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Soules v. General Motors Corp., = 79 Ill.2d=20 282, 402 N.E.2d 599 (Ill. 03/21/1980)

[1]	SUPREME COURT OF = ILLINOIS.
[2]	No. 52150., Affirmed as modified, and = remanded.
[3]	79 Ill.2d 282, 402 N.E.2d 599, 1980.IL.0000451=20 = <http://www.versuslaw.com>
[4]	OPINION FILED MARCH 21, 1980.
[5]	JAMES L. SOULES, APPELLEE, v. GENERAL MOTORS=20 CORPORATION, = APPELLANT.
[6]	Appeal from the Appellate Court for the Fourth District; heard = in that=20 court on appeal from the Circuit Court of Macon County, the Hon. = Donald W.=20 Morthland, Judge, = presiding.
[7]	Davis & Morgan, of Peoria (John C. Mulgrew, Jr., and William = R.=20 Kohlhase, of counsel), for appellant. Frank H. Byers, of = Byers=20 & Byers, of Decatur, for = appellee.
[8]	MR. JUSTICE MORAN DELIVERED THE OPINION OF THE = COURT:
[9]	Plaintiff, James L. Soules, brought this action for damages in = the=20 circuit court of Macon County against defendant, General Motors=20 Corporation. Plaintiff's complaint contained two counts, one based = on=20 fraudulent misrepresentation and the other based on negligent=20 misrepresentation. The circuit court granted defendant's=20 motion to dismiss the complaint, but the = appellate court,=20 in a two-to-one decision, reversed, and remanded the cause. (71 = Ill.=20 App.3d 23.) We granted defendant's petition for leave to=20 appeal.
[10]	The pertinent facts alleged in plaintiff's complaint, accepted = as true=20 when ruling upon a motion to dismiss (Acorn Auto Driving School, = Inc. v.=20 Board of Education (1963), 27 Ill.2d 93, 96), and those contained = in=20 exhibits attached thereto, which constitute part of the complaint = (Ill.=20 Rev. Stat. 1977, ch. 110, par. 36; Fowley v. Braden (1954), 4 = Ill.2d 355,=20 358-59), are as follows. In March of 1973, plaintiff, seeking to = invest=20 money in a prospective automobile franchise, submitted to = defendant an=20 "Application for Approval of a Financial Investment in an = Oldsmobile=20 Dealership." Plaintiff and Mel Bishop entered into a written = agreement on=20 April 16 to form a corporation, Mel Bishop Oldsmobile, Inc., which = thereafter acquired an Oldsmobile vehicle franchise from = defendant.=20 Plaintiff was made a director and vice-president of the = corporation. The=20 franchise agreement entered into on May 14 between the corporation = and=20 defendant stated that the corporate franchisee was required to = establish=20 and maintain "minimum owned net working capital" of $134,000. This = figure=20 represented the amount of net working capital supplied by = investment and=20 earnings. The agreement also recited that the franchisee currently = had=20 only $75,000, that it would retain 75% of its net profits in the = business=20 until the $134,000 figure was reached, and that it would = thereafter=20 maintain at least that amount. The agreement further required the=20 franchisee to submit periodic financial reports to=20 defendant.
[11]	In reliance on defendant's oral representations that the = franchisee=20 met defendant's minimum financial requirements, plaintiff invested = $50,000=20 by purchase of capital stock of the corporation and loaned $75,000 = to=20 Bishop to acquire the dealership location. Furthermore, in = continued=20 reliance on defendant's integrity and oral representation that the = franchisee met both the defendant's original and its=20 continuing financial requirements, plaintiff guaranteed repayment = of=20 business loans made to the franchisee. Although the defendant knew = that=20 the franchisee did not meet either defendant's original or = continuing=20 financial requirements, and that the franchisee's periodic = financial=20 reports were false, plaintiff had no knowledge of these facts. = Plaintiff=20 did not learn, until sometime in 1976 or 1977, that the franchisee = failed=20 to meet defendant's original and continuing financial = requirements. On May=20 22, 1975, defendant induced Bishop to prepare a letter terminating = the=20 franchise. The complaint finally alleges that defendant's conduct = and=20 actions caused plaintiff to suffer damages in a stated=20 amount.
[12]	The circuit court, following a hearing, granted defendant's = motion to=20 dismiss. The dismissal was with prejudice; therefore, plaintiff's = motion=20 for leave to file a second amended complaint was denied. At the = hearing on=20 defendant's motion, the court stated that "as a matter of law I do = not=20 believe there is or can be alleged a cause of action here on = behalf of the=20 plaintiff. I think the plaintiff, as a director of the corporation = here,=20 should have and had the absolute right and duty to know the = financial=20 affairs of the corporation and was not entitled to rely on any=20 representation made by the defendant in this case, or any other = third=20 party."
[13]	Although the appellate court reversed, it agreed with the = circuit=20 court that the plaintiff, because he was a director of the = corporation,=20 was not justified in relying on defendant's representations that = the=20 franchisee met the original "minimum owned net working capital"=20 requirement of $134,000. The basis for the appellate court's = reversal was=20 its finding that plaintiff's status as director did not have this = same=20 operative effect with respect to defendant's representations that = the=20 franchisee met its continuing, as opposed to original, financial=20 requirements. Plaintiff, in asking us to affirm the appellate = court=20 judgment, asserts that the conclusion of the appellate court was = correct.=20 We will, therefore, not consider the portion of the=20 appellate court opinion which held against plaintiff that he had = no right=20 to rely on defendant's representations as to the original = financial=20 requirements of the franchisee.
[14]	As disclosed by decisions of this court, the elements of a cause = of=20 action for fraudulent misrepresentation (sometimes referred to as = "fraud=20 and deceit" or "deceit") are: (1) false statement of material fact = (2)=20 known or believed to be false by the party making it; (3) intent = to induce=20 the other party to act; (4) action by the other party in reliance = on the=20 truth of the statement; and (5) damage to the other party = resulting from=20 such reliance. (Steinberg v. Chicago Medical School (1977), 69 = Ill.2d 320,=20 333; Roth v. Roth (1970), 45 Ill.2d 19, 23; Roda v. Berko (1948), = 401 Ill.=20 335, 339-40; Bennett v. Hodge (1940), 374 Ill. 326, 332.) = Furthermore, the=20 reliance by the other party must be justified, i.e., he must have = had a=20 right to rely. Schmidt v. Landfield (1960), 20 Ill.2d 89, 94; = Prosser,=20 Torts sec. 105, at 686 (4th ed. 1971); Restatement (Second) of = Torts sec.=20 537 (1977).
[15]	Defendant contends that plaintiff, as a corporate director, had = no=20 right to rely on any alleged misrepresentation by defendant, even = as to=20 the franchisee's continuing financial requirements. As previously = stated,=20 the franchise agreement required the franchisee to retain 75% of = its net=20 profits in the business until it attained "minimum owned net = working=20 capital" of $134,000 and, thereafter, to maintain at least that = amount.=20 The question of plaintiff's right to rely on defendant's = representations=20 that the franchisee was meeting its continuing financial = requirements=20 cannot be resolved simply by noting plaintiff's status or position = in the=20 corporation. The question is whether, under all the circumstances, = plaintiff had a right to rely on the false representations. This = question=20 is to be answered while viewing the representation in light of all = the=20 facts of which plaintiff had actual knowledge as well as those of = which he=20 "might have availed himself by the exercise of ordinary prudence." = Schmidt=20 v. Landfield (1960), 20 Ill.2d 89, 94, quoting = Dillman v.=20 Nadlehoffer (1886), 119 Ill. 567, 577. See also Bundesen v. Lewis = (1938),=20 368 Ill. 623, 632-37.
[16]	Plaintiff alleges that the franchisee's periodic financial = reports,=20 which it was required to submit to defendant, were false and known = by=20 defendant to be false. Regardless, therefore, of plaintiff's = access to=20 such reports due to his position in the corporation, examination = of=20 allegedly false reports would not have revealed that the = franchisee failed=20 to meet its continuing financial requirements. Consequently, based = upon=20 the limited record before us, we cannot say that plaintiff's = reliance on=20 the truth of defendant's representations regarding the continuing=20 financial requirements was unjustified. The circuit court erred in = holding=20 otherwise.
[17]	Because of the circuit court's misapprehension as to the portion = of=20 plaintiff's complaint concerning the continuing financial = requirements of=20 the franchisee, the cause is remanded to the circuit court to = allow=20 plaintiff to plead anew. Accordingly, we will not consider other = matters=20 not reached by the circuit court.
[18]	The judgment of the appellate court, as modified, is affirmed = and the=20 cause is remanded to the circuit court for further proceedings in=20 accordance with this opinion.
[19]	Affirmed as modified, and remanded, with = directions.
[20]	GOLDENHERSH, C.J., and UNDERWOOD and RYAN, JJ., took no part in = the=20 consideration or decision of this case.=20

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