1. A. contracted to sell B. a tract of pine land at a stipulated
sum, payable in future installments, a conveyance to be made only
upon payment of the several sums as they became due, the cutting or
removal of the timber being in the mean time prohibited without the
written permission of A. Two days afterwards, B. assigned the
contract to C. A. assented to the assignment, and gave C.
permission to enter the lands and cut and remove the timber, in
consideration whereof the latter guaranteed the payments stipulated
in the contract. The first installment due not having been paid, A.
brought suit against C. upon the guaranty. The latter set up the
defense that he was induced to enter into the undertaking by the
false and fraudulent representation of A. as to the quantity of
good merchantable timber contained in the tract. The case was, by
stipulation of the parties, tried before a referee, who reported
that the representations were made by an agent of B., and that he
did "not find" that A. participated therein.
Held: 1. That
A.'s grant of permission to C. to cut and remove the timber was the
release of an important security to him against possible loss if
payments were not made on the contract, and that the guaranty was a
reasonable exaction from C. therefor. 2. That said representations
not coming from A., nor relating to the permission to cut and
remove the timber, did not release C. from liability on the
guaranty.
2. The objection cannot be made for the first time in this Court
that the report of the referee finds certain facts inferentially,
and not directly.
3.
Semble that the finding of a referee should have the
precision of a special verdict, specifying with distinctness the
facts, and not leaving them to be inferred.
Page 101 U. S. 634
MR. JUSTICE FIELD delivered the opinion of the Court.
On the 23d of September, 1874, William Buchtel, the plaintiff in
the court below, the defendant in error here, contracted to sell to
the Big Rapids Improvement and Manufacturing Company, a corporation
created under the laws of Michigan, several hundred acres of pine
land in that state for the sum of $12,273.84, payable as follows:
$3,068.46 on the first of the following January, and the balance in
three equal annual installments, with interest. Nothing was paid by
the company at the time, and the contract provided for the
execution of a conveyance to it only upon the payment of the sums
stipulated as they became due, and it prohibited in the meantime
the cutting or removal of the timber without the written permission
of the vendor.
Two days after its execution, the contract was assigned in
writing by the Improvement and Manufacturing Company to the
defendant, the Mason Lumber Company, also a corporation of
Michigan. To this assignment the vendor assented, and gave
permission to the Lumber Company to enter upon the lands and cut
and remove the timber, and in consideration of this permission,
that company guaranteed the payments stipulated in the contract. In
the negotiation which resulted in the execution of the guaranty,
the Improvement and Manufacturing Company was represented by its
vice-president, Mr. Bronson, and the Lumber Company by its
president, Mr. Mason.
The payment due on the first of January, 1875, not having been
made, the present action was brought by the vendor, Buchtel, upon
the guaranty, against the Lumber Company. The company pleaded the
general issue and gave notice that it would give in evidence, and
insist as a defense to the action, that it was induced to enter
into the undertaking by the false and fraudulent representation of
the plaintiff that the lands
Page 101 U. S. 635
contained 5,700,000 feet of good merchantable pine timber,
whereas in fact there were only 1,500,000 feet of such timber on
the land, and that thereby it had sustained damages to the amount
of $20,000, which it would recoup against the claim of the
plaintiff and ask to have the balance certified in its favor.
By the law of Michigan, damages, whether liquidated or not,
claimed by a defendant as arising out of the contract or
transaction upon which an action is brought may be set up by way of
recoupment against the demand of the plaintiff; and, if found to
exceed such demand, the defendant can have judgment for the
balance. The case was, by stipulation of parties, tried before a
referee, who reported in favor of the plaintiff for the amount
claimed, with interest. He also found as a matter of fact that
Bronson, who acted for the Improvement and Manufacturing Company in
the transaction in which the assignment and guaranty were made,
exhibited at the time to Mason, who acted for the Lumber Company, a
plat of the lands in the presence of the plaintiff, and represented
that they contained 5,000,000 feet of good merchantable pine
timber, whereas, as a matter of fact, they contained only 1,237,197
feet of such timber, but that there was a large quantity of
additional timber which was poor, the defects of which could not be
discovered until after it was cut. He further found that the
plaintiff had never seen the lands, and that the Lumber Company was
aware of the fact, and that all the knowledge he had of the
quantity of the timber was derived from an estimate furnished to
him by his grantor. The referee also states in his report that "he
does not find" that the plaintiff's attention was called to the
plat exhibited, or that he made any representations in relation to
the quantity of timber on the land, or that he had any knowledge of
the quantity at the time, or that the estimate furnished to him by
his grantor was before him, or that he alluded to it, or that the
representations of Bronson to Mason as to the quantity of the
timber were made in his hearing. Exceptions were taken to the
report and overruled by the court below.
The only questions presented by the record which merit
consideration are:
1st, whether the false and fraudulent representations --
assuming
Page 101 U. S. 636
that they were fraudulent as well as false -- of the agent of
the Improvement and Manufacturing Company to the agent of the
Lumber Company as to the quantity of timber on the lands purchased,
in which representations the plaintiff did not participate,
released the defendant from liability on its guaranty, and,
2d, whether the report of the referee is fatally defective
because it finds certain facts inferentially and not directly.
Neither of the questions thus raised is at all difficult of
solution. The contract of guaranty of the Lumber Company was
executed to the plaintiff as a consideration for his permission to
enter upon the land and cut and remove the timber in advance of the
stipulated payments. The provision against the cutting or removal
of the timber without such consent was a most important one to him.
It secured him against a possible loss if the payments were not
made. The granting of permission to the Lumber Company was
releasing that security and giving to the company the principal
value of the property in advance of payment. The guaranty was a
reasonable exaction for it. The representations of the Improvement
Company, through its officers, to the officers of the Lumber
Company as to the supposed amount of timber on the land, to induce
the latter to execute the guaranty and thus obtain the permission
of the plaintiff, cannot be allowed to mar or defeat the contract
with him, as he knew nothing of their being made and was ignorant
of the subject to which they related. It was the same thing to him
whether insufficient or adequate consideration passed between the
two companies. He gave to the Lumber Company a valuable
consideration for the guaranty, and has, therefore, a right to hold
that company to the liabilities it assumed.
The cases cited by counsel to show that a misrepresentation of
material facts inducing a contract, though made in ignorance, may
in many cases be the foundation of a suit for its cancellation or
modification, have no bearing on the questions here presented. They
apply only where the contract, of which a rescission or
modification is sought, was obtained by the party claiming its
benefit, and the misrepresentations related to the consideration
given for it.
Page 101 U. S. 637
Thus, in the first case cited, that of
Smith v.
Richards, reported in the 13th Peters, the misrepresentation
related to land containing a gold mine, and was made by the owner
to the vendee to induce its purchase by him. And so it will be
found in all the other cases cited, that the misrepresentations
came from the party holding the contract complained of, and related
to the consideration upon which it was executed.
In the case before us, neither of these particulars exists. The
misrepresentations alleged did not come from the plaintiff, the
holder of the contract, nor relate to the permission given to cut
and remove the timber. Neither as to the nature or value of his
reserved right to withhold such permission were any representations
made by him, nor could there have been any misapprehension of the
nature and extent of the guaranty assumed. Whatever related to
other matters which took place between the two companies was
unknown to him and in no way concerned him.
The report of the referee is undoubtedly defective in the form
in which the statement is made of the plaintiff's want of knowledge
as to the misrepresentations of the officers of the Improvement
Company. The findings should have the precision of a special
verdict, and specify with distinctness the facts found, and not
leave them to be inferred. "I do not find" that the plaintiff knew
certain facts is a defective statement, and ought not to be
received as equivalent to a direct finding that the plaintiff did
not know the facts mentioned, although it is probable that the
referee intended it to have that meaning. But defects of this
character in the finding should have been called to the attention
of the court below and a more definite finding required of the
referee. They cannot be considered here for the first time. It was
for the defendant to see that findings were had on all matters
material to its defense, as it was for the plaintiff to see that
findings were sufficient to support the judgment in his favor.
Judgment affirmed.