Sachs v. Blewett

DISSENTING OPINION. I think the petition for rehearing should be granted and judgment for the plaintiff below affirmed. In the writer's opinion the complaint states a perfect cause of action in deceit. The essential elements of legal deceit are (1) false representations (2) fraudulently made (3) under circumstances which entitle the plaintiff to rely thereon and (4) plaintiff's reliance upon the representations (5) to his damage. Harper on Torts, § 217. That the averments of the complaint bring the instant case within the foregoing requirements is clearly shown by the summary of the allegations in the opinion of Bridwell, J., in Sachs v. Blewett (1931), (Ind. App.), 175 N.E. 676. The summary is as follows:

"The averments of the complaint sufficiently show that the appellants represented to appellee that they are good-faith bidders for the property offered for sale, and that they had the present intention to purchase and would purchase same at the price bid by them; that this representation was false, and that their purpose and intention in bidding was to prevent the sale of said property to any good-faith bidder; that appellee relied on their representation and bid, and said bid was accepted; that, on account thereof, the sale of said property to a good-faith bidder who was willing and ready to pay the price bid by him was prevented; that appellants knew that foreclosure proceedings were imminent, and their purpose and intent was to bid more for said property than any good faith bidder offered, then refuse to take the property at the price bid, and afterwards acquire same from appellee at a price much less than the price bid, they believing this to be possible because of the appellee's financial condition and the desire on her part to sell in order to prevent foreclosure proceedings; that appellee made a diligent effort to sell at a price at least equal in amount to the amount bid in good faith, by a bona fide bidder at the first sale, but was unable to do so, and was compelled to and did sell the property in question at a second public auction sale for a sum much less than she would have received for said property had it not been for the fraudulent actions of the appellants."

It is true as stated in Franklin Insurance Co. v. Humphrey (1879), 65 Ind. 549, "fraud cannot be predicated upon acts which the party charged has a right by law to do, nor upon the non-performance of acts which by law he is not bound to do, whatever may be his motive, design or purpose, either in doing or not doing the acts complained of." This proposition follows from the requirement that fraudulent representations, in order to be actionable, must be made under circumstances which entitle the plaintiff to rely thereon. Granting that the plaintiff was not legally justified in relying upon the defendants' oral promise to buy the real estate in question, it does not follow that she was not justified legally in relying upon the good faith of the bid of defendants made at a public auction. The situation as presented by the averments in the complaint involves two relationships which must be kept distinct. There is the relationship of vendor-vendee involving the transaction of sale and purchase of the real estate. There is also the relationship that arose out of the fraudulent conduct of the defendants. It is the latter relationship which is material in this case.

The appellant was a bidder at a public auction where the whole situation presupposes good faith on the part of bidders. The owner of the property is at the mercy of the bidder, and this is especially true when, as in the instant case, the property is real estate and requires a period of time to complete the sale after the bidding has been closed. The whole value of a public auction rests upon the good faith of bidders and any conduct on their part which prevents a fair sale is wrongful. It is hard to conceive of any conduct more calculated to destroy the value of a sale for seller, or for other bidders, than bad faith bidding. The minimum standard of business honesty would require a duty of good faith bidding and the seller is justified in relying upon a bid as the representation of a present intention to buy; and in rejecting the next lower bid. Legal fraud is not predicated upon a special pre-existing relationship of trust and confidence. It is predicated upon the general duty, which the law imposes upon all persons, not to fraudulently misrepresent a fact to another person for the purpose of inducing action thereon. As already indicated the representation must be such that the party to whom it is made is justified in relying upon its truthfulness and injury must result from the reliance. I do not think it is material in the instant case that appellants owed no legal duty to carry out their oral promise to buy the real estate or that they owed no legal duty to execute a written promise. The legal duty which they owed, and which they violated, was a duty not to deceive the appellee by a false bid made for the purpose of preventing a sale to the next highest bidder. The appellee relied upon the false bid and thereby lost a sale to a good faith bidder whose bid was only a few dollars less than appellants' bid.

The majority opinion states that "it was the failure of the appellants to carry out their contract to purchase the real estate which caused the damage." In the judgment of the writer the foregoing reveals the fallacy of the reasoning of the majority opinion. The appellee is not seeking compensation for a loss legally caused by appellants' failure to carry out his oral contract; she is complaining of the loss occasioned by her failure to sell to the second highest bidder, and the facts alleged show that this failure was caused by the fraudulent conduct of the appellants. We are not interested in appellants' oral promise as an element in a contractual relation; it is of significance only as the appellants' fraudulent device to prevent a sale to a good faith bidder who was ready and willing to carry out his bid.

Appellee's complaint alleges in substance that the appellant had attended the auction sale for the fraudulent purpose of "blocking the sale" of her property and to make fraudulent bids therefor in order to prevent a sale to any honest bidder; and that the bids of appellants were made with no intention of complying therewith and solely for the purpose of preventing a sale to any other bidder. Appellants' bid was an offer of a promise to buy the real estate and this offer became an oral promise when it was accepted by the auctioneer. It was a promise made with the intention of not performing and for the purpose of causing appellee to reject a good faith bid.

"To profess an intent to do or not to do, when the party intends the contrary, is as clear a case of misrepresentation and fraud as could be made." Herndon v. Durham S.R. Co. (1913), 161 N.C. 650, 656, 77 S.E. 683, cited in Harper, Law of Torts, § 220.

It cannot be questioned that one who promises to do an act with an existing intention not to do it makes a misrepresentation of his state of mind; and "a present state of mind is a present fact." (Basye v. Basye [1899], 152 Ind. 172, 52 N.E. 797.) An arbitrary rule of law might not allow the same legal consequences to follow a misrepresentation of an existing state of mind that follow other misrepresentations of fact, but the denial of the legal consequences cannot change the reality that a state of mind is a fact. At the present time, however, the overwhelming weight of authority recognizes that a misrepresentation of a present state of mind is to be treated as any other misrepresentation of fact.

"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 has been 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, the gist of the fraud in such a case being not the breach of the agreement to perform, but the fraudulent intent of the promisor and the false representation of an existing intention to perform, when such intent did not in fact exist; and the courts have pointed out that the state of the promisor's mind at the time he makes the promise is a fact, and one which is exclusively within his own knowledge; and if he represents his state of mind, i.e., his intent, as being one thing, whereas it is the opposite, he misrepresents a then existent fact." 51 A.L.R. 63. See numerous citations in notes, p. 63 et seq.

The opinions of this Court prior to that in Basye v. Basye,supra, do not seem to distinguish between a promise as a representation of a present intention to perform and as a representation that the performance of the promise will occur in the future.¹ The latter cannot be distinguished in fact or in legal significance from the promise to perform. The right of the promisee to performance is neither enlarged nor restricted by the fraudulent character of the promise and the duty of the promisor to perform is not affected thereby. Consequently the failure to perform a promise does not constitute fraud even though the promisor had an existing intent not to perform when the promise was made. The fraud, if any, is tied inseparably, in fact and in law, with the misrepresentation of intent; and there cannot be any cause for redress on account of the fraud unless injury legally resulted from the misrepresentation. Consequently, Baker, J., in Basye v. Basye, supra, correctly stated that "to permit a recission for fraud by one who has no ground for complaint except an unfulfilled promise, a broken contract, would obscure elementary distinctions between remedies and tend to nullify the statute of frauds." For an injury legally to result from a misrepresentation of fact the party affected must reasonably rely upon the misrepresentation and the injury complained of must result from the reliance. Actual injury resulting from a reliance upon the misrepresentation is an essential element of a cause of action in fraud; and it necessarily follows that the injury in respect to which relief is sought in a proceeding based upon fraud cannot be the injury resulting from "an unfulfilled promise, a broken contract."

It is clear that Basye v. Basye, supra, recognizes that a promise to do an act is a representation of a present intent to do the act and that such representation is one of fact. Also, the opinion makes it clear that it is fraudulent to misrepresent one's present intention by a false promise. The writer cannot see anything in Basye v. Basye or in Webster v. Adams (1923),79 Ind. App. 261, 137 N.E. 883, to negative the plaintiff's right to recover on the facts of the instant case. Both of these earlier cases recognize that a false promise is a fraudulent misrepresentation of a present fact and certainly they do not foreclose the question of a promisee's right to recover on a fraudulent promise when the injury complained of is the result of relying upon the false promise and does not relate legally to the failure to perform the promise.

Appellants urge that a recognition of appellee's right to recover would effect a "northwest passage around the Statute of Frauds." It is true that the fraudulent device used to deceive the appellee took the form of a promise to buy real estate but appellee is not seeking to enforce the promise. If appellee's action were predicated on appellants' promise, as such, and if she were relying upon the fraudulent character of the promise to take it out of the Statute of Frauds there would be substance in the "northwest passage" suggestion. This would be true because the full prohibitive force of the Statute of Frauds is directed against the enforcement of oral promises and there is nothing in the policy or provisions of the Statute upon which to base a distinction between good and bad faith promises. But the courts have gone far in limiting the effect of the provisions of the Statute in order to prevent its being used to perpetrate fraud and have not evidenced the slightest tendency to enlarge its scope to cover transactions not expressly included when the result would be to make fraud effective.

In the opinion of the writer the transaction upon which appellee's suit is based does not come within the purview of the Statute of Frauds and the writer cannot see how a recognition of appellee's right to recover can be contrary to the letter, spirit or policy of the Statute. Furthermore, in the opinion of the writer, a denial of the existence of a cause of action would be out of harmony with the judicial policy of this Court in respect to injurious acts of fraud. This Court has consistently refused to confine actionable fraud to any particular acts or type of conduct. In Rochester Bridge Co. v. McNeill (1919),188 Ind. 432, 122 N.E. 662, the appellant insisted that liability for fraud could not be predicated upon an expression of opinion and we find that text writers and courts have frequently made the general statement that opinion does not constitute legal representations.² But this Court refused to allow itself to be fettered by a general statement when an expression of opinion did in fact constitute an element in fraudulent conduct. The following excerpts from the opinion by Myers, J., are quite instructive and in harmony with the traditional attitude of this Court:

"Appellants insist that all allegations in the complaint relied on to show fraud, for the most part, are mere expressions of opinion; that they were not statements of existing facts; that appellee had an equal opportunity with appellants to know or learn the facts; that he was in a better position to know his real condition than either of the appellants. . . . The statements set forth in the pleading give some foundation for appellants' contention, but when the nature of the representations and meaning of the language used in the complaint as a whole is considered and applied to the subject matter here in controversy, the objections must fail. In the absence of a general rule applicable alike to all cases of fraud, each case, to a large extent, must be determined upon its own facts. The mere fact that a statement takes the form of an expression of opinion is not always conclusive, for, as the question is now presented, it must be interpreted by the facts and surrounding circumstances shown by the complaint. The rule that actionable fraud cannot be based upon the mere expression of an opinion has been qualified until now an expression of an opinion may amount to fraud, where it is a mere contrivance of fraud, or if the person to whom it was expressed has justly relied on it and has been misled, or when it is coupled with other circumstances. 12 R.C.L. 248, § 16." . . . "We therefore conclude that the complaint in the instant case shows the essential elements necessary to state a cause of action. These elements are representations, falsity, scienter, deception and injury."

In the opinion of the writer to hold that a misrepresentation of fact cannot be made the basis of an action for fraud because the misrepresentation of fact takes the form of a false oral promise to buy land, involves a misapplication of the Statute of Frauds and utterly confuses the elementary distinctions between the law of torts and contracts.

¹ Note 1. "It is true that a promise to do a thing in the future is not fraud, although there may be no intention of fulfilling the promise; for fraud consists in the misrepresentation of an existing fact. Fouty v. Fouty (1870),34 Ind. 433; President, etc., v. Hamilton (1870),34 Ind. 506; Burt v. Bowles (1879), 69 Ind. 1." Bethell v.Bethell (1884), 92 Ind. 318, 324.

² Note 2. "The general proposition of law is that the representation must consist of matter of fact; and the word `fact' is here used in distinction, inter alia, from opinion. Opinion then, generally speaking, does not constitute a legal representation." Bigelow, The Law of Fraud, p. 473, § 3.