CW Denning & Co. v. Suncrest Lumber Co.

• Decision Date: 28 July 1931
• Docket Number: No. 3128.,3128.
• Parties: C. W. DENNING & CO. v. SUNCREST LUMBER CO.
• Court: U.S. Court of Appeals — Fourth Circuit

51 F.2d 945 (1931)

C. W. DENNING & CO. v. SUNCREST LUMBER CO.

No. 3128.

Circuit Court of Appeals, Fourth Circuit.

July 28, 1931.

Felix E. Alley, of Waynesville, N. C. (S. W. Black, of Bryson City, N. C., A. Hall Johnston, of Asheville, N. C., E. P. Stillwell, of Sylva, N. C., and Alley & Alley, of Waynesville, N. C., on the brief), for appellant.

Thomas L. Johnson and J. Bat Smathers, both of Asheville, N. C. (Thomas S. Rollins, Jr., of Asheville, N. C., on the brief), for appellee.

Before PARKER, Circuit Judge, and McCLINTIC and ERNEST F. COCHRAN, District Judges.

PARKER, Circuit Judge.

This is an appeal from a judgment on promissory notes given for the purchase price of timber. The plaintiff, the Suncrest Lumber Company, was the seller of the timber, and the defendant, C. W. Denning & Company, was the purchaser. Defendant admitted the execution of the notes, but pleaded by way of counterclaim fraud and false warranty in the sale of the timber. The jury returned a verdict for plaintiff for the sum of $12,500, being half of the amount sued for; and from judgment thereon defendant has appealed.

The pertinent facts may be briefly stated: Plaintiff, being the owner of a large tract of timber land in Western North Carolina, entered into a written contract agreeing to sell and convey to the defendant the merchantable timber thereon, excepting, however, the pulp and extract wood, the hemlock and spruce timber, and so much of the chestnut timber as might not be required to complete the total of 20,000,000 feet sold to the defendant. There was no warranty as to quantity; but the contract described the timber sold as "twenty million feet of merchantable timber" on the tract of land described, and the purchaser agreed to pay therefor $100,000. The contract shows that this amount was based upon the assumption that the purchaser was obtaining 20,000,000 feet under the contract and was paying for same at the rate of $5 per thousand feet; $50,000 of the purchase price was paid in cash and notes were executed for the remainder. Two of these, amounting to $25,000, remained unpaid at the time of the institution of the action and plaintiff sought judgment for that amount.

At the time the defendant was negotiating for the purchase of the timber, plaintiff's manager, one Gaskill, stated to the officer of the defendant conducting the negotiations in its behalf that he believed the boundary of timber to contain 20,000,000 feet. He stated also that it had been cruised by one Lemieux, whose cruise showed 36,000,000 feet, but that he thought that estimate too high. A copy of Lemieux's cruise was furnished to defendant and its representatives made a visit to the timber and looked it over, without cruising or estimating it, however, for the purpose of determining upon methods of operation. Lemieux seems to have been highly regarded by both parties, and his cruise apparently satisfied them that there was at least 20,000,000 feet of timber on the land. There is no evidence that the plaintiff's manager used the cruise of Lemieux for the purpose of deceiving the agents of defendant, that he made any false representations of fact, or that he expressed any opinion which he did not honestly entertain.

After the execution of the contract, defendant entered and began cutting timber upon the land, and by April, 1929, had cut approximately eight and one-half million feet therefrom and had paid $75,000 on the purchase price. It then ceased operations because of the condition of the lumber market, which had declined, and because it had on hand a large quantity of lumber which it was unable to sell. Shortly thereafter, its mill was destroyed by fire. It failed to pay the notes given for the remainder of the purchase price and, when suit was instituted by plaintiff, pleaded that there was a deficiency in the timber sold entitling it to a cancellation of the notes outstanding and to a recovery by way of counterclaim of payments already made in excess of the value of the timber conveyed. Defendant introduced evidence showing that the merchantable timber on the boundary did not exceed 15,000,000 feet. The evidence of plaintiff, on the other hand, showed that it was well in excess of 20,000,000 feet.

The trial judge charged the jury that there was no evidence of fraud and withdrew that issue from their consideration. He also withdrew defendant's claim of damages on account of loss of prospective profits on the deficiency in the timber conveyed. He instructed the jury that there was no warranty of quantity in the sale of the timber, but further instructed them that if they should find that there was less than 20,000,000 feet, defendant would be entitled to recover for the shortage at the rate of $5 per thousand feet and would be entitled to credit the amount of the recovery on the notes sued on and have judgment against the plaintiff for the balance if any. The jury returned a verdict for plaintiff for the sum of $12,500, which under the charge amounted to a finding by them that there was a shortage of 2,500,000 feet. Three questions are presented by the appeal: (1) Whether there was error in withdrawing the issue of fraud from the consideration of the jury; (2) whether there was error in withdrawing from consideration on the issue of damages defendant's claim to prospective profits on the timber as to which there was a deficiency; and (3) whether there was prejudicial error in the instruction that there was no warranty as to the quantity of the timber sold. We think that all of these questions must be answered in the negative.

Defendant's contention as to fraud must fail because there is no evidence of scienter or fraudulent intent. There is evidence, it is true, that plaintiff's manager stated to the representative of defendant that there was 20,000,000 feet of merchantable timber on the land; but the evidence shows that he stated this as a mere estimate or opinion, and there is no evidence that he did not honestly entertain such opinion. On the contrary, the evidence leads irresistibly to the conclusion that he did entertain it both at the time the opinion was expressed and also at the time of the trial. He furnished defendant's representative with copy of the Lemieux cruise showing that the amount of timber on the land was largely in excess of 20,000,000 feet, but at the same time warned him that he regarded this estimate as high and invited investigation. Expressions of opinion and estimates by one having peculiar knowledge of the facts of a situation, or in position to have such knowledge, may in some circumstances amount to fraud; but before they can be deemed fraudulent it must appear that they were made with knowledge of their falsity or in reckless disregard of truth. They can never be deemed fraudulent where the party making them honestly believes them to be true and has a reasonable basis for such belief.

A case directly in point is the recent decision of this court in Halsey v. Minnesota-South Carolina Land Co. (C. C. A. 4th) 28 F.(2d) 720, 722, where the question is fully discussed in the light of the controlling authorities. In that case it was alleged that plaintiff had purchased certain timber rights from defendant because of representations by the latter that the timber standing on the tracts of land involved exceeded 20,000,000 feet; that at the time of the representations defendant furnished plaintiff with the field note book of a timber estimator who shortly before had made an estimate for defendant, showing that there were some 19,250,000 feet of timber on the land; that defendant assured plaintiff that these figures were conservative, that the timber actually on the land would exceed the amount shown by...