Knudsen v. Domestic Utilities Mfg. Co.

GILBERT, Circuit Judge (after stating the facts as above). The principal question here presented is whether the court below erred in directing the jury to return a verdict for the defendants. The complaint contains allegations which would support recovery of damages for breach of contract; but, that phase of the cause of action having been eliminated by the election of the plaintiff to stand upon her allegations of fraud, the question which remains is whether the complaint states a cause of action for deceit. For the defendants it is contended that the allegations of fraud are fatally defective for failure to set out in detail the nature of the representations made in the Company’s circulars, wherein they were false, and how the plaintiff was deceived thereby. [1] The complaint contains, however, other allegations of deceit. One of them is that the Company, at the time of making the contract with the plaintiff, intended not to perform the same and had no intention to deliver the washers under the contracts. It is generally held that a promise made with the intention not to perform it will support an action of deceit (20 Cyc. 22), and this is the rule in the state of *473 California (Civil Code, § 1572; Cockrill v. Hall, 65 Cal. 326 , 4 Pac. 33 ; Newman v. Smith, 77 Cal. 22 , 18 Pac. 791 ; Prison v. Brison, 75 Cal. 525 , 17 Pac. 689 , 7 Am. St. Rep. 189 ; Flood v. Templeton, 152 Cal. 148 , 92 Pac. 78 , 13 L. R. A. [N. S.] 579; Rheingans v. Smith, 161 Cal. 362 , 119 Pac. 494 , Ann. Cas. 1913B, 1140). Mere failure of performance is not evidence of an intention not to perform at the inception of a contract. But here there is much more than proof of a failure to perform. The evidence strongly indicates that there was no intention whatever to perform. The scheme of the company was obviously fraudulent. It contemplated selling a contract to an agent, who was given the right to sell like contracts to 50 others, and each of those 50 had the right to sell to as many more, and so on. In Lupton v. Domestic Utilities Mfg. Co., 173 Cal. 416 , 160 Pac. 242 , the court said that the scheme of the company which is defendant herein involved fraud in its every aspect, “contemplating an endless chain of victims, each one in turn to recoup his own loss and make a profit by victimizing others.” There is no obstacle to the plaintiff’s recovery in the fact that she made no rescission of her contract. There was no occasion to make rescission. She received nothing that she ought to return. There was evidence she had performed her contract to the best of her ability and that the defendant corporation itself canceled her contract. The court below, in allowing the motion for an instructed verdict, was of the opinion that the plaintiff’s allegation that the defendant corporation was not engaged in manufacturing washers was immaterial, for the reason that the defendants permitted her to manufacture enough washers to supply all of her customers, and as to the allegation that the defendants did not want to sell washers, but wanted to sell agencies, the court observed that the plaintiff entered into the contract with knowledge of that fact and proceeded to sell contracts to others, thereby doing the very thing that she condemned the corporation for doing. Said the court: “Every dollar of damage that- slie claims in this case, that was figured up by her, was lost in doing the very thing she condemns this company for.” The court concluded that the plaintiff was in pari delicto and could not recover, citing Hays v. Windsor, 130 Cal. 234 , 62 Pac. 397 , where it was said: “The court * * * will not enforce a contract founded on the mutual turpitude of the parties to it. And for the same reason, if the contract has been executed, the court will not aid either party to esca.pe its consequences.” The court below drew the conclusion that the plaintiff was in pari delicto with the Company from the fact that before she entered into the contract E. R. Crooker advised her to bend her efforts towards the selling of the contracts, saying, “There is where the big money is made.” We are unable to agree that by that remark the plaintiff was given notice that the Company was engaged in a fraudulent scheme. The remark was doubtless true. But it conveyed no intimation that the Company did not intend to have its manufacturing department keep pace with its selling department, or that it contemplated carrying *474 on a business in which it would be impossible to deliver washers to agents as fast as the agents acquired contracts to sell the same. According to the record the plaintiff apparently acted throughout in good faith. During the two years or more in which she acted as agent she was constantly importuning the Company to deliver washers in accordance with the sales she made, and in accordance with its promises. In these efforts she was unsuccessful, and she was compelled at last to resort to manufacturing washers on her own account, on all of which she paid royalties to the Company. The fact that the Company did manufacture 500,000 washers does not disprove the allegation that its intention was not to manufacture washers but to sell contracts. The washers so made would not fill more than 20 per cent, of the contracts which, according to the plaintiff’s testimony, were sold by the agents. [2] As the case must be remanded for a new trial, we deem it proper to say that in our opinion the court below was in error in excluding evidence prpffered by the plaintiff to show that the defendants had committed like frauds upon others. The court ruled: “The question is: Did they defraud Miss Knudsen? That is the question we are trying. Did they defraud her? You cannot get judgment for her by reason of the fact that they defrauded other people, or didn’t keep any books.” In determining the existence of fraud, “‘great latitude is allowed in the introduction of evidence.” 20 Cyc. 110. And evidence of like frauds is permissible to prove fraudulent intent. 12 R. C. L. 435; Lincoln v. Claflin, 7 Wall. 132 , 19 L. Ed. 106 ; Tooker v. Alston, 159 Fed. 599 , 86 C. C. A. 425 , 16 L. R. A. (N. S.) 818; Fowle v. Child, 164 Mass. 210 , 41 N. E. 291 , 49 Am. St. Rep. 451 ; Hobbs v. Boatright, 195 Mo. 693 , 93 S. W. 934 , 5 L. R. A. (N. S.) 906, 113 Am. St. Rep. 709 ; Robertson v. Halton, 156 N. C. 215 , 72 S. E. 316 , 37 L. R. A. (N. S.) 298; Eastman v. Premo, 49 Vt. 355 , 24 Am. Rep. 142 . The judgment is reversed, and the cause is remanded for a new trial.