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.