stating that “in a business transaction the recipient of a fraudulent misrepresentation ... is justified in relying upon its truth, although he might have ascertained its falsity had he made an investigation”
How later courts described this case
- stating that “in a business transaction the recipient of a fraudulent misrepresentation ... is justified in relying upon its truth, although he might have ascertained its falsity had he made an investigation”
- stating as a general rule that the recipient of a fraudulent misrepresentation is not justified in relying upon its truth if its falsity is “obvious” to the recipient
- finding defendants liable for fraud where they withheld the only practical source of pertinent information and thwarted plaintiffs’ efforts to investigate
- explaining misrepresentation at the formation of a contract
Written by the judges who cited it.
The opinion
Thomas Gallagher, Justice
(dissenting).
I concur in the dissent. The property was sold to plaintiffs for $95,000. There was substantial testimony, not seriously in dispute, that the reasonable value of the property was in excess of $100,000. In addition to the expert testimony on values submitted by the parties, the trial court, on its own initiative, called three neutral expert witnesses, owners and operators of similar resorts in the same general area, who were familiar with the property involved, to give their opinion as to its value. Their testimony thoroughly substantiated the opinions of defendants’ experts as to value, and it clearly indicated that the property, if operated efficiently, was capable of producing a good net income. Under *259 such circumstances, it would seem that there was no substantial evidence to sustain the trial court’s finding that the property had been sold for more than its worth.
The evidence submitted in support of plaintiffs’ allegations as to misrepresentation relative to earnings would hardly seem to sustain a finding of fraud. The statements claimed to have been made by defendants relative thereto to future prospects. Most of them were made prior to the time when either plaintiffs or defendants contemplated a sale of the property. The most that can be drawn therefrom was that defendants had at times stated that they were “making good money” or that they had a “darn good business.”
Prior to the letter of September 26, 1947, in which plaintiff Maurice Spiess offered to purchase the property for $90,000 (some $5,000 less than the price finally agreed upon), he had had but one conversation with defendant William Brandt and no conversations whatever with defendant John Carlos Brandt. His talk with William Brandt was immediately after he and plaintiff Lowell Spiess had talked over the matter of a purchase. Nothing was said at that time by either of the Brandts as to earnings of the resort for the year 1946. The conversation reflected only the expectations of William Brandt as to future prospects, in the light of full resumption of auto transportation after the war.
A written instrument executed with due formality and known to be executed for the purpose of embodying the agreements of the parties should not be set aside on the ground of fraud unless the proof is clear and strong. First Nat. Bank v. Schroeder, 175 Minn. 341 , 221 N. W. 62 ; 3 Dunnell, Dig. & Supp. § 3839. Opinions expressed as to future prospects of a particular business cannot be used as a basis for fraud. Eurich v. Bartlett, 151 Minn. 86 , 186 N. W. 138 . Eepresentations made after a decision to purchase cannot be regarded as inducements toward making the purchase agreement, since there could have been no reliance thereon. Nilsen v. Farmers State Bank, 178 Minn. 574 , 228 N. W. 152 ; Eien v. Cooper, 211 Minn. 517 , 1 N. W. (2d) 847 .
*260 With reference to the claim now made that defendants suppressed or withheld facts relating to their past experiences in the operation of the property, it may be said that this ground was never alleged by plaintiffs as a basis for recovery. Plaintiffs did request defendants’ books covering past operations. These were not supplied, and at this point there was nothing to prevent plaintiffs from refusing to proceed with the transaction.
The court placed much reliance on the ages of plaintiffs, their lack of experience, and the fact that they had not operated properties of this type. John Carlos Brandt, one of the defendants, at the time he purchased the resort was not much older than plaintiff Lowell Spiess when he originally purchased it. Both plaintiffs had had experience in the operation of other properties. Lowell owned an interest in and operated a theater, while Maurice owned real estate in Newport. Both of such properties were to be sold by plaintiffs so that the proceeds might be used as part of the purchase price herein. Their parents and older brother were interested in this transaction and counseled and advised them in connection therewith. The parties were at all times dealing at arm’s length.
It is asserted that defendants sustained a loss during prior years. This may be largely explained by the extensive capital expenditures made by them in improving the resort. For example, in 1947, $14,231 was put back into the properties in improvements. This, in itself, would indicate that defendants were making “good money” in the business. Many of such improvements were not of a recurrent nature and could be depreciated over a number of years.
No allowance was made for the use and rental value of the property during plaintiffs’ possession thereof. During 1948, they not only had their living provided, but they were also able to acquire an automobile, an airplane, and at least $1,630.54 in cash from their operation of the resort. The trial court found that the improvements made by them offset the rental value of the property. No finding was made as to fair rental value. The improve *261 ments consisted of repairs to motors, patching boats, and completing an apartment and kitchen. Plaintiffs actually received during the year 1948 $19,661.56 in their operation of the property. A gross income of this amount, with any kind of careful management, would yield a profit, and clearly establishes that the premises had a. substantial rental value during the period of plaintiffs’ occupancy thereof.
I cannot subscribe to the theory that this contract, made pursuant to an offer freely given, should be set aside on any of the grounds above outlined. If it may be thus rescinded, I fear that few contracts will withstand the onslaught of another business depression or the disappointment following an optimistic but inefficient purchaser’s unsuccessful operation of property purchased.