Combined Services, Inc., Plaintiff-appellee, v. Lynn Electronics Corporation, Defendant-appellant,phillip A. Yampolsky, Etc., et al., Defendants, 888 F.2d 106 (11th Cir. 1989)

This case involves a contract between Lynn Electronics Corporation (Lynn), a seller of telephone parts, and Combined Services, Inc. (CSI), a telephone manufacturer.¹  In 1986, Lynn agreed to sell eighty cartons of telephone cords to CSI in return for payment of approximately $30,000. Lynn never delivered the telephone cords, however, and CSI sued for breach of contract and also for fraud, alleging that Lynn induced CSI to enter into the contract by willfully misrepresenting that it had the telephone cords in stock and intended to deliver them. The district court granted summary judgment in favor of CSI on the issue of Lynn's liability for breach of contract and convened a jury trial to decide the issue of contract damages as well as CSI's fraud claim.²  Following the trial, the jury awarded CSI $33,633.18 in compensatory damages for breach of contract, the amount of CSI's payments to Lynn under the contract plus prejudgment interest, and an additional $150,000.00 in punitive damages for fraud.³ 

On appeal, Lynn challenges this damages award for the fraud claim on the ground that CSI's recovery for both breach of contract and fraud is legally inconsistent. We disagree. Under Alabama law, a party may recover judgment in an action at law for both breach of contract and fraud.

Alabama courts have consistently held that, where a party fraudulently conceals or misrepresents facts relating to its intention or ability to perform under a contract, "a single transaction can support an award of damages for both breach of contract and fraud." Deupree v. Butner, 522 So. 2d 242, 244 (Ala.1988); see Herring v. Prestwood, 414 So. 2d 52, 57-58 (Ala.1982); see also National Sec. Fire & Cas. Co. v. Vintson, 414 So. 2d 49, 50-51 (Ala.1982). In such cases, a plaintiff is not required to elect between contract and fraud remedies. Herring, 414 So. 2d at 58; see Deupree, 522 So. 2d at 244.⁴  In Deupree, for example, a plaintiff purchased a townhouse, which was to include a boat slip, from a developer who fraudulently concealed facts about the difficulty of obtaining the permits necessary in order to build the boat slip. The court held that the plaintiff could recover for both breach of contract and fraud. 522 So. 2d at 244-45. Similarly, in Herring, a defendant sold a plaintiff an option to purchase some farm land, but the defendant fraudulently suppressed the fact that he had no intention of selling the land after signing the option. In that case as well, the court allowed the plaintiff to recover for both breach of contract and fraud. 414 So. 2d at 57-58.

These cases control our disposition of the present case. Here, as in Deupree and Herring, the defendant fraudulently misrepresented facts concerning its intention and ability to perform obligations under a contract. As the District Court found in its summary judgment order, Lynn entered into the contract knowing that it had no telephone cords to ship and breached the contract when it failed to deliver any telephone cords. CSI reasonably relied on Lynn's misrepresentations and, as a result, was induced to enter into the contract. Following Deupree and Herring, we therefore hold that CSI was entitled to recover for both breach of contract and fraud.

Lynn claims, however, that the Deupree and Herring line of cases does not control the present case. Rather, Lynn argues that this case involved fraud in the inception of a contract--for which the remedy is inconsistent with the remedy for breach of contract--and that CSI therefore had to elect between fraud and contract remedies.

Fraud in the inception of a contract occurs when a party misrepresents a contract's effective date--a misrepresentation of law as opposed to a misrepresentation of material fact as discussed above. See U.S. Fid. & Guar. Co. v. McKinnon, 356 So. 2d 600, 607 (Ala.1978); Vintson, 414 So.2d at 50-51; see also Deupree, 522 So. 2d at 244; Herring, 414 So. 2d at 57-58. For example, in McKinnon and Vintson, insurance agents represented that the plaintiffs' policies would take effect immediately, but the policies did not actually take effect until delivery. When the plaintiffs suffered losses prior to delivery of their policies, the insurance companies refused to pay their claims. The plaintiffs sued under both fraud and contract theories, hoping under either theory to recover the equivalent of what the policies would have paid.⁵  As both the McKinnon and Vintson courts held, contract and fraud theories are inconsistent in such cases: a verdict in favor of the plaintiff on the fraud claim means that no contract existed, and a verdict on the contract claim means that no fraud occurred. In such a case, therefore, a plaintiff must elect between fraud and contract remedies. See Deupree, 522 So. 2d at 244; Vintson, 414 So.2d at 51-52; McKinnon, 356 So. 2d at 607-08.⁶ 

The present case, however, is not a fraud-in-the-inception case. Lynn's misrepresentations were not misrepresentations of law regarding the contract's effective date. Rather, they were misrepresentations of fact regarding Lynn's intention and ability to perform its obligations under that contract. We therefore reject Lynn's argument that this case involved a fraud-in-the-inception claim, in which case Alabama law would have required CSI to elect between fraud and contract remedies.

The present case involved misrepresentations of fact, not of law. CSI reasonably relied on those misrepresentations and, as a result, was induced to enter into a contract with Lynn. Under these circumstances, Alabama law allows CSI to recover for both breach of contract and fraud. The judgment below is therefore

AFFIRMED.