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No. 94-967

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WILLIAM FIELD and NORINNE FIELD, PETITIONERS v. PHILIP W. MANS

on writ of certiorari to the united states court of appeals for the first circuit

[November 28, 1995]

Justice Breyer , with whom Justice Scalia joins, First, the Bankruptcy Court, while using the wrong words, did the right thing. That court essentially found that in mid 1987, Mr. Field and his wife sold their inn for about $500,000 to Mr. Mans, a developer. To secure the $187,000 that Mans still owed them, the Fields kept a mortgage, which had a term that accelerated the debt should Mans transfer the property to anyone else without their permission. A few months later, Mans wrote to the Fields saying that he wanted to transfer the inn to a development partnership which Mans had formed with a new partner, Mr. De Felice. Mans observed that because the Fields had transferred the inn to a corporation, the stock of which was wholly owned by Mans, Mans could effectively accomplish the transfer to the new partnership by simply conveying the stock of the holding company to the partnership, thereby avoiding the "debt acceleration" clause. But, Mans said, he would prefer to transfer the inn outright, and therefore was seeking their permission to do so without accelerating the debt. The Fields did not give permission. Mans transferred the inn anyway. Nothing more was heard of the matter until 1991, when real estate values fell, Mans went bankrupt, and the Fields brought this law suit in an effort to prevent the $150,000 they were then owed from disappearing in the bankruptcy.

The Bankruptcy Judge found that Mans' mid l987 letters implied that he had not yet transferred the inn to the partnership as of the time he wrote the letters. But, this implication was false, for Mans had transferred the inn at least a few days earlier. Still, the Bankruptcy Court asked whether that false implication had made any difference, i.e., whether the Fields, during the next few years, had relied upon this false implication in not accelerating the debt (and obtaining their money before Mans' bankruptcy). The judge very much doubted any actual reliance. But, in any event, Mr. Field had visited the property fairly regularly to check on the progress of the development, he had seen Mans there fairly often, and he had been told that De Felice had been on the premises, claiming to be "the new owner." And, that being so, the judge held that at some point over the course of the next 3½ years--during which time Mr. Field was "accepting mortgage payments and looking at drawings and discussing the project with Mans"--Mr. Field should simply have asked Mans, "what's the deal here? Who owns this thing?" Id., at 42-43. (Or, the Fields could "have simply checked the title in the . . . County Registry of Deeds which Mr. Field has demonstrated he knows very well is up in North Haverhill"). Id., at 42.

To hold this is, in my view, to apply the commentators' "justifiable reliance" standard. The court focused upon the individual circumstances and capacity of the plaintiff, Mr. Field. See Prosser & Keeton §108, at 751. The court found that Mr. Field should have looked into the matter, not because of any general "duty to investigate," but because, in the particular circumstances, he "discovered something which should serve as a warning that he [was] being deceived." Id., §108, at 752. That is, the court did not use the "objective" test as an improper search for "contributory negligence"--i.e., to deny recovery to one also at fault for failing to exercise "the care of a reasonably prudent person for his own protection." Id., §108, at 750. Rather, the court viewed the failure to investigate, in light of the clear warnings of deception, as a means of testing whether there was "some objective corroboration to plaintiff's claim that he did rely," a primary purpose of the "justifiable reliance" requirement. See id., §108, at 750-751.

Second, the bankruptcy court's use of what turned out to be the wrong words ("reasonable," and "prudent man" rather than "justifiable") is not grounds for reversal, for no one brought the "correct" terminology to the lower courts' attention. The Fields did not argue in the Bankruptcy Court, or in their briefs to the District Court or the Court of Appeals, or in their petition for certiorari, that there was any difference between "reasonable reliance" and "justifiable reliance." To the contrary, the Fields took the view (which the Court now unanimously rejects) that actual reliance alone--whether or not it meets any objective standard--is sufficient for recovery. Indeed, it appears that the Fields did not even mention the word "justifiable" below, but, rather, used the term "reasonable" throughout to refer to any kind of objective standard. The first time the word "justifiable" appears in this case seems to be in the Fields' brief on the merits in this Court where they point to the Restatement's use of the term "justifiable," Restatement (Second) of Torts §540 (1977), and argue that "[j]ustifiable reliance does not require that the recipient of misrepresentation investigate the underlying assertion." Brief for Petitioners 20 (emphasis in original). But see Prosser & Keeton §108, at 752.

Third, the "correct" terminology would not have appeared obvious to a judge, certainly not to a judge who was not a special expert in the common law of misrepresentation. Prior case law was not neat in its use of the terminology. The commentaries do not refer to the old prudent person standard as a "reasonable reliance" standard, but, instead, distinguish between the "justifiable reliance" standard as it has been understood in cases now disapproved, and the "justifiable reliance" standard as it is applied in most modern cases. See id., §108; 2 F. Harper, F. James, & O. Gray, Law of Torts §7.12, pp. 455-464 (2d ed. 1986). Indeed, the majority's footnotes distinguish between cases in which a court (1) used a "prudent person" standard or imposed a general duty to investigate, and (2) used a plaintiff specific standard while disavowing a general duty to investigate. Ante, at __, nn. 10-12. But, courts in the first category did not always use the words "reasonable reliance" to describe their standard. See, e.g., Horner v. Ahern, 207 Va. 860, 863-864, 153 S.E. 2d 216, 219 (1967). Indeed, sometimes they used the word "justifiable." See, e.g., Cudemo v. Al & Lou Construction Co., 54 App. Div. 2d 995, 996, 387 N. Y. S. 2d 929, 930 (1976). Nor did courts in the second category always use the words-justifiable reliance" to describe their standard. See, e.g., Barnes v. Lopez, 25 Ariz. App. 477, 480, 544 P. 2d 694, 697 (1976). Indeed, sometimes they used the words "reasonable reliance." See, e.g., Johnson v. Owens, 263 N.C. 754, 758-759, 140 S. E. 2d 311, 314 (1965). The relevant historical controversy in the law of fraud has focused not so much on labels as on the nature of the duty to investigate (e.g., whether the duty is applicable normally or only in special, suspicious circumstances) and on the extent to which the law looks to the circumstances and capacities of a particular plaintiff. See Prosser & Keaton §108. The Bankruptcy Court, as I have just pointed out, followed modern fraud law in both respects.

Fourth, while I understand that sometimes this Court might appropriately announce a legal standard and remand the case to the lower courts for application of the chosen standard, I do not agree that it should do so here. The record below is brief (87 pages of transcript plus exhibits). The Bankruptcy Judge's findings are reasonably clear. And, further litigation is expensive. Mr. Mans is bankrupt, representing himself until this Court appointed a lawyer for him; the Fields are not wealthy and should not be encouraged to pursue what is, in my view, the impossible dream of eventually recovering the $150,000 (minus legal fees). And, the example this Court sets by not looking more closely into the details of the case is not a happy one--particularly if it suggests that appellate courts can, or should, insist that lower courts use commentator approved technical terminology when the parties have not argued for its use and when that use seems most unlikely to have made any difference. Doing so simply generates unnecessary appeals, creating additional delay and expense in a system that could use less of both.

For these reasons, I dissent.