Vanlee Corp. v. Madden

• Decision Date: 12 June 2000
• Docket Number: CUM CV-99-434
• Parties: VANLEE CORP., Plaintiff, v. DON A. MADDEN SR., DON A. MADDEN JR., JOHN A. MADDEN, AND ROBERT A. MADDEN, Defendants.
• Court: Maine Superior Court

VANLEE CORP., Plaintiff, v. DON A. MADDEN SR., DON A. MADDEN JR., JOHN A. MADDEN, AND ROBERT A. MADDEN, Defendants.

No. CUM CV-99-434

Superior Court of Maine, Cumberland.

December 5, 2000

June 12, 2000

SUPERIOR COURT CIVIL ACTION

ORDER ON PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT FACTUAL BACKGROUND

Robert E. Crowley Justice, Superior Court.

FACTUAL BACKGROUND

Defendants purchased the Radisson Eastland Hotel ("Hotel") in Portland from Plaintiff in October of 1997. The entire purchase price was $9 million. Defendants' Statement of Material Facts ("DSMF") ¶3. Plaintiff took back a promissory note ("Note") for $1.7 million from Defendants. The first payment on the note came due in June, 1998. DSMF ¶5. Defendants tendered that payment, and made monthly payments for a year following it. Id.; Plaintiff's Statement of Material Facts ("PSMF") ¶2.

The defendants failed to make their July 1, 1999 payment under the Note, which constituted a default under the terms of the Note. See Note, Section3(a); PSMF ¶3. On July 13 1999, Plaintiff gave each defendant notice of the default. PSMF ¶4. Because the defendants failed to cure the default Plaintiff accelerated the balance due. PSMF ¶¶5-6. Plaintiff asserts that the sum due as of the date of their SMF was $1,786,489, with $522 in interest accruing per day. Plaintiff's complaint seeks the amounts due and owing under the Note. Defendants asserted several affirmative defenses, including fraud and waiver, and counterclaimed for negligent misrepresentation and fraudulent inducement. Plaintiff moved for summary judgment on its complaint.

The purchase and sale agreement ("Agreement") contained three sections that Defendants contend contained false material misrepresentations that void the contract. Section 3.9 provided

...to the best of Seller's knowledge after due inquiry (i) all of the 207 hotel rooms, the Apartments, the lobby and the common areas of the Hotel are in rentable and/or useable condition, normal wear and tear accepted, and (ii) there are no defects in any of the service systems at the Hotel including the electrical, sanitary, sewage, water, heating, air ventilation, air conditioning or mechanical systems which would materially interfere with the use of the Improvements or the normal operation of such systems.

Section 3.18 provided

No inaccuracies. "To the best of the seller's knowledge, after due inquiry, there are no material inaccuracies in the documents and items submitted or to be submitted to purchaser for its review."

Section 3.4 provided

To Seller's knowledge, after due inquiry, there are no violations of any law, regulation, ordinance or order applicable to the property or any portion thereof, which have not been disclosed to Purchaser and which materially adversely affect the Property.

Defendants also claim that one of the principals of Plaintiff VanLee Corp., L. Joseph VanWhy, represented to the Defendants that the Hotel generated a "net income in excess of $1 million^[1]." DSMF ¶14; Madden Affidavit ¶15.

During the Fall of 1997, the Defendants spent $896,000 on repairs, including the replacement of doors and roofing, the updating of computers and wallpapering. DSMF ¶10. Although the Defendants expected to spend some funds to improve the Hotel, they allege that this amount was in addition to sums reasonably anticipated. Id. Defendants argue that they had to spend these funds because of the Plaintiff's misrepresentations about the Hotel's condition. Id.

In November, 1997, Defendants discovered that the Hotel's backup boiler was inadequate, that the Hotel did not have a fresh air supply, and that asbestos covered virtually all of the steam lines. DSMF ¶11. Further, Defendants were informed that the Hotel violated several city and state code provisions. DSMF ¶13. Under Defendants' management, the Hotel brought them a net annual income of $600,000^[2]. DSMF ¶15.

DISCUSSION

Defendants do not dispute Plaintiff's Statements of Material Facts, which set out Plaintiff's prima facie case as to recovery on the terms of the Note^[3]. Defendants have alleged fraud^[4], which renders a contract voidable, both as an affirmative defense and as a counterclaim. See Dubie v. Branz, 145 Me. 170, 173, 73 A.2d 217, 220 (1950), cited in Harriman v. Maddocks, 518 A.2d 1027, 1029 (Me. 1986); RESTATEMENT (SECOND) OF CONTRACTS § 164 (1981). A party induced to enter a contract by fraud, as alleged here, may either disaffirm the contract and rescind it, or affirm the contract and seek tort damages for the fraud. See Rosenthal v. Rosenthal, 543 A.2d 348, 355 (Me. 1988). The fraudulently induced party is limited to one form of recovery only and may not both rescind and collect damages. E. I. DuPont de Nemours & Co. v. Florida Evergreen Foliage, 744 A.2d 457, 463 (Del. 2000). At issue currently is whether Defendants may rescind the Note due to the Plaintiff's alleged fraud. No party has moved for summary judgment on Defendants' counterclaims.

The right of a party to rescind a contract due to fraud is limited because it must be brought within a "reasonable time" after discovery of the grounds justifying it. Mott v. Lombard, 655 A.2d 362, 365 (Me. 1995). The failure to act on the fraud within a reasonable time waives a party's right to rescind. Janush v. Nationwide Mutual, 2000 WL 254560, *3 (Conn. Super. Ct. 2000). What constitutes a "reasonable time" is a mixed question of law and fact. Id. When the facts are ascertained, the determination is a question of law. See Mott, 655 A.2d at 365, citing Getchell v. Kirby, 113 Me. 91, 94, 92 A. 1007, 1008 (1915); see also Gordon v. Hutchins, 118 Me. 6, 12, 105 A. 356, 359 (1919) (2 1/2 years unreasonable); Clark v. Stetson, 113 Me. 276, 280, 93 A. 741, 742 (1915) (continuing to occupy the premises at least 2 months after knowledge of deceit was unreasonable); see also 88 Blue Corp. v. Reiss Plaza Assocs., 585 N.Y.S.2d 14, 16-17 (N.Y. App. Div. 1992) (11 months unreasonable). By waiting to assert fraud until they were sued on the Note and by paying the installments due on the note for almost two years after discovery of the alleged fraud, Defendants can no longer allege fraud as a basis for rescission.

Another prerequisite to allowing the remedy of rescission is the ability to restore the parties to the "status quo ante," or to each party's status before entering the contract. See Frye Pulpwood Co. v. Ray, 95 A. 1039, 1039, 114 Me. 272 (1915); see also McAuliffe v. GMAC Mortgage Corp., 180 B.R. 336, 336-37 (D. Me. 1995); Haynes v. Jackson, 2000 ME 11, ¶7 n.3, 744 A.2d 1050, 1051 (citing Masters v. VanWart, 125 Me. 402, 407, 134 A. 539, 541-42 ("rescission is an equitable remedy which seeks to return the parties to the positions they were in prior to the agreement")); 2 DAN B. DOBBS, LAW OF REMEDIES § 9.3(3) (1993). Here, because the defendants have vacated the hotel, which has been sold in a foreclosure, Defendants cannot restore Plaintiff to status quo ante and therefore cannot rescind the contract.

For the two reasons stated above, Defendants has raised no genuine issue of material fact to defeat Plaintiff's Motion for Summary Judgment. However, because the factual and legal issues asserted in the counterclaims are closely connected with the complaint, the court cannot grant Plaintiff's request for M.R. Civ. P. 54(b) certification on the complaint. See Dravo Corp. v. Regional Waste Sys., Inc., 632 A.2d 141, 142 (Me. 1993) (listing factors relevant to trial court's determination of "no just reason for delay;" vacating certification of claim where unadjudicated claims were factually and legally intertwined with adjudicated claim).

The entry is

Plaintiff's Motion for Summary Judgment on its Complaint is GRANTED.

Plaintiff's Request that the court enter a 54(b) certification of the complaint is DENIED.

Date filed 08/02/99

CUMBERLAND County

Docket No. CV-99-434

Action Contract

VanLee Corp. vs. Don A. Madden Sr., Don A. Madden Jr., John A Madden, and Robert A. Madden

Plaintiff's Attorney

DANIEL CUMMINGS, ESQ

PO BOX 4600

PORTLAND ME 04112-4600

774-7000

RUFUS BROWN, ESQ. (ALL DEFS)

PO BOX 7530, PORTLAND, ME 04112-7530

Defendant's Attorney

John Madden 850-651-9598

837 Choctaw Lane, Shalimar FL 32579

Karen Frink Wolf, Esq. (ALL) w/d

PO BOX 4726 761-0900 Robert Madden

Portland ME 04112 829 Chootaw Lane Shalima

850-609-1260 FL 32579

HAROLD J. FRIEDMAN, ESQ (ALL) AND

EVAN SMITH ESQ (ALL)

Don A Madden Sr. 850-863-1900

229 Mooney Road, Fort Walton Beach FL 325

Don A. Madden Jr. 850-243-2107

321 Yacht Club Drive, Fort Walton Beach, 3254

Date of Entry

1999 August 02 Received 08/02/99:

Plaintiff's Summary Sheet filed.

" " Plaintiff's Complaint filed.

" " Plaintiff's Motion for Attachment and Attachment on Trustee process filed.

" " Plaintiff's Memorandum of Law in Support of Motion for Attachment and Attachment on trustee process filed.

" " Affidavit of Joe Van Why with Exhibit A filed.

Aug. 04 Received 08-04-99:

Order Approving Ex Parte Attachment and Attachment on Trustee Process filed. (Cole, J.)

The court hereby APPROVES attachment and attachment on trustee process may be made ex parte against the property, goods, and credits of each of the Defendants, Don A. Madden Sr., Don A. Madden Jr., John A. Madden, and Robert A. Madden in the amount of $1,786,489.75.

" " On 08-04-99:

Copy sent to Daniel Cummings, Esq.

Sept. 14 Received 9.13.99:

Summons filed.

Defendant, Don Madden, Sr, et al's served on 8.26.99.

" " Summons filed.

Defendant, Don Madden, Jr., served on 8.26.99.

" " Summons filed.

Defendant Robert Madden served on 8.26.99.

" " Summons filed.

Defendant John Madden served on 8.26.99.

Sept. 16 Received 9-16-99.

Defendants' Motion to...