Irwin v. Carlton, 113

• Court: Michigan Supreme Court
• Writing for the Court: SOURIS; CARR
• Citation: Irwin v. Carlton, 119 N.W.2d 617, 369 Mich. 92 (Mich. 1963)
• Decision Date: 06 February 1963
• Docket Number: No. 113,113
• Parties: Rolang IRWIN, Plaintiff and Appellant, v. Lawrence F. CARLTON, Defendant and Applellee.

Page 617

119 N.W.2d 617

369 Mich. 92

Rolang IRWIN, Plaintiff and Appellant, v. Lawrence F. CARLTON, Defendant and Applellee.

No. 113.

Supreme Court of Michigan.

Feb. 6, 1963.

James R. Golden, Battle Creek, for plaintiff and appellant.

Schroeder, Schroeder & DeGraw, by Ronald J. DeGraw, Marshall, for defendant and appellee.

Before the Entire Bench.

SOURIS, Justice (for reversal).

Plaintiff purchased 40 hogs and some farm machinery at an auction sale of defendant's farm stock and equipment. about a month later atrophic rhinitis was discovered in some of the hogs purchased. Atrophic rhinitis is a highly infectious and communicable disease affecting the turbinate bones in the nasal passages. Following his discovery of this disease, which spread to other hogs owned by plaintiff, plaintiff sold his entire herd for slaughter. He then started this action in tort for fraud and deceit to recover his damages, claiming that defendant had misrepresented that the hogs purchased were healthy. Plaintiff lost the jury verdict and appeals therefrom on the ground that the trial judge's charge to the jury was prejudicially erroneous.

In his charge Judge Coleman instructed the jury that in order to award plaintiff damages for defendant's alleged misrepresentation, the jury would have to find that the defendant made the misrepresentation knowing it was false at the time it was made or that he made it recklessly without any knowledge of its truth and as a positive assertion that it was so. The defendant, in support of the judge's charge, cites Columbus Pipe & Equipment Co. v. Sefansky, 352 Mich. 539, 90 N.W.2d 492, and Graham v. Meyers, 333 Mich. 111, 52 N.W.2d 621, ¹ in both of which this Court referred to Candler v. Heigho, 208 Mich. 115, 175 N.W. 141, in which this Court quoted the following from 20 Cyc. at p. 13:

"The general rule is that to constitute actionable fraud it must appear: (1) That defendant made a material representation; (2) that it was false; (3) that when he made it he knew that it was false, or made it recklessly, without any knowledge of its truth and as a positive assertion; (4) that he made it with the intention that it should be acted upon by plaintiff; (5) that plaintiff acted in reliance upon it; and (6) that he thereby suffered injury. Each of these facts must be proved with a reasonable degree of certainty, and all of them must be found to exist; the absence of any one of them is fatal to a recovery." (Emphasis added.)

Almost 100 years ago Mr. Justice Cooley, in Converse v. Blumrich, 14 Mich. 109, at p. 123, set the course for Michigan courts on this subject when he said:

'* * * We have carefully in the course of our opinion abstained from speaking of the acts of complainant as intentionally dishonest, and from characterizing them with harshness. We have been obliged to say of his statements that they were untrue, and made on his part with knowledge that they were so. But we will not undertake to say that he did not convince himself by some process of reasoning that they were correct. The legal aspect of the case would not be different if we came to that conclusion, since the courts must look at the effect of untrue statements upon the person to whom they are made, rather than to the corrupt motive of the one making them. If one obtains the property of another, by means of untrue statements, though in ignorance of their falsity, he must be held responsible as for a legal fraud: Ainslie v. Medlycott, 9 Ves., 21; Taylor v. Ashton, 11 M. & W., 401; Smith v. Richards, 13 Pet., 26 [38 U.S. 26, 10 L.Ed. 42]; Lockridge v. Foster, 4 Scam., [Ill.] 569; Smith v. Babcock, 2 Wood [b] & M., 246; Tuthill v. Babcock, Id., 298.'

The rule pronounced in Converse v. Blumrich was followed in Steinbach v. Hill, 25 Mich. 78, Beebe v. Knapp, 28 Mich. 53, Webster v. Bailey, 31 Mich. 36, Starkweather v. Benjamin, 32 Mich. 305, and Baughman v. Gould, 45 Mich. 481, 8 N.W. 73. Then, in 1888, separate opinions were written in Holcomb v. Noble, 69 Mich. 396, 37 N.W. 497, by Mr. Justice Campbell and Mr. Justice Morse, both of whom concluded that in Michigan the rule was that a misrepresentation, even though made innocently, if relied upon, supports an action either in equity or at law if damage results, Justice Morse citing Converse and subsequent cases. See, also, Busch v. Wilcox, 82 Mich. 315, 46 N.W. 940, rehearing denied, 82 Mich. 336, 47 N.W. 328. These last two cases, Holcomb v. Noble and Busch v. Wilcox, were re-examined in Aldrich v. Scribner, 154 Mich. 23, 117 N.W. 581, 18 L.R.A.,N.S., 379, and compared with Krause v. Cook, 144 Mich. 365, 108 N.W. 81.

In Aldrich v. Scribner, the Court distinguished Krause from Holcomb and Busch in a manner which may be described as creating an exception to the Michigan rule in cases where suit is brought against one not a party to the contract claimed to have been fraudulently induced. Krause v. Cook was a case in assumpsit for money obtained by fraud and deceit brought by the purchaser of mining stock against the seller's agent, who misrepresented the condition of the mine, and this Court reversed a judgment for the plaintiff. Our majority in Aldrich explained the result in Krause on the ground that the defendant agent profited only to the extent of 10% of the loss sustained by the plaintiff, ² thereby minimizing the considerations which induced the Court, in Holcomb, in Busch, and in other cases in which suit was brought against a contracting party who was the beneficiary of the fraud, to allow recovery even in the absence of proof of scienter. When a contracting party is sued, the Court said in Aldrich, 154 Mich. at p. 31, 117 N.W. at p. 584, 18 L.R.A.,N.S., 379, 'the defendant, in consideration of what he did receive, understood that he should make good any loss caused plaintiff by relying upon the false representation.' One commentator has suggested that in the Aldrich case 'the rationale of unjust enrichment has been used to justify the result.' Keeton, Conditional Fault in the Law of Torts, 72 HLR 401, 432.

Decision in Columbus Pipe & Equipment Co. v. Sefansky, supra, and Graham v. Meyers, supra, relied upon by defendant, did not turn upon defendants' knowledge of the falsity of the alleged misrepresentations and, therefore, the Court did not reexamine the rule of Converse v. Blumrich which has been followed in this State whenever such cases present the issue of scienter. The two cases relied upon by the defendant were decided on appeal against the plaintiffs because, in Columbus Pipe, supra, the proofs failed to disclose reliance was placed upon the representations claimed to be false and because, in Graham, supra, there was no claim or proof that defendants made any representations regarding the defect subsequently discovered by the purchaser. Unfortunately, without...