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Woodtek Inc. v. Musulin

November 30, 1972

WOODTEK, INC., APPELLANT,
v.
MUSULIN ET AL, RESPONDENTS



Appeal from Circuit Court, Multnomah County. Berkeley Lent, Judge.

John R. Bakkensen, Portland, argued the cause for appellant. With him on the briefs were Fredric A. Yerke, J. David Petersen, and Miller, Anderson, Nash, Yerke & Wiener, Portland.

William A. Palmer, Portland, argued the cause for respondents. With him on the brief were Eugene E. Feltz, and Casey, Palmer & Feltz, Portland.

Bryson, Justice. O'Connell, Chief Justice, and McAllister,*fn* Holman, Tongue and Howell, Justices.

Bryson

Plaintiff, an Oregon corporation, brought this suit seeking rescission of a contract to purchase a lumber mill business from defendants Matt and Mike Musulin, who are father and son. Plaintiff alleged that defendants had materially misrepresented the

financial condition of the business. From a decree dismissing the suit, plaintiff appeals.*fn1

In April, 1969, defendant Matt Musulin began construction of a stud mill in Prineville, Oregon, under the name of Musulin Studs, Inc. The name was changed in July, 1969, to Musulin Forest Products, Inc., and is hereinafter referred to as Musulin, Inc. Defendants and Steve Musulin, brother of Matt, were officers of Musulin, Inc.

The mill began production in late October, 1969. Soon thereafter Matt Musulin, Charles E. Bernert, vice president and general manager of plaintiff, and Coral Alan Nyman, plaintiff's comptroller and certified public accountant, began negotiations for a sale of the defendants' mill to plaintiff. Bernert and Nyman requested a financial statement of Musulin, Inc., as of November 30, 1969. Mervin Hanscam, accountant for Musulin, Inc., prepared a "Statement of Financial Condition," each page of which carried the following: "Prepared from the Records Without Audit Verification."

After reviewing Hanscam's figures and data, plaintiff's Board of Directors approved the purchase. On January 9, 1970, Bernert, acting on behalf of plaintiff, and defendants signed a "Contract for Stock Purchase" whereby plaintiff acquired from defendants all of the outstanding shares of Musulin, Inc., for shares of Woodtek, Inc. The contract stated, in part:

"4. REPRESENTATIONS AND WARRANTIES.

"Each of the Sellers represents and warrants to

the Purchaser, with total liability of the Seller limited to the amount of stock sold by him, that:

"* * *.

"e) The balance sheet of the Company as of the 30 day of November, 1969, and related statements of income and expenses for the period ended on that date, a copy of which has heretofore been delivered to the Purchaser, are a true and accurate statement as to the financial condition of the Company on the 30 day of November, 1969, and the results of its prior operation, prepared in conformity with generally accepted accounting principles consistently applied."

Plaintiff assumed control of the mill some five days after the contract was executed. On August 20, 1970, plaintiff notified defendants that it was rescinding the stock purchase agreement because of defendants' material misrepresentations of the financial condition of Musulin, Inc. Defendants denied any misrepresentation. Plaintiff then filed this suit for rescission, alleging that the above-quoted contract provision was false, in that the November 30, 1969, financial statement materially misstated the liability of Musulin, Inc., as of that date.

Plaintiff first contends that "[t]he trial court erred in concluding that plaintiff knew or should have known of the true extent of Musulin's liability to Trans Pacific Leasing, Inc., long before rescission was attempted and that, ...


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