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Fruit Indus. Res. Found. v. National Cash Register Co., 406 F.2d 546 (9th Cir. 1969) (full-text).
Factual Background Edit
Fruit Industries purchased a data processing computer, known as the NCR390, from National Cash Register (NCR). Fruit Industries claims that NCR, through its sales agent, fraudulently misrepresented that the NCR390 was suitable, appropriate, and adequate for service bureau data processing and computer work and that NCR would aid and assist Fruit Industries by referring customers to Fruit Industries' computer service bureau so that there would be no need for Fruit Industries to maintain a sales force of its own to procure patronage.
Three officers of Food Industries participated in making the decision to purchase the NCR390. They were Carlsen, President and Managing Director; Hunter, Vice President, Secretary, and Chief Engineer; and Fluaitt, Treasurer and Office Manager. Carlsen and Hunter had no previous knowledge that the NCR390 had any problems in its performance and Carlsen made the final decision to purchase the machine. Fluatt, however, was very active in dealing on behalf of Food Industries with NCR’s sales agent Rasmussen, and the record was clear that Fluaitt knew prior to the purchase that the computer had a relatively slow printout speed.
The written purchase contract was executed in 1961, the computer was delivered in 1962, and Food Industries made its first claims of dissatisfaction with the computer’s performance in 1963. Nevertheless, Food Industries continued to use the NCR390 until it installed a newer, more expensive computer in 1966.
Food Industries’ complaints included an alleged slow input reading rate, a slow printout rate, an inadequate memory core for the purposes required, and an inadequate capacity to do alphabetical work. However, Food Industries did not assert that Rasmussen made any specific misrepresentations about the alleged defects. It also did not state that these computer capabilities were different than as described in NCR’s sales literature.
At the time of the purchase, Fluaitt knew of the slow printout rate of the equipment. However, he claimed that he was otherwise unfamiliar with the computer and relied on Rasmussen’s representations that the slow printout rate was not significant and that the NCR390 was suitable, appropriate, and adequate for service bureau work.
Trial Court Proceedings Edit
The trial court determined that Fruit Industries had failed as a matter of law to present sufficient evidence from which a trier of fact could properly find from clear, cogent, and convincing evidence that the nine essential elements of fraud had been proved as required by Washington law.
Given that the basic complaint involved the slow printout rate and that Fluaitt knew of this slow rate at the time of purchase, Fluaitt had no right to rely on representations of the adequacy of the machine to complete the work required of it.
Appellate Court Proceedings Edit
The appellate court affirmed and ruled that lack of business experience of the vendee was a factor to be considered but a vendee was not permitted to say that he was taken advantage of if he had means of acquiring the information, or if, because of his business experience or his prior dealings, he should have acquired further information before he acted.
The general rule from several Washington cases does not operate in favor of a purchaser who knows of a defect and still makes the purchase. Even if the Court of Appeals assumed that Rasmussen misrepresented a defect, Fluaitt knew of the slow printout rate problem which constituted his basic complaint. The appellate court found that the negotiating parties were experienced businessmen, that the evidence showed that the computer's lack of printout speed was already known to Fruit Industries, and that the business impact of its slowness could have been foreseen by Fruit Industries.
Fluaitt admitted that the NCR390 could have brought in profit had his company developed sufficient business. This admission strongly suggests that Food Industries’ essential complaint stemmed from its own failure to obtain additional business. Moreover, Fluaitt’s admission weakened Food Industries’ claim that NCR promised it would obtain sufficient customers for Food Industries so that the service bureau could operate profitably. Such promises constitute only statements of intent.
The happenings between the parties could not satisfy the first necessary element of actionable fraud — [misrepresentation]] of an existing fact — unless NCR had a present intent not to attempt the future fulfillment of the promises. However, there was no proof, even by inference, that Rasmussen intended not to refer additional customers to Food Industries at the time of the allegedly fraudulent transaction. In fact, the record reveals that Rasmussen did obtain customers for Food Industries, just apparently not enough to solve its problems.