Peoples Bank & Trust Co. v. L. Romano Engineering Corp.

HOLCOMB, STEINERT, and GERAGHTY, JJ., dissent. This is an action on a promissory note executed by defendant L. Romano Engineering Corporation (which will hereinafter be referred to as Romano), and delivered to defendant Ryan (operating as Diesel Equipment Company) as a part of the purchase price of a Diesel engine, sold by the latter to the former. The purchase price of the engine was $2,250. The amount of the note was $1,500. Before maturity, Ryan endorsed and transferred the note to plaintiff for a valuable consideration. Romano set up two affirmative defenses: (a) That the note was procured by Ryan by means of fraudulent representations, of which the plaintiff was chargeable with knowledge; and (b) that the note had been materially altered after delivery. The cause was tried to a jury, which returned a verdict for Romano. From judgment dismissing the action, plaintiff appeals. With respect to the first affirmative defense, the essential facts alleged (and supported by Romano's evidence) are as follows: Romano is engaged on a large scale in highway and other construction work of a like character. At the time here involved, it owned a fleet of some fourteen dump trucks, which were used in connection with steam shovel operations. The trucks were all powered by gasoline motors. Early in June, 1934, Ryan got in touch with Romano and sold it on the idea of replacing the gasoline motors in the dump trucks with Diesel engines. In the course of the negotiations, Ryan represented that ". . . this Mono-valve motor was a newly developed machine and that they were using them all over the United States for dumptrucks . . . this engine *Page 292 would develop more power than the GL 6 Buda motor that was onthe trucks." On June 9, 1934, Romano signed an order for one of the Diesel engines. The order contained the following: "No warranties of any kind whether express or implied are made by seller with respect to any other products described herein unless endorsed hereon and signed by the parties hereto." Notwithstanding this provision, Ryan, on June 13, 1934, wrote a letter to Romano, in which it was stipulated: "Should it develop that you are not completely satisfied that this unit is suited to your requirements, the Diesel Equipment Company agrees to accept this Model 4-75 engine at list price less the cost of freight and wear and tear over a period of thirty days operation in your Kenworth dump truck. And will perform equally as well as a Buda GL 6 Cyl. gas engine rated at 109 H.P." Upon receipt of this letter, Romano executed a note for $1,500, payable in ninety days, and delivered it to Ryan. This note did not provide for interest, it being agreed that the deferred payment should not bear interest. The note was dated June 18th, because it was estimated that Ryan could not deliver the engine before that date. Sometime prior to the execution of the note, Ryan had told one of appellant's officers about the proposed deal with Romano and had inquired whether appellant would discount the contract. He had been advised that appellant would not discount the contract, but that it would discount Romano's note, if, upon investigation, the latter's financial responsibility proved satisfactory. Ryan took the note of June 18th to the *Page 293 bank, and the officer with whom he had talked attached to it the following memorandum: "This is a style used by Wm. F. Ryan, who has had considerable experience in the selling of Diesel Motors. He is a local factory representative of the Diesel Engine Company, Oakland, California, and has been carrying a small account with us. He has just sold an engine to L. Romano Engineering Corporation for $2,250, to be paid $750 on delivery and the balance in a ninety-day note. The writer obtained a favorable report on Romano through the National Bank of Commerce, who advised a net worth of about $200,000, a good current position, and ample cash reserve. After discussing the matter in Committee, Ryan was advised that we would discount the note for him when the transaction is ready for completion. HGG." The engine did not arrive until some days after June 18th. When it did arrive, the bill of lading with draft attached was sent to appellant by the manufacturer. On June 26th, Ryan and L. Romano, president of Romano, went to the bank to complete the transaction. The bank was represented by Mr. Gruwell, the officer with whom Ryan had previously talked. According to Romano, Gruwell produced the note of June 18th, with his own memorandum, and the letter of June 13th from Ryan to Romano. L. Romano also testified that Ryan, in the presence of Gruwell, repeated the representations heretofore set out. Gruwell prepared a new note for $1,500, dated June 26th, which L. Romano signed as president of Romano. (This note as set up in the complaint and offered in evidence provided for interest at seven per cent. L. Romano testified that, when executed, the note did not provide for interest; that the provision for interest was afterward inserted without his knowledge or consent and contrary to the terms of his agreement with Ryan.) Ryan endorsed the note and delivered it to *Page 294 Gruwell. Romano at the same time delivered to Gruwell its check, payable to appellant, for $750 — the balance of the purchase price. Appellant thereupon credited Ryan's account with $2,250, and Ryan paid the draft and delivered the engine to Romano. Appellant has made forty-nine assignments of error. They raise, however, only three questions which merit discussion: (1) Was Romano entitled to a trial by jury? (2) Did the representations constitute actionable fraud? (3) If so, was appellant chargeable with knowledge of the fraud? [1] First: Romano's affirmative defense to the note constituted a cross-complaint against Ryan for the recovery of the $750 cash payment, less $50 for wear and tear on the engine. It is appellant's contention that the affirmative defense and cross-complaint constituted an action for rescission, thus converting the cause into an equity case. In its aspect of an affirmative defense, the answer raised the matter of cancellation of the note merely as an incident to its defense of a law action. Under such circumstances, a defendant is not to be deprived of his right to trial by jury upon motion of a plaintiff who is in court with a strictly law action. Bain v. Wallace, 167 Wn. 583,10 P.2d 226. [2] Viewing the answer as a cross-complaint against Ryan (and conceding only for the sake of argument that appellant could raise the question in this aspect of the case), we do not regard the action as one for rescission. Rather, it is an action to recover money under specific agreement to return the purchase price, less damage for wear and tear, upon failure of the engine to perform as represented. [3] Second: Appellant contends that the representations relied on amount at most to verbal warranties, and, as such, evidence of them was inadmissible, *Page 295 in view of the stipulation in the contract relating to warranties, heretofore quoted. It is, of course, conceded that, under such a stipulation, evidence of express oral warranties is inadmissible. Eilers Music House v. Oriental Co., 69 Wn. 618,125 P. 1023. We think, however, the representations made by Ryan are something different from warranties and something more than "dealer's talk" or expressions of opinion. Certainly, the statement that the Diesel engine was being used all over the United States in dump trucks in connection with steam shovel operations was a representation as to an existing fact. The representation as to the power and efficiency of the Diesel engine as compared with the Buda GL 6 Cyl. gas engine rated at 109 H.P., might under some circumstances be regarded merely as the expression of an opinion. But, made under the circumstances related here, we think it amounted to a representation of fact. It falls in the category of such representations as were held actionable in Weller v.Advance-Rumely Thresher Co., 160 Wn. 510, 295 P. 482. We understand appellant to contend that, even though the representations were as to existing facts, respondents failed to establish the necessary elements of fraud, as laid down inWebster v. Romano Engineering Corp., 178 Wn. 118,34 P.2d 428. From our examination of the record, we are satisfied that respondents made a case for the jury on the issue of fraud in all its elements. [4] Third: Likewise, on the facts established by respondents' evidence, it was for the jury to say whether appellant was chargeable with knowledge of the fraud perpetrated by Ryan. Johnson County Sav. Bank v. Rapp, 47 Wn. 30,91 P. 382; Washington Trust Co. v. Keyes, 88 Wn. 287,152 P. 1029. If it was so chargeable, the defense of fraud was good *Page 296 as against it, notwithstanding it acquired the note for a valuable consideration before maturity. Spokane Security FinanceCo. v. DeLano, 168 Wn. 546, 12 P.2d 924. For the most part, the errors assigned, whether relating to pleadings, admissibility of evidence, instructions given, requests refused, or motions for judgment, have been disposed of by what we have said. We have, however, considered other assignments of error, which do not fall within the range of our discussion, and find them without merit. Judgment affirmed. TOLMAN, MAIN, MITCHELL, and BEALS, JJ., concur.