Yoder v. Nu-Enamel Corporation, 12888.

• Decision Date: 02 November 1944
• Docket Number: No. 12888.,12888.
• Citation: 145 F.2d 420
• Parties: YODER et al. v. NU-ENAMEL CORPORATION.
• Court: U.S. Court of Appeals — Eighth Circuit

145 F.2d 420 (1944)

YODER et al. v. NU-ENAMEL CORPORATION.

No. 12888.

Circuit Court of Appeals, Eighth Circuit.

November 2, 1944.

Sterling F. Mutz, of Lincoln, Neb., for appellants.

G. W. Becker, of Omaha, Neb. (I. J. Dunn and I. Ziegler, both of Omaha, Neb., on the brief), for appellee.

Before SANBORN, WOODROUGH, and JOHNSEN, Circuit Judges.

JOHNSEN, Circuit Judge.

The action is one under Nebraska law for fraud in inducing plaintiffs (1) to purchase a wholesale paint-distributing business and four retail stores, all of which defendant was itself operating at the time as an outlet for its paint products, and (2) to make expenditures of time and money in attempting to carry on the misrepresented business.

The trial court directed a verdict for defendant at the close of plaintiffs' evidence, on the ground that the damages which plaintiffs were attempting to claim were not such as could be recovered for fraud in the sale of property under Nebraska law.

Plaintiffs have construed some of the court's remarks, in ruling on the motion for directed verdict, as intended to hold also that there was no proof of any fraud which could have been submitted to a jury, but we do not so read the court's statement. The court made a critical analysis of plaintiffs' evidence, but it nevertheless declared that, as to part of the charges, "there is some evidence of fraud", and, "if that issue were the only one that the court were studying, the case would go to the jury."

On the record as it stands, we think it would have to be held that plaintiffs had made submissible proof of materiality, falsity, intent to induce action, and reliance, as to the charges in the petition¹ that defendant had stated (1) that the business had been making a profit for the two preceding years, when it had been operating at a loss; (2) that the volume of the wholesale business had been constantly and steadily increasing, when it had not; and (3) that defendant had 64 retail dealers in the territory as outlets for the wholesale business, when the number at the time was quite materially less.²

Our immediate inquiry then is as to the correctness of the trial court's ruling on the question of damages.

Plaintiffs' petition alleged that they had been induced by defendant's false representations to pay $6,000 for the business, which consisted of the going concern, its stock of merchandise, fixtures, and good will. They pleaded and attempted to prove, as the elements and measure of their recovery for the fraud, only specific items of damage, such as (1) loss of the sum of $1,800, because they had paid for good will which did not exist; (2) loss of the sum of $2,130.34, because the inventory value used for the stock of paint was that much higher than what a stock of other paint of similar quality would have been purchasable for on the general market; and (3) loss of the sum of $5,252.05,³ as special damages sustained from operating losses, other outlays of cash, and the value of the time spent by plaintiffs in carrying on the misrepresented business.

It was the trial court's view that under Nebraska law general damages for fraud in the sale of property can only be measured and recovered by proof of the difference between the actual value of the property at the time of the purchase and the value it would have had if the seller's representations had been true; that where property has been sold componently, as part, for instance, of a going business, the test to be applied to any such property, in measuring the general damages, "is not the naked value of the thing itself, but of the thing in association with the purpose for which it was purchased"; that the recovery right for fraud in Nebraska is limited to general damages only; and that in no such case can the purchaser be permitted to plead and prove the existence of any special damages.

I.

There can be no question, from the decisions of the Nebraska Supreme Court, that the trial court properly held that the measure of general damages for fraud in inducing the purchase of property is the difference between the actual value of the property at the time of the purchase and the value it would have had if the seller's representations had been true. This rule has consistently been adhered to and many times repeated, from the time of Young v. Filley, 1886, 19 Neb. 543, 26 N.W. 256,⁴ down to the most recent reported expression in Welch v. Reeves, 1942, 142 Neb. 171, 5 N.W.2d 275, 277.

Nor can there be any doubt that the trial court also was right in holding that, under this rule, where property has been sold componently, as part, for instance, of a going business, for an entirety of consideration, the proof of values from which the fraud damages are determinable must relate to the purchase-whole, and not to items of the property in attempted segregation.

Thus, in Markel v. Moudy, 13 Neb. 322, 14 N.W. 409, where the action was one for fraud in the sale of an eating house (constituting personal property) and the furniture and fixtures and business thereof, for which plaintiffs had paid $8,000, the court held that proof as to the physical worthlessness of the building was not a competent basis for determining the existence or amount of any damages from fraud in the purchase transaction. The opinion says, 13 Neb. at pages 323 and 325, 14 N. W. at pages 410 and 411: "The matter in issue being, then, the alleged worthlessness of the `personal property and business,' which was purchased as a whole, for a single and unapportionable consideration, the absolute necessity of including that business in estimating the value of the purchase is apparent. Yet, notwithstanding this, not a single witness was called on the part of plaintiffs as to what the tangible property and business, taken together as a unit, was really worth. This want of evidence as to the value of the business included in the sale renders the verdict erroneous for want of evidence to support it."

A bit more remotely to the present situation, the court also said in Theisen v. Peterson, 114 Neb. 150, 211 N.W. 19, 21, where there was a cross-petition to recover damages for fraud in the sale of a stock farm and the cattle and hogs being raised thereon, for which in that case there had been separate considerations, that "no evidence was offered by either side as to the real value of the cattle and hogs as part of the equipment of a stock farm, which is the proper test; the purchaser claims that they were only worth what they would sell for on the stock market, but this is clearly incorrect as he was not purchasing them for slaughter."

And so, in the present case, plaintiffs' attempt to evaluate the good will and the stock of paint out of relation to the purchase-whole would no more constitute proof of any general damages from the fraud than did the proof made in the Markel case, 13 Neb. 322, 14 N.W. 409, of the worthlessness of the building. The $6,000 which plaintiffs had paid was the consideration for the going business and its furniture, fixtures, stock of merchandise, and good will, as an entirety. The mere fact that, in seeking to arrive at an acceptable consideration for the purchase-whole, the parties placed a component bargaining figure of $1,800 upon the good will and $3,000 upon the stock of paint did not under the circumstances of the transaction give the transfer of the good will or of the stock of paint the effect of a separable sale. Nor, as a matter of fact, did plaintiffs' petition purport to plead that they were intended as or were equivalent to separable sales. Plaintiffs have merely mistakenly attempted, in their pleading and proof, to vivisect their general-damage whole into convenient elements and then to evalue and aggregate these elements without regard to their prior relationship and componency.

But, even if the transaction had been such as to constitute in effect separable sales of the good will and of the stock of paint, these items would still, under the Theisen case, 114 Neb. 150, 211 N.W. 19, have had to be evalued on the basis of the business purpose for which they were purchased, and not as market abstractions. And, as to the proof offered by plaintiffs of the value of the stock of paint, it might further appropriately be added that, on the fraud which the petition sought to make the basis of recovery here, the fact that a stock of paint of some other brand might have been purchasable for less than the prices which defendant had fixed for its nationally-known product could hardly constitute a competent factor in the computation of plaintiffs' general damages by any rule. Plaintiffs did not charge or attempt to prove that any representation had been made as to the comparative prices of defendant's product and those of other manufacturers. The paint stock was not sold as one of general paint, but as a distributor's supply of defendant's product, for meeting the demands of the trade for that particular brand of paint. The paint of some other manufacturer, no matter at what price it was purchasable, could hardly have served the needs of a business whose admitted purpose and obligation were to distribute defendant's product. Nor as a matter of fact would it have been possible for plaintiffs to try to claim on any theory of damages that the stock of paint was not worth the figure placed upon it in the bargaining negotiations, for the record shows that the stock actually had been turned over a number of times, on the basis of defendant's established prices, during the two-year period that plaintiffs continued to operate the business.

If the trial court's ruling on the sufficiency and competency of plaintiffs' proof of general damages, therefore, were all that was involved here, the judgment clearly would have to be affirmed.

II.

But the trial court further held that under Nebraska law nothing except general damages could be proved or recovered for fraud, and it refused to permit plaintiffs to make proof of any of the...