Chapter IV: Deceit (3)

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.