Einstein, Hirsch & Co. v. Marshall

STONE, J. Commercial credit has become one of the conditions of commercial prosperity. Ability to pay, punctuality, and business qualifications are the foundations on which such commercial credit can alone be maintained. In mercantile transactions, the retail dealer must necessarily purchase from the wholesale merchant; and these two classes generally have their business residences remotely apart. When a stranger desires to purchase on credit, safety, as well as usage, requires that he shall furnish to the wholesale dealer, satisfactory assurance that he is worthy of credit. This assurance is frequently given in the form of a letter of introduction and recommendation. The wholesale merchant, having no other means of information, must, and does rely on it, if he knows and has confidence in his correspondent. Based on such recommendation alone, he parts with his merchandise, in value amounting to hundreds or thousands of dollars. And this very consequence is the expected, intended, known result of the recommendation. This being the case, common sense, as well as the law of the land, demands that good faith shall be observed in giving such recommendations. Bad faith in such case, is a fraud on him who acts upon it to his damage. The general doctrine on this subject may be stated as follows : “An action will lie against an uninterested person for making a false and fraudulent representation of a fact as then existing, (and not otherwise) to the seller, whereby the latter sustains damage by trusting the purchaser on the credit of such misrepresentation. . . . But this rule only applies to cases where the representation by a third person is known by him to be false, since otherwise it can only have weight as an expression of opinion; for if it appear to have been made by him, bona fide, he will not be liable, although it prove to be unfounded.” — Sto. Contr. § 515. See, also, Russell v. Clark, 7 Cranch, 69; Pasley v. Freeman, 3 T. R. 51; Addington v. Allen, 11 Wend. 374; Lord v. Goddard, — 160 — 13 Pet. 198; Corbit v. Gilbert, 24 Geo. 454; Haycraft v. Creasy, 2 East, 92; Tryon v. Wkitmarsh, 1 Metc. (Mass.) 1; Wakeman v. Dalley, 44 Barb. 498. In this extract, it will be observed, the author’s language is, that to be actionable, the representation must be both false and fraudulent. A representation of what is believed to be true, though false in fact, can not, .when made by a stranger, confer a right of action. It would be monstrous to hold parties civilly responsible for the consequences, to strangers, of mere errors of judgment or fact, into which they were innocently betrayed. Bad faith — the intended creation of an impression known to be false — on which another relies and acts, and thereby suffers loss, is what the law stamps with the stigma of fraud, and condemns. The known misrepresentation and its consequences consummate the fraud.— Foster v. Charles, 6 Bing. 396; Gorbet v. Brown, 8 Bing. 433; Polhill v. Walter, 3 B. & Adol. 122; Pontifex v. Rignold, 3 Scott, N. R. 390. The old case of Chandelor v. Lopus, reported in 1 Smith Lead. Cases, 77, was the case of alleged fraud in the sale of a stone, which the seller represented as a Bezoar stone, and sold as such. Action on the case to recover damages, averring that the stone was not a Bezoar stone. The case was heard in the Court of Exchequer. All the Barons, except Anderson, held “the bare affirmation that it was a Bezoar stone, without warranting it to be so, is no cause of action; and although he knew it to be no Bezoar stone, it is not material. For every one, in selling of his wares, will affirm that his wares are good, or that the horse he sells is sound; yet, if he warrants it not to be so, it is no cause of action.” We submit, if this language does not sanction looser morals than the present state of the law will justify. In a note to this case, in 1 Smith Lead. Cases, 77, the authority of this case is doubted. The later authorities, even in England, we think entirely overturn it. In Baily v. Merrell, 3 Bulstrode, 95, Croke, J., said: “Fraud, without damage, or damage, without fraud, gives no cause of action; but where these two do occur, there an action lieth.” And Lord C. B. CoMYN said: “An action upon the case for a deceit lies when a man does any deceit to the damage of another.” — Com. Big. Title, “Action upon the case for a deceit.” — A 1. In the case of Fuller v. Wilson, 3 Q. B. 58, the question was, whether an action would lie for a false representation made, which induced a trade with the person whose agent made the representation in part. Lord Denman, C. J., delivered the opinion of the court and said: Whether there — 161 — was moral fraud or not, if the purchaser was actually deceived in bis bargain, the law will relieve him from it. The question is, not what was passing in the mind of either, but whether the purchaser was in fact deceived by them, or either of them.” This doctrine was adhered to in Evans v. Collins, 5 Q. B. 804. In Evans v. Edwards, 13 C. B. 777, Maule, J., said: “I conceive that, if a man having no knowledge whatever on the subject, takes upon himself to represent a certain state of facts to exist, he does so at his peril; and, if it be done with a view to secure some benefit to himself, or to deceive a third person, he is, in law, guilty of a fraud, for he takes upon himself to warrant his own belief of the truth of that which he so asserts.” So in Taylor v. Ashton, 11 Mees & W. 401, it was said, “that in order to constitute fraud, it was not necessary to show that the defendants knew the fact they stated to be untrue; that it was enough that the fact was untrue, if they communicated that fact for a deceitful purpose.” — See, also, Pulsford v. Richards, 17 Beav. 87; Bennett v. Judson, 21 N. Y. 238. This doctrine has received the repeated and unqualified sanction of this court. In Monroe v. Pritchett, 16 Ala. 785, it was held that, “In an action on the case by the vendee against the vendor of land, to recover damages for falsely representing that the tract embraced a certain designated portion of good land, whereby the vendee was induced to make the purchase, it is not necessary to prove that the vendor knew that the representation was false at the time he made it.” — See, also, Atwood v. Wright, 29 Ala. 346; Kelly v. Allen, 34 Ala. 663; Blackman v. Johnson, 35 Ala. 252; Foster v. Kennedy, 38 Ala. 351. But, it will be observed that, in all these cases, the question arose between the seller and buyer, on an alleged misrepresentation, by the former to the latter, of some property of the land or goods he was selling. In such case, the author of the injury receives the profit of it, and it is simple morality that he shall restore the ill-gotten reward, for which he has paid nothing. We have no wish to depart from this wholesome principle. The question presented by the present record is different. The person who made the representation was a stranger to the contract, and did not, and could not, possibly derive any profit therefrom. If he be liable at all, it is simply because he has done the plaintiff an injury, “which nought enricheth him.” In Kerr on Fraud and Mistake, 324, it is said, “An action on the case for damages in the nature of a writ of deceit, lies — 162 — at law against a man for making a false and fraudulent representation, whereby another is induced to enter into a transaction, and by so doing sustains damage. If the representation be false, it is immaterial that it may have been made without any fraudulent intent, or that the party who made it may have derived no benefit from it. The principle of law is, that fraud, accompanied by damage, is, in all cases, a good cause of action. A representation, however, honestly believed to be'true by the party making it, is not, independently of the duty cast on him to know the truth, a good cause of action, although it may prove to be untrue.” In the case of Boyd v. Brown, 6 Penn. St. 310, a case presenting the question we are considering, the court said: “The ground of action is the deceit practiced upon the injured party; and this may be either by the positive statement of a falsehood, or the suppression of material facts, which the inquiring party is entitled to know. The question always is, did the defendant knowingly falsify, or wilfully suppress the truth, with a view of giving a third party a credit to which he was not entitled. It is not necessary there should be collusion between the party fasely recommending, and he who is recommended ; nor is it essential, in support of the action, that either of them intended to cheat and defraud the trusting party at the time. It is enough, if such has been the effect of the falsehood relied on. Misrepresentations of this character are frequently made from inconsiderate good nature, prompting a desire to benefit a third person, and without a view of advancing the party’s own interests, But the motives by which he was actuated do not enter into the inquiry. If he make representations productive of loss to another, knowing such representations to be false, he is responsible as for a fraudulent deceit.” In Marsh v. Falkner, 40 N, N. 562, the court said : “The burden was on the plaintiff of showing, either that the defendant knew, or had good reason for believing, that Kahn was insolvent, and that the representations were, therefore, false when they were made; or, that he intended the plaintiff should understand him to be communicating his own actual knowledge by means of them, when he possessed no knowledge upon the subject.’* In Evans v. Collins, 5 Q. B. 804, Lord Denman, C. J., delivering the opinion of the court, said; “He (the defendant) was not bound to make any statement, nor justified in maldng any which he did not know to be true; and it is just that he, not the party whom he has misled, should abide the consequences of his misconduct. The allegation that the — 163 — defendant knew bis representation to be false is, therefore, immaterial; without it, the declaration discloses enough to maintain the action; and nothing that goes beyond that necessity need be proved.” — See, also, the important case of Addington v. Allen, in New York Court of Errors, 11 Wend. 374. An unbending rule can not be laid down for all cases, where, upon the representations of an uninterested person, one trusts another, and suffers loss. Much must depend on the circumstances of the particular case. But when, as in this ease, the person recommending knows that the object of the party procuring the recommendation is to obtain credit at a distance; knows that the proposed seller is unacquainted with the financial condition and credit of the proposed buyer, the law, in harmony with good morals and good neighborhood, requires that the same shall be faithfully and truthfully given. A representation, as fact, of that which the party knows to be false; or, of that, of the truth of which he has no knowledge or well-founded belief, falls below the standard of legal requirement. And if it turn out in fact that the representation is false, and the seller is deceived and suffers loss in consequence of the sale he made on the strength of it, the party recommending must make good the loss. It is no excuse for him that he did not collude with the purchaser; that he was not interested in, or benefited by the purchase, or that he did not know whether the representation he made was true or false. Good faith requires that what he represents as fact shall be true, or, that, from a proper knowledge of the surroundings, he is justified in having an intelligent belief that what he asserts is true. Mere spirit of accommodation, or desire to serve a friend, we fear, cause many recommendations, which entail heavy loss on him who trusts, and is misled by them. It is time it should be known that he who thus knowingly, fraudulently, or even recklessly enables one to cheat another, thereby shoulders the burden himself. Candor and good faith are what the law requires; for the law does not convert a mere recommendation into a guaranty. Nor is the onus on him who recommends another to prove the truth of his recommendation. The law presumes him innocent until the contrary is shown. And, as part of this, the law, in the absence of testimony, will presume that the recommender had proper knowledge whereof he spake, and that he had an intelligent belief of the truth of what he asserted. When, however, the testimony convinces the jury that the recommendation was knowingly false, and on the strength of such recommendation credit was given, and a loss sustained, — 164 — these, with the fact that the statements in the recommendation were false, constitute deceit and a right of action in favor of the person who was influenced thereby. And when given recklessly, or from favoritism, without knowing whether it is true or false, attended by the circumstances above postulated, these are proper facts, with the other testimony in the cause, to be weighed by the jury, in. determining whether or not the defendant was guilty of the deceit charged; and, unexplained, would authorize a verdict in favor of plaintiff. We do not think the Circuit Court erred in the construction of the letter of recommendation&wkey;See words “several” and “good,” Dictionaries; see, also, Crown v. Brown, 8 Verm. 707. In the general charge to the jury, and in the first and second charge given at the instance of plaintiff, we find no error of which appellant can complain. In giving the charge numbered 4, asked by plaintiffs, the Circuit Court erred. The property owned by Heller, at the time of the recommendation, may have been insufficient of itself to pay for the goods he proposed to purchase; and yet, the goods purchased, added to his property previously owned, and his business qualifications and commercial standing, may have rendered him “good” for the “several hundred dollars” of goods, for which his solvency was vouched. We suppose that few merchants, in buying a stock of goods on time, expect, or are able to pay entirely for them, with means outside and independent of the proceeds of such goods, afterwards to be sold. The charge given ignored entirely this important resource of a merchant. Eew dealers, we apprehend, could stand this severe test. Again, this test might, and in many eases would, be utterly fallacious. The purchaser might own, “at the time the representation was made, enough property to pay” for the goods, and yet be “not good for such amount,” by reason of other debts, which rendered him insolvent. Eor this single error, the judgment of the Circuit Court is reversed, and the cause remanded.