Whipp v. Iverson

• Decision Date: 06 June 1969
• Docket Number: No. 261,261
• Citation: 43 Wis.2d 166,168 N.W.2d 201
• Parties: Blaine WHIPP and Virginia L. Whipp, his wife, Plaintiff-Respondents, v. Robert IVERSON, d/b/a Iverson Motor Company and Iverson Implement and Motor Company, and Minnie Iverson, his wife, Defendant-Appellants.
• Court: Wisconsin Supreme Court

Page 201

168 N.W.2d 201

43 Wis.2d 166

Blaine WHIPP and Virginia L. Whipp, his wife, Plaintiff-Respondents, v. Robert IVERSON, d/b/a Iverson Motor Company and Iverson Implement and Motor Company, and Minnie Iverson his wife, Defendant-Appellants.

No. 261.

Supreme Court of Wisconsin.

June 6, 1969.

The plaintiffs Blaine Whipp and his wife Virginia L. Whipp brought this action against defendants Robert Iverson and his wife Minnie Iverson for a rescission of an agreement to purchase the Iverson Motor Company. The defendants' demurrer to the amended complaint was overruled and they appeal.

Cwayna & Novitzke, Don Paul Novitzke, Amery, for appellants.

George W. Peterson, Balsam Lake, for respondents.

HALLOWS, Chief Justice.

The complaint alleges the defendants were the owners of a business known as the Iverson Motor Company at Amery, Wisconsin. The company was engaged in general automobile and farm implement repair work and the sale of Oldsmobile, Rambler and International Harvester Scout automobiles. The Oldsmobile agency consisted of 40 percent of the vollume of sales and net earnings. On October 18, 1966, the plaintiffs and the defendant Robert Iverson discussed the sale of the business. The complaint alleges Iverson Falsely represented the sale included the Oldsmobile agency and franchise and he was selling the business to the plaintiffs as he was operating it. It is alleged this representation and others Iverson knew or ought to have known were false and the plaintiffs, relying on them, were induced to enter into an agreement to purchase the business and to lease the real estate occupied by the business.

In December, 1966, the Oldsmobile division of General Motors refused to transfer the franchise to the plaintiff Blaine Whipp who returned possession of the business and property to the defendants and demanded the return of the down payment and the amount of capital invested in the susiness. The defendants demurred to the complaint and argue it states no cause of action because it fails to allege the defendants made the false representation intentionally for the purpose of inducing the plaintiffs to sign the agreements. We think the trial court was correct in overruling the demurrer.

Rescission of a contract in equity may be grounded on misrepresentations not intentionally made for the purpose of defrauding or inducing a person to act to his detriment for the speaker's economic benefit.

At law in the action for deceit the basis of responsibility for misrepresentation was intent to deceive. ¹ This elusive state of mind may be proved by proof the speaker believes his statement to be false or the representation is made without any belief as to its truth. See Derry v. Peek (1889), 14 A.C. 337; Restatement, III Torts, p. 63, s. 526(b). As Prosser puts it, ² 'A defendant who asserts a fact as of his own knowledge, or so positively as to imply that he has knowledge, under circumstances where he is aware that he will be so understood when he knows that he does not in fact know whether what he says is true is found to have the intent to deceive. * * *'

Even at law, recovery in damages is allowed for fraud not amounting to deceit. Fraud is a generic and an ambiguous term. It embranches misrepresentation which may be separated into the three familiar tort classifications of intent, negligence, and strict responsibility. This classification is used by Prosser in his work on torts and also by Williston in his work on Contracts. ³ Recently this court attempted to classify its decisions in this field under these three classifications although it had not usually differentiated the bases of liability for misrepresentation. In doing this, this court recognized an action in negligence for misrepresentation. See Stevenson v. Barwineck (1959), 8 Wis.2d 557, 99 N.W.2d 690.

The bases of responsibility in these three classifications of torts have at least three elements in common: (1) The representation must be of a fact and made by the defendant; (2) the representation of fact must be untrue; and (3) the plaintiff must believe such representation to be true and rely thereon to his damage. The classifications differ in several respects. In intentional deceit the defendant must either know the representation is untrue or the representation was made recklessly without caring whether it was true or false and with intent to deceive and induce the plaintiff to act upon it to the plaintiff's pecuniary damage. In strict responsibility, ⁴ the misrepresentation must be made on the defendant's personal knowledge or under circumstances in which he necessarily ought to have known the truth or untruth of the statement and the defendant must have an economic interest in the transaction. Intent to deceive and good-faith belief in the truth of the representation are immaterial. In this classification the speaker is supposed to possess complete knowledge of the facts or could normally be expected to know them without investigation. Harper and McNeely, A Synthesis of The Law of Misrepresentation, 22 Minn.L.Rev. (1938), 939, at Note 12, p. 988. A person is therefore justified in expecting infallibility as to the representations of fact. In negligence, the defendant need only fail to exercise ordinary care in making a misrepresentation or in ascertaining the facts but like other cases of negligence, it requires a duty of care or a voluntary assumption of a duty.

These three types of torts have other important differences in respect to measure of damages burden of proof, and the right of the plaintiff to rely upon the representations. See Harweger v. Wilcox (1962), 16 Wis.2d 526, 114 N.W.2d 818; Annot. (1967), 'Out of pocket' or 'benefit of bargain' as proper rule of damages for fraudulent representations inducing contract for the transfer of property, 13 A.L.R.3d 875.

We need not discuss the cases cited by the defendant as they all relate to a tort action for deceit in one form or another. Certainly what is grounds for damages in deceit is grounds for rescission, but rescission is not restricted to deceit. Before the recognition of strict responsibility for misrepresentation at law, equity recognized that an honest misrepresentation was a ground for rescission.

It is not necessary for rescission of a contract 'that the party making a misrepresentation should have known that it was false.' Recovery is allowed even though misrepresentation is innocently made because 'It would be unjust to allow one who has made false representations, even innocently, to retain the fruits of a bargain induced by such representations.' 5 Williston on Contracts, (Rev.ed., 1937), p. 4189, s. 1500. This statement of law is adopted by the Restatement of Contracts, s. 476, which states 'Where a party is induced to enter into a transaction with another party that he was under no duty to enter into by means...