Fensom v. Rabb

• Decision Date: 13 March 1950
• Docket Number: No. 3583,3583
• Citation: 190 Va. 788,58 S.E.2d 18
• Court: Virginia Supreme Court
• Parties: JOHN F. FENSOM v. RUSSELL L. RABB. Record

Page 18

58 S.E.2d 18

190 Va. 788

JOHN F. FENSOM v. RUSSELL L. RABB.

Record No. 3583.

Supreme Court of Appeals of Virginia

March 13, 1950.

Sands, Marks & Sands, for the plaintiff in error.

Allen, Allen & Allen, for the defendant in error.

HUDGINS, Chief Justice.

HUDGINS, C.J., delivered the opinion of the court.

Russell L. Rabb instituted this action of trespass on the case in assumpsit, alleging misrepresentation of a material fact by defendant, John F. Fensom, which induced him to purchase the latter's business, and that as a result of such misrepresentation he had been damaged in the sum of $25,000. To a judgment for $9,000, entered on the verdict of the jury, defendant obtained this writ of error.

John F. Fensom, hereinafter designated 'defendant,' 68 years of age, for more than twenty-five years had been conducting, in Richmond, Virginia, a manufacturers' agency, under the name of John Fensom Company. This agency represented a number of nationally-known manufacturers of industrial machinery. Negotiations between the plaintiff, defendant and R. A. Ricks, a real estate broker who represented the plaintiff but was paid by defendant, culminated in a contract dated April 26, 1947, in which plaintiff agreed to pay defendant $25,000, and take possession and control of the business on May 15, 1947. The pertinent provisions of the contract, which was in the form of a letter written to and accepted by plaintiff, are as follows:

'* * * I am selling you my business with the following understandings:

'1. You are to be permitted to run the business under the present name of John Fensom Company, the address of which is The Atlantic Life Building, Richmond, Virginia.

'2. With the company you will purchase all of its good will, its business connections, its office furniture and equipment, its business records excepting ledger and cash book, and I am to assign to you the company's present lease on its office space and other similar assets. I am to pay all liabilities of the company, up to May 15th, 1947. The rent is to be prorated as of the date that you take possession, as is also my secretary's salary.

'3. I am to receive profit on all contracts made prior to May 15th, 1947, and I am to pay all taxes earned by the John Fensom Company to that date. I am to use my best efforts in helping you to retain the present accounts I have, and for a period of six months, if necessary, I am to assist you in any reasonable way I can in helping you to run the business. You are to pay me a nominal salary of $100.00 per month as long as you need my assistance and pay my traveling expenses for any trips that it seems necessary for me to make.

'4. I agree not to enter into a competitive business with you.

'5. It is to be understood on your part that the statement of earnings shown in a letter from T. Coleman Andrews & Company does not take into consideration any taxes.

'6. I represent to you that I am the sole owner of the John Fensom Company, which is not a corporation, and that the company still represents the various corporations in Virginia, a list of which corporations I gave you, * * *'

The tangible property consisted of office furniture and equipment valued at less than $1,000. The most valuable assets purchased were the right to use the name of John Fensom Company, its good will and business connections, including records of the names and addresses of its customers, and the written contracts with nine manufacturers, whereby the John Fensom Company was given the exclusive right to sell, within a specified area, their manufactured products.

While the separate contracts with the manufacturers were made annually and expired of their own limitation at the end of the year, the contracts with Fisher Governor Company and The Fulton Sylphon Co., two of the nine manufacturers listed, had been renewed from year to year over a period of more than twenty years. It was the usual business custom of manufacturers to renew their contracts with their sales representatives when the activities of such representatives had been satisfactory to them. During the negotiations defendant had assured plaintiff that he was 'in good standing' with all the manufacturers represented by him.

Plaintiff, pursuant to the contract of purchase, and on the effective date thereof, took possession and control of the business, and, with the assistance of defendant, conducted it for five months without notifying the manufacturers that he had become the owner. On October 18, 1947, the Fisher Governor Company wrote the John Fensom Company that it did 'not plan to renew our present sales agreement after it expires on December 31, 1947. ' On receipt of this letter plaintiff went to Marshalltown, Iowa, the home office of the company, where he was informed that definite arrangements had been made with another party to represent the Fisher Governor Company in Virginia upon the expiration of the existing contract with defendant. Later plaintiff was notified that The Fulton Sylphon Co., of Knoxville, Tennessee, would not renew its contract. Defendant declined plaintiff's request to cancel the contract and re-pay the purchase price. Thereafter this action was instituted.

The basis of the action is fraud -- that is, plaintiff contends that defendant made a misrepresentation of a material fact which induced him to purchase the business which he otherwise would not have done. As the trial court said: 'The case is a novel one in several of its features. The contracts of The John Fensom Company with the manufacturers whom it represented were annual, and for all practical purposes contracts-at-will due to the revocability clauses therein. The plaintiff knew this. There was no assurance any one could give that the manufacturers would renew their contracts from one year to the next. The defendant could not make any guarantee of this and the plaintiff knew it. Even if the manufacturers contemplated renewing their contracts with The John Fensom Company under its traditional ownership, that would be no assurance on its face that they would renew the contracts under new ownership and management. No uncertainty existed in the minds of either party concerning this. The contract in this respect was an aleatory one. The only factors, therefore, to guide a purchaser of such a business would be those which bore on the probability of such a renewal, and of those, the most important one would be the present standing of the defendant with the manufacturers. The defendant represented that he was 'in good standing' with the manufacturers.'

The decisive question presented is whether the statement to plaintiff that defendant was 'in good standing' with the manufacturers was material, false, and made under circumstances reasonably calculated to induce plaintiff to purchase the business.

The circumstances of the parties, the negotiations leading to the execution of the contract, and the nature of the contract itself, are relevant matters to be considered in determining the meaning and materiality of the phrase 'in good standing.'

Early in 1947, plaintiff contemplated changing his employment and becoming the owner and operator of a business of his own in Richmond, Virginia. With this end in view, he requested R. A. Ricks, a real estate broker, to ascertain for him whether or not one of several hardware stores might be acquired. Ricks' efforts to purchase a hardware store were futile. Plaintiff informed Ricks that he had heard that the John Fensom Company could be purchased, and asked him to contact defendant for him. Defendant had made an effort to sell an interest in, but not his entire business. Ricks, after several interviews with defendant was told that he would sell for $50,000. Plaintiff countered by offering $20,000.

Sometime during the negotiations, and before the sale plaintiff sought the advice of his father-in-law, John A. McPherson, an engineer, familiar with this class of business, having, as he stated, set up a number of similar sales agencies for different manufacturers. Plaintiff and McPherson requested defendant to give them an exact statement of the volume of business, and the profits made, for the years 1935-1946, inclusive. Defendant was requested to have the figures given verified by a certified public accountant. He complied with this request and employed T. Coleman Andrews Company, who, after a thorough examination of the books and records, ascertained that the figures given by defendant were accurate. The books and files showing the names and addresses of the numerous customers to whom defendant had sold merchandise during the ten preceding years, were made available to plaintiff and his advisor. The written contracts with the nine manufacturers were exhibited to plaintiff. Plaintiff's attention was called to the fact that each contract terminated at the end of 1947, and might be cancelled by either of the contracting parties on thirty or sixty days' written notice.

Witnesses for both plaintiff and defendant testified that manufacturers, as a rule, are reluctant to transfer their sales agencies from one party to another, and that while the contracts with the agents are written on a year to year basis, they are usually renewed as a matter of course if the agent's representation of the manufacturers had been reasonably satisfactory.

McPherson said, in answer to the following question:

'Q. What did Mr. Fensom say to you about his standing with these manufacturers?

'A. He said they were good. I suggested to Mr. Fensom, rather I suggested to Mr. Rabb and Mr. Fensom both, it might be well to investigate them. Mr. Fensom objected to it. He said he thought it would be a mistake. He said that it might stir up some trouble and might cause them to be cancelled, but I felt as a matter of just proper business judgment that it would be well, because knowing the value and importance of maintaining them that (they) should be investigated and checked, and he...