Bystrom v. Villard ( 1916 )

Page, J. (dissenting):

The action was to recover damages for the sale of stock of the Ocean Wave Mining Company induced by alleged false and fraudulent representation contained in a prospectus and a circular letter signed by the defendant Villard as president of the said company. There were other representations alleged to have been made by the defendant Wolkenstein, but Wolkenstein was not served and no authority was shown for Wolkenstein to act on Villard’s behalf; in fact, the stock sold was Wolkenstein’s personal property. The specific statement upon which plaintiff seeks to recovér from Villard is that “the 100-ton stamp mill, the machinery for which has been delivered and paid for, will be completed and running within the next few weeks and will handle first the $400,000 worth of ore already delivered at the mill. ” These minés had been worked for a number of years and abandoned in 1893 on account of the depreciation of the price of silver, because of the repeal of the “ Sherman Purchase Law.” A large quantity of ore had been mined and was on the dumps ready to be milled. It was proven by John-Kasser, a witness called on behalf of the plaintiff, that this ore assayed from $5 to $300 a ton, and that they had reports óf mining engineers, who came out to make an analysis of the ore, in which they stated that this ore was worth from $300,000 to $400,000. He also testified that a twenty-stamp mill had been delivered at the mine capable of milling seventy-five or more tons. The defendant Villard testified that he had prior to the making of the prospectus and issuing the letter visited the mines. He had the reports of the engineers and also examined the original smelter returns from 1883 to 1895 and the United States Geodetic survey which stated that $268,000 of ore had been taken from these mines. As a result of these investigations he formed an independent opinion as to the value of the property which he believed in; that after this visit there was put in a twenty-stamp mill which was planned to treat 100 tons per day. The plaintiff not only failed to prove, but the defendant disproved an essential element of an action of this character, namely, scienter. We must bear in mind that this was a common-law action for fraud and deceit. “The essential constituents of such an action have been understood from the time such actions were first maintained. They are tersely stated by Ceurch, Ch. J., in Arthur v. Griswold [55 N. Y. 400] viz.: ‘Representation, falsity, scienter, deception and injury.’ There must have been a false representation, known to be such, made by the defendant, calculated and intended to influence the plaintiff, and which came to his knowledge, and in reliance upon which he, in good faith, parted with property or incurred the obligation which occasioned the injury of which he complains. All these circumstances must be found to exist, and the absence of any one of them is fatal to a recovery. ” (Brackett v. Griswold, 112 N. Y. 454, 467.) We cannot better state the limitation of a common-law action for deceit than by a repetition of the words of Chief Judge Andrews in Kountze v. Kennedy (147 N. Y. 124): “The gravamen of the action is actual fraud, and nothing less will sustain it. The representation upon which it is based must be shown not only to have been false and material, but that the defendant when he made it knew that it was false, or not knowing whether it was true or false and not caring what the fact might be, made it recklessly, paying no heed to the injury which might ensue. Misjudgment, however gross, or want of caution, however marked, is not fraud. Intentional fraud, as distinguished from a mere breach of duty or the omission to use due care, is an essential factor in an action for deceit. The man who intentionally deceives another to his injury should be legally responsible for the consequences. But if through inattention, want of judgment, reliance upon information which a wiser man might not credit, misconception of the facts or of his moral obligation to inquire, he makes a representation designed to influence the conduct of another, and upon which the other acts to. his prejudice, yet, if the misrepresentation was honestly made, beheving it to be true, whatever other liability he may incur he cannot be made liable in an action for deceit. The law affords remedies for the consequences of innocent misrepresentation. A contract induced thereby may, in many cases, be avoided, and the equitable powers of courts are frequently interposed for the rescission of contracts or transactions based upon mistake or innocent misrepresentation. While the common-law action of deceit furnishes a remedy for fraud which ought to be preserved, we think it should be kept within its ancient limits, and should not by construction be extended to embrace dealings which, however unfortunate they may have proved .to one of the parties, were not induced by actual intentional fraud on the part of the other.”

The case of Hadcock v. Osmer (153 N. Y. 604), relied upon by the majority of the court, correctly states the rule, which is entirely in harmony with Kountze v. Kennedy (supra). In the Hadcock case the defendant gave a general recommendation of credit, knowing that it was to be used to obtain a loan by which he was to benefit. In that recommendation he stated that the person seeking the loan was solvent, without knowing anything about his financial condition. The statement was, therefore, made by defendant “not knowing whether it was true or false and not caring what the fact might be, made it recklessly, paying no heed to the injury which might ensue.” (Kountze v. Kennedy, supra.) I cannot accept this rule as applying to the facts in the instant case, where after a personal investigation of the property, inquiry of those who had been familiar with the operation of the mine in the past, examination of reports by mining engineers and official smelter reports, the defendant had formed an independent conclusion as to the truth of a statement which he believed and acted upon himself.

Relief may be given by way of rescission in equity for fraudulent representation where scienter is not alleged or proved. (Canadian Agency, Ltd., v. Assets Realization Co., No. 1, 165 App. Div. 96, 102, and cases cited.) But, as shown above, scienter is a material fact which must be alleged and proved to entitle a party to damages in a common-law action for deceit. Because this element was lacking in many of the requests to charge, which otherwise were correct, the learned trial justice properly refused them. I have examined the record and find no reversible error. There is persuasive force in the respondent’s argument that the statement of the value of the ore in the dumps was a statement of opinion upon which an action would not lie. I prefer, however, to base my conclusion upon the ground that whether the statement was of an opinion or a fact, plaintiff having failed to prove that the statement was made with knowledge that it was false, or so recklessly made without knowledge or care of what the fact might be, as to charge the defendant with liability, and defendant having proved the contrary to be the fact, the judg' ment and order should he affirmed.

Dowling, J., concurred.

Judgment and order reversed, new trial ordered, costs to appellant to abide event. Order to be settled on notice.