Gilbert v. Mid-South Machinery Co., Inc.

• Decision Date: 14 July 1976
• Docket Number: MID-SOUTH,No. 20258,20258
• Citation: 227 S.E.2d 189,267 S.C. 211
• Parties: Cecil E. GILBERT and James F. Gilbert, Jr., Respondents, v.MACHINERY COMPANY, INC., and Thomas H. Coker, Individually and doing business as Mid-South Machinery Company, Inc., Appellants.
• Court: South Carolina Supreme Court

Page 189

227 S.E.2d 189

267 S.C. 211

Cecil E. GILBERT and James F. Gilbert, Jr., Respondents, v. MID-SOUTH MACHINERY COMPANY, INC., and Thomas H. Coker,

Individually and doing business as Mid-South

Machinery Company, Inc., Appellants.

No. 20258.

Supreme Court of South Carolina.

July 14, 1976.

Horton, Drawdy, Marchbanks, Ashmore, Chapman & Brown, Greenville; Watkins, Vandiver, Kirven, Long & Gable, Anderson, for appellants.

Robert L. Waldrep, Jr., and G. Ross Anderson, Jr., Anderson, for respondents.

RHODES, Justice:

This is a fraud and deceit action involving the sale and purchase of an automatic laundry and dry cleaning business. The purchasers were plaintiffs-respondents Cecil E. Gilbert and James F. Gilbert, Jr., and the seller was defendant-appellant Mid-South Machinery Company, Inc. Defendant- appellant Thomas H. Coker is the president of Mid-South and was joined in the suit in his individual capacity. A jury awarded the Gilberts $45,000 actual and $5,000 punitive damages against both Mid-South and Coker. The lower court denied motions of the defendants for a directed verdict, judgment n.o.v., and a new trial. We affirm.

Mid-South is the authorized distributor of Norge coin-operated laundry and dry cleaning equipment and Norge laundromat franchises in South Carolina and portions of North Carolina. In 1970 a corporation, Anderson Norgetown, Inc., commenced operation of the Norge Laundry and Dry Cleaning Village Store at the Camp Shopping Center in the City of Anderson. Anderson Norgetown installed new Norge equipment in the laundromat which was purchased from Mid-South and leased to Anderson Norgetown by the Falco Corporation. The terms of the lease required Anderson Norgetown to pay monthly payments of $1,251.83 during the next four years. The cost of the new equipment was listed as $44,708.26.

In 1971, one of the five stockholders of Anderson Norgetown, Richard Leggett, became sole owner of the Anderson laundromat. Eight months later, Leggett decided to sell the business and gave a purchase option to Mid-South and it, subsequently, advertised the business for sale in an Anderson newspaper.

In December of 1971, James Gilbert contacted Coker in response to the newspaper advertisement. After talking to Coker and inspecting the premises, James Gilbert took Coker to meet his mother, Cecil Gilbert, and they discussed the purchase of the Anderson laundromat. The Gilberts were inexperienced in the laundromat business and Coker represented himself as an expert. At this meeting Coker told Mrs. Gilbert that the business was profitable, taking in from $2800 to $3000 per month, and that their net would be $1000 per month.

During the next few days the Gilberts visited the location of the business several times and on several occasions asked Coker whether there were any business records they could examine. They also asked the woman who was managing the business for Leggett about business records. Coker told them that no records existed and the woman manager told them she only kept partial records.

On December 13, 1971, Mid-South exercised its option and purchased the Anderson laundromat from Leggett. The terms of the sale were a nominal consideration and Mid-South's assumption of the Falco lease. Two days later the Gilberts purchased the laundromat from Mid-South and, in addition to assuming the Falco lease, they paid Mid-South $7,000 at the time of the sale and agreed to pay an additional $5,000 in equal annual payments over the next five years with interest. The balance due on the lease was $32,051.24.

During the first four months after the Gilberts purchased the Anderson laundromat they paid the monthly lease payments to Falco although sustaining monthly losses in the operation of the business. As a result of their failure to make any further lease payments, a judgment was rendered against them for the balance due on the lease. The total amount of the judgment was $31,960.13.

The present action was instituted in July of 1973 and is based upon certain alleged false and fraudulent representations made by the defendants which allegedly induced the Gilberts to purchase the Anderson laundromat. At the time of the trial in October of 1974, the Gilberts still owned the business but had made informal arrangements with another person to operate it for his own account without any compensation to them. Their complaint sought actual and punitive damages for alleged fraud and deceit.

At the close of testimony both defendants moved, unsuccessfully, for a directed verdict on the ground the evidence was insufficient to support a fraud and deceit action. In reviewing the propriety of the denial of their motion, we, of course, view the evidence in the light most favorable to the Gilberts.

The former secretary-treasurer of Anderson Norgetown testified that the Anderson laundromat never made a profit during the eleven months Anderson Norgetown owned and operated the business. Leggett testified that he never made a profit while he operated the business. Both witnesses testified that complete business records were kept and were available at the time the Gilberts purchased the laundromat, and that neither Coker nor the Gilberts had inquired about the existence of such records. Leggett testified he told Coker about his failure to make a profit in the operation of the business.

We think the evidence that Coker told the Gilberts the Anderson laundromat was a profitable business, together with the contrary testimony of the secretary-treasurer and Leggett, made a jury question. It was a material misrepresentation of positive fact, and, if it was made for the purpose of inducing the Gilberts to purchase the laundromat and was knowingly or recklessly false, and if the Gilberts relied upon it and were misled to their injury, a verdict in their favor was warranted. Halsey v. Minnesota-South Carolina Land & Timber Co., 174 S.C. 97, 177 S.E. 29 (1934). Moreover, we think there was sufficient evidence to support the jury verdict based upon the evidence that Coker told the Gilberts that there were no business records.

The representation concerning the profitability of the business related to something intangible and was not similar to the representation in Jones v. Cooper, 234 S.C. 477, 109 S.E.2d 5 (1959), the subject of which, the location of hot dog cooking machines, was open, patent, and visible. The Gilberts were not, therefore, precluded as a matter of law from relying on this representation. See Aaron v. Hampton Motors, Inc., 240 S.C. 26, 124 S.E.2d 585 (1962).

While there was no evidence that the defendants did anything to prevent the Gilberts from asking the past owners about business records, we think it was still a jury question whether they exercised reasonable prudence for their own protection under the circumstances. Thomas v. American Workmen,197 S.C. 178, 14 S.E.2d 886 (1941).

Generally, an action for fraud and deceit must be predicated on misstatements of fact rather than misstatements of opinion. 37 Am.Jur.2d, Fraud and Deceit, § 45 (1968). 'The distinction between fact and opinion is broadly indicated by the generalization that what was susceptible of exact knowledge when the statement was made is usually considered to be a matter of fact. Id. § 46. We think that Coker's statement that the business was profitable constituted under the circumstances a misstatement of fact. Annot.,27 A.L.R.2d 14, § 2 (1953).

Although there was no direct proof that Coker knew...