Cerny v. Paxton & Gallagher Co.

• Decision Date: 05 January 1907
• Citation: 110 N.W. 882,78 Neb. 134
• Court: Nebraska Supreme Court
• Parties: CERNY ET AL. v. PAXTON & GALLAGHER CO.

78 Neb. 134

110 N.W. 882

CERNY ET AL.

v.PAXTON & GALLAGHER CO.

Supreme Court of Nebraska.

Jan. 5, 1907.

Syllabus by the Court.

Petition examined, and held to state a cause of action for fraud and deceit.

Ordinarily deceit to ground a recovery must relate to existing facts, but if one person, by means of a promise which he makes with the secret intention of not performing it, induces another to part with his money or property, he is guilty of actionable fraud.

Where a creditor induces his debtor to secure a debt by a mortgage on a stock of goods, on the faith of his promise that he will not permit a sale thereof under foreclosure at public auction below a certain price, and that, in case such amount is not bid, the creditor will bid in the stock and dispose of the goods at private sale, accounting to the debtor for the surplus after the satisfaction of the debt, such promise is not a collateral undertaking, but a part of the original consideration, whereby the debtor was induced to execute the mortgage, and is not within section 9 of the statute of frauds, relating to the sale of personal property.

In an action for fraud and deceit, grounded on such promise, the creditor having permitted the goods to be sold at public auction below the price fixed, the amount of plaintiffs' recovery is to be determined by the position they would have occupied had there been no fraud, and they are entitled to the benefit of their bargain on that basis. Hence the measure of damage in such case is the difference between the price the goods brought as thus sold and the market value thereof.

Commissioners' Opinion. Department No. 2. Appeal from District Court, Douglas County; Redick, Judge.

Action by John Cerny and another against the Paxton & Gallagher Company. Judgment for plaintiffs, and defendant appeals. Reversed and remanded.T. J. Mahoney and J. A. C. Kennedy, for appellant.

L. J. Piatti and Geo. W. Cooper, for appellees.

ALBERT, C.

The record presented for review shows an action brought by John Cerny and another against Paxton & Gallagher, a corporation.

The material allegations of the petition are, in substance, as follows: That on and prior to the 30th day of July, 1897, the plaintiffs were engaged in a general mercantile business in the village of Dodge, in Dodge county, carrying a stock of the value of $5,200 and book accounts of the value of $1,400; that the liabilities of the plaintiffs at that time did not exceed $2,300, of which amount about $1,000 was owing to the defendant; that on or about said date the defendant, acting through its duly authorized agents, falsely and fraudulently represented to the plaintiffs that if the plaintiffs would secure their indebtedness to the defendant by a first mortgage on their stock, fixtures, and book accounts, and the indebtedness due from other creditors, aggregating a little over $1,000, by mortgages on the same property, subject to defendant's said mortgage, the defendant would take possession of the property under the mortgages and sell the same thereunder, except the book accounts, which were to be collected, and at said sale would bid in and buy the property and prevent a sale thereof, unless it sold for at least $3,800, exclusive of the book accounts; and that, in case the property was so as aforesaid bid in and bought by the defendant, in order to prevent a sale thereof for less than $3.800, the defendant would place the plaintiffs in charge thereof as its agents, and sell the same at retail for cash, and apply the proceeds, with the amount collected on the book accounts, to the discharge of the mortgage indebtedness, and that, when such indebtedness was thereby satisfied, the defendant would turn over the remainder of the stock and book accounts to the plaintiffs; that the plaintiffs, relying upon the said representations and promises of the defendant, and believing the same to be true and to have been made in good faith, gave the defendant a first mortgage on the said stock, fixtures, and book accounts, and subsequent mortgages thereon to the said four other creditors, and surrendered possession of the mortgaged property to the defendant; that the said representations and promises of the defendant, with respect to bidding upon the said property at the foreclosure sale thereof and buying the same in, and thereby preventing a sale thereof for less than $3,800, were made by the defendant without any intention on its part to keep and perform the same, but were made with the fraudulent design and purpose of thereby inducing the plaintiff to execute the said mortgages and surrender possession of the property thereunder to the defendant, to be sold for the satisfaction of said indebtedness; that in pursuance of said fraudulent design and purpose the defendant, after the execution of said mortgages, took possession of the property thereunder, and at the foreclosure sale thereof made no bid on the property, but permitted the same, exclusive of the book accounts, to be sold to a third party for the sum of $2,555, he being the highest bidder; that by reason of the defendant's said false and fraudulent representations, wrongful acts in the premises, the plaintiffs have been damaged in the sum of $10,000. The answer admits the execution of the mortgages mentioned in the petition, the foreclosure sale thereunder, but denies all other allegations. The trial resulted in a verdict and judgment for the plaintiffs, and the defendant appeals.

One contention of the defendant is that the petition does not state a cause of action. The cause was tried and submitted on the theory that the action was one for fraud and deceit, and the sufficiency of the petition, therefore, should be tested by the rules of pleading applicable to actions of that character.

The contention that the petition is fatally defective is based on two grounds, the first of which is that fraud cannot be predicated on a promise not performed; that, to constitute actionable fraud, there must be a false assertion in regard to some existing matter by which a party is induced to part with his money or property. There can be no doubt that such is the general rule. Perkins v. Lougee, 6 Neb. 220; Foley v. Holtry, 43 Neb. 133, 61 N. W. 120;Moore v. Scott, 47 Neb. 350, 66 N. W. 441;Crosby v. Ritchey, 47 Neb. 924, 66 N. W. 1005;Association v. Bear, 48 Neb. 455, 67 N. W. 500;Cohn v. Broadhead, 51 Neb. 834, 71 N. W. 747;Machine Co. v. Berge, 52 Neb. 147, 71 N. W. 952;Canon v. Farmers' Bank (Neb.) 91 N. W. 585. But an apparent exception to the general rule is that, if the intention not to perform exists when the promise is made, the promise is fraudulent. This exception was recognized by this court in McCready v. Phillips, 56 Neb. 446, 76 N. W. 885, where the court held that ...