Chapter IV: Deceit (2)

Plaintiff, who was a shareholder in the company, received a prospectus issued by order of the directors, inviting subscription for debenture bonds. This prospectus contained the following statement as to the objects for which the issue of debentures was made:—

“1. To enable the society to complete the present alterations and additions to the buildings, and to purchase their own horses and vans, whereby a large saving will be effected in the cost of transport.

“2. To further develop the arrangements at present existing for the direct supply of cheap fish from the coast, which are still in their infancy.”

Plaintiff took debenture bonds to the amount of £1500; and testified that he relied, as one inducement, on the fact that the company wanted the money for the objects stated in the prospectus.

At the hearing before Denman, J., the plaintiff contended and offered evidence tending to show that the real object of the directors in issuing the debentures was to pay off pressing liabilities of the company, and not to complete the buildings or to purchase horses and vans, or to develop the business of the company.[319]

_Davey_, Q. C., _W. W. Karslake_, Q. C., and _J. Kaye_, for Fitzmaurice.

There was no misrepresentation of any fact, and the directors merely stated their intention as to the money, which of course they might alter. There is every difference between the two: Maddison _v._ Alderson, 8 App. Cases, 467. Unless it amounts to a contract, a mere statement that you will do something is of no effect: Jordan _v._ Money, 5 H. L. C. 185; and if it was a contract then it was with the company, and the directors cannot be sued: Ferguson _v._ Wilson, L. R. 2 Chan. 77.

_Sir F. Herschell_, in reply. An allegation of intention may be fraudulent: Ex parte Whittaker, L. R. 10 Chan. 446.

[Denman, J., delivered an elaborate opinion, substantially sustaining the plaintiff’s contention. He gave judgment against the directors.]

From this judgment, Fitzmaurice and the four other directors appealed.

BOWEN, L. J. [After stating the requisites of an action for deceit, and commenting upon other alleged misrepresentations.] But when we come to the third alleged misstatement I feel that the plaintiff’s case is made out. I mean the statement of the objects for which the money was to be raised. These were stated to be to complete the alterations and additions to the buildings, to purchase horses and vans, and to develop the supply of fish. A mere suggestion of possible purposes to which a portion of the money might be applied would not have formed a basis for an action of deceit. There must be a misstatement of an existing fact; but the state of a man’s mind is as much a fact as the state of his digestion. It is true that it is very difficult to prove what the state of a man’s mind at a particular time is, but if it can be ascertained it is as much a fact as anything else. A misrepresentation as to the state of a man’s mind is, therefore, a misstatement of fact. Having applied as careful consideration to the evidence as I could, I have reluctantly come to the conclusion that the true objects of the defendants in raising the money were not those stated in the circular. I will not go through the evidence, but looking only to the cross-examination of the defendants, I am satisfied that the objects for which the loan was wanted were misstated by the defendants, I will not say knowingly, but so recklessly as to be fraudulent in the eye of the law.

Then the question remains: Did this misstatement contribute to induce the plaintiff to advance his money. Mr. Davey’s argument has not convinced me that they did not. He contended that the plaintiff admits that he would not have taken the debentures unless he had thought they would give him a charge on the property, and therefore he was induced to take them by his own mistake, and the misstatement in the circular was not material. But such misstatement was material if it was actively present to his mind when he decided to advance his money. The real question is, what was the state of the plaintiff’s mind, and if his mind was disturbed by the misstatement of the defendants, and such disturbance was in part the cause of what he did, the mere fact of his also making a mistake himself could make no difference. It resolves itself into a mere question of fact. I have felt some difficulty about the pleadings, because in the statement of claim this point is not clearly put forward, and I had some doubt whether this contention as to the third misstatement was not an afterthought. But the balance of my judgment is weighed down by the probability of the case. What is the first question which a man asks when he advances money? It is, what is it wanted for? Therefore I think that the statement is material, and that the plaintiff would be unlike the rest of his race if he was not influenced by the statement of the objects for which the loan was required. The learned judge in the Court below came to the conclusion that the misstatement did influence him, and I think he came to a right conclusion.

_Appeal dismissed._[320]

GALLAGHER _v._ BRUNEL
SUPREME COURT, NEW YORK, AUGUST, 1826.
_Reported in 6 Cowen, 347._

On demurrer to the declaration. The first count stated, that on the 9th of April, 1823, Castro & Henriques proposed to purchase of the plaintiffs a quantity of cotton, at a certain price; part to be paid in cash, and part to be secured by the promissory note of the purchasers endorsed by the defendant, at four months; that C. & H. were then unable to pay for the cotton; and the plaintiffs therefore unwilling to sell all, or any part, on their sole credit; and the defendant knew this. Yet, contriving and intending to injure and defraud the plaintiffs; and to induce them to sell and deliver the cotton to C. & H.; and thereby subject the plaintiffs to the loss of the balance due after the cash payment, the defendant falsely and deceitfully represented and held out to the plaintiffs, that he, the defendant, was willing to endorse the proposed note; and with the like intent, &c., falsely, fraudulently, and deceitfully encouraged and induced the plaintiffs to sell and deliver the cotton. That they did sell and deliver it, in confidence of such false, fraudulent and deceitful representation, &c., when, in truth, the defendant was then not willing, and did not mean or intend to endorse the note, or make himself responsible; nor did he then, nor had he at any time since endorsed, or made himself legally responsible. By means whereof the plaintiffs lost the cotton and the price.

The second count averred, that C. & H. were in bad credit and unfit to be trusted, at the time of the sale. But the defendant, well knowing this; and contriving and intending to defraud and injure the plaintiffs, and wrongfully and deceitfully to enable C. & H. to obtain the possession of the cotton, and convert it to their own use, without paying the plaintiffs for it; falsely, fraudulently and deceitfully represented to the plaintiffs, and gave them to understand and believe, that, in case they would sell the cotton to C. & H., the defendant would become answerable to the plaintiffs, for so much as should be unpaid, by endorsing the note or notes of C. & H., &c.; that without such representation, they would not have sold the cotton, &c. (_In other respects, this count was substantially the same as the first._)

General demurrer and joinder.[321]

WOODWORTH, J.... The attempt here is, to sustain the action, not on a contract, which, if in writing, might perhaps be obligatory; but on a deceitful representation. If the promise was in writing, I perceive no objection to its validity, inasmuch as a good consideration is stated, viz., that if the plaintiffs would sell and deliver, the defendant would endorse. If, then, there is a binding contract existing between the parties, and on which the defendant is liable, I apprehend it is not competent for the plaintiffs to say they have an election to turn this into an action for deceit, and recover in that form, unless the case is such as to render the party liable, not only on the contract; but in addition, contains facts sufficient to sustain an action for deceit. For example, suppose A represents B to be solvent, knowing it to be false, whereby B obtains credit; but notwithstanding this representation, the seller takes from A his written stipulation to guaranty the payment. In this case, I perceive no objection to a creditor’s election of the remedy. The fraudulent representation of solvency would sustain the action for deceit. The written guaranty would support an action on the contract. It seems, therefore, immaterial here, whether the plaintiffs have or have not a demand which may be enforced in a different form. The question is, will the facts stated sustain an action for deceit?

After attentive consideration, I am inclined to think the plaintiffs are not entitled to recover. However reprehensible the conduct of the defendant may appear in a moral point of view, we cannot deny to him the protection of the common law; which does not reach cases of imperfect obligation. If this be an attempt on the part of the plaintiffs to get rid of the statute of frauds, I can only say, the occasion justified the experiment, and calls for a patient and critical examination.

If this case is stripped of the general allegations in the declaration, of fraud and deceit, it appears to me that the gravamen is nothing more than that the defendant encouraged the plaintiffs to sell to Castro and Henriques; and, as surety, promised to endorse their notes. The intention of the party not to fulfil, has not, I believe, ever been considered among the fraudulent acts, which, in judgment of law, render a party liable. The maker of a promissory note may not, at the time, intend to make payment. On this note, the plaintiff may declare that the defendant intended to deceive and defraud; but it is mere matter of form, sanctioned by precedent in pleading. The maker may go farther, and on the strength of assurances to pay punctually, never intended to be performed, induce the lender to part with his money, and accept the borrower’s note. All this is immoral. Still the remedy is on the contract. The law has not recognized it as the substantive ground of fraud. That no cases are to be met with in the books going the length contended for, is good evidence that the doctrine is novel, and has never been acted upon.

* * * * *

It is evident what must be the species of fraud, for which the law gives redress; falsehood as to an existing fact. If, as Buller, J., observes, every deceit includes a lie, it follows, that the representation, and promise of the defendant are not comprised within the legal acceptation of that term. The test of a lie is, that the fact asserted is not true at the time; which cannot be predicated of the facts in this case; for, although the defendant promised with the intent not to perform, it was not then false, nor could it be. It referred to an act to be done _in futuro_. Until the defendant had refused to endorse, it could not be said he had violated his promise.

* * * * *

_Judgment for defendant._[322]

SWIFT _v._ ROUNDS
SUPREME COURT, RHODE ISLAND, JULY 6, 1896.
_Reported in 19 Rhode Island Reports, 527._

Trespass on the Case for deceit. Certified from the Common Pleas Division on demurrer to the declaration.

TILLINGHAST, J. This is trespass on the case for deceit. The first count in the declaration alleges that the defendant, intending to deceive and defraud the plaintiffs, did buy of them on credit certain goods and chattels of the value of $400, the said defendant not then and there intending to pay for the same, but intending wickedly and fraudulently to cheat the plaintiffs out of the value of said goods and chattels, which said sum of $400 the defendant refuses to pay, to the plaintiffs’ damage, &c. The second count, after setting out the fraudulent conduct aforesaid, alleges that the defendant thereby then and there represented that he intended to pay for said goods, but that he did not then and there intend to pay for the same, but wickedly and fraudulently intended to cheat the plaintiffs out of the value of said goods and chattels, &c.

To this declaration the defendant has demurred, and for grounds of demurrer to the first count thereof, he says, (1) that the plaintiffs do not allege any false representation by the defendant; (2) that the plaintiffs do not allege that they have acted upon any false representation of the defendant; and (3) that the plaintiffs do not allege any damage suffered by them in acting upon any false representation of the defendant.

The grounds of demurrer to the second count are, (1) that the plaintiffs do not allege any false representation by the defendant as to any fact present or past, but only as to something that would happen in the future, which, if in the future it proved not to be true, would not be the subject matter of a false representation, but simply a promise broken, and therefore not a ground of an action of deceit; (2) that the plaintiffs do not allege that they acted upon any false representation made by the defendant; and (3) that the plaintiffs do not allege that they suffered any damage by acting upon any false representation made by the defendant to the plaintiffs.

We are inclined to the opinion, after some hesitation, that the declaration states a case of deceit. Any fraudulent misrepresentation or device whereby one person deceives another, who has no means of detecting the fraud, to his injury and damage, is a sufficient ground for an action of deceit. Deceit is a species of fraud, and consists of any false representation or contrivance whereby one person overreaches and misleads another, to his hurt. And, while the fraudulent misrepresentation relied upon usually consists of statements made as to material facts, either verbally or in writing, yet it may be made by conduct as well. Grinnell on Law of Deceit, p. 35. A man may not only deceive another, to his hurt, by deliberately asserting a falsehood, as, for instance, by stating that A. is an honest man when he knows him to be a rogue, or that a horse is sound and kind when he knows him to be unsound and vicious, but also by any act or demeanor which would naturally impress the mind of a careful man with a mistaken belief, and form the basis of some change of position by him. 1 Story, Eq. Jur. § 192. In Ex parte Whittaker, In re Shackleton, L. R. 10 Ch. 449, Mellish, L. J., says: “It is true, indeed, that a party must not make any misrepresentation, express or _implied_, and as at present advised I think Shackleton when he went for the goods must be taken to have made an implied representation that he intended to pay for them, and if it were clearly made out that at that time he did not intend to pay for them, I should consider that a case of fraudulent misrepresentation was shown.” See also Lobdell _v._ Baker, 1 Met. 201; 1 Benjamin on Sales, ed. of 1888, § 524.

In the case at bar, the declaration alleges that the defendant bought the goods in question upon credit, fraudulently intending not to pay for them but to cheat the plaintiffs out of the value thereof. By the act of buying the goods of the plaintiffs the defendant impliedly promised to pay for the same, which promise was equally as strong and binding as though it had been made in words, or even in writing. The plaintiffs had the right to rely on this promise, and to presume that it was made in good faith. It turns out, however, according to the allegations aforesaid, that it was not made in good faith, but, on the contrary, was made for the purpose of deceiving the plaintiffs into the act of parting with their goods, the defendant intending by the transaction to cheat them out of the value thereof. The fraud, then, consisted in the making of the promise, in the manner aforesaid, with intent not to perform it. By the act of purchasing the goods on credit, the defendant impliedly represented that he intended to pay for them. The plaintiffs relied on this representation, which was material and fraudulent, and were damaged thereby. All the necessary elements of fraud or deceit therefore were present in the transaction. See Upton _v._ Vail, 6 Johns. 181; Bartholomew _v._ Bentley, 15 Ohio, 666; Bishop, Non-Contract Law, §§ 314–318; Burrill _v._ Stevens, 73 Me. 400; Barney _v._ Dewey, 13 Johns. 226; Hubbel _v._ Meigs, 50 N. Y. 491. The general doctrine which controls this action is fully reviewed by Mr. Wallace in a note to Pasley _v._ Freeman, 2 Smith’s Lead. Cas. 101. As said by Bigelow on Fraud, page 484, “to profess an intent to do or not to do when a party intends the contrary, is as clear a case of misrepresentation and of fraud as could be made.” See also p. 466 as to what constitutes a representation. In Goodwin _v._ Horne, 60 N. H. 486, the court say: “Ordinarily false promises are not fraudulent, nor evidence of fraud, and only false representations of past or existing facts are actionable or can be made the ground of defence.... But when a promise is made with no intention of performance, and for the very purpose of accomplishing a fraud, it is a most apt and effectual means to that end, and the victim has a remedy by action or defence. Such are cases of concealed insolvency and purchases of goods with no intention to pay for them.” In Byrd _v._ Hall, 1 Abb. A. D. 286, it was held that, although a purchase of goods on credit by one who knows himself to be insolvent is not fraudulent, yet where it is made with a preconceived design not to pay, it is fraudulent. See also Milliken _v._ Miller, 12 R. I. 296; Thompson _v._ Rose, 16 Conn. 81; Hennequin _v._ Naylor, 24 N. Y. 129; Devoe _v._ Brandt, 53 N. Y. 465; Story on Sales, 2d ed. § 176, and cases in note 2; Douthitt _v._ Applegate, 33 Kans. 395; Morrill _v._ Blackman, 42 Conn. 324; Skinner _v._ Flint, 105 Mass. 528; Earl of Bristol _v._ Wilsmore, 2 Dow. & Ry. 760; Lobdell _v._ Baker, 1 Met. 193; Cooley on Torts, 2d ed. 559; Load _v._ Green, 15 M. & W. 215. In short, the making of one state of things to appear, to those with whom you deal, to be the true state of things, while you are acting on the knowledge of a different state of things—among the oldest definitions of fraud in contracts—is exemplified in this case. See Lee _v._ Jones, 17 C. B. N. S. 494. The defendant made it to appear, by the act of buying on credit, that he intended to pay for the goods in question, while in fact he intended to cheat the plaintiffs out of them. And to hold that such a transaction does not amount to fraud, would be to make it easy for cheats and swindlers to escape the just consequence of their unrighteous acts.

We have hesitated somewhat in arriving at the conclusion that an action of deceit will lie, upon the facts set out in the declaration, for the reason that, amongst the numerous cases of fraud and deceit to be found in the books, we have not been referred to any, nor have we been able to find any, where the action of deceit was based simply on the act of buying goods on credit, intending not to pay for them. In Lyons _v._ Briggs, 14 R. I. 224, which was an action of deceit, Durfee, C. J., intimates, however, that deceit would lie in a case like the one before us, by the use of the following language: “It is not alleged that the buyer did not intend to pay when he bought, but only that he falsely and fraudulently asserted that he could be safely trusted.” But the authorities are overwhelming to the effect that it is fraud to purchase goods intending not to pay for them, and that the vendor, upon discovering the fraud, may repudiate the sale and reclaim the property, or may sue in trover, or in some other action of tort, for the damages sustained by the fraud. And this being so, we fail to see why an action of deceit, which is an action of tort, based on fraud, may not lie as well. For to obtain goods on credit, intending not to pay for them, is as much a trick or device as it would be falsely to represent in words any material fact whereby the vendor should be induced to part therewith.

But defendant’s counsel contends that the alleged representation was not as to any fact present or past, but merely as to what the defendant would do in the future with reference to paying for the goods, and that to say what one intends to do is identical to saying what one will do in the future, which amounts simply to a promise; and, furthermore, that a representation of what will happen in the future, even if not realized, is not such a representation as will support this action. We do not assent to this method of reasoning. The state of a man’s mind at a given time is as much a fact as is the state of his digestion. Intention is a fact; Clift _v._ White, 12 N. Y. 538; hence a witness may be asked with what intent he did a given act. Seymour _v._ Wilson, 14 N. Y. 567. A man who buys and obtains possession of goods on credit, intending not to pay for them, is then and there guilty of fraud. The wrong is fully completed and no longer exists in intention merely, and a cause of action instantly accrues thereon in favor of the vendor to recover for the wrong and injury sustained. It is true the purchaser may afterwards repent of the wrong and pay for the goods, and the vendor may never know of the wrongful intent. But this does not alter the case at all as to the original wrong and the liability incurred thereby. Of course a mere intention to commit a crime or to do a wrong is no offence. But when the intention is coupled with the doing or accomplishment of the act intended, that moment the wrong is perpetrated and the corresponding liability incurred. See Oswego Starch Factory _v._ Lendrum, 57 Iowa, 573.

In Stewart _v._ Emerson, 52 N. H. 301, where it was alleged, in reply to the defendant’s plea of discharge in bankruptcy, that the debt in question was created by the fraud of the defendant, Doe, J., in the course of a long and vigorous opinion, used the following language, which is so apt and pertinent that we quote it. He said: “When the intent not to pay is concealed, the intent to defraud is acted out. The mere omission of A. to disclose his insolvency might not be satisfactory proof of a fraudulent intent in all cases. He might expect to become solvent. He might intend to pay all his creditors. He might intend to pay B. though unable to pay others. His fixed purpose _never_ to pay B. is a very different thing from his present inability to pay all or any of his creditors. A man may buy goods, with time for trying to pay for them, on the strength of his known or inferred disposition to pay his debts, his habits, character, business capacity, and financial prospects, without his present solvency being thought of, and even when his present insolvency is known to the vendor. But who could obtain goods on credit, with an unconcealed determination that they should never be paid for? The concealment of such a determination is conduct which reasonably involves a false representation of an existing fact, is not less material than a misrepresentation of ability to pay (Bradley _v._ Obear, 10 N. H. 477), and is an actual artifice, intended and fitted to deceive.”

“An application for or acceptance of credit, by a purchaser, is a representation of the existence of an intent to pay at a future time, and a representation of the non-existence of an intent not to pay. What principle of law requires a false and fraudulent representation to be express, or forbids it to be fairly inferred from the act of purchase? A representation of a material fact, implied from the act of purchase, and inducing the owner of goods to sell them, is as effective for the vendee’s purpose as if it had been previously and expressly made. If it is false, and known to the pretended purchaser to be false, and is intended and used by him as a means of converting another’s goods to his own use without compensation, under the false pretence of a purchase, why does it not render such a purchase fraudulent? When the intent is to pay, it is necessarily understood by both parties, and need not be expressly represented as existing. When the intent is not to pay, it is of course concealed. Whether the deceit is called a false and fraudulent representation of the existence of an intent to pay, or a fraudulent concealment of the existence of an intent not to pay, the fraud described is, in fact, one and the same fraud.”

Demurrer overruled, and case remitted to the Common Pleas Division for further proceedings.[323]

PETERS, J., IN BURRILL _v._ STEVENS
(1882) _73 Maine, 395, 398–400._

The instructions to the jury upon that point present the question,
whether getting property by a purchase upon credit, with an intention
of the purchaser never to pay for the same, constitutes such a fraud
as will entitle the seller to avoid the sale, although there are no
fraudulent misrepresentations or false pretences.

The question has never been fairly before this Court before this time,
so as to require a deliberate decision. The plaintiff contends that
the question was settled in the negative in the case of Long _v._
Woodman, 58 Maine, 49. But that case falls short of meeting the
question presented in the present case. The gist of the charge against
the purchaser in that case seems to have been that he fraudulently
refused to do after the contract what he agreed to do at the time of
the contract, the alleged fraud being an intention formed after the
contract rather than contemporaneously with it; and that was an action
of deceit based upon a broken promise to convey real estate. Of late
years, _nisi prius_ rulings in our own Courts have frequently been in
accordance with the law as delivered to the jury by the presiding
judge in the case at bar, and we think the doctrine may safely be
accepted and approved, both upon authority and principle.

It is the admitted doctrine of the English cases, and is sustained by
most of the courts in the United States. In Benj. on Sales (2d Amer.
ed.), § 440, note e, very numerous cases are cited to the proposition.
Stewart _v._ Emerson, 52 N. H. 301, discusses the question at length,
and reviews many authorities.

The plaintiff relies upon the objection that it is not an indictable
fraud, an argument which seems to have inclined the Pennsylvania Court
against admitting the principle into the jurisprudence of that State.
Smith _v._ Smith, 21 Pa. St. 367; Backentoss _v._ Speicher, 31 Pa. St.
324. It has been held by some Courts to be an indictable cheat, the
false pretence being in the vendee’s pretendingly making a purchase,
while his only purpose is to cheat the vendor out of his goods. It is
more often considered, however, as not a matter for indictment. Bish.
Crim. Law, § 419. But the objection taken by the plaintiff has
generally been considered as insufficient to override the rule.

But the doctrine governing the case before us should not be
misunderstood. To constitute the fraud, there must be a preconceived
design never to pay for the goods. A mere intent not to pay for the
goods when the debt becomes due, is not enough; that falls short of
the idea. A design not to pay according to the contract is not
equivalent to an intention never to pay for the goods, and does not
amount to an intention to defraud the seller outright, although it may
be evidence of such a contemplated fraud.

Nor is it enough to constitute the fraud that the buyer is insolvent,
and knows himself to be so, at the time of the purchase, and conceals
the fact from the seller, and has not reasonable expectations that he
can ever pay the debt.[324] Some Courts have gone so far as to
denominate that a fraud which will avoid the sale. And it may have
been so held in bankruptcy Courts, in some instances, as between a
vendor and the assignee of the vendee. But it would not, generally, be
enough to prove the fraud. The inquiry is not whether the vendee had
reasonable grounds to believe he could pay the debt at some time and
in some way, but whether he intended in point of fact not to pay it.

Nor is it enough that after the purchase the vendee conceives a design
and forms a purpose not to pay for the goods, and successfully avoids
paying for them. The only intent that renders the sale fraudulent is a
positive and predetermined intention, entertained and acted upon at
the time of going through the forms of an apparent sale, never to pay
for the goods. Cross _v._ Peters, 1 Greenl. 378; Biggs _v._ Barry, 2
Curtis, (C. C. R.) 259; Parker _v._ Byrnes, 1 Low. 539; Rowley _v._
Bigelow, 12 Pick. 306.

RIDDICK, J., IN BUGG _v._ WERTHEIMER-SCHWARTZ SHOE COMPANY
(1897) _64 Arkansas, 12, 17, 18._

Nor can we sustain the contention of appellant that to entitle the
vendor to avoid a sale after delivery it must in all cases be shown
that the vendee did not intend to pay for the goods. That is, as above
stated, one ground on which the sale may be avoided, but not the only
one. If the vendee knowingly makes false representations concerning
material facts, and thus induces the seller to part with his goods,
the seller may elect to avoid the sale, and this without regard to
whether the buyer intended to pay for the goods or not. The fraud in
such a case consists in inducing the vendor to part with his goods by
false statements of the buyer, known to be false when made, or made by
him when he has no reasonable ground to believe that they are true. If
a vendor parts with his goods on the faith of such false statements
made by the buyer, it would be strange if the law permitted the buyer
to reap the fruits of such conduct, and retain the goods against the
will of the vendor. To illustrate, let us suppose a case. A man with
no property, but with great faith in his ability as a merchant, goes
to a city and calls on a wholesale merchant for the purpose of buying
a stock of goods. He believes that if he can obtain a stock of goods,
his experience and ability will soon enable him to pay off the
purchase price, but, fearing that the merchant may refuse to sell if
he learns that he has no property, he thereupon, for the purpose of
obtaining the goods, states to the merchant that he has money in the
bank, and owns a large amount of both real and personal property. The
merchant, ignorant of the facts, and relying on the truth of these
statements, parts with his goods. He afterwards discovers the fraud,
and brings an action to recover the goods. In such a case would it be
a valid defence for the buyer to say that, although he had secured the
goods by misrepresentation, yet he did honestly intend to pay for
them? Clearly it would not. The courts would answer such a question
substantially as it was answered by the Supreme Court of Connecticut
when it said that the intent of the buyer to pay “may have lessened
the moral turpitude of his act, but it will not suffice to antidote
and neutralize an intentionally false statement which had accomplished
its object of benefiting himself and of misleading the plaintiffs to
their injury.” Judd _v._ Weber, 55 Conn. 267; Reid _v._ Cowduroy, 79
Iowa, 169; S. C. 18 Am. St. Rep. 359, and note; Strayhorn _v._ Giles,
22 Ark. 517.

McCOMB _v._ BREWER LUMBER COMPANY
SUPREME JUDICIAL COURT, MASSACHUSETTS, OCTOBER 21, 1903.
_Reported in 184 Massachusetts Reports, 276._

The third count in the declaration is tort for deceit in the sale of certain stock by the defendant to the plaintiff.

The allegations, so far as material here, are in substance as follows:—

Plaintiff says that the defendant, by its agent, with intent to deceive and defraud the plaintiff, falsely and fraudulently represented to him [here specifying certain representations], and that, if the plaintiff would purchase a certain number of shares of stock in the defendant corporation and pay therefor the sum of $9000, ... the $9000 paid by the plaintiff should be put in the treasury of said corporation to be used as a working capital. And plaintiff says that, relying upon the representations, he bought the shares and paid therefor $9000; and plaintiff says that said representations were false and untrue to the knowledge of the defendant in this: [specifying certain particulars], and the $9000 paid by plaintiff was not put in its treasury and used as working capital, but was, with the approval of the defendant, its directors and manager, used for other purposes than the business of the defendant.

Verdict for plaintiff for $1.00 damages. Plaintiff alleged exceptions as to the ruling at the trial in reference to this count.[325]

HAMMOND, J.... The exceptions relate only to the third count, and since the verdict was for the plaintiff on this, they are material only so far as they respect the question of damages. The principal difference between the instructions given by the judge and those requested by the plaintiff is that the judge declined to permit the jury to consider the allegation with reference to the promised use of the $9000 paid by the plaintiff for the stock. As to this it is contended by the plaintiff that at the time the defendant promised to use the money as working capital it did not intend to keep the promise, and that a representation of a present intention is a representation of an existing fact and therefore may be false and fraudulent. But, without implying that the plaintiff’s contention would be true under any circumstances, the difficulty with his case is that the question is not raised upon the record. The ruling that the jury should not consider the allegation with reference to the promised use of the money appears to have been made with reference to the third count, and, as applied to that, it was correct. An examination of the count will show that it does not contain any allegation that at the time the defendant said that the money should be used for working capital it had not the intention to perform that promise. It first sets out the representations which induced the plaintiff to purchase the stock, then proceeds to state in what respects they were false and fraudulent and the defendant’s knowledge of the falsity, and then follows the only allegation respecting the representation as to the promised use of the money: “And the nine thousand dollars paid by the plaintiff to the defendant was not put in its treasury and used as working capital, but was, with the approval of the defendant, its directors and manager, used for other purposes than the business of the defendant.” This is an allegation that the defendant failed to carry out its promise, and falls far short of an allegation that the defendant at the time it was made did not intend to carry it out. There is no allegation whatever as to the intent of the defendant at the time the promise was made. Indeed it is difficult to read that count, either by itself or in connection with the other counts, without feeling that the pleader studiously avoided alleging anything as to that intent. While the evidence as to the promised use and the actual use of this money may have been admissible upon the second count, the object of which was to recover damages for breach of the promise, it was not material upon the third count, even upon the question of damages, for the reasons above stated.

* * * * *

_Exceptions overruled._[326]

DORR _v._ CORY
SUPREME COURT, IOWA, APRIL 5, 1899.
_Reported in 108 Iowa Reports, 725._

Appeal from Polk District Court.

Action at law on contracts in writing for the purchase of interests in real estate. Answer alleges (_inter alia_) that the contracts were obtained by fraud.

Verdict for plaintiff, and judgment.

ROBINSON, C. J.[327] ... The only statement purporting to be of fact which is shown to have been false is that relating to the cost of the land. Would that statement have authorized the jury to find for the defendant? It was said in Hemmer _v._ Cooper, 8 Allen, 334, that “the representations of a vendor of real estate, to the vendee, as to the price he paid for it, are to be regarded in the same light as representations respecting its value. A purchaser ought not to rely upon them; for it is settled that even when they are false, and uttered with a view to deceive, they furnish no ground of action.” That rule was followed in Cooper _v._ Lovering, 106 Mass. 77, and it is the rule of Tuck _v._ Downing, 76 Ill. 71, and Banta _v._ Palmer, 47 Ill. 99. In Holbrook _v._ Connor, 60 Me. 578, it was said: “The statement of the vendor that he paid a certain price for the land, if true, can be no more than an indication of his opinion of its value; and when we consider the various motives which may, and often do, actuate men in making their purchases, and especially when it is done for speculation, it is but the slightest proof of such opinion.” As a general rule, a vendee has no right to rely upon the statements of the vendor respecting the value of the property sold, but must act upon his own judgment, or seek information for himself. But to that rule there are exceptions. It was said in Simar _v._ Canaday, 53 N. Y. 306, that where statements as to the value are mere matter of opinion and belief, no liability is created by uttering them, but that such statements “may be, under certain circumstances, affirmations of fact. When known to the utterer to be untrue, if made with the intention of misleading the vendee, if he does rely upon them, and is misled to his injury, they void the contract.” The fraud which vitiates a contract must be material, affecting the very essence of the contract; but ordinarily, “if the fraud be such that, had it not been practiced, the contract would not have been made, then it is material to it.” 2 Parsons, Contract, 770. See, also, 2 Pomeroy Equity Jurisprudence, section 878, and notes. That rule was applied in Smith _v._ Countryman, 30 N. Y. 656, which was an action upon a contract for the sale of hops. It was held that a false representation made by the vendee as to the price at which he had purchased hops of another person, which was relied upon by the vendor, and induced him to enter into the contract of sale, was material, and constituted a defence to an action on the contract. This rule appears to us to be in harmony with reason and the principles of justice. The price at which property actually sells in the open market is very satisfactory evidence of its value at the time of the sale. We cannot assent to the proposition that the statement of a vendor that he paid a specified price for the property he sells is a mere expression of opinion, upon which the purchaser has no right to rely. On the contrary, we think it is a statement of fact; and if the purchaser, without knowing or having reason to know what price was paid, relies upon the false statement, to his injury, he is entitled to relief. The cases of Teachout _v._ Van Hoesen, 76 Iowa, 113; Iler _v._ Griswold, 83 Iowa, 442, and Coles _v._ Kennedy, 81 Iowa, 360, although not precisely in point, tend to sustain our conclusion. See French _v._ Ryan, 104 Mich. 625 (62 N. W. Rep. 1016); Moon _v._ McKinstry, 107 Mich. 668 (65 N. W. Rep. 546), and Woolen Co. _v._ Smalley, 111 Mich. 321 (69 N. W. Rep. 722).

* * * * *

_Judgment reversed._[328]

DEMING _v._ DARLING
SUPREME JUDICIAL COURT, MASSACHUSETTS, FEBRUARY 27, 1889.
_Reported in 148 Massachusetts Reports, 504._

HOLMES, J. This is an action for fraudulent representations alleged to have been made to one Dr. Jordan, the plaintiff’s agent, for the purpose of inducing the plaintiff to purchase a railroad bond from the defendant....[329]

Among the representations relied on, one was that the railroad mortgaged, which was situated in Ohio, was good security for the bonds; and another was that the bond was of the very best and safest, and was an A No. 1 bond. With regard to these and the like, the defendant asked the Court to instruct the jury “that no representations which the defendant might have made or did make to Dr. Jordan in relation to the value of the bond in question, or of the railroad, its terminals, and other property which were mortgaged to secure it, with other bonds, even though false, were representations upon which Dr. Jordan ought to have relied, and are not sufficient to furnish any grounds for this action;” and also, “that each of the expressions ‘and that the same’ (meaning said railroad and all the property covered by the mortgage) ‘was good security for said bonds,’ ‘that said bond was of the very best and safest, and was an A No. 1 bond,’ are expressions of opinion of value, and even though false, are not such representations as Dr. Jordan had a right to rely upon, and are not enough to furnish any grounds for this action.”

The Court declined to give these instructions, and instead instructed the jury that “an expression of opinion, judgment, or estimate, or a statement of a promissory nature relating to what would be in the future, so far as they were expressions of opinion, if made in good faith, however strong as expressions of belief, would not support an action of deceit.”

It will be seen that the fundamental difference between the instructions given and those asked is that the former require good faith. The language of some cases certainly seems to suggest that bad faith might make a seller liable for what are known as seller’s statements, apart from any other conduct by which the buyer is fraudulently induced to forbear inquiries. Pike _v._ Fay, 101 Mass. 134. But this is a mistake. It is settled that the law does not exact good faith from a seller in those vague commendations of his wares which manifestly are open to difference of opinion, which do not imply untrue assertions concerning matters of direct observation (Teague _v._ Irwin, 127 Mass. 217), and as to which it always has been “understood, the world over, that such statements are to be distrusted.” Brown _v._ Castles, 11 Cush. 348, 350; Gordon _v._ Parmelee, 2 Allen, 212; Parker _v._ Moulton, 114 Mass. 99; Poland _v._ Brownell, 131 Mass. 138, 142; Burns _v._ Lane, 138 Mass. 350, 356. Parker _v._ Moulton also shows that the rule is not changed by the mere fact that the property is at a distance, and is not seen by the buyer. Moreover, in this case, market prices at least were easily accessible to the plaintiff.

The defendant was known by the plaintiff’s agent to stand in the position of a seller. If he went no further than to say that the bond was an A No. 1 bond, which we understand to mean simply that it was a first rate bond, or that the railroad was good security for the bonds, we are constrained to hold that he is not liable under the circumstances of this case, even if he made the statement in bad faith. See, further, Veasey _v._ Doton, 3 Allen, 380; Belcher _v._ Costello, 122 Mass. 189. The rule of law is hardly to be regretted, when it is considered how easily and insensibly words of hope or expectation are converted by an interested memory into statements of quality and value when the expectation has been disappointed.

* * * * *

_Exceptions sustained._[330]

ANDREWS _v._ JACKSON
SUPREME JUDICIAL COURT, MASSACHUSETTS, MAY 18, 1897.
_Reported in 168 Massachusetts Reports, 266._

Tort for deceit. The declaration alleged that the plaintiff sold and conveyed to the defendant certain real estate situate in Medford “for the sum of nineteen hundred dollars, and received in payment thereof fourteen hundred dollars in cash and four certain promissory notes all signed by one H. Joseph, amounting together to the sum of six hundred and fourteen hundredths dollars; that the defendant, to induce the plaintiff to convey said real estate to him, falsely represented to the plaintiff that the maker of said notes was a man of property, and that said notes were as ‘good as gold’; that your plaintiff, believing said representations to be true, was thereby induced to convey said real estate to the defendant; that said representations were false and were known to the defendant to be false, and by reason thereof the plaintiff suffered great damage.”

Trial in the Superior Court, without a jury, before Hammond, J., who found for the plaintiff; and the defendant alleged exceptions, the nature of which appears in the opinion.

The case was submitted on briefs to all the justices.

KNOWLTON, J. The principal question in this case is whether there was any evidence to warrant a finding that the false representations made by the defendant in regard to the notes were actionable. This finding is in these words: “I find that the defendant represented these notes to be as good as gold, and that that representation was intended by him and understood by the plaintiff, not to be an expression of opinion, but a statement of a fact of his own knowledge. I find that the notes were worthless.” It is contended by the defendant that such a representation is necessarily, and as a matter of law, a mere expression of opinion, for which, however wilfully false, and however damaging in the reliance placed upon it, no action can be maintained.

It is true that such a representation may be, and often is, a mere expression of opinion. But we think that it may be made under such circumstances and in such a way as properly to be understood as a statement of fact upon which one may well rely.

In Stubbs _v._ Johnson, 127 Mass. 219, one of the representations in regard to a note was that it was “as good as gold,” and the jury were instructed that, if this was intended as a representation of the financial ability of the maker of the note, it was a statement of a material fact, for which the defendant was liable. This instruction was held erroneous “because a representation as to a man’s financial ability to pay a debt may be made either as a matter of opinion, or as a matter of fact; the subject of the statement does not necessarily determine which it is.... It is often impossible,” says Mr. Justice Colt further in the opinion, “to determine, as matter of law, whether a statement is a representation of a fact, which the defendant intended should be understood as true of his own knowledge, or an expression of opinion. That will depend upon the nature of the representation, the meaning of the language used, as applied to the subject matter, and as interpreted by the surrounding circumstances, in each case. The question is generally to be submitted to the jury.” The opinion plainly implies that, if the jury had been left to determine whether there was a representation of the maker’s financial ability to pay made as matter of fact and not as mere matter of opinion, they might have found against the defendant on his false representation that the note was “as good as gold.” In Belcher _v._ Costello, 122 Mass. 189, there is also a strong intimation that the rule is as above stated. In Safford _v._ Grout, 120 Mass. 20, the representation set out in the declaration was that the maker of the note “was a person of ample means and ability to pay said note, and that the note was good.” The plaintiff was allowed to recover. The court says of the representations, “We must presume that they were legally sufficient to support the action; that is to say, that they were statements of facts susceptible of knowledge, as distinguished from matters of mere opinion or belief.” See also Morse _v._ Shaw, 124 Mass. 59; Teague _v._ Irwin, 127 Mass. 217.

In two recent cases, Way _v._ Ryther, 165 Mass. 226, and Kilgore _v._ Bruce, 166 Mass. 136, 138, this court has expressed a disinclination to extend the rule which permits dealers to indulge with impunity in false representations of opinion.

In the case now before us the notes were turned over to the plaintiff in part payment of the agreed price for land sold to the defendant. He professed to know, and probably did know, all about the financial standing of the maker of them, who lived in Boston. The plaintiff lived in a suburban town and knew nothing of the maker. She was obliged to take the defendant’s representations or to decline to deal with him until she could go to Boston and make an investigation for herself.[331] He told her that he had lent money to the maker, and said, “Do you suppose I would lend my money to any one that was not good?”

A representation that a note is as good as gold may be founded on absolute personal knowledge of the validity of the note, and upon an equally certain knowledge of the maker’s financial ability. The known facts upon which financial ability depends may be so clear and cogent as to make the consequent conclusion, which ordinarily would be a mere matter of opinion, a matter of moral certainty which can properly be called knowledge. We cannot say, as matter of law, that this representation was not intended to be, and properly understood to be, a representation of facts within the defendant’s knowledge.

The case of Deming _v._ Darling, 148 Mass. 504, differs materially from this at bar. The property to which the representation related was one of many mortgage bonds issued by a railroad company, of which, in the language of the opinion, the “market prices at least were easily accessible to the plaintiff.” The representations which were held to be insufficient on which to found an action were “in relation to the value of the bond in question, or of the railroad, its terminals, and other property which were mortgaged to secure it.” The value of articles sold in market, and especially of railroad property and of railroad bonds payable in the distant future, is ordinarily only a matter of opinion. A statement of the value of such property is very different from a statement that a promissory note which is almost due is known to be valid, and that the maker of it is a person of such known integrity and financial ability that his promise to pay is as good as that of the state or nation. A statement that a note is as good as gold may be intended to represent facts of this kind.

* * * * *

_Exceptions overruled._[332]

WILLIAMS _v._ STATE
SUPREME COURT, OHIO, FEBRUARY 11, 1908.
_Reported in 77 Ohio State Reports, 468._

Error to the Circuit Court of Montgomery County.