March 10, 1952. Rehearing Denied April 14, 1952.
APPEAL FROM THE CIRCUIT COURT OF JACKSON COUNTY, ALLEN C. SOUTHERN, J.
Raymond G. Barnett and S. M. Wasserstrom, both of Kansas City, for appellants.
William G. Boatright, Kansas City, for respondent.
Respondent Strafer purchased from appellants, Daniel F. Bodney and Edward A. Devins who were partners in business, the Baltis Theatre located in Kansas City, Missouri. Strafer took charge of the theater on November 11, 1949. The purchase price was $35,000. Strafer paid $15,000 cash and gave notes amounting to $20,000 and a chattel mortgage on the theater equipment to secure the payment of the notes. Monthly payments on the principal and interest amounted to approximately $400. In February, 1950, Strafer gave notice that he had rescinded the contract of sale on the ground that he had been defrauded. The monthly payment due in February was not paid. Thereafter on March 9, the appellants, defendants in this case, filed suit to foreclose the mortgage. On March 10, Strafer filed suit to rescind the contract and asked that the notes and mortgage be cancelled and that he have judgment for the $15,000 which he had paid on the purchase price. The two cases were consolidated for trial in the circuit court and were tried under the title of the suit filed by Strafer on March 10. The trial court found the issues in favor of Strafer. By the decree the notes and mortgage were cancelled and judgment was entered in favor of Strafer for $14,725.25. The trial court also dismissed with prejudice the petition of Bodney and Devins asking foreclosure of the mortgage. Bodney and Devins appealed.
The charges of fraud were that the net profits produced by the operation of the Baltis Theatre for the first six months of 1949 were misrepresented and that the availability of pictures to be shown at the Baltis was misstated.
Since this is a suit in equity, it must be reviewed de novo in this court. The evidence shows the following to have occurred: In the summer of 1949, appellants, wishing to dispose of the Baltis Theatre which they had been operating, listed the theater for sale with (Wesley A.) Harting and Associates, "business brokers." Strafer was a salesman for a jewelry concern. In 1949 he was looking for a business that he could operate without giving up his position as a salesman. He noticed the following advertisements in the Kansas City Star:
"Theater — Dominant Kansas City location; beautifully appointed; clearing $275 week; investigate. Harting, 1006 Grand, VI. 5126." "Theater — Beautifully appointed; latest Equipment; clears $1,000 month; $10,000 handles; Appointment. Harting, 1006 Grand, VI. 5126."
In response to the advertisements, Strafer went to Harting's office and negotiations were begun which ended in the sale of the Baltis Theatre to Strafer. Appellants and Harting testified that the above advertisements did not have reference to the Baltis. For the purpose of this case, we shall treat the advertisements merely as causing respondent to go to Harting's office.
In response to Strafer's inquiry, Harting showed him the Baltis Theatre. Appellants had furnished Harting with a statement referred to as Exhibit 3 in the record. This showed the following:
"Baltis Theatre Kansas City, Mo. "Operation For One Week Based on the first six months of 1949
"Revenue Ticket Sales $885.80 Stand Sales 226.38 1,112.18 -------
"Expense Cost of Stand Sales 67.70 Films 364.19 Film Delivery 6.18 Cash Protection 5.40 Booking Expense 15.00 Advertising 137.20 Rent 46.73 Salaries 153.20 Fuel, light, water 30.60 826.20 ------- -------- 285.98
"Salaries Operator 71.20 Janitor 35.00 Cashier 12.00 Stand Operator 17.50 Usher 17.50 ------- $153.20"
During the negotiations Strafer mentioned to Bodney that some items of expense were not shown on Exhibit 3 and asked the amount of such items. Strafer testified that Bodney assured him that a few items were missing but that $35 would be sufficient to cover them; that to be safe he (Strafer) added $55 to expenses; that later Strafer asked to be shown the books to verify Exhibit 3; that Bodney informed him that the books on the Baltis and another theater were kept together and only an accountant could separate the accounts. The evidence shows beyond any doubt that Strafer was led to believe the Baltis had produced a net profit of over $250 per week for the first six months of 1949. Accountants testified for Strafer and also for appellants. All testified that Exhibit 3 was false. Bodney stated that Exhibit 3 had been prepared at his direction and that it was furnished to Harting for the purpose of using it in selling the Baltis. The evidence shows that at the very time when Strafer asked about the verity of Exhibit 3 Bodney had in his desk profit-and-loss statements for each of the first six months of 1949 showing the average net profit of $117.18 per week. These statements were marked Exhibits 28 to 38. Items of expense omitted from Exhibit 3 amounted to about $170 per week.
Bodney's attitude is revealed in his evidence. Note the following:
"Q. And, as I understand your testimony that you have given up until now, you have undertaken to explain Exhibit 3 and the reason it does not contain 19 items of expense on the theory that you wanted Mr. Harting to have some information that a prospective purchaser might be interested in? A. Yes, sir.
"Q. And that if a man became interested, then you wanted him to have full information? A. That I would supply any information that anyone requested. I had it available and would supply it.
"Q. And that you wanted him to have it? A. Well, I can't say that I wanted him to have it. I would give then whatever they wanted.
"Q. You mean whatever they asked for? A. Whatever they asked for, yes, sir.
"Q. Is that the reason that you made up this Exhibit 3 rather than just giving Mr. Harting a copy of these financial statements, 28 to 38? A. I gave it to him trying to supply him with the information that I felt would give anyone a fair picture to determine whether or not they would be interested in it.
"Q. And then if they became interested you wanted him and the prospective purchaser to get full information from you, is that right? A. Well, that isn't what I said, no. That I would supply —
"Q. (Interrupting) That isn't right? A. That I would supply whatever information that they requested."
Bodney admitted he never disclosed to Strafer the true picture as revealed by Exhibits 28 to 38. It was shown that Bodney transacted most of the business of the partnership with reference to the operation of the Baltis Theatre and its sale.
The evidence leaves no doubt that the net weekly profits produced by the Baltis for the first six months of 1949 were grossly misrepresented and that respondent believed the representation and relied thereon.
During the negotiations the question of getting good pictures for the Baltis was discussed. Strafer testified that both Harting and Bodney stated that the Baltis had a "49-day spot" or a "49-day availability." The meaning of these terms was explained as follows: Pictures produced by the principal motion picture producers are shown first in the larger theaters, referred to in this record as the "downtown theaters." These theaters have the first choice. When the pictures have been shown at these houses, they may not be shown again for 49 days. Those theaters having a preference to show the pictures 49 days after the first run are said to have a "49-day spot" or a "49-day availability." Strafer testified that he was wholly unfamiliar with the picture show business and did not know how the various theaters obtained pictures. He stated that the term "49-day spot" was explained to him and he was assured the Baltis was in that class and "that's the deal that makes it valuable is the 49-day run on major pictures."
When Strafer took over the Baltis on November 11, all of the employees (they had been recommended by Bodney) remained on the job, including Hartman, the booker, who looked after getting pictures to be shown. Strafer continued in his position as salesman for the jewelry house. Some time during the month of December, 1949, a "reissue" picture referred to as "Marx Brothers," was run at the Baltis. Strafer complained to the booker about running that picture. Hartman informed him that that was the only picture he could get at the time. In January, 1950, a number of pictures were shown which Strafer thought were of poor drawing quality and again he complained to Hartman. The booker's testimony was that he informed Strafer that he could not get pictures on the second run or 49-day spot unless the Oak Park Theatre did not take them. Strafer testified he did not fully understand or realize the true situation until some time early in February at which time he had Hartman make a full explanation; that he then asked Hartman what to do; that he had been informed the Baltis had a 49-day spot; that Hartman advised him to see a lawyer. There is some dispute in the evidence as to what was said but Hartman admitted that he gave Strafer the telephone number of Mr. Boatright, a lawyer. Respondent went to see the lawyer and appellants were notified that Strafer had rescinded the contract of sale.
The true situation as to the 49-day availability for the Baltis was that the Oak Park Theatre had the first choice. The Oak Park ran two pictures a week. If there were only two pictures on the 49-day spot, Oak Park took them. If more were available, then Oak Park took what it wanted and the pictures remaining were in some cases available to the Baltis. If a picture were run at the Oak Park, the Baltis could not run it the following week. Note the explanation given in the testimony of Mr. Hartman, the booker:
"Q. Well, what is the scheme after the picture plays at the Oak Park, it goes down to what theater? A. Linwood Theater.
"Q. And you explained that to them on this occasion you are referring to? A. I did.
"Q. In other words, if a picture, a good picture, played at the Oak Park, they couldn't play it the next week or the second week or the third week thereafter, they had to wait until after it had been played at the Linwood Theater, is that right? A. Yes, the Linwood was playing on the 56-day availability.
"Q. In other words, if the picture went to the Oak Park and played in that district on the 49-day availability, then it was not available on 49 days to anybody in that district, it had to go to the 56-day spot, is that right? A. That is right."
From the evidence we conclude that the Baltis did not enjoy a 49-day availability as was represented to Strafer. The Baltis had to take the pictures passed by the Oak Park. Oak Park took the cream and if the Baltis wished, it could have the skimmed milk.
Bodney testified that a 49-day availability was quite valuable to the theater. The misrepresentation as to this fact was, therefore, material. It is also evident that Strafer was misled thereby.
The trial court found that respondent had been misled by false representations both as to the earnings of the Baltis and as to the 49-day availability of pictures. Appellants in their reply brief complained with much vigor of the trial court's finding. Note the following taken from appellants' brief: "The trial Court's opinion seems to lack understanding of anything but surface matters." Again appellants say, "When the record discloses that the trial court shut itself off from any analysis and explanation of the evidence, its decision upon the facts naturally lost much of what otherwise its decision would be entitled to in the way of this court's deferment thereto."
As aforementioned, it is this court's duty to review de novo cases of this nature. In cases where the oral evidence is conflicting, this court does defer to the finding of the trial court. That is for the apparent reason that the trial court is in a better position to weigh the evidence as given by the various witnesses. In this case the findings made are our own without any deferment to the trial court's conclusions. The record in this case justifies a finding that Bodney, a lawyer, who had practiced his profession for ten years knew when he sold the Baltis to Strafer that he had misled Strafer and had defrauded him.
Appellants say even if fraud was established, Strafer by operating and retaining possession of the Baltis for three months waived his right to rescind the contract of sale. To this we cannot agree. Strafer was relying upon the employees to operate the theater. A Mr. Mosby, who had some connection with Harting and shared office space with the broker, was the bookkeeper for Strafer. He had been recommended by Harting and Bodney. For the purpose of this case, we need not find that Mosby received any instructions from Harting or Bodney. According to a report made by Mosby to Strafer, the Baltis made a profit of $1,053.95 from November 11 to December 31, 1949. Mosby testified that he did not intend the statement to show profit and loss although the statement was so marked. Mosby stated that the statement showed only total income and disbursements from November 11 to December 31. Further examination of the witness disclosed that the statement did not even show all disbursements. In other words, the statement, although purporting to be a profit-and-loss statement, was not, in fact, such a report; neither was it a true statement of income and disbursements. About January 15, 1950, Mosby obtained other employment and a new bookkeeper or accountant took over Mosby's duties. Strafer soon learned from him that the net profits from November 11 to December 31 were far less than he had been led to believe by Mosby's statement. Investigation disclosed that due to the Baltis' not having a 49-day availability pictures had to be shown which resulted in substantial losses. After Strafer employed a lawyer, it was also discovered that the earnings produced by the operation of the Baltis for the first six months of 1949 had been grossly misrepresented. On the advice of his lawyer, Strafer notified Bodney and Devins that he had rescinded the contract and tendered possession of the Baltis. Bodney and Devins took possession and operated the theater and were doing so at the time of the trial. It was their contention that they took possession under the terms of the mortgage. We do not hold that they took possession because of Strafer's rescission. We hold respondent did not waive his right to rescind the contract by operating the Baltis. The rescission was made promptly upon Strafer's learning the true situation and the discovery of the fraud that had been perpetrated.
There is little dispute as to the applicable law. Appellants cited a number of cases. We quote from one of them, Bertram v. Kempster, Mo.Sup., 216 S.W.2d 494, loc. cit. 497, 498 (7, 8): "If the representations of net profits were made, it could be reasonably considered the consummation of the transaction was under such circumstances that defendants should have known plaintiffs were relying upon the representations. Defendants' false statements, if made, of the amounts of their past or present profits or income from the property or the productiveness of the property or business were statements of existing facts peculiarly within the defendants' knowledge — existing facts about which defendants were informed and about which plaintiffs knew nothing." We deem the quoted language appropriate to the facts in this case.
Appellants say in their brief that "The Catastrophic Harmful Effect of the Advent of Television upon the Motion Picture Business Could Well Furnish Respondent with an Impelling Motive to Seek Relief from His Bargain, Even Though There Had Been No Fraud, and It Was the Duty of the Trial Judge to Consider That Matter in Passing upon Respondent's Attempted Rescission and upon the Credibility of His Testimony."
The decisive question in this case was, did the defendants perpetrate a fraud upon Strafer by misrepresenting the profits derived from the Baltis and the availability of pictures for the Baltis. We find the contract was promptly rescinded on discovery of the fraud. The effect television had upon the business would not alter the situation.
From what we have said it follows, the judgment of the trial court must be and is hereby affirmed.
BOHLING and BARRETT, CC., concur.
The foregoing opinion by WESTHUES, C., is adopted as the opinion of the court.