Clark v. Dunham Lumber Co.

SOMERVILLE, J. The action is one based on an alleged false representation made by defendant as to the credit and business of the Wetumpka Lumber Company, a corporation of which the defendant was president, by which representation credit was given to said company by the plaintiff, resulting in the loss of certain goods sold. The substance of the alleged representation is, that the plaintiff had already negotiated for the sale of such large quantities of lumber that it was unable • to fill these sales, thus contracted to be filled, without obtaining lumber from other mills; and that the lumber proposed to be purchased from plaintiff would be appropriated to filling these sales. It is alleged that this representation was false; that the defendant in fact consigned the lumber thus purchased to lumber-brokers, to be sold on its account, in pursuance of a previous intention to do so, which intention was known to defendant. The insolvency of the defendant corporation is also alleged. This representation is one relating to the conduct, ability, trade or dealings of the Wetumpka Lumber Company, within the meaning of section 1734 of the Code, which is a part of our statute of frauds, and provides as follows: “No action can be maintained to charge any person by reason of any representation or assurance made concerning the character, conduct, ability, trade or dealings of any other person, when such action is brought by the person to whom such representation or assurance was made, unless the same be in writing, signed by the party sought to be charged.” Code, 1889, § 1734; Code, 1876, § 2123. The representation is made by the defendant, not as to his own credit, but concerning the credit of a corporation, or third person, for whose obligations he is in no manner responsible, apax’t from such representation. The incidental interest wlxich the defendant has in the matter, as president of the defendant corporation, does not alone take the case out of the operation of the statute of frauds. A well recognized and solid distinction exists between contractual guaranties, and fraudulent representations, as to the credit of another person. “Every promise to answer for the debt, default or miscarriage of another,” is void, under the statute of frauds, unless reduced to writing, and the consid [224] eration is therein expressed. — Code, 1886, § 1732. The established doctrine of the English courts, however, has always been, since the -case of Pasley v. Freeman, decided by the King’s Bench in 1789, 3 T. R. 51, that an action would lie for a false and fraudulent representation, knowingly made, as to the solvency or credit of a third person, acted on by the plaintiff to his damage. That case settled the doctrine, based on broad principles of honesty and commercial morality, that a false affirmation, made by the defendant with intent to defraud the plaintiff, to his damage, is the ground of an action on the case in the nature of deceit. 2 Smith’s Lead. Cases (8th Ed.), Part 1, *66, and note, p. 88, and p. 96. This rule was followed by Chancellor Kent in Upton v. Vail, 6 John. 181; s. c., 5 Amer. Dec. 210, decided in 1810, and has generally prevailed in this country. The effect of the statute of frauds was, by these decisions, confined to cases of contract, and the statute was held not to include causes of action based on fraud; for, as has been well observed, “it would be a manifest perversion of the statute of frauds, to make it a shield for a deliberate wrong done.” — 2 Smith’s Lead. Cases, Pt. 1, note, 104. Section 1374 of our Code, which constituted section 1553 of Code of 1852, is substantially in the same language as Lord Tenterden’s Act (9 Geo. IV, c. 14, § 6.) Its object seems to have been to put ordinary misrepresentations in mercantile transactions upon the same footing with guaranties ; and it has accordingly been construed to embrace every incorrect or untrue misrepresentation unaccompanied by a fraudulent intent, and no other. — 3 Reed Stat. Frauds, § 1113. In other words, no representation made by a defendant, as to the character, conduct, ability, trade or dealings of a third person, even though false, can be made the basis of an action, unless reduced to writing and signed by the party sought to be charged; or unless it is fraudulently made. In the latter case, such right of action exists, outside of, and independently of the statute of frauds, the restriction of the statute having no reference to such cases. And a representation as to a third person’s credit, within this rule, to be fraudulent, must be as to some alleged fact, which the party making knows to be false, or of the truth of which he has no knowledge or well grounded belief. In the latter case, the assertion is reckless, and implies bad faith. If, at the time of making it, however, he believes it to be true, it is not fraudulent, and can not be made the basis of [225] an action against him in the nature of deceit. — Baker v. Trotter, 73 Ala. 277; Einstein v. Marshall, 58 Ala. 153; Upton v. Vail, 5 Amer. Dec. 210; note, 213; Young v. Covell, Ib. 316; 2 Smith’s Lead. Cases (8th Ed.), notes, pp. 88, 104. The rule is announced in Munroe v. Pritchett, 16 Ala. 785; Jordan v. Pickett, 78 Ala. 331, and other cases, that an action of deceit will sometimes lie for a misrepresentation made by a defendant as to a material fact, although he did not know it to be false. In Ball v. Farley, 81 Ala. 288, 292, that class of cases is distinguished from the present one. They involve representations made inter partes, between vendor and vendee, or other parties contracting, either personally, or by agents, concerning their own affairs, or some other matter than the character, credit, conduct, ability, trade or dealings of a third person, for whose debts, defaults and miscarriages they are not ordinarily liable, unless made so by their own fraud accompanied by damage. The representations made by the defendant, Clark, involved by implication the credit of the Wetumpka Lumber Company. It was an implied assertion of an extensive business, large sales, and correspondingly great commercial prosperity in business. Its falsity, accompanied by the purchase and sale of the plaintiff’s goods to meet its own want of cash, especially by an insolvent company, if established, would tend to prove the reverse. Such, at least, might reasonably be inferred by the jury to have been implied by the representation in question. The tendency of the representation', if believed, would, moreover, be to procure credit for the company, Avhich might not otherwise have been extended. It was material, if interpreted as above suggested, and may have proximately contributed to the loss sustained by the plaintiff by inducing the desired credit. It follows from these principles, that the eleventh and twelfth grounds of demurrer to the counts of the complaint should have been sustained, and were improperly overruled. There was no error in overruling the other grounds of demurrer. The first five charges requested by the defendant were, for like reasons, erroneously refused. We discover no other errors in the rulings of the Circuit Court. [Reversed and remanded.