Court Opinion

ID: 8767815
Source: CourtListenerOpinion
Date Created: 2022-11-26 12:32:17.613465+00
Date Added: 2024-06-11T17:02:00.157005
License: Public Domain

SANBORN, Circuit Judge
(dissenting). There was substantial and undisputed evidence in this case that the defendant induced the plaintiff to make the contract of July, 1905, to purchase the four-mold machine, to make the subsequent contracts about it, to retain and try to operate it, by false representations, before the defendant saw the machine, that it would manufacture out of sand and cement 16,000 bricks in 10 hours, and by subsequent repeated representations of the same nature and promises that it would make the machine comply with the representations. There was undisputed evidence that the machine would not manufacture, and the defendant could not make it manufacture, any considerable amount of brick out of sand and cement ; that the defendant suffered damages from these false representations, in that he expended $50 for a foundation for it, $75 for moving it, and surrendered a three-mold machine and a claim for fraudulent representation in its sale estimated • worth $1,500 before he tested the machine at all; that he paid about $1,000 in cash, and gave his notes for more than $2,000, which the defendant subsequently sold for value and upon which the indorsee recovered judgment against him, In my opinion here was ample evidencte to sustain an action for damages for false representations.
The plaintiff was ignorant of the capacity and character of the press. He was a purchaser. The defendant was a seller. A vendor is presumed to know the character and capacity of a machine which it manufactures or sells. Concede that the defendant was ignorant of the worthlessness of the press which it sold, and that it never intended to defraud the plaintiff, as it did defraud him out of more than $3,000, yet it was liable under the law for the damages which resulted from its false representations. It made the material and false statement as of its own knowledge that the press was capable of manufacturing 16,000 bricks per day out of cement and sand. If it knew that this statement was false, its making was fraud of the most positive character. If it did not know whether the statement was true or false, its positive statement of it was a false representation that it did know so, and was as damaging to the plaintiff as it would have been if it had known it to be false, and was equally fraudulent and actionable. “If one states of his own knowledge material facts susceptible of knowledge which are false, it is fraud which renders him liable to the party who relies and acts upon that statement as true, and it is no defense that he believes the facts to be true.” Litchfield v. Hutchinson, 117 Mass. 195, 198; Barnes v. Union Pacific Ry. Co., 4 C. C. A. 199, 201, 202, 54 Fed. 87, 89, 90; Cooper v. Schlesinger, 111 U. S. 148, 155, 4 Sup. Ct. 360, 28 L. Ed. 382; Kiefer v. Rogers, 19 Minn. 32, 36 (Gil. 14); Slim v. Croucher, 1 De Gex, F. & J. 518; Hazard v. Irwin, 18 Pick. (Mass.) 96; Savage v. Stevens, 126 Mass. 207, 208; Frost v. Augier, 127 *223Mass. 212, 218; Jewett v. Carter, 132 Mass. 335, 337; Cole v. Cassidy, 138 Mass. 437, 438, 52 Am. Rep. 284; Masson v. Bovet, 1 Denio (N. Y.) 69, 73, 43 Am. Dec. 651; Lockbridge v. Foster, 4 Scam. (Ill.) 569, 573; Joice v. Taylor, 6 Gill. & J. (Md.) 54, 58, 25 Am. Dec. 325; McFerran v. Taylor, 3 Cranch. (U. S.) 270, 2 L. Ed. 436; Doggett v. Emerson, 3 Story (U. S.) 700, 732, 733, Fed. Cas. No. 3,960; Burrows v. Lock, 10 Ves. 470, 475; Ayre’s Case, 25 Beav. 522; Rawlins v. Wickham, 3 De Gex & J. 304, 313; Sears v. Hicklin, 13 Colo. 143, 152, 21 Pac. 1022; Haight v. Hayt, 19 N. Y. 464, 470, 471.
It may be that if the plaintiff had refused to rely upon the false representations, if he had not been induced to make the contract by them, and if he had relied upon the guaranty in the contract alone, as in some of the cases cited by the majority, he would have had no cause of action for the fraud; but the evidence in this case in undisputed that he relied upon the false representations, and that he was thereby induced to enter into the contract which contains the guaranty. It was no defense to this action for this fraud in this state of the case that the defendant embodied its false representations in a written agreement and guaranteed them to be true, or that it promised to make them good. Nor was it a defense that the plaintiff, induced by subsequent false promises and representations of the defendant, which it reiterated until it had collected all the money it could squeeze out of him and had placed his notes beyond defense by a sale of them to an innocent purchaser, continued to try to perform, or failed completely to perform, his contracts. Parol agreements made in good faith are merged in subsequent contracts; but false and fraudulent representations, which induce contracts, are torts. They are not merged in subsequent agreements which do not clearly release or discharge them, and the damages which such representations cause may be recovered, regardless of the terms of such contracts or of their performance. Barnes v. Union Pacific Ry. Co., 4 C. C. A. 199, 203, 204, 54 Fed. 87, 91, 92, and cases there cited; Wardell v. Fosdick, 13 Johns. (N. Y.) 325, 327, 7 Am. Dec. 383; Ward v. Wiman, 17 Wend. (N. Y.) 193, 196; Culver v. Avery, 7 Wend. (N. Y.) 380, 22 Am. Dec. 586; Whitney v. Allaire, 1 N. Y. 305; Id., 1 Hill, 484; Id., 4 Denio (N. Y.) 554.
The authorities cited by the majority to the effect that the supplemental contract of November, 1905, and the plaintiff’s action thereunder ratified and confirmed the original agreement, and so barred plaintiff from rescinding it and from defending an action by the defendant upon that contract, probably announce a correct rule of law. To that effect, and to, that effect only, are Negley v. Lindsay, 67 Pa. 217, 227, 228, 5 Am. Rep. 427, Edwards v. Roberts, 7 Smedes & M. (Miss.) 544, and Doherty v. Bell, 55 Ind. 205. But this is not an action to rescind the contract or to enforce it, and hence these cases are not apposite to the issue here under consideration.
In St. John v. Hendrickson, 81 Ind. 350, cited by the majority, Hendrickson, who had been induced to pay $800 into and to become a member of the partnership by the false representation that two of *224the partners had invested $800 each therein, brought an action for damages for the fraud, and the defendants pleaded that after he had learned the truth they offered to release him from the partnership and to place him in the same situation that he occupied before he became a member of it, but that he repaid to them the money they returned to him, elected to remain a member of the firm, bought out the interest of two of the partners, and assisted in conducting the, business; and the court held that these facts constituted a good defense to his action. If the Scott Manufacturing Company had offered to release Schagun from his contract, and had repaid to him the value of his three-mold press and of his claim on account of its purchase, which they estimated worth $1,500, and the other moneys he expended before he learned of the fraud, this case would be analagous to the Hendrickson Case; but, in the absence of any such offer or repayment, it does not seem to me to be governed by it.
People v. Stephens, 71 N. Y. 527, another case cited by the majority, was an action by the state of New York to recover of contractors the difference between the reasonable value of the work they had done and the agreed price, which the state had paid them, upon the ground that their contract was the result of a fraudulent combination of bidders. The action failed because the state knew of the fraud before it paid out any of its money, and thereafter elected to carry out the contract and to pay the contract price for the work. The court applied the rule “volenti, non fit injuria," but it said in the course of the opinion:
“It is also well understood .that, if fraud is not discovered until after a contract entire lias been partly or wholly performed and the defrauded party has parted with his property or money, he need not rescind, hut may affirm the contract and bring an action for the damages.” 71 N. X. 558.
In Schmidt v. Mesmer, 116 Cal. 267, 48 Pac. 54, the plaintiffs were induced to lease a- hotel by a fraudulent representation of the amount of income derived from it. They learned the truth before they paid any rent or occupied it a day. The rent was due monthly. They paid it for 14 months, took extensions of time to pay 2 months’ rent, and occupied the hotel without objection or complaint for 17 months, and then brought an action for the false representation, which failed.
All these cases differ from that in hand in the very material particular that the plaintiffs did not part with their money or property until after they had learned the truth, while in the case at bar the plaintiff parted with his three-mold press, his claim for damages for the fraudulent representation in its sale, and the moneys expended for the foundation and for moving the press, before he had any notice or knowledge of any defect in the machine he bought. For this reason they do not seem to me to rule this case, and the statements in some of the opinions that one who is induced by fraudulent representations to make a contract and to part with a valuable consideration before he discovers the. fraud deprives himself of his action for the tort by subsequently ratifying and performing the contract, either according to its original terms or according to subsequent terms and extensions, do not commend themselves to my judgment and seem to *225me 1o be contrary to the established rule of law. The plaintiff had made the contract of July, 1905, and had lost about $2,000 before he tried the machine or discovered the fraud, and his subsequent performance or failure to perform it, in the absence of any release or satisfaction on his part of his cause of action for the fraud, did not, in my opinion, deprive him of it.
The gravamen of this action was the inducement of the plaintiff to make the contract of July 17, 1905, to purchase the four-mold press by the fraudulent representation that it was capable of making 16,000 bricks per day out of sand and cement, when it was worthless and was incapable of manufacturing them in any paying quantities. That cause of action was complete when the contract was made. It was proved by undisputed evidence. The ratification of the contract, the extensions, modifications, partial performance, or partial failure to perform it, and the subsequent contracts about it, in my opinion neither released nor discharged that cause of action. They affected only the causes of action upon the contract. When the contract was made the plaintiff had the option to rescind it, or to perform it and to recover the damages suffered from its breach; hut that was a choice of remedies under the contract. I Us action for tort remained in either event. He had the right to sue, and to recover the $6,000 or $4,000 out of which the defendant had defrauded him by the false representations which induced him to make the contract, whether he rescinded or performed or failed to perform it. In my opinion there was ample evidence of causa] false representations and of substantial damage to the plaintiff, which ought to have been submitted to the jury.