#### RICHARD CHARLES HAYES v. THE UNITED STATES

[No. 45672.

Decided January 8, 1945.

Plaintiff’s motion for new trial overruled April 2, 1945]

*117
      *Mr. James M.*Tunnell, Jr., for plaintiff.

*Mr. J. Frank*Staley, with whom was *Mr. Assistant Attorney General Francis M.*Shea, for defendant.

*139Littleton, Judge,

delivered the opinion of the court:

Plaintiff sues for $87,500 for alleged breach by the defendant of a contract of sale by plaintiff to defendant, at the price stated, of the *S. S. Medric.*Defendant refused, for the reasons stated in the findings, to accept and pay for the vessel, and claims in justification of such refusal misrepresentations of mateiial facts which amount to fraud. It has also filed a counterclaim for $6,960.87 representing the actual costs incurred for the care and protection of the vessel after plaintiff’s refusal to remove it.

The facts established by the record show, as set forth in the findings, that plaintiff made fraudulent representations of material facts concerning the *Medric*which were properly relied upon by Commander Rawlings, acting for defendant, who was thereby misled into agreeing on a price of $87,500 as fair and reasonable for the vessel. Plaintiff knew, or should have known, that certain representations of material facts which he made concerning the condition of the vessel and of the annual expenditures for repairs and replacements thereof were not true. These material repre-¡ eentations were made by plaintiff as an inducement to the *140defendant to purchase the vessel and in support of plaintiff’s effort to obtain a price of $125,000 therefor. They were made with intent that they should be relied upon. The proof leaves no doubt that Commander Eawlings, who was the officer of the Government duly authorized to carry on negotiations for the purpose of arriving at a fair and reasonable price for the vessel, did rely upon plaintiff’s representations in offering a price of $87,500. The defendant was therefore justified in rescinding the agreement as to the price and in refusing to accept the vessel and execute the written contract. *Taylor*v. *Burr Printing*Co., 26 Fed. (2d) 331; *Keeler*v. *Fred T. Ley de Co.,*Inc., 49 Fed. (2d) 872.

Plaintiff argues that representatives of the defendant made inspections of the vessels before the conference of September 9, 1941, at which the price above-mentioned was agreed upon, and was not, therefore, justified in relying upon any representations of plaintiff concerning the condition of the vessel. These inspections in May and June 1941 are described in finding 3. Eeports were made of only two of these inspections. These reports were brief and cursory; they appear to have been based largely upon representations made by plaintiff’s representatives; they disclosed little information as to the actual condition of the vessel, and Commander Eawlings had no knowledge or information as to the actual condition of the vessel other than these reports and the representations made by or on behalf of plaintiff in the letter of October 26, 1940, and at the conference of September 9, 1941.

In view of the- actual condition of the vessel at the time it was tendered for acceptance, as established by the proof, it is evident that the inspections by Government agents, as to which reports were submitted, wei’e negligently or carelessly made, or reported. The Government cannot be held liable for the negligence, malfeasance, or omission of duty of its agents. Commander Eawlings had the two inspection reports mentioned and used them for what he considered them to be worth, but his testimony shows very clearly that he also materially relied on plaintiff’s representations as to the condition of the vessel and other material representations concerning it, as to some of which he had no informa*141tion at all. It is not essential to the right of rescission that representations by plaintiff should have been the sole cause of the action taken by the Government, which claims to have been injured by such representations, but it is sufficient that the representations were one of several inducements and exerted a material influence. Plaintiff’s misrepresentations did exert a material influence. It was not necessary that plaintiff’s misrepresentations be the paramount inducement to action taken by the Government. Since such representations were a material inducement, rescission may be had although Commander Rawlings was influenced to some extent by information contained in the inspection reports of the agents in the Government service.

Plaintiff argues that no representations upon which the Government was entitled to rely were made at the conference with Commander Rawlings on September 9, 1941, but that what plaintiff’s authorized representative said at that time as to the condition of the vessel, the extent of the expenditures for repairs and replacements, and the book value were mere matters of opinion. Plaintiff in a letter of October 26, 1940, to the Navy Department made positive representations as to the condition of the vessel which were not true. We cannot agree that the statements made on behalf of the plaintiff at the conference of September 9 were mere expressions of opinion. The proof shows that the representations made by plaintiff with reference to expenditures for repairs and replacements were false and untrue, and that other statements concerning related matters were misleading. Such representations were not considered by the Government as expressions of opinion, but, on the contrary, were treated and relied upon as representations of matters of fact of reasonable accuracy with intention that they be relied upon. The proof shows that plaintiff’s statements were so relied upon, and that they materially influenced the decision on behalf of the Government with regard to the price of $87,500 offered. We think the Government was justified in so relying upon the representations in relation .to the annual expenditures for repairs and replacements, and other related values. Instead of being reasonably accurate such representations were false and untrue.

*142Plaintiff’s representative, Avho had been general manager of the corporation which was the beneficial owner of the vessel since its organization in 1924, was the only person who was in a position to know what the true facts were with reference to the annual expenditures for repairs and replacements, and the book value of the vessel. He knew, or should have known, what these expenditures and values were, and if he did not know he should not have misled the Government into believing that he did. The questions asked by Commander Rawlings at the conference on September 9 with reference to these matters called for a statement of fact and not an opinion, and we think plaintiff’s representative so understood and intended that the Government should rely upon his statement that such expenditures for repairs and replacements were between $8,000 and $10,000 a year. After having first made this statement plaintiff’s representative further specifically urged the expenditures in the amount stated in support of his effort to influence the Government to agree to pay him his modified price of $100,000. The Government has established misrepresentations which amount to fraud. Plaintiff is therefore not entitled to recover and the petition is dismissed.

Defendant is entitled to recover on its counterclaim, and judgment in its favor for $6,960.87 will be entered. It is so ordered.

MaddeN, *Judge;*and Whitaker, *Judge,*concur.

Whaley, *Chief*Justice,

dissenting:

I cannot agree with the majority in the maimer in which the findings have been made or in the result arrived at in the opinion.

The incorporation of six pages of evidence in Finding No. 5 is contrary to Rule 75 (b) of this Court. This rule requires the Court to make ultimate findings of fact from the evidence and incorporate them in the special findings and not incorporate the evidence.

In my opinion the Court has sufficient time and it is the duty of the Court to separate the ultimate facts from the *143irrelevant testimony and incorporate them in special findings and thereby remove any semblance of prejudice, and in doing so comply with the rules of the Court.

I cannot agree with the decision arrived at by the Court in which it finds plaintiff guilty of fraud. This finding is substantially based on the evidence which is incorporated in Finding No. 5. This is a statement taken down steno-graphically at a meeting between Mr. Thomas Hayes and Commander Rawlings on September 9, 1941, and introduced in evidence at the trial of the case.

The statements made by Mr. Hayes as to the condition of the S. S. *Medric*were based on the inspections made in June 1941 of the hull, boilers, engine, and equipment of the *Medric*by government inspectors of the Department of Commerce, Bureau of Marine Inspection and Navigation. At that time the *Medric*was also placed in drydock for the purpose of having its underwater body and outboard fittings examined. An annual license was issued based on these inspections which showed that the hull, equipment, boilers, and engines were good and the vessel was seaworthy. The inspections made by these officers were under the rules of the Government Bureau and are in minute detail. All water-front men know how strict these inspections are.

• Mr. Hayes, when discussing the vessel with Commander Rawlings, was fully justified in making a statement of seaworthiness and soundness, relying on the license issued to him by the Department of Commerce, and the inspections made by these officials of the Government.

However, previous to these inspections in June made by the Department of Commerce, Bureau of Marine Inspection and Navigation, the Navy Department had *three inspections*made; one on May 2, 1941, by Lt. Commander Direlan; another on May 8, 1941, by Commander Sullivan; and a third inspection on June 19, 1941, by Lieutenant Vick, who was accompanied by Mr. C. I. Olsen, Naval Architect. The first two inspections were when the vessel was afloat and the third was when the vessel was hauled out of the water for a complete examination of the underbody. Even borings were made in certain portions of the hull.

*144Therefore, when Mr. Hayes made the statements to Commander Rawlings, he was stating the true condition of the vessel as disclosed by the examinations of the Government. After five examinations by the Government, through the Department of Commerce and the Navy Department by its own inspectors, had been made, Mr. Hayes had every reason and right to rely on their examinations. The Government did not rely on Mr. Hayes’ statement of the condition of the vessel because it had made its own inspections.

The Navy Department made another inspection in October after the meeting in September, and Commander Payne and Mr. Chadwick, U. S. Naval Architect, who made the inspection, urged the prompt delivery of the vessel. This inspection is not set out in the findings but is disclosed by the evidence.

Commander Rawlings stated at the meeting when nego-tions were on for the purchase price: “According to our information, the boats are in better than average condition.” Further on he said: “According to our information, we believe $75,000 would be a fair price.” Then again: “There are many ways of keeping them running. I recognize that this boat is above average. There is no doubt about that.” Reliance was placed by Commander Rawlings on the information the Navy had received and not the statement of Mr. Hayes. The meeting was plainly for the purpose of arriving at a price and not on the condition of the vessels.

At the request of the Navy Department a bill of sale was executed by plaintiff conveying the vessel to the defendant, and this conveyance was duly registered in the office of the Collector of Customs for New York.

A great deal is made of the fact that Mr. Hayes exaggerated and overestimated the costs of repairs and maintenance during the years of ownership. However, he was talking from recollection at the time and did not have the books of the company before him and he was covering a period of seventeen years.

The defendant did not turn down the vessel on account of the alleged misstatements of the cost of maintenance, repairs, and improvements, because, when the vessel was *145rejected by the Navy Department in November 1941, *no examination*of the books of the plaintiff had been made. The examination of the books was made starting in November 1942 and completed in January 1943, more than a year after rejection.

I can find no semblance to fraud in this case.

I am satisfied that the inspections made by the officers of the Bureau of Marine Inspection and Navigation of the Department of Commerce and the three officers of the Navy Department were not careless and negligent. From the evidence the inspections were carefully and painstakingly made.

The final and last examination of the vessel I do not believe disclosed the real condition. It was made by a Board of Officers of the Navy, who examined it for. only three hours in a cursory manner and the vessel was not. hauled out on the ways.

It was not until after it had been delivered to the Government at the Navy Yard and in the possession of the defendant for several days that it was discovered that another inspection was necessary and the vessel did not pass that inspection. However, the defects discovered were so insignificant that it is impossible to reconcile this examination with the others, which had been made by the Government officials, on any other ground than the desire of the Government to be relieved of its contract. The conclusion is irresistible that the Government had changed its mind and did not want this class of ship, although it had agreed to-accept it and the vessel had been delivered at Philadelphia,, and the bill of sale therefor recorded on October 29, 1941,. in the Custom House at the Port of New York.

After a careful reading of the evidence and exhibits I am convinced that the plaintiff should recover.

JoNes, Judc/e, took no nart in the decision of this case.