Schnuth v. Harrison

• Decision Date: 28 October 1969
• Docket Number: No. 116,116
• Citation: 44 Wis.2d 326,171 N.W.2d 370
• Parties: Louis H. SCHNUTH, Respondent, v. E. Louis HARRISON, Appellant.
• Court: Wisconsin Supreme Court

Page 370

171 N.W.2d 370

44 Wis.2d 326

Louis H. SCHNUTH, Respondent, v. E. Louis HARRISON, Appellant.

No. 116.

Supreme Court of Wisconsin.

Oct. 28, 1969.

On or about August 15, 1967, the parties to this action, after prior negotiations, entered into the following written agreement:

'E. Louis Harrison agrees to sell one-half interest in all the outstanding shares of common stock in the Corporation 'River Frozen Foods, Inc.' of 20 Cass Street, La Crosse, Wisconsin for the sum of five thousand dollars to Louis H. Schnuth.

'Mr. Schnuth will:

'1. Receive 50% of outstanding shares of stock in the Corporation.

'2. Receive $175.00 weekly salary plus one-half of the profits of the Corporation.

'3. Be elected President of the Corporation.

'The Corporation will lease the building at 20 Cass Street, La Crosse, Wisconsin as equipped for the sum of $250.00 per month for a period of twenty years. Lease to be attached to this agreement.

'The Corporation consists of:

'1. Miscellaneous inventory of frozen and canned foods (approximately $3000.00).

'2. Three trucks (description attached).

'3. Miscellaneous supplies, office furniture and equipment.

'4. Debts (list attached not to exceed $3500.00).

'5. No litigations or lawsuits pending.

'The $5000.00 received for the half interest in this Corporation is to be deposited to the Corporation bank account and from that day all checks drawn on the account must be counter-signed by both E. Louis Harrison and Louis H. Schnuth.

'All statements and facts listed above are true or this agreement is null and void.'

On or about September 1, 1967, Schnuth moved his family from Palatine, Illinois to La Crosse, and began work at River Frozen Food, Inc. The agreement called for Schnuth to pay into the corporation $5,000 which he paid by check in three installments: September 5, 1967--$2,000; October 4, 1967--$2,000; and November 15, 1967--$1,000.

Sometime during September, 1967, Schnuth sold portions of the inventory on hand to certain of the corporation's customers. River Frozen Food, Inc., provided frozen food and other food products to colleges, hospitals, schools, and motels in Wisconsin, Iowa and Minnesota.

Shortly after these sales and subsequent to Schnuth's $2,000 payment on October 4th, complaints about spoilage of some of the frozen fish were received from these customers.

At about the same time, Schnuth learned that the corporation had prior debts exceeding the $3,500 amount mentioned in the agreement. Schnuth also discovered that one of the trucks mentioned in the agreement was leased to the company and another truck was encumbered. In addition, Schnuth was informed that a lawsuit had been initiated against the corporation on March 10, 1967, and reduced to judgment by default on August 29, 1967.

Nevertheless, Schnuth made the final $1,000 payment on November 15, 1967.

Schnuth never received any shares of stock of River Frozen Foods, Inc., nor was elected president of the corporation. Neither did he receive any salary or share of the profits.

On December 7, 1967, Schnuth sent Harrison the following letter:

'* * * my contract with you and River Frozen Foods is null and void. This is in reference to the contract which was signed about August 15, 1967.

'Louis H. Schnuth'

Then, on December 8, 1967, the summons and complaint in this action were served on the defendant, Harrison, alleging, inter alia:

'FOURTH: That the defendant induced the plaintiff to enter into the agreement, marked Exhibit 'A', by falsely representing that:

'(A) The plaintiff would receive 50% of the outstanding shares of stock in River Frozen Foods, Inc.

'(B) The plaintiff would receive $175.000 a week in salary in compensation for services performed for the Corporation.

'(C) The plaintiff would be elected president of the Corporation.

'(D) The miscellaneous inventory of frozen and canned foods had a value of $3,000.00 at the time the agreement was executed.

'(E) The miscellaneous debts of the Corporation did not exceed $3,500.00 at the time the agreement was executed, and

'(F) No litigation or lawsuits were pending against the Corporation at the time the agreement was executed.

'FIFTH: That the plaintiff fully believed and relied upon the representations set forth in paragraph Fourth, above, and agreed to and did perform the contract by:

'(A) Depositing $5,000.00 in the Corporation's bank account as required by the agreement marked Exhibit 'A'.

'(B) Paying off debts of the Corporation and ordering new inventory.

'(C) Expending his time to solicit business for the Corporation and attract new sales personnel.

'SIXTH: That, at the time the agreement marked as Exhibit 'A' was executed, the defendant knew of the falseness of his representations and intended to defraud the plaintiff for the purpose of inducing the plaintiff's action in reliance upon the agreement.

'SEVENTH: By reason of the fraud practiced by the defendant, the plaintiff has sustained the following financial injuries:

'(A) Money deposited in the Corporation's bank account for the purpose of conducting corporate business; $5,000.00.

'(B) Loss of salary which, pursuant to the agreement marked as Exhibit 'A', was to be paid for services rendered to the Corporation; $2,100.00.

'(C) Travel expenses incurred in soliciting business for the Corporation; $629.40, and

'(D) Cost of relocation of plaintiff's family; $1,855.00.

'EIGHTH: That, upon discovery of the fraudulent acts of the defendant, the plaintiff notified the defendant of his intent to rescind the agreement and demanded repayment of the consideration tendered; that demand was refused by the defendant.

'WHEREFORE, plaintiff prays judgment against the defendant as follows:

'(A) That the agreement be rescinded.

'(B) That the defendant make restitution to the plaintiff of all money expended by the plaintiff in reliance upon the agreement.

'(C) For costs and disbursements and for such other and further relief as may be deemed just and equitable.'

Trial was had before an advisory jury which found that Harrison had made a material misrepresentation to induce Schnuth to purchase one-half interest in River Frozen Foods, Inc., and that Schnuth relied on this misrepresentation in purchasing a one-half interest in the corporation. Thereafter, Judge Schlosstein entered Findings of Fact and Conclusions of Law, stating inter alia:

'3. That each of said representations were material and false when made and the defendant either knew that said representations were false when made or that, when the defendant made them, they were made with utter disregard for whether they were true or false; that defendant made said representations to induce the plaintiff to purchase the said business.

'4. That, plaintiff satisfied his obligation under the contract of purchase by making a $2,000.00 deposit in the River Frozen Foods, Inc. corporate bank account on September 5, 1967, a $2,000.00 deposit on October 4, 1967, and a $1,000.00 deposit on November 15, 1967; that, after making such payments, plaintiff discovered that defendant fraudulently represented what acts he intended to perform under the contract of purchase in that he refused to transfer to plaintiff 50 per cent of the outstanding shares of stock of the corporation, he refused to install plaintiff as president of the corporation and further refused to pay plaintiff $175.00 a week in salary and one-half of the profits of the corporation; that, after making such payments, plaintiff discovered that defendant had fraudulently represented that the corporation had inventory valued at $3,000.00 when, in fact, such inventory was for the most part old, unfit and unsalable, that the debts of the corporation did not exceed $3,500.00 when, in fact, the debts were considerably in excess of that amount, and that the corporation had no litigations or lawsuits pending when, in fact, a suit by Frionor Norwegian Food Dish, Ltd. was pending in county court, branch two, La Crosse county, Wisconsin.

'5. That plaintiff never acquiesced in defendant's fraud or fraudulent representations after having gained knowledge of the falsity of such representations nor did plaintiff ever intend to relinquish his right to rescind the contract nor the plaintiff ever do any act pursuant to said contract of purchase with the full knowledge of defendant's fraud or fraudulent representations; that, upon discovery that the said representations set forth above were material, false, fraudulent and deceitful, plaintiff notified the defendant that he considered the contract of purchase rescinded.

'6. That, pursuant to the contract of purchase and in reliance upon the representations contained therein, which plaintiff regarded as statements of fact, plaintiff was damaged in that he deposited $5,000.00 in the River Frozen Foods, Inc. corporate bank account, he failed to receive $2,100.00 in salary at the rate of $175.00 for each of the twelve weeks he worked for the corporation, he expended $629.40 in travel expenses on behalf of the corporation in that he drove his vehicle 6,294 miles in the course of his employment and expended an average of 10cents per mile of such travel, and he incurred $1,731.21 in costs for the relocation of his family prior to August 1, 1967 in that he expended $615.96 in moving expenses, $310.00 in attorney's fees connected with the sale of his home, $540.00 in interest penalty for the repayment of a mortgage on his previous home and $265.25 in purchasing a new home in the city of La Crosse and, further, he lost the use of such monies from the time they were expended or the time they became due and owing.

'And I find as:

'CONCLUSIONS OF LAW

'1. That plaintiff is entitled to judgment rescinding the contract of purchase by reason of the fraud and false representations of the defendant.

'2. That the plaintiff is entitled to the return of the $5,000.00 cash deposited in the River Frozen Foods, Inc. corporate bank account, together with interest on each installment payment from...