Slater Trust Co. v. Gardiner

• Decision Date: 10 November 1910
• Citation: 183 F. 268
• Parties: SLATER TRUST CO. v. GARDINER et al.
• Court: U.S. District Court — Southern District of New York

183 F. 268

SLATER TRUST CO. v. GARDINER et al.

United States Circuit Court, S.D. New York.

November 10, 1910

Delmas Towne & Spellman, for complainant.

Strong & Cadwallader, for defendant Read.

Rushmore Bisbee & Stern, for defendant Gardiner.

Carter Ledyard & Milburn, for defendant Hegeman.

HAND District Judge.

As this case goes off upon one point, and it is therefore not necessary, or proper, to consider any others, I shall, for the sake merely of raising that point sharply, dispose of the suit upon the assumption that the complainant has proved all the facts which he alleges he has proved upon page 28 of his brief. On that page he sums up what he claims to have proved in the following words:

'That the mortgage was executed to secure an issue of $3,000,000 of bonds to be sold to the public; that it represented the mortgagor to be the owner of 47,000 acres of land in fee; that, had this representation been true, the security given for the bonds would have been ample; that, in order to facilitate the sale of the bonds to the public, the company had caused the mortgage to be printed in pamphlet form and these pamphlets to be publicly distributed; that a person examining these pamphlets would be fully justified in understanding that the mortgage was intended to cover, and did cover, 47,000 acres of land which the company was the owner of in fee; that among the purchasers of these bonds were Mackay & Co., bankers in New York, whose purchase amounted to $600,000; that, in making that purchase, Mackay & Co. knew of the representations contained in the mortgage, relied upon them, and bought, believing the company to be, as represented, the owner in fee of the land given as security; that of the 600 bonds it had purchased, Mackay & Co. sold 25 to the Slater Trust Company; that, in buying, the Slater Trust Company likewise relied upon the statements contained in the mortgage, and, but for its belief that those statements were true, would not have made the purchase; that the representation as to the ownership of the land by the company in fee was false, save only as to 700 acres; that the fact that it was false was apparent upon the very face of the conveyances through which the company claimed title to the property, since all of said conveyances-- save as to 700 acres, as above stated-- showed in plain and unmistakable terms that they conveyed, not the fee to the land, but merely the coal underlying it; that by reason of this falsity the security given for the bonds was utterly inadequate, and, instead of being worth, as it would have been, had the representations been true, $3,000,000, it realized upon foreclosure only $100,000.'

The defendant Gardiner, who signed the mortgage in the company's name and as its president, is more directly connected with the enterprise than any one else; and if he be not liable, neither of the others are, whose share in uttering the false statements was limited to signing a stockholders' consent to the execution of the mortgage. As to Gardiner's knowledge, he concedes that he knew that they had only a small surface ownership, no more than enough to work the measures economically, though it was all that was usual in such cases. It is true, therefore, that he knew substantially the facts of the company's ownership. Nevertheless, it is also true that he left the reduction of the facts to legal form wholly to the company's lawyers, who were competent, as no one disputes, and who in turn put the preparation of the description of the realty interests into the hands of equally competent Missouri counsel. Gardiner signed the document in entire reliance upon the correctness of the reduction of the facts to proper legal form. In fact, the lawyers described the ownership of the measures in fee as 'lands,' which the opinion upon the demurrer has held to be erroneous and misleading. This is Gardiner's connection with the matter.

These being the facts in small compass as the complainant himself asserts them-- for I do not mean to be taken as deciding on the truth of any one of them-- what is the law? I must take from Judge Martin the fact that the bill has equity, and is not open to demurrer. The complainant suggests two legal theories: The first, that it is a bill for restitution in kind because of a common-law tort-- i.e., deceit; the second, that equity will relieve in any event, even if no tort be committed upon which a court of law might give damages. Judge Martin took a third theory; i.e., that it was an action at law, for deceit, which got into equity because of the number of the plaintiffs who would have to sue.

The question is whether a man, knowing the facts, who asks skillful lawyers to prepare a trust mortgage conveying the legal rights of a company over which he is president, is responsible for the resulting damage because the words describing the property erroneously include the surface, which the company does not in fact own. It must be remembered that Gardiner did not employ the lawyers who drew up these papers, and is not responsible for them as his agents.

At the outset the character of the mistake must be observed. Gardiner knew the facts, but he did not know the meaning of the words. Although the great weight of authority is to the contrary (Derry v. Peek, 14 App.Cas. 337), I may assume for the purposes of this case that a man may be responsible for his uttered false words, even when he believes them to be true.

Such authorities as hold to this rule regard the uttered word as the cause of the damage, which, of course, it is, and they hold that a man, by speaking or writing words on which he knows others will rely, must be held to their truth quite as much as though he made a promise (Mr. Justice Holmes dissentiente, Nash v. Minnesota Title Co., 163 Mass. 574, 40 N.E. 1039, 28 L.R.A. 753, 47 Am.St.Rep. 489; Pollock on Torts (6th Ed.) page 283). But these authorities, which regard the word as the tortious act, certainly should not, in analogy with the other law of torts, be supposed to mean that a man should be responsible for the remote results of his words. The extent of his responsibility, indeed, ought to be limited, as it is in other torts, to those matters which would come within the foresight of the hypothetical reasonable man. With remoter damage it is as unjust to charge the words of his mouth as the movements of his legs or arms. Although they do not in these words indicate the distinction, I think that this is the explanation of such of the cases as make negligence the test, and of these there are a number.

If Gardiner was responsible for the words he uttered, regardless of scienter, at least he was not responsible for such consequences as no man could avoid with the use of reasonable care. What happened in spite of the exercise of such care was remote, within all the analogies of the law of torts. 'Causa proxima non remota spectatur.' Nor does it make any difference that it was in respect of the meaning of his words that he was mistaken. The utterance of a word is one thing; its eventual interpretation by a reader is another, and is as much the external consequence of its utterance as anything else. A given interpretation, even a legal one, may be, from the point of view of the original utterer, so remote a consequence that no one ought in justice to be held accountable for it. For example, in the case at bar, if Gardiner did all a layman could do to get the facts set down correctly, the...