This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat. § 480A.08, subd. 3 (2002).

 

STATE OF MINNESOTA

IN COURT OF APPEALS

A03-1011

 

 

Hub Jewelers, Inc.,

Appellant,

 

vs.

 

LM & MD Olsen, Inc., et al.,

Respondents.

 

 

Filed February 24, 2004

Affirmed
Crippen, Judge
*

Dissenting, Minge, Judge

 

Hennepin County District Court

File No. 02-11481

 

 

Thomas L. Fabel, Lindquist & Vennum, P.L.L.P., Suite 1700, 444 Cedar Street, St. Paul, MN  55101 (for appellant)

 

Robert R. Weinstine, Tiffany A. Blofield, Aimee D. Dayhoff, Winthrop & Weinstine, P.A., Suite 3500, 225 South Sixth Street, Minneapolis, MN  55402-4629 (for respondents)

 

            Considered and decided by Minge, Presiding Judge, Klaphake, Judge, and Crippen, Judge.

 

U N P U B L I S H E D   O P I N I O N

CRIPPEN, Judge

            Contending that the district court erroneously disregarded a warranty of truthfulness because it misconstrued the parties’ sale contract, appellant challenges a summary judgment that dismisses its claims for breach of warranty and fraud.  Because the district court correctly construed the contract, we affirm.

FACTS

            Appellant Hub Jewelers, Inc. is a Minnesota corporation owned by Michael Borgen.  Respondents are LM and MD Olsen, Inc., another Minnesota corporation; Lloyd M. Olsen, an Olsen, Inc. shareholder; and Lloyd Olsen’s sons, Daniel and Mark, who are shareholders and managers of the corporation.

            Until 2002, Olsen, Inc. owned and operated a jewelry store named “Hub Jewelers.”  In November 2001, the corporation listed Hub Jewelers for sale.  Three months later, in February, Michael Borgen signed an offer to purchase Hub Jewelers, which was accepted for the corporation by Mark and Daniel Olsen.  Five weeks later, the parties executed their business sale agreement.

            At issue in this case is clause three of the business sale agreement, entitled, “Seller’s Representations and Warranties,” with special attention to subsections (d) and (g).  Paragraph (d), entitled “Financial Disclosures,” states that appellant has been given “financial data,” that “[a]ll financial disclosures fairly present the financial position of Seller and the results of its operations,” and that “all information provided to [appellant], including information with respect to inventories, revenues and costs, is true and accurate.”  Paragraph (g), entitled “Completeness of Disclosures,” states that “[n]one of the representations or warranties” contains untrue statements.

            Appellant argues that these subsections warrant the truthfulness of three pre-sale statements he attributes to Daniel and Mark Olsen, that (1) customers rarely ask to work with a member of the Olsen family, (2) there was no need for appellant to hire additional employees because the current employees could meet all business demands, and (3) the inventory levels were at or above normal levels.  Appellant asserts that these statements were made prior to the signing of the business sale agreement but after the parties signed the offer to purchase in February 2002.

            The district court concluded that warranties in the sale agreement did not allude to the oral representations that appellant asserts.  Appellant disputes this decision and the further district court conclusion that appellant failed to show a basis for the claim that representations of the sellers constituted fraud. 

D E C I S I O N

            On appeal from summary judgment, we ask whether there are any genuine issues of material fact and whether the district court erred in its application of the law.  State by Cooper v. French, 460 N.W.2d 2, 4 (Minn. 1990).  The construction and effect of a contract are questions of law for the court; there is a fact question for the jury only in the event contract language is ambiguous and construction depends on the weight of extrinsic evidence.  Turner v. Alpha Phi Sorority House, 276 N.W.2d 63, 66 (Minn. 1979).

1.  Breach of Warranty

            Appellant argues that this court can disregard the context of paragraphs 3(d) and (g) of the business sale agreement and that “plain language” contained in those two clauses makes it evident that all three statements are actionable breaches of warranty.  Respondent argues that it is clear (“undeniably”) that paragraph 3(d) only refers to financial data and that paragraph 3(g) refers to and warrants only those representations and warranties contained in paragraph three of the agreement.  The district court correctly found appellant’s interpretation to be incorrect, especially when examining paragraphs 3(d) and (g) in context.  See Art Goebel, Inc. v. N. Suburban Agencies, Inc., 567 N.W.2d 511, 515 (Minn. 1997) (stating that contract interpretation “depends, not upon words or phrases read in isolation,” but upon a reading of the whole contract and interpreting the words and phrases in context); Bd. of Regents of Univ. of Minn.  v. Royal Ins. Co. of Am., 517 N.W.2d 888, 892 (Minn. 1994) (“The sense of a word depends on how it is being used.”).

            Appellant argues that subsection 3(d) refers to all information respondents gave appellant because it alludes to true “information.”  But the title of the provision only refers to financial information and all its language is confined to that topic.  The paragraph refers to “financial data” and “financial disclosures” in the sentences immediately preceding the sentence in which the word “information” appears without the “financial” modifier, and in the sentence that appellant highlights, the type of included information is illustrated as financial information, inventories, revenues, and costs.  As the district court concluded, the warranty is confined to the topic of financial data.

            The alleged representation that customers rarely ask to work with a member of the Olsen family is not financial data.  Similarly, the alleged statement that appellant need not hire additional employees is outside the financial-data topic. 

            For a separate reason, the statement that the inventory was at or above normal levels is also not warranted by paragraph 3(d).  Because appellant concedes that respondents stated they were unsure about this statement, the comment does not constitute data but is an uncertain generalization.  We note, in contrast, that some data was allegedly furnished on the amount of current inventory.

            Appellant also argues that paragraph 3(g) also warrants the truth of all information provided, stating that all of the “representations and warranties” will be free of false or misleading facts.  But viewed in context, as part of clause three of the contract, entitled “Seller’s and Warranties,” the district court correctly determined that the warranty, with like allusion to “representations and warranties,” refers to representations contained in clause three, not to extraneous oral statements of the sellers.  See Donnay v. Boulware, 275 Minn. 37, 43, 144 N.W.2d 711, 715 (1966) (stating that court is to construe contract as a whole). 

            Because appellant incorrectly attempts to construe the business sale agreement by examining words and phrases out of context, contradicting the meaning of the language in context, it has failed to show district court error in the summary judgment dismissing appellant’s breach of warranty claim.

2.  Fraud

            Appellant argues that the same oral statements establish a cause of action for fraudulent misrepresentations.  A fraud claim depends on proof, among other elements, that the alleged statements induced appellant’s purchase and that appellant justifiably relied on the comments.  Johnson Bldg. Co. v. River Bluff Dev. Co., 374 N.W.2d 187, 193 (Minn. App. 1985), review denied (Minn. Nov. 18, 1985).  The district court concluded that (1) statements identified by Borden did not actually induce his purchase, because he concluded his offer in terms stating that he was not relying on any statements made by respondents, and (2) Borgen did not reasonably rely on the representations because he has extensive business experience and utilized a business formula, not the statements, to decide on the purchase.

            It is not disputed that all three of the claimed misrepresentations occurred after the offer to purchase was signed.  Respondents contend that once the offer to purchase was signed, appellant was obligated to purchase the business, so that any later statements do not constitute inducements to the transaction.  Appellant counters that the offer to purchase was conditional and would not have resulted in a completed sale if one of the enumerated contingencies had failed.  But respondents correctly observe that appellant has made no showing or argument that any facts arose that came within the scope of the contingencies to the sale. 

            We conclude that because all of the contingencies contained in the offer to purchase have been satisfied, appellant was obligated to complete the sale when the offer was executed in February 2002.  See Hoffman v. Nygaard, 393 N.W.2d 695, 696-97 (Minn. App. 1986).  Appellant’s sale was not induced by later statements.  Similarly, appellant has failed to show justifiable reliance on the alleged statements in his choice to buy the business.  The district court did not err in granting respondents summary judgment on appellant’s fraud claim.[1]

3.  Other Issues

            Because the district court properly dismissed appellant’s claims for breach of warranty and fraud, we have no occasion to determine whether Lloyd Olsen is a proper party to this suit or whether the rescission sought by appellant is an appropriate remedy in the case.

            Affirmed.


MINGE, Judge (dissenting)

            I respectfully dissent.  I agree with the majority that the district court did not err in granting summary judgment against appellant with respect to the fraud claim.  However, summary judgment should not have been entered against the appellant’s claims under paragraph 3, “Seller’s Representations and Warranties” of the Business Sale Agreement.  That paragraph is ambiguous; its reach is unclear.  Subparagraph 3(d) of the Business Sale Agreement titled “Financial Disclosures” reads as follows:

(d)  Financial Disclosures.  Seller has furnished Buyer with financial data reflecting the operations of the Business.  All financial disclosures fairly present the financial position  of Seller and the results of its operations.  Seller warrants that all information provided to Buyer, including information with respect to inventories, revenues and costs, is true and accurate.  Seller acknowledges that Buyer has relied upon data provided by Seller in order to formulate its purchase price.

 

(Emphasis added.)  Subparagraph 3(g) entitled “Completeness of Disclosures” reads as follows:

(g)  Completeness of Disclosures.  None of the representations or warranties made by Seller contains or will contain any untrue statement of a material fact or omits or will omit any material fact, the omission of which would be misleading.

 

(Emphasis added.)  I submit that the language in subparagraphs 3(d) and 3(g) does not exclude oral representations. 

Oral representations that Lloyd, Daniel, and Mark Olsen were not active in the business, that the current employees could successfully operate the business on their own, and that the then-current inventory level was adequate appear to be seen as a type of financial disclosure.  These representations appear to be “information with respect to inventories . . . and costs” and are “data” as those terms are used in subparagraph 3(d).  Appellant has introduced evidence that these claimed representations go to the core of the financial prospects of a business.  If erroneous, each would be an “untrue statement of a material fact” or if not complete, each may omit a “material fact, the omission of which would be misleading.”  The nature and extent of the discussions in which representations were made, whether these representations are “financial disclosures” covered by paragraph 3 of the Business Sale Agreement, and whether appellant misconstrued them or unjustifiably viewed them as warranties involve extrinsic evidence.  Resolving ambiguities with the use of extrinsic evidence is a question of fact for trial.  Turner v. Alpha Phi Sorority House, 276 N.W.2d 63, 66 (Minn. 1979). 

I am not suggesting that appellant should prevail.  Rather, I would reverse the summary judgment on the breach of warranty claim.  Representations, warranties, and financial disclosures should be held to an exacting standard.

 



* Retired judge of the Minnesota Court of Appeals, serving by appointment pursuant to Minn. Const. art. VI, § 10.

[1] Because we conclude that the timing of the statements precludes any finding of inducement or reliance, we decline to consider other arguments the district court found persuasive concerning inducement or the existence of reasonable reliance.