Lash v. Prokop , 331 Mich. 390 ( 1951 )

Boyles, J.

Plaintiffs have invoked the aid of the chancery court to set aside an executory contract for their purchase of a restaurant in Hamtramck, cancel their obligations to pay, enjoin the defendants from enforcing a promissory note for $450 given partly in part payment and partly for rent, for an “accounting” of plaintiffs’ damages, and a lien on the property therefor, on the ground that the defendants had been guilty of misrepresentation and fraud inducing plaintiffs to enter into the purchase. After hearing, the trial court concluded that the defendants had induced plaintiffs to enter into the contract by misrepresentations and fraud, entered a decree for cancellation of the contract, enjoined collection of the note, allowed plaintiffs $1,600 for their “damages,” and cancelled the note. The defendants take general appeal; and plaintiffs cross-appeal claiming that the “judgment” in their favor should have been for a much larger sum.

As "briefly as possible, the facts are as follows:

On January 7, 1947, defendant Chester Prokop purchased the restaurant from the then owner, procured-an assignment of the lessee’s interest in the lease, made some improvements and repairs and installed some further equipment. He opened for business on February 4th, and on February 16th, being dissatisfied with .the business, listed it for sale with a broker. During that interim he did not obtain a restaurant license until February 11th, and then only on a temporary basis on condition that he remove the wallpaper and paint the walls. On February 26th plaintiffs entered into the agreement to purchase which is here involved, and went into possession. On March 15th the restaurant was closed by the municipal authorities, the restaurant license having been refused or revoked for failure to make the improvements. On the same day, defendant Chester Prokop sued plaintiffs to collect the promissory note. Oh March 19th plaintiffs filed their bill of complaint against Chester Prokop for cancellation, claiming rescission on the ground of misrepresentation and fraud, followed on May 9th by filing an amended bill adding Mary Prokop as a defendant and setting up additional grounds for relief. Plaintiffs sought to restrain enforcement of the promissory note, and “that the agreement heretofore entered into between the parties be set aside and declared null and void and that an accounting be made of the damages sustained by the plaintiffs by reason of the fraudulent representations of the defendants and that such amount be made a lien upon the restaurant in question, such lien to be foreclosed in accordance with law.”

In the meantime (on April 17th), the court had entered an order requiring plaintiffs to deposit $210 per month with the clerk of the court pendente lite, $150 per month of which was for rent,-, ordered the defendant to comply with the demand of the authorities as a condition to obtaining a restaurant license, and temporarily enjoined the defendant from disposing of or collecting the note. Subsequently, the court properly denied a motion by plaintiffs to transfer the case to the law side of the court, mainly on the ground that plaintiffs had sought and already obtained injunctive relief, and had added as a defendant Mary Prokop (Chester Prokop’s mother) who was not a party to the contract of sale.

“Where plaintiff asked for equitable relief by way of cancellation of contract, accounting, and injunction, and received equitable relief by securing and continuing in force temporary injunction, and finally accounting-was had, its motion to transfer cause to law side of court on ground that, as case then stood, nothing except money decree was sought, was properly denied.” Moon Brothers, Inc., v. Equipment Finance Corporation (syllabus), 255 Mich 359.

See, also, Kundel v. Portz, 301 Mich 195.

After the required wallpaper removal and painting had been done by the defendants, plaintiffs reopened the restaurant, sometime about the middle of April, and operated it during the pending of the litigation until February 5, 1949, making monthly payments to the clerk of the court totalling $1,290 (which is still impounded by the court) in addition to $150 per month for rent. On the above date plaintiffs “abandoned” the restaurant, the property and business, left it in the building on which the defendant Chester Prokop had a lease, and the defendants took possession. Subsequently, the defendants removed the equipment and used it to open another restaurant, which they subsequently sold, without apparent loss as to the value of the property. The instant case was not finally heard by the court until November, 1949, after tbe above events had taken place.

Appellants claim tbat tbe trial court should have dismissed tbe case as to defendant Mary Prokop. Tbe record shows tbat Mary Prokop furnished most of tbe money for tbe original purchase of tbe restaurant by her son, first brought tbe proposed sale to tbe attention of plaintiff Lash, personally made misrepresentations upon which Lash relied, and actively participated in tbe business and its sale, and received plaintiffs’ down cash payment. Tbe court did not err in refusing to dismiss as to her.

Appellants also argue tbat tbe court should have excluded tbe testimony of one W. Roy Schooler who testified as to tbe value of the restaurant. Tbe witness was an auctioneer and appraiser; bad appraised, bought and sold restaurants for over 20 years, made appraisals for bankruptcy courts and banks, and had taken an inventory of tbe restaurant in question. His testimony as to the value of tbe property in 1947 and 1949 was admissible, bearing on tbe question of misrepresentation and fraud.

Tbe circuit judge found as a matter of fact tbat tbe defendants bad made material misrepresentations of essential facts which were believed by tbe plaintiffs and which induced them to make tbe purchase, and bad been guilty of fraud. We are convinced by tbe record tbat if we bad seen and beard tbe witnesses we would not have reached a different conclusion. Tbe defendants represented tbat tbe restaurant was a gold mine, taking in between $75 and $100 a day, tbat they bad paid $5,500 for it, bad paid $550 for a neon sign, tbat they bad a restaurant license, tbat the trouble with the municipal authorities bad been ironed out. Defendants bad misrepresented the cost of the business, its fair market value, the daily business done by them, there was no neon sign purchased or paid for, tbe defendants did not have a valid restaurant license at the time of the sale, they had not complied with the municipal requirements. Plaintiffs were compelled to close the business shortly after taking possession, for lack of a license. In February, 1949, plaintiffs finally elected to close up the business after operating it until that time, pending hearing- of the case, in an effort to minimize their damages. Plaintiffs did not waive any rights by so doing.

Plaintiffs cross-appeal claiming that their “measure of damages” should be the difference between the real value of the property and what it would have been if the representations had been true. If that theory was tenable, plaintiffs have mistaken their remedy. Under their amended bill of complaint, the case has been tried and submitted on the theory of rescission, seeking injunctive relief, and not merely damages. In such case the amount of recovery is controlled by the amount plaintiffs have paid.

“In rescission plaintiff may recover back what he has paid, and in affirmance plaintiff may recover difference between yalue of stock as represented and its real value.

“On review, parties will be held to theory upon which cause was tried without objection in trial court.” Westman v. Brumm (syllabi), 248 Mich 387.

Plaintiffs overlook the fact that the Westman Case, supra, and also Poloms v. Peterson, 249 Mich 306, and Gloeser v. Moore, 284 Mich 106, also relied on by plaintiffs, were brought for damages claimed to have been suffered through fraud inducing the purchase, not based on rescission. While Hubert v. Joslin. 285 Mich 337, also relied on by plaintiffs, was a “bill * * * to obtain the amount of damages suffered by plaintiffs because of fraud,” the plaintiffs did not rescind, but sought to retain the property (land contract) and receive a credit thereon for damages. The opinion states:

“Plaintiffs seek to retain the farm property they .acquired and recover damages in equity rather than suing at law.”

In the instant case, plaintiffs may recover the amount they paid. The total down payment made hy plaintiffs was $4,000. The trial court cancelled the agreement and allowed plaintiffs $1,600, apparently the difference between the cash down payment, $3,700, and the value of the business at the time of purchase, and in addition cancelled the promissory note. However, the court should have awarded them '$3,700, the full amount of their cash down payment, plus cancellation of $300 of the balance, included in the note. In rescission, the defrauded party may recover back what he has paid. Westman v. Brumm, supra, and other cases cited herein. In effect, the defendants consented to a rescission when they received hack the property which the plaintiffs “abandoned” by leaving it in the building- of which the defendant Chester was the lessee, whereupon the defendants removed the property and afterward sold it, at no apparent loss from the original value as claimed by them.

In Kundel v. Portz, supra, under circumstances •similar to the facts in the present case, the Court •said:

“In Young v. Rice, 234 Mich 697, 700, in which the question of mutual rescission of a contract of sale and purchase was involved, we said:

“ ‘This subject is exhaustively treated in 2 Black •on Rescission and Cancellation (2d ed), §§ 531, 532:

“ ‘ “When goods have been delivered to the buyer xtnder a contract of sale, and he returns them to the seller, and the latter accepts the redelivery, and resumes and retains possession of the property as Ms own, and does not notify the buyer that be intends to bold it subject to bis order or sell it for bis account, the transaction operates as a complete rescission of tbe contract of sale. And it appears, to be immaterial, in respect to tbe application of this rule, whether tbe purchaser assigns any reasons for returning tbe goods, or what bis sjDecified reasons may be, whether a. deficiency in quantity or quality, a general dissatisfaction with tbe property, bis inability to pay, or a mere wish to be released from his bargain. For his return of tbe goods is an offer of rescission, and tbe acceptance and retention of them by tbe seller is an acceptance of that offer, and thereupon a rescission is effected, not necessarily for legally sufficient cause, but by tbe mutual consent of tbe parties.” ’ ”

The decree should require defendants to pay $3,700 (not $1,600) and cancel tbe note to tbe extent of $300, thus making the full amount of $4,000, the down payment. Tbe decree of tbe trial court, as entered, is inconsistent in that (in paragraph 3) it cancels tbe executory contract of sale, thereby following tbe theory of rescission and return of tbe property, yet in the next paragraph awards tbe plaintiffs only $1,600, which is not the amount paid by plaintiffs, but merely tbe difference between tbe cash amount paid and tbe value of the property which tbe defendants received back. Furthermore, tbe decree cancels tbe full amount of tbe promissory note, $450, whereas only $300 of that amount was part of tbe down payment, and $150 was for rent which should not be cancelled or returned to tbe plaintiffs. However, tbe court properly approved tbe payment of rent during plaintiffs’ period of occupancy, and merely required the return to plaintiffs (by tbe clerk of tbe court) of $1,290, the amount impounded for monthly payments on tbe contract, to abide tbe outcome as to whether the contract would be cancelled by the court.

A decree may be entered in this Court, as modified in consonance with this opinion, and remanding the same for enforcement thereof. No costs, each party having prevailed only in part.

Peid, C. J., and North, Dethmers, Bijtzel, Carr, Bushnell, and Sharpe, JJ., concurred.