Sylvester, Hilton & Co. v. Henrich & Tomlinson

93 Iowa 489

Opinion

Beemer, J.

For some years prior to th'e fourth day of September, 1888, defendants Henry Henrich and F. M. Tomlinson were engaged in the retail dry goodis and grocery business in the city of Le Mars, under the firm name of Henrich & Tomlinson. Plaintiffs are a wholesale dry goods firm doing business in thie city of New York. About the month of August, 1888, Henry Henrich went to New York, and ordered a bill of goods of the plaintiffs. He referred the plaintiffs to the defendant Le Mars National Bank for information regarding his credit, and plaintiffs wrote to the bank the following letter: “September 4, 1888. G. C. Maclagan, Cashier Le Mars National Bank, Le Marsi, Iowa: Do you consider Henrich & Tomlinson good for $1,200, four months’ credit? Please wire reply. [Signed] Sylvester, Hilton & Co.” In reply to this plaintiffs received the following telegram: “Le Mars, Iowa, Sepf. 5, ’88. Sylvester, Hilton & Go., New York: Concerning Henrich & Tomlinson, writing to-day. G. C. Maclagan, Cashier,” — followed by this letter: “Wm. H. Dent, Prest. James Tierney, V. Prest. G. C. Maclagan, Castor. Henry J. Moreton, Asst Castor. The Le Mans National Bank. Le Mars, Iowa, September 5, 1888. Mess. Sylvester, Hilton & Co. — Dear Sirs: We received your telegram about Mess. Henrich & 1 Tomlinson, but found it impossible to reply to your question by wire. Mess. Henricb & Tom-linson are doing a good business, and both are very competent men. We do not anticipate that there will be any difficulty in their meeting an obligation of one thousand two hundred dollars. As you are probably aware from reports, they own real estate which is more or less incumbered; but we think that they will be able to make sales this fall, and.thiat then they will be in a strong position. Yours, truly, Gf. C. Maclagan, Cashier.” Plaintiffs thereupon shipped' the goods ordered by Henrich, amounting to about one thousand two hundred dollars. This shipment was made about September 14,1888. On or about September 24,1888, the defendants Henrich & Tomlinson sold out their entire business in Le Mars, except book accounts and some goods in Chicago, to one Peter Branch, for the sum of about forty-six thousand dollars, and since this time the firm of Henrich & Tomlin-son, and the individual members thereof, have been insolvent. At the time of the sale, the firm and Tom-linson were indebted to the Le Mars Bunk in the sum of about thirty-six thousand dollars, and the bank accepted notes of Branch in that amount, which he made for the purchase price of the stock, in liquidation of its account against the firm of Henrich & Tomlin-son and Tomlinson individually. Plaintiffs’ bill not being paid, they obtained judgment against Henrich & Tomlinson for the amount thereof in the' District Court of Plymouth county. This suit, originally in the nature of a creditors’ bill, is to obtain satisfaction of the judgment from the defendant bank. The petition is in three counts. The first alleges, in substance, that the defendant bank received the notes from Branch well knowing that the firm of Henrich & Tomlinson was and is insolvent, 'and that it received them with intent to hinder, delay, and defraud the creditors of thie firm of Henrich & Tomlinson. The second count is really a law action to recover damages from the bank for deceit and false and fraudulent representations in writing the letter above set out, in answer to plaintiffs’ inquiries. The allegations, in substance, are that the statements contained in, the letter were false, and known to' be false, at the time the bank made them; that the officers of the bank well knew the firm of Henrich & Tomlinson was insolvent at the time the letter1 was written; that the said firm then owed the bank more than twenty-five thousand dollar's; that the letter was written for the purpose of misleading and deceiving plaintiffs, and for the further purpose of aiding the said defendant firm in obtaining the goods, so1 as/ to /add to and increase their assets, in order that the bank might profit ther eby; that shortly after receiving the goods the defendant firm sold the goods to> Branch, and that the bank received a 2 large part of the proceeds thereof. In the third count the plaintiffs allege that in February, 1888, defendants, then being indebted to the hank, executed and delivered a chattel mortgage upon their personal property to the1 bank, and the bank in consideration thereof agreed to withhold the same from record; that the bank accepted the same with intent of secretly withholding the same from the records, and did withhold the same therefrom, thereby enabling the firm of Henrich & Tomlinson to cor,firme business, and not impair their credit; that plaintiffs at the time they sold the goods had no knowledge or notice of the mortgage, and that believing in the truthfulness of the statements made by the firm, 'and the representations contained in the letter of the bank, they shipped the goods; that by reason of withholding the mortgage from record, and of the misrepresentations and acts of the defendant bank, the bank is estopped from asserting any right, claim, lien, or interest in o>r to the property of Henrich & Tomlinson prior to th'e claim or interest of plaintiffs'. Thte defendants’ answer was practically a general denial of each and every allegation and claim of the petition. The court dismissed the plaintiffs’ petition, and they appeal.

We do not understand counsel for appellants to contend that there is evidence in support of the first count of the petition; so that no attention need be paid to- it further than to sa,y that, if counsel had so claimed, we see nothing in the record which would justify their position. The controlling questions in the case relate to the second and third counts. The second count, although presenting a law action for fraud and deceit, was introduced into' this suit without objection, and we 3 first look to the law applicable to the issues presented. Ever since the case of Pasley v. Freeman, 3 Term R. 51, decided in 1789, it has been held that an- action lies for a false recommendation as to the credit of one person, by which another sustains damage, if such recommendation be made with intent to- deceive and defraud such other; and the false representation may consist in the suppression of the truth as well as in the assertion of a falsehood; and the action lies in either case if the intent to deceive exists, and is the cause of the suppression of the truth or the assertion of the falsehood. Upton v. Vail, 6 Johns. 181; Allen v. Addington, 7 Wend. 9; Addington v. Allen, 11 Wend. 374. To maintain an action for such deceit, the plaintiff must prove actual fraud, or an intention to defraud him, by false, representations. Deceit is the gist of the action; and, though the .advice given be rash and indiscreet, yet, if there is no ground to infer an intent to deceive, it will not support the action. Avery v. Chapman, 62 Iowa, 145, 17 N. W. Rep. 454; Young v. Covell, 8 Johns. 24; Upton v. Vail, supra; Holmes v. Clark, 10 Iowa, 423; McKown v. Furgason, 47 Iowa, 636; Marsh v. Falker, 40 N. Y. 562.

With these rule® for onr guide, we turn, then, to the letter written by Maclagan, the cashier of the defendant bank, of date September 5, 1888, and find that he stated, therein, the following matters: (1) That Henrich. & Tomlinson were doing a good business, and were both- very competent men; (2) that he did not anticipate there would be any difficulty in their meeting an obligation of one thousand two hundred dollars; (3) that their real estate was incumbered, but he thought they would be able to make sales in the fall, and that then they would be in a strong position. It will be noticed* that the expressions in this letter are quite carefully guarded. The only affirmation of facts is that they are doing a good business, and are both competent men. All the rest is mere expression of opinion. The evidence relied upon to establish the falsity oT these representations of fact shows that, at the time this letter w-as written, the defendant firm was indebted' in the sum of about thirty thousand dollars, and that Tomlinson had an individual indebtedness of about ten thousand dollars. It also shows that, during nearly the whole of the year in which they did business with the bank, they had an overdraft with it, and owed it about twenty thousand dollars at the time the letter was written. It also shows that at the time of the sale to Branch they were wholly insolvent. The amount of their assets is not shown, except as it may be inferred from the price received from Branch. This showing may or may not establish that they were doing a good business. It is well known that many firms in a failing condition do a good business. Indeed, we find no evidence, except in a final result, which indicates the volume of business they were doing, except the statement of the bank officers that the firm was doing a very large ’ business, and that the firm frequently represented to the bank that they were possessed of a considerable amount of property over and above their liabilities, and that they were doing a successful business. When it comes to the competency of the members of this firm as business men, we have nothing but the results of their enterprise from which to judge, and these show that a.t the time of the sale to Branch they were insolvent. Assuming, however, that the falsity of both of these facts is shown, there yet remains to be established the fact that the bank knew of the falsity of these statements at the time it made them, and that it made them with intent to deceive. No doubt, if the scienter is established, the presumption, under all the circumstances of the case, will arise that it made the statement with intent to deceive and defraud. But knowledge of the falsity of these statements on the part of some officer of the bank must be shown, else there is no fraud. The mere fact that the final result of tbe firm’s business was disastrous is not sufficient to prove this knowledge, for it is well known that men who are doing a good business, and are apparently competent and in good credit, turn out in reality to be insolvent. The evidence shows that the bank knew the firm was largely indebted, and it is clear to our minds that it thought the firm had sufficient assets to pay all debts, and did not know to the contrary until long 'after the letter of September fifth was written. As to the opinions expressed by the bank in its letter to plaintiffs with reference to the ability of the firm to meet a bill of one thousand two hundred dollars, and to its position in the event of a good fall trade, assuming that such opinions may be grounds for an action of deceit, yet here, as with reference to the statements of facts, we think there is such a lack of evidence of had faith and knowledge of ike falsity of the opinions as is fatal to plaintiffs’ recovery. We are cited to a large number of authorities by plaintiffs’ counsel to the effect that it is not necessary in a suit in equity to prove the scienter, and that equity will grant relief -on the ground of fraud, although the party representing a material fact made the assertion without knowledge whether it was true or not. Concede the rule to be as stated, as it no doubt is, 'and yet we do not see its applicability to this case. The action here is at law to recover damages for the fraud and deceit, and, under the authorities in this state before cited, scienter must be proved. ■ Courts of law and equity have concurrent jurisdiction of fraud. But when the party aggrieved chooses his forum he is bound by the rules of law applicable to his case in the form of action adopted.

II. The first count in the petition seems to embrace two propositions: First, that certain mortgages executed by the firm of Henrich & Tomlinson to the bank were fraudulent, because withheld from the records by agreement between the parties; and, second, an estoppel growing out of the transactions between the parties, which bars the defendant bank from claiming any part of the proceeds arising from the sale of the goods to Branch. The record discloses- that during nearly, if not quite, all of the time the firm was dealing with the bank, the bank held chattel mortgages upon the stock carried by the firm, and upon the real estate of the individual members thereof, and that these mortgages were withheld from the records of the county 4 where the firm did business. It does not appear, however, that they were withheld from record by agreement of the parties; and there is no-other circumstance tending to show fraud in the execution of these instruments. If it did appear that these mortgages were withheld from the records by agreement, still tlxis would mot of itself give plaintiffs a right of recovery. Defendant bank does mot claim anything under these mortgages. Its claim is that it discounted the notes given by Branch for the purchase price of the stock, and, by agreement between it and Henrich & Tomlinson, applied the proceeds upon motes it held against them. There is nothing in the record to indicate that the mortgages had any bearing upon the transaction in question. Had the defendant made any claim under these mortgages, plaintiffs might then .attack them as fraudulent, if they had furnished the necessary proof of an agreement to withhold them from record. But as defendant is making mo claim thereunder, and has at no time asked anything on account thereof, it is difficult to see what these mortgages have to do with the case. The claim of estoppel has even narrower foundation on which to rest. The mortgages before referred to have nothing, as we think, to do with the claim made in the third count in the petition. Were the defendant bank claiming some right thereunder, it may be true that it would be estopped by reason of statements made in the letter of September fifth from 5 claiming thereunder. The claim of estoppel, then, must rest upon some statement or representation in the letter of September fifth upon which plaintiffs relied and acted, and which the defendant bank is mow denying or attempting to deny in this case. A re-examination of the letter in the light of this proposition leads' us to believe that there is no statement therein inconsistent with defendant’s present claim to the money it received from the proceeds of the sale to Branch. The firm of Henrich & Tomlinson- may have been doing a good business, and may have been composed of competent men at the time the letter in question was written, and defendant’s present claim is not in contradiction of these statements. The bank may not on September 5, 1888, have anticipated any difficulty in the firm’s meeting an obligation of one thousand two hundred dollars, and yet, with perfect consistency, insist upon the claim ‘now made by it to the money received from the sale of the stock. So with reference to the last clause of the letter; there is no statement there which the bank in this case is attempting to deny. It is true the bank made no statement in this letter regarding the. mortgage it held against the firm of Henrich & Tomlinson, but, as we have said, it is not now insisting upon these mortgages. Likewise is it true that the bank did not state to plaintiffs that the firm was largely indebted to it. But it will be noticed in referring to¡ the letter, that the bank did not attempt to give any statement of the assets and 6 liabilities of the firm. The letter seems to be carefully guarded in this respect. The most that can be claimed for it in this respect is. that thie hank gave it as its opinion that there would be- no difficulty in the firm’s meeting an obligation of one thousand two hundred dollars;' and, as we have already seen, the bank cannot be held responsible therefor, unless it be shown that the opinion was given in bad faith. There .is no statement in the letter which estops the defendant bank from claiming the money arising from the sale of the stock, on the claims it held against Henrich & Tomlinson.

III. Lastly, it is insisted that with the proceeds of the sale of the stock it (the bank) liquidated certain individual liabilities- of defendant Tomlinson to it, to 7 the prejudice of the rights of firm creditors. We doubt much whether this apparent individual liability of defendant Tomlinson was not a liability of the firm to the bank. But assuming, for the purpose of the case, that it was ¡an individual liability of Tomlinson* yet it cleanly appears that both members of the firm agreed to the liquidation of the indebtedness in the manner it was done, and, this being true, the firm creditors have no cause of complaint. This subject underwent thorough consideration in the recent case of Smith v. Smith, 87 Iowa, 93, 54 N. W. Rep. 73, and the rule we have announced was clearly established. We think the court was right in dismissing the plaintiffs’ petition, and the decree is affirmed.