
    
      March 1904
    
    Pier Brothers, Appellant, v. George Doheny and Jacob Amos, as Administrators with the Will Annexed, etc., of Lucius Gleason, Deceased, Respondents.
    
      Sale on credit induced by false representations to a, commercial agency — that the vendee intended to pay for the goods does not disprove fraud— when a finding that the vendee did not intend to pay for the goods is necessary.
    
    Where the president and treasurer of a corporation makes false and fraudulent statements concerning the financial condition of the corporation to a commercial agency, with knowledge of their falsity, for the purpose of having such statements reported to the subscribers of the commercial agency and of securing credit from such subscribers, a subscriber of the commercial agency, who, in reliance upon such false and fraudulent statements reported to him by the agency, sells goods to such corporation on credit and is not paid therefor, may, although no false representations were made by the president of the corporation directly to him, rescind the sale of the goods ón the ground of fraud.
    The fact that the president of the corporation believed at the time of the purchase that the corporation could and would pay for the goods will not sustain a finding that no fraud was committed.
    While a finding that the purchase was made with a design not to pay for the goods might be necessary where there were no false representations, but merely a failure to disclose a condition of insolvency, such a finding is not required where false representations -are made and relied upon and damage results therefrom.
    Appeal by the plaintiff, Pier Brothers, from a judgment of the Supreme Court in favor of the defendants, entered in the office of the clerk of the county of Onondaga on the 20th day of July, 1903, upon the report of a referee, dismissing the complaint upon the merits.
    
      Charles H. Searle, for the appellant.
    
      Frank Hiscock and A. H. Cowie, for the respondents.
    
      
       The other cases of this term will be found in volume 93 App. Div.— [Rep.
    
   Williams, J.:

The judgment should be reversed and a new trial granted before another referee, with costs to appellant'to abide event.

The action was brought to recover damages for the conversion of twenty-six bales of hops, of the value of $1,121.

The hops were originally, the property of the plaintiff. About November 1, 1892, they were sold and delivered to the Greenway Brewing Company, and while in the possession of that company they were levied .upon by the sheriff of Onondaga county by virtue of. an execution issued upon a judgment against the company in favor of the estate of Lucius Gleason, and were sold February 9, 1893, and bid in for the said estate. After the levy, and before the sale, the plaintiff claimed the hops as its property and demanded the same of the sheriff, .who refused to surrender the same. The estate, with knowledge of the plaintiff’s claim, received the hops under the purchase at the sheriff’s sale and appropriated the same to its own use. It paid no cash for the hops, but applied the amount of the purchase price upon its execution. The plaintiff sold the hops to the brewing company upon credit, never received any part of the purchase price thereof, and its claim of title thereto was based ' upon the allegation that the purchase was induced by fraud and deceit practiced upon it by the brewing company, and by reason thereof no title to the hops passed from it to the brewing company Under the sale and delivery thereof. The question litigated in the case was the alleged fraud and deceit. The referee found that there was no fraud or deceit, and that the title did, therefore, pass to the brewing company. This finding was erroneous and should not be sustained. Fraud and deceit were clearly established by the evidence, and the plaintiff was entitled to recover in the case.

The facts with reference to this issue were not in dispute, and as found by the referee or proven in the case were as follows :

The hops in question were part of seventy bales sold and delivered at one time, the other forty-four bales having been consumed before the seizure of the property by the sheriff upon the execution. The brewing company was a corporation with 2,000 shares of stock of which 1,998 shares were held by John Greenway, the president and treasurer, 1 share by Lucius Gleason, vice-president, and 1 share by Benjamin F. Hull, secretary at the time of the sale of the hops. John Greenway was carrying on and managing the business. Plaintiff’s Hew York manager through an agent made the sale of the hops, transacting the business with John Greenway. Ho representations were made by Green way direct to the plaintiff or its manager or agent as to the condition or standing of the brewing company. The plaintiff instead of requiring any statement from Greenway or the company itself, called upon Bradstreet’s Commercial Agency for a report as to the brewing company and received one and relied thereon in making the sale and delivery of the hops upon credit, instead of requiring cash to be paid therefor. The report furnished plaintiff by the Bradstreet agency was compiled from information received from Greenway himself, and from other sources and it contained suggestions by the agency itself. Its representative visited the brewery in June, 1892, and had an extended interview with Greenway with reference to the standing and condition of the brewing company and its property, assets and liabilities. Among other things he received from Greenway some figures taken from a trial balance purporting to show approximately the assets and liabilities of the company, as follows:

Estimated value of merchandise on hand.. ........ $100,000 00

Packages....................................... 64,661 56

Bills receivable .............. 5,590 87

Accounts receivable............................. 295,988 42

Teams........................................ 12,693 19

Total assets ........................... $528,934 04 §528,934 04

Liabilities.

.Bills payable....................... $480,260 73

Bond and mortgage................. 6,950 59

487,211 32

Balance.............................. ...... $41,722 72

(These are the figures and footings as they appear in the record, but the footing of the assets is erroneous. It should be $478,934.04, and the liabilities would then exceed the assets , by the sum of $8,277.28. I have endeavored to find Out how this error occurred, whether in the printing or in the original statement, but I cannot do so.)

Greenway told the agency representative that the item of bills payable, $480,260.73, represented Gleason’s claims, for which beheld security in the form Of title to the real estate, and had been reduced to about $380,000 from collecting their accounts receivable, and that he, Green way, was then trying to negotiate a loan on the real estate to pay most, if not all, of Mr. Gleason’s claim, and with-this object in view had had an appraisal made of the value of all the buildings by two competent and conservative men, who were reliable, and their valuation of the buildings was $545,940, and that in addition to the buildings the ground they stood .on, haying a frontage on Water street of 500 feet) was worth at least '$300 a foot, making the total value of the real estate about $700,000, and these statements of Green way with the figures were .put in the report made to plaintiff. The agency also put into their report the following facts learned from other sources than Green-way or the brewing company: “ The business was established many • years ago by John Greenway, father of the above-mentioned Mr. Greenway. The company has always done a large business, but owing to losses by bad debts, &c., have not made any money of late years. At time of the senior Mr. Greenway’s death the company was quite largely indebted for. loans, the amount being about $490,000 and was owing mainly to Mr. Gleason and one or two local banks; Mr. Gleason being secured by mortgage on the company’s property. About eighteen months ago the property was sold on mortgage foreclosure, and bid in by Mr. Gleason, who now holds title to the brewery and other real estate owned by the company.” The agency also put into its report the following facts learned in. part from Gleason and Greenway, and in part from other sources: “ He (Gleason) executed a contract soon after the purchase agreeing to reconvey the brewery property to Mr. Greenway upon' his paying $12,500 on the first day of April, 1891, and $12,500 every three months thereafter until the whole of his debt is paid,, with a proviso that whenever the indebtedness to Mr. Gleason and the Third National Bank was reduced to $250,000, Mr. Gleason is to execute a deed to him, and take back a mortgage as security for the balance.” The report also contained statements of its own as follows: “ Of course in the event of Mr. Gleason’s debt being finally and fully paid, the property now owned by him becomes the property of Mr. Greenway, and would leave the company in very good condition, as its consummation would liquidate practically all of the company’s liabilities. * * * Such an arrangement (raising of money on the real property to pay Gleason’s debt) would place the company in very good condition, as their assets would not be reduced by it, and be the means of funding substantially all of their indebtedness,, presumably at a moderate rate of interest and on long time. They ask very little if any credit except what they borrow, and there is apparently no doubt- as to the company’s property being sufficient to pay Mr. Gleason’s claim without reference to the arrangement regarding the real estate. The plant is certainly valuable, and the business with good management should be successful.”

The plaintiff received this report from the agency, relied upon it, believed it to be true, and was induced thereby to sell and deliver the hops on credit and without receiving cash down therefor. The statements made by Greenway and embodied in the report were made for the purpose of being disclosed to the subscribers of the agency and of being relied upon in dealing with the brewing company. The statements were grossly false and untrue, and were known to be so by Greenway when he made them. The item of assets was grossly exaggerated. The merchandise on hand, put at $100,000,'really amounted to only about $82,000, and some of that had been transferred and was pledged for loans. The item packages, put at $64,661.56, was really worth only about one-fifth of that amount, or $15,000. The item of accounts receivable, put at $295,988.42, contained one item of $143,815.52, account against the senior John Green way, which was entirely worthless and was put in judgment and assigned to Gleason in 1890, so that the brewing company did not own it at all when this statement was made. The county and city accounts included in this item, amounting to about $73,000, were mostly old and stale. The bottling account included in this item, $72,512.57, was a nominal account, representing a branch of the business, and was of little or no value. The item Greenway estate, $6,510.62, was of no value. The item teams? $12,693.19, was exaggerated and made up'by charging to it all expenses incurred therefor. This is the uncontradicted condition of this statement as to the assets, largely founded upon the evi.dence of Greenway given on the trial. The liabilities are mostly made up of bills payable, $480,260.73. As a matter of fact this item could not be regarded as bills payable at all. It covered four judgments, amounting to $438,832.87, standing against the brewing company, but the original indebtedness for which the judgments had been covered was still carried on the company’s books, and it was, therefore, put' into this item as bills payable. Nothing was said by Greenway to the agency’s representative about any judgments against 'the company, and nothing was contained in the agency’s report to the plaintiff. The statement made by Green-way and included in the report tp plaintiff, that this item of accounts payable had been reduced to about $380,000, that is, $100,000 had been paid upon it from collecting accounts receivable was wholly false and untrue. In short, without going into further details, these statements by Greenway to the agent, which were communicated to the plaintiff, were grossly false and untrue and were well known to Greenway to be so when he made the same, and yet in the face of these facts the referee found that in making the statements Greenway did not intend to deceive, cheat or defraud the plaintiff or others who in reliance thereon sliduld deal with the company. The idea of the referee in making such a finding is apparent from the additional finding that Greenway believed the company could safely continue business and pay for its purchases, and did not intend to obtain possession of theplaintiff'’ s hops without paying for them. That is, there was no intent to deceive or defraud beccmse he believed the company could pay for the hops, and did not intend not to do so. There can be no doubt but that he made the statements for the purpose of establishing a credit with those who might deal with the company, and that the statements were communicated to the plaintiff, and it was thereby induced to give the ninety days’ credit, relying on the truth of the statements. It follows, therefore, as a matter of course, that Greenway intended to deceive the plaintiff and thereby secure its property on credit, and such, deceit resulted in damage to the plaintiff to the extent of the value of its hops sold and delivered.

That was a fraud upon the plaintiff whether Greenway believed the property could be paid for or not; whether he intended it should be paid for or not. It was not necessary to find that the purchase was made with a design not to pay for the property in order to render the company liable. While such a finding might be necessary where there were no representations, but merely a condition of insolvency, and a failure to disclose it, nothing of that kind is required when false representations are made and relied upon and damages result therefrom. (Morris v. Talcott, 96 N. Y. 100; Phoenix Iron Co. v. Hopatcong & Musconetcong, 127 id. 206; Hotchkin v. Third National Bank, Id. 329; Harrisburg Pipe Bending Co. v. Welsh, 26 App. Div. 515.)

It is well settled that fraud may be predicated upon false and fraudulent statements made by a person, firm or corporation to a commercial agency for the purpose of obtaining a favorable standing with such agency, to be reported to its subscribers, and a subscriber to such agency, who relies upon such statements and standing reported to it by the agency, and sells goods on credit, which are not paid for, may maintain an action in fraud, though no fraudulent . statements were made directly by the debtor to such subscriber. (Tindle v. Burkett, 171 N. Y. 520, and the cases therein referred to.)

Some question is raised as to whether upon the evidence here it could be said that the plaintiff relied upon the false statements of Greenway reported to it by the agency in making the sale; whether those statements were an inducing cause of giving the ninety days’ credit. Mr. Fingar, manager of plaintiff’s New York office, who was its credit man, made the sale, that is, he received the offer and on behalf of the plaintiff directed its acceptance and the delivery of the hops. Before doing so he applied to the agency for a report upon the brewing company and . secured the report in question. The plaintiff never had any previous business transaction with the brewing company and knew nothing about its condition or standing. Mr. Fingar testified before the referee that he relied absolutely upon that report; that there was a balance by the trial balance of assets over liabilities of $41,000, and there had been paid during the year $100,000 on the liabilities, and that the liabilities were secured by real estate outside the assets shown by the trial balance figures, and .he stated further that if he had known that there were judgments against the company for $30,000 and $96,000 he would not have given them any credit.

It will be remembered that nothing whatever was contained in' the report showing any judgments existed against the brewing company. The liabilities were not stated to include judgments, but were stated to be bills payable and a small bond and mortgage. An effort was made on the trial to show that Green way told the agency’s representative about the judgments, but no such evidence, was secured. Mr. Smith, the agency’s representative, testified nothing was said about a deficiency judgment, but only a foreclosure judgment upon which the real estate was sold. It does not appear that the agency at the time the representations were made to it in 1892 had any knowledge of the judgments as then existing. 'Mr. Smith said he supposed his agency knew of the recovery of the judgments in 1896 from the clerk’s office reports to them, but he was assured by Greenway in 1892 that the only liabilities then existing were bills payable, and a small bond and mortgage, and that the bills payable covered Mi’. Gleason’s claims which were secured by the title to the real estate vested in him. He said he knew judgments had been obtained, but did not know they remained then unsatisfied, and he understood from the talk with Green way that the new arrangement when the real property was sold and title vested in Gleason in 1890 superseded the old arrangements, and the land Was thereafter the security for Gleason and the bank’s claims. It cannot be .said,, therefore, that the agency in 1892, when Green way made the statement in question, knew of the existence of unsatisfied judgments against the brewing company, and it is not, therefore, necessary to consider what legal consequences would result if it had such knowledge; whether its knowledge would be imputable to the plaintiff, and whether upon the evidence of Mr. Fmgar, in that event there would be a failure to show reliance upon the report from the agency sufficient to maintain the action.

We conclude that fraud was established in this case and the find? ing of the referee that there ivas no such fraud was contrary to the evidence, and that plaintiff’s right to recover was beyond question.

Therefore, the judgment appealed from should be reversed and a new trial granted, as already stated.

All concurred; Hiscock, J., in result only.

Judgment reversed and new trial ordered, with costs to the appellant to abide the event, upon questions of law and of fact.  