Case ID: wis_159/html/0113-01.html
Source: Caselaw Access Project
Author: {"author": "IIekwikt, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

First National Bank of Tigerton, Appellant, vs. Hackett, imp., Respondent.
    
      November 19 —
    December 8, 1914.
    
    
      False representations in sale of note: Tort action: Fraudulent intent not essential: Good faith: Evidence: Instructions to jury: Special verdict: Damages.
    
    1. In a tort action based upon false representations in the sale of property plaintiff need not show that tke representations were made with, fraudulent intent.
    2. Evidence in such case that defendant in good faith believed that the representations made were true is immaterial; but where plaintiff had introduced evidence on that question he cannot complain that defendant was allowed to rebut it.
    3. Although in such case it was immaterial whether the representations were made in bad faith or not, yet, the action being based on fraud, it was prejudicial error to instruct the jury that there was no claim and no evidence of fraud or bad faith on the part of the defendant.
    4. It was prejudicial error also to charge in such case that defendant denied that the alleged representations were made, where in fact defendant did not deny that any of the representations were made, except in a qualified way, and himself testified to making one of them. *
    ■ 5. An instruction that “It is a general rule of law that statements as to the value of property, real or personal, or as to the financial responsibility of persons, made for the purpose of inducing another to buy, may be and generally are mere expressions of opinions,” was erroneous as applied to the evidence in this case and was prejudicial.
    6. An instruction in this case from which the jury would he likely to understand that unless defendant positively vouched for the truthfulness of the statement made hy him it would not constitute a false representation, was erroneous.
    7. An instruction from which the jury would he likely to understand that plaintiff did not rely upon defendant’s representation as to certain securities sold hy defendant, hut upon the defendant personally, was misleading in this case, that being under the evidence a question for the jury.
    8. Statements by defendant not having been made as upon information or as matter of opinion hut as positive statements of fact, it was misleading to charge the jury that if what defendant said “was a truthful statement of his information upon the subject, and given as such only,” there was no false representation.
    9. It being undisputed that a mortgage by which a note sold by defendant to plaintiff was supposed to' be secured was in fact executed by a “dummy” as mortgagor, who had no title to the property and acquired none, and that such mortgage was worthless, it' was error to give an instruction calculated to lead the jury to believe that if there was a contract between third , persons and the defendant to perfect title in the dummy mortgagor it was sufficient to satisfy defendant’s representation that there was a valid mortgage, although none in fact ever existed.
    10. In a tort action based upon false representations as to the securities accompanying a note sold by defendant to plaintiff, it was immaterial whether or not the note would have been fully secured if plaintiff had subsequently agreed to an arrangement by which other securities were to be substituted, and no question upon that subject should have been included in the special verdict. Plaintiff had the right to stand upon the cause of action for fraud and was not bound to agree to the substitution of some other cause of action.
    11. So, also, it was immaterial and no question should have been submitted to the jury as to whether plaintiff could at one time have sold the note for twenty-five cents on the dollar.
    Appeal from a judgment of tlie circuit court for Winnebago county: Geo. W. BurNell, Circuit' Judge.
    
      Reversed.
    
    This action was brought against the defendants to recover damages for false representations alleged to have been made in the sale of a note for the sum of $2,500. The complaint sets forth that on the 13th day of May, 1913, one Rose Rubel Hecbt made a promissory note in tbe sum of $2,500, payable six months after date at tbe Old National Bank of Osbkosb, to tbe order of herself, with interest' at six per cent, per an-num; that tbe note wa-s indorsed by her, A. S. Hecbt, and J. E. Oonant, who are named as defendants in tbe action; that none of the defendants named were served except R- H. Hackett; that said Hackett, as an inducement to tbe plaintiff to buy said note, made several representations, all of which were untrue, and that plaintiff was ignorant' of tbe falsity thereof and relied upon such- representations.
    Tbe defendant Hackett answered, denying tbe making of any false representation, and further set out in detail tbe history of. tbe transaction and subsequent negotiations between tbe parties relative to tbe collection and security going with tbe note. It is further alleged that afterwards it was discovered that tbe securities were not as represented and tbe in-dorsers worthless and that further steps were taken by tbe defendant Hackett to obtain additional security of tbe other defendants and others, and that through tbe refusal of tbe plaintiff to surrender tbe note and accept new notes tbe deal fell through and tbe plaintiff, with other holders of other notes, lost an opportunity to collect or secure tbe same in full.
    Tbe jury returned the following verdict:
    “(1) Did tbe defendant R. H. Hackett, at tbe time of tbe sale of said note to tbe plaintiff, make any false representations of a material fact or facts regarding tbe said note? A. No.
    “(2) If you answer question No. 1 ‘Yes,’‘ then was such false representation a material inducement to tbe plaintiff to purchase said note ? A. -.
    “(3) If you answer question No. 1 ‘Yes,’ then answer this: Did tbe plaintiff in purchasing said note rely upon such false representation and believe it to be true? A. -.
    “(4) If the plaintiff had agreed to tbe arrangement with Siegmund Hecbt under date of December 3, 1912, would tbe plaintiff’s note have been fully secured thereby ? A. Yes.
    “(5) Could tbe plaintiff at the time of tbe sale to tbe Stevens Point Bank have realized ahout' twenty-five per cent, upon its claim ? A. Yes.
    “(6) What is the present value of the plaintiff’s note? A. We believe twenty-five cents on a dollar.”
    The appellant made the ordinary motions after verdict and also filed exceptions to rtilings of the court and to the charge and refusals to charge, which so far as necessary will be considered hereafter. Plaintiff’s motions were denied and defendant’s motion for judgment granted, and judgment was entered accordingly in favor of the defendant dismissing the plaintiff’s complaint with costs, from which judgment this appeal was taken.
    For.the appellant there was a brief by Goodrich &■ Goodr rich, and oral argument by A. B. Goodrich.
    
    For the respondent there was a brief by Charles and Henry Barber, and oral argument by Charles Barber.
    
   IIekwikt, J.

The appellant assigns the following errors: (1) The court erred in admitting testimony against plaintiff’s objection. (2) The court erred in charging the jury. (3) The court erred in overruling plaintiff’s alternative motions. (4) The court erred in overruling^ plaintiff’s motion for a new trial.

The action is' brought to recover damages for false representations alleged to have been made by defendant Hackett in the sale of a note to plaintiff. The complaint charges false representations made by defendant Hackett, reliance thereon by plaintiff, and damages. The answer puts in issue the allegations of the complaint. The verdict returned is set out in the statement of facts.

Briefly stated, the fact's leading up to the sale of the note,, so far as material to the questions involved, are substantially as follows: Defendant Haclcett was a loan broker, president of the Farmers’ Bank of Churo, stockholder in the First National Bank of Berlin, and stockholder in the plaintiff, First Rational Bank of Tigerton. Conant was a manufacturer at Two Hirers, Wisconsin, and was also interested in other business concerns. He entered into a deal with Albert Hecht and wife for the exchange or sale of certain property in Colorado. One Halliday, of Chicago, claimed to own land in Michigan which he desired to trade for Chicago property in which Conant had an interest. A written agreement was drawn up in April, 1912, by which it was agreed to exchange the Chicago property for the Manistee, Michigan, property upon conditions. Conant was to be paid a brokerage fee for consummating the deal. ITeclit' needed $8,500 to enable him to carry out the deal, but could not raise the money himself. Conant ivas brought into the deal and he needed $5,000. In other words, Hecht and Conant needed between them $13,500. To raise the money Conant' applied to defendant Hackett and submitted a statement of the conditions of the properties and the parties. Hackett made two or three trips to Chicago.in the matter and looked up the Eubel estate, in which it was claimed Eose Eubel Hecht was interested. There is evidence that Hackett thought Mrs. Hecht had a substantial interest in the estate. Under the deal made between Conant, Hecht, and Hackett in Chicago, an alleged mortgage on the property at Manistee, Michigan, for $6,500 vras to be turned over to Hackett, the title to which property was not perfect, but there was a contract between Halliday and Hecht for the transfer of the property and providing that the actual transfer would be made within a short time. The papers were turned over to Hackett, including what purported to be a first mortgage upon the Michigan property for $6,500. The title to the-mortgaged property was not perfect' at this time, so that the $6,500 mortgage was not in fact a first mortgage, although defendant Hackett understood that part of the money which he paid was to be used by Hecht' to clean up the title so that the mortgage would be a first mortgage. The securities were delivered to Hackett and the notes taken by him indorsed by Rose Rubel Hecht, A. S. Hecht, and J. F. Conant. Defendant Haclcett also got' a report of the financial standing of Conant. After it turned out that the title to the Michigan property was not perfected the defendant Haclcett made a demand upon Conant and Hecht for $6,500 in cash. Some negotiations were had between Conant, Hecht, and defendant Haclcett looking to a new arrangement whereby other properties were to be substituted 'for the Michigan property covered by the $6,500 mortgage, and the plaintiff was asked to enter into this deal, but refused to do so.

It appears that the deal entered into at Chicago by which defendant Haclcett loaned $13,500 was what was termed a three-cornered deal between Hecht, Conant, and Halliday, by which certain properties were to be sold or exchanged and Halliday was to transfer to Hecht a farm of over 300 acres at Manistee, Michigan, in exchange,for hotel property in Chicago. The deal was closed between Haclcett, Hecht, and Co-nant May 13, 1912, and resulted in Haclcett loaning Hecht .and Conant $13,500, Haclcett taking notes aggregating $15,500, viz. one note for $5,000, three for $2,500, one for $2,000, and one for $1,000. Defendant Haclcett sold $11,500 of these notes, the one sold to plaintiff being one, and Conant sold $1,000. This paper was signed by Rose Rubel Hecht and indorsed by A.- S. Hecht and J. F. Conant. A trust agreement was executed by which defendant' Haclcett was to be trustee. To secure the notes taken by defendant Haclcett mortgages were taken by Haclcett as trustee as follows: What purported to be a first mortgage of $6,500 on a Michigan farm and two second mortgages of $4,500 each on Colorado property. It seems that these mortgages were signed by one who had no title at the time, but who probably expected to acquire title thereafter. Haclcett paid $13,500 to Conant and Hecht in Chicago May 13, 1912, and it appears from the evidence that defendant Haclcett took the three mortgages on the strength of statements of the borrowers that subsequent to turning over tbe money deeds would pass wbieb would make tbe mortgages, or some of them, good.

1. It is claimed by respondent that tbe action is on contract', and that there is no question of fraud in tbe case, that tbe appellant opened the door to tbe question of good faith on tbe part of Hackett, therefore cannot complain of tbe ruling of tbe court under tbe first' assignment of error.

We think it clear under the pleadings and evidence that tbe action is not one upon contract, but in tort for fraud based upon false representations in tbe sale of property. But it does not follow that because tbe action is for fraud it must be-shown, in order to make the representations actionable, that they were made with fraudulent intent. Montreal River L., Co. v. Mihills, 80 Wis. 540, 50 N. W. 507; Cotzhausen v. Simon, 41 Wis. 103, 1 N. W. 473; Bird v. Kleiner, 41 Wis. 134. A party making representations as facts must be held to respond for injury done in assuming to know and represent as facts things which did not actually exist, but upon which the other party relied to his damage. Steckbauer v. Leykom, 130 Wis. 438, 110 N. W. 217; Standard Mfg. Co. v. Slot, 121 Wis. 14, 98 N. W. 923. In speaking upon the subject in Krause v. Busacker, 105 Wis. 350 (81 N. W. 406), at page 354 this court said:

“If the representations were material and false, and the-maker thereof either knew or ought to have known that they were false, or if he made them recklessly, with no knowledge on the subject, and the injured party relied upon them as true, without the present means of knowledge of their falsity,, and suffered damage thereby, then the fraud is complete.”

In Zunker v. Kuehn, 113 Wis. 421 (88 N. W. 605), at page 424 it is said: “False representations of facts or conditions which have induced the making of a contract' may be actionable although not shown to have been made wilfully, or with fraudulent intent,” citing Montreal River L. Co. v. Mihills, 80 Wis. 540, 50 N. W. 507; Gunther v. Ullrich, 82 Wis. 222, 52 N. W. 88; Porter v. Beattie, 88 Wis. 22, 59 N. W. 499.

There is an abundance of evidence in this case that the representations complained of were made by defendant Ilaclc-ett, and the question was not whether they were made in good faith, but whether Ilaclcett did in fact make them, whether they were material and false, relied upon by plaintiff, and caused the injury complained of. The evidence admitted over plaintiff’s objection and complained of under this assignment- of error was as to whether Ilaclcett in good faith believed the representations made were true. This evidence was immaterial and should not have been admitted. Zunker v. Kuehn, supra; Krause v. Busacker, supra; Hart v. Moulton, 104 Wis. 349, 80 N. W. 599; Palmer v. Goldberg, 128 Wis. 103, 107 N. W. 478. The plaintiff, however, called defendant Ilaclcett under sec. 4068, Stats., and examined him respecting the security, and among other questions put the following: “You believed at that time, I presume, that this collateral security was good security for that loan?” This question was objected to as immaterial and the objection overruled. The evidence was immaterial, but the court permitted the question answered and thus opened the door for evidence of good faith on the part of defendant Ilaclcett. There was other similar evidence on the subject offered by plaintiff and admitted over defendant’s objection.

The plaintiff, having put in evidence upon this issue, cannot complain that defendant was allowed to rebut it.

2. The court charged the jury respecting the first question of the special verdict as follows:

"Mr. Ilaclcett denies that' any such representations were made. Mr. Ilaclcett denies having told him any of these things as alleged in the complaint.”

This part of the charge was misleading and prejudicial. The evidence shows that' Ilaclcett did not deny that any of the representations were made, except in a qualified way. One of the representations charged was “that said notes are fur-tber secured by a first mortgage of $6,500 on a tract of land containing about 300 acres near Manistee, Michigan, worth $16,000.” The representations made by Hackett to the plaintiff bank were made by ’phone and in a conversation over the ’phone with Mr. Wojahn, cashier of the plaintiff bank. Defendant Iiackett testified: “I told him I had a first mortgage for $6,500 on a tract of about 300 acres of land in Michigan estimated to be worth about $16,000, I think.” Mr. Iiackett afterwards makes a sweeping denial as to all of the representations, but from the evidence this appears to be based upon the fact, a's he testifies, that when he talked with Mr. Wojahn over the ’phone Mr. Wojahn stopped him before he got through with all he desired to say regarding the securities.

The court further-instructed the jury:

“In this case there is no claim of fraud or bad faith on the part of the defendant Iiackett, and there is no evidence of fraud or bad faith on his part.”

This was error' and clearly prejudicial. . The action was based upon fraud. If Mr. Hackett made the representations, which were material, and they were false, relied upon by the plaintiff, and caused the damage, it was immaterial whether they were made in bad faith or not.

The court further instructed the jury:

“It is a general rule of law that statements as to the value of property, real or personal, or as to the financial responsibility of persons, made for the purpose of inducing another to buy, may be and generally are mere expressions of opinions.”

This was error as applied to the testimony in the case and prejudicial. Palmer v. Goldberg, 128 Wis. 103, 107 N. W. 478; McKinnon v. Vollmar, 75 Wis. 82, 43 N. W. 800; Kathan v. Comstock, 140 Wis. 427, 122 N. W. 1044.

The court further charged the jury:

“If Mr. Hackett in his conversation with Mi’- Wojahn only truthfully stated his own knowledge upon the subject and did not make the statement as a positive and absolute fact and did not positively vouch for the truthfulness of the same, any statement so made, even if untrue, would not constitute a false representation.”

It was not necessary that Mr. Haclceit should vouch for the truthfulness of the statement' made. It was sufficient that he made a positive statement of the facts and did not state it as being made upon information. Erom this charge the jury would be likely to understand that unless Mr. Haclcett positively vouched for the truthfulness of the statement it would not constitute a false representation.

The court instructed the jury:

“The defendant also claims that Mr. Wojahn in his testimony admits shutting Mr. Haclcett off and telling him that he might send the note, but with the understanding that he should be liable thereon.”

This was not a correct statement of Mr. Woj aim’s evidence. Woj ahn testified:

“Then he began to tell me about the Greeley property, and I said there was no need going any farther. I did not know the indorsers or the securities. I says, I am kind of loaned up, I says, but I said if I can look to you at all times to see that the loan is made good, why send her along.” . . . “One thing I haven’t mentioned, that is: When I stopped him I said I did not know anything about the signers or indorsers or any of the securities that' you mention to me, so I said get plenty of security for yourself for I will always look to you for payment of that note for the trustee. I didn’t use the word Trustee,’ I said I will look to you. I am looking to him today.”

The jury would be likely to understand from this charge that Mr. Wojahn did not rely upon representations as to securities, but upon Haclcett personally. The instruction was misleading. It was for the jury to say upon all the evidence whether Mr. Wojahn did not intend to rely upon the securities as represented and not upon Haclcett personally.

In charging as to the Michigan property the court said:

“If you find that the statements made by Mr. Haclcett in regard to this property were true in substance, or that what he said was a truthful statement of his information upon the subject, and given as such only, you must find that there was no false representation in this regard, and as to this subject you must' answer the first question ‘No.’ ”

This instruction was misleading. What Mr. Hachett said about the Michigan mortgage was not said upon information or as matter of opinion, but was a positive statement of the facts, and the material question was whether the statements made by Hachett regarding the mortgage were true.

The court further instructed the jury:

“If at the time the mortgage was given there was a valid, binding contract which could, have been enforced and whereby Mr. Halliday could have been compelled to have given a deed of the property, then there was in the eye of the law a valid mortgage upon the same. The mere fact that' after-wards Mr. Hachett or the other parties neglected to enforce the contract, or by neglect lost rights in reference to the same, would not affect the validity of the mortgage at the time taken. If the mortgage was valid in law at the time the representation was made, j’ou must find that there was no false representation in respect thereto.”

This instruction was well calculated to lead the jury to believe that' there was some kind of a contract which amounted to a mortgage on the Michigan property which might be enforced, and that if a contract in fact existed to perfect title in the “dummy” mortgagor, it' was sufficient to satisfy the representation that there was a valid mortgage, although none in fact ever existed. It is undisputed that the $6,500 alleged mortgage on the Michigan property was executed by a “dummy” as mortgagor, who had no title to the property and acquired none, and that such mortgage was worthless.

Counsel for appellant also excepted to the whole charge as being too favorable to defendant' Hachett. The portions of the charge heretofore treated show its general character and further discussion of it is unnecessary.

3. Error is assigned because the court refused to change the answer of the jury to the fourth question of the special verdict from “Yes” to “No.” This question should not'have been submitted and has no proper place in the case. The plaintiff had a right to stand upon its cause of action for fraud and was not obliged to enter into any negotiations resulting in a substitution of its existing cause of action for some other. All the evidence respecting this transaction should have been excluded and no question submitted to the jury upon the point.

Counsel for appellant also moved to change the answers to the first, fifth, and sixth questions of the special verdict on the ground that the answers to these questions are unsupported by the evidence. The issue raised by the fifth question was immaterial. Plaintiff was not obliged to sell the note for twenty-five cents on the dollar or for any sum less than face and interest. Plaintiff offered the note in court for the use of defendant Ilachett.

Whether there was sufficient evidence to support the answers to the first and sixth questions of the special verdict we need not and do not determine.

On account of prejudicial error committed on the trial and discussed in this opinion the judgment must be reversed.

By the Court. — The judgment of the court below is re-' versed, and the cause remanded for a new trial.