Public Motor Service v. Standard Oil Co. of New Jersey

• Decision Date: 20 June 1938
• Docket Number: No. 6657.,6657.
• Citation: Public Motor Service v. Standard Oil Co. of New Jersey, 99 F.2d 124, 69 App.D.C. 89 (D.C. Cir. 1938)
• Parties: PUBLIC MOTOR SERVICE, Inc., et al. v. STANDARD OIL CO. OF NEW JERSEY.
• Court: U.S. Court of Appeals — District of Columbia Circuit

69 App. DC 89, 99 F.2d 124 (1938)

PUBLIC MOTOR SERVICE, Inc., et al. v.STANDARD OIL CO. OF NEW JERSEY.

No. 6657.

United States Court of Appeals for the District of Columbia.

Decided June 20, 1938.

George E. Edelin and Theodore D. Peyser, both of Washington, D. C., for appellants.

Walter C. Clephane, J. Wilmer Latimer, and Gilbert L. Hall, all of Washington, D. C., for appellee.

Before GRONER, Chief Justice, and STEPHENS and MILLER, Associate Justices.

STEPHENS, Associate Justice.

This is a suit upon a promissory note brought by the appellee, Standard Oil Company of New Jersey, a corporation, as payee, against the Public Motor Service, Inc., a corporation, as maker, and the appellants, Paul B. Cramer, Joseph H. Nicholson and Grace E. Nicholson, as endorsers.The Public Motor Service, Inc.(hereafter referred to for convenience as Motor Service) defaulted below and is not concerned in the appeal; reference to the appellants hereafter is meant to include only the three individuals named.The appellants admitted that they had signed the note as endorsers.They defended upon the single ground that fraud had been used in procuring their signatures.The case was tried on the merits to a jury and at the close of the evidence the trial judge granted a motion made by the appellee for a directed verdict for the full amount sued for with interest.¹This appeal was then taken.The only question involved in it is whether or not the trial court properly granted the appellee's motion, that is to say, whether or not there was in the case sufficient evidence of fraud in obtaining the appellants' signatures to take the case to the jury.

In support of their pleas of fraud the appellants introduced evidence to the effect that: Motor Service operated three gasoline stations in Washington and one in Virginia.Cramer was its president and a minor stockholder.Grace E. Nicholson was the controlling stockholder and had furnished the money for the formation of the company.Joseph H. Nicholson was the husband of Grace E. Nicholson; he had no financial interest in the company.Motor Service was in business in the years 1931 to 1933, and from about May 1, 1931, to November 23, 1933, it purchased its gasoline and oil exclusively from the appellee — about 20,000-25,000 gallons of gasoline a month.But it had become seriously in arrears in moneys owing to the appellee for gasoline and oil, and representatives of appellee presented the note in suit as evidencing the amount due on the date thereof, October 10, 1933, and demanded that as a condition upon the extension of further credit to Motor Service the note be executed by it and endorsed by the appellants.For the reasons hereafter set forth, the face of the note did not represent the exact amount due upon October 10, 1933, and had the appellants known this they would not have endorsed it.

Throughout the business dealings between Motor Service and the appellee there had been a question about a gasoline shortage noted at the service stations.This shortage commenced as early as the first month of Motor Service's business.The appellee had aided in attempting to find the cause of the shortage by sending auditors during a period of three months to go over the accounts of Motor Service and by testing the tanks and pumps of Motor Service.It was suspected that some of the employees of Motor Service were responsible for the shortage.No test was made of the tank trucks, in which deliveries of gasoline and oil were made by the appellee, before the execution of the note.But in November, 1933, one of the Washington stations of Motor Service was leased to a concern named Hill & Tibbitts, and Cramer was hired by this concern to operate the station.Like Motor Service, Hill & Tibbitts bought all of its gasoline from the appellee, and Hill & Tibbitts also noticed a gasoline shortage in its accounts.It had its pumps and tanks tested by the District of Columbia and they were found correct.It then occurred to Hill & Tibbitts to ask for a check upon the accuracy of the tank trucks of the appellee, which were the same tank trucks that had been serving the stations of Motor Service.This test, the exact date of which does not appear, was made by bucketing off the compartments of the tank trucks through a measure certified by the District of Columbia, and it was discovered that the compartments were inaccurately marked.They were from 5 to 9 gallons short per compartment.No evidence was introduced tending to prove that the appellee knew, prior to this test, of inaccuracy in the marking of its tank truck compartments.No evidence was introduced showing the amount by which the Motor Service had been overcharged as a result of inaccuracy in the compartment markings.

We think that the trial court correctly ruled that there was insufficient evidence of fraud to take the case to the jury.The rule is settled that in an action at law where the issue is fraud the party relying upon fraud must show that the misrepresentations asserted were made either with knowledge of their untruth or in reckless disregard of the truth.New York Title & Mortgage Co. v. Hutton, 63 App.D.C. 266, 71 F.2d 989, certiorari denied293 U.S. 605, 55 S.Ct. 122, 79 L. Ed. 696, 1934.In that case Hutton had bought stock in the Capitol Title & Guarantee Company, Inc., a Washington titlesearching concern, upon the faith of a letter written by the solicitor of the New York Title & Mortgage Company, an affiliated title guaranteeing concern, for the purpose only of aiding the Capitol Title & Guarantee Company to get business.The letter lauded its title searching plant.Hutton sued the New York Title & Mortgage Company in deceit, alleging that by reason of the statements in the letter, as a procuring cause of purchase of the stock, she suffered loss.For error in denying a motion by the New York Title & Mortgage Company for a binding instruction we reversed the trial court and returned the case for a new trial.In so doing we ruled also, for the guidance of the trial judge in the new trial, that further error had been committed in refusing to permit the solicitor of the New York Title & Mortgage Company to testify as to his belief in the truth of the statements contained in the letter.In this connection we said, speaking through Associate Justice Groner:

"The action here was deceit, and on such an issue misrepresentations believed to be true, though the result of ignorance or negligence, will not sustain the action.No doubt a false statement recklessly made without knowledge of its truth or falsity is actual fraud, but in that case there must be knowledge of the falsity, or reckless disregard of the truth, to justify saying the misrepresentation was fraudulent."63 App.D.C. 266, at page 271, 71 F.2d 989, at page 994.Italics supplied

It is settled also that fraud must be shown by clear and convincing evidence — Security Investment Co. v. Garrett, 1894, 3 App.D.C. 69, 76;McDaniel v. Parish, 1894, 4 App.D.C. 213;Magaw v. Huntley, 1910, 36 App.D.C. 26;Lalone v. United States, 1896, 164 U.S. 255, 17 S.Ct. 74, 41 L.Ed. 425;Fidelity & Casualty Co. v. Genova, 6 Cir., 1937, 90 F.2d 874;5 Wigmore, Evidence (2d ed. 1923) § 2498 — and by evidence which is not equivocal, that is, equally consistent with either honesty or deceit — McDaniel v. Parish, supra;Security Investment Co. v. Garrett, supra.It is said in Milson v. Gerstenberg, 1915, 43 App.D.C. 165, 175, that "Fraud may be established by preponderance of evidence reasonably sufficient to satisfy the minds of the jury."But this statement was based upon authorities cited from other jurisdictions² and was made without reference to the previous rulings of this court in Security Investment Co. v. Garrett, McDaniel v. Parish, and Magaw v. Huntley, supra, and without reference to the ruling of the Supreme Court of the United States in Lalone v. United States, supra.We therefore overrule what was said in Milson v. Gerstenberg on this subject.

Since there was no evidence tending to prove that the appellee knew, prior to the test above referred to, of the inaccuracy in the markings in its tank truck compartments, there was nothing to show that it had any actual knowledge that the face of the note represented at the time of its execution, because of the inaccuracy in the compartment markings, a sum greater than the amount actually due from Motor Service.Therefore there was no evidence of knowledge of an untruth in the representation of the amount due.Furthermore, there was no substantial evidence of a representation made in reckless disregard of the truth.The mere fact of inaccuracy in the markings, without any showing that the appellee had some reason to question their accuracy, is not substantial evidence of recklessness, much less clear and convincing proof thereof.

On what constitutes sufficient evidence of recklessness of the truth to take an issue of fraud to a jury there are many decisions.But each case must be determined on the basis of the evidence in it; and as there is usually such difference between cases that a ruling in one on the question of the sufficiency of evidence is not highly persuasive in respect of another, we think it not useful to review the decisions in any detail.Reference may be made, however, to Alpher-Kur-Greenberg Co. v. Holober, 1924, 54 App.D.C. 236, 296 F. 983, a case not greatly dissimilar to the instant case, wherein we held that evidence, at least as persuasive of recklessness of the truth as the evidence here, was insufficient to warrant submitting an issue of fraud to the jury.In that casethe defendant(Henry Holober) was an accommodation endorser upon promissory notes of which his brother-in-law (I. Holober), a retailer of jewelry, was the maker.The notes had been given in payment for jewelry sold to the maker by the plaintiff, a wholesaler.The defendant pleaded partial non-delivery of goods, return of a part of the goods, and fraud,...