may not be cited except as provided by
Minn. Stat. § 480A.08, subd. 3 (1996).
STATE OF MINNESOTA
IN COURT OF APPEALS
Keith R. Holton Enterprises, Inc., et al.,
Filed February 25, 1997
Dakota County District Court
File No. C8956500
Charles R. Shreffler, Jack E. Pierce, Shreffler Law Firm, P.A., 100 South Fifth Street, Suite 2250, Minneapolis, MN 55402 (for Respondent)
John A. Warchol, Warchol, Berndt & Hajek, P.A., Broadway Place East, Suite 110, 3433 Broadway Street Northeast, Minneapolis, MN 55413 (for Appellants)
Considered and decided by Schumacher, Presiding Judge, Klaphake, Judge, and Forsberg, Judge.
Appellants challenge the district court's rescission of a contract, arguing that: (1) their misrepresentations regarding a tax lien do not constitute the necessary materiality for rescission; (2) respondent waived his right to rescission; and (3) their counterclaims should have been granted. We affirm.
On September 6, 1994, respondent Donald Baehr and his business associate Ronald Lee met with a representative of Minuteman Press International and Keith Holton (president and sole owner of Keith R. Holton Enterprises, Inc.) to discuss the possible purchase of Holton's Minuteman franchise. Based on Holton's representations as to the volume of his business, Baehr offered to buy the business. Holton accepted.
The closing of the purchase took place on September 30, 1994. Keith Holton, his father James Holton, Lyndon Nelson, who was Baehr's attorney, and Lee, who had Baehr's power of attorney, were present. The Holtons reiterated that the business assets, specifically the title, were unencumbered. In addition, the purchase agreement included a clause, paragraph 4.1(b), which provides:
CONDITION OF ASSETS; TITLE. The Assets, which will be conveyed by Seller to Buyer at the Closing, shall be free and clear of all liens, charges, or encumbrances except as otherwise herein specified.
In fact, the IRS had a lien of over $55,000 on the business property. The IRS notified Baehr of the lien in November. In December, James Holton loaned his son Keith $55,927.04 to pay the tax lien. On January 19, 1995, Baehr brought a claim for damages for fraud or for rescission. On May 27, 1995, Baehr closed the shop, after months of operating at a loss.
It is true that Baehr's primary concern was the income level of the shop. Baehr stated that when making his offer to purchase the shop,
"The number one consideration was that the gross sales were at or above the level that I had recently been led to believe they were * * *."
However, Baehr's concern about the sales level does not indicate that a $55,000 tax lien would not be material to Baehr's decision to contract for the shop's purchase.
Regardless, materiality is not an issue in this case. As this court has stated,
A contract is voidable if a party's assent is induced by either a fraudulent or a material misrepresentation by the other party, and is an assertion on which the recipient is justified in relying.
Carpenter v. Vreeman, 409 N.W.2d 258, 260-61 (Minn. App. 1987) (emphasis added). In other words, if the misrepresentation is fraudulent, it need not be material to warrant rescission. Regardless of the district court's finding of materiality, there is no dispute of the finding of fraud, which makes materiality irrelevant.
Upon learning the grounds for rescission, the injured party must promptly notify the other party of the intention to rescind and must not engage in conduct inconsistent with an intention to rescind. Gaertner v. Rees, 259 Minn. 299, 303, 107 N.W.2d 365, 368 (1961). There was no specific finding by the district court regarding whether Baehr waived his right to rescind, though clearly the district court thought that Baehr had the right to rescind.
While Baehr did not immediately notify appellants of his intention to rescind, immediate notification of intent to rescind is not necessary; notification is only required to be prompt. Id. An injured party "is entitled to a reasonable length of time after discovery of such breach to rescind because thereof." Local 1142 v. United Elec., Radio & Mach. Workers, 247 Minn. 71, 77, 76 N.W.2d 481, 485 (1956). Baehr acted within a reasonable amount of time to avoid waiving his right to rescind.
Regarding Baehr's continued operation of the shop, "[a] mere effort to avoid loss" does not constitute an affirmation of the contract. Bergstrom v. Pickett, 148 Minn. 224, 228, 181 N.W. 343, 345 (1921).
[ ]* Retired judge of the Minnesota Court of Appeals, serving by appointment pursuant to Minn. Const. art. VI, § 10.
[ ]1 The district court found that Keith R. Holton Enterprises, Inc. was a facade for the individual dealings of Keith R. Holton. Keith Holton, Keith R. Holton Enterprises, Inc., and James Holton (who is Keith Holton's father and has loaned his son money for his business) are named appellants in this case.