Brock & Davis Co., Inc. v. Charleston Nat. Bank
Decision Date | 20 December 1977 |
Docket Number | Civ. A. No. 76-0608 CH. |
Citation | 443 F. Supp. 1175 |
Court | U.S. District Court — Southern District of West Virginia |
Parties | BROCK AND DAVIS COMPANY, INC., Plaintiff, v. The CHARLESTON NATIONAL BANK, Defendant. |
COPYRIGHT MATERIAL OMITTED
Roger B. Willetts, Edmunds, Freed, Cooley & Willetts, Waynesboro, Va., Harry A. Smith, III, Nuzum & Smith, Elkins, W. Va., for plaintiff.
Charles C. Wise, Jr., John O. Kizer, William W. Booker, Love, Wise, Robinson & Woodroe, Charleston, W. Va., for defendant.
Plaintiff, Brock and Davis Company, Inc., brings this action against defendant, The Charleston National Bank, claiming, inter alia, that the Bank fraudulently misrepresented the financial situation of one of its customers, Snowshoe Company, thereby inducing Brock and Davis to advance credit in the form of goods and services to Snowshoe and that, as a result, the Bank was directly benefitted and Brock and Davis was damaged in excess of four hundred thousand dollars. Jurisdiction is based on diversity and amount in controversy. The case is currently before the court on the Bank's motion to dismiss on the grounds that this fraud claim is barred by each of the statute of frauds, W.Va.Code, § 55-1-1 (1966), and the applicable statute of limitations, W.Va. Code, § 55-2-12 (1966).
The alleged fraud arose out of a land development and ski resort project undertaken by Snowshoe in 1973 in Pocahontas County, West Virginia. On September 6, 1973, the Bank entered into a loan commitment agreement with Snowshoe, taking a first lien on Snowshoe's real estate. Although there were several other banks which made loans to Snowshoe, the Charleston National Bank was its principal creditor and source of financial support.
In July, 1974, Brock and Davis, a Virginia corporation engaged in the general contracting business, entered into several contracts with Snowshoe under which the real estate on which the Bank held its first lien was to be improved. According to the amended complaint and more definite statement, during the week of September 16, 1974, J. K. McGoldrick of Brock and Davis, responding to the suggestion of the construction superintendent for Snowshoe, telephoned Robert Henzman, then an assistant vice president of the Bank, in order to discover the financial status of Snowshoe. It is alleged that despite the fact that the Bank knew or should have known that Snowshoe was bankrupt, McGoldrick was told that Snowshoe had a line of credit in excess of one million dollars, maintained a six figure balance with the Bank, and was otherwise financially sound. Allegedly relying on these representations, Brock and Davis continued to perform under its construction contracts until October 31, 1975, expending a total of $387,154.34 after November 1, 1974.
On November 1, 1975, the Bank elected to force the sale of all Snowshoe assets under its first lien deed of trust, including the improvements made by Brock and Davis on Snowshoe property in Pocahontas County, West Virginia. On December 4, 1975, Brock and Davis and two other creditors filed a petition for relief under Chapter X of the federal Bankruptcy Act, 11 U.S.C. §§ 701 et seq. (1970). According to the amended complaint, sometime thereafter Brock and Davis discovered the Bank's fraud. This action was filed on October 14, 1976.
In its motion to dismiss pursuant to the West Virginia statute of frauds, the Bank specifically relies on subparagraph (a) of § 55-1-1 which requires a writing signed by the party to be charged or his agent before an action can be brought:
To charge any person upon or by reason of a representation or assurance concerning the character, conduct, credit, ability, trade, or dealings of another, to the intent or purpose that such other may obtain thereby credit, money, or goods;
Brock and Davis' response is that the above-quoted section of the statute of frauds is not applicable where the representations were fraudulent and were made for the purpose of directly benefiting the defendant.
Subparagraph (a) of § 55-1-1, which was adopted together with the other provisions of the West Virginia statute of frauds,1 is based on an identical section of the Virginia statute of frauds.2 There are no reported decisions in either jurisdiction in which a court has construed the language contained in W.Va.Code, § 55-1-1(a).3 In Kemp v. National Bank of the Republic, 109 F. 48 (4th Cir. 1901), the Fourth Circuit discussed the Virginia statute in some detail, but was not required to decide whether it applied. In that case a bank president had falsely told a depositor that the bank was in good condition, thereby inducing him to keep his money in the bank. After the bank failed, the president gave the depositor a personal note and deed of trust to cover his loss. The president's creditor then brought an action to annul the deed of trust on the ground that there was a failure of consideration as "no legal liability attached to Berry the president by reason of the misrepresentations made by him as to the condition of the bank, because the same were not in writing, and therefore invalid under the statute of frauds." 109 F. at 52. The court raised the question of whether the statute of frauds could be used to protect one from liability for fraud and quoted with apparent favor a commentator who characterized a Massachusetts case so holding as "disgraceful to an enlightened system of jurisprudence," 109 F. at 53. The court, however, did not resolve this question as it held that the statute of frauds could only have been raised by the bank president and was therefore not an applicable defense.
It soon became a matter of course for lawyers to camouflage a suretyship claim as a deceit action in order take advantage of the Pasley case doctrine. To put an end to this practice, Parliament enacted the amendment introduced by Lord Tenterden to the statute of frauds. W. B. Anderson & Sons v. Rhodes 1967 2 All. E.R. 850, 862 (Liverpool Assizes).
There have been approximately a dozen English cases involving Lord Tenterden's Act. See cases cited in W. B. Anderson & Sons 1967 2 All. E.R. 850 (Liverpool Assizes) and Banbury v. Bank of Montreal 1918 A.C. 626. It is clear from these cases that a general exception is not made in England for fraud. Rather, the major English exception is that suits arising from negligent misrepresentations are not subject to the Act. W. B. Anderson & Sons; Banbury v. Bank of Montreal.
The reported American cases involving statutes similar to Lord Tenterden's Act can be divided into two general groups. The first consists of those jurisdictions which make no exception for a fraudulent statement that results in an extension of credit to another. There are currently three jurisdictions which fall within this group: Massachusetts, Middlesex County National Bank v. Redd Auto Sales, 336 Mass. 727, 147 N.E.2d 790 (1958); Missouri, Boyd v. Farmers' Bank, 223 Mo.App. 442, 14 S.W.2d 6 (1928); and Maine, Hunter v. Randall, 62 Me. 423, 16 Am.Rep. 490 (1873). A fourth jurisdiction, California, was aligned with this group7 until 1970 when California amended its version of Lord Tenterden's Act for the purpose among others of providing an exception where the defendant himself derives a benefit.8
The second group consists of cases from six jurisdictions where actions involving the fraudulent misrepresentations are allowed notwithstanding the absence of a writing. This second group can be subdivided into two categories. There are two jurisdictions where the mere fact that the representation was fraudulently made is sufficient to avoid the statute of frauds: Kentucky, Scott v. Farmers State Bank, 410 S.W.2d 717 (1966) and Alabama, Clark v. Dunham Lumber Co., 86 Ala. 220, 5 So. 560 (1889). The remaining four jurisdictions in this group recognize an exception for a fraudulent misrepresentation only where there is also either a fiduciary relationship between the plaintiff and defendant, Idaho, W. G. Jenkins & Co. v. Standrod, 46 Idaho 614, 269 P. 586 (1928) or some evidence besides the misrepresentation which corroborates the fraud; Oregon Boothe v. Bennett, 249 Or. 31, 436 P.2d 746 (1968) ( ); Indiana, A. S. C. Corporation v. First National Bank of Elwood, 161 N.E.2d 179 (Ind. App.1959) ( ); and Michigan, Wuerth v. Stivers, 273 Mich. 276, 262 N.W. 908 (1935) ( ).
The trend of recent decisions favors the second group. Within the past two decades, cases involving statutes similar to W.Va.Code, § 55-1-1(a), have been reported out of four jurisdictions. Three of them fall within the second group. Boothe v. Bennett, 249 Or. 31, 436 P.2d 746 (Or.1968); Scott v. Farmers...
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...practice, Parliament enacted the amendment introduced by Lord Tenterden to the statute of frauds. Brock & Davis Co., Inc. v. Charleston Nat. Bank, 443 F.Supp. 1175, 1179 (S.D.W. Va.1977), citing, W.B. Anderson & Sons v. Rhodes, 2 All E.R. 850, 862 (1967) (Liverpool By Lord Tenterden's Act i......
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