Holmes v. Harrington

Thompson, J., delivered the opinion of the court. The plaintiffs are manufacturers of shirts, collars, and cuffs, at Troy, New York. The defendant Harrington, is the sheriff of the city of St. Louis. The defendant Heilman is the assignee for the benefit of creditors of the late mercantile film of Leubrie Brothers, which did business in the city of St. Louis. In August or September, 1884, Leubrie Brothers gave an order to the plaintiffs for a lot of shirts. The plaintiffs — 664 — filled the order in installments, making, it seems, three shipments one in October, one in November, and one in December. The Leubries paid for the first shipment on December 3, and sent a check for the second shipment on December 15, which check was not paid for the reason that, on December 19, several large creditors levied attachments upon their stock of goods, and they thereupon made an immediate assignment to the defendant Heilman, for the benefit of their creditors. The plaintiffs proved up a claim before the assignee for a portion of the goods thus delivered and received a dividend thereon. For another portion, admitted to be of the value of $365.53, they brought this action of replevin against the defendant Harrington, who held the goods under the levies of the attachments, and the defendant Heilman was afterwards made a party, upon his own application. The plaintiffs found their claim of right to rescind the contract of. sale, and recover the goods in this action, upon two contentions: 1. That Leubrie Brothers being, to their own knowledge, insolvent, bought the goods of the plaintiffs fraudulently, never intending to pay for them. 2. That Leubrie Brothers made certain false and fraudulent representations touching their capital and resources to the commercial agency of R. G. Dun & Co., which representations were communicated by R. G. Dun & Co., to the plaintiffs, upon the faith of which the plaintiffs sold the goods on credit to Leubrie Brothers. I. Upon the first of these contentions of the plaintiffs, we shall content ourselves with observing that there was evidence sufficient to take the case to the jury, and that it seems to have been put to the jury upon proper and sufficient instructions. II. But upon the second contention, we have come to the conclusion, after an attentive examination of the record, that there was no evidence to take the case to the jury. Upon this question the substantial evidence was, that in October, 1883, Mr. Barbee, who was the “reporter” at St. Louis for the mercantile agency of R. G. Dun & Co., called upon Leubrie Brothers, and requested a state — 665 — ment of their financial condition. They merely referred him to their books, and from those books he drew off the following items : “That Ellis Lenbrie was credited with $31,800 ; that Lon Leubrie was credited with $27,755.59 ; that they owned, unincumbered, an opera house in Memphis, Tennessee, of the value of $22,942; that they had made so far during that year, profits to the amount of $5,005.90; that their sales were $326,130 ; and that their stock on hand was about $92,000, taken at its value, and not at cost.” They made no statement to Mr. Barbee touching the amount of their indebtedness. From these figures, Mr. Barbee constructed the following report of the financial condition of Leubrie Brothers, a copy of which was sent to various agencies of B. GK Dun & Co., including their agency at Troy, New York, where the plaintiffs did business: “ October 18, 1883. *1 Leubrie Brothers : “ Their fiscal year ended last March, and their books, which they have exhibited to us, show their condition to have been as follows : Ellis Leubrie’s investment in the business, $31,800.30; Lou Leubrie’s, $27,755.37; net profits for the year, $5,005,90; sales, $326,130; stock taken at value, net cash, $92,000 ; indebtedness, $32,455 ; claims to have made some money since then. They are at present carrying a stock of some $150,000, insured for $130,000. This would leave their indebtedness about $90,000. They also own a theater in Memphis, Tennessee, which stands them on their books, as shown us, $22,942, unincumbered; leaving their total worth, clear, $82,497.67. The small amount of net gain on the year’s business is readily explained in the usual expenses in opening a new business in a new field, their bills for advertising, etc., being very large. They expect to make more money this year. Are doing but little advertising, and have cut down their expenses largely. Their friends here have full confidence in them, and one local firm is willing to credit them for as high as $5,000 on usual time. — 666 — The liabilities are large in proportion to their capital but they are doing a large business, sell- for cash, and their ability to meet their engagements is not doubted by those who ought to be best informed about their affairs. We are informed that Mr. Maurice (in one copy Maas) will shortly be admitted to the firm. He states that m> definite arrangements are yet completed, and when he becomes a partner, notice of the change will be given. He has been here since last October. Has charge of the books and the office of the firm. Came from Memphis, Tennessee, where he was cashier of the Manhattan Bank. Parties here who know him well, say he will be a valuable acquisition to the firm. Is represented as a first-class business man of good character and reputation and estimated worth over $10,000. As to the amount he will invest he will not state, and we are unable to learn. When the change takes place, he promises a full statement in the matter.” It is perceived that this report contains on its face, contradictory statements, which a merchant might understand, but which I do not. It states in one place that their stock taken at value, net cash, is $92,000, and their indebtedness $32,455. Immediately thereafter it states that they are at present carrying a stock of some $150,000, and that this would leave their indebtedness about $90,000. It then states the item of their theater in Memphis, as shown, at $22,942, unincumbered; and from these data, it figures out their total worth, clear, at $82,497. Now, Leubrie Brothers never stated to Mr. Barbee what their total indebtedness was, or what their total worth, clear, was. Each of these essential items was the result of his own figuring; and, according to his own statements, his figuring was erroneous. He states that he arrived at what they w^ere really worth, clear, by adding togther the individual amounts of their credits, and adding to this the amount set down as the' value of their opera house. It is plain, and he admits it on cross-examination, that the value of the opera house should have been deducted from — 667 — the aggregate investment of the two partners, which, would make a difference in their worth of about $45,000, which would make them worth less than half the amount-stated in the above report. He got at their indebtedness-by a process equally erroneous. Instead of deducting the amount of their joint investment, less the value of the opera house, from the sum of $150,000, the total value-of their stock on hand, he merely deducted their aggregate investment (leaving the value of the opera house out-of view) from the before mentioned sum, by which he arrived at the conclusion, roughly stated, that their indebtedness was about $90,000. The other process would have swelled their indebtedness by a sum equal to the-stated value of the opera house. Leubrie Brothers never made any other statement of their financial condition to B. Gr. Dun & Co. They promised to make one, but upon further consideration declined, alleging as a reason that they had been unfairly treated by some of the mercantile agencies. Nevertheless, one-of their agents, Mr. Gforse, testified that he called on Leubrie Brothers in September, 1884, and requested a-statement of Mr. Maas, their business manager and treasurer. He declined giving a statement, but, according to-the testimony of Mr. Grorse, which Mr. Maas denies, stated that their indebtedness had decreased; that they had no bank liabilities, and that they owed nothing for borrowed money at the time. As the result of this interview and other information collected, B. Gr. Dun & Co. made a supplemental report concerning Leubrie Brothers, which was also communicated to these plaintiffs. It reads-as follows: “ September 10, 1884. “ Mr. Maas, the business manager of the firm, promised a statement of their affairs, on the return of Louis Leubrie from New York City. He now tells us that the firm have decided to make no statement whatever to the agencies in the future,, on account-of the unfair treatment that they have received at the hands of another — 668 — agency here within the past year. Positively declines any particulars, further than they have reduced their indebtedness materially, and now have no bank liability. Claims that they have no borrowed capital whatever in the business, and says that their business has been quite profitable. A prominent business man here, who is well acquainted with their affairs, and whose opinion is entitled to confidence, assures us that the Leubries, acting on his advice, have been reducing their liabilities to a minimum, and curtailing their business to admit of this. He says they have been doing too large a business for their capital, and, in consequence, have been owing very large sums. The statement they made last fall is considered a correct exhibit of their affairs according to their books. Though he estimates their worth in their business, at a very conservative valuation, at $40,000, and believes their property in Memphis to be worth the amount claimed. This property originally cost a considerable sum, and the Leubries’ purchase of same is regarded as advantageous. It brings an income of $5,000 annually. Without a statement from the firm we are unable to give further information.” Concerning the truthfulness of these reports it should be said that there was no evidence that the statements drawn from their books by Mr. Barbee touching the investments of the two partners, the ownership of the opera house, unincumbered, and its value, were not true. At the time of their failure, which took place on December 19, 1884, they had a stock of goods on hand of the cost value of about $250,000, and their indebtedness for goods was about $175,000, and for borrowed money about $65,-■000, making a total indebtedness of $240,000. This, it will be perceived, was about three months and nine days after the alleged statement of their affairs by Mr. Ma.a.q to Mr. Dorse. Applying the law to to the foregoing facts, we do not doubt the soundness of the proposition that the so-called mercantile agencies have become such well recognized instruments of commerce that the courts may take judicial notice of the fact, well known by the whole business com — 669 — munity throughout the country, that their principal office is to collect information concerning the financial standing of merchants and other business men, to be communicated upon request to other merchants or business men who may have occasion to extend credit to a customer. Eaton v. Avery, 83 N. Y. 31. Nor do we doubt the proposition that, since a merchant or business man who makes statements to such a mercantile agency touching his financial standing, does so with the knowledge that the purpose for which the agency obtains this information is to communicate it to other merchants or business men from whom the former may solicit credit, the merchant so giving the information to the agency occupies precisely the same position in law towards any one who is deceived thereby into giving him credit, as though he had made the communication to such customer direct. Eaton v. Avery, 83 N. Y. 31, Genesee County Savings Bank v. Mich. Barge Co., 52 Mich. 164; Lindauer v. Hay, 61 Iowa, 664. The governing principle in cases of this kind is that a person who makes a false statement for the purpose of deceiving and entrapping any one of a particular class of persons whom it may catch, is responsible for the consequences to any one whom it does catch. Ayre's Case, 25 Beavan, 513; Wontner v. Shairp, 4 C. B. 404; Davidson v. Tulloch, 1 Macq. H. L. Cas. 783; s. c., 6 Jur. N. S. 543 ; Bartholomew v. Bentley, 15 Ohio, 659 ; Cazeaux v. Mali, 25 Barb. 578, 583 ; Cross v. Sackett, 2 Bosw. 618 ; Clarke v. Dickson, 6 C. B. (N. S.) 453 ; Bedford v. Bagshaw, 4 Hurl. & N. 538 ; s. c., 29 L. J. (Exch.) 59 ; Scott v. Dixon, 29 L. J. (Exch.) 62 n.; Morgan v. Skiddy, 62 N. Y. 319. But it is a principle equally well settled that the fraudulent representation which will enable the other contracting party to avoid the contract must have been a material inducement to the making of the contract. Lord Cranworth in Western Bank of Scotland v. Addie, L. R. 1 H. L. (Scotch) 145, 158. It must be what the civilians call dolus dans locum contractui. Pulsford v. Richards, 22 L. J. Ch. 559; s. c., 17 Jur. 865; 19 Eng. L. & Eq. 387. — 670 — This does not mean that it must have been the sole inducement to the making of the contract; but jit must have been an efficient inducement operating upon the mind of the party who claims the rescission, although -other influences may have been at work upon his mind at the same time. Lord Cranworth in Nicol's Case, 3 De Gex & J. 420 ; Edgington v. Fitzmaurice, 53 L. T. Rep. (N. S.) 369 ; s. c., 22 Cent. L. J. And although nice discriminations can not be made .as to the relative weight which false and truthful statements mingling together may have had upon the mind of the party induced to make the contract,' yet it seems upon principle that it ought fairly to appear that if the false ■statements had been eliminated from the representations which were made to him, he probably would not have ■entered into the contract. But where, as in this case, many representations •were made at two different times, some of them emanating from the party who procures the contract, and others •emanating from different sources, many of them true and .some of them false, and the party who claims to have •been deceived by them does not indicate in his testimony •whether he was induced to enter into the contract by those which emanated from the other contracting party, ■or by those which emanated from other sources; or whether he was influenced by those which are shown to have been true, or by those which are shown to have been false, no ground is afforded from which any conclusion •can be drawn as to whether the false representations, which the evidence tends to show were in fact made by the other contracting party, were a material inducement to the making of the contract. Both of these plaintiffs testified as witnesses in the cause; but neither of them stated upon which of the reports of R. Gr. Bun & Co. they relied, or upon what particular statements in either report they relied. Did they rely upon the statement in the first report that Leubrie Brothers were worth clear $82,492? The statement was the mere conclusion of R. •Gr. Dun & Co., and was never made by Leubrie Brothers. — 671 — Hid they rely upon the statement that the proximate indebtedness of Leubrie Brothers was $90,000? The same may be said of this statement. Hid they rely upon the statement of their possession of unincumbered real estate of the value of $22,000, and the statement of the investments in the business of the two members of the firm and of their having made $5,000 during the preceding eight months of that year, notwithstanding the cost of advertising incident to the starting of business in a new place ? These statements are not shown to have been false. Hid they rely upon the statement alleged to have been made by Mr. Maas in the September, 1884, interview, that they had reduced their indebtedness materially, and had no bank liability ? These statements are not shown to have been false at the time they were made. This leaves but one question — and it is the crucial question upon this record — did they rely upon the statement alleged to have been made by Mr. Maas in this last interview, that they had no borrowed capital whatever in the business, and that their business had been quite profitable ? - This was a material statement, and, if made, which Mr. Maas denies, was undoubtedly false. If they relied upon this statement, and if it formed a material inducement to their selling the goods to Leubrie Brothers on credit, undoubtedly they would have the option of rescinding the sale on discovering its falsity, and they ought to succeed in this action. But if they had relied upon it, they could have said so. Instead of saying so, they said this, and only this: “Wesold and delivered these goods to Leubrie Brothers, relying on representations- made to our agent as to their solvency and ability to pay for same.” Representations made by whom ? By Leubrie Brothers, or by the merchants whose opinions R. Gf. Hun & Co. quote in each of the above reports ? To specify further, it appears that no representations of fact were made by Leubrie Brothers in the interview of 1883, which were communicated by R. Gr. Hun & Co. to the plaintiffs, as made, which are shown to have been false. Nevertheless, the court, in the fifth instruction — 672 — given for the plaintiffs, allows the jury to find for the plaintiffs upon the hypothesis of false representations made in 1883, which induced the giving of the credit. This was error, even assuming that there was evidence sufficient to take the general question to the jury, and we hold that there was not. The judgment is reversed and the cause remanded. Rombauer, J., concurs. Lewis, P. J., dissents.