Ringer v. First Nat. Bank of Stevenson

• Decision Date: 02 August 1973
• Citation: 291 Ala. 364,281 So.2d 261
• Parties: Albert F. RINGER and Helen Ruth Ringer v. The FIRST NATIONAL BANK OF STEVENSON, Alabama, a National Banking Association. SC 260.
• Court: Alabama Supreme Court

Page 261

281 So.2d 261

291 Ala. 364

Albert F. RINGER and Helen Ruth Ringer v. The FIRST NATIONAL BANK OF STEVENSON, Alabama, a National Banking Association.

SC 260.

Supreme Court of Alabama.

Aug. 2, 1973.

Potts & Young, R. Powell Duska, Florence, Thomas & Proctor, Scottsboro, for appellants.

Dawson, McGinty & Livingston, Scottsboro, for appellee.

HEFLIN, Chief Justice.

This is an appeal from an order granting a nonsuit entered by the Circuit Court of Jackson County. The plaintiffs-appellants Albert and Helen Ringer (Ringers) bring the appeal because of adverse rulings of the trial court in sustaining demurrers of the defendant-appellee First National Bank of Stevenson (Bank) to each count of the complaint as last amended. The complaint, which contained three counts, is predicated on theories of misrepresentation, fruad, and deceit made actionable by Title 7, Sections 107--112, Code of Alabama, 1940, as amended (Recompiled 1958).

Common allegations appear in all counts of the complaint, which in abbreviated form follow: On May 9, 1966, the Ringers borrowed $20,000 from the Bank with which to purchase a bulldozer and related equipment (all of which may hereinafter be called 'equipment') and to secure such loan the Ringers gave the Bank a combination promissory note and chattel mortgage having a due date of November 9, 1966, plus a real estate mortgage on three acres of land upon which the Ringers' home was located. Prior to and following the date of the transaction the Ringers did business with the Bank and, being persons with little experience in banking or financial matters, relied on the Bank for financial advice. A close personal and confidential relationship with the president of the Bank existed. In September of 1966 the Ringers requested the Bank to accept T. K. Stewart as the purchaser of the equipment and, without making an investigation of the credit reputation of Mr. Stewart, the Bank arbitrarily refused to allow him to assume the Ringers' obligations to the Bank, but instead, fraudulently represented to the Ringers that Millard Bowen and Thomas D. Bowen would be better and more dependable buyers for the equipment than would T. K. Stewart and that such representation was false. Relying on this misrepresentation of this material fact by the Bank, the Ringers sold the equipment to the Bowens and allowed the Bowens to assume the Ringers' obligations to the Bank under an assumption agreement by which the Bowens agreed to pay to the Bank not less than $500.00 each month. In accepting the assumption agreement the Bank required that the three acres of the Ringers remain as security for the loan. On numerous occasions after said assumption by the Bowens and before January, 1969, the Ringers were informed by the president of the Bank that the Bowens were making the agreed payments, when, in fact, the Bowens were not making such payments. Such representation of this material fact was fraudulently made to the Ringers. The chattel mortgage on the equipment and the real estate mortgage on the three acres were both foreclosed by the Bank, all to the damage of the Ringers.

Count 2 is essentially the same as Count 1 except that both compensatory and punitive damages are claimed since the misrepresentations were allegedly made 'grossly, maliciously, oppressively and with an intent to deceive.'

Count 3 differs from Count 1 by alleging a fiduciary relationship between the Bank and the Ringers; and concealment of the fact that no credit-check had been made on the Bowens by the Bank; and that prior to the sale of the equipment neither of the Bowens had borrowed more than $400.00 at any one time from the Bank.

Each count alleges two acts deemed fraudulent: (1) A misrepresentation by the Bank that the Bowens would be better and more dependable buyers of the equipment than would T. K. Stewart; (2) a misrepresentation of the fact that the Bowens were making regular payments on the assumed note, when they were not.

When fraud is pleaded, either at law or equity, the facts out of which it is supposed to arise must be stated. Crommelin v. Capitol Broadcasting Co., 280 Ala. 472, 195 So.2d 524 (1967). This court has stated that allegations of fraud in a pleading to be sufficient must positively set forth facts constituting the fraud, so that the court can clearly see that fraud has intervened. Pihakis v. Cottrell, 286 Ala. 579, 243 So.2d 685 (1971); Lacey v. Edmunds Motor Co., 269 Ala. 398, 113 So.2d 507 (1959).

The first issue that needs to be resolved is whether the Ringers properly alleged a representation as to the Bowens' financial condition and, if so, whether it is an actionable misrepresentation or merely an expression of opinion which is not actionable. The pertinent allegations follow:

'. . . (T)hat said promissory note by its terms was not due until November 9, 1966; that prior to September, 1966, plaintiffs decided to sell the bulldozer and related equipment, it possible, and thereafter negotiated a sale of the bulldozer and related equipment to T. K. Stewart, a wan with an excellent credit reputation and substantial assets; that plaintiffs requested defendant to accept T. K. Stewart as a purchaser of the bulldozer and related equipment; that defendant made no investigation to determine the credit reputation of T. K. Stewart, which investigation if made would have revealed T. K. Stewart to have a very good credit reputation; that defendant arbitrarily refused to accept T. K. Stewart as a purchaser of the bulldozer and related equipment and arbitrarily refused to allow him to assume plaintiffs' obligations under said promissory note and chattel mortgage, but instead wilfully to deceive, or recklessly without knowledge, or by mistake and innocently represented to plaintiffs that Millard Bowen and Thomas D. Bowen would be better and more dependable buyers for the bulldozer and related equipment than would the said T. K. Stewart; that such representation was false; that acting in reliance on this misrepresentation of a material fact by defendant, plaintiffs in to-wit, September, 1966, allowed Millard Bowen and Thomas D. Bowen to assume plaintiffs' obligations under said note and chattel mortgage . . ..'

The Bank asserts the representation that the Bowens would be better and more dependable buyers does not constitute actionable fraud since the representation was not that the Bowens were financially sound, but merely that they were better and more dependable. The Bank ignores the fact that 'better and more dependable' describes the Bowens as 'buyers,' and that the allegation also states, 'would be better and more dependable buyers . . . than would said T. K. Stewart,' a buyer alleged by the Ringers as having an excellent credit reputation. The Bank overlooks the allegation that the defendant arbitrarily refused to allow Stewart, a man with substantial assets, to assume the plaintiffs' obligations under the promissory note. The comparison in this instance doesn't detract from a representation of financial soundness but rather enhances it. In the context of the alleged situation, where the Ringers produced a buyer alleged to be credit-worthy, a representation that another is a 'better and more dependable buyer' (thus a better person to assume the obligation to the Bank than a person with substantial assets and an excellent credit reputation--T. K. Stewart) can be looked upon from a pleading viewpoint as sufficient for a jury submission on this issue of whether a representation of financial status was made, provided of course, the proof supports the allegations.

Assuming that 'better and more dependable buyer' refers to the Bowens' financial status, is it a representation such that, if false, it would give rise to an actionable fraud? The general rule is stated in 37 Am.Jur.2d, § 137, at 187:

'It is well settled that where the other requisite elements of actionable fraud are present, false and fraudulent representations made to one contemplating business transactions or negotiations with a third person, concerning the financial status, solvency, or credit of such third person, constitute misrepresentations which may form the basis for actionable fraud. While one of whom inquiries as to the financial standing or reputation of a third person are made has his option to answer or not and may refuse to give any information on the subject, yet if he undertakes to do so, he must answer according to the truth as far as he knows.'

See also Annotation: Misrepresentations as to financial condition or creit of third persons as actionable by one extending credit in reliance thereon. 32 A.L.R.2d 184.

Under Alabama law a misrepresentation of financial condition can be actionable. The controlling Alabama case is Einstein, Hirsch & Co. v. Marshall & Conley, 58 Ala. 153 (1877). In that case, the defendant-appellant firm of Einstein, Hirsch & Co. provided one Heller a letter which stated in part: 'He is good for all he buys, and you may safely sell him a bill (bill meaning a bill of...