EUREKA DAIRY COMPANY v. McSWEEN

EUREKA DAIRY COMPANY v. McSWEEN. Fraudulent Conveyances; Contracts; Rescission and Cancelation op Instrument; Evidence. 1. Quesre, whether, before bringing suit to set aside a Sale as fraudulent, . and to recover a part of the purchase price which has been paid, ii is incumbent upon the purchaser to offer to place the seller, as far as practicable, in the position he occupied when the sale was made. 2. Canceling an executed contract is an exertion of the most extraordinary power of a court of equity, which ought not to be exercised except in a clear case, and never for an alleged fraud, unless the fraud be made clearly to appear; never for alleged false representations, unless their falsity is certainly proved and unless the complainant has been deceived and injured by them. (Following Shappirio v. Goldberg, 20 App. D. C. 193.) 3. Where, in an equity suit, the testimony of the parties differs as to what the books of account of a business which are in evidence show the daily receipts of'the business to have been for a period of several months, it is not incumbent upon this court to undertake the work of an expert accountant to determine whose testimony is correct. 4. Mere suspicion that a sale was fraudulent is not sufficient to justify a court of equity setting it aside at the suit of one of the parties. The evidence must leave an abiding conviction that bad faith was practised. 5. In a suit by the purchaser of the ice cream and café part of a dairy, ice cream, and café business, to vacate the sale, and for the recovery of a part of the purchase price which had been paid, on the ground that the defendant had falsely represented the profits of the part of the business sold to have been $150 a month, where it appeared, among other things, that the books of account had been left where the plaintiff could have seen them if he had so desired; that the defendant had said to the plaintiff’s son that as the books related to the entire business, he could not tell what the profits were, but could only approximate them; that while the plaintiff himself testified that the defendant had represented the profits to have been $150 a month, he further testified that the defendant told him he could only approximate the expense,' and it would be impossible to tell from the books what he was making out of each business; and the defendant denied that he made the alleged representations as to profits, and said he had merely told the plaintiff how he could save $150 a month; and it further appeared that the place where the business was conducted was closed several months after the purchase, and while plaintiff was still in possession, because of the smallpox: it was held that the evidence could properly form the basis of a finding of nothing more than that the defendant gave expression to a mere opinion as to the condition of the business he was selling; and a decree vacating the sale was reversed. No. 2236. Submitted February 9, 1911. Decided March 15, 1911. Hearing or an appeal by the defendant from a decree of the Supreme Court of the District of Columbia, sitting as a court of equity, vacating a sale as fraudulent. Reversed. The Court in the opinion stated the facts as follows: This appeal is from a decree of the supreme court of the District rescinding a contract between the parties to the suit upon the ground that it was induced by fraudulent representations. Hearing was upon the pleadings and supporting evidence. The defendant, the Eureka Dairy Company, was organized in July, 1905, when it purchased for $3,000 an established dairy, ice cream, and café business, the café being located at 720 13th street, N. W., in this city. These businesses were conducted by the company until the end of December of the same year practically as one business. Early in that month the defendant Harry T. Pancoast, being president of the corporation and owner of nearly all its stock, and who was interested in other enterprises, advertised the three businesses for sale as one. The complainant, Archibald McSween, became the purchaser of the combined café and ice cream business, and possession was given January 1st, 1906. The terms of the sale were $1,000 cash and two promissory notes aggregating $1,000, secured by chattel deed of trust. Complainant retained possession of the premises until about the time of the filing of this suit, on March 15th, 1906, when he turned over the keys to the trustees under the chattel deed of trust. His bill, however, makes no mention of this fact, nor does it tender restitution. The first witness for the complainant was his son, John S.. McSween, who testified that the negotiations leading up to-the purchase of said café and ice cream business began about December 9th, 1905, when the witness had an interview with-Mr. Pancoast; that he asked Mr. Pancoast to give “the approximate profit of the café (and ice cream) business. And he (Pancoast) thought, and did some figuring on the table in the Ebbitt House. And after thinking, he said he thought he was-making $150 a month.” Witness and his father, the complainant, then saw Mr. Pancoast, who, upon that occasion, according to the witness, represented that the café and ice cream i business was “making $150 a month,” and that the daily sales; would average $40. Two or three days later, Mr. Pancoastcalled at the home of the complainant, and another interview occurred between the McSweens and Pancoast. Witness testfi fied that “we asked him to bring a record of the business the night he came to our house, and he did not bring any record of the business except on a little piece of note paper. He said he had the average of three consecutive days preceding the night he visited our house, and which daily sales he said would average $39. * * * We-asked him where he got it from, and he said that the boolcs were in such a jumble then that he could not tell what the profits were, that he could only do it by a rough approximation;” that Pancoast further stated, “I am sure that the business is there and is paying enough to justify me getting the notes” (referring to the deferred-payment notes). Witness further testified that during the first month he and his father ran the business, the average receipts were $30 a day; that ten or fifteen days after the sale he heard his father tell Mr. Pancoast “that he (the father) had been stuck;” that his father upon that occasion offered to sell the business back to Paneoast; that the business was run for another month, that is, during the month of February., when they “simply closed up;” that the loss was “about $150 a month;” that they kept the keys “until matters were straightened up and the old bills paid.” The complainant testified that Mr. Pancoast, by arrangement with complainant’s son, called to see complainant, and stated during the interview that the business was paying $150 a month; that he wanted $2,200 for it, and complainant offered him $1,800; that a few nights afterwards they met again. Witness was asked if anything was said to Mr. Panco.ast in reference to an examination of his books, and replied that he did not think there was; that he “was leaving the matter of details in a great measure to his son;” that Mr. Pancoast brought up a slip of paper which showed average daily sales for three days of $39. The witness was then asked whether Mr. Pancoast had said anything about what the expenses would be, and answered: “The expenses he figured up in a rough way with a pencil, but I cannot remember the figures. It was .simply an approximate estimate of what they were;” that Mr. Pancoast said “the books were in a confused condition, and that the whole business had been kept together so that it would be impossible to separate them so as to tell from the books what he was making out of each business ” The foregoing is substantially all the testimony introduced by the complainant as to the representations which induced the sale. The complainant further testified that ten or fifteen days after the sale Mr. Pancoast was in the café, when the complainant made the statement that he (complainant) “had been stuck,” and that he offered to sell the business back at less than cost; that witness told Pancoast that he was going to advertise the place for sale, whereupon Pancoast suggested “that we advertise his business and my business together.” About the 1st of February, Pancoast came to collect a milk and cream bill, when complainant told him: “Now, look here, I am not going to pay you any money at all. You stuck me bad enough in this place, and I am going to law about it;” that complainant offered to sell the business back for $300 less than cost. Pancoast, however, said that the company had no money, and that he did not want the business. The defendant’s books remained on the premises, and witness was asked whether he had made an examination of them, and replied: “I did. But it was a pretty hard job to go over it. I am a bookkeeper myself, and it would take an expert to go over his books and really find out what he was doing. I got a general idea.” Witness then testified that as near as he could remember the average daily sales for three months as shown by defendant’s books were between $30 and $35; and that the tangible property which he received when he purchased the business was worth about $500, the balance of $1,500 representing good will, etc.; that witness had made up a statement for the month of January showing the receipts and expenditures of the business, but that his books had not been posted for the month of February. The statement thus made showed a loss of more than $150. The complainant offered evidence tending to show that there was no falling off in the business after he purchased it, and that it was properly conducted. It developed that part of the building occupied by the café was rented to other parties, both before and during complainant’s tenancy. Complainant admitted that he collected rent from the subtenants for the month of March. It further developed that complainant’s son was nineteen years of age, and that he had had little business experience. The defendant, Pancoast, denied all allegations of fraud, and stated that the negotiations between the MeSweens and himself extended over a period of about three weeks; that a book called a day book was kept, which showed the daily receipts of the café business; that this book was offered to Mr. McSween, and that defendant was perfectly willing that all the books should be inspected; that the statement which he submitted to the MeSweens showed average daily receipts for three days, covering the period just before the middle of December, 1905, which immediately antedated the interview at which the statement was submitted; that this statement showed the receips to have been between $39 and $40 a day. Witness denied that he had ever stated that the business had been paying $150 a month. He did say that he had shown the MeSweens how they could run the business for about $150 a month less than it cost the company; that several weeks after the sale, complainant expressed a desire to sell the business, and said he was going to put an advertisement in the paper for that purpose; that he offered to sell the business to the witness for $300 less than cost; that he had offered to sell to others; that complainant’s cook had the smallpox, and the premises were closed, and a sign placed in the window which read, “Closed on account of public safety;” that complainant continued to run the business down to that time; and that after the business was closed, complainant made threats of suit. Defendant put in evidence two letters written him by complainant. In the first, dated January 18th, 1906, complainant alluded to negotiations with a third party for the sale of the business, and suggested that he would not be able to accept the offer made by such party unless the defendant accepted $800 in payment of the $1,000 then due him. The letter continues: “This I think you will find to your advantage to do as it would be practically a cash sale for you of $1,800, which is all the business is worth. I bought the business on your statement that you were making $150 a month, I knew pretty near the value of stock and fixtures, and would never have given the price, but that I thought the business was paying about what you said. I really don’t think you knew what you were making, and may not have intended to say anything to deceive me; I dont believe you did, still the statement was misleading, and my lawyer tells me, would make the foundation for a suit to recover, and set aside the sale.” In the letter dated January 19th, 1906, complainant said: “Kindly let me know at once what you would be willing to allow for ice cream. business, as the party I am dealing with would take café without it. I wish you would come down soon, so we 'could talk matters over. Let me hear from you as soon as possible.” The bookkeeper who had kept the books for the defendant company testified that, during the period covered by the negotiations leading up to the sale, the books were lying on the desk and accessible to the complainant. Witness had examined those books, and stated that the daily receipts from the café and ice cream business for July, 1905, were $44.53, August $40.16, September $42.21, October $41.28, November $41.24, December $37.94. Defendant also introduced evidence to the effect that- a deterioration of the service followed the sale to the complainant, which resulted in a falling off of the business. Dr. William O. Fowler, medical inspector of the District in charge of contagious diseases, testified that he inspected the premises adjoining said café on the 28th of February, 1906, and there found cases of smallpox; that the house was quarantined for a period of time; that Mr. McSween called to see him at the health department “and talked over the situation, and remarked that the waiters or some of the employees of the dining room had been carrying into that house, adjoining (the affected premises), food, and he was uneasy on that account;” that Mr. McSween stated, according to the doctor’s best recollection, that “he thought it was best to close up his place for awhile;” that within a day or two the doctor observed a placard in the window of the café stating that the place was closed for the public good, or words to that effect; that on the 2d of March a man who had been employed' in the lunch room was found to be suffering from smallpox, and was taken to the smallpox hospital. Mr. Charles Cowles Tucker, Mr. J. Miller Kenyon, and Mr. Henry R. F. Macfarland for the appellants. Mr. John C. Citíings and Mr. J. Morrill Chamberlin for the appellee. [MAJORITY — Mr. Justice Robb] Mr. Justice Robb delivered the opinion of the Court: Without stopping to inquire whether it was. incumbent upon the complainant, before invoking the aid of equity, to offer, so far as practicable, to place the defendant in the position it occupied when the sale was made, we pass at once to the question whether the complainant has made out such a case of fraudulent representation as to sustain the decree. To rescind a sale upon the ground that it was induced by false and fraudulent representations, and. thus judicially brand the vendor as a fraud, is a serious matter, and a court of equity will not exercise such extraordinary power unless the evidence is of a very convincing character. “Canceling an executed contract is an exertion of the most extraordinary power of a court of equity. The power ought not to be exercised except in a clear case, and never for an alleged fraud, unless the fraud be made clearly to appear; never for alleged false representations, unless their falsity is certainly proved, and unless the complainant has been deceived and injured by them.” Atlantic Delaine Co. v. James, 94 U. S. 207, 24 L. ed. 112. See also, Shappirio v. Goldberg, 20 App. D. C. 193. What were the facts in this case? The defendant offered for sale an established business. Complainant’s son interviewed Mr. Paneoast and asked him to state “the approximate profits” of the business. Mr. Paneoast did some figuring, “and after thinking he said he thought he was making $150 a month.” During a later interview between the McSweens and Paneoast, Paneoast, in response to a request that he bring a record of the business, exhibited a paper showing the average sales for three consecutive days. It is undisputed that these sales averaged about $39. The son testified that upon that occasion Paneoast said that, owing to the condition of the books, “he could not tell what the profits were, that he could only do it by a rough approximation.” While the elder McSween testified that Paneoast represented that the business was paying-$150 a month, he admitted that Paneoast made simply an approximate estimate of expenses, and that Paneoast stated that it would be impossible “to tell from the books what he was making out of each business.” It thus appears from the evidence upon which complainant relies that Mr. Paneoast distinctly stated that, owing to the-fact that but one set of books had been kept for the three businesses, he could not tell what the profits from the café and' ice cream business were, and could only make a rough approximation. Of course, if Mr. Paneoast, notwithstanding the condition of his books, knew or had reason to know that the business which he was selling was being run at a loss, and he represented that it was being run at a profit, and the sale was induced by this representation, the complainant is entitled to relief; but the evidence, in our view, does not warrant such a conclusion. Taking the evidence of the complainant in reference to the representations inducing the sale, as a whole, it can form the basis of a finding of nothing more than that Mr. Paneoast gave expression to a mere opinion as to the condition of the business he was selling. The allegations of misrepresentation are positively denied by Mr. Paneoast. He says that while the question as to the amount of the expenses incident to the café and ice cream business was considered in a general way, he made no estimate of the profits he had been making for the reasons stated by the complainant and his son, but did suggest to them how they could run the business with less expense than the corporation. He introduced in evidence, and the record contains, the items of account from which the elder McSween reached the conclusion that the daily average receipts of the defendant during the last three months it ran the business amounted to “between $30 and $35.” Defendant’s former bookkeeper, from the same items of account, reached the conclusion, and so testified, that the average daily receipts for the same period amounted to something over $40. It is not incumbent upon this court to undertake the work of an expert accountant, for the purpose of determining whether the estimate of complainant or the statement of this bookkeeper is correct. Suffice it to say that upon the evidence before us it does not clearly appear that Mr. Pancoast’s statements concerning the receipts of the defendant were not correct, nor does the amount of defendant’s ■expenses appear. Not knowing the amount of defendant’s receipts and expenses, it is clear that we are unable to determine whether the business was being run at a profit or at a loss when this sale was made. the evidence as to the condition of the business subsequent to the sale is little better. Toung McSween testified that the average daily sales for the month of January amounted to $30, and be and bis father both testified that the loss during that month was about $150, but no figures whatever were given for the month of February. Indeed, no balance was struck. Taking into consideration everything disclosed by the recurd, we are forced to the conclusion that complainant has not sustained the burden resting upon him. It may be that the purchase of this business was ill-advised, that complainant made a bad bargain; but that alone does not warrant the relief prayed. the question is, Was the transaction the fruit of fraudulent representations? Mere suspicion that it was is not sufficient. The evidence must leave an abiding conviction that bad faith was practised. Such a conviction does not result iu this case. We are not convinced that the representations of Mr. Pancoast were untrue. Upon the whole, we incline to the belief that the very natural ambition of complain.ant to establish his son in business led to an unprofitable experiment. We cannot overlook the fact that down to the time when smallpox made its appearance in the immediate vicinity, and the closing of the café resulted, the idea that the conduct ■of Mr. Pancoast was not consistent with good faith had not taken definite form in complainant’s mind. The decree must be reversed, with costs, and the cause remanded with directions to dismiss the bill. Reversed and remanded.