Homer v. Guzulaitis

• Citation: 567 N.E.2d 153
• Decision Date: 28 February 1991
• Docket Number: No. 49A04-8904-CV-141,49A04-8904-CV-141
• Court: Court of Appeals of Indiana
• Parties: Robert L. HOMER and Lynne K. Homer, Plaintiffs-Appellants, v. Rymantas GUZULAITIS, Shirley Guzulaitis, Guzulaitis, Inc., and Arsenal Savings & Loan, Defendants-Appellees. 1

Page 153

567 N.E.2d 153

Robert L. HOMER and Lynne K. Homer, Plaintiffs-Appellants, v. Rymantas GUZULAITIS, Shirley Guzulaitis, Guzulaitis, Inc. and Arsenal Savings & Loan, Defendants-Appellees.

No. 49A04-8904-CV-141. ¹

Court of Appeals of Indiana First District.

Feb. 28, 1991.

James S. Kowalik, Stephen S. Pierson, Hostetler & Kowalik, Indianapolis, for plaintiffs-appellants.

Michael S. Miller, Paul F. Lottes, Mendelson, Kennedy, Miller, Muller & Hall, Indianapolis, for defendants-appellees.

BAKER, Judge.

Plaintiff-appellants Robert L. and Lynne K. Homer, husband and wife, (the Homers) brought a foreclosure action against defendant-appellees Rymantas and Shirley Guzulaitis, husband and wife, Guzulaitis, Inc., and Arsenal Savings & Loan (collectively, the Guzulaitises). The Guzulaitises brought a counterclaim for fraud. The trial court denied all relief to the Homers and entered judgment for the Guzulaitises on their counterclaim.

The Homers raise several issues for our review, many of which concern the sufficiency of the evidence to sustain the judgment. Accordingly, we have consolidated and restated the issues as follows:

I. Whether parol evidence was admissible to show fraudulent intent.

II. Whether the evidence of fraud in the inducement is sufficient to support the judgment.

III. Whether Minnesota's election of remedies rules mandate reversal of the trial court's judgment.

IV. Whether the award of punitive damages was justified.

We affirm.

FACTS

The Guzulaitises are an Indianapolis couple who were unschooled in the world of business or its pitfalls prior to the transactions underlying this litigation. In the spring of 1984, they decided to leave Indianapolis' urban environment and purchase a resort/retreat somewhere in the north country--Michigan, Wisconsin, or Minnesota. To make the move a successful venture, the Guzulaitises determined they would have to purchase a business with sufficient cash flow to pay expenses, cover debt service, and provide enough remaining income to support themselves and their family.

In the spring of 1985, the Guzulaitises met Homer, who along with his wife, owned the Bowstring fishing and camping resort in Minnesota. Bowstring consisted of several cabins on a lake with approximately seven acres of land. Prior to 1985, the resort included a lodge where food and beverages were sold. The lodge, however, was destroyed by fire in November 1984.

Homer expressed an interest in selling the resort, and on September 20 of 1985, the Guzulaitises received a letter from Homer stating that he and his wife had done over $100,000 in gross annual receipts before the lodge burned down. In October 1985, the Guzulaitises went to Minnesota to visit the Bowstring resort, and Homer told them that yearly income from cabin rental was between $60,000 and $65,000, while boat rentals, bait sales, and other ancillary areas generated roughly $10,000 in annual income. The Guzulaitises told Homer they needed to be able to support themselves from the income of the resort. Homer assured them the resort had paid for itself with its proceeds and that neither he nor his wife had been required to take outside employment to make ends meet.

At a meeting between Homer and the Guzulaitises in Michigan City in November 1986, Homer disclosed written financial information revealing $62,000 in annual cabin rental income and approximately $10,000 in income from boat rental and other ancillary sources. According to Homer, the occupancy rate of the cabins was approximately 75%. Homer, however, refused to produce any income records; he simply had figures written on a sheet of paper.

In fact, during the period when Homer said the resort was grossing over $100,000 Before purchasing the resort, the Guzulaitises decided to have an appraisal performed. Homer refused to give the appraiser any income information, so the appraiser eventually estimated a 70% occupancy rate for the cabins.

per year, the business was experiencing an annual shortfall of approximately $40,000. Additionally, the losses were so great that Homer and his wife had to take out a loan and use the funds from an inheritance to survive while operating the resort.

The Guzulaitises bought the resort on land contract in March 1986 for $270,000, making a down payment of $30,000. Prior to closing, Homer cryptically told the maintenance man who lived at the resort to be prepared to lock the Guzulatises out after the sale. At closing, Homer was to deliver advance deposits, customer files, and receipts to the Guzulaitises. He failed to do so.

A few weeks after closing, the Homers held an auction and sold personal property the Guzulaitises believed was part of the resort according to an asset purchase agreement signed by the Homers and the Guzulaitises. The maintenance man testified the items sold at the auction were needed for the operation of the resort; they were not the Homers' personal effects.

When Mr. Guzulaitis went to Minnesota in May to prepare the resort for the 1986 summer season, the reservation records he found revealed the resort never generated and could not generate the income stream and occupancy rate Homer had represented.

In early June 1986, the Homers brought suit in Minnesota to cancel the sale because the Guzulaitises were late in reimbursing them for an insurance premium of $231.28. Later that month, the Homers filed this action, demanding payment on a promissory note and foreclosure of a mortgage on the Guzulaitises' Indiana home the Guzulaitises had given as security for the purchase of the resort.

The Guzulaitises brought a counterclaim for fraud, breach of contract, conversion, and unjust enrichment. After a trial to the bench, the trial court entered thoughtful and detailed findings of fact and conclusions of law. The court denied any recovery to the Homers, rescinded the various agreements between the Homers and the Guzulaitises, and awarded the Guzulaitises their out of pocket damages of $60,772.35 and $20,000 in punitive damages.

DISCUSSION AND DECISION

At the outset, we note the parties agree Minnesota substantive law controls disposition of the case. When the parties to a contract agree on the law which should control the contract, we will give effect to their agreement. Chalmers & Williams v. Surprise (1919), 70 Ind.App. 648, 123 N.E. 841. At the same time, Indiana procedural law applies. Staple v. Richardson (1966), 140 Ind.App. 20, 212 N.E.2d 904. Because the trial court entered detailed findings of fact and conclusions of law, we will reverse the judgment only if it is clearly erroneous. Day, et al. v. Ryan (1990), Ind.App., 560 N.E.2d 77.

I

The Homers argue the trial court erred in admitting the statements Homer made regarding the financial success of the resort. Minnesota takes a dim view of fraudulent inducement to contract, and accordingly allows parol evidence to explain fraud surrounding a written contract, even if that contract contains an integration clause. Rosenquist v. Baker (1948), 227 Minn. 217, 35 N.W.2d 346; Stromberg v. Smith (1988), Minn.App., 423 N.W.2d 107; Johnson Bldg. Co. v. River Bluff Development (1985), Minn.App., 374 N.W.2d 187, pet. for rev. denied. The trial court properly admitted Homer's statements.

II

The Homers next argue the judgment is contrary to the evidence and law because there was no showing of fraud. We disagree. The Minnesota Supreme Court has set out the following elements of fraud.

1. There must be a representation;

2. That representation must be false;

3. It must have to do with a past or present fact;

4. That fact must be material;

5. It must be susceptible of knowledge;

6. The representer must know it to be false, or in the alternative, must assert it as of his own knowledge without knowing whether it is true or false;

7. The representer must intend to have the other person induced to act, or justified in acting upon it;

8. That person must be so induced to act or so justified in acting;

9. That person's action must be in reliance upon the representation;

10. That person must suffer damage;

11. That damage must be attributable to the misrepresentation, that is, the statement must be the proximate cause of injury.

Davis v. Re-Trac Manufacturing Corp. (1967), 276 Minn. 116, 149 N.W.2d 37, 38-39.

Homer represented the resort would bring in approximately $65,000 in cabin rental annually, and that with the lodge intact, the resort had gross annual receipts of over $100,000. As was later discovered at trial, these representations were false. ² In Spiess v. Brandt (1950), 230 Minn. 246, 41 N.W.2d 561, a case remarkably similar to the present one, the Minnesota Supreme Court held statements regarding profitability of a business were material for purposes of establishing fraud. Moreover, while Homer was not obliged to give any representations about the profitability of the resort, he was under a clear duty not to make any misrepresentations. See id.; L & H Airco, Inc. v. Rapistan Corp. (1989), Minn., 446 N.W.2d 372, 380, reh'g. denied; Thomas v. Murphy (1902), 87 Minn. 358, 91 N.W. 1097.

The Guzulaitises testified they relied on Homer's statements. There was evidence to support their testimony, and Minnesota law allows fraud victims to testify to the effect of the fraudfeasor's representations upon them. Village of Burnsville v. Westwood Co. (1971), 290 Minn. 159, 189 N.W.2d 392. The reliance must be reasonable, Veit v. Anderson (1988), Minn.App., 428 N.W.2d 429. The question, however, is not whether the average person would rely on the representations, but whether a person with the experience and capacity of the victim would rely. Berg v. Xerxes-Southdale Office Building Co. (1980), Minn., 290 N.W.2d 612; Spiess, supra. The Guzulaitises were not sophisticated business people. Mr. Guzulaitis has a degree in special education, and Mrs. Guzulaitis is a medical technologist. Their reliance on Homer's misrepresentations was reasonable.

The Homers argue the...