by plaintiffs at the trial to show that most of the elements of fraud were present; in particular, that a representation as to past income was made by defendants, Lux, that it was a material representation and that plaintiffs relied on its truth. However, defendants Lux do assail the sufficiency of plaintiffs' evidence on three of the necessary elements, namely: the falsity of the representation, the plaintiffs' right to rely thereon and the damages suffered by plaintiffs thereby.

Plaintiffs' exhibit 3 is an income statement which defendants Lux gave them and which shows that between May 15, 1958 and May 15, 1959, defendants derived a gross income from the subject property of $26,743 and incurred operating expenses of $14,068, which left a net operating income of $12,675. In seeking to establish that the income statement was a false representation of the past operating income, plaintiffs introduced in evidence as their exhibits 13 and 14, the income tax returns of defendants Lux for the years 1958 and 1959. These returns cover the period of time during which defendants owned the subject property and to which the figures on the income statement given to plaintiffs relate.

The 1958 tax return shows the total income for the property for the year as $5,953.40, and the total expenses as $11,223, leaving an operating loss of $5,269.60. The tax return for 1959 gives the gross income from the property for the period between January 1st and September 15th, the date on which plaintiffs took possession, as $15,453 and listed an operating loss of $9,102 for that period. Comparing the figures on the income statement with those on the tax returns we see that defendants represented their gross income from the property between May 15, 1958 and December 31, 1958, as $7,772 on the income statement, but defendants' 1958 tax return shows a gross income from the property of $5,953.40 for the entire twelve months. For the period from January 1, 1959 to May 15, 1959, the income statement shows a gross income of $18,971, yet, the gross income from the property for the longer period of January 1, 1959 to September 15, 1959, is represented as being $15,453 on defendants' income tax return for that year. Furthermore, we see that defendants represented on the income statement that their total operating expense in connection with the property was $2,550 for 1958, but their tax return for that same year stated the operating expenses to be $11,223. In the absence of a reasonable explanation for the gross disparity between the figures on the income statement and the income tax returns, we are compelled to assume that defendants Lux made false representations of income and profits to either the government of the plaintiffs and as to which, is a question for a jury to decide.

It is contended by defendants Lux that since plaintiffs did not inspect the resort records nor make any inquiry concerning the particular facts involved, they did not have the right to rely on the income statement. Plaintiffs argue that since they specifically requested the operating statement from defendants and they based their estimate on whether they could afford the property on the information shown in the operating statement, there...