West v. Gladney, 533 S.E.2d 334

South Carolina Court of Appeals

2000

Chapter

21

Title

Misrepresentations

Page

825

Topic

Overview

Quick Notes

Fraud based on a misrepresentation and negligent misrepresentation both include a requirement that the plaintiff justifiably relied on the representation made by the defendant.

Book Name

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

Issue

o         Whether Gladney justifiably relied on Wests for Am-Pros financial condition before the sale?  No.

Procedure

Trial

o         Judgment for West

Appellant

o         We find Gladney failed to establish a genuine issue of material fact that his reliance on any alleged representation by West was justified.

o         The trial court did not err in granting West's motion for summary judgment

Facts

Reasoning

Rules

Pl West

Df Gladney

What happened?

o         West sold all of his shares in Am-Pro Protective Agency, Inc. to Gladney.

o         Gladney gave West $150,000 and executed a promissory note for $ 525,000.

Failed to Make Payments

o         Gladney failed to make the payments required by the note

o         West declared Gladney in default and accelerated all future payments.

West Filed Suit

o         West filed suit on June 3, 1997.

Gladneys Counterclaim

o         Gladney answered and counterclaimed, complaining that a few months after the sale, Am-Pro filed for bankruptcy.

o         He alleged West knew or should have known at the time of the sale about Am-Pro's financial condition and that the stock was essentially worthless.

o         Gladney asserted that West's failure to fully inform him of Am-Pro's true financial status and West's failure to deliver the stock constituted failure of consideration, misrepresentation, or concealment of material facts or all three.

Gladney Wants Money Back

o         Not only did Gladney contend these facts barred West from receiving any additional payments on the note, he also asserted they justified his recouping all funds already paid.

Trial Court

o         Found that West fully performed his obligations under the sales agreement and note and that Gladney failed to make the payments when due.

o         West "neither misrepresented the value of the shares of stock . . . nor did he know or have reason to know at or prior to the time of the sale" that their value was "anything other than the sales price."

o         Accordingly, it awarded West summary judgment.

Gladney Arg Trial Court Erred

o         Trial court erred.

o         He thinks the record reveals that genuine issues of material fact exist as whether Wes was guilty of making misrepresentations.

o         We disagree.

Element Fraud based on Misrepresentation

1.       a representation;

2.       falsity;

3.       its materiality;

4.       knowledge of the falsity or a reckless disregard of its truth or falsity;

5.       intent that the representation be acted upon;

6.       the hearer's ignorance of its falsity;

7.       the hearer's reliance upon the truth;

8.       the hearer's right to rely thereon; and

9.       the hearer's consequent and proximate injury.

Note

o         These elements must be established by clear, cogent, and convincing evidence.

Common Law Negligent Misrepresentation (Pecuniary Loss)

In a claim for the common law tort of negligent misrepresentation where the damage alleged is a pecuniary loss, the plaintiff must allege and prove the following essential elements:

1.   the defendant made a false representation to the plaintiff;

2.   the defendant had a pecuniary interest in making the statement;

3.   the defendant owed a duty of care to see that he communicated truthful information to the plaintiff;

4.   the defendant breached that duty by failing to exercise due care;

5.   the plaintiff justifiably relied on the representation; and

6.   the plaintiff suffered a pecuniary loss as the proximate result of his reliance upon the representation.

Courts Further Explanation

o         The Pl must establish that his reliance on the misrepresentation was reasonable

o         There is no liability for casual statements, representations as to matters of law, or matters which plaintiff could ascertain on his own in the exercise of due diligence."

o         There can be no reasonable reliance on a misstatement if the plaintiff knows the truth of the matter."

o         A determination of justifiable reliance involves the evaluation of the totality of the circumstances, "including the positions and relations of the parties.

Note

o         Fraud based on a misrepresentation and negligent misrepresentation both include a requirement that the plaintiff justifiably relied on the representation made by the defendant.

In this case

o         John E. Brown, the CEO of Am-Pro, negotiated the sale of West's stock as part of an agreement Gladney entered into with Am-Pro.

o         Gladney and his representatives had been present at Am-Pro headquarters for a number of weeks prior to any meaningful negotiations with him.

o         Gladney had extensive conferences with Brown

o         Gladney had more access to the financial records than did West.

o         Gladney was in a better position than West to know the financial status of Am-Pro

o         West claims he never knew on or before the date of the sale that the value of his shares was anything other than the sales price negotiated with Gladney.

Courts Conclusion

o         We find Gladney failed to establish a genuine issue of material fact that his reliance on any alleged representation by West was justified.

o         The trial court did not err in granting West's motion for summary judgment.

Rules

Element Fraud based on Misrepresentation

1.       a representation;

2.       falsity;

3.       its materiality;

4.       knowledge of the falsity or a reckless disregard of its truth or falsity;

5.       intent that the representation be acted upon;

6.       the hearer's ignorance of its falsity;

7.       the hearer's reliance upon the truth;

8.       the hearer's right to rely thereon; and

9.       the hearer's consequent and proximate injury.

Note

o         These elements must be established by clear, cogent, and convincing evidence.

Common Law Negligent Misrepresentation (Pecuniary Loss)

In a claim for the common law tort of negligent misrepresentation where the damage alleged is a pecuniary loss, the plaintiff must allege and prove the following essential elements:

1.   the defendant made a false representation to the plaintiff;

2.   the defendant had a pecuniary interest in making the statement;

3.   the defendant owed a duty of care to see that he communicated truthful information to the plaintiff;

4.   the defendant breached that duty by failing to exercise due care;

5.   the plaintiff justifiably relied on the representation; and

6.   the plaintiff suffered a pecuniary loss as the proximate result of his reliance upon the representation.

Class Notes

o