May v. Otto

• Decision Date: 08 December 1926
• Docket Number: No. 9,June Term.,9
• Citation: 211 N.W. 64,236 Mich. 540
• Parties: MAY v. OTTO.
• Court: Michigan Supreme Court

236 Mich. 540

211 N.W. 64

MAY

v.OTTO.

No. 9, June Term.

Supreme Court of Michigan.

Dec. 8, 1926.

Appeal from Circuit Court, Wayne County, in Chancery; Royal A. Hawley, Judge.

Suit by Helen May against Gustav Otto. Decree for plaintiff, and defendant appeals. Modified and affirmed.

Argued before the Entire Bench.

Joseph A. Bloom, of Detroit, for appellant.

Rosenthal, Rosenthal & Rosenthal, of Detroit, for appellee.

McDONALD, J.

Alleging fraud, this bill was filed to secure the rescission of a contract for the purchase of a cigar and confectionery business, and to restrain the negotiations of certain promissory notes given in partial payment thereof.

The contract was in writing, and provided for the purchase of the business, including stock, store fixtures, and a three-year lease of the premises for a consideration of $4,000, of which $2,000 was to be paid in cash, and the balance in equal monthly payments, evidenced by twenty notes of $100 each. The plaintiff made the initial payment, and went into possession on February 17, 1925, and, while still conducting the business, on February 25, 1925, filed this bill. Her bill is founded on the claim that the defendant falsely represented to her that the business was prosperous, and that his net profits averaged $100 per week. Answering, the defendant denied that he made any representation, except as to the gross profits, which he said were $100 a week.

On the hearing the circuit judge found that the plaintiff had sustained the allegations in her bill. He decreed a cancellation of the notes, and gave her a lien on the property to secure the repayment of the $2,000. The defendant has appealed.

The issue is entirely one of fact. To justify a decree for the plaintiff, it must appear by a preponderance of the evidence that the defendant made the alleged representation; that it was relied on by the plaintiff; and that it was false. The only actionable representation relates to the profits of the business. And the only difference in the claims of the parties is whether the representation was of the net profits or the gross profits.

The testimony shows that during the preliminary negotiations the question of profits was up for discussion. The defendant had been conducting the business for some time, and he was the only party who could give a fair estimate of the net profits. There was no other source from which the plaintiff could get this information. She was assuming an indebtedness which must be paid out of the business. The defendant reserved title to the property, and, unless she could make a profit sufficient to pay the notes as they became due, she would lose her $2,000 initial payment. In these circumstances it is not reasonably probable that she would have been content with a representation as to the gross profits. She naturally would want to know if she could make enough clear money to meet her payments. The necessity for such information, and the fact that the defendant could furnish it, are circumstances which tend to support the plaintiff's testimony. It is also supported by the testimony of her husband and by that of Mr. Applefield, the broker with whom the defendant listed the property, and through whose agency the sale was made. Mr. Applefield appears to have been a disinterested witness. He was in no way impeached, and his testimony is convincing that the defendant represented his net profits to be $100 per week. We think that on this element of the case the circuit judge correctly found with the plaintiff.

The testimony as to whether the representation was false is not so convincing, though we think that on this question also the court reached a correct conclusion. The plaintiff introduced some testimony tending to show that the...