Wakefield Rattan Co. v. Tappan — 53 N.Y. St. Rep. 703

Majority

p. 703

The Wakefield Rattan Company, Resp’t, v. Shepard Tappan, Sheriff, App’lt.

(Supreme Court, General Term, Third Department,

Filed July 8, 1893.)

Headnote

1. Fbaudtjlent bepbesentation.

A. as bookkeeper for the Isaac Keith Co., at the request of the manager of Dun’s Commercial Agency, made a statement in March, 1890, showing the firm’s net assets to be $39,500. In September, 1890, A. stated to them that there was no change in the affairs of the firm, and this statement was submitted to plaintiff February 8, 1891. About February 1, 1891, plaintiff’s traveling salesman called at the store of the Isaac Keith Co., and one of the partners told him that the business was prosperous, the concern doing a nice business, and everything was looking promising, and its financial condition was all right, and the salesman took an order for $600 worth of baby carriages and delivered the same. In March, 1891, two judgments were recovered against the company for money loaned, amounting to $9,200, and executions for the same with two chattel mortgages amounting to $5,500, which existed at the time the representations were made, were placed in the sheriff’s hands. In March, 1891, several individual judgments against the different members of the company were recovered, but the executions were not levied upon the property of the company. Upon the trial of an action to replevin the baby carriages, as having been obtained by fraudulent representation, Held, that there was no evidence that the Isaac Keith Company had any reason at the time of the purchase to believe the firm insolvent, and that the jury were not authorized to find that the purchase of the goods by the Keith Co. was procured by fraud. „

2. Same.

It was incumbent upon the plaintiff before it could repudiate the contract of sale, to show affirmatively facts and circumstances tending to prove that the representations made by the bookkeeper at the time he was inquired of by the mercantile agency and those made by William M. Hyland to the salesman at the time of ordering the goods of plaintiff, were to the knowledge of the persons making such representations false or fraudulent.

3. Same—Evidence.

■ It was error to allow the statement of the mercantile agency, based upon the representations of the Keith Company’s bookkeeper, to be received in evidence, as there was no evidence of the authority of the bookkeeper to make such statement.

Appeal from a judgment entered in favor of the plaintiff against the defendant on the verdict of a jury at the Rensselaer circuit, and from an order denying a motion for a now trial on the minutes.

Ryan & Landon (James H. Ryan, of counsel), for app’lt; Frank S. Black, for resp’t.

This action was prosecuted by the plaintiff against the defendant to recover the possession of fifty-four (54)

p. 704

■baby carriages and twenty-two (22) brakes, of the value of six hundred and thirty-two dollars and thirty-five cents. ($632.35.)

The case showed that the property was seized by and held under an execution issued out of the supreme court in favor of the National Bank of Troy, against the Isaac Keith Co., and the theory of the action was that the' Keith Co. had no title to the property sought to be recovered, by reason of an alleged fraud, ■claimed to have been perpetrated upon the plaintiff by the Keith •Co., in the purchase of such goods.

The case shows that the Keith Co. was a firm doing business in Troy, which succeeded to a business formerly carried on by Isaac Keith and consisted of a co-partnership composed of William M. Hyland and Phoebe Link, and at the time of the organization of this co-partnership one Prank Andros, who had been the bookkeeper of Isaac Keith, deceased, continued in that capacity in the employment of the Isaac Keith Co. Soon after the Isaac Keith Co. commenced carrying on business, this bookkeeper was called upon by one W. 0. Daboll, the manager of E. Gr. Dun Mercantile Agency, at Troy, and requested to make a statement of the financial condition of the firm at that time. Pursuant to that request, Andros informed the mercantile agent what the inventory of the firm disclosed, giving in gross the value of the different articles of merchandise, the cash on hand, bills receivable, and the total of such assets; also purporting to give bills payable, the book accounts constituting the liabilities of the firm and showing net assets of thirty-nine thousand, five hundred and twenty-seven dollars and four cents ($39,527.04).

This statement was forwarded to the Edward Eussell Co. Mercantile Agency, in Boston. The mercantile agency also in the .same communication gave what purported to be the financial standing and business character of the Isaac Keith Co., and the personal and financial character of the members of such firm. This statement was made on the 1st day of March, 1890.

The case also showed that on the 13th of September, 1890, one William A. Coffey, a reporter of the E. Gr. Dun Co., called on Andros, the bookkeeper of the firm, and received from him further statements in reference to the standing and responsibility of the Isaac Keith Co., which Coffey reported to the Boston Mercantile Association as follows:

September 14, 1890.

“ Mr. Prank Andros, manager, tells us to-dav that there has been no change in their affairs since statement last March. They seem to be doing their share of the business and believed to be holding their own. They are people who are well spoken of personally, pay their bills with average promptness, and are looked upon as being responsible for their engagements.”

The above statement and the said representations were submitted to Seaver, the cash and credit clerk and salesman of the plaintiff, about the 7th or 8th of February, 1891.

The ease shows that the house of Isaac Keith had for sometime Been in the habit of purchasing goods of the plaintiff. About

p. 705

the 1st of February, 1891, John Brockett, traveling salesman of the plaintiff, called at the store of the Isaac Keith Co. and had a talk with William M. Hyland, a member of the firm, in which the latter stated that they had had an unusually good holiday business, and that the business was prosperous and the concern was doing a nice business, and everything was looking promising and its financial condition was all right. Brockett, the agent of the plaintiff, made no examination or inquiries as to how much stock the firm had, and how much in accounts were due and owing to them.

The case discloses no other recommend or statement of the pecuniary standing or responsibility of the Isaac Keith Co., or of the individual members composing that company, prior to the time of making the order for the goods. At that time an order was .given by the firm and accepted by Brockett, in behalf of the plaintiff, for fifty-four (54) baby carriages, with a request that they should be forwarded right along. The order of this class of goods by the Isaac Keith Co. previous years was from fifty (50) to four hundred dollars ($400) a year. The order on this occasion was for about six hundred dollars ($600) worth of goods. The goods were delivered and received pursuant to the order and placed in stock in the Isaac Keith Co.’s store.

The testimony of Frank Andros shows that at the time of making the report to the E. Gr. Dun Mercantile Agency, the same was a correct statement and inventory of the assets of the Isaac Keith Co.; according to his best judgment, deducting $10,000 as a liberal shrinkage on the book account for doubtful debts.

On the 20tli of March, 1891, the Central National Bank of Troy recovered a judgment against the Isaac Keith Co. for $6,170.93 upon a note of $6,000 given by that company on the 21st of October, 1890, for money loaned. On the 23rd day of March, 1891, Elizabeth Hyland recovered a judgment against the Isaac Keith Co. for $3,078.91, being upon a demand note of $3,000 given by that company for borrowed money.

These two judgments constituted the only judgments recovered against the Isaac Keith Co. which appears from the evidence. On the 23rd of March, 1891, Harriet L. Keith recovered a judgment against William M. Hyland, one of the firm of the Isaac Keith Co., for $5,016.51. This judgment appears to have been recovered on five promissory notes of $1,000 each, made by William M. Hyland to Harriet L. Keith, dated February 3, 1890. On the 23rd of March, 1891, judgment was entered in favor of Haywood Brothers against William M. Hyland and Phoebe Link, individually, for $593,95. On the 23rd of March, 1891, a judgment was entered in favor of Bichard Cunningham and entered against Phoebe Link and William M. Hyland for $1,542.01. This judgment was upon a note made by Phoebe Link and indorsed by William M. Hyland, dated December 9, 1890. An execution had been issued on the individual judgments against Harriet L. Keith and William M. Hyland, which was not, however, levied upon the property of the Isaac Keith Co., but was directed to be satisfied out of the personal property of said

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judgment debtors, or either of them, and did not contain a direction to levy against the property of the Isaac-Keith Co.

The evidence shows that the defendant, as sheriff, received and held an execution on the judgment in favor of the Central National Bank, under which he seized and held the property of' the Isaac Keith Co., and while so holding the same a mortgage against the Isaac Keith Co. in favor of H. B. Claflin & Co. for $4,000 and one for Peter McCarthy of $1,500 against the-Isaac Keith Co. were also placed on his hands for collection.

It does not appear from the case that an execution from the Elizabeth Hyland judgment against the property of the Isaac Keith Co. had been issued to the defendant at the time of the commencement of the plaintiff’s action to replevin the baby carriages.

The total liabilities, as appears from the evidence, which were being enforced against the property of the Isaac Keith Co., at the time plaintiff commenced this action, was for the $6,190.93 on the bank judgment, and $5,500 on the two chattel mortgages above referred to, and the aggregate assets, as appears from the evidence, including the book of accounts of the Isaac Keith Co., amounted to $47,000.

Assuming, therefore, that the representations made by the Isaac Keith Co.’s bookkeeper could be held as representations made by the company, and that the statement made by William M. Hyland to - the plaintiff’s sales agent, Brocket!, could be treáted as representations of the Isaac Keith Co. of their solvency and responsibility, it is difficult to see how such representations per se can be regarded as fraudulent as to the financial ability of the Isaac Keith Ob. Confessedly upon this showing the company was-at that time solvent. It is true that it owed debts, but its apparent assets were far in excess of-its liabilities. No actions had been commenced against it at the time of its purchase of these goods, and no judgments had been perfected against it at that time. The two mortgages alone, which were capable of being summarily enforced, seem to constitute the only liability against which the Isaac Keith Co. could be compelled to provide at once.

The sale of these baby carriages from the plaintiff to the Isaac Keith Co. seems to have been absolute and complete, and the title to these carriages vested in that company, unless at the time of the sale the company practiced such a fraud upon the plaintiff as-to render the contract of the sale, and the delivery under it, void.

Before the plaintiff can recover the possession of the property sold under such circumstances, it must establish five distinct propositions tending to defeat the contract:

First. The representations.

Second. Their falsity.

Third. The scienter, or guilty knowledge of the person making the representations.

Fourth. That the purchaser reneu upon and was deceived by the representations.

Fifth. The damages resulting to him in consequence thereof.

p. 707

In Arthur v. Griswold, 55 N. Y., 410 , Church, Chief justice, in discussing the question of fraudulent representations in the sale of stocks, where the validity of the sale was challenged on the ground of fraud or of fraudulent representations by the vendor as to the solvency of the corporation, uses this language: “Such an action cannot be sustained upon misplaced confidence induced by vague surmises. The rule of law requires a reasonable degree of certainty as to each requisite necessary to constitute the cause of action, viz.: representation, falsity, scienter, deception and injury.”

And this language was reiterated by Andrews, J., in Brackett v, Griswold, 112 N. Y., 467 ; 21 St. Rep. 791 .

And the learned judge adds: “There must have been false representation, known to be such, made by the defendant, calculated to influence the plaintiff, and which came to his knowledge, and in reliance upon which he, in good faith, parted with property or incurred the obligation which occasioned the injury of which he complains. All these circumstances must be found to exist, and the absence of any one of them is fatal to the recovery.”

In Nichols v. Pinner and Michael, 18 N. Y., 295 , it was held that mere omission of the purchaser of the goods to disclose his insolvency to the vendor is not a fraud for which the sale may be avoided.

That was an action like this, to recover the possession of personal property sold by the plaintiff to the defendant upon the allegation that the defendant purchased the same fraudulently and with a design not to pay for them. The complaint was for a wrongful detention of the property.

Pratt, J., in delivering the opinion of the court, said: “ To constitute a fraud in such a case there must be an intention to cheat, at least there must be an intention to do an act, the necessary result of which will be to cheat and defraud another, but it is clear that such intention is not necessarily inferable from the fact that a man in good credit, going on with his regular business, makes his usual purchases for the purpose of continuing that business after he is made aware that his property is not sufficient to pay his debts; it is not fraudulent in him to make reasonable effort to retrieve his fortune or to extricate himself from his embarrassment. It is not unnatural that he should cling to the hope that better times would come, that to-morrow should be as this day and much more abundant; and that with this hope, however delusive results may have shown it to be, he should have been impelled to buy more goods, contract new debts, and struggle on until some casualty should precipitate the catastrophe upon him and he find himself hopelessly bankrupt. This is an every day experience in the commercial world, and it would be hard indeed, if the unfortunate victim of hopes that looked to him at the time as reasonable must, in his misfortunes, be judged by the actual, instead of the possible results. The authorities do not sustain any such doctrine, but the reverse.”

And the learned judge in this case, in further discussing the question, uses this language: “ Fraud must be proved affirm

p. 708

atively. The presumption is always in favor of innocence, and not of guilt. The evidence should therefore be direct and strong which would authorize the repudiation of a contract upon the .ground of fraud, especially in executed contracts of sale where the goods have been delivered and become mingled with the .mass of the purchaser’s other property.”

The cases just cited proceed upon the theory that the pur■chaser knew or had reason to believe himself insolvent at the time of making the purchase. There is no evidence in this case that the Isaac Keith Co. or the members of that firm had any reason to suppose that firm insolvent. The evidence, so far as it discloses the apparent condition of the firm, shows net assets above .any liabilities which are disclosed by the evidence upon the inventory or estimate made by Andros toDaboll to amount to $39,524. These were firm assets and primarily liable for the firm debts, and which must be applied to the firm debts before any can be applied upon the individual debts of the individual members of the firm.

It is difficult upon this showing to see how the members of the firm could have known, or even suspected, that the firm was insolvent and unable to pay its liabilities at the time of purchasing these baby carriages. It was incumbent on the plaintiff, before it could repudiate the contract of sale, to show affirmatively facts and circumstances tending to prove that the representations made by the bookkeeper, at the time he was inquired of by the mercantile agency, and the representation of William M. Hyland, at the time of ordering the goods of plaintiff’s sales clerk, were, to the knowledge of the persons making such representation, false or fraudulent. The facts disclosed by the evidence would tend rather to prove them innocent than guilty of any such false representation. The evidence, therefore, capable of an innocent interpretation, cannot be used to establish guilt. Morris et al. v. Talcott, 96 N. Y., 100 ; Constant v. University of Rochester, 133 id., 640 ; 45 St. Rep., 252 ; Fenno v. Hannan, 32 St. Rep., 760 .

To sustain an action for fraud founded upon representations made by purchaser, it must be made to appear that he believed, or had reason to believe, at the time he made them that they were false, or that without knowledge he assumed or intended to convey the impression that he had actual knowledge of their truth when he had no such knowledge, and that the plaintiff relied upon them to his injury. Wakeman v. Dalley, 51 N. Y., 27 ; Meyer v. Amidon, 45 id.; 169; Oberlander v. Spiess, id., 175 .

The setting aside of a sale of a chattel which has been delivered on the ground of fraudulent representation by the vendee, the fraud must be clearly proved; and while fraud may be established by circumstantial evidence, it can only be by proof of such circumstances as are irreconcilable with any other theory than that of the guilt of the person accused of the fraud. Baira v. Mayor, etc., of the City of New York, 96 N. Y., 567 .

Within this rule we think the jury were not authorized, fronq the evidence in this case, to find that the purchase of these goods by the Keith Company was procured by fraud. There is no dh

p. 709

rect evidence which we have been able to find which would uphold the finding of the jury, that Hyland at the time of ordering these goods knew or had reason to believe that any representation or statement made by him as to the financial condition of the firm was untrue. As we have seen, the stock on hand and the amount of book account due the firm were far in excess of the liabilities of the firm, and those liabilities were a first charge upon the entire firm assets before any of the firm property could be applied upon the individual liabilities of the individual members of the firm; and there is nothing in the transaction, so far as the evidence discloses, from which the jury could properly infer that Hyland purchased these carriages with a fraudulent design of appropriating their value and not paying the plaintiff the pride at which they were purchased; but if there was enough in this case to authorize the jury to find the representations made by Keith Company’s bookkeeper were exaggerations of the financial condition of Keith Company, the evidence discloses no fact.tending to" establish tire bookkeeper’s authority to make any such declaration or to bind the firm by it. The case expressly shows that the representations made by the bookkeeper to the mercantile agency were not communicated to the Keith Company or either member of that firm, and that the bookkeeper had no express authority from the firm to make representations as to its financial standing which would bind the firm, and his representations to the mercantile agency would not amount to such fraudulent representations by the firm as would authorize the plaintiff to treat the sale by them of these carriages to the Keith Company and the purchase of the same by said company as fraudulent and void.

The question of fraud must therefore turn upon the statement made by Hyland at the time of making the order. That statement was that “the company had had an unusually good holiday business, was prosperous, and was doing a nice business, and everything was looking promising, and its financial condition was all right.”

Under the circumstances of this case, and within the authority, we do not think that that statement can be construed as fraudulent, so as to vitiate the sale, and it was therefore error to allow the jury to speculate upon that statement in the absence of any evidence showing that Hyland knew at the time of making the same that it was untrue.

We think it was also error to allow the statement of the mercantile agency, based upon the representations of the Keith company’s bookkeeper, to be received in evidence. There was no evidence of authority in the bookkeeper to make statements to the mercantile agency of the Keith company’s financial standing, nor was there any evidence that the Keith company knew that their bookkeeper had made such statements at the time of ordering the goods, and the acceptance of the goods by the Keith company in the absence of such knowledge was not a ratification of the statement of the bookkeeper. Bigelow on Frauds, 363.

In this case the plaintiff, having asserted the authority of the

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bookkeeper to make this statement, assumed the burden of proving affirmatively the existence of such authority. This we think it failed to do, and for that reason the declarations of the bookkeeper were not competent to bind the principal, and their reception under the defendant’s objection was error.

For these reasons, without discussing the other questions raised by the appellant, we think this judgment should be reversed.

Judgment reversed, new trial ordered, costs to abide the event.

Putnam, J., concurs in result.