Jack Nelson Jones Professional Association
June 10-16, 2019
Lone’s Rt 92, Inc. v. Dj Mart, Llc, and Daljit Singh, 2019 Ark. App. 318 (May 29, 2019)
This case comes on appeal from appeal from the Pulaski County Circuit Court Honorable Timothy Davis Fox’s presiding. It involves Lone’s Rt 92, Inc. (“Lone”) appeal from court’s order granting the DJ Mart, LLC, and Daljit Singh’s (“Singh” collectively) rescission counterclaim, thereby returning to Singh the $96,000 down payment for the subject property, a gas station. On appeal, Lone argued that the circuit court clearly erred in finding that it committed (1) fraud by omission in failing to disclose (a) unpaid real estate taxes and (b) the real status of the inoperability and disrepair of the gas pumps, and (2) misrepresentation. Additionally, it argued that it properly terminated the contract. The Court of Appeals disagreed and affirmed.
On Sept. 1, 2017, Singh met the assistant to the owner, Mohammad Lone. They agreed to the general terms of a contract for the sale of the gas station. Singh made an earnest money deposit in the amount of $16,000 to Lone and the parties entered into a contract on Sept. 8, 2017. The gas station was purchased “as it is[.]” It was purchased for $640,000 with a down payment of $96,000 by Lone, leaving a balance of $544,000, to be paid in installments of $4,889.63 monthly through Oct. 1, 2032. One provision in the contract stated that Singh agreed to keep and maintain the premises and the improvements thereon in a good condition at all times, and to make all necessary repairs to keep the premises in good condition at all times during this contract, to the highest state of repair.
A provision on taxes stated that Lone agreed to pay all taxes that arose from the contract date forward for the year 2017 on the aforesaid property, and Singh agreed to pay the taxes for all subsequent years thereon. The contract’s default provision provided that if Singh defaulted in making any payment for thirty days after it was due, Lone could declare the contracted terminated by giving Singh notice by telephone or mail at Singh’s last known address. Singh agreed they would vacate the premises and return it to Lone without further notice if that occurred. Singh also, under the contract, waived any and all notice to which he might be entitled by Arkansas law, and to forfeit all monies paid up to that point.
On Feb. 8, 2018, Lone filed a complaint in unlawful detainer asserting that it received a last payment in November 2017, and that Singh had since “unlawfully failed and refused to quit possession” of the property despite being requested to do so. It also asserted that Singh had failed to operate the business in a proper manner, resulting in Lone seeking damages in the form of payment of the monthly installments for all months Singh remained in possession of the property. Lone also sought reimbursement of taxes it had to pay on the property that it asserted Singh was responsible for and a writ of possession. Singh filed a counterclaim asserting that at a September 2017 visit to the station, no gasoline was for sale at the station because the distributor had “cutoff” distribution for “several months due to various issues including the condition of the gasoline storage tanks and gas pumps.” Singh contacted Lone and asked for the earnest money back but was assured by Lone that all gasoline and equipment issues would be addressed to Singh’s satisfaction and he would not give that money back. On Sept. 7, 2017, Singh met with Lone, who verbally assured Singh that Lone would install new gasoline tanks and pumps within two months. On Oct. 8, 2017, Singh began operation and management of the convenience store. The monthly payment was made on Oct. 4, 2017. Singh accepted delivery of gasoline from the supplier but was informed only one tank of the four could hold gasoline. Singh was waiting on the two-month period Lone said would be required in order to replace the damaged or unserviceable equipment.
On Nov. 15, 2017, Singh told Lone that Singh had gotten an $85,000 estimate to replace and/or repair the equipment. Lone denied having agreed to repair or replace the equipment. Singh demanded that Lone “fulfill its contractual obligation to provide tank replacement/repair and pump replacement.” Lone refused. Singh requested repayment of the $96,000 down payment and rescission of the contract; Lone refused. Thereafter, on or about Dec. 15, 2017, Singh received notice that the gas station was delinquent in payment of taxes for the years 2013 through 2015, totaling $21,507.24, and was up for sale at public auction. Singh contacted Lone’s representative regarding the notice and was advised that Lone would pay the delinquency. Singh advised that no further payments would be made until the delinquency was paid, asserting that the delinquency was a default under the contract. Singh had already made its December payment by the time it received the notice and Lone had cashed that payment. Singh denied ever receiving a demand to vacate, filed an objection upon receipt of Lone’s complaint and deposited payment for the months of January, February, and March with the clerk of the court. Based on these asserted facts, Singh counterclaimed for fraud stating that all gasoline storage tanks and gas pumps being “in good working order” was an issue “critical to the buying decision” of appellees “as the cost for repair or replacement of the gas tanks and fuel pump together with any environmental damages associated with the equipment would be a substantial expense.” Taxes, owed by Lone, were still outstanding resulting in a pending sale of the property at public auction. Singh demanded rescission of the contract and monetary damages, including return of the down payment and reimbursement of $4,900 spent to repair damage to the roof, and answered Lone’s complaint, requesting that it be dismissed.
The circuit court entered an order directing Singh to surrender possession of the property on or before March 31, 2018. The funds Singh had previously deposited with the clerk of the court – $15,646.81 – were ordered to be paid over to Lone immediately. On March 26, 2018, Lone answered, asserting that the contract obligated Singh to maintain and repair the premises and improvements thereon. It then stated that the contractual agreement of Singh to maintain the premises and improvements thereon came after the alleged fraudulent representations in the complaint and thus precluded the Court finding fraud or misrepresentation on the part of Lone and sought dismissal of the counterclaim.
A hearing was held on Sept. 4, 2018, following which the circuit court entered an order on Sept. 10, 2018. The order noted that Lone had not sought any additional damages from Singh since the entry of the circuit court’s March 19, 2018 order. The circuit court noted that it ordered the sale of the subject property at the conclusion of all evidence and testimony at the hearing in order to determine the value, if any, of Singh’s equitable title under the contract entered into between the parties. It then made the finding that Singh had more than met its burden of proof for rescission. It found that Lone’s agents engaged in active fraud in material representations made to Singh, that from the very inception of the contract…(Singh) requested rescission, and (Lone) continued to lie and weasel its way out of returning…the money (emphasis supplied.) The lies noted included but were not limited to: (a) failure to disclose that Lone failed and refused to pay at least three years’ real property taxes, and that the property was about to be sold for nonpayment of taxes, (b) failure to disclose the inoperability and disrepair of the gas pumps, and (c) repeated lies that it would repair both the gas tanks and the gas pumps at its own cost and expense. Then, noting Lone’s failure to present any additional evidence or testimony for any further relief, the circuit court dismissed the complaint with prejudice, awarded a $96,000 judgment as the return of its original down payment price to Singh on its rescission counterclaim, but denied a return of $4,900 spent on a new roof . This timely appeal followed.
The Court of Appeals first noted that, In civil bench trials, the standard of review on appeal is whether the circuit court’s findings were clearly erroneous or clearly against a preponderance of the evidence. A finding is clearly erroneous only when the appeals court, on the entire evidence, is left with a firm conviction that a mistake has been committed. The parol-evidence rule, which the Court noted is a substantive rule of law rather than a rule of evidence, prohibits introduction of extrinsic evidence, parol or otherwise, which is offered to vary the terms of a written agreement. Its premise is that the written agreement itself is the best evidence of the intention of the parties. In the absence of fraud, accident, or mistake, a written contract merges, and thereby extinguishes, all prior and contemporaneous negotiations, understandings, and verbal agreements on the same subject. Lone argued that the circuit court clearly erred in finding that it committed (1) fraud by omission by failing to disclose unpaid real estate taxes and the real status of the inoperability and disrepair of the gas pumps, and (2) misrepresentation. The Court found, that on appeal, those two arguments must go together as misrepresentation was a method of committing fraud. In order to establish fraud, the Court observed there must be (1) a false representation of a material fact; (2) knowledge that the representation is false or that there is insufficient evidence upon which to make the representation; (3) intent to induce action or inaction in reliance upon the representation; (4) justifiable reliance on the representation; and (5) damages suffered as a result of the reliance. These elements must be established by clear, strong, and satisfactory proof.
The Court found that the basic facts before it were that the parties entered into a contract for the sale of a gas station from Lone to Singh. The contract was the only documentation before the Court; all other evidence was testimonial. Lone’s arguments relied on the terms of the contract, while Singh’s arguments – upon which the circuit court clearly made its ruling – relied totally on Singh’s testimony. According to Singh, at multiple points prior to signing the contract and thereafter, Lone – through its agent – promised to provide new pumps within two months of the contract date. Singh asserted that this induced him to sign the contract. Singh also asserted that Lone failed to disclose its tax liability and the “real status” of the gas pumps. Singh stated he would not have entered into the contract had he known the latter fact. The Court noted that the circuit court expressly found the above-referenced statements and omissions to be “material and fraudulent misrepresentations and omissions,” and found Singh to be credible; the Court of Appeals noted that it does not disturb credibility determinations which are the province of the trial court. The Court noted that, while projections of future events or conduct normally cannot support a fraud claim, an exception arises if the promisor, at the time of making the promise, had no intention to carry it out. The Court found that the circuit court’s reference to Lone’s statements promising to buy new pumps as material and fraudulent in addition to Lone’s ultimate denial that it ever made such statements supported the circuit court’s finding that Lone made a promise that it did not intend to honor. Under those circumstances, the Court found that the exception applied and affirmed the decision of the circuit court in all respects.