Ralph v. FonDersmith

Opinion by Orlady, J., The first trial of this feigned issue resulted in a verdict for the plaintiff, which on appeal to this court was reversed for the reasons stated in 3 Pa. Superior Ct. 618, 624. On the second trial the learned trial judge affirmed a point submitted by the defendant, viz: “ under the law and the evidence the verdict in this case must be for the defendant,” and after judgment in accord with this instruction the plaintiff brings this appeal. The evidence which was rejected under the offers, taken in connection with that which was admitted, presents a radically different state of facts than was adduced on the first trial, and if believed would establish the plaintiff’s right to rescind the sale of February 21, 1895. On the first trial the evidence showed that Ralph was a subscriber to the commercial agency and that Hostetter was not connected with it in any way. There was no evidence to show that the statement furnished by Hostetter was not true in entirety and detail, and the indebtedness represented by the judgments of FonDersmith- was unquestioned. It was not shown that Hostetter ever saw the rating “ D — 2 ” as issued by the agency, nor that he knew its meaning. The evidence failed to show that any fraud, trick, artifice or false representation had been made to induce the sale, or that any material fact had been withheld from his schedule. On the retrial of the case Z. T. Wobensmith, a representative of the R. G. Dun & Co. Agency, testified that Hostetter was a subscriber to this agency, and that, as-such, he had a reference book in his place of business, and had made use of it from 1893 to the time of his failure in 1895, being entirely familiar with the book, its use, and everything contained in it. He states in his testimony that “ I may say positively, once a week we had frequent conversations about mercantile business. We had often looked at the book together and discussed the ratings of various parties. I mean our reference book, that he was a sub — 487 — scriber to at that time.” The plaintiff offered to prove (1) that Hostetter knew that “ D — 2 ” meant in the book, a rating of $40,000 to $75,000 and good credit; (2) that the report or statement made by Hostetter, upon which his rating was based, was false, in that he did not have the cash, sundry debtors, stock on hand, etc., as set forth therein; (3) that in the winter of 1894-1895 Hostetter was trading the tobacco he then bought for cigars for about one half their cost or value, and at same time bought cigars at $12.00 per 1,000 and sold the same at $6.00 to $6.50 per 1,000, and also sold tobacco for a price considerably below what it cost him; (4) that the judgments which Hostetter confessed to FonDersmith included over $36,000 to the use of W. M. Jacobs, and that he did not owe said Jacobs anything at the time the judgments were entered; (5) that Hostetter knew that he was insolvent at the time the goods were purchased. These offers were disallowed by the learned court below, and its rulings form the basis of nearly all of the assignments of error. The rejected evidence related to proof of knowledge of the insolvency of Hostetter at the time of the purchase, and that he fraudulently asserted his solvency and used his rating as a trick, artifice and representation to induce the plaintiff to part .with his goods. A subscriber to a commercial agency has a right to rely on the fairness and honesty of the statements of the financial condition made by the other subscribers. The reporting agency is the mutual agent of its subscribers in securing and communicating the desired information, and the subscribers must, from the very nature of the business, know that the rating is a representation of financial standing as of near the date of the publication of the reference book, and the representation thus made is intended to reach and influence persons who are entitled to use the book. Let it be conceded that the schedule was retained by the agency, and that the report or rating was a garbled and misleading deduction from this schedule. The testimony of Wobensmith, if believed, made Hostetter a subscriber to the agency. He was thoroughly familiar with its workings, and it was acting for him as well as for Ralph. The rejected evidence, if believed, would tend to show his knowledge of the mistake of the agency, the effect of that mis — 488 — take being that others would reasonably be misled by it, and that it was founded upon his own errors and misstatements of fact. The statement and the judgment were directly attacked as false and fraudulent in the offers represented by the eighteenth, nineteenth and twentieth assignments, and the rejected evidence covered by the twenty-fourth and twenty-fifth assignments, if believed, would tend to corroborate the plaintiff’s allegation. As was said by Rice, P. J., in Claster Bros. v. Katz, 6 Pa. Superior Ct. 487, “ Prom the very nature of the transaction a fact not disclosed may be such that it is impliedly represented not to exist, and whilst under our decisions a buyer is not held to an implied representation of solvency, he may be fairly presumed to represent that he has not deliberately set a trap for an unwary seller.” It was urged that Hostetter knew the important facts — his misstatements and the error of the agency — at the time of his purchase, and knowingly and fraudulently secured an advantage thereby. The question before us is not whether the statement was true or false, but, as to the admissibility of the rejected evidence as tending to show his knowledge of its falsity and his fraudulent use of the facts. The statement may have been true in every particular. He invited an examination of his affairs at the time when the means were readily accessible to disprove or establish its verity, and he was then willing to support it with his oath. Though the rating was unfair and misleading, and was founded upon the agency’s mistake, it is contended that it was by him ratified and adopted; that his knowledge of the system of reporting credits would require that he practice good faith; and that he must have known that “ D — 2 ” did not adequately and fairly represent the schedule. Standing alone “ D — 2 ” was without any meaning, and it was competent to prove that, as between the subscribers, it was an intelligible part of a cipher code which had a mutually well understood signification. Ralph did not avail himself of his right to secure a copy of the statement as furnished by Hostetter, while Hostetter as a subscriber would know that such an inquiry was liable to be made, and under such facts it was competent evidence to submit to a jury to aid them in determining whether — if his insolvency be established — the rating was knowingly adopted by Hostetter as a trick, artifice, or deception used, or conduct which reasonably involved a false representation to — 489 — accomplish the purpose. The right to rescind the sale did not exist unless the sale was brought about by fraud. The insolvency of the purchaser and his knowledge of it are not alone sufficient to justify the vendor in rescission of his contract. The plaintiff must go further and prove a designed fraud which was successfully practised upon him, by and through which he was induced to part with his goods, and unless, therefore, there are convincing facts in evidence to show with clear certainty that a condition of insolvency was well known to the purchaser when he asserted solvency as a means of procuring the sale of goods to himself, his assertion does not have that aspect of fraud, or artifice or misrepresentation which is required to abrogate an executed contract. If the purchaser has a right to regard himself as solvent, and firmly believes that he is so, and therefore asserts his solvency to an intending seller, who sells him goods, his assertion of solvency is certainly not fraudulent, even though insolvency actually arises before payment for the goods is made: 3 Pa. Superior Ct. 618, 627, and cases cited. If the sale was solely induced by fraud the execution creditor had no higher title to the goods than Hostetter had, and if the goods were identified, the contract could be rescinded and the execution creditor had no right to sell because Hostetter did not have any title to them: Schoeneman v. Weill, 3 Pa. Superior Ct. 119. The creditors have just the right, and no less, of their debtors. It is only because they have no higher one that plaintiff has the right to rescind at all. The purchaser’s title to the goods, and consequently the creditors’ right to appropriate them in payment of their debts, remains, until the defrauded vendor has made void that title by an effectual rescission of the contract which vested it in them: Schofield v. Shiffer, 156 Pa. 65. It was not necessary for the plaintiff to show that the Fon-Dersmith judgment was a fraudulent one in whole or in part, but it was competent for him to show that it was such, as a circumstance tending to show a general scheme on the part of Hostetter to obtain goods on a false credit, and after securing their possession have them seized and sold for his benefit on a voluntarily confessed judgment in the hands of a selected friend, with whom he colluded to effect his purpose. The judgment was good as against Hostetter. He could not assail it in this proceeding: Unangst v. Goodyear Co., 141 Pa. 127. It was — 490 — alleged to be without consideration as to $36,000 of its face, and was being asserted against this property as a part of the fraudulent plan of Hostetter to secure these goods, and if established as fraudulent it was some evidence of his original intention to defraud the plaintiff. For this purpose we think the evidence was competent, but for no other. It is true the fund was not in court for distribution, and the sole question was the title of Ralph through the rescission of his contract. It is well settled that a collusive judgment may be attached collaterally by judgment or execution creditors, who would otherwise be defrauded thereby. Whenever such a judgment, or the execution issued thereon, thus comes in conflict with the claims of creditors they may avoid its effect by showing that, as to them, it is a nullity: McNaughton’s Appeal, 101 Pa. 550; Meckley’s Appeal, 102 Pa. 536. We see no reason for refusing to an owner the same measure and means of proof to determine his title to property which can be invoked by a creditor on distribution of its proceeds. An allegation of fraud opens a wide door to the admission of evidence, and in case of a conflict of evidence, a jury is the proper tribunal to weigh it, and to determine what it proves: Landis v. Neff, 9 Atl. Rep. 926. Upon the trial of questions of fraud, every circumstance in the condition and relation of the party, and every act and declaration of the person charged with the fraud may be given in evidence, if in the opinion of the judicial mind it bears such a relation to the transaction as is calculated to persuade the jury that the allegation of fraud is or is not well founded: Glessner v. Patterson, 164 Pa. 224. In order to prove that a purchaser knew that he was insolvent when he made a purchase, declarations as to his prior insolvency made by him after his goods were levied upon are admissible: Perlman v. Sartorius, 162 Pa. 320. Every fact or circumstance from which a legal inference of fraud may be drawn is admissible: Cover v. Manaway, 115 Pa. 338; Wheeler v. Ahlers, 189 Pa. 138. The testimony of Wobensmith laid the foundation for a wide range of investigation, and while some of the offers are faulty and indefinite, and their purpose not clearly stated they are repeated in different forms, and should be treated as progressive steps to establish the controverted fact. Enough was shown — 491 — and offered to require some explanation and denial on the part of Hostetter to prevent the rescission of the sale. The eleventh, twelfth, thirteenth and fourteenth assignments of error are not sustained for the reasons given in 3 Pa. Superior Ct. 623. The other assignments are sustained. The judgment is reversed and the venire facias de novo awarded.