P. Cox Shoe Co. v. Adams

75 N.W. 316, 105 Iowa 402

• Court: Supreme Court of Iowa
• Decided: May 13, 1898
• Status: Published

Opinion

Ladd, J.

3 — The plaintiff and the cross-petitioner?, whom we shall term vendors, base their claim to the 'goods in Controversy on purchases alleged to have been fraudulently made by A. A. Adams. The mortgages under which F. O. Adams was in possession were executed after, but apparently to secure debts antedating such purchases. If so, then the mortgagees, or F. O. Adams, as their agent, could set up no defense not available to the mortgagor. Reed v. Brown, 89 Iowa, 454; Starr v. Stevenson 91 Iowa, 684. The actions, under such circumstances were maintainable at law. Some six months after these were begun F. O. Adams, trustee, answered, disclosing for the first time a new consideration for each mortgage. The stock invoiced twenty-four thousand, seven hundred and'sixty-eight dollars and ninety-seven cents. The mortgages amounted to. twenty thousand and eighty-three dollars and'thirty-eight cents, and the vendors claimed ownership of separate portions of the stock, in all valued at about eighteen thousand dollars. If these mortgages, or either of them, were found h> be valid liens, that portion of the stock to which A. A. Adams had an unquestioned title, as well as any of the goods claimed by vendors and found to belong to him, should be first applied in satisfaction thereof.” The application could not be required except in a court pf equity. In a sense, then, each vendor was adversely interested against the other as well as against A. A. and F. 0. Adams, trustee, whom we shall designate as defendants; for, if the proceeds of goods held by the defendants' against certain vendors were applied on the mortgages, the lien on the goods of those vendors who recovered would be less or might be extinguished. If the mortgages were valid liens for any sum, they operated as a complete defense in an action at law, even though that part of the stock to. which A. A. Adams had an unquestioned title was adequate for their satisfaction. Under such circumstances, resort to a court of equity was necessary, that appropriate orders might be entered for the protection of all parties. Besides, a new consideration of two hundred and fifty dollars for the mortgage to F. O. Adams, trustee, was pleaded in the answer. If this alone were sustained, it would defeat the actions at law, while in equity the mortgage might be satisfied to this extent, and defeated in so far as it secured an antecedent debt. Zucker v. Karpeles, 88 Mich. 413 (50 N. W. Rep. 373); Kitteridge v. Chapman, 36 Iowa, 348; O’Brien v. Harrison, 59 Iowa, 686; Wormley v. Wormley, 8 Wheat, 421; Dows v. Kidder, 84 N. Y. 121. The case at bar differs from Clark v. Barnes, 72 Iowa, 563, in several important particulars. There immediate possession, under..an agreement to sell in the. usual course of business, was held to impose a responsibility amounting to anew consideration, which would give priority to the mortgage over a prior unrecorded bill of sale executed as security. There the title was in the mortgagee; here, if the allegations of the petition are true, he had no title after the election to- rescind the sale. There he was bound to sell in the usual course of business; here he was unrestricted. F. O. Adams simply held the goods in controversy, in connection with others, which he might properly sell and apply on the mortgages. We do not think mere possession should defeat the claims of the defrauded vendors. See Barnard v. Campbell, 58 N. Y. 76. Virtually, this was so held in Reed v. Brown, supra. The doctrine of Clark v. Barnes ought not to be extended, and, in any event, no more than the expenses incurred under the terms of the mortgage, securing an antecedent debt may be set up as against the suit.by .a defendant vendor. These were neither pleaded nor proven. The plaintiff could not well have anticipated the disclosures of the defendant’s answers, and it was not an abuse of discretion to permit it to file the amendment setting forth a cause of action in equity praying for appropriate relief.

II. It is said, however, that a petition in replevin or detinue cannot be so amended as to become a petition in equity. The right to do so in other actionsi, prosecuted by ordinary proceedings, is well settled. Barnes v. Insurance Co., 75 Iowa, 11; Newman v. Insurance Ass’n, 76 Iowa, 56. Now, there is nothing sacred about a replevin suit. The pleadings are exceptional only as so made by statute, and in other respects are governed by the same rules, as obtain in ordinary actions. It is true possession of property may be acquired, pending litigation, by giving ample security, unless a delivery bond is. furnished. This is not for the purpose of affording either party a benefit or advantage, as suggested by the appellants, but to assure the status of the property or its equivalent in value. If, after an action to recover specific property has been begun, it develops that the plaintiff can only obtain relief in chancery, and that the issues are properly triable there, it is not perceived why he ought not to be permitted to amend his petition, and have the action transferred to that side of the calendar. The mere fact that he was misled into bringing an action in the wrong forum ought not to defeat his recovery. Code, section 3432. Under the code system of pleading, no litigant should be denied relief because of an error in the mere form of the action, when ready, by amendment, to adopt that appropriate to the relief prayed. The mere method should not obscure the results to be obtained. Where a suit in replevin is begun in order to obtain possession of the property, with the purpose of afterwards amending so as to ask equitable relief, such an amendment ought not to be permitted. But where such an action has been brought in good faith, and facts subsequently discovered indicate that the only relief sought must be had in another forum, we think! he plaintiff should be permitted to amend his petition accordingly. In such a case though, possession of the property has been acquired* the defendants are amply secured and will not be prejudiced by the change. See Code, section 3641; Cook v. Railway Co., 75 Iowa, 169; Weaver v. Kintzley, 58 Iowa, 191; Homan v. Hellman, 35 Neb. 414 (53 N. W. Rep. 369); 1 Enc. Pl. & Prac. 569.

6 III. What has been said disposes of the contention that there was a defect of parties and of causes of action in the original petition, but we understand this same objection to be urged against the consolidation of the actions. Such an objection might be urged with greater force were they on the law side of the calendar. The important inquiry in equity, however, Is with respect to the identity of the subject-matter involved. The aim is to bring in all the parties in interest, and suits will be consolidated without especial regard to the identity of parties. This is because of the power of such a court to make appropriate orders, according each party exact justice. Russell v. Bank, (Ill. Sup.), 29 N. E. Rep. 37; Moore’s Adm’r v. Francis, 17 Tex. 28; 4 Enc. Pl. & Prac. 692; Biron v. Edwards, 77 Wis. 477 (46 N. W. Rep. 813). In the last case it is said: “We cannot doubt that the power inheres in a court of equity, in its discretion, to consolidate causes pending therein, for the purpose of avoiding a multiplicity of the suits and trials, when the consolidation can work no injury to any party. This power is essential to the proper administration of justice, and does not depend upon any statute for its existence.” Section 3644 of the Code does not apply to such .a case as that before us, and we do not think the remedy there provided is exclusive. See Viele v. Insurance Co., 26 Iowa, 9; Turner v. Bradley, 85 Iowa, 512. Now, in these actions all the vendors as well as the defendants were interested in (1) the validity of each mortgage and the amount owing thereon; (2) the amount of goods, if any, held to be subject to the payment of the mortgages; (3) in the amount of goods each vendor should recover; (4) and, as will be seen, nearly all the evidence introduced was admissible on the issues raised in each petition as amended. Besides, the parties were identical, except that the plaintiff in one case was the defendant in every other. Under such circumstances, it would have been an inexcusable w aste of time to have tried each action separately, and unnecessary cost would have been incurred. We think there was such identity of interest, of subject-matter, and of parties as to warrant a court of equity, in order to avoid a multiplicity of suits, to order their consolidation.

7 IY. It will be observed that the defendant A. A. Adams is charged by each vendor with purchasing the goods with a secret intention of not paying therefor, and of executing the mortgages as a part of that scheme. If he had such an intent, and failed to disclose it, this would be a fraud on the vendor, oAving to which the sale could be rescinded. Starch Factory v. Lendrum, 57 Iowa, 581; Lindauer v. Hay, 61 Iowa, 665. See Wilmot v. Lyon, 49 Ohio, 296 (34 N. E. Rep. 720). It is also alleged by some of the vendors that he falsely represented himself as solvent, knowing 'he Avas not, and that goods were sold in reliance thereon. If so, such sales might be rescinded, and the goods recovered. Reid v. Cowduroy, 79 Iowa, 169. If the evidence bearing upon the issues raised on the petition or cross petition entitled the vendors' to recover on either of these grounds, then the conclusion of the district court must be sustained. To determine these questions, resort to the very voluminous record is necessary.

8 V. It is not necessary to allege conspiracy in order to prove similar transactions.- Only enough need be stated to warrant the relief prayed. If the issues presented involve the intention or good faith of the defendants, then, as bearing thereon, evidence is admissible of like transactions at or about the time, or that the act complained of is a part of a series of similar occurrences. If Adams had purchased but one small bill of goods through misrepresentation or concealment, it might well be argued that there was no intent to defraud, because of the small profit. But when it appears that this is only one of a series of different purchases, made under similar circumstances, and a part of a scheme to accumulate goods valued at thousands of dollars, on credit, then his fraudulent purpose is apparent. Bigelow, Fraud, 160; State v. Brady, 100 Iowa, 191; Rowley v. Bigelow, 12 Pick, 306; Insurance Co. v. Armstrong, 117 U. S. 591 (6 Sup. Ct. Rep. 877); Schofield v. Shiffer, 156 Pa. St. 65 (27 Atl. Rep. 69).

10 VI. The insolvency of A. A. Adams during 1894 is fully established by the evidence. According to his own testimony, he had a stock of fifteen thousand dollars in the spring, and owed the National State Bank two thousand, seven hundred and fifty dollars, and his brother, as trustee, about sixteen thousand dol-lam Besides this, the evidence tends to show that he was owing, on bills not due, in the neighborhood of five thousand dollars. By other witnesses the value of the stock at that time was placed at from eight thousand dollars to twelve thousand dollars. Looking at the record in the most favorable light, it indicates that he did not have property sufficient to satisfy his debts at any time during the year. When F. O. Adams took the invoice in November, 1894, the stock amounted to twenty-four thousand, seven hundred and sixty-eight dollars and ninety-seven cents. At that time A. A. Adams owed at least twenty thousand, one hundred and eighty-six dollars and seventy-two cents for goods purchased, and twenty thousand and eighty-three dollars to the bank and the trustee, making the excess over his liabilities fifteen thousand, five hundred and ten dollars and seventy-five cents. Adams explains this by saying that he did not know he owed his brother so much. All but three of the notes to F. O. Adams, as trustee, were in his handwriting, and, as he kept a set of books, he must have known approximately what was due. From these facts, and his concealment of the amounts due the bank and the trustee from Ms creditors and the commercial agencies, we are satisfied he was insolvent, and was fully .aware of his financial condition.

12 VIL- The evidence shows that A. A. Adams had been credit man in his father’s wholesale house for many years, and understood that wholesale dealers based their credit on reports gathered from commercial agencies. That they so did is proven. The representations a business man makes to commercial agencies relating to Ms business or pecuniary responsibility are expected to be communicated to others and to be .acted upon. The very business of a commercial agency is to obtain such information and communicate it to its patrons. Any one making statements to such an agency, relating to his business or responsibility, must know and be held to'intend that whatever he represents will be communicated to such of its patrons as may have occasion to inquire. When these representations are communicated to a patron of the agency, and he relies on them in selling, and they are false, he may rescind the sale. Stevens v. Ludlum, 46 Minn. 160 (48 N. W. Rep. 771); Lindauer v. Hay, 61 Iowa, 663; Carvill v. Jacks, 43 Ark. 454; Booth v. Wonderly, 36 N. J. Law, 250; Eaton v. Avery, 83 N. Y. 31; Lennessee County Sav. Bank v. Michigan Barge Co., 52 Mich. 164; 8 Am. & Eng. Enc. Law, 643. In 1893, Adams made .a statement to Bent, as agent of the American Boot & Shoe Reporting Company, in which he represented his stock to be of the value of sixteen thousand dollars; outstanding two> thousand dollar's; owing for goods on spring deliveries, not due, six thousand dollars; but gave no account of his indebtedness to his brother as trustee or to the bank. At first he declined to give any information, but finally did so. He knew its purpose, and, by concealing his indebtedness, obtained a credit he could not have otherwise had. Fifteen of the vendors sold goods to him on the faith of this report. It is said, however, that it was made nearly a year before the purchases. But, according to defendant’s testimony, his business, continued the same, and he allowed the report to continue and remain unchanged, knowing it was being used by the trade as a basis of credit. All of these vendors were entitled to rescind their contract of sale. Lindauer v. Hay, supra. To the agent of the American Shoe & Leather Association he represented that he owed no overdue bills for merchandise, and his assets exceeded his liabilities. No mention was made of the indebtedness in controversy. Geo. H. Lewis & Sons sold in reliance on this report, and should have the relief prayed.

VIII. The P. Oox Manufacturing Company requested Adams ten make a statement as a basis of credit, and he answered that he owed only three hundred and fifty dollars, mot yet due, and that the National Shoe & Leather Asiso'ciatkm could hot find, a cent of 'indebtedness against 'him. except this. Here, to an inquiry calling for his true financial condition, he responded, deliberately concealing an indebtedness exceeding the value of his stock. He referred E. H. Stearns & Co. to the above letter, and they sold in reliance on the statements it contained. E. P. Reed & Co., relied on the statement to. their agent that Ms stock wais worth seventeen thousand dollars., and he did not owe to .exceed five 'thousand 'dollars. It seemls hardly necessary to add that each of the vendors were entitled to rescind the sale owing to Adams’ fraudulent concealment of his indebtedness.

13 IX. It is insisted by the appellants that the defendants made no statement to the agent of R. G. Dnn & Co., or Bradstreet Commercial Agencies, and hence any information coming from- them was not disseminated by Ms authority. The evidence, however, conclusively shows that he knew just what these reports were, and referred vendors, to them, and also to the agencies. To. Wallace, Elliott & Co. he expressly 'suggested that R. G. Dun & Co., had a resident agent, who was well qualified to give him information. To the agent of Roney & Berger and E. A. Stark & C Oo. he said the rating of Dun & Co., of ten thousand dollars was correct, .and he did not owe five thousand dollars oh the stock. To Reynolds & Co., hie wrote that he was not advised whlat mercantile agencies they used as a basis of credit, but Dun & Co. and Bradstreet both had resident agents, .and he thought he could satisfy them. To Frank, Herman & Co. he suggested that Dnn & Co., and Bradstreet had resident agents in the city, to whom they might wish to refer. To. Medlar-Holmes Shoe Company he again made the same suggestion. Thus, it appears that he not only knew the information being disseminated by 'the agencies, but 'approved it as correct. The reports of Dun & Co. indicated the value of Ms assets over liabilities at five thousand dollars to> ten thousand dollars, and those of Bradstreet at from, three thousand dollar's to five thousand dollars, with no intimation of the large indebtedness to the bank or trustee. Those firms which he referred directly to the Dun & Co. and Bradstreet agencies, and wlm sold in reliance on the information derived therefrom, were deliberately deceived, and may rescind their siales.

15 X. Seventeen other firms sold goods in reliance on information obtained in the credit books or special reports of R. G. Dun & Co., or Bradstreet, of both. Adams had made no direct statement to these agencies, and had not referred the firms to "them. It is true he knew the information they were giving, and to other concerns approved it as reliable. But, so far as these vendors were concerned, he neither gave the information, nor authorized its use 'by them, and they cannot base a recovery on the charge that the goods were obtained by false representations through these agencies. See Dorman v. Weakley, (Tenn. Ch. App.) 39 S. W. Rep. 890. Again, the defendant urgeis that many of the vendors were not subscribers to the agencies relied on. A careful examination of the evidence shows that all but two were either subscribers or received special reports. One of these referred to the credit book of Dun & Co., and the other to that of 'the American Boot & Shoe Reporting Company. The contract of the latter company is not set out. Presumably the information gathered by it for that particular line of trade was for those connected therewith, and the vendor rightly used its reports. Eaton v. Avery, supra.

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17 XI. But Adams knew that the reports of Dun & Co. and of Bradstreet were being used as a basis of credit, and, while the seventeen' vendors had not been authorized by him. to rely on their reports, this evidence is material as bearing on the intention he bald in purchasing goods. The fact that he made express representations when necessary to aid him in accumulating an immense stock of goods will aid ih determining the purpose he had in buying of the more confiding wholesale dealers. As bearing on his purpose, evidence of the entire scheme and the methods resorted to may be considered. Now, he bought the goods in small lots, as in the ordinary course of business, from sixty-three houses, knowing that credits, if extended, would be on the basis of his rating with the commercial agencies. To many of these he directly misrepresented liis financial condition, and did so to others through agencies. When making purchases, he knew he was insolvent. He bought and received goods to- the value of at least ten thousand dollars for fall deliveries more than ever before. His sales, for the year up to November 20, 1894, were but eight thousand and fifty-nine dollars and forty-four cents, and yet he ordered twenty-two thousand dollars’ worth of goods. Adams attempts to- explain these purchases by saying he expected to op.en another store, but he had never mentioned the matter .to bis creditors, had. made no. arrange-runts for storeroom, and had merely spoken to Eeilley about managing it. Besides, be made purchases of goods similar to large -amounts he then had, after he was ¡aware Eeilley would not be with him. Agaiu, he purchased goods out of ¡season, — that is, those for fall delivery which could not, in the ordd-hary course of business, be sold till spring,— and of some lines in unusual quantities. The bills matured between January 1st and April 1st of the following year, and he must have known that it would be utterly impossible to pay but a fraction of them when matured. He continually urged the necessity of early delivery during September and October. These, facts and circumstances lead to but one conclusion, and that is that he was accumulating an immense stock of goods for a retail dealer, with no reasonable expectation off paying therefor. The demand off Stearns & Co for the immediate payment or security of its bills of eight hundred dollars was the excuse, rather than the 'cause, of executing the mortgages. The evidence amply .supports the conclusion of the district court that the purchases were made with the intention of cheating the sellers out of the purchase price.

XII. It should be stated that A. A. Adams denies making the representations heretofore referred to-, and says that he did not regard the debts to the bank and his brother, as trustee for his 'brother and sisters, as affecting his credit. His letters, however, confirm the evidence of the various agents, and Ms statements concerning the debts, in view of his intelligence and his long business experience, are unworthy of belief. The mortgage to the bank hlas been paid, and a sufficient amount remains in the hands of F. O. Adams to satisfy h'is obligation, to discharge the indebtedness of A. A. Adams to- the amount, of two hundred and fifty dollars, and to pay any costs chargeable in the foreclosure proceedings. To the Contention of the appellants, that under the tank mortgage its agent was entitled to costs and nominal damages, it. may be said that, even though true, this would not warrant a reversal. The judgments against E. H. Oowles & Oo.. and Rofitey & Berger are reversed and in a'll other respects the decree of the district court is affirmed.