Cook v. Churchman

• Decision Date: 08 December 1885
• Parties: Cook and others v. Churchman and others.
• Court: Indiana Supreme Court

104 Ind. 141

3 N.E. 759

Cook and others

v.Churchman and others.¹

Supreme Court of Indiana.

Filed December 8, 1885.

Appeal from Marion superior court.

L. B. Swift and Byfield & Howland, for appellant.

Ferd Winter and Rand & Winters, for appellee.

MITCHELL, J.

This suit was brought to recover damages for alleged false and fraudulent representations as to the solvency, credit, and ability of Thomas Cottrell, by means of which it is charged the plaintiffs were induced to sell and deliver to his son, Thomas G. Cottrell, above $9,000 worth of goods on credit, in reliance upon the written guaranty of Thomas Cottrell. The amended complaint is in four paragraphs. The first paragraph states that the plaintiffs were in business in the city of New York; that Thomas G. Cottrell, since deceased, was in business in the city of Indianapolis; that the defendant Francis M. Churchman for more than 15 years had been a banker in the city of Indianapolis, as a member of the banking firm of S. A. Fletcher & Co.; that Thomas G. Cottrell was heavily indebted to S. A. Fletcher & Co.; that he and the defendants Thomas Cottrell and Francis M. Churchman, knowing that the plaintiffs were ignorant of this indebtedness and of the financial ability of Thomas Cottrell, conspired together to fraudulently represent Thomas Cottrell as of good credit and financial standing, and to get the plaintiffs to sell goods to Thomas G. Cottrell upon credit, taking Thomas Cottrell as a guarantor for the payment of the same, with the fraudulent intention of not paying for the goods, but of turning them, or the proceeds thereof, over to S. A. Fletcher & Co. And pursuant to this conspiracy Thomas Cottrell, with the consent of his co-conspirators, offered himself to plaintiffs as guarantor of the payment for goods that plaintiffs might sell to Thomas G. Cottrell, and referred plaintiffs to Churchman as a man who would vouch for his credit and solvency; that plaintiffs thereupon applied to Churchman, and he, in pursuance of the conspiracy, falsely and fraudulently, and with intent to cheat plaintiffs out of their goods, represented to plaintiffs that Thomas Cottrell was solvent and of good credit, was the owner of a valuable property, and was amply good above all his indebtedness for the price of the goods; and he fraudulently concealed from plaintiffs that Thomas Cottrell was then heavily indebted to S. A. Fletcher & Co. The second paragraph differs from the first in charging that the representations concerning the standing of Thomas Cottrell were made by himself, with the knowledge and connivance of Churchman. The third paragraph differs from the others in charging that Thomas Cottrell, being the father of Thomas G. Cottrell, asked the plaintiffs to sell his son goods on credit on the father's written guaranty; and, to induce plaintiffs to make this arrangement, Thomas Cottrell told them that he was wealthy; that he was the executor of a large estate, the heirs of which wanted money, and he had let them have his notes, which they had indorsed and negotiated, that the notes had been sued to judgment against him; that these judgments had been paid with his money, and then, instead of being canceled, had been assigned to S. A. Fletcher & Co.; that, instead of being claims against him, as they appeared, these judgments were in reality not liens upon his property, but were large secured claims of his against said estate; that the only valid judgments against him unprovided for amounted to $7,500; that he was the owner of a large property, and had abundant means; that he owned a number of pieces of valuable real estate; that he pointed out to plaintiffs valuable pieces of real estate so claimed by him, among the rest a piece on Virginia avenue, and the piece known as the city hall in Indianapolis. Then, remarking that defendant Churchman was familiar with all his affairs, he took plaintiffs into the bank of S. A. Fletcher & Co., and introduced them to Churchman, explaining to the latter the guaranty arrangement, and asked him to explain to plaintiffs his (Cottrell's) affairs; and plaintiffs then repeated to Churchman all that Thomas Cottrell had said and done, and asked Churchman whether Cottrell's representations were true, and whether they could safely, upon his guaranty, sell his son goods on credit to the extent of $8,000 or $10,000. Churchman answered that the representations were substantially true; that Cottrell was a very honorable and fair-minded man; that, under his guaranty, plaintiffs would be perfectly safe in selling goods to his son.

The complaint further charges that these representations were false, were known to be so by defendants, and were made by them with intent to cheat plaintiffs; that Thomas Cottrell was wholly insolvent, which both defendants knew and concealed from plaintiffs with fraudulent intent; that his insolvency has continued ever since. The fourth paragraph alleges the proposal of the father to the plaintiffs to take him as guarantor and sell his son goods on credit; the same representations of the father as to his financial condition; the same story about his claims against an estate; the same representations as to the condition of his property; and the same pointing out of certain pieces; also the same introduction to defendant Churchman, and the same corroboration by him; also the falsity of the representations; the insolvency of Thomas Cottrell; the heavy indebtedness to S. A. Fletcher & Co.; the ignorance of plaintiffs; and the knowledge and fraudulent concealment of defendants. This paragraph further says that the plaintiffs, relying on the truth of these representations, entered into the proposed arrangement of guaranty, and, under it, let Thomas G. Cottrell have goods of the value of $9,202.83, which they lost by reason of the false and fraudulent representations, although they have diligently endeavored to collect payment by judgment and execution against both Cottrells. In all of the foregoing paragraphs it is averred that Thomas G. Cottrell was heavily indebted to Fletcher & Co.; and that they secured a priority over his other creditors by levying executions, and otherwise, on some of the goods obtained from the plaintiffs in the manner alleged.

The defendants separately demurred to each paragraph of the amended complaint. The court in special term sustained the demurrers, and, the plaintiffs refusing to plead further, judgment was rendered in favor of the defendants for costs. The death of plaintiff John M. Bruce was shown to the court, and the surviving partners, John C. Cook and Russel W. McKee, appealed to the general term, where the judgment of the court in special term was affirmed, and an appeal was taken to this court. The error assigned is that the court in general term erred in affirming the judgment of the court in special term.

It is conceded that all the representations were by parol, and the question argued on both sides, so far as they concern the defendant Churchman, is whether the action can be maintained notwithstanding the provisions of section 4909 (6) of the statute of frauds. That section provides that “no action shall be maintained to charge any person by reason of any representation made concerning the character, conduct, credit, ability, trade, or dealings of any other person, unless such representations be made in writing, and signed by the party to be charged thereby, or by some person thereunto by him legally authorized.” The appellant's argument for a reversal of the judgment below rests primarily on the principle, which has been asserted so often as almost to have become a maxim, that the statute of frauds shall not be used as a cover for fraud. Their contention is more particularly directed to the maintenance of the propositions that the statute does not embrace in its protection representations which are tinged with fraud, and which were made with the actual intent to defraud, nor such as relate specifically to the amount or value of property, or the actual pecuniary condition of the person concerning whom they are made.

Cases in great number and in infinite variety may be found, and many of them are cited in the brief of counsel, in which, relying on a parol contract, one party, by the part performance of such contract, had so changed his situation as that to permit the statute to be interposed to defeat a corresponding right dependent upon the contract would have resulted in the consummation of a gross fraud. In all such cases the salutary principle is maintained that the statute of frauds was intended to prevent fraud, and not to be used as a cover under which to perpetrate it. It is also well settled that where a contract is consummated, under which money or property is obtained, whatever fraudulent representations may have been employed by a party to the contract as a means of inducing it to be made, evidence of such representations cannot be excluded by invoking the aid of the statute. Cases which rest on the doctrine of part performance, and in which contracts otherwise within the statute have been taken out of its operation, can exert no controlling influence on the case we are considering. Part performance, as applicable to parties to an invalid contract, is not relevant here. Nor must the distinction be overlooked between those cases in which representations were made by a party to the contract, with a view to induce another to enter into it, and those in which the representations were made by a third person, albeit for a corrupt and dishonest purpose, with the intent that a party to a contract should obtain goods or credit thereby.

Speaking of a statute substantially like that set out above, it was said in Huntington v. Wellington, 12 Mich. 10:

“The representations and assurances here spoken of are not representations and assurances made by a party to a contract, but by a third person, knowing them to be false, and making them for a corrupt and dishonest...