Whitcomb v. Shultz

• Decision Date: 13 April 1915
• Docket Number: 34.
• Citation: 223 F. 268
• Parties: WHITCOMB v. SHULTZ.
• Court: U.S. Court of Appeals — Second Circuit

223 F. 268

WHITCOMB v. SHULTZ.

No. 34.

United States Court of Appeals, Second Circuit.

April 13, 1915

[Copyrighted Material Omitted]

This cause comes here on appeal from a judgment entered upon an order made by the United States District Court for the Southern District of New York, which order was filed August 7, 1914, and which dismissed the bill of complaint on the ground that it did not state a valid cause of action in equity.

James A. Whitcomb was and is a citizen of the state of Oklahoma. George S. Shultz was and is a citizen of the state of New York. The Robertson Sales Company was and is a corporation existing under the laws of the state of New Jersey, as is the Great American Automatic Vending Machine Company. The Robertson Sales Company, hereinafter referred to as the Sales Company, was engaged in the exploitation of certain automatic vending machines which were manufactured for it by one Plumb who is described as a large and experienced manufacturer of machines operated by clockwork. The machines were manufactured for the Sales Company under certain patents held by it. The machines manufactured by Plumb are said to have been in every way satisfactory, but, on account of Plumb's inability to make deliveries as rapidly as the necessities of the Sales Company's business required negotiations were entered into with the Great American Automatic Vending Machine Company, hereinafter referred to as the Machine Company, looking to the manufacture of the machines for the Sales Company. On December 3, 1908, the Sales Company and the Manufacturing Company entered into a contract for the manufacture of 10,000 of the machines for the sum of $46,000. That contract contained the following provision:

'Now therefore, this agreement witnesseth: That for and in consideration of the payment to be hereinafter made by the party of the first part and covenants entered into by the party of the first part, the party of the second part does hereby agree to manufacture for the party of the first part ten thousand (10,000) vending machines like to the model deposited by the party of the first part with the party of the second part, on which patents are pending as aforesaid (except such alterations as have been agreed upon as set forth below) and all of the dies, patterns, and special tools necessary for the purpose of manufacturing to be completed as follows.'

The day after the above contract was signed, the plaintiff, Whitcomb, was informed that, as the Sales Company was a comparatively new company, some of the directors of the Manufacturing Company desired a guaranty, and he was asked, being a stockholder and officer of the Sales Company, to execute an assurance or guaranty that the Sales Company would carry out the terms of the contract. Thereupon the plaintiff executed the following agreement under seal: 'In consideration of the sum of one dollar ($1) to me in hand paid by the Great American Automatic Vending Machine Company, and in further consideration of the making of said contract, I do hereby promise and agree to and with them that the within-named Robertson Sales Company, party of the first part, will faithfully perform and fulfill everything in the foregoing agreement on its part and behalf to be performed and fulfilled at the time and in the manner in said contract provided, and I do hereby waive and dispense with any demand upon the said Robertson Sales Company, and any notice of no performance on its part.'

The Sales Company, subsequently professing dissatisfaction with the manner in which the Manufacturing Company performed the contract, refused to pay for certain machines which had been turned over to it by the latter company. That company thereupon executed to George S. Shultz, the defendant herein, an assignment of its claim. Shultz brought an action at law to recover the damages sustained by the Manufacturing Company. The case coming on for trial, the jury found that the Sales Company was indebted to Shultz, assignee, in the amount of $24,607.95, for which a judgment was rendered against the plaintiff herein as surety.

The plaintiff thereupon commenced this suit in equity in which he asked for an injunction to restrain Shultz from enforcing his judgment or from assigning it. He also asks that a decree be entered for the surrendering up and canceling of the contract of suretyship, and that he be discharged from all liability thereon.

Joseph M. Gazzam, of New York City (Charles F. Carusi, of Washington, D.C., Walter B. Grant, of Boston, Mass., and Joseph M. Gazzam, of New York City, of counsel), for appellant.

Kellogg & Rose, of New York City (Abram J. Rose and Phillip M. Brett, both of New York City, of counsel), for appellee.

Before COXE, WARD, and ROGERS, Circuit Judges.

ROGERS, Circuit Judge (after stating the facts as above).

The plaintiff has come into a court of equity to obtain the cancellation of a contract of suretyship into which he entered, and he asserts that he is entitled to be discharged from all liability therein because of the fraud practiced upon him in inducing him to enter into the aforesaid contract. And as an action at law was brought against him on the contract, and a judgment was obtained in the amount of $24,607.95, which this court affirmed in 215 F. 75, 131 C.C.A. 383 (1914), an injunction is sought to restrain the defendant from enforcing it. At the trial of the law action the defendant in that action, who is plaintiff in this, offered evidence tending to show the alleged false and fraudulent representations upon which he now relies, but the evidence was excluded by the trial judge. As the contract was under seal, the defense was of an equitable character, and could not be interposed in an action at law brought in a federal court. The plaintiff has therefore come into the equity court to obtain that relief from the contract which he thinks he is entitled to and which was denied to him at law.

The representations upon which he relies, and which he asserts were fraudulent, are stated in his complaint as follows:

'At the time of said negotiations, which was slightly prior to December 3, 1908, representations were made by or on behalf of the said Manufacturing Company to the plaintiff herein and to the said Sales Company to the effect that the said Manufacturing Company did a large business and had great experience in the manufacture of vending machines; that its factory was so equipped for work of that character, both in machinery and expert mechanics and workmen, as to enable it to meet the demands of the said Sales Company for more rapid deliveries and a larger output, and that, if the said Sales Company should enter into a contract with the said Manufacturing Company, it would at its own plant and under the supervision of its own experts manufacture the machines required by the said Sales Company in substantial compliance with a model shown it, which was one of the machines manufactured by the said Plumb, and that it would make or procure and keep in proper working order for use in its own factory all dies, patterns, and special tools which might be necessary for the manufacture of these particular machines. During the course of said negotiations, it was further represented by and on behalf of the said Manufacturing Company that its facilities for making at its own plant said machines were superior to the facilities of the said Plumb, and that it already had at its factory every machine, tool, and appliance necessary for the making of said vending machines, except the dies, patterns, and special tools which were to be especially made for the manufacture of said machines.'

'Plaintiff says that the statements made to him and to the said Sales Company, as an inducement to enter into said contract of December 3 and December 4, 1908, upon the truth of which he relied, and as a result of which he had entered into said contract of suretyship, were in fact wholly false and untrue, and were known by the said Manufacturing Company, and its officers and agents making such representations, to be wholly false and untrue; and that, so far from said factory being suitably equipped for the speedy manufacture and delivery of vending machines of the kind exhibited in said model hereinabove referred to, said factory was as a matter of fact without the necessary appliances and machinery, and without the workmen who were experts in the manufacture of vending machines of said character, or even experienced in this character of work; that so far from said machines being manufactured by said Manufacturing Company, it was never its intention that they should be manufactured in its own plant, by its own machines, or by its own workmen. On the contrary, said Manufacturing Company had the design, at the time said representations were made, of letting out bids to the cheapest bidder in various sections of the country to supply the different parts deemed necessary for the construction of the said vending machines; and, further, its design at the time of making said representations was that only the work of assembling the various parts so secured from other manufacturers should be done at said factory and under the supervision of its own employes. And plaintiff says that each and every one of the representations made to him as an inducement for the execution of the principal contract by his company, and of the contract of suretyship by him, was essentially false, and that almost immediately after the execution of said contracts said Manufacturing Company, so far from carrying out the alleged intentions hereinabove set forth, secured bids from various factories throughout the country, and in fact did nothing more than assemble the various parts so secured.'

And he avers that in entering into the...