Robinson v. Perpetual Services Corp., IOWA-NEBRASKA

• Decision Date: 23 September 1987
• Docket Number: No. 84-1992,IOWA-NEBRASKA,84-1992
• Citation: 412 N.W.2d 562
• Parties: Phyllis J. ROBINSON, Elaine M. Schares and Terrance P. McKenna, d/b/a Preferred Partners, Appellees, v. PERPETUAL SERVICES CORP., An Iowa Corporation, d/b/a Perpetual Partners Realty, Defendant, v.PARTNERS REAL ESTATE, INC., An Iowa Corporation, Appellant.
• Court: Iowa Supreme Court

Page 562

412 N.W.2d 562

Phyllis J. ROBINSON, Elaine M. Schares and Terrance P. McKenna, d/b/a Preferred Partners, Appellees, v. PERPETUAL SERVICES CORP., An Iowa Corporation, d/b/a Perpetual Partners Realty, Defendant, v. IOWA-NEBRASKA PARTNERS REAL ESTATE, INC., An Iowa Corporation, Appellant.

No. 84-1992.

Supreme Court of Iowa.

Sept. 23, 1987.

Rehearing Denied Oct. 22, 1987.

Peter C. Riley and Mary K. Hoefer, of Tom Riley Law Firm, P.C., Cedar Rapids, for appellant.

G. Brian Pingel, Katherine E. Schmidt, and Kimberly K. Mauer, of Davis, Hockenberg, Wine, Brown, Koehn & Shors, Des Moines, and David D. Dunakey, Waterloo, for appellees.

Considered by REYNOLDSON, C.J., and HARRIS, LARSON, LAVORATO and NEUMAN, JJ.

REYNOLDSON, Chief Justice.

Plaintiff real estate agents brought this action against defendant franchisor Iowa-Nebraska Partners Real Estate, Inc. (Iowa-Nebraska) for damages arising out of the latter's sale to them of a "Partners" real estate franchise. The jury awarded plaintiffs $40,579 in damages and trial court entered judgment against Iowa-Nebraska in that amount. Defendant appealed and the court of appeals reversed. We granted further review and now vacate the court of appeals decision and affirm the trial court.

The record before us contains evidence from which the jury could have found the following facts.

April 26, 1982, plaintiffs Phyllis J. Robinson and Elaine M. Schares purchased a Waterloo real estate firm they then operated under the trade name "Globe-Rainbow Realty." Before and after this purchase, Robinson and Schares, with other individuals, were visited by James Leonard, an Iowa-Nebraska agent. Iowa-Nebraska is a real estate sales franchisor that sells real estate franchises in the Iowa-Nebraska area by agreement with Partners Real Estate, Inc. (Partners).

The meetings with Leonard explored the possibility of entering into a "Partners" franchise agreement with Iowa-Nebraska. Plaintiffs Robinson and Schares wanted to obtain exclusive franchise rights for the Waterloo-Cedar Falls area. Leonard repeatedly told them such agreements were illegal and would be rejected by Iowa-Nebraska. ¹ Leonard assured them, however, that an exclusive franchise was unnecessary because once they signed an agreement Iowa-Nebraska would solicit no further potential franchises in the Waterloo-Cedar Falls area.

Relying on Leonard's assurances, Robinson and Schares signed a franchise agreement with Iowa-Nebraska on May 20, 1982, and began operating under the name of "Globe-Rainbow Partners."

In August 1982 Robinson and Schares learned that Leonard had been seen in several savings and loan offices in the Waterloo area. Schares telephoned Richard Lange, president of Iowa-Nebraska, to find out why. Lange assured Schares his company's policy of no further solicitation was unchanged and that Leonard was in town only to do follow-up calls and close off negotiations with parties contacted by him before plaintiffs obtained their Partners franchise.

Throughout this period, Robinson and Schares had considered adding a third partner. By September 1982 they were seriously negotiating with the third plaintiff in this action, Terrance P. McKenna, who had operated a real estate office as "Preferred Realty." The latter agreed to join the firm if it changed its name to "Preferred Partners." At a "Partners" rally in September 1982, McKenna was introduced to Iowa-Nebraska's agents, who were told he was going to be joining Robinson and Schares as a partner and the firm name would be changed to "Preferred Partners." Plaintiffs were assured this would be no problem. October 22, 1982, plaintiffs recorded the trade name "Preferred Partners."

Meanwhile, negotiations had continued between Leonard and Perpetual Savings and Loan Association of Waterloo. About a week after the "Preferred Partners" trade name was filed, a franchise agreement was consummated under which the association, through a subsidiary, Perpetual Services Corp., started doing business as "Perpetual Partners Realty" or "Perpetual Partners."

Perpetual Partners began competing against Preferred Partners in the real estate market in January 1983. At trial plaintiffs produced proof indicating a drop in business volume and resulting damages in the sum of $20,000 in 1983 and $20,579 in 1984, totaling the $40,579 ultimately awarded by the jury. Significant public confusion was caused by the similarity between the names "Preferred Partners" and "Perpetual Partners."

Plaintiffs filed action against Iowa-Nebraska and Perpetual Services Corp. d/b/a Perpetual Partners Realty. The jury awarded separate damages against Perpetual Services Corp. That controversy is settled and Perpetual Services Corp. is not a party to this appeal. Plaintiffs' claims against Iowa-Nebraska were in law for fraudulent misrepresentation and negligent misrepresentation, and in equity for rescission.

Plaintiffs' fraud claim is premised on Leonard's assurances Iowa-Nebraska would seek no additional franchises in the Waterloo-Cedar Falls area. In addition to this statement, plaintiffs' negligent misrepresentation claim relies on Leonard's statement that it was illegal to grant exclusive franchises. Plaintiffs' claim for equitable relief is grounded upon their assertion Leonard's statement concerning Iowa-Nebraska's policy of soliciting no further franchises fraudulently induced them to accept Iowa-Nebraska's franchise agreement.

Plaintiffs' fraudulent misrepresentation and negligent misrepresentation claims were tried to the jury. Their rescission claim was tried simultaneously in equity to the court.

The jury found Iowa-Nebraska liable on both counts tried to it and, as we have noted, awarded plaintiffs $40,579 in damages. Iowa-Nebraska appealed, but then successfully moved for a limited remand to trial court for a ruling on the unresolved equitable issue of rescission.

On remand, trial court held the franchise contract between the parties was rescinded. It also held no additional damages should be awarded because the size of the jury verdict convinced trial court full restitution had been made to plaintiffs for all costs incurred by them under the contract.

On appeal, Iowa-Nebraska contends trial court erred: (1) by submitting the fraud claim to the jury, (2) by submitting the negligent misrepresentation claim to the jury, and (3) by rescinding the franchise agreement. By cross-appeal, plaintiffs argue trial court was correct in rescinding the franchise agreement, but erred in not awarding additional restitution damages.

I. Iowa-Nebraska contends trial court erred in submitting plaintiffs' fraud count to the jury because plaintiffs produced insufficient evidence to support several elements of fraud.

To establish that Leonard's statement concerning the solicitation of additional franchises was fraudulent, plaintiffs were required to prove the following elements: (1) representation, (2) falsity, (3) materiality, (4) scienter, (5) intent to deceive, (6) reliance, and (7) resulting injury and damage. Cornell v. Wunschel, 408 N.W.2d 369, 374 (Iowa 1987); B & B Asphalt Co. v. T.S. McShane Co., 242 N.W.2d 279, 284 (Iowa 1976). Each of these seven elements must be established by a preponderance of the clear, satisfactory, and convincing evidence. Cornell, 408 N.W.2d at 374.

Iowa-Nebraska argues that although Leonard asserted he would not solicit other franchises in the Waterloo-Cedar Falls area, this was a statement of future intent and nothing in the record supports a finding the statement was false when made. Rather, only because of a later change in circumstances, the purchase of Iowa-Nebraska by Midland Finance in July of 1982, did Iowa-Nebraska change its policy and solicit an additional franchise in the Waterloo-Cedar Falls area.

Under Iowa law, a statement of intent to perform a future act is actionable if when made the speaker had an existing intention not to perform. Hagarty v. Dysart-Geneseo Community School Dist., 282 N.W.2d 92, 95 (Iowa 1979); Grefe v. Ross, 231 N.W.2d 863, 867 (Iowa 1975). However, in establishing the present intent not to perform, "[t]he fact the agreement was not performed does not alone prove the promissor did not intend keeping it when it was made." Lamasters v. Springer, 251 Iowa 69, 74, 99 N.W.2d 300, 303 (1959); see also Hagarty, 282 N.W.2d at 95.

As Prosser has stated in his treatise on the law of torts:

Unless the present state of mind is misstated, there is of course no misrepresentation. When a promise is made in good faith, with the expectation of carrying it out, the fact that it subsequently is broken gives rise to no cause of action either for deceit, or equitable relief. Otherwise any breach of contract would call for such a remedy. The mere breach of a promise is never enough in itself to establish the fraudulent intent. It may, however, be inferred from the circumstances, such as the defendant's insolvency or other reason to know that he cannot pay, or his repudiation of the promise soon after it is made, with no intervening change in the situation, or his failure even to attempt any performance, or his continued assurances after it is clear that he will not do so.

W. Prosser, The Law of Torts § 109, at 730-31 (4th ed. 1971) (footnotes omitted) (emphasis added).

Two prior cases of this court illustrate these principles. In Hagarty v. Dysart-Geneseo Community School District, plaintiff music teacher's employment was terminated after she was told her position was being eliminated for budgetary reasons. Hagarty, 282 N.W.2d at 94. Subsequently, circumstances changed and the music position was reinstated and offered to another person. We rejected plaintiff's fraud claim, concluding "the fact that the vocal music position was reinstated ... is not alone sufficient to show that the earlier representation was false." Id. at 95.

In contrast with Hagarty is Grefe v. Ross, 231 N.W.2d 863 (Iowa 1975). There, plaintiff was induced to invest in a...