39 Wn.2d 131, R. E. GRAFF et al., Appellants, v. MAXINE F. GEISEL et al., Respondents
[No. 31642. Department One. Supreme Court August 10, 1951.]
R. E. GRAFF et al., Appellants, v. MAXINE F. GEISEL et al.,
Respondents.«1»

[2] Now, as to whether the trial court erred in dismissing appellants' action with prejudice: First, let us make it clear that the point here involved is the prejudicial aspect of the dismissal. It is the finality of the dismissal, the fact they cannot commence their action again, to which appellants

138 GRAFF v. GEISEL. [39 Wn. (2d)

take exception. But once again we point out that the case here on appeal was equitable in nature and was tried by the court without a jury. We have distinguished between motions to dismiss in law and in equity. In an action at law, a judgment based on a motion to dismiss or for nonsuit will not act as a bar to subsequent action by the plaintiff. Lint on v. State, 185 Wash. 97, 52 P. (2d) 1239. In an equity action, on the other hand, it is proper to dismiss with prejudice. In ruling on a similar contention in United States Fidelity &Guaranty Co. v. Western Seafood Co., 190 Wash. 200, 204, 67 P. (2d) 892, we said:

"It being triable in equity, it was immaterial whether the motion made at the conclusion of the appellant's evidence was for a nonsuit or a challenge to the sufficiency thereof.

"In Michel v. White, 64 Wash. 341, 116 Pac. 860, it was said:

"`This court has frequently said that a motion for a nonsuit had no place in equity causes, and whenever we have been called upon to review one, we have treated it as a motion to dismiss. [Citing authorities.]'"

We find no merit in this contention.

[3] Turning now to the substantive questions involved on this appeal, we may at the outset take note of the fact that appellants' brief cites a number of cases involving the theory of substantial failure of consideration, as a ground for rescission of a contract. However, their case was presented in the trial court on the theory of misrepresentation and fraud as the basis for rescission. The oral decision of the trial judge shows he considered the case on that basis. He said: "Fraud is never presumed, but must be proven by clear, cogent, and convincing evidence."

In West Side Telephone Co. v. Kenison, 147 Wash. 542, 545, 266 Pac. 706, we stated:

"An examination of the record clearly indicates that the case was presented, tried and determined on the theory of fraud, collusion and conspiracy, and we think it is the settled law of this state that the case will be considered in this court upon the same theory upon which it was presented in the trial court."

Aug. 1951] GRAFF v. GEISEL. 139

In view of the foregoing, any discussion of substantial failure of consideration as a ground for rescission of the contract would not be in order here.

To substantiate their claim of fraud based upon misrepresentation, the appellants rely upon (1) certain statements relating to respondents' intention to terminate their business activities in Island county and to move to Yakima, Washington; and (2) certain other statements made by Mrs. Geisel relating to the transfer of the Johnson motor franchise.

[4] Any statements relating to respondents' intention to move to Yakima do not appear to be material under the reasoning of Webster v. Romano Engineering Corp., 178 Wash. 118, 121, 34 P. (2d) 428, as follows:

"The representation must relate to an existing fact. Speaking of this point, in Tacoma v. Tacoma Light & Water Co., 16 Wash. 288, 305, 47 Pac. 738, we said:

"`It [the representation] did not relate to a past transaction nor was it the statement of an existing fact. It was a mere estimate of what they would do in the future, and fraud cannot be predicated upon it.'

"See, also, Stewart v. Larkin, 74 Wash. 681, 134 Pac. 186, L.R.A. 1916B, 1069."

The statements allegedly made by respondent Maxine Geisel with respect to the transfer of the Johnson outboard motor franchise to the appellants require more detailed consideration, at least if we assume that they were statements of fact and not mere expressions of opinion. In this connection, we attach considerable significance to the opinion of the trial judge, who observed the witnesses. In the recent case of Cloakey v. Bouslog, ante p. 66, 234 P. (2d) 880, we pointed out:

"With notably few exceptions, we affirm trial courts on the issue of whether fraud has been established, because the question is determined on the basis of which witnesses the trial court believes."

In the present case, the trial judge had this to say on the point at issue:

140 GRAFF v. GEISEL. [39 Wn. (2d)

"But it is undisputed that they were informed that the Geisels had a franchise; that in order to carry these motors on their own responsibility they had to get a franchise from this agency in Seattle. There was no misinformation given unless it was from talk by Mrs. Geisel to the effect that it wouldn't be difficult for them to qualify. That's the most you can say as to anything she said which perhaps wasn't true.

"But certainly, people dealing at arm's length and intelligent people, as the plaintiffs appeared to be, certainly weren't justified in relying upon that as a guarantee that they would get a franchise from the manufacturer or the manufacturer's representative. Indeed, they were put on notice. They were told who the agency was. It seems to me the least amount of care would have required them to make further inquiry of this agency about getting a franchise."

The above views of the trial judge are supported by the reasoning in Weir v. School Dist. No. 201, 200 Wash. 172, 178, 93 P. (2d) 308, 123 A. L. R. 1057. In the Weir case, the trial court found that appellant made false representations which induced respondent in that case to enter into a contract with appellant. In holding that respondent had no right to rely on the representations and thus reversing the decision of the trial court, we held:

"We are aware that the tendency of the modern decisions is to restrict rather than to extend the rule requiring diligence on the part of the injured party and similar rules such as caveat emptor. 26 C. J. 1144 § 59. This court has frequently noted this trend of decision and has aligned itself with that policy. Wooddy v. Benton Water Co., 54 Wash. 124, 102 Pac. 1054, 132 Am. St. 1102; O'Daniel v. Streeby, 77 Wash. 414, 137 Pac. 1025, L.R.A. 1915F, 634; Duffy v. Blake, 80 Wash. 643, 141 Pac. 1149; Bliss v. Clebanck, 136 Wash. 32, 238 Pac. 979.

"But in these later cases, it is to be noted that there was a false assertion of an existing fact, usually with reference to property, the truth of which fact was peculiarly within the knowledge or means of knowledge of the declarant; or the property was at a distance and the opportunity of ascertaining the true fact was not readily at hand; or the misrepresentation was made for the purpose of preventing an investigation and ascertainment of the true fact; or the declarant knew that the other party did not intend to make

Aug. 1951] GRAFF v. GEISEL. 141

a personal investigation, but relied solely on the truth of the fact communicated by the declarant. Stewart v. Larkin, 74 Wash. 681, 134 Pac. 186, L.R.A. 1916B, 1069." (Italics ours.)

[5] The standard basic definition of fraud is set out in Gray v. Wikstrom Motors, 14 Wn. (2d) 448, 455, 456, 128 P. (2d) 490:

"The elements necessary to establish fraud are: (1) A representation of an existing fact; (2) its materiality; (3) its falsity; (4) the speaker's knowledge of its falsity; (5) his intent that it shall be acted upon by the person to whom it is made; (6) ignorance of its falsity on the part of the person to whom the representation is addressed; (7) the latter's reliance on the truth of the representation; (8) his right to rely upon it; and (9) his consequent damage."

Certain apparent refinements of the above definition seem worthy of mention here as applied in the cases discussed hereafter. In Bliss v. Clebanck, 136 Wash. 32, 238 Pac. 979, we stated in effect that, although a vendee to whom representations of material facts are made may have an opportunity of ascertaining their truth for himself, ordinary prudence and diligence do not require him to do so where the facts (a) were peculiarly within the knowledge of the vendor, (b) were not known by the vendee, (c) could not be ascertained readily by the latter; and where the vendor intended that the representations should be acted upon by the vendee. In Oates v. Taylor, 31 Wn. (2d) 898, 904, 199 P. (2d) 924, we suggested that lack of business experience of the vendee was a factor to be considered, but indicated that a vendee

". . . cannot be permitted to say that he was taken advantage of, if he had means of acquiring the information, or if, because of his business experience or his prior dealings with the other, he should have acquired further information before he acted." See, also, Walsh v. Bushell, 26 Wash. 576, 67 Pac. 216 (1901), and Haugen v. Neiswonger, 34 Wn. (2d) 422, 209 P. (2d)267.

In Salter v. Heiser, 36 Wn. (2d) 536, 219 P. (2d) 574, we mentioned the factor of lack of business experience and

142 GRAFF v. GEISEL. [39 Wn. (2d)

emphasized the fact that the vendors and vendees were members of the same fraternal order, which, coupled with other facts, suggested that the vendees were put off their guard. In that situation, we held that they had a right to rely upon the representations of the vendors.

With the comments on the above cases in mind, we now summarize and interpret the facts in the case at bar as follows:

Appellants were not so entirely lacking in business experience that they were placed at a disadvantage and justified in relying upon the alleged representations of respondent Mrs. Geisel. Actually, they had been engaged in the gasoline service station business for several years. They should have known that the transfer of gasoline franchises must be cleared with the particular gasoline company or distributor involved, and that they are not transferred "willy-nilly" by individual, independent gas station owners or operators without clearance or authorization from the particular company. This should have stirred appellants' curiosity as to the Johnson motors franchise and have prompted some inquiry of the distributor.

Appellants sought and obtained the advice of their accountant. He made an investigation of the proposed purchase which apparently satisfied him. He advised the Graffs to purchase the Marina. Appellants also had the benefit of the services of an attorney in drafting the contract of purchase. The provisions of the contract itself should have indicated that there was some formality necessary in transferring the franchise besides the good-will and acquiescence of the respondents.

Mrs. Geisel clearly indicated that some contact with Pacific Marine Supply Company, the distributor, was required. The facts as to transfer of the franchise were certainly not peculiarly within her knowledge. Appellants could have readily ascertained the facts simply by a telephone call to the distributor.

The fact that appellants moved the location of the outboard motor shop and converted the substantial amount of

Aug. 1951] GRAFF v. GEISEL. 143

space it had occupied into a grocery store, and the further fact that the signs advertising Johnson outboard motors were taken down and removed (although at the time appellants could, under the contract of purchase, procure motors, parts, service, and repairs through Leslie Geisel), indicated some possible lack of interest by appellants in the outboard motor portion of the Utsalady Marina business and the importance of its profit potential. We are not convinced that Mrs. Geisel was aware of the falsity of the allegedly fraudulent misrepresentations attributed to her. Assuming that the statements allegedly made by respondent Maxine Geisel were false, we believe appellants had no right to rely on them.

Prior to their execution of the contract, ordinary diligence and prudence should have prompted them to question the Pacific Marine Supply Company respecting the Johnson motor franchise. We note in this connection that they did communicate with and secure information from two other wholesale suppliers of respondents. If their interest in the Johnson motor franchise at that time had been as acute as now alleged in this litigation, very little investigation of the matter would have protected them adequately.

[6] Finally, we are impressed with the fact that appellant R. E. Graff made monthly payments of two hundred fifty dollars on the purchase contract on October 7, November 7, December 8, 1949, and again on January 9, 1950, after he learned that he could not qualify for the Johnson motor franchise. As to this latter aspect of the matter, we said in Weir v. School Dist. No. 201, 200 Wash. 172, 180, 93 P. (2d) 308, that:

"One who seeks to avoid a contract, which he has been induced to enter into by fraudulent representations of another touching the subject matter of the contract, must act with reasonable promptness on discovering the fraud, or the right to rescission will be waived. Blake v. Merritt, 101 Wash. 56, 171 Pac. 1013; Kellner v. Rowe, 137 Wash. 418, 242 Pac. 353; Stubbe v. Stangler, 157 Wash. 283, 288 Pac. 916; Depositors Bond Co. v. Christensen, 185 Wash. 161, 53 P. (2d) 312."

144 GRAFF v. GEISEL. [39 Wn. (2d)

[7] In our opinion, appellants had no right to rely upon the alleged representations of Mrs. Geisel. The fraud alleged by appellants has not been established by clear, cogent and convincing evidence. Schulz v. Spokane United Rys., 16 Wn. (2d) 43, 47, 132 P. (2d) 366.

[8] In closing, we note appellants' contention that their written demand upon respondents to produce "tax returns" required production of respondents' Federal income tax returns, and that the trial court erred in ruling that their demand was limited and only required the production of Washington state tax returns. But we need not decide the point, for, even if the trial court's ruling was incorrect, the error committed was not prejudicial. Appellants had ample opportunity to secure the particular information when respondent Maxine Geisel, testifying at their behest, said that she could obtain it from her accountant during a noon recess and present it. Thereafter, appellants made no further reference to or demand for such tax information, and it would appear that their interest in the matter was terminated. This contention is consequently without merit.

The judgment of the trial court is affirmed.

SCHWELLENBACH, C. J., BEALS, HILL, and DONWORTH, JJ., concur.

October 3, 1951. Petition for rehearing denied.

39 Wn.2d 131, R. E. GRAFF et al., Appellants, v. MAXINE F. GEISEL et al., Respondents[No. 31642. Department One. Supreme Court August 10, 1951.]R. E. GRAFF et al., Appellants, v. MAXINE F. GEISEL et al., Respondents.«1»

39 Wn.2d 131, R. E. GRAFF et al., Appellants, v. MAXINE F. GEISEL et al., Respondents
[No. 31642. Department One. Supreme Court August 10, 1951.]
R. E. GRAFF et al., Appellants, v. MAXINE F. GEISEL et al.,
Respondents.«1»