CHAPTER IV
DECEIT
PASLEY _v._ FREEMAN IN THE KING’S BENCH, HILARY TERM, 1789. _Reported in 3 Term Reports (Durnford & East), 51._
This was an action in the nature of a writ of deceit, to which the defendant pleaded the general issue. And after a verdict for the plaintiffs on the third count, a motion was made in arrest of judgment.
The third count was as follows: “And whereas, also, the said Joseph Freeman afterwards, to wit, on the twenty-first day of February, in the year of our Lord 1787, at London aforesaid, in the parish and ward aforesaid, further intending to deceive and defraud the said John Pasley and Edward, did wrongfully and deceitfully encourage and persuade the said John Pasley and Edward to sell and deliver to the said John Christopher Falch divers other goods, wares, and merchandises, to wit, sixteen other bags of cochineal of great value, to wit, of the value of £2,634 16_s._ 1_d._ upon trust and credit; and did for that purpose then and there falsely, deceitfully, and fraudulently assert and affirm to the said John Pasley and Edward that the said John Christopher then and there was a person safely to be trusted and given credit to in that respect, and did thereby falsely, fraudulently, and deceitfully cause and procure the said John Pasley and Edward to sell and deliver the said last-mentioned goods, wares, and merchandises upon trust and credit to the said John Christopher; and, in fact, they the said John Pasley and Edward, confiding in, and giving credit to, the said last-mentioned assertion and affirmation of the said Joseph, and believing the same to be true, and not knowing the contrary thereof, did afterwards, to wit, on the twenty-eighth day of February, in the year of our Lord 1787, at London aforesaid, in the parish and ward aforesaid, sell and deliver the said last-mentioned goods, wares, and merchandises upon trust and credit to the said John Christopher; whereas in truth and fact, at the time of the said Joseph’s making his said last-mentioned assertion and affirmation, the said John Christopher was not then and there a person safely to be trusted and given credit to in that respect, and the said Joseph well knew the same, to wit, at London aforesaid, in the parish and ward aforesaid. And the said John Pasley and Edward further say, that the said John Christopher hath not, nor hath any other person on his behalf, paid to the said John Pasley and Edward, or either of them, the said sum of £2,634 16_s._ 1_d._ last mentioned, or any part thereof, for the said last-mentioned goods, wares, and merchandises; but, on the contrary, the said John Christopher then was and still is wholly unable to pay the said sum of money last mentioned, or any part thereof, to the said John and Edward, to wit, at London aforesaid, in the parish and ward aforesaid; and the said John Pasley and Edward aver that the said Joseph falsely and fraudulently deceived them in this, that at the time of his making his said last-mentioned assertion and affirmation the said John Christopher was not a person safely to be trusted or given credit to in that respect, as aforesaid, and the said Joseph then well knew the same, to wit, at London aforesaid, in the parish and ward aforesaid; by reason of which said last-mentioned false, fraudulent, and deceitful assertion and affirmation of the said Joseph, the said John Pasley and Edward have been deceived and imposed upon, and have wholly lost the said last-mentioned goods, wares, and merchandises, and the value thereof, to wit, at London aforesaid, in the parish and ward aforesaid, to the damage,” &c.
Application was first made for a new trial, which after argument was refused, and then this motion in arrest of judgment. _Wood_ argued for the plaintiffs, and _Russell_ for the defendant, in the last term; but as the Court went so fully into this subject in giving their opinions, it is unnecessary to give the arguments at the bar.
The Court took time to consider of this matter, and now delivered their opinions _seriatim_.
GROSE, J. Upon the face of this count in the declaration no privity of contract is stated between the parties. No consideration arises to the defendant; and he is in no situation in which the law considers him in any trust, or in which it demands from him any account of the credit of Falch. He appears not to be interested in any transaction between the plaintiffs and Falch, nor to have colluded with them; but he knowingly asserted a falsehood, by saying that Falch might be safely intrusted with the goods, and given credit to, for the purpose of inducing the plaintiffs to trust him with them, by which the plaintiffs lost the value of the goods. Then this is an action against the defendant for making a false affirmation, or telling a lie, respecting the credit of a third person, with intent to deceive, by which the third person was damnified; and for the damages suffered, the plaintiffs contend that the defendant is answerable in an action upon the case. It is admitted that the action is new in point of precedent; but it is insisted that the law recognizes principles on which it may be supported. The principle upon which it is contended to lie is that, wherever deceit or falsehood is practised to the detriment of another, the law will give redress. This proposition I controvert, and shall endeavor to show that, in every case where deceit or falsehood is practised to the detriment of another, the law will not give redress; and I say that by the law, as it now stands, no action lies against any person standing in the predicament of this defendant for the false affirmation stated in the declaration. If the
## action can be supported, it must be upon the ground that there exists in
this case what the law deems _damnum cum injuria_. If it does, I admit that the action lies; and I admit that upon the verdict found the plaintiffs appear to have been damnified. But whether there has been _injuria_, a wrong, a tort, for which an action lies, is a matter of law. The tort complained of is the false affirmation made with intent to deceive; and it is said to be an action upon the case analogous to the old writ of deceit. When this was first argued at the bar, on the motion for a new trial, I confess I thought it reasonable that the action should lie; but, on looking into the old books for cases in which the old action of deceit has been maintained upon the false affirmation of the defendant, I have changed my opinion. The cases on this head are brought together in Bro. tit. Deceit, pl. 29, and in Fitz. Abr. I have likewise looked into Danvers, Kitchins, and Comyns, and I have not met with any case of an action upon a false affirmation, except against a party to a contract, and where there is a promise, either express or implied, that the fact is true, which is misrepresented; and no other case has been cited at the bar. Then if no such case has ever existed, it furnishes a strong objection against the action, which is brought for the first time for a supposed injury, which has been daily committed for centuries past. For I believe there has been no time when men have not been constantly damnified by the fraudulent misrepresentations of others; and if such an action would have lain, there certainly has been, and will be, a plentiful source of litigation, of which the public are not hitherto aware. A variety of cases may be put. Suppose a man recommends an estate to another, as knowing it to be of greater value than it is; when the purchaser has bought it he discovers the defect, and sells the estate for less than he gave; why may not an action be brought for the loss upon any principle that will support this action? And yet such an action has never been attempted. Or suppose a person present at the sale of a horse asserts that he was his horse, and that he knows him to be sound and sure-footed, when in fact the horse is neither the one nor the other; according to the principle contended for by the plaintiffs, an action lies against the person present as well as the seller, and the purchaser has two securities. And even in this very case, if the action lies, the plaintiffs will stand in a peculiarly fortunate predicament, for they will then have the responsibility both of Falch and the defendant. And they will be in a better situation than they would have been if, in the conversation that passed between them and the defendant, instead of asserting that Falch might safely be trusted, the defendant had said, “If he do not pay for the goods, I will;” for then undoubtedly an action would not have lain against the defendant. Other and stronger cases may be put of actions that must necessarily spring out of any principle upon which this can be supported, and yet which were never thought of till the present action was brought. Upon what principle is this act said to be an injury? The plaintiffs say, on the ground that, when the question was asked, the defendant was bound to tell the truth. There are cases, I admit, where a man is bound not to misrepresent, but to tell the truth; but no such case has been cited, except in the case of contracts; and all the cases of deceit for misinformation may, it seems to me, be turned into actions of assumpsit. And so far from a person being bound in a case like the present to tell the truth, the books supply me with a variety of cases, in which even the contracting party is not liable for a misrepresentation. There are cases of two sorts in which, though a man is deceived, he can maintain no action. The first class of cases (though not analogous to the present) is where the affirmation is that the thing sold has not a defect which is a visible one; there the imposition, the fraudulent intent, is admitted, but it is no tort. The second head of cases is where the affirmation is (what is called in some of the books) a nude assertion, such as the party deceived may exercise his own judgment upon; as where it is matter of opinion, where he may make inquiries into the truth of the assertion, and it becomes his own fault from laches that he is deceived. 1 Roll. Abr. 101; Yelv. 20; 1 Sid. 146; Cro. Jac. 386; Bayly _v._ Merrel. In Harvey _v._ Young, Yelv. 20, J. S., who had a term for years, affirmed to J. D. that the term was worth £150 to be sold, upon which J. D. gave £150, and afterwards could not get more than £100 for it, and then brought his action; and it was alleged that this matter did not prove any fraud, for it was only a naked assertion that the term was worth so much, and it was the plaintiff’s folly to give credit to such assertion. But if the defendant had warranted the term to be of such a value to be sold, and upon that the plaintiff had bought it, it would have been otherwise; for the warranty given by the defendant is a matter to induce confidence and trust in the plaintiff. This case, and the passage in 1 Roll. Abr. 101, are recognized in 1 Sid. 146. How, then, are the cases? None exist in which such an action as the present has been brought; none, in which any principle applicable to the present case has been laid down to prove that it will lie; not even a _dictum_. But from the cases cited some principles may be extracted to show that it cannot be sustained: 1st. That what is fraud, which will support an action, is matter of law. 2d. That in every case of a fraudulent misrepresentation, attended with damage, an action will not lie even between contracting parties. 3d. That if the assertion be a nude assertion, it is that sort of misrepresentation the truth of which does not lie merely in the knowledge of the defendant, but may be inquired into, and the plaintiff is bound so to do; and he cannot recover a damage which he has suffered by his laches. Then let us consider how far the facts of the case come within the last of these principles. The misrepresentation stated in the declaration is respecting the credit of Falch; the defendant asserted that the plaintiffs might safely give him credit; but credit to which a man is entitled is matter of judgment and opinion, on which different men might form different opinions, and upon which the plaintiffs might form their own, to mislead which no fact to prove the good credit of Falch is falsely asserted. It seems to me, therefore, that any assertion relative to credit, especially where the party making it has no interest, nor is in any collusion with the person respecting whose credit the assertion is made, is like the case in Yelverton respecting the value of the term. But at any rate, it is not an assertion of a fact peculiarly in the knowledge of the defendant. Whether Falch deserved credit depended on the opinion of many; for credit exists on the good opinion of many. Respecting this the plaintiffs might have inquired of others who knew as much as the defendant; it was their fault that they did not, and they have suffered damage by their own laches. It was owing to their own gross negligence that they gave credence to the assertion of the defendant, without taking pains to satisfy themselves that that assertion was founded in fact, as in the case of Bayly _v._ Merrel. I am, therefore, of opinion that this action is as novel in principle as it is in precedent, that it is against the principles to be collected from analogous cases, and consequently that it cannot be maintained.
BULLER, J. The foundation of this action is fraud and deceit in the defendant, and damage to the plaintiffs. And a question is, whether an
## action thus founded can be sustained in a court of law. Fraud without
damage, or damage without fraud, gives no cause of action; but where these two concur, an action lies. Per Croke, J., 3 Bulst. 95. But it is contended that this was a bare, naked lie; that, as no collusion with Falch is charged, it does not amount to a fraud; and, if there were any fraud, the nature of it is not stated. And it was supposed by the counsel, who originally made the motion, that no action could be maintained unless the defendant, who made this false assertion, had an interest in so doing. I agree that an action cannot be supported for telling a bare, naked lie; but that I define to be, saying a thing which is false, knowing or not knowing it to be so, and without any design to injure, cheat, or deceive another person. Every deceit comprehends a lie; but a deceit is more than a lie, on account of the view with which it is practised, its being coupled with some dealing, and the injury which it is calculated to occasion, and does occasion, to another person. Deceit is a very extensive head in the law; and it will be proper to take a short view of some of the cases which have existed on the subject, to see how far the Courts have gone, and what are the principles upon which they have decided. I lay out of the question the case in 2 Cro. 196, and all other cases which relate to freehold interests in lands; for they go on the special reason that the seller cannot have them without title, and the buyer is at his peril to see it. But the cases cited on the part of the defendant deserving notice are Yelv. 20, Carth. 90, Salk. 210. The first of these has been fully stated by my brother Grose; but it is to be observed that the book does not affect to give the reasons on which the Court delivered their judgment; but it is a case quoted by counsel at the bar, who mentions what was alleged by counsel in the other case. If the Court went on a distinction between the words “warranty” and “affirmation,” the case is not law; for it was rightly held by Holt, C. J., in the subsequent cases, and has been uniformly adopted ever since, that an affirmation at the time of a sale is a warranty, provided it appear on evidence to have been so intended. But the true ground of that determination was that the assertion was of mere matter of judgment and opinion; of a matter of which the defendant had no particular knowledge, but of which many men will be of many minds, and which is often governed by whim and caprice. Judgment, or opinion, in such case implies no knowledge. And here this case differs materially from that in Yelverton; my brother Grose considers this assertion as mere matter of opinion only, but I differ from him in that respect. For it is stated on this record that the defendant knew that the fact was false. The case in Yelverton admits that, if there had been fraud, it would have been otherwise. The case of Crosse _v._ Gardner, Carth. 90, was upon an affirmation that oxen which the defendant had in his possession and sold to the plaintiff were his, when in truth they belonged to another person. The objection against the
## action was that the declaration neither stated that the defendant
deceitfully sold them, or that he knew them to be the property of another person; and a man may be mistaken in his property and right to a thing without any fraud or ill intent. _Ex concessis_ therefore if there were fraud or deceit, the action would lie; and knowledge of the falsehood of the thing asserted is fraud and deceit. But, notwithstanding these objections, the Court held that the action lay, because the plaintiff had no means of knowing to whom the property belonged but only by the possession. And in Cro. Jac. 474, it was held that affirming them to be his, knowing them to be a stranger’s, is the offence and cause of action. The case of Medina _v._ Stoughton, Salk. 210, in the point of decision, is the same as Crosse _v._ Gardner; but there is an _obiter dictum_ of Holt, C. J., that where the seller of a personal thing is out of possession, it is otherwise; for there may be room to question the seller’s title, and _caveat emptor_ in such case to have an express warranty or a good title. This distinction by Holt is not mentioned by Lord Raym. 593, who reports the same case; and if an affirmation at the time of sale be a warranty, I cannot feel a distinction between the vendor’s being in or out of possession. The thing is bought of him, and in consequence of his assertion; and if there be any difference, it seems to me that the case is strongest against the vendor when he is out of possession, because then the vendee has nothing but the warranty to rely on. These cases, then, are so far from being authorities against the present action, that they show that if there be fraud or deceit, the action will lie; and that knowledge of the falsehood of the thing asserted is fraud and deceit. Collusion, then, is not necessary to constitute fraud. In the case of a conspiracy, there must be a collusion between two or more to support an indictment; but if one man alone be guilty of an offence which, if practised by two, would be the subject of an indictment for a conspiracy, he is civilly liable in an action for reparation of damages at the suit of the person injured. That knowledge of the falsehood of the thing asserted constitutes fraud, though there be no collusion, is further proved by the case of Risney _v._ Selby, Salk. 211, where, upon a treaty for the purchase of a house, the defendant fraudulently affirmed that the rent was £30 per annum, when it was only £20 per annum, and the plaintiff had his judgment; for the value of the rent is a matter which lies in the private knowledge of the landlord and tenant; and if they affirm the rent to be more than it is, the purchaser is cheated, and ought to have a remedy for it. No collusion was there stated; nor does it appear that the tenant was ever asked a question about the rent, and yet the purchaser might have applied to him for information; but the judgment proceeded wholly upon the ground that the defendant knew that what he asserted was false. And, by the words of the book, it seems that if the tenant had said the same thing he also would have been liable to an
## action. If so, that would be an answer to the objection that the
defendant in this case had no interest in the assertion which he made. But I shall not leave this point on the _dictum_ or inference which may be collected from that case. If A., by fraud and deceit, cheat B. out of £1,000, it makes no difference to B. whether A. or any other person pockets that £1,000. He has lost his money; and if he can fix fraud upon A., reason seems to say that he has a right to seek satisfaction against him. Authorities are not wanting on this point. 1 Roll. Abr. 91, pl. 7. If the vendor affirm that the goods are the goods of a stranger, his friend, and that he had authority from him to sell them, and upon that B. buys them, when in truth they are the goods of another, yet, if he sell them fraudulently and falsely on this pretence of authority, though he do not warrant them, and though it be not averred that he sold them knowing them to be the goods of the stranger, yet B. shall have an
## action for this deceit. It is not clear from this case whether the fraud
consisted in having no authority from his friend, or in knowing that the goods belonged to another person; what is said at the end of the case only proves that “falsely” and “fraudulently” are equivalent to “knowingly.” If the first were the fact in the case, namely, that he had no authority, the case does not apply to this point; but if he had an authority from his friend, whatever the goods were sold for his friend was entitled to, and he had no interest in them. But, however that might be, the next case admits of no doubt. For in 1 Roll. Abr. 100, pl. 1, it was held that if a man acknowledge a fine in my name, or acknowledge a judgment in an action in my name of my land, this shall bind me forever; and therefore I may have a writ of deceit against him who acknowledged it. So if a man acknowledge a recognizance, statute-merchant or staple, there is no foundation for supposing that in that case the person acknowledging the fine or judgment was the same person to whom it was so acknowledged. If that had been necessary it would have been so stated; but if it were not so, he who acknowledged the fine had no interest in it. Again, in 1 Roll. Abr. 95, l. 25, it is said, “If my servant lease my land to another for years, reserving a rent for me, and, to persuade the lessee to accept it, he promise that he shall enjoy the land without incumbrances, if the land be incumbered, &c., the lessee may have an
## action on the case against my servant, because he made an express
warranty.” Here, then, is a case in which the party had no interest whatever. The same case is reported in Cro. Jac. 425; but no notice is taken of this point, probably because the reporter thought it immaterial whether the warranty be by the master or servant. And if the warranty be made at the time of the sale, or before the sale, and the sale is upon the faith of the warranty, I can see no distinction between the cases. The gist of the action is fraud and deceit; and if that fraud and deceit can be fixed by evidence on one who had no interest in his iniquity, it proves his malice to be the greater. But it was objected to this declaration that if there were any fraud, the nature of it is not stated. To this the declaration itself is so direct an answer that the case admits of no other. The fraud is that the defendant procured the plaintiffs to sell goods on credit to one whom they would not otherwise have trusted, by asserting that which he knew to be false. Here, then, is the fraud and the means by which it was committed; and it was done with a view to enrich Falch by impoverishing the plaintiffs, or, in other words, by cheating the plaintiffs out of their goods. The cases which I have stated, and Sid. 146, and 1 Keb. 522, prove that the declaration states more than is necessary; for _fraudulenter_ without sciens, or sciens without _fraudulenter_, would be sufficient to support the action. But, as Mr. J. Twisden said in that case, the fraud must be proved. The assertion alone will not maintain the action; but the plaintiff must go on to prove that it was false, and that the defendant knew it to be so; by what means that proof is to be made out in evidence need not be stated in the declaration. Some general arguments were urged at the bar to show that mischiefs and inconveniences would arise if this
## action were sustained; for if a man who is asked a question respecting
another’s responsibility hesitate or is silent, he blasts the character of the tradesman; and if he say that he is insolvent, he may not be able to prove it. But let us see what is contended for: it is nothing less than that a man may assert that which he knows to be false, and thereby do an everlasting injury to his neighbor, and yet not be answerable for it. This is as repugnant to law as it is to morality. Then it is said that the plaintiffs had no right to ask the question of the defendant. But I do not agree in that; for the plaintiffs had an interest in knowing what the credit of Falch was. It was not the inquiry of idle curiosity, but it was to govern a very extensive concern. The defendant undoubtedly had his option to give an answer to the question or not; but if he gave none, or said he did not know, it is impossible for any court of justice to adopt the possible inferences of a suspicious mind as a ground for grave judgment. All that is required of a person in the defendant’s situation is that he shall give no answer, or that, if he do, he shall answer according to the truth as far as he knows. The reasoning in the case of Coggs _v._ Barnard, which was cited by the plaintiff’s counsel, is, I think, very applicable to this part of the case. If the answer import insolvency, it is not necessary that the defendant should be able to prove that insolvency to a jury; for the law protects a man in giving that answer, if he does it in confidence and without malice. No action can be maintained against him for giving such an answer, unless express malice can be proved. From the circumstance of the law giving that protection, it seems to follow, as a necessary consequence, that the law not only gives sanction to the question, but requires that, if it be answered at all, it shall be answered honestly. There is a case in the books which, though not much to be relied on, yet serves to show that this kind of conduct has never been thought innocent in Westminster Hall. In R. _v._ Gunston, 1 Str. 589, the defendant was indicted for pretending that a person of no reputation was Sir J. Thornycraft, whereby the prosecutor was induced to trust him; and the Court refused to grant a _certiorari_, unless a special ground were laid for it. If the assertion in that case had been wholly innocent the Court would not have hesitated a moment. How, indeed, an indictment could be maintained for that I do not well understand; nor have I learnt what became of it. The objection to the indictment is that it was merely a private injury: but that is no answer to an action. And if a man will wickedly assert that which he knows to be false, and thereby draws his neighbor into a heavy loss, even though it be under the specious pretence of serving his friend, I say _ausis talibus istis non jura subserviunt_.
ASHHURST, J. The objection in this case, which is to the third count in the declaration, is that it contains only a bare assertion, and does not state that the defendant had any interest, or that he colluded with the other party who had. But I am of opinion that the action lies notwithstanding this objection. It seems to me that the rule laid down by Croke, J., in Bayly _v._ Merrel, 3 Bulstr. 95, is a sound and solid principle, namely, that fraud without damage, or damage without fraud, will not found an action; but where both concur an action will lie. The principle is not denied by the other judges, but only the application of it, because the party injured there, who was the carrier, had the means of attaining certain knowledge in his own power, namely, by weighing the goods; and therefore it was a foolish credulity, against which the law will not relieve. But that is not the case here, for it is expressly charged that the defendant knew the falsity of the allegation, and which the jury have found to be true; but _non constat_ that the plaintiffs knew it, or had any means of knowing it, but trusted to the veracity of the defendant. And many reasons may occur why the defendant might know that fact better than the plaintiffs; as if there had before this event subsisted a partnership between him and Falch which had been dissolved; but at any rate it is stated as a fact that he knew it. It is admitted that a fraudulent affirmation, when the party making it has an interest, is a ground of action, as in Risney _v._ Selby, which was a false affirmation made to a purchaser as to the rent of a farm which the defendant was in treaty to sell to him. But it was argued that the
## action lies not unless where the party making it has an interest, or
colludes with one who has. I do not recollect that any case was cited which proves such a position; but if there were any such to be found, I should not hesitate to say that it could not be law, for I have so great a veneration for the law as to suppose that nothing can be law which is not founded in common sense or common honesty. For the gist of the
## action is the injury done to the plaintiff, and not whether the
defendant meant to be a gainer by it; what is it to the plaintiff whether the defendant was or was not to gain by it? the injury to him is the same. And it should seem that it ought more emphatically to lie against him, as the malice is more diabolical if he had not the temptation of gain. For the same reason, it cannot be necessary that the defendant should collude with one who has an interest. But if collusion were necessary, there seems all the reason in the world to suppose both interest and collusion from the nature of the act; for it is to be hoped that there is not to be found a disposition so diabolical as to prompt any man to injure another without benefiting himself. But it is said that if this be determined to be law, any man may have an action brought against him for telling a lie, by the crediting of which another happens eventually to be injured. But this consequence by no means follows; for in order to make it actionable it must be accompanied with the circumstances averred in this count, namely, that the defendant, “intending to deceive and defraud the plaintiffs, did deceitfully encourage and persuade them to do the act, and for that purpose made the false affirmation, in consequence of which they did the act.” Any lie accompanied with those circumstances I should clearly hold to be the subject of an action; but not a mere lie thrown out at random without any intention of hurting anybody, but which some person was foolish enough to act upon; for the _quo animo_ is a great part of the gist of the action. Another argument which has been made use of is, that this is a new case, and that there is no precedent of such an action. Where cases are new in their principle, there I admit that it is necessary to have recourse to legislative interposition in order to remedy the grievance; but where the case is only new in the instance, and the only question is upon the application of a principle recognized in the law to such new case, it will be just as competent to courts of justice to apply the principle to any case which may arise two centuries hence, as it was two centuries ago; if it were not, we ought to blot out of our law-books one fourth part of the cases that are to be found in them. The same objection might, in my opinion, have been made with much greater reason in the case of Coggs _v._ Barnard; for there the defendant, so far from meaning an injury, meant a kindness, though he was not so careful as he should have been in the execution of what he undertook. And indeed the principle of the case does not, in my opinion, seem so clear as that of the case now before us, and yet that case has always been received as law. Indeed, one great reason, perhaps, why this action has never occurred may be that it is not likely that such a species of fraud should be practised unless the party is in some way interested. Therefore I think the rule for arresting the judgment ought to be discharged.
LORD KENYON, C. J. I am not desirous of entering very fully into the discussion of this subject, as the argument comes to me quite exhausted by what has been said by my brothers. But still I will say a few words as to the grounds upon which my opinion is formed. All laws stand on the best and broadest basis which go to enforce moral and social duties. Though, indeed, it is not every moral and social duty the neglect of which is the ground of an action. For there are, which are called in the civil law, duties of imperfect obligation, for the enforcing of which no
## action lies. There are many cases where the pure effusion of a good mind
may induce the performance of particular duties, which yet cannot be enforced by municipal laws. But there are certain duties, the non-performance of which the jurisprudence of this country has made the subject of a civil action. And I find it laid down by the Lord Ch. B. Comyns (Com. Dig. tit. Action upon the Case for a Deceit, A. 1), that “an action upon the case for a deceit lies when a man does any deceit to the damage of another.” He has not, indeed, cited any authority for his opinion; but his opinion alone is of great authority, since he was considered by his contemporaries as the most able lawyer in Westminster Hall. Let us, however, consider whether that proposition is not supported by the invariable principle in all the cases on this subject. In 3 Bulstr. 95, it was held by Croke, J., that “fraud without damage, or damage without fraud, gives no cause of action; but where these two do concur, there an action lieth.” It is true, as has been already observed, that the judges were of opinion in that case that the action did not lie on other grounds. But consider what those grounds were. Dodderidge, J., said: “If we shall give way to this, then every carrier would have an action upon the case; but he shall not have any action for this, because it is merely his own default that he did not weigh it.” Undoubtedly, where the common prudence and caution of man are sufficient to guard him, the law will not protect him in his negligence. And in that case, as reported in Cro. Jac. 386, the negligence of the plaintiff himself was the cause for which the Court held that the action was not maintainable. Then, how does the principle of that case apply to the present? There are many situations in life, and particularly in the commercial world, where a man cannot by any diligence inform himself of the degree of credit which ought to be given to the persons with whom he deals; in which cases he must apply to those whose sources of intelligence enable them to give that information. The law of prudence leads him to apply to them; and the law of morality ought to induce them to give the information required. In the case of Bulstrode, the carrier might have weighed the goods himself; but in this case the plaintiffs had no means of knowing the state of Falch’s credit but by an application to his neighbors. The same observation may be made to the cases cited by the defendant’s counsel respecting titles to real property. For a person does not have recourse to common conversation to know the title of an estate which he is about to purchase; but he may inspect the title-deeds; and he does not use common prudence if he rely on any other security. In the case of Bulstrode, the Court seemed to consider that _damnum_ and _injuria_ are the grounds of this action; and they all admitted that, if they had existed in that case, the action would have lain there; for the rest of the judges did not controvert the opinion of Croke, J., but denied the application of it to that
## particular case. Then it was contended here that the action cannot be
maintained for telling a naked lie; but that proposition is to be taken _sub modo_. If, indeed, no injury is occasioned by the lie it is not
## actionable; but if it be attended with a damage, it then becomes the
subject of an action. As calling a woman a whore, if she sustain no damage by it, is not actionable; but if she lose her marriage by it, then she may recover satisfaction in damages. But in this case the two grounds of the action concur; here are both the _damnum et injuria_. The plaintiffs applied to the defendant, telling him that they were going to deal with Falch, and desiring to be informed of his credit, when the defendant fraudulently, and knowing it to be otherwise, and with a design to deceive the plaintiffs, made the false assertion which is stated on the record, by which they sustained a considerable damage. Then, can a doubt be entertained for a moment but that this is injurious to the plaintiffs? If this be not an injury, I do not know how to define the word. Then, as to the loss; this is stated in the declaration, and found by the verdict. Several of the words stated in this declaration, and particularly _fraudulenter_, did not occur in several of the cases cited. It is admitted that the defendant’s conduct was highly immoral and detrimental to society. And I am of opinion that the action is maintainable on the grounds of deceit in the defendant, and injury and loss to the plaintiffs.
_Rule for arresting the judgment discharged._[314]
WORK _v._ CAMPBELL SUPREME COURT, CALIFORNIA, DECEMBER 13, 1912. _Reported in 164 California Reports, 343._
ANGELLOTTI, J.[315] The action is one to recover of defendant fifteen thousand dollars’ damages alleged to have been caused plaintiff by reason of the fact that she has become finally separated from her husband, L. B. Work, and has thereby suffered and will continue to suffer great distress of mind and mental anguish, and has lost and will continue to lose forever his society, comfort, love, and affection, as well as the support and maintenance which he would give her. On or about February 15, 1910, the husband “separated from plaintiff, and from their said children, and departed from the said county of Kings, and has gone to parts unknown to plaintiff with intent to desert and abandon plaintiff.” It is not alleged that defendant, who is the husband of an aunt of plaintiff, ever said or did anything to influence the husband to leave plaintiff, or to cause any change of feeling on his part toward her. It is frankly alleged that his departure was caused solely by the fact that she became very angry with him, refused to see him, refused to speak or talk with him, sent him a letter in which she told him that she would hold no further communication with him, but would sue him for a divorce and that she hoped she might never see or speak to him again. Her complaint characterizes her conduct toward her husband, alleged to be the sole inducement for his departure, as “harsh and cruel treatment” of him. The claim of any liability on the part of defendant to her on account of the separation is based on allegations to the effect that her attitude and conduct toward her husband, which caused the separation, were wholly induced by certain false statements knowingly made to her by defendant concerning her husband, which, owing to her confidence and trust in defendant, she fully believed and relied upon, and certain advice and counsel given to her by defendant in the matter, all of which statements and advice were wilfully made and given by defendant with the intent and design on his part to cause a separation between plaintiff and her husband. The complaint alleges in detail the alleged statements and advice of defendant in this behalf, and also the object sought to be obtained by him in causing a separation of the husband and wife, but no useful purpose can be subserved by stating these things here. It further alleges that when she discovered the falsity of the representations and the intent and purpose of defendant in making them, she at once instituted diligent search for her husband, but has been unable to ascertain his whereabouts. It is further alleged “that by reason of the premises hereinabove stated, defendant has unlawfully, fraudulently and wrongfully abducted and enticed from the plaintiff her said husband, and that by reason of the said abduction, this plaintiff has suffered,” &c., to her great damage in the sum of fifteen thousand dollars.
Under our statutes, a wife may maintain an action for damages suffered by her by reason of the abduction or enticement from her of her husband, as may a husband for the damages suffered by him for the abduction or enticement from him of his wife, and in such an action by the wife her husband is not a necessary party plaintiff. (See Civ. Code, sec. 49, subds. 1 and 2; Humphrey _v._ Pope, 122 Cal. 253 [54 Pac. 847].) It may be assumed, purely for the purposes of this decision, that no cause of action for the abduction or enticement of her husband from her is stated by the wife in her complaint....
We can see no reason why, regardless of the question we have just referred to, the matters alleged in the complaint do not show a cause of action in behalf of plaintiff against defendant. According to the complaint, the sole cause of the conduct of plaintiff causing the separation of the husband and wife, with the same injurious consequences to her that would have followed the abduction or enticement of her husband from her, was the action of defendant in making to her the wilfully false representations concerning her husband, for the very purpose and with the design on his part to so influence her as to bring about such a separation. His deception in the matter was the sole cause of such conduct on her part, and such conduct on her part was tantamount to a refusal by her to continue the relation between her husband and herself of husband and wife. It is declared in section 1708 of the Civil Code that “every person is bound, without contract, to abstain from injuring the person or property of another, or infringing upon any of his rights,” and in section 1709, “one who wilfully deceives another with intent to induce him to alter his position to his injury or risk, is liable for any damage which he thereby suffers.” These are but statements of the well settled law independent of statute. It is substantially said in 20 Cyc. at page 10, and the statement is well supported by the authorities, that as a general rule, an action for damages for deceit will lie wherever a party has made a false representation of a material fact susceptible of knowledge knowing it to be false or not having sufficient knowledge on the subject to warrant the representation, with the intent to induce the person to whom it is made, in reliance upon it, to do or refrain from doing something to his pecuniary hurt, when such person, acting with reasonable prudence, is thereby deceived and induced to so do or refrain, to his damage. No reason is apparent to us why the alleged facts set forth in the complaint should not be held to bring the case within the operation of this rule.
It is no answer to such an action that the action or conduct of the plaintiff is the direct cause of the result occasioning damages. Such is the situation wherever such an action is allowed. The whole basis of the action is that such act or conduct is fraudulently induced by the defendant. A is wilfully deceived by B into selling goods to C upon credit, by false representations as to C’s solvency wilfully and knowingly made by B to A for the very purpose of inducing him to so do and thereby suffers a pecuniary injury. The direct and immediate cause of the injury is, of course, the sale by A to C on credit. But B is held liable to A for the damage thereby suffered because by fraud he induced A to make such sale on credit.
It may be urged that a person fraudulently misled cannot found his claim on conduct violative of sound morals or public policy, or of a criminal statute. Here the conduct and attitude of the wife causing the separation was her harsh and cruel conduct toward her husband, her refusal to live with him or to see him, her refusal to further continue the relationship of husband and wife, &c. Of course, all her conduct would have been fully justified if the representations made to her by defendant had been true in point of fact, as the complaint sufficiently alleges that plaintiff believed to be the situation. It has been held that where the fraudulent representation is intended to create and actually does create in the mind of the party a belief that under the circumstances represented the act which he is induced to do is neither illegal nor immoral, he may recover the damages he has sustained even though a statute makes the act a criminal offence. (See 20 Cyc. 80; Burrows _v._ Rhodes, [1899] 1 Q. B. 816; Prescott _v._ Norris, 32 N. H. 101; Morrill _v._ Palmer, 68 Vt. 1 [33 L. R. A. 411, 33 Atl. 829].) We are not called upon to go as far as this in this case. The complaint indicates no criminal offence on plaintiff’s part. Certainly, however, under the circumstances stated, it cannot fairly be said that plaintiff did not believe her conduct toward her husband to be in full accord with good morals and public policy, or was not justified in so believing. It is not claimed that the complaint does not sufficiently show that plaintiff acted with reasonable prudence in accepting as true and relying on defendant’s statements. In view of the circumstances alleged as to her relationship to defendant, and her confidence and trust in him, we think the complaint is not fatally defective in this regard, although it must be conceded to be somewhat remarkable that a wife having any affection for or confidence in her husband should be willing to accept as true such statements as are here alleged to have been made to her, without making some further inquiry.
We have not found any case in which the remedy of action for damages for deceit has been invoked under such circumstances as appear here. The fact that the case presented is unique in its circumstances is not, however, any warrant for a refusal to apply a rule that appears, on principle, to be applicable. We think the facts confessed by the demurrer show a liability on the part of defendant to plaintiff for any damage caused her by the loss of her husband.[316]
STATE _v._ GORDON SUPREME COURT, KANSAS, JULY TERM, 1895. _Reported in 56 Kansas Reports, 64._
Gordon was convicted and sentenced in the District Court upon a charge of obtaining money from Trenier on false pretences. He appealed from the judgment.
The facts alleged and proved were, in brief, as follows:—
Gordon represented to Trenier that Gordon and a certain Indian owned and possessed a gold brick of the value of $10,000; that they were about to take the brick to the United States Mint at Philadelphia to be coined into money; that the Indian would not allow the brick to be taken to the mint unless he received a certain sum of money on his interest in the brick. Gordon told Trenier that, if Trenier would give Gordon money to pay the Indian on his share in the brick, he (Gordon) would deliver said brick to Trenier to be by Trenier taken to the mint, and that Trenier should have a third interest in the money coined from the brick. Relying on these statements, Trenier gave Gordon money to pay the Indian.
It appeared that Gordon and the Indian did not own or possess a gold brick; that the representations were all known by Gordon to be false; and that they were made for the purpose of defrauding Trenier.[317]
JOHNSTON, J.... The substantial features of the charge were representations and assurances of present existing facts, viz., that Gordon and the Indian were then the owners and possessors of a valuable gold brick, which they then had in Shawnee County, and that they were then on their road to take the gold brick to the United States Mint at Philadelphia to be coined. It is alleged that on the faith of these representations and the assurance of those facts the money was obtained from Trenier. The mere fact that a false pretence of an existing or past fact is accompanied by a future promise will not relieve the defendant or take the case out of the operation of the statute. Besides,
“It is not necessary, to constitute the offence of obtaining goods by false pretences, that the owner has been induced to part with his property solely and entirely by pretences which are false; nor need the pretences be the paramount cause of the delivery to the prisoner. It is sufficient if they are a part of the moving cause, and without them the defrauded party would not have parted with the property.” (In re Snyder, 17 Kan. 542.)
[Remainder of opinion omitted.]
_Judgment affirmed._[318]
EDGINGTON _v._ FITZMAURICE IN THE COURT OF APPEAL, MARCH 7, 1885. _Reported in Law Reports, 29 Chancery Division, 459._
## Action against Fitzmaurice _et als._, directors of the Army and Navy
Provision Market (Limited), and against Hunt, the secretary, and Hanley, the manager, asking for the repayment by them of a sum of £1500 advanced by the plaintiff on debentures of the company, on the ground that he was induced to advance the money by the fraudulent misrepresentations of the defendants.
Plaintiff, who was a shareholder in the company, received a prospectus issued by order of the directors, inviting subscription for debenture bonds. This prospectus contained the following statement as to the objects for which the issue of debentures was made:—
“1. To enable the society to complete the present alterations and additions to the buildings, and to purchase their own horses and vans, whereby a large saving will be effected in the cost of transport.
“2. To further develop the arrangements at present existing for the direct supply of cheap fish from the coast, which are still in their infancy.”
Plaintiff took debenture bonds to the amount of £1500; and testified that he relied, as one inducement, on the fact that the company wanted the money for the objects stated in the prospectus.
At the hearing before Denman, J., the plaintiff contended and offered evidence tending to show that the real object of the directors in issuing the debentures was to pay off pressing liabilities of the company, and not to complete the buildings or to purchase horses and vans, or to develop the business of the company.[319]
_Davey_, Q. C., _W. W. Karslake_, Q. C., and _J. Kaye_, for Fitzmaurice.
There was no misrepresentation of any fact, and the directors merely stated their intention as to the money, which of course they might alter. There is every difference between the two: Maddison _v._ Alderson, 8 App. Cases, 467. Unless it amounts to a contract, a mere statement that you will do something is of no effect: Jordan _v._ Money, 5 H. L. C. 185; and if it was a contract then it was with the company, and the directors cannot be sued: Ferguson _v._ Wilson, L. R. 2 Chan. 77.
_Sir F. Herschell_, in reply. An allegation of intention may be fraudulent: Ex parte Whittaker, L. R. 10 Chan. 446.
[Denman, J., delivered an elaborate opinion, substantially sustaining the plaintiff’s contention. He gave judgment against the directors.]
From this judgment, Fitzmaurice and the four other directors appealed.
BOWEN, L. J. [After stating the requisites of an action for deceit, and commenting upon other alleged misrepresentations.] But when we come to the third alleged misstatement I feel that the plaintiff’s case is made out. I mean the statement of the objects for which the money was to be raised. These were stated to be to complete the alterations and additions to the buildings, to purchase horses and vans, and to develop the supply of fish. A mere suggestion of possible purposes to which a portion of the money might be applied would not have formed a basis for an action of deceit. There must be a misstatement of an existing fact; but the state of a man’s mind is as much a fact as the state of his digestion. It is true that it is very difficult to prove what the state of a man’s mind at a particular time is, but if it can be ascertained it is as much a fact as anything else. A misrepresentation as to the state of a man’s mind is, therefore, a misstatement of fact. Having applied as careful consideration to the evidence as I could, I have reluctantly come to the conclusion that the true objects of the defendants in raising the money were not those stated in the circular. I will not go through the evidence, but looking only to the cross-examination of the defendants, I am satisfied that the objects for which the loan was wanted were misstated by the defendants, I will not say knowingly, but so recklessly as to be fraudulent in the eye of the law.
Then the question remains: Did this misstatement contribute to induce the plaintiff to advance his money. Mr. Davey’s argument has not convinced me that they did not. He contended that the plaintiff admits that he would not have taken the debentures unless he had thought they would give him a charge on the property, and therefore he was induced to take them by his own mistake, and the misstatement in the circular was not material. But such misstatement was material if it was actively present to his mind when he decided to advance his money. The real question is, what was the state of the plaintiff’s mind, and if his mind was disturbed by the misstatement of the defendants, and such disturbance was in part the cause of what he did, the mere fact of his also making a mistake himself could make no difference. It resolves itself into a mere question of fact. I have felt some difficulty about the pleadings, because in the statement of claim this point is not clearly put forward, and I had some doubt whether this contention as to the third misstatement was not an afterthought. But the balance of my judgment is weighed down by the probability of the case. What is the first question which a man asks when he advances money? It is, what is it wanted for? Therefore I think that the statement is material, and that the plaintiff would be unlike the rest of his race if he was not influenced by the statement of the objects for which the loan was required. The learned judge in the Court below came to the conclusion that the misstatement did influence him, and I think he came to a right conclusion.
_Appeal dismissed._[320]
GALLAGHER _v._ BRUNEL SUPREME COURT, NEW YORK, AUGUST, 1826. _Reported in 6 Cowen, 347._
On demurrer to the declaration. The first count stated, that on the 9th of April, 1823, Castro & Henriques proposed to purchase of the plaintiffs a quantity of cotton, at a certain price; part to be paid in cash, and part to be secured by the promissory note of the purchasers endorsed by the defendant, at four months; that C. & H. were then unable to pay for the cotton; and the plaintiffs therefore unwilling to sell all, or any part, on their sole credit; and the defendant knew this. Yet, contriving and intending to injure and defraud the plaintiffs; and to induce them to sell and deliver the cotton to C. & H.; and thereby subject the plaintiffs to the loss of the balance due after the cash payment, the defendant falsely and deceitfully represented and held out to the plaintiffs, that he, the defendant, was willing to endorse the proposed note; and with the like intent, &c., falsely, fraudulently, and deceitfully encouraged and induced the plaintiffs to sell and deliver the cotton. That they did sell and deliver it, in confidence of such false, fraudulent and deceitful representation, &c., when, in truth, the defendant was then not willing, and did not mean or intend to endorse the note, or make himself responsible; nor did he then, nor had he at any time since endorsed, or made himself legally responsible. By means whereof the plaintiffs lost the cotton and the price.
The second count averred, that C. & H. were in bad credit and unfit to be trusted, at the time of the sale. But the defendant, well knowing this; and contriving and intending to defraud and injure the plaintiffs, and wrongfully and deceitfully to enable C. & H. to obtain the possession of the cotton, and convert it to their own use, without paying the plaintiffs for it; falsely, fraudulently and deceitfully represented to the plaintiffs, and gave them to understand and believe, that, in case they would sell the cotton to C. & H., the defendant would become answerable to the plaintiffs, for so much as should be unpaid, by endorsing the note or notes of C. & H., &c.; that without such representation, they would not have sold the cotton, &c. (_In other respects, this count was substantially the same as the first._)
General demurrer and joinder.[321]
WOODWORTH, J.... The attempt here is, to sustain the action, not on a contract, which, if in writing, might perhaps be obligatory; but on a deceitful representation. If the promise was in writing, I perceive no objection to its validity, inasmuch as a good consideration is stated, viz., that if the plaintiffs would sell and deliver, the defendant would endorse. If, then, there is a binding contract existing between the
## parties, and on which the defendant is liable, I apprehend it is not
competent for the plaintiffs to say they have an election to turn this into an action for deceit, and recover in that form, unless the case is such as to render the party liable, not only on the contract; but in addition, contains facts sufficient to sustain an action for deceit. For example, suppose A represents B to be solvent, knowing it to be false, whereby B obtains credit; but notwithstanding this representation, the seller takes from A his written stipulation to guaranty the payment. In this case, I perceive no objection to a creditor’s election of the remedy. The fraudulent representation of solvency would sustain the
## action for deceit. The written guaranty would support an action on the
contract. It seems, therefore, immaterial here, whether the plaintiffs have or have not a demand which may be enforced in a different form. The question is, will the facts stated sustain an action for deceit?
After attentive consideration, I am inclined to think the plaintiffs are not entitled to recover. However reprehensible the conduct of the defendant may appear in a moral point of view, we cannot deny to him the protection of the common law; which does not reach cases of imperfect obligation. If this be an attempt on the part of the plaintiffs to get rid of the statute of frauds, I can only say, the occasion justified the experiment, and calls for a patient and critical examination.
If this case is stripped of the general allegations in the declaration, of fraud and deceit, it appears to me that the gravamen is nothing more than that the defendant encouraged the plaintiffs to sell to Castro and Henriques; and, as surety, promised to endorse their notes. The intention of the party not to fulfil, has not, I believe, ever been considered among the fraudulent acts, which, in judgment of law, render a party liable. The maker of a promissory note may not, at the time, intend to make payment. On this note, the plaintiff may declare that the defendant intended to deceive and defraud; but it is mere matter of form, sanctioned by precedent in pleading. The maker may go farther, and on the strength of assurances to pay punctually, never intended to be performed, induce the lender to part with his money, and accept the borrower’s note. All this is immoral. Still the remedy is on the contract. The law has not recognized it as the substantive ground of fraud. That no cases are to be met with in the books going the length contended for, is good evidence that the doctrine is novel, and has never been acted upon.
* * * * *
It is evident what must be the species of fraud, for which the law gives redress; falsehood as to an existing fact. If, as Buller, J., observes, every deceit includes a lie, it follows, that the representation, and promise of the defendant are not comprised within the legal acceptation of that term. The test of a lie is, that the fact asserted is not true at the time; which cannot be predicated of the facts in this case; for, although the defendant promised with the intent not to perform, it was not then false, nor could it be. It referred to an act to be done _in futuro_. Until the defendant had refused to endorse, it could not be said he had violated his promise.
* * * * *
_Judgment for defendant._[322]
SWIFT _v._ ROUNDS SUPREME COURT, RHODE ISLAND, JULY 6, 1896. _Reported in 19 Rhode Island Reports, 527._
Trespass on the Case for deceit. Certified from the Common Pleas Division on demurrer to the declaration.
TILLINGHAST, J. This is trespass on the case for deceit. The first count in the declaration alleges that the defendant, intending to deceive and defraud the plaintiffs, did buy of them on credit certain goods and chattels of the value of $400, the said defendant not then and there intending to pay for the same, but intending wickedly and fraudulently to cheat the plaintiffs out of the value of said goods and chattels, which said sum of $400 the defendant refuses to pay, to the plaintiffs’ damage, &c. The second count, after setting out the fraudulent conduct aforesaid, alleges that the defendant thereby then and there represented that he intended to pay for said goods, but that he did not then and there intend to pay for the same, but wickedly and fraudulently intended to cheat the plaintiffs out of the value of said goods and chattels, &c.
To this declaration the defendant has demurred, and for grounds of demurrer to the first count thereof, he says, (1) that the plaintiffs do not allege any false representation by the defendant; (2) that the plaintiffs do not allege that they have acted upon any false representation of the defendant; and (3) that the plaintiffs do not allege any damage suffered by them in acting upon any false representation of the defendant.
The grounds of demurrer to the second count are, (1) that the plaintiffs do not allege any false representation by the defendant as to any fact present or past, but only as to something that would happen in the future, which, if in the future it proved not to be true, would not be the subject matter of a false representation, but simply a promise broken, and therefore not a ground of an action of deceit; (2) that the plaintiffs do not allege that they acted upon any false representation made by the defendant; and (3) that the plaintiffs do not allege that they suffered any damage by acting upon any false representation made by the defendant to the plaintiffs.
We are inclined to the opinion, after some hesitation, that the declaration states a case of deceit. Any fraudulent misrepresentation or device whereby one person deceives another, who has no means of detecting the fraud, to his injury and damage, is a sufficient ground for an action of deceit. Deceit is a species of fraud, and consists of any false representation or contrivance whereby one person overreaches and misleads another, to his hurt. And, while the fraudulent misrepresentation relied upon usually consists of statements made as to material facts, either verbally or in writing, yet it may be made by conduct as well. Grinnell on Law of Deceit, p. 35. A man may not only deceive another, to his hurt, by deliberately asserting a falsehood, as, for instance, by stating that A. is an honest man when he knows him to be a rogue, or that a horse is sound and kind when he knows him to be unsound and vicious, but also by any act or demeanor which would naturally impress the mind of a careful man with a mistaken belief, and form the basis of some change of position by him. 1 Story, Eq. Jur. § 192. In Ex parte Whittaker, In re Shackleton, L. R. 10 Ch. 449, Mellish, L. J., says: “It is true, indeed, that a party must not make any misrepresentation, express or _implied_, and as at present advised I think Shackleton when he went for the goods must be taken to have made an implied representation that he intended to pay for them, and if it were clearly made out that at that time he did not intend to pay for them, I should consider that a case of fraudulent misrepresentation was shown.” See also Lobdell _v._ Baker, 1 Met. 201; 1 Benjamin on Sales, ed. of 1888, § 524.
In the case at bar, the declaration alleges that the defendant bought the goods in question upon credit, fraudulently intending not to pay for them but to cheat the plaintiffs out of the value thereof. By the act of buying the goods of the plaintiffs the defendant impliedly promised to pay for the same, which promise was equally as strong and binding as though it had been made in words, or even in writing. The plaintiffs had the right to rely on this promise, and to presume that it was made in good faith. It turns out, however, according to the allegations aforesaid, that it was not made in good faith, but, on the contrary, was made for the purpose of deceiving the plaintiffs into the act of parting with their goods, the defendant intending by the transaction to cheat them out of the value thereof. The fraud, then, consisted in the making of the promise, in the manner aforesaid, with intent not to perform it. By the act of purchasing the goods on credit, the defendant impliedly represented that he intended to pay for them. The plaintiffs relied on this representation, which was material and fraudulent, and were damaged thereby. All the necessary elements of fraud or deceit therefore were present in the transaction. See Upton _v._ Vail, 6 Johns. 181; Bartholomew _v._ Bentley, 15 Ohio, 666; Bishop, Non-Contract Law, §§ 314–318; Burrill _v._ Stevens, 73 Me. 400; Barney _v._ Dewey, 13 Johns. 226; Hubbel _v._ Meigs, 50 N. Y. 491. The general doctrine which controls this action is fully reviewed by Mr. Wallace in a note to Pasley _v._ Freeman, 2 Smith’s Lead. Cas. 101. As said by Bigelow on Fraud, page 484, “to profess an intent to do or not to do when a party intends the contrary, is as clear a case of misrepresentation and of fraud as could be made.” See also p. 466 as to what constitutes a representation. In Goodwin _v._ Horne, 60 N. H. 486, the court say: “Ordinarily false promises are not fraudulent, nor evidence of fraud, and only false representations of past or existing facts are actionable or can be made the ground of defence.... But when a promise is made with no intention of performance, and for the very purpose of accomplishing a fraud, it is a most apt and effectual means to that end, and the victim has a remedy by action or defence. Such are cases of concealed insolvency and purchases of goods with no intention to pay for them.” In Byrd _v._ Hall, 1 Abb. A. D. 286, it was held that, although a purchase of goods on credit by one who knows himself to be insolvent is not fraudulent, yet where it is made with a preconceived design not to pay, it is fraudulent. See also Milliken _v._ Miller, 12 R. I. 296; Thompson _v._ Rose, 16 Conn. 81; Hennequin _v._ Naylor, 24 N. Y. 129; Devoe _v._ Brandt, 53 N. Y. 465; Story on Sales, 2d ed. § 176, and cases in note 2; Douthitt _v._ Applegate, 33 Kans. 395; Morrill _v._ Blackman, 42 Conn. 324; Skinner _v._ Flint, 105 Mass. 528; Earl of Bristol _v._ Wilsmore, 2 Dow. & Ry. 760; Lobdell _v._ Baker, 1 Met. 193; Cooley on Torts, 2d ed. 559; Load _v._ Green, 15 M. & W. 215. In short, the making of one state of things to appear, to those with whom you deal, to be the true state of things, while you are acting on the knowledge of a different state of things—among the oldest definitions of fraud in contracts—is exemplified in this case. See Lee _v._ Jones, 17 C. B. N. S. 494. The defendant made it to appear, by the act of buying on credit, that he intended to pay for the goods in question, while in fact he intended to cheat the plaintiffs out of them. And to hold that such a transaction does not amount to fraud, would be to make it easy for cheats and swindlers to escape the just consequence of their unrighteous acts.
We have hesitated somewhat in arriving at the conclusion that an action of deceit will lie, upon the facts set out in the declaration, for the reason that, amongst the numerous cases of fraud and deceit to be found in the books, we have not been referred to any, nor have we been able to find any, where the action of deceit was based simply on the act of buying goods on credit, intending not to pay for them. In Lyons _v._ Briggs, 14 R. I. 224, which was an action of deceit, Durfee, C. J., intimates, however, that deceit would lie in a case like the one before us, by the use of the following language: “It is not alleged that the buyer did not intend to pay when he bought, but only that he falsely and fraudulently asserted that he could be safely trusted.” But the authorities are overwhelming to the effect that it is fraud to purchase goods intending not to pay for them, and that the vendor, upon discovering the fraud, may repudiate the sale and reclaim the property, or may sue in trover, or in some other action of tort, for the damages sustained by the fraud. And this being so, we fail to see why an action of deceit, which is an action of tort, based on fraud, may not lie as well. For to obtain goods on credit, intending not to pay for them, is as much a trick or device as it would be falsely to represent in words any material fact whereby the vendor should be induced to part therewith.
But defendant’s counsel contends that the alleged representation was not as to any fact present or past, but merely as to what the defendant would do in the future with reference to paying for the goods, and that to say what one intends to do is identical to saying what one will do in the future, which amounts simply to a promise; and, furthermore, that a representation of what will happen in the future, even if not realized, is not such a representation as will support this action. We do not assent to this method of reasoning. The state of a man’s mind at a given time is as much a fact as is the state of his digestion. Intention is a fact; Clift _v._ White, 12 N. Y. 538; hence a witness may be asked with what intent he did a given act. Seymour _v._ Wilson, 14 N. Y. 567. A man who buys and obtains possession of goods on credit, intending not to pay for them, is then and there guilty of fraud. The wrong is fully completed and no longer exists in intention merely, and a cause of
## action instantly accrues thereon in favor of the vendor to recover for
the wrong and injury sustained. It is true the purchaser may afterwards repent of the wrong and pay for the goods, and the vendor may never know of the wrongful intent. But this does not alter the case at all as to the original wrong and the liability incurred thereby. Of course a mere intention to commit a crime or to do a wrong is no offence. But when the intention is coupled with the doing or accomplishment of the act intended, that moment the wrong is perpetrated and the corresponding liability incurred. See Oswego Starch Factory _v._ Lendrum, 57 Iowa, 573.
In Stewart _v._ Emerson, 52 N. H. 301, where it was alleged, in reply to the defendant’s plea of discharge in bankruptcy, that the debt in question was created by the fraud of the defendant, Doe, J., in the course of a long and vigorous opinion, used the following language, which is so apt and pertinent that we quote it. He said: “When the intent not to pay is concealed, the intent to defraud is acted out. The mere omission of A. to disclose his insolvency might not be satisfactory proof of a fraudulent intent in all cases. He might expect to become solvent. He might intend to pay all his creditors. He might intend to pay B. though unable to pay others. His fixed purpose _never_ to pay B. is a very different thing from his present inability to pay all or any of his creditors. A man may buy goods, with time for trying to pay for them, on the strength of his known or inferred disposition to pay his debts, his habits, character, business capacity, and financial prospects, without his present solvency being thought of, and even when his present insolvency is known to the vendor. But who could obtain goods on credit, with an unconcealed determination that they should never be paid for? The concealment of such a determination is conduct which reasonably involves a false representation of an existing fact, is not less material than a misrepresentation of ability to pay (Bradley _v._ Obear, 10 N. H. 477), and is an actual artifice, intended and fitted to deceive.”
“An application for or acceptance of credit, by a purchaser, is a representation of the existence of an intent to pay at a future time, and a representation of the non-existence of an intent not to pay. What principle of law requires a false and fraudulent representation to be express, or forbids it to be fairly inferred from the act of purchase? A representation of a material fact, implied from the act of purchase, and inducing the owner of goods to sell them, is as effective for the vendee’s purpose as if it had been previously and expressly made. If it is false, and known to the pretended purchaser to be false, and is intended and used by him as a means of converting another’s goods to his own use without compensation, under the false pretence of a purchase, why does it not render such a purchase fraudulent? When the intent is to pay, it is necessarily understood by both parties, and need not be expressly represented as existing. When the intent is not to pay, it is of course concealed. Whether the deceit is called a false and fraudulent representation of the existence of an intent to pay, or a fraudulent concealment of the existence of an intent not to pay, the fraud described is, in fact, one and the same fraud.”
Demurrer overruled, and case remitted to the Common Pleas Division for further proceedings.[323]
PETERS, J., IN BURRILL _v._ STEVENS (1882) _73 Maine, 395, 398–400._
The instructions to the jury upon that point present the question, whether getting property by a purchase upon credit, with an intention of the purchaser never to pay for the same, constitutes such a fraud as will entitle the seller to avoid the sale, although there are no fraudulent misrepresentations or false pretences.
The question has never been fairly before this Court before this time, so as to require a deliberate decision. The plaintiff contends that the question was settled in the negative in the case of Long _v._ Woodman, 58 Maine, 49. But that case falls short of meeting the question presented in the present case. The gist of the charge against the purchaser in that case seems to have been that he fraudulently refused to do after the contract what he agreed to do at the time of the contract, the alleged fraud being an intention formed after the contract rather than contemporaneously with it; and that was an action of deceit based upon a broken promise to convey real estate. Of late years, _nisi prius_ rulings in our own Courts have frequently been in accordance with the law as delivered to the jury by the presiding judge in the case at bar, and we think the doctrine may safely be accepted and approved, both upon authority and principle.
It is the admitted doctrine of the English cases, and is sustained by most of the courts in the United States. In Benj. on Sales (2d Amer. ed.), § 440, note e, very numerous cases are cited to the proposition. Stewart _v._ Emerson, 52 N. H. 301, discusses the question at length, and reviews many authorities.
The plaintiff relies upon the objection that it is not an indictable fraud, an argument which seems to have inclined the Pennsylvania Court against admitting the principle into the jurisprudence of that State. Smith _v._ Smith, 21 Pa. St. 367; Backentoss _v._ Speicher, 31 Pa. St. 324. It has been held by some Courts to be an indictable cheat, the false pretence being in the vendee’s pretendingly making a purchase, while his only purpose is to cheat the vendor out of his goods. It is more often considered, however, as not a matter for indictment. Bish. Crim. Law, § 419. But the objection taken by the plaintiff has generally been considered as insufficient to override the rule.
But the doctrine governing the case before us should not be misunderstood. To constitute the fraud, there must be a preconceived design never to pay for the goods. A mere intent not to pay for the goods when the debt becomes due, is not enough; that falls short of the idea. A design not to pay according to the contract is not equivalent to an intention never to pay for the goods, and does not amount to an intention to defraud the seller outright, although it may be evidence of such a contemplated fraud.
Nor is it enough to constitute the fraud that the buyer is insolvent, and knows himself to be so, at the time of the purchase, and conceals the fact from the seller, and has not reasonable expectations that he can ever pay the debt.[324] Some Courts have gone so far as to denominate that a fraud which will avoid the sale. And it may have been so held in bankruptcy Courts, in some instances, as between a vendor and the assignee of the vendee. But it would not, generally, be enough to prove the fraud. The inquiry is not whether the vendee had reasonable grounds to believe he could pay the debt at some time and in some way, but whether he intended in point of fact not to pay it.
Nor is it enough that after the purchase the vendee conceives a design and forms a purpose not to pay for the goods, and successfully avoids paying for them. The only intent that renders the sale fraudulent is a positive and predetermined intention, entertained and acted upon at the time of going through the forms of an apparent sale, never to pay for the goods. Cross _v._ Peters, 1 Greenl. 378; Biggs _v._ Barry, 2 Curtis, (C. C. R.) 259; Parker _v._ Byrnes, 1 Low. 539; Rowley _v._ Bigelow, 12 Pick. 306.
RIDDICK, J., IN BUGG _v._ WERTHEIMER-SCHWARTZ SHOE COMPANY (1897) _64 Arkansas, 12, 17, 18._
Nor can we sustain the contention of appellant that to entitle the vendor to avoid a sale after delivery it must in all cases be shown that the vendee did not intend to pay for the goods. That is, as above stated, one ground on which the sale may be avoided, but not the only one. If the vendee knowingly makes false representations concerning material facts, and thus induces the seller to part with his goods, the seller may elect to avoid the sale, and this without regard to whether the buyer intended to pay for the goods or not. The fraud in such a case consists in inducing the vendor to part with his goods by false statements of the buyer, known to be false when made, or made by him when he has no reasonable ground to believe that they are true. If a vendor parts with his goods on the faith of such false statements made by the buyer, it would be strange if the law permitted the buyer to reap the fruits of such conduct, and retain the goods against the will of the vendor. To illustrate, let us suppose a case. A man with no property, but with great faith in his ability as a merchant, goes to a city and calls on a wholesale merchant for the purpose of buying a stock of goods. He believes that if he can obtain a stock of goods, his experience and ability will soon enable him to pay off the purchase price, but, fearing that the merchant may refuse to sell if he learns that he has no property, he thereupon, for the purpose of obtaining the goods, states to the merchant that he has money in the bank, and owns a large amount of both real and personal property. The merchant, ignorant of the facts, and relying on the truth of these statements, parts with his goods. He afterwards discovers the fraud, and brings an action to recover the goods. In such a case would it be a valid defence for the buyer to say that, although he had secured the goods by misrepresentation, yet he did honestly intend to pay for them? Clearly it would not. The courts would answer such a question substantially as it was answered by the Supreme Court of Connecticut when it said that the intent of the buyer to pay “may have lessened the moral turpitude of his act, but it will not suffice to antidote and neutralize an intentionally false statement which had accomplished its object of benefiting himself and of misleading the plaintiffs to their injury.” Judd _v._ Weber, 55 Conn. 267; Reid _v._ Cowduroy, 79 Iowa, 169; S. C. 18 Am. St. Rep. 359, and note; Strayhorn _v._ Giles, 22 Ark. 517.
McCOMB _v._ BREWER LUMBER COMPANY SUPREME JUDICIAL COURT, MASSACHUSETTS, OCTOBER 21, 1903. _Reported in 184 Massachusetts Reports, 276._
The third count in the declaration is tort for deceit in the sale of certain stock by the defendant to the plaintiff.
The allegations, so far as material here, are in substance as follows:—
Plaintiff says that the defendant, by its agent, with intent to deceive and defraud the plaintiff, falsely and fraudulently represented to him [here specifying certain representations], and that, if the plaintiff would purchase a certain number of shares of stock in the defendant corporation and pay therefor the sum of $9000, ... the $9000 paid by the plaintiff should be put in the treasury of said corporation to be used as a working capital. And plaintiff says that, relying upon the representations, he bought the shares and paid therefor $9000; and plaintiff says that said representations were false and untrue to the knowledge of the defendant in this: [specifying certain particulars], and the $9000 paid by plaintiff was not put in its treasury and used as working capital, but was, with the approval of the defendant, its directors and manager, used for other purposes than the business of the defendant.
Verdict for plaintiff for $1.00 damages. Plaintiff alleged exceptions as to the ruling at the trial in reference to this count.[325]
HAMMOND, J.... The exceptions relate only to the third count, and since the verdict was for the plaintiff on this, they are material only so far as they respect the question of damages. The principal difference between the instructions given by the judge and those requested by the plaintiff is that the judge declined to permit the jury to consider the allegation with reference to the promised use of the $9000 paid by the plaintiff for the stock. As to this it is contended by the plaintiff that at the time the defendant promised to use the money as working capital it did not intend to keep the promise, and that a representation of a present intention is a representation of an existing fact and therefore may be false and fraudulent. But, without implying that the plaintiff’s contention would be true under any circumstances, the difficulty with his case is that the question is not raised upon the record. The ruling that the jury should not consider the allegation with reference to the promised use of the money appears to have been made with reference to the third count, and, as applied to that, it was correct. An examination of the count will show that it does not contain any allegation that at the time the defendant said that the money should be used for working capital it had not the intention to perform that promise. It first sets out the representations which induced the plaintiff to purchase the stock, then proceeds to state in what respects they were false and fraudulent and the defendant’s knowledge of the falsity, and then follows the only allegation respecting the representation as to the promised use of the money: “And the nine thousand dollars paid by the plaintiff to the defendant was not put in its treasury and used as working capital, but was, with the approval of the defendant, its directors and manager, used for other purposes than the business of the defendant.” This is an allegation that the defendant failed to carry out its promise, and falls far short of an allegation that the defendant at the time it was made did not intend to carry it out. There is no allegation whatever as to the intent of the defendant at the time the promise was made. Indeed it is difficult to read that count, either by itself or in connection with the other counts, without feeling that the pleader studiously avoided alleging anything as to that intent. While the evidence as to the promised use and the actual use of this money may have been admissible upon the second count, the object of which was to recover damages for breach of the promise, it was not material upon the third count, even upon the question of damages, for the reasons above stated.
* * * * *
_Exceptions overruled._[326]
DORR _v._ CORY SUPREME COURT, IOWA, APRIL 5, 1899. _Reported in 108 Iowa Reports, 725._
Appeal from Polk District Court.
## Action at law on contracts in writing for the purchase of interests in
real estate. Answer alleges (_inter alia_) that the contracts were obtained by fraud.
Verdict for plaintiff, and judgment.
ROBINSON, C. J.[327] ... The only statement purporting to be of fact which is shown to have been false is that relating to the cost of the land. Would that statement have authorized the jury to find for the defendant? It was said in Hemmer _v._ Cooper, 8 Allen, 334, that “the representations of a vendor of real estate, to the vendee, as to the price he paid for it, are to be regarded in the same light as representations respecting its value. A purchaser ought not to rely upon them; for it is settled that even when they are false, and uttered with a view to deceive, they furnish no ground of action.” That rule was followed in Cooper _v._ Lovering, 106 Mass. 77, and it is the rule of Tuck _v._ Downing, 76 Ill. 71, and Banta _v._ Palmer, 47 Ill. 99. In Holbrook _v._ Connor, 60 Me. 578, it was said: “The statement of the vendor that he paid a certain price for the land, if true, can be no more than an indication of his opinion of its value; and when we consider the various motives which may, and often do, actuate men in making their purchases, and especially when it is done for speculation, it is but the slightest proof of such opinion.” As a general rule, a vendee has no right to rely upon the statements of the vendor respecting the value of the property sold, but must act upon his own judgment, or seek information for himself. But to that rule there are exceptions. It was said in Simar _v._ Canaday, 53 N. Y. 306, that where statements as to the value are mere matter of opinion and belief, no liability is created by uttering them, but that such statements “may be, under certain circumstances, affirmations of fact. When known to the utterer to be untrue, if made with the intention of misleading the vendee, if he does rely upon them, and is misled to his injury, they void the contract.” The fraud which vitiates a contract must be material, affecting the very essence of the contract; but ordinarily, “if the fraud be such that, had it not been practiced, the contract would not have been made, then it is material to it.” 2 Parsons, Contract, 770. See, also, 2 Pomeroy Equity Jurisprudence, section 878, and notes. That rule was applied in Smith _v._ Countryman, 30 N. Y. 656, which was an
## action upon a contract for the sale of hops. It was held that a false
representation made by the vendee as to the price at which he had purchased hops of another person, which was relied upon by the vendor, and induced him to enter into the contract of sale, was material, and constituted a defence to an action on the contract. This rule appears to us to be in harmony with reason and the principles of justice. The price at which property actually sells in the open market is very satisfactory evidence of its value at the time of the sale. We cannot assent to the proposition that the statement of a vendor that he paid a specified price for the property he sells is a mere expression of opinion, upon which the purchaser has no right to rely. On the contrary, we think it is a statement of fact; and if the purchaser, without knowing or having reason to know what price was paid, relies upon the false statement, to his injury, he is entitled to relief. The cases of Teachout _v._ Van Hoesen, 76 Iowa, 113; Iler _v._ Griswold, 83 Iowa, 442, and Coles _v._ Kennedy, 81 Iowa, 360, although not precisely in point, tend to sustain our conclusion. See French _v._ Ryan, 104 Mich. 625 (62 N. W. Rep. 1016); Moon _v._ McKinstry, 107 Mich. 668 (65 N. W. Rep. 546), and Woolen Co. _v._ Smalley, 111 Mich. 321 (69 N. W. Rep. 722).
* * * * *
_Judgment reversed._[328]
DEMING _v._ DARLING SUPREME JUDICIAL COURT, MASSACHUSETTS, FEBRUARY 27, 1889. _Reported in 148 Massachusetts Reports, 504._
HOLMES, J. This is an action for fraudulent representations alleged to have been made to one Dr. Jordan, the plaintiff’s agent, for the purpose of inducing the plaintiff to purchase a railroad bond from the defendant....[329]
Among the representations relied on, one was that the railroad mortgaged, which was situated in Ohio, was good security for the bonds; and another was that the bond was of the very best and safest, and was an A No. 1 bond. With regard to these and the like, the defendant asked the Court to instruct the jury “that no representations which the defendant might have made or did make to Dr. Jordan in relation to the value of the bond in question, or of the railroad, its terminals, and other property which were mortgaged to secure it, with other bonds, even though false, were representations upon which Dr. Jordan ought to have relied, and are not sufficient to furnish any grounds for this action;” and also, “that each of the expressions ‘and that the same’ (meaning said railroad and all the property covered by the mortgage) ‘was good security for said bonds,’ ‘that said bond was of the very best and safest, and was an A No. 1 bond,’ are expressions of opinion of value, and even though false, are not such representations as Dr. Jordan had a right to rely upon, and are not enough to furnish any grounds for this
## action.”
The Court declined to give these instructions, and instead instructed the jury that “an expression of opinion, judgment, or estimate, or a statement of a promissory nature relating to what would be in the future, so far as they were expressions of opinion, if made in good faith, however strong as expressions of belief, would not support an
## action of deceit.”
It will be seen that the fundamental difference between the instructions given and those asked is that the former require good faith. The language of some cases certainly seems to suggest that bad faith might make a seller liable for what are known as seller’s statements, apart from any other conduct by which the buyer is fraudulently induced to forbear inquiries. Pike _v._ Fay, 101 Mass. 134. But this is a mistake. It is settled that the law does not exact good faith from a seller in those vague commendations of his wares which manifestly are open to difference of opinion, which do not imply untrue assertions concerning matters of direct observation (Teague _v._ Irwin, 127 Mass. 217), and as to which it always has been “understood, the world over, that such statements are to be distrusted.” Brown _v._ Castles, 11 Cush. 348, 350; Gordon _v._ Parmelee, 2 Allen, 212; Parker _v._ Moulton, 114 Mass. 99; Poland _v._ Brownell, 131 Mass. 138, 142; Burns _v._ Lane, 138 Mass. 350, 356. Parker _v._ Moulton also shows that the rule is not changed by the mere fact that the property is at a distance, and is not seen by the buyer. Moreover, in this case, market prices at least were easily accessible to the plaintiff.
The defendant was known by the plaintiff’s agent to stand in the position of a seller. If he went no further than to say that the bond was an A No. 1 bond, which we understand to mean simply that it was a first rate bond, or that the railroad was good security for the bonds, we are constrained to hold that he is not liable under the circumstances of this case, even if he made the statement in bad faith. See, further, Veasey _v._ Doton, 3 Allen, 380; Belcher _v._ Costello, 122 Mass. 189. The rule of law is hardly to be regretted, when it is considered how easily and insensibly words of hope or expectation are converted by an interested memory into statements of quality and value when the expectation has been disappointed.
* * * * *
_Exceptions sustained._[330]
ANDREWS _v._ JACKSON SUPREME JUDICIAL COURT, MASSACHUSETTS, MAY 18, 1897. _Reported in 168 Massachusetts Reports, 266._
Tort for deceit. The declaration alleged that the plaintiff sold and conveyed to the defendant certain real estate situate in Medford “for the sum of nineteen hundred dollars, and received in payment thereof fourteen hundred dollars in cash and four certain promissory notes all signed by one H. Joseph, amounting together to the sum of six hundred and fourteen hundredths dollars; that the defendant, to induce the plaintiff to convey said real estate to him, falsely represented to the plaintiff that the maker of said notes was a man of property, and that said notes were as ‘good as gold’; that your plaintiff, believing said representations to be true, was thereby induced to convey said real estate to the defendant; that said representations were false and were known to the defendant to be false, and by reason thereof the plaintiff suffered great damage.”
Trial in the Superior Court, without a jury, before Hammond, J., who found for the plaintiff; and the defendant alleged exceptions, the nature of which appears in the opinion.
The case was submitted on briefs to all the justices.
KNOWLTON, J. The principal question in this case is whether there was any evidence to warrant a finding that the false representations made by the defendant in regard to the notes were actionable. This finding is in these words: “I find that the defendant represented these notes to be as good as gold, and that that representation was intended by him and understood by the plaintiff, not to be an expression of opinion, but a statement of a fact of his own knowledge. I find that the notes were worthless.” It is contended by the defendant that such a representation is necessarily, and as a matter of law, a mere expression of opinion, for which, however wilfully false, and however damaging in the reliance placed upon it, no action can be maintained.
It is true that such a representation may be, and often is, a mere expression of opinion. But we think that it may be made under such circumstances and in such a way as properly to be understood as a statement of fact upon which one may well rely.
In Stubbs _v._ Johnson, 127 Mass. 219, one of the representations in regard to a note was that it was “as good as gold,” and the jury were instructed that, if this was intended as a representation of the financial ability of the maker of the note, it was a statement of a material fact, for which the defendant was liable. This instruction was held erroneous “because a representation as to a man’s financial ability to pay a debt may be made either as a matter of opinion, or as a matter of fact; the subject of the statement does not necessarily determine which it is.... It is often impossible,” says Mr. Justice Colt further in the opinion, “to determine, as matter of law, whether a statement is a representation of a fact, which the defendant intended should be understood as true of his own knowledge, or an expression of opinion. That will depend upon the nature of the representation, the meaning of the language used, as applied to the subject matter, and as interpreted by the surrounding circumstances, in each case. The question is generally to be submitted to the jury.” The opinion plainly implies that, if the jury had been left to determine whether there was a representation of the maker’s financial ability to pay made as matter of fact and not as mere matter of opinion, they might have found against the defendant on his false representation that the note was “as good as gold.” In Belcher _v._ Costello, 122 Mass. 189, there is also a strong intimation that the rule is as above stated. In Safford _v._ Grout, 120 Mass. 20, the representation set out in the declaration was that the maker of the note “was a person of ample means and ability to pay said note, and that the note was good.” The plaintiff was allowed to recover. The court says of the representations, “We must presume that they were legally sufficient to support the action; that is to say, that they were statements of facts susceptible of knowledge, as distinguished from matters of mere opinion or belief.” See also Morse _v._ Shaw, 124 Mass. 59; Teague _v._ Irwin, 127 Mass. 217.
In two recent cases, Way _v._ Ryther, 165 Mass. 226, and Kilgore _v._ Bruce, 166 Mass. 136, 138, this court has expressed a disinclination to extend the rule which permits dealers to indulge with impunity in false representations of opinion.
In the case now before us the notes were turned over to the plaintiff in part payment of the agreed price for land sold to the defendant. He professed to know, and probably did know, all about the financial standing of the maker of them, who lived in Boston. The plaintiff lived in a suburban town and knew nothing of the maker. She was obliged to take the defendant’s representations or to decline to deal with him until she could go to Boston and make an investigation for herself.[331] He told her that he had lent money to the maker, and said, “Do you suppose I would lend my money to any one that was not good?”
A representation that a note is as good as gold may be founded on absolute personal knowledge of the validity of the note, and upon an equally certain knowledge of the maker’s financial ability. The known facts upon which financial ability depends may be so clear and cogent as to make the consequent conclusion, which ordinarily would be a mere matter of opinion, a matter of moral certainty which can properly be called knowledge. We cannot say, as matter of law, that this representation was not intended to be, and properly understood to be, a representation of facts within the defendant’s knowledge.
The case of Deming _v._ Darling, 148 Mass. 504, differs materially from this at bar. The property to which the representation related was one of many mortgage bonds issued by a railroad company, of which, in the language of the opinion, the “market prices at least were easily accessible to the plaintiff.” The representations which were held to be insufficient on which to found an action were “in relation to the value of the bond in question, or of the railroad, its terminals, and other property which were mortgaged to secure it.” The value of articles sold in market, and especially of railroad property and of railroad bonds payable in the distant future, is ordinarily only a matter of opinion. A statement of the value of such property is very different from a statement that a promissory note which is almost due is known to be valid, and that the maker of it is a person of such known integrity and financial ability that his promise to pay is as good as that of the state or nation. A statement that a note is as good as gold may be intended to represent facts of this kind.
* * * * *
_Exceptions overruled._[332]
WILLIAMS _v._ STATE SUPREME COURT, OHIO, FEBRUARY 11, 1908. _Reported in 77 Ohio State Reports, 468._
Error to the Circuit Court of Montgomery County.
The plaintiff in error was indicted for obtaining money and property by certain false pretences, to wit: that certain real estate situate in Benton township, Pike County, being one hundred and ten acres in quantity, was then and there of the value of $11,000, and that one Martha M. Williams, then and there believing said representation of value to be true, and relying and acting upon that belief, was induced to and did purchase from the plaintiff in error, the said real estate, and accepted his deed therefor, and gave to him and one Neal Overholser in payment therefor, money and property to the amount and value of $7700, whereas, in fact, the said real estate was not then and there of the value of $11,000, and was of the value not to exceed three dollars per acre, that is, $330 in all; and that the plaintiff in error then and there knew that the value of said real estate did not exceed the sum of $330, and knew at the time he so falsely represented the value of said real estate that the same was false. To this indictment the plaintiff in error filed a motion to quash and also a demurrer, which were both overruled; and the case coming on for trial, at the close of the evidence introduced by the state, a motion was made by the defendant to instruct the jury to return a verdict of acquittal, which was overruled; and the court thereupon charged the jury, among other things, as follows: “But where the buyer relies entirely upon the representations of the seller and the seller knows that the property he is describing is of such small value as to be practically worthless, and nevertheless represents it to be worth a specified sum of great amount, and the discrepancy between the real and the represented value is so enormous as to shock the conscience; when the representation is so grossly untrue that it could not be made upon any possible foundation of belief; and when it appears that the seller was plainly seeking by means of such statement to obtain the property of the buyer and practically return no equivalent therefor, the court takes the responsibility of saying to you that you have the right, if your judgment of evidence so convinces you, to regard such representations as one of fact rather than mere opinion.” The jury found the defendant guilty and judgment was rendered accordingly, which judgment was affirmed by the Circuit Court, and this proceeding in error is to reverse that judgment.[333]
DAVIS, J. A statement of value may be given either as an opinion or as a statement of fact. All the authorities agree that if a statement of value is given as an opinion merely it cannot be regarded as a foundation for an indictment. But if the statement is made as an existing fact, when the accused knows it to be false and intends it to be an inducement to the other party, and it is so understood and relied upon by the other party, then it becomes a false representation of a material fact for which the party making the representation is indictable. Whether the representation of value is intended as an expression of opinion, or whether it was made as a statement of an existing fact which the speaker intends to be an inducement to the other party, is therefore a material question of fact to be determined by the jury.
There is no novelty in this view of the law. In Reg. _v._ Evans, 8 Cox, C. C. 257, it was said by Pollock, C. B.: “As my brother, Crowder, J., has suggested, if the prisoner had represented the note to be of the value of £5 when she knew it was not of that value, she might have been guilty of false pretences.” In People _v._ Peckens, 153 N. Y. 576, 591, the court say: “It is insisted that many of the representations to the complainant and her husband, which induced the making and delivery of her deed, were expressions of opinion, and although false and known to be so, no liability resulted. As a general rule, the mere expression of an opinion, which is understood to be only an opinion, does not render a person expressing it liable for fraud. But where the statements are as to value or quality, and are made by a person knowing them to be untrue, with an intent to deceive and mislead the one to whom they are made, and he is thus induced to forbear making inquiries which he otherwise would, that may amount to an affirmation of fact rendering him liable therefor. In such a case, whether a representation is an expression of an opinion or an affirmation of a fact is a question for the jury. The rule that no one is liable for an expression of an opinion is applicable only when the opinion stands by itself as a distinct thing. If it is given in bad faith, with knowledge of its untruthfulness, to defraud others, the person making it is liable, especially when it is as to a fact affecting quality or value and is peculiarly within the knowledge of the person making it. Watson _v._ People, 87 N. Y. 561; Simar _v._ Canaday, 53 N. Y. 298; Hickey _v._ Morrell, 102 N. Y. 454, 463; Schumacher _v._ Mather, 133 N. Y. 590, 595.” The same view of the question is presented in Holton _v._ State, 109 Ga. 127, 130; and also in People _v._ Jordan, 66 Cal. 10, 13, 14.
Simar _v._ Canaday, 53 N. Y. 298, was a civil action for damages for an alleged fraud in inducing the plaintiffs to convey certain premises. The court, at page 306, said: “The defendant contends that the representations alleged to have been made by the defendant were not such as to afford a ground for an action. It is first insisted that the statements as to the value of the lands and of the mortgages thereon were mere matter of opinion and belief, and that no action could be maintained upon them if false. If they were such, no liability is created by the utterance of them; but all statements as to the value of property sold are not such. They may be, under certain circumstances, affirmation of fact. When known to the utterer to be untrue, if made with the intention of misleading the vendee, if he does rely upon them and is misled to his injury, they avoid the contract. Stebbins _v._ Eddy, 4 Mason, 414–423. And where they are fraudulently made of particulars in relation to the estate which the vendee has not equal means of knowing, and where he is induced to forbear inquiries which he would otherwise have made, and damage ensues, the party guilty of the fraud should be liable for the damage sustained. Medbury _v._ Watson, 6 Metc. 246, per Hubbard, J.; and see McClellan _v._ Scott, 24 Wis. 81.” More recently the cases of Coulter _v._ Minion, 139 Mich. 200, and Scott _v._ Burnight, 131 Ia. 507, are to the same effect.
These considerations determine every question raised upon the record and therefore the judgment of the Circuit Court is
_Affirmed_.
PRICE, CREW, SUMMERS and SPEAR, JJ., concur.
BOWEN, L. J., IN SMITH _v._ LAND CORPORATION (1884) _Law Reports, 28 Chancery Division, 15–16._
In considering whether there was a misrepresentation, I will first deal with the argument that the particulars only contain a statement of opinion about the tenant. It is material to observe that it is often fallaciously assumed that a statement of opinion cannot involve the statement of a fact. In a case where the facts are equally well known to both parties, what one of them says to the other is frequently nothing but an expression of opinion. The statement of such opinion is in a sense a statement of a fact, about the condition of the man’s own mind, but only of an irrelevant fact, for it is of no consequence what the opinion is. But if the facts are not equally known to both sides, then a statement of opinion by the one who knows the facts best involves very often a statement of a material fact, for he impliedly states that he knows facts which justify his opinion. Now a landlord knows the relations between himself and his tenant; other persons either do not know them at all or do not know them equally well, and if the landlord says that he considers that the relations between himself and his tenant are satisfactory, he really avers that the facts peculiarly within his knowledge are such as to render that opinion reasonable. Now are the statements here statements which involve such a representation of material facts? They are statements on a subject as to which _prima facie_ the vendors know everything and the purchasers nothing. The vendors state that the property is let to a most desirable tenant; what does that mean? I agree that it is not a guarantee that the tenant will go on paying his rent, but it is to my mind a guarantee of a different sort, and amounts at least to an assertion that nothing has occurred in the relations between the landlords and the tenant which can be considered to make the tenant an unsatisfactory one. This is an assertion of a specific fact. Was it a true assertion? Having regard to what took place between Lady Day and Midsummer, I think that it was not. On the 25th of March, a quarter’s rent became due. On the 1st of May, it was wholly unpaid and a distress was threatened. The tenant wrote to ask for time. The plaintiffs replied that the rent could not be allowed to remain over Whitsuntide. The tenant paid on the 6th of May £30, on the 13th of June £40, and the remaining £30 shortly before the auction. Now could it, at the time of the auction, be said that nothing had occurred to make Fleck an undesirable tenant? In my opinion a tenant who had paid his last quarter’s rent by driblets under pressure must be regarded as an undesirable tenant.[334]
KIDNEY _v._ STODDARD SUPREME JUDICIAL COURT, MASSACHUSETTS, OCTOBER TERM, 1843. _Reported in 7 Metcalf, 252._
Trespass upon the case for an alleged fraudulent representation by the defendant as to the credit of his son, Alden D. Stoddard, Jr., in the following letter to F. Delano of New York: “Fairhaven, 9 mo. 27, 1841. Franklin Delano, Esq. My dear Sir: The bearer, my son, A. D. Stoddard, Jr., wishes to purchase a bill of goods in your city. Any assistance you can render him, by a recommendation or otherwise, will be gratefully received by him, and much oblige your obedient servant, who will take the liberty to say that A. D. S. Jr.’s contracts, of whatever nature, will unquestionably be punctually attended to. Very respectfully your friend, A. D. Stoddard.”
At the trial before Wilde, J., one Ammidon testified that he was agent of the plaintiffs; that Stoddard, Jr., called on him in New York, about the 1st of October, 1841, to purchase some goods, and referred him to Delano; that the witness called on Delano, who showed said letter to him, and made statements concerning Stoddard, Senior. The witness sold the son goods which he would not have sold him, if it had not been for the letter and the statements of Delano. No part of the debt was ever paid. After the sale the plaintiff discovered that the son was a minor at the time the letter was written.
The judge instructed the jury that when a party intentionally conceals a material fact, in giving a letter of recommendation, it amounts to a false representation; that the defendant, giving a letter in this case to an unlimited amount, was bound to communicate every material fact; that if he concealed the fact that the son was a minor, with the view to give him a credit, knowing or believing that he would not get a credit if that fact was known, it was a fraud, and the plaintiff was entitled to recover; that it was immaterial whether there was any moral fraud; and that every man was presumed to know the consequences of his own acts.
The defendant’s counsel requested the judge to instruct the jury, that if the defendant gave his opinion merely, he was not bound to communicate any facts; and that if he gave an honest opinion, he was not liable. But the judge refused so to instruct the jury. It was also contended by the defendant’s counsel that the plaintiffs should have made an effort to recover the debt of the son.
The jury found a verdict for the plaintiffs for the amount of the goods sold, and the defendant moved for a new trial, on the ground that the jury were misdirected in matter of law.[335]
HUBBARD, J.
* * * * *
It is very certain, as has been maintained by the defendant’s counsel, that a mistaken opinion, honestly given, can never be taken as a fraudulent representation. This is true in principle, and supported abundantly by authorities. But the misfortune of the defendant’s case is, that the verdict of the jury rests not on the honest mistake of the defendant, but upon the ground of material concealment of a fact especially within his knowledge; a fact important to be known, as it regarded the credit of the son; a fact designedly concealed, and with the view of obtaining that credit for the son, which he, the father, knew or believed he could not obtain if that fact were known.
It needs no lengthened argument to establish the materiality of the fact. The result of this case is a sufficient witness of it. The plaintiffs were induced by the letter, from which this fact was carefully excluded, to give a credit to the son, which they would not otherwise have given; and as the direct consequence of it, they have sustained the loss set out in the declaration. Here then are proved fraud and deceit on the part of the defendant, and damage to the plaintiffs; and these facts have long been held to constitute a substantial cause of action. From the time of the judgment in the great case of Pasley _v._ Freeman, 3 T. R. 51, to the present day, through the long line of decisions both in England and America, the principle of that case, though with some statute modifications, remains unshaken and unimpaired.
[Remainder of opinion omitted.]
_Judgment on the verdict._[336]
DERRY _v._ PEEK IN THE HOUSE OF LORDS, JULY 1, 1889. _Reported in Law Reports, 14 Appeal Cases, 337._
The action in this case was brought by Sir H. Peek against Mr. W. Derry, the chairman, and Messrs. J. C. Wakefield, M. M. Moore, J. Pethick, and S. J. Wilde, four of the directors of the Plymouth, Devonport, and District Tramways Company, claiming damages for the fraudulent misrepresentations of the defendants whereby the plaintiff was induced to take shares in the company.[337]
The company was incorporated in the year 1882 for making and maintaining tramways in Plymouth, Devonport, and Stonehouse. The nominal capital was £125,000 in shares of £10 each.
The Plymouth, Devonport, and District Tramways Act, 1882 (45 & 46 Vict. c. clix.), by which the company was incorporated, contained the following clause (sect. 35):—
“The carriages used on the tramways may, subject to the provisions of this Act, be moved by animal power, and, with the consent of the Board of Trade, during a period of seven years after the opening of the same for public traffic, and with the like consent during such further periods not exceeding seven years as the said board may from time to time specify in any order to be signed by a secretary or an assistant secretary of the said board, by steam-power or any mechanical power: Provided always, that the exercise of the powers hereby conferred with respect to the use of steam or any mechanical power shall be subject to the regulations set forth in the Schedule A. to this Act annexed, and to any regulations which may be added thereto or substituted therefor by any order which the Board of Trade may and which they are hereby empowered to make from time to time, as and when they may think fit, for securing to the public all reasonable protection against danger in the exercise of the powers by this Act conferred with respect to the use of steam or any mechanical power on the tramways: Provided also, that the company shall not use steam-power or any mechanical power on the said tramways unless and until they shall have obtained the previous consent in writing of the corporations [Plymouth and Devonport] therefor, and then for such terms only and subject to such conditions and regulations as the corporations may from time to time prescribe.”
By sect. 64 it was provided that the company should not open any of the tramways for public traffic without the consent of the corporations.
In October, 1882, the directors issued a prospectus which contained the following paragraph: “As by sect. 35 of the Plymouth and Devonport District Tramways Act, 1882, power is given to use either animal, steam, or mechanical means of locomotion, the directors will adopt that motive power which experience may demonstrate to be at once the most economical and effective.” It did not appear that the plaintiff ever received a copy of this prospectus.
On the 1st of February, 1883, the directors of the company issued a second prospectus, which contained a heading in large type as follows: “Incorporated by special Act of Parliament 45 & 46 Vict. authorizing the use of steam or other mechanical motive power.” The prospectus contained the following paragraphs:—
“One great feature of this undertaking, to which considerable importance should be attached, is, that by the special Act of Parliament obtained, the company has the right to use steam or mechanical motive power instead of horses, and it is fully expected that by means of this a considerable saving will result in the working expenses of the line, as compared with other tramways worked by horses.”
“Looking to the exceptional advantages offered by this undertaking from the dense population of the towns it traverses, the unusually favorable conditions as to motive power open to the company, and the annual dividends earned by other companies which do not enjoy such special privileges, the directors have reason to believe that the enterprise will prove highly remunerative, and the shares now for subscription offer a very favorable opportunity for a sound and progressive investment.”
The defendants at the same time issued a circular letter, which was sent with the prospectus, in which it was stated that “the company by its Act enjoys the special privilege of the right to use steam-power instead of horse-power, from which it is expected considerable savings will result in the working expenses.”
The plaintiff received copies of this prospectus and circular, and believing, as he alleged, that the company had an absolute right to use steam and other mechanical power, and relying upon the representations and statements in the prospectus and circular, applied on the 7th of February for 400 shares, for which he paid £4000.
About £40,000 only of the capital was subscribed; but the directors completed part of their tramway in Plymouth. The corporation of Devonport refused their consent to the company opening the completed part until the remaining portion was ready, and on the 14th of November, 1884, obtained an injunction restraining the company from so doing. When the Board of Trade were applied to, they refused to sanction the use of steam-power except over a small portion of the tramways.
The result was that the company was unable to carry out its proposed undertaking, and a petition for winding-up was presented, which was followed by a winding-up order on the 2d of May, 1885.
The writ in this action was issued on the 4th of February, 1885, a few days after the petition for winding-up, by Sir H. Peek, against the chairman and directors named above, claiming in the first instance a rescission of the contract for shares and repayment of the money paid by him, and damages; but the writ was afterwards amended, and claimed only damages for the misrepresentations in the prospectus and circular.
The defence pleaded by the defendants was that they did not represent, or intend to represent, in the prospectus and circular, that the company had an absolute right to use steam or other mechanical power; that the plaintiff knew that the use of steam-power was never, or seldom, given unconditionally to a tramway company, and that he was acquainted, or might have made himself acquainted, with the provisions of the company’s special Act, which was referred to in the prospectus, and might be seen at the company’s office; and they denied that the plaintiff was induced to take the shares by the representations complained of. They also pleaded that if the statements complained of were untrue, they were made by the defendants in good faith, and that they had reasonable grounds for believing them to be true: that in fact the consent of the corporation of Plymouth to the use of steam was given in June, 1883, and the consent of the Board of Trade to its being used in a portion of the tramways had also been given.
The action came on for hearing before Mr. Justice STIRLING. At this hearing the parties testified.
STIRLING, J., came to the conclusion that the directors all believed that the company had the right stated in the prospectus; and that their belief was not unreasonable, and their proceedings so reckless or careless, that they ought to be fixed with the consequences of deceit. He ordered the action to be dismissed.[338]
On appeal by plaintiff to the Court of Appeal, the judgment of STIRLING, J., was reversed by COTTON, HANNEN, and LOPES, L.JJ. They held the directors liable in this action for deceit, on the ground that they made the statement without any reasonable ground for believing it to be true. L. R. 37 Ch. Div. 541.
The defendants, Derry, _et al._, appealed from the decision of the Court of Appeal to the House of Lords.
The House of Lords unanimously reversed the judgment of the Court of Appeal, and restored the order of STIRLING, J. Opinions were delivered by LORDS HALSBURY, WATSON, BRAMWELL, FITZGERALD, and HERSCHEL.
Portions of the opinion of LORD HERSCHELL are as follows:—
LORD HERSCHELL. My Lords, in the statement of claim in this action the respondent, who is the plaintiff, alleges that the appellants made in a prospectus issued by them certain statements which were untrue, that they well knew that the facts were not as stated in the prospectus, and made the representations fraudulently, and with the view to induce the plaintiff to take shares in the company.
“This action is one which is commonly called an action of deceit, a mere common-law action.” This is the description of it given by Cotton, L. J., in delivering judgment. I think it important that it should be borne in mind that such an action differs essentially from one brought to obtain rescission of a contract on the ground of misrepresentation of a material fact. The principles which govern the two actions differ widely. Where rescission is claimed it is only necessary to prove that there was misrepresentation; then, however honestly it may have been made, however free from blame the person who made it, the contract, having been obtained by misrepresentation, cannot stand. In an action of deceit, on the contrary, it is not enough to establish misrepresentation alone; it is conceded on all hands that something more must be proved to cast liability upon the defendant, though it has been a matter of controversy what additional elements are requisite. I lay stress upon this because observations made by learned judges in actions for rescission have been cited and much relied upon at the bar by counsel for the respondent. Care must obviously be observed in applying the language used in relation to such actions to an action of deceit. Even if the scope of the language used extend beyond the particular action which was being dealt with, it must be remembered that the learned judges were not engaged in determining what is necessary to support an
## action of deceit, or in discriminating with nicety the elements which
enter into it.
There is another class of actions which I must refer to also for the purpose of putting it aside. I mean those cases where a person within whose special province it lay to know a particular fact, has given an erroneous answer to an inquiry made with regard to it by a person desirous of ascertaining the fact for the purpose of determining his course accordingly, and has been held bound to make good the assurance he has given. Burrowes _v._ Lock, 10 Ves. 470, may be cited as an example, where a trustee had been asked by an intended lender, upon the security of a trust fund, whether notice of any prior incumbrance upon the fund had been given to him. In cases like this it has been said that the circumstance that the answer was honestly made in the belief that it was true affords no defence to the action. Lord Selborne pointed out in Brownlie _v._ Campbell, 5 App. Cas. p. 935, that these cases were in an altogether different category from actions to recover damages for false representation, such as we are now dealing with.
One other observation I have to make before proceeding to consider the law which has been laid down by the learned judges in the Court of Appeal in the case before your Lordships. “An action of deceit is a common-law action, and must be decided on the same principles, whether it be brought in the Chancery Division or any of the Common Law Divisions, there being, in my opinion, no such thing as an equitable
## action for deceit.” This was the language of Cotton, L. J., in Arkwright
_v._ Newbould, 17 Ch. D. 320. It was adopted by Lord Blackburn in Smith _v._ Chadwick, 9 App. Cas. 193, and is not, I think, open to dispute.
In the Court below Cotton, L. J., said: “What in my opinion is a correct statement of the law is this, that where a man makes a statement to be acted upon by others which is false, and which is known by him to be false, or is made by him recklessly, or without care whether it is true or false, that is, without any reasonable ground for believing it to be true, he is liable in an action of deceit at the suit of any one to whom it was addressed, or any one of the class to whom it was addressed, and who was materially induced by the misstatement to do an act to his prejudice.” About much that is here stated there cannot, I think, be two opinions. But when the learned Lord Justice speaks of a statement made recklessly or without care whether it is true or false, that is, without any reasonable ground for believing it to be true, I find myself, with all respect, unable to agree that these are convertible expressions. To make a statement, careless whether it be true or false, and therefore without any real belief in its truth, appears to me to be an essentially different thing from making, through want of care, a false statement, which is nevertheless honestly believed to be true. And it is surely conceivable that a man may believe that what he states is the fact, though he has been so wanting in care that the Court may think that there were no sufficient grounds to warrant his belief. I shall have to consider hereafter whether the want of reasonable ground for believing the statement made is sufficient to support an action of deceit. I am only concerned for the moment to point out that it does not follow that it is so, because there is authority for saying that a statement made recklessly, without caring whether it be true or false, affords sufficient foundation for such an action.
* * * * *
It will thus be seen that all the learned judges [in the Court of Appeal] concurred in thinking that it was sufficient to prove that the representations made were not in accordance with fact, and that the person making them had no reasonable ground for believing them. They did not treat the absence of such reasonable ground as evidence merely that the statements were made recklessly, careless whether they were true or false, and without belief that they were true, but they adopted as the test of liability, not the existence of belief in the truth of the assertions made, but whether the belief in them was founded upon any reasonable grounds. It will be seen, further, that the Court did not purport to be establishing any new doctrine. They deemed that they were only following the cases already decided, and that the proposition which they concurred in laying down was established by prior authorities. Indeed, Lopes, L. J., expressly states the law in this respect to be well settled. This renders a close and critical examination of the earlier authorities necessary.
* * * * *
Having now drawn attention, I believe, to all the cases having a material bearing upon the question under consideration, I proceed to state briefly the conclusions to which I have been led. I think the authorities establish the following propositions: First, in order to sustain an action of deceit there must be proof of fraud, and nothing short of that will suffice. Secondly, fraud is proved when it is shown that a false representation has been made (1) knowingly, or (2) without belief in its truth, or (3) recklessly, careless whether it be true or false. Although I have treated the second and third as distinct cases, I think the third is but an instance of the second, for one who makes a statement under such circumstances can have no real belief in the truth of what he states. To prevent a false statement being fraudulent there must, I think, always be an honest belief in its truth. And this probably covers the whole ground, for one who knowingly alleges that which is false has obviously no such honest belief.[339] Thirdly, if fraud be proved, the motive of the person guilty of it is immaterial. It matters not that there was no intention to cheat or injure the person to whom the statement was made.
I think these propositions embrace all that can be supported by decided cases from the time of Pasley _v._ Freeman, 2 Smith’s L. C. 74, down to Western Bank of Scotland _v._ Addie, Law Rep. 1 H. L. Sc. 145, in 1867, when the first suggestion is to be found that belief in the truth of what he has stated will not suffice to absolve the defendant if his belief be based on no reasonable grounds. I have shown that this view was at once dissented from by Lord Cranworth, so that there was at the outset as much authority against it as for it. And I have met with no further assertion of Lord Chelmsford’s view until the case of Weir _v._ Bell, 3 Ex. D. 238, where it seems to be involved in Lord Justice Cotton’s enunciation of the law of deceit. But no reason is there given in support of the view, it is treated as established law. The _dictum_ of the late Master of the Rolls, that a false statement made through carelessness, which the person making it ought to have known to be untrue, would sustain an action of deceit, carried the matter still further. But that such an action could be maintained notwithstanding an honest belief that the statement made was true, if there were no reasonable grounds for the belief, was, I think, for the first time decided in the case now under appeal.
In my opinion making a false statement through want of care falls far short of, and is a very different thing from, fraud, and the same may be said of a false representation honestly believed though on insufficient grounds. Indeed Cotton, L. J., himself indicated, in the words I have already quoted, that he should not call it fraud. But the whole current of authorities, with which I have so long detained your Lordships, shows to my mind conclusively that fraud is essential to found an action of deceit, and that it cannot be maintained where the acts proved cannot properly be so termed. And the case of Taylor _v._ Ashton, 11 M. & W. 401, appears to me to be in direct conflict with the _dictum_ of Sir George Jessel, and inconsistent with the view taken by the learned judges in the Court below. I observe that Sir Frederick Pollock, in his able work on Torts (p. 243, note), referring, I presume, to the _dicta_ of Cotton, L. J., and Sir George Jessel, M. R., says that the actual decision in Taylor _v._ Ashton, 11 M. & W. 401, is not consistent with the modern cases on the duty of directors of companies. I think he is right. But for the reasons I have given I am unable to hold that anything less than fraud will render directors or any other persons liable to an action of deceit.
At the same time I desire to say distinctly that when a false statement has been made the questions whether there were reasonable grounds for believing it, and what were the means of knowledge in the possession of the person making it, are most weighty matters for consideration. The ground upon which an alleged belief was founded is a most important test of its reality. I can conceive many cases where the fact that an alleged belief was destitute of all reasonable foundation would suffice of itself to convince the Court that it was not really entertained, and that the representation was a fraudulent one. So, too, although means of knowledge are, as was pointed out by Lord Blackburn in Brownlie _v._ Campbell, 5 App. Cas. p. 952, a very different thing from knowledge, if I thought that a person making a false statement had shut his eyes to the facts, or purposely abstained from inquiring into them I should hold that honest belief was absent, and that he was just as fraudulent as if he had knowingly stated that which was false.
I have arrived with some reluctance at the conclusion to which I have felt myself compelled, for I think those who put before the public a prospectus to induce them to embark their money in a commercial enterprise ought to be vigilant to see that it contains such representations only as are in strict accordance with fact, and I should be very unwilling to give any countenance to the contrary idea. I think there is much to be said for the view that this moral duty ought to some extent to be converted into a legal obligation, and that the want of reasonable care to see that statements made under such circumstances are true should be made an actionable wrong. But this is not a matter fit for discussion on the present occasion. If it is to be done the legislature must intervene and expressly give a right of action in respect of such a departure from duty. It ought not, I think, to be done by straining the law, and holding that to be fraudulent which the tribunal feels cannot properly be so described. I think mischief is likely to result from blurring the distinction between carelessness and fraud, and equally holding a man fraudulent whether his acts can or cannot be justly so designated.
It now remains for me to apply what I believe to be the law to the facts of the present case. [After reviewing the evidence of each defendant.] I cannot hold it proved as to any one of them that he knowingly made a false statement, or one which he did not believe to be true, or was careless whether what he stated was true or false. In short, I think they honestly believed that what they asserted was true,[340] and I am of opinion that the charge of fraud made against them has not been established. [Remainder of opinion omitted.][341]
HOLMES, J., DISSENTING IN NASH _v._ MINNESOTA TITLE & TRUST COMPANY (1895) _163 Massachusetts 574, 586–587._
If I were making the law, I should not hold a man answerable for representations made in the common affairs of life without bad faith in some sense, if no consideration was given for them, although it would be hard to reconcile even that proposition with some of our cases. But the proposition, even if accepted, seems to me not to apply to this case. The proper meaning of the words used by the defendant has been settled by this court already. 159 Mass. 437. The representation was not made in casual talk, but in a business matter, for the very purpose of inducing others to lay out their money on the faith of it. When a man makes such a representation, he knows that others will understand his words according to their usual and proper meaning, and not by the accident of what he happens to have in his head, and it seems to me one of the first principles of social intercourse that he is bound at his peril to know what that meaning is. In this respect it seems to me that there is no difference between the law of fraud and that of other torts, or of contract or estoppel. If the language of fiction be preferred, a man is conclusively presumed in all parts of the law to contemplate the natural consequences of his act, as well in the conduct of others as in mechanical results. I can see no difference in principle between an invitation by words and an invitation by other acts, such as opening the gates of a railroad crossing (Brow _v._ Boston & Albany Railroad, 157 Mass. 399), or an intentional gesture, having as its manifest consequence, according to common experience, a start and a fall on the part of the person toward whom it is directed, in either of which cases I suppose no one would say that a defendant could get off by proving that he did not anticipate the natural interpretation of the sign. Of course, if the words used are technical, or have a peculiar meaning in the place where they were used, this can be shown; if by the context, or the subject matter, or the circumstances, the customary meaning of the words is modified, this can be shown by proof of the circumstances, the subject matter, and the context; but when none of these things appears, a defendant cannot be heard to say that for some undisclosed reason he had in his mind, and intended to express by the words, something different from what the words appear to mean, and were understood by the plaintiff to mean, and are interpreted by the court to mean, whether the action be in tort or contract.
Neither, in my opinion, are there any peculiar safeguards set up about the action for deceit. That action was given by the common law for any false statement of present facts of which the defendant took the risk, and which was followed by damage. He might take the risk at different points in different cases. A false warranty used to be laid as a deceit in tort for a false and fraudulent representation. Clift, Entries, 932, pl. 40. Liber Placitandi, 40, pl. 54, 55. Y. B. 11 Ed. IV. pl. 10. So even an implied warranty. Brown _v._ Edgington, 2 Man. & G. 279. See Y. B. 11 Ed. IV. 6 b; Keilw. 91, pl. 16. Yet it was not necessary to lay the scienter, or if you laid it, to prove it, for the plain reason, as Shaw, C. J., puts it, in substance, that the defendant is answerable for the facts, however honest he may have been. Norton _v._ Doherty, 3 Gray, 372, 373. Schuchardt _v._ Allens, 1 Wall. 359, 368. Williamson _v._ Allison, 2 East, 446. Gresham _v._ Postan, 2 C. & P. 540. Denison _v._ Ralphson, 1 Vent. 365, 366. In the last century an alternative form in assumpsit was introduced (Stuart _v._ Wilkins, 1 Doug. 18, 21, Lawrence, J., and Williamson _v._ Allison, 2 East, 446, 451), and it may be that now we should require the warranty to be alleged, which has the advantage of telling the defendant more exactly what the case is against him. Cooper _v._ Landon, 102 Mass. 58. But there is no doubt about the common law. I am of opinion, as I have stated, that in a case like the present a man takes the risk of the interpretation of his words as it may afterwards be settled by the court.
HAND, J., IN SLATER TRUST COMPANY _v._ GARDINER (1910) _183 Federal Reporter, 268, 270–271._
At the outset the character of the mistake must be observed. Gardiner knew the facts, but he did not know the meaning of the words. Although the great weight of authority is to the contrary (Derry _v._ Peek, 14 App. Cas. 337), I may assume for the purposes of this case that a man may be responsible for his uttered false words, even when he believes them to be true.
Such authorities as hold to this rule regard the uttered word as the cause of the damage, which, of course, it is, and they hold that a man, by speaking or writing words on which he knows others will rely, must be held to their truth quite as much as though he made a promise (Mr. Justice Holmes, dissentiente, Nash _v._ Minnesota Title Co., 163 Mass. 574, 40 N. E. 1039, 28 L. R. A. 753, 47 Am. St. Rep. 489; Pollock on Torts, [6th Ed.] page 283). But these authorities, which regard the word as the tortious act, certainly should not, in analogy with the other law of torts, be supposed to mean that a man should be responsible for the remote results of his words. The extent of his responsibility, indeed, ought to be limited, as it is in other torts, to those matters which would come within the foresight of the hypothetical reasonable man. With remoter damage it is as unjust to charge the words of his mouth as the movements of his legs or arms. Although they do not in these words indicate the distinction, I think that this is the explanation of such of the cases as make negligence the test, and of these there are a number.
If Gardiner was responsible for the words he uttered, regardless of _scienter_, at least he was not responsible for such consequences as no man could avoid with the use of reasonable care. What happened in spite of the exercise of such care was remote, within all the analogies of the law of torts. “Causa proxima non remota spectatur.” Nor does it make any difference that it was in respect of the meaning of his words that he was mistaken. The utterance of a word is one thing; its eventual interpretation by a reader is another, and is as much the external consequence of its utterance as anything else. A given interpretation, even a legal one, may be, from the point of view of the original utterer, so remote a consequence that no one ought in justice to be held accountable for it. For example, in the case at bar, if Gardiner did all a layman could do to get the facts set down correctly, the interpretation that J. T. Woodward put on the words Gardiner was not bound to anticipate, not even if it was the right one.
The authorities do not make any distinction between the discrepancy of the statement with the facts stated and the discrepancy of the statement with its subsequent interpretation. Thus in Derry _v._ Peek, 14 App. Cas. 337, it appeared that the directors who issued the prospectus knew all the facts and trusted their solicitors to prepare the statement correctly (see Lord Bramwell’s judgment, page 348); their misstatement was in calling the franchise absolute which was in fact conditional. This statement they successfully justified, because they regarded the condition attached to the franchise as practically certain of fulfilment and the statement really truthful (Lord Herschell’s Judgment, pages 378, 379). The point is that the error was in supposing that the facts which they knew were correctly set forth in the statement. A similar case, where the exact point was passed on by the Supreme Court of Massachusetts, is Nash _v._ Minnesota Title Co., 163 Mass. 574, 40 N. E. 1039, 28 L. R. A. 753, 47 Am. St. Rep. 489, the dissent in which I have already mentioned. But that dissent proceeds upon the theory that no scienter is ever necessary in an
## action for deceit.
CARPENTER, J., IN ALDRICH _v._ SCRIBNER (1908) _154 Michigan, 23._
Holcomb _v._ Noble, 69 Mich. 396, 37 N. W. 497, is also in point. There defendant and plaintiff exchanged lands. In making this exchange plaintiff relied on certain representations of fact respecting the pine on the land transferred to him by defendant. These representations were based—and this was understood by plaintiff—upon the reports of a land looker, and defendant told plaintiff “that all he knew about the land was what he learned from the land looker.” Defendant believed these representations to be true. They were in fact false, and plaintiff sustained damages by his reliance thereon. An
## action of fraud was brought, and it was held that plaintiff could
recover. There were two opinions in the case, one written by Justice Campbell and concurred in by Justice Champlin, one written by Justice Morse and concurred in by Chief Justice Sherwood. In the opinion of Justice Campbell it is said: “It is admitted that in equity an actual design to mislead is not necessary if a party is actually misled by another in a bargain. There was abundant evidence in this case to authorize the jury to find that defendant, whether honestly or dishonestly, expected plaintiff to act on his representations of the reliableness of the reports which he produced, and that plaintiff did rely on them. There is no reason for a difference in action, in such cases, between courts of law and courts of equity. Where an equitable cause of grievance exists, it in no way differs from a legal one, unless a different remedy is needed. A court of law cannot cancel a contract, and for such a purpose the equitable remedy must be sought. But where the relief desired is compensation for the wrong, the equitable remedy is much less appropriate, and an action in equity for mere damages will generally be denied, but denied only because the legal remedy is better. If there could be no legal remedy, there can be no doubt that equity would act. If the fraud is such that it creates a right of action anywhere, an action must lie on the case where a money judgment is needed.” I now quote from the opinion of Justice Morse, concurred in by Chief Justice Sherwood: “I was strongly impressed, upon the argument of this case, with the theory of the defendant, supported by abundant authority outside of our own state, that unless the jury found that the representations relied upon by the plaintiff as false were made by the defendant, Noble, knowing them to be false, or he made the statements as facts within his own knowledge, when he was ignorant of the truth or falsity of them, he could not be held liable in this action; that if he told plaintiff that he had never seen the lands, but that he had had the same examined by a competent land looker, who said that there were 5,000,000 feet of pine on the land, and made no representations as of his own knowledge, the plaintiff could not recover. A subsequent careful examination of the case and the authorities cited by defendant’s counsel has but confirmed me in the correctness and justness of his claim. I am satisfied that the law ought not to make a different contract for the seller than he sees fit to make for himself, and hold him in effect, for warranties that he never made. But an equally careful examination of the cases adjudicated in this state satisfies me that the doctrine is settled here, by a long line of cases, that if there was in fact a misrepresentation, though made innocently, and its deceptive influence was effective, the consequences to the plaintiff being as serious as though it had proceeded from a vicious purpose, he would have a right of action for the damages caused thereby either at law or in equity. Baughman _v._ Gould, 45 Mich. 483, 8 N. W. 73; Converse _v._ Blumrich, 14 Mich. 109, 90 Am. Dec. 230; Steinbach _v._ Hill, 25 Mich. 78; Webster _v._ Bailey, 31 Mich. 36; Starkweather _v._ Benjamin, 32 Mich. 305; Beebe _v._ Knapp, 28 Mich. 53.” I think these decisions are indistinguishable from the case at bar, and require us to say that the trial court erred in directing a verdict for the defendant. The Busch Case and the Holcomb Case cannot be distinguished from the case under consideration by saying that in them “the principal adopted the agent’s estimate as his own.” For in this case, as heretofore stated, defendant asserted to plaintiff “that those representations Barnard had made were true.” It might therefore be said in this case, then, the principal adopted the agent’s estimate as his own.
Our attention is called to Krause _v._ Cook, 144 Mich. 365, 108 N. W. 81. There defendant, acting for one Parker, sold mining stock to the plaintiff. Certain false representations were made, and an action to recover damages for fraud was brought. It was held that the trial court should have given the following instruction: “If a person received information from others, and believes it, repeats it, explaining that he has no personal knowledge, he is not guilty of fraud. Therefore, if you find that the defendant received information from others, and repeated that information to plaintiff, and explained to plaintiff the sources of his information, he is not guilty of any fraud, if he acts honestly and in good faith.” At first blush it would seem, that this principle is opposed to the decisions of Holcomb _v._ Noble and Busch _v._ Wilcox, _supra_. And it must be admitted, I think, that if this principle had been applied in those cases, a different conclusion would there have been reached. If there was no difference in the facts, it might be said that Krause _v._ Cook, _supra_, is opposed to the principle announced in the Busch and Holcomb Cases. But there is a difference in the cases, and, in my judgment, such a difference as to require a different rule of law. In the Holcomb and Busch Cases the defendant himself obtained what plaintiff lost by means of the false representations. In the Krause Case the defendant was an agent, who at most received only 10 per cent of the damages caused by the false representations. This difference, in my judgment, places the Krause Case outside the rule of the Holcomb and Busch Cases. That rule is peculiarly a Michigan rule. Elsewhere in order to create liability for deceit, it must be shown that “the person making the statement, or the person responsible for it, either knows it to be untrue, or is culpably ignorant (that is, recklessly and consciously ignorant) whether it be true or not.” See Webb’s Pollock on Torts, p. 355. In Michigan we have held (see cases cited in the opinion of Justice Morse in the Holcomb Case, _supra_) that in order to constitute a fraud it is not necessary that the person making the statement should either know that it is untrue or be recklessly and consciously ignorant whether it be true or not. It is sufficient if it be false in fact. It must be said, however, that in the cases in which this principle has been applied the defendant obtained what the false representations caused the plaintiff to lose. Applied in such cases, the principle is a just and salutary one. This may be illustrated by the Holcomb Case—which is a typical case. There, because plaintiff Holcomb credited a certain false statement of fact, he paid defendant Noble more for land purchased than otherwise he would have paid. The false statement of fact was an agency whereby the property of the plaintiff was transferred to defendant. The law would be justly subject to reproach if it afforded no redress in such case. In Michigan the law does give redress in such a case, and that redress may be obtained in an action for fraud. It may seem somewhat unjust to characterize such conduct as fraudulent, but the court was apparently placed in the dilemma of either so characterizing it or of altogether denying compensation, and it chose the least objectionable of these two alternatives. This principle, which is altogether just in its application to cases where the loss of the plaintiff has inured to the profit of the defendant, would be most unjust if applied to cases where the defendant has obtained no such profit. This may be illustrated by taking a concrete case, and I take a case even plainer in its facts than the Krause Case. Let us suppose that, with commendable motives and in the best of faith, one friend communicates to another with all amplitude of detail certain information he has received respecting a mine, which it is known that neither of them has ever visited. The object of this communication is to induce the one to whom it is made to purchase stock, but not from the one making the communication, but from a third person having no relation to him. The stock is purchased accordingly, without any profit resulting to the friend making the communication; the information proves to be false and the stock worthless. Did the friend who communicated the information which proved to be false commit a fraud? He did no moral wrong. Indeed, from a moral point of view his conduct was commendable, and, unless compelled to do so, the court should not announce a rule of law which penalizes commendable conduct. Are we compelled to declare that there exists a rule of law which makes such conduct fraudulent? Manifestly not unless we are bound to declare that the doctrine of the Holcomb and Busch Cases applies. Must we so declare? As already pointed out, the case differs materially from the Holcomb and Busch Cases, and this difference is such that the doctrine of those cases has no just application. That doctrine was designed to accomplish justice: as applied in the Holcomb and Busch Cases and in similar cases it does accomplish justice. As applied to cases where the loss of the plaintiff has not inured to the profit of the defendant it accomplishes an injustice, and it therefore has no application to such cases.
LORD HALDANE, L. C., IN NOCTON _v._ LORD ASHBURTON (1914) _Appeal Cases, 932, 945–946, 951–954._
I have read the evidence of the appellant, and, although it is obviously unreliable evidence, it leaves on my mind the same impression that it left on that of the learned judge who heard it, that the solicitor did not consciously intend to defraud his client, but, largely owing to a confused state of mind, believed that he was properly joining with him and guiding him in a good speculation.
I cannot, therefore, treat the case, so far as based on intention to deceive, as made out. But where I differ from the learned judges in the Courts below is as to their view that, if they did not regard deceit as proved, the only alternative was to treat the action as one of mere negligence at law unconnected with misconduct. This alternative they thought was precluded by the way the case had been conducted. I am not sure that, on the pleadings and on the facts proved, they were right even in this. The question might well have been treated as in their discretion and as properly one of costs only, having regard to the unsatisfactory evidence of the appellant. But I do not take the view that they were shut up within the dilemma they supposed. There is a third form of procedure to which the statement of claim approximated very closely, and that is the old bill in Chancery to enforce compensation for breach of a fiduciary obligation. There appears to have been an impression that the necessity which recent authorities have established of proving moral fraud in order to succeed in an action of deceit has narrowed the scope of this remedy. For the reasons which I am about to offer to your Lordships, I do not think that this is so....
My Lords, it is known that in cases of actual fraud the Courts of Chancery and of Common Law exercised a concurrent jurisdiction from the earliest times. For some of these cases the greater freedom which, in early days, the Court of Chancery exercised in admitting the testimony of parties to the proceedings made it a more suitable tribunal. Moreover, its remedies were more elastic. Operating _in personam_ as a Court of conscience it could order the defendant, not, indeed, in those days, to pay damages as such, but to make restitution, or to compensate the plaintiff by putting him in as good a position pecuniarily as that in which he was before the injury.
But in addition to this concurrent jurisdiction, the Court of Chancery exercised an exclusive jurisdiction in cases which, although classified in that Court as cases of fraud, yet did not necessarily import the element of _dolus malus_. The Court took upon itself to prevent a man from acting against the dictates of conscience as defined by the Court, and to grant injunctions in anticipation of injury, as well as relief where injury had been done. Common instances of this exclusive jurisdiction are cases arising out of breach of duty by persons standing in a fiduciary relation, such as the solicitor to the client, illustrated by Lord Hardwicke’s judgment in Chesterfield _v._ Janssen, 2 Ves. Sen. 125. I can hardly imagine that those who took part in the decision of Derry _v._ Peek, 14 App. Cas. 337, imagined that they could be supposed to have cast doubt on the principle of any cases arising under the exclusive jurisdiction of the Court of Chancery. No such case was before the House, which was dealing only with a case of actual fraud as to which the jurisdiction in equity was concurrent....
So far as the equity jurisdiction in cases of what is called fraud is concurrent only and exercised in actions for mere deceit apart from breach of special duty, an actual intention to cheat has now to be proved. But there are cases of other classes to which, as I have already said, the Court of Chancery undoubtedly did apply the term fraud, although I think unfortunately.
Fraud in such cases is, as James, L. J., said in Torrance _v._ Bolton, L. R. 8 Ch. 118, at p. 124, “_nomen generalissimum_, and it must not be construed so as to mislead persons into the notion that contracts for the sale and purchase of lands are in any respect privileged, so as to be free from the ordinary jurisdiction of the Court to deal with them as it deals with any instrument, or any other transactions, in which the Court is of opinion that it is unconscientious for a person to avail himself of the legal advantage which he has obtained. Indeed, the books are full of cases in which the Court has dealt with contracts of that kind—contracts obtained by persons from others over whom they have dominion, contracts obtained by persons in a fiduciary position, contracts for the sale of shares obtained by directors through misrepresentation contained in the prospectus, in respect of which it was never necessary to allege or prove that the directors were wilfully guilty of moral fraud in what they had done.” In Chancery the term “fraud” thus came to be used to describe what fell short of deceit, but imported breach of a duty to which equity had attached its sanction. What was laid down by Lord Eldon in this House in Bulkely _v._ Wilford, 2 Cl. & F. 102, at p. 177, explains the nature of the duty.
My Lords, I have dealt thus fully with this distinction because I think that confusion has arisen from overlooking it. It must now be taken to be settled that nothing short of proof of a fraudulent intention in the strict sense will suffice for an action of deceit. This is so whether a Court of Law or a court of equity in the exercise of concurrent jurisdiction is dealing with the claim, and in this strict sense it was quite natural that Lord Bramwell and Lord Herschell should say that there was no such thing as legal as distinguished from moral fraud. But when fraud is referred to in the wider sense in which the books are full of the expression, used in Chancery in describing cases which were within its exclusive jurisdiction, it is a mistake to suppose that an actual intention to cheat must always be proved. A man may misconceive the extent of the obligation which a Court of Equity imposes on him. His fault is that he has violated, however innocently because of his ignorance, an obligation which he must be taken by the Court to have known, and his conduct has in that sense always been called fraudulent, even in such a case as a technical fraud on a power. It was thus that the expression “constructive fraud” came into existence. The trustee who purchases the trust estate, the solicitor who makes a bargain with his client that cannot stand, have all for several centuries run the risk of the word fraudulent being applied to them. What it really means in this connection is, not moral fraud in the ordinary sense, but breach of the sort of obligation which is enforced by a Court that from the beginning regarded itself as a Court of conscience.
KAY, L. J., IN LOW _v._ BOUVERIE (1891) _3 Chancery, 82, 111–113._
The result of the authorities seems to be as follows:—
1. There has been from ancient time a jurisdiction in Courts of Equity in certain cases to enforce a personal demand against one who made an untrue representation upon which he knew that the person to whom it was made intended to act, if such person did act upon the faith of it and suffered loss by so acting.
2. This was readily done where the representation was fraudulently made, in which case an action of deceit would lie at law.
3. Relief will also be given at Law and in Equity, even though the representation was innocently made without fraud, in all cases where the suit will be effective if the defendant is estopped from denying the truth of his representation.
4. Where there is no estoppel, an innocent misrepresentation will not support an action at law for damages occasioned thereby.
5. Estoppel is effective where an action must succeed or fail if the defendant or plaintiff is prevented from disputing a particular fact alleged: for example, if an assign of A. sues A.’s trustee to recover the fund assigned, and the trustee is prevented from denying its existence in his hands; or at law, if the assign of a debt should sue the alleged debtor and he was prevented from denying that the debt was due. Or, in the converse case, an estoppel may be a defence; as if a joint stock company were to sue a shareholder for calls and they were estopped from denying that the shares were paid up, their action would fail.
It is obvious that this rule does not apply to an action for deceit. In such an action the plaintiff relies, not on the truth of the statement, but upon its falsehood; and he is bound to prove, not only that the representation was untrue, but also that it was made fraudulently. Derry _v._ Peek, 14 App. Cas. 337, very well illustrates the difference. It was an action by a person who had been induced to take shares in a joint stock company by an untrue statement in a prospectus. The action was not against the company, but against the directors who had issued the prospectus. The representation was not fraudulently made. Preventing the defendants from denying the truth of their representation would not enable the plaintiff to succeed in such an action; so that the plaintiff could not rely on estoppel. That could only be if the defence had been that the statement was inaccurate, and the defendants were estopped from denying the accuracy of their own statement. The plaintiff’s case was not that the statement must be treated as accurate: on that supposition he could not have had any relief against the defendants. The plaintiff sued the defendants upon the ground that the statement was false, and false to their knowledge—that is, fraudulent; and the defence that prevailed was that, if it was inaccurate, it was not fraudulent.
6. I am not satisfied that relief in the nature of a personal demand against the defendant has been given in Equity in cases which did not involve fraud or to which this doctrine of estoppel would not apply. Slim _v._ Croucher, 1 D. F. & J. 518, is the only instance I know of; and, as Lord Campbell said that there might be relief at law in that case, he probably considered, either that it was a case of estoppel, or that an action of deceit would lie—which latter view is not consistent with Derry _v._ Peek, 14 App. Cas. 337.
FARWELL, L. J., IN FRY _v._ SMELLIE (1912) _3 King’s Bench Division, 282, 294–295._
I can only say that certificates and a blank transfer are in everyday use as securities for raising money, and that every man who lends money to A. on documents which show a title in B. is of course put on inquiry. This does not mean that he must refuse to deal with the agent at all but must refer to the principal, but that he must make such inquiry as is reasonable under the circumstances. If he is foolish enough to lend to A. without inquiry, and A. has no right or authority to deal with the documents, he loses his money, and it is perfectly immaterial whether the security is a deposit of title deeds to real estate or certificates of shares with a blank transfer. Such a question as arises in the present case can only arise when the owner of the property has authorized such a dealing with the property as is corroborated by the possession of the indicia of title. If no authority at all has in fact been given it is quite immaterial whether the lender inquires and is given an untrue answer or does not inquire at all; in either case he loses his money. But if the owner has in fact given the borrower authority to deal with the property by way of loan or by way of sale, and has entrusted him with the indicia of title, enabling him so to deal, then the owner cannot be heard to say that there is any limit on the authority so given. If the indicia of title are apparently co-extensive with the authority claimed there is nothing to suggest any limit. The estoppel arises out of the conduct of the owner of the property. Estoppel is merely a rule of evidence which prevents the person estopped from giving certain facts in evidence. If A.’s conduct amounts to an invitation to B. to advance money to C. without limit on the title deeds of A.’s property, he cannot be heard to say that he had imposed on C. a limit, any more than if he had written or said to B. that he had given C. authority to borrow money and had not mentioned any limit. If he has simply deposited his deeds with C. such deposit involves no such representation, and there is therefore no such estoppel. In speaking of estoppel, I am referring to the doctrine of estoppel by representation which Lord Macnaghten, in Whitechurch _v._ Cavanagh, [1902] A. C. 117, at p. 130, says “is a very old head of equity.” (See Low _v._ Bouverie, [1891] 3 Ch. 82.) It is sometimes called equitable estoppel or a rule of equity, and has been expressed in some of the cases as the rule which compels a man to make good his representations of fact, in reliance on which the person to whom they have been made for the purpose of inducing him to act on them has so acted. Indeed equitable estoppel is the only way in which this doctrine of making good representations has survived the decision in Derry _v._ Peek, 14 App. Cas. 337. The circumstances must necessarily be such as to show a duty to some one to disclose fully on the person making the representation, but it is not a question of negligence in the sense that an action for damages would lie at common law, and no bill in equity would ever have been filed for damages.[342]
CARTER, J., IN WATSON _v._ JONES (1899) _41 Florida, 241, 253–255._
[After citing Wheeler _v._ Baars, 33 Florida, 696.]
It is there said that the _scienter_ may be proved by showing, first, actual knowledge of the falsity of the representation by defendant; second, that defendant made the statement as of his own knowledge, or in such absolute unqualified and positive terms as to imply his personal knowledge of the fact, when in truth defendant had no knowledge whether the statement was true or false; or, third, that the party’s special situation or means of knowledge were such as to make it his duty to know as to the truth or falsity of the representation. Under each phase the proof must show that the statement was in fact false, and in addition, under the first, that defendant had actual knowledge that it was false; under the second, that defendant made the statement as of his own knowledge, when in fact he had no knowledge whether it was true or false, which seems to bear a close resemblance to the English rule, “without belief in its truth, or recklessly careless whether it be true or false”; and under the third, that defendant’s special situation or means of knowledge were such as made it his duty to know as to the truth or falsity of the representation. From this statement it is quite evident that proof sufficient to sustain the third phase tends very strongly to sustain the idea that the defendant had actual knowledge of the falsity of his statement; for when it is shown that the statement was material and false, and that the defendant’s situation or means of knowledge were such as to make it incumbent upon him as a matter of duty to know whether the statement was true or false, the conclusion is almost irresistible that he did know that which his duty required him to know. For this reason the law conclusively presumes from the existence of these facts that defendant had actual knowledge of the falsity of his statement, or, more properly speaking, proof of these facts is sufficient to sustain a charge of actual knowledge, dispensing with further proof upon that subject, and admitting no proof to rebut the fact of actual knowledge, but only proof to rebut the existence of the facts from which such actual knowledge is inferred. We are therefore of opinion that proof of _scienter_ in the third phase does not give another or different right or ground of action from that given by proof under the first phase, but that it simply establishes the same ultimate fact, viz., knowledge, by a different class of evidence, and consequently that an allegation that defendant “knew” his representation to be false is provable by evidence embraced in the third phase. In other words, an averment that defendant’s situation or means of knowledge were such as made it his duty to know whether his statement was true or false, and an averment that defendant well knew his statements to be untrue, are but different methods of stating the same ultimate fact, viz., knowledge.[343]
CABOT _v._ CHRISTIE SUPREME COURT, VERMONT, FEBRUARY TERM, 1869. _Reported in 42 Vermont Reports, 121._
Case for false warranty in the sale of a farm. Plea, not guilty. Trial by jury, May term, 1868, Barrett, J., presiding.
The plaintiff gave evidence tending to show that he bought the farm at the time and for the price stated in the declaration, and that the defendant made representations in respect to the number of acres, as of his own knowledge, designedly intending to induce the plaintiff to suppose and believe, and thereby the plaintiff was induced to and did suppose and believe, that the farm contained at least one hundred and thirty acres of land, and relying thereupon, the plaintiff made the purchase; that the defendant knew that there was not one hundred and thirty acres, or he didn’t know that there was that quantity; that in fact there was only one hundred and seventeen acres and a few rods in the farm; that the plaintiff had no knowledge of the quantity except from the defendant’s representation.
The defendant gave evidence tending to show that he supposed there was one hundred and thirty acres and a little more in the farm, derived from what he had heard said, and from various deeds in his possession of various grantors and of various parcels, but that he did not know, and did not profess or represent to the plaintiff that he knew how many acres there were in fact; that he gave the plaintiff all the information and sources of information he had on the subject, neither making any false representation, nor fraudulent concealment, nor any undertaking as to the number of acres in the farm. There was no evidence or claim that the farm was sold by the acre; but it appeared that it was sold in lump, or as a farm entire.
The plaintiff requested the Court to charge the jury:—
_First_, That under the declaration the plaintiff is entitled to recover if he proves a warranty of the number of acres in the farm, or if he proves a fraudulent representation of the number of acres.
_Second_, That the fraudulent representation may be proved either by evidence of false representations, known to the defendant to be false, and relied upon by the plaintiff, or by proof of an absolute representation of the number of acres, which representation was made with intent that the plaintiff should rely upon it, and was made upon professed knowledge, but without actual knowledge, and which was in fact false, but was relied upon by the plaintiff as true.
The Court complied with said requests only so far as is shown by the charge, and charged as follows:—
In order to entitle the plaintiff to recover he must satisfy the jury that the defendant knew the farm did not contain one hundred and thirty acres, or that he did not believe it contained one hundred and thirty acres; and that in order to induce the plaintiff to buy the farm he falsely represented it to contain one hundred and thirty acres; and that the plaintiff was by such false representation induced to make the purchase, believing it to contain that quantity.
If he honestly believed it contained one hundred and thirty acres, the plaintiff cannot recover, though the defendant was in error about it. Honest mistake is not fraud. Incorrect is not the same as false. You must find that he represented the quantity different from what he knew or believed to be true, with the fraudulent intent. Also, that the plaintiff was thus induced to make the purchase. That is, that the plaintiff would not have made the purchase if the defendant had not represented it to be one hundred and thirty acres. Inquire as to these several points. Fraud is not presumed, but must be proved.
The jury returned a verdict for the defendant. The plaintiff excepted to the charge in the respects in which it failed to comply with, or was against said requests. In other respects the charge was satisfactory.
The declaration counted both upon a false warranty of the defendant in regard to the number of acres contained in the farm, and a warranty in regard to said quantity.
The opinion of the Court was delivered by
STEELE, J. 1. The plaintiff cannot recover upon the ground of a parol warranty of the quantity of the land. If the quantity was warranted it should be provable by the deed. It is true that a deed of conveyance need not contain all the stipulations of the parties. For example, the agreements as to consideration and mode of payment need not be embraced in the deed, for the instrument purports to be the deed of but one of the parties. But it does purport to contain the convenants of the grantor with respect to the property conveyed. To add a new covenant by parol proof would be a palpable violation of the familiar rule that written contracts are not to be varied by oral testimony. Such a parol stipulation, it has been held, could not be proved in respect to an ordinary bill of sale of personal property.
Nor is the plaintiff entitled to recover in this action upon the ground of mistake. A mutual and material mistake, by which the purchaser was misled as to the quantity of land, would be a more appropriate ground for relief in a court of chancery than in a court of law. If, then, the plaintiff was entitled to recover at all in this case, it was by reason of some fraud on the part of the defendant by which the bargain was induced.
2. The plaintiff complains of the ruling of the County Court upon the subject of fraud. It is conceded that the quantity of land was represented incorrectly. The Court properly told the jury that this, in itself, would not amount to fraud. To entitle the plaintiff to a recovery upon that ground, the defendant must have made some representation upon the subject that he did not believe to be true. The plaintiff claims, and his evidence tended to prove, that the defendant did make such a representation by stating the quantity of land as a matter within his own knowledge, when, in fact, as the defendant concedes, it was a matter upon which he had only a belief. We think it very clear that a party may be guilty of fraud by stating his belief as knowledge. Upon a statement of the defendant’s mere belief, judgment, or information, the plaintiff might have regarded it prudent to procure a measurement of the land before completing his purchase. A statement, as of knowledge, if believed, would make a survey or measurement seem unnecessary. A representation of a fact, as of the party’s own knowledge, if it prove false, is, unless explained, inferred to be wilfully false and made with an intent to deceive, at least in respect to the knowledge which is professed. A sufficient explanation however sometimes arises from the nature of the subject itself, or from the situation of the parties being such that the statement of knowledge could only be understood as an expression of strong belief or opinion. But the quantity of land in a farm is a matter upon which accurate or approximately accurate knowledge is not at all impossible or unusual. If the defendant had only a belief or opinion as to the quantity of land, it was an imposition upon the plaintiff to pass off such belief as knowledge. So, too, if he made an absolute representation as to the quantity, which was understood and intended to be understood as a statement upon knowledge, it is precisely the same as if he had distinctly and in terms professed to have knowledge as to the fact. It is often said that a representation is not fraudulent if the party who makes it believes it to be true. But a party who is aware that he has only an opinion how a fact is, and represents that opinion as knowledge, does not believe his representation to be true. As is well said in a note to the report of the case of Taylor _v._ Ashton, 11 Mees. & Wels. 418 (Phila. Ed.), the belief of a party to be an excuse for a false representation must be “a belief in the representation as made. The _scienter_ will therefore be sufficiently established by showing that the assertion was made as of the defendant’s own knowledge, and not as mere matter of opinion, with regard to facts of which he was aware that he had no such knowledge.” The same principle of law has been repeatedly recognized. Hammatt _v._ Emerson, 27 Maine, 308, 326; Bennett _v._ Judson, 21 N. Y. 238; Stone _v._ Denny, 4 Met. 151; Hazard _v._ Irwin, 18 Pick. 95.
In the case before us the plaintiff, under the charge of the Court, was denied the benefit of this rule of law, although there was evidence tending to show every necessary element of a fraud of the nature we have been considering. The plaintiff’s request was refused, and the jury were instructed that the plaintiff could only recover in case they found “that the defendant represented the quantity of land different from what he knew or believed to be true.” Under these instructions it would be immaterial whether he made the representation as a matter of knowledge or as a matter of opinion so long as he kept within his belief as to the quantity of land. In this we think there was error. The Court properly instructed the jury that the representation, to warrant a recovery, must have been relied on and have been an inducement to the purchase. The subsequent remark that the jury, to hold the defendant, must find that the plaintiff would not have made the purchase but for the representation, we regard as probably inadvertent.
What the plaintiff would have done but for the false representation is often a mere speculative inquiry, and is not the test of the plaintiff’s right. If the false representations were material and relied upon, and were intended to operate and did operate as one of the inducements to the trade, it is not necessary to inquire whether the plaintiff would or would not have made the purchase without this inducement.
The judgment of the County Court is reversed and the cause is remanded.[344]
FOSTER _v._ CHARLES IN THE COMMON PLEAS, NOVEMBER 10, 1830. _Reported in 7 Bingham, 105._
Case for deceit; the declaration alleging that certain false representations were made by the defendant to the plaintiffs, merchants in London, in order to induce them to engage one Jacque as their agent at Manchester.[345]
Plea, the general issue.
At the trial before Tindal, C. J., London sittings after Michaelmas term, it appeared that in November or December, 1824, the defendant, a soap manufacturer, called on the plaintiffs, wholesale tea dealers, with whom he was on terms of intimacy, and after asking them if they did business at Manchester, said “he had a young friend for whom he was anxious to procure a commission in the tea trade at Manchester; a nice young man, who had an excellent connection there, and would be a great acquisition to any person who wanted to do business there; the defendant being on such terms with the plaintiffs, he had offered it to them before he proposed it to Smith and Co.,—a respectable house in the same line of business; that Smith and Co. would jump at the offer; that his friend was so excellent a young man, that he would rather trust him without security than most men with; that this young man had been doing business at Manchester for a London tea house, who could no longer execute his extensive orders; that he had an uncle at Manchester, a clergyman of the Scotch Church, who would afford him great facilities in the way of business, and knew all the Scotch travellers in the trade; that defendant would like him to sell soap for defendant and his partner, but feared his other connections would not allow him time.”
The plaintiffs said they had an objection to giving commissions; but the very strong recommendation defendant had given of his friend would induce them to think of it.
Accordingly, in the beginning of 1825, the plaintiffs employed James Jacque, the defendant’s young friend, to do business for them on commission at Manchester. But by the middle of 1827, after repeatedly sending incorrect statements of the amount of his receipts on their behalf, he contrived to be a defaulter to them to the extent of £900 and upwards, and to involve them in bad debts to a much greater amount.
He then took the benefit of the insolvent debtors’ act.
Instead of having been employed in the Manchester commission tea trade in the year 1824, as the defendant had stated to the plaintiffs, it appeared that he had, at the recommendation of the defendant, been taken into partnership without any capital by Mr. R. C. Stewart, a warehouseman in London, in July, 1823; but great losses having been incurred in that concern, aggravated by a robbery to some amount, Mr. Stewart closed the concern and dissolved the partnership in October, 1824.
Jacque was then indebted to Stewart in the sum of £800, which he undertook by deed, dated November 13, 1824, to pay by instalments, in two, three, and four years; but nothing was ever paid.
All this was known to the defendant, who had acted throughout for Jacque, and had negotiated the terms of the dissolution of partnership.
Letters were also put in, written by the defendant to Jacque, after the exposure of the Manchester transactions, in which the defendant exhorted Jacque to write various falsehoods to the plaintiffs with a view to the exculpation of the defendant, and to conceal from the plaintiffs his knowledge of some of the transactions at Manchester.
When the defendant was first applied to on the subject by the plaintiffs, he expressed his regret that his house should have been the means of introducing an unworthy agent to the plaintiffs; but that as they had been instrumental in bringing the loss on the plaintiffs, he would see his partner on the subject, and see what could be done towards relieving them from it. No step of that kind having been taken, the present action was commenced.
Tindal, C. J., told the jury to consider whether the representation complained of by the plaintiffs had ever been made, and if made, whether it was false within the knowledge of the defendant; for unless it were false within his knowledge, the action did not lie.
The jury returned a verdict for the defendant, which was set aside by the Court. [6 Bingham, 396.]
Upon a new trial, Tindal, C. J., told the jury that if the defendant made representations concerning Jacque, the tendency of which was to occasion loss to the plaintiff, knowing such representations to be false, and intending thereby to benefit himself, he was guilty of fraud in the common acceptation of the term; if he made such representations, knowing them to be false, without proposing thereby any advantage to himself, but proposing, perhaps, to benefit a third person, he was guilty of fraud in the legal acceptation of the term, and responsible to the plaintiff for any injury resulting from such representations.
The jury thereupon found for the plaintiff, damages £800; but added: “We consider there was no actual fraud on the part of the defendant, and that he had no fraudulent intention, although what he has done constituted a fraud in the legal acceptation of the term.”
_Jones_, Serjt., now contended that this amounted to a verdict for the defendant; and therefore moved that the verdict might be entered for him, instead of the plaintiff.
He urged, at some length, nearly the same arguments as he had advanced on a former occasion, and adverted to the same authorities (see 6 Bing. 402); contending that this action was substituted for the ancient writ of deceit; that the gist of the action was a fraudulent intent on the part of the defendant to injure the plaintiff by deceiving him; that a defendant was not responsible for the consequences of a statement, merely because he knew it to be false; he was not responsible for the consequences of a bare lie; in order to render him responsible, it ought to be shown that he intended to defraud the plaintiff of something by the deceit he had practised. That if a party were responsible for the consequences of a lie told without any intention to defraud the hearer of something, no line could be drawn, and parties might be called on to answer for those excusable untruths, which were sometimes told for the purpose of avoiding a greater mischief.
TINDAL, C. J. No sufficient ground has been laid to induce us to disturb the verdict which has been found for the plaintiff. The application arises on a misconception of what the jury have found. They first deliver a verdict for the plaintiff, with damages, and then add, that in point of fact they consider the defendant had no fraudulent intention, although he had been guilty of fraud in the legal acceptation of the term.
Their attention had been drawn by me to two classes of motives possible on the part of the defendant; first, a desire to benefit himself by making a statement which he knew to be false; secondly, a desire to benefit some third person; and I stated that, although there might be no intention on his part to obtain an advantage for himself, it would still be a fraud, for which he was responsible in law, if he made representations productive of loss to another, knowing such representations to be false.
The jury in finding that he had no intention to defraud mean only that he was not actuated by the baser motive of obtaining an advantage for himself, but that he was guilty of fraud in law by stating that which he knew to be false, and which was the cause of loss to the plaintiff.
The question, therefore, is, whether, if a party makes representations which he knows to be false, and occasions injury thereby, he is not liable for the consequences of his falsehood.
It would be most dangerous to hold that he is not.
The confusion seems to have arisen from not distinguishing between what is fraud in law and the motives for actual fraud. It is fraud in law if a party makes representations which he knows to be false, and injury ensues, although the motive from which the representations proceeded may not have been bad; the person who makes such representations is responsible for the consequences; and the verdict, therefore, in this case ought not to be disturbed.
PARK, J. I am of the same opinion. In what fell from this Court in the case of Tapp _v._ Lee, and upon the former decision of the present case, the doctrine has been laid down most accurately. It would be unfair to take the expressions of the jury, without connecting them with what the Chief Justice had just presented for their consideration. It is clear that the jury meant to draw the distinction between the sordid motive of personal advantage and the legal fraud which might be committed by a representation false within the knowledge of the speaker, although made without any view to his own advantage. For such a representation the defendant is responsible if mischief ensues, whatever may have been his motive; and as to its being necessary to prove the motive by which he was actuated: when the case was last before the Court, Tindal, C. J., said, “I am not aware of any authority for such a position, nor that it can be material what the motive was; the law will infer an improper motive, if what the defendant says is false within his own knowledge, and is the occasion of damage to the plaintiff.”
Here the defendant said “That his friend was so excellent a young man, that he would rather trust him without security than most men with;” when he knew the contrary to be the fact, he was guilty of a fraud in law in making such a representation; and fraud in law is sufficient to support this action.
GASELEE, J. When this verdict is taken in connection with the direction of the Chief Justice, there is an end to all doubt as to the meaning of the jury, and the finding is a perfect finding. What the jury meant by actual fraud was a sordid regard to self-interest; but the legal fraud, which is sufficient to sustain the action, was complete when the intention to mislead was followed by actual injury.
BOSANQUET, J. There seems to me to be no reason for disturbing this verdict. In the course of the trial, it is probable that improper motives had been ascribed to the defendant. The Chief Justice, therefore, stated to the jury, and stated correctly, that motives of that description in the defendant were not essential to the plaintiff’s
## action. If a person tells a falsehood, the natural and obvious
consequence of which, if acted on, is injury to another, that is fraud in law. Coupling that with what the Chief Justice addressed to the jury, their verdict only means that the defendant did not propose to benefit himself, perhaps intended to benefit another; but that what he said, intending to benefit another, was false within his own knowledge, injurious to the party who received the communication, and, consequently, a fraud in the legal acceptation of the term.
_Rule refused._[346]
POLHILL _v._ WALTER IN THE KING’S BENCH, JANUARY 20, 1832. _Reported in 3 Barnewall & Adolphus, 114._
LORD TENTERDEN, C. J.[347] In this case, in which the defendant obtained a verdict on the trial before me at the sittings after Hilary Term, a rule _nisi_ was obtained to enter a verdict for the plaintiff, and cause was shown during the last term. The declaration contained two counts: the first stated, that a foreign bill of exchange was drawn on a person of the name of Hancorne, and that the defendant falsely, fraudulently, and deceitfully did represent and pretend that he was duly authorized to accept the bill by the procuration, and on behalf of Hancorne, and did falsely and fraudulently pretend to accept the same by the procuration of Hancorne. It then proceeded to allege several indorsements of the bill, and that the plaintiff, relying on the pretended acceptance, and believing that the defendant had authority from Hancorne to accept, received the bill from the last indorsee in discharge of a debt; that the bill was dishonored, and that the plaintiff brought an unsuccessful
## action against Hancorne. The second count contained a similar statement
of the false representation by the defendant, and that he accepted the bill in writing under pretence of the procuration from Hancorne; and then proceeded to describe the indorsements to the plaintiff, and the dishonor of the bill, and alleged, that thereupon it became and was the duty of the defendant to pay the bill as the acceptor thereof, but that he had not done so.
On the trial it appeared, that when the bill was presented for acceptance by a person named Armfield, who was one of the payees of the bill, Hancorne was absent; and that the defendant, who lived in the same house with him, was induced to write on the bill an acceptance as by the procuration of Hancorne, Armfield assuring him that the bill was perfectly regular, and the defendant fully believing that the acceptance would be sanctioned, and the bill paid at maturity, by the drawee. It was afterwards passed into the plaintiff’s hands, and being dishonored when due an action was brought against Hancorne; the defendant was called as a witness on the trial of that action, and he negativing any authority from Hancorne, the plaintiff was nonsuited. I left to the jury the question of deceit and fraud in the defendant, as a question of fact on the evidence, and the jury having negatived all fraud, the defendant had a verdict, liberty being reserved to the plaintiff to move to enter a verdict, if the Court should think the action maintainable notwithstanding that finding.
On the argument, two points were made by the plaintiff’s counsel. It was contended, in the first place, that although the defendant was not guilty of any fraud or deceit, he might be made liable as acceptor of the bill; that the second count was applicable to that view of the case; and that, after rejecting the allegations of fraud and falsehood in that count, it contained a sufficient statement of a cause of action against him, as acceptor. But we are clearly of opinion that the defendant cannot be made responsible in that character. It is enough to say that no one can be liable as acceptor but the person to whom the bill is addressed, unless he be an acceptor for honor, which the defendant certainly was not.
This distinguishes the present case from that of a pretended agent making a promissory note (referred to in Mr. Roscoe’s Digest of the Law of Bills of Exchange, note 9, p. 47), or purchasing goods in the name of a supposed principal. And, indeed, it may well be doubted if the defendant, by writing this acceptance, entered into any contract or warranty at all, that he had authority to do so; and if he did, it would be an insuperable objection to an action as on a contract by this plaintiff, that at all events there was no contract with, or warranty to him.
It was in the next place contended that the allegation of falsehood and fraud in the first count was supported by the evidence; and that, in order to maintain this species of action, it is not necessary to prove that the false representation was made from a corrupt motive of gain to the defendant, or a wicked motive of injury to the plaintiff; it was said to be enough if a representation is made which the party making it knows to be untrue, and which is intended by him, or which, from the mode in which it is made, is calculated to induce another to act on the faith of it, in such a way as that he may incur damage, and that damage is actually incurred. A wilful falsehood of such a nature was contended to be, in the legal sense of the word, a fraud; and for this position was cited the case of Foster _v._ Charles, 6 Bing. 396; 7 Bing. 105, which was twice under the consideration of the Court of Common Pleas, and to which may be added the recent case of Corbet _v._ Brown, 8 Bing. 33. The principle of these cases appears to us to be well founded, and to apply to the present.
It is true that there the representation was made immediately to the plaintiff, and was intended by the defendant to induce the plaintiff to do the act which caused him damage. Here, the representation is made to all to whom the bill may be offered in the course of circulation, and is, in fact, intended to be made to all, and the plaintiff is one of those; and the defendant must be taken to have intended, that all such persons should give credit to the acceptance, and thereby act upon the faith of that representation, because that, in the ordinary course of business, is its natural and necessary result.
If, then, the defendant, when he wrote the acceptance, and thereby, in substance, represented that he had authority from the drawee to make it, knew that he had no such authority (and upon the evidence there can be no doubt that he did), the representation was untrue to his knowledge, and we think that an action will lie against him by the plaintiff for the damage sustained in consequence.
If the defendant had had good reason to believe his representation to be true, as, for instance, if he had acted upon a power of attorney which he supposed to be genuine, but which was, in fact, a forgery, he would have incurred no liability, for he would have made no statement which he knew to be false: a case very different from the present, in which it is clear that he stated what he knew to be untrue, though with no corrupt motive.
It is of the greatest importance in all transactions that the truth should be strictly adhered to. In the present case, the defendant no doubt believed that the acceptance would be ratified, and the bill paid when due, and if he had done no more than to make a statement of that belief, according to the strict truth, by a memorandum appended to the bill, he would have been blameless. But then the bill would never have circulated as an accepted bill, and it was only in consequence of the false statement of the defendant that he actually had authority to accept, that the bill gained its credit, and the plaintiff sustained a loss. For these reasons we are of opinion that the rule should be made absolute to enter a verdict for the plaintiff.
_Rule absolute._[348]
BUTTERFIELD _v._ BARBER SUPREME COURT, RHODE ISLAND, MAY 15, 1897. _Reported in 20 Rhode Island Reports, 99._
Case for deceitful representations by a debtor to his creditor, the plaintiff having subsequently purchased the claim from the latter in the form of a promissory note. Heard on defendant’s petition for new trial.
PER CURIAM. Assuming that the representations testified to by the plaintiff were made by the defendant, the testimony shows that they were made for the purpose of being communicated to Murphy, to procure an extension of time for the payment of his claim against the defendant. At the time they were made the defendant had no expectation that the note, which was subsequently made, was to be taken by the plaintiff, who, in the meantime, had purchased the claim from Murphy. We do not think that in these circumstances the plaintiff had the right to rely on the representations, if they were made, because they were not made with the intention of inducing his action, and consequently that he has no ground to maintain an action for deceit.
Case remitted to the Common Pleas Division, with direction to enter judgment for the defendant for costs.[349]
ALDEN _v._ WRIGHT SUPREME COURT, MINNESOTA, SEPTEMBER 30, 1891. _Reported in 47 Minnesota Reports, 225._
## Action for deceit in the exchange of real property for shares of
corporate stock. Plaintiff alleged fraudulent representations on the part of defendants as to the value of the shares, whereby he was induced to make the exchange. Trial. Verdict for defendants. Plaintiff appealed from an order denying a new trial.[350]
COLLINS, J....
2. At defendants’ request the court charged the jury, in substance, that they must find for defendants, unless it appeared by a preponderance of testimony that the property conveyed by plaintiff in exchange for the shares of stock was worth more than the latter; and to this plaintiff excepted, on the ground that it prevented the jury from returning a verdict in his favor for nominal damages; that, even if the jury should fail to find that the property conveyed by plaintiff was of greater value than the shares of stock transferred to him,—passing on all other questions in his favor,—they might award him nominal damages at least; and that the possibility of such an award was excluded by the charge. But, at plaintiff’s request, the jury was instructed that, if they found for him, the amount he would be entitled to recover would be the amount of the difference between the actual value of the property which he conveyed and the actual value of the stock received by him. The rule as to the measure of damages in the case was stated in better form in plaintiff’s than in defendants’ request, but one was, in effect, a repetition of the other. The rule was correctly stated in each, and the same proposition of law was elsewhere in the charge laid down by the court in very concise and proper, but different, language. The essential elements which constitute a cause of action for deceit are well stated in Busterud _v._ Farrington, 36 Minn. 320 (31 N. W. Rep. 360), and one is that the party induced to act has been damaged. He must have acted on the faith of the false representations _to his damage_. A party cannot sustain an action of this character where no harm has come to him. Deceit and injury must concur,—Doran _v._ Eaton, 40 Minn. 35 (41 N. W. Rep. 244);—or, as it has frequently been put by the courts, fraud without damage or damage without fraud will not sustain the action for deceit. Taylor _v._ Guest, 58 N. Y. 262; Nye _v._ Merriam, 35 Vt. 438; Freeman _v._ McDaniel, 23 Ga. 354; Byard _v._ Holmes, 34 N. J. Law, 296; 3 Suth. Dam. 594; Cooley, Torts, 474; Bailey, Onus Probandi, 770. If, therefore, the shares of stock were worth what plaintiff gave for them, were of equal value with the property exchanged, the plaintiff was not damaged, and was not entitled to recover; for the proper measure of damages was the difference in value between the shares of stock and the property conveyed by plaintiff for them. Redding _v._ Godwin, 44 Minn. 355 (46 N. W. Rep. 563), and cases cited. The plaintiff, under such a rule, would not be permitted to recover nominal damages even without proof of loss or injury, and there is nothing said in Potter _v._ Mellen, 36 Minn. 122 (30 N. W. Rep. 438), as counsel has contended, indicating a contrary view. Damage is of the essence of the action of deceit; an essential element to the right of action, and not merely a consequence flowing from it.
_Order affirmed._[351]
FREEMAN _v._ VENNER SUPREME JUDICIAL COURT, MASSACHUSETTS, JUNE 23, 1876. _Reported in 120 Massachusetts Reports, 424._
## Action of tort. Writ dated Dec. 22, 1873. Plaintiff held the
negotiable promissory note of J. W. and J. H. Cox, dated July 16, 1873, payable to plaintiff or order in two years from date; and he also held a mortgage conditioned to secure the note. In consideration of land to be conveyed to him by the defendant, plaintiff agreed to assign to defendant the mortgage and note; but he did not agree to make an unrestricted indorsement of the note, and the defendant was not entitled to have the personal liability of the plaintiff as indorser of the note. Plaintiff, through ignorance of the law, and by reason of the false and fraudulent representations of defendant, on Dec. 1, 1873, indorsed the note in blank without any qualification. As soon as the plaintiff became aware of the obligation he had thus assumed, and before defendant had negotiated the note or altered his position in any way, plaintiff demanded to be allowed to qualify his indorsement so that it should merely transfer the title according to the agreement. Defendant refused to allow this. Thereupon plaintiff forbade defendant to negotiate the note; but defendant, notwithstanding, negotiated the note before maturity to one Tenney, a _bona fide_ holder for value.
Upon a trial by a judge, without a jury, the foregoing facts were found, substantially as alleged in the declaration.
It also appeared, that, before commencing his action, or at any time before said trial, the plaintiff had made no payment on account or by reason of the indorsement; that, before the commencement of this
## action and before the maturity of the note, the makers thereof had
become bankrupts; that since the commencement a semi-annual instalment of interest had become due; that Tenney had caused the real estate to be sold by virtue of the power contained in the mortgage, had applied a part of the proceeds of the sale in liquidation of that interest, and, since the maturity of the note, had applied the balance of the proceeds in part payment of the note, and had commenced an action against the plaintiff to recover the balance of said note (due demand having been made and notice given), which action is now pending.
Defendant requested the judge to rule that, upon the foregoing facts the plaintiff could not maintain his action, but, if he could, that he was entitled to recover only nominal damages. The judge declined so to rule, and held that defendant was liable for the conversion of the note, and that the measure of the plaintiff’s damages was the amount which the plaintiff was legally compellable to pay to the holder of the note, namely, the face of the note and interest, less the amount realized from the sale under the mortgage, treating the same as a
## partial payment. Defendant excepted.[352]
COLT, J. [After deciding that there was no conversion of the note.] The further objection is, that treating this as an action to recover damages for an alleged fraud, the plaintiff shows no damages sustained at the time his action was commenced. It was then uncertain and contingent whether he would ever be called on to pay the note. It was payable to the plaintiff or order in two years, and was dated in July, 1873, shortly before its transfer by his indorsement to the defendant. The liability of the plaintiff depended on the failure of the makers to pay and the giving of due notice to him as indorser. No payment has in fact ever been made by him. If the holder receives his pay from the makers through the mortgage security or otherwise, the plaintiff will have suffered no actionable wrong. There will have been no concurrence of damage with fraud, within the rule on which such actions are founded. And as there has been no invasion of the plaintiff’s rights, no breach of promise, and no interference with his property, there can be no recovery of even nominal damages in this action. Pasley _v._ Freeman, 3 T. R. 51; 2 Smith Lead. Cas. (6th Am. ed.) 157, and notes.
_Exceptions sustained._[353]
LUETZKE _v._ ROBERTS SUPREME COURT, WISCONSIN, DECEMBER 4, 1906. _Reported in 130 Wisconsin Reports, 97, 106._
[Plaintiffs, by fraudulent representations of defendants, were induced to execute promissory notes to defendants. Upon a proceeding to cancel and annul the notes, it appeared that the notes had been transferred to, and were then held by, _bona fide_ purchasers for value; and hence could not be decreed to be cancelled. It was _held_, that the court having jurisdiction of the defendants personally, had power to render judgment for damages. The opinion then proceeds as follows:—][354]
SIEBECKER, J. It is urged that compensatory damages cannot be awarded because they are not ascertainable under the facts found, and that plaintiffs must wait until they have made actual payment of the notes. This contention cannot be sustained. The court properly held that these notes in the hands of _bona fide_ purchasers for value established a liability according to their terms against these plaintiffs, and that such liability was measured by the amount they call for on their face with interest. We deem this the correct measure of damages in the case, and within the principle of the case of Lyle _v._ McCormick H. M. Co., 108 Wisc. 81, 84 N. W. 18.[355]
FOTTLER _v._ MOSELEY SUPREME JUDICIAL COURT, MASSACHUSETTS, JUNE 18, 1901. _Reported in 179 Massachusetts Reports, 295._
Tort for deceit, alleging that, relying upon the false and fraudulent representations of the defendant, a broker, that certain sales of the stock of the Franklin Park Land Improvement Company in the Boston Stock Exchange from January 1, to March 27, 1893, were genuine transactions, the plaintiff revoked an order for the sale of certain shares of that stock held for him by the defendant, whereby the plaintiff suffered loss. Writ dated February 17, 1896.[356]
At the trial in the Superior Court, Hopkins, J., at the close of the evidence, directed the jury to return a verdict for the defendant. The verdict was returned as directed; and the plaintiff alleged exceptions. The findings warranted by the evidence are stated in the opinion of the court.
* * * * *
HAMMOND, J. The parties to this action testified in flat contradiction of each other on many of the material issues, but the evidence in behalf of the plaintiff would warrant a finding by the jury, that on March 25, 1893, the plaintiff, being then the owner of certain shares of stock in the Franklin Park Land and Improvement Company, gave an order to the defendant, a broker who was carrying the stock for him on a margin, to sell it at a price not less than $28.50 per share; that on March 27 the defendant, for the purpose of inducing the plaintiff to withdraw the order and refrain from selling, represented to the plaintiff that the sales which had been made of said stock in the market had all been made in good faith and had been “actual true sales throughout”; that these statements were made as of the personal knowledge of the defendant, and that the plaintiff, believing them to be true and relying upon them, was thereby induced to and did cancel his oral order to the defendant to sell, and did refrain from selling; and that the statements were not true, as to some of the sales in the open market, of which the last was in December, 1892, and that the defendant knew it at the time he made the representations. The evidence would warrant a further finding that in continuous reliance upon such representations the plaintiff kept his stock, when he otherwise would have sold it, until the following July, when its market value depreciated, and he thereby suffered loss. The defendant, protesting that he made no such representation and that the jury would not be justified in finding that he had, says that even upon such a finding the plaintiff would have no case. He contends that the representation was not material, that a false representation to be material must not only induce action but must be adequate to induce it by offering a motive sufficient to influence the conduct of a man of average intelligence and prudence, and that in this case the representation complained of, so far as it was false, was not adequate to induce action because the fictitious sales were so few and distant in time, and that therefore it was not material.
It may be assumed that the plaintiff desired to handle his stock in the manner most advantageous to himself, and that the question whether he would withdraw his order to sell was dependent, somewhat, at least, upon his view of the present or future market value of the stock; and upon that question a man of ordinary intelligence and prudence would consider whether the reported sales in the market were “true sales throughout” or were fictitious, and what was the extent of each. It is true that a corporation may be of so long standing and of such a nature, and the number of the shares so great and the daily sales of the stock in the open market so many and heavy, that the knowledge that a certain percentage of the sales reported are not actual business transactions would have no effect upon the conduct of an ordinary man. On the other hand a corporation may be so small and of such a nature and have so slight a hold upon the public, and the number of its shares may be so small and the buyers so few, that the question whether certain reported sales are fictitious may have a very important bearing upon the action of such a man. Upon the evidence in this case, we cannot say, as matter of law, that the representation so far as false was not material. This question is for the jury, who are to consider it in the light of the nature of the corporation and its standing in the market, and of other matters, including such as those of which we have spoken.
It is further urged by the defendant that one of the fundamental principles in a suit like this is that the representation should have been acted upon by the complaining party and to his injury; that at most the plaintiff simply refrained from action, and that “refraining from action is not acting upon representation” within the meaning of the rule; and further that it is not shown that the damages, if any, suffered by the plaintiff are the direct result of the deceit.
Fraud is sometimes defined as the “deception practised in order to induce another to part with property or to surrender some legal right,” Cooley, Torts (2d ed.), 555, and sometimes as the deception which leads “a man into damage by wilfully or recklessly causing him to believe and act on a falsehood.” Pollock, Torts (Webb’s ed.), 348, 349. The second definition seems to be more comprehensive than the first (see for instance Barley _v._ Walford, 9 Q. B. 197, and Butler _v._ Watkins, 13 Wall. 456), and while the authorities establishing what is a cause of action for deceit are to a large extent convertible with those which define the right to rescind a contract for fraud or misrepresentation and the two classes of cases are generally cited without any express discrimination, still discrimination is sometimes needful in the comparison of the two classes of cases. Pollock, Torts (Webb’s ed.), 352.
It is true that it must appear that the fraud should have been acted upon. It is a little difficult to see precisely what is meant by the contention that “refraining from action is not acting upon representation.” If by refraining from action it is meant simply that the person defrauded makes no change but goes on as he has been going and would go whether the fraud had been committed or not, then the proposition is doubtless true. Such a person has been in no way influenced, nor has his conduct been in any way changed by the fraud. He has not acted in reliance upon it. If, however, it is meant to include the case where the person defrauded does not do what he had intended and started to do and would have done save for the fraud practised upon him, the proposition cannot be true. So far as respects the owner of property, his change of conduct between keeping the property on the one hand and selling it on the other, is equally great, whether the first intended action be to keep or to sell; and if by reason of fraud practised upon him the plaintiff was induced to recall his order to sell, and, being continuously under the influence of this fraud, kept his stock when, save for such fraud, he would have sold it, then with reference to this property he acted upon the representation within the meaning of the rule as applicable to cases like this. Barley _v._ Walford, 9 Q. B. 197; Butler _v._ Watkins, 13 Wall. 456.
The cases of Lamb _v._ Stone, 11 Pick. 527; Wellington _v._ Small, 3 Cush. 145; and Bradley _v._ Fuller, 118 Mass. 239, upon which the defendant relies, are not authorities for the proposition that “refraining from action is not acting upon representation.”
As to whether the loss suffered by the plaintiff is legally attributable to the fraud, much can be said in favor of the defendant, and a verdict in his favor on this as well as on other material points might be the one most reasonably to be expected upon the evidence, especially when it is considered that during the years 1892 and 1893 the plaintiff was a director in the company; but we cannot decide the question as a matter of law. If the fraud operated on the plaintiff’s mind continuously, up to the time of the depreciation of the stock in June, 1893, so that he kept his stock when otherwise he would have sold it, and such was the direct, natural and intended result, then we think the causal relation between the fraud and the loss is sufficiently made out. See Reeve _v._ Dennett, 145 Mass. 23, 29.
_Exceptions sustained._[357]
FOTTLER _v._ MOSELEY SUPREME JUDICIAL COURT, MASSACHUSETTS, MAY 19, 1904. _Reported in 185 Massachusetts Reports, 563._
Tort for deceit, alleging, that, relying upon the false and fraudulent representations of the defendant, a broker, that certain sales of the stock of the Franklin Park Land Improvement Company in the Boston Stock Exchange from January 1 to March 27, 1893, were genuine transactions, the plaintiff revoked an order for the sale of certain shares of that stock held for him by the defendant, whereby the plaintiff suffered loss. Writ dated February 17, 1896.
At the first trial of the case in the Superior Court a verdict was ordered for the defendant, and the exceptions of the plaintiff were sustained by this court in a decision reported in 179 Mass. 295. At the new trial in the Superior Court before Sherman, J., it appeared that one Moody Merrill, a director and officer of the Franklin Park Land Improvement Company, absconded late in May or early in June of 1893, and that immediately upon his departure it was discovered that he had embezzled nearly $100,000 of the funds of that company, the result of which was that the market price of the stock immediately fell and the stock could not be sold; that the plaintiff from the time of the discovery of the defendant’s alleged fraud did his best to sell his stock, but was unable to do so at more than $3 a share, at which price he sold it after bringing this action.
The plaintiff among other requests asked the judge to rule, “That it is of no consequence so far as the defendant’s liability is concerned that an outside intervening cause has been the sole or contributing cause of the decline in price to which the plaintiff’s loss is due.”
The judge refused this and other rulings requested by the plaintiff, and instructed the jury, among other things, as follows:—
“If you find the fair market value of that stock was always above what it was fictitiously quoted, or equal to it, and that it was so on the 25th of March, 1893, and remained so and would have remained so, except for the embezzlement and absconding of Moody Merrill, then the plaintiff is not entitled to recover.
“If you find that Moody Merrill’s going away did destroy the value of the stock, practically destroy its value, then the plaintiff is not entitled to recover anything.
“You may take all the evidence on this subject, the fact of what Moody Merrill did, and what effect it had upon the market value of this stock, and if that destroyed the market value, then, as I have told you, the plaintiff is not entitled to recover anything. If his going away and embezzlement did not affect the market value of this stock, then the plaintiff may recover the full value of it.”
The judge submitted to the jury the following questions, which the jury answered as stated below:—
“1. Did the defendant make a representation to the plaintiff on or about March 25, 1893, that the quotations in the Boston Stock Exchange of Franklin Park Land and Improvement Company stock were quotations of actual and true sales?” The jury answered “Yes.”
“2. Were such quotations at or about the same sum as the quotations of actual sales and the sales at public auction?” The jury answered “Yes.”
“3. What was the fair market value of said stock on or about March 25, 1893?” The jury answered “$28.50 per share.”
“4. What was the fair market value of said stock on the last day of May, or immediately prior to June, 1893, the day before Moody Merrill’s absconding?” The jury answered “$27.75 per share.”
The jury returned a verdict for the defendant; and the plaintiff alleged exceptions.
KNOWLTON, C. J. The parties and the court seem to have assumed that the evidence was such as to warrant a verdict for the plaintiff under the law stated at the previous decision in this case, reported in 179 Mass. 295, if the diminution in the selling price of the stock came from common causes. The defendant’s contention is that the embezzlement of an officer of a corporation, being an unlawful act of a third person, should be treated as a new and independent cause of the loss, not contemplated by the defendant, for which he is not liable.
To create a liability, it never is necessary that a wrong-doer should contemplate the particulars of the injury from his wrongful act, nor the precise way in which the damages will be inflicted. He need not even expect that damage will result at all, if he does that which is unlawful and which involves a risk of injury. An embezzler is criminally liable, notwithstanding that he expects to return the money appropriated after having used it. If the defendant fraudulently induced the plaintiff to refrain from selling his stock when he was about to sell it, he did him a wrong, and a natural consequence of the wrong for which he was liable was the possibility of loss from diminution in the value of the stock, from any one of numerous causes. Most, if not all, of the causes which would be likely to affect the value of the stock, would be acts of third persons, or at least conditions for which neither the plaintiff nor the defendant would be primarily responsible. Acts of the officers, honest or dishonest, in the management of the corporation, would be among the most common causes of a change in value. The defendant, if he fraudulently induced the plaintiff to keep his stock, took the risk of all such changes. The loss to the plaintiff from the fraud is as direct and proximate, if he was induced to hold his stock until an embezzlement was discovered, as if the value had been diminished by a fire which destroyed a large part of the property of the corporation, or by the unexpected bankruptcy of a debtor who owed the corporation a large sum. Neither the plaintiff nor the defendant would be presumed to have contemplated all the particulars of the risk of diminution in value for which the defendant made himself liable by his fraudulent representations. It would be unjust to the plaintiff in such a case, and impracticable, to enter upon an inquiry as to the cause of the fall in value, if the plaintiff suffered from the fall wholly by reason of the defendant’s fraud. The risk of a fall, from whatever cause, is presumed to have been contemplated by the defendant when he falsely and fraudulently induced the plaintiff to retain his stock.
We do not intimate that these circumstances, as well as others, may not properly be considered in determining whether the plaintiff was
## acting under the inducement of the fraudulent representations in
continuing to hold the stock up to the time of the discovery of the embezzlement. The false representations may or may not have ceased to operate as an inducement as to the disposition of his stock before that time. Of course there can be no recovery, except for the direct results of the fraud. But if the case is so far established that the plaintiff, immediately upon the discovery of the embezzlement, was entitled to recover on the ground that he was then holding the stock in reliance upon the fraudulent statements, and if the great diminution in value came while he was holding it, the fact that this diminution was brought about by the embezzlement of an officer leaves the plaintiff’s right no less than if it had come from an ordinary loss.
_Exceptions sustained._[358]
MORSE _v._ HUTCHINS SUPREME JUDICIAL COURT, MASSACHUSETTS, OCTOBER TERM, 1869. _Reported in 102 Massachusetts Reports, 439._
Tort for deceit in making false and fraudulent representations to the plaintiff touching the business and profits of a firm of which the defendant was a member, and thereby inducing the plaintiff to buy the interest of the defendant in the stock and good will of the firm. A count in contract for the same cause of action was joined. Answer, a general denial and a plea of a discharge in bankruptcy.
At the trial in the Superior Court, Brigham, C. J., ruled that the discharge in bankruptcy was a defence to the second count, but not to the first count; and the plaintiff relied on the first count only.
The judge instructed the jury that “the measure of damages would be the difference between the actual value of the stock and good will purchased at the time of the purchase and the value of the same had the representation been true.”
The jury returned a verdict for the plaintiff, and the defendant alleged exceptions.
GRAY, J. The objections that either the joinder of a count in contract with the count in tort, or the certificate of discharge in bankruptcy, would defeat the plaintiff’s right of action in tort for the defendant’s false and fraudulent representations, were hardly relied on at the argument, and are groundless. Gen. Sts. c. 129, § 2, cl. 5. Crafts _v._ Belden, 99 Mass. 535. U. S. St. 1867, c. 176, § 33.
The rule of damages was rightly stated to the jury. It is now well settled that, in actions for deceit or breach of warranty, the measure of damages is the difference between the actual value of the property at the time of the purchase and its value if the property had been what it was represented or warranted to be. Stiles _v._ White, 11 Met. 356; Tuttle _v._ Brown, 4 Gray, 457; Whitemore _v._ South Boston Iron Co., 2 Allen, 52; Fisk _v._ Hicks, 11 Foster, 535; Woodward _v._ Thacher, 21 Verm. 580; Muller _v._ Eno, 4 Kernan, 597; Sherwood _v._ Sutton, 5 Mason, 1; Loder _v._ Kekulé, 3 C. B. N. S. 128; Dingle _v._ Hare, 7 C. B. N. S. 145; Jones _v._ Just, Law Rep. 3 Q. B. 197. This is the only rule which will give the purchaser adequate damages for not having the thing which the defendant undertook to sell him. To allow to the plaintiff (as the learned counsel for the defendant argued in this case) only the difference between the real value of the property and the price which he was induced to pay for it would be to make any advantage lawfully secured to the innocent purchaser in the original bargain inure to the benefit of the wrong-doer; and, in proportion as the original price was low, would afford a protection to the party who had broken, at the expense of the party who was ready to abide by, the terms of the contract. The fact that the property sold was of such a character as to make it difficult to ascertain with exactness what its value would have been if it had conformed to the contract affords no reason for exempting the defendant from any part of the direct consequences of his fraud. And the value may be estimated as easily in this action as in an action against him for an entire refusal to perform his contract.
_Exceptions overruled._
SMITH _v._ BOLLES SUPREME COURT OF THE UNITED STATES, NOVEMBER 11, 1889. _Reported in 132 United States Reports, 125._
Error to the United States Circuit Court for the Northern District of Ohio.
## Action to recover damages for fraudulent representations in the sale
of shares of mining stock.
The amended petition alleged (_inter alia_) that plaintiff was induced by defendant’s fraudulent representations to buy of defendant four thousand shares of mining stock at $1.50 per share, amounting to $6000; that “said stock and mining property was then, and still is, wholly worthless; and that had the same been as represented by defendant it would have been worth at least ten dollars per share; and so plaintiff says that by reason of the premises he has sustained damages to the amount of forty thousand dollars.”
Answer, denying plaintiff’s material allegations. Trial by jury. The instructions given as to damages are stated in the opinion. Verdict for plaintiff. Motion for new trial overruled. Judgment for plaintiff. Defendant brought error.[359]
FULLER, C. J. The bill of exceptions states that the court charged the jury “as to the law by which the jury were to be governed in the assessment of damages under the issues made in the case,” that “the measure of recovery is generally the difference between the contract price and the reasonable market value, if the property had been as represented to be, or in case the property or stock is entirely worthless, then its value is what it would have been worth if it had been as represented by the defendant, and as may be shown in the evidence before you.”
In this there was error. The measure of damages was not the difference between the contract price and the reasonable market value if the property had been as represented to be, even if the stock had been worth the price paid for it; nor if the stock were worthless, could the plaintiff have recovered the value it would have had if the property had been equal to the representations. What the plaintiff might have gained is not the question, but what he had lost by being deceived into the purchase. The suit was not brought for breach of contract. The gist of the action was that the plaintiff was fraudulently induced by the defendant to purchase stock upon the faith of certain false and fraudulent representations, and so as to the other persons on whose claims the plaintiff sought to recover. If the jury believed from the evidence that the defendant was guilty of the fraudulent and false representations alleged, and that the purchase of stock had been made in reliance thereon, then the defendant was liable to respond in such damages as naturally and proximately resulted from the fraud. He was bound to make good the loss sustained, such as the moneys the plaintiff had paid out and interest, and any other outlay legitimately attributable to defendant’s fraudulent conduct; but this liability did not include the expected fruits of an unrealized speculation. The reasonable market value, if the property had been as represented, afforded, therefore, no proper element of recovery.
Nor had the contract price the bearing given to it by the court. What the plaintiff paid for the stock was properly put in evidence, not as the basis of the application of the rule in relation to the difference between the contract price and the market or actual value, but as establishing the loss he had sustained in that particular. If the stock had a value in fact, that would necessarily be applied in reduction of the damages. “The damage to be recovered must always be the _natural and proximate consequence_ of the act complained of,” says Mr. Greenleaf, vol. ii, § 256; and “the test is,” adds Chief Justice Beasley in Crater _v._ Binninger, 33 N. J. Law (4 Vroom), 513, 518, “that those results are proximate which the wrong-doer from his position must have contemplated as the probable consequence of his fraud or breach of contract.” In that case, the plaintiff had been induced by the deceit of the defendant to enter into an oil speculation, and the defendant was held responsible for the moneys put into the scheme by the plaintiff in the ordinary course of the business, which moneys were lost, less the value of the interest which the plaintiff retained in the property held by those associated in the speculation.
[Remainder of opinion omitted.]
_Judgment reversed. Cause remanded with a direction to grant a new trial._[360]
SCHWABACKER _v._ RIDDLE SUPREME COURT, ILLINOIS, JUNE 20, 1891. _Reported in 99 Illinois Reports, 343._
## Action for deceit, brought by Riddle against Schwabacker _et als._,
alleging that, in the purchase of property to be taken at the invoice price, Riddle was cheated out of the sum of $2677.09 by fraudulent representations made by defendants in regard to the amount the goods purchased inventoried. On trial there was a verdict for plaintiff. Some of the instructions are stated in the opinion. Judgment in favor of Riddle. Schwabacker _et als._ appealed.[361]
CRAIG, C. J.... Instruction No. 2 reads as follows:—
“If a party misrepresents a fact within his own knowledge, to the injury of a third party, an action will lie for damages, if any, for such misrepresentation.”
This instruction is liable to several serious objections. In the first place, a misrepresentation, to be actionable, must be a material one, or no action will lie. In the second place, in an action for deceit no recovery can be had unless the plaintiff himself exercised ordinary prudence to guard against the deception and fraud practised upon him, unless he has been thrown off his guard by the other party. These two principles were entirely ignored by the instruction, and the jury, under this direction of the court, was at liberty to find against the defendants if they misrepresented any immaterial fact, however remote, and the plaintiff exercised no precaution whatever to guard against imposition. This is not a sound rule to be adopted, and as the instruction was calculated to mislead the jury, it ought not to have been given.
* * * * *
Instruction No. 13, given for the plaintiff, reads as follows:—
“It is not necessary, in this case, that the plaintiff should show any prior conspiracy or combination between the defendants to defraud the plaintiff; it is enough if the evidence shows that a sale was made to Riddle, or Riddle and Fosbender, and that the agreed price was for the value of the property, as shown by a certain invoice, and that notes were to be taken for the amount, and that the defendants had notes drawn for $2677.09 more than the value of the property as shown by such invoice; and if the plaintiff, before signing the notes, asked if they were for the amount of the invoice, and Fosbender said they were, in the presence and hearing of the other defendants, and if Riddle relied upon such statement in signing the notes, which was known to the defendants, then such conduct and representations would amount to a fraud in the other defendants, if they resulted in damages to the plaintiff.”
[After stating an objection to this instruction.]
Again, under this instruction a recovery may be had although the plaintiff was deceived from a total want of reasonable care on his part. At the time the notes were signed, as we understand the evidence of plaintiff himself, the invoice, which showed the correct amount of the goods, was present, and in the hands of one of the defendants. If that be true, and it could have been obtained and inspected by the plaintiff, and he failed and neglected to do so, but relied upon a statement made by Fosbender at the time, it was for the jury to determine whether, under the evidence, he had exercised proper diligence to guard against deception, and if he did not, he could not recover. But this principle was ignored in this and other instructions given for the plaintiff. Indeed, this principle is not stated, but seems to be ignored in all of the instructions given for the plaintiff. This last instruction, in our judgment, was calculated to mislead the jury.
* * * * *
_Judgment reversed._[362]
FARGO GAS & COKE COMPANY _v._ FARGO GAS & ELECTRIC COMPANY SUPREME COURT, NORTH DAKOTA, JULY 23, 1894. _Reported in 4 North Dakota Reports, 219._
CORLISS, J.[363] The plaintiff has recovered judgment for the balance of the purchase price of a gas and electric plant located in the City of Fargo, N. D., sold by plaintiff to the defendant. A portion of the consideration was paid, and, upon being sued for the unpaid portion of the purchase price, defendant set up as a defence a partial failure of consideration from the non-delivery of some of the property purchased, and also a counterclaim for damages arising out of the alleged deceit of the plaintiff in making the sale. The view we take of the case renders a more particular reference to the defence of partial failure of consideration unnecessary. We will confine ourselves to the single question of fraud. The property purchased consisted of a gas plant, with mains and all the other classes of property which go to make up such a plant, and also an arc electric light plant, with poles, wires, and other fixtures distributed over different parts of the City of Fargo. These two plants were used by the plaintiff at the time of making the sale thereof to defendant, to light the public streets of the City of Fargo, its public buildings, stores, hotels, and dwelling houses, and had been so used for some time prior to such sale. The alleged fraudulent representations were of two classes,—one class relating to the physical condition of the plant, embracing statements as to the number of miles of wire, the number of poles, the gas mains, and as to the condition of the plant in other respects; and the other class related to the net earnings of the plant for the previous year, and the prices charged customers for gas and electric light. It appears that defendant relied chiefly upon the earning capacity of the plant in making the purchase, and was induced to believe that its net annual earnings would equal 10 per cent of the purchase price ($85,300), because of the statements of the plaintiff’s officers that its net earnings during the past year had been $8913. There was evidence tending to show that this statement was false, and that it must have been known to be false by plaintiff’s officers who negotiated the sale. Having in this brief manner set forth the general character of the property sold, and the general nature of the fraudulent representations upon which defendant’s counterclaim for deceit was founded, we can now intelligently turn to what we regard as a fatal error in the case.
In the course of his charge to the jury, the learned trial judge instructed them as follows: “If the means were at the defendant’s hands to discover the truth or untruth of the plaintiff’s statements with regard to the amount and character of the property, defendant must be presumed to have had a knowledge of the actual facts.” This instruction must be considered in the light of the refusal of the court to charge the jury as follows, at the request of defendant’s counsel: “If you find that, during the negotiations, statements were made by the plaintiff as to the earnings of the plant, the defendant had a right to rely upon these statements; and if they were so relied on, and were false, and the defendant suffered injury thereby, the defendant would be entitled to recover the damages which it suffered in consequence thereof.” It is apparent from this refusal to charge, and from the charge as cited given, that the court told the jury that, as a matter of law, defendant did not have the right implicitly to rely upon the representations of the plaintiff touching the character of the plant, but must make inquiries concerning them, and must make investigation as to their truth or falsity. It is true that the word “investigate” is not used; but, when we consider the nature of the property and the character of the representations made, it is obvious that something more than a mere inspection of an object present before a purchaser was necessary in order to enable the purchaser in this case to “discover” the truth or falsity of plaintiff’s statements. Such an instruction to a jury might be appropriate in an action in which fraud in the sale of a horse was set up, the seller having represented the horse to be perfectly sound, and it appearing that the horse stood before the purchaser at the time the representation was made, and that the only defect consisted in the absence of a leg, easily discernible by the ordinary use of eyesight. But in the case at bar the means of discovering the truth or untruth of these false statements were not at hand in the sense that they must have been employed before the seller could be held responsible for his fraudulent representations; and, when this language was used, the jury must have drawn the inference from the fact that this plant was in the same city, and could be investigated with respect to its condition and its earnings, and the prices charged customers for gas and electric light, and with reference to the other features embraced in the statements made by plaintiff on the sale, that therefore the means were at hand, within the rule laid down by the court requiring the purchaser to discover at its peril the truth or falsity of the statements made. Such a rule of law would be unjust and intolerable. When parties deal at arm’s length, the doctrine of _caveat emptor_ applies; but the moment the vendor makes a false statement of fact, and its falsity is not palpable to the purchaser, he has an undoubted right implicitly to rely upon it. That would, indeed, be a strange rule of law which, when the seller had successfully entrapped his victim by false statements, and was called to account in a court of justice for his deceit, would permit him to escape by urging the folly of his dupe for not suspecting that he, the seller, was a knave. In the absence of such a suspicion, it is entirely reasonable for one to put faith in the deliberate representations of another. The jury must have understood that the means were at hand to discover the claim, because the defendant might have measured the wire, counted the poles, examined the gas mains, ascertained how much customers were paying for gas and electric light, and might have hired an expert to examine into the earnings and expenses of the plaintiff in running the plant, with a view to discovering whether a business man had told the truth. It should not have been left to the jury to determine whether the means were at hand to discover the falsity of the statements made, in view of the character of such statements and the nature of the property sold. The defendant, as a matter of law, had a right to rely implicitly upon the statements made by plaintiff touching the character of this plant. So long as defendant did not actually know the representations to be false, it was under no obligation to investigate to determine their truth or falsity. In Mead _v._ Bunn, 32 N. Y. 280, the court say: “Every contracting party has an absolute right to rely on the express statements of an existing fact, the truth of which is known to the opposite party and unknown to him, as a basis of mutual engagement, and he is under no obligation to investigate and verify statements, to the truth of which the other party to the contract, with full means of knowledge, has deliberately pledged his faith.” In Redding _v._ Wright, (Minn.) 51 N. W. 1056 (a case very much in point), the court say: “If the representations were fraudulently made with the intent to induce the plaintiff to rely upon the fact being as represented, and to act upon the belief thus induced, the wrong-doer who succeeds in such a purpose is not to be shielded from responsibility by the plea that the defrauded party would have discovered the falsity of the representation if he had pursued such means of information as were available to him.” While the rule has been in some cases stated in terms more favorable to plaintiff, yet no decision can be found which establishes a doctrine under which defendant would be bound, under the circumstances of this case, to make any investigation or inquiry touching the truth or falsity of the statements made in connection with the sale. There are many well considered cases which sustain our view that defendant had a right implicitly to rely upon the representations made by plaintiff with respect to the character of the property to be purchased by defendant. In addition to the cases already cited, we refer to Maxfield _v._ Schwartz, 45 Minn. 150, 47 N. W. 448; Gardner _v._ Trenary, 65 Iowa, 646, 22 N. W. 912; Schumaker _v._ Mather, 133 N. Y. 590, 30 N. E. 755; McClellan _v._ Scott, 24 Wis. 81; Caldwell _v._ Henry, 76 Mo. 254; Oswald _v._ McGehee, 28 Miss. 340; Cottrill _v._ Krum, 100 Mo. 397, 13 S. W. 753; Campbell _v._ Frankern, 65 Ind. 591; Kerr, Fraud & M. 77, 80, 81; Erickson _v._ Fisher, (Minn.) 53 N. W. 638; Alfred Shrimpton & Sons _v._ Philbrik, (Minn.) 55 N. W. 551; Barndt _v._ Frederick, (Wis.) 47 N. W. 6; Bigelow, Fraud, 522, 528. We are aware that cases can be found which exact from the buyer more care in ascertaining the truth or falsity of representations than the decisions just cited. These cases appear to us to have been rightfully decided, in view of the facts. In determining what the courts in such cases intended to hold, the language of each opinion must be read, in the light of the facts of the particular case. The unmistakable drift is towards the just doctrine that the wrong-doer cannot shield himself from liability by asking the law to condemn the credulity of his victim. The falsity of the statement may be apparent because the thing misrepresented is before the buyer, and the most casual look will suffice to discover the falsehood, no artifice being used to divert his attention; or the statement may carry its own refutation upon its face,—may be so absurd or monstrous that it is palpably false, as a statement by a person carrying on a business known to the purchaser to be very small that the receipts of the business are a million dollars a year. In these and other similar cases the law will not allow a person to assert that he was deceived. But the general rule is, and, upon principle, must be, that the question is one of reliance by the buyer upon the false statement of the seller. Whether it was wise for him to rely upon it, whether he was prudent in so doing, whether he is not chargeable with negligence in a certain sense in not investigating,—these inquiries are, in general, immaterial, provided the purchaser has in fact been deceived. The circumstances under which fraud is accomplished are so varied, the nature of the property and the character of the misrepresentations are so widely different, in different cases, that it is unwise to attempt to enunciate with precision a general rule by which all cases shall be governed. It is better to decide the cases as they arise, keeping in view the general principle that courts will not readily listen to the plea that the defrauded party was too easily deceived. For this error in the charge, the judgment will be reversed, and a new trial granted.
[Omitting opinion on another point.]
_Judgment reversed. New trial ordered._[364]
STARKWEATHER _v._ BENJAMIN SUPREME COURT, MICHIGAN, JUNE TERM, 1875. _Reported in 32 Michigan Reports, 305._
Error to Macomb Circuit.
CAMPBELL, J. This action was brought to recover damages arising from alleged misrepresentations made by Starkweather to Benjamin concerning the quantity of land in a parcel purchased from Starkweather and others, for whom he acted, and which was bought by the acre.
The defence rested mainly on the ground that the purchaser saw the land, and was as able to judge of its size as Starkweather.
We do not think the doctrine that where both parties have equal means of judging there is no fraud applies to such a case. The maxim is equally valid, that one who dissuades another from inquiry and deceives him to his prejudice is responsible. It cannot be generally true that persons can judge of the contents of a parcel of land by the eye. When any approach to accuracy is needed, there must be measurement. When a positive assurance of the area of a parcel of land is made by the vendor to the vendee with the design of making the vendee believe it, that assurance is very material, and equivalent to an assurance of measurement. In this case the testimony goes very far, and shows that the assertions and representations, which the jury must have found to be true, were of such a nature that if believed, as they were, a re-survey must have been an idle ceremony. They were calculated to deceive, and as the jury have found, they did deceive Benjamin, and he had a clear right of action for the fraud.
[Omitting remainder of opinion.]
_Judgment affirmed._[365]
MABARDY _v._ McHUGH SUPREME JUDICIAL COURT, MASSACHUSETTS, MAY 21, 1909. _Reported in 202 Massachusetts Reports, 148._
Tort for deceit in the sale of land. Writ in the Superior Court for the county of Middlesex dated January 18, 1906.
The case was tried before Stevens, J. The facts are stated in the opinion. The jury found for the defendants; and the plaintiffs alleged exceptions.
RUGG, J. This is an action of tort sounding in deceit. There was evidence tending to show that the plaintiffs went upon a certain irregularly shaped tract of land (for false representations inducing the purchase of which this action was brought) with one of the defendants, who pointed out the true boundaries and fraudulently stated that the tract contained sixty-five acres, when in fact it contained forty and three-fourths acres. Upon this aspect of the evidence, the trial judge instructed the jury that “if the plaintiffs ... were taken over the farm by the defendants ... or [and] were shown the bounds so that the plaintiffs knew where the farm was and what was comprised within the bounds, it would not be of any consequence that representations may have been made by the defendant in relation to the acreage.” The evidence being conflicting as to whether the boundaries were shown, the jury were further instructed that if the defendant, who talked with the plaintiffs, “knew that there were not sixty-five or nearly sixty-five acres, or if he did not know anything about it and stated it as a fact within his personal knowledge, then it would be a false representation for which he would be liable provided” the other elements essential to a recovery were found to exist.
The correctness of the first of these instructions is challenged. It is in exact accordance with the law as laid down in Gordon _v._ Parmelee, 2 Allen, 212, and Mooney _v._ Miller, 102 Mass. 217. The facts in the case at bar are similar in all material respects to these cases. An attempt is made to distinguish them on the ground that the present plaintiffs were Syrians, ignorant of our language, and that hence a trust relation existed between them and the defendant. But whatever else may be said of this contention, it fails because they were accompanied by two of their own countrymen, who were thoroughly familiar with our language and acted as interpreters for them. In effect, the contention of the plaintiffs amounts to a request to overrule these two cases. They have been cited with approval in Roberts _v._ French, 153 Mass. 60, and as supporting authorities, without criticism, in other opinions. The court, however, has refused to apply the rule of those decisions to other facts closely analogous. See Lewis _v._ Jewell, 151 Mass. 345; Holst _v._ Stewart, 161 Mass. 516; Whiting _v._ Price, 172 Mass. 240; Kilgore _v._ Bruce, 166 Mass. 136. This court in recent years, by pointed language and by conclusions reached, has indicated a plain disposition not to extend legal immunity for the falsehood of vendors in the course of negotiations for sales beyond the bounds already established....
This judicial attitude perhaps reflects an increasingly pervasive moral sense in some of the common transactions of trade. While the science of jurisprudence is not, and under present conditions cannot be, co-extensive with the domain of morality, nor generally undertake to differentiate between motives which mark acts as good or bad, yet it is true, as was said by Mr. Justice Brett, in Robinson _v._ Mollett, L. R. 7 H. L. 802, 817, that “The courts have applied to the mercantile business brought before them what have been called legal principles, which have almost always been the fundamental ethical rules of right and wrong.” This is only a concrete expression of the broader generalization that law is the manifestation of the conscience of the Commonwealth.
In many other jurisdictions the rule of Gordon _v._ Parmelee and Mooney _v._ Miller has not been followed and false representations as to area of land, even though true boundaries were pointed out, have been held actionable. McGhee _v._ Bell, 170 Mo. 121, 135, 150. May _v._ Loomis, 140 N. C. 350. Boddy _v._ Henry, 113 Iowa, 462, 465; S. C. 126 Iowa, 31. Antle _v._ Sexton, 137 Ill. 410. Estes _v._ Odom, 91 Ga. 600, 609. Lovejoy _v._ Isbell, 73 Conn. 368, 375. Cawston _v._ Sturgis, 20 Ore. 331. Starkweather _v._ Benjamin, 32 Mich. 305. Paine _v._ Upton, 87 N. Y. 327. Mitchell _v._ Zimmerman, 4 Texas, 75. Walling _v._ Kinnard, 10 Texas, 508. Speed _v._ Hollingsworth, 54 Kans. 436. See also Fairchild _v._ McMahon, 139 N. Y. 290; Schumaker _v._ Mather, 133 N. Y. 590.
Other cases apparently opposed to the Massachusetts rule, on examination prove to go no further than to decide that misrepresentations as to area, when there is no evidence that boundaries were shown, constitute deceit. Griswold _v._ Gebbie, 126 Penn. St. 353. Cabot _v._ Christie, 42 Vt. 121. Coon _v._ Atwell, 46 N. H. 510. Ledbetter _v._ Davis, 121 Ind. 119. Perkins Manuf. Co. _v._ Williams, 98 Ga. 388. Sears _v._ Stinson, 3 Wash. 615. Hill _v._ Brower, 76 N. C. 124. Stearns _v._ Kennedy, 94 Minn. 439. This is the substance of the latter part of the instruction given in the Superior Court, and is the law of this Commonwealth.
The rule of Mooney _v._ Miller seemingly has been approved or followed in Lynch _v._ Mercantile Trust Co., 18 Fed. Rep. 486; Crown _v._ Carriger, 66 Ala. 590; and Mires _v._ Summerville, 85 Mo. App. 183, although the last case has been overruled in Judd _v._ Walker, 114 Mo. App. 128, 135.
If the point were now presented for the first time, it is possible that we might be convinced by the argument of the plaintiffs and the great weight of persuasive authority in its support, especially in view of Lewis _v._ Jewell, 151 Mass. 345. But there is something to be said in support of the two earlier decisions now questioned. A purchase and a sale of real estate is a transaction of importance and cannot be treated as entered into lightly. People must use their own faculties for their protection and information, and cannot assume that the law will relieve them from the natural effects of their heedlessness or take better care of their interests than they themselves do. Thrift, foresight and self-reliance would be undermined if it was the policy of the law to attempt to afford relief for mere want of sagacity. It is an ancient and widely, if not universally, accepted principle of the law of deceit that, where representations are made respecting a subject as to which the complaining party has at hand reasonably available means for ascertaining the truth and the matter is open to inspection, if, without being fraudulently diverted therefrom, he does not take advantage of this opportunity, he cannot be heard to impeach the transaction on the ground of the falsehoods of the other party. Salem India Rubber Co. _v._ Adams, 23 Pick. 256, 265. Slaughter _v._ Gerson, 13 Wall. 379, 383. Long _v._ Warren, 68 N. Y. 426, 432. Baily _v._ Merrell, 3 Bulstr. 94. This rule in its general statement applies to such a case as that before us. It is easy for one disappointed in the fruits of a trade to imagine, and perhaps persuade himself, that the cause of his loss is the deceit of the other party, rather than his own want of judgment.
It is highly desirable that laws for conduct in ordinary affairs, in themselves easy of comprehension and memory, when once established, should remain fast. The doctrine of _stare decisis_ is as salutary as it is well recognized.... While perhaps it is more important as to far-reaching juridical principles that the court should be right, in the light of higher civilization, later and more careful examination of authorities, wider and more thorough discussion and more mature reflection upon the policy of the law, than merely in harmony with previous decisions (Barden _v._ Northern Pacific Railroad, 154 U. S. 288, 322), it nevertheless is vital that there be stability in the courts in adhering to decisions deliberately made after ample consideration. Parties should not be encouraged to seek re-examination of determined principles and speculate on a fluctuation of the law with every change in the expounders of it. As to many matters of frequent occurrence, the establishment of some certain guide is of more significance than the precise form of the rule. It is likely that no positive rule of law can be laid down that will not at some time impinge with great apparent severity upon a morally innocent person. The law of gravitation acts indifferently upon the just and the unjust. A renewed declaration of law that is already in force, supported by sound reason and not plainly wrong, in the long run probably works out substantial justice, although it may seem harsh in its application to some particular case. These considerations are regarded as so weighty by the House of Lords that it cannot overrule any of its own decisions. London Tramways Co. _v._ London County Council, [1898] A. C. 375.
The conclusion is that we do not overrule the decisions whose soundness has been debated at the bar, although we do not extend their scope, but confine them strictly to their precise point, namely, that where the seller of real estate shows upon the face of the earth its true boundaries to the purchaser and does not fraudulently dissuade him from making full examination and measurement and the estate is not so extensive or of such character as to be reasonably incapable of inspection and estimate, and there is no relation of trust between the
## parties, the purchaser has no remedy for a misrepresentation as to the
area alone....
_Exceptions overruled._[366]
EASTERN TRUST & BANKING COMPANY _v._ CUNNINGHAM SUPREME COURT, MAINE, FEBRUARY 20, 1908. _Reported in 103 Maine Reports, 455._
SAVAGE, J. But the defendant contends further, that, if the plaintiff did not know, it ought to have known, and would have known but for its own negligence. We think this defence cannot avail. There are cases which hold that where one carelessly relies upon a pretence of inherent absurdity and incredibility upon mere idle talk, or upon a device so shadowy as not to be capable of imposing upon any one, he must bear his misfortune, if injured. He must not shut his eyes to what is palpably before him. But that doctrine, if sound, is not applicable here. We think the well-settled rule to be applied here is that if one intentionally misrepresents to another facts particularly within his own knowledge, with an intent that the other shall act upon them, and he does so act, he cannot afterwards excuse himself by saying, “You were foolish to believe me.” It does not lie in his mouth to say that the one trusting him was negligent. In this case the fact whether or not there were funds in the Gardiner bank to meet the checks was peculiarly within the knowledge of the defendant. The rule is stated in Pollock on Torts, § 252, as follows: “It is now settled law that one who chooses to make positive assertions without warrant shall not excuse himself by saying that the other party need not have relied upon them. He must show that his representation was not in fact relied upon. In short, nothing will excuse a culpable misrepresentation short of proof that it was not relied upon, either because the other party knew the truth, or because he relied wholly on his own investigations, or because the alleged fact did not influence his action at all.” In Linington _v._ Strong, 107 Ill. 295, we find this language: “The doctrine is well settled that as a rule a party guilty of fraudulent conduct shall not be allowed to cry ‘negligence’ as against his own deliberate fraud.... While the law does require of all parties the exercise of reasonable prudence in the business of life, and does not permit one to rest indifferent in reliance upon the interested representations of an adverse party, still, as before suggested, there is a certain limitation to this rule; and, as between the original parties to the transaction we consider that, when it appears that one party has been guilty of an intentional and deliberate fraud by which to his knowledge the other party has been misled or influenced in his action, he cannot escape the legal consequences of his fraudulent conduct by saying that the fraud might have been discovered had the party whom he deceived exercised reasonable diligence and care.” See Griffin _v._ Roanoke R. & Lumber Co., 140 N. C. 514, 53 S. E. 307, 6 L. R. A. (N. S.) 463.[367]
S. PEARSON & SON, LIMITED, _v._ LORD MAYOR OF DUBLIN IN THE HOUSE OF LORDS, MAY 30, 1907. _Reported in [1907] Appeal Cases, 351._
The Dublin Corporation having by their agents furnished the appellants with plans, drawings, and specifications, the appellants contracted to execute certain sewage outfall works according to the plans, &c. In the plans, &c., representations were made as to the existence and position of a certain wall. In the contract (clauses 43, 46, 47, 48) it was stipulated that the contractor should satisfy himself as to the dimensions, levels and nature of all existing works and other things connected with the contract works; that the corporation did not hold itself responsible for the accuracy of the information as to the sections or foundations of existing walls and works; and that no charges for extra work or otherwise would be allowed in consequence of incorrect information or inaccuracies in the drawings or specifications. The appellants performed the contract, and brought an
## action of deceit against the corporation, claiming damages for false
representations as to the position, dimensions and foundations of the wall, whereby the appellants were compelled to execute more costly works than would otherwise have been required. The plans, drawings and specifications were prepared by engineers employed by the corporation.[368]
[At the trial before PALLES, C. B., the plaintiffs offered evidence tending to show that the aforesaid representations were not sincerely believed by the engineers to be true.] PALLES, C. B., refused to leave any question to the jury, and entered judgment for the respondents on the ground that the contractors were bound by their contract to verify for themselves all the information given in the plans, &c.
The King’s Bench Division (Wright, Boyd, and Gibson, JJ., Lord O’Brien, C. J., dissenting) reversed the decision of Palles, C. B., and entered judgment for the appellants on the ground that there was a question of fact for the jury upon the allegation of fraud.
The Court of Appeal (Sir Samuel Walker, L. C., Fitzgibbon and Holmes, L.JJ.) reversed that decision, and restored the decision of Palles, C. B.
Plaintiff appealed to the House of Lords.
The House of Lords (LORDS LOREBURN, HALSBURY, ASHBOURNE, MACNAGHTEN, JAMES OF HEREFORD, ROBERTSON, ATKINSON, and COLLINS) reversed the order of the Court of Appeal, and restored the judgment of the King’s Bench Division. Portions of the opinions are as follows:—
LORD LOREBURN, L. C.... Now it seems clear that no one can escape liability for his own fraudulent statements by inserting in a contract a clause that the other party shall not rely upon them. I will not say that a man himself innocent may not under any circumstances, however peculiar, guard himself by apt and express clauses from liability for the fraud of his own agents. It suffices to say that in my opinion the clauses before us do not admit of such a construction. They contemplate honesty on both sides and protect only against honest mistakes. The principal and the agent are one, and it does not signify which of them made the incriminated statement or which of them possessed the guilty knowledge.
* * * * *
EARL OF HALSBURY.... The action is based on the allegation of fraud, and no subtilty of language, no craft or machinery in the form of contract, can estop a person who complains that he has been defrauded from having that question of fact submitted to a jury....
LORD ASHBOURNE.... [As to clause 43.] Such a clause might in some cases be part of a fraud, and might advance and disguise a fraud, and I cannot think that on the facts and circumstances of this case it can have such a wide and perilous application as was contended for. Such a clause may be appropriate and fairly apply to errors, inaccuracies, and mistakes, but not to cases like the present....
LORD JAMES OF HEREFORD.... Now the learned Chief Baron in respect of this clause expressed the opinion that the contractor was not entitled in point of law to say he acted upon the statement contained in the plans. He was told to act upon his own judgment, and ought to have done so.
If this dictum be read as general in its terms, and so applied, it may be read as conferring considerable advantage upon the designers of fraud. At any rate, by inserting such a clause those who framed it would run a fair chance of the contractor saying, “I assume that those with whom I deal are honest and honorable men. I scout the idea of their being guilty of fraud. An inquiry testing the plan will be expensive and difficult, and so I will not make it.” The protecting clause might be inserted fraudulently, with the purpose and hope that, notwithstanding its terms, no test would take place. When the fraud succeeds, surely those who designed the fraudulent protection cannot take advantage of it. Such a clause would be good protection against any mistake or miscalculation, but fraud vitiates every contract and every clause in it. As a general principle I incline to the view that an express term that fraud shall not vitiate a contract would be bad in law, but it is unnecessary in this case to determine whether special circumstances may not create an exception to that rule.
* * * * *
LORD ATKINSON.... If, therefore, the _direction_ given to the jury is to be upheld on the grounds upon which it was purported to be based, it must, in my opinion, be because these several articles of the contract, on their true construction, are to be held to embody a contract by the plaintiffs that they in effect are not, under any circumstances, to have a remedy by action for deceit for any fraud which may be practised upon them by the defendants or by those acting on their behalf in the nature of a false representation, that is a contract to submit to a fraud.
As at present advised I am inclined to think, on the authority of Tullis _v._ Jacson, [1892] 3 Ch. 441, and Brownlie _v._ Campbell, (1880) 5 App. Cas. 925, 937, 956, that such a contract would be illegal in point of law. And, with the most profound respect for the Chief Baron, I do not think that the articles of the contract relied upon can, on their true construction, be held to have had fraud, whether conscious or unconscious, within their purview or contemplation, or to apply at all to such a case of fraud as the present is alleged to be. They were, I think, intended to apply, and do apply, to inaccuracies, errors, and mistakes, or matters of that sort, but not to fraud, whether of principal or agent, or of both combined.[369]
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