THOMAS GRIFFITHS AND DENISE GRIFFITHS v. PIONEER BANK; DAYMON C. DAY; AND PEGGY DAY
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RENDERED:
DECEMBER 14, 2001; 2:00 p.m.
NOT TO BE PUBLISHED
C ommonwealth O f K entucky
C ourt O f A ppeals
NO.
2000-CA-001960-MR
THOMAS GRIFFITHS AND
DENISE GRIFFITHS
APPELLANTS
APPEAL FROM HART CIRCUIT COURT
HONORABLE LARRY D. RAIKES, JUDGE
ACTION NO. 96-CI-00135
v.
PIONEER BANK; DAYMON
C. DAY; AND PEGGY DAY
APPELLEES
OPINION
AFFIRMING
** ** ** ** **
BEFORE:
BUCKINGHAM, COMBS, AND DYCHE, JUDGES.
DYCHE, JUDGE.
Thomas and Denise Griffiths have appealed from a
judgment of the Hart Circuit Court awarding them damages against
Pioneer Bank for negligent misrepresentation in connection with
their purchase of a supermarket store.
Finding no error, we
affirm.
In May-June 1995, the Griffithses negotiated with the
Days for the purchase of a small supermarket that the Days had
owned since 1987.
During the negotiations, Daymon Day
represented that the store generated profits of approximately
$40,000, and suggested that the Griffithses speak with Randall
Dennison, the President of Pioneer Bank, as a reference.
The
Griffithses did not review the Days’ tax returns or financial
statements.
Tom and Denise Griffiths met with Dennison
separately on two different occasions during which they allege
that he vouched for Daymon Day’s credibility, supported the
representation as to the supermarket’s profitability, and
indicated the realty and building alone were worth approximately
$100,000.
At the time of these conversations, the Griffithses
were depository customers of Pioneer Bank.
On June 26, 1995, the Griffithses contracted to
purchase the supermarket from the Days for $250,000, paying
$119,000 in cash and assuming an obligation to pay the Days
$131,000 evidenced by two promissory notes.
In connection with
the purchase, the Griffithses procured a loan from Pioneer Bank
for $69,400, with the Bank receiving a primary mortgage lien and
security agreement and the Days a secondary mortgage lien and
security agreement.
After the Griffithses failed to make timely payments on
the obligation to the Days, the Days filed a complaint in July
1996, for judgment on the debt and foreclosure on the property.
Pioneer Bank was joined by virtue of its first mortgage.
The
Griffithses filed an answer and counterclaim against the Days for
fraudulent misrepresentation and fraudulent or negligent
concealment, and requested compensatory and punitive damages.
They alleged the Days made false representations concerning the
profitability of the supermarket, the value of the equipment, and
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the costs of the business.
In August 1996, Pioneer Bank filed an
answer and cross-claim against the Griffithses for payment on
their loan and mortgage lien.
In March 1997, the Griffithses
filed a counterclaim seeking punitive damages against Pioneer
Bank for fraudulent misrepresentation, breach of duty of good
faith, wrongful interference with contract, and conflict of
interest.
In June 1997, the Griffithses and Days executed a
settlement agreement and release of claims whereby the
Griffithses deeded the supermarket back to the Days with
cancellation of the debt obligation to the Days, but reserving
their rights against Pioneer Bank.
The Days also agreed to pay
the Griffithses an amount equal to 50% of any reduction the
Griffithses were able to secure from Pioneer Bank on the bank’s
first mortgage loan.
On July 15, 1997, the trial court entered
an agreed order of dismissal of the Griffithses’ claims against
the Days.
In September 1997, the Days procured a loan from
Pioneer Bank and paid off the original note and mortgage of the
Griffithses to Pioneer Bank.
After a two-day bench trial, the circuit court entered
its findings of fact, conclusions of law, and judgment on May 7,
1999.
The court found Pioneer Bank liable for negligent
misrepresentation and awarded the Griffithses a judgment for
$57,754.
The court held that Dennison owed a fiduciary duty to
the Griffithses as customers and potential borrowers from the
Bank.
The court accepted the Griffithses’ testimony concerning
Dennison’s alleged statements supporting Daymon Day’s credibility
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and the profitability of the supermarket.
The evidence revealed
that the Days had had losses in all but one year between 1990 and
1995, that being $95 in 1990.
While the court found some of
Dennison’s statements to be false and misleading, it further
found that Dennison did not act intentionally, but rather was
merely negligent by not reviewing the Days’ financial statements
before speaking with the Griffithses.
However, the court also
held that the Griffithses were contributorily negligent for also
not conducting a more thorough evaluation of the store and the
Days’ tax records.
It found that the negligent conduct of both
parties was a substantial factor in causing the Griffithses’
damages and apportioned fault 50% to the Days, 30% to the
Griffithses, and 20% to Pioneer Bank.
The court included as
damages, $250,000 for the purchase price of the supermarket,
$36,835 for operating losses between July 1995 and October 1996
(when the Griffithses closed the store), and $1,937 in closing
costs.
The court denied the Griffithses’ demand for future
expected lost profits and punitive damages under KRS 411.184(2).
It also awarded Pioneer Bank judgment on its cross-claim against
the Griffithses on their promissory note with the Bank.
Following the judgment, Pioneer Bank moved to amend and
reduce the damages award based on the elimination of the
Griffithses’ $131,000 purchase price debt to the Days through
their settlement and payment or assumption of the Griffithses’
$69,400 obligation to the bank by the Days.
In July 1999, the
court dismissed the Bank’s claim on the promissory note based on
the stipulation that the debt had been satisfied by the Days, but
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reserved ruling on allowing the Bank credit for the reductions in
the Griffithses’ obligations.
After conducting a hearing, the
court entered an amended judgment on July 22, 1999, reducing the
damages award by crediting the reduction of the Griffithses’ debt
obligations associated with the $250,000 purchase price by
$181,400, leaving a total adjusted damages figure of $88,372 and
a final award of $17,674, applying the 20% fault assessment
against the Bank.
In July 1999, the Griffithses filed a CR 59.05 motion
to amend or vacate the amended judgment.
In January 2000, they
filed a motion to enforce the Settlement Agreement with the Days
and an amended counterclaim calling for payment by the Days of an
amount equal to 50% of the reduction in the Griffithses
obligation to Pioneer Bank calculated as $34,700.
On July 14,
2000, the court denied the CR 59.05 motion and dismissed the
amended counterclaim stating the Griffithses were not entitled to
recovery under the terms of the Settlement Agreement.
This
appeal followed.
The Griffithses raise numerous issues involving the
award of damages against Pioneer Bank and the Days.
object to the apportionment of damages.
First, they
They assert that because
their claims were based on contract, fraud, and breach of
fiduciary duty, a comparative fault analysis should not apply.
They also state that Dennison had a higher duty of care and
assumed the entire responsibility for damages based on his
fiduciary duty to the Griffithses.
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The trial court found Pioneer Bank liable under a
negligent misrepresentation theory.
Negligent misrepresentation
has been recognized generally in Kentucky, see Morton v. Bank of
the Bluegrass and Trust Co., Ky. App., 18 S.W.3d 353 (1999);
Seigle v. Jasper, Ky. App., 867 S.W.2d 476, 482-83 (1993)(citing
Restatement (Second) of Torts § 552), and specifically with the
sale of a business.
See, e.g., Patel v. Patel, Ky. App., 706
S.W.2d 3 (1986); Meyers v. Monroe, 312 Ky. 110, 226 S.W.2d 782
(1950).
As with other types of negligence actions, the
contributory negligence of the party relying on the misstatements
is relevant to the analysis.
See, e.g., Patel, supra;
Restatement (Second) of Torts § 552A.
A party must exercise ordinary care in deciding whether
to enter into a contract.
See Hanson v. American Nat’l Bank &
Trust Co., Ky., 865 S.W.2d 302, 307-08 (1993)(involving
intentional fraudulent misrepresentations).
KRS 411.182
unambiguously calls for apportionment of liability involving
multiple parties “in all tort actions.”
Negligent
misrepresentation is a tort action involving a duty of care.
Consequently, the trial court correctly applied KRS 411.182 by
apportioning liability among the parties.
The Griffithses also object to the trial court’s
assessment of liability percentages.
They allege the trial court
incorrectly assigned to them a higher degree of fault than the
Bank.
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When a case is tried before the court without a jury,
its factual findings “shall not be set aside unless clearly
erroneous, and due regard shall be given to the opportunity of
the trial court to judge the credibility of the witnesses. . . .”
CR 52.01.
See also Lawson v. Loid, Ky. 896 S.W.2d 1, 3 (1995).
A factual finding is not clearly erroneous if it is supported by
substantial evidence, which is defined as evidence of substance
and relevant consequence sufficient to induce conviction in the
mind of a reasonable person.
Owens-Corning Fiberglas Corp. v.
Golightly, Ky., 976 S.W.2d 409, 414 (1998); Magic Coal Co. v.
Fox, Ky., 19 S.W.3d 88, 96 (2000).
The apportionment of fault is
a question of fact for the jury or fact-finder.
See KRS
411.182(2); Hilen v. Hays, Ky., 673 S.W.2d 713, 720 (1984).
In this case, the trial court found that the
Griffithses did not exercise due diligence in failing to request
a review of the Days’ tax returns.
Both of the Griffithses were
well-educated persons and Denise Griffiths had over 15 years
experience in the food service industry.
The Griffithses
reviewed only a few financial documents related to the
supermarket provided by Daymon Day.
Dennison also made several
disclaimers during his discussions with the Griffithses.
We
cannot say the percentage-of-fault findings were clearly
erroneous.
The Griffithses argue the trial court should have
included $400,000 in lost expected future profits.
This claim is
based solely on Daymon Day’s representation that the supermarket
generated $40,000 per year in profits.
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Generally, damages for
fraud are based on actual pecuniary loss.
See Stahl v. St.
Elizabeth Medical Ctr., Ky. App., 948 S.W.2d 419, 423
(1997)(citing Johnson v. Cormney, Ky. App., 596 S.W.2d 23
(1979)).
With respect to fraud inducing a party to enter a
contract, the defrauded party may enforce the contract or reject
the contract and recover actual pecuniary losses.
“The rule is that where fraud has been
committed in obtaining a contract it may be
taken advantage of either by an affirmance of
the contract and recovery of damages on
account of the fraud or by a rescission of
the contract.” If the buyer elects to
rescind the contract, he is entitled to “a
recovery of the thing parted with as the
consideration.”
Patel, 706 S.W.2d at 5 (citations omitted).
Losses for benefit
of the bargain typically are not available for negligent
misrepresentation, which does not involve intent or bad faith.
See, e.g., Restatement (Second) of Torts § 552B(2).
As the trial
court noted, there was no evidence the supermarket had been
profitable in the past or would become profitable in the future.
The Griffithses’ settlement with the Days effectively rescinded
the contract, so they were not entitled to the benefit of the
bargain or any expected lost profits.
The Griffithses also contend the trial court erred by
reducing the damages award by $200,400 for the $131,000 debt
elimination on the two promissory notes to the Days and the
$69,400 promissory note to the Bank.
They contend Pioneer Bank
should not have benefitted by credits for these amounts because
it continued to pursue collection on its note throughout the
trial.
As discussed above, damages for negligent
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misrepresentation are limited to actual pecuniary loss.
The
trial court initially included the debt on the three notes as
part of the $250,000 purchase price for the supermarket.
Regardless of when the Bank eventually acknowledged satisfaction
of the debt on its note, the Griffithses have been relieved of
their obligations on these three notes and any recovery from the
Bank for those debts would constitute double recovery.
The
collateral source rule raised by the Griffithses in support of
their position simply is inapplicable to this situation.
The Griffithses also contend they were entitled to
punitive damages.
Under KRS 411.184, punitive damages are
available upon a showing by clear and convincing evidence that
the defendant acted with oppression, fraud or malice.
However,
“fraud” is defined as intentional misrepresentation, deceit or
concealment of a material fact.
KRS 411.184(1)(b).
The trial
court found no oppression, malice or intentional fraud, only
negligent conduct by Dennison.
This finding was supported by
substantial evidence and was not clearly erroneous.
Moreover,
this Court has held that punitive damages are not available in a
cause of action based on negligent misrepresentation.
Morton, 18
S.W.3d at 358.
Finally, the Griffithses argue they were entitled to
receive $34,700 under the Settlement Agreement with the Days.
states in pertinent part in Section 2(D):
The Days promise and agree to pay to the
Griffiths [sic], an amount equal to fifty
percent of any reduction the Griffiths [sic]
are able to secure from Pioneer Bank, either
by negotiation or judgment, on Pioneer Bank’s
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It
first mortgage on the real estate upon which
the supermarket is located . . . .
The trial court held that the Days were not obligated
to pay the Griffithses under this provision because the Days
remained obligated to satisfy the amount of the mortgage note
originally between the Bank and the Griffithses.
The Days assert
that the intent of the provision was to reimburse the Griffithses
for half of any reduction or elimination of the Griffithses’
obligation to the Bank that they procured by their own actions
and indirectly to the benefit of the Days, who reassumed
ownership of the supermarket under the settlement.
The Days paid
off the Griffithses’ note in September 1997 with funds received
in a loan from the Bank.
The release of the Griffithses for
their debt to the Bank was due solely to conduct by the Days.
The Griffithses have not shown any action by them resulting in a
reduction of the original debt obligation.
The trial court did
not err in holding this provision in the Settlement Agreement did
not apply.
The judgment of the Hart Circuit Court is affirmed.
ALL CONCUR.
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BRIEF FOR APPELLANTS:
BRIEF FOR APPELLEE PIONEER
BANK:
Mark S. Fenzel
Dana L. Collins
Louisville, Kentucky
John F. Carroll
Shepherdsville, Kentucky
Mike Nichols
Mundfordville, Kentucky
BRIEF FOR APPELLEES DAYMON DAY
AND PEGGY DAY:
Darell R. Pierce
Bowling Green, Kentucky
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