Cannon v. March ( 2000 )

DON CANNON and )
MARY LEE CANNON, )
) FILED
Plaintiffs/Counter-Defendants/ )
Appellants, ) January 10, 2000
) Appeal No.
Cecil Crowson, Jr.
v. ) M1999-02123-COA-R3-CV
Appellate Court Clerk
)
WENDY MARCH, )
) Wilson Chancery
Defendant/Counter-Plaintiff/ ) No. 97160
Appellee. )
COURT OF APPEALS OF TENNESSEE
APPEAL FROM THE CHANCERY COURT FOR WILSON COUNTY
AT LEBANON, TENNESSEE
THE HONORABLE C. K. SMITH, CHANCELLOR
JOHN M. CANNON
Cannon & Cannon
112 Long Hollow Pike, Suite 202
Post Office Box 749
Goodlettsville, Tennessee 37072-0749
ATTORNEY FOR PLAINTIFFS/COUNTER-
DEFENDANTS/APPELLANTS
ROBERT L. CALLIS
2745 N. Mt. Juliet Road
Post Office Box 726
Mt. Juliet, Tennessee 37121-0726
ATTORNEY FOR DEFENDANT/COUNTER-
PLAINTIFF/APPELLEE
AFFIRMED AND REMANDED
WILLIAM B. CAIN, JUDGE
OPINION
This case comes to us on appeal from the chancellor’s detailed
findings of fact regarding misrepresentation and contract. The Appellants
Don and Mary Lee Cannon purchased a restaurant from the Appellee
Wendy March. Mr. Cannon and Ms. March bargained for the sale of a
going concern known as “Emmy’s Diner,” located in Mount Juliet,
Tennessee. The instant action was begun when Mr. Cannon brought suit
in Wilson County Chancery Court alleging fraud and seeking rescission
of the contract, or in the alternative, damages.
Ms. March counterclaimed alleging breach of the contract to
purchase and seeking the balance due on a promissory note which
served as part of the consideration for the sale. In addition, Ms. March
sought damages in the amount of several monthly payments due on her
home mortgage. These payments were allegedly additional consideration
either for the sale of the restaurant or payments on equipment rental.1
The trial court found no misrepresentation on the part of Ms.
March. The court awarded damages on Ms. March’s counterclaim in the
amount of $32,160.00, the unpaid balance on the note plus the five
monthly “equipment rental payments which were unpaid.” Mr. Cannon
urges on appeal that the order of the court with regard to
misrepresentation and monthly payments due is against the weight of the
evidence.
Since we find that the evidence fails to preponderate against the
chancellor’s detailed finding, we must affirm the chancellor in all respects.
Our consideration hinges on two key elements: first, the alleged
misrepresentation concerning the nature and value of the business, and
second, the alleged agreement regarding the monthly mortgage
payments. The recitation of pertinent facts as well as the factual findings
1
The order of the chancellor characterizes these $432 payments alternatively as interest and
equipment rental.
2
of the chancellor will be bifurcated to accommodate the consideration of
issues on appeal. The legal analysis regarding each issue will follow the
factual recitation.
I. MISREPRESENTATION
A. FACTS
Mr. Cannon alleged, certain misrepresentations which induced
him to purchase Emmy’s Diner.2 One concerned the amount of money
to be made should Mr. Cannon take over the operation of the diner. At
trial Mr. Cannon testified to certain affirmative statements made by Ms.
March in the bargaining process: “She said, $750-$1,000 per day is what
the restaurant is doing now.” Another alleged misrepresentation
concerned the extent of the business at the time of the sale. Although he
had independently examined the business on at least one occasion prior
to purchase, Mr. Cannon requested certain tax documents which he
hoped would reveal the value of the business as a going concern. This
request was in keeping with the advice of Mr. Joe Carson from First
Union Bank, who assisted Mr. Cannon in the investigation prior to
purchase. The documents which Mr. Cannon allegedly relied upon were
the 1040 Forms’ Schedules C, “Profit or Loss from Business,” for tax
years 1994-1995. The record shows that although the returns listed only
one business, Emmy’s Diner, the income represented in Schedules C
includes income from Ms. March’s catering business. Specifically with
regard to income reported in these tax documents, Mr. Cannon stated on
direct examination:
Q. Now what was the net profit for 1995 listed on
the Schedule C?
A. She showed 17,220.
Q. What were the gross receipts, or sales that,
she’s showing?
A. $199,971.
2
According to the facts in the record, no title to real property was involved. Mr. Cannon and
Ms. March bargained only for the sale of the business and equipment.
3
Q. Is there anywhere on this form that you
received, Mr. Cannon, where it says that this figure was
derived from anything other than the restaurant?
A. No, Sir.
Q. [Are the Schedules C] the only documentation
you received from Ms. March concerning the sales of
the restaurant as to how much it was doing?
A. Yes, Sir.3
The record also shows, however, that although Ms. March did not clarify
the extent of her catering business at the time of purchase, Mr. Cannon
was aware of its existence. Both parties testified that the growing
catering business was the reason for selling the restaurant. Despite this
information, and the advice of Mr. Carson to obtain as much financial
information about Ms. March’s business as possible, Mr. Cannon claims
to have relied only the above Schedules C and Mrs. March’s affirmative
statements regarding income.
Mr. Cannon went on to testify that, allegedly in an attempt to
maximize decreasing profit, but within four weeks of acquiring the
business, he made sweeping changes to Ms. March’s business. He
changed the name, obtained a permit for the sale of beer, and within two
weeks he had changed the hours of operation so as to provide supper
service from Monday through Friday.
The sale was executed on August 31, 1996. After this date,
according to the testimony at trial, Mr. Cannon’s business made between
thirty-five and fifty per cent less than the figures given by Ms. March. Mr.
Cannon’s dissatisfaction with the sales figures peaked in April of 1997.
Although Mr. Cannon asserted the above facts as grounds for rescission
due to misrepresentation, this Court finds that his extensive investigation
of the business itself, as well as the sweeping and almost immediate
3
This testimony is in stark contrast to that given by Ms. March. She stated that Mr. Cannon
received her entire “tax files” which include other documentation arguably revealing the extent
of Ms. March’s baking and catering business.
4
changes he made to Ms. March’s business, are fatal to his claim.
The detailed factual findings issued by the chancellor and
concerning this alleged misrepresentation state as follows:
In 1996 Wendy March decided that she wanted to sell
her business known as Emmy’s Diner and put it in the
hands of a Realtor;... Mr. Cannon took possession of
the premises and changed its name from Emmy’s Diner
to “Moonbeams” and opened a sports bar in part of the
premises; Mr. Cannon started selling beer on the
premises even though he had been advised by some
that the sale of beer on the premises could effect the
business and Mr. Cannon knew himself that he would
probably lose some business selling beer; After Mr.
Cannon took over the restaurant most of the Emmy’s
Diner employees were either discharged or voluntarily
left within a short period of time; After opening the
business Mr. Cannon reduced the quantity of food
being served and began to buy some of his food
supplies from different suppliers;...
The chancellor further found:
That Mr. Cannon was a learned businessman and had
restaurant experience and that he had studied this
business; That Mr. Cannon had asked his Banker, Mr.
Carson, to look at the business and give him advice on
its purchase; that Mr. Carson advised Mr. Cannon that
he should get all the financial records he could possibly
locate on the business; That Mr. Cannon, even after
Mr. Carson’s advice, stated that he just wanted to see
the profit and loss statements which is basically the
Schedule C of Income Tax Return; [sic] Mr. Cannon
knew at the time that he purchased the business that
Ms. March was doing catering and baking business and
that she was to retain the baking and catering; That in
fact Ms. March continued to do baking and catering
after she sold the business and for a while used the
Emmy’s Diner business location and used Mr.
Cannon’s equipment and supplies; ... That Ms. March
gave Mr. Don Cannon her 1994 and 1995 Income Tax
files including everything she had in them after they
were given back to her by her accountant; ... That the
catering and baking business at the time of sale were
not a substantial part of Emmy’s Diner’s gross
receipts... .
The above findings are well supported in the record below. Mr.
5
Cannon testified as to his restaurant experience. He, as well as Mr.
Carson, testified as to the bargaining process. Yet Mr. Cannon urges on
appeal that Ms. March did indeed commit fraud either by concealment of
the extent of her business or by her overt assertions concerning the
possible business revenues. The testimony of Mr. Cannon wavers as to
whether these statements concerned present or future earnings, and the
trial court found that these statements were merely in the nature of
opinion.
B. LEGAL ANALYSIS
On the record before us, we can find no dispute with the
chancellor’s findings. As for the allegations of concealment, the law is
well settled. Fraud may be affirmative or by concealment when there is
an affirmative duty to disclose under the facts. As our supreme court
stated as early as 1885,
In all cases, concealment or failure to disclose,
becomes fraudulent only when it is the duty of a party
having knowledge of the facts to discover them to the
other party: 2 Pom. Eq., sec. 902. And this author, in
the same section says: "All the instances in which the
duty to disclose exists and in which a concealment is
therefore fraudulent, may be reduced to three distinct
classes:
1. Where there is a previous definite fiduciary
relation between the parties.
2. Where it appears one or each of the parties to the
contract expressly reposes a trust and confidence in
the other.
3. Where the contract or transaction is intrinsically
fiduciary and calls for perfect good faith. The contract
of insurance is an example of this class."
Domestic Sewing Machine Co. v. Jackson, 83 Tenn. 418, 424-25 (1885)
Concerning the elements of affirmative fraud, this Court has said:
The plaintiff in this case also raised a claim against the
defendant based on the tort of fraud. The basic
elements for a fraud action are: (1) an intentional
misrepresentation with regard to a material fact, Keith
6
v. Murfreesboro Livestock Market, Inc., 780 S.W.2d 751
(Tenn.Ct.App.1989); (2) knowledge of the
representation falsity--that the representation was made
"knowingly" or "without belief in its truth," or "recklessly"
without regard to its truth or falsity, Tartera v. Palumbo,
224 Tenn. 262, 266-67, 453 S.W.2d 780, 782 (1970);
(3) that the plaintiff reasonably relied on the
misrepresentation and suffered damage, Holt v.
American Progressive Life Ins. Co., 731 S.W.2d 923,
927 (Tenn.Ct.App.1987); Haynes v. Cumberland
B u i l d e r s , I n c . , 5 4 6 S . W . 2 d 2 2 8 , 2 32
(Tenn.Ct.App.1976); and (4) that the misrepresentation
relates to an existing or past fact, Haynes, 546 S.W.2d
at 232, ...
Stacks v. Saunders, 812 S.W.2d 587, 592 (Tenn. Ct. App. 1990). The
transaction between Mr. Cannon and Ms. March contained none of the
above elements. In fact, whether Mr. Cannon characterizes Ms. March’s
conduct as concealment or affirmative fraud, despite his testimony at trial,
the preponderance of the evidence shows that Mr. Cannon did not rely on
any representation, affirmative or otherwise, from Ms. March. Mr. Cannon
was given ample opportunity to inspect Ms. March’s tax files. Mr. Cannon
viewed the business which formed the basis of those files. Through this
independent examination and discussion during the bargaining process
he was well aware of the growing nature of Ms. March’s baking business.
Yet Mr. Cannon only inspected the Profit/Loss Schedules of Ms. March’s
tax returns.
In addition and more importantly, Mr. Cannon changed the nature of the
business that he purchased within a month after acquisition. Several
witnesses, including Mr. Cannon, testified changes in decor, cuisine,
beverages , and serving staff. The record even discloses a general
unfavorable attitude of clientele toward the new business which
developed during Mr. Cannon’s tenure.
This case comes to us on appeal from the chancellor’s specific
findings of fact and are accorded a presumption of correctness absent a
showing that the evidence preponderated otherwise. See Tenn. R. App.
P. 13(d). See also Associated Partnership I, Inc. v. Huddleston, 889
7
S.W.2d 190 at 194 (Tenn. 1994). We find that Mr. Cannon failed to show
that the evidence below preponderated against those findings. Therefore,
the order of the chancellor denying Mr. Canon’s claim for rescission must
be affirmed.
II. THE MORTGAGE PAYMENTS
A. FACTS
As for the chancellor’s determination of the existence of an
additional agreement for certain monthly payments on Ms. March’s
mortgage, the trial court found that the parties had agreed to this
arrangement in lieu of Mr. March’s payment of interest on the $40,000
demand note which served as a portion of the contract’s purchase price.
Ms. March specifically testified regarding these payments as follows:
A. ... And the 432 was – he was to pay me $432. He
asked me, he goes, What’s your house note? Because
making the deal he tried to offer me $50,000 first. He
was writing on scratch paper, you know, showing me
little figures. And I told him that $50,000 would just pay
the bills, that I needed at least 60, 10,000 to take home
to be able to pay some of my bills off and buy a few
stoves and stuff like that. So he said, Well, I’ll pay your
house note, 432 a month for one year. At the end of
the year I’ll pay you the $30,000 back on the note. [sic]
Ms. March went on to testify that the only evidence of this arrangement
was the $40,000 promissory note with notations discussed infra. She
testified that Mr. Cannon had paid four months of payments and that six
months remained due on the arrangement. Mr. Cannon raised no
objection to this testimony below. The actions of the chancellor appear
to be in keeping with Ms. March’s testimony.
B. LEGAL ANALYSIS
The chancellor specifically found that Mr. Cannon agreed to pay
the above monthly amounts in lieu of interest. Mr. Cannon fails once
again to show a preponderance of the evidence to the contrary. See
Tenn. R. App. P. 13(d). The note to which both parties refer for proof of
agreement is a promissory note bearing the date of September 23, 1996.
Upon this typewritten instrument appear several handwritten notations.
8
One of these notations reads: “1st Oct. 43200 $32100 Remainder Don
Cannon Pd. Oct.10, Check.”
As our supreme court has said:
In general, where there is no ambiguity in a contract,
parol evidence is not admissible to vary the plain
meaning of its terms. Moore v. Moore, Tenn.App., 603
S.W.2d 736 (1980); Garner v. American Home
Assurance Co., 62 Tenn.App. 172, 460 S.W.2d 358
(1969). However, where there exists an ambiguity in
a contract, parol evidence is admissible to explain the
actual agreement. Anderson v. Sharp, 195 Tenn. 274,
259 S.W.2d 521 (1953); Mills v. Wm. Faris & Co., 59
Tenn. (12 Heisk.) 451 (1873).
Jones v. Brooks, 696 S.W.2d 885, 886 (Tenn. 1985). The chancellor
found that Mr. Cannon failed to pay five payments of $432.00 to Ms.
March and properly awarded her that $2,160.00 in damages for the
breach.
On all of the controlling issues in this case the chancellor made
detailed findings of fact. In our de novo review the burden rests upon the
appellant to establish that the evidence preponderates against these
findings. Tenn. R. App. P. 13(d). Appellants have not carried this
burden.
Another and perhaps even greater obstacle faces the appellants.
This case turns almost entirely on a credibility comparison between Mr.
Cannon on the one hand and Ms. March on the other. In similar
circumstances it is held:
The chancellor was faced with conflicting testimony
from Taylor on the one hand and Kovsky on the other.
As the trier of fact, the chancellor had the opportunity to
observe the manner and demeanor of the witnesses as
they testified. The weight, faith, and credit to be given
to a witness’s testimony lies in the first instance with the
chancellor as the trier of fact, and the credibility
accorded will be given great weight by the appellate
court. Mays v. Brighton Bank, 832 S.W.2d 347, 352
(Tenn.App.1992); Sisk v. Valley Forge Ins. Co., 640
S.W.2d 844, 849 (Tenn.App.1982).
9
Taylor v. Trans Aero Corp., 924 S.W.2d 109, 112 (Tenn. Ct. App. 1995).
For the reasons and under the authorities cited above, the
decree of the chancellor is affirmed in all respects. The cause is
remanded for such other proceedings as may be necessary. Costs on
appeal are taxed against the appellant Mr. Don Cannon.
________________________________
WILLIAM B. CAIN, JUDGE
CONCUR:
________________________________________
BEN H. CANTRELL, P.J., M.S.
________________________________________
WILLIAM C. KOCH, JR., JUDGE
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