This summary was computer-generated without any editorial revision. It is not official, has not been checked for accuracy, and is NOT citable.
Facts
The Plaintiffs sold a Sears Authorized Catalog Sales Merchant business to the Defendants and another couple under a sales agreement. The Defendants alleged that the Plaintiffs made fraudulent misrepresentations and failed to disclose statutory and regulatory information, inducing them to enter the agreement. The business was later shut down by Sears, and the Defendants sought to avoid or rescind the agreement (paras 1-4).
Procedural History
- District Court of Bernalillo County: The trial court found no material misrepresentations by the Plaintiffs and ruled that the Defendants owed $20,225.69 under the sales agreement (para 1).
Parties' Submissions
- Appellants (Defendants): Argued that the Plaintiffs misrepresented the value of the business, failed to disclose that the merchant agreement was in another party's name, and violated the New Mexico Uniform Commercial Code (UCC) and Federal Trade Commission (FTC) franchise disclosure regulations (paras 1, 8-9, 13).
- Appellees (Plaintiffs): Contended that they made no material misrepresentations, complied with the sales agreement, and that neither the UCC nor FTC regulations applied to the transaction (paras 1, 9, 13).
Legal Issues
- Did the sale of the business constitute a transaction in goods under the New Mexico Uniform Commercial Code?
- Were the Plaintiffs required to comply with Federal Trade Commission franchise disclosure regulations?
- Did the Plaintiffs make material misrepresentations that would justify rescission of the sales agreement?
Disposition
- The Supreme Court of New Mexico affirmed the trial court's decision, holding that the Plaintiffs made no material misrepresentations and that neither the UCC nor FTC regulations applied to the transaction (paras 1, 19).
Reasons
Per Ransom J. (Frost C.J. and Minzner J. concurring):
- The sale of the business was not a transaction in goods under the UCC because the primary purpose of the agreement was the transfer of a business as a going concern, not the sale of movable goods (paras 9-12).
- The FTC franchise disclosure regulations did not apply because the Plaintiffs were franchisees, not franchisors or franchise brokers, and thus were not subject to the disclosure requirements (paras 13-14).
- The Defendants failed to prove material misrepresentation. The trial court found no evidence that the Plaintiffs knew Sears would cease its catalog business, and the Defendants ratified the contract by continuing to make payments and benefit from the business after discovering the merchant agreement was in another party's name (paras 16-18).
- The Defendants' claims under New Mexico franchise law were dismissed as the state has no disclosure requirements for franchise sales, leaving only common law contract principles, which did not support rescission (paras 15, 19).