Cuyahoga Circuit Court.

them; and it is claimed that Wilmot stands in the position of an innocent holder of the goods. It is not claimed that he stands in any better position than the Chagrin Falls Paper Company would occupy, but it is said that the Chagrin Falls Paper Company, having come in possession of those goods by contract, came lawfully and properly into the possession of those goods, and that where parties have come lawfully and properly into the possession of goods, a replevin cannot be maintained until a demand has been made for the return of those goods. It is true that where a person comes lawfully and properly into the possession of goods and has a right to the possession, some steps must be taken to put an end to that possession, and this is generally, perhaps solely, by a demand. But the question arises most directly (because, for the purpose of discussing this question, we must assume that the purchase was a fraudulent purpose), the Chagrin Falls Paper Company having fraudulently purchased these goods of John H. Lyon & Co., did they come lawfully into the possession of these goods? Is it true that a person may obtain goods upon false pretenses, and then claim, as a rule upon which his case is to be heard, that he came lawfully into the possession of them? It seems to me that the bare statement of the question is sufficient to refute the proposition. It cannot be that a person who obtains goods by false pretenses, comes lawfully into their possession, and is entitled to demand for their

return.

But it is said that this note was not returned to the Chagrin Falls Paper Company; that there was something which these plaintiffs got that they did not return. It appears very plainly that they held that note at the beginning of this suit and after they had replevined the goods. In fact, they brought that note in and tendered it in this suit, subject to whatever the court might say should be done with it. That note was then overdue. It is plain that the Chagrin Falls Paper Company could suffer no damage for the want of the return of that note to them. They could not be held liable upon it any further than was fair and just. The rights of John H. Lyon & Co. in that paper were subject to whatever changes were made in regard to the liability upon it by their proceedings in replevin; nor could they transfer any higher rights to any other person. So that no damage, particularly, would be done.

There is rather an early case in our state where this subject was discussed the case of Frost v. Lowry, 15 O., 215. The judge delivering the opinion, says:

"Where goods are obtained by fraud, the purchaser acquires no lawful possession as against the vendor, for the reason that his assent to the delivery was procured by such means."

That case is one also to test the claim that plaintiffs could not recover because they had not returned the note to the Chagrin Falls Paper Company. One of the syllabi is:

"If A obtain goods of B by false pretenses, and gives therefor an accepted draft upon C, an accommodation acceptor, it is no defense to an action of replevin instituted by B against a stranger, in whose possession the goods are found, that the draft had not previously been returned by A."

It was claimed that there had been a waiver on the part of the original vendee of the return; but in that case the acceptance by the third party was brought into the suit, just as in this case the note was brought into the suit, with the name of the accommodation endorser

Wilmot v. Lyon & Co.

erased. That is, a change had been made in the form of the paper which was tendered in the suit. The court say:

"It is nevertheless true, that to enable the vendor to repossess himself of the goods, he must restore the vendee to his original rights. The consideration paid must be returned-the security given must be tendered back, or delivered up to be cancelled. But, if this be waived by the vendee, no other person has the right to complain, and such appears to us to be the case at bar. The bill was left, by the consent of Nathan L. Stout, with the attorney, subject to Stout's order with the acceptance erased. What reason had either the plaintiff in error Frost, or Rockhill, the attaching creditor, to complain of this? They had neither property in, nor lien upon this acceptance, and Stout had the perfect right to waive its return, or to receive the bill without it, and the result, in our view, would be precisely the same-the rescission of the contract."

That is, there being an accommodation acceptor, the paper, as far as Stout was concerned, in that case was equivalent practically to the note. But the court say:

"But suppose this were not so. Useless and idle ceremonies are neither favorites of the law, nor required by common sense; and if the withholding of the acceptance can, in no event, be of prejudice to Stout, its return is by no means necessary to enable the defendants in error to reclaim the property."

Now, in this case at bar, could these plaintiffs both recover these goods in replevin and then recover the price of them of the Chagrin Falls Paper Company? We are unable to see that the Chagrin Falls Paper Company suffers any damage whatever by the note being precisely where it is.

The rule laid down in Smith & Co. v. McLean, in 24 Iowa, 322, is: "Demand is only required before replevin when necessary to terminate the defendant's right of possession or confer the right of possession upon the plaintiff."

Now, where goods have been obtained by fraud, by false pretenses, the right of possession never passed to the defendant at all. If the sale is elected to be rescinded, it is because there was no right on the part of the defendant in the outset to the possession of those goods.

"Nor," say the court of appeals in Scofield v. Whitelegge, 49 N. Y., 262, "is there any necessity for a demand where there was a wrongful taking."

A case very similar to this case-perhaps most similar to this case— is one decided by the supreme court of Illinois in the present year, and not yet reported in the regular reports, but which is to be found in 9 Wests' Rep., 498.

case.

A great deal of interesting discussion was had upon the subject of .ne false representations which were claimed to have been made in this There were no representations made directly by the Chagrin Falls Paper Company to John H. Lyon & Co., but there was a statement made by the Chagrin Falls Paper Company to Bradstreet's Commercial Agency in the year 1880. This sale took place in the latter part of the year 1883. The goods, perhaps, were delivered by John H. Lyon & Co. to the Chagrin Falls Paper Company in December, 1883, there having been prior negotiation, which was had mainly through a man by the name of Beebe. The plaintiff received from the agency, in October, 1883, a report based, as is claimed, upon a report made by the paper company in 1880. In November, 1883, the Chagrin Falls Paper Company made to Bradstreet's

7 Dec. 26.

Cuyahoga Circuit Court....

a similar statement to that made in 1880, but that did not reach the plaintiffs, the vendors, before they delivered the goods, although it was actually made to Bradstreet's in New York, and appeared upon their books a little before the time of the delivery of the goods.

The statement made to Bradstreet's in 1880 was this: That the corporate style was "The Chagrin Falls Paper Company;" that it was located in Cuyahoga county, Ohio; that its officers were: President, D. L. Pope; agent, I. W. Pope; secretary and treasurer, L. I. Pope; that the date of the charter was December 27, 1873; that the date of the organization was January 3, 1875; that the date of the commencement of business was January, 1876; that the capital authorized was $100,000; that the capital subscribed was $50,000, and that the capital paid up was $50,000. The matter that was claimed to be fraudulent in this statement was the representation that the capital paid in was $50,000. claimed that the capital paid in was not $50,000.

It was

The statement made by Bradstreet's Agency to the plaintiff was this:

"The Chagrin Falls Paper Company of Chagrin Falls, Ohio, Cuyahoga county. D. L. Pope, president; L. I. Pope, secretory and treasurer; I. W. Pope, agent. A stock company, chartered in ecember, 1875, under Ohio laws, with an authorized capital of $100,000, of which $50,000 is claimed paid in, consisting of real estate, machinery, etc. Business was not actually commenced until January, 1876."

Perhaps I might as well read that other report right in this same place. The report to Bradstreet's November 27, 1883, was:

"A stock company, chartered under Ohio laws in December, 1873, with an authorized capital stock of $100,000, of which $50,000 is paid up. Shares $50 each. None for sale. Real estate, plant, etc., valued at $40,000. Insured for that sum, and is clear. We have a surplus of $15,000. Have from $32,000 to $35,000 in stock on hand, with liabilities of about $35,000."

It was claimed that the payment of that $50,000 was fraudulent. It was claimed that it was paid in real estate and other property making the plant, and that the property was very largely over-valued; that, in addition to largely over-valuing the property which went to pay the $50,000, the paper company assumed and undertook to pay some twenty odd thousand dollars of previous debts of Pope, the man who made the subscription, and who undertook to pay for his $50,000 of stock with that property. So that it was not only over-valuation but it was a clean payment or assumption over and above that by the paper company of some $20,000. And it was said (perhaps it makes no difference with the facts in this case) that a part of these very preferred debts arose out of those payments undertaken to be made by the Chagrin Falls Paper Company.

There are several replies made to this claim of fraud. It is said that the company had it in its power to make such bargain as it pleased in regard to the disposition of stock. In view of our statute, it hardly seems necessary to discuss that point very much, because other stockholders and creditors have some right in the matter. Nor, perhaps, does that point fairly arise in this case, because the question whether or not, as between the stockholders and the company, the company had a right to make such bargain as it pleased in regard to the disposition of its stock. would not, perhaps, be entirely decisive with regard to the representations made to other persons.

stock must be fairly paid up.

It is a fact, however, and the law, that If it had been in the power of the corpo

Wilmot v. Lyon & Co.

ration to waive the paying up of that stock, still when these parties undertook to tell the Commercial Agency that that stock was paid up with $50,000, they made a substantial statement of fact which, it is claimed, might rightfully be relied upon by other persons.

But it is said that this representation was not made to John H. Lyon & Co., and that it is necessary that a false representation be made to the person who sells the property, and who not only had a right to rely upon it, but who had a right to rely upon it as made to him. And that brings up (and we only propose to discuss it briefly) the situation of commercial agencies. It seems to be a business of which, as is suggested, the court should take judicial notice. We all know perfectly well the manner in which the business is done. These mercantile agencies have agencies in all of the principal business towns of the United States; they do a vast business, influencing, by the representations which they make to their patrons, almost the entire business of the country. The very purpose for which they are organized and do their business is to state to people who sell goods the condition of those who wish to buy. So that the whole purpose of their organization and of their business is, practically, to carry representations. At any rate, a very large share of their information is, very properly, made up from the statements of the purchasers throughout the country. That is the most reliable source of information, and that which the Commercial Agency has the best right to rely upon; and the principal business of these mercantile agencies is to carry these statements from the buyers to the sellers. In this case I have read the statement made by the Chagrin Falls Paper Company itself.

Now, it cannot be true that representations must always be made by word of mouth. A corporation can never act except by agents of some kind. So that if the doctrine is true that a representation can never be made by an agent, then a corporation can never be guilty of fraud-a doctrine which has been expressly 'sat down upon" by our supreme court. Now, why may not a representation be made and carried as well by a company whose business it is to do that very thing as by any other agent? We are unable to see that there is any distinction between the one and the other. There have been numerous cases upon this subject, and they have uniformly held that where a representation is made to a mercantile agency, and that same representation is carried by the agency to the seller, that is substantially a representation made by the buyer; and it cannot be anything else. The very purpose for which the Chagrin Falls Paper Company made that statement to Bradstreet's Commercial Agency was to have Bradstreet's Agency tell persons of whom they wished to buy what their condition was.

Objection was made to the introduction of the statement made to the agency, and also to the introduction of the statement made by the agency to the purchaser. But it is very plain that the representations made by the Chagrin Falls Paper Company to John H. Lyon & Co. consisted of just two things-the representation made to the Bradstreet Agency, and the statement made by it to John H. Lyon & Co. They were both proper to be introduced to enable the jury to say whether Bradstreet's Agency stated to John H. Lyon & Co. those things which it had been authorized to state to John H. Lyon & Co, or to anybody else who had any good reason for inquiring.

It is said that this representation was made much too long before the sale. This representation was made in 1880, and the sale was made

Cuyahoga Circuit Court.

in 1883. But the court left it to the jury whether or not the representation made to Bradstreet's Commercial Agency was a continuing representation. That was excepted to. Now, if the court ought not to have left that to the jury, the court ought to have determined it for itself; and it really seems impossible to say that that representation made to Bradstreet's Agency was not made for the purpose of being a continuing representation. It was a statement of a past matter of fact. Now, a statement of a past matter of fact is true or untrue, and it always remains either true or untrue. If a representation had been made of the then condition of the Chagrin Falls Paper Company, and that condition had changed afterwards or had not changed afterwards, it could not be said that that was a representation continuing in the sense that the seller would be authorized to conclude that after that the condition of the Chagrin Falls Paper Company had been unchanged. But here was a statement which expressly represented what had been done at the organization of the company-past facts, which if they were once true were true forever, and which if they were once false were false forever. The representation made in November, 1883, before these goods were received by the Chagrin Falls Paper Company, was substantially the same, manifesting that if the Chagrin Falls Paper Company intended fraud by that first representation that was made, it persisted in that fraud and in that claim in November, 1883.

But it is said that the representation made by Bradstreet's Agency to John H. Lyon & Co. was that it was claimed that $50,000 had been paid in. What did that mean? It is said that that was literally true—it was claimed that $50,000 was paid in. It might not have been true that $50,000 had been paid in, but it was true that it was claimed that $50,000 had been paid in. Now, what was the fair meaning of that when it reached John H. Lyon & Co.? It plainly was a statement on the part of the agency that the Chagrin Falls Paper Company claimedsaid in short-that $50,000 had been paid in. And it does not seem to us that the merits of the case ought to turn on the technical use of language, the fair meaning of which is very easy to understand.

I will refer to one case on the subject of commercial agency that is the case of Eaton, Cole & Burnham Company v. Avery, 83 N. Y.

"Where a member of a firm makes to a mercantile agency statements known to him to be false as to the capital invested in the firm business, with the intent that the statements shall be communicated to persons interested in ascertaining the pecuniary responsibility of the firm, designing thus to procure credit and to defraud such persons, and such statements are communicated to one who in reliance thereon sells goods to the firm upon credit, an action for deceit is maintainable at the suit of the vendor against the partner making such false representations. "It seems that the court will take judicial notice of the nature of the business and the office of mercantile agencies."

That does not seem to be altogether what the court did in this instance; but that certainly was a matter which, if left to the jury, the defendant below could not complain of, because the conclusion of the court, so far as the nature of commercial agencies is concerned, could not possibly have been different from that which was found by the jury.

It is said that these goods were bought through one Beebe. It seems that they were bought through correspondence with a man by the name of Beebe, who seems to have been a broker; the terms of sale were agreed upon by him, and the order was turned over to John H.