Zager v. Setzer

88 S.E.2d 94 (1955) 242 N.C. 493

Max ZAGER
v.
John W. SETZER.

No. 678.

Supreme Court of North Carolina.

June 30, 1955.

Thomas Turner, Greensboro, and Proctor & Dameron, Marion, for defendant, appellant.

Moseley & Edwards and Armistead W. Sapp, Greensboro, for plaintiff, appellee.

JOHNSON, Justice.

Our study of the record leaves the impression that the evidence relied on by the defendant was sufficient to carry the case to the jury on the issues of rescission and damages raised by the further defense and counterclaim.

The evidence discloses that the theatre was operated by C. C. Freeman previous to its acquisition by the defendant. Freeman purchased the equipment on the installment-payment plan from the plaintiff about 15 October, 1951, and continued operations until sometime the following spring or summer, when he gave it up and left town. A foreclosure ensued, under which the plaintiff reacquired title to the equipment. Following this, it was sold to the defendant. As a part of the negotiations leading up to the defendant's purchase of the equipment and the signing of the conditional sale contract, the plaintiff represented to him that the previous operator of the theatre had a weekly gross income therefrom of between $600 and $700. The defendant closed the deal after determining that the costs of operating the theatre would be approximately $560 a week. The building and equipment were completely renovated, after which the defendant operated the theatre for a period of several months under the management of a competent, experienced operator. However, the weekly gross income never approximated $600 or $700, as represented by the plaintiff. On the contrary, it ranged from a high of $487 to a low of $222, with the average being $320. Also, it was disclosed by the testimony of former operator Freeman that his highest weekly gross income was $443, with the average being only $343, and that he closed the theatre "because it was very unprofitable."

The foregoing line of evidence, when considered with other testimony of an amplifying and corroborative nature, was sufficient to show prima facie the existence of all the elements of actionable fraud. Ward v. Heath, 222 N.C. 470, 24 S.E.2d 5; Vail v. Vail, 233 N.C. 109, 63 S.E.2d 202.

True, the record discloses no evidence tending to show the plaintiff knew the amount of the former operator's gross income. And in this sense the evidence fails to disclose affirmatively that the plaintiff had knowledge of the alleged falsity of his representation to the effect that the former operator grossed from $600 to $700 a week. However, the evidence is sufficient to support the inference that the plaintiff's representation as to the gross weekly income of the former operator was recklessly made, or positively averred when he was consciously ignorant whether it was true or false, and was intended by him and accepted by the defendant and reasonably relied on as a statement of fact by which the defendant was deceived and caused to suffer loss. The evidence tending to show this state of mind is an adequate substitute for proof of scienter. Roberson v. Williams, 240 N.C. 696, 83 S.E.2d 811; Gray v. Edmonds, 232 N.C. 681, 62 S.E.2d 77; Palomino Mills, Inc., v. Davidson Mills Corp., 230 N.C. 286, 293, 52 S.E.2d 915, 921; Whitehurst v. Life Insurance Co., 149 N.C. 273, 62 S.E. 1067; 23 Am.Jur., Fraud and Deceit, Sec. 68, 1954 Supplement. See also comprehensive annotation entitled "False representations as to income, profits, or productivity of property as fraud," 27 A.L.R.2d 14, pp. 60 and 61; Roberson v. Swain, 235 N.C. 50, 69 S.E.2d 15.

We have not overlooked the variance between the defendant's allegations and proofs. In his further defense and counterclaim the defendant expressly alleges the scienter, i. e., that the plaintiff knew of the falsity of his representation as to the weekly gross income of the former operator of the theatre. Whereas the evidence discloses at most prima facie proof only of the legal substitute therefor—the constructive scienter, i. e., that the representation was recklessly made or averred under circumstances showing conscious ignorance whether it was true or false. The question thus posed is whether this variance is of sufficient materiality to justify nonsuit under application of the rule explained and applied in Suggs v. Braxton, 227 N.C. 50, 40 S.E.2d 470.

On this record it does not appear that the plaintiff was misled to his prejudice by the variance between the defendant's pleading and proof. Hence, under application of G.S. § 1-168 the variance will be treated as immaterial and insufficient to support the judgment of nonsuit entered below.

Our attention has not been directed to any previous decision of this Court involving the precise question of variance here presented and our research discloses none. The case of Pritchard v. Dailey, 168 N.C. 330, 84 S.E. 392, cited by the plaintiff, is factually distinguishable.

However, the conclusion here reached finds support in these decisions from other jurisdictions: Luikart v. Miller, Mo., 48 S.W.2d 867; Turk v. Botsford, 70 Or. 198, 139 P. 925. See also Watson v. Jones, 41 Fla. 241, 25 So. 678; Packard v. Pratt, 115 Mass. 405; Cook v. Gill, 83 Md. 177, 34 A. 248. And these decisions of this Court support the principle here applied: Dennis v. City of Albemarle, 242 N.C. 263, 87 S.E.2d 561; Spivey v. Newman, 232 N.C. 281, 59 S.E.2d 844; Mode v. Penland, 93 N.C. 292.

The ruling of the court below in dismissing by compulsory nonsuit the defendant's pleas for rescission and damages must be held for error. The verdict and judgment will be set aside to the end that the defendant may have a new trial, and it is so ordered. See Randle v. Grady, 228 N.C. 159, top page 165, 45 S.E.2d 35, top page 40.

Since the other questions presented by this appeal may not recur on retrial, we refrain from discussing them.

New trial.