Winn v. McCulloch Corp.

• Decision Date: 30 July 1976
• Court: California Court of Appeals Court of Appeals
• Parties: Glen R. WINN, Jr., et al., Plaintiffs and Appellants, v. McCULLOCH CORPORATION and Robert P. McCulloch, Defendants and Respondents. Civ. 48157.

Page 597

131 Cal.Rptr. 597

60 Cal.App.3d 663

Glen R. WINN, Jr., et al., Plaintiffs and Appellants, v. McCULLOCH CORPORATION and Robert P. McCulloch, Defendants and Respondents.

Civ. 48157.

Court of Appeal, Second District, Division 1, California.

July 30, 1976.

Kates, Cohen & Sherman, and Robert J. Sherman, Los Angeles, for plaintiffs and appellants.

Lawler, Felix & Hall, and Richard D. DeLuce, Los Angeles, for defendants and respondents. THOMPSON, Associate Justice.

The case at bench reaches us by way of a judgment of dismissal terminating the action as to the respondent-defendants after their demurrer to plaintiffs' fifth amended complaint was sustained without leave to amend. The complaint asserts causes of action on behalf of the appellant-plaintiffs against respondent-defendants on theories of fraudulent misrepresentation and intentional inducement of breach of contract. It also asserts causes of action on behalf of plaintiffs against defendant McCulloch Aircraft for breach of contract, fraud and negligent misrepresentation which are not here at issue. We conclude that: (1) the fifth amended complaint is legally adequate to state causes of action for intentional misrepresentation; (2) while the complaint is not legally adequate to establish the absence of the bar of the statute of limitations to those causes, the procedural history of the case shows that the trial court abused its discretion in not permitting further amendment addressed to that point; and (3) the allegations of causes of action on the theory of intentional inducement of breach of contract are legally sufficient.

Pleadings

The fifth amended complaint is framed in ten causes of action. The third, fourth, fifth, eighth, and ninth are asserted against McCulloch Aircraft, Inc., a defendant not a party here. No action of the trial court with respect to those causes of action is at issue before us on this appeal. The first and second causes of action sound in fraud alleged to have been perpetrated upon plaintiff Glen R. Winn, Jr., and a corporation related to him. The seventh cause of action is essentially the same in its charging allegations as the first and second, and is asserted on behalf of plaintiffs Richard Kempthorne and John H. Stewart, Jr. The sixth and tenth causes of action are pleaded on the theory of intentional interference with contract and are asserted on behalf of the Winn and Kempthorne-Stewart plaintiffs, respectively.

The first, second, and seventh causes of action contain the following significant allegations. Defendants Robert P. McCulloch, George J. Morton, and McCulloch Corporation owned stock in McCulloch Aircraft, Inc., and Robert P. McCulloch was the president of McCulloch Corporation. 'Prior to September 1969,' Robert P. McCulloch, acting individually and for McCulloch Corporation, together with George J. Morton and other defendants, jointly conceived of a plan to increase the worth of their stockholdings in McCulloch Aircraft through the promotion by McCulloch Aircraft of sales of dealerships which would distribute a personal aircraft known as the J--2 Gyroplane. McCulloch Aircraft agreed to the plan on condition that Robert P. McCulloch and McCulloch Corporation would promote the venture to the general public and McCulloch and McCulloch Corporation consented to do so. All of the parties to the agreement 'considered implementing the plan' with an advertising program describing the capabilities of the J--2 Gyroplane. The defendants knew that 'it was legally and practically impossible' to manufacture the plane to those capabilities and that there would be no market for the J--2 without them. They knew, therefore, that 'distributorships to be sold pursuant to the plan would not be salable to the prospective dealers.' Nevertheless, the defendants agreed that McCulloch Aircraft would engage in a false advertising campaign and Robert P. McCulloch and McCulloch Corporation agreed to join in it.

Three advertising brochures incorporating false representations of the capability of the J--2 were prepared. Copies of the brochures were sent to the plaintiffs. The brochures contained the following misrepresentations: that the take-off and landing capability was between 75 and 150 feet when in fact it was 600 feet; that the rate of climb was 800 to 1,000 feet per minute when in fact it was 600 feet per minute that the J--2's range was 200 to 300 miles when in fact 'the use capability . . . was substantially limited when flown with both pilot and passenger with a full tank of gas . . .'; that the usable fuel capacity was 24 to 25 gallons when in fact it was 10 gallons; that there would be world-wide service centers which in fact were not in existence; that the J--2 would not be limited to low level flight and would have a service ceiling of 10,000 to 13,000 feet when in fact the service ceiling was 4,000 feet; and the J--2 was as usable to the consumer as an automobile for point-to-point transportation when in fact it was not usable for point-to-point transport.

McCulloch Aircraft further represented that various accessories described in the complaint would be available and that the maintenance cost of the J--2 would be similar to that for a Cessna Model 172. Those representations were also false.

Pursuant to the plan, Robert P. McCulloch represented to plaintiffs that he was personally and financially committed to the development of the J--2 as described in the advertising brochures, and that he would invest any capital required by McCulloch Aircraft to the extent necessary to make the J--2 venture successful. McCulloch had no intention of investing his time or capital in the venture.

The representations were knowingly false and were made with the intent of inducing plaintiffs to enter in a dealership agreement with McCulloch Aircraft to distribute that J--2. In reliance upon the representations, plaintiffs entered into the agreements and expended 'large amounts of time and money' in advertising and otherwise to establish the dealership in its defined territory. The J--2 in fact is not marketable, and as a result plaintiffs suffered an out-of-pocket loss as the result of their expenditures.

The first, second, and seventh causes of action seek actual and exemplary damages.

The sixth cause of action alleges that on January 1, 1970, plaintiffs Glen R. Winn, Jr., and Winn-Air Aviation, Inc., entered into a sole distributorship agreement with McCulloch Aircraft for distribution of the J--2 in California. Plaintiffs performed the agreement. McCulloch Aircraft breached the agreement by failing and refusing to manufacture and supply plaintiffs with J--2 aircraft specified in the agreement. Defendants Robert P. McCulloch and McCulloch Corporation were able, by reason of their ownership of shares in McCulloch Aircraft, to control that corporation by the election of directors, and in fact controlled it. Knowing of the existence and terms of the distributorship agreement and with the intent to do so, McCulloch and McCulloch Corporation caused McCulloch Aircraft to breach the distributorship agreement.

The tenth cause of action is similar to the sixth in its allegations. It is asserted on behalf of the plaintiffs Richard Kempthorne and John H. Stewart, Jr., individually and as assignees of Aer-O-Hio Aviation, Inc., and alleges a distributorship agreement between McCulloch Aircraft and Aer-O-Hio breached by McCulloch Aircraft at the inducement of McCulloch and McCulloch Corporation.

Defendants filed a general and special demurrer for uncertainty to the first, second, sixth, seventh, and tenth causes of action and a motion to strike allegations of the complaint. ¹

The demurrer and its supporting points and authorities assert that the causes of action sounding in fraud are defective for failure to allege proximately caused damage or justifiable reliance, while showing on their face that reliance upon the representations alleged was not reasonable. They claim that those causes of action are barred by the statute of limitations. Absence of reasonable reliance is argued by reason of a fine print reference in adver tising brochures attached to the complaint reciting the capabilities of the J--2 stating that the 'specifications and performance (are) subject to change without notice.' The points and authorities assert that lack of justifiable reliance is further demonstrated by the proposition that the specifications and performance data in the three advertising brochures differ in some respects and that, because Federal Aviation Administration approval of airworthiness of aircraft is required before general manufacture is permitted, reliance upon specifications and performance data supplied before FAA certification is unreasonable as a matter of law.

The sixth and tenth causes of action are claimed by the points and authorities in support of the demurrer to be legally inadequate for failure of the fifth amended complaint to allege that the conduct of defendants in inducing the breach of contract by McCulloch Aircraft was wrongful.

The trial court sustained the general demurrers and placed the special demurrers and motion to...