Johnson v. Owens , 263 N.C. 754 ( 1965 )

140 S.E.2d 311 (1965) 263 N.C. 754

Beatrice E. JOHNSON
v.
Dorothy J. OWENS.

No. 285.

Supreme Court of North Carolina.

February 24, 1965.

Dockery, Ruff, Perry, Bond & Cobb, Charlotte, for plaintiff.

Bradley, Gebhardt, DeLaney & Millette, Charlotte, for defendant.

SHARP, Justice.

The oft-stated essential elements of fraud, or deceit, are: "`the representation, its falsity, scienter, deception, and injury. The representation must be definite and specific; it must be materially false; it must be made with knowledge of its falsity or in culpable ignorance of its truth; it must be made with fraudulent intent; it must be reasonably relied on by the other party; and he must be deceived and caused to suffer loss.' * * * The principle applies to contracts and sales of both real and personal property. * * *" Berwer v. Union Central Life Insurance Co., 214 N.C. 554, 557, 200 S.E. 1, 3; accord, Keith v. Wilder, 241 N.C. 672, 86 S.E.2d 444; Cofield v. Griffin, 238 N.C. 377, 78 S.E.2d 131, 40 A.L.R. 2d 966; Harding v. Southern Loan & Insurance Co., 218 N.C. 129, 10 S.E.2d 599.

When we attribute to plaintiff's evidence the verity required by defendant's motion for nonsuit, it plainly is sufficient to establish that defendant made the positive and specific representation that the heating system was in excellent condition and adequate to heat the house. It is sufficient to establish, also, that the representation was false and that defendant knew it to be so. Patently, the representation affected the value of the property, and defendant specifically intended that it should induce plaintiff to purchase the house. Plaintiff's evidence raises the inference that she was actually deceived by the misrepresentation and that she relied upon it to her damage. The only real question in the case is whether, under all the circumstances, plaintiff "reasonably relied" upon the representation.

Defendant argues that, even if her statements about the furnace were false, plaintiff had ample opportunity to inspect the house on two occasions in defendant's absence and to test the furnace herself, as well as to have it inspected by an expert; that, had she moved the furniture, she would have discovered the soot damage from the furnace; and that she should have been put on her guard by the chill in the house in February each time she entered it. In other words, defendant contends that plaintiff's own evidence affirmatively discloses that plaintiff acted unreasonably in relying upon her representations.

"The right to rely on representations is inseparably connected with the correlative problem of the duty of a representee to use diligence in respect of representations made to him. The policy of the courts is, on the one hand, to suppress fraud and, on the other, not to encourage negligence and inattention to one's own interest," Calloway v. Wyatt, 246 N.C. 129, 134, 97 S.E.2d 881, 886 (a case in which the complaint was fatally defective). "The question is whether it is better to encourage negligence in the foolish or fraud in the deceitful." Annot., Fraud predicated upon vendor's misrepresentation of physical condition of real property, 174 A.L.R. 1010, 1025. In White Sewing Machine Co. v. Bullock, 161 N.C. 1, 9, 76 S.E. 634, 637; and Cofield v. Griffin, supra, 238 N.C. at 381, 78 S.E.2d at 134 (both cases in which the court rejected such contentions by the defendant), it is said: "`We are not inclined to encourage falsehood and dishonesty by protecting one who is guilty of such fraud on the ground that his victim had faith in his word, and for that reason did not pursue inquiries which would have disclosed the falsehood.'" See Annot., Opportunity of buyer of personal property to ascertain facts as affecting claim of fraud on part of seller in misrepresenting property, 61 A.L.R. 492, 505-506 (doctrine of reasonable reliance in early North Carolina cases).

In Cowart v. Honeycutt, 257 N.C. 136, 142, 125 S.E.2d 382, 387, a case in which the plaintiff contended that she was prevented from reading a release by the fraud of the defendant, Parker, J., speaking for this Court, said:

"Defendant in his brief admits that there was evidence of a false representation of a material fact which was relied upon by plaintiff, but contends plaintiff as a matter of law was not justified in relying upon such representation, and her reliance was not reasonable. Such a contention is without merit. Our reply to such contention is this: `In Gray v. Jenkins, 151 N.C. 80, 65 S.E. 644, 645, this Court said: "The law does not require a prudent man to deal with everyone as a rascal, and demand covenants to guard against the falsehood of every representation which may be made as to facts which constitute material inducements to a contract. There must be a reliance on the integrity of man or else trade and commerce could not prosper."' Roberson v. Williams, 240 N.C. 696, 83 S.E.2d 811."

Just where reliance ceases to be reasonable and becomes such negligence and inattention that it will, as a matter of law, bar recovery for fraud is frequently very difficult to determine. This case presents that difficulty. In close cases, however, we think that a seller who has intentionally made a false representation about something material, in order to induce a sale of his property, should not be permitted to say in effect, "You ought not to have trusted me. If you had not been so gullible, ignorant, or negligent, I could not have deceived you." Courts should be very loath to deny an actually defrauded plaintiff relief on this ground. When the circumstances are such that a plaintiff seeking relief from alleged fraud must have known the truth, the doctrine of reasonable reliance will prevent him from recovering for a misrepresentation which, if in point of fact made, did not deceive him. In such a case the doctrine is the specific remedy for a complainant who is, so to speak, malingering. A plaintiff who, aware, has made a bad bargain should not be allowed to disown it; no more should a fraudulent defendant be permitted to wriggle out on the theory that his deceit inspired confidence in a credulous plaintiff.

Plaintiff in this case, having reason to suspect the capacity of the furnace, inquired specifically of defendant about it. Defendant's reply, according to plaintiff's testimony, was so specific that it reassured her completely. Unfortunately, the reply was false. Although the parties were dealing at arm's length, "[t]he maxim caveat emptor does not apply in cases of fraud," Brooks v. Ervin Construction Co., 253 N.C. 214, 217, 116 S.E.2d 454, 457. Plaintiff contends that she was fraudulently induced to forgo an investigation of the furnace by defendant's artifice in covering the soot damage from the furnace with heavy pieces of furniture and in setting the fan on summer control. Upon each of plaintiff's three visits to the house defendant made it a point to explain that the furnace was not "on." When Mr. Hogan turned up the thermostat, the furnace appeared to respond, but it was only the fan. Of course, defendant cut the thermostat off again almost immediately. Presumably, however, this did not arouse plaintiff's suspicions because she had not intended to remain in the house long enough for the furnace to heat it. Defendant's strategy succeeded, and plaintiff made no further investigation of the furnace.

Under all the circumstances, we cannot say, as a matter of law, that plaintiff, a registered nurse with no mechanical or engineering experience, did not reasonably and justifiably rely upon defendant's positive assurances that the furnace was in excellent condition. The two women were not on equal terms. Although plaintiff was looking over defendant's house as a prospective purchaser, defendant had been living in the house, and the manner in which the furnace performed was, therefore, within her personal knowledge. When specifically asked about the furnace's performance, defendant was under both a legal and a moral obligation to disclose the facts and to answer the questions truthfully. Harrell v. Powell, 249 N.C. 244, 106 S.E.2d 160; Gray v. Edmonds, 232 N.C. 681, 62 S.E.2d 77.

In fairness to defendant, we point out that her evidence has not been heard. Whether she perpetrated the fraud which plaintiff has alleged and offered evidence tending to show, and, if she was fraudulent, whether plaintiff reasonably relied upon her representations, are questions of fact for the jury.

Reversed.

PARKER, J., concurs.