Chamberlain Livestock Auction, Inc. v. Penner, 16906

• Decision Date: 17 October 1990
• Docket Number: No. 16906,16906
• Citation: 462 N.W.2d 479
• Parties: CHAMBERLAIN LIVESTOCK AUCTION, INC., and Robert J. Jorgenson, Appellees, v. Donald PENNER, Chamberlain Livestock Sales, Inc., and the Officers and Directors of Chamberlain Livestock Sales, Inc., Appellants.
• Court: South Dakota Supreme Court

Page 479

462 N.W.2d 479

CHAMBERLAIN LIVESTOCK AUCTION, INC., and Robert J.

Jorgenson, Appellees, v. Donald PENNER, Chamberlain Livestock Sales, Inc., and the

Officers and Directors of Chamberlain Livestock

Sales, Inc., Appellants.

No. 16906.

Supreme Court of South Dakota.

Argued May 22, 1990.

Decided Oct. 17, 1990.

John Morgan and Don E. Petersen of Morgan, Theeler, Cogley & Padrnos, Mitchell, for appellees.

Rick Johnson of Johnson, Eklund & Davis, Gregory, for appellants.

MEIERHENRY, Circuit Judge.

This case combines two lower court actions involving a contract to purchase the Chamberlain Livestock Auction (auction). Donald Penner (Penner), the purchaser, brought an action for rescission of the contract claiming misrepresentation; in the alternative, if the court found no misrepresentation, he contended that Robert Jorgensen's (Jorgensen), the seller's, damages were limited to those specified in the contract. Jorgensen claimed that Penner was in default, requested termination of the contract, demanded immediate possession and sought damages in excess of the contract provision. The trial court denied the claim for rescission, found no misrepresentation by Jorgensen and determined that Jorgensen was not limited to the damage provision in the contract.

The issues are (1) whether the trial court erroneously found that Jorgensen had not misrepresented certain information and (2) whether the trial court should have limited Jorgensen's damages to those specified in the liquidated damage provision of the contract. We affirm the trial court's finding of no misrepresentation; we reverse its award of damages in excess of the contract provision.

FACTS

On July 13, 1987, Jorgensen and Penner entered into an agreement for the auction's sale and purchase. The negotiations for the sale and purchase of the auction barn and business took place between Jorgensen, the principal shareholder and operating officer of the auction, and Penner, the principal shareholder and operating officer of Chamberlain Livestock Sales. The sale included real estate, inventory, equipment, fixtures, supplies and goodwill.

The terms of the agreement included a total purchase price of $320,000; $20,000 to be paid at the execution of the agreement; $60,000 on or before July 31, 1987; and the balance of $240,000 with interest at 9% per annum was to be paid in thirty equal semi-annual installments of $14,736 commencing on February 1, 1988. Penner made the payments of $20,000 upon executing the agreement and $60,000 on or before July 31, 1987. Penner failed to make the $14,736 semi-annual payment on February 1, 1988.

MISREPRESENTATION

Penner sought rescission of the purchase agreement and return of the $80,000 down payment. Penner maintained that Jorgensen misrepresented the livestock figures to him, thereby inducing him to enter into the contract.

South Dakota law provides for rescission of a written contract when the consent of a contracting party was "given by mistake or obtained through duress, fraud, or undue influence...." SDCL 53-11-2. Fraud can be either actual or constructive.

Actual fraud in relation to contracts consists of any of the following acts committed by a party to the contract, or with his connivance, with intent to deceive another party thereto or to induce him to enter into the contract:

(1) The suggestion as a fact of that which is not true by one who does not believe it to be true;

(2) The positive assertion, in a manner not warranted by the information of the person making it, of that which is not true, though he believe it to be true;

(3) The suppression of that which is true by one having knowledge or belief of the fact;

(4) A promise made without any intention of performing it; or

(5) Any other act fitted to deceive.

Actual fraud is always a question of fact.

SDCL 53-4-5.

Constructive fraud consists of "any breach of duty which, without any actually fraudulent intent, gains an advantage to the person in fault ..., by misleading another to his prejudice...." SDCL 53-4-6. The existence of fraud is a question of fact for the fact finder. Holmes v. Couturier, 452 N.W.2d 135 (S.D.1990); Tri-State Refining v. Apaloosa Company, 431 N.W.2d 311, 314 (S.D.1988).

The facts show that the parties began discussions of the sale and purchase of the auction in 1984. Penner made a written offer to purchase the auction in June of 1986 for the sum of $320,000. Jorgensen did not accept the offer. Penner renewed his interest in the auction early in 1987 and after several months of negotiations an agreement was reached. Prior to finalizing the agreement, Penner requested and Jorgensen supplied information concerning the number of livestock sold, 1986 tax returns and 1985 annual financial reports.

Jorgensen sent Penner the livestock numbers for the years of 1984, 1985, and 1986. The numbers showed a decline for 1985 and 1986. At the top of the paper upon which the numbers were written, Jorgensen wrote in his own handwriting this note: "All numbers are being build (sic) up Fast. Cattle-Hog-Sheep Lots of Replacement (sic) are being Held."

At the bottom of the page he added, "Call me when you get this." He signed both notes, "Bob." Penner also requested the numbers for April, May and June of 1987 which showed the numbers had continued to decline.

At trial, Jorgensen said that he had provided Penner with the numbers for April, May and June of 1987; Penner maintained that Jorgensen did not provide the numbers but told him that the numbers were steady. Penner maintained he was misled by Jorgensen's representation that the cattle were being held in the country and building up fast and also by the characterization of 1987 numbers as "steady."

The trial court concluded that no misrepresentation occurred. It found (1) that Penner had presented himself to Jorgensen as a knowledgeable businessman in livestock business and auctions; (2) that Jorgensen had furnished all requested relevant business and financial information; (3) that Penner relied upon independent counseling and advice from his own lawyer and certified public accountant in entering into the Purchase Agreement; (4) that the handwritten note about numbers building up fast was not a misrepresentation and, in fact, was true; and (5) that Jorgensen's statement comparing 1985 and 1986 numbers as "steady" was a reference to the income of the auction, not livestock numbers. The court also found that Penner's testimony was "worthy of little or no credibility."

The trial court's findings of fact are presumed correct unless they are shown to be clearly erroneous.

This court may not substitute its judgment of factual questions for that of the trial court unless the findings of fact are clearly erroneous. Northern Farm Supply, Inc. v. Sprecher, 307 N.W.2d 870 (S.D.1981). In applying the "clearly erroneous" standard, we do not ask whether we would have made the same findings as did the trial court. Rather, the test is whether, after reviewing all the evidence, we are left with a definite and firm conviction that a mistake has been made. Temple v. Temple, 365 N.W.2d 561 (S.D.1985); Cunningham v. Yankton Clinic, P.A., 262 N.W.2d 508 (S.D.1978); In Re Estate of Hobelsberger, 85 S.D. 282, 181 N.W.2d 455 (1970). The findings of fact made by the trial court are presumptively correct. The burden to show error is on the appellant. Temple, supra; Hilde v. Flood, 81 S.D. 25, 130 N.W.2d 100 (1964).

Rosebud Sioux Tribe v. Strain, 432 N.W.2d 259, 265 (S.D.1988).

After a review of the record, we find that Penner has not met his burden. We are not left with a definite and firm conviction that a mistake has been made.

Penner further argues that the representations were a "mistake" upon which the contract was based under SDCL 53-11-2(1) which justifies rescission. Since this issue was not raised at the trial court level, it will not be addressed at the appellate level. Gulbranson v. Flandreau Township, 458 N.W.2d 361 (S.D.1990); Weaver v. Boortz, 301 N.W.2d 673 (S.D.1981); Ward v. Viborg School Dist. No. 60-5, 319 N.W.2d 502, 505 (S.D.1982).

DAMAGES

Penner claims that in the event he is in default, the damages should be limited to those specified in the agreement. The contract specified that if Penner breached the contract he would forfeit all payments and improvements and all rights, title and interest would be re-invested in Jorgensen. The terms of the contract defined the seller's rights in the event of default:

In the event Buyer shall fail to pay when due any of the payments herein provided, either principal or interest thereon, or to perform any of the covenants on its part to be performed, then all payments, together with interest, shall become immediately due and payable and this contract shall be forfeited and terminated at the option of the Seller, and in such event the Seller shall have the right to re-enter and re-take complete possession of all of said property, and the Buyer agrees to surrender and turn over the same promptly and without delay. Such failure on the part of the Buyer to perform its obligations hereunder shall cancel all obligations of the Seller to be performed hereunder and fully re-invest Seller with all right, title and interest to be conveyed hereunder, and the Buyer shall forfeit all payments theretofore made, including all improvements, and such payments and improvements shall be retained by the Seller in full satisfaction and liquidation of all damages by it sustained.

The action which Jorgensen took upon Penner's failure to make the February 1, 1988, payment specifically invoked the contract provision to foreclose Penner's rights, title and interest to the business. Jorgensen served a notice of default on Penner on February 3, 1988. Jorgensen used the acceleration clause of the contract, declared the total amount of the contract due, demanded immediate possession of the business, and terminated the contract.

Jorgensen's notice of default dated February 3, 1988,...