Camp v. Carithers

Ellis, J. The plaintiff, Camp, brought an action for deceit in the city court of Jefferson against the defendant, Carithers, and alleged that he had been damaged to the amount sued for in his petition by reason of the facts stated therein, which were charged in substance as follows: The defendant was, and had been during its existence, the president of a corporation known as the Winder Foundry and Machine Works, and represented to the plaintiff that in thirty months it had declared, or made a net profit of, one hundred per cent.; that its original capital was $10,000; that it had made clear $10,000, and that it was the purpose of the corporation to increase.the capital stock from $10,000 to $30,000. $10,000 of this increase was to be issued to the stockholders then holding the — 610 — stock, .in the way of dividends, and $10,000 of the stock was to be sold to outside and selected parties at par. The plaintiff charged that he had long known the defendant, had confidence in his personal integrity and business judgment, and that, relying upon the alleged representation of the defendant, he became a purchaser of $1,000 of the stock and paid for the same, and had a certificate therefor issued to him. He alleges that, a few years subsequent to his purchase, the defendant caused bankruptcy proceedings to be inaugurated against the company by the making of an affidavit in which he alleged that it was insolvent, and caused himself to be appointed receiver; and the plaintiff goes further and alleges that the stock purchased by him was practically worthless at the time he purchased it and was worthless at the time he filed his suit. Other allegations were made as to the writing of a letter by the defendant to the plaintiff, and as to the amount the defendant alleged the property to be worth at the time of the proceedings in bankruptcy, and as to the value of the assets at the time of bringing the suit. The defendant filed an answer in the case, in which he substantially denied all the allegations made by the plaintiff, and specifically denied any misrepresentations to the plaintiff, and charged, that at the time the plaintiff bought his stock it was a good investment; that a statement was made of its assets, and that such statement and the books were accessible to the plaintiff, and that, if the plaintiff had investigated, the 'books would have shown the stock purchased by him to be worth par. He also set up that his action in respect to the bankruptcy proceedings was taken for the benefit of the corporation, to prevent it from falling into unfriendly hands by peremptory proceedings, by which it would have been prevented from the completion of a lot of work in process of construction. He said that such a step was necessary for its protection, and that, as soon as the work had been completed, it was taken out of the court of bankruptcy and the assets turned over to its own directors and stockholders, and that it had been since that time operated as a going concern. ITe denied that he made any false or fraudulent statement, or that he made any statement for the purpose of deceiving or misleading the plaintiff, or of procuring him to subscribe. He denied that the plaintiff had been damaged by any conduct of his. In his testimony the plaintiff used this — 611 — language: “He (tbe defendant) did not show me any statement, nor did he ask me to look at the boobs. I relied on the statement made by him that this concern had cleared one hundred per cent, in thirty months.” He testified further that he did not know the market value of the stock when he brought the suit, nor now, and did not know its value since the bankruptcy proceedings, but does not think it would bring anything. On cross-examination the plaintiff further testified that the defendant told him the foundry made $10,000 in thirty months; he did not ask him how they arrived at it; that he supposed it could be arrived at by a statement by the manager and bookkeeper; that he did not know any other way to do it. Several other persons who had taken some of the $10,000 issue testified substantially as did the plaintiff, and from the testimony it is clear that they .all made their purchases on the statement of the defendant as to the earnings, and their confidence in him as to personal and business good standing. The defendant introduced a number of witnesses who testified as to the business and assets of the corporation, among them the manager and bookkeeper. It was shown in the evidence that, a statement had been issued just before the increase in stock, and the evidence all tended to show that the statement as to earnings showed earnings equal to one hundred per cent, for the thirty months covered by the statement. The defendant, in his testimony, uses this language: “We (plaintiff and defendant) were not together five minutes. I did not give him any information. He did not ask it. I did not tell him it was a good and magnificent investment.” The letter to the plaintiff, signed by the defendant, was a simple statement that the capital stock would be increased to $80,000, and that if he wanted any of it at par, he could get it: “If you want any of the stock, come down, and I will show you what it has done.” This is the letter which the plaintiff claims induced him to have the conference with the defendant, which he refers to in his testimony. There is a good deal of testimony in the record, but it all amounts substantially to this: that the plaintiff relied on the statement he says the defendant made, to wit, that one hundred per cent, had been made in thirty months; and upon the fact that he knew the defendant was a reliable and successful man, and knew he was president of the corporation. Practically the only definite proof that the concern was not worth the — 612 — amount claimed when the stock was sold was the subsequent bankruptcy proceedings and decrease in values. In his petition the plaintiff charged that the statement made by the defendant as to the condition and profits of the said plant was absolutely false and fraudulent, and that the defendant knew at the time that the same was false and fraudulent, and that such representations by the defendant were made for the purpose of deceiving and misleading the plaintiff and for the purpose of procuring his said subscription, and that he acted on those false and fraudulent representations to his injury and was damaged in the sum sued for, to wit, $1,000. It will thus be seen that the plaintiff brought his action of deceit-against the defendant under the provisions of section 3814 of the Civil Code, which is as follows: “Wilful misrepresentation of a material fact, made to induce another to act, and upon which he does act to his injury, will give a right of action. Mere concealment of such a fact, unless done in such a manner as to deceive and mislead, will not support an action. In all cases of deceit, knowledge of the falsehood constitutes an essential element. A fraudulent or reckless representation of facts as true, which the party may not know to be false, if intended t6 deceive, is equivalent to a knowledge of the falsehood.” It is declared in this section that wilful misrepresentation of a material fact, made to induce another to act, and upon which he does act to his injury, will give a right of action. The balance of the section is declaratory of what must also appear as essential to support this. It declares that mere concealment of such fact, unless done in such a manner as to deceive and mislead, will not support an action. We might at this point read into the section the additional words “of deceit.” It is also declared that in all eases of deceit, knowledge of the falsehood constitutes an essential element; so that wilful misrepresentation of a material fact, made to induce another to act, and upon which he does act to his injury, will give a right of action of deceit, where the party making the misrepresentation has knowledge of its falsehood. In further explanation of this statute, it is declared that a fraudulent or reckless representation of facts as true, which the party may not know to be false, if intended to deceive, is equivalent to a knowledge of the falsehood. In this case the plaintiff by his pleadings charged the defendant directly with knowl — 613 — edge. There was no attempt to charge him with facts and circumstances which would show a fraudulent and reckless representation of facts as true which he might not have known to bo false, but the charge is squarely made that he did know that they were false and fraudulent. A careful reading of the grounds of the motion for a new trial will disclose the fact that the plaintiff in error bases his right to a reversal of the judgment of the court below, in refusing a new trial, on the ground that the court did not submit to the jury the right of the plaintiff to recover in the case if he could show that the defendant misrepresented, though by mistake and innocently, a material fact to induce the plaintiff to act, and upon which he did act; and this contention brings under review another section of the Civil Code. Section 4026 of the Civil Code is to be found in chapter 10 of title 10, which treats generally of fraud. That section declares: “Misrepresentation of a material fact, made wilfully to deceive, or recklessly without knowledge, and acted upon by the opposite party, or if made by mistake and innocently, and acted on by the opposite party, constitutes legal fraud.” This is a statutory declaration of what is legal fraud, but it is not a statutory declaration of what elements of legal fraud are applicable to actions of deceit. It must be remembered that in this case the plaintiff did not sue the party who got his money; he did not undertake to say, in his legal action, that the corporation, by its agent or president, had induced him to part with his money for worthless stock by false representations, even though made by mistake and innocently; but he proceeds against the individual who is alleged to have made the misstatement. He says, in effect, “No matter who has my money and retains it, nor who has obtained it wrongfully, I elect to proceed against the party individually who injured and damaged me by the making of a false and fraudulent statement.” And the question arises whether or not, in this kind of action, the plaintiff can recover, if the defendant induced him to act by mistake or innocently. The charge of the court, taken as a whole, we think substantially and fairly submitted to the jury the law governing the plaintiff’s case as he made it. He elected to put it upon the ground that the defendant had made a misrepresentation to him, falsely and fraudulentty; that he knew it was false and fraudulent when he made it; — 614 — that he made it to induce the plaintiff to act, and that, the plaintiff did act to his injury. The general rule is that a plaintiff must recover, if at all, upon the case he makes in his pleadings; and if the court charged the law to cover the issues as presented in this case, he committed no reversible error. If it be true that knowledge (actual or constructive) of the falsehood constitutes an essential element in an action of deceit, then, in a case where it is charged that the misrepresentation alleged to have been made by a defendant was made by mistake and innocently, without more, and acted on by the opposite party, could there be a recovery P If not, then a failure of the court to charge this doctrine, if error at all, was not such as to cause a reversal of the judgment. In this case the court read to the jury section 3814 of the Civil Code, in reference to an action for deceit; and in the charge as a whole, the provisions of this section and its requirements are explained. The charge, taken as a whole, submitted the true issues of the case and the law concerning them, and while some of the paragraphs may be subject to criticism, yet we can see no ground for a reversal of the judgment refusing a new trial, and especially so where the evidence in the case amply supports the verdict sought to be set aside. It is therefore ordered that the judgment of the court below be Affirmed.