Otis & Co. v. Grimes

• Citation: 48 P.2d 788,97 Colo. 219
• Decision Date: 22 July 1935
• Docket Number: 13449.
• Parties: OTIS & CO. v. GRIMES.
• Court: Colorado Supreme Court

48 P.2d 788

97 Colo. 219

OTIS & CO. v. GRIMES.

No. 13449.

Supreme Court of Colorado

July 22, 1935

In Department.

Error to District Court, City and County of Denver; Henley A Calvert, Judge.

Action by Ben Grimes against Otis & Co. To review a judgment for plaintiff, defendant brings error.

Affirmed in part, reversed in part, and remanded.

Lewis & Grant and Irving Hale, Jr., all of Denver for plaintiff in error.

Max P Zall and Irving Grimes, both of Denver, for defendant in error.

BUTLER Chief Justice.

Ben Grimes sued Otis & Co., stock and bond brokers, for damages alleging that in December, 1927, the defendant induced the plaintiff to purchase, for $15,400, one thousand shares of class B stock in the Allison Drug Stores Corporation by falsely representing that the corporation then was earning $2 per share on that stock. The jury found for the plaintiff, a motion for a new trial was denied, and judgment for $21,560, which included interest, was entered against the defendant, who seeks a reversal of the judgment.

The findings of the jury, based upon conflicting evidence, established the fact that such representation was made and that the plaintiff purchased the stock in reliance thereon. The defendant contends, however, that there was no evidence indicating that the representation was false at the time it was made, or that the representation was made by defendant with knowledge of its falsity or in culpable ignorance as to its truth, or that the plaintiff suffered any damage. The defendant also insists that interest should not have been included in the damages awarded, and that in other respects the verdict and judgment are excessive.

1. We are not favorably impressed with the defendant's contention that there was no evidence establishing the falsity of the representation. We shall not encumber the opinion by detailing the evidence on this point. It will suffice to say that the record discloses ample evidence to justify a finding that the representation was false.

2. The representation was made by one Fitzsimmons, acting for and in behalf of the defendant. It is not claimed that he had actual knowledge of the falsity of the representation. But such actual knowledge is not required; it is sufficient if he made the representation in reckless disregard of its truth or falsity, Carlson v. Akeyson, 65 Colo. 35, 172 P. 1058; or with reckless ignorance of its truth or falsity, Robbins v. Nelsen, 70 Colo. 504, 202 P. 707; or made it recklessly, careless whether it be true or false, 12 R.C.L. p. 332.

In Sellar v. Clelland, 2 Colo. 532, 544, it is said: 'In regard to representations generally, I conceive it to be necessary for the party relying on the representations to show not only that they are false, but that the party making the same knew them to be false. But when one has made a representation positively, or professing to speak as of his own knowledge on the subject, the intentional falsehood is disclosed, and the intention to deceive is also inferred, or at all events, this is so when the matters falsely represented are peculiarly within the knowledge of the party making them, and are not known to the party to whom they are made. In such a case, the proof would seem to be complete when it was shown that the defendants made the representations; that they were made to induce plaintiffs to enter into the contract; that, relying upon the same, they did enter into the contract; that the representations were false; that the plaintiffs sustained damage, and that such damage was occasioned by reason of the falsity of such representations.'

That case has been cited with approval many times by this court and our Court of Appeals. And see Lahay v. City National Bank, 15 Colo. 339, 25 P. 704, 22 Am.St.Rep. 407; Connell v. El Paso Gold Min. & M. Co., 33 Colo. 30, 78 P. 677.

In 12 R.C.L. p. 337, the law is stated in these words: 'If one asserts that a ching is true within his personal knowledge, or makes a statement as of his own knowledge, or makes such an absolute, unqualified and positive statement as implies knowledge on his part, when in fact he has no knowledge whether his assertion is true or false, and his statement proves to be false, he is as culpable as if he had wilfully asserted that to be true which he absolutely knew to be false, and is equally guilty of fraud.'

At pages 339 and 340 of the same work we find this: 'A statement made as of one's own knowledge, or so positively as to imply knowledge on his part, not only includes a representation that the fact is as stated, but also the further representation that the maker knows it to be so, and necessarily implies a belief on his part that it is true. Moreover, a representation recklessly made, without knowledge of its truth, cannot be a statement honestly believed, but, on the contrary, is regarded as a false statement knowingly made. If the maker of a statement does not know it to be true, he must ordinarily be deemed to know that he does not; and if he knowingly states what is untrue, then in putting his statement in such form as to amount to an assertion that he has knowledge of its truth, he is guilty of an intentional falsehood.'

In Ultramares Corporation v. Touche, 255 N.Y. 170, 174 N.E. 441, 444, 74 A.L.R. 1139, Mr. Chief Judge Cardozo said that 'Fraud includes the pretense of knowledge when knowledge there is none.' In Cooper v. Schlesinger, 111 U.S. 148, 4 S.Ct. 360, 363, 28 L.Ed. 382, the court said that 'the jury were properly instructed that a statement recklessly made, without knowledge of its truth, was a false statement knowingly made, within the settled rule.'

In Messerli v. Bantrup (Mo. App.) 216 S.W. 825, 827, the court said: 'If one asserts a material fact as of his own knowledge, and not as a mere matter of opinion, knowing at the time he has no such knowledge, and does this for the purpose of inducing another to act, and thereby induces the latter to act upon it to his injury and loss, then such assertion is the same as if it were known to be untrue when made.'

In Schlechter v. Felton, 134 Minn. 143, 158 N.W. 813, L.R.A. 1917A, 556, the court held (quoting the syllabus): 'Where a person makes a false representation of a material fact, susceptible of knowledge and relating to a matter in which he has an interest, and as to which he may be expected to have knowledge, and makes such statement unqualifiedly and as of his own knowledge, and with intent to induce action, the statement constitutes a legal fraud, and after it has been acted on by another to his damage the person making it cannot be heard to say that he honestly believed that the statement he made was true. Such honest belief is not a defense to an action for fraud.'

So much for the law on the subject. Now to apply the law to the facts.

The defendant claims that it made the representation in good faith and in reliance upon information obtained from what it believed to be reliable sources. It refers, first, to an article appearing in the Wall Street Journal of date December 8, 1927. The article stated that the 'estimated' net sales of the corporation in 1927 were $2,200,000 'indicating' a net profit of $300,000, equal to 'about $2 a share' on the class B stock; that the sales in the first seven months of 1927 made a net profit of $141,159; that, due to holiday business, earnings in the last five months of a year 'usually' exceed the first seven months; that the sales in 1926 made a net profit of $1.43 on class B stock; that the stores have shown a satisfactory growth and are 'expected' to increase sales and show a larger profit. The other sources of information upon which the defendant says it relied is a financial bulletin issued December 7, 1927, by Dow, Jones & Co., and a letter written December 6, 1927, by Baker, Simonds & Co. The bulletin contains the same information as the article in the Wall Street Journal, and the letter gives no additional information. The article, bulletin, and letter, which the defendant, in its brief, admits contained the only information then accessible, would justify the defendant in giving to the plaintiff an estimate of the profits that the corporation probably would earn during 1927, and an opinion concerning the desirability of purchasing its stock. But the verdict...