Bleg — Advice Re 1885-7 Canadian Court Case about Credit Reports

30 05 2011

This is a bleg. I’m searching for information on a court case that was important in the development of the credit reporting industry in Canada.

Here is a bit of background. Today we take the existence of credit-rating agencies like Experian for granted. Banks use their reports to make decisions about lending to firms and households. We also take it for granted that we can’t sue a credit-rating agency even if they report that we are a bad credit risk. Moreover, the courts have established that a creditor can’t sue a credit-rating agency if they make a loan to an individual who was highly rated but who subsequently defaults.

The credit-reporting industry emerged in the United States in the 1840s. Merchants would pay an annual fee to an agency that would provide them with detailed reports on businesses throughout the country. Such information was useful for, say, an importer in New York who was considering the extension of credit to a wholesaler in Albany or a retailer in some tiny village.

The modern credit-reporting industry would not have been able to develop without a favourable legal infrastructure. One of the most important court cases in the history of American credit-rating industry was Tappan v. Beardsley, 77 U.S. 10 Wall. 427 427 (1870). This case involved John Beardsley and Horace Beardsley, merchants of Norwalk, Huron County, Ohio, who brought an action in the court below against Lewis Tappan, of New York, for a libel. You can read the relevant judgements here and here. Essentially, the courts ruled that credit reports were privileged” communication and thus the normal rules of libel did not apply. In other words, you couldn’t sue a credit rating agency for saying that you were a spendthrift with no money, whereas you could sue a newspaper that published the same thing. Had the courts ruled differently in this case, the credit-reporting industry would have evolved in different ways.

This important case, which lasted from 1848 until 1870, is discussed in the existing secondary literature on the history of the American credit rating industry. (See James H. Madison, “The Evolution of Commercial Credit Reporting Agencies in Nineteenth-Century America” The Business History Review Vol. 48, No. 2 (1974), pp. 164-186; Born Losers: A History of Failure in America, by Scott A. Sandage, (Harvard University Press, 2005); and Josh Lauer’s “The Good Consumer: Credit Reporting and the Invention of Financial Identity in the United States, 1840-1940”, Enterprise & Society 11, no. 4 (2010): 686-694, among others).

As you can see, a great deal has been published on the history of credit-rating in the US. Very little, however, has been published on the equivalent Canadian topic, even though the US credit rating agencies spread into Canada in the late 1850s.

I’m currently writing an article on this topic and I need some input from legal historians.

In the 19th century, Canadian courts, even those in the English-speaking provinces, were reluctant to cite American precedents, preferring to base their decisions on British ones. Canada’s laws regarding libel and privileged communication were thus quite different from those of the United States. I need to find out how these legal differences impacted the Canadian credit-rating agencies.

I’m particularly interested in an 1885-7 court case in Montreal in which Justice  Louis-Onésime Loranger ruled against an American credit-rating agency and awarded  S. Carsley and Carsley Co. $50,000 in damages against the Bradstreet Mercantile Agency. In this case, Carsley sued the Bradstreet Mercantile Agency for being listed but not given a rating on the grounds that this was an erroneous signal that he was in trouble. In 1887, the case was settled out of court, which meant that Loranger’s decision was never reviewed by a superior court.

Loranger’s decision was reported as far away as New York, where Bradstreet’s head office was located. I’ve found the citation of Justice Loranger’s decisions Carsley v. The Bradstreet Co., (1886) 2 M.L.R. 33 (S.C.) and read what the judge said.

I now need to find secondary sources on the development of Canadian libel law and the laws regarding privileged communication in Canada. I’ve sent some emails to Canadian legal historians and while they were able to give me some references to some important works on related topics, none seemed relevant to my case.

I would appreciate it if anyone who knows about secondary sources that deal with their the Carsley case or the development of the relevant body of law (libel, definition of “privileged communication”) in Canada could contact me.

Any information about Loranger’s judicial philosophy and general attitude towards business would also be helpful.  Many years ago, two historians, demonstrated that courts in early Upper Canada were less likely to sacrific long-established rights on the altar of economic growth than courts in the contemporary United States. See Peter George and Philip Sworden, “The Courts and the Development of Trade in Upper Canada, 1830-1860” The Business History Review Vol. 60, No. 2 (Summer, 1986), pp. 258-280. I’m just wondering if there has been any research on the attitudes of 19th century jurists towards the transition to capitalism. Obviously there is Brian Young’s The Politics of Codification, but I was hoping there might be some secondary literature that deals with post-1866 developments in Quebec’s Civil Law system.

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