
    HAYDEN BROS. v. COLUMBIA MEDALLION STUDIOS, Inc.
    No. 9587.
    Circuit Court of Appeals, Eighth Circuit.
    March 22, 1933.
    
      Gerald M. Vasak, of Omaha, Neb. (William A. Schall and Frank E. Sheehan, both of Omaha, Neb., on tho brief), for appellant.
    Paul L. Martin, of Omaha, Neb. (Arthur R. Wells, Winthrop B. Lane, and Casper Y. Offutt, all of Omaha, Neb., on the brief), for appellee.
    Before STONE, VAN VALKENBURGH, and BOOTH, Circuit Judges.
   BOOTH, Circuit Judge.

This is an appeal from a judgment after verdict, directed in part, against Hayden Bros., a corporation, defendant below.

The action was brought by the Columbia Medallion Studios, Inc., seeking a money judgment, and was based upon a written contract between the parties dated on or about March 20, 1020. This contract provided for the establishing by the plaintiff in the store of the defendant of a department planned to promote the sale of medallions, copied from photographs, and picture frames. The medallions were to cost the defendant 75 cents each. This entire eost was to go to the plaintiff. The plaintiff was also to furnish defendant, at one-half the retail prices, frames for tho medallions which would be sold by the defendant to the customers, and the defendant would make its profits, if any, from tho sale of these frames.

The defendant ordered, and the plaintiff delivered., frames and medallions in the sum of $3,287.13, and had partly completed medallions of the value of $683. At the time of bringing the action, no payment had been made by the defendant.

The contract further provided that either party might terminate the contract by giving sixty days’ notice. In that event, tho closing dato was to he featured in the local newspapers by the defendant.

In addition to the above sums, plaintiff claimed damages for lost anticipated profits in the sum of $5',303.24, by reason of failure of tho defendant to give the proper notice and to make the proper advertisements rela^ tive to the closing date, upon termination of tho contract by defendant.

The answer admitted the execution of the contract and nonpayment, but set up as a counterclaim that the defendant was induced to enter into the contract by means of false and fraudulent representations by plaintiff as follows:

“(a) Said plaintiff falsely and fraudulently represented to said defendant that J. L. Brandéis & Sons of the City of Omaha, Nebraska, had entered into a contract with said plaintiff similar to tho contract involved in this action, and that by reason of the same tho sales in tho Brandéis stores had been increased many thousands of dollars, and that the said J. L. Brandéis & Sons had made, as a profit on said picture business, many thousands of dollars:
“(h) Said plaintiff falsely and fraudulently represented to said defendant that in every department store throughout the United States where the plaintiff had put into operation its plan of business pursuant to the contract upon which this action is based, the sales of said department store had increased many thousands of dollars, and that each of said department stores had made considerable money by virtue of said contract.”

Tho case was tried by the court and jury, and a verdict was returned by direction of the court in favor of tho plaintiff for merchandise delivered in the sum of $4,077.75, and also in favor o£ the plaintiff on the counterclaim of the defendant.

The question of damages for anticipated profits was submitted to tbe jury, and it found for the plaintiff in tbe sum of $290.83.

Tbe main contentions of appellant are: (1) That tbe court erred in instructing the jury to return a verdict against defendant on its counterclaim; (2) that tbe court erred in excluding tbe testimony offered by defendant of Noland Blass.

As to tbe first, tbe basis of tbe instruction, as stated by tbe court, was that there was a variance between the allegations of tbe complaint and tbe proof; that tbe allegations were that tbe Brandéis Store in Omaha bad made profits out of a similar contract between it and tbe plaintiff; that tbe proof simply tended to show that there was no profit made by tbe Brandéis Company in the particular department dealing with tbe medallions and tbe picture frames; but that there was no showing that tbe general profits of tbe store were not increased.

We think that tbe action of the court in directing a verdict on tbe counterclaim was right, but that tbe reason given was erroneous.

Tbe defendant bad demanded, under its counterclaim, damages ' on tbe following grounds: (1) That, because of tbe false representations, defendant bad paid (contracted to pay) more for tbe merchandise by $1,500 than it bad received for the sale thereof. (2) That defendant bad suffered damage in tbe sum of $5,000 because plaintiff bad contracted to return tbe photographs with corresponding medallions within thirty days, but had failed to do so, causing tbe customers to become dissatisfied and leave. (3) That defendant bad allotted for tbe business a space in its store of a rental value of $500 per month, and bad been damaged in this respect by reason of the false representations in tbe sum of $3,000.

Tbe false representations relied upon by tbe defendant are set forth above. Tbe one relating to tbe Brandéis Store may be subdivided into two: (a) That a similar contract bad been entered into by plaintiff with the Brandéis Store, and that tbe general sales of tbe Brandéis Store bad thereby been greatly increased, (b) That tbe Brandéis Store bad made a profit on the department devoted to this medallion business.

Tbe trial court took tbe view that tbe representation as to tbe Brandéis Store related solely to increase of general sales at tbe store. In this we think tbe court was in error, and we shall assume that tbe representation covered both matters.

Tbe counterclaim was in effect an action for deceit, and, in an action for deceit, numerous elements must be proven: (1) Tbe representations, material in character. (2) Tbe falsity thereof. ■ (3) Knowledge of the falsity on tbe part of tbe maker or its equivalent. (4) Reliance on tbe representations by tbe defrauded party. (5) Damages suffered by tbe defrauded party by reason of tbe false representations.

In tbe case at bar, we have simply tbe proof offered by tbe defendant. No evidence was introduced on tbe part of tbe plaintiff touching tbe counterclaim, for tbe reason that tbe counterclaim was stricken out by tbe court before tbe plaintiff finally rested. There is substantial evidence that tbe representations alleged were made, and, as stated above, we think that these related to both matters in connection with tbe Brandéis Store.

Turning to tbe second item of proof, namely, tbe falsity of tbe representations, we find that tbe testimony was given by two witnesses; one was Harry B. Zimman. He testified that be was secretary and treasurer of tbe Brandéis Store; that be bad been in that business for approximately ten years; that be bad made a search for tbe records of tbe business done by tbe Brandéis Store with tbe Columbia Medallion Studios, Inc., and was unable to locate them; that be had no record of those transactions.

Tbe other witness was Ella Quinn. She testified that she bad once been employed in tbe Brandéis Store but bad quit tbe employment in 1918, -approximately eleven years before any contract between plaintiff and defendant was entered into, and about six years before plaintiff began carrying on tbe medallion business. Miss Quinn's testimony, of course, was confined to the period prior to 1918. She testified, under objection, that in tbe Brandéis Store tbe cost of tbe medallions and frames was much greater than the amount of money received in return for them.

In our opinion, this testimony, standing alone, was incompetent and irrelevant, and in any event was not substantial proof on tbe issue of falsity made by tbe pleadings. That issue was whether, during the period of contractual relation between plaintiff and tbe Brandéis Store, tbe latter bad, by reason of tbe contract, made a profit in tbe medallion department of the store. Plainly, before this could be determined, it was necessary to know when tbe contract began and when it ended.

At tbe time testified to by Miss Quinn, tbe plaintiff company was not in business, and the contract under which the Brandéis Company was operating was one made with the predecessor of the plaintiff. Whether a new contract was made between plaintiff and the Brandéis Store, or the old contract adopted, does not appear; nor do the terms of the new contract, if one was made, appear; nor does it appear when the contractual relation between plaintiff and the Brandéis Store came to an end; nor does it appear whether or not profit was made in the medallion department of the Brandéis Store during the period when the Brandéis Store had contractual relation with the plaintiff. For aright that appears, that department may have been very profitable during that period. Even if it were allowable to consider the period testified to by Miss Quinn, there is no showing that during the whole period, both that covered by Miss Quinn and the period after plaintiff had contract relation with the Brandéis Store, there was not considerable profit in the medallion department.

The burden of proof on the issue of falsity was on the defendant, and it did not and could not sustain this burden by introducing testimony covering a particular period many years before any contractual relation existed between the plaintiff and defendant.

We are therefore of the opinion that there was no substantial evidence of a competent and material nature tending to show falsity in respect to the representation in question.

The other representation relates to department stores throughout the country; and the proof offered by the defendant in respect to this representation consisted of the deposition of one Blass who was connected with a department store operated by the Gus Blass Company at Little Bock, Ark. This store, for a short period, had a medallion department which was unprofitable, but the period was prior to the time when the plaintiff took over from its predecessor Ledexer the medallion business. The plaintiff, Columbia Medallion Studios, Inc., began business sometime in the year 1924. At that time it purchased the medallion business from Mr. Lederer. The witness Blass, testifying by deposition, said that the transactions he had in mind took place “between six and eight years ago.” The deposition presumably was taken after the commencement of the present suit, which was March 25, 1930, and transactions six or eight years prior to that time certainly would be transactions prior to the time when the plaintiff began business. Furthermore, the witness Blass testified directly that, at the time the contract of Ms company was made, Mr. Israel Lederer was head of the Columbia Medallion Studios, and that the dealings were had with the company conducting the business before 1925, thus showing conclusively that the contract referred to by Mr. Blass in his deposition was not one made with the plaintiff. This deposition, therefore, did not prove or tend to prove the falsity of the representation that department stores “where the plaintiff had put into operation its plan of business pursuant to the contract upon wMeh this action is based, the sales of said department store had increased many thousands of dollars.” The deposition was properly stricken out by the court.

Without pursuing the subject further, we think that there is an utter lack of substantial proof of the falsity of the alleged representations.

The remaining item of the defendant’s counterclaim is based upon its allegation that the plaintiff company had agreed to return the photographs furnished and the medallions within thirty days’ time, and that its failure to do this caused the defendant’s customers to become dissatisfied and leave.

We find in the record no evidence to support such an allegation, and certainly there is nothing in the contract to support it. The only delay mentioned in the record that we have found is one which occurred after the defendant had refused to pay for the goods which had been shipped to it, and received by it; and the plaintiff then apparently held back certain orders to induce the defendant to pay for what it had received. Certainly this constituted no breach of contract which could be a foundation for a counterclaim on the part of the defendant.

In view of the foregoing, it seems clear that a verdict was rightly directed in favor of the plaintiff upon the whole counterclaim of defendant.

Our conclusion is that the judgment should be affirmed. It is so ordered.  