Livingston v. Krown Chemical Manufacturing, Inc

Van Valkenburg, J.

This litigation involves many ramifications, but on appeal we are concerned primarily with the legality of a judgment in the amount of $46,000 entered in behalf of the *155plaintiffs against the defendant, Krown Chemical Manufacturing, Inc.

Marsano, Inc., a Michigan corporation, was engaged mainly in the manufacturing and selling of a patented electric product known as "Beauty Mate Comb”. A majority of the stock, 51% to be exact, was held by Leonard and Lillian Marsano. The plaintiffs, being minority stockholders, owned 46%. For reasons which are not immediately apparent from the record, the stockholders of Marsano, Inc., decided to sell the entire business. In furtherance of that plan, a rather provocative advertisement, which did not contain a candid statement of the true facts, was placed in the Wall Street Journal.

The owners of the defendant corporation, Albert Applebaum and Richard Gorman, as a result of having observed the advertisement, entered into negotiations for the purchase of this business. A contract was entered into on December 22, 1967, whereby Krown agreed to pay $10 per share for all of the Marsano, Inc., stock. The Marsanos received $31,000 cash and 2,000 shares of the stock of the Krown Corporation which were placed in escrow. The plaintiffs were to receive $46,000, to be paid within 120 days following January 3, 1968, and their shares were placed in escrow pending the delivery of that sum.

Gorman took over as president and operated the business thereafter. Applebaum, being the more experienced of the two, remained as an interested party. The business was not a success financially, debts increased, and the sales did not materialize as expected, although 12,945 combs were sold from the inventory between December 23, 1967, and December 23,1970.

The plaintiffs filed this suit on December 17, *1561968, praying for specific performance of the contract and general relief when it became apparent that the agreed price of $46,000 would not be forthcoming. The trial court, after hearing the evidence, found that there were numerous acts of overreaching on the part of the plaintiffs. The court, therefore, refused to grant the specific performance requested by plaintiffs; however, since the court also denied Krown’s counterclaim for rescission by reason of Krown’s failure to demand rescission in a timely fashion, the plaintiffs were entitled to the benefit of their bargain, $46,000.

The defendant has presented two issues for our consideration. First, the contention is made that the court erred in allowing this judgment for money damages when the plaintiffs primarily prayed for specific performance. Our examination of the complaint discloses that it is composed of three counts and in each of them we find the following clause: "That the plaintiffs have such other relief and such further relief in the premises as shall be agreeable to equity and good conscience”.

We would be the first to admit that there is some confusion in the law as to whether or not damages can be awarded when specific performance has been denied. See 81 CJS, Specific Performance, § 163, pp 780-781; 49 Am Jur, Specific Performance, § 173, pp 196-197; Farrell v Hannan Real Estate Exchange, 251 Mich 669; 232 NW 209 (1930). However, the majority opinion in Michigan appears to be that a court of equity has considerable discretion in the awarding of damages, even though specific performance is denied, as illustrated in Michigan Sugar Co v Falkenhagen, 243 Mich 698, 702; 220 NW 760, 762 (1928):

"When the bill was filed the court of equity had *157jurisdiction to decree specific performance, or, in the exercise of a discretion guided by circumstances, to award damages in lieu thereof.”

Or as stated in Herpolsheimer v AB Herpolsheimer Realty Co, 344 Mich 657, 666; 75 NW2d 333, 338 (1956):

" 'The jurisdiction, when it exists, may be exercised by granting reliefs which are peculiarly equitable, or reliefs which are wholly pecuniary, and therefore legal. In conferring these reliefs which are purely equitable, and therefore exclusive, the power of equity knows no limit. The court can always shape its remedy so as to meet the demands of justice in every case, however peculiar.’ ”

Further, our Supreme Court has held that the final relief within the scope of the bill in equity is the responsibility of the court and that the prayers are actually an aid rather than a bar to the final decision, which should be agreeable to equity and good conscience. Carlson v Williams, 348 Mich 165; 82 NW2d 483 (1957); Thompson v Enz, 385 Mich 103; 188 NW2d 579 (1971).

Therefore, the court, having found that a valid contract existed, was justified in shaping its remedy in a way that would best meet the demands of justice.

The second, and perhaps more important issue, deals with the question of rescission of the contract.

There was some evidence that an attempt was made to tender back the stock to the attorney for the plaintiffs, but the court found that no written offer was ever made. Even if true, it would be immaterial as the owners of the defendant company continued to operate the business. Gorman himself testified that all his efforts in 1968, 1969, *158and half of 1970 were devoted to Marsano, Inc., and that overseas markets had been established in Mexico, Canada, and South Africa. Applebaum testified in a similar vein and admitted that they were attempting to put the company back on its feet.

The Supreme Court in Wall v Zynda, 283 Mich 260, 265; 278 NW 66, 68; 114 ALR 1521 (1938), stated the rule with respect to the necessity to promptly disaffirm as follows:

"Not only is rescission the opposite of covenant in the character of the relief sought, but of necessity the results which follow the respective actions are opposite or at least distinctly different. Rescission wholly abrogates the contract and restores the parties to a status quo; but covenant perpetuates the contract and affords the moving litigant his right thereunder. Because of this difference courts have uniformly required a plaintiff in rescission to assert his right to rescind without any unnecessary delay. Otherwise he will be denied the relief. In many cases the right to have rescission has been held to have been lost by laches within a much shorter period than the six-year statute of limitations. It is obvious that a prolonged period of time within which to bring an action for rescission would be quite incompatible with the character of the relief sought. A party asking restoration of the status quo for obvious reasons should be required to move promptly. Equity will not permit one possessed of a right of rescission to delay unduly in the exercise of that right and while so doing speculate on the outcome of the transaction at the risk of his adversary.”

Or as stated in Gloeser v Moore, 283 Mich 425, 431; 278 NW 72, 74 (1938):

"However, in rescission there are certain prerequisites to the bringing of such an action. Upon the discovery of the fraud he must seasonably assert such rescis*159sion, tender back what he has received, and demand repayment of the purchase price.” (Citations omitted.)

Also see Mesh v Citrin, 299 Mich 527; 300 NW 870 (1941).

We find that the relief fashioned by the trial court was just and proper under the circumstances. There was ample evidence that plaintiffs engaged, along with defendant Marsano, in numerous improper, acts with respect to the sale of Marsano, Inc. The record also supports the trial court’s finding that defendant Krown Corporation waited too long to attempt to rescind the contract. Under these circumstances the trial court quite properly granted damages in the amount of the agreed upon contract price.

Affirmed. Costs to plaintiffs.

Holbrook, J., concurred.