Schenley Distillers Corporation v. Renken

• Citation: 34 F. Supp. 678
• Parties: SCHENLEY DISTILLERS CORPORATION v. RENKEN.
• Decision Date: 26 August 1940
• Court: U.S. District Court — District of South Carolina

34 F. Supp. 678

SCHENLEY DISTILLERS CORPORATION v. RENKEN.

District Court, E. D. South Carolina, Charleston Division.

August 26, 1940.

Stoney, Crosland & Pritchard, of Charleston, S. C., and C. T. Graydon, of Columbia, S. C., for plaintiff.

John I. Cosgrove and J. D. E. Meyer, both of Charleston, S. C., for defendant.

WYCHE, District Judge.

The complaint herein states a cause of action for debt. The answer contains a general denial, claims of offset and a counterclaim for damages. The reply of plaintiff, as a second defense, sets forth "that there was no memorandum in writing signed by the party to be charged, to wit, the plaintiff in this action, of any such contract as alleged in the counterclaim herein and that there being no such memorandum, the same is in violation of what is commonly known as the Statute of Frauds and Perjuries and that this plaintiff does plead said Statute in connection with this matter."

The matter is before me on the motion of defendant to dismiss and to strike this defense in the reply upon the following grounds: (a) Because said defense fails to state a legal defense to the claim of the defendant set forth in his counterclaim, (b) because said defense is immaterial, irrelevant and legally insufficient, (c) in that defendant's counterclaim is based on tort for fraud and deceit and not on contract, so that the Statute of Frauds, controlling solely the execution and performance of contracts, has no application thereto nor can it constitute a legal defense.

To determine the question presented by the motion requires a construction of the pleadings. If the claim of defendant is founded upon a contract or agreement within the inhibition of the Statute of Frauds the defense based upon the Statute is applicable and relevant, otherwise it is not. As I construe the language of the counterclaim, the gist of the cause of action therein stated is one in tort for fraud and deceit, resting, particularly, upon the principle that an action for damages will lie against one who makes a promise or representation having no intention of performance at the time it is made and which is relied upon by another to his injury. The claim is not based upon the breach of a contract or agreement, but on alleged false promises and representations. Defendant expressly has denominated the counterclaim as an action for tort. In paragraph Sixth thereof, he states: "That this is an action in tort for injury and damage resulting to this defendant by reason of the plaintiff, its agents and servants, having fraudulently, recklessly and/or intentionally made a statement or statements amounting to fraud, on which this defendant relied to his injury and damage."

The gravamen of his complaint is more elaborately set forth in subsequent paragraphs of the counterclaim. In substance, they allege that plaintiff for sometime had been the exclusive distributor for plaintiff's products in certain counties of South Carolina; that during that association and representation defendant was offered a distributorship by a competitor of plaintiff; that plaintiff insisted defendant should refrain from accepting the new account (which it seems would have to have been exclusive) and assured defendant plaintiff would never take its representation from him should he do so; that defendant declined the proffer of the competitor and that shortly thereafter plaintiff cancelled defendant's distributorship. In consequence of this action on the plaintiff's part, defendant claims he was unexpectedly left without representation of a major line of distilled liquors, was put to expense, and was damaged.

It is charged that the statements and representations of plaintiff in the transaction were false, reckless and fraudulent, were made without any intention of performance, but for the purpose and intent of preventing defendant from accepting the proffered distributorship in order to eliminate him as a competitor, and with the deliberate intention of deceiving him. The claim of defendant being plainly in tort, is the Statute of Fraud and Perjuries relevant and can it constitute a defense thereto?

In the discussion of this question I deal only with the applicability of the Statute. The legal sufficiency of the counterclaim is not before me. The rule, recognized by a majority of the States, including South Carolina, is that an action for fraud and deceit "may be predicated on promise made with the present intention not to perform, or as the rule is frequently expressed, upon promises made without intention of performance, and that for such fraudulent promise, relief may be had in equity or law as the circumstances and issues presented demand." 23 Am.Jur. 885.

In South Carolina this principle has been recognized and applied in recent years to a variety of situations, though an early decision (1856) apparently refused its recognition. Davis v. Moore, 9 Rich., S.C., 215. The later cases in South Carolina, however, appear to have superseded it. See, Palmetto Bank & Trust Company v. Grimsley, 1926, 134 S.C. 493, 133 S.E. 437, 51 A.L.R. 42; Bradley v. Metropolitan Life Ins. Co., 1931, 162 S.C. 303, 160 S.E. 721; Branham v. Wilson Motor Co., 1938, 188 S. C. 1, 198 S.E. 417; Cook v. Metropolitan Life Ins. Co., 1938, 186 S.C. 77, 194 S.E. 636; Page v. Pilot Life Ins. Co., 1939, 192 S.C. 59, 5 S.E.2d 454, 125 A.L.R. 872.

In the case of Cook v. Metropolitan Life Ins. Co., supra 186 S.C. 77, 194 S.E. 639, the Court said: "Where one promises to do a certain thing, having at the time no intention of keeping his agreement, it is a fraudulent misrepresentation of a fact, and actionable as such."

In those states which recognize the principle that an action in tort for fraud and deceit may be based upon a false representation or promise made with no intention of performance at the time of its making, it is held that the Statute of Frauds has no application and cannot constitute a defense thereto. The rule is thus stated: "Assuming that fraud may be predicated on an oral promise made with the intention at the time not to perform, the fact that the oral promise is unenforceable under the statute of frauds does not preclude the showing of the promise in an action for deceit." 23 Am.Jur. 890.

The theory underlying these decisions is that, while the oral agreement may be unenforceable under the statute, the purpose of allowing testimony in its support is not to establish the agreement but to prove the fraud.

The Page case, supra 192 S.C. 59, 5 S. E.2d 456, after reference to the Grimsley case, cited above, illustrates the principle thus: "There is an exhaustive annotation in 51 A.L.R. 46 to this case, which contains citations from the Courts of practically all of the states, and of the Federal Courts. The annotator recognizes the rule that a promissory statement is not ordinarily the subject of either an indictment or an action, and then goes on to show that the rule is almost universally recognized that: `* * * when a promise is made, the promisor by necessary implication, asserts a present and bona fide intention to perform, and if, therefore, the intention to perform does not exist, there is a misrepresentation of a fact upon which fraud may be predicated, the gist of the fraud in such a case being not the breach of the agreement to perform, but the fraudulent intent of the promisor and the false representation of an existing intention to perform, when such intent did not in fact exist.' 51 A.L.R., pages 63, 64, 65, 66." (Italics added)

In Parham-Thomas-McSwain v. Atlantic Life Ins. Co., 111 S.C. 37, 96 S.E. 697, 698, on a like issue, the Supreme Court of South Carolina said: "It is just as well established that if the writing was procured by words and with a fraudulent intent * * *, then parol evidence is competent to prove the facts which constitute the fraud. * * * A suggestion by the defendants of the statute of frauds to bar the plaintiff's remedy has no relevancy to the facts."

In the Grimsley case, supra 134 S.C. 493, 133 S.E. 438, the Statute was invoked as a bar to plaintiff's action in tort for fraud and deceit resting in an oral promise or representation made with no intention of its performance at the time it was made, and in that case the Court said: "The appeal is not to be determined by the application of either the `parol evidence rule,' nor by the rule that the details of a charge of fraud must be specifically stated, but by the principle above stated that the making of a promise (which has induced the execution of a contract), by one who had no intention at the time of performing it, constitutes a fraud, on account of which the contract may be rescinded. * * * Such contemporaneous agreements may have been obnoxious to the `parol evidence rule,' if unaccompanied by any circumstances of deception; but if those promises were made to induce the execution of the mortgage, with the concealed purpose to disregard them, the `Parol Evidence Rule' cuts no figure."

In Columbia National Bank of Columbia v. People's Bank et al., 162 S.C. 324, 160 S.E. 728, 729, it was stated: "Appellants rely upon Palmetto Bank & Trust Co. v. Grimsley, 134 S.C. 493, 133 S.E. 437, 51 A.L.R. 42, as authority for the admissibility, despite the parol evidence rule, of the excluded evidence. The principle is recognized and followed in that case that the making of a promise (which induced the execution of a contract) by one who had no intention at the time of performing it constitutes a fraud on account of which the contract may be rescinded; and that the parol evidence rule does not inhibit the proof of such a promise, if it was made fraudulently, and by deception induced the execution of the written instrument."

Burgdorfer v. Thielemann, 153 Or. 354, 55 P.2d 1122, 1125, 104 A.L.R. 1407, perhaps most clearly, thus states the rule: "We think that, in an action for deceit, this provision of the statute does not have the effect of rendering inadmissible testimony of an oral...