Midland National Bank of Minneapolis v. Perranoski
299 N.W.2d 404, 1980 Minn. LEXIS 1600 (1980)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
An educated and experienced individual cannot justifiably rely on oral representations that directly contradict the clear and unambiguous terms of a written agreement they had the opportunity to read and sign.
Facts:
- Richard Lurie, a certified public accountant, and Sheldon Wert, a businessman, developed a cattle-raising enterprise called Stone House Cattle Company.
- The enterprise was structured as a general partnership to serve as a tax shelter, which meant each partner had unlimited personal liability for the partnership's debts.
- Lurie and his accounting partner promoted the investment to Charles Peterson (a surgeon), Harry Lerner (a businessman), Robert Schroer (a businessman), and James Palmer (a professional baseball pitcher).
- Lurie allegedly made oral statements to some of the investors, suggesting the investment was safe, had no risk, or that their potential loss was limited to their initial capital contribution.
- Each investor was sent a nine-page 'Partnership Agreement' which explicitly stated it was a general partnership governed by the Uniform Partnership Act and detailed a partner's obligation to contribute to partnership debts.
- Lerner read the agreement and understood its liability implications but signed after Lurie's reassurances; Palmer 'browsed through' it; Peterson and Schroer signed without reading it.
- From 1974 to 1975, the market price for cattle dropped dramatically, causing Stone House to fail.
- The partnership was liquidated with assets insufficient to satisfy its debt to Midland National Bank.
Procedural Posture:
- Plaintiff Midland National Bank of Minneapolis sued several partners of Stone House Cattle Company, including Charles Peterson, Harry Lerner, Robert Schroer, and James Palmer, in a Minnesota trial court to collect on a promissory note.
- The defendant partners filed a third-party complaint against the partnership's organizers, Richard Lurie and Sheldon Wert, alleging fraud and breach of fiduciary duty.
- The case proceeded to a jury trial, where the bank's primary claims were settled.
- The trial continued on the partners' third-party claims against Lurie and Wert.
- At the close of all evidence, the trial court granted a directed verdict in favor of third-party defendants Lurie and Wert.
- The third-party plaintiffs (Peterson, Lerner, Schroer, and Palmer) appealed the judgment resulting from the directed verdict to the Minnesota Supreme Court.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Did the promoters of a general partnership commit fraudulent misrepresentation or breach a fiduciary duty by allegedly misrepresenting the investment's risks when the investors were provided with a partnership agreement that unambiguously disclosed the nature of their unlimited liability?
Opinions:
Majority - Peterson, Justice.
No. The promoters did not commit fraudulent misrepresentation or breach a fiduciary duty. A claim for fraudulent misrepresentation requires justified reliance on the false statement, and reliance is not justified when an educated and experienced person signs a clear, unambiguous contract that directly contradicts the alleged oral representation. The investors, who were sophisticated and literate, had ample opportunity to read the partnership agreement, which disclosed their unlimited liability. Their failure to read the document or their decision to rely on oral statements contrary to its plain terms precludes a finding of justifiable reliance. Furthermore, statements about the investment's future success were non-actionable opinions, not misrepresentations of fact. Finally, any fiduciary duty to disclose the risks was satisfied by providing the partnership agreement, as the promoters were entitled to expect the investors would read the documents they signed.
Analysis:
This decision significantly reinforces the duty to read a contract and limits the scope of justifiable reliance for sophisticated parties in fraud claims. It establishes that when a written agreement is clear, a party's education and experience become central to determining whether their reliance on contradictory oral statements was reasonable. The ruling provides a strong defense for promoters and sellers against claims of fraud from experienced investors who fail to perform basic due diligence. It also clarifies that a fiduciary's duty to disclose can be met by providing clear written materials, placing the onus on the recipient to review them.
Unlock the full brief for Midland National Bank of Minneapolis v. Perranoski