CHAPTER XIV

INFRINGEMENT OF PRIVATE PROPERTY (CONTINUED)— FRAUD

87. Definition.

88. Elements.

(1) Statement of Fact.

(2) Intent to Cause Action.
(3) Action by Complainant.
(4) Falsity.

(5) Scienter.

(6) Damage.

DEFINED

87. "Fraud consists in deception practiced in order to induce another to part with property or to surrender some legal right, and which accomplishes the end designed." 1

The question whether fraud has been committed may be raised in various ways. For example, the party injured may bring a common-law action for damages, or he may seek rescission or other relief in equity, or when sued upon an alleged obligation he may defend upon the ground of fraud practiced in its procurement, or he may proceed on the theory that the entire transaction is void, and seek to recover the property transferred, or treat the exercise of dominion over the same as a conversion. In equity, a broader interpretation is given to the term, which, it has been said, "properly includes all acts, omissions, and concealments which involve a breach of legal or equitable duty, trust, or confidence justly reposed, and are injurious to another, or by which an undue and unconscientious advantage is taken of another."2 But, whether the subject

12 Cooley on Torts (3d Ed.) 905, quoted in Beard v. Bliley, 3 Colo. App. 479, 34 Pac. 271, 272; Alexander v. Church, 53 Conn. 561, 562, 4 Atl. 103; FOTTLER v. MOSELEY, 179 Mass. 295, 298, 60 N. E. 788, Chapin Cas. Torts, 215.

21 Story, Eq. Jur. § 187, quoted in Sears v. Hicklin, 13 Colo. 143,

be considered from the legal or equitable standpoint, it is inadvisable to attempt a definition, for as it is the very nature and essence of this tort "to elude all laws in fact without appearing to break them in form, a technical definition of fraud, making everything come within the scope of its words before the law could deal with it as such, would be, in effect, telling to the crafty precisely how to avoid the grasp of the law." We shall discuss fraud only as a common-law wrong, not as a ground for equitable relief.

Fraud usually results in an injury to property rights, and accordingly has been placed in that class. But this is not invariably the case. Thus, where a manufacturer of farm implements sold a land roller with a cross-grained wooden tongue having a knot and knot hole, which he had plugged and concealed by putty and paint, an action based on fraud is maintainable to recover damages for personal injuries. suffered by one who had purchased the implement from a retail dealer. "The injury to one's person by the fraud of another is quite as serious as an injury to his pocketbook,"

153, 21 Pac. 1022; Larson v. Williams, 100 Iowa, 110, 118, 63 N. W. 464, 69 N. W. 441, 62 Am. St. Rep. 544; City of Clay Center v. Myers, 52 Kan. 363, 365, 35 Pac. 25; Hatch v. Barrett, 34 Kan. 223, 236, 8 Pac. 129; Richardson v. Trimble, 38 Hun (N. Y.) 409, 416; Moore v. Crawford, 130 U. S. 122, 128, 9 Sup. Ct. 447, 32 L. Ed. 878.

3 McAleer v. Horsey, 35 Md. 439, 452, per Miller, J. See Hanger v. Evins, 38 Ark. 334, 346; Rhodes v. Dickerson, 95 Mo. App. 395, 400, 69 S. W. 47; Mortlock v. Buller, 10 Ves. Jr. 292, 306, 32 Eng. Rep. 857.

4 Kuelling v. Roderick Lean Mfg. Co., 183 N. Y. 78, 75 N. E. 1098, 2 L. R. A. (N. S.) 303, 111 Am. St. Rep. 691, 5 Ann. Cas. 124. For further illustrations, see Allen v. Truesdell, 135 Mass. 75; KUJEK V. GOLDMAN, 150 N. Y. 176, 44 N. E. 773, 34 L. R. A. 156, 55 Am. St. Rep. 670, Chapin Cas. Torts, 16 (loss of consortium); Langridge v. Levy, 2 M. & W. 519, affirmed 4 M. & W. 337. Cf. Woodward v. Miller, 119 Ga. 618, 46 S. E. 847, 64 L. R. A. 932, 100 Am. St. Rep. 188.

5 Flaherty v. Till, 119 Minn. 191, 192, 137 N. W. 815, per Start, C. J.

ELEMENTS

88. To establish fraud it must be proved that— (1) There was a statement or representation of a fact. (2) The statement or representation was made with the intent that complainant act thereon.

(3) The complainant did act thereon.

(4) The statement or representation was untrue. (5) The party making the statement or representation knew it to be false, or did not believe it to be true,

or made it recklessly, not knowing or caring whether it were true or not.

(6) Damage proximately resulted to the complainant from the deception.

Tersely put, these elements are representation, falsity, scienter, deception, and injury.

The burden rests upon the party alleging fraud to prove each of these elements. Fraud is never presumed. But this does not mean that direct evidence is required. "Experience shows that positive proof of fraudulent acts is not generally to be expected, and for that reason, among others, the law allows a resort to circumstances as the means of ascertaining the truth." "It is very seldom that frauds are so bunglingly executed as to admit of direct proof. Unless exposed by

9

• While this is believed to be sanctioned by the weight of authority, many courts have dissented. See infra, p. 410 et seq. 7 Arthur v. Griswold, 55 N. Y. 400, 410; Brackett v. Griswold, 112 N. Y. 454, 467, 20 N. E. 376; Ley v. Metropolitan Life Ins. Co., 120 Iowa, 203, 211, 94 N. W. 568. Cf. Busterud v. Farrington, 36 Minn. 320, 31 N. W. 360; Byard v. Holmes, 34 N. J. Law, 296; Martin v. Eagle Development Co., 41 Or. 448, 69 Pac. 216; Southern Development Co. v. Silva, 125 U. S. 247, 8 Sup. Ct. 881, 31 L. Ed. 678.

8 Ley v. Metropolitan Life Ins. Co., 120 Iowa, 203, 94 N. W. 568; Wakeman v. Dalley, 51 N. Y. 27, 10 Am. Rep. 551; Southern Development Co. v. Silva, 125 U. S. 247, 8 Sup. Ct. 881, 31 L. Ed. 678.

Castle v. Bullard, 23 How. (U. S.) 172, 187, 16 L. Ed. 424, per Clifford, J.

circumstantial evidence, they cannot generally be exposed

at all." 10

(1) Statement of Fact

This means a statement as to a past or an existing fact. A mere promise is not enough. Hence fraud is not shown where the owner of property was induced to convey it by an assurance that he would receive a bond to reconvey, which was never given.11 But suppose that, when the promise was made, the promisor did not intend to perform. He has here misrepresented the condition of his mind, and "the state of a man's mind is as much a fact as the state of his digestion." 12 The principle is well illustrated where the vendor of goods, sold on credit to an insolvent vendee, seeks to rescind the contract and recover his merchandise. The mere fact that the vendee is insolvent does not necessarily show fraud. There must be a preconceived design not to pay,13 though his condition may be so hopeless that such an inference will be justified.11

10 Stauffer v. Young, 39 Pa. 455, 459, per Woodward, J.

11 LONG v. WOODMAN, 58 Me. 49, Chapin Cas. Torts, 205. To the same effect, Smith v. Parker, 148 Ind. 127, 45 N. E. 770 (promise to supply money for a business); Dawe v. Morris, 149 Mass. 188, 21 N. E. 313, 4 L. R. A. 158, 14 Am. St. Rep. 404 (promise to sell at a fixed price); Esterly Harvesting Mach. Co. v. Berg, 52 Neb. 147, 71 N. W. 952 (promise to make a machine give satisfaction); Lexow v. Julian, 21 Hun (N. Y.) 577, affirmed 86 N. Y. 638 (promise not to dispose of Stock Exchange seat); Patterson v. Wright, 64 Wis. 289, 25 N. W. 10 (promise to pay a claim).

12 Edgington v. Fitzmaurice, L. R. 29 Ch. Div. 459, 483, per Bowen, L. J. In accord, Dow v. Sanborn, 3 Allen (Mass.) 181; McCready v. Phillips, 56 Neb. 446, 76 N. W. 885; Devoe v. Brandt, 53 N. Y. 462 ; Swift v. Rounds, 19 R. I. 527, 35 Atl. 45, 33 L. R. A. 561, 61 Am. St. Rep. 791.

13 The reasons are well stated in Nichols v. Pinner, 18 N. Y. 295, 299. It was not fraudulent in Pinner, said the court, "to make reasonable efforts to retrieve his fortune and to extricate himself from

14 Edson v. Hudson, 83 Mich. 450, 47 N. W. 347; Leedom v. J. M. Ward Furniture, Stove & C. Co., 38 Mo. App. 425; Wright v. Brown, 67 N. Y. 1; Mulliken v. Millar, 12 R. I. 296; Gillespie v. J. C. Piles & Co., 178 Fed. 886, 102 C. C. A. 120, 44 L. R. A. (N. S.) 1; Kitson v. Farwell, 132 Ill. 327, 23 N. E. 1024; Backentoss v. Speicher, 31 Pa.

A prophecy or opinion is not a statement of fact. For example, fraud is not shown where a builder falsely stated what would be the cost of an unbuilt house; 15 nor is it actionable for a seller falsely to state that a certain bond was an A No. 1 bond, even if he did so in bad faith.16 So representations of value are generally deemed mere expressions of opinion. It is at times very difficult to determine whether the statement is of fact or opinion.18 Logical

17

his embarrassment. It is not unnatural that he should cling to the hope that better times would come, that to-morrow should be as this day and more abundant, and that with this hope, however delusive results may have shown it to be, he should have been impelled to buy more goods, contract new debts, and struggle on until some casualty should precipitate the catastrophe upon him, and he find himself in hopeless bankruptcy. This is an everyday experience in the commercial world; and it would be hard indeed if the unfortunate victim of hopes that looked to him at the time as reasonable must in his misfortunes be judged by the actual instead of the possible results." In accord, Burrill v. Stevens, 73 Me. 395, 40 Am. Rep. 366; Talcott v. Henderson, 31 Ohio St. 162, 27 Am. Rep. 501, note.

15 Sweney v. Davidson, 68 Iowa, 386, 27 N. W. 278; Emmerson v. Hutchinson, 63 Ill. App. 203.

16 DEMING v. DARLING, 148 Mass. 504, 20 N. E. 107, 2 L. R. A. 743, Chapin Cas. Torts, 207. To the same effect, Holton v. Noble, 83 Cal. 7, 23 Pac. 58; Mumford v. Tolman, 157 Ill. 258, 41 N. E. 617; Clark v. Ralls, 50 Iowa, 275; Warner v. Benjamin, 89 Wis. 290, 62 N. W. 179.

17 Kincaid v. Price, 82 Ark. 20, 100 S. W. 76; Everist v. Drake (1914) 26 Colo. App. 273, 143 Pac. 811; Bossingham v. Syck, 118 Iowa, 192, 91 N. W. 1047; Mecum v. Mooyer, 166 App. Div. 793, 152 N. Y. Supp. 385; Ellis v. Andrews, 56 N. Y. 83, 15 Am. Rep. 379, note; Gordon v. Butler, 105 U. S. 553, 26 L. Ed. 1166.

18 The following were deemed facts: That a patented improvement in machinery had been largely sold and successfully applied in many mills and was a practical success, that there was a large demand therefor, and that defendant was making the article and found it a good and profitable business (Scholfield Gear & Pulley Co. v. Scholfield, 71 Conn. 1, 40 Atl. 1046); that coal underlying a certain tract "showed almost invariably low sulphur, sulphur sufficiently low for the manufacture of metallurgical coke," etc. (Hotchkiss v. Bon Air C. & I. Co., 108 Me. 34, 78 Atl. 1108); that a worthless medicine was a sure cure for cholera (McDonald v. Smith [1905] 139 Mich. 211, 102 N. W. 668); that the exterior of a building was fireproof, it being in part of wood (Hickey v. Morrell, 102 N. Y. 454, 7 N. E. 321, 55 Am. Rep. 824). Cf. Marshall v. Seelig, 49 App. Div. 433, 63 N. Y.