Davis v. Louisville Trust Co.

• Decision Date: 13 July 1910
• Docket Number: 1,863.
• Citation: 181 F. 10
• Parties: DAVIS v. LOUISVILLE TRUST CO. et al.
• Court: U.S. Court of Appeals — Sixth Circuit

181 F. 10

DAVIS v. LOUISVILLE TRUST CO. et al.

No. 1,863.

United States Court of Appeals, Sixth Circuit.

July 13, 1910

This is an appeal from an order entered in the court below April 9 1908, rejecting a claim of Davis, appellant, against the Howe Manufacturing Company, bankrupt, for $5,000 and interest. The company was adjudicated a bankrupt December 22, 1906, and the Louisville Trust Company, one of the appellees, was thereafter appointed trustee. The claim grows out of a purchase by Davis of 50 shares of the par value of $100 each of the capital stock of the bankrupt. In his original and amended proofs of claim Davis alleges that he subscribed for the stock and paid its par value in cash to the company in reliance upon the truth of certain representations made by the company through its president and vice president, who were also directors; that these representations were false and fraudulent and made for the purpose of inducing him to purchase the stock; that upon discovery of the fraud he repudiated and rescinded the contract, tendered to the company the certificates, representing the stock, and demanded payment of the price with interest, which was refused.

The alleged false representations consist of two classes. The first class is said to be comprised in a report made by Ben Howe as president of the company to R. G. Dun & Co., a mercantile agency, then maintaining an office in Louisville. The other class is claimed to have been made principally, if not wholly, by T. L. jefferson as vice president and director of the company through a letter written to a Mr. Chess and through statements made by Jefferson both to Chess and Davis. A copy of the report to Dun & Co., as well as the letter written by Jefferson to Chess, were placed in the hands of Davis before he purchased. These representations related to the financial condition of the bankrupt company and also of another company bearing the same name, the assets and good will of which had been purchased and taken over by the new company. It is not necessary to set out more than the substance of the statements said to have been made, or the evidence offered in support and denial of the contentions made by the respective parties.

In addition to what will be found in the opinion, it is sufficient to state that the present controversy began with negotiations had in July, 1903, between Davis and Howe whereby Davis was to take stock and Howe was to give him employment in the company, and that Davis thereupon borrowed of Chess $2,500 and of Llewellyn Smith the same sum, giving to them his notes and using the money in buying the stock. Davis was given employment in the company and continued therein in several capacities for a period of nearly three years, and received from the company compensation of about $3,000, when, at the close of April, 1906, he claims to have made discoveries which caused him to quit the employ of the company. He testified that he suspected financial difficulty in the affairs of the company in March of that year through knowledge he obtained of a proposed contract-- called a 'fourcornered agreement'-- to which the company, a 'syndicate,' the Western National Bank, and Jefferson were to be parties, designed in some way to aid Jefferson if not the company itself. This resulted in an investigation and the discovery claimed to have been made by Davis upon which he bases his contention that he was entitled to rescind. He insists further that his right extends not only to proving a general claim for $5,000, but also to priority over certain of the creditors, if not all of them, in the assets of the bankrupt. The particular creditors against whom the claim of priority is made are Jefferson, the Western National Bank of Louisville, and Ben Howe, both individually and as assignee of certain claims of creditors of the bankrupt. The claims of Davis in both the respects last mentioned were allowed by the referee, but the orders in that behalf were reversed and set aside by the court below.

Helm Bruce and Percy Booth, for appellant.

Johnson & Hieatt, for appellee Louisville Trust Co.

Henry Burnett, for appellee Jefferson.

Bernard Flexner, for appellee Western Nat. Bank.

Henry Burnett and Bernard Flexner, for appellee Howe.

Before SEVERENS, WARRINGTON, and KNAPPEN, Circuit Judges.

WARRINGTON Circuit Judge (after stating the facts as above).

The initial test of the validity of the claim of Davis is involved in important questions of admissibility of evidence. It is contended in the first place that no competent witness was produced to testify that any report of the financial condition of the company was ever made to the mercantile agency; and, in the next place, that the instrument exhibited as such a report could not if received in evidence be considered as addressed to Davis or as having been intended to influence him or any one else in the purchase of treasury stock of the bankrupt company. The court below regarded the report as inadmissible, and so declined to consider it. This is made the subject of the first assignment of error.

The paper was received in evidence by the referee. It was admittedly a copy of what purported to be a report made by J H. Saunders as city reporter of Dun & Co. at Louisville. It was shown that he had occupied that position for 10 years, but that he was deceased at the time the report was offered in evidence, and that he had made and presented the writing on June 18, 1903, to the superintendent of Dun & Co. The material parts of the report are: An abstract of a portion of the articles of incorporation of the bankrupt company dated June 1, 1903, showing its authorized capital stock, $500,000, its successorship to the business of the old company and names of the subscribers for 2,430 shares of $100 each of the new capital stock and specifying the number taken by each subscriber. It then proceeds:

'Ben Howe, the president, states there has been actually paid in cash $250,000, that the assets consist of machinery, merchandise, etc., and that the new company has no indebtedness. He further states that the company has purchased a wholesale plumbing and steam fitting supply business, for which they paid $150,000, and that they have also purchased another business for a like amount at Birmingham, Ala., and, while all deals have been completed, they are not ready to make a detailed statement of the company's affairs. It is their intention to elect three more directors. Claims that the entire capital of $500,000 will be paid up within the next two weeks. * * * It will be seen that they have not completed their affairs and just what amount of actual capital they have cannot be ascertained.'

J. J. Saunders testified that he was then manager of the mercantile agency at Louisville, and at the time the report was made he was assistant manager. He further testified that the paper offered in evidence was a 'copy of the report from our records,' production of the original having been waived, and, referring to what he called the 'record' of the report in question, he further said that his deceased brother was the author of the report; that the records show that his brother had received the statement contained in the report and had made it a matter of record; that 'it was kept in our regular files to be given to anybody that wanted information of that company (the Howe Mfg. Co.) at that time'; and that such statements 'are placed on record for the purpose of giving them to inquirers.' He was, however, not present when Howe purports to have had made statements to the deceased brother, but it was agreed that J. J. Saunders would if recalled testify:

'His knowledge of such alleged statements was and is based on his knowledge of the record on file in the office of R. G. Dun & Co., and on his knowledge of the making, filing, and preserving of said record, and on his knowledge of the business of R. G. Dun & Co., and the methods, rules, customs, and circumstances governing the statements made to R. G. Dun & Co., and governing the making, filing, and preserving of other records of such statements.'

He delivered to Chess a copy of the report on August 4, 1903.

The objection urged against receiving this report is that it is hearsay. We think the right to resort to secondary proof in the circumstances stated is reasonably well settled. The principle underlying the admissibility of such evidence is that the person making the report was engaged in the regular course of a distinct business, before any dispute arose, and in the discharge of a duty to record matters for others, without having any personal interest in the subject recorded.

It is well settled in what we regard as kindred cases that the duty thus discharged need not be imposed by law. It is enough that the duty is recognized. The fact that the record is designed for the use of all persons rightly interested in the subject, and that the success of the business of supplying the information so obtained is dependent upon its accuracy, cannot, we think, but enhance the obligation and sense of duty involved. When it is shown that a record was made in that way and with the motive indicated, that it has been carefully preserved, and that the author is dead, there can be no perceivable violation of any principle of evidence by treating the report as prima facie evidence that the acts and matters so recorded and purporting to relate directly to the business in hand occurred as there stated, subject of course to contradiction by other evidence.

In Nicholls v. Webb, 8 Wheat. 326, 337, 5 L.Ed. 628, when passing upon the admissibility of memoranda of a deceased notary, made in the regular course of his business, but not in obedience to law, Justice Story said:

'We think it a safe principle

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