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duce evidence as to the plaintiff's bad reputation in mitigation of dam-
ases: Sickra v. Small, 87 Me. 493; 47 Am. St. Rep. 344; btone v.
Vamey, 7 Met. 86; 39 Am. Dec. 762. Evidence in mitigation of dam-
ages is admissible, notwithstanding a plea of justification; and other
parts of a i)amphlet alleged to be libelous in certain paragraphs may be
read in evidence by the defendant to explain the paragraphs upon
which the action is founded, to show the motive and intent of the pub-
lication, and to mitigate the damages: Morehead v. Jones, 2 B. Mon.
210; 36 Am. Deo. 600.



KouNTZB V. Kennedy.

[147 NlW TOBK, 124.]

DECEIT, ACTION FOR.— Fraud without damage, or damage
without fraud, gives no cause of action for deceit, but when these two
concur an action lies.

DECEIT.— THE GRAVAMEN of an action for deceit is actual
intentional fraud, and nothing less will sustain it. The representation
upon which it is based must be shown not only to have been false and
material, but that the defendant when he made it knew that it was
false, or, not knowing whether it was true or false and not caring
what the fact might be, made It recklessly, paying no heed to the in-
jury which might ensue.

DECEIT, ACTION FOR.— ACTUAIi INTENTIONAL FRAUD,
as distinguished from a mere breach of duty or the omission to use
due care, is, in addition to proof of damage, an essential factor in an
action for deceit

DECEIT.— MISJUDGMENT, HOWEVER GROSS or want of
caution, however marked, is not fraud.

DECEIT— MISREPRESENTATION8.-The man who intention-
ally deceives another to his injury should be legally responsible for
the consequences; but if, through inattention, want of judgment, re-
liance upon information which a wiser man might not credit, miscon-
ception of the facts or of his moral obligation to inquire, he makes •



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652 KouNTZB V, Kennedy. [New York^

representation designed to Influence the conduct of another, and npoa
which the other acts to his prejudice, yet, if the misrepresentatioi^
was honestly made, believing it to be true, whatever other liability be
may Incur, he cannot be made liable in an action for deceit

DECEIT— REPRESENTATIONS WITHOUT KNOWLEDGE-
RECKIiESS ASSERTIONS.~-A man is presumed to warrant his own.
belief of the truth of that which he asserts. Hence he who makes a
representation which he neither knows, nor cares, whether It Is true
or not, can have no real belief In the truth of what he asserts, and la-
Justly guilty of deception.

DECEIT— FALSE ASSERTION AS TO PERSONAL KNOWL-
EDGE.-One who falsely asserts a material fact, susceptible of accu-
rate knowledge to be true of his own knowledge, and thereby induces-
another to act upon the fact represented, to his prejudice, commits a.
fraud which will sustain an action for deceit.

DECEIT— LACK OF FRAUDULENT INTENT.— If plaintiff 1»
Induced to purchase stock and bonds of a corporation, which fails
soon afterwards, upon the application of the defendant, who is preei-
dont of the company, and who furnishes the buyer with a written
statement purporting to contain the entire assets and liabilities of
the company, but from which a claim in suit, finally resulting in a
Judgment against the company, is omitted, and the defendant con-
tends that the claim was omitted because it was not regarded by the
company and their counsel as a valid obligation, the defendant's
fraudulent intent is lacking, and the charge of deceit must fail if the
nondisclosure of the claim was attributable to an honest belief, upon
reasonable grounds, tliat the claim was not valid and could not be
enforced.

DECEIT— NO INFERENCE THAT FACTS STATED ARB
TRUE OF ONE'S OWN KNOWLEDGE EXISTS, WHEN.— If the
purchaser of the stock and bonds of a corporation, which soon after-
wards fails, is furnished with an incomplete written statement of the
assets and liubilities of the corporation having affairs widely ex-
tended, and agencies in numerous cities throughout the country, the
more facts that the defendant, in an action for deceit, was president
of the corporation, and that he furnished the statement as showiufip
tlio entire assets and liabilities, are not of themselves enough to war-
rant the inference that the defendant represented that the statement
was true of his own knowledge.

Action to recover damages for fraud and deceit alleged to-
have been practiced by the defendant, John P. Kennedy, by
which the plaintiff claims to have been induced to purchase
certain bonds and stock of the Howe Machine Company from
that company. The action was originally brought against John
P. Kennedy, He died before this appeal was taken, and his^
executor was substituted as defendant in his stead. The Howe
Machine Company was a corporation organized under the laws
of the state of Connecticut, having its principal place of busi-
ness at Bridgeport, in that state, and was engaged for many
years, and up to September 26, 1885, in manufacturing sewing^
machines.- There was a judgment in favor of the defendant,.
originally entered upou the report of a referee^ and the plaintiff
appealed.

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Oct 1895.] EouNTZE V. Kennedy. 663

Wheeler H. Peckham and George W. Van Slyck^ for the appd-
iant

William H. Bronk, for the respondent

**« ANDREWS, C. J. The plaintiffs on this appeal are met
by the serious difficulty that the finding of the referee^ affirmed
by the general term, exonerated the defendant's testator from
the charge of fraud in making the representations upon which
the plaintiffs relied in purchasing the bonds and stock of the
Howe Machine Company. If this finding has support in the
evidence, it ends aU controversy upon the merits here, because,
although it was found that the statement of the liabilities of
the company presented by Kennedy to the plaintiffs, upon the
faith of which the purchase was made, was grossly inaccurate,
and largely understated the actual liabilities of the company,
nevertheless, if Kennedy believed the statement to be a true
exhibit of the affairs of the company and was guilty of no dis-
honesty, the action must fail. The principle stated by Croke,
J. (3 Bulst 95), in respect to actions for damages for deceit,
that ''fraud without damage, or damage without fraud, gives
no cause of action, but when these two concur an action lies," has
ever since been recognized as the true rule governing the subject
The cases are numerous. The principle has been obscflred by
the use by judges of the phrase **® 'legal fraud," which haa
sometimes been interpreted as meaning fraud by construction,
and as indicating that something less than actual fraud may sus-
tain an action for deceit. The gravamen of the action is actual
fraud, and nothing less will sustain it. The representation upon
which it is based must be shown not only to have been false and
material, but that the defendant when he made it knew that it
was false, or, not knowing whether it was true or false and not
caring what the fact might be, made it recklessly, paying no
heed to the injury which might ensue. Misjudgment, however
gross, or want of caution, however marked, is not fraud. In-
tentional fraud, as distinguished from a mere breach of duty or
the omission to use due care, is an essential factor in an action
for deceit The man who intentionally deceives another to his
injiirv shonlcl be legally responsible for the consequences. But
if, tlirough inattention, want of judgment, reliance upon infor-
mation which a wiser man might not credit, misconception of
the facts or of his moral obligation to inquire, he makes a rep-
resentation designed to influence the conduct of another, and
u})on wliich the other acts to his prejudice, yet, if the misrepre-



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654 EouNTzE V. Eennbdt. [New York,

sentation was honestly made, belieTing it to be trae, whaterer
other liability he may incur, he cannot be made liable in an ac-
tion for deceit. The law affords remedies for the consequences
of innocent misrepresentation. A contract induced thereby may,
in many cases, be avoided, and the equitable powers of courts are
frequently interposed for the rescission of contracts or trans-
actions based upon mistake or innocent misrepresentation.
While the common-law action of deceit furnishes a remedy for
fraud which ought to be preserved, we think it should be kept
within its ancient limits, and should not, by construction, be
extended to embrace dealings which, however unfortunate they
may have proved to one of the parties, were not induced by actual
intentional fraud on the part of the other. We have referred
to a representation made without knowing whether it was
true or false, and whether the party making it was indif-
ferent whether it was true or false, as sufficient to sustain
the action, if the representation was in fact **• untrue.
The making of a representation to influence the conduct
of the person to whom it is made carries with it an assur-
ance, necessarily implied from the situation, of the belief of the
party making it in the truth of the affirmation. As was said
by Maule, J,, in Evans v. Edmonds, 13 Com. B. 777, *Tie takes
upon liimself to warrant his own belief of the truth of that he
asserts, and a man who makes a representation which he neither
knows nor cares whether it is true or not, can have no real belief
in the truth of what he asserts, and is justly guilty of deception.'*
So, also, it has been held that one who falsely asserts a material
fact, susceptible of accurate knowledge, to be true of his own
knowledge, and thereby induces another to act upon the fact
represented to his prejudice, commits a fraud which will sustain
an action for deceit. This is not an exception to, but an applica-
tion of, the principle that actual fraud must be shown to sustain
such an action. The purpose of the party asserting his personal
knowledge is to induce belief in the fact represented, and if he
has no knowledge, and the fact is one upon which special knowl-
edge can be predicated, the inference of fraudulent intent in the
fi^-enpo of explanation naturally results. We shall refer to the
subject again when we come to consider one of the points made
by the plaintiffs.

In the present case the plaintiffs invested more than one hun-
dred thousand dollars in the bonds and stock of the Howe Ma-
chine Company in April, 1884, and the company went into the
hands of a receiver in the fall of 1885, and the plaintiffs practi-



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Oct. 1895.] KouNTZB V. Kenmadt. 655

cally lost their whole inyestment. They purchased upon the ap-
plication of Kennedy, who was president of the corporation, and
the statement of assets and liabilities furnished by Kennedy at
their request, after the application and before the purchase,
showed that the assets, real and personal, as valued in the state-
ment, exceeded one million dollars, and that the liabilities were
five hundred thousand dollars. And the referee found that the
statement was presented by Kennedy as a statement of the en-
tire assets and liabilities. The voluminous record before us is
taken up to a large extent with the evidence, on *^^ the one
side, to show the untruthfulness of the statement, both as re-
spects the assets and liabiUties, and of circumstances which, as
was claimed, tended to establish that the defendant's testator
knew of its falsity when he presented it to the plaintiffs, and, on
the other side, with evidence in rebuttal and by way of explana-
tion of the discrepancies between the value of the assets as given
in the statement and what was realized therefrom, and between
the actual liabilities and the liabilities as represented, and also
e\idcnce bearing upon the good faith of the defendant's testator
in makiug the representation. The evidence was taken before
an intelligent and able referee, and we are satisfied that his
conclusion that the defendant's testator acted in good faith,
and that th^ statement, although in material respects untrue, was
believed by him to be true, is supported by evidence. The facts
were fully considered in the opinion of the general term, and a
recapitulation here to any considerable extent is unnecessary.

The learned counsel for the plaintiffs insists that the omission
from the statement of liabilities of the claim against the Howe
Machine Company in favor of the Credit Company, Limited, of
England, was upon the undisputed facts a fraudulent conceal-
ment. The claim originated in or prior to 1878, and was based
on acceptances alleged to have been made by the Howe Machine
Company of drafts drawn by one Stockwell upon the company,
accepted by his brother, the secretary and treasurer, in the name
of the company. It seems to be conceded that the acceptances
were made without authority of the company, and that the pro-
ceeds were used by the Stockwells in stock speculations in London
on their own account. Suit was brought against the company
on the drafts in the state of Connecticut in 1878, and, as in all
cases in that state, were commenced by attachment. The com-
pany defended the action. In the fall of 1883 the facts were
reported, and in 1880, two yeai*s after the plaintiffs had pur-
chased their bonds, the court rendered judgment in the ac-



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666 EouNTZB V. Eennkdt. [NewTorki

tion against the Howe Machine Company for the nm of axty-
two thousand four hundred and Beyenty-fiye doUan^ the chief
justice dissenting. The existence of this claim was not disclosed
^^^ to the plaintiffs^ and was not embraced in the items of liabili-
ties mentioned in the statement It was claimed on the part of
the defendant Kennedy that this item was omitted for the reason
that the company was advised by counsel that the acceptances
did not bind the company^ and that it could not be made liable
in the action^ and evidence was given that neither the oompan;
nor its counsel regarded the claim as a valid obligation of the
company. The referee further found that the defendant Ken-
nedy and the other officers and directors of the company ^d
reasonable cause to believe that said company was not liable on
said claims/' and he refused to find the request of the plainti^
^that the said defendant (Kennedy) knew of said claim and suit
and concealed and intended to conceal the same from the plain-
tiffs.'' The defendant's testator was bound to include in the
etatement all liabilities of the company known to him. He wai
not required to include claims made which were not valid or en-
forceable obligations. The defendant omitted this daim from
the schedule because he believed it was not a liability of the com-
pany. It may be admitted that he was blameworthy in not
calling the matter to the attention of the plaintiffs, leaving
them to determine whether it constituted a reason for declining
the transaction. But if the nondisclosure was attributable to
an honest belief that the claim was not valid and could not be
enforced^ the fraudulent intent is lacking and the charge of de- i
ceit fails. The recent case of Derry v. Peck, 14 App. Caa. 337, 1
decided in the house of lords, contains a very full dUscussion of
the principles governing the action for deceit and of the ad^
judged cases. The action was brought against directors of I
company for damages for a false representation contained in i
prospectus issued by them, to the effect that the company had vt
thority to use steam motor power on its tramway, whereby thi
plaintiff was induced to buy shares of the compa^. The jndgel
who gave the opinion united in asserting that aAnal fraud, thai
is, fraud in intention, and not constructive or implied fraud, wai
necessary to be shown to uphold the action, and, applying thi
general principle, they held that if *•• the defendant belicrei
the representation made by him to be true, although withoi
reasonable cause for such belief, the action would not lie. K
not necessary to go to this extent to uphold the present jndj}
ment, for the referee, as has been stated, found that the belief d



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Oct 1895.] KouNTZE V. Kennedy. 657

Kennedy that the claim of the Credit Company^ limited^ of Lon-
don^ was unfounded, was based upon reasonable grounds.

The plaintiffs requested the referee to find that the representar
tions of Kennedy to the plaintiffs were so made as to convey the
impression that he had actual knowledge of their truth and the
referee refused to find as requested. This, it is urged, was error
requiring a reversal of the judgment It must be assumed that
the referee found that the representations contained in the state-
ment presented by Kennedy were not made, or understood by the
plaintiffs to have been made, by him upon his personal knowl-
-edge. The evidence and the circumstances support this con-
-clusion. Kennedy testified that when the plaintiffs requested a
statement of the assets and liabilities of the company, he in-
formed them that he would request the secretary to prepare it,
and after the statement was delivered to the plaintiffs, Luther
Kountze, at Kennedy's request, went to Bridgeport to examine
the property, and while there the items of the statement were
gone over between him and Mr. Parmly, the person having the
principal management of the business, and the referee found that
the inquiries of Mr. Kounize were tnUlifully answered. It can-
not be assumed from the mere form of the statement that the
assets and liabilities were given upon the personal knowledge of
Kennedy. It related to the affairs of a large corporation, widely
extended and having agencies in a great number of the large
cities of the country. It would ordinarily be understood that a
etatement furnished by the president or director of the company
of its assets and liabilities would be furnished upon information
derived from the books and other sources. Certainly the mere
presentation of such a statement, without more, would not
amount to an affirmation that the statement was true to his
knowledge. There was *** conflicting evidence upon the trial
iinon the point whether, outside of the statement, such an
affirmation was made, but that issue was decided against the
plaintiffs. Their claim, therefore, that Kennedy represented
that the statement was true of his own knowledge
rests solely on the facts that he was president of the cor-
poration, 'and that he furnished the statement as a statement
of the entire assets and liabilities. The most that the plaintiffs
could clflim was that it became a question of fact, but we are of
opinion that the evidence was wholly insufficient to have war-
ranted a finding that Kennedy asserted the truth of the statement
as of his own knowledge.

Upon a fuU examination of all the questions presented bj the
Ax. St. Rsf., Vou xux -«

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658 EouNTZE V. Kennedy. [NewYork^

plaintiffs^ we have reached the conclusioii that there was no mt-
terial error conunittefi on the trial and the judgment ahould,
therefore, be afiirmed.

All concur^ except Bartlett^ J., who dissents on the ground that
it is not proper for an officer of a corporation making a written
statement of its indebtedness to a proposed purchaser of its stock
to omit therefrom the amount involved in a pending action
against the company^ for the reason that he is of opinion that the
company will not be held in final judgment; that it is the mani-
fest duty of such officer to inform the proposed purchaser of
stock of the existence of this contingent liability, and the Mnn
to do so is a fraud.

Peckham^ J., not voting.

Judgment affirmed.

ACTION FOR DECEIT OR FALSE REPRESENTATIONS.-A11
action for false representations, called also an action for deceit, may be
maintained against one who makes a false representation of a fact, with
knowledge of its falsity, with intent that it shall be acted upon, where
the person to whom it is made acts upon it, and by so doing gaffers in-
jury : Note to Bergeron v. Miles, 43 Am. 8t. Rep. 913. An intent to
deceive is essential to maintain the action : See monographic note to
Cottrili V. Krum, 18 Am. St. Rep. 661, an action to recover for false
representations. Representations are not fraudulent where made for
an honest purpose, and with fair reason for believing them to be tree,
although they may turn out to be untrue: Lewark v. Carter, 117 Ind.
206 ; 10 Am. St. Rep. 40. The plaintiff must prove that he haa sustained
damage by reason of his reliance upon the representations. Fraud
without damage is no ground for an action: Note to Cottrili v. Kruni,
18 Am. St. Rep. 561. The ground of liability in such actions rests i]f<<m
the affirmation of some existing fact which the party making it knovs.
or has good reason to know, to be false: People v. Healey, 128 III. 9;
16 Am. St. Rep. 90. If a party makes an untrue representation of a
material fact as of his own knowledge, not knowing whether it is tree
or faipe, it is a fraud. An unqualified afiSrmation as of one's ovn
knowleidge makes the fraud as great as if the party knew his statement
to be false: Bullitt v. Farrar, 42 Minn. 8; 18 Am. St. Rep. 485. In a^
tions of deceit, the charge of fraudulent intent is maintained by pnx'f
of a statement, made as of a party's own knowledge, which is mI«,
provided the thing stated is not merely a matter of opinion, estimate,
or judgment, but is susceptible of actual knowledge, and in sncb ca»
it is not necessary to make any further proof of an actual intent to de-
ceive. The fraud exists in stating that the party knows the thing to
exist when he does not know it to exist, and, if he does not know it to
exist, he must ordinarily be deemiad to know that he does not: Cfaathtm
Furnace Co. v. Moffatt, 147 Mass. 403; 9 Am. St. Rep. 727, In an ac-
tion of deceit, scienter must not only be alleged, but proved; and the
jury must he satisfied that the defendant made the statement knowing
it to be false, or with such conscious ijrnorance of its truth as to be
equivalent to a falsehood. But the plaintiff in such action has madeoot
a prima facie case, without direct proof of deceitful intent, when he has
proved that the defendant made a positive statement of a material faet.
Its falsity, and the circumstances under which it was made, ten«line to
show a reckless assertion in conscious ignorance of the fact: Grisw«^'J
V. Gebbie, 126 Pa. St. 353; 12 Am. St. Rep. 878. If a peraoD is iaa



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Oct. 1895.] Sully v. Schmitt. 669

■ituation to know, and it is his duty to know, whether a statement,
upon the faith of which another has been induced to enter into a con-
tract, is true or false, the law imputes such knowledge to him, and the
statement, if untrue, is held to be fraudulent as regards the person who
relied ilpon it. Thus a statement signed bv the president and directors
of a bauK, which is circulated with, and refers with approval to, a state*
ment in which the cashier sets forth the resources and liabilities of the
bank, is a deliberate affirmation of the truth of the latter statement,
and equivalent to a reoort of the affairs of the bank made by the presi-
dent and directors themselves. Under such circumstances, if the
eashier's statement proves to be false, one who has been induced by it
to purchase bank shares from the president at a price exceeding their
real value may maintain an action against his vendor to recover dam-
ages for misrepresentation or to procure the rescission of the sale: Pre-
witt V. Trimble, 92 Ky. 176; 36 Am. St. Rep. 586. On the other hand,
while one, by his gratuitous answers, must not mislead, if he answers
honestly to the best of his ability, he does his whole duty, and cannot
be liable hecause he is ignorant or stupid. Mere negligence, ignorance,
or stupidity on his part do not constitute fraud : Nash v. Minnesota Title
Ins. etc. Co., 163 Mass. 674; 47 Am. 8t. Bep. 489.



Sully v. Schmitt.

[147 Nkw Yobk, 248.]

LANDLORD AND TENANT— EVICTION.— A physical eviction
la not neeessaiy to exonerate the tenant from payment of rent He
is justified in abandoning the premises and refusing to pay rent, if
the landlord's acts, though not amounting to a physical expulsion, are
of Ko pronounced and offensive a character as to create a nuisance,
thereby preventing the tenaut*s reasonable use of the premises.

LANDLORD AND TENANT— CONSTRUCTIVE EVICTION.—
If the tenant of a ground room in a building, without a previous op-
portunity for examination, discovers, after the execution of his lease
and taking possession, an open sewer under the leased premises, into
which offensive matter drops from closets In the adjacent portion of



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