First Bancredit Corp. v. J. G. McKenzie Lumber Co. , 65 Ga. App. 595 ( 1941 )

1. The petition was in two counts. Count 2 was stricken. Count 1 set forth an action for deceit on account of allegedly false representations of the defendants, and in effect alleged the following essentials for a suit in tort for deceit by means of false representations: (1) that the defendant's made the representations; (2) that at the time they knew they were false; (3) that they made them with the intention and purpose of deceiving the plaintiff; (4) that the plaintiff relied on such representations; (5) that the plaintiff sustained the loss and damage alleged as the proximate result of the misrepresentations having been made. This count was not subject to the general demurrer based on the ground that no cause of action was set forth.

2. The petition was specially demurred to on the ground of a misjoinder of actions, in that the first count sounded in tort and the second in contract. As contended by the plaintiff, count 1 properly construed sounded in tort. The plaintiff amended count 2 by alleging that it was suing in tort for damages and not on contract. The plaintiff elected to sue in tort. After argument, the judge sustained the demurrer to count 2 and struck it.

3. The judge did not err in refusing to allow the plaintiff to introduce in evidence an entire contract which had not been signed by the defendants. The material parts of the contract, as they related to the issues in the case, had been properly set out in the petition, and such material parts were allowed to be proved by the judge, and we see no good purpose that could have been served by admitting the entire contract which was long and technical, containing many provisions that were not applicable, and which might have tended to confuse the jury.

4. The other points in the case are considered in the body of the opinion.

DECIDED JULY 16, 1941. REHEARING DENIED JULY 31, 1941. The First Bancredit Corporation brought suit for damages against J. G. McKenzie Lumber Company, J. G. McKenzie, and W. G. McKenzie. Count 1 of the petition alleged that in 1937 the plaintiff was engaged in the purchasing of obligations such as notes and conditional-sale contracts from the approved dealers of the Phillip Carey Company, on papers offered it by the approved dealers of the Phillip Carey Company under what is known as its "budget plan." J. G. McKenzie Lumber Company was an approved dealer of the Phillip Carey Company. Under the plan the plaintiff would purchase from the defendants notes, etc., of third persons, provided such persons had built buildings or improved them in accordance with certain plans and specifications and accompanied the applications with credit reports, all of which had been approved by the Phillip Carey Company, and that the notes were accepted by the plaintiff subject to the dealer complying with the plans of the Phillip Carey Company. The plaintiff further alleged that it bought from the defendants certain notes signed by J. A. Pollock and his wife, payable monthly in specified amounts. The notes were made payable to J. G. McKenzie Lumber Company, and were indorsed by the lumber company to the plaintiff without recourse. After three monthly payments Pollock defaulted, leaving a balance due of $1331.

It was further alleged that the credit reports showed only one security deed of $2400 outstanding against the property, whereas now the plaintiff has learned there was a second security deed against the property held by the lumber company against Pollock in the amount of more than $1600; that this second security deed was in existence and known so to be by the defendants at the time the plaintiff purchased both notes, but its existence was unknown to the plaintiff; that the credit reports were on the approved forms of the Phillip Carey Company, and that the defendants submitted both of the credit reports as an inducement to secure said sale of the notes; that the defendants also omitted from the credit reports five notes of Pollock held by the First State National Bank of Bainbridge, Georgia, at the time of the sale of the notes to the plaintiff, the existence of which were known to the defendants and unknown to the plaintiff until after Pollock defaulted; that, unknown to the plaintiff but known to the defendants, a large part of the purchase-money of the notes was, contrary to the Phillip Carey plan, used to pay the prior obligation of Pollock, and this was intended at the time of the purchase of the notes; that although the purchase was not eligible under the plan, the defendants, by letter and by forwarding the application of Pollock, represented to the plaintiff that the purchase was eligible; that the representations were wilfully and falsely made by the defendants and the facts represented were material; that they induced the plaintiff to purchase the notes; that the plaintiff, acting upon said representations, suffered a loss of $1331; that after Pollock was in default he was adjudicated a bankrupt, and his only assets were in the amount of $460 which were claimed by Pollock as head of his family and were set apart to him as such exemption.

It was further alleged that the lumber company, under power of sale in the security deed, bought in the property at public sale for $350; that it was the duty of the defendants to notify the plaintiff of said second security deed; that while said notes were purchased without recourse, the plaintiff was induced to purchase them on the representations contained in the credit reports, and plaintiff acted on said representations contained therein to its injury; that the defendants knew the representations were false and plaintiff did not know thereof; that had it known, it would not have purchased the notes, and that on learning of the omission of the defendants to disclose knowledge of the second security deed held by the lumber company and the notes held by the First State National Bank and that the money was to be used as payment on prior debts, plaintiff demanded a refund from the defendants of the purchase money, which defendants refused to make. The plaintiff prayed for judgment.

Count 2 was practically the same as count 1, except as to allegations with reference to the provisions of a contract which will be discussed and fully covered by the opinion.

The defendants filed certain demurrers, part of which were overruled and part sustained, which rulings will be covered by the opinion. The defendants answered the petition denying it in part, admitting it in part, and neither admitting nor denying other parts. The defendants further answered and contended that they knew nothing of the contract between the plaintiff and the Phillip Carey Company, and that the plaintiff accepted the notes without recourse on the defendants, but denied that such acceptance was subject to the dealer's compliance with the plan of the Phillip Carey Company; that Pollock and his wife made application to them for credit and submitted to the lumber company a credit statement on a form prepared by the Phillip Carey Company and that this proposal was offered to the plaintiffs; that the application of Pollock and his wife was made in good faith and was free from misrepresentations of any sort; that the letter of the defendants to the plaintiff approving the application referred to in the petition stated that "this approval is given with the understanding that you comply with the requirements of the above manufacturer," referring to the Phillip Carey Company, but nothing was stated in said letter about any contingency in connection with the purchase or about the "Phillip Carey Plan." The defendants denied that the purchase of the notes by the plaintiffs was on the financial statement submitted by Pollock, but contended that the plaintiffs made a private examination of their own of Pollock's financial condition before the purchase of the notes; that the fact that the McKenzie Lumber Company held the said security deed should have been known by the plaintiff if it was not; that the credit statement referred to "was not made either to the plaintiff or to the Phillip Carey Company, but was made by Pollock to J. G. McKenzie Lumber Company and these defendants deny that such credit statement was submitted to the plaintiff as an inducement to secure the loan." The defendants admitted that the credit statement did not make reference to the five notes held by the bank but contended that the failure of Pollock to include such notes in said credit statement did not constitute a fraudulent misrepresentation.

In further answering both counts of the petition the defendants made certain allegations designated as subparagraphs a, b, c, d, and e of paragraph 11 of the answer. The demurrers of the plaintiff to subparagraphs a and d were sustained, and both were stricken from the answer. Subparagraph b alleged: "That at the time of his application Pollock was a good credit risk for this type of unsecured loan; that he was earning a substantial salary as an employee of the Georgia Power Light Company, and the plaintiff relied upon an investigation made by it into his general financial condition, his earning ability, and his reputation for paying debts; that the plaintiff did not rely upon the real estate improved, took no security against the same and did not look to the property for payment." Subparagraph c alleged: "That the defendant, J. G. McKenzie Lumber Company, has offered to turn over to the plaintiff real estate so improved in the same status as of the date of its foreclosure thereon; that is to say, by accounting for all rents and income received therefrom and by charging against the property all taxes paid, improvements made, and payments on the F H A loan. Such an arrangement would place the plaintiff in the same position held by J. G. McKenzie Lumber Company under its second security deed. The plaintiff has refused to accept the lumber company's offer and continues to demand the full amount of the notes and accrued interest." Subparagraph e of the answer is as follows: "Defendants aver that if the maker of said notes, J. A. Pollock, had not gone into bankruptcy, no such contention would have been made by the plaintiff herein; that no effort has been made to collect said notes out of the co-maker, Hortense Pollock [Pollock's wife], but the plaintiff as before stated is arbitrarily endeavoring to force a guarantee upon these defendants which at no time existed." The plaintiff demurred to these subparagraphs of the answer on the grounds "that the facts set forth herein are not responsive to any of the material allegations contained in plaintiff's petition, are irrelevant and immaterial to any of the issues involved in said case. And on the further ground that the same are self-serving declarations which are only calculated to prejudice the minds of an impartial and fair jury as to the real issues involved in said case, and for all of these reasons the same should be stricken from the pleadings." The plaintiff's demurrers to subparagraphs b, c, and e were overruled, and it excepted.

The defendants demurred generally to the petition on the ground that it failed to set out a cause of action and specially on the ground of a misjoinder of actions, in that the first count sounded in tort and the second in contract. Several amendments to the petition were allowed. The plaintiff further amended count 2 by alleging that it was suing in tort for damages and not on contract. After argument the court sustained the demurrer to count 2 and struck it, the plaintiff having elected to sue in tort. The case proceeded to trial on count 1 and resulted in a verdict for the defendants. The plaintiff excepted to the order overruling its demurrer to subparagraphs b, c, and e of the answer, to the striking of count 2 on demurrer, and to the overruling of its motion for new trial. The petition is in two counts. Counsel for both parties seem to concede that the first count sounds in tort for deceit, and it might be here noted that the prayer in the first count is that the petitioner "do have and recover judgment" against the defendants, without specifying any amount, which would indicate an intention to sue on the tort. Under our Code, § 105-2006, "General damages are such as the law presumes to flow from any tortious act, and may be recovered without proof of any amount. Special damages are such as actually flowed from the act, and must be proved in order to be recovered."

Count 1 in effect alleges the following essentials for a suit in tort for deceit by means of false representations: (1) that the defendants made the representations; (2) that at the time they knew they were false; (3) that they made them with the intention and purpose of deceiving the plaintiff; (4) that the plaintiff relied upon such representations; (5) that the plaintiff sustained the loss and damage alleged as the proximate result of the misrepresentations having been made. Young v.Hall, 4 Ga. 95, 98; Penn Mutual Life Insurance Co. v.Taggart, 38 Ga. App. 509 (144 S.E. 400); Reddick v.Strickland, 25 Ga. App. 275 (4) (103 S.E. 94).

Count 2 alleges that there was an express provision in the contract that any loss by reason of the misrepresentations of the defendants as to the existence of certain notes and a security deed was to be prevented by a repurchase of the notes which occasioned or were about to occasion the loss, and that this provision of the contract was violated when the defendants failed to repurchase the notes. The amount of recovery prayed for in the second count is the same amount as that due on the notes. The special provision of the contract which it seems the plaintiff was seeking to enforce is stated in paragraph 5 of the second count as follows: The defendants agreed "to repurchase on demand from the Phillip Carey Company, or any finance company designated by Phillip Carey Company to handle the installment notes offered by J. G. McKenzie Lumber Company [one of the defendants], the unpaid balance of any note upon the discovery by your petitioner of any material misrepresentation with respect to the particular transaction." Count 2 also contains many allegations of fact which are the same as in count 1, which is based on tort, but when considered as a whole, count 2 seems to us to be based on contract. Count 2, it is true, contains many allegations of fact which would be appropriate in an action for tort; however, this does not necessarily change the character of the petition from an action on a contract to one in tort. Furthermore, the prayer in count 2 is that the petitioner "do have and recover of the said J. G. McKenzie Lumber Company, J. G. McKenzie and W. G. McKenzie [the defendants] the sum of $1331 in damages;" and this would be the actual amount that the defendants would be required to pay the plaintiff if they complied with the specific provision of the contract above stated. In a suit on a contract, under our Code, the plaintiff can generally recover only the actual damages flowing from the breach. We think count 2, when considered as a whole, was properly stricken as being a suit on a special provision of the contract and hence on the contract where the plaintiff had elected to sue in tort. The judge did not err in striking count 2 on demurrer based on the ground of misjoinder of causes of action.

The plaintiff demurred "generally and specially" to the answer. The general demurrer was not meritorious. Plaintiff demurred specially to subparagraphs a, b, c, d, and e, of paragraph 11 of the answer on the ground that they were not responsive to any of the material allegations in the petition and were irrelevant and immaterial, and on the further ground that they were self-serving declarations which were only calculated to prejudice the mind of the jury. On the hearing of the special demurrers the court sustained those to subparagraphs a and d and struck them from the answer, and overruled the special demurrers to b, c, and e. Subparagraph b was a relevant and material denial of that essential element of this action of deceit denominated 4 in the second paragraph of this opinion. The judge did not err in overruling the demurrer to it. Subparagraph c was in effect a statement of an alleged fact which the jury could take into consideration along with other circumstances in determining whether the essential element of this action denominated 3 in the second paragraph of this opinion had been proved. Subparagraph e was in effect an allegation that the plaintiff was attempting to force on the defendants a guaranty which had not been contracted for, and was material in that the defendants were permitted to give the full background of the case and to show the bad faith of the plaintiff if such appeared.

In considering these questions as well as the general and special grounds in this case, we should bear in mind that the gist of the action is the intent and purpose to deceive and defraud, and a wide range of evidence is permissible in proof of circumstances tending to prove or disprove the intent to defraud, and all the circumstances of the transaction may be submitted to the jury provided they afford any fair presumption or inference as to the matter of intent or lack of intent. Keener v.State, 18 Ga. 194, 225 (63 Am. D. 269); Nelson v. State,51 Ga. App. 207 (2) (180 S.E. 16); Smith v. Dudley,69 Ga. 78 (3).

In special ground 1 the plaintiff contends that the judge erred in refusing to allow the plaintiff to introduce a written contract solely between the Phillip Carey Company and the plaintiff, which contract was not signed by either of the defendants. Count 1 of the petition, on which the case went to trial, was extremely well pled, and set out the facts which the plaintiff claimed constituted the tort, and in accordance with good pleading the plaintiff did not set out the entire contract just referred to, by way of inducement, but set out only such parts thereof as were material for this purpose. On the trial the plaintiff was allowed to introduce evidence to show all the material parts of the contract that the plaintiff claimed by way of "inducement." As the written contract was long and technical, and the defendants were not signers thereof, and the jury had the benefit of the provisions of the contract which were material to a clear understanding of the case, we see no reversible error in refusing to allow in evidence the whole of this long, technical contract which contained many provisions not material to a decision of the case.

Special grounds 2 and 3 relate to questions asked by the defendants on cross-examination of plaintiff's witnesses, and have to do with the question whether the notes in controversy had a homestead-waiver clause, and the defendants were evidently endeavoring to show whether the taking of the notes without such a clause, under all the circumstances of this case, was using reasonable diligence. Bearing in mind the quality of all the facts and that the suit was for deceit based upon actual fraud by means of false representations, we do not think these grounds disclose reversible error. Newsom v. Jackson, 26 Ga. 241 (71 Am. D. 206); Yanelli v. Littlejohn, 172 Mich. 91 (137 N.W. 723).

Grounds 4 and 5 are exceptions to the testimony of two of the defendants while testifying on direct examination. This was an action for deceit and the gist of the action was an intention to deceive by false representations. One of the said defendants on direct examination, over objection by the plaintiff that the evidence was a conclusion of the witness, was permitted to testify that he did not "by word of mouth, or in any way, mislead the First Bancredit Corporation [the plaintiff]." "Thesubstantive law may declare the intent of a person to be immaterial; in that case, testimony to his intent, from himself or from any one else, will be excluded, but not by virtue of the opinion rule or of any other rule of evidence." 7 Wigmore on Evidence (3d ed.), 107, § 1967. There are many "situations in which under the substantive law a state of mind may . . be a part of the issue . . [as] in an action fordeceit, [where] the plaintiff's reliance upon the defendant's representations [is the issue]. . . Whether or not the motive, reason, or other state of mind, may be proved, is in all of these not a question of Evidence-law." Id. 108, § 1967. If the intention of the actor (the defendants) in the present action of deceit is "in substantive law to control the legal effect of his act . . then testimony to that intention is receivable, if not, then inadmissible; but the exclusion has nothing to do with the opinion rule or any other rule of evidence." Id. 104, 108, §§ 1965, 1967 (2). This being an action for deceit under the substantive law of this State, the state of mind of the defendants, the intention to deceive, is the gist of the action, it is that which one party affirmed and the other denied, and the actor's intention is allowed in substantive law to control the legal effect of the act. Hence the testimony to that intention by the actors themselves was not subject to the objection urged. The witnesses were testifying to that which was the equivalent of denying that they had done the specified acts which constituted the deceit and were subject to cross-examination as to all the constituent acts. They were testifying to that which was material, the truth or falsity of which was known to them. See also in this connection Pride v. State, 133 Ga. 438, 441 (66 S.E. 259).

Ground 6 complains that the judge erred in allowing J. G. McKenzie, a witness for the defendants, to give the following answer to the following question: Q. "After the people [referring to the plaintiff] made the complaint in this case, what did you offer to do in reference to the equity the lumber company held in it?" A. "I authorized my attorney to make them an offer that we would deed them the place subject to the F H A loan, provided they would pay the taxes and some other little funds on it. I had sustained a good loss on Mr. Pollock's account, and we thought that if they thought we had been unfair that we would give them the whole equity and that we would give them the place. We offered to put them in our shoes and they refused." It should be borne in mind that the gist of this action was the intent and purpose to defraud, and we think the question and the answer were admissible, at least, for the purpose of showing good faith in handling the whole transaction.

We think that the judge in his charge to the jury fully, fairly, and clearly covered the issues involved in the request to charge referred to in ground 7, and did not err, as contended therein, in refusing to charge as requested. The judge did not err, as contended in ground 8, in charging the jury that "under the laws of this State, the head of a family is entitled to an exemption of his property free from all debts, liens, and encumbrances up to the amount of $1600, unless by a contract in writing he expressly waives such exemption." Evidence was allowed that there was no waiver of homestead exemption in the notes, and that a failure to have such a waiver incorporated in them was a failure to use reasonable diligence, under the circumstances of this case, hence this charge was not error. Pride v. State,Keener v. State, supra.

In ground 9 the plaintiff contends that the judge erred in charging the jury as follows: "A qualified indorsement constitutes the indorser a mere assignor of the title to the instrument. It may be made by adding to the indorser's signature the words ``without recourse,; or any words of similar import. Such an indorsement does not make the indorser liable upon the default of the maker." In order for the jury to understand the issues in this case, it was necessary for them to know what a qualified indorsement meant, or what the words "without recourse" imported as it related to the facts of this case. The first and second sentences of this excerpt were in the words of our Code, § 14-409, and the last sentence, we think, when considered in connection with the first two, was applicable to the pleadings and the evidence.

The evidence authorized the verdict in favor of the defendants.

Judgment affirmed. Broyles, C. J., concurs. Felton, J.,dissents. Gardner, J., disqualified.