Peterson v. Yacktman

• Citation: 166 N.E.2d 452,25 Ill.App.2d 208
• Decision Date: 06 April 1960
• Docket Number: Gen. No. 47728
• Parties: Vern C. PETERSON, A. R. Starr, John V. Hehn, William C. Nichol, Earl R. Foswold and George Peterson, Plaintiffs-Appellees, v. Victor YACKTMAN, Defendant-Appellant.
• Court: United States Appellate Court of Illinois

Page 452

166 N.E.2d 452

25 Ill.App.2d 208

Vern C. PETERSON, A. R. Starr, John V. Hehn, William C.

Nichol, Earl R. Foswold and George Peterson, Plaintiffs-Appellees, v. Victor YACKTMAN, Defendant-Appellant.

Gen. No. 47728.

Appellate Court of Illinois, First District, Third Division.

April 6, 1960.

Rehearing Denied May 4, 1960.

Daniel H. Pappas, Chicago, Melvin B. Lewis, Chicago, of counsel, for appellant.

Harry R. Booth, Chicago, for appellees.

BRYANT, Presiding Justice.

This is an action for recovery of assets of the plaintiffs now in the hands of the defendant allegedly as a result of fraud practiced by defendant upon plaintiffs. In pertinent part, the complaint alleges that they were part of a group of purchasers of land from developers and builders to which defendant was believed to have retained title pending payment to him, by the developers and builders, of the price agreed upon. The complaint also alleges that the defendant 'represented to plaintiffs and all others similarly situated, that he was engaged in the business of managing and operating a water utility' under the rules of the Illinois Commerce Commission and the laws governing the operation of water utilities and of supplying a public water service in conjunction with the construction of homes in the township. Defendant is also alleged to have 'represented that he would not provide them with water service unless and until plaintiffs and other persons similarly situated would pay him a sum of money not less than $500 nor more than $5,000 for the purpose of constructing portions of the transmission mains and property and in the rendering of water service and would re-convey to him such portions of the transmission or extension of water mains, circulating mains and other similar property which they were to purchase.' Defendant is further alleged to have represented 'that he was engaged in the operation of a public water utility under the laws of the State of Illinois, that he had the right under such laws to compel plaintiffs and other persons similarly situated to pay large sums of money to him for the payment of transmission mains and other properties to be used in the operation of a public water utility system and that he had the right to compel them to re-convey such property as a condition to the rendering of water service to him.' All such statements are alleged to be untrue and 'were known by him to be false and untrue when he made such statements and were made by him for the purpose and intent of swindling plaintiffs out of their money, out of the property they paid for, and for further purpose of compelling them to pay rates and charges for water service upon property which they and not he had paid for.' Between July 1, 1956 and June 30, 1957, it is alleged that plaintiffs paid various sums of not less than $850 nor more than $1,600 for such purposes. It is further alleged that 'thereafter in reliance upon the aforesaid false representations of the defendant Yacktman, all the plaintiffs herein with the exception of A. R. Starr, were thereupon induced to re-convey to the said Yacktman the transmission lines, mains and other water property and facilities for which they had previously paid him.' The consideration for the conveyance was $1.00. It is alleged that defendant collected large sums of money from other persons similarly situated under similar circumstances and that this action was being brought on their behalf as well as plaintiffs'. Damages are also claimed for the loss of the property re-conveyed. It is alleged that plaintiffs have no adequate remedy at law. It is prayed that there be an accounting, a re-conveyance of the property paid for, a judgment in favor of each of the plaintiffs for $2,500 and that the monies collected by the defendant be impounded.

A motion to strike the complaint was filed on November 14, 1958 on the grounds that it failed to state a cause of action. On December 19, 1958 the court denied the motion to strike. On January 5, 1959 defendant filed motions to transfer to the common law calendar, for leave to file a jury demand and reiterated the original motion to strike the complaint. These motions were denied and when defendant elected to stand by his motion, plaintiffs were given leave to present a judgment order. The judgment order as presented contained only requests for money judgments. On January 14, 1959 judgment was entered on that order and defendant here appeals.

This case rests upon the sufficiency of the complaint as a basis for equitable jurisdiction. In substance, the complaint alleges that the defendant represented that he operated a water utility under Illinois law; that he would not furnish water to the plaintiffs unless they agreed to defray part of the cost of the transmission line; and that he had the right to so bargain.

The sufficiency of the complaint depends upon whether it alleges that fraud was involved in the transaction. To do so, it must show that there has been an imposition, through deception, upon some legal rights possessed by plaintiffs. Unless fraud is part of this transaction, equity could have no jurisdiction over the cause. All facts well pleaded, with all reasonable intendments, are taken as true, in accordance with the principles of construction enjoined by the Civil Practice Act, Ill.Rev.Stat.1959, c. 110, § 1 et seq. Doner v. Phoenix Joint Stock Land Bank, 381 Ill. 106, 112, 45 N.E.2d 20.

In the case of Bennett v. Hodge, 374 Ill. 326, at page 331, 29 N.E.2d 524, 527, the court restated the classical elements of fraud as follows:

'It is agreed all of the following elements must be proved in an action based on fraud: (1) The misrepresentation must be of a statement of fact; (2) it must be made for the purpose of influencing the other party to act; (3) it must be untrue; (4) the party making the statement must know or believe it to be untrue; and (5) the person to whom it is made must believe and rely on the statement; (6) the statement must be material.'

In Owens v. Union Bank of Chicago, 260 Ill.App. 595, at page 600, it is said:

'Fraud is a recognized subject of equity jurisdiction and there is no ground upon which the jurisdiction is so readily entertained and so freely exercised as that of fraud. Wright v. McKinney, 287 Ill. 529 .'

There is no general rule for determining what facts will constitute fraud; whether or not it is found depends upon the special facts of each particular case. Majewski v. Gallina, 17 Ill.2d 92, 99, 160 N.E.2d 783.

Appellant represented that he operated a water utility under Illinois law. He argues that this misstatement is not actionable because it is a representation of law rather than fact. We do not agree. In Miller v. Osterlund, 1923, 154 Minn. 495, 191 N.W. 919, the court dealt with a corporate defendant which had represented that it had the authority and right to do business in the state and the authority and right to execute the contract in question. The defendant contended that this constituted a representation of law and not of fact. The court held:

'But it is not always easy to classify representations as of law or fact, often they are of mixed law and fact, and courts should not be to indulgent of defendants who have made misrepresentations as to matters of which they should be expected to have knowledge, and of which the other party ordinarily would not have knowledge. A misrepresentation though involving matter of law will be held actionable if it amounts to an implied assertion that the facts exist that justify the conclusion of law which is expressed. 26 C.J. p. 1207, § 106; Harris-Emery Co. v. Pitcairn, 122 Iowa 595, 98 N.W. 476; Myers v. Lowery, 46 Cal.App. 682, 189 P. 793.

'We think the representations complained of in this case, while they incidentally involve matters of law, are to all intents and purposes, representations of fact. To say of a foreign insurance company that it has the right to write insurance in Minnesota, conveys the meaning to the average man that the company has complied with the well-known requirements of our laws, and has received the Insurance Commissioner's license or authority to transact insurance business here. The representation charged in this case was an implied assertion that such requirement had been met. Such an assertion is admittedly an assertion of facts.'

See also, Myers v. Lowery, 46 Cal.App. 682, 189 P. 793, involving a representation by a hospital that it was an accredited training school for nurses.

In this case, the appellant represented that he operated a water utility company under the laws of Illinois. Impliedly then, he represented that the fact of qualification with the Utility Commission was also true.

Ordinarily one is not justified in relying upon a representation of law because both parties are presumed to be equally capable in knowing of and interpreting the law. Fish v. Cleland, 33 Ill. 238, 243. In the instant case, the representation that defendant operated a water utility rested upon the factual representation that the Water Commission's requirements had been met under the law of Illinois, and thus, is the basis for an action to correct the fraud.

Appellant contends that appellee had no right to rely on the representations made in that they could have found out before entering the agreements in question that appellant was neither authorized to conduct a utility business nor able to require contribution of funds to extend the lines to appellees' homes. In Linnington v. Strong, 107 Ill. 295, at page 302, the court said:

'The doctrine is well settled, that, as a rule, a party guilty of fraudulent conduct shall not be allowed to cry 'negligence,' as against his own deliberate fraud. Even where parties are dealing at arm's length, if one of them makes to the other a positive statement, upon which the other acts (with the knowledge of the party making the statement) in confidence of its truth, and such statement is known to be false by the...