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July 2, 1983

DIATRACO CORP., Plaintiff, against HAROLD M. FREEMAN and MARTIN FREEMAN, individually and d/b/a H.M. FREEMAN & SONS, Defendants.

The opinion of the court was delivered by: BRIEANT


Brieant, J.

 By motion fully submitted as of June 11, 1982, defendants in this diversity case seek summary judgment in their favor and also seek a judgment in their favor with respect to their counterclaim as discussed below. This case is ready for trial on the non-jury trial calendar of this Court. All pre-trial discovery is complete and efforts to adjust the matter or to have it arbitrated by an expert in the industry have been unsuccessful.

 Under the peculiar circumstances outlined below, the Court finds that there is no genuine issue of material fact and that presumptions of regularity, honesty, and fair dealing, as well as consideration of the burden of proof permit this Court to dispose of this litigation on affidavits and depositions notwithstanding that the controversy pertains essentially to state of mind, intent and knowledge.

 Both plaintiff and defendants are wholesale dealers in gems. While the complaint sues for conversion, breach of contract and fraud, the underlying facts supporting all three causes of action are essentially the same.

 Defendants, located in Florida, received a 1.87 carat ruby from plaintiff on memorandum receipt and allegedly returned a 1.46 carat spinel. A spinel is a semi-precious stone which has a superficial visual resemblance to a ruby but does not possess the same value. Under the customs of trade and by the agreement of the parties, a stone is "taken on memorandum" for the purpose of resale within the trade, and must either be returned or paid for upon request. The actual memorandum in this case is attached to and made a part of the defendant's notice of motion. The stone was delivered to defendants on April 16, 1981 and its return was requested in July, 1981. Defendants, as directed by plaintiff, returned the gems to Mr. Robert Evans, a representative of plaintiff at a jewelry show at the new York Hilton Hotel over the weekend of Jury 25, 1981.

 It is uncontradicted that Evans examined each stone, checked off the receipt, and signed the receipt on behalf of plaintiff. Evans was a knowledgeable person and had the authority to act for plaintiff in receiving these goods. He was colorblind, but defendants did not know this. A claim that the ruby was a spinel of forty-one onehundredths carat less weight was made on the following Monday.

 As a matter of logic, this factual situation suggests several possibilities. They could be summarized as follows: (1) the ruby was actually returned and plaintiff thereafter substituted a spinel intending to defraud defendants by suing them; (2) the defendants received a ruby and substituted a spinel intending to defraud plaintiff by returning a spinel; (3) the stone delivered and received was at all times a spinel; (4) a third party or sinister force stole the ruby while it was in possession of the defendants and substituted a spinel; or (5) a third party or sinister force stole the ruby while it was in possession of plaintiff after its return in New York City and substituted a spinel.

 There is no way in which this dispute can be resolved by choosing one of those aforementioned equally likely possibilities, without resort to alchemy. All those concerned who acted for defendants have testified or will testify that they engaged in no fraud, and did not substitute any spinel for any ruby. In this regard defendants signed a receipt for a ruby and have never denied that they received a ruby.

 Plaintiff contends it gave a ruby but received a spinel in return. Against this claim stands the receipt for a ruby signed after examination of the stone by a knowledgeable and duly designated agent of the plaintiff, who probably should have been able to tell the difference between a ruby and a spinel.

 Sometimes an element of doubt will creep into a situation where the Court as trier of the fact will conclude that a witness is possibly lying or even that a witness is probably lying, but this Court does not claim the positive ability to observe demeanor of witnesses and thereby conclude in any case with certainty that they are lying.

 Assuming this Court went through the form of a trial, and dragged these participants down to the courthouse to waste half a day giving their testimony under oath, consistent with their depositions, the most that can be said is that it is possible the Court as trier of the fact might conclude that one side or the other of the case is lying.This conclusion, if reached in plaintiff's favor would have to be reached with sufficient certainty to permit plaintiff to discharge its burden of proof. To the extent that fraud is alleged rather than mistake, such evidence would have to rise to the level of being "clear and convincing".

 The receipt signed by Mr. Evans is valid and unambiguous on its face. It carries with it the presumption of regularity. Without more, the trier of fact is entitled to assume that Evans knew what he was doing when he checked off the receipt and signed for a ruby instead of a spinel. Defendants' conduct in the matter is presumed honest, and plaintiff has the burden of proof with respect to fraud. Even with respect to negligent or innocent mistake, based on the possibility that two stones of similar size and appearance could have become mixed up at defendants' premises, plaintiff must prove by a preponderance of the credible evidence, not that they could have become so mixed up but that they actually were. Of course they could have been. But to suggest that this is in fact what happened requires speculation and guesswork of the rankest kind.

 The matter at hand mirrors that found in Dyer v. MacDougall, 201 F.2d 265 92d Cir. 1952), wherein the Court of Appeals affirmed the granting of summary judgment because there was no genuine issue to try within the meaning of Rule 56(c), F.R.Civ.P. The Dyer plaintiff had no witnesses by whom he could prove the alleged slanders, except for the defendants who denied in all pre-trial statements, and would deny at ...

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