Fishback v. Miller

By the Court, Beatty, C. J.: This is an action on a promissory note. The defense is fraud and failure of consideration. The following is the substance of the answer: It is alleged that prior to March 3, 1869, plaintiff and others were owners of a pretended quartz lode, situated in White Pine county, in this state; that, being desirous of selling the same, they conveyed their respective interests to J. C. Powell, who afterwards, at the city of San Francisco, opened negotiations with defendant for the sale to him of said mine; that said Powell, on the third of March, 1869, and at divers .times prior thereto, represented to the defendant that said mine was intrinsically very valuable; that a shaft was sunk on the lode to the depth of ten feet, and that the ore of said vein, at the bottom of the shaft, would assay one thousand dollars per ton; that defendant had no opportunity at that time to inspect or examine the mine, or to make test of the value of the ores therein; that he relied wholly on Powell’s representations as to the depth of the shaft, and the value of the ores therein, and, so relying, concluded a bargain bywhich — 436 — he agreed to pay two thousand dollars down, and give his note for four thousand dollars more; that on the third of March, 1869, Powell executed a conveyance of the mine, and defendant paid him two thousand dollars in cash, and executed the note referred to in the complaint, by which be promised to pay the plaintiff, thirty days after date, the sum of four thousand dollars in gold coin; that he afterwards paid two thousand dollars on said note; that before the payment of the remaining two thousand dollars he discovered that the representations of Powell, concerning the mine, were utterly false and fraudulent; that no shaft had been sunk on said mine, but only a little hole two and a half feet deep, in which no ore could be found that would assay more than fifty dollars per ton; that Powell's representations were false and fraudulent, and made with the express purpose of cheating and defrauding the defendant; that defendant, immediately upon the discovery of the fraud, repudiated the purchase, tendered a re-conveyance of the mine, and demanded back the money he had paid; wherefore, he denies any indebtedness to plaintiff, and asks a judgment for his costs. The cause was tried in the district court before a jury, who found a verdict for plaintiff for two thousand dollars and interest from April 3, 1869. defendant moved for a new trial, which was refused, and he now appeals from that order and from the judgment. The errors relied on in support of the appeal relate exclusively to the instructions of the court given to the jury at the request of the plaintiff. Before entering upon a discussion of these instructions, however, it will be necessary to state the substance of the testimony adduced at the trial. It appears that for more than six months prior to March, 1869, Miller and Powell wero both residents of the White Pine mining district, in which the Hopkins mine (the mine referred to in the pleadings) was located. A large number of mineral discoveries had been made in the district, which were then supposed to be extremely valuable. Among others, the California mine had a great reputation. The — 437 — Hopkins lode was located a short distance from the California mine, and this fact Miller knew. He had, however, never been upon the location, and only knew in a general way that it was near the California, The winter of 1868-69 and the following spring were a period of great excitement regarding the White Pine mines; numerous locations were made, and anything that showed a prospect of value was salable, especially if it was in the vicinity of a mine like the California. Miller was a speculator in mines, engaged in buying up such locations as he thought he could sell at a profit; he had been engaged in that business for several years, and was as good a judge of the value of a mine as Powell. Prior to January, 1869, Powell had agreed to sell the Hopkins mine to one Tolies, for six thousand dollars, provided the money was paid within a certain time. The time for payment was about to expire, and, Tolies not being able to make the payment, Miller offered, without ever having seen the mine, and without any knowledge of it, except what he had derived from Tolies, to become responsible for the payment of the six thousand dollars, if Powell would execute a conveyance of the mine, and put the deed in his hands. His object in making this offer, was to obtain a share of the profit which Tolies expected to realize upon a resale of the property to parties with whom he was then (January, 1869) in negotiation. Miller’s offer, in behalf of Tolies, seems to have been declined; at all events, nothing came of it; and after the time for Tolies to make payment had expired, Miller offered, in his own behalf, to give Powell five thousand dollars for the claim — one thousand dollars down, and four thousand dollars in sixty days. Powell concluded to accept this offer, but, in the mean time, Miller had received an unfavorable report of the mine from one Ingoldsby, with whom he had been connected in some mining transactions, and when Powell offered to make a conveyance, he retracted his offer of five thousand dollars. Miller then went to San Francisco, and Powell, also, a few days later. In San Francisco Miller sought Powell, and renewed negotiations for the — 438 — purchase of the Hopkins mine. In the course of these negotiations, Powell made statements which were substantially embodied in a writing, which he drew up and signed and delivered to Miller before the completion of the purchase. The following is the material portion of that writing: “The Hopkins ledge and company contains one thousand feet, located December 4, 1868, situate on the southern slope of Treasure Hill, about one thousand two hundred feet south-east from the California mine, on the same ridge. It crops out about three hundred feet, showing ore the entire distance. I have had four assays, ranging from one hundred dollars to one thousand seven hundred and sixtyono dollars and twenty-five cents. * * There is work done on it nearly every place. Shaft down on the center of the claim about ten feet deep, showing an improvement in the character of the quartz as depth is attained. The one thousand seven hundred and sixty-one dollars and twenty-five cents assay was from work at the bottom of the shaft. Upon the receipt of this statement, and a deed conveying the mine, Miller paid Powell two thousand dollars, and executed and delivered the note upon which this action is founded. A few days later Miller and Powell returned to White Pine, and Miller .requested Powell to point out the Hopkins mine to him. They went together to the ground and found only a little hole two or three feet deep on the croppings of the lode. Powell, however, said that that was not the shaft referred to in his statement; that the shaft must be filled up with snow, and, as he was not very familiar with the premises, ho would send up another man to point out the shaft. The ground was at that time covered in most places with snow, and Miller, accepting Powell’s explanation, and upon his urgent request, paid two thousand dollars on the note. A few days later Powell sent a man with Miller to point out the shaft; but this man took him to the same little hole that had been shown him by Powell, and which was in truth the only pretense of a shaft that had ever been sunk on tho claim. Miller thereupon repudiated the purchase, tendered a sufficient deed of re-conveyance, and demanded back the money he had paid. — 439 — Miller testified that he made the purchase wholly relying on the statements of Powell, and it was conclusively proved that the mine was of no intrinsic value; that no shaft had been sunk on it other than the little hole above mentioned, and that no ore could be found in or about that hole yielding an assay greater than two dollars and sixty cents per ton. Powell, who was the only witness examined on the part of the plaintiff, admitted that he had never had or made any assays from the mine, but had based his statements to Miller upon statements made to him by Tolies as to the assays, and by Fishback (the plaintiff) as to the work on the vein. There was other testimony, but nothing of consequence. Such being the case, the court gave to the jury, at the request of the plaintiff, the following instructions: “ 1. While the law affords to every one reasonable protection against fraud in dealing, it does not protect against the consequences of indolence and folly, or a careless indifference to the ordinary and accessible means of information. The law requires the purchaser to apply his attention to those particulars which may be supposed to be within the reach of his own observation and judgment. " If the purchaser be wanting in attention to those points where attention would have been sufficient to protect him from surprise and imposition, the maxim that the buyer must be on his guard applies. “ 4. Even if Miller was actually deceived and defrauded, then if he reaffirmed the contract afterwards, with knowledge or fair means of knowledge or notice of the fraud, you should find for the plaintiff, and the payment of two thousand dollars is a reaffirmance if made with knowledge of all the facts. “5. If the truth or falsehood of the representations might have been tested by ordinary vigilance and attention, it was Miller’s own folly if he neglected to do so, and in such case you must find for plaintiff. “6. The burden of proof in regard to every material allegation of the defense is upon the defendant. Therefore, the defendant must establish by a preponderance of evi — 440 — dence that the representations made by F.owell were false, and the defendant relied upon such representations as the sole inducement to the purchase of the Hopkins location. “ 7. The execution and delivery of the note in suit is admitted by the defendant, and the only questions for the jury to find are, whether the representations of Powell were false, and whether the defendant, Miller, relied upon the same exclusively as the inducement to the purchase of the property.” These instructions were erroneous and prejudicial to the defendant in more than one particular. By the first and fifth the maxim of caveat emptor is applied to a case in which it is wholly inapplicable. That rule applies when buyer and seller have equal opportunities of knowledge, and when the defect complained of is patent and obvious to the senses; but it does not apply to a case like this, where the seller makes express' representations in respect to matters of which the buyer has no knowledge and no means at hand of obtaining knowledge. In Bigelow on Fraud (67 et seq.) this question is largely discussed, and the authorities cited in the notes fully sustain that passage of the text in which the author says: “Every contracting party, not in actual fault, has a right, however, to rely upon the express statement upon existing fact, the truth of which is known to the contracting party who made it, and unknown to the party to whom it is made, when such statement is the basis of a mutual engagement. He is under no obligation to investigate and verify the statement, to the truth of which the other party to the contract, with full means of knowledge, has deliberately pledged his faith.” (p. 67.) If, then, Miller was without actual fault, he was under no obligation to investigate and verify Powell’s statements, and it would have required something more than ordinary vigilance and attention to do so. The sale was negotiated in San Francisco; the mine was more than five hundred miles distant. It is true that Miller had, for some months previous, resided in the mining district where the Hopkins claim was located; but his residence — 441 — in the district imposed no obligation upon him to examine all the mining locations within its boundaries, and it was no fault of his that he departed to San Francisco in complete ignorance of the state of development of the Hopkins lode, and of the assay value of its ores. The proof is clear and uncontradicted, that when Miller went to San Francisco he had never seen the mine, and knew nothing about it, except what he had heard from Tolies and Ingoldsby. He had been willing, in January, for the sake of sharing in the profits of a speculation which Tolies had in view, to assist him in purchasing the mine; but this only proves that he was willing to rely on the judgment of Tolies in a matter where they were to be jointly interested; it does not prove that he had any personal knowledge with respect to the property. Subsequently, he offered five thousand dollars for the mine on his own account, but his offer was immediately retracted on hearing Ingoldsby’s report. "What Ingoldsby’s report was does not appear, but, presumably, it was'a report of the actual condition of the claim — a report of a little hole on the croppings exposing no ore of any value. Upon this report he decided that the claim was not worth five thousand dollars, and here negotiations concerning the purchase stopped. When, a month or two later, he met Powell in San Francisco, time enough had elapsed since the date of Ingoldsby’s inspection for the sinking of a shaft ten feet deep; and Powell’s statement that such a shaft had been sunk, as well as his statement regarding the assays, was one which Miller had as much right to rely on as any other man in San Francisco. To him, as to every one else, the distance of the mine from the place where the negotiation was pending, was a sufficient excuse for not attempting to investigate or verify the facts stated by the vendor. It was an error, therefore, to lay down for the guidance of the jury a rule which, under the facts, conclusively established by all the testimony in the case, could have no possible operation. For the same reason, the fourth instruction was erroneous. There was no evidence tending to show that at the — 442 — time Miller paid two thousand dollars on this note he had any knowledge, or means of knowledge, that Powell’s statements as to the shaft and the assays were untrue. He had been to the locality of the mine with Powell, for the purpose of inspecting it; but there was a great deal of snow on the ground, and though the shaft could not be discovered, Powell assured him it was there, and accounted for his inability to point it out by alleging his want of familiarity with the premises, and suggesting that it was filled up with snow. There is no contradiction in the evidence as to these facts, and they show conclusively that the two thousand dollars ivas paid on this note, while Miller was still in ignorance of the condition of the property, and without means of knowledge, while, in other words, he was still relying on Powell’s statements, and still excusable in doing so. The sixth and seventh instructions contain a proposition that was erroneous. As we understand them, they tell the jury to find for the plaintiff, unless they are satisfied that Powell’s representations were the sole and exclusive inducement to the purchase by Miller. But this is not the law. In Kerr on Fraud and Mistake (Bump’s American ed. 74) it is said: “It is not, however, necessary that the representation should have been the sole cause of the transaction. It is enough that'it may have constituted a material inducement. If any one of several statements, all more or less capable of leading the party to whom they are addressed to adopt a particular line of conduct, be untrue, the whole transaction is considered as having been fraudulently obtained; for it is impossible to say that the untrue statement may not have been precisely that ivhich turned the scale in the mind of the party to whom it was addressed.” (See also Bigelow on Fraud, 88, 89, and cases cited.) Counsel for respondent does not deny that these instructions, taking them in the sense in which we understand them, are technically erroneous; but he contends that the error could not have prejudiced the defendant in this case, because both by his answer and testimony he shows that he was influenced in making the purchase by nothing except Powell’s statements. This, however, is by no means clear. He did indeed say in his direct testimony that he — 443 — relied wholly on Powell's statement in making the purchase, but he admitted upon cross-examination some previous knowledge concerning the mine, derived from Tolies and Ingoldsby, and the jury may well have concluded that he knew, before seeing Powell in San Francisco, that the Hopkins mine was located near the California, which fact he expressly stated was one inducement to make the purchase. And this statement was perfectly consistent with his answer, in which it is alleged that defendant “relied wholly on the representations of the said Powell with regard to the depth of the shaft and the value of the ores.” With respect to these matters only he relied wholly upon the statements of Powell, but he does not allege, and he did not testify, that there was nothing else to induce him to make the purchase. Under the circumstances, we can not say that the error in these instructions was harmless. The sixth instruction was also erroneous in stating that the burden was on the defendant to establish, by a preponderance of evidence, that the false representations of Powell were relied on by defendant in making the purchase. The rule of evidence is that when representations made by the seller in a case like this are shown to be material and false, the burden is upon him to show that they were not relied on by the buyer, and that the purchase would have been made withoutthe representations. (Kerr on Fraud and Mistake, 75.) For these errors the judgment and order appealed from must be reversed. Before taking leave of the case, however, wp wish to say, in justice to J. C. Powell, that he appears from the testimony to have been himself deceived in regard to the condition of the mine, at the time of his statements to Miller. He was relying on representations made to him by his principal, the plaintiff in this action, and by Tolies. This fact acquits him of any intentional wrong. But having made positive statements which were in fact unfounded, the legal effect is the same as if they had been willfully false, and it is in that sense only that we have spoken of them as false statements. The judgment and order of the district court refusing a new trial are reversed, and the cause remanded. .