Court Opinion

ID: 9742597
Source: CourtListenerOpinion
Date Created: 2023-08-26 21:16:36.325787+00
Date Added: 2024-06-11T07:24:34.016186
License: Public Domain

V. J. Brennan, P. J.
(dissenting). The defendant, Krown Chemical Manufacturing, Inc., appeals from a decision of the Circuit Court for the County of Wayne awarding the plaintiffs a judgment in the amount of $46,000.
The present controversy arises out of the sale of the stock and assets of Marsano, Inc., to the defendant corporation. The owners of Krown were apprised of the fact that Marsano, Inc., was for sale through an advertisement placed in the Wall Street Journal, with the knowledge and consent of the directors, officers, and shareholders of Marsano, Inc., by Mr. Leonard Marsano, general manager of the corporation. Mr. Marsano was authorized by the other shareholders to advertise and sell the corporation.
The advertisement represented that a "corporation with highly profitable one-item patented new *160Beauty electric comb” was for sale. The advertisement further represented that the corporation had liabilities of only $900. Mr. Albert Applebaum and Mr. Richard Gorman, owners of Krown Chemical Manufacturing, Inc., contacted Mr. Marsano and several meetings preliminary to the acquisition of the company ensued. At one such meeting a financial statement of Marsano, Inc., was presented to Mr. Applebaum and Mr. Gorman which listed accounts payable to be $830.45.
After these preliminary meetings were concluded, Mr. Applebaum arranged to have his accountant, Mr. Harvey Cantor, inspect the books and records of Marsano, Inc. However, the records were not made available to him. Mr. Marsano explained to Mr. Gorman and Mr. Applebaum that the records were not produced because they were with the company’s bookkeeping service, but he assured both men that the financial statement accurately represented the condition of the company.
The defendant corporation, through Mr. Gorman and Mr. Applebaum, finally agreed to purchase Mr. Marsano’s majority holding of Marsano, Inc., for $31,000 and 2,000 shares of Krown stock. At this time a meeting was scheduled for December 22, 1967, to arrange the terms under which defendant would acquire the shares of the minority shareholders, the plaintiffs herein. A meeting was held on December 20 or 21, 1967, at which the sales agreement and a tentative clause for the purchase of the minority shareholders’ stock was drawn up. At the December 22, 1967 meeting the clause relating to the purchase and sale of the shares of the minority shareholders was altered, at the suggestion of the minority shareholders and in the absence of Mr. Gorman and Mr. Applebaum, *161by the addition of the following clause relating to the return of their stock if the sale was not consummated:
"And such return shall not effect or diminish the legal liability of purchaser for failure to consummate the purchase under the terms hereof.”
Mr. Applebaum represented the defendant corporation at the December 22, 1967 meeting. He agreed to purchase the minority’s 4,600 shares at the price of $10 per share only after being assured by Mr. Marsano that the necessary $46,000 could be obtained through the profits realized by the sale of the comb to Japanese businesses. Mr. Marsano assured Mr. Applebaum that he would be able to get the business from Japan for them. To show his good faith, Mr. Marsano executed an escrow agreement whereby he deposited his 2,000 shares of Krown stock in the escrow to be returned only at the direction of the Krown president upon satisfactory completion by Mr. Marsano of securing the necessary Japanese accounts.
Subsequent to the execution of the sales agreement Mr. Gorman and Mr. Applebaum learned that the patent to the comb did not belong to Marsano, Inc., but rather belonged to Mr. Marsano, who refused to assign it. They also learned that the company had a potential liability of over $12,000 due to an indebtedness earlier incurred. Mr. Marsano did not secure the Japanese business necessary to assure that the minority shareholders could be paid from profits. The defendant corporation, therefore, failed to pay the amount owing to the minority shareholders under the sales agreement within the agreed time. The minority shareholders thereupon instituted a suit against the defendant corporation seeking specific performance *162of the sales agreement and "such other relief and such further relief in the premises as shall be agreeable to equity and good conscience”. The defendant filed a counterclaim seeking rescission of the contract because of alleged misrepresentations.
The lower court, having found numerous acts of fraud and misrepresentation, refused to grant the specific performance requested. The lower court did, however, grant judgment in favor of the plaintiffs in the amount of $46,000 and denied defendant corporation’s crossbill for rescission for failure to speedily assert the remedy.
The defendant corporation contends that once the trial court refused to grant specific performance it had no right to award damages. I agree. It is a well settled rule of law that specific performance will not be allowed where the contract was procured by fraud and misrepresentation. Ekelman v Murray, 369 Mich 43; 118 NW2d 959 (1963); Lamhoff v Daniel, 256 Mich 333; 239 NW 334 (1931); 5A Corbin, Contracts, §§1167-1168. It is also well settled that rescission is a proper remedy where a party was induced to enter into a contract by fraud and misrepresentation. Kroninger v Anast, 367 Mich 478; 116 NW2d 863 (1962); Dillon v Yankee, 346 Mich 491; 78 NW2d 131 (1956); Bologa v Pittsillos, 308 Mich 182; 13 NW2d 253 (1944). It is beyond dispute, and the record in the case at bar amply demonstrates, that the plaintiffs and their authorized representative, Marsano, made numerous misrepresentations upon which the defendant corporation relied in entering into this contract. Under these circumstances I would hold that it was error to deny defendant corporation’s counterclaim for rescission of the contract and to award contract damages to the plaintiffs. I *163cannot conceive of any good reason, in law or equity, that would allow plaintiffs relief.
The trial judge and my learned colleagues seize upon the rule that a person must act promptly in asserting rescission. While I recognize the existence of such a rule, I do not agree that the defendant corporation did not act timely under the facts of this case. The defendant-appellant, although aware of some discrepancy in plaintiffs’ representations, was concerned with attempting to make the venture succeed rather than seeking immediate rescission. For this it should not be penalized.
I would reverse the judgment in favor of plaintiffs and reverse the order denying rescission.