Court Opinion

ID: 8291121
Source: CourtListenerOpinion
Date Created: 2022-10-17 10:45:54.345899+00
Date Added: 2024-06-11T16:43:52.096706
License: Public Domain

Littlejohn, Justice
(dissenting) :
I respectfully dissent and would reverse the order of the lower court.
Inasmuch as the judge’s order merely adopts the report of the special referee as its directive, we look to his report *386for an analysis of the court’s factual finding. The referee stated: ■
“a. I find that SCN made the claimed representation to Kahn that there was enough money left in the construction loan account with SCN to pay the remaining amount under the construction contract and that the representation was false.
Kahn’s vice-president and comptroller, Mr. McCall, testified that he telephoned SCN’s mortgage loan officer, Mr. Hinshaw in August, 1974, on or about the 18th or 20th, because the August payment due to Kahn by Harborside had not been made. He said he asked Hinshaw whether there was enough money left to pay Kahn, and that in response to a question by Hinshaw, he told Hinshaw that about $330,000 was due on the contract, to which Mr. Hinshaw responded, that, yes, there was enough left with the bank to pay it.
Hinshaw testified that he remembers, talking to McCall, and remembers a heated, unpleasant exchange, but he said he did not recall discussing the amount left in the loan account, or giving McCall any such assurance as claimed by McCall.
The undisbursed amount of the construction loan at the time of the August telephone call was $36,619.19, and there was $6,382.71 in an escrow account, or a total of $43,001.90 in the Harborside loan account with SCN (plaintiff’s exhibit 4), not $330,000 as represented by Hinshaw to McCall.
b. The elements of materiality of the representation (3rd element) and of the hearer’s reliance on its truth (7th element) appear to be closely related. 37 Am. Jur. (2d), Fraud and Deceit § 223. Prosser in his treatise on misrepresentation treats materiality as a subsection of reliance. Prosser, Torts § 103, pp. 729, 734 (3d ed. 1964).
*387‘The party deceived must not only be justified in his belief that the representation is true, but he must also be justified in taking action on that basis.’ Id. p. 734.
It is clear from the testimony of the three Kahn officers, Mr. McCall, Mr. Irwin Kahn, and Mr. H. Bernard Kahn, that they considered the information received by McCall from Hinshaw to be important to their decision whether to continue work on- the contract or not. It was not a collateral matter to them, but one of vital importance. They [Kahn’s three officers] did not want Kahn to continue on the job if there was no money available to pay for it. Thus, subjectively to Kahn, both elements seem to have been present. But it appears that for the purposes of this type action, the test of whether a person relied upon a representation is whether he would have acted in the absence of the representation, 37 Am. Jur. (2d), Fraud and Deceit § 223, and a test of materiality is whether the representation deceives the hearer and induces him to act, id., § 178, or is important enough to induce the hearer to act. Prosser, Torts 734 (3d ed. 1964).
The special referee also said :
“ [I]t appears to have been recognized, or at least assumed, that Harborside was not able to pay its debts as they matured, . . . .”
The heart of the special referee’s ruling is as follows:
“I, therefore, find and conclude that Kahn’s continuing to work was not in reliance on SCN’s representation and that the representation was not material, as a matter of law, to whether it continued to work or not.”
I would hold that the special referees conclusion, agreed to by the circuit judge, erroneously held (1) that the misrepresentation was not material, and (2) that Kahn had no options or rights but to continue work under the contract. Insolvency of the promisor has been held to constitute a breach of contract. 17-A C. J. S. Contracts § 471. Kahn *388might have discontinued the contract and answered to Har-borside, or considered the advisability of a mechanics’ lien, or attempted some type of settlement negotiations with the developer. Both fraudulent misrepresentation inducing one to forebear enforcement of some legal right, 37 C. J. S. Fraud § 41(d), and misrepresentation of the financial condition of a third party may constitute remediable fraud. 37 C. J. S. Fraud § 48(a).
Instead of pursuing other options, Kahn relied on the misrepresentations and continued performance of work for which it could not collect, because Harborside was insolvent at that time. It is- apparent that SCN knew of Harbor-side’s insolvency. Clearly, Kahn changed its- position by receding from options it had the right to pursue. As a result, SCN benefited because completion of the contract by Kahn enhanced the value of the property over which SCN held a mortgage it subsequently foreclosed and bought in at the sale. Certainly, there was no duty on Kahn’s part to continue construction so as to enhance the financial status of SCN and other creditors.
Kahn’s contract with Harborside should not, and does not, excuse the tortious conduct of SCN. Any rights and obligations under the contract belong to and are imposed upon the parties to the agreement; those parties are only Kahn and Harborside. The well-established rule is that one who is not a party or in privity to a contract is unable to assert and take advantage of that contract. 17A C. J. S. Contracts § 518(a). SCN was clearly not a party to this contract.
In my view, the majority opinion is erroneously bottomed on the assumption that the contract required Kahn to continue with the construction. It overlooks the fact that the provision relative to continuing with the work is merely a portion of the overall contract, all of which Kahn was entitled to discontinue.
The majority opinion attaches significance to the fact that Kahn compromised his claim with the developer and re*389ceived some benefit therefrom. It was entitled, if not required, to mitigate its damages, and the settlement of a claim with Harborside is of no significance to the issues in this case. The compromise settlement did not eliminate the tort claim Kahn now pursues against SCN. At most it reduced the damages which Kahn is entitled to collect. SCN is not entitled to a benefit growing out of the fact that the damages have now been reduced.
While other issues were apparently before the lower court as relates to other causes of action, no issues other than those concerning fraud and deceit are before the court on this appeal.
I would reverse the order and remand for the purpose of having the trial court determine the amount of damages Kahn is entitled to collect, in keeping with the well-established principles of law as relate to the measure of damages in fraud and deceit actions.