Cengage Advantage Books: Fundamentals of Business Law Today 10th Edition by Roger LeRoy Miller

Exercise 8

FACTSA court appointed Patrick Shivley to be the receiver of a foreclosed car wash that was being sold in Bellefontaine, Ohio. (A receiver is an independent, impartial party appointed by a bankruptcy court to manage property in bankruptcy proceedings and dispose of it in an orderly manner for the benefit of the creditors.) The buyer, Clifford Cronkelton, inspected the car wash in November 2009. He knew that some equipment would have to be replaced, but he was concerned that the property needed to be winterized to protect it from damage. In phone calls and e-mails, Shivley assured him that the winterizing would be done.
Shivley contacted Guaranteed Construction Services, which hired Strayer Company, to winterize the property.
Strayer told Shivley that the only way to avoid problems was to leave the heat on at the car wash, but Shivley knew that the bank had shut off the heat because the property was not generating income. In March 2010, Shivley informed the bank of damage to the property caused by freezing. Shivley did not share this information with Cronkelton, who did not become aware of the damage until after he had bought the car wash in June.
Cronkelton filed a suit in an Ohio state court against Guaranteed and Shivley, asserting fraud. From a jury verdict in Cronkelton's favor, and an award of more than $140,000 in damages and attorneys' fees, the defendants appealed.
ISSUE Did Cronkelton justifiably rely on Shivley's representation that the car wash had been winterized?
DECISION Yes. A state intermediate appellate court affirmed the lower court's judgment in Cronkelton's favor.
REASON The reviewing court found that the jury verdict was supported by "competent, credible evidence" indicating that Cronkelton reasonably relied on Shivley's representations. No one denied that the damage by freezing was open and obvious upon inspection and that Conkelton could have again inspected the property before signing the purchase agreement. But Cronkelton testified that the receiver of the foreclosed car wash, Shivley, had guaranteed in an e-mail that everything was taken care of. The jury's finding that Cronkelton had reasonably relied on Shivley's representations appeared justified.
As a receiver, Shivley had a fiduciary duty to take care of the assets under his control. "Under the circumstances of this case, Cronkelton had a reasonable basis to believe that Shivley, who was acting as an arm of the [bankruptcy] court, would take the promised steps to winterize the property."
For critical analysis-Legal Consideration Did Shivley's misrepresentations rise to the level of fraud? Explain.