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Wis. 234, 97 N. W. 932 ; Standard Mfg. Co. v. Slot, 121 Wis. 14, 98
N. W. 923.

It is often said that it is sufficient as to the element of fraud in
an action for damages on the ground of fraud., that the wrong-doer

"• Accord: ConncU V. El Paso Mining Co., 33 Colo. 30 (1904) : Kirkpat-
rick V. Reeves. 121 Ind. 280 (1889) : Nczv v. Jackson. 95 N. E. 328 (Ct. of
App. Ind. 1911) : Cole v. Cassidx. 138 Mass. 437 (1885) ; Rozvell v. Chase. 61
N. H. 135 (1881) ; but see Spead v. Tomlinson, 73 N. H. 46 (1904), p. 61. and
Shackett v. Bickford. 74 X. H. 57 (l906) ; McCord-Collins Commerce Co. v.
Levi, 21 Tex. Civ. App. 109 ( 1899) ; Cetzhausen. v. Simon. A7 \Vis. 103 (1879) ;
Lehigh Zin^r & Iron Co. v. Bam ford. 150 U. S. 665 (1893) ; Lvnc'i v. Mercan-
tile Trust Co.. 18 Fed. 486 (1883). By Section 4026 of the Georgia Civil Code,
"a misrepresentation of a material fact, though by mistake and innoccntiyi
made, if acted upon bv the opposite party constitutes 'legal fraud'," Walter sk
V. Eaves, 105 Ga. 584 (1899). -^


"knew or ought to have known" of the falsity of his representation.
That is somewhat misleading. The element of "ought to have
known" has reference merely to the idea that no one should make,
in contractual negotiations, representations of fact to induce another
to act so that the injury might result to him in case of the repre-
sentations being untrue, unless he knows whereof he speaks. So
he is in law held as an indemniter for the damages caused by his
conduct, regardless of whether he knew, or in the exercise of ordi-
nary care might have known, the truth of the matter. The duty to
know in such a case is positive ; nothing can excuse it.


Court of Civil Appeals of Texas. 117 5". W. 1034 (1909).

Willson, C. J. The action was for damages. The petition al-
leged : That appellant Kirkham was the owner of certain gin prop-
erty ; that one Donahoe and appellants Wimple and Ewing, as part-
ners, were real estate agents ; and that they, as such partners, au-
thorized by appellant Kirkham to do so, and acting for him and
with him, by false representations as to the condition, etc., of the
property made to appellee, induced him to purchase same. The ap-
peal is by Wimple, Ewing and Kirkham from a judgment in favor
of appellee against them and said Donahoe for the sum of $700, and
against the appellant Kirkham for the further sum of $231.80.

The court instructed the jury to find for appellee if they be-
lieved from the evidence that any two or more of the appellants
acting together, with a design to induce appellee to purchase the
property, made the representations as to its condition complained
of, that such representations so made were false, and that, relying
upon the truthfulness thereof, appellee was induced to make the
purchase and thereby was damaged, although they might further
"believe from the evidence that said representations, if any, were
made in good faith, and the party making them believed that they
were true." It appears from the record that the representations in
question were not made by Kirkham in person, but by the real estate
brokers, as his agents, for the purpose of selling the property. Gen-
erally speaking, it may be said that for material and false repre-
sentations made by his agent, as fully as for such representations
made by himself in person, the principal is responsible, if he au-
thorized the agent to make them, or if they were made by the agent
in the course of his employment as such. When so made by the
agent, such representations are to be treated as the representations
of the principal, and whether the principal, if he made such repre-
sentations, or his agent, if he made them, knew them to be false, or
made them innocently, believing them to be. true, is of no importance
, in determining the liability of the former for damages actually suf-
|fered, where the representations were intended to induce, and did
induce, a buyer to purchase property he otherwise would not have


purchased of the principal. In such a case, if the representations
were fraiukilently made, the habiHty of the principal need not be
rested upon the tort, but may be referred to the contract for,
whether made innocently or deceitfully, such representations as
against the seller operate as a warranty. Lopcr v. Robinson, 54
Tex. 510; Rhoda v. Annis, 75 Maine 17, 46 Am. Rep. 354; 30 Am.
oc Eng. Ency. Law (2d Ed.) p. 136; 14 Am. & Eng. Ency. Law
(2d Ed.) pp. 87, 156. They do not so operate as against the agent,
when he avowedly acts, not for himself, but for one known by the
purchaser to be his principal. The contract in such a case is not
the contract of the agent. He does not, merely because he may
have negotiated it, become liable as a party to it. He is not in the
position of having warranted the truth of the representations made
by him to induce, and which do not induce to his hurt, the purchaser
to contract, not with him, but with his principal. If, under the cir-
cumstances stated, the agent becomes liable to the purchaser for
damages suffered by him, it is by force of other principles of law
than those which measure and fix the rights of parties to a contract.
His liability, under such circumstances, must be measured by the
law of torts. For his fraudulent acts he is responsible to the buyer.
He is not liable on the contract negotiated by him for his -principal,
but he is liable for his own fraud and deceit practiced on the pur-
chaser to induce him to enter into the contract. If the fraud or de-
ceit charged consists of false representations as to material facts
made to the purchaser, to show a liability on the part of the agent
it must be made to appear that he made such representations know-
ing them to be false, or, as stated by a writer in 20 Cyc. 24, that
he made them "as a positive assertion calculated to convey the im-
pression that he had actual knowledge of their truth, when in fact
he was conscious that he had no such knowledge." It follows, from
the principles stated, that when the agent, so acting w'ithin the scope
of his employment as to bind his principal, honestly believes repre-
sentations made by him to induce the purchaser to contract with his
principal to be true, he is not liable either on the contract or as for
a tort. It also follows that the portion quoted of the charge com-
plained of, in so far as it authorized a recovery against appellants
Wimple and Ewing, notwithstanding they may have made the rep-
resentations set out in appellee's petition in good faith, believing
them to be true, and as well other portions of said charge, in so far
as the distinction we have pointed out was ignored, were erroneous.

f Supreme Court of Errors, 71 Conn. 1 (1898).

Baldwm, J., p. 18, the defendants requested the court to in-
struct the jury that "fraud consists of derpptinn intentiona lly prac-
ticed to induce another to part with property or to surrenTIer some
legal right, and which accomplishes the end designed."

This instruction was given, except that the word "intentionally"


was omitted. The omission was proper under the circumstances
of the case. The action was for false representations made to de-
fraud the plaintiff; and the defendant, in other requests, had ad-
mitted, and the jury accordingly were instructed, that it was enough
to support it to show that they were made either knowingly or reck-
lessly, with an intent to deceive, or under a belief of their truth, for
which there was no reasonable ground, and with intent to induce
the plaintiff to act upon them. Deception accomplished by false
statements is not excused by a groundless belief in their truth on the
part of another, from which loss naturally results.^

"■Accord: Mattingly v. Russell, IS Ky. L. R. 875 (1894) ; Pieratt v. Young,
20 Ky. L. 1815 (1899) ; Trimble v. Reid, 97 Ky. 713 (1895) ; Paretti v. Rehen-
ack, 81 Mo. App. 494 (1899) ; but see People's Bank v. Central Trust Co., 179
:Mo. 648 (1904) ; Einstein, Hirsch & Co. v. Marsh<ill & Conley, 58 Ala. 153
(1877), but only where the defendant is not the vendor or interested in the
contract induced by his statements or otherwise benefited by the plaintiff's
reliance thereon. The South Dakota Civil Code, pp. 1201 (2), declares "the
positive assertion in a manner not warranted by the information of the party
making it, of that which is not true, though he believes it to be true" to be
'■actual fraud," McCabe v. Desnoyers, 20 S. Dak. 581 (1906) : and statutes to
the same effect are in force in Oklahoma, Garvin v. Harrell, 27 Okla. Z7^
(1910). I ft Cun ningham V. C. R^^ P xP-':^' JlnUSP^Urnrshinrj Co., 74 N. H. 435
(1908), it was ^ijld L - hat - ^4 TttT"anaction of deceit lies only upon proof of
the defendant's knowledge of the falsity of his statement or of his conscious
ignorance of its truth, an action on the case for negligence might be main-
tained for damage resulting from the plaintiff's reliance on statements which
reasonable care on defendant's part would have shown him to be false;
though in the latter action contributory negligence would be a defense and
plaintiff must show that a reasonably careful man could not have made such
statements. Here the plaintiff was injured by an explosion of stove blacking
which defendant's salesman had stated to be safe to apply to a hot stove.

In Watson v. Jones, 41 Fla. 241 (1899), it was held that a mortgagor was
bound to know of the existence of an encumbrance upon property upon which
he had induced the plaintiff to lend money on mortgage by representing it to
be free of encumbrances. Carter J., saying, p. 255, "where the defendant's
situation or means of knowledge" are "such as to make it incumbent upon
him to know whether the statement is true or false, the conclusion is almost
irresistable that he did know that which his duty required him to know" and
"the law conclusively presumes * * * that the defendant had actual
knowledge, dispensing with further proof upon the subject, and admittingno
proof to rebut the fact of actual knowledge, but only proof to rebut the exist-
ence of the facts from which such actual knowledge is referred."

As to the duty of the president or director of a bank to know its financial
condition, see Seah v. Baker, 70 Tex. 283 (1888). holding that such is his
dutv; but see Polhemus v. Polhemus. 114 App. Div. (N. Y.) 781 (1906);
Cowley V. Smvfh, 46 N. J. L. 380 (1884) ; and Bell v. James, 112 N. Y.S. 750
(1908). Tn Kentucky a distinction is drawn between a director who is only
prima facie presumed to know the condition of his bank and the president
who is conclusively presumed to know it; Ward v. Trimble, 103 Ky. 153
(1898). See also. Baddy v. Henry, 113 Iowa 462 (1901), in which it is held
that a seller owed no duty to the purchaser to know the condition of a corpo-
ration whose stock he is selling because he is a director thereof, whatever
might be his duty as director to one subscribing to stock in the company or
otherwise dealing with it.


COWLEY v. S-MYTH. /• .

Supreme Court of Nezv Jersey, 1884. 46 N. J. L. 380.

This suit was brought by a depositor in the Mechanics' and
Laborers' Savings Bank in Jersey City, against the defendant, a
director of the bank, to recover damages for false representations
made by the defendant as to the solvency and condition of the bank,
whereby the plaintiff was induced to leave in the bank money he had
on deposit, which was lost by reason of the subsequent failure of the

Depue, J. This action is an action on the case for deceit. There
is a distinction between relief, either affirmative or defensive, in
courts of equity, on the ground of fraud, and the remedy for fraud
in a court of law. Courts of equity grant affirmative relief by way
of reformation or cancelation of instruments, and even defensive
relief in proceedings to enforce an obligation or liability, on the
ground of constructive fraud, such as would afford no relief in law,
especially by action for deceit. 2 Pom. Eq., § 872; Arkright v.
Kezi'hold, L. R., 17 Ch. Div. 302, 317, 330; Redgrave v. Hnrd, 20
Id. I, 12. Reese River Silver Mining Co. v. Smith, L. R., 4 H. of
L. Cas. 64, in which Lord Cairns held that "if persons make as-
sertions of facts of which they are ignorant, whether such assertions
are true or untrue, they become, in a civil point of view, as respon-
sible as if they had asserted that wlwch they knew to be untrue," is
an instartce of equitable relief by way of rescission. The bill was
filed by a subscriber for stock to be relieved from a subscription in-
duced by false representations as to the property of the corporation.
In that case, as appears in the report in L. R., 2 Ch. App. 604, the
directors issued the prospectus containing the false statement on
the faith of representations of the vendor of the property and with-
out any knowledge of their untruth, and a subscriber for stock, who
was misled by the representations, was relieved in equity from his
subscription. The doctrine of equitable estoppel, or estoppel in pais,
which has been adopted by courts of law from the courts of equity,
also presents considerations which do not apply to an action for
deceit. The theory on which that doctrine is founded is that a party
should not be allowed to retract an admission or affirmation which
was intended to influence the conduct of another, if the retraction
would materially injure the latter. Phillipsbiirg Bank v. Fnlmcr, 2
Vroom 52, 55; Campbell v. Nichols, 4 Vroom 81, 87. The cases ^
which hold that an agent who, without competent authority, induces
another to contract with him as the agent of a third party, is liable
in damages without regard to his moral innocence in the supposition
that he had the authority he assumed to have, also rest on a special
ground — on the ground of an implied warrantv of authority. Ran-
dall V. Trimcn, 16 C. B. 786; Collcn v. Wright, 8 E. & B. 647, 656;
Richardson v. Williamson, L. R., 6 O. B. 276, 279 ; Weeks v. Pro-
pert, L. R. 8 C. P. 427. The observalion of Lord Hatherly that "if
a man misrepresents a fact, to that fact he is bound if any other


person, misled by such misrepresentation, acts upon it and thereby
suffers damage," was made with respect to cases of this kind. Beat-
tie v. Lord Ebury, L. R., 7 H. of L. Cas. 102, 130.

The action of deceit, to recover damages for a false and fraudu-
lent representation, dift'ers in principle from the cases that have been
referred to. In such an action a false representation, without a
fraudulent design, is insufficient. There must be moral fraud in
the misrepresentation to support the action.

The principle on which the action for deceit is founded being
ascertained, the next consideration is with respect to the proof and
the proper instructions upon the evidence ; for, whatever the char-
acter of the evidence may be — whether it consists of knowledge of
the falsity of the representation or some other fraudulent device
intended for the purpose of deception — the evidence must be sub-
mitted to the jury under proper instructions. And I think much
of the apparent conflict in the cases has arisen from the failure to
discriminate between the issue to be proved and the force and effect
of the evidence presented.

The simplest form in which the question of the sufficiency of
proof arises is where the proof is that the representation was false
to the defendant's knowledge. The scienter as well as the false-
hood being proved, proof of the fraudulent intent is regarded as
conclusive. Evidence that the defendant intended no fraud will
not be received, and the jury will be instructed to find for the
plaintiff, though they should be of opinion that the defendant was
not instigated by a corrupt motive of gain for himself, or by a
malicious motive of injury to the plaintiff. Foster v. Charles, 6
Bing. 396; S. C, 7 Id. 105 ; Polliill v. Walter, 3 B. & Ad. 114; and
Mylne V. Marwood, 13 C. B. 778, are cases of this kind. In each
of these cases the proof was that the representation was false to the
knowledge of the defendant. The jury added to its finding an ex-
pression of opinion that there was no fraudulent intent, but the
court nevertheless entered judgment for the plaintiff on the ground
that a wilful falsehood was a fraud. The language of Lord Camp-
bell in Wilde v. Gibson, i H. of L. Cas. 605, 633, was directed to
cases of this aspect ; and Jessel, M. R., in a case where it was proved
that the representation was untrue to the defendant's knowledge,
refused to receive evidence that he in fact believed it to be true.
Hine v. Campion, L. R., 7 Ch. Div. 344.

In other cases of actionable frauds, the probative force and
effect of the evidence to establish the fraudulent intent will depend
upon the circumstances of the particular case. This question is
presented in a complex form where the defendant has added to a
representation — which turns out to be untrue, but was not false to
his knowledge — an affirmation that he made the representation as of
his own knowledge. In such cases the force and effect of the evi-
dence will depend, in a great measure, upon the nature of the sub-
ject concerning which the representation was made. If it be with
respect to a specific fact or facts susceptible of exact knowledge,
and the subject-matter be such as that the affirmation of knowledge


is to be taken in its strict sense, and not merely as a strong ex-
pression of belief, the falsehood in such a representation lies in
the defendant's affirmation that he had the retjuisite knowledge to
vouch for the truth of his assertions, and that being untrue, the
falsehood would be wilful and therefore fraudulent. Hut where the
representation is concerning a condition of affairs not susceptible
of exact knowledge, such as representations with respect to the
credit and solvency of a third person, or the condition or credit
of a financial institution, the assertion of knowledge, as was held
in Haycroft \\ Creasy (note i), "is to be taken scc\indem subjcctam
materiani, as meaning no other than a strong belief founded upon
W'hat appeared to the defendant to be reasonable and certain
grounds." In such a case the question is wholly one of good faith.
The form of the aflirmation will cast the burden of proof on the de-
fendant, but when tiie evidence is in, the issue is whether the de-
fendant honestly believed the representation to be true.^ In support
of such an issue the defendant may, by way of exculpation, resort
to evidence not admissible in actions for other kinds of deceit. He
may, as in Haycroft v. Creasy, give evidence that the person whose
ability he affirmed lived in a style, and with such appearances of
property and means, as gave assurances of affluence. He may give
in evidence the information he had upon the subject, (Shreivshnry
V. Blount, 2 J\I. & G. 475) and show the general reputation for
trustworthiness of the person whose credit he affirmed. Sheen v.
Bnmpstcd, 2 H. & C. 193. In fine, he may avail himself of any evi-
dence which may tend to show good faith or probable grounds for
his belief, leaving the question to be determined, upon all the evi-
dence, whether his conduct was bona fide — whether, at the time he
made the representation, he honestly believed that his representa-
tion was true.-

The principle adjudged in Haycroft v. Creasy is applicable to
actions against directors for false and fraudulent representations
concerning the financial condition of the institutions in their charge.
It was so applied in Taylor v. Ashton, which has become a leading
case in the English law. The affairs of such an institution must nec-
essarily be entrusted to executive officers and subordinate agents,
and the directors cannot generally know, and have not the requisite
ability to learn, by their own eft'orts, the exact condition of the

•But sec JVcHs v. Driskcll. 149 S. W. 205 (Tex. Civ. App. May 20. 1912),
where it is held that the defendant's innocent belief is no defense when he
has stated that a third person was worthy of credit who in fact was not so.
" So he may prove that he himself acted in his own affairs on the very
information upon which he has based his statements to the plaintiff, Haycroft
V. Crcasx, 2 East <^'2 : Pittsburgh Life &■ Trust Co. v. Northern. Centra! Life
lus. Co.," 140 Fed. 888 (1905), 148 Fed. 674 (C. C. A. 1906). where the defend-
ant made statements on the faith of statistics prepared for their own guid-
ince: or that he was so informed bv a reputable third person. Connellv v.
Brozi'n, 73 \. H. 193 (1905). The seeming ab.^urdity of a belief is not by it-
self in all cases evidence from which alone it can be found that it was not
honestly entertained, see the vigorous ooinion of Young. J., in Spcad v. Tom-
litison, 73 N. H. 46 (1904). p. 62, action of deceit brought against Christian
Science healer for stating that he could cure the plaintiff.


affairs of the company, and it has been found that no vigilance on
their part has been adequate to protect these institutions from
frauds and peculations covered up and concealed by false entries
and false reports. A representation by a director that the insti-
tution is in a sound and solvent condition within his own knowledge
possesses the legal characteristics of the like representation as to
the credit and financial ability of a third person, such as was before
the court in Haycroft v. Creasy, and it must be subject to the same
legal rule.

The facts on which this case was founded were these : the plain-
tiff was a depositor in the bank. About the 1st of August, 1878, there
was a rumor in circulation affecting the condition of the bank. The
defendant was one of the directors of the bank, and a member of
the finance committee. The plaintiff, having heard the rumor, went
to the defendant and told him of the rumor in circulation, and that
he w^as a depositor and did not want to lose his money, and proposed
to take it out. The defendant said, "It can't be so, unknown to me
and ]\lr. Plonks. We are on the finance committee. There can be
nothing wrong with that bank unknown to me and Mr. j\Ionks.
Don't believe any of these false reports ; believe me ; take my word
for it. The bank is good, paying six per cent. — the best in the state.
If all that is in Jersey tells you the bank is bad, don't believe it till
I tell you." He also said "there was a surplus of over $6,000 aftei
the dividends were paid." The bank continued to pay all demands
down to November ist, 1878, when it went into the hands of a re-
ceiver. It was insolvent on the ist of August, 1878, when these rep-
resentations were alleged to have been made.

The defendant was a director of the bank from June 8th, 1869,
until its suspension in November, 1878, and a member of the finance
committee from November 19th, 1877. The duties of the finance
committee were to attend to all applications for loans, and to look
after the investing of the company's funds. The general charge
and government of the bank devolved upon the executive committee,
of which the defendant was not a member. There was no evidence
that the defendant had actual knowledge of the condition of the
bank. On the contrary, the proof was that at a regular meeting of
the directors, on the 31st of May, 1877, the president read his state-
ments, show'ing a surplus of $6,000, and a motion was adopted de-
claring a dividend of six per cent. The next regular meeting was
on the 19th of November, 1877. It appears by the minutes that
a statement of the assets and liabilities was read in detail, and a
dividend of six per cent, per annum was declared for six months
ending October 31st, 1877. On May 30th, 1878, another meeting of
directors was held, at which the minutes of the last meeting were
read and approved, and a dividend at the rate of six per cent, for tht
six months ending April, 1878, was declared. All these dividends
were credited, and were paid to such of the depositors as presented
their books. The defendant was present at each of these meetings
of the directors.

On these facts the defendant was not entitled to the nonsuit
he asked for; but he was entitled to a different instruction to the


jury. The case cannot be distinguished iroxw Haycruft v. Creasy
and Taylor v. Aslitun, and it should have been left to the jury to

Online LibraryFrancis H. (Francis Hermann) BohlenCases on the law of torts (Volume 1) → online text (page 100 of 124)