General Corporation v. General Motors Corporation

• Decision Date: 27 May 1960
• Docket Number: Civ. No. 2713.
• Citation: 184 F. Supp. 231
• Parties: GENERAL CORPORATION, Plaintiff, v. GENERAL MOTORS CORPORATION, Defendant.
• Court: U.S. District Court — District of Minnesota

184 F. Supp. 231

GENERAL CORPORATION, Plaintiff, v. GENERAL MOTORS CORPORATION, Defendant.

Civ. No. 2713.

United States District Court D. Minnesota, Third Division.

May 27, 1960.

C. Paul Smith, St. Paul, Minn., Harry H. Peterson and Eugene A. Rerat, Minneapolis, Minn., for plaintiff.

Cant, Taylor, Haverstock, Beardsley & Gray, by Franklin Gray, Minneapolis, Minn., and Daniel Boone, Detroit, Mich., for defendant.

DEVITT, District Judge.

Defendant moves for judgment notwithstanding the verdict or for a new trial following a $100,000 jury verdict in this action for deceit. The plaintiff Minnesota corporation is a former wholesale distributor for the Delco Appliance Division of the defendant. The plaintiff's complaint alleged that the defendant fraudulently represented it would not market its Delco heating products directly to retailers in the plaintiff's franchise area, and that the plaintiff's business was wrongfully destroyed when the defendant cancelled the wholesale agreement between them and changed to a direct retailing basis.¹ The defendant denied these allegations.

Here is a brief summary of the evidence presented.

Verne Nelson, president of plaintiff, had worked for the Delco Appliance Division of General Motors in various positions prior to 1939, at which time he and another employee formed a partnership to act as the wholesale distributor of Delco heating products in the Minnesota area. The partnership later became the plaintiff corporation which continued business through 1949, selling principally Delco home-heating products.

During these years, there were apparently five franchise agreements between the parties which operated consecutively over the period. The first bore the date June 1, 1939; the second, January 2, 1942; the third, December 31, 1946; the fourth, December 3, 1947. The facts surrounding the execution of the fifth agreement are in marked dispute.

Verne Nelson testified that he signed the fifth contract on February 10, 1949 in Rochester, New York, after Mr. Andrew Freimann, Delco's general sales manager, had assured Nelson that the defendant "would never go on a direct basis" in the plaintiff's franchise area. As in the previous agreements, this contract had a clause stating that there were no other agreements between the parties and also a provision that the agreement could be cancelled upon ninety days' notice by the defendant and upon thirty days' notice by the plaintiff.

Mr. Freimann denied that any such discussion or promises took place on Nelson's February 10th visit to Rochester, and claimed, as did Delco sales representative Goddard, that the contract was signed by Nelson in Minneapolis on May 19, 1949. The defendant attempted to disprove plaintiff's story and support its own by the testimony of a printer who concluded from his records that the fifth contract form was not in existence until April of 1949.

The plaintiff's evidence tending to show that the defendant had no intention of keeping its alleged oral promises was that prior to February, 1949 and throughout 1949, the defendant was cancelling many wholesale distributorships. The defendant sought to show that although a policy of converting to direct retail distribution did come into existence, it was not conceived until August, 1949, as evidenced by written executive committee reports.

Mr. Nelson further testified that in December, 1949, Mr. Goddard attempted to trick him into signing a retail dealer's agreement by representing that it was the same old wholesale arrangement. Goddard's version of this event was that he made a full disclosure and explanation of the new contracts, but that Nelson rejected the idea of converting to a retail dealership. Shortly after this, the defendant cancelled plaintiff's wholesale contract and began selling directly to retailers in the plaintiff's former territory.

Plaintiff's proof of damages was based primarily on the testimony of Verne Nelson and Russell Nelson, a C.P.A., who opined that the good will of General Corporation in December, 1949 was worth $450,000 and $400,000 respectively, and that after the cancellation it was worth nothing. The defendant's expert testified that the plaintiff's good will was of no value either before or after the cancellation.

Defendant's motion for judgment n. o. v. is based on four grounds. That the statute of frauds bars the action. That the plaintiff had no right to rely on any oral promises. That there was no showing of "out of pocket" damages. That the evidence was insufficient to show an intent not to perform the alleged promises.

Before considering these individually, however, it should be observed that since the fraud law of New York and Minnesota are apparently very similar on the points here considered, the parties have made no issue of the conflicts of law problems and have been mutually content to cite cases primarily from Minnesota.

The Statute of Frauds

The defendant recognizes that both Minnesota and New York follow the rule that promises made without an intent to perform can constitute the basis of an action in deceit. Olson v. Smith, 1912, 116 Minn. 430, 134 N.W. 117; Deyo v. Hudson, 1919, 225 N.Y. 602, 122 N.E. 635; see Annotation, Promises and Statements as to Future Events as Fraud, 1927, 51 A.L.R. 46, 63. The defendant contends, however, that an action in deceit is nevertheless barred when based on promises which would be unenforceable as an oral contract under the statute of frauds.

In New York the case of Channel Master Corporation v. Aluminum Ltd. Sales, Inc., 1958, 4 N.Y.2d 403, 176 N.Y.S.2d 259, 151 N.E.2d 833 has decided this issue against the defendant. On the other hand, we are unable to find a Minnesota case which considers the problem. The Minnesota statute provides:

"No action shall be maintained * * * upon any agreement, unless in writing * * * that by its terms is not to be performed within one year from the making thereof." 30 M.S.A. § 513.01 (1947).

Mr. Nelson testified that Mr. Freimann said "that they would never go on any other than a wholesale basis in our area, which as far as we were concerned would be indefinitely, provided we did our part of the job right." Assuming this can constitute an agreement which by its terms is not to be performed in one year, compare, Metropolitan Trust Co. v. Topeka Water Co., C.C.D.Kan. 1904, 132 F. 702 with, Warner v. Texas & Pac. Ry., 1890, 164 U.S. 418, 17 S.Ct. 147, 41 L.Ed. 495, it is my view that the Minnesota statute of frauds does not bar this action in deceit.

Recognition that fraudulent promises can constitute a tort does not of itself determine that the statute of frauds is inapplicable. Instead, the authorities are in conflict. See Comment Note, 104 A.L.R. 1420 (1936). One view taken is that the statute of frauds addresses itself to the enforceability of oral contracts and does not affect the validity of actions based on fraud. Schleifer v. Worcester North Sav. Inst., 1940, 306 Mass. 226, 27 N.E.2d 992; Burgdorfer v. Thielemann, 1936, 153 Or. 354, 55 P.2d 1122, 104 A.L.R. 1407; see Restatement, Torts § 530(b) (1938); Keeton, Fraud, Statements of Intention, 15 Tex.L.Rev. 185 at 200 (1937). Another position reasons that if an action in fraud were allowed to be brought on promises which are unenforceable as contracts, the legislative policy of the statute would be defeated. Cohen v. Pullman Co., 5 Cir., 1957, 243 F.2d 725; Canell v. Arcola Housing Corp., Fla.1953, 65 So.2d 849.

The most practical approach appears to me to be one touched upon by the Utah Court in Papanikolas v. Sampson, 1929, 73 Utah 404, 274 P. 856, that if the damages sought are primarily tort damages, the statute should not affect the action, but if the damages sought are substantially the same as contract damages, the action is really one to enforce an oral contract and should be barred. So whereas in Papanikolas the verdict was directed for the defendant because, among other things, the damages being sought were the difference between market value of land and its oral sale price, here the gravamen of the complaint is the wrongful destruction and appropriation of the plaintiff's business, and presuming the plaintiff is capable of showing tort damages, he should not be barred by the statute of frauds.

To say this is the best result is one thing. To say it is, or will be, the law of Minnesota is another. I think some indication that the Minnesota Supreme Court would reach the same solution can be found in its application of the "out of pocket" rule as the measure of damages in fraud as opposed to the "benefit of the bargain" rule. Tysk v. Griggs, 1958, 253 Minn. 86, 91 N.W.2d 127, 134; Annotation, 1940, 124 A.L.R. 37, 52-53.

The "out of pocket" rule is more logically consistent with tort theory of recovery by compensating the plaintiff for what he has lost, while the "loss of bargain" rule coincides with contract theory by giving the plaintiff the benefit of what he was promised. Prosser, Torts 568-69 (2d ed. 1955). The application of the "loss of bargain" rule as the measure of recovery for fraudulent oral promises might well justify the criticism that the contract is being enforced in derogation of the legislative policy underlying the statute of frauds. On the other hand, if the "out of pocket" rule is the measure of recovery, as it is in Minnesota, it seems to me to be less of an objection to say that the purpose of the statute is being defeated since the recovery is theoretically and practically different from that obtained by enforcement of the contract. Although I can find no such established correlation between the measure of damages and the applicability of the statute of frauds, it is significant to me that New York, which is also among the minority jurisdictions espousing the "out of pocket" rule, Reno v. Bull, 1919, 226 N.Y. 546, 124 N.E. 144, adopts the view that the statute of frauds does not bar an action based upon fraudulent promises. Channel Master Corporation...