Cochrane v. Halsey

Cornell, J. The report of the referee was made and filed, and judgment was entered thereon immediately, on the 18th day of October, 1876, without any notice to the party adversely affected by it. The first notice or knowledge the plaintiffs’ attorney had of the report or judgment, was about November 6th, following. He, thereupon, forthwith took the necessary steps for obtaining a new trial for insufficiency in the evidence, and errors of law occurring at the trial. A case was made and served, and also amendments, both under stipulations granting time, and upon its settlement, a motion, pursuant to notice, was made thereon, and upon the record and files in the action, and an affidavit of the foregoing facts, for an order of the district court vacating the report and judgment, and granting a new trial of the issues, upon the grounds specified in the notice of motion. At the hearing the preliminary objection was made that the court could not entertain the motion, because the errors complained of all occurred prior to the entry of judgment, after which, it is claimed, no motion for a new trial on such grounds can be made and heard. For causes like those upon which the plaintiffs herein base their application for a new trial, the statute expressly authorizes the vacation of the report of a referee, and the granting ■of a new trial, on motion, to be made upon a settled case, showing the errors complained of. Gen. St. c. 66, tit. 20. That it was the intention of the statute to give to every aggrieved party the right to make such an application, and to be heard thereon, can hardly be questioned. Whenever, therefore, through no fault of his, a party has had no opportunity to -exercise this right before judgment, by reason of its immedi — 61 — ate entry upon a report of which he has no notice or knowledge, he may do so afterwards, if guilty of no unreasonable delay or laches in procuring a settlement of his case, and making his motion. Conklin v. Hinds, 16 Minn. 457; Schuek v. Hagar, 24 Minn. 339. If, upon the hearing of the motion, the court becomes satisfied that the report ought to be vacated, it may also set aside the judgment, to give effectiveness to its decision. Minn. Valley R. Co. v. Doran, 15 Minn. 240. The facts of plaintiffs’ case bring it clearly within this rule, and the court below committed no error in entertaining, their motion for a new trial. The issues which the referee was called upon to determine related to certain false representations, which are alleged to have been fraudulently made by the plaintiffs, with the intent of deceiving the defendant, whereby the latter was induced to enter into the contract of copartnership which he now seeks, for that reason, to have declared void ab initio. In order to sustain the report and its findings, therefore, it must appear that they are substantially responsive to these issues, for proofs, without proper and corresponding allegations in the pleadings for their support, can never be made the foundation of a judgment, against an objection properly taken and timely interposed. Finley v. Quirk, 9 Minn. 179 (194.) Under this rule, where an action is founded upon actual fraud, a party will not be permitted to recover upon proof merely of a constructive fraud. Eyre v. Potter, 15 How. 42. For the same reason, no recovery can be had in an action for false representations fraudulently made in respect to the existence of material facts, upon proof of fraudulent concealments -in reference to other facts, which ought to have been disclosed. The grounds of defendant’s cause of action, as stated in the counterclaim contained in his answer, are the alleged false representations, (1) that the plaintiffs had been theretofore, and were then, doing a good, prosperous and profitable business, as general traders; (2) that they were entirely solvent, and able to pay all their debts and obligations, of every — 62 — nature and kind, in full; and (3) that the sum of $8,021.18, which the defendant was to pay for a one-third interest in the firm, was more than sufficient to pay and discharge all their debts and obligations in full. Believing and relying upon the truth of these representations, it is alleged that the defendant was induced to, and did, enter into the partnership. The making of the last two of these representations is expressly negatived by the findings, in which it is found that, prior to the formation of the copartnership, neither of the plaintiffs made any statements whatever to the defendant concerning their indebtedness, liabilities, financial standing, condition or solvency, or the sufficiency of said sum of $8,021.18 to pay and discharge their debts and obligations; and that the defendant made no inquiries in regard to any of such matters, nor did he ask to see their books of account, nor did the plaintiffs offer them for inspection. In respect to the first of said alleged representations, the finding is in accordance with the admission in the reply, that plaintiffs represented simply that “they were doing a good business.” Whether this representation was true or false does not appear from any specific finding upon the point, although, perhaps, an inference may be drawn in reference to it from the twenty-second finding, which relates to another matter. Conceding the fact of plaintiffs’ insolvency as found, it is difficult to see how, upon these findings, the cause of action set out in the pleadings, can be sustained. It rests alone upon the facts that plaintiffs were insolvent, and that they represented to defendant that they were doing a good business. The falsity of this statement is not established, nor is the fact found that it was made for any fraudulent purpose. Clearly, these were insufficient grounds upon which to avoid the contract. In addition to the admitted representation, that “plaintiffs were doing a good business, ” the referee finds that in making the proposition to the defendant, in response to his request, they stated that their “said business was worth a bonus, and that he (Halsey) ought to pay a bonus of four or five thou — 63 — sand dollars for the privilege of purchasing a one-third interest therein;” that these representations “created a confidence in Halsey as to their financial standing and condition,” and that “relying on said representations, and upon their silence as to their financial standing, the defendant accepted said proposition,” and entered into the agreement of copartnership. It is also found that “said business was not worth a bonus of four or five thousand dollars, or any sum or amount whatever, and said representation was untrue, as plaintiffs knew;” that they were actually insolvent, and did not disclose their insolvency to defendant, who was ignorant of the fact, and that he made no inquiries concerning it. As conclusions of law from these facts, the referee finds that it was the duty of plaintiffs to have disclosed to defendant their insolvency, and that their omission so to do was a fraud, in law, upon defendant; that their silence as to the financial condition of their firm was tantamount, in law, to an affirmation of their solvency; and that their statements that the business was worth a bonus, etc., created a confidence in Halsey, which imposed upon them the obligation or duty of making a full disclosure of the real facts in regard to their financial standing, and their omission to do so operated as a fraud upon the defendant. Upon these grounds the referee adjudged the contract to be void from the beginning. It will be observed that in none of these findings, nor in any part of the report, is it stated that the defendant believed in the plaintiffs’ solvency, or that he acted upon such belief in forming the copartnership. The finding that “the representations made created a confidence as to their financial standing and condition, ” does not specifically indicate whether defendant believed such standing to be good or bad, only that he trusted in it, whatever it was. That he was ignorant of their insolvency does not necessarily imply a belief in their solvency, or that he acted upon such belief; neither does the fact that he credited the statement that “the business Vas worth a bonus,” in any sum, imply such belief, for the truth — 64 — of the statement was not inconsistent with the fact of their insolvency. Unless this belief existed and was acted upon, it is evident that the fact of solvency or insolvency is unimportant as a ground for avoiding the contract. Moreover, the representation that “the business was worth a bonus of four or five thousand dollars, and that the defendant ought to pay that much for the privilege of purchasing an interest of one-third therein,” is but an expression of opinion respecting the value of the business, made in the way of commendation, and upon which the defendant, in the exercise of ordinary prudence, had no right whatever to place any reliance, for no-facts are disclosed showing the existence of any confidential relations between the parties, or the use of any artifice to lull the suspicions of the defendant to throw him off his guard. Kerr on Fraud, 83 et seq. A further and fatal objection to the report and the legal conclusions therein stated is found in the fact that it is wholly irresponsive to the issues made by the pleadings. Defendant’s cause of action, as stated in the answer, is not predicated upon the false representation “that the business was worth a bonus of four or five thousand dollars, and that defendant ought to pay that sum for the privilege of purchasing the interest” for which he was negotiating; nor upon the fact of plaintiffs’ insolvency, and their fraudulent concealment of it from the defendant. As the report rests chiefiy upon these two propositions, it is erroneous, and must be set aside. Although not necessary, it is not improper, in this connexion, to advert to the proposition incorporated by the referee in his conclusions of law, that “the silence of the plaintiffs in regard to the financial condition of said firm of Cochrane & Cosgrove, was, in the law, tantamount to an affirmation of their solvency.” Silence maybe taken as presumptive evidence of a fact, under circumstances imposing the duty of denying it, in case it does not exist; but we know of no such absolute rule as makes a mere omission to dis — 65 — close insolvency equivalent, as a matter of law, to a direct affirmation of solvency. As the statement of a legal proposition, it is clearly incorrect; and if we regard it simply as a conclusion of fact, we are unable to discover anything, either in the findings or evidence, that authorized the defendant to draw from plaintiffs’ silence any inference that they were solvent, and intended him so to understand. No inquiries concerning their solvency were made, and nothing was said or done by them to avoid inquiry, or that was justly calculated to mislead or divert attention from that fact. Kerr on Fraud, 108-9. The question as to the power of a district court over the report of a referee, in respect to reviewing and correcting findings upon the evidence, need not be considered, as the findings themselves, in this case, are wholly insufficient to sustain the judgment entered thereon, and we do not understand defendant to object to the power of the court in this regard. The point is made that the order of the district court is erroneous, inasmuch as it allows a portion of the judgment to stand. There is nothing in this point. It was only necessary to vacate the judgment, so far as it related to the issue that was tried by the referee, and as to which alone a new trial was granted. The rest of the judgment follows the stipulation of the parties, and is wholly unaffected by the order of the court vacating the report. Order affirmed.