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Luciani v. Bestor

OPINION FILED MAY 17, 1982.

DAVID LUCIANI ET AL., PLAINTIFFS-APPELLANTS AND CROSS-APPELLEES,

v.

STANLEY BESTOR ET AL., D/B/A CABE COMPANY, DEFENDANTS-APPELLEES AND CROSS-APPELLANTS.



APPEAL from the Circuit Court of Henry County; the Hon. JOHN DONALD O'SHEA, Judge, presiding.

PRESIDING JUSTICE BARRY DELIVERED THE OPINION OF THE COURT:

A five-year contract for lease and sale of business enterprises consisting primarily of a motel and restaurant lies at the heart of the litigation herein. We are not concerned today, however, with an action sounding in contract, and our task is simplified to the extent that the instant action sounds only in tort and equitable rescission. Plaintiffs, David and Naomi Luciani, appeal from judgment entered in their favor on the tort claim and against them on their claim for rescission. Defendants, Stanley and Robert Bestor, have cross-appealed only from that part of the judgment awarding plaintiffs money damages on the tort claim.

On March 3, 1979, plaintiffs filed a two-count complaint against the defendants in the circuit court of Henry County, Illinois. In count I, plaintiffs alleged that they had been damaged as a result of "false and fraudulent misrepresentations" made by the defendants to induce plaintiffs to enter into a contract to assume business premises, commonly known as the Deck, located just off of Interstate 80 in Geneseo, Illinois.

Evidence at trial established that the parties herein were social acquaintances prior to the development of circumstances giving rise to the instant litigation. Approximately in mid-March 1978, they met and discussed the possibility of defendants transferring to plaintiffs the business operations at the Deck. Negotiations ensued and led to a written memorandum of agreement which was signed on April 12, 1978. Ultimately, on May 1, 1978, the negotiations culminated in the signing of a five-year lease for the real estate and a contract for purchase of personalty used in conjunction with the leased premises.

Plaintiffs' complaint alleged six separate instances of false and fraudulent representations relative to the 1978 transaction: (1) failure to disclose the discontinuance of usage of the restaurant area by Greyhound Bus passengers; (2) failure to disclose that the Best Western franchise for the motel operation would be terminated; (3) misrepresentations in financial statements because of failure to allocate certain "spread expenses" applicable to defendants' business operations not included in the deck transaction; (4) misrepresentations in financial statements because of including income not properly allocable to the vending machines located on the Deck premises; (5) failure to disclose certain bonuses on the financial statements; and (6) improper inclusion of tips in restaurant sales on financial statements. Plaintiffs claimed damages in the amount of $150,000, representing lost profits, increased expenses and loss of employees.

In count II, plaintiffs realleged false and fraudulent representations and requested relief in the form of rescission, an accounting and restoration of the status quo. Prior to the date set for trial, plaintiffs filed a "notification of election" in which they expressed their desire to proceed on count II for equitable relief as opposed to legal damages as requested in count I.

A bench trial ensued, during which the bonus and tips issues were stricken. At its conclusion the trial court entered its order finding no actionable fraud on the part of the defendants as to Greyhound, Best Western and spread expenses. The court awarded plaintiffs $11,727 upon a finding of negligent misrepresentation in connection with the vending machine portion of the parties' transaction. From this judgment, plaintiffs have appealed and defendants have cross-appealed, as aforesaid.

Neither party on appeal contests the striking of plaintiffs' allegations of fraud with respect to the bonuses and tips. The issues pertaining to the four remaining allegations of fraud are: (1) whether the trial court's denial of rescission is contrary to the manifest weight of the evidence and an abuse of discretion; (2) whether the plaintiffs' election to proceed on their claim for equitable relief bars them from recovering damages at law; (3) whether the trial court's findings of no fraud with respect to the four remaining allegations of false and fraudulent representations are erroneous; and (4) whether an award of damages for negligent misrepresentation of the vending machine income and expenses is proper in this case.

1. DENIAL OF RESCISSION.

The trial court initially determined that the remedy elected by the plaintiffs — rescission — was not available. The court found that the plaintiffs, although placed on notice of each of the purported instances of fraudulent representations either prior to or within a month after the contract was signed by the parties, continued to deal with the property for more than seven months thereafter, thereby ratifying the contract and making it impossible to establish the status quo ante at the time the complaint was filed. The court, despite plaintiffs' notification of election and its determination that rescission was not available, permitted plaintiffs to present evidence of alleged fraudulent representations on the theory that relief at law was not precluded.

• 1, 2 Plaintiffs on appeal argue in the alternative that they had not waived the right to rescind by their conduct with respect to the continued operation of the businesses involved in the transaction, or that the defendants waived their defense to plaintiffs' request for rescission by failing to affirmatively plead waiver, laches or estoppel in their answer. Plaintiffs apparently proceed from the erroneous premises that an absolute right to rescind exists. Indeed, the equitable remedy of "rescission is not a matter of right but rather one of grace, and lies largely within the court's discretion." (Bechard v. Bolton (1946), 316 Mich. 1, 5, 24 N.W.2d 422, 423.) On review this court will not disturb the determination of the trial court to grant or deny rescission absent a clear showing of abuse of discretion.

• 3 As a general rule, a court sitting in equity will not decree rescission of a contract where the parties cannot be placed in the status quo ante. (Bielby v. Bielby (1929), 333 Ill. 478, 487, 165 N.E. 231, 234; 12A C.J.S. Cancellation of Instruments sec. 53, at 727 (1980).) Failure of plaintiffs to demonstrate to the satisfaction of the court that the equitable remedy sought is appropriate under the circumstances may operate to defeat their claim in equity.

• 4 The statutory rule of pleading which requires a defendant to set forth affirmative defenses in his answer (Ill. Rev. Stat. 1977, ch. 110, par. 43(4)) does not deprive the trial court of power to deny rescission in the absence of such pleading where the facts and circumstances in a particular case render restoration of the status quo ante virtually impossible. Indeed, the written findings of the court in the instant case demonstrate that denial of rescission was based upon the inappropriateness of the remedy under the circumstances. The businesses at issue had been operated by the plaintiffs for seven months before the claim for rescission was advanced by them. During that period the plaintiffs had instituted significant changes in management and administrative policies. The court suggested that differences in the parties' approach to management and the disparity of their experience in operating the businesses involved in the transaction may have occasioned at least part of the losses complained of by plaintiffs. In addition, the contract for lease, as aforestated, extended only for a five-year period. Three of the five years had already elapsed by the time the trial was completed.

• 5 Considering the foregoing circumstances, we find that the trial court's denial of rescission for inability to restore the parties to the status quo ante was not an abuse of the broad discretionary powers of the court sitting in equity. ...


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