Spiess v. Brandt

• Decision Date: 17 February 1950
• Docket Number: No. 34992,34992
• Citation: 230 Minn. 246,41 N.W.2d 561,27 A.L.R.2d 1
• Parties: , 27 A.L.R.2d 1 SPIESS et al. v. BRANDT et al.
• Court: Minnesota Supreme Court

Page 561

41 N.W.2d 561

230 Minn. 246, 27 A.L.R.2d 1

SPIESS et al. v. BRANDT et al.

No. 34992.

Supreme Court of Minnesota.

Feb. 17, 1950.

Rehearing Denied March 20, 1950.

Syllabus by the Court.

1. A person is liable for fraud if he makes a false representation of a past or existing material fact susceptible of knowledge, knowing it to be false, Or as of his own knowledge without knowing whether it is true or false, with intention to induce the person to whom it is made to act in reliance upon it, Or under such circumstances that such person is justified in acting in reliance upon it, and such person is thereby deceived and induced to act in reliance upon it, to his pecuniary damage.

2. A false representation as to past or present income and profits is a false representation of a past or existing material fact within the meaning of the above rule.

3. An unqualified affirmation amounts to an affirmation as of one's own knowledge.

4. A bad motive is not an essential element of fraud.

5. The persistent withholding by vendors of the books of business operations, after the making of direct representations of expenses and profits to prospective purchasers Who have expressed a desire to see the books, justifies an inference by the trier of fact that such vendors at all times knew their representations were false and that they were made with intent to conceal the truth.

6. It is the well-established rule that in a business transaction the recipient of a fraudulent representation of a material fact is justified in relying upon its truth, although he might have ascertained its falsity had he made an investigation.

7. Plaintiffs' attempt to make an investigation, and their subsequent conduct in proceeding with the transaction without having made it, was not a waiver of the right to rely upon defendants' representations.

8. In rescission actions for fraud, the question is whether the representations were of such a character and were made under such circumstances that they were reasonably calculated to deceive, not the average man, but a person of the capacity and experience of the particular individual who was the recipient of the representations.

9. Where representations are made by a party who is presumed to know their truth, reliance thereon will be presumed.

10. Where a trial court has made two or three independent findings of fact, and one of these findings of fact--the making of which has manifestly not been influenced or controlled by an error of law--is wholly sufficient of and by itself to sustain the trial court's decision, no consideration need be given to the other findings, and any error with respect to them is immaterial.

11. Insofar as the defrauding parties are allowed any rental for the use of the premises in rescission for fraud proceedings, such allowance is made not by reason of any legal right, but purely as an equitable obligation of the parties each to the other to restore the Status quo ante by each receiving substantially the property with which he parted without enjoying any unjust enrichment by retention of that of the other.

12. The rule requiring clear and convincing evidence to justify a rescission of a contract for fraud is merely a rule of caution against setting aside written instruments upon weak and inconclusive evidence. A fair preponderance of the evidence is sufficient.

Doherty, Rumble, Butler & Mitchell, St. Paul, Fryberger, Fulton & Boyle, Duluth, for appellants.

James J. Courtney & Son, Duluth, for respondents.

MATSON, Justice.

Defendants appeal from an order denying a new trial in an action for the rescission, because of fraudulent representations, of a contract for the purchase of defendants' summer resort.

Defendants, father and son, in 1940 acquired Jameson's Wilderness Resort located 18 Miles north of Hovland, Minnesota, on Lake McFarland. They continued to own and operate the resort until it was sold to plaintiffs by contract for deed December 17, 1947, for $95,000, with a down payment of $10,000 and with the principal balance of $85,000 payable as follows: $20,000 on or before February 15, 1948; $15,000 on or before April 15, 1948; $2,500 on or before July 15, 1948; $2,500 on or before October 1, 1948, and $2,500 on or before July 15 and October 1 of each year thereafter until paid in full. The contract provided that all sums paid prior to a default should be retained by the vendors as liquidated damages. Plaintiffs made the down payment of $10,000 and the $20,000 due February 15, 1948, but thereafter found themselves unable to pay the April 15 installment, with the exception of $6,000, which was not paid until May 28, 1948. The court found--and this finding is sustained by the evidence--that the $6,000 was paid after defendants had agreed that they would not then foreclose but would give plaintiffs a reasonable time to raise additional funds through the sale of an equity in a home owned by one of the plaintiffs. Ten days later, on June 7, 1948, defendants served on plaintiffs a notice of cancellation of the contract. Shortly thereafter plaintiffs, who had not at any time theretofore been represented by counsel, consulted an attorney at law. About June 19, 1948, plaintiffs brought an action to rescind the contract on the ground of fraud and misrepresentation and to restrain defendants Pendente lite from further cancellation proceedings. In open court, plaintiffs made a tender of a deed and other instruments necessary for a retransfer of the real and personal property, which tender was refused by defendants.

In addition to a finding that defendants had fraudulently concealed the fact that they had lost money each year, the trial court specifically found that during the negotiations and talks had between the parties prior to entering into the contract for deed defendants represented to plaintiffs:

(1) That defendants were making Good money out of the resort;

(2) That plaintiffs could make Good money out of it; and

(3) That plaintiffs could make all future payments on the contract out of the profits.

There are further findings that said representations:

(1) Were known by defendants to be untrue when they were made;

(2) Were made by defendants for the purpose of deceiving and inducing plaintiffs to enter into the contract for the purchase of the property at a price clearly in excess of its real value;

(3) Were relied upon by plaintiffs; and

(4) Were material and were an inducing factor causing plaintiffs to enter into the contract.

The trial court also found that defendants at all times knew that plaintiffs were young and inexperienced; that they had no property; that they wished to acquire this property as a means of livelihood; and that, in order to make future payments on the contract, they would have to make them out of the profits from the resort business. Pursuant to its findings, the court ordered judgment for rescission of the contract and for a return to plaintiffs of the $36,000 which they had paid, with interest. Defendants then moved for amended findings or a new trial, and, upon denial thereof, we have this appeal.

1-2. We need consider only the first representation, namely, that defendants represented to plaintiffs that They were making good money out of the resort business. If the court's finding thereon is supported by the evidence, its order denying a new trial must be sustained, and it will be wholly unnecessary to consider the validity or factual basis of the other two representations Or of the finding that defendants, when there was a duty to disclose, fraudulently concealed the material fact that they had lost money each year. It is well established that: 'A person is liable for fraud if he makes a false representation of a past or existing material fact susceptible of knowledge, knowing it to be false, or as of his own knowledge without knowing whether it is true or false, with intention to induce the person to whom it is made to act in reliance upon it, or under such circumstances that such person is justified in acting in reliance upon it, and such person is thereby deceived and induced to act in reliance upon it, to his pecuniary damage.' 3 Dunnell, Dig. § 3818. See Gaetke v. Ebarr Co., Inc., 195 Minn. 393, 263 N.W. 448.

A false representation as to past or present income and profits is a false representation of a past or existing material fact within the meaning of the above rule. This is particularly true where he who makes the representations knows them to be false. ¹

There is ample evidence--although it is conflicting--to sustain the findings that defendants did misrepresent the past income and profits of the resort. We have testimony, which the court could accept as true, that plaintiff Lowell Spiess, when a price of $100,000 was asked, specifically inquired of one of the defendants how long it would take to pay off that amount out of resort profits, and he was told that it could be paid off in five operating seasons. This answer obviously involved something more than a prediction of possible future earnings, in that it would have relation to defendants' past earning experience. Reasonably, there could be no basis for the answer other than that of defendants' past experience. This is corroborated by more specific testimony when Lowell, in response to his direct inquiry, was told that defendants in 1946 'took in' $25,400 with expenses of $6,000. This would indicate net earnings of $19,400 for 1946, which on a five-year basis would practically amount to the asking price of $100,000. One of the defendants admitted that he had stated that the gross income for 1947 was around.$19,000. The undisputed facts are that defendants had lost money every year of their operation, inclusive of the years 1946 and 1947, which were generally conceded to have been the most prosperous years in the history of Minnesota's resort business. Defendants also told Lowell Spiess that they were making 'good money,' and the making of ...