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District Court of Appeal, Third District, California.

PEOPLE v. WEITZ et al.*

Cr. 2339.

Decided: March 30, 1953

O'Gara & O'Gara, San Francisco, for appellant. Edmund G. Brown, Atty. Gen., Gail A. Strader, Dep. Atty. Gen., William Biddick, Jr., Dep. Dist. Atty., Stockton, for respondent.

Appellant was indicted by the grand jury of San Joaquin County. The indictment contained ten counts of grand theft, one count of conspiracy to commit grand theft, two counts of forgery, and two counts charging violation of sections of the Corporations Code, Corporate Securities Act. After trial by jury appellant was convicted of the ten counts of grand theft, the two counts of forgery and the two counts of violating the Corporations Code; he was acquitted of the charge of conspiracy. He appeals from the judgment and from the trial court's order denying him a new trial.

The period of appellant's activities covered by the evidence ranged from April, 1949 until his indictment in November of 1950. During most of that time appellant was associated with a Mr. Nelson and a Mr. Golding. These men originally formed a partnership for the purpose of selling what is known as the Zestomat Freezer, an automatic ice cream making machine manufactured by an admittedly nationwide and reputable concern, the Taylor Freezer Corporation of Wisconsin. The partnership obtained a franchise from the Taylor Corporation granting to it an exclusive sales territory in several western states, including California. In April of 1949 the partnership became a corporation with its principal place of business at Lodi, its corporate name being Zesto Dairy Products, Inc. We shall hereafter refer to the corporation as ‘Zesto Corporation’. The purpose and plan of the business was to sell to prospective operators of retail ice cream outlets, hereafter called retailers, what might be called a ‘package deal’, which consisted of the lease of a specially designed building in which the retailer would operate a retail ice cream store, the purchase and installation of the Zestomat Freezer and related equipment, and the right to purchase raw materials and other products to be supplied by Zesto Corporation. Most of the active selling was done by appellant and for the greater part of the period involved he was the active actual head and the driving force of the enterprise. The selling, generally speaking, was accomplished as follows: Appellant would exhibit to prospective retailers a sales kit which pictured and described in detail the building to be constructed and the specially designed and manufactured machinery to be installed therein. There is no claim that any false statement or representation was made with respect to these matters. The sales kit contained also a ‘profit chart’ wherein was estimated the profits that might be made and it is not claimed there was anything false about that statement as being an opinion not honestly entertained. It is not claimed, and could not be claimed on the record here, that to induce the prospective retailer to sign the proposed contract evidencing the agreements between himself and Zesto Corporation there was any false statement or representation concerning a past or existing fact save only this, that it is claimed by the People that the contractual promises made by Zesto Corporation were false and fraudulent in that they were made with an existing intent not to perform the same. When a retailer indicated he wanted to go into the deal proposed by Zesto Corporation he made a down payment on the purchase price of the machinery to be installed, generally amounting to around $2,500. The total purchase price approximated $11,000. He often also made a deposit for rental to be paid for the lot and building, which building generally cost in the neighborhood of $10,000. He received a written receipt which stated an agreement between himself and Zesto Corporation. In substance, the agreement stated the following. It acknowledged the receipt of the money; stated that Zesto Corporation agreed to use due diligence and make reasonable endeavor to find a location suitable for the purposes of a retail store within a designated general area; provided that if such location was found within a stated time then the retailer would take a lease on the location on a standard lease form commonly used by the corporation and would sign the standard form of agreement between the corporation and its licensees who operated such retail outlets; provided that if the retailer complied with the provisions applicable to him the money received would be applied as a down payment on the sum that would be owing to the corporation under the standard agreements to be executed, but if such compliance was not had the amount so received would be retained by the corporation as liquidated damages; and provided that if the corporation was not able to find a suitable location within the stipulated time then the money received would be refunded to the retailer. The additional agreements thus referred to were two, one a lease and the other a so-called operating agreement. The lease was in the ordinary form of leases and provided for a monthly rental for a term of ten years which term was also the term of the operating agreement. The operating agreement may for our purposes here be sufficiently summarized as follows: It contained an agreement of purchase and sale of the machinery to be installed and the store to be built; it licensed the retailer for ten years in the use of the Zestomat Freezer being purchased along with other supplemental machinery and equipment as definitely described in the agreement; it bound the Zesto Corporation during the entire period not to sell or lease to anyone else or permit to be used in any manner any like Zestomat machine within a described territory, usually within a radius of a mile or more from the store location; it bound the retailer to use mix, flavors, toppings, cones, cups, etc., of high quality and to purchase all the ice cream and ice milk mix he should require for processing in the automatic machiner from a source of supply recommended by Zesto Corporation, which undertook to see that the retailer was properly supplied; it fixed the prices for mix, fluctuating according to wholesale price of a certain score butterfat per pound at a designated market such as San Francisco; it contained many other detailed provisions fixing the rights and the contractual obligations of the parties to the agreement which need not be stated here. No claim is made that the document executed did not fully cover the contractual arrangements of the parties or that they did not legally bind each of the parties to the performance of the promises therein exchanged. During the period involved numerous agreements were made with retailers, the number not being specifically shown, but being asserted to be from 1 to 200 and during the period approximately 30 retail stores were built, equipped and placed in operation. As to the others it may be said generally that the stores were not built nor the machinery furnished, and while some undetermined amount, approximating $65,000 of moneys received from retailers were restored to them, many others found themselves at last without either a machinery equipped store or a refund of their money. Yet it is not and could not be claimed that any trust relation arose with respect to funds paid in or that title thereto did not pass to the Zesto Corporation as the money was received. The accountant who testified for the People and who had examined the books, records and transactions of the Zesto Corporation and its personnel stated that the corporation received during the period involved something over $500,000 and that the money had, according to the books, been expended as follows:

The accountant testified that in his opinion 90% of the receipts were spent for proper business purposes.

After July, 1950, Zesto Corporation got into financial difficulties. In September Taylor Freezer Corporation cancelled Zesto Corporation's franchise and following that Zesto Corporation filed a petition for reorganization under the Bankruptcy Laws of the United States. In December a petition for involuntary bankruptcy was filed by its creditors—and the corporation was declared a bankrupt.

There is a voluminous record of testimony addressed to collateral matters intended to show wrongful diversion of corporate funds and other improper activity on the part of appellant and his associates respecting the corporate management. In fact, the transcript runs to nearly 5,000 pages. But so far as grand theft be concerned, the foregoing we think is a sufficient statement for the decision of the cause. We shall hereafter refer to the counts of forgery and of violation of the Corporate Securities Act and state the evidence pertinent thereto.

All of the counts of grand theft were similar and one will suffice as a sample. Count One charged that appellant, together with Golding, on or about June 18, 1950, feloniously took $4,383 in money from Lena and Ella Strimska in violation of Penal Code Section 484. This money was paid when the contracts were executed between the alleged victims and Zesto Corporation and it was never restored. Mr. Strimska testified that Zesto Corporation had found a location for him in Santa Cruz and that a lease of the ground had been obtained but the building had not been built nor the machinery delivered.

Appellant contends that the evidence is not sufficient to support his conviction upon any of the grand theft counts. Respondent contends to the contrary and states it to be the theory of the prosecution that appellant by means of his operations in the Zesto Corporation wilfully engaged in a course of conduct consisting of securing deposits from prospective operators of Zesto stores with no intention on the part of appellant to perform the contracts or to return the deposits, but on the contrary with an intention on his part to appropriate the moneys paid in to his own use. Respondent says: ‘The evidence both direct and circumstantial shows that in obtaining the money from each of the victims named in the indictment, there was an intent to defraud, that there was actual fraud committed, false pretenses were used in obtaining the money, and that the victims parted with their money under the belief that appellant intended to abide by his representation that the money would be refunded in the event no store was erected or no equipment was placed therein.’ (Though respondent speaks of false pretenses it is made clear that reference is solely to a fraudulent intent not to keep the contract.) In short, as it appears from what has been heretofore said concerning the evidence and from respondent's own statement of the theory of the prosecution, respondent seeks to sustain the convictions upon the theory that the false pretenses consisted solely in the giving of contractual promises, with no intent to perform the same. This, argues respondent, constitutes a violation of Section 484 of the Penal Code and that part thereof concerned with the obtaining of property by false pretenses. That section declares that ‘Every person * * * who shall * * * by any false or fraudulent representation or pretense, defraud any other person of money, labor or real or personal property * * * is guilty of theft.’ This language faithfully reproduces the language of the original statute declaring this crime (St. 30 George II, c. 24), which became a part of the common law in this country. That act provided that: ‘All persons who knowingly and designedly, by false pretence or pretences, shall obtain from any person or persons, money, goods, wares or merchandizes, with intent to cheat or defraud any person or persons of the same shall be deemed offenders against Law’, etc. Most, if not all, of the states of the Union have the same statute and as to what constitutes a false pretense within the meaning thereof not only English law but with surprising unanimity the judicial interpretations of the various states have declared that: 1. The pretense must be a representation as to an existing fact or a past event and not as to something to take place in the future. 35 C.J.S., False Pretenses, § 8, p. 646; see also People v. Wasservogle, 77 Cal. 173, 19 P. 270; People v. Jordan, 66 Cal. 10, 4 P. 773; People v. Green, 22 Cal.App. 45, 133 P. 334; People v. Carpenter, 6 Cal.App. 231, 91 P. 809; People v. Jackson, 24 Cal.App.2d 182, 74 P.2d 1085; People v. Downing, 14 Cal.App.2d 392, 58 P.2d 657; People v. Reese, 136 Cal.App. 657, 29 P.2d 450; People v. Robinson, 107 Cal.App. 211, 290 P. 470; People v. Moore, 82 Cal.App. 739, 256 P. 266; People v. Cale, 106 Cal.App.Supp. 777, 288 P. 430. 2. ‘A promise, although false, will generally not serve as a pretense; but, where a promise is combined with a representation of fact, there is a sufficient pretense unless the prosecution relied wholly on the promise and not at all on the representation.’ 35 C.J.S., False Pretenses, § 9, p. 648; see, also, People v. Kahler, 26 Cal.App. 449, 147 P. 228; People v. Bowman, 24 Cal.App. 781, 793, 142 P. 495; People v. Green, supra; People v. Schenone, 19 Cal.App. 280, 125 P. 758; People v. Selk, 46 Cal.App.2d 140, 115 P.2d 607; People v. Daniels, 25 Cal.App.2d 64, 76 P.2d 556; People v. Downing, 14 Cal.App.2d 392, 58 P.2d 657; People v. Reese, supra; People v. Moore, supra; People v. Walker, 76 Cal.App. 192, 244 P. 94; People v. Mace, 71 Cal.App. 10, 234 P. 841; People v. Cale, supra. And such a promise will not suffice as a pretense, however false or fraudulent it may be. 35 C.J.S., supra; see, also, People v. Jackson, supra, 24 Cal.App.2d 203, 74 P.2d 1085.

But it is the further contention of respondent that, notwithstanding the foregoing well-settled definitions of what may serve as false pretenses within the meaning of the statute and what may not so serve, this case is brought within the scope of the statute because, from the evidence here, the jury could have inferred that when the contractual promises were made there was no intent to keep them and that there was by the very execution of the contracts containing those promises an implied representation that the appellant intended they should be kept, which was false in that he then intended they should not be kept. A promise made without intention to keep it is, of course, a false promise and is declared to be fraudulent by Section 1572 of our Civil Code, which section defines what constitutes actual fraud within the meaning thereof. Such fraudulent contract may give rise to a cause of action in civil law. We are not here concerned with the civil law but with what is embraced within the meaning of the language used in Section 484 of the Penal Code which interdicts the obtaining of property by the use of false pretenses; and it has often been specifically held that though the representation of an existing intent to perform a promise when made may be, if false, the statement of an existing fact, since intent is a fact, yet such a pretense is not within the statute. In short, concealed intent not to keep a promise as to future action is not a false pretense within the meaning of the Penal Code. 24 A.L.R., Annotation, 397; State v. Shevlin, 81 N.H. 121, 123 A. 233; Commonwealth v. Althause, 207 Mass. 32, 93 N.E. 202, 207, 31 L.R.A.,N.S., 999 (holding that though as a general proposition of law, apart from statutes making it a crime to obtain property by false pretenses, it would seem that a man's present intention as to a future act is a fact, yet a false statement as to such intention is not a false pretense within the statutes making it a crime to obtain property by false pretenses. Said the court: ‘* * * the fraud of obtaining property by buying it intending not to pay for it is not, as matter of construction of the statute creating it, the crime of obtaining property by a false pretense.’)

The great weight, indeed it might be said the overwhelming weight, of authority in this country and England, where the parent statute has received interpretation for approximately 200 years, is in strict accord with the foregoing statement quoted from Commonwealth v. Althause. Early in the history of the act the proposition was advanced that, since a man impliedly declared his intention of keeping a contractual promise when made, he might be found guilty of a lack of such intent if he thereafter broke it and be guilty of the crime of obtaining property by false pretenses. There was nothing new in the basic proposition which was in accord with established theories as to fraud which governed civil law. A man's present intention it has been said is as much a fact as the state of his digestion and it can be reasonably argued that a man impliedly represents he will keep his promise if and when he makes it. A promise made without intent to perform has always been considered an act of fraud and such a declaration is contained in Section 1572 of our Civil Code. But in applying the criminal statute the English courts and nearly all of the courts in this country rejected the contention, refusing to indulge in such reasoning in a circle in respect of the criminal statute involved.

Perhaps the most noted of the cases of recent vintage dealing with this ancient controversy is that of Chaplin v. United States, decided April 15, 1946, and reported in 81 U.S.App.D.C. 80, 157 F.2d 697, 698, and in 168 A.L.R. 828, 830. Refusing to adopt the view that the statute had been wrongly construed for so long a time the majority declared:

‘Not only is the rule deeply rooted in our law, but moreover, we think the reasons upon which it is founded are no less cogent today than they were when the early cases were decided under the English statute cited by Wharton, supra. It is of course true that then, as now, the intention to commit certain crimes was ascertained by looking backward from the act and finding that the accused intended to do what he did do. However, where, as here, the act complained of—namely, failure to repay money or use it as specified at the time of borrowing—is as consonant with ordinary commercial default as with criminal conduct, the danger of applying this technique to prove the crime is quite apparent. Business affairs would be materially incumbered by the ever present threat that a debtor might be subject to criminal penalties if the prosecutor and jury were of the view that at the time of borrowing he was mentally a cheat. The risk of prosecuting one who is guilty of nothing more than a failure or inability to pay his debts is a very real consideration. It is not enough to say that if innocent the accused would be found not guilty. The social stigma attaching to one accused of a crime as well as the burdens incident to the defense would, irrespective of the outcome, place a devastating weapon in the hands of a disgruntled or disappointed creditor.’ (See also 21 Tulane Law Review, October-June, 1946–1947, page 639.)

It may be well to say at this point that a number of cases which seem to be in opposition to the rule as stated in Chaplin v. United States, supra, are cases decided under statutes which expressly include false promises with false pretenses. Such is Knickerbocker Merchandising Co. v. United States, 2 Cir., 13 F.2d 544, a case decided under United States Criminal Code 215, making it a crime to use the mails in furtherance of schemes to defraud through false pretenses and false promises.

Notwithstanding the great number of California cases which have held unqualifiedly for so long a time that promises, however false, were not pretenses within the meaning of our statute there are a few cases which apparently are to the contrary. They are People v. Ames, 61 Cal.App.2d 522, 143 P.2d 92, People v. Gordon, 71 Cal.App.2d 606, 163 P.2d 1110; People v. Mason, 86 Cal.App.2d 445, 449, 195 P.2d 60; People v. Jones, 36 Cal.2d 373, 224 P.2d 353.

It is to be noted, however, that in all of these cases except People v. Ames there were false pretenses in that there were false statements of fact, excluding the promise false for want of intention to perform the same. Therefore it was unnecessary to hold that a promise false for want of intention to perform the same when made would serve as a false pretense under the statute, and the cases were in fact not decided on that basis. We feel that these cases cannot control here. When a statute has the history of judicial interpretation which our statute has, and in its interpretation has been given the meaning of the parent English statute from which its language was taken, it is not permissible at this late date to place within its scope cases excluded for so long. To do that is to amend the statute; to usurp the functions of the legislature and to be guilty of judicial legislation. If it be desirable to place in the hands of disappointed promisees so powerful an instrument of extortion as will be placed therein by the interpretation stated in the California cases above mentioned, then in fairness the recommendation that it be so placed therein should be made to the legislature. We surmise if that were done and the legislature considered the evils of such an amendment the proposition to so amend the statute would be rejected. For the reasons given, the ten convictions of grand theft must all be reversed.

Appellant was convicted on two counts of forgery and contends that the evidence is insufficient to justify the verdicts. The facts may be briefly stated. Each count for forgery charged appellant and his wife with forging, uttering and passing a conditional sales contract with the intent to defraud Zesto Corporation, its creditors and one Fred A. Wertz. Appellant's wife signed the name of Wertz to each contract and there was ample evidence she had no authority to do so. Each contract was in form one of the retailer contracts which Zesto Corporation executed with proposed operators of retail outlets. One of these purported to bind Fred A. Wertz as such retailer to buy Zestomat equipment for $9,983, and contained all of the other promissory obligations concerning the operation of a retail store that appeared in the regular form of such contracts. The other contract was in like form and purported to bind Fred A. Wertz to purchase equipment and to operate a store, the equipment being priced at $11,483. The evidence disclosed that Wertz at the time these documents were executed knew nothing concerning the execution thereof. These contracts were executed for the corporation by Mr. Golding. But it appears that appellant planned and directed the creation of these documents and the use thereof. He testified at length concerning these matters and the uttering of the documents. He must be held guilty as a principal. Appellant asserts there is no evidence of an intent to defraud. But the jury could conclude that the attempt through a forgery to bind Wertz to such heavy and numerous obligations was proof of an intent to defraud him.

Appellant was convicted of two counts of violation of the Corporations Code, one a violation of Section 26104(a) and the other a violation of Section 26104(b). The first subsection has to do with the issuance of securities in nonconformity with the commissioner's permit and the second with the making of false statements to the commissioner in various proceedings before him. Appellant makes no contention with respect to these convictions and a reading of the record shows them to be fully supported by the evidence.

Appellant contends that the court erred in giving certain instructions and in failing to give others that were requested. These assignments of error have to do with the grand theft counts and since we are reversing the convictions thereunder we deem it unnecessary to discuss the assignments.

The appellant contends that the prosecuting attorney was guilty of prejudicial misconduct in his examination of the jury on voir dire and that the court erroneously overruled objections to the questions being asked and permitted the prosecutor to continue in his wrongful course with the result, says appellant, that he was denied a fair trial. This contention applies to all convictions. The conduct complained of was the repeated questioning of prospective jurors by the prosecuting attorney as to their being Seventh Day Adventists. There was no issue involving members of that church and none involving the church itself. So far as the record shows, no one connected with the trial in any capacity was a member of that church. If the defendants, including appellant, were such members the matter was not brought out. The prosecutor made no explanation of his conduct nor did he give any reasons why he wanted to know whether the prospective jurors were or were not members of that church. All of the jurors to whom the question was addressed replied they were not such members. Appellant contends that the conduct of the prosecuting attorney amounted to a violation of Article I, Section 4, of the California Constitution which gurantees the free exercise and enjoyment of religious profession and worship and declares that no person shall be rendered incompetent as a juror on account of religious opinions. We ourselves cannot say from this record what the purpose was in the asking of these questions. No explanation was made. On such a record we cannot say that prejudice was suffered and certainly no person was disqualified as a juror for membership in the Adventist Church since all to whom the question was addressed declared they were not members of it. Appellant's contentions of prejudicial error in this regard cannot be sustained.

The judgments of conviction of grand theft are all reversed. The judgments based on convictions of forgery and violations of the Corporations Code are affirmed, as are also the orders denying new trial in respect thereto.

VAN DYKE, Presiding Justice.

PEEK and SCHOTTKY, JJ., concur.

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