MONTGOMERY CO. v. ATLANTIC LUMBER CO

Contract, Implied in law, Of indemnity, Construction. False Representations. Mistake. Evidence, Extrinsic affecting writings, Damages, In action on contract for indemnity, Counsel fees.

Recovery, in an action for money had and received by the defendant to the plaintiff's use where it appears that the money was paid by the plaintiff to the defendant in reliance upon the truth of a false representation of fact made by the defendant, is not barred by the fact that, although the representation was false, the defendant honestly thought it was true.

A lumber company sold lumber to a dealer who resold it, while it was in transit, to a manufacturer in another State and, for advances made to him by a bank, the dealer assigned to the bank in the same State the debt due to him from the manufacturer and both he and the bank notified the manufacturer of that fact. The assignment was valid by the law of the State where it was made. Thereafter, because of a fire in his plant, the dealer was subjected to receivership proceedings, and an attorney at law who represented the lumber company procured from the attorney for the receiver a letter which stated in substance that, "under the peculiar conditions and circumstances under which" the lumber was sold to the dealer, "it appears to me that" the lumber company was "entitled to the return of their goods or the money. I will say to you therefore, that I shall not, as attorney for the receiver, contest any action that you may bring for the preference and if a judgment preference is obtained you will be paid out of the first distribution." The attorney for the lumber company then interviewed the manufacturer, showed him the foregoing letter, represented that the assignment of the dealer to the bank was invalid because the manufacturer had not assented to it, that the dealer had been insolvent when he procured the lumber from the company and had procured it by fraud, and that the manufacturer should pay the lumber company therefor. Relying upon the representations, the manufacturer did as requested, and subsequently in an action brought in the name of the dealer for the benefit of the bank was compelled to pay the amount of the debt. The representations made by the attorney at law of the lumber company were false, although he thought they were true. Held, that all of the representations by the attorney at law were representations of fact, and that the manufacturer was entitled to recover from the lumber company in an action for money had and received the amount paid to it through the mutual mistake of the manufacturer and the company's attorney.

A lumber company sold lumber to a dealer who resold it to a manufacturer in another State and, for advances made to him by a bank in the same State, the dealer assigned to the bank the debt due to him from the manufacturer and both he and the bank notified the manufacturer of that fact. The assignment was valid by the law of the State where it was made. Thereafter the dealer suffered business misfortunes. An attorney at law employed by the lumber company represented to the manufacturer that the dealer had been insolvent when he bought the lumber from the company, that he had procured the lumber through fraud, that the assignment made to the bank was invalid, and that therefore the manufacturer should pay the company for the lumber. Induced by these representations, the manufacturer paid the price of the lumber to the company, and upon the manufacturer's requesting an agreement which would indemnify him against loss in making the payment, the attorney at law made with him on the company's behalf the following agreement in writing, which he represented would serve that purpose: "We will hold you harmless in respect to claims against you of the receiver of the . . . [property of the dealer] . . . to the amount of your indebtedness to them this day paid to us." Subsequently an action in the name of the dealer but for the benefit of the bank was brought against the manufacturer for the price of the lumber, and the manufacturer wrote to the company, "Whatever is done in the matter, you, of course, will stand back of us and be responsible for everything just as your . . . [attorney] . . . agreed when here." The company replied, "We beg that you will not communicate direct in reference to any letters sent to you, but that you will forward them to us, or copies of them, that we may suggest to you what to write." The company did not defend the action for the manufacturer, and the manufacturer was compelled to pay on a judgment therein the price of the lumber, interest and costs, as well as to pay for the services of an attorney at law whom he employed and other expenses, and thereupon brought an action against the company for indemnity under the contract made with its attorney. Held, that the agreement was intended to be and was a contract of indemnity and should receive a liberal construction; that the letters showing the parties' own construction of it were admissible to aid in its construction, that under its terms broadly construed the manufacturer was not limited in his recovery to the event of his having to pay a judgment in an action by the receiver of the property of the dealer against him, but might recover after paying the judgment in the action in the dealer's name for the benefit of the bank, an event which both parties had in mind when the agreement was made; and also, that the manufacturer was not limited in his recovery to the amount which he had paid to the company, but might be indemnified for all the expense to which he had been put.

BRALEY, J.

The very full and complete findings of fact made by the judge before whom the case was tried without a jury, having been well warranted by the evidence so far as it appears in the record, are conclusive. American Malting Co. v. Souther Brewing Co. 194 Mass. 89. It is manifest that the plaintiff paid over the money in controversy upon the material misrepresentations made to its treasurer and business manager by the defendant's counsel and agent accompanied by the written promise of reimbursement if it was subsequently called upon to repay the amount to the Ironton Door and Manufacturing Company from which it purchased the lumber, or to the bank to whom the debt had been assigned.

The defendant contends that under the declaration the rulings upon the findings as to its liability, which were given at the plaintiff's request, were erroneous, and that its requests, so far as not granted, were wrongly refused. The fourth and sixth counts were disposed of in the defendant's favor, and the demurrer to the seventh count, although not expressly waived, has not been pressed. But even if redundant this count sets out a good cause of action for money had and received, while the fifth count expressly declares upon the promise in writing. Woodbury v. Post, 158 Mass. 140.

Nor was the plaintiff required to allege or prove that the defendant's agent, whom the judge found to have been unaware of their falsity, knew that the representations were untrue. The plaintiff was induced to act to its harm and injury by relying upon what the agent said, and the defendant cannot escape repayment upon the ground that, although the statements were unfounded, the money can be retained because at the time it believed them to be as represented. Talbot v. National Bank of Commonwealth, 129 Mass. 67. Chatham Furnace Co. v. Moffatt, 147 Mass. 403. Nash v. Minnesota Title Ins. Trust Co. 163 Mass. 574, 580. Adams v. Collins, 196 Mass. 422, 429. Griswold v. Hazard, 141 U.S. 260. The misrepresentation, that the plaintiff was not bound by the assignment to the bank because it had not formally accepted the instrument, was not, as the defendant assumes, a mistake of law, but of fact, and is to be classed with the other statements of which it formed an important part. Eustis Manuf. Co. v. Saco Brick Co. 198 Mass. 212, 218, 219, and cases cited. The defendant never acquired any title to the proceeds of the lumber, even if the plaintiff's vendor obtained from it without payment seven of the car loads and sold and reshipped them to the plaintiff while in transit. The purchase was made in the ordinary course of business, without any intention to defraud, and while the buyer was solvent. If, by reason of the subsequent financial embarrassment of the Ironton company and the appointment of a receiver, there were equitable reasons which inclined him to admit the defendant's moral right to a return of the lumber or possibly to recover the price as a preference, his consent is expressly limited to a suit for that purpose which for this reason he did not propose to defend. The assignment, which had been taken in good faith and without knowledge by the assignee of the assignor's financial condition, was valid by the law of their domicil. By receiving the order without objection, and placing it on file, the plaintiff assented to the transfer and became obligated to pay the indebtedness to the bank. Robbins v. Klein, 60 Ohio St. 199. Allyn v. Allyn, 154 Mass. 570. If the defendant's agent and counsel assumed that the assignment was invalid and the plaintiff's treasurer accepted his view, it is settled that money obtained under a mutual mistake of fact, without any intention on the part of the defendant to cheat or defraud, may be recovered back as having been received to the plaintiff's use. Pearson v. Lord, 6 Mass. 81. Haven v. Foster, 9 Pick. 112. Stuart v. Sears, 119 Mass. 143. Blanchard v. Low, 164 Mass. 118. Cole v. Bates, 186 Mass. 584, 586. The plaintiff, moreover, would not have been barred if the mistake as to the effect and validity of the assignment had been caused by the treasurer's negligence in not taking disinterested legal advice or making further investigation. Appleton Bank v. McGilvray, 4 Gray, 518, 522. Quimby v. Carr, 7 Allen, 417, 419. The defendant's fifth, ninth, tenth and eleventh requests were rightly refused.

It would not diminish the defendant's liability, but afford further ground for recovery, if its contention that the promise in writing did not cover the judgment which the plaintiff has been obliged to pay was sustained. Upon proof of one, where several material misrepresentations are alleged, the action can be maintained, and the judge was satisfied that among other inducements, the plaintiff relied on the defendant's assurance that the writing protected it from loss at the suit, not only of the receiver, but of the bank.

But as judgment for the plaintiff was ordered without reference to any particular count, the scope and effect of the instrument remain for examination. The benefit conferred on the defendant by the immediate payment of the money was a sufficient consideration to support the promise. Train v. Gold, 5 Pick. 380, 384. Albro v. Merritt, 97 Mass. 517. It was intended to be, and was, a contract of indemnity, and should receive a liberal construction to accomplish the purpose for which it was given. Bird v. Washburn, 10 Pick. 223, 226. Curtis v. Banker, 136 Mass. 355. If not drawn with minute accuracy to express all the terms which had been discussed, the defendant broadly undertook to secure the plaintiff against the consequences which might arise by making the payment, and it was accepted on this understanding. The debt had been contracted with the Ironton company, and although payable to the bank, the language of the contract includes suits brought by the creditor, as well as by the receiver in its name, to recover the debt. Hayward v. Leeson, 176 Mass. 310, 325. To exclude from the terms of indemnity the contingency, that the bank might claim the money, of which both parties were aware, would deprive the plaintiff of the full protection which the defendant, unless guilty of fraud, intended to provide. The evidence of the contemporaneous understanding and the construction which the parties put upon its terms, as shown by their correspondence, were admissible to aid in the construction of the contract. Smith v. Vose Sons Piano Co. 194 Mass. 193.

It having been correctly ruled, that the contract covered the enforcement of the debt by suit in the name of the assignor for the benefit of the bank, which was brought and prosecuted to judgment, the judge properly declined to give the defendant's remaining requests, and we discover no error of law in the rulings in favor of the plaintiff, to which the defendant excepted.

The plaintiff's exceptions relate only to the measure of damages, and the trial judge limited the defendant's liability to the amount it received, with interest from the date when the plaintiff was compelled to pay the judgment. But the words, "to the amount of your indebtedness to them this day paid to us," does not narrow the general tenor of the agreement which as we have said was intended to provide full indemnity. It is immaterial that the debt was merged in the judgment. Under either count the claim is for reimbursement, and the plaintiff's damages must be measured by the loss actually sustained, which includes interest, and legal costs and expenses. Clarke v. Moies, 11 Gray, 133. Curtis v. Banker, 136 Mass. 355. Valentine v. Wheeler, 122 Mass. 566, 568. Westfield v. Mayo, 122 Mass. 100, 107. Berry v. Ingalls, 199 Mass. 77, 80. The defendant, although seasonably notified of the pendency of the action and requested to assume the defense, and also that the plaintiff, if obliged to pay the judgment, would look to it for full satisfaction, made no reply and failed to appear. In going on and defending the suit the plaintiff is not shown to have acted unreasonably, or for the purpose of enhancing damages, and the defendant is estopped by the notice and its conduct from contesting the validity of the judgment. It consequently is liable for the amount which the plaintiff has been obliged to pay, with interest from the date of payment, and also for reasonable counsel fees necessarily incurred in the litigation. Fish v. Dana, 10 Mass. 46. Train v. Gold, 5 Pick. 380. Milford v. Holbrook, 9 Allen, 17. Westfield v. Mayo, 122 Mass. 100. Richstein v. Welch, 197 Mass. 224, 230.

While the defendant's exceptions must be overruled, the plaintiff's exceptions because of this error must be sustained, but the new trial is to be confined to the assessment of damages only, from which the amount paid by the defendant since the present action was begun, may be deducted.

So ordered.