Francis v. Stinson, 760 A.2d 209

Supreme Court of Maine

2000

Chapter

21

Title

Misrepresentation

Page

848

Topic

Reliance

Quick Notes

You should always read your contract especially when you are selling stock in a family owned corporation.  In this case, failure to read the terms negated all the alleged statements.

Book Name

Torts Cases, Problems, And Exercises.  Weaver, Third Edition.  ISBN:  978-1-4224-7220-0.

Issue

o         Whether Francis reasonably relied on alleged statements from Charles?  No.

Procedure

Trial

Summary Judgment on the basis of insufficient evidence to support their claims.

o         Dismissed claims alleging an intentional plan or course of conduct to defraud Pl - of their fair share in the families company, and in their fathers estate.

o         Dismissed claims alleging intentional or reckless misrepresentation that induced the Pl to sign the stock purchase agreement.

o         Pl - failed to present sufficient evidence to sustain any action for fraud.

Supreme

o         Affirmed

Facts

Reasoning

Rules

Pl Francis

Df Stinson

What happened?

o         The present dispute arises out of the sale of Stinson Canning Company stock by two of the six families that had been given stock by Calvin Sr.

o         Calvin Sr.'s daughter, Lou Ann Francis, her husband Arnold, made the first sale in February of 1980 for approximately $700,000.

o         Three years later, Eva Wight, her husband Carl, sold their stock to the company for approximately $1.9 million.

Lou Ann was allegedly told

o         Calvin and Charles alleged told Lou Ann that the company was doing poorly.

Fears

o         That if company file for bankruptcy they would be 1/6TH responsible.

Lou Ann Received Offer

o         $2,170,000 from third party.

o         Alleged, Charles told her he would buy it for 700K and he would make up the difference if the company was sold or if he paid a high price for the stock to any of the other family members.

Lou Ann Signed Away

o         Lou Ann did not read contract or look at financial disclosures.

Evas Selling Of Stock

o         She was aware of tax problem.

o         She separated with her husband.

o         She sold stock for 1.9 million.

Company Was Sold

o         $24 Million.

o         Lou Ann would have been $2,2,54,591.

o         Eva would have been between $2.5 million to $3,333,000.

Brought Suit Alleging

o         An intentional plan or course of conduct to defraud Pl - of their fair share in the families company, and in their fathers estate.

o         Intentional or reckless misrepresentation that induced the Pl to sign the stock purchase agreement.

Francis Familys Fraud Claim

o         The statement of material facts alleges that Calvin Jr. and Charles told them that

o         (1) potential estate taxes could destroy Arnold Francis's business;

o         (2) if Stinson Canning Company declared bankruptcy, the Francises would be liable for one sixth of the debts;

o         (3) the company was in financial trouble; and

o         (4) they would receive their "fair share" of the proceeds from any future sale of the company.

Defendant Arg

o         That the stock purchase agreement lists fourteen companies that had expressed interest in buying the company,

o         Lists two companies that had made actual offers.

o         The financial statements also contain recent balance sheets that make it clear that the company was not in financial trouble.

o         It should have been obvious to the Francis family that any fair share promise was not enforceable because the stock purchase agreement stated explicitly that the Francises would receive no share of any future sale, and that any reliance on the representations was not reasonable.

Courts Response

o         Parties to a contract are deemed to have read the contract and are bound to it.

o         It clearly spells out the company was not doing poorly.

o         Reliance is not reasonable.

Lou Ann Arg Fair Share Pair

o         she reasonably relied on the "fair share" promise made to her,

o         she therefore justifiably disregarded the language in the agreement

o         She relies on the admissibility of parol evidence to show that fraudulent fair share promise.

Parol Evidence Rule (When Fraud is Concerned)

o         Parol evidence may be introduced to show that a signed document does not bar all actions for fraud as a matter of law and that the contract does not reflect the intent of the parties.

Courts Response Parol Evidence

o         Language of agreement clearly contradicts the "fair share" promise.

o         There is no allegation that any representation was made to any member of the Francis family

Courts Response Fair Share Assurance

o         there is no evidence that any "fair share" assurance was made to Lou Ann after she became aware of the contract language that imposed no fair share distribution

o         Despite [the] language, Lou Ann signed the agreement without any further assurance from the defendants.

o         Since she cannot demonstrate that her reliance on an earlier promise of fair share distribution was reasonable, the trial court correctly concluded that the Francis family could not vary the terms of the contract, and properly entered a summary judgment against them.

Wright Familys Fraud Claim

o         The complaint alleges that the Wrights relied on the defendants' intentional misrepresentations that the company was in financial trouble and that the family faced potentially "onerous estate tax consequences" if they continued holding the stock.

Courts Response Did not know who told her

o          Eva could not state with any real certainty that it was one of the defendants who told her that the company was in financial trouble.

o         Nor could Eva identify any false financial information provided by the company or the defendants prior to her sale of stock to the company.

Courts Response Decision To Sell Stock

o         Her decision to sell stock was two years later when she was in financial difficulty.

Courts Response Establishing Fraud to a high probability

o         Wrights failed to develop sufficient facts to establish fraud to a "high probability,"

o         The evidence does not reveal that Eva reasonably relied on the allegedly fraudulent misrepresentations

o         Summary judgment was properly entered on the Wrights' claims for fraud and fraud in the inducement.

Rules

Fraud or Deceit Elements

1.   makes a false representation;

2.   of a material fact;

3.   with knowledge of its falsity or in reckless disregard of whether it is true or false;

4.   for the purpose of inducing another to act or to refrain from acting in reliance upon it; and

5.   the plaintiff justifiably relies upon the representation as true and acts upon it to her damage. Reliance is unjustified only if the plaintiff knows the representation is false or its falsity is obvious to her.

Note

o         A claim for fraud must be proved by evidence that shows that the existence of fraud is "highly probable.

o         A person may justifiably rely on a representation without investigating the truth or falsity of the representation unless the person knows that the statement is false or the falsity is obvious.

Parol evidence may be introduced to show that a signed document does not bar all actions for fraud as a matter of law and that the contract does not reflect the intent of the parties

Class Notes