Jarratt v. Langston

• Citation: 138 S.W. 1003,99 Ark. 438
• Parties: JARRATT v. LANGSTON
• Decision Date: 19 June 1911
• Court: Arkansas Supreme Court

138 S.W. 1003

99 Ark. 438

JARRATT v. LANGSTON

Supreme Court of Arkansas

June 19, 1911

Appeal from Sebastian Circuit Court, Fort Smith District; Daniel Hon, Judge; reversed.

Judgment reversed and cause remanded.

Winchester & Martin, for appellant.

Appellant's complaint stated a cause of action cognizable in equity. To the extent of the $ 1,500.00 of the capital stock of the Southern Bank & Trust Company mentioned in the deed as a part of the consideration, there was a total failure of consideration, and appellant was entitled to have a lien declared upon the land conveyed as for balance of purchase money. 6 N. Y. Ch. 324-335; 36 Barbour 195-200; 55 N.Y 139-144. Appellant's acceptance of the stock in payment does not prevent her from asserting her vendor's lien if the stock was in fact worthless, and at the time she accepted same she relied on appellee's representations, and it was not necessary for her to offer to refund the money paid to her. 9 Wis. 429; 17 F. 301. The existence of a legal remedy does not prevent her resort to equity to have the balance of the consideration declared a lien on the land. 38 Mich. 487.

Falconer & Woods, for appellee.

1. Appellant's complaint gave her no standing in a court of equity. In the deed she reserved a lien for only two notes which have been paid, and took no security, nor reserved any lien, for the stock. She did not sue to rescind the contract nor offer to return what had been paid to her, including the stock. If there was a partial failure of consideration, her remedy was to sue atlaw for the amount thereof, or in equity to cancel and set aside the deed. 67 Ark. 526; 37 Ark. 348.

2. The complaint does not state a cause of action. To sustain an action for false representations, there must be a statement of an existing fact as distinguished from a statement of opinion. A bare statement of value is but an expression of opinion merely. The complaint's allegation that appellee represented the stock to be "worth its face value" is not sufficient to state a cause of action for false representations. 15 Am. Rep. 379; 105 U.S. 553; 60 Me. 578; 90 N.Y. 272; 43 Am. Dec. 166; 148 Mass. 504; 48 N.Y.S. 424 98 N.Y. 167; 2 Pom. Eq. § 891 et seq.; 82 Ark. 20; 23 Fla. 243; 114 Mass. 99; 46 Wis. 415; 131 Mass. 138; 11 Ia. 233; 77 Am. Dec. 142; 20 Cyc. 51; 11 Ark. 58.

3. In order to maintain an action, appellant must have relied upon appellee's statement to her injury, and this the proof shows she did not do, but made other inquiry as to the value of the stock. 13 Wall. 379; 142 U.S. 43.

FRAUENTHAL, J. KIRBY, J., dissents.

OPINION

FRAUENTHAL, J.

This was a suit instituted by the appellant in the Sebastian Chancery Court to recover from appellee an alleged balance claimed to be due upon the purchase money of a tract of land, and to enforce the vendor's lien therefor. The complaint alleged in substance that on October 28, 1905, appellant sold and conveyed to appellee a tract of land in Sebastian County for the agreed price of $ 4,500, which was to be paid in the following manner: five hundred dollars in cash, which was paid; fifteen hundred dollars of the capital stock of the Southern Bank & Trust Company; one note for $ 1,000 due six months after date; one note for $ 500 due twelve months after date; and the remainder by the assumption of a mortgage for $ 1,000 then existing on the land. The complaint further alleged that on the same day appellant executed to appellee a deed for the land, in which the consideration was recited as above set forth, and therein a lien was expressly retained upon the land for the payment of said two notes. Subsequently the said notes and mortgage indebtedness were paid. It was alleged that the appellant agreed to and did take the $ 1,500 capital stock of the Southern Bank & Trust Company at its face value, and to that extent as a part of the purchase price of the land, upon the representation and assurance made by the appellee that said stock was of that value, and that he had paid that price therefor.

It was further alleged that at the time appellant received said stock it was as a matter of fact absolutely worthless, and that appellee knew it to be so, but, with the fraudulent purpose of inducing appellant to receive same in payment of $ 1,500 of the purchase price of said land, he falsely represented to her that the stock was of the value of $ 1,500, and that he had paid that amount therefor; that she was entirely ignorant of the condition of the Southern Bank & Trust Company and of the value of said stock; that appellee was a director of said corporation, and so represented himself at the time the trade was made, and that, reposing confidence in him, she relied entirely upon his representations as to the value of said stock and what he had paid therefor; that these representations were false, and that in February thereafter said Southern Bank & Trust Company failed, and was placed in the hands of a receiver, and that the stock thereof was at the time that the representations were made and this suit instituted absolutely worthless. It was also alleged that the appellant was insolvent. The complaint sought a recovery of $ 1,500 and an enforcement of a vendor's lien therefor on said land.

To this complaint the appellee filed a demurrer and also an answer, and subsequently testimony was taken by the parties while the suit was still pending in the chancery court. Thereupon, and before the trial of the cause in that court, the defendant filed a motion to transfer the case to the circuit court, which was done, and at the time appellant duly excepted to this action of the court. Upon the trial of the case in the circuit court a jury returned a verdict in favor of appellant for $ 500, and judgment was rendered thereon in her favor. From this judgment she has prosecuted this appeal.

It is urged by counsel for appellee that the complaint did not state facts sufficient to constitute a cause of action, because the false representations alleged to have been made by the appellee related solely to the value of the stock, and were therefore but a mere expression of opinion, which would not constitute a fraud which was cognizable at law; and it is further urged that, if they did, the action based thereon could only be one of deceit for damages, of which a court of law alone had jurisdiction.

It is well settled, we think, that one who has been induced to purchase property by the fraudulent representations of the vendor has the right to sue in a court of equity to have such sale rescinded, or in a court of law to recover the damages which he has sustained by reason of such deceit and fraud. Representations to be fraudulent, however, must be material to the contract, 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." La. Molasses Co., Ltd., v. Ft. Smith Wholesale Grocery Co., 73 Ark. 542, 84 S.W. 1047. But every false statement is not necessarily fraudulent in law. It must appear also that the party complaining not only did rely upon the fraudulent statements, but that he had a right to rely upon them as true. The law is that ordinarily the purchaser must beware. Each party to a contract of sale must, with due care and diligence, seek the means of information relative to the subject-matter of the sale which are open to both alike. Otherwise it is deemed in law that the loss to either party was due to his own carelessness and imprudence. However, if the seller has peculiar knowledge of the matter, and makes the false representation in order to induce, and thereby does induce, the buyer to rely upon his false statements, then the seller will not be heard to say that the buyer should have ascertained the truth. Under such circumstances, ordinary prudence does not require the other party to test the truth of the representations which are peculiarly within the knowledge of the party making them, or where they are made to induce the other party to refrain from seeking further information. Gammill v. Johnson, 47 Ark. 335, 1 S.W. 610; Graham v. Thompson, 55 Ark. 296, 18 S.W. 58; Stewart v. Fleming, 96 Ark. 371, 131 S.W. 955; Evatt v. Hudson, 97 Ark. 265, 133 S.W. 1023; Hunt v. Davis, 98 Ark. 44, 135 S.W. 458.

Ordinarily statements relative to the value of property are mere expressions of opinion upon which a purchaser is not entitled to rely. But where the statements relative to the value of property peculiarly within the knowledge of the party making them are made as a fact, and not merely as an opinion, and especially where they are coupled with statements of other facts which affect the value of the property, then, if false and made for the purpose of inducing the purchaser to rely thereon, they become false representations which will constitute fraud in law. This is a well recognized exception to the general rule that the purchaser must beware, and is not authorized to rely upon the statements of the vendor as to the value of the subject-matter of the contract as representations which will avoid the contract if shown to be false. This exception to the general rule, we think, is well stated in the case of Murray v. Tolman, 162 Ill. 417, 44 N.E. 748: "Where the vendee is wholly ignorant of the value of the property, and the vendor knows this, and also knows that the vendee is relying upon his (the vendor's) representation as to the value, and such representation is not a mere expression of opinion, but is made as a statement of fact, which statement the vendor knows to be untrue, such a statement is a representation by which the vendor is bound." And in conformity with this exception it is well established...