Farr v. Mischler

923 P.2d 446, 129 Idaho 201, 1996 Ida. LEXIS 117
CourtIdaho Supreme Court
DecidedAugust 28, 1996
Docket21865
StatusPublished
Cited by19 cases

This text of 923 P.2d 446 (Farr v. Mischler) is published on Counsel Stack Legal Research, covering Idaho Supreme Court primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Farr v. Mischler, 923 P.2d 446, 129 Idaho 201, 1996 Ida. LEXIS 117 (Idaho 1996).

Opinions

SILAK, Justice.

Alwin Farr (Farr) sought payment of the balance due on an installment contract for the sale of his business. Edward Mischler and Edward Ramey (collectively the respondents) counterclaimed, alleging that Farr had misrepresented the business’ client base and goodwill. After the jury returned a verdict in favor of the respondents, the district court entered an order rescinding the sales contract. We affirm.

I.

FACTS AND PROCEDURAL BACKGROUND

Farr owned and operated Pacific Northwest Investigations, Inc. (PNI) which performed investigative services relating to worker’s compensation claims. In 1990, the respondents began negotiations with Farr for the purchase of PNI. On October 11, 1991, the respondents executed a sales agreement. The purchase price was to be $90,000, with $30,000 down and the remaining amount to be paid in monthly installments over six years. In return, the respondents received 800 shares of stock in PNI, the inventory and fixtures held by the corporation, and $10,000 in uncollected accounts receivable. The sales contract also stated:

Customers. The Corporation has a customer base upon which the income has been derived for past work. No contracts exist with these customers for the continuation of services by the Corporation, and no guarantee is made by the Sellers these customers will continue their working relationship with the Corporation. The Sellers know of no disputes currently involving the past customers except for one (1) past customer by the name of Shapiro. Mr. [203]*203Shapiro is presently disputing an account with the Corporation. The Sellers agree to hold the Buyers and the Corporation free of any suit or claim concerning said account. Sellers know of no other disputes or claims against the Corporation concerning past operation.

In the agreement, Farr covenanted not to compete with PNI in the areas of surveillance, subrosa investigations, videotape recording, and sales, service and/or installation of security items. The covenant prohibited these activities by Farr in Idaho, Washington, Montana, Oregon, California, Utah, and Alaska for fifteen years. The sales contract also contained the following provision:

Reliance. The Buyers are not relying upon any other statements of the Sellers in regard to this transaction, except for those items which are listed above. The Buyers are relying upon their own judgment and that of their advisors as to the value of the Corporation, its ability to generate income, and the future costs of operation. The Sellers are hereby released of any claim as it concerns the fact that the Buyers’ operation of the business does not prove to operate with the same costs or the same profit as has been derived by the Sellers. It is understood that much of the income from the business is attributable to the Sellers’ operation and involvement in the business, and there may be clients and/or accounts which may not be continuing based upon the activities of the Buyers herein and continuing operating practices of the Corporation.

One of the listed items was a “corporate appraisal/value” of PNI conducted by Farr’s accountant. This appraisal attributed $60,-000 to PNI’s “goodwill/ Going concern concept” and asserted these computations were justified by PNI’s “excellent client list, many established contacts and an outstanding reputation in the Northwest.”

Initially, Mischler operated PNI while Ramey remained in California. After Mischler finished closing out PNI’s remaining investigative jobs, the respondents agreed that Ramey should remain in California until PNI’s business generated enough income to support both of them. As time progressed the respondents became disappointed with what they felt was the lack of business PNI was generating. In an effort to develop PNI, the respondents began contacting attorneys and insurance companies in the area. After several discussions with local large users of worker’s compensation investigators, the respondents discovered that PNI had no established clientele or customer base due to Farr’s mismanagement of prior client relationships.

The respondents also discovered that Farr was operating another detective agency, Data Recovery Systems, Inc., in Coeur d’Alene. Data Recovery Systems was an investigative agency which Farr had incorporated, but let lapse, prior to and during his operation of PNI.

On July 9,1992, after making six payments under the installment contract, the respondents refused to make further payments and offered to tender back PNI. As grounds for rescission, the respondents cited Farr’s misrepresentation of PNI’s goodwill and Farr’s operation of Data Recovery Systems in violation of the covenant not to compete. Farr refused the tender and filed suit in district court seeking the balance due on the sales contract. The respondents placed all the files and other “non-weather sensitive” items in a storage facility. While waiting for Farr to retake possession of them, the remaining items and equipment, such as a computer, printer, fax, and photocopier, were used by the respondents in a new investigative entity called Patton, Mischler, and Ramey. This new entity continued to use PNI’s phone number.

Approximately three weeks before trial, the respondents submitted the exhibits that they intended to use at trial. Seventeen of these exhibits were letters either to or from Farr concerning his prior relationships with clients. Farr made a motion in limine to exclude fourteen of the letters as not timely produced during the discovery process. The respondents asserted that they had just discovered the letters in the files that were placed in the storage facility. The district court gave Farr the choice of vacating the trial date or accepting admission of the exhibits. Farr elected to proceed to trial.

[204]*204During trial, the respondents introduced a letter (Exhibit Q) Farr wrote to an attorney regarding a dispute between PNI and Houston General. During his trial testimony, Mischler read a portion of the letter which stated: “[i]f I am honest with the prospective buyers they may just pull out of the deal. If I am not honest with them about this situation, they would have a basis for an action against me in the future, I would think.” Farr’s trial attorney objected to the letter’s admission as a privileged communication between Farr and his attorney. The district court overruled the objection.

Also during trial, the respondents’ attorney examined Farr concerning his application to obtain a private detective license for Data Recovery Systems, Inc. Testimony was elicited that the application contained questions regarding whether the applicant had an arrest or conviction and that Farr had answered that question in the negative. Farr was then asked, “[ijsn’t it true that you were in fact convicted of a felony back in the early 1970s?” Farr’s attorney objected and the district court took up the matter outside of the jury’s presence. When the jury reconvened the next morning the court stated, “Ladies and gentlemen, when we left off yesterday and you were let go, there was an objection made, I sustained the objection, and we will proceed from that point.”

At the conclusion of the evidence, the jury found in favor of the respondents’ counterclaim and that they were entitled to rescind the contract. Although no final judgment had been entered, Farr moved for a new trial based on the improper questioning as to Farr’s felony conviction and the late submission of the letters. The district court denied the motion.

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Farr v. Mischler
923 P.2d 446 (Idaho Supreme Court, 1996)

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Bluebook (online)
923 P.2d 446, 129 Idaho 201, 1996 Ida. LEXIS 117, Counsel Stack Legal Research, https://law.counselstack.com/opinion/farr-v-mischler-idaho-1996.