Smith v. Country Village International, Inc. (2006-336)
2007 VT 132
[Filed 08-Dec-2007]
ENTRY ORDER
2007 VT 132
SUPREME COURT DOCKET NO. 2006-336
Grafton Smith } APPEALED FROM:
}
}
v.
}
}
Country Village International, Inc. and }
Douglas R. Foregger } DOCKET NO. 548-10-03 Wncv
Trial Judge: Helen M. Toor
In the above-entitled cause, the Clerk will enter:
¶ 1 Plaintiff Grafton Smith appeals a superior court post-trial decision that reduced plaintiff’s damages award to zero and entered judgment for defendants Douglas Foregger and Country Village International, Inc. (CVI) on all claims as a matter of law. Plaintiff brought suit against defendants for fraud and breach of contract related to his purchase of CVI stock. The jury found for plaintiff on both claims, awarding $10,000 in damages for fraud, but no damages for breach of contract. The court granted defendants’ post-trial motion for judgment as a matter of law and denied plaintiff’s motions for additur or a new trial. We affirm.
¶ 2
In reviewing the grant of a motion for judgment as a matter of law, we
look to see “whether the result reached by the jury is sound in law and on the
evidence produced.” Brueckner v. Norwich Univ., 169
¶ 3
Plaintiff presented evidence of the following at trial. Plaintiff
and defendant Foregger founded CVI around 1994. CVI focused on selling
and renting vacation homes. The company was an umbrella organization that
acted as a holding company for entities based predominantly in
¶ 4 One year later, defendant Foregger approached plaintiff, advising plaintiff that the company was $250-$300,000 in debt, and asked him to again invest capital in CVI. Plaintiff knew that, in addition to its debt, the company had a negative cash flow because its expenses outpaced its income. Plaintiff agreed to put $300,000 into CVI, provided that the money was used only to pay off the company’s creditors. Defendant Foregger agreed to this condition. As part of the parties’ oral agreement, plaintiff was to acquire additional stock in CVI in return for his investment. The written stock purchase agreement for this transaction stated that “[t]he parties covenant and agree that the funds remitted to the Seller in payment of the Purchase Price shall be first applied to satisfying existing historical liabilities, and the balance, if any to current operating expenses as the[y] are incurred.”
¶ 5 Generally frustrated with how CVI was being run, plaintiff decided to leave the company in December 2002, and redeemed all of his stock for just one dollar. Plaintiff later learned that the $300,000 was not spent in the manner promised. Plaintiff’s accounting expert testified , based on his examination of CVI financial records, that within one day of his deposits, plaintiff’s $300,000 infusion to the company was transferred to the other entities through which CVI did business.* CVI’s debt, which the accountant found to be at least $150,000 at the time, was not discharged.
¶ 6 Plaintiff subsequently brought suit against defendants for fraud and breach of contract, claiming that the $300,000 was not used by CVI in accordance with the agreement. Plaintiff maintained that his funds were instead devoted to purposes other than the payment of CVI’s debt in violation of his oral agreement with defendant Foregger and his written agreement with CVI. The jury found defendant Foregger guilty of fraud and CVI guilty of both fraud and breach of contract. The jury awarded $10,000 to plaintiff on the fraud claim and nothing on the breach of contract claim. Defendants subsequently moved for judgement as a matter of law, and plaintiff moved for an amended judgment and additur or, in the alternative, for a new trial.
¶ 7
The court granted defendants’ motion for judgment and denied plaintiff’s
post-trial motions. The court held that the evidence did not support a
finding of fraud because defendants’ agreement constituted merely a promise to
act in the future and was not part of a larger scheme to defraud
plaintiff. See Fayette v. Ford Motor Credit Co., 129 Vt. 505,
510-11, 282 A.2d 840, 844-45 (1971) (holding that a false promise to act in the
future may be actionable as fraud “where there was a general scheme to defraud
of which the promises were steps in a series of actions constituting the
scheme”). The court also found, as a separate basis for granting
defendants’ motion, that the fraud claim was not supported as it was factually
indistinguishable from the contract claim. See Bevins v. King, 147
¶ 8
The trial court was correct in its determination that plaintiff failed
to prove any damages resulting from fraudulent inducement. In cases of
fraud, the deceived party has two options: rescind the agreement and
recover the price paid or, as here, stand on the contract and seek recovery of
either the damages incurred by the fraud or the damages resulting from the
breach of contract. Collier v. Nolan, 125
¶ 9 For similar reasons we must reach the same conclusion with respect to the recovery sought for breach of contract. To prove breach of contract, plaintiff must show damages. Two types of damages are recoverable: “direct damages that naturally and usually flow from the breach itself, and special or consequential damages, which must pass the tests of causation, certainty and foreseeability.” Waterbury Feed Co. v. O’Neil, 2006 VT 126, ¶ 25, __ Vt. __, 915 A.2d 759 (mem.) (quotation omitted). Neither kind of damages could be established on the basis of the evidence below. If plaintiff’s stock plummeted from $300,000 to one dollar in value, there was no evidence to link that diminution in value to defendants’ failure to honor CVI’s contract to first retire its debt. Plaintiff agreed to invest $300,000 in a company already in debt for nearly $300,000, with the further agreement that any balance remaining after paying off debt would be applied to operating expenses which plaintiff knew exceeded the company’s income. Absent any evidence that the promised debt reduction would have preserved the value of plaintiff’s stock, plaintiff proved no difference between what he bargained for and what he received.
¶ 10
Failure to prove damages is fatal to a claim for breach of contract, Dufresne-Henry
Eng’g Corp. v. Gilcris Enters., 136 Vt. 274, 277, 388 A.2d 416, 418-19
(1978) (affirming judgment for defendant as a matter of law when plaintiff
failed to prove damages), as well as for fraud. Donovan v. Towle,
99
Affirmed.
BY THE COURT:
_________________________________________
Paul L. Reiber, Chief Justice
_________________________________________
John A. Dooley, Associate Justice
_________________________________________
Denise R. Johnson, Associate Justice
_________________________________________
Marilyn S. Skoglund, Associate Justice
__________________________________________
Brian L. Burgess, Associate Justice
* This was, for the most part, the end of the money trail. No evidence suggested that these funds were paid over to other investors. Nor was there any evidence to support plaintiff’s speculation, mentioned at trial, that the monies might have been diverted so that defendant Foregger could live beyond his means.