Vandeputte v. Soderholm

• Citation: 298 Minn. 505,216 N.W.2d 144
• Decision Date: 15 March 1974
• Docket Number: Nos. 44140--44144,s. 44140--44144
• Parties: M. W. VANDEPUTTE, Respondent, v. Rollin SODERHOLM, et al., Appellants.
• Court: Supreme Court of Minnesota (US)

Page 144

216 N.W.2d 144

298 Minn. 505

M. W. VANDEPUTTE, Respondent, v. Rollin SODERHOLM, et al., Appellants.

Nos. 44140--44144.

Supreme Court of Minnesota.

March 15, 1974.

Syllabus by the Court

1. To assert fraud in the inducement as a defense to an action on a promissory note, the defendant must show that plaintiff made a false representation of a material past or present fact or a misrepresentation of a present intention to perform a specific act in the future.

2. Summary judgment for plaintiff was properly granted when the pleadings, interrogatories, affidavits, and depositions of defendants did not present specific facts showing a genuine issue for trial.

3. The supreme court will not decide issues raised for the first time on appeal.

Newcome, Vallace & Newcome and Jack C. Wallace, St. Paul, for appellants.

O'Connor, Green, Thomas, Walters & Kelly and Douglas M. McMillan, Minneapolis, for respondent.

Heard before KNUTSON, C.J., and PETERSON, TOOD, and YETKA, JJ., and considered and decided upon by the court.

YETKA, Justice.

These actions, each brought by plaintiff as the holder of a promissory note against the maker, were consolidated for trial. All defendants alleged fraud in the inducement as a defense and counterclaimed. The District Court of Rice County ordered summary judgment for plaintiff, and defendants appeal from the judgments entered. We affirm.

In February 1969, the five defendants herein each executed and delivered to plaintiff a promissory note in the amount of $5,000 and bearing 8 percent annual interest. ¹ Each of the notes was conditioned upon, and incorporated by reference, an agreement among the parties. An addendum modifying the original agreement was subsequently executed. In summary, the agreement and addendum provided:

That plaintiff transfer the sum of $30,000 to Sea-Glo Products, Inc., (hereafter referred to as the corporation) for use as additional capital.

That the corporation assume notes aggregating $5,000 of which defendants Estrem and Huset were obligors. Plaintiff was to 'personally guarantee' payment of the notes by the corporation.

That plaintiff receive 600 shares of the corporation's common stock.

That each of the defendants, in addition to executing his personal note for $5,000 to plaintiff, transfer to plaintiff all stock held by him in the corporation.

Upon payment in full of the $5,000 notes, each of the defendants was to receive the shares of stock previously transferred to plaintiff as well as an additional 50 shares.

This agreement was apparently made because the corporation was unable to borrow funds from the Security State Bank of Kenyon. The bank also was unwilling to loan money to each of the individual defendants but was willing to loan $30,000 on a personal note to plaintiff. The record indicates that the bank's president played a very important role in recommending the method of raising the funds.

Following execution of the notes and the agreement by the parties, plaintiff borrowed the $30,000 on his personal note from the bank and deposited the same in the corporation's checking account, and defendants transferred the stock to plaintiff. Plaintiff thereafter assumed the duties set out in the agreement and satisfied the notes owed by defendants Estrem and Huset. The corporation subsequently failed and its stock became worthless.DP Defendants asserted as a defense to plaintiff's action for payment of the notes and as a counterclaim that their execution was induced by fraud and that there was a partial failure of consideration with respect to the agreement because plaintiff subsequently, in his management of the corporation, misappropriated a substantial part of the $30,000 which he had transferred to the corporation under the terms of the agreement. On appeal they also, for the first time, have charged that the notes carried usurious interest charges.

1--2. Defendants base their allegation of fraud in the inducement upon certain representations made by plaintiff and understandings among the parties reflected in the agreement, addendum, and minutes of meetings of the corporation's board of directors held February 5 and May 2, 1969.

The trial court, after finding that the answer and counterclaim, standing alone, did not create a 'triable issue of fact' and that the depositions of the defendants and an affidavit of defendant Huset did not support any of the claims of the defendants, granted plaintiff summary judgment.

In Hanson v. Ford Motor Co., 278 F.2d 586, 591 (8 Cir. 1960), Mr. Justice Blankmun, then sitting as a circuit judge, carefully reviewed the decisions of the Minnesota Supreme Court and set out the elements which must be proved to establish fraud:

'1. There must be representation;

'2. that representation must be false;

'3. It must have to do with a past or present fact;

'4. That fact must be material;

'5. It must be susceptible of knowledge;

'6. The representer must know it to be false, or in the alternative, must assert it as of his own knowledge without knowing whether it is true or false;

'7. The representer must intend to have the other person induced to act, or justified in acting upon it;

'8. That person must be so induced to act or so justified in acting;

'9. That person's action must be in reliance upon the representation;

'10. That person must suffer damage;

'11. That damage must be attributable to the misrepresentation, that is, the statement must be the proximate cause of the injury.'

This court has approved Mr. Justice Blackmun's summary of the elements of fraud in Davis v. Re-Trac Mfg. Corp., 276 Minn. 116, 149 N.W.2d 37 (1967).

Defendants by their counterclaims assert that plaintiff induced them to sign the notes by falsely representing that he Would reorganize and manage the affairs of the corporation and Would use the $30,000 in capital to do a number of specific things in managing the corporation. These specific representations are enumerated in defendants' counterclaim. Each of the representations set out in the counterclaim consist, not of 'past or present' facts, but of promise to perform future acts.

It is a well-settled rule that a representation or expectation as to future acts is not a sufficient basis to support an action for fraud merely because the represented act or event did not take place. It is true that a misrepresentation of a present intention could amount to fraud. However, it must be made affirmatively to appear that the promisor had no intention to perform at the time the promise was made. Belisle v. Southdale Realty Company, 283 Minn. 537, 168 N.W.2d 361 (1969); 8A Dunnell, Dig. (3 ed.) § 3827.

Rule 56.05, Rules of Civil Procedure, relating to summary judgments provides in pertinent part:

'* * * When a motion for summary judgment is made and supported as provided in Rule 56, an adverse party may not rest upon the mere averments or denials of his pleading but must present specific facts showing that there is a genuine issue for trial.'

In considering the motion for summary judgment, the trial court had before it the pleadings, motions, affidavits, interrogatories, and the depositions of the five defendants and of plaintiff. Nowhere in these materials is there relevant evidence to support an allegation that plaintiff made either a false representation of a material Past or present fact or a misrepresentation of a present intention to perform a specific act in the future. Even if all of the representations which defendants claim...