Pugh's IGA, Inc. v. Super Food Services, Inc.

• Decision Date: 20 December 1988
• Docket Number: No. 43A04-8801-CV-19,43A04-8801-CV-19
• Citation: 531 N.E.2d 1194
• Parties: PUGH'S IGA, INC., Jack B. Pugh, Ruth E. Pugh, and Jack C. Pugh, Appellants (Third Party Plaintiffs Below), v. SUPER FOOD SERVICES, INC., Appellee (Third Party Defendant Below).
• Court: Indiana Appellate Court

Page 1194

531 N.E.2d 1194

PUGH'S IGA, INC., Jack B. Pugh, Ruth E. Pugh, and Jack C Pugh, Appellants (Third Party Plaintiffs Below), v. SUPER FOOD SERVICES, INC., Appellee (Third Party Defendant Below).

No. 43A04-8801-CV-19.

Court of Appeals of Indiana,

Fourth District.

Dec. 20, 1988.

Rehearing Denied Jan. 23, 1989.

Howard S. Grimm, Jr., Grimm, Haecker & Nimmo, Fort Wayne, for appellants.

R. Michael Parker, J. Scott Troeger, Barnes & Thornburg, Elkhart, David F. Hamilton, Barnes & Thornburg, Indianapolis, for appellee.

CONOVER, Presiding Judge.

Plaintiffs-Appellants Pugh's IGA, Inc., Jack B. Pugh, Ruth E. Pugh and Jack C. Pugh, (Pughs) appeal the entry of summary judgment in favor of Defendant-Appellee Super Food Services, Inc. (Super Foods) in a case seeking damages for fraudulent misrepresentations contained in a market survey analysis.

We affirm.

This appeal presents the following issues:

1. whether a market analysis furnished by Super Foods to the Pughs contained false representations of past or presently existing facts upon which the Pughs could place reasonable reliance,

2. whether such reliance was justified when Super Foods furnished further information the proposed supermarket could not succeed financially even if the estimated future sales contained in the market analysis were achieved 3. whether the Pughs were guilty of contributory negligence as a matter of law in building the supermarket, and

4. whether the market analysis was the proximate cause of the store's subsequent financial failure.

Jack B. and Ruth E. Pugh for six years prior to April, 1983, owned Pugh's Quality Meats and Locker, a meat locker in LaGrange, Indiana. Jack had at least 25 years experience in the retail grocery and meat business prior to April, 1983. In the early 1980's the Pughs began investigating the feasibility of opening a supermarket either in LaGrange or in Albion, Indiana, the Pughs' hometown. Pursuing that interest, they visited Egolf's IGA in Churubusco to view the physical plant and the operation of the supermarket in late 1982 or early 1983. After that visit, at the Pughs' request, Jack Waltke of Super Foods visited the Pughs. He discussed with them the contribution Super Foods could make as the Pughs were considering whether to build their proposed supermarket.

Thereafter the Pughs met with Robert Mattfeld and Waltke several times. Mattfeld was in Super Foods' store development area. He conducted market analyses to determine the financial potential of proposed supermarkets.

After floor plans and incidental matters regarding such a store had been discussed, Super Foods did a market analysis of Albion to determine whether an additional supermarket there would be economically feasible. When completed, the market analysis showed among other things the site the Pughs had chosen south of Albion had a potential sales volume of $46,649 per week year round, with an additional sales volume of $2,538 per week during the period from April through September of each year due to an annual influx of summer residents.

In addition, Super Foods provided the Pughs with a "break even" analysis for the proposed supermarket. This analysis took into account the expenses of the proposed business whereas the market analysis did not. It merely estimated the gross sales potential of the site in question without considering the effect of operating expenses. The break even analysis indicated the Pughs would have to achieve average weekly sales of $48,903 just to reach a financial break even point. Thus, Super Foods' projections revealed potential expenditures exceeded potential gross income by $2,254 per week for six months, and a net profit of $284 per week for the remainder of the year if the supermarket were built.

The Pughs successfully arranged financing to build their project with American State Bank by negotiating a construction loan guaranteed by the Small Business Administration (SBA). The application for the SBA loan guarantee contained a forecast of two year's earnings which projected gross receipts for the proposed supermarket to be from $4,500 to $14,000 per week higher than the amounts projected by Super Foods in its market analysis. The Pughs then built the project. Construction delays caused the contractor to miss the estimated completion date by several weeks.

The store ultimately failed. The price of the goods the Pughs attempted to sell was initially higher than the competition's, its rival dramatically improved the efficiency of its operation by improving its management practices and by staying open 24 hours a day, and the Pughs' license to sell package beer and wine initially was turned down by the Indiana Alcoholic Beverage Commission then became embroiled in administrative proceedings for more than 10 months. Pugh's IGA, Inc. closed its doors on September 8, 1984.

The bank filed suit to recover on its loan from Pughs family members and to foreclose on the store property. The Pughs counterclaimed against the bank, then filed a third party complaint against Super Foods. After discovery, the trial court sustained Super Foods' motion for summary judgment. This appeal results.

In reviewing a trial court's grant of summary judgment, we apply the same standard as in the trial court. Summary judgment is only proper where there is no genuine issue as to any material fact, no conflict as to any material inferences which could reasonably be drawn from the facts, and the party moving for summary judgment is entitled to judgment as a matter of law. Ayres v. Indian Heights Volunteer Fire Dept. (1986), Ind., 493 N.E.2d 1229, 1234; Joseph v. Calvary Baptist Church (1986), Ind.App., 500 N.E.2d 250, 253. When ruling on motions for summary judgment, courts must consider as true the facts set forth in the non-moving party's affidavits and liberally construe the discovery in the non-moving party's favor. Four Winns, Inc. v. Cincinnati Ins. Co. (1984), Ind.App., 471 N.E.2d 1187, 1188. A grant of summary judgment must be reversed if the record discloses an unresolved issue of material fact or an incorrect application of the law to those facts. Ayres, 493 N.E.2d at 1234.

I.

The Pughs first contend Super Foods was guilty of actual fraud by falsely representing in the market analysis if the proposed supermarket were built, the Pughs' first year gross income would be substantially greater than it actually proved to be. At that time Super Foods knew (a) the Pughs would rely on the market analysis, (b) the projected first year income figures were false, and (c) Super Foods knew or recklessly failed to discover their falsity, the Pughs claim. As a direct and proximate result they were damaged, the Pughs assert.

In the alternative, they contend Super Foods was guilty of constructive fraud because the relationship of the parties imposed a duty on Super Foods to prepare the market analysis in a "workmanlike manner", and it did not. Super Foods' written and oral representations as to the accuracy of the analysis and the need for a supermarket in Albion were deceptive and violated Super Foods duty to the Pughs, they claim. Further, they had a right to rely on those representations, they did so, and as a proximate result suffered damage, they allege. We disagree.

The elements of actual fraud are

1. a material misrepresentation of past or existing fact by the party to be charged which

2. was false,

3. was made with knowledge or in reckless ignorance of the falsity,

4. was relied upon by the complaining party, and

5. proximately caused the complaining party injury.

First Nat'l. Bank of New Castle v. Acra (1984), Ind.App., 462 N.E.2d 1345, 1348; American Indep. Management Systems, Inc. v. McDaniel (1982), Ind.App., 443 N.E.2d 98, 100.

The elements of constructive fraud are

1. a duty owing by the party to be charged to the complaining party due to their relationship,

2. violation of that duty by the making of deceptive material misrepresentations of past or existing facts or remaining silent when a duty to speak exists,

3. reliance thereon by the complaining party,

4. injury to the complaining party as a proximate result thereof, and

5. the gaining of an advantage by the party to be charged at the expense of the complaining party.

Sanders v. Townsend (1987), Ind.App., 509 N.E.2d 860, 865; Blaising v. Mills (1978), 176 Ind.App. 141, 374 N.E.2d 1166; Windle v. City of Valparaiso (1916), 62 Ind.App. 342, 113 N.E. 429, 433-34. Unlike actual fraud, intent to deceive is not an element of constructive fraud. Rather, the law infers fraud from the relationship of the parties and the circumstances which surround them. Sanders, 509 N.E.2d at 865; Coffey v. Wininger (1973), 156 Ind.App. 233, 296 N.E.2d 154; Windle, id.

Though generally fact-sensitive on a case by case basis, several fundamental principles apply in actionable fraud cases as matters of law. Two of these principles apply here, namely,

1. the misrepresentation must have been as to past or existing facts, and

2. the complaining party must have had the right to rely upon those misrepresentations.

It is clear Super Foods did not misrepresent any past or existing facts in its market survey. The only current facts were contained in a collection of data concerning Albion and the surrounding area obtained from Editor and Publisher Market Guide, the 1980 Census of Population and Housing, the Noble County Planning Agency, and on-site factual observations made by Super Foods personnel. No misrepresentation of such facts is either alleged or relied upon by the Pughs. The market analysis's conclusion reads, in part, as follows:

This report examines the trading area centered in Albion, in Noble County, Indiana.

It has been determined that the trading area contains a year-round population of 5,995 people with this increasing to 6,569 during the period of April through September. This is a seasonal increase of 574 people. It does not include the vacationing or weekend peopl...