New York Title & Mortgage Co. v. Hutton

GRONER, Associate Justice.

Appellee sued Capitol Title & Guarantee Company, Inc., and New York Title & Mortgage Company, the latter a New York corporation, to recover the sum of $2,500 alleged to have been paid by her to Capitol Company in the purchase by her of 20 shares of preferred and 10 shares of common stock of that company. She said she purchased the shares of stock in reliance upon representations made to her by the Capitol Company and the New York Company, and that the representations were false, fraudulent, and deceitful. She averred that the representations were made by the Capitol Company and the New York Company acting in concert and in furtherance of a common purpose and design to deceive and defraud.

The declaration was in two counts. The first alleged that the representations were made falsely, fraudulently, deceitfully, and knowingly; the second, that the representations were made falsely, fraudulently, negligently, recklessly, and deceitfully. The evidence shows that the New York Company was at the time engaged in the title insurance business, and that it was anxious to make a business connection with a title-searching company in the city of Washington. In the spring of 1928 Earnest, who was the president, and Weinstein, who was the principal organizer of the Capitol Company and who had superintended the construction of its title plant, went to New York to see McNeal, vice president of the New York Company. They stated to McNeal that the object of their visit was to see if they could interest the New York Company in a contract for reinsuring titles of property located in Washington. They said they had compiled a title plant for the District of Columbia and had the plant completed back to the year 1900. They told McNeal that the plant was in Baltimore, and that it had been assembled there to avoid publicity and possible opposition on the part of title companies doing business in the District of Columbia. They informed him the Capitol Company had on hand cash in the amount of $400,000. There was a good deal of other conversation between McNeal and the representatives of the Capitol Company, all intended to impress McNeal with the desirability of a business connection. As the result of this, Me-Neal agreed to send representatives of the New York Company to Baltimore to look over the plant, and he did send Weaver, one of his assistants, and George S. Parsons, solicitor of the New York Company. Weaver and Parsons went to Baltimore, saw the plant, and reported to McNeal that it was an up-to-date plant, and that the standing of the people identified with it was entirely satisfactory. This in turn resulted in the making of an agency contract between the New York Company and the Capitol Company. About two •weeks after the contract was entered into, Earnest in Washington called Parsons in New York on the telephone, and, after discussing some purely formal matters in connection with methods of doing business, said to Parsons, “By the way, you have been down here and seen that plant, and you have told me that you thought it was a very good one. We have a lot of people around Washington here that are not friendly to us, and they are saying we haven’t the proper tools to work with, and I would like for you to * * * write me a letter, expressing your opinion of that plant, as you told it to me.” Parsons replied he was about to leave on his vacation and suggested that Earnest prepare the sort of letter he had in mind and send it up to him, saying if it was all right he would sign it. A little later Parsons received the proposed letter from Earnest. As originally drawn by Earnest, the letter contained a statement as to the monetary value of the plant of the Capitol Company and also some language reflecting on other Washington companies. Parsons struek out these portions of the letter proposed for his signature, rewrote it, signed it, and sent it to Earnest. The letter was as follows:

“New York Title & Mortgage Company,

“National Title Insurance Department,

* ^ » *

“135 Broadway, New York, June 21, 1928.

• Si ***** •

“Dear Mr. Earnest: It is a source of 'great satisfaction to us to contemplate the arrangements recently completed by the officials of our company with the Capitol Title and Guarantee Company, Inc. The affiliation of our companies is the consummation on our part of a desire to establish permanent relations with an organization in Washington that can and will give the residents of the Capital of the United States reliable and rapid title service, and to place the resources of this company at the disposal of Washington residents and business men.'

“You can personally assure the business men and others interested in your project , that the New York Title and Mortgage Company, with its capital funds of over $44,000,-000, stands ready at all times to substantiate our contract to indemnify and guarantee the titles to real property in Washington, D. C., Montgomery and Prince Georges Counties, Maryland, and Arlington and Fairfax Counties, Virginia, when passed and approved by your company. We say this because our experts have examined your plant thoroughly and have pronounced it to be one of the finest title plants in existence; that it is unparalleled in its mechanical aspects, including every modem feature for accurate and expeditious title service. It gives me personal pleasure to add my commendation to their voice and to say that you have one of the most remarkable title systems that it has been my lot to investigate. The plant itself, in my opinion, is worth a very high figure as it stands today and I know it will be a distinct benefit to the city of Washington to be able to get the type of service your company will afford it.

“I am confident that when the people of Washington realize the character of service you are able to render, and its obvious advantages to them, they will avail themselves of it.”

In March, 1929, appellee went to a Washington bank and asked the cashier to purchase for her through the bank certain New York Stock Exchange stocks. The bank officer discouraged her investment in listed stocks, produced a circular of the Capitol Company, showed it to her, and in effect said that the stock of this company was a better 'investment.' She took the circular with her and returned to her home, and a little while later O’Haxe came to her house and introduced himself to her as a stock salesman for the Capitol Company, saying he had been sent by the officer whom she had talked to at the bank. During the conversation he gave her, and afterwards left with her, two or three circulars of the Capitol Company, in one of which the letter from Parsons was printed in full. Appellee examined the circulars and thought the matter over, and subsequently went with O’Hare to the Capitol Company’s office, where she talked with the president and remarked that O’Hare had about convinced her that an investment in the Capitol Company’s stock would be a good one. Two or three days after this visit she made the stock purchase, paying $2,500 in cash.

The case was tried below to a jury and resulted in a verdict for the plaintiff (appellee) against both Capitol Company and New York Company. This appeal is taken by the New York Company alone from the judgment entered on the verdict of the jury.

The assignments of error are numerous, but, in the view we take of the case, we need consider only one. At the conclusion of plaintiff’s evidence, and again at the conclusion of all the evidence, the New York Company moved for a binding instruction, which was refused. In our opinion the court should have taken the case from the jury as to the defendant New York Company. The representations made by the New York Company on which it is claimed appellee relied are all contained in the Parsons letter which we have set out in full. These were that the Capitol Company’s plant was one of the finest title plants in existence, unparalleled in its mechanical set up, and including every modern feature for accurate and expeditious title service, and that it was one of the most remarkable ever investigated by the New York Company’s solicitor and counsel and was worth a very high figure; that its opinion in this respect was the result of an examination by its experts, and that it had accordingly es-' tablished permanent relations with the Capitol Company and had placed its resources consisting of a capital fund of over $44,000,000 at the disposal of Washington residents and business men in the prosecution of the title business of the Capitol Company, and that it could personally assure business men and others interested in the project of the Capitol Company that the New York Company stood ready at all times to guarantee the titles to real property in Washington and adjacent counties which had been passed, on, and approved by, the Capitol Company.

Appellee’s ease below was that she had purchased stock in the Capitol Company upon tho basis of the statements made in the Parsons letter, that these statements were material and were false to the knowledge of tho New York Company, or were recklessly made, and that they were issued for the purpose of selling the stock of the Capitol Company, and that appellee relied upon the statements as a procuring cause of purchase; and thereby suffered loss.

Appellant’s position both here and below is that, without regard to the question of tho accuracy or inaccuracy of the statements in the letter -with relation to tho character of the title plant, none of the statements made in the Parsons letter was made .with the intent that it should be used for the purpose of inducing anybody to buy stock in tho Capitol Company. Counsel for all parties apparently agree that, in order to establish the charges of the declaration, tho plain!iff must show that the representations made by the defendant were material; that they were false; that they were not actually believed by defendant, on reasonable grounds, to be true; that the representations were made with the intent that they should bo acted on by tho plaintiff; that they were acted on by her to her damage; and that in doing so she) was ignorant of the falsity and reasonably believed the statements to be true. See Southern Development Co. v. Silva, 125 U. S. 247, 250, 8 S. Ct. 881, 31 L. Ed. 678.

In this case there was sufficient evidence to submit to the jury the question whether the representation made as to the character of the title plant of the Capitol Company was so exaggerated as to be either reckless or untrue, for the evidence clearly shows it was at the time an incomplete plant, and that a great deal of labor and time would be required to bring it within the fulsome description of the letter. If, therefore, the representation was reckless and was made with intent that it should bo acted on by appellee, and if the representation was one which Parsons, as solicitor of the company, was authorized to make so as to bind the company — a question as to which we express a serious doubt but do not decide — the conclusion might properly follow that it was material and was either tho inducement, or one of the inducements, loading to the purchase of tho stock and the loss of the money.

In this view, the question which, should have controlled the lower court in granting or refusing a binding instruction was who!,her the injury to appellee could have been reasonably anticipated as tho probable consequence of the misstatements contained in the letter. Stated otherwise, the question here is whether the statements made in the Parsons letter were made for the purpose of inducing her, or the public generally, to purchase shares of stock in tho Capitol Company, or whether they were made for an altogether different purpose and without reason to believe they would be used to influence persons to become holders of the shares of the Capitol Company. The controlling rule in such eases is that stated by Judge Sanborn in Western Union Tel. Co. v. Schriver (C. C. A.) 141 F. 538, 542, 4 L. R. A. (N. S.) 678:

“One who makes a representation owes no duty of care to tell the truth to those to whom he does not communicate it and to whom he does not anticipate that it will be conveyed, and a person of ordinary prudence and intelligence in his situation would not anticipate that it would be conveyed, and such parties have no cause of action against him for injuries they sustain by reason of the falsity of the representation. ‘Courts will give appropriate redress or relief for actionable misrepresentation to anyone to whom the same was made or for whom it was intended, and only to such.’ [Citing cases.] The reason is that the loss to him to whom the party who makes the misrepresentation does not communicate it, and cannot reasonably anticipate that it will be communicated, is not the natural or probable consequence of his act. It is the effect of an independent cause — of the unexpected conveyance of the misrepresentation to the third party by the person to whom it was originally made. Without this new cause, the injury to the third person would not occur and the intervention of this new agency, as Wharton felicitously expresses it, ‘insulates’ the original act of negligence from the injury. [Citing cases.]”

With this rule in mind, we must have recourse to the evidence to determine whether in writing the letter Parsons, as the representative of the New York Company, intended, or had reasonable cause to believe, that it should be used for the purpose of inducing anybody to buy stock in the Capitol Company. We find nothing in the original conference between the officers of the Capitol Company and the vice president of the New York Company which would indicate that the agency contract which the Capitol Company sought to make with the New York Company had any relation to the building up of the Capitol Company’s financial structure. On the contrary, the evidence is that at that time the vice president of the New York Company was told that the Capitol Company had been organized with a capital of $650,000 and had in hand at that time $400,000 of cash. The evidence of the vice president of the New York Company is that in subsequent conferences with the representatives of the Capitol Company no mention of any sort was made of a purpose to engage in a stock-selling campaign or to sell stock at all. It is true that about the time appellee bought her stock appellant’s vice president was elected a director of the Capitol Company, and that some three weeks later he came to Washington, to attend the meeting of the directors. At this meeting he learned for the first time the Capitol Company was engaged in stock sales, and that the letter of his company was a part of its advertising matter. He testifies he immediately rebuked this unauthorized use of the letter, but Apparently no formal action was taken to cause its withdrawal from circulation. The weakness of this is, however, that it all occurred long after appellee had bought her stock, and neither action nor nonaetion at that time would have affected the result. The evidence of Parsons, the writer of the letter, is clear that he understood the application to him to write the letter to be grounded on a desire on the part of the Capitol Company to use it in connection with a campaign to get title business for that company. He stated that he had in mind at all times the fact that he was giving the letter in furtherance of a duty on the part of the New York Company, as principal under the agency contract, to help the Capitol Company get business for the benefit of both parties to the contract, and that this was all that he had in mind; that the idea that the letter would be used in the sale of stock was not mentioned, nor was it considered or thought of by him. There is no .contradiction of this evidence, but there is much corroboration of it, and indeed no suggestion from anybody that at the time the .letter was written the sale of stock was thought of, except by one of the promoters of the' Capitol Company, Weinstein, who was himself the holder of a large amount of stock which apparently he was anxious to sell. The witness Earnest, who prepared the letter and sent it to New York for Parsons’ signature, stated that the only purpose he knew of in connection with the letter was the securing of title business. The letter itself bears testimony to the truth of this evidence. It obviously was written to secure clients rather than to stimulate sales of stock.

On the part of appellee, it is claimed that the use in the covering letter,' which Parsons wrote at the same time, of the expression, “I have been pleased to sign [the letter] for use in connection with your publicity campaign,” shows knowledge o'f a purpose to use the letter to promote sales of stock, but this contention is without force. Reference is also made to the language of the letter sent by the president of the Capitol Company to Parsons inclosing the form of letter he desired to have signed: “This will, of course, be used in connection with our advertising and publicity in Washington, D. C., and its suburbs.” But we can see no connection between the language used and the sale of shares of stock. In fact, it seems to us that the letter from Earnest to Parsons clearly defines the purpose of its solicitation, for to say, as was said, that it was to be used for “advertising and publicity” in Washington and suburbs, especially when considered in connection with the fact that the company was just then inaugurating its campaign to get business, clearly indicates that it was a business-getting rather than a stock-selling letter, and from that point of view the letter, notwithstanding it was an exaggerated statement of the then facilities of the Capitol Company, was otherwise unexceptionable. The court below stated to the jury that the plant system-was a good one, and the great weight of the evidence supports this. The difficulty was that it had not been availed of to carry back the records far enough to he effective; in other words, considerable individual research was necessary in every case in the preparation of an accurate abstract of title. In this aspect it was misleading to describe it in the language Parsons used, but, as used, it was little more than what is generally called trade talk. 'The statement with relation to the association of the New York Company with the Capitol Company was wholly true. The contract between these two companies assured to any client of the Capitol Company a title guaranteed by the New York Company, and the evidence shows that the New York Company consistently lived up to its contract. In view of what we have just said, it inevitably follows that there was no evidence to justify the lower court in submitting to the jury the question whether the New York Company, in writing the letter and in making the representations therein made, anticipated, or had any reason to anticipate, that the letter or its representations would he used to induce persons to buy stock from the Capitol Company.

If neither the president nor the solicitor of the New York Company knew that the Capitol Company was selling stock, and if on the contrary they believed that its capital structure was complete, and that its only interest in having the letter was to stimulate business, and the letter itself speaks clearly to that end, plaintiff has failed to prove her ease. In saying this, we do not overlook the ordinary rule that a person who does an act is supposed to contemplate what naturally results therefrom, but a necessary element of the rule is that the party doing the act must have reasonable cause to believe it will cause, or tend to cause, the consequences complained of. Here, as we have found, ground for such reasonable belief is wholly lacking. There is positively no evidence in the ease of any collusion or conspiracy between the two companies. Their interest was identical only in the matter of obtaining business. The New York Company had no advantage or profit of any kind in the sale of the Capitol Company’s stock. It believed that in making the agency agreement it was dealing with a company whose capital was fully subscribed and whose surplus was nearly $500,000'. In the reinsurance of its title abstracts it had a material interest, because it shared in’ the fees collected, and it was in pursuit of this interest alone that it wrote the letter. There was no privity between any of its officers and appellee and no evidence that any of its officers ever made any representation directly to appellee. There is no evidence to show that pri- or to the time appellee purchased the stock the New York Company knew that the letter had been copied into the circulars introduced in evidence, though, of course, it is fair to assume that it intended the letter to be used for the purpose of circularizing those interested in securing abstracts of title and haying them guaranteed. While it is not necessary in a ease of this kind to allege or prove that the shares of stock were sold directly by the person charged with the false representation, it is nevertheless important to show a relation of interest between the one deceived and the one charged with having made the false representation.

In this ease the New York Company did not participate in the sale of stock directly or indirectly, and the representations complained of were not made by it to induce the purchase of shares of stock of the Capitol Company by appellee or any one else. The real point involved in this discussion is the inquiry, Whom did the New York Company intend to influence in writing the letter for publication? If the representations were made only to stimulate title business, there can he no recovery, for, so far as we know, it has never been hold that it is a proper ground of action that the defendant made a dishonest representation and that the plaintiff relied upon it and sustained injury, unless the misrepresentation was intended, or by its very nature was calculated, to induce the very action by a party which resulted in his damage. Cooley on Torts, p. 493; Hindman v. First Nat. Bank (C. C. A.) 112 F. 931, 942, 57 L. R. A. 108.

We think the letter in this ease clearly shows that it was written for the exclusive purpose of accelerating the business in which both companies were interested and for no other purpose. In view of the fact this ease must be retried, and likewise of the fact that the evidence in the new trial may be materially different from that in the first, we think it proper to say that in our opinion the lower court was in error in refusing to permit the witness Parsons to testify as to his belief in the truth of all the statements contained in the letter of June 21, 1928. 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. If the same question should arise on the new trial, the witness Parsons should be permitted to testify as to his belief in the truth of the statements of the letter, and the court should then submit to the jury the question whether the statements made in the letter were made with such recklessness and heedlessness of consequences as to amount to fraud.

It follows the action of the lower court in refusing to direct a verdict for the New York Company was wrong, and the judgment therefore should be and is reversed, and the cause remanded for a new trial to be had in accordance with this opinion.

Reversed and remanded.