Samuel E. Cohen, Appellant, v. Gensbro Hotel Co., a Corporation; Nevada Hotel Development Co., a Corporation; David Gensberg, Louis Gensberg, Meyer Gensberg and Murray Saul, Appellees, 259 F.2d 78 (9th Cir. 1958)

Plaintiff filed an action under the diversity statute entitled "Complaint for Breach of Contract," which alleged that certain individual defendants had organized two corporations, which allegedly needed $1,500,000 cash, and which allegedly orally agreed to sell to plaintiff (a) $1,700,000 in first mortgage bonds secured by an indenture on Nevada real estate for the sum of $1,200,000, in order to construct a hotel project; (b) a 13 per cent share of the equity in any corporation operating said hotel, for $60,000.

Plaintiff then alleged that the delivery date was May 19, 1954, and that:

"6. Plaintiff, relying on his agreement with the defendants, and at defendants' express request, engaged counsel and an accountant and, with his assistant, went to Los Angeles, California, and to Las Vegas, Nevada, to close the transaction. Plaintiff arranged, also, for deposits of large amounts of cash in his account to enable him to pay for said bonds when issued and delivered. Plaintiff, as the defendants well knew, was at all times ready, willing, and able, in every respect, to comply with and perform his part of the agreements with the defendants.

* * * * * *

"8. Plaintiff further states that before and during the negotiations and agreement between plaintiff and defendants, plaintiff was repeatedly offered opportunities for investment of his funds and credit upon a basis profitable to plaintiff, but because of his reliance upon defendants, and at defendants' express request, plaintiff rejected all of such opportunities, not one of which is any longer available to plaintiff." (Emphasis added.)

Plaintiff further alleged defendants' refusal to "execute any of said documents prepared, and * * * failed and refused to complete their transactions, or any part thereof" with plaintiff and alleged also, on information and belief, that:

"(7) * * * secretly and unknown to plaintiff, during their negotiations with plaintiff and prior thereto, the defendants applied for, and were attempting to obtain, financing for said hotel enterprise from other sources; that they deliberately and deceitfully intended to keep and perform their contracts with the plaintiff only in the event that they failed to obtain such other financing, and that when they became successful in obtaining other means of raising funds, they wrongfully broke and abandoned their agreements with the plaintiff."

and prayed for damages in the sum of $500,000.

Defendants filed an answer, setting up as a first defense, that no cause of action was stated; as a second, the Statute of Frauds (no writing); as a third, usury; as a fourth, the Statute of Frauds (choses in action over $500); and as a fifth, after admitting (a) ownership of the real property involved, (b) that defendants refused to execute the documents prepared by plaintiff, and (c) that Gensberg (sic) Hotel Co. was negotiating for financing prior to May 20, 1954, denied all else in the complaint.

This answer was filed December 1, 1954. Seven months later on June 30, 1955, the defendants moved for a judgment on the pleadings

"dismissing the action upon the grounds that the complaint fails to state a claim against them upon which relief can be granted; and

"For judgment dismissing the action for lack of jurisdiction in this court." (Tr. 14)

Previously, on February 17, 1955, there had been a pre-trial conference. An order on the pre-trial conference was proposed as of "June ___, 1955," but was never signed or filed. The court minutes of February 17, 1955, show that an order was issued that day giving "defendants leave to file a motion to strike, dismiss; or otherwise." (Tr. 15)

On November 26, 1956, an "Order on Pretrial Conference" was filed, which ended in this manner:

"The defendants' motion for judgment on the date of entry of this Order, and their memorandum, filed February 9, 1955, may be considered as their opening brief in support of their motion. Plaintiff is given thirty (30) days from the date this order is filed to file his answering brief and defendants are given thirty (30) days thereafter to file their reply brief."

Thus the answering brief was due from plaintiff not earlier than December 26, 1956, whereupon defendants had until January 25, 1957, to answer. We presume plaintiff's brief was filed, and that defendants' was not, though the record is silent in this respect.

On December 31, 1956, the trial court rendered its opinion on the motion for judgment on the pleadings, granting it. The court stated, among other things:

"Defendants have moved for judgment on the pleadings dismissing the action upon the grounds that the complaint fails to state a claim against them upon which relief can be granted; and for a judgment dismissing the action for lack of jurisdiction. From the motion itself and from defendants' briefs in support thereof, it is apparent that this is an attack upon the complaint. * * (This) is in the nature of a demurrer to the complaint and all averments of fact contained in the complaint must be, and are, admitted for present purposes." The trial court then considered the usury defense, but discarded it for his present purpose, in the following language:

"Treating the allegations of the complaint as true, the Court cannot here determine from the bare allegations of the complaint that the transaction or transactions were designed and intended for the purposes of borrowing money. To reach such a determination, evidence of the intention of the parties would have to be heard and considered."

The trial court then considered the Statute of Frauds defense with respect to the sale of choses in action in excess of the statutory amount, without part performance or part payment. This theory was likewise discarded, with the following language:

"What was said above concerning the necessity of evidence to determine whether the alleged transaction or transactions were sales or loans applies to this contention."

The trial court then considered the defense of the Statute of Frauds because the contract allegedly transferred land and was not in writing.¹ 

The trial court cited and relied on Sleeth v. Sampson, 237 N.Y. 69, 142 N.E. 355, 30 A.L.R. 1400, 1401,²  and concluded "the contract or contracts pleaded in the complaint are within the provision of the statute of frauds set forth in § 1529 N.C.L., 1929. Defendants are entitled to judgment as a matter of law."

Thereafter certain correspondence took place between counsel for the plaintiff and the court. It need not be here detailed except to observe that the first letter from plaintiff's counsel was dated January 4, 1957; and the court first agreed to reconsider its order dismissing the complaint and fixed the date of January 23, 1957, for the hearing of such motion for reconsideration, but subsequently stated, under date of January 10, 1957:

"* * * Upon reflection, I have considerable doubt as to the authority of a trial court to review its own decision. Regardless of any such doubt, I feel that the court should stand upon the decision rendered. Your remedy is by appeal and I will not hear your proposed motion."

Meanwhile, plaintiff had submitted a proposed written motion to reconsider, in which he urged his right to amend. After the trial court's change of position, plaintiff urged that even if the motion for reconsideration should not be heard, "It would seem, under the liberal rules allowing amendments, that at the very least, plaintiff should be given leave to amend if he elects so to do."³ 

However, on the same date this request was made the trial judge signed the judgment of dismissal. It was entered, notice given, and timely appeal brings the matter here.

Briefly, this appeal may be summarized by stating that the plaintiff first urges that the doctrine of equitable estoppel is applicable, that that doctrine need not necessarily rest either on part performance or acceptance of a part of the goods, but if there was on the part of the defendant any representation (either negatively by silence or affirmatively by misrepresentation), which was sufficient to create a belief that facts existed which render it unconscionable for defendants to deny the existence of a contract, and plaintiff relied thereon and acted or failed to act, then the plaintiff's complaint should not have been dismissed. This is a correct statement of law:

"The vital principle is that he who by his language or conduct leads another to do what he would not otherwise have done, shall not subject such person to loss or injury by disappointing the expectations upon which he acted. Such a change of position is sternly forbidden. It involves fraud and falsehood, and the law abhors both." Dickerson v. Colegrove, 1879, 100 U.S. 578, 586, 25 L. Ed. 618.

This theory is not limited to cases of part performance only in most jurisdictions. We are not advised if the Nevada courts have enunciated their position on it.⁴ 

We need not consider the second point raised by appellant (breach of an oral contract to enter into a written agreement). We hold appellant did not waive his right to amend his complaint. We do not indicate any opinion whether paragraphs 6, 7 and 8 of plaintiff's complaint, partially quoted hereinbefore, are sufficient to constitute a valid pleading of equitable estoppel. Nor do we pass on the defenses defendant may or may not be able to allege and prove. We do not even say that plaintiff can eventually state a cause of action. We do say that under the circumstances of this case the granting of the motion to dismiss was arbitrary and clearly erroneous.

The judgment is reversed, for further proceeding below consonant with this opinion.