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false and calculated to mislead the plaintiffs, who consulted the rat-
ings given to the defendant by that agency.

The Appellate Division seems to have held that the plaintiffs
were not authorized to rely upon these ratings for the reason that
they were based upon the representations of the defendant and also
upon information received as to defendant's commercial standing
from outside sources.

The opinion of the court below further states : "It follows,
therefore, that, if the rule contended for by the plaintiffs were to
obtain, a trader who has made a report to a mercantile agency as to
his pecuniary standing might be held liable to arrest and imprison-
ment for the rating, which, although based in part thereon, was
"nevertheless due in a much larger measure to information obtained
Trom a business rival, a personal enemy or some other equally un-
reliable source."

If the fact that the commercial agencies of the country base
their ratings of merchants not only upon the representations of the
latter, but upon information obtained from other sources, renders
such rating unavailable to persons contemplating the giving of credit,
the information obtained by these agencies would be of little value.

I am of the opinion that the plaintiffs were entitled to submit to

the jury the question whether the grossly false representations made

by the defendant to the mercantile agency were one of the causes,

if not the sole inducing cause, which led to the sale of the goods in

"question. (Morgan v. S kiddy, 62 N. Y. 319.)

Vann, J. (dissenting). The rating of a mercantile agency is
merely its conclusion as to the financial status of the person to whom
it relates. In this case, the concluison was based partly upon state-
ments furnished by the defendant and partly upon information de-
rived from other sources. There had been a long course of dealing
between the parties, and the statements made by the defendant, which
included an itemized enumeration of assets and liabilities, were not
communicated to the plaintiffs, and were neither known to nor
relied upon by them when they gave the credit. It is not only unsafe,
but a violation of sound principles, to permit a recovery for deceit,
with the severe consequences that may follow, unless the evidence
connects the false statements directly with the person alleged to have

TIN'DLK 7'. lUKKETT. 73 1

practiced the deceit, or with liis duly authorized agent acting within
the scope of his authority. A mercantile agency is not such an
agent as to make its mere inference as to the efifect of the debtor's
statements binding ui)on him. Its authority, so far as he is con-
cerned, is limited to the transmission of his statement, as made by
him, or the substance thereof, to its subscribers. When it gives its
opinion, simply, it does not act as his agent, but as the agent of the
subscriber. In Eaton, C. & B. Co. v. Avery (83 N. Y. 31), the state-
ments made by the purchaser were communicated to the seller, not
the mere rating of the agency, and this court said: "By making a
statement as to the financial condition of his firm to such an agency
he virtually instructed it what to say if inquired of ;" that is, the
agency should report what the purchaser said, not its conclusion as
to the effect of what he said.^
Judgment reversed. -

^Accord: Holmes v. Harrington, 20 Mo. App. 661 (1886).

'Accord: Bradley v. Seaboard National Bank, 167 N. Y. 427 (1901);
Triplett v. Rugbv Distilling Co., 66 Ark. 219 (1899) ; Staver & Abbott Co. v.
Coe, 49 111. App. 426 (1893) ; Cox Shoe Co. v. Adams, 105 Iowa 402 (1898) ;
Salisbury v. Barton, 63 Kans. 552 (1901); Courtney v. Knabe, 97 Md. 499
(1903) ; Gcnessce Savings Bank v. Michigan Barge Co., 52 Mich. 164 (1883; ;
Dime Savings Bank v. Fletcher, 158 Mich. 162 (1909) ; the defendant, vice-
president of a company, was held liable for false statements made by him in
his report to the Secrctarj- of State, upon which report a commercial agency
had given the company a rating, which enabled the defendant to obtain a loan
from the plaintiff upon the stock of the company; Emerson v. Detroit Steel
Co., 100 Mich. 127 (1894) ; similar facts. In the majority of these cases the
vendor's fraud is alleged as avoiding a sale procured thereby.

The defendant's statement must have been made to the agency for the
purpose of obtaining credit. If made in answer to inquiries by it, and in a
form indicating no desire for credit, no action will lie, though credit be actu-
ally extended in reliance upon it; Mactillar v. McKinlev, 99 N. Y. 353 (1885).

In Reid, Murdoch & Co. v. Kempe, 74 Minn. 474 "(1898) ; it is held that
it is not the duty of a merchant to give notice to a commercial agency, which
has previously given him a rating upon information true when furnished, of
changes in the condition of his business, which makes such rating misleading,
but see Mooney v. Davis, 75 Mich. 188 (1889) ; where it is held that there is
a duty to correct statements, though true when made, when the conditions
change so soon thereafter that it is evident that the report will be taken to be
a statement of an existing financial condition, and see Lindauer v. Hav, 61
Iowa 663 (1883).

In Cox Shoe Company v. Adams, 105 Iowa 402 (1898), it was held that a
false statement of the vendor's financial condition made to a commercial
agency would invalidate a sale made to a customer of the commercial agency
one year thereafter, the condition of the vendor's business not having changed
in the interval, but see Macullar v. McKinley, 99 X. Y. 353 (1885).

Though the report is not made from information derived from the de-
fendant, if the defendant knowing of its character refers a purchaser to it,
he is guiltv of a fraud if it be untrue to his knowledge. Cox Shoe Compan\*
V. Adams, '\0S Iowa 402 (1898).

A commercial agency is not the agent of him w-ho gives information to
it in regard to his financial condition? such person is not answerable for mis-
quotation by such agency of true statements made by him, nor for improper
conclusions drawn bv such agencv therefrom; Jl'achsmttth v. Martini, 154 111.
515 (1894).

It is not necessary that the plaintiff obtain the rating directly from the
commercial agencv. or that he be himself a client of such agency, Davis v.
Louisville Trust Co., 181 Fed. 10 (C. C. A. 1910).



Umtcd States Circuit Court of Appeals, 1902. 112 Fed. 931.

Action of deceit to recover damages for the fraudulent repre-
sentation of the defendant, whereby he was induced to buy shares
of the capital stock of the Columbian Fire Insurance Company,
which shares have proves* worthless.

The Insurance Company, a Kentucky corporation, could not,
under the laws of that State, begin business until the State Insurance
Commissioners should be satisfied that all of its capital had been
actually paid in in cash. The cashier of the defendant bank certified
that the Insurance Company had on deposit $248,182.90, of which
$200,000 had been paid in as the full amount of the stock of the
said Company and the balance had been paid in as surplus. While
the statements were literally true, the cashier knew that the money
had been raised by methods which make them substantially false.
The Insurance Commissioner thereupon issued a license to the In-
surance Company which among other things certified that it had a
paid up capital of $200,000 and a surplus of $48,182.90, "as shown
by the certificate of the cashier of the said bank." The plaintiff
before purchasing stock was referred to the bank, the president of
which told him the stock was good and that the bank had made the
above statement to the Insurance Commissioner which they would
not have done had it not been true. The plaintiff then visited the
Commissioner and asked to see the certificate of the bank, where-
upon he purchased eighty shares of stock, paying $10,000 therefor.
About a year later the Company failed and the stock became value-
less. The shares purchased were part of a block of stock which the
bank held as collateral for the note of the principal organizer of
the company which the bank had discounted and the proceeds of
which had formed part of the deposit of the Insurance Company.^

LuRTON, J. To what extent did the plaintiff have a right to rely
upon the truth of the representations contained in the cashier's cer-
tificate ? Some direct connection between the bank and the plaintiff
in error in the communication of this certificate is essential to a re-
covery. If the statement was addressed to, and intended only to in-
fluence the action of, the State Insurance Commissioner in respect
to the licensing of the insurance company, he cannot sustain a re-
covery, even though he and others may have been led into the pur-
chase of the shares of the insurance company as a consequence of
the action of the Insurance Commissioner in admitting the company
to do business upon the representation of the bank's certificate. The
plaintiff's action, in the aspect of it now under consideration, is for
fraud and deceit, and such an acti on ii ut^<- be bottouT ed upon false
representatio ns ma de to him, an d_ with in tent that j2gI sHould_ be in-
fluencertT tTereby. The plaintiff does not sulticientlyconnect himsetf
with tne misre'presentations by the bare fact that he bought stock in

^ The facts are greatly abridged.


a company which was improperly admitted to do business upon rep-
resentations addressed to the state Commissioner. The injury in
such case is too remote. In Bedford v. Bagsluns.', 4 Ilurl. & X. 538,
an action was sustained against certain promoters and managers of
a company \vho had made false statements in respect to the capital
of the company in order to secure its insertion in the official lists
of the stock exchange. The plaintiff, knowing that the rules of the
stock exchange admitted no stocks to its lists until two-thirds of
the shares had been paid up, bought on the exchange in reliance that
the shares so bought had been paid up accordingly. This proving
not to be the case, the plaintiff was suft'ered to recover, although the
false representation had been made to the committee of the stock
exchange, and not to the plaintiff directly. The decision was subse-
quently overruled in Feck v. Gurney, L, R. 6 H. L. 377, 397. Lord
Chelmsford, on commenting on the decision, said : "The actions were
brought upon the allegation of a false representation made to the
plaintiff. But no representation at all was made which reached
either his eyes or ears. From his knowing the rules of the stock
exchange, he assumed that a certain representation had been made,
and acted upon it."

In Peck v. Gurney a descriptive prospectus was put forth by
the directors of a company, in reliance upon which the plaintiff
bought shares on the open market. It was held that the prospectus
in its terms was not an invitation to the public ultimately to become
holders of shares, but to join the company at once by becoming
original allottees of shares, and that only those drawn in by the
misrepresentations of the prospectus to become allottees could have
a remedy in action for the deceit.- In line with Peck v. Gurney is
the case of Huunezvell v. Duxbury, 154 ^lass. 286, 28 N. E. 267, 13
L. R. A. 733. The law of IMassachusetts required the officers of a »
foreign corporation desiring to do business in the state to file with
the commissioner of corporations a certificate showing its financial
condition. The plaintiff' gave credit upon the faith of the statements
in such a certificate, which had been called to his attention by his
own attorney. The ^Massachusetts court held that the action would
not lie, saying: "To sustain such an action, misrepresentations must
either have been made to the plaintiff' individually, or as one of the
public, or as one of a class to whom they are in fact addressed, or
have been intended to influence his conduct in the particular of
which he complains. Tliis certificate was not communicated by the
defendants or by the corporation to the public or to the plaintiff'. _ It
was filed with a state official for the definite purpose of complying
with a requirement imposed as a condition precedent to the right of
the corporation to act in IMassachusetts. Its design was, not to pro-
cure credit among merchants, but to secure the right to transact
business in the state. The terms of the statute carry no implication
of such a liability."

That this certificate constituted a part of the files in the office of

■Accord on verv similar facts. Cheney v. Dickinson, 172 Fed. 109 (C. C.
A. 1909).


the state insurance commissioner, and that it was his duty, on de-
mand, to furnish copies to any of the pubhc, or that he might him-
self, as a state official, iiiclucle such certificate in his own official
publications, is not enough to show that the bank had any other
design in giving it than to influence the action of the commissioner.
The circumstances that it might thus come to the eye of persons dis-
posed to deal in the company's shares, and thus induce them to buy,
is only evidence to be looked at with other circumstances tending to
show that the bank designed to influence the public at large or the
plaintiff in particular to buy the company's shares. The Kentucky
statute carries no implication of civil liability for a false statement,
although it does make the giving of a false statement to the commis-
sioner a criminal offense. The right of one of the public who has
sustained a loss by the wrongful setting on foot of an insurance com-
pany whose capital has not been paid in, and of one who has bought
shares or given credit to such a company in reliance upon the truth
of such representations made to the commissioner only for the pur-
pose of inducing his action, must depend upon the general principles
of law in respect of action for false representations. It has never
been a ground of action that the defendant made a dishonest repre-
sentation, and that the plaintiff' had relied upon it and sustained in-
jury. The moral obligation to speak the truth is not ground for a
civil action, unless the misrepresentation was intended to induce
the very action by the plaintiff which has resulted in his damage.
Cooley, Torts, p. 493 ; IVclls v. Cook, 16 Ohio St. 67, 88 Am. Dec.
436; Barry v. Crosky, 2 Johns. & H. i. However lamentable the
eventual results of a dishonest representation to persons who in re-
liance thereon have come to grief, they cannot recoup such losses
unless they are able in one way or another to bring themselves within
the class of persons for whom the representation was intended.^

But it was never meant to decide in Peck v. Gurney that a com-
pany's prospectus might not be broad enough to stand not only as
an invitation to original allottees, but to all others who might be
disposed to deal in the company's shares. And so the case was ex-


Accord: IVebb v. Rockefeller, 195 Mo. 57 (1906) ; 6 L. R. A. (N. S.)
872, with valuable note ; incorporators falsely making the statement, required
by statute to be made to the secretary of state as a condition precedent to
doing business, that one-half of their capital stock had been paid in, held not
liable to creditors; Utley v. Hill, 155 Mo. 232 (1900), directors of a com-
pany held not liable to depositors therein for false statements in a report,
which they were required to make periodically to the secretary of state in
regard to their financial condition, which report was required to be published
in a newspaper in the city or county where the bank was located, Marshall,
J., saying, "The law exacts a statement, hence it is not voluntarily made.
* * * The statement is required to be made to the secretary of state, so
that he may take steps to close a bank if it is dangerous to the welfare of
the people, but it is in no sense a statement of the directors made with the
intent to induce persons to. deposit their money in the bank."

Contra: Morse v. Switz, 9 How. P. R. (N. Y.) 275 (Supreme Court of
New York, 1860)-rT5resident and cashier of a bank held liable to one pur-
chasing stock therein in reliance upon false statements made by him in a re-
port of the financial condition of the bank, which he was required by statute


plained in Andrews v. Mockford (1896), i Q. B. 372, where it was
held that if the ohject of a prospectus is not only to induce appli-
cations for original allotments of sharesybut also to induce persons
to whom it was sent to purchase shares in the market, its functions
would not be exhausted when all the shares should be subscribed,
and that the persons issuing the prospectus would be responsible for
the injury sustained in reliance upon the truth of statements therein,
known to be false, by any person to whom the pai)cr was sent, who
should, in consequence, buy on the market. Scott v. Dixon, 29 Law
(. Exch. 62, note, was approved in Peck v. Gurney. This case seems
only to be reported in a note to Bedford v. Bagsliaiv, 4 Hurl. & N.
538. As stated in the opinion of Lord Chelmsford, the action was
for a misrepresentation made in a report by the directors to the
shareholders of a banking company. Plaintiff was not a share-
holder, and, in the absence of other circumstance, could not be re-
garded as addressed. But it was shown that copies of the report
were left at the bank, and were to be had by brokers and all persons
applying for them who desired information with a view to the pur-

to make to the superintendent of the banking department: Taylor v. Thomas,
106 N. Y. S. 538 (1907), reversed in 108 N. Y. S. 454 (1908) for the rea-
son that the defendants were directors of a national bank, whose liability for
false statements made in reports required by the National Banking Act was
held in Yates v. The Jones National Bank, 206 U. S. 158 (1907), to be gov-
erned by the specific provisions on the subject contained in that act, the
remedy provided by that act being exclusive, so that no action at common
law would lie; IVarfield v. Clark, 118 Iowa 69 (1902) ; purchaser of stock of
an insurance company allowed to recover against officer who made fraudulent
statements in a report of its financial condition, required by law to be filed
with the auditor of the state; National Bank v. Thorns. 28 Ohio L. J. 164
(1892) ; Mason v. Moore, 72, Ohio St. 275 (1906), semble; McBryan v. Uni-
versal Elevator Co., 130 Mich. Ill (1902) ; Schley v. Dixon, 24 Ga. 273 (1858),
semble: Dime Savings Bank v. Fletcher, 158 Mich. 162 (1909); Emerson v.
Detroit Steel Co., 100 Mich. 127 (1894); in the last two cases the plaintiff
acted in rehance upon reports of commercial agencies based on statements
made by the defendant in reports, which they were required by statute to

In Webb V. Rockefeller, 195 Mo. 57 (1906), and in Hunneu'ell v. Duxbury,
cited in the principal cases, the statute did not provide for the publication of
the report when made. In Warfidd v. Clark, 118 Iowa 69 (1902), emphasis
is laid upon the fact that publication is required. In ^loyse v. Szcits, 19 How.
P. R. (X. Y.) 275 (Supreme Court of N. Y. 1860), publication was required,
but this was regarded as immaterial. It is to be noted that in IVarfield v.
Clark, the ])laintitY did not learn of the statements after their publication, but
he discovered them by search in the Auditor's Office, before they had been
published. See also. McBryan v. Universal Elevator Co., 130 Mich. Ill
(1902). wliere it is stated that "it would be a disgrace to the law, if creditors,
dealing with the corporations in reliance upon these statements, which they
have examined in the public offices where they are on tile, should have no

As to the right of a creditor in Pennsylvania to recover in deceit against
directors, knowinglv making false statements in their obligatory reports, see
Cochran v. Arnold.' 58 Pa. St. 390 (1868) : Patterson v. Franklin. 176 Pa. St.
612 (1896) ; Haines \\ Franklin, 87 Fed. 139 (1898). In Ashuelot Savings Bank
V. Albce. 63 N. H. 152 (1884). it is held that no action will lie by one in-
dvcfd to become surety upon the official bond of the treasurer of a savines
bank, in reliance upon the statement of the auditing department, that the


chase of shares, and that the plaintiffs, through their broker, pur-
chased at the bank a copy of the report, and in rehance bought
shares and sustained a loss/a material statement being false. There
was a judgment for the plaintiffs. Lord Chelmsford said: "I do
not doubt the propriety of this decision. The report, though orig-
inally made to the shareholders, was intended for the information
of all persons who were disposed to deal in shares; and the rep-
resentation must be regarded as having been made, not indirectly,
but directly to each person who obtained the report from the bank,
when it was publicly announced it was to be bought, in the same
manner as if it had been personally delivered to him by the director."
The true inquiry is, whoTiidid the bank design to_ influence by
its false representation? If the representation here involved was
not only made to induce favorable action by the state insurance com-
missioner, but was also intended for the information of all who
should be disposed to deal in the company's shares, and who should
inspect it for information in respect of the company's capital, it
should be regarded as addressed to every such person. So, if the
jury should iind that the plaintiff was known to the bank as a per-
son disposed to buy such shares, and was referred to this statement
for information concerning its capital, they would be justified in
finding that the representation was addressed to him personally.
Such reference of the plaintiff to the certificate would be a repeti-
tion of the misrepresentation addressed directly to him, and render
it liable, irrespective of the original design and purpose with which
the certificate was given.*

bank is in a sound financial condition, required to be made to the State Bank-
ing Commissioner and to be published by him, though in fact no careful ex-
amination had been made and the treasurer was a defaulter to a large amount.
The publication of such reports is intended for the information of the pub-
lic having occasion to do business with the bank, and the statement is there-
fore, not to be intended to influence persons in becoming sureties for
the officers thereof.

In all of these cases the statements were known by the defendants to be
false, or, at least the defendants made positive statements in regard to facts
of which they knew they were ignorant; in Tate v. Bates, 118 N. Car. 287
(1896), it was held that bank directors are bound to know the condition of
their institution and are liable for false statements thereof, though innocently
made In Gemer v. Mosher, 58 Nebr. 135 (1899), and Yates v. Jones Na-
tional Bank, 74 Nebr. 734 (1905), it was held that an action would he agamst
the directors of a national bank for false reports innocently .made; but see
Yates V. Jones National Bank, 206 U. S. 158 (1907), overruling the latter


*See accord, Hunnezvell v. Duxhury, 154 Mass. 286 (1891), in which it
is said that the directors of a corporation which filed a false certificate with
the Commissioner of Corporations, for the purpose of doing business in
Massachusetts, would have been liable to plaintiff who had accepted notes of
the corporation, if they had referred him to the report filed by them for in-
formation as to the financial standing of the corporation; so it was held in
Crreene v. Mercantile Trust Co., 60 Misc. (N. Y.) 189 (New York Suprenie
Court 1908), that an allegation in a complaint that the defendants had pub-
lished a prospectus for the sale of certain bonds, containing certain false
statements in regard to the assets of the company, with the intent that such
statements should be believed by the public, and that the public and the plain-



(b) Statements of law.


Supreme Court of IVisconsin, 1882. 55 Jl'is. 350.

Taylor, J. We think, under the rules established by this court
in Supervisors of Kezvaiinee County v. Decker, 30 Wis. 624, we
must hold this complaint was intended to set out a cause of action
in tort, for false and fraudulent representations made on the part
of the respondent, by reason of which the appellant was induced to

Online LibraryFrancis H. (Francis Hermann) BohlenCases on the law of torts (Volume 1) → online text (page 103 of 124)