Boddy v. Henry

• Citation: 113 Iowa 462,85 N.W. 771
• Parties: BODDY v. HENRY ET AL.
• Decision Date: 12 April 1901
• Court: Iowa Supreme Court

113 Iowa 462

85 N.W. 771

BODDY

v.HENRY ET AL.

Supreme Court of Iowa.

April 12, 1901.

Appeal from district court, Franklin county; J. R. Whitaker, Judge.

Plaintiff sues to recover damages sustained by reason of false and fraudulent representations made by the defendants as to the quantity of land contained in a certain ranch in Texas, which ranch constituted the principal property of a stock company, the shares of which were transferred by defendants to plaintiff in exchange for lands of plaintiff in Iowa. There was a verdict of $5,000 for plaintiff, and from judgment rendered thereon defendants appeal. Reversed.W. A. Powell, E. P. Andrews, and W. D. Evans, for appellants.

F. M. Williams and Albrook & Lundy, for appellee.

McCLAIN, J.

The defendants, being the president and secretary, respectively, of the Clay County Land & Cattle Company of Texas, and the owners of 2,450 shares out of the entire stock of the company, consisting of 2,500 shares, in March, 1897, advertised a Texas ranch for sale as a part of the property of the company. This advertisement came to the notice of plaintiff, who resided in Franklin county, Iowa, and owned a tract of land in that county of 1,760 acres, which he had listed with the real-estate agents at Burlington, Iowa, for sale. Plaintiff and his agents corresponded with defendants with reference to exchanging the Franklin county land for the Texas ranch, and subsequently had personal negotiations with them, which resulted in the transfer to plaintiff of defendant's stock in the corporation, and the conveyance by plaintiff to defendants of his Franklin county land. The defendants, at the time of the commencement of these negotiations, had only recently acquired any considerable interest in the Texas company, and become its officers, and neither of them had seen the Texas ranch. During the course of the negotiations the plaintiff and defendant Henry both visited the Texas ranch, the plaintiff on three different occasions. Defendants referred plaintiff to one Butcher, who was in charge of the ranch as agent for the company, and some of plaintiff's interviews with reference to the property were with him. The sole issue in the case is whether, in the course of these negotiations, false and fraudulent representations were made by defendants, or by said Butcher as their agent, on which plaintiff relied and had a right to rely, with reference to the amount of land included in the ranch. It may be said that there is no controversy as to the fact that the boundaries of the ranch were correctly referred to and pointed out, but the controversy is as to what was represented with reference to the area included, and whether such representations, if erroneous, were false and fraudulent; it being contended that defendants represented the ranch as containing about 17,000 acres, whereas, in fact, its contents fell short of that quantity by more than 2,000 acres. Although defendants transferred to plaintiff their share of stock in the company, and not directly the ranch itself, yet there is no question but that the principal capital and property of the corporation consisted in this ranch, and that the actual value of the stock depended to a large extent on the amount of land included in the ranch, so that any false and fraudulent representations as to its area would be so far material in the transaction as to render the defendants liable in the same way as though they had directly conveyed the ranch itself in exchange for plaintiff's land.

The foregoing are the facts necessary for an understanding of the questions of law involved in the case. The general legal proposition on which plaintiff's action rests is that false and fraudulent representations made, with knowledge of their falsity, by one person to another, and relied on by the latter to his injury, render the person making such representations liable to him in damages for the injury thus resulting. The necessary elements of this legal wrong, for which a court of law gives redress in an action for deceit, are: (1) False representations by defendant, upon which plaintiff had the right to rely; (2) knowledge of their falsity on the part of defendant; and (3) injury to plaintiff resulting from his reliance thereon.

The court instructed the jury that, in determining whether or not defendants knew that the representations alleged to have been made by them as to the quantity of land were false, the jury had the right to consider the fact that defendants were stockholders and officers of the company and had in their custody and control maps, abstracts, tax receipts, and other papers or books belonging to the company, and pertaining to said land, which contained information as to the acreage of the ranch as well as personal knowledge of the number of acres on the part of defendants, and all means of said knowledge and all other facts and circumstances as may have been shown by the evidence bearing on and pertaining to said knowledge; also that such officers would be presumed to have known that which it was their duty to know, and that, before making representations as to the amount of land, it was their duty to use reasonable diligence to know that the representations were true, and that they would be presumed to have used such diligence, and to possess the knowledge which its exercise would bring to them; also that, though defendants did not know the representations to be false, yet if they made them as true, and of their personal knowledge as to truth or falsity, and had the means at hand as such officers to know their truth or falsity, and had assumed such knowledge, then, under the law, they were presumed to have known such representations were false. In effect, the court thus authorized the jury to hold defendants liable without any proof of knowledge of falsity of these statements on the part of defendants, if, from the means of knowledge accessible to them, they might have known the statements to be false, even though, as a matter of fact, they believed them to be true. Unless defendants were chargeable with some duty to plaintiff by reason of their being officers of the company, this direction was plainly contrary to the rule long recognized by this court with reference to the necessity of proof of scienter in actions for deceit. The rule uniformly recognized by this court is that the plaintiff must show by competent testimony that the representations were false and fraudulent, within the knowledge of the party making them. It is not enough that they were made through mistake, ignorance, or carelessness, or without reason to believe that they were true. Holmes v. Clark, 10 Iowa, 423;Courtney v. Carr, 11 Iowa, 295;Hallam v. Todhunter, 24 Iowa, 166;Avery v. Chapman, 62 Iowa, 144, 17 N. W. 454;Allison v. Jack, 76 Iowa, 205, 40 N. W. 811;Phelps v. James, 79 Iowa, 262, 44 N. W. 543;Sylvester v. Henrich, 93 Iowa, 489, 61 N. W. 942.

There is an intimation in McKown v. Furgason, 45 Iowa, 636, that the representation of a matter as truth of personal knowledge, of which the person making the representation had no knowledge whatever, is a false representation, and this qualification of the rule is supported by authorities from other states. Kountze v. Kennedy, 147 N. Y. 124, 41 N. E. 414, 29 L. R. A. 360;Cole v. Cassidy, 138 Mass. 437;Furnace Co. v. Moffatt, 147 Mass. 403, 18 N. E. 168;Lobdell v. Baker, 1 Metc. (Mass.) 193;Cooper v. Schlesinger, 111 U. S. 148, 4 Sup. Ct. 360, 28 L. Ed. 382;Griswold v. Gebbie, 126 Pa. 363, 17 Atl. 673;Hexter v. Bast, 125 Pa. 52, 72, 17 Atl. 252;Rowell v. Chase, 61 N. H. 135.

But even this statement of the law would not help out the instructions which we are now considering. There are cases decided by other courts extending the rule of liability beyond that recognized in this state. See Holcomb v. Noble, 69 Mich. 396, 37 N. W. 497;Totten v. Burhans, 91 Mich. 495, 51 N. W. 1119;Trimble v. Reid, 97 Ky. 713, 31 S. W. 861;Foard v. McComb, 75 Ky. 723;Foster v. Kennedy's Adm'r, 38 Ala. 359. But these cases are wrong in principle. The question is not whether defendant has made representations which amount to an implied warranty, or whether the contract ought to be rescinded in equity, or whether the defendant has attempted to gain an unconscionable advantage; for these matters are subject of investigation and redress in different forms of action. Stone v. Denny, 4 Metc. (Mass.) 151;Cameron v. Mount, 86 Wis. 477, 56 N. W. 1094, 22 L. R. A. 512;Smith v. Bricker, 86 Iowa, 285, 53 N. W. 250;Hunter v. Safety Cure Co., 96 Iowa, 573, 65 N. W. 828.

In the case of Kountze v. Kennedy, 147 N. Y. 129, 41 N. E. 414, 29 L. R. A. 363, it is said: “Misjudgment, however gross, or want of caution, however marked, is not fraud. Intentional fraud, as distinguished from a mere breach of duty or the omission to use due care, is an essential factor in an action for deceit. The man who intentionally deceives another to his injury should be legally responsible for the consequences. But if, through inattention, want of judgment, reliance upon information which a wiser man might not credit, misconception of the facts or of his moral obligation to inquire, he makes a misrepresentation designed to influence the conduct of another, and upon which the other acts to his prejudice, yet, if the misrepresentation was honestly made, believing it to be true, whatever other liability he may incur he cannot be made liable in an action for deceit. The law affords remedies for the consequences of innocent misrepresentation. A contract induced thereby may in many cases be avoided, and the equitable powers of courts are frequently interposed for the rescission of contracts or transactions based upon mistake or innocent misrepresentation. While the common-law action of deceit furnishes a remedy for fraud which ought to be preserved, we think it...