Reed v. Cooke , 331 Mo. 507 ( 1932 )

I hereby adopt the following opinion of STURGIS, C., as my dissenting opinion in this cause:

I adopt the statement of the case made by Commissioner FERGUSON as correct.

[1] I think there is no doubt but that the petition in this case states a cause of action under the rule stated in 12 Ruling Case Law, section 28, page 261, that "It is very generally held that fraud may be predicated of a promise accompanied by a present intention not to perform it and made for the purpose of deceiving the promisee and inducing him to act where otherwise he would not have done so, and by virtue of which the promisor has procured either real or personal property from the person to whom the promise is made." The above is a well established exception to the general rule that fraud cannot be predicated on statements promissory in their nature and relating to future events; that false representations, in order to constitute actionable fraud, must relate to past or existing conditions. [12 R.C.L. sec. 21, p. 254.] The above exception to the general rule, which recognizes that a promise made with no intention to perform it, but merely as a means of obtaining money or property from another, amounts to actionable fraud, is supported by the great weight of authority, as will be seen by the cases cited in note 2, 12 Ruling Case Law, page 261. What is there said as to the minority view, to-wit, that fraud cannot be predicated upon a promise to do something in the future, though it be shown that there was no intention to perform it, is supported by decisions of only a few states, notably Illinois and Missouri, and possibly one or two others. Missouri is given as supporting the minority rule in Younger v. Hoge, 211 Mo. 444, 18 L.R.A. (N.S.) 94.

So, also, in 26 Corpus Juris, 1093, it is said: "Since the state of a man's mind is as much a fact as the state of his digestion, the weight of authority holds that if the falsity of the statement can be established, the representation of opinion, belief, or intent is an actionable representation of fact. This redress may be had for the dishonest expression of an opinion contrary to that really entertained by the speaker, especially if he is an apparently disinterested third person, or if a deliberately false opinion is expressed in terms imparting personal knowledge of the truth, or for a promise made with thepresent intent of future breach." Cases are cited from the Federal courts and from more than twenty states supporting this rule. [See Note 99.] The contrary rule is then stated at page 1096 thus: "Other authorities hold that a misrepresentation of intention is purely promissory or matter of opinion, and therefore cannot constitute fraud, and that the proper remedy for a promise made with the intention not to fulfill it is a suit upon the promise." Only two or three states really adhere to this rule, and at page 1096 this note is appended: "In Missouri (1) there are cases holding a promise made with intent to break it is fraud available for rescission. [Laswell v. National Handle Co.,147 Mo. App. 497; Culbertson v. Young, 86 Mo. App. 277.] (2) But later cases hold that rescission of a contract cannot be predicated upon a fraudulent promise since `a promise, though made without intention to fulfill it, is not a misrepresentation of an existing fact.' Younger v. Hoge, 211 Mo. 444, 18 L.R.A. (N.S.) 94."

The rule of law stated in Younger v. Hoge, supra, that "a promise, though made without intention to fulfill it, is not a misrepresentation of an existing fact" within the rule that a misrepresentation of facts affords a ground for rescission in an action based on fraud, cites Wade v. Ringo, 122 Mo. 322, 25 S.W. 901, and Estes v. Desnoyers Shoe Co., 155 Mo. 577, 56 S.W. 316. An examination of these cases, however, shows that neither of them involve, as a basis of fraud, a promise made with no intention to perform same. Moreover, the evidence in Younger v. Hoge, did not show a promise made as an instrument of fraud, with no intention to perform same, but, on the contrary, that defendant did try to secure for plaintiff the position and salary promised but failed for the reason disclosed by defendant at the time of making the conditional promise.

The Kansas City Court of Appeals in Culbertson v. Young,86 Mo. App. 277, 282, opinion by ELLISON, J., had ruled to the contrary, where the court said: "The representation of a future intention will ordinarily not affect a contract, and a failure on the part of the promisor will not afford ground to the promisee for avoiding it. But if the promisor makes a false representation of his intention as to material matters, fraudulently intending at the time not to do what he represents he intends to do, it is ground for avoidance. [Cases cited.] When one buys goods on credit, he, at least tacitly, represents that he intends to pay for them, and if he, in fact, intends never to pay for them, he represents to the vendor a falsehood and is guilty of fraud, and the contract may be avoided and the goods recovered from the purchaser."

And in Laswell v. National Handle Co., 147 Mo. App. 497, 542, the St. Louis Court of Appeals, opinion by GOODE, J., said: "Promises of something to be done in the future are not always ground for the rescission of the contract; but where a promise is made under such circumstances as this one was, with no intention to perform it, but was a fraudulent design to obtain a contract by giving the promise and then breaking it, those facts are grounds of rescission. [Cases cited.]" The same view of that court is also reflected in Loan Investment Co. v. Trust Co., opinion by NORTONI, J.,175 Mo. App. 646, 650.

This question is the subject of the annotation to Cerny v. Paxton Gallagher Co. (Neb.), 10 L.R.A. (N.S.) 640, where the Supreme Court of Nebraska held (2 Headnote): "Ordinarily deceit, to ground a recovery, must relate to existing facts; but if one person, by means of a promise which he makes with a secret intention of not performing it, induces another to part with his money or property, he is guilty of actionable fraud." Among many cases cited in support of this rule, the court cites Dowd v. Tucker, 41 Conn. 197, holding that "The procuring of property upon a promise which the party, at the time, does not intend to perform, is a fraud. And it makes no difference whether the property is real or personal;" and Goodwin v. Horne, 60 N.H. 485, holding that "Ordinarily false promises are not fraudulent, nor evidence of fraud, and only false representations of past or existing facts are actionable. . . . But, when a promise is made, with no intention of performance, and for the very purpose of accomplishing a fraud, it is a most apt and effectual means to that end, and the victim has a remedy by action." In the annotated note to that case under the head of "Rule where the promise is the instrument of the fraud," many cases are cited holding that an action for fraud will lie where the promisor had no intention to fulfill his promise. A few cases are cited to the contrary. And in a later annotation in 24 L.R.A. (N.S.) 736, this is said of the Missouri cases: "In none of the foregoing cases did it expressly appear that the promise was made with a preconceived intention not to perform the same. But in Younger v. Hoge, 211 Mo. 444, 18 L.R.A. (N.S.) 94, it was said that a promise, though made without intention to fulfill, is not a misrepresentation of an existing fact. This was said with reference to a promise of a salaried position in a corporation as an inducement to purchase stock. The court, however, said that the plaintiff's evidence did not establish the making of the promise."

This question is thoroughly considered in 51 American Law Reports, pages 1 to 172, where there are some five or six cases from different states reported touching this question, with an extended annotation citing all the authorities, to-wit:

Russell v. Industrial Transportation Co., 113 Tex. 441,251 S.W. 1034, 51 A.L.R. 1, holds (Syl.): "Although a statement by agents selling stock, as to future earnings and dividends, are merely opinions or promises, they are actionable if the agents knew them to be false, and they were made for the purpose of deceiving the customer who acted upon them."

Foster v. Dwire, 51 N.D. 581, 199 N.W. 1017, 51 A.L.R. 21, holds (Syl.): "Fraud may be predicated on the non-performance of a promise, where the promise is made for the purpose of accomplishing a fraud; the fact that the thing promised lies wholly in the future does not preclude the defendant from asserting fraud as a defense, when at the time the promise is made the promisor has no intention to perform, but intends by such promise to deceive the promisee, and induce him to act otherwise than he would have acted but for such promise."

Council v. Sun Ins. Office, 146 Md. 137, 126 A. 229, 51 A.L.R. 29, holds (Syl.): "A false promise not intended to be performed, but made to trick and deceive another into the execution of a written instrument, is a fraud, and may, in an action on the instrument, be shown by any competent evidence, whether oral or documentary."

Holcomb Hoke Mfg. Co. v. Auto Interurban Co., 140 Wash. 581,250 P. 34, 51 A.L.R. 39, holds (Syl.): "Representations by a vendor of a popcorn machine that he has investigated the possible trade to be secured for the product, and his assertion, based on his experience in such matters, that it will produce a specified sum per month above expenses, if untrue, are actionable."

Palmetto Bank Trust Co. v. Grimsley, 134 S.C. 493,133 S.E. 437, 51 A.L.R. 42, holds (Syl.): "Inducing a contract by a promise which there is no intention at the time of performing is a fraud for which the contract may be rescinded."

In the annotation on this precise point in 51 American Law Reports, 63, this is said: "The weight of authority holds that fraud may be predicated on promises made with an intention not to perform the same, or as the rule is frequently expressed, on promises made without an intention of performance. It is said that when a promise is made, the promisor, by necessary implication, asserts a present and bona fide intention to perform, and if, therefore, the intention to perform does not exist, there is a misrepresentation of fact upon which fraud may be predicated." A large number of cases from more than thirty states and from the Federal courts, as well as English and Canadian cases, are cited as so holding. The minority view to the effect that fraud cannot be predicated on an unfulfilled promise, even though at the time it is made there was no intention to perform, is stated in the annotation in 51 American Law Reports, page 78, and cases in a few states supporting this proposition are cited, including the Missouri cases which we have noted. This annotation gives an exhaustive review of the many cases on this subject and shows that while there are some cases to the contrary, the great weight of authority supports the rule that where a promise is used as an instrument of fraud in obtaining another's property, with no intention to fulfill the promise, an action for fraud will be sustained.

Time and space forbids a review or even mention of the numerous cases upholding the rule here contended for, but I mention one case written by Judge COOLEY, Laing v. McKee, 13 Mich. 124, 87 Am. Dec. 738, which holds that it is a matter of no moment whether the fraud is perpetrated by means of a promise, upon which the owner relied and which the other did not intend to keep, or by untrue statements as to existing facts. Another leading case, Braddy v. Elliott, 146 N.C. 578, 16 L.R.A. (N.S.) 1121, holds that if, in order to effect an exchange of lands, one party made promises as to the erection of buildings on the property deeded by the promisor, which he had no intention of performing, this constitutes actionable fraud.

[2] In the present case it is alleged that defendants, in order to induce plaintiff to purchase two hundred fifty shares of stock in the bank mentioned at an excessive valuation, represented that they and their associates owned a majority of the stock in such bank and that they had consulted with the board of directors, who had agreed to the selection of plaintiff as manager of the bank, and authorized the defendants to make the arrangement provided plaintiff would purchase such stock. These representations of fact are alleged to have been untrue, and the promise coupled therewith to secure plaintiff employment as manager is alleged to have been made without any expectation or intention to do so. There are many cases holding that where false statements and misrepresentations of existing facts and conditions are coupled with a promise to do something in the future not intended to be performed, but used merely as an instrument of fraud, an action based on such fraud will be sustained. [Sicklick v. Interurban Home Co., 116 N.Y.S. 553; Adams v. Gillig,115 N.Y.S. 999; Reagan v. Hadley, 57 Ind. 509.] Other cases to this effect are cited in 51 American Law Reports, page 85, where it is said: "If the promise is accompanied with statements of existing facts showing the ability of the promisor to perform the promise, without which it would not have been accepted or acted upon, such statements constitute representations, and if falsely made are grounds for avoiding a contract, although the act which is promised to be performed is wholly in the future."

A number of cases are found dealing with promises to give or secure employment which are very similar to the present case. As to such cases, the learned annotator, at page 126 of 51 American Law Reports, says: "The general rule already considered, that fraud ordinarily cannot be predicated on unfulfilled promises or statements as to future events, is illustrated by various cases in which the promise was one of employment, and the same is true with regard to the exception to this rule, where the promise is made without intention of performance. . . . It may be observed in this connection that the promise of employment inducing, or helping to induce, one to enter into contractual relations with the promisor, may be of such a nature as to constitute a misrepresentation of fact, and therefore sufficient to serve as a basis for fraud, as, where the representation is that one hasalready arranged that the other person shall have a certain position or salary."

Thus in Schwab v. Esbenshade, 151 Wis. 513, 517, the action was based on false representations as to the value of shares of stock purchased, and also a false promise to have plaintiff elected a director, treasurer and manager of the corporation. The court admitted the evidence as to the value of the stock but excluded the evidence as to the promise, and the court held this to be error, saying: "There is no serious controversy on this appeal but that the court by its instructions directed the jury to limit its inquiry to the issue of the alleged fraud pertaining to false representations as to the value of the stock, and thus excluded from its consideration and determination the question of the alleged fraud of the defendant in falsely representing to the plaintiff that he had arranged with the other stockholders and directors that if plaintiff purchased defendant's stock he would be made a director, the treasurer, and the business manager of the corporation and receive a salary of forty dollars per week. If these last alleged false representations were made by the defendant, and if plaintiff relied and acted thereon, as he alleges, they manifestly constitute a material representation, and the question of whether or not they were fraudulently made was an essential and material issue."

In Powers v. American Traffic Signal Corp., 167 Minn. 327,209 N.W. 16, the plaintiff sued for damages for fraud in the sale of stock of a corporation, claiming that a fraudulent promise was made to give him employment. The court there said: "If the employment was a mere scheme entered into by defendant without intending to keep the same and merely as an inducement to consummate the stock deal, there was actionable fraud. . . . The evidence justified the jury in so finding."

In Holmes v. Wilkes, 130 Minn. 170, the court declared the law thus: "It is the law of this state that a vendor, who induces the purchase of his property by false representations, though promissory in nature, at the time not intending to perform them, and not intending that his representations will be made good, is guilty of actionable fraud." This statement of the law was made on these facts: "In August, 1913, the plaintiff and the defendant Wilkes entered into negotiations for the exchange of the lands involved for shares of stock in the Quaker Creamery Company. The court finds that for the purpose of inducing defendant Wilkes to make such exchange, the plaintiff represented that he held a position with the company at a salary of $1500, which in fact he had; that he would, as a part of the transaction, secure to Wilkes a position at the same salary, going so far as to say that the position had been secured; that the position was not secured; that the plaintiff knew at all times that he could not secure it for Wilkes; that he did not intend to do so; and that such representations were falsely and fraudulently made for the purpose of effecting the exchange and that Wilkes was induced thereby to make it."

In O'Connor v. Lighthizer (Wash.), 75 P. 643, plaintiff had induced the defendant to agree to sell him his business property at an inadequate value by representing that he was buying it for a third party who would put in a bank and give defendant employment. In an action to enforce the contract of sale, which the court denied on account of this fraud, it said: "Appellant further urged that the pleading is bad, as presenting a case for relief on the ground of fraud, in that its allegations relate to acts to be performed in the future, and not to present or past acts. It is true it does contain allegations as to future acts, and, if it were confined entirely to these, the point urged would become serious. But it also contains averments as to existing facts which are very material. It alleges that appellant stated that Mr. Twohy desired to enter upon the banking and loaning enterprise in Harrington, and that appellant represented him for the purpose of effecting the necessary purchase, and was therefore associated with Mr. Twohy in the contemplated business. These statements as to Mr. Twohy, under the averments of the pleading, became inducements to make the writing in question. They related to existing facts, viz., that Twohy was then arranging to embark upon the business at Harrington, and that appellant was at that time duly authorized by Twohy to act in his behalf."

There are some later cases in this State, such as Metropolitan Paving Co. v. Investment Co., 309 Mo. 638, 664, 274 S.W. 815, which follow Younger v. Hoge, supra, in approving the rule that misrepresentations as to future events in the nature of promises will not support an action for fraud and deceit even where it is shown that the promisor has no intention to fulfill the promise, but used the same merely as a means of obtaining another's money. In my judgment, this should not be the law in this State. It sanctions fraud of the rankest kind. This court should be in line with the weight of authority and not turn a defrauded suitor out of court for the sole reason that the false representations relied on related to the future and were promissory in their nature, and that it makes no difference that the promisor knew he could not and did not intend to comply with his promise. This court should say, as it did in Turner v. Turner, 44 Mo. 535, 539: "The judge, in his opinion in the District Court, says the plaintiff is a victim, but he has no legal remedy. If such were the case, it would be a reproach and a scandal to the law, but we are not of that opinion. We see no difficulty in his getting full and adequate redress."

[3] Nor do I think it is a sufficient excuse to say that defendants did not have the legal power to perform the promise made to select plaintiff as manager of the bank, as that power is vested by law in the directors. Defendants represented that they held a majority of the stock of the bank and that the directors had authorized the spokesman to arrange with plaintiff to take such position. We all know that persons may and do bring about the doing of a thing by others, though not having such power personally. Such want of power is not a sufficient excuse for promising to do a thing which the promisor has no intention of even trying to do. It would be a good defense that defendants acted in good faith and intended to make good their promise, but that same failed because of the action of others whom they could not control. That was the situation in Younger v. Hoge, supra. The burden would be on the plaintiff to prove that defendants had no intention to carry out the promise made at the time of making it.

It is true that plaintiff will be held to know that the board of directors of the bank have the sole power to select and employ a manager, and that even the directors have no power under the law to legally bind the bank to retain a person as an employee at a fixed salary or for a fixed time. Plaintiff may well be held to have taken the risk of the defendants not being able to control the directors in this matter of selecting a manager of the bank and of plaintiff himself not being able, when selected, to satisfy the present or future board of directors as to his efficiency or to hold the position after he got it. This, however, is not a justification of their making false representations and promises which they never intended to even try to carry out, and knew that when plaintiff purchased from them this bank stock for $10,000 more than it was reasonably worth he would not, and they intended that he should not, even get an opportunity to make good his loss. The gravamen of the charge in this petition is that defendants promised that if plaintiff would pay defendants $10,000 more than this bank stock was worth, thereby enriching defendants to that extent, they could and would, or at least would try to put him in a position as manager of the bank, which would at least give him a chance to recoup his loss, when in fact defendants never intended or even desired to have such promise fulfilled. In connection with such promise the defendants made false statements and representations as to existing facts in order to induce plaintiff to believe and rely on this promise. This action should not be held to fail merely because of being founded in part on a promise to do something in the future. In fact, under the rule that an action for fraud cannot be based on a promise to do something in the future, if the defendants had been in fact the directors of the bank and owners of the majority of the stock and had the legal power to employ plaintiff as manager of the bank, yet the action would fail because founded on a promise to do something in the future. The law should be, and in most jurisdictions is, that a promise which is not intended to be fulfilled, but itself becomes the instrument of fraud by which is obtained the money or property of another, is sufficient to sustain an action based on fraud.

It is not necessary to discuss or determine the measure of damages or to what extent relief will be granted. Whether plaintiff can recover, as he seeks to do, damages because of having resigned his position as bank examiner in order to accept the position of manager of the bank in question, or whether punitive damages will be allowed, is not vital to his cause of action. It is enough to say that on the facts stated he has a cause of action to recover his actual loss because of the excessive price paid for the bank stock.

The court erred in sustaining the demurrer and the case should be reversed and remanded.

White, J., concurs in these views.