Evatt v. Hudson

• Decision Date: 16 January 1911
• Citation: 133 S.W. 1023,97 Ark. 265
• Parties: EVATT v. HUDSON
• Court: Arkansas Supreme Court

133 S.W. 1023

97 Ark. 265

EVATT v. HUDSON

Supreme Court of Arkansas

January 16, 1911

Appeal from Scott Chancery Court; J. V. Bourland, Chancellor affirmed.

Decree affirmed.

A. G Leming and Youmans & Youmans, for appellant.

In order to sustain a recovery for appellee, it must appear that the statements made by appellant were false, and that he knew them to be false, or else, not knowing, he asserted them to be true with intent to have appellee to act upon them, and that he did so, to his injury. 73 Ark. 542; 11 Ark. 58; 38 Ark. 339; 60 Ark. 387.

Where the purchaser undertakes to make investigations of his own and the vendor does nothing to prevent his investigation from being as full as he chooses to make it, the purchaser cannot afterwards allege that the vendor made misrepresentations. 125 U.S. 247; 46 Ark. 250.

Cammack & White, and Carmichael, Brooks & Powers, for appellee.

1. Any false statement by an authorized agent of a corporation in regard to the past or present status of the corporate enterprise or matters connected therewith, whereby subscriptions are obtained, is a fraudulent representation. 143 U.S. 79; 89 Ill. 395. A representation that the stock is worth more than par is material when in fact the corporation is insolvent. 70 S.W. 868; 72 S.W. 768; 82 N.E. 104. Statements need not be intentionally false in order to amount to fraudulent representation. 2 Disney (Ohio), 302; 51 Miss 829; 2 Head (Tenn.) 23; 77 Ala. 357; Chitty on Contracts (12 ed.), 692.

Relief on the ground of misrepresentation will be granted where the fact is pleaded, and the proof is clear that the party relied on representations to his hurt. 164 Ill. 282; 109 N.W.784; 6 Kan.App. 83; 79 Md. 530; 62 N.Y. 645; 26 F. 210; 103 Ky. 153; 93 S.W. 534. Where fraudulent misrepresentations are made by a third person with the knowledge and connivance of the vendor, the sale may be rescinded as though they were made by the vendor himself. 66 N.Y. 558; 52 F. 77.

As to the duty of the purchaser to investigate, see 38 Ark. 334; 143 U.S. 79.

In an action for deceit, the motive of the defendant is immaterial. The law infers an improper motive if what he says is false within his knowledge, and occasions damage to the plaintiff. 22 Ill.App. 457; 51 Ill. 299.

2. This court will not reverse the decree of the chancellor unless it is contrary to the clear preponderance of the evidence, nor for any error unless that error is prejudicial. 70 Ark. 507; 77 Ark. 31; Id. 305; Id. 216; 71 Ark. 605; 68 Ark. 314; Id. 134; 44 Ark. 216.

OPINION

FRAUENTHAL, J.

This was an action instituted by O. R. Hudson, the plaintiff below, to annul a contract of sale or exchange of property into which it was alleged that the plaintiff was induced to enter by reason of the fraud of the defendant. It was alleged that the defendant sold to the plaintiff 34 shares of the capital stock of a business corporation for which he paid in money and property the sum of $ 1,125; and that defendant induced him to purchase said shares of stock by falsely and fraudulently representing that the corporation was in a good and prosperous financial condition, when, as a matter of fact, he knew that it was insolvent and the shares of stock wholly worthless. The plaintiff sought a cancellation of the deed which he had executed to defendant for the property conveyed to him, and a recovery of the money which he had paid as the consideration for said stock. The defendant denied that he had perpetrated any fraud in the sale of the stock, but claimed that the sale thereof was made honestly and in good faith by him.

The chancellor determined that the contract of sale was entered into by plaintiff by reason of the fraudulent acts and representation of defendant, and he made a detailed statement of his findings of such fraudulent acts and representations which induced plaintiff to make the contract. He annulled the contract and entered a decree in favor of plaintiff cancelling the deed and adjudging a recovery of the money which had been given for the stock.

It is well settled that one who has been fraudulently induced to purchase or to sell property or to exchange his own property for that of another may have such contract annulled by a court of chancery and the consideration parted with by him restored. The question as to what constitutes fraud sufficient to entitle one to such relief in any given case is one both of law and fact, though generally a question largely of fact. It has been found difficult to give a precise and technical definition of fraud which would be applicable to the facts of all cases, because in its very nature fraud endeavors to elude all laws in fact while appearing to comply with all laws in form. So that the facts of each case must necessarily determine whether or not the falsehood and artifice complained of are of such a nature as to constitute a fraud cognizable in law. Representations to be fraudulent in law must be material to the contract or transaction which is to be avoided, and "must be made by one who either knows them to be false or else, not knowing, asserts them to be true, and made with the intent to have the other party act upon them to his injury, and such must be their effect." Louisiana Molasses Co., Ltd., v. Ft. Smith Wholesale Gro. Co., 73 Ark. 542, 84 S.W. 1047.

But every false statement is not necessarily fraudulent in law, even though it is of a material fact inducing the contract. It must appear also that the party complaining not only did rely upon the fraudulent statement, but that he had a right to rely upon it in the full belief of its truth, otherwise his injury was due to his own carelessness and folly, and he cannot expect the law to act as his guardian and relieve him from the consequences of his own want of prudence. Ordinary prudence and diligence require that each party shall seek "the means of information that are open to both alike." But, as is said in the case of Gammill v. Johnson, 47 Ark. 335, 1 S.W. 610, "when the representation is made of a fact that has nothing to do with opinion, and is peculiarly within the knowledge of the person making it, the one receiving it has the absolute right to rely upon its truthfulness, though the means of ascertaining its falsity were fully open to him. It does not lie in the mouth of the declarant to say it was folly in the other to believe him."

And, as is said in Graham v. Thompson, 55 Ark. 296, 18 S.W. 58, "the very representations relied upon may have caused the party to desist from inquiry and neglect his means of information, and it does not rest with him who made them to say their falsity might have been ascertained and it was wrong to credit them." Though the party may have the opportunity to ascertain the truth or falsity of the representations made, yet, if false representations are made with the intent to induce the other party to act thereon, ordinary prudence does not require the party to test the truth of such representations where they are within the knowledge of the person making them or where they are made to induce the other to refrain from seeking the means of information, Stewart v. Fleming, 96 Ark. 371, 131 S.W. 955; Kountze v. Kennedy, 147 N.Y. 124; McKown v. Furgason, 47 Iowa 636.

These principles of a law apply alike to the sales of shares of stock as to other property. A false and fraudulent representation made with intent to deceive as to material facts which necessarily affect the value of shares of stock in a corporation will avoid a sale thereof when by means of such fraudulent representations another was induced to purchase said shares. Miller v. Barber, 66 N.Y. 558; Schwenk v. Naylor, 102 N.Y. 683, 7 N.E. 788; McAleer v. Horsey, 35 Md. 439.

The above principles of law are applicable, we think, to the facts of this case and determine the rights of the parties herein. It appears that the defendant was the owner of 34 shares of the capital stock of...