Williams v. Benson

• Decision Date: 26 April 1966
• Docket Number: No. 602,No. 2,602,2
• Citation: 3 Mich.App. 9,141 N.W.2d 650
• Parties: Leo R. WILLIAMS and Geraldine L. Williams, husband and wife, Plaintiffs, v. Frank A. BENSON and Freda E. Benson, husband and wife, Defendants, Cross Plaintiffs, Cross Defendants and Appellants, and Charles Muller and Alida Muller, husband and wife, Defendants, Cross Defendants, Cross Plaintiffs, and Appellees. Cal
• Court: Court of Appeal of Michigan — District of US

Page 650

141 N.W.2d 650

3 Mich.App. 9

Leo R. WILLIAMS and Geraldine L. Williams, husband and wife Plaintiffs, v. Frank A. BENSON and Freda E. Benson, husband and wife Defendants, Cross Plaintiffs, Cross Defendants and Appellants and Charles Muller and Alida Muller, husband and wife Defendants, Cross Defendants, Cross Plaintiffs, and Appellees.

Cal. No. 602.

Court of Appeals of Michigan, Division No. 2.

April 26, 1966.

Kenneth B. Johnson, Jackson, for appellants.

Lawrence L. Bullen, Roseburg, Painter, Stanton & Bullen, Jackson, for appellees.

Before McGREGOR, P.J., and FITZGERALD and T. G. KAVANAGH, JJ.

FITZGERALD, Judge.

This appeal requires a prolegomenon of sorts, dealing as it does with two somewhat mystical realms of the law. Couple these with a unique fact situation and the reader will soon see why prefatory stage-setting is necessary before an exhaustive dissertation is appropriate.

The two propositions referred to are these: first, whether fraud may consist of simply remaining silent when a duty to speak is found; and second, whether fraud under these circumstances can look to the results of the conduct rather than to the state of mind of the alleged wrong-doer.

Further narrowing the problem before us, we come to the question of whether Michigan's 'silence-fraud' rule has become sufficiently amalgamated with Michigan's minority 'innocent misrepresentation' rule to permit concurrent application to the facts in this case.

The facts themselves are no less intriguing:

In 1958, the plaintiffs (Williams) sold their motel on land contract to the appellants (Benson). The plaintiffs informed the appellants that the motel had been infested by termites, but that plaintiffs had personally treated the affected areas with a chemical solution and believed that the problem had been arrested.

In 1962, the appellants sold the motel on a second land contract to the appellees (Muller). Appellants made no mention of their knowledge of the prior infestation or the steps taken by plaintiffs to eliminate the problem.

In 1964, appellees discovered that the motel was seriously infested with termites and notified appellants of their discovery and of their intention to discontinue payments under the second land contract. Succeeding months saw both appellees and appellants default under their respective land contracts, and suit for foreclosure was brought against both by plaintiffs.

Appellants subsequently filed a cross-claim for foreclosure against appellees. Appellees filed a counterclaim against appellants for relief against foreclosure of their land contract interest and for damages in the sum of $50,000, alleging in part that appellants had been under a duty to disclose that the premises were then and had been infested with termites.

Appellants' answer to this counterclaim admitted knowledge that the motel had been treated for termites by the plaintiffs, but denied any knowledge that it was infested by termites at the time of the sale to the appellees. Appellants stated that to their knowledge and belief the problem had been arrested, and denied any fraud or withholding of facts in connection with the sale. Appellees then moved for summary judgment.

This motion was granted by the trial court which entered a partial summary judgment holding that appellants were liable for damages suffered by appellees in an amount to be determined in a subsequent trial limited to that issue only. In addition, a restraining order issued, preventing appellants from foreclosing the interests of appellees under the second and land contract during the pendency of this action.

Appellants' motion for an order setting aside the partial summary judgment was denied, and this appeal was thereafter brought.

The questions before this Court will point up why our consideration must necessarily revolve around 'silence-fraud' and 'innocent misrepresentation':

'1. Did appellants, who purchased a motel with notice of prior termite infestation, upon assurances from their vendors that the damaged areas had been chemically treated and the problem arrested, and Believing such to be true during their ownership, have a duty to speak and inform their subsequent vendees (appellees) that the motel had been previously infested with termites?

'2. Does knowledge of prior termite infestation, believed to have been arrested by chemical treatment, constitute a 'special circumstance' giving rise to a duty to speak on the part of a vendor to his vendee?' (Emphasis supplied.)

It is obvious that the trial court answered both of these questions 'Yes' as evidenced by the partial summary judgment granted. The magnitude of this holding, we feel, requires firm footing, and we proceed to ascertain how the law in Michigan reached its present state.

We examine first the basic consideration of whether malice or Scienter is a necessary showing in a fraud case. We note that it was 100 years ago that Mr. Justice Cooley, in Converse v. Blumrich (1866), 14 Mich. 109, made the following statement which has charted the course for our court decisions during the last century:

"'We have carefully in the course of our opinion obstained 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."'

This concept is succinctly restated in 23 Am.Jur. Fraud and Deceit, § 120, with heavy reliance on Michigan law for authority.

'In some jurisdictions the rule is broadly stated that intent to deceive is not a necessary element of an action at law for fraud to recover damages. This is a minority view. The minority rule is followed in one state in a slightly more specific formulation; and it is held that where an action is brought to recover for false and fraudulent misrepresentations made by one party to another in a transaction between them, any representations which are false in fact and actually deceive the other and are relied on by him to his damage are actionable, irrespective of whether the person making them acted in good faith in making them, where the loss of the party deceived inures to the benefit of the other. The minority rule as thus stated is applied in suits brought against a party to the contract. In all the various jurisdictions where the minority principle obtains, the intent or good faith of a representor is not in issue and is not controlling.

'One of the reasons for the minority rule is that there is no difference in principle between actions at law and in equity in respect of fraud, and it is admitted that in equity an actual design to mislead is not necessary if one party to a bargain is actually misled by the other. Another reason for the rule is that the consequences to the defrauded party are as serious as though the misrepresentation had proceeded from a vicious purpose, and that a party should be held to the reasonable consequences of his acts.' (Citing Aldrich v. Scribner and other Michigan decisions for the previous propositions.)

It was in Aldrich v. Scribner (1908), 154 Mich. 23, 117 N.W. 581, 18 L.R.A., N.S., 379, that another statement of this principle is found:

'That principle is this: That if a representation is false in fact, and actually deceives the one to whom it is made, it is actionable fraud, even though made in the best of faith, and even though the one who made it had every reason to believe it to be true. That principle is peculiar to our jurisprudence.'

Aldrich in turn cites Holcomb v. Noble (1888), 69 Mich. 396, 37 N.W. 497, and Busch v. Wilcox (1890), 82 Mich. 315, 46 N.W. 940, as landmark examples of the application of the doctrine.

An ensuing decision, Weinberg v. Ladd (1917), 199 Mich. 164, 165 N.W. 711, begins to approach even more closely the instant fact situation. Involved was a horse trade, with defendant representing and evidently believing his horses to be sound. Examination after the trade revealed that the horses in question had glanders, a communicable, incurable disease, 'difficult to detect and capable of being established only by certain tests known to veterinary surgeons.' Plaintiffs recovered and in affirming, the Court said something we must mark down as important to the instant case, 'Nor is it a defense that defendant believed that representation to be true,' and again Aldrich, supra, was relied upon.

In 1922, we find the Court in Mulheron v. Henry S. Koppin Co., 221 Mich. 187, 190 N.W. 674, reiterating the doctrine once again. Here the defendant company built a number of houses for sale on contract in a location which had originally been a brickyard and which was then abandoned and became a dumping ground for junk. The junk was covered with soil and leveled off and left to stand for three years before the building operation was started. Plaintiff purchased one of the houses upon representation as to the quality of the building, but no reference was made to the fact that it was constructed on filled land. In affirming a suit for cancellation of the contract, the Court stated that even though plaintiffs had inspected the premises at various stages the doctrine of Caveat emptor does not apply, nor does the good faith belief of the defendant mitigate, saying, 'The defect which damaged the house was a latent one.' Such is the situation in the instant case wherein a latent defect later ravages the premises. The Court...