Serrano v. Miller & Teasdale Commission Co.

93 S.W. 810, 117 Mo. App. 185, 1906 Mo. App. LEXIS 46

Opinion

NORTONI, J.

(after stating the facts). — The criticism is that the instructions failed to require the jury to find the scienterThat there must be scienter, either actual or constructive, in order to support an action at law for deceit, is beyond question. The false representation may be made scienter in contemplation of law if the other elements of liability are present in one of three ways.

First. A false representation made with the knowledge of its falsity by the utterer is scienter in law and therefore proof that the party made the false representation concerning a material fact with knowledge that the representation was false at the time it was made, satisfies the law in so' far as scienter is concerned, for from the fact that the representation was made with knowledge of its falsity, it must he taken that it was made with an intent to deceive and the corrupt element or evil design-actual knowledge of its falsity being present— scienter is thereby actually established. On an allegation under this phase of the scienter the issue is the actual evil intent as distinguished from honest error and innocent mistake. [Bank v. Byers, 139 Mr. 627, 41 S. W. 325; Walsh v. Morse, 80 Mo. 568; Dulaney v. Rogers, 64 Mo. 201; Dunn v. White, 63 Mo. 181; Owen v. Rector, 44 Mo. 389; Derry v. Peek, L. R., 18 App. Cases, 374; Kountze v. Kennedy, 147 N. Y. 124; 1 Bigelow on Frauds (1888), 510-511.]

In the history of our jurisprudence, many cases arose where frauds had been perpetrated and the rule above stated was insufficient to meet the requirements of complete justice for the reason that in many instances it was impossible to establish by evidence that the utterer knew of the falsity of the representation at the time of making it and therefore the cause would fail for want of proof of the scienter, and the rule was found to be inadequate to reach those ends of perfection sought to be attained by the common law whereby there should be rendered adequate redress for every wrong. As a result of these conditions, the law, in its process of evolution from adjudications on the different shades and kinds of deceit and in order to meet and deal with such cases as arise where a wrong has been perpetrated by the misrepresentation of one person and relied upon by another to his damnification, when the case in itself is incapable of affirmative proof, that the utterer of the representation knew such representation to be false, has supplied us with two further principles having application to the establishment of the scienter in contemplation of law, •which two principles have become now fixed rules of decision by which scienter is taken to be constructively established in certain cases in order that justice may not be defeated, and therefore it is universally recognized in the courts of common law jurisdiction that where the other essential elements of liability are present, scienter may be constructively supplied by law.

Second. When a party makes a representation of a material fact as of his own knowledge when in truth he has no knowledge whatever on the subject either of its truth or its falsity. In such case, inasmuch as the utter er has no knowledge on the subject whatever, it would be impossible to establish a scienter by proof showing that he knew the representation to be false, for the reason that no showing pro or con on the subject could be made. Therefore, the law will constructively supply the scienter because of the reckless conduct of the utterer for the very good reason that a positive statement of fact implies knowledge of such fact, and if the party who makes it has no knowledge upon the subject, he is telling scienter what is untrue; he is affirming his knowledge when in truth he has no knowledge to affirm. [Hamlin v. Abell, 120 Mo. 188, 25 S. W. 516; Caldwell v. Henry, 76 Mo. 254; Dulaney v. Rodgers, 64 Mo. 201; Dunn v. White, 63 Mo. 181; Lovelace v. Suter, 93 Mo. App. 429; Paretti v. Rebenack, 81 Mo. App. 494; Knappen v. Freeman, 47 Minn. 491; Fisher v. Mellan, 103 Mass. 503; Montreal River Lumber Co. v. Mihills, 80 Wis. 540; Joliffe v. Baker, 11 Q. B. Div. 225; Derry v. Peek, L. R. 14 App. Cases 337; Rothchild v. Mack, 115 N. Y. Ct. App. 1; Bennett’s Notes on Benjamin on Sales (6 Ed.), 449; 1 Bigelow on Frauds (1888), 509-513.]

And likewise, there is a second instance in which the law will supply. It is:

Third. The law will raise up or constructively supply scienter when the party, by reason of his peculiar position has “special means of knowledge,” and under such circumstances (the other sufficient elements of liability being present) makes representations which, he ought to have known, if he did not, to be false. This phase of the law pertaining to the scienter has application only to representations made within the peculiar special means of knowledge, and the strictness of the rule proceeds upon the theory that it is the utterer’s duty to know such things as are peculiarly within his knowledge, as representations made under such circumstances are likely to carry great weight. The law will not permit him to assert for knowledge what he must have known that he ought not even to have believed. [Raley v. Williams, 73 Mo. 310; Doyle v. Hort, 4 L. R. Irish (Ch. Div.), 661; 1 Bigelow on Frauds - (1888), 509.] This latter phase of the scienter, however, is in no way involved in the case now under consideration. It is pointed out here only by way of recognition, and will not be otherwise noticed in the opinion.

It follows from what has been said, that under the first phase of the scienter where the allegation is that the utterer made the representation false in itself and that he knew it was false, that the burden rests upon the party holding the affirmative of the issue not only to show that the representation was made, but that it was false and that the utterer knew or believed it was false at the time it was made, for it is by proof of the knowledge of or belief in its falsity alone that scienter is established under this phase of the law. And therefore the gravamen of the charge, the issue affirmed on the one side and denied on the other, is the corrupt purpose, the evil intent or design, and it is not enough to show that the utterer had reasonable grounds to believe it was false, but it must be shown that he knew or believed it was false. From this, it essentially follows that in such case, the issue being only the scienter, the evil design, it is competent and proper for the defendant to show, in resisting such charge, that he did not know the representation was false and to this end he is permitted to show that he acted in good faith on reasonable appearances and was honestly mistaken, having good reason to believe in the truth of the representation when made; And it is upon this essential and fundamental principle of the law of fraud and deceit under the first phase of the scienter that rests the decision' of numerous of our cases, among which are Dunn v. White, 63 Mo. 181; Walsh v. Morse, 80 Mo. 568; Green v. Warren, 83 Mo. App. 568; Merchants Nat. Bank v. Sells, 3 Mo. App. 85; Paretti v. Rebenack, 81 Mr. App. 494. In which cases it is frequently asserted that “innocent misrepresentation made through mistake, without knowledge of its falsity and with no intention to deceive, cannot justify a personal action for damages.” [Dulaney v. Rodgers, 64 Mo. 203.] For, if the law were otherwise, the courts would be overcrowded with litigation bom of honest error and innocent mistake. ■ [See also 1 Bigelow on Frauds (1888), 510-511 and cases cited.] The distinction is also pointed out in Judd v. Walker, 114 Mo. App. 128, 89 S. W. 558.

This brings us to a consideration of the second phase of the scienter, when the case is not that the utterer knew the representation to be false, but is when he asserts a material fact as of his own knowledge when in truth he had no knowledge on the subject as to whether the representation was true or false. Under this phase of the matter, the law being satisfied by proof of the party’s reckless or wanton conduct in asserting positively as of his own knowledge a fact concerning which he knew nothing of its truth or falsity, as stated above, raises up and supplies the scienter constructively from this reckless conduct on his part and as it would be impossible to prove that the utterer knew or believed at the time of the utterance that his statement was untrue, inasmuch as the proposition itself predicates upon the hypothesis that the utterer himself did not know whether the statement was true or' false, or had no knowledge on the subject, then the question of the utterer’s good or bad faith in so recklessly representing facts as of his own knowledge, the truth or falsity of which he knew nothing, is not an issue thereunder, for the law steps in and denounces the whole as fraudulent by supplying the scienter, and it is not competent for him to show in defense thereto that he believed the facts to be as stated by him at the time, for such attempted showing on his part would be inconsistent with the proposition involved as well as with the fundamental rules of logic. Under such circumstances, the proposition itself involves, first, the establishment of the fact that he made the representation as of his own knowledge, without any knowledge whatever of its truth or falsity; the establishment of which proposition, ipsa facto, excludes the notion that he could have any knowledge, pro or con, upon which to base a belief, reasonable or otherwise, on which good faith could predicate. So we take it that when the scienter relied upon is that constructively established, as indicated above, by proof of the false representation of facts as of one’s own knowledge when in truth the party had no knowledge on the subject whether the representation was true or false, the matter of good faith or that the utterer believed what he asserted to be true, has no application and cannot be given in defense. This proceeds, of course, upon the theory that a positive statement implies knowledge, and if the party who makes it has no knowledge upon the subject, he has told scienter what is untrue. He has affirmed his knowledge when he had none to affirm. This doctrine is fortified by the principles underlying the adjudications and is amply supported by authority. [Fisher v. Mellen. 103 Mass. 503; Cole v. Cassidy, 138 Mass. 437; Raley v. Williams, 73 Mo. 310; Hamlin v. Abell, 120 Mo. 188-207: Converse v. Blumrich, 14 Mich. 109; Lovelace v. Suter, 93 Mo. App. 429-438; Hubbard v. Wear, 79 Ia. 687; Brownlee v. Campbell, H. L. 5 Appeal Cases, L. E. 936; 1 Bigelow on Frauds (1888), 513-514-515; 14 Amer. and Eng. Ency. Law (2 Ed.), 99, 100.]

With these principles before us, let us determine the case at bar. When Mr. Teasdale stated in the writing that he had sold the oranges to certain named firms at the prices mentioned, he stated a fact, the truth or falsity of which was then within his knowledge, and he then and there knew such statement was either true or nntrue, or had reasonable grounds to believe in its truth or untruth. We are persuaded therefore, that this case is not properly determinable under the second phase of the scienter, inasmuch as that principle has application to a representation made as of one’s own knowledge when the party making the representation has no knowledge whatever of the truth or falsity of the statement. The law of constructive scienter, therefore, does not obtain here for the reason that Mr. Teasdale had full knowledge on the subject at the time he executed the writing, representing that the sale had been made and the defect complained of in the instruction, i. e., that it omitted to require the jury to find the evil intent, cannot be aided under the law of constructive scienter. If the statement was true, Mr. Teasdale either knew it was true or had reasonable grounds to so believe when he made it. If it was false, he knew it was false, or had reasonable grounds to believe it so when he made it and and the case is properly determinable under the allegation that he made a representation which was false and that he knew it was false at the time he made it. This theory, then, eliminated entirely the proposition of constructive scienter and devolved upon the respondent the burden of establishing by proof the actual fraud alleged. On this issue it was competent and proper for Mr. Teasdale to show in defense that he had sold the oranges as represented or that he had made such negotiations thereabout as to induce him to believe that he had sold the same and therefore made the representations to that effect in good faith. In other words, in the event of his failure to show an actual sale of the fruit, he had a light to show that he had conducted negotiations prior to making the representation to such an extent as to in duce a reasonable belief in tbe truth of the representation at the time; that he made the representation relying upon this belief, • and that the representation was made in good faith as a result of honest error and innocent mistake, as distinguished from a dishonest purpose or evil intent. In this view of the case, respondent’s first instruction would no doubt have served the purpose of the law of deceit with much greater force and better effect had it, in terms, required the jury to affirmatively find that Mr. Teasdale knew the representations to be false at the time they were made by him; but whether it would have better served the purpose of the case at bar, by submitting the ever-essential scienter to the jury for an affirmative finding, as indicated, is a different question, the proper solution of which will require an examination of the evidence.

The case coming under the first phase of the scienter, as it does, places the burden on the respondent to establish, by competent proof, that the representation was made, that it was false, and that Mr. Teasdale knew it was false at the time of making it. Upon this being shown, scienter is prima facie- established. In compliance with this principle, respondent’s proof showed affirmatively that Mr. Teasdale represented that he had sold the oranges to the firms named and at the prices mentioned, and then established by the two' firms mentioned that’ they had not purchased the oranges nor had they negotiated with appellant for the same in any manner. This established prima facie the representation and its falsity, and it being a matter within the knowledge of appellant, appellant knew it was false when made and the scienter was thus established prima facie, whereby the burden of proof'shifted and it devolved upon the appellant to show a state of facts from which the jury could infer that the appellant had sold the oranges as represented, or that it had negotiated to> that end at least, sufficiently to show that appellant believed, or had reasonable grounds to believe, that it had sold the or anges as represented. Appellant, recognizing this to be the law, assumed the burden thus imposed and sought to discharge it. In so doing, did it satisfy the law in that behalf? Let us inquire. It first admitted having-made the representation and admitted that it had not sold the fruit. These questions are then eliminated.

It remains to examine the question, Did the appellant show such negotiations as were calculated to show a reasonable belief in Mr. Teasdale that the fruit was sold when he said it was? The entire showing in that behalf is that appellant-had received a postal card from Spencer & Company of Oskaloosa, dated ten days before, saying they were in the market for a car of oranges. Appellant did not show that it had answered this card by letter, telegram or otherwise, or that it had ever, in any manner, suggested or made a sale of these or any other oranges to that firm. As to Coyne Brothers of Chicago, the entire showing is that Mr. Fry, a broker and appellant’s correspondent and agent, and not the agent of the alleged purchaser, called appellant over the telephone and advised that Coyne Brothers were desirous of purchasing a car of oranges. It was not shown that appellant ever communicated with or attempted to sell the oranges to that firm. The result of the showing is that appellant had been informed that the two firms, one in Chicago and one in Oskaloosa were desirous of buying oranges, and nothing more. Certainly no reasonable mind could infer from these facts that appellant had reasonable grounds to believe that it had sold the oranges to those firms at the prices mentioned when no attempt to make the sale at those or any other prices-had been made. It therefore appears upon the uncontradicted proof and the admitted facts of the case, that appellant made the representation, that it was false, that the appellant knew it was false when it was made, and Mr. Teasdale had no grounds, reasonable or otherwise, for that matter, upon which to predicate a belief in the truth of the representation made by him in order to justify under the theory of innocent mistake or honest-error.

Upon this uncontroverted showing, the scienter was conclusively established by proof and no sufficient showing was made contra thereto to raise an inference in the minds of the jury to the effect that appellant made that representation as a result of honest error or innocent mistake, or otherwise in good faith, and we are of the •opinion that it was not error for the court to treat tbe scienter as an established fact in the case. In truth, it was an uncontro-verted fact and no longer an issue on which it was necessary to require an affirmative finding by the jury. This is especially true in view of the case of Hamlin v. Abell, 120 Mo. 188, decided by our Supreme Court, in which an instruction quite as silent on the matter of scienter as the one here involved, was approved, in a case where the essential facts stood uncontradicted, very much as in the record before-us. That decision, under our Constitution, is conclusive on us and it is abundant authority on this propositen. . The respondent’s first instruction, even though it omitted to notice the essential scienter, will not be condemned as error under that authority and the peculiar facts of this case.

The first instruction requested by. appellant and refused by the court, sought to submit to the jury the question of appellant’s good faith in making the representation, etc. It was properly refused, for the reason that there was no evidence from which the jury could infer that appellant believed or had reasonable grounds to believe that he had sold the oranges.

The second instruction requested by appellant and refused by the court stated correct principles of law, and it might have been given without error, but inasmuch as it required the jury to find the scienter, which was conclusively established by the proof introduced as well by appellant as respondent, which rendered it no longer an issue in the case, its refusal was not error.

The instruction given by the court of its own motion, by which the jury was instructed to the effect that the fact that appellant may have been informed by some third party or may have believed that the two cars were sold, was no defense, would have been error had there been any evidence in the case that appellant believed, or had reasonable grounds to believe, that it had sold the oranges, but inasmuch as the evidence wholly failed to show that it had any grounds upon which to base such belief, we decline to condemn it and pass it as not being reversible error under the peculiar facts of the case.

It is unnecessary to notice separately the several other assignments of error. They will all be overruled.

The judgment is manifestly for the right party and will be affirmed. It is so ordered.

Bland, P. J., and Goode, J., concur.