Bank of Montreal v. Thayer.

On demurrer to the petition.

This is an action to recover damages on the ground of alleged false and fraudulent representations made by the defendant, and the material facts alleged are the following:

First. That the defendant was, on the twenty-second of November, 1875, duly appointed receiver of the property and effects of the Chicago, Clinton & Western Railroad Company, by an order made by the district court of Clinton county, Iowa, in a cause therein pending.

Second. That afterwards, on the twenty-seventh of July, 1876, said court made an order authorizing the defendant, as receiver, to construct and build all the unconstructed portion of the line of said railroad from Clinton to Iowa City, Iowa, and to repair other portions, for which purpose he was authorized and empowered to borrow, on certain terms, such sum or sums of money, and to make such indebtedness as should be necessary not to exceed $8,000 per mile upon the whole line of said road completed and to be completed, and to make and issue to the persons of whom said money might be borrowed and to whom such indebtedness might be due, but only such as might be incurred by him, his debentures or certificates, with interest expressed in their body, or in coupons, or interest warrants thereto attached, signed by him as receiver, but not personally, which debentures were to be held as receiver's indebtedness, and as such decreed and adjudged to be a first lien for the principal and interest thereof upon the entire line of said railroad, etc.

And in case of default in the payment of such debentures or certificates, principal or interest, according to the terms thereof, any holder thereof might institute or prosecute a suit in his or their names to enforce the lien and compel payment thereof.

Third. That on or about the twentieth of January, 1877, the defendant made and delivered to the Joliet Iron and Steel Co. five several certificates or debentures, all of like tenor, and one of which is as follows:

Bank of Montreal v. Thayer.

"EXHIBIT B.

"Receiver's certificate, referred to in above petition:

"No. 28.

$5,000.

"Office of the receiver of the Chicago, Clinton & Western Railroad, Clinton, Iowa, January 20, 1877.

This is to certify that there is due on July 16, 1877, to the Joliet Iron & Steel Co., or bearer, from Edward H. Thayer, as receiver (but not personally) of the Chicago, Clinton & Western Railroad, appointed by the district court of the state of Iowa in and for Clinton county, five thousand ($5,000) dollars, with interest thereon from this date at the rate of seven per cent. per annum, on account of indebtedness incurred by said receiver. This obligation is issued under and by virtue of certain provisions of an order duly entered by the district court of Clinton county, Iowa, on July 27, 1876, and is one of the series of receiver's certificates authorized to be issued by such order, and by virtue thereof constitutes a first lien upon the said line of railroad, its appurtenances, franchises and income, being for iron rails furnished for constructing said road. Payable at the Third National Bank, Chicago, Ill. (Signed) Edward H. Thayer, as receiver of the Chicago, Clinton & Western Railroad."

Fourth. That by the terms of said certificates or debent. ures the said defendant acknowledged and certified that there was due the said Joliet Iron & Steel Co., or bearer, from Edward H. Thayer, as receiver (but not personally), the sums named therein with interest, on account of indebtedness incurred by said receiver; that said obligation was issued under and by virtue of the provisions of the order of court above named, and was one of the series of certificates authorized to be issued by said order, and by virtue thereof constituted a first lien upon the said line of railroad, etc., being for iron rails furnished for constructing said railroad.

Fifth. That afterwards, and before the maturity of said certificates, the plaintiff, believing that said certificates were duly made and issued by said defendant under and by virtue of the

Bank of Montreal v. Thayer.

provisions of said order of court, and that the same were of the series of receiver's certificates authorized to be issued by said order, and that the same were made and issued by said defendant for iron rails furnished for constructing said road, and relying thereon, and upon the said statements and representations contained and made in said certificates, purchased the said certificates from the payee in good faith and in the usual course of business, and without notice or knowledge that the said statements and representations were not true, and paid and advanced to said company therefor the sum of twentyfive thousand dollars, that being the amount expressed upon their face as due and payable thereon.

Sixth. That after maturity of said certificates, plaintiff demanded payment, which was refused, and that afterwards plaintiff instituted proceedings to enforce the lien of said certificates upon said line of railroad, etc., in the district court of Clinton county, Iowa, and that said court by its judgment refused to enforce the said lien or compel the payment of said certificates, which said judgment or decree was afterwards affirmed by the supreme court of the state of Iowa.

Seventh. It is further averred as follows: "And the plaintiff further says that said defendant wrongfully, fraudulently and falsely certified and represented in and by said certificates that the same were issued by him in pursuance of said order heretofore referred to, and that they were each of the series of receiver's certificates authorized to be issued by such order, and constituted a first lien upon the said line of railroad, its appurtenances, franchises and income, and that they were issued for iron rails furnished for constructing said road, whereas, in truth and in fact, the said certificates were not made and issued by said defendant under and in pursuance of said order, nor were they of the series of receiver's certificates authorized to be issued by such order, nor did they constitute a first lien upon the said line of railroad, its appurtenances, franchises and income, nor were they issued for iron rails furnished for constructing said road; and the plaintiff further says, that by

Bank of Montreal v. Thayer.

reason of the premises it has sustained damages in the sum of $30,000."

Eighth. The second count of the petition repeats the foregoing allegations in substance, omitting the allegation as to fraudulent representations, and charges that the representations were untrue, and that because they were untrue the certificates were invalid, and the plaintiff sustained damage, for which the defendant is liable.

The grounds of demurrer are stated in the opinion.

E. S. Bailey, for plaintiff.

Geo. B. Young, for defendant.

MCCRARY, Circuit Judge.- We will consider the grounds of demurrer to the first count in the order in which they are presented by counsel.

First. It is insisted that the facts alleged do not constitute fraud.

The allegation is that defendant wrongfully, fraudulently and falsely certified and represented that the certificates were issued in pursuance of the order of the district court of Clinton county, Iowa; that they constituted a first lien, and that they were given for iron rails furnished for constructing said road; whereas none of these things were true.

It is said that a fraudulent intent is not alleged; but it is difficult to see how representations as to a matter of fact can be wrongful, fraudulent and false without they are made with a fraudulent intent.

It is certainly necessary to prove the intent, and of course it must be alleged, but no form of words is necessary. If the terms employed by the pleader, taken in their ordinary signification, necessarily include the idea of a fraudulent intent, that is enough. We must give to the term "fraudulently," as found in the petition, the meaning which the law gives it, and which attaches to it in common usage, to wit: a deliberately planned purpose and intent to deceive and thereby gain

Bank of Montreal v. Thayer.

an unlawful advantage. After stating what representations were made with sufficient particularity, it is enough to aver that they were wrongful, false and fraudulent.

It is not necessary in such a pleading to define the meaning of these terms; and to say that the representations were made with intent to deceive, would add nothing to the allegation that they were falsely and fraudulently made. Langsdale v. Girten, 51 Ind. 99; Thomas v. Beebe, 25 N. Y. 244; Bayard v. Malcom, 2 Johns. 550; Norris v. Mil. Dock Co. 21 Wis. 131; Watson v. Chesire, 18 Iowa, 202..

Second. The next proposition of defendant's counsel is that the first count of the petition is bad, because there is no allegation of fraud practiced by defendant upon the Joliet Iron and Steel Company, the payee of the certificates, or upon any one else. The petition does not state that the false and fraudulent representations were made with the intent to defraud any particular individual, but it does state in substance, that they were contained in certain written instruments, payable to the Joliet Iron and Steel Company or bearer, and that relying upon the statements and representations contained in said instruments, the plaintiff purchased them from the payee, in good faith, in the usual course of business, before they were due, and without knowledge or notice that said representations were false, and paid their full face value.

Is this sufficient? To state the question as concisely as possible, it is this: Assuming that the representations contained in the certificates were false and fraudulent, that is, made with intent to deceive, are we to assume that they were made with intent to deceive whoever should purchase the paper?

In the very nature of the case the defendant must have intended that his representations would or might be acted upon by any person or persons purchasing the certificates in the open market. He was placing paper upon the market, where it was likely to be bought and sold. The certificates were so drawn as to facilitate their negotiation; they were to pass from hand to hand without indorsement; they were to be payable