Lewis v. Cohen

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 NOTICE:  This opinion is subject to motions for reargument under V.R.A.P. 40
 as well as formal revision before publication in the Vermont Reports.
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                                 No. 89-612


 Donna Lewis & Gordon Lewis                   Supreme Court

                                              On Appeal from
      v.                                      Windsor Superior Court

 Steven Cohen & Jennifer Cohen, et. al.       September Term, 1991


 Alden T. Bryan, J.

 Harry A. Black of Black, Black & Davis, White River Junction, for
   plaintiffs-appellants

 Alan B. George and Timothy Martin of Carroll, George & Pratt, Rutland,
   for defendants-appellees


 PRESENT:  Allen, C.J., Gibson, Dooley, Morse and Johnson, JJ.


      DOOLEY, J.  Plaintiffs purchased a video retail company from defendants
 in the spring of 1985 for $250,000.  When plaintiffs found that the business
 had more debts outstanding than they believed defendants had represented,
 they sued, claiming breach of the sales contract and misrepresentation.
 Plaintiffs appeal from a superior court judgment for defendants.  We affirm
 in part and reverse in part.
      Prior to the sale, defendants' accountants had prepared a "statement of
 operations" for the business for the year ending December 31, 1984.  In the
 purchase and sale agreement, defendants portrayed that statement as "true
 and complete and fairly and accurately" representative of the condition of
 the business.  In addition, defendants represented that the operation of the
 business for the year ended April 1, 1985 was "consistent with or better
 than the statement of operations for the year ended December 31, 1984."
 Based on figures in the accountant's statement, plaintiffs calculated the
 profitability and value of the business.
      Soon after closing, debts incurred by the business prior to the sale
 and not listed in the statement of operations began to surface.  At trial,
 plaintiffs alleged that the presence of those debts reduced the value of the
 business and contradicted defendants' representations in the purchase and
 sale contract.  Sitting without a jury, the court held for defendants.  It
 found that plaintiffs had not shown by clear and convincing evidence that
 the statement of operations, in the context in which it was presented to
 plaintiffs, was inaccurate, and that to the extent it was misleading,
 plaintiffs had not shown by clear and convincing evidence that defendants'
 actions constituted fraud.
      The court also found that plaintiffs received the items they bargained
 for, including equipment, leasehold improvements, furniture and fixtures, a
 covenant not to compete, customer lists, and good will.  It determined that
 plaintiffs knew of defendants' "checkered financial history" and had been
 informed by defendants in a general way that there were debts against the
 business other than those listed on the statement of operations.  If plain-
 tiffs overpaid for the business, the court found, it was the result of
 their own failure to investigate defendants' representations relevant to the
 value of the business.  Further, the court found that defendants had not, as
 alleged by plaintiffs, acted fraudulently to prevent plaintiffs from under-
 taking such an investigation.  In its conclusions of law, the court did not
 explicitly resolve plaintiffs' claim that defendant breached the contract of
 sale.
      On appeal, plaintiffs claim that the court erred in its findings of
 fact and conclusions of law regarding their fraud claim, and erred in
 finding for defendants without explicitly disposing of plaintiffs' breach of
 contract claim or making findings that could resolve that claim by the
 proper standard of proof.
      We look first at the fraud claim.  Plaintiffs claim that the trial
 court erred by finding certain facts, and by improperly holding plaintiffs
 to a duty to investigate the representations made to them by defendants
 about the financial condition of the business.
      We will not disturb findings of fact unless clearly erroneous or
 unsupported by the evidence.  Semprebon v. Semprebon, 2 Vt. L.W. 309, 310
 (July 19, 1991).  For each of plaintiffs' claims of errant findings, we find
 evidence in the record to support the facts found by the court. (FN1)
      In analyzing plaintiffs' argument on the duty to investigate, we start
 with the elements of fraudulent inducement to contract, stated recently as
 follows:
           "An action for fraud and deceit will lie upon an in-
         tentional misrepresentation of existing fact, affecting
         the essence of the transaction, so long as the misrepre-
         sentation was false when made and known to be false by
         the maker, was not open to the defrauded party's know-
         ledge, and was relied on by the defrauded party to his
         damage."

 Silva v. Stevens, ___ Vt. ___, ___, 589 A.2d 852, 857 (1991) (quoting Union
 Bank v. Jones, 138 Vt. 115, 121, 411 A.2d 1338, 1342 (1980)).  Each element
 must be proven by the standard of clear and convincing evidence.  In re
 Estate of Raedel, 152 Vt. 478, 485, 568 A.2d 331, ___ (1989).
      The short answer to plaintiffs' claim is that the trial court deter-
 mined that they failed to prove two elements of fraud, and they are
 attacking the conclusion with respect to only one element on appeal.  Thus,
 the trial court found that plaintiffs failed to show by the requisite
 evidentiary standard that defendants intentionally misrepresented material
 facts.  Although the court found that defendants' statement of operations
 understated the 1984 debts and costs of doing business, the court concluded
 that plaintiffs were generally informed about debts for the business not
 included on the statement.  Since defendants made no actionable misrep-
 resentations, it makes no difference whether plaintiffs had a duty to
 investigate defendants' representation.
      Even considering plaintiffs' argument, we find no error.  The court
 found that, even if misrepresentations were made, plaintiffs did not
 justifiably rely on them.  In claiming the court thereby improperly placed
 upon them a burden to investigate defendants' purported misrepresentations,
 plaintiffs rely on the general rule that one who has intentionally misrep-
 resented facts to induce another to enter into a contract may not defend by
 saying that "'plaintiff might, but for his own neglect, have discovered the
 wrong.'"  Sutfin v. Southworth, 149 Vt. 67, 70, 539 A.2d 986, 988 (1987)
 (quoting Viens v. Lanctot, 120 Vt. 443, 450, 144 A.2d 711, 716 (1958)).
 Where, however, "`it is clear from the full text of a representation or from
 facts about the relationship of the parties that reliance should only follow
 an independent inquiry,'" then plaintiffs will be held to such an investiga-
 tion.  Silva, ___ Vt. at ___, 589 A.2d  at 858 (quoting Winton v. Johnson &
 Dix Fuel Corp., 147 Vt. 236, 241, 515 A.2d 371, 374 (1986)).  A central
 element of a fraud claim is that a misrepresentation be made as to a
 material fact, knowledge of which would be "otherwise unavailable to the
 purchasers in the exercise of their due diligence."  Cheever v. Albro, 138
 Vt. 566, 572, 421 A.2d 1287, 1290 (1980).
      The trial court found, based on the nature of the representation and
 the relationship of the parties, that reliance in this case was justified
 only if it followed an independent inquiry.  The evidence supports that
 finding.  The statement of operations utilized a method of accounting that
 made it plain that it did not contain all liabilities of the business for
 the year 1984.  Defendants told plaintiffs that there were outstanding debts
 against the business in general, and plaintiffs knew that defendants had a
 "checkered financial history." (FN2) Plaintiffs could have required that the
 parties comply with the bulk sales provisions of the Uniform Commercial
 Code, 9A V.S.A. {{ 6-102 - 6-111, which would have protected plaintiffs
 against defendants' creditors.  Plaintiffs eschewed such protection and
 instead gave defendants a note allowing them to set off against payments for
 the business the amount of any preexisting debts paid by plaintiffs.
 Presumably, and so the court found, this was done for the very reason that
 plaintiffs were not entirely confident that defendants had made full dis-
 closure of their outstanding debt.  Plaintiffs concede that investigation
 on their part could have discovered the inaccuracies in defendants'
 representations.  The court did not err in concluding that plaintiffs'
 reliance on the representations for computing the value of the business was
 unjustified.  Unlike in Sutfin, 149 Vt. at 71, 539 A.2d  at 988, where there
 was "no reason to inspect . . .," the court here found a number of factors,
 known to plaintiffs, that should have caused them to investigate the
 veracity of defendants' representations.
      Plaintiffs argue further that defendants prevented them from under-
 taking an investigation which would have informed them about the true value
 of the business.  Although defendants accelerated the closing because of
 their need for the proceeds, we uphold the trial court's conclusion that
 this action, to which the plaintiffs agreed, did not prevent an investiga-
 tion into the financial affairs of the business.  This case differs from
 that in White v. Pepin, 151 Vt. 413, 420, 561 A.2d 94, 98 (1989), where we
 found that the purchaser of a business was prevented from learning the true
 facts about the business in part because the seller pressed for an offer
 "almost immediately."  Here, plaintiffs controlled the timing of the
 purchase and sale contract and over two weeks expired between the signing of
 the contract and closing.
      The second issue before us is whether the trial court erred in failing
 to dispose of plaintiffs' claim for breach of contract.  The claim arose
 from the same facts as the fraud claim and provided an alternative theory of
 liability.  Specifically, plaintiffs alleged at trial that statements in the
 purchase and sales contract, including those with respect to the veracity
 and meaning of the figures contained in the statement of operations, turned
 out to be false and constituted a breach of the contract.
      The parties do not dispute that the court failed to directly address
 this claim.  The court did conclude in resolving the fraud claim that the
 accountant's statement was not inaccurate because it did not purport to show
 whether bills were actually paid.  Presumably, this same conclusion applied
 to the representation that operations were consistent with the accountant's
 statement for the year ending April 1, 1985.  The court did not specifically
 address a contractual provision representing that there were no claims
 against the business except for certain listed items.  The court did con-
 clude, however, that plaintiffs failed to prove that "[d]efendant wrongfully
 made any false statement of material fact."  On appeal, plaintiffs argue
 that the court's conclusions did not resolve the breach of contract claim
 because the court stated that plaintiffs failed to prove certain elements by
 the standard of clear and convincing evidence, which does not apply to con-
 tract claims.  We agree.
      To prevail in their fraud claim, plaintiffs had to prove the elements
 by clear and convincing evidence.  See In re Estate of Raedel, 152 Vt. at
 485, 568 A.2d  at 334.  This higher standard of proof, however, is not
 applicable in civil cases generally.  Poulin v. Ford Motor Co., 147 Vt. 120,
 125-26, 513 A.2d 1168, 1172 (1986).  To establish breach of contract or
 breach of warranty, then, plaintiffs had to establish their case only by a
 preponderance of the evidence.  Even assuming that the court's findings and
 conclusions demonstrated that plaintiffs could not prevail on the contract
 claim, they cannot decide the claim based on the wrong standard of proof.  A
 court could conclude that a determinative fact not shown by clear and
 convincing evidence had been shown by a preponderance of the evidence.  That
 possibility is real in this case because the court clearly stated that
 plaintiffs failed to establish critical facts by clear and convincing
 evidence.
      Defendants present two reasons why we should not reverse on the
 contract claim.  First, they contend that by bringing this case as a suit
 for fraudulent misrepresentation inducing a contract, plaintiffs elected
 not to bring a claim for breach of that contract.  Plaintiffs, however, were
 entitled to pursue inconsistent claims in one case.  V.R.C.P. 8(e)(2); see
 also Anello v. Vinci, 142 Vt. 583, 586, 458 A.2d 1117, 1119 (1983).  Even
 inconsistent remedies can be pursued in the alternative, a right not
 undercut by the fact that one who proves fraud must decide whether to
 rescind the underlying contract or to affirm it and claim damages.  See,
 e.g., Collins v. Estate of Collins, 104 Vt. 506, 513, 162 A. 361, 363
 (1932); Poor v. Woodburn, 25 Vt. 234, 241 (1853).  Here, there is no
 inconsistency of remedy.  The theory involved may affect the amount of
 damages, but plaintiffs pursued the same basic remedy under both theories.
      Defendants' second argument is that the breach of contract claim should
 not be considered because it was not plaintiffs' theory at trial, was not
 addressed in plaintiffs' proposed findings, and was not brought to the
 court's attention by post-judgment motion.  We find, however, that the
 issue is preserved as plaintiffs fairly presented the issue below.   Plain-
 tiffs not only pleaded a claim for breach of contract, they included the
 claim in their brief to the trial court as well.  See University of Vermont
 v. Town of Mendon, 136 Vt. 400, 402, 392 A.2d 415, 417 (1978) (legal theory
 presented to trial court in memorandum prior to court's decision could be
 considered on appeal although not tried or decided on that theory by trial
 court). (FN3) Much of the evidence presented at trial related to the contract,
 both its making and performance, and could have formed the basis of findings
 of fact and conclusions of law resolving the contract claim.
      Neither party moved the trial court, pursuant to V.R.C.P. 52(b) (amend-
 ment of findings) or 59(a) or (e) (new trial or amendment of judgment), to
 address its failure to resolve the contract claim.  While such motions are
 not prerequisites to appellate review, see, e.g., Osborn v. Osborn, 147 Vt.
 432, 433, 519 A.2d 1161, 1162 (1986), they are helpful in avoiding the delay
 and cost of an unnecessary appeal.  It would have been far preferable to
 correct an obvious oversight in the trial court rather than through the
 appellate process.
      Where a trial court has failed to resolve a claim made to it, the
 proper remedy is for us to remand.  See Martin v. Blanchard, 149 Vt. 658,
 658, 541 A.2d 1199, 1199 (1988).  We do not preclude the possibility,
 however, that the error here can be corrected without new evidence by the
 same court as an amendment to the findings pursuant to V.R.C.P. 52(b),
 followed, if necessary, by an amendment to the judgment.
      Affirmed as to plaintiffs' claim of fraud; remanded for determination
 of plaintiffs' claim of breach of the purchase and sale contract.

                                              FOR THE COURT:




                                              Associate Justice




 FN1.   Plaintiffs claimed that the court contradicted its finding that the
 unpaid debts were detailed with a finding that the debts were undisclosed.
 This claim is without merit, since one finding addressed disclosures made
 during negotiation of the purchase and sales contract, and the other
 addressed disclosures made at the closing.
FN2.    Plaintiffs also assert that the statement in the court's conclusions
 of law that plaintiffs knew of defendants' "checkered financial history" was
 inconsistent with the findings.  We disagree.  Although one part of one
 sentence in the lengthy findings can be read as inconsistent, the findings
 overall reflect that plaintiffs were aware of the potential for problems in
 dealing with these defendants and even took some steps to protect
 themselves.
FN3.    Ironically, defendants addressed the breach of contract claim in
 their request for findings, showing that they thought this theory remained
 in issue at trial.  Defendants then argued that the claim could be disposed
 of by a finding that the terms and representations in the purchase and sale
 contract were not intended to survive the closing.  They have not raised
 this theory here.