APPEAL from the Circuit Court of Cook County; the Hon. WALTER
P. DAHL, Judge, presiding.
MR. PRESIDING JUSTICE BURMAN DELIVERED THE OPINION OF THE COURT:
Rehearing denied April 3, 1973.
This appeal arises out of the creation of a bowling establishment and related businesses. On October 11, 1966, Daniel S. Welch and David I. Hoffman, doing business as Rand Road Development, Not Inc., an Illinois limited partnership, and Thunderbird Bowl, Inc. (hereinafter referred to as "plaintiffs") filed a multiple count complaint in the Circuit Court of Cook County, naming as defendant the Brunswick Corporation (hereinafter referred to as "Brunswick"). In County 1 of this complaint the plaintiffs sought a declaration of rights, reformation of certain contracts entered into with Brunswick, an injunction pendente lite to maintain the status quo and general equitable relief. In Count II they sought damages for fraud and in Count III damages for breach of warranty.
On April 17, 1967, Brunswick filed a complaint in the Circuit Court of Cook County, naming as defendants Pala, Inc., Thunderbird Bowl, Inc., La Salle National Bank of Chicago, as trustee under trust number 30288, Exchange National Bank of Chicago and John Doe. This complaint sought replevin of bowling lanes and other related equipment sold to the plaintiffs. By successive amendments four additional counts and several additional defendants were added. Count II sought damages for breach of an installment sales contract, and Counts III, IV and V sought various forms of equitable relief from the allegedly fraudulent transfer for Pala, Inc., of its real estate. The two actions were consolidated in the trial court and tried together without a jury. Judgment was entered in favor of Brunswick on all three counts of the complaint filed against it, and the plaintiffs appeal from this judgment.
In the replevin action, the court found with respect to Count I that Brunswick was entitled to possession of the bowling equipment and to damages for its detention from October 11, 1966, the date that notice demanding possession was served upon the plaintiffs. The court fixed damages at $157,456.80, using as its basis "depreciation in value during the period of detention when computed on the straight line method on a 15 year life." The plaintiffs also appeal from this judgment. With respect to Count II, the court entered judgment in favor of Brunswick in the amount of $379,690, the balance claimed due on the installment sales contract, together with interest, attorneys' fees and costs, less the net amount received from the sale of the equipment replevined in Count I. The court dismissed Counts III, IV and V of the replevin action, and Brunswick cross-appeals from the dismissal of Count III.
The facts leading to the controversy were carefully set forth by the trial court. Briefly summarized they are as follows. The plaintiffs are various individuals, corporations and a limited partnership whose interests are represented by and channeled through Rand Road Development, Not Inc. Daniel S. Welch and David I. Hoffman are the general partners of Rand Road Development. The limited partners include members of their respective families and unrelated investors. Thunderbird Bowl, Inc., is an Illinois corporation, all the stock of which is owned by the limited partnership. It was created for the purpose of managing the day-to-day operations of the bowling establishment. The Brunswick Corporation is a well known manufacturer of bowling equipment.
In 1958 or 1959, Daniel Welch had conversations with various representatives of Brunswick regarding the creation of a bowling facility. There was conflicting testimony as to whether these conversations were initiated by the plaintiffs or by Brunswick; however, the trial court found that "Welch commenced negotiations with Brunswick for the purchase of bowling equipment in approximately 1959." At this time Welch was in the construction business and had constructed a bowling alley for others. There was a conflict as to whether Welch had any personal experience with the operation of a bowling establishment at this time, but there was evidence that a family partnership owned a small investment in the Waveland Western Bowling Alley, which had been in business for 10 or 11 years, and that Edward Welch, Daniel Welch's brother and business partner, had been provided with detailed monthly statements of its operations.
The parties first considered a site in Rosemont, Illinois, but abandoned it because of potential competition from an existing establishment. In 1960, the plaintiffs acquired a second site in Mount Prospect, Illinois. There is conflicting evidence as to whether this site was suggested by Welch or by Brunswick. Welch executed a contract with Brunswick for the purchase of bowling equipment, but this contract was cancelled in 1961 when Welch was unable to obtain the zoning change necessary to construct the building. Shortly after this, a second site in Mount Prospect, across Rand Road from the first, was found and acquired by the plaintiffs, and negotiations began with Brunswick for the purchase of bowling equipment.
In February, 1962, Thunderbird Bowl executed two orders to Brunswick for bowling and billiard equipment. In August, 1962, Thunderbird assigned its interest in the orders to Pala, Inc., a nominee for the limited partnership. Brunswick accepted the assignment and released Thunderbird from liability on the orders. At the same time Pala entered into a conditional sales contract with Brunswick for the purchase of 36 bowling lanes and related equipment at a total price of $483,017.60. In connection with this Pala executed a conditional sales contract note in the amount of $610,042.70, which included the purchase price of the bowling equipment plus interest at six per cent. Subsequently, Pala transferred its interest in the contract to the La Salle National Bank, as trustee under trust number 30288, another nominee for the limited partnership.
Thereafter, Rand Road Development completed construction of the building, and Brunswick installed the equipment. The plaintiffs hired Gordon MacNiven, a former Brunswick sales engineer, as general manager, and the establishment opened for business in November, 1962. During the first year of business the establishment operated at a substantial loss and did not generate sufficient cash to make the payments on the conditional sales contract. As a result of this the plaintiffs conferred with Brunswick in late 1963 about their financial condition. These conferences resulted in an agreement between Brunswick and LaSalle National Bank, the plaintiffs' nominee, on February 28, 1964, that the payments should be adjusted and extended. Payments under this agreement were made until March, 1966, when they were discontinued. Brunswick served a demand upon the plaintiffs for repossession of the bowling equipment, including the lanes themselves, the automatic pinsetters, billiard tables and all other items, on October 11, 1966. On the same day the plaintiffs filed their complaint, and on April 17, 1967, Brunswick filed its complaint in replevin.
On appeal, the plaintiffs contend that (1) the trial court erred in finding for Brunswick on Counts I and II of their complaint, as they pleaded and proved a cause of action for fraud; (2) that the trial court erred in finding for Brunswick on Count III of their complaint, as they pleaded and proved a cause of action for breach of warranty; and (3) that the trial court erred in awarding Brunswick damages of $157,456.80 for wrongful detention of the equipment. On its cross appeal Brunswick contends that the trial court erred in dismissing Count III of its amended complaint in that the evidence established that the plaintiffs had transferred their real estate without consideration for the purpose of impairing Brunswick's rights as a creditor.
We first direct our attention to the plaintiffs' contentions that the trial court erred in entering judgment for Brunswick on Counts I and II of their complaint. Counts I and II are predicated upon fraud and misrepresentation. Count I seeks reformation of the conditional sales agreement, and Count II seeks damages in the amount of $1,000,000, the amount of actual loss claimed to have been incurred by the plaintiffs.
• 1 In Illinois, the elements of fraud which will justify rescission of a contract in equity are the same as those required to sustain an action at law. (Roda v. Berko, 401 Ill. 335.) There must be a misrepresentation of a material fact, made for the purpose of inducing action. The misrepresentation must be known to be such by the party making it or not reasonably believed by him to be true. The party to whom it is made must be ignorant of its falsity, must reasonably believe it to be true, must act upon it to his damage and in so acting must rely upon its truth. Roth v. Roth, 45 Ill.2d 19; Roda v. Berko, 401 Ill. 335; Bouxsein v. First National Bank of Granville, 292 Ill. 500.
In the present case it was the plaintiff's theory that Brunswick provided inflated earnings projections and misrepresented its intentions with respect to Thunderbird Bowl's competitors for the purpose of inducing them to create a bowling establishment and to purchase approximately $500,000 worth of bowling equipment. Daniel Welch testified that during their conversations in 1961 and 1962 Brunswick representatives made numerous oral representations as to the earning potential of the proposed establishment. In March, 1962, at Daniel Welch's insistence, these were embodied in a written earnings projection for the Rand Road facility. The written projection stated that the average bowling lineage in a Brunswick establishment was, and would be in the Rand Road establishment, 1400 lines per lane per month, or 16,800 lines per lane per year. Based upon this lineage figure the following annual revenue was projected. gross profit of $444,301; profit before depreciation, interest and rent of $276,695; net income of $66,000 and cash available for dividends, ...