U.S. Lumber, Inc. v. Fisher, 18402

• Decision Date: 18 November 1994
• Docket Number: No. 18402,18402
• Parties: US LUMBER, INC., a South Dakota Corporation, Roger Duba and Sandra Duba, Plaintiffs and Appellants, v. Charles F. FISHER, Defendant and Appellee.
• Court: South Dakota Supreme Court

Page 87

523 N.W.2d 87

US LUMBER, INC., a South Dakota Corporation, Roger Duba and Sandra Duba, Plaintiffs and Appellants, v. Charles F. FISHER, Defendant and Appellee.

No. 18402.

Supreme Court of South Dakota.

Argued April 25, 1994.

Reassigned Aug. 15, 1994.

Decided Oct. 12, 1994.

Rehearing Denied Nov. 18, 1994.

Ronald W. Banks of Banks, Johnson and Colbath, Rapid City and Thomas L. Brejcha of Abramson and Fox, Chicago, IL, for plaintiffs and appellants.

Lonnie R. Braun and Thomas W. Stanton of Costello, Porter, Hill, Heisterkamp & Bushnell, Rapid City, for defendant and appellee.

HENDERSON, Retired Justice (on reassignment).

PROCEDURAL HISTORY/ISSUES

Alleging rescission, negligent misrepresentation, fraud and deceit in an action commenced January 29, 1991, U.S. Lumber and its owners (Plaintiffs) sought to negate their purchase of a partnership interest from Charles F. Fisher (Fisher), who counterclaimed demanding the final installment of the purchase through a promissory note. Concluding that Plaintiffs elected the remedy of rescission, the trial court dismissed the non-rescission actions in the complaint. Thereafter, the jury returned a verdict in favor of Fisher. The trial court also awarded Fisher prejudgment interest at a rate of fifteen percent (15%). On appeal, Plaintiffs raise the following issues:

I. Did the trial court err by dismissing the non-rescission claims?

II. Do alleged errors warrant a new trial?

III. Did the trial court err in awarding 15% prejudgment interest?

We affirm the dismissal of the non-rescission claims, but reverse the prejudgment interest rate.

FACTS

On May 21, 1990, U.S. Lumber, a South Dakota corporation owned by Roger and Sandra Duba, contracted to purchase Fisher's fifty percent (50%) partnership interest in two Deadwood, South Dakota gaming operations (Goodtime Novelty and Jackpot Charley's) for $1,500,000. Under the terms of the agreement, U.S. Lumber was to pay Fisher $50,000 upon execution of the agreement and $950,000 at closing. The balance of $500,000 was due on or before January 10, 1991. Roger Duba (Duba), an experienced businessman with a master's degree in business, signed the agreement as president and guarantor. He also completed a promissory note guaranteeing payment of the final $500,000.

Several weeks prior to the signing of this agreement, Fisher told Duba that the partnership owned 217 slot machines and was committed to purchase an additional 100. On Fisher's recommendation, Duba spent considerable time with both Fisher's partner and accountant to review documents on expenses and revenues. Duba learned that each machine netted over $30 per day, the partnership was earning in excess of $200,000 per month, and expenses for two operations were about $15,000 a month. Duba claims he was led to believe that there were other buyers who were interested in acquiring Fisher's interest, and that he "had just hours in which to make a decision or the business would be sold to someone else." According to his testimony, on at least three occasions prior to April 30, 1990, Duba asked Fisher for the partnership's 1989 tax return, cash flow statements, and expenses and revenues. He was told the documents had not been prepared and when the 1989 tax return was prepared, he would be given a copy. Duba never received the documentation he requested. Nevertheless, Duba insisted on finalizing the deal before Memorial Day; and, on May 21, 1990, the parties executed the contract to purchase Fisher's ownership and promissory note.

In December of 1990, Duba determined that the monthly business expenses prior to U.S. Lumber's acquisition were in excess of $75,000 per month for Goodtime Novelty and $20,000 per month for Jackpot Charley's. (Fisher concedes that the $15,000 per month expense figure was understated.) On December 27, 1990, Duba, on behalf of U.S. Lumber, sent Fisher a letter rescinding the agreement and offering to restore to Fisher everything of value received from him. The letter requested the return of "all of the funds that have been paid, the obligations paid on behalf of the partnership, and the guaranties and mortgages executed by any or all of us." Fisher soon rejected U.S. Lumber's demands for rescission.

Plaintiffs filed a complaint, alleging rescission, negligent misrepresentation, fraud and deceit. Fisher counterclaimed for the final installment of $500,000 plus interest, and sought foreclosure of a mortgage on the Dubas' property in Deadwood which had been given as security. Fisher asserted that the Plaintiffs' December 27 letter constituted an irrevocable election to pursue the remedy of rescission, and made a motion to dismiss or for partial summary judgment on the remaining claims of fraud, misrepresentation, and punitive damages. Trial court granted the Motion to Dismiss the non-rescission actions.

The jury found that Fisher did not fraudulently induce Plaintiffs to enter into the contract, but found Plaintiffs in default on the promissory note. Fisher was awarded the principal of $500,000, plus prejudgment interest at 15%. Plaintiffs appeal the dismissal of the non-rescission claims and the interest amount.

DECISION

I. Plaintiffs elected their remedy.

"If a buyer has been defrauded, he has an election of remedies available to him. He can either rescind the contract, restore what he received and recover back what he paid, or he may affirm the agreement and sue for monetary damages." Holmes v. Couturier, 452 N.W.2d 135, 137 (S.D.1990). Essentially, the complaining party has the right to a choice or "election" of remedies. O'Connor v. King, 479 N.W.2d 162 (S.D.1991). This principle of law is deeply-rooted in this state by precedent dating back nearly one hundred years to Davis v. Tubbs, 7 S.D. 488, 64 N.W. 534 (1895). Election of remedies is not simply a rule of procedure; rather, it is based upon substantive law, birthed in the existence of contracts and the rights derived from those contracts. As we stated in S & S Trucking v. Whitewood Motors, Inc., 346 N.W.2d 297, 301 (S.D.1984):

It is a well-recognized rule of contract law that once a party rescinds a contract, as Whitewood did here by its termination, the contract is extinguished and there is no longer any right of recovery under the contract provisions.

Recently, in Tucek v. Mueller, 511 N.W.2d 832 (S.D.1994), Tucek was entitled to sue for damages for fraud and deceit; Tucek also had the right to sue for rescission. In other words, she had the right to the remedy of her choice; however, the trial court deprived Tucek of that choice and restricted her remedy to rescission. We reversed. Herein, when Plaintiffs voluntarily informed Fisher by the December 27 letter that they were acting to "rescind that certain Agreement dated the 21st day of May, 1990," Plaintiffs unequivocally elected their remedy. They reaffirmed their election of rescission in paragraph XV of their Complaint, stating that they "did thereby rescind said agreement by letter dated December 27, 1990." Once elected, Plaintiffs were not entitled to sue under alternative theories of fraud, deceit, or misrepresentation.

From Davis to Tucek, dust has not had time to settle on this oft-used principle. It has lived on. The trial court did not err in dismissing Plaintiffs' additional tort claims.

II. Plaintiffs are not entitled to a new trial.

Special Interrogatory A(1) was posed to the jury as follows:

We the jury find that Charles Fisher fraudulently induced the Plaintiffs to enter into a contract for the purchase of Charles Fisher's fifty (50) percent in Goodtime Novelty and Jackpot Charley's. (Answer Yes or No).

The jury answered "no." Therefore, the jury repudiated Plaintiffs' theory of the case. Having failed to prove fraud to establish rescission, Plaintiffs now desire to try the case on damages. Having failed to prove their theory of the case, they should not now, at the appellate level, be granted a new trial. The jury has spoken. United States Fire Ins. Co. v. Dace, 305 N.W.2d 50 (S.D.1981).

Plaintiffs also attack the burden of proof submitted to the jury. After initially arguing for the preponderance test, Plaintiffs stipulated to the use of the clear and convincing standard. The trial court complied by placing this standard in the jury instructions. Said stipulation was tantamount to a failure to preserve this claimed error for appeal. Haberer v. Rice, 511 N.W.2d 279 (S.D.1994); Matter of Estate of Eberle, 505 N.W.2d 767 (S.D.1993). They cannot take advantage of their own invited error.

III. Fisher was entitled to 12% pre-judgment interest.

As part of the purchase agreement on May 21, 1990, Roger Duba, as president of U.S. Lumber and its guarantor, signed a promissory note to pay Fisher the remaining $500,000 "with interest at twelve (12) percent per annum from the date hereof" on or before January 10, 1991. In addition, Duba marked through this quoted phrase and, in his own handwriting, wrote "no interest" "R. Duba 5/21/90" in the margin of the promissory note. Due to this alteration, Plaintiffs contend that the parties expressly intended that no interest would apply and, as such, the prejudgment interest should be zero. Although Fisher makes no argument on the alteration, we notice that nowhere on the promissory note is there any indication whatsoever that Fisher has agreed to the delineation of the interest. (If this Court were to ignore Duba's marks on the promissory note, SDCL 21-1-13.1 sets prejudgment interest at the contract rate. Thus, the note's twelve percent (12%) rate would apply.) At most, Fisher agreed to a zero interest rate being charged under the expectation that the lump sum of $500,000 would be paid as due. No installment plan with an interest rate was necessary. In sum, prejudgment interest was warranted. Honomichl v. Modlin, 477 N.W.2d 599 (S.D.1991).

The trial court set the prejudgment interest rate for the $500,000 based upon SDCL 54-3-5:

Unless there is an express contract in...