Court Opinion

ID: 8757570
Source: CourtListenerOpinion
Date Created: 2022-11-26 11:52:32.971905+00
Date Added: 2024-06-11T17:01:20.671613
License: Public Domain

HOOK, Circuit. Judge,
aftér stating the case as above, delivered -the opinion of the court.
Eight grounds were assigned in defendant’s' demurrer, but, so far’as they need be considered, they present but three questions: Was there an improper joinder of- causes of action in the same complaint? :Did the first count state a cause of action for deceit? Did the second count state a cause of action for breach of warranty ?
There,was no misjoinder of the causes of action. The existence -of’= .one \yas . entirely compatible . with the existence of the other. -They grew out of and presented but different phases of the same irahshetion, and both tended to support a single recovery. It is *747contended that the count for breach of warranty is upon contract, and therefore could not be united with one for deceit which is ex delicto. But an action for breach of warranty may be either in contract or in tort, at the pleasure of the pleader. Schuchardt v. Allens, 1 Wall. 359, 368, 17 L. Ed. 642; Shippen v. Bowen, 122 U. S. 575, 581, 7 Sup. Ct. 1283, 30 L. Ed. 1172. In fact, the ancient remedy was an action in tort, and the practice of declaring in assumpsit was an expedient afterwards adopted for the purpose of enabling the plaintiff to join the money cohnts with those upon the warranty. Williamson v. Allison, 2 East, 451. Under the modem system of pleading the actual facts constituting a cause of action are narrated, and, as a consequence, the line of distinction between? tort and contract is frequently so shadowy and uncertain that it is difficult to determine to which class an action belongs. The proper construction in such cases is that which makes the complaint or declaration, as a whole, maintainable, and the different counts consonant with each other. It is well settled that, when they grow out of the same transaction, an action for deceit and an action on the case for breach of warranty may be joined. Shippen v. Bowen, supra; Dushane v. Benedict, 120 U. S. 630, 7 Sup. Ct. 696, 30 L. Ed. 810; Schuchardt v. Allens, supra; Bliss on Code Pleading, § 120. The joinder was permissible under the Colorado Code-Mills’ Ann. Code, § 70.
To afford sufficient basis for an action of deceit the representation must have been of material facts, and must have had such relation to the transaction in hand as to operate as an inducement to the action or omission of the complaining party (Slaughter’s Adm’r v. Gerson, 13 Wall. 379, 383, 20 L. Ed. 627; Smith v. Chadwick, 20 Ch. D. 27); and it must have been relied on by him (Marshall v. Hubbard, 117 U. S. 415, 6 Sup. Ct. 806, 29 L. Ed. 919; Ming v. Woolf oik, 116 U. S. 599, 6 Sup. Ct. 489, 29 L. Ed. 740; Stratton’s Independence v. Dines [C. C.] 126 Fed. 968, 977). The basis of the action of deceit is the actual fraud of defendant—his moral delinquency; and therefore his knowledge of the falsity of the representation, or that which in law is equivalent thereto, must be averred and proved. There is much confusion in the authorities upon this subject, due in part to the erroneous assumption that that which is merely evidence of fraud is equivalent to the ultimate fact which it tends to prove, and also to the assumption, likewise erroneous, that an untrue representation which would be sufficient to support a suit in equity for a rescission of a contract is equally as available in an action of deceit. In Derry v. Peek, 14 App. Cas. 337, 356, a well-reasoned case, Lord Fitzgerald said:
“The action for deceit at common law is founded on fraud. It is essential to the action that moral fraud should be established, and since the case of Collins v. Evans, 5 Q. B. 804. 820, in the Exchequer Chamber, it has never been doubted that fraud must concur with the false statement to maintain the action. It would not be sufficient to show that a false representation had been made. It must further be established that the defendant knew at the time of making it that the representation was untrue, or, to adopt the language of the learned editors of the Beading Cases, that ‘the defendant must be shown to have been actually and fraudulently cognizant of the false*748hood of .his representation, or to have made it fraudulently without belief that it was true.’ ”
In the same case Lord Herschell said:
. “I think the authorities establish the following propositions: First, in order to sustain an action of deceit there must be a proof of fraud, and nothing short of that will suffice; secondly, fraud is proved when it is shown that a false representation has been made (1) knowingly, or (2) without belief in its truth, or (3) recklessly, careless whether it be true or false.”
In Lord v. Goddard, 13 How. 198, 211, 14 L. Ed. 111, it was said;
“The gist of the action is fraud in the defendants and damage to the plaintiff. Fraud means an intention to deceive. If there was not such intention ; if the party honestly stated his opinion, believing at the time that he stated the truth—he is not liable in this form of action, although the representation turned out to be entirely untrue. Since the decision in Haycroft v. Creasy, 2 East, made in 1801, the question has been settled to this effect in England. The Supreme Court of New York held likewise in Young v. Covell, 8 Johns, 23, 5 Am. Dec. 316. That court declared it to be well settled that this action could not be sustained without proving actual fraud in the defendant, or an intention to deceive the plaintiff by false representations. The simple fact of making representations which turn out not to be true, unconnected with a fraudulent design, is'not sufficient. This decision was made forty years ago, and stands uncontradicted, so far as we know, in the American courts.”
This court has said that an action of deceit “requires for its foundation a false statement, knowingly made, or a false statement made in ignorance of, and in reckless disregard of, its truth or falsity, and of the consequences such a statement may entail. The evil intent —the intent to deceive—is the basis of the action.” Union Pac. Ry. Co. v. Barnes, 64 Fed. 80,12 C. C. A. 48.
In Hindman v. Bank, 112 Fed. 931, 945, 50 C. C. A. 623,-636, 57 L. R. A. 108, Judge Lurton said;
“Before the plaintiff can recover in an .action of deceit, he must prove two things:. that the representation was false, and that the person making it knew it was false. * * * Such an action differs essentially from one brought for rescission of a contract on the ground of misrepresentation. In the latter kind of suit it is immaterial whether the representation was made dishonestly or not. If the contract was obtained by misrepresentation, however honestly made, it cannot-stand. But when the action is for fraud and deceit, it is not enough to show that the representation was untrue; for, if it was honestly believed to be true, that is a good defense. Derry v. Peek. 14 App. Oas. 337. But a representation recklessly made, without knowledge of its truth, could not be a statement honestly believed.”
A false statement-recklessly made, without knowledge of its truth of falsity, is the equivalent of actual fraud. It is a false statement knowingly made, within the settled rule. Cooper v. Schlesinger. 111 U. S. 148, 155, 4 Sup. Ct. 360, 28 L. Ed. 382; Smith v. Richards, 13 Pet. 26, 38,10 L. Ed. 42; Lynch v. Trust Co. (C. C.) 18 Fed. 486. As Mr. Justice Story observed;
“The affirmation of what one does not know, or believe to be true, is equally, in morals and law, as unjustifiable as the affirmation of what is known to be positively false.” Story, Eq. Juris. § 193.
The false representation relied on as the ground of an action of deceit must have accomplished the purpose of deception. Ming v. Woolfolk, supra. The plaintiff must have used due diligence to *749discover for himself the truth or falsity of the representation (Upton v. Tribilcock, 91 U.S. 45, 23 L. Ed. 203), or the relations of the parties to each other or the location or character of the subject-matter of the transaction must have been such as to excuse investigation and to justify his reliance upon the assertion of the other. Again, the representation must be of existing and ascertainable facts, and not mere promissory statements based upon general knowledge, information, and judgment. Sawyer v. Prickett, 19 Wall. 146, 22 L. Ed. 105; Patent Title Co. v. Stratton (C. C.) 89 Fed. 174, 178. It was said in Union Pacific Ry. Co. v. Barnes, supra: “An action for false and fraudulent representations can never be maintained upon a promise or a prophecy.” Nor is mere expression of opinion sufficient, though it be false, and be expressed in strong and positive language. Johansson v. Stephanson, 154 U. S. 625, 14 Sup. Ct. 1180, 23 L. Ed. 1009. Positive statements as to value are generally mere expressions of opinion and as such cannot support an action of deceit. Gordon v. Butler, 105 U. S. 553, 26 L. Ed. 1166; Blease v. Garlington, 92 U. S. 1, 9, 23 L. Ed. 521.
' In Haycroft v. Creasy, 2 East, 92, the words complained of were, “I can positively assure you of my own knowledge that you may credit Miss R. to any amount with perfect safety.” They were held not to be actionable, though it turned out that Miss R. was an impostor, who had succeeded in deluding many persons by false pretensions to wealth. It was observed that the use of the word “knowledge” by the defendant was merely an emphatic statement of his opinion concerning a matter which was peculiarly the subject of judgment or opinion, rather than of accurate knowledge; and reliance was also placed upon the absence of an affirmative showing of intentional fraud.
In Deming v. Darling, 148 Mass. 504, 20 N. E. 107, 2 L. R. A. 743, the representation that a certain railroad bond “was of the very best and safest and was an A No. 1 bond” was held a mere expression of opinion of value, and that it was not actionable, even though made in bad faith.
In Kimball v. Bangs, 144 Mass. 321, 11 N. E. 113, it was said:
“The law recognizes the fact that men will naturally overstate the value and qualities of the articles which they have to sell. All men know this, and a buyer has no right to rely upon such statement.”
In Belcher v. Costello, 122 Mass. 189, the representation was that certain notes taken by plaintiff as collateral security were good. It was held that it was not the statement of a, fact, but the expression of an opinion merely, and that the trial court erred in submitting to the jury the question whether it was intended by defendant to represent that the makers of the notes were in good pecuniary circumstances, and able to pay them, and in saying that, if they so found, the representation would be as to an existing fact.
In Ellis v. Andrews, 56 N. Y. 83, 15 Am. Rep. 379, it was held that a false representation that certain corporate stock which was sold was worth at least 80 per cent, of the par value thereof was not actionable.
*750In Warner v. Benjamin, 89 Wis. 290, 62 N. W. 179, which was an action for damages for fraudulently inducing the plaintiff to purchase worthless mining stocks, it was held that representations by the defendant that the plaintiff could not lose upon her investment, and that the mines would pay dividends in the near future, were mere expressions of opinion, and of a promissory character, and did not afford a ground for recovery.
Reading the complaint in the light of these principles, what do we find? There is no direct charge that the defendant was actuated by fraud or evil motive; that he knew that his representations were false; that he made them for the purpose of deceiving the plaintiff; or that he made them recklessly, neither knowing of their truth or falsity, nor caring. In the absence of such averment or the equivalent, it is obvious that an essential element in an action of deceit would be lacking. It appears from the complaint, however, that defendant was the president and a director of the company that issued the bonds, and that he was wholly conversant with its affairs and condition; and it may therefore properly be said that a false statement by him as to such matters, being neither of mere opinion or judgment nor a prediction as to the future, was a false statement knowingly made within the rule. But it is entirely clear that this implication of scienter arising from defendant’s official connection with his company and his knowledge of its affairs applies only to existent facts, and does not, as matter of law, reach and cover the question of good faith in the expression of his opinion as to the worth of its securities were it material to be considered. The defendant’s knowledge of the affairs of the company and his opinion predicated thereon are things wholly different. Actual conditions have but an evidential bearing upon the question of sincerity with which one’s opinion is entertained. Error in the finite judgment of man must always be expected. Account must be taken of imperfect appreciation of those things which lie before the eyes, and sanguine hopefulness, and even credulity; all of which may be entirely consistent with the utmost good faith. So far, therefore, as the words of the defendant were mere expressions of his belief, the case has not even been brought within the doctrine of those cases which declare to be actionable an intentionally false statement of opinion. The charge in a pleading of an erroneous opinion based upon known conditions is not a charge of intentional bad faith, fraud, or deceit.
The statement of the defendant that the bonds offered to the plaintiff were first-class securities, that he knew them to be good, and knew that thejr would be paid, principal and interest, at maturity, was a mere expression of his judgment or opinion as to their value, and a prophecy as to the financial prosperity of his company. It is true that the words of the defendant were positive and emphatic, but, after all, they were only expressions of his belief. From the very nature of things, he could not have looked into the future, and foretold with certainty the successful conduct of the business;' ■and, so far as the worth of . the bonds depended, upon the value of the property of the company, part of which was purchased of the *751plaintiff herself, it is common knowledge that it might naturally be susceptible of the widest difference of estimate. Enterprises such as that behind the bonds in question not infrequently disappoint the anticipations of their projectors, and statements like those made by defendant should be taken not as representations of existing facts, but rather as expressions of expectancy and opinion.
It is not perceived how the representation that “the bond issue was all in tire hands of the trust company” was material, how the falsity of the statement operated to the prejudice of the plaintiff, or was matter of inducement to her acceptance of the bonds sold to her.
The representation that the provisions and recitals of the bonds must be met whether the company would or no, is but an assertion that the payment of the bonds and the performance of such other stipulations as appeared thereon were not merely optional with the company, but existed as a legal obligation. As it was admitted in the first count of the complaint that the bonds were actually executed and issued by the company, there is nothing substantial in this averment. Another representation which is said to have been false was “that the bonds offered to this plaintiff were due absolutely July 1, 1901.” Were nothing else to be said as to this, it appears elsewhere in the same count that the bonds matured on the day mentioned.
It was also charged that defendant represented that other persons had agreed to accept some of the bonds in part payment of mining property sold by them to the company; that the bonds offered to the plaintiff would come in before those held by defendant and his associates, and that as to such bonds she would occupy a preferred place among the bondholders. These representations were material, and were well calculated to induce the plaintiff to accept the bonds. There is no reference in the complaint to any recitals of the bonds themselves which would impugn her averment that, aside from the representations of defendant, she was wholly without knowledge or means of acquiring the same. In respect of these representations a cause of action is stated in the first count of the complaint, and the demurrer thereto should have been overruled. But it should be said that if, upon the trial, it is found that the alleged representation of priority of the plaintiff’s bonds was merely that they would be paid at maturity, and would therefore be out of the way before those of succeeding installments would mature—a priority in time of payment, rather than of lien or obligation—it would be merely promissory in character and not actionable.
In an action of false warranty it is not necessary to allege or prove the scienter of the defendant, and in that respect it differs from an action of deceit. But the rule that applies to the latter, excluding from the class of actionable representations those which are purely expressions of opinion or belief or which are of a promissory character applies as well to an action of false warranty.
From the face of the two paragraphs of the second count which appear in the statement preceding this opinion there may arise an *752inference that the plaintiff charged that defendant warranted the validity of the bonds, and that the warranty was false. But in view of the other averments, and what was said at the argument and in the briefs, there is no real contention that the bonds were not genuine, were not actually executed by the company, and did not constitute valid obligations. The demurrer to the second count was properly sustained.
-The judgment of the Circuit Court is reversed, and the cause remanded, with directions to overrule the demurrer to the first count of the complaint, and to permit the defendant to answer.