Ruth v. Von Hickman
| Decision Date | 22 October 1958 |
| Citation | 330 P.2d 722,214 Or. 490 |
| Parties | Adrian RUTH and Mildred Ruth, husband and wife, Respondents, v. C. VON HICKMAN, Appellant. |
| Court | Oregon Supreme Court |
Harry G. Spencer, Salem, and Edward A. Butler, Eugene, argued the cause for appellant. On the brief were Harris, Butler & Husk and Vernon D. Gleaves, Eugene, and Harry G. Spencer, Salem.
J. M. Copenhaver, Redmond, argued the cause for respondents. On the brief were Cunning & Brewster, Redmond, and Thomas Boeke, and J. J. Thalhofer, Redmond.
Before PERRY, C. J., and ROSSMAN, LUSK and McALLISTER, JJ.
This is a suit in equity brought by the plaintiffs, Adrian Ruth and Mildred Ruth, his wife, to rescind a contract entered into by them for the purchase of a general insurance agency from the defendant, C. Von Hickman. From a decree in favor of plaintiffs, the defendant has appealed.
The contract involved in this suit was executed on March 31, 1954. For a number of years prior to that date, the defendant Hickman had been engaged in the insurance business in Eugene under the name of Hickman Insurance Agency. The business was divided into a life insurance agency, to which Hickman devoted substantially all of his time, and a general insurance agency managed by defendant's cousin, Dean Hickman. The general insurance agency is the subject matter of this suit.
On February 28, 1954, the following advertisement appeared in the Oregonian, having been placed therein by Hickman:
In response to this ad Adrian Ruth, who lived near Redmond, wrote a letter asking for more particulars. He inquired specifically about gross profit, expenses and net profit.
In reply Hickman sent Mr. Ruth a copy of a letter previously written by defendant to another prospective purchaser. This letter contained the following statements about the general insurance agency:
'This business has been growing from year to year and is now doing from $125,000 to $130,000 in premiums each year.
'The gross income from all policies on the books is approximately $27,000 as shown by an audit made in October.
'My reason for wishing to sell is this: I was the owner of the Burgoyne Motor Company which lost about $20,000 and I wish to sell the Burgoyne Motor Company and the Hickman Insurance Agency as one parcel in order that I can take capital gains against capital loss.'
In response to the above letter, Mr. Ruth wrote Hickman on March 3, 1954, stating, among other things, that he would not be able to pay the purchase price in cash. The letter also contained this statement, 'I know nothing about the insurance business and if this is essential, then that is another reason for not taking up your time.'
Upon receipt of this letter Hickman called Mr. Ruth at Redmond by telephone. In response to this call, the Ruths met Hickman in his office in Eugene on March 7, 1954. There is a sharp conflict in the testimony concerning the statements made by Hickman and the conversations between the parties at this and later meetings. It is agreed that at the meeting Hickman advised the plaintiffs that the selling price of $25,000 quoted in the ad was in error and should have been $35,000, which he was asking for the business. After the initial meeting Mr. Ruth made two trips to Eugene to continue the negotiations and returned again about March 29th and stayed in Eugene until the contract was executed on March 31, 1954.
The Hickman insurance agency was not incorporated. However, Hickman owned all of the stock of Burgoyne Motors, the corporation mentioned in his advertisement and letter to plaintiffs. This corporation had been engaged in the automobile business, had quit business after sustaining substantial losses and, for federal tax purposes, was entitled to a loss carry- over of about $19,000. Burgoyne Motors owed Hickman about $14,000, which was evidenced by the promissory note of the corporation payable to Hickman.
The contract required Hickman to transfer the assets of his general insurance agency to Burgoyne Motors, to change the name of the corporation to Hickman Insurance Agency, Inc. and to transfer all of the stock of the corporation to plaintiffs. It was represented by Hickman that a substantial savings in federal taxes could be effected by having the insurance business transferred to the corporation so that the earnings of the insurance business could be offset against the losses sustained by the corporation while it had been in the automobile business.
Plaintiffs agreed to pay the purchase price of $35,000 as follows:
(a) $7,000 in cash;
(b) $10,000 as required by their promissory note in that sum payable to Hickman and secured by a mortgage on plaintiffs' home;
(c) $4,000 as required by their promissory note in that sum payable to Hickman and secured by a pledge of all the stock of the corporation; and,
(d) $14,000 as required by a promissory note executed by the corporation to Hickman, payment of which was guaranteed by plaintiffs and their guaranty secured by a pledge of all the stock of the corporation.
In their amended complaint plaintiffs alleged that prior to the sale, the defendant represented to them that: (1) the annual premium income of the agency was approximately $125,000 to $130,000; (2) that the annual gross income from commissions upon the annual premium income was approximately $27,000; and (3) that the cost of doing business was about $1,000 per month.
Plaintiffs also alleged that said representations were false in that (1) the annual premium income was only about $75,000; (2) the annual gross income from commissions was less than $18,000; and (3) the cost of doing business exceeded $1,000 per month. Plaintiffs further alleged that they had a right to and did rely on said representations and were induced thereby to enter into the contract.
Defendant's answer put in issue the material allegations of plaintiffs' complaint and prayed for specific performance of the contract.
The trial court found that for the purpose of inducing the Ruths to purchase the agency, Hickman made the following material representations of fact:
'1. That * * * 'this business has been growing from year to year, and is now doing from $125,000.00 to $130,000.00 in premiums each year.'
The court further found that (a) the Ruths had a right to and did rely on said representations and were induced thereby to enter into the contract; (b) that said representations were false in that the annual premium income of the agency had been substantially less than $50,000 each year and that the annual gross income of said business had not exceeded $5,000 annually; and (c) that the plaintiffs did not know or have information to put them on notice that said representations were false until about July 21, 1954. This action to rescind the contract was filed on August 6, 1954.
In his brief Hickman concedes that he misrepresented the annual premium income of the agency when he said it was from $125,000 to $130,000. He also is willing to assume that his statement that 'the gross income for all policies on the books is approximately $27,000,' was intended to convey the impression that the annual gross income was $27,000. Hickman concedes that the annual premium income and the annual gross income of the agency from commissions were both substantially less than as represented.
Hickman contends that before the contract was signed he and Dean Hickman had explained to plaintiffs that the figure of $125,000 to $130,000 was the projected total premium income for the period of years embraced within the expiration dates of all policies on the books of the agency and that such sum did not represent the amount of the annual premium income. Defendant further contends that he explained to plaintiffs at the same time that the sum of $27,000 represented the projected total gross income for the same years from all the policies on the books of the agency instead of the annual gross income from such policies. Defendant finally contends that, because plaintiffs learned from him and ...
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