Hampton v. Sabin

• Decision Date: 24 February 1981
• Docket Number: A7812-19385,No. A7811-19077,No. A7901-00202,A7901-00202,A7811-19077
• Citation: 621 P.2d 1202,49 Or.App. 1041
• Parties: Gar HAMPTON and Mary Beth Hampton, husband and wife, Respondents, v. George Eugene SABIN II, Donald Dwyer, Kitchen Kettle West, Inc., an Oregon corporation, Meatery Company, aka Meatery, Inc., an Oregon corporation, dba 10th and Salmon Co., Beef & Brew Franchise Co., Inc., fka B & B Management Co., Inc., an Oregon corporation, Appellants, and Thomas A. Holmes and Willa B. Holmes, husband and wife, Intervenors- Respondents. KITCHEN KETTLE WEST, INC., an Oregon corporation, Appellant, v. Gar HAMPTON and Mary Beth Hampton, husband and wife, Respondents. KITCHEN KETTLE WEST, INC., an Oregon corporation, Appellant, v. Gar HAMPTON and Mary Beth Hampton, husband and wife, Respondents. ; CA 15817,
• Court: Oregon Court of Appeals

Page 1202

621 P.2d 1202

49 Or.App. 1041

Gar HAMPTON and Mary Beth Hampton, husband and wife, Respondents, v. George Eugene SABIN II, Donald Dwyer, Kitchen Kettle West,

Inc., an Oregon corporation, Meatery Company, aka Meatery,

Inc., an Oregon corporation, dba 10th and Salmon Co., Beef &

Brew Franchise Co., Inc., fka B & B Management Co., Inc., an

Oregon corporation, Appellants,

and

Thomas A. Holmes and Willa B. Holmes, husband and wife,

Intervenors- Respondents.

KITCHEN KETTLE WEST, INC., an Oregon corporation, Appellant, v. Gar HAMPTON and Mary Beth Hampton, husband and wife, Respondents.

KITCHEN KETTLE WEST, INC., an Oregon corporation, Appellant, v. Gar HAMPTON and Mary Beth Hampton, husband and wife, Respondents.

No. A7901-00202; CA 15817, No. A7811-19077, A7812-19385.

Court of Appeals of Oregon.

Argued and Submitted Oct. 17, 1980.

Decided Dec. 29, 1980.

Reconsideration Denied Feb. 4, 1981.

Review Denied Feb. 24, 1981.

James H. Clarke, Portland, argued the cause for appellants. On the briefs were O'Connell, Goyak, Hagen, Elliott & Krage, Kevin O'Connell, Peter Glade, Spears, Lubersky, Campbell & Bledsoe, and Frank M. Parisi, Portland.

Nick A. Drakulich, Portland, argued the cause for respondents, Gar Hampton and Mary Beth Hampton. With him on the brief was Drakulich & Carlson, Portland.

Dean M. Richards, Portland, filed the brief for intervenors-respondents, Thomas A. Holmes and Willa B. Holmes.

Before GILLETTE, P. J., and RICHARDSON and CAMPBELL, JJ.

GILLETTE, Presiding Judge.

These three cases arise out of the sale of a Portland restaurant known as "14 Grains." The plaintiffs herein, the Hamptons, are the buyers of the restaurant located in a building in downtown Portland. The defendant Kitchen Kettle is the corporate seller of the restaurant. The Meatery is the sublessor of the premises on which the restaurant is located, and the Beef & Brew Franchise Company is an umbrella corporation overseeing the operations and expenses of the other two. Defendant Sabin is the major stockholder, president and chief executive officer of all three corporations. Defendant Dwyer is the director of operations for Beef & Brew, and acted as an agent for all three corporations. Intervenors Holmes are the assignees of the Meatery's sublessor's interest in the restaurant premises.

Initially, Kitchen Kettle brought an action against the Hamptons for unpaid installments due on a promissory note given for the balance of the restaurant's purchase price. The Hamptons answered, alleging lack of consideration and fraud on the seller's part. Kitchen Kettle then sued the Hamptons for breach of contract. The Hamptons counterclaimed, requesting recission of the contract on the basis of misrepresentation and intentional fraud. Finally, the Hamptons brought an action against the defendants herein seeking recission of the sale and lease agreement. The Holmes intervened in that suit. The cases were consolidated for trial, with the issue of recission being tried first. The trial court granted recission to the Hamptons and ordered the defendant corporations to repay certain amounts to the Hamptons. Kitchen Kettle was denied relief in its actions against the Hamptons. The Hamptons were ordered to pay the Holmes the moneys due for unpaid rent and utilities. ¹ On de novo review, we affirm the decision of the trial court.

In their complaint the Hamptons set out some 28 misrepresentations which they allege were made by the defendants during the course of negotiations for the sale of the restaurant. The trial judge's oral opinion, which became a part of the final order, discusses those claims which he believed were significant. He found that alleged misrepresentations that the restaurant normally did $50,000 in gross business receipts per month, and that Sabin and his corporations had invested over $300,000 in the restaurant were, in fact, true. He also concluded that the days of operation of the restaurant had not been misrepresented to the plaintiffs. He found, however, that the defendants did misrepresent the restaurant's past profitability and that the plaintiffs reasonably relied on the defendants' representations in making their decision to purchase the restaurant. On that basis, recission was granted. ²

On appeal, the defendants contend that the financial condition of the restaurant was not misrepresented to the plaintiffs, that the allegedly misleading information as to past profitability could not have been material to the Hamptons' decision to purchase the business, and that they could not have reasonably relied on the information provided and the statements made. ³ Additionally, they argue that, even if such misrepresentations were made, plaintiffs are barred from rescinding the contract because of their delay in seeking relief. Plaintiffs meet the defendants' arguments, but do not advance any of the other claimed misrepresentations as a separate basis for our granting them relief. Thus, we will confine our de novo review of the evidence to the issues specifically presented to us by the defendants.

On June 9, 1978, one of the plaintiffs, Mr. Hampton, contacted Dwyer, as the agent for the defendant corporations, in response to a newspaper advertisement concerning the sale of "14 Grains." The advertisement stated that a prime downtown lunch and dinner restaurant was for sale, that the restaurant was doing $50,000 per month in gross sales based on the month of April and that over $300,000 had been invested in the restaurant. The Hamptons and Dwyer met to discuss the restaurant and the conditions of its sale on four separate occasions. On June 12, an earnest money agreement and offer to purchase the restaurant for $270,000 was signed by the plaintiffs. The plaintiffs retained the option to rescind their offer if they so desired. On June 14, the parties met in Sabin's office and he approved the offer to purchase. On June 19, the final sales agreement and lease were signed by the parties. The plaintiffs agreed to pay $270,000 for the restaurant and an additional $10,000 for the inventory. They put $100,000 down on the purchase price and signed a promissory note providing for monthly payments of the remainder. The plaintiffs also entered into an agreement whereby they agreed to lease, for ten years, the premises within which the restaurant was located. Rent was set at five percent of the restaurant's gross sales receipts, or a monthly minimum of $2,400.

During the course of the negotiations the plaintiffs were shown a pro forma financial statement for the month of April. That statement was not the actual April statement, but one especially prepared for presentation to the prospective buyers. It detailed the restaurant's sales and expenses, revealing gross sales of $54,990 and a net profit of $1,608. However, certain expenses were omitted and others were reduced. Defendants' accountant testified that the pro forma statement was prepared as an indication of future operations and with the belief that the new owners would run the restaurant as owner-operators; thus, certain corporate expenses were deleted or reduced. The statement contained a footnote which states that it does not reflect manager's salary, extraordinary repair and maintenance costs and supplies for the month, financing interest and corporate administrative cost.

The plaintiffs testified that the pro forma statement was explained to them. Mr. Hampton did not recall seeing the footnote, and claims that it was not explained. However, he did know that certain corporate expenses were excluded. He claimed that Dwyer told him that the pro forma statement was representative of the past history of the business and that the restaurant had been making a profit. He admitted that no one else told him a profit was being made. The Hamptons claim that they were not shown actual monthly profit and loss statements. They claim that they requested to see such statements a number of times and were told that they would be produced, but they never were. Mr. Hampton stated that he did not finally insist on seeing the monthly statements because he relied on the pro forma statement and Dwyer's assurances. Plaintiffs' attorney, who was present at the closing, did not recall asking for any profit and loss statement or seeing any information pertaining to the restaurant's losses. He testified that the Hamptons thought the business was profitable.

Dwyer and Sabin both testified that the plaintiffs were shown the monthly profit and loss statements and certain daily recaps and that the pro forma statement was compared with the actual one for April. The defendants' accountant testified that a packet of information containing the monthly profit and loss statements was prepared for the Hamptons and given by him to Dwyer. Dwyer also testified that he supplied the Hamptons with the profit and loss statements after the purchase was completed. The restaurant's managers, however, testified that all the financial information concerning the past year of operation including theirs (the manager's) copies of the profit and loss statements, were removed from the restaurant's office when the transfer of ownership occurred. It is undisputed that the monthly statements reveal a loss for each month of the restaurant's operation since it began business in September, 1977.

As this is a suit in equity, we try the case de novo. We are not bound by the findings of the trial judge, but must make an independent review of the record. Myers v. MHI Investments, Inc., 44 Or.App. 467, 471, 606 P.2d 652 (1980), rev. den. 289 Or. 107 (1980). However, because of the opportunity to see and hear the witnesses as they testify, considerable weight must necessarily be accorded to the trial court's findings where the testimony, or the inferences to be drawn from it, are in dispute. Dan Bunn, Inc. v. Brown, 285 Or. 131, 145, 590 P.2d 209 (1979); Weathers v. ICOA Ins. Co., 254 Or. 361, 364, 460 P.2d 361 (1969). In this...