Dye v. Farm Mortgage Inv. Co. of Topeka, Kan.
| Decision Date | 17 December 1934 |
| Docket Number | No. 1101.,1101. |
| Citation | 74 F.2d 395 |
| Parties | DYE et al. v. FARM MORTGAGE INV. CO. OF TOPEKA, KAN. |
| Court | U.S. Court of Appeals — Tenth Circuit |
Frank G. Drenning, of Topeka, Kan., for appellants.
Otis S. Allen, of Topeka, Kan. (George S. Allen, of Topeka, Kan., on the brief), for appellee.
Before LEWIS, McDERMOTT, and BRATTON, Circuit Judges.
An amended complaint, held bad on demurrer, set up false warranty of the collectability of three $1,000 promissory notes purchased by plaintiffs from defendant. The false representations relied on as constituting the warranty were not primarily made by the defendant company. They were made in principal part by William T. Pierce and J. P. Slaughter in writing and were directed to the defendant. It adopted and passed them on to appellants in its transactions with them, which resulted in the purchase of the three notes.
Taking the allegations of the complaint to be true as against the demurrer, the material facts were these: Slaughter, president of defendant company, was the owner of a 675-acre farm in Schuyler county, Missouri. On April 25, 1923, he conveyed the farm by warranty deed to Pierce. Pierce made application in writing to defendant company on May 15, 1923, for a $25,000 loan to be secured by mortgage on said farm. In that application he stated that of the 675 acres, 570 was bottom land; that 450 was in cultivation, and 600 acres could be cultivated; that 250 acres was subject to overflow; that there was a seven-room two-story frame house, a seven-room frame cottage, barns, cribs, granary and shop on the farm; that the farm had been in cultivation for forty years; that he purchased it in the year 1923; and paid $67,500 for it; that title to the farm was vested in him; that he was in actual possession through a tenant whose term would expire January 1, 1924; that he was worth in real estate and personal property $57,500 above all liabilities, and that his statements in relation to the property and his liabilities and assets were substantially true in every particular; that his occupation was farmer; that the then cash value of the land and improvements was $67,500, and that the cash selling price per acre of improved land in the vicinity of the farm was $75 to $150; that he then had on the farm 12 horses, 28 cows, 50 hogs, and a general supply of implements; and that he was borrowing the money to pay existing liens on the farm. He made oath to his application. The complaint alleges that prior thereto and on May 10, 1923, Pierce and wife conveyed by warranty deed the farm back to Slaughter.
Slaughter, acting as examiner for the defendant company, made a report to it as to the advisability of its making the loan to Pierce. He certified in writing that on May 23, 1923, for the purpose of ascertaining the value and desirability of the farm as security for the loan he made a careful examination of the land described in Pierce's application containing 675 acres in Schuyler county, Missouri, and stated that the farm was owned by Pierce; that 600 acres of the farm could be profitably cultivated; that 450 acres was then in cultivation, 330 being in corn, 175 acres in grass, and 160 acres in other crops; that the soil was dark loam of excellent quality; that a fair value of the land with improvements was $67,500; that if offered at forced sale the farm would certainly realize not less than $60,000; that all statements contained in Pierce's application for the loan were true; that the farm was in good condition; that Pierce was of good character and credit; that he had been making money; that it was a good loan, and he believed it would prove safe and satisfactory in every particular. Endorsed on the back of Slaughter's report as examiner for defendant company was a statement addressed to it signed by Slaughter and one Collingwood, who designated themselves as loan committee, in which they said they endorsed the statements of Slaughter as examiner, believed the loan would be safe and desirable and recommended that defendant company accept it.
The complaint alleges that the defendant did accept the loan secured by mortgage and the $25,000 which it furnished was used to pay off prior mortgage liens. The defendant company then sold three of the 25 $1,000 notes to plaintiffs. They reside in the state of Tennessee, and the transaction with them and its consummation was carried on by U. S. Mail. It seems to have had its inception by letter of date October 30, 1923, addressed to one of the plaintiffs and signed J. P. Slaughter, President. The letter head contained this: "The Farm Mortgage Trust Company, Capital $150,000, Topeka, Kansas." In this letter the $25,000 loan on the farm is briefly described. It is stated that three bonds were still held by the defendant company and that "Perhaps one or more of these bonds would please you." The letter further says:
On September 27, 1923, the defendant company prepared and executed what it denominated an agreement by it. It refers to the Pierce mortgage loan, states that the defendant company has sold the loan, tenders its services to note holders in collecting interest and principal, and contains this paragraph:
"That the property described in said mortgage has been carefully inspected by Mr. J. P. Slaughter, who is an experienced and trustworthy man connected with said Trust Company, and his report accompanying the papers, is based upon his personal investigation of both the security and the borrower and that the statements made in said report are materially true."
The complaint alleges that the three documents, Pierce's application for the loan, Slaughter's reported examination of the farm, and the so-called agreement of September 27, 1923, accompanied the letter of October 30, 1923, addressed to William M. Dye, and copies thereof are attached to said amended complaint and made parts thereof. It will be observed that many of the representations in Pierce's application and in Slaughter's report of his examination are statements of fact, while others, especially those of value, are as a general rule regarded only as expressions of opinion, and when so regarded they cannot be made the basis of an action for fraud, but as will be later seen there are exceptions to this general rule. The complaint attempts to bottom the false warranty almost entirely on the representations which constitute under the general rule mere opinion, prophecy or promise, including however with them the statement found in Slaughter's report of his examination, "All of the statements contained in said application (Pierce's) are true." On that set up it is not alleged that said representations were false and fraudulently made with intent to deceive and mislead plaintiffs, but it is alleged that said representations induced the plaintiffs to purchase said three notes. It would seem that Kimber v. Young (C. C. A.) 137 F. 744, 751, ought to be enough to inform any pleader of fair ability how to state the cause of action here relied upon. In that case, after full discussion of the first count which pleaded an action of deceit, the court said this of a count based on false warranty:
"In an action of false warranty it is not necessary to allege or prove the scienter of the defendant, and in that respect it differs from an action of deceit."
In other respects the rules of pleading in the two actions are the same. In that connection see: Schuchardt v. Allen, 1 Wall. 359, 368, 17 L. Ed. 642; Shippen v. Bowen, 122 U. S. 557, 7 S. Ct. 1283, 30 L. Ed. 1172; Smith v. Richards, 13 Pet. 26, 42, 10 L. Ed. 42; Kellogg Bridge Co. v. Hamilton, 110 U. S. 108, 3 S. Ct. 537, 28 L. Ed. 86; 2 Benjamin on Sales (with American notes) Chapter entitled "Warranty."
But coming to the representations by Pierce and Slaughter as to the value of the farm on which it is alleged plaintiffs relied and were induced to purchase the three notes we are convinced that those representations may be taken by a jury under the circumstances pleaded in this case, if proved, as statements of fact. It is to be observed that the defendant company in its so-called agreement commended to the plaintiffs Slaughter's report of his inspection of the property; that it had been carefully made, and it commended Slaughter as an experienced and trustworthy man for that service; that he was connected with the trust company; and that his report was based upon his personal investigation of both the security and the borrower and it vouched for the statements therein as materially true. Slaughter vouched for all that Pierce had said in his application. Pierce said that his occupation was that of farmer. The plaintiffs were residents of eastern Tennessee, and it was not probable that they could or would make a personal inspection of this...
To continue reading
Request your trial