Lord Tenterden, C. J.[347] In this case, in which the defendant obtained a verdict on the trial before me at the sittings after Hilary Term, a rule nisi was obtained to enter a verdict for the plaintiff, and cause was shown during the last term. The declaration contained two counts: the first stated, that a foreign bill of exchange was drawn on a person of the name of Hancorne, and that the defendant falsely, fraudulently, and deceitfully did represent and pretend that he was duly authorized to accept the bill by the procuration, and on behalf of Hancorne, and did falsely and fraudulently pretend to accept the same by the procuration of Hancorne. It then proceeded to allege several indorsements of the bill, and that the plaintiff, relying on the pretended acceptance, and believing that the defendant had authority from Hancorne to accept, received the bill from the last indorsee in discharge of a debt; that the bill was dishonored, and that the plaintiff brought an unsuccessful action against Hancorne. The second count contained a similar statement of the false representation by the defendant, and that he accepted the bill in writing under pretence of the procuration from Hancorne; and then proceeded to describe the indorsements to the plaintiff, and the dishonor of the bill, and alleged, that thereupon it became and was the duty of the defendant to pay the bill as the acceptor thereof, but that he had not done so.
On the trial it appeared, that when the bill was presented for acceptance by a person named Armfield, who was one of the payees of the bill, Hancorne was absent; and that the defendant, who lived in the same house with him, was induced to write on the bill an acceptance as by the procuration of Hancorne, Armfield assuring him that the bill was perfectly regular, and the defendant fully believing that the acceptance would be sanctioned, and the bill paid at maturity, by the drawee. It was afterwards passed into the plaintiff’s hands, and being dishonored when due an action was brought against Hancorne; the defendant was called as a witness on the trial of that action, and he negativing any authority from Hancorne, the plaintiff was nonsuited. I left to the jury the question of deceit and fraud in the defendant, as a question of fact on the evidence, and the jury having negatived all fraud, the defendant had a verdict, liberty being reserved to the plaintiff to move to enter a verdict, if the Court should think the action maintainable notwithstanding that finding.
On the argument, two points were made by the plaintiff’s counsel. It was contended, in the first place, that although the defendant was not guilty of any fraud or deceit, he might be made liable as acceptor of the bill; that the second count was applicable to that view of the case; and that, after rejecting the allegations of fraud and falsehood in that count, it contained a sufficient statement of a cause of action against him, as acceptor. But we are clearly of opinion that the defendant cannot be made responsible in that character. It is enough to say that no one can be liable as acceptor but the person to whom the bill is addressed, unless he be an acceptor for honor, which the defendant certainly was not.
This distinguishes the present case from that of a pretended agent making a promissory note (referred to in Mr. Roscoe’s Digest of the Law of Bills of Exchange, note 9, p. 47), or purchasing goods in the name of a supposed principal. And, indeed, it may well be doubted if the defendant, by writing this acceptance, entered into any contract or warranty at all, that he had authority to do so; and if he did, it would be an insuperable objection to an action as on a contract by this plaintiff, that at all events there was no contract with, or warranty to him.
It was in the next place contended that the allegation of falsehood and fraud in the first count was supported by the evidence; and that, in order to maintain this species of action, it is not necessary to prove that the false representation was made from a corrupt motive of gain to the defendant, or a wicked motive of injury to the plaintiff; it was said to be enough if a representation is made which the party making it knows to be untrue, and which is intended by him, or which, from the mode in which it is made, is calculated to induce another to act on the faith of it, in such a way as that he may incur damage, and that damage is actually incurred. A wilful falsehood of such a nature was contended to be, in the legal sense of the word, a fraud; and for this position was cited the case of Foster v. Charles, 6 Bing. 396; 7 Bing. 105, which was twice under the consideration of the Court of Common Pleas, and to which may be added the recent case of Corbet v. Brown, 8 Bing. 33. The principle of these cases appears to us to be well founded, and to apply to the present.
It is true that there the representation was made immediately to the plaintiff, and was intended by the defendant to induce the plaintiff to do the act which caused him damage. Here, the representation is made to all to whom the bill may be offered in the course of circulation, and is, in fact, intended to be made to all, and the plaintiff is one of those; and the defendant must be taken to have intended, that all such persons should give credit to the acceptance, and thereby act upon the faith of that representation, because that, in the ordinary course of business, is its natural and necessary result.
If, then, the defendant, when he wrote the acceptance, and thereby, in substance, represented that he had authority from the drawee to make it, knew that he had no such authority (and upon the evidence there can be no doubt that he did), the representation was untrue to his knowledge, and we think that an action will lie against him by the plaintiff for the damage sustained in consequence.
If the defendant had had good reason to believe his representation to be true, as, for instance, if he had acted upon a power of attorney which he supposed to be genuine, but which was, in fact, a forgery, he would have incurred no liability, for he would have made no statement which he knew to be false: a case very different from the present, in which it is clear that he stated what he knew to be untrue, though with no corrupt motive.
It is of the greatest importance in all transactions that the truth should be strictly adhered to. In the present case, the defendant no doubt believed that the acceptance would be ratified, and the bill paid when due, and if he had done no more than to make a statement of that belief, according to the strict truth, by a memorandum appended to the bill, he would have been blameless. But then the bill would never have circulated as an accepted bill, and it was only in consequence of the false statement of the defendant that he actually had authority to accept, that the bill gained its credit, and the plaintiff sustained a loss. For these reasons we are of opinion that the rule should be made absolute to enter a verdict for the plaintiff.
Case for deceitful representations by a debtor to his creditor, the plaintiff having subsequently purchased the claim from the latter in the form of a promissory note. Heard on defendant’s petition for new trial.
Per Curiam. Assuming that the representations testified to by the plaintiff were made by the defendant, the testimony shows that they were made for the purpose of being communicated to Murphy, to procure an extension of time for the payment of his claim against the defendant. At the time they were made the defendant had no expectation that the note, which was subsequently made, was to be taken by the plaintiff, who, in the meantime, had purchased the claim from Murphy. We do not think that in these circumstances the plaintiff had the right to rely on the representations, if they were made, because they were not made with the intention of inducing his action, and consequently that he has no ground to maintain an action for deceit.
Case remitted to the Common Pleas Division, with direction to enter judgment for the defendant for costs.[349]
Action for deceit in the exchange of real property for shares of corporate stock. Plaintiff alleged fraudulent representations on the part of defendants as to the value of the shares, whereby he was induced to make the exchange. Trial. Verdict for defendants. Plaintiff appealed from an order denying a new trial.[350]
Collins, J....
2. At defendants’ request the court charged the jury, in substance, that they must find for defendants, unless it appeared by a preponderance of testimony that the property conveyed by plaintiff in exchange for the shares of stock was worth more than the latter; and to this plaintiff excepted, on the ground that it prevented the jury from returning a verdict in his favor for nominal damages; that, even if the jury should fail to find that the property conveyed by plaintiff was of greater value than the shares of stock transferred to him,—passing on all other questions in his favor,—they might award him nominal damages at least; and that the possibility of such an award was excluded by the charge. But, at plaintiff’s request, the jury was instructed that, if they found for him, the amount he would be entitled to recover would be the amount of the difference between the actual value of the property which he conveyed and the actual value of the stock received by him. The rule as to the measure of damages in the case was stated in better form in plaintiff’s than in defendants’ request, but one was, in effect, a repetition of the other. The rule was correctly stated in each, and the same proposition of law was elsewhere in the charge laid down by the court in very concise and proper, but different, language. The essential elements which constitute a cause of action for deceit are well stated in Busterud v. Farrington, 36 Minn. 320 (31 N. W. Rep. 360), and one is that the party induced to act has been damaged. He must have acted on the faith of the false representations to his damage. A party cannot sustain an action of this character where no harm has come to him. Deceit and injury must concur,—Doran v. Eaton, 40 Minn. 35 (41 N. W. Rep. 244);—or, as it has frequently been put by the courts, fraud without damage or damage without fraud will not sustain the action for deceit. Taylor v. Guest, 58 N. Y. 262; Nye v. Merriam, 35 Vt. 438; Freeman v. McDaniel, 23 Ga. 354; Byard v. Holmes, 34 N. J. Law, 296; 3 Suth. Dam. 594; Cooley, Torts, 474; Bailey, Onus Probandi, 770. If, therefore, the shares of stock were worth what plaintiff gave for them, were of equal value with the property exchanged, the plaintiff was not damaged, and was not entitled to recover; for the proper measure of damages was the difference in value between the shares of stock and the property conveyed by plaintiff for them. Redding v. Godwin, 44 Minn. 355 (46 N. W. Rep. 563), and cases cited. The plaintiff, under such a rule, would not be permitted to recover nominal damages even without proof of loss or injury, and there is nothing said in Potter v. Mellen, 36 Minn. 122 (30 N. W. Rep. 438), as counsel has contended, indicating a contrary view. Damage is of the essence of the action of deceit; an essential element to the right of action, and not merely a consequence flowing from it.
Action of tort. Writ dated Dec. 22, 1873. Plaintiff held the negotiable promissory note of J. W. and J. H. Cox, dated July 16, 1873, payable to plaintiff or order in two years from date; and he also held a mortgage conditioned to secure the note. In consideration of land to be conveyed to him by the defendant, plaintiff agreed to assign to defendant the mortgage and note; but he did not agree to make an unrestricted indorsement of the note, and the defendant was not entitled to have the personal liability of the plaintiff as indorser of the note. Plaintiff, through ignorance of the law, and by reason of the false and fraudulent representations of defendant, on Dec. 1, 1873, indorsed the note in blank without any qualification. As soon as the plaintiff became aware of the obligation he had thus assumed, and before defendant had negotiated the note or altered his position in any way, plaintiff demanded to be allowed to qualify his indorsement so that it should merely transfer the title according to the agreement. Defendant refused to allow this. Thereupon plaintiff forbade defendant to negotiate the note; but defendant, notwithstanding, negotiated the note before maturity to one Tenney, a bona fide holder for value.
Upon a trial by a judge, without a jury, the foregoing facts were found, substantially as alleged in the declaration.
It also appeared, that, before commencing his action, or at any time before said trial, the plaintiff had made no payment on account or by reason of the indorsement; that, before the commencement of this action and before the maturity of the note, the makers thereof had become bankrupts; that since the commencement a semi-annual instalment of interest had become due; that Tenney had caused the real estate to be sold by virtue of the power contained in the mortgage, had applied a part of the proceeds of the sale in liquidation of that interest, and, since the maturity of the note, had applied the balance of the proceeds in part payment of the note, and had commenced an action against the plaintiff to recover the balance of said note (due demand having been made and notice given), which action is now pending.
Defendant requested the judge to rule that, upon the foregoing facts the plaintiff could not maintain his action, but, if he could, that he was entitled to recover only nominal damages. The judge declined so to rule, and held that defendant was liable for the conversion of the note, and that the measure of the plaintiff’s damages was the amount which the plaintiff was legally compellable to pay to the holder of the note, namely, the face of the note and interest, less the amount realized from the sale under the mortgage, treating the same as a partial payment. Defendant excepted.[352]
Colt, J. [After deciding that there was no conversion of the note.] The further objection is, that treating this as an action to recover damages for an alleged fraud, the plaintiff shows no damages sustained at the time his action was commenced. It was then uncertain and contingent whether he would ever be called on to pay the note. It was payable to the plaintiff or order in two years, and was dated in July, 1873, shortly before its transfer by his indorsement to the defendant. The liability of the plaintiff depended on the failure of the makers to pay and the giving of due notice to him as indorser. No payment has in fact ever been made by him. If the holder receives his pay from the makers through the mortgage security or otherwise, the plaintiff will have suffered no actionable wrong. There will have been no concurrence of damage with fraud, within the rule on which such actions are founded. And as there has been no invasion of the plaintiff’s rights, no breach of promise, and no interference with his property, there can be no recovery of even nominal damages in this action. Pasley v. Freeman, 3 T. R. 51; 2 Smith Lead. Cas. (6th Am. ed.) 157, and notes.
[Plaintiffs, by fraudulent representations of defendants, were induced to execute promissory notes to defendants. Upon a proceeding to cancel and annul the notes, it appeared that the notes had been transferred to, and were then held by, bona fide purchasers for value; and hence could not be decreed to be cancelled. It was held, that the court having jurisdiction of the defendants personally, had power to render judgment for damages. The opinion then proceeds as follows:—][354]
Siebecker, J. It is urged that compensatory damages cannot be awarded because they are not ascertainable under the facts found, and that plaintiffs must wait until they have made actual payment of the notes. This contention cannot be sustained. The court properly held that these notes in the hands of bona fide purchasers for value established a liability according to their terms against these plaintiffs, and that such liability was measured by the amount they call for on their face with interest. We deem this the correct measure of damages in the case, and within the principle of the case of Lyle v. McCormick H. M. Co., 108 Wisc. 81, 84 N. W. 18.[355]
Tort for deceit, alleging that, relying upon the false and fraudulent representations of the defendant, a broker, that certain sales of the stock of the Franklin Park Land Improvement Company in the Boston Stock Exchange from January 1, to March 27, 1893, were genuine transactions, the plaintiff revoked an order for the sale of certain shares of that stock held for him by the defendant, whereby the plaintiff suffered loss. Writ dated February 17, 1896.[356]
At the trial in the Superior Court, Hopkins, J., at the close of the evidence, directed the jury to return a verdict for the defendant. The verdict was returned as directed; and the plaintiff alleged exceptions. The findings warranted by the evidence are stated in the opinion of the court.
Hammond, J. The parties to this action testified in flat contradiction of each other on many of the material issues, but the evidence in behalf of the plaintiff would warrant a finding by the jury, that on March 25, 1893, the plaintiff, being then the owner of certain shares of stock in the Franklin Park Land and Improvement Company, gave an order to the defendant, a broker who was carrying the stock for him on a margin, to sell it at a price not less than $28.50 per share; that on March 27 the defendant, for the purpose of inducing the plaintiff to withdraw the order and refrain from selling, represented to the plaintiff that the sales which had been made of said stock in the market had all been made in good faith and had been “actual true sales throughout”; that these statements were made as of the personal knowledge of the defendant, and that the plaintiff, believing them to be true and relying upon them, was thereby induced to and did cancel his oral order to the defendant to sell, and did refrain from selling; and that the statements were not true, as to some of the sales in the open market, of which the last was in December, 1892, and that the defendant knew it at the time he made the representations. The evidence would warrant a further finding that in continuous reliance upon such representations the plaintiff kept his stock, when he otherwise would have sold it, until the following July, when its market value depreciated, and he thereby suffered loss. The defendant, protesting that he made no such representation and that the jury would not be justified in finding that he had, says that even upon such a finding the plaintiff would have no case. He contends that the representation was not material, that a false representation to be material must not only induce action but must be adequate to induce it by offering a motive sufficient to influence the conduct of a man of average intelligence and prudence, and that in this case the representation complained of, so far as it was false, was not adequate to induce action because the fictitious sales were so few and distant in time, and that therefore it was not material.
It may be assumed that the plaintiff desired to handle his stock in the manner most advantageous to himself, and that the question whether he would withdraw his order to sell was dependent, somewhat, at least, upon his view of the present or future market value of the stock; and upon that question a man of ordinary intelligence and prudence would consider whether the reported sales in the market were “true sales throughout” or were fictitious, and what was the extent of each. It is true that a corporation may be of so long standing and of such a nature, and the number of the shares so great and the daily sales of the stock in the open market so many and heavy, that the knowledge that a certain percentage of the sales reported are not actual business transactions would have no effect upon the conduct of an ordinary man. On the other hand a corporation may be so small and of such a nature and have so slight a hold upon the public, and the number of its shares may be so small and the buyers so few, that the question whether certain reported sales are fictitious may have a very important bearing upon the action of such a man. Upon the evidence in this case, we cannot say, as matter of law, that the representation so far as false was not material. This question is for the jury, who are to consider it in the light of the nature of the corporation and its standing in the market, and of other matters, including such as those of which we have spoken.
It is further urged by the defendant that one of the fundamental principles in a suit like this is that the representation should have been acted upon by the complaining party and to his injury; that at most the plaintiff simply refrained from action, and that “refraining from action is not acting upon representation” within the meaning of the rule; and further that it is not shown that the damages, if any, suffered by the plaintiff are the direct result of the deceit.
Fraud is sometimes defined as the “deception practised in order to induce another to part with property or to surrender some legal right,” Cooley, Torts (2d ed.), 555, and sometimes as the deception which leads “a man into damage by wilfully or recklessly causing him to believe and act on a falsehood.” Pollock, Torts (Webb’s ed.), 348, 349. The second definition seems to be more comprehensive than the first (see for instance Barley v. Walford, 9 Q. B. 197, and Butler v. Watkins, 13 Wall. 456), and while the authorities establishing what is a cause of action for deceit are to a large extent convertible with those which define the right to rescind a contract for fraud or misrepresentation and the two classes of cases are generally cited without any express discrimination, still discrimination is sometimes needful in the comparison of the two classes of cases. Pollock, Torts (Webb’s ed.), 352.
It is true that it must appear that the fraud should have been acted upon. It is a little difficult to see precisely what is meant by the contention that “refraining from action is not acting upon representation.” If by refraining from action it is meant simply that the person defrauded makes no change but goes on as he has been going and would go whether the fraud had been committed or not, then the proposition is doubtless true. Such a person has been in no way influenced, nor has his conduct been in any way changed by the fraud. He has not acted in reliance upon it. If, however, it is meant to include the case where the person defrauded does not do what he had intended and started to do and would have done save for the fraud practised upon him, the proposition cannot be true. So far as respects the owner of property, his change of conduct between keeping the property on the one hand and selling it on the other, is equally great, whether the first intended action be to keep or to sell; and if by reason of fraud practised upon him the plaintiff was induced to recall his order to sell, and, being continuously under the influence of this fraud, kept his stock when, save for such fraud, he would have sold it, then with reference to this property he acted upon the representation within the meaning of the rule as applicable to cases like this. Barley v. Walford, 9 Q. B. 197; Butler v. Watkins, 13 Wall. 456.
The cases of Lamb v. Stone, 11 Pick. 527; Wellington v. Small, 3 Cush. 145; and Bradley v. Fuller, 118 Mass. 239, upon which the defendant relies, are not authorities for the proposition that “refraining from action is not acting upon representation.”
As to whether the loss suffered by the plaintiff is legally attributable to the fraud, much can be said in favor of the defendant, and a verdict in his favor on this as well as on other material points might be the one most reasonably to be expected upon the evidence, especially when it is considered that during the years 1892 and 1893 the plaintiff was a director in the company; but we cannot decide the question as a matter of law. If the fraud operated on the plaintiff’s mind continuously, up to the time of the depreciation of the stock in June, 1893, so that he kept his stock when otherwise he would have sold it, and such was the direct, natural and intended result, then we think the causal relation between the fraud and the loss is sufficiently made out. See Reeve v. Dennett, 145 Mass. 23, 29.
Tort for deceit, alleging, that, relying upon the false and fraudulent representations of the defendant, a broker, that certain sales of the stock of the Franklin Park Land Improvement Company in the Boston Stock Exchange from January 1 to March 27, 1893, were genuine transactions, the plaintiff revoked an order for the sale of certain shares of that stock held for him by the defendant, whereby the plaintiff suffered loss. Writ dated February 17, 1896.
At the first trial of the case in the Superior Court a verdict was ordered for the defendant, and the exceptions of the plaintiff were sustained by this court in a decision reported in 179 Mass. 295. At the new trial in the Superior Court before Sherman, J., it appeared that one Moody Merrill, a director and officer of the Franklin Park Land Improvement Company, absconded late in May or early in June of 1893, and that immediately upon his departure it was discovered that he had embezzled nearly $100,000 of the funds of that company, the result of which was that the market price of the stock immediately fell and the stock could not be sold; that the plaintiff from the time of the discovery of the defendant’s alleged fraud did his best to sell his stock, but was unable to do so at more than $3 a share, at which price he sold it after bringing this action.
The plaintiff among other requests asked the judge to rule, “That it is of no consequence so far as the defendant’s liability is concerned that an outside intervening cause has been the sole or contributing cause of the decline in price to which the plaintiff’s loss is due.”
The judge refused this and other rulings requested by the plaintiff, and instructed the jury, among other things, as follows:—
“If you find the fair market value of that stock was always above what it was fictitiously quoted, or equal to it, and that it was so on the 25th of March, 1893, and remained so and would have remained so, except for the embezzlement and absconding of Moody Merrill, then the plaintiff is not entitled to recover.
“If you find that Moody Merrill’s going away did destroy the value of the stock, practically destroy its value, then the plaintiff is not entitled to recover anything.
“You may take all the evidence on this subject, the fact of what Moody Merrill did, and what effect it had upon the market value of this stock, and if that destroyed the market value, then, as I have told you, the plaintiff is not entitled to recover anything. If his going away and embezzlement did not affect the market value of this stock, then the plaintiff may recover the full value of it.”
The judge submitted to the jury the following questions, which the jury answered as stated below:—
“1. Did the defendant make a representation to the plaintiff on or about March 25, 1893, that the quotations in the Boston Stock Exchange of Franklin Park Land and Improvement Company stock were quotations of actual and true sales?” The jury answered “Yes.”
“2. Were such quotations at or about the same sum as the quotations of actual sales and the sales at public auction?” The jury answered “Yes.”
“3. What was the fair market value of said stock on or about March 25, 1893?” The jury answered “$28.50 per share.”
“4. What was the fair market value of said stock on the last day of May, or immediately prior to June, 1893, the day before Moody Merrill’s absconding?” The jury answered “$27.75 per share.”
The jury returned a verdict for the defendant; and the plaintiff alleged exceptions.
Knowlton, C. J. The parties and the court seem to have assumed that the evidence was such as to warrant a verdict for the plaintiff under the law stated at the previous decision in this case, reported in 179 Mass. 295, if the diminution in the selling price of the stock came from common causes. The defendant’s contention is that the embezzlement of an officer of a corporation, being an unlawful act of a third person, should be treated as a new and independent cause of the loss, not contemplated by the defendant, for which he is not liable.
To create a liability, it never is necessary that a wrong-doer should contemplate the particulars of the injury from his wrongful act, nor the precise way in which the damages will be inflicted. He need not even expect that damage will result at all, if he does that which is unlawful and which involves a risk of injury. An embezzler is criminally liable, notwithstanding that he expects to return the money appropriated after having used it. If the defendant fraudulently induced the plaintiff to refrain from selling his stock when he was about to sell it, he did him a wrong, and a natural consequence of the wrong for which he was liable was the possibility of loss from diminution in the value of the stock, from any one of numerous causes. Most, if not all, of the causes which would be likely to affect the value of the stock, would be acts of third persons, or at least conditions for which neither the plaintiff nor the defendant would be primarily responsible. Acts of the officers, honest or dishonest, in the management of the corporation, would be among the most common causes of a change in value. The defendant, if he fraudulently induced the plaintiff to keep his stock, took the risk of all such changes. The loss to the plaintiff from the fraud is as direct and proximate, if he was induced to hold his stock until an embezzlement was discovered, as if the value had been diminished by a fire which destroyed a large part of the property of the corporation, or by the unexpected bankruptcy of a debtor who owed the corporation a large sum. Neither the plaintiff nor the defendant would be presumed to have contemplated all the particulars of the risk of diminution in value for which the defendant made himself liable by his fraudulent representations. It would be unjust to the plaintiff in such a case, and impracticable, to enter upon an inquiry as to the cause of the fall in value, if the plaintiff suffered from the fall wholly by reason of the defendant’s fraud. The risk of a fall, from whatever cause, is presumed to have been contemplated by the defendant when he falsely and fraudulently induced the plaintiff to retain his stock.
We do not intimate that these circumstances, as well as others, may not properly be considered in determining whether the plaintiff was acting under the inducement of the fraudulent representations in continuing to hold the stock up to the time of the discovery of the embezzlement. The false representations may or may not have ceased to operate as an inducement as to the disposition of his stock before that time. Of course there can be no recovery, except for the direct results of the fraud. But if the case is so far established that the plaintiff, immediately upon the discovery of the embezzlement, was entitled to recover on the ground that he was then holding the stock in reliance upon the fraudulent statements, and if the great diminution in value came while he was holding it, the fact that this diminution was brought about by the embezzlement of an officer leaves the plaintiff’s right no less than if it had come from an ordinary loss.
Tort for deceit in making false and fraudulent representations to the plaintiff touching the business and profits of a firm of which the defendant was a member, and thereby inducing the plaintiff to buy the interest of the defendant in the stock and good will of the firm. A count in contract for the same cause of action was joined. Answer, a general denial and a plea of a discharge in bankruptcy.
At the trial in the Superior Court, Brigham, C. J., ruled that the discharge in bankruptcy was a defence to the second count, but not to the first count; and the plaintiff relied on the first count only.
The judge instructed the jury that “the measure of damages would be the difference between the actual value of the stock and good will purchased at the time of the purchase and the value of the same had the representation been true.”
The jury returned a verdict for the plaintiff, and the defendant alleged exceptions.
Gray, J. The objections that either the joinder of a count in contract with the count in tort, or the certificate of discharge in bankruptcy, would defeat the plaintiff’s right of action in tort for the defendant’s false and fraudulent representations, were hardly relied on at the argument, and are groundless. Gen. Sts. c. 129, § 2, cl. 5. Crafts v. Belden, 99 Mass. 535. U. S. St. 1867, c. 176, § 33.
The rule of damages was rightly stated to the jury. It is now well settled that, in actions for deceit or breach of warranty, the measure of damages is the difference between the actual value of the property at the time of the purchase and its value if the property had been what it was represented or warranted to be. Stiles v. White, 11 Met. 356; Tuttle v. Brown, 4 Gray, 457; Whitemore v. South Boston Iron Co., 2 Allen, 52; Fisk v. Hicks, 11 Foster, 535; Woodward v. Thacher, 21 Verm. 580; Muller v. Eno, 4 Kernan, 597; Sherwood v. Sutton, 5 Mason, 1; Loder v. Kekulé, 3 C. B. N. S. 128; Dingle v. Hare, 7 C. B. N. S. 145; Jones v. Just, Law Rep. 3 Q. B. 197. This is the only rule which will give the purchaser adequate damages for not having the thing which the defendant undertook to sell him. To allow to the plaintiff (as the learned counsel for the defendant argued in this case) only the difference between the real value of the property and the price which he was induced to pay for it would be to make any advantage lawfully secured to the innocent purchaser in the original bargain inure to the benefit of the wrong-doer; and, in proportion as the original price was low, would afford a protection to the party who had broken, at the expense of the party who was ready to abide by, the terms of the contract. The fact that the property sold was of such a character as to make it difficult to ascertain with exactness what its value would have been if it had conformed to the contract affords no reason for exempting the defendant from any part of the direct consequences of his fraud. And the value may be estimated as easily in this action as in an action against him for an entire refusal to perform his contract.
Error to the United States Circuit Court for the Northern District of Ohio.
Action to recover damages for fraudulent representations in the sale of shares of mining stock.
The amended petition alleged (inter alia) that plaintiff was induced by defendant’s fraudulent representations to buy of defendant four thousand shares of mining stock at $1.50 per share, amounting to $6000; that “said stock and mining property was then, and still is, wholly worthless; and that had the same been as represented by defendant it would have been worth at least ten dollars per share; and so plaintiff says that by reason of the premises he has sustained damages to the amount of forty thousand dollars.”
Answer, denying plaintiff’s material allegations. Trial by jury. The instructions given as to damages are stated in the opinion. Verdict for plaintiff. Motion for new trial overruled. Judgment for plaintiff. Defendant brought error.[359]
Fuller, C. J. The bill of exceptions states that the court charged the jury “as to the law by which the jury were to be governed in the assessment of damages under the issues made in the case,” that “the measure of recovery is generally the difference between the contract price and the reasonable market value, if the property had been as represented to be, or in case the property or stock is entirely worthless, then its value is what it would have been worth if it had been as represented by the defendant, and as may be shown in the evidence before you.”
In this there was error. The measure of damages was not the difference between the contract price and the reasonable market value if the property had been as represented to be, even if the stock had been worth the price paid for it; nor if the stock were worthless, could the plaintiff have recovered the value it would have had if the property had been equal to the representations. What the plaintiff might have gained is not the question, but what he had lost by being deceived into the purchase. The suit was not brought for breach of contract. The gist of the action was that the plaintiff was fraudulently induced by the defendant to purchase stock upon the faith of certain false and fraudulent representations, and so as to the other persons on whose claims the plaintiff sought to recover. If the jury believed from the evidence that the defendant was guilty of the fraudulent and false representations alleged, and that the purchase of stock had been made in reliance thereon, then the defendant was liable to respond in such damages as naturally and proximately resulted from the fraud. He was bound to make good the loss sustained, such as the moneys the plaintiff had paid out and interest, and any other outlay legitimately attributable to defendant’s fraudulent conduct; but this liability did not include the expected fruits of an unrealized speculation. The reasonable market value, if the property had been as represented, afforded, therefore, no proper element of recovery.
Nor had the contract price the bearing given to it by the court. What the plaintiff paid for the stock was properly put in evidence, not as the basis of the application of the rule in relation to the difference between the contract price and the market or actual value, but as establishing the loss he had sustained in that particular. If the stock had a value in fact, that would necessarily be applied in reduction of the damages. “The damage to be recovered must always be the natural and proximate consequence of the act complained of,” says Mr. Greenleaf, vol. ii, § 256; and “the test is,” adds Chief Justice Beasley in Crater v. Binninger, 33 N. J. Law (4 Vroom), 513, 518, “that those results are proximate which the wrong-doer from his position must have contemplated as the probable consequence of his fraud or breach of contract.” In that case, the plaintiff had been induced by the deceit of the defendant to enter into an oil speculation, and the defendant was held responsible for the moneys put into the scheme by the plaintiff in the ordinary course of the business, which moneys were lost, less the value of the interest which the plaintiff retained in the property held by those associated in the speculation.
[Remainder of opinion omitted.]
Action for deceit, brought by Riddle against Schwabacker et als., alleging that, in the purchase of property to be taken at the invoice price, Riddle was cheated out of the sum of $2677.09 by fraudulent representations made by defendants in regard to the amount the goods purchased inventoried. On trial there was a verdict for plaintiff. Some of the instructions are stated in the opinion. Judgment in favor of Riddle. Schwabacker et als. appealed.[361]
Craig, C. J.... Instruction No. 2 reads as follows:—
“If a party misrepresents a fact within his own knowledge, to the injury of a third party, an action will lie for damages, if any, for such misrepresentation.”
This instruction is liable to several serious objections. In the first place, a misrepresentation, to be actionable, must be a material one, or no action will lie. In the second place, in an action for deceit no recovery can be had unless the plaintiff himself exercised ordinary prudence to guard against the deception and fraud practised upon him, unless he has been thrown off his guard by the other party. These two principles were entirely ignored by the instruction, and the jury, under this direction of the court, was at liberty to find against the defendants if they misrepresented any immaterial fact, however remote, and the plaintiff exercised no precaution whatever to guard against imposition. This is not a sound rule to be adopted, and as the instruction was calculated to mislead the jury, it ought not to have been given.
Instruction No. 13, given for the plaintiff, reads as follows:—
“It is not necessary, in this case, that the plaintiff should show any prior conspiracy or combination between the defendants to defraud the plaintiff; it is enough if the evidence shows that a sale was made to Riddle, or Riddle and Fosbender, and that the agreed price was for the value of the property, as shown by a certain invoice, and that notes were to be taken for the amount, and that the defendants had notes drawn for $2677.09 more than the value of the property as shown by such invoice; and if the plaintiff, before signing the notes, asked if they were for the amount of the invoice, and Fosbender said they were, in the presence and hearing of the other defendants, and if Riddle relied upon such statement in signing the notes, which was known to the defendants, then such conduct and representations would amount to a fraud in the other defendants, if they resulted in damages to the plaintiff.”
[After stating an objection to this instruction.]
Again, under this instruction a recovery may be had although the plaintiff was deceived from a total want of reasonable care on his part. At the time the notes were signed, as we understand the evidence of plaintiff himself, the invoice, which showed the correct amount of the goods, was present, and in the hands of one of the defendants. If that be true, and it could have been obtained and inspected by the plaintiff, and he failed and neglected to do so, but relied upon a statement made by Fosbender at the time, it was for the jury to determine whether, under the evidence, he had exercised proper diligence to guard against deception, and if he did not, he could not recover. But this principle was ignored in this and other instructions given for the plaintiff. Indeed, this principle is not stated, but seems to be ignored in all of the instructions given for the plaintiff. This last instruction, in our judgment, was calculated to mislead the jury.