In Brackett v. Griswold (112 N.Y. 454, at p. 466) the court said: "The allegation that there was a conspiracy to commit the fraud does not effect the substantial ground of action.Summary of this case from Travelers Ins. Co. v. Chiarello Stevedoring Co.
Argued October 5, 1889
Decided March 5, 1889
William C. Holbrook for appellant.
B.H. Bristow for appellant.
Richard L. Hand for respondent. A. Pond for respondent.
The death of the original plaintiff has eliminated from the complaint the causes of action founded on the statutory liability of the trustees for a failure to make a report, or for making a false report, imposed by the twelfth and fifteenth sections of the general manufacturing corporations act of 1848. So, also, by the death of some of the original defendants, and the discontinuance of the action against others, the action has become one against Chester Griswold alone on the cause of action stated in the third, or conspiracy count in the complaint. This cause of action was substantially one for fraud and deceit by means of false pretenses, and the right of recovery is governed by the principles applicable to actions of that character. That this is the nature of the action was decided in the case of Arthur v. Griswold ( 55 N.Y. 400), which was also an action against the present defendant and others, the complaint in which set forth a cause of action similar to that alleged in the third count of the complaint in this action. The allegation that there was a conspiracy to commit the fraud does not effect the substantial ground of action. The gravamen is fraud and damage, and not the conspiracy. The means by which a fraud is accomplished are immaterial except so far as they tend, in connection with the damage suffered, to show an actionable injury. The allegation and proof of a conspiracy in an action of this character is only important to connect a defendant with the transaction and to charge him with the acts and declarations of his co-conspirators, where otherwise he could not have been implicated. But a mere conspiracy to commit a fraud is never of itself a cause of action, and an allegation of conspiracy may be wholly disregarded and a recovery had, irrespective of such allegation, in case the plaintiff is able otherwise, to show the guilty participation of the defendant. In other words, the principles which govern an action for fraud and deceit are the same, whether the fraud is alleged to have originated in a conspiracy, or to have been solely committed by a defendant without aid or co-operation. Whenever it becomes necessary to prove a conspiracy in order to connect the defendant with the fraud, no averment of the conspiracy need be made in the pleadings to entitle it to be proved. These principles are well settled. The opinion of Chief Justice NELSON in Hutchins v. Hutchins (7 Hill, 104), contains an elaborate consideration of the subject, and no other authority need be cited.
The question in this case turns upon the point whether the evidence proved or tended to prove a cause of action against the defendant for false and fraudulent representations within the rules governing the common-law action for fraud and deceit. There is no doubt or question as to what elements are requisite to sustain an action for false pretenses. The essential constituents of such an action have been understood from the time such actions were first maintained. They are tersely stated by CHURCH, Ch. J., in Arthur v. Griswold ( supra), viz.: "Representation, falsity, scienter, deception and injury." There must have been a false representation, known to be such, made by the defendant, calculated and intended to influence the plaintiff, and which came to his knowledge, and in reliance upon which he, in good faith, parted with property or incurred the obligation which occasioned the injury of which he complains. All these circumstances must be found to exist, and the absence of any one of them is fatal to a recovery. It is not necessary that the false representation should have been made by the defendant personally. If he authorized and caused it to be made it is the same as though he made it himself. Nor is it necessary that it should have been made directly to the plaintiff. If it was made to the public at large for the purpose of influencing the action of any individual who may act upon it, any person so acting upon it and sustaining injury thereby may maintain an action. It is on this ground that promoters or directors of corporations have been held liable for false representations in a prospectus or reports, or other papers issued by the corporation with their sanction, by which individuals have been induced to purchase the stock or become creditors of the corporation, and the fact that the false report or prospectus purports to be the act of the corporation and not of the promoters or directors, does not relieve them from personal responsibility.
In view of the settled principles governing the action for fraud and deceit by means of false pretenses, there is, upon the evidence presented in this case, an insuperable difficulty in maintaining the present judgment. There is no evidence that Bonnell, in purchasing the notes, relied upon any representations made by the defendant. On the contrary, it affirmatively appears that at that time he was wholly ignorant of the alleged fraudulent scheme under which the "Iron Mountains Company" was organized, and had no knowledge or information of any of the acts or representations of the defendant or the other parties to the alleged conspiracy set forth in the complaint. He knew nothing of the property of the company nor of the amount of its capital stock, nor did he know who were the directors or persons interested, and never saw or heard of the report of 1870, or of the prospectus prepared by Remington. The trial judge submitted the question of conspiracy to the jury, and whether the defendant Chester A. Griswold was a party to it and knew of the prospectus, and also, whether he knew, when he signed the report of 1870, that the statement that the capital stock of $2,000,000 had been paid in full, was false and untrue. It is insisted by the defendants' counsel that the evidence was insufficient to authorize a finding against the defendant Chester A. Griswold on these questions. At the time of these transactions he was a young man, twenty-four years of age, employed by the firm of John A. Griswold Co., at Troy, and had little, if any, knowledge of mining or mining property, and was made a trustee of the Iron Mountains Company without his knowledge, at the time, and signed the report of January, 1870, at the request of his father, who was largely interested in mining property and in the manufacture and sale of iron. It is claimed that the facts show that the defendant relied wholly upon the statements of his father and Remington, and acted under his father's direction in good faith, believing the representations made in the prospectus and in the report of 1870 to be true. We deem it unnecessary to consider this contention. The jury have found adversely to the defendant upon these questions of fact. But this does not relieve the case of the difficulty that, assuming the facts to be as found, the plaintiff's case, as proved, fails on the ground that Bonnell, when he took the notes, did not know of the illegal conspiracy or false representations, and consequently was not influenced thereby in making the purchase.
In order to recover in an action for fraud and deceit the fraud and injury must be connected. The one must bear to the other the relation of cause and effect, not, perhaps, in so close a sequence as in actions on contract. But, nevertheless, it must appear in an appreciable sense that the damage flowed from the fraud as the proximate and not the remote cause. In the statutory action against the trustees of a manufacturing corporation organized under the act of 1848, for making a false report, the statute dispenses with the necessity of showing any privity or relation between the act done and the debt sought to be recovered. The liability to creditors is made absolute, and exists irrespective of the fact whether they knew of the falsity of the report or relied upon the statements therein. But the statutory action abated by the death of Bonnell, and the plaintiff can now only pursue his common-law remedy and must abide by the conditions which attend it. The court, in the main charge to the jury, without referring to the rule that in an action for fraud or deceit it must appear that the fraud produced the injury, charged that if the jury found "that there was a conspiracy; that defendant was really a member of it, doing whatever was necessary to do to carry it out, and the object was to get credit for the corporation with the expectation that the debts would not be paid, then he would be liable. If he was not a member of the conspiracy and did not adopt it, then you will render a verdict for the defendant." Subsequently on the request made by the defendant's counsel to charge, "that except the plaintiff relied upon the representations, they did not deceive him or cause him damage," the court replied, "I hold that all he need rely on is that defendant (the company) was duly incorporated and that there was a good company." This was excepted to and the exception was, we think, well taken. It is undoubtedly true that Bonnell took the notes on the assurance of the "Birmingham Iron Foundry," and of Ellis, the treasurer of the "Iron Mountains Company," that the company was good and that the notes would be promptly paid at maturity. But neither was the "Birmingham Iron Foundry" nor Ellis the agent of the defendant, nor were they authorized by him to make any representations to Bonnell, and their statements did not bind him, nor was he responsible for them. Ellis is not charged to have been a co-conspirator, and it does not appear that he had any interest as stockholder or otherwise in the "Iron Mountains Company." That his declarations were inadmissible to charge the defendant is clear from the decision in Arthur v. Griswold ( supra), where a similar question was decided. It was not enough to entitle the plaintiff to recover that it appeared that Bonnell took the notes believing that the company was good, or because the company was represented to him to be good, unless the representation was traced to the defendant. The complaint states, among other things, that Bonnell took the notes, "confiding in the general reputation of the company produced by the representations," etc. That a corporation or an individual is reputed to be solvent, although in fact insolvent, by reason of which a person purchases individual or corporate securities, is not alone a ground for maintaining an action for fraud against the debtor. Nor is the case, in its legal aspect, strengthened by proof that this reputation was attributable to false appearances put on by the corporation or the individual, or that there was a holding out by them by general representations, or otherwise, that the corporation or individual was solvent and responsible. The law exacts of every individual reasonable care to protect himself before he is permitted to charge another as the author of an injury. In case of false pretenses there must be a specific representation shown upon which the plaintiff relied. General reputation of solvency is quite an insufficient ground of reliance by a person who purchases securities in the market, although that reputation may have sprung from the conduct of the defendant. The case of Peek v. Gurney (L.R., 6 E. I. App. 377) applies with great stringency the rule that to sustain an action for fraudulent representations, a close relation must be shown between the representations and the injury claimed, and, also, that the representations must have been made to influence the conduct of the plaintiff, or of a class of persons in which he was included. That case was much considered and it was held that false representations contained in a prospectus, issued to induce subscriptions to shares on the organization of a limited company, would not sustain an action in favor of one who was not a party to the original subscription, but who, afterwards, having seen the prospectus, and relying upon it, purchased shares in the market. The judges were of the opinion that, as the prospectus was intended on its face to influence only original subscribers, it was not available to sustain the plaintiff's action, and that the representation, although the remote cause of the injury, was not so connected with it as to constitute, as to the plaintiff, an actionable fraud.
We think the case was submitted to the jury upon a false theory.
The judgment should, therefore, be reversed, and a new trial granted.