Ledbetter v. Webb
| Decision Date | 09 December 1985 |
| Docket Number | No. 15181,15181 |
| Citation | 1985 NMSC 112,103 N.M. 597,711 P.2d 874 |
| Parties | Bert LEDBETTER and Joann Ledbetter, Plaintiffs-Appellees, v. Clifford R. WEBB and Barbara E. Webb, Defendants-Appellants. |
| Court | New Mexico Supreme Court |
This is a breach of contract action. The trial court found generally for plaintiffs (the Ledbetters) and awarded them compensatory and special damages on the contract, together with compensatory damages for the Webbs' conversion of plaintiffs' video vending machine. As setoffs against those damages, the trial court awarded compensatory, consequential and punitive damages on the Webbs' counterclaim for fraudulent misrepresentation. The court applied principles of comparative fault in calculating the Webbs' consequential damages.
The Webbs appeal and the Ledbetters cross-appeal. We affirm.
Defendant Clifford Webb became acquainted with plaintiffs Bert and Joann Ledbetter when he placed two of his video vending machines in their ice cream business, Geejo's Sundaes. In late June or early July of 1981, Mr. Webb learned that Geejo's was for sale and offered to buy the business. There followed approximately two weeks of negotiations, at the end of which time the parties executed a purchase and sale agreement. The Ledbetters were eager to consummate the deal as quickly as possible because the business was set for sale at auction in the near future. They also wanted to give the Webbs the benefit of owning the business during its peak summer season.
Under the terms of the agreement, Ledbetters conveyed the business to the Webbs in return for a video vending machine as a down payment, a promissory note for $14,250 as the balance of the purchase price, and a security interest in the equipment. The video vending machine was to remain on the premises and the proceeds were to be shared by the Ledbetters and Webbs.
The sale, together with an assignment of the lease on the building to the Webbs, was completed on July 18, 1981. Thereafter, the Ledbetters spent approximately two weeks working with the Webbs and showing them how to maintain the equipment and run the business.
In the early part of September, 1981, the Webbs noticed a foul odor emanating from one of the ice cream machines. Although they undertook extensive cleaning, they were unable to rid the machine of the odor. Business and profits fell markedly during the 2-3 weeks following the onset of the odor. On or about September 22, 1981, and without notice to the Ledbetters, the Webbs closed the business. The Ledbetters learned of the closing when they inadvertently came upon Webb as he was removing the video machine from the premises.
Defendants Webbs defaulted on the promissory note payment due October 1st and made no payments thereafter. They also defaulted on the rent due September 15th under the lease.
On October 5th, the landlord refused the Ledbetters' tender of one month's rent, padlocked the premises and placed a lien on the business equipment. The Ledbetters thereupon obtained a court order and entered the business to repossess and sell the equipment. (They were ultimately awarded the net proceeds from that sale in a separate suit against the landlord.) The Ledbetters then filed against the Webbs for breach of contract; the Webbs counterclaimed for fraudulent misrepresentation and negligent misrepresentation. Other counterclaims by the Webbs are not at issue in this appeal.
The court's unchallenged Findings of Fact and Conclusion of Law are as follows:
1. Plaintiffs sold an ice cream business to the defendants.
2. Plaintiffs represented that the [ice cream] machines in the business were in good condition.
7. Defendants defaulted in payments and moved out of the premises and thereby failed to carry out the agreement.
8. Plaintiffs acted reasonably in an attempt to minimize damages and re-sold the property in a reasonably commercial manner.
10. Defendants converted Plaintiffs' [video vending] machine and damaged the Plaintiffs $2,750.00.
11. Defendants defaulted on the note and owe $13,884.00 thereon.
12. Plaintiffs were damaged $570.00 for a lawyer fee, $500.00 of their own lawyer fee in bringing suit to get out of lease [which had been assigned to Defendants].
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2. Defendants breached the contract.
The challenged findings, and Conclusion No. 3, read:
3. The [ice cream] machines were not in good condition. Plaintiffs were negligent in representing the machines were in good condition. Defendants relied on the misrepresentations.
4. Defendants were negligent in the maintenance of the machines.
5. As a result of the negligence of Plaintiffs and Defendants, the machines failed and caused damage to Defendants in the amount of $800.00. Fault was 75% Plaintiffs, and 25% Defendants.
6. Plaintiffs made false representations in the sale, but Defendants did not rely thereon, except that Defendants relied on the representation regarding condition of the machine, see paragraph 13.
9. Plaintiffs made false representations, knowing they were false, in an effort to get Defendants to enter into the agreement.
13. Defendants are entitled to a $2,722 credit because the machine was represented as good condition and it wasn't. It was worth $2,722 less than represented, and it was falsely represented by Plaintiffs knowing the representation was false. Defendants relied on the representations.
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3. Plaintiffs are entitled to judgment in the amount of $9,900 plus 10% additional as a lawyer fee for a total of $10,890, plus costs.
The issues raised by the Webbs on this appeal are:
(1) Whether the Webbs are entitled to recission, in view of the court's findings of all elements of fraud;
(2) Whether the trial court erred in applying comparative negligence principles to the Webbs' consequential damages;
(3) Whether the trial court's finding of no reliance on the financial misrepresentations made by the Ledbetters is supported by substantial evidence.
The Ledbetters' cross-appeal frames these issues:
(4) Whether the trial court's finding that the Ledbetters fraudulently misrepresented the condition of the ice cream machines is supported by substantial evidence;
(5) Whether the trial court erred in calculating the amount of the judgment;
(6) Whether the trial court erred in refusing pre-judgment interest to the Plaintiffs.
Because some of the issues are interrelated, we do not necessarily discuss them in the order presented by the parties.
The Webbs claim error in the court's refusal to find that the Ledbetters' misstatements regarding the condition of the machines were material, entitling the Webbs to rescind the contract. Misrepresentation of a material fact, even if innocently made, will entitle the party who has justifiably relied thereon to rescind the contract. Prudential Insurance Company of America v. Anaya, 78 N.M. 101, 428 P.2d 640 (1967). Ordinarily the question of materiality is one of fact. Modisette v. Foundation Reserve Insurance Co., 77 N.M. 661, 427 P.2d 21 (1967).
It is unnecessary to decide whether the evidence below supports the court's denial of the requested findings. Rescission is an equitable remedy which seeks to restore the status quo ante. See Prudential Insurance, 78 N.M. at 106, 428 [103 N.M. 601] P.2d at 645; Ham v. Hart, 58 N.M. 550, 273 P.2d 748 (1954), overruled on other grounds, Hockett v. Winks, 82 N.M. 597, 485 P.2d 353 (1971). The defrauded party must return or offer to return that which has been received under the contract as a condition precedent to maintaining a suit for rescission. Prudential Insurance, 78 N.M. at 106, 428 P.2d at 645.
Although substantial rather than strict compliance will satisfy the rule, the record in this case is devoid of evidence of any effort at compliance by the Webbs. See Robison v. Katz, 94 N.M. 314, 610 P.2d 201 (Ct.App.), cert. denied, 94 N.M. 675, 615 P.2d 992 (1980); Gottwald v. Weeks, 41 N.M. 18, 63 P.2d 537 (1936). The uncontroverted testimony is that: (1) the Webbs closed the business without prior notice to the Ledbetters; (2) the Ledbetters learned of the Webbs' intention to quit the business only when they accidentally discovered the Webbs in the process of removing equipment from the premises; (3) the Webbs defaulted on the business lease which had been assigned to them; (4) because of the Webbs' abandonment, the landlord subsequently padlocked the premises, forcing plaintiffs to litigate their right to enter and repossess the equipment in which they held a security interest; and (5) the equipment of the business was subsequently repossessed and sold pursuant to the security agreement and in a commercially reasonable manner. Defendants' acts made it impossible to restore the status quo ante.
The above facts, together with the trial court's unchallenged finding that the Webbs converted the Ledbetters' video vending machine, deprive the Webbs of the "clean hands" necessary to seek the equitable remedy of recission. Cf. Ortiz v. Lane, 92 N.M. 513, 590 P.2d 1168 (Ct.App.1979); Wyrsch v. Milke, 92 N.M. 217, 585 P.2d 1098 (Ct.App.1978).
The Ledbetters challenge the court's findings to the effect that the Ledbetters fraudulently misrepresented the condition of the ice cream machines to the Webbs, and they challenge the trial court's refusal to adopt their requested findings No. 8-13 and conclusions No. 1 and 2.
So far as we can tell, the court did in fact adopt--at least in substance--the Ledbetters' conclusions of law No. 1 and 2 relating to the court's jurisdiction and the existence of a contract (evidenced by a promissory note) between the parties. The Ledbetters' requested findings No. 8-13 refer merely to evidentiary facts, some of which are uncontested and others of which are...
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