Chapter IV: Deceit (4)

Our attention is called to Krause _v._ Cook, 144 Mich. 365, 108 N. W.
81. There defendant, acting for one Parker, sold mining stock to the
plaintiff. Certain false representations were made, and an action to
recover damages for fraud was brought. It was held that the trial
court should have given the following instruction: “If a person
received information from others, and believes it, repeats it,
explaining that he has no personal knowledge, he is not guilty of
fraud. Therefore, if you find that the defendant received information
from others, and repeated that information to plaintiff, and explained
to plaintiff the sources of his information, he is not guilty of any
fraud, if he acts honestly and in good faith.” At first blush it would
seem, that this principle is opposed to the decisions of Holcomb _v._
Noble and Busch _v._ Wilcox, _supra_. And it must be admitted, I
think, that if this principle had been applied in those cases, a
different conclusion would there have been reached. If there was no
difference in the facts, it might be said that Krause _v._ Cook,
_supra_, is opposed to the principle announced in the Busch and
Holcomb Cases. But there is a difference in the cases, and, in my
judgment, such a difference as to require a different rule of law. In
the Holcomb and Busch Cases the defendant himself obtained what
plaintiff lost by means of the false representations. In the Krause
Case the defendant was an agent, who at most received only 10 per cent
of the damages caused by the false representations. This difference,
in my judgment, places the Krause Case outside the rule of the Holcomb
and Busch Cases. That rule is peculiarly a Michigan rule. Elsewhere in
order to create liability for deceit, it must be shown that “the
person making the statement, or the person responsible for it, either
knows it to be untrue, or is culpably ignorant (that is, recklessly
and consciously ignorant) whether it be true or not.” See Webb’s
Pollock on Torts, p. 355. In Michigan we have held (see cases cited in
the opinion of Justice Morse in the Holcomb Case, _supra_) that in
order to constitute a fraud it is not necessary that the person making
the statement should either know that it is untrue or be recklessly
and consciously ignorant whether it be true or not. It is sufficient
if it be false in fact. It must be said, however, that in the cases in
which this principle has been applied the defendant obtained what the
false representations caused the plaintiff to lose. Applied in such
cases, the principle is a just and salutary one. This may be
illustrated by the Holcomb Case—which is a typical case. There,
because plaintiff Holcomb credited a certain false statement of fact,
he paid defendant Noble more for land purchased than otherwise he
would have paid. The false statement of fact was an agency whereby the
property of the plaintiff was transferred to defendant. The law would
be justly subject to reproach if it afforded no redress in such case.
In Michigan the law does give redress in such a case, and that redress
may be obtained in an action for fraud. It may seem somewhat unjust to
characterize such conduct as fraudulent, but the court was apparently
placed in the dilemma of either so characterizing it or of altogether
denying compensation, and it chose the least objectionable of these
two alternatives. This principle, which is altogether just in its
application to cases where the loss of the plaintiff has inured to the
profit of the defendant, would be most unjust if applied to cases
where the defendant has obtained no such profit. This may be
illustrated by taking a concrete case, and I take a case even plainer
in its facts than the Krause Case. Let us suppose that, with
commendable motives and in the best of faith, one friend communicates
to another with all amplitude of detail certain information he has
received respecting a mine, which it is known that neither of them has
ever visited. The object of this communication is to induce the one to
whom it is made to purchase stock, but not from the one making the
communication, but from a third person having no relation to him. The
stock is purchased accordingly, without any profit resulting to the
friend making the communication; the information proves to be false
and the stock worthless. Did the friend who communicated the
information which proved to be false commit a fraud? He did no moral
wrong. Indeed, from a moral point of view his conduct was commendable,
and, unless compelled to do so, the court should not announce a rule
of law which penalizes commendable conduct. Are we compelled to
declare that there exists a rule of law which makes such conduct
fraudulent? Manifestly not unless we are bound to declare that the
doctrine of the Holcomb and Busch Cases applies. Must we so declare?
As already pointed out, the case differs materially from the Holcomb
and Busch Cases, and this difference is such that the doctrine of
those cases has no just application. That doctrine was designed to
accomplish justice: as applied in the Holcomb and Busch Cases and in
similar cases it does accomplish justice. As applied to cases where
the loss of the plaintiff has not inured to the profit of the
defendant it accomplishes an injustice, and it therefore has no
application to such cases.

LORD HALDANE, L. C., IN NOCTON _v._ LORD ASHBURTON
(1914) _Appeal Cases, 932, 945–946, 951–954._

I have read the evidence of the appellant, and, although it is
obviously unreliable evidence, it leaves on my mind the same
impression that it left on that of the learned judge who heard it,
that the solicitor did not consciously intend to defraud his client,
but, largely owing to a confused state of mind, believed that he was
properly joining with him and guiding him in a good speculation.

I cannot, therefore, treat the case, so far as based on intention to
deceive, as made out. But where I differ from the learned judges in
the Courts below is as to their view that, if they did not regard
deceit as proved, the only alternative was to treat the action as one
of mere negligence at law unconnected with misconduct. This
alternative they thought was precluded by the way the case had been
conducted. I am not sure that, on the pleadings and on the facts
proved, they were right even in this. The question might well have
been treated as in their discretion and as properly one of costs only,
having regard to the unsatisfactory evidence of the appellant. But I
do not take the view that they were shut up within the dilemma they
supposed. There is a third form of procedure to which the statement of
claim approximated very closely, and that is the old bill in Chancery
to enforce compensation for breach of a fiduciary obligation. There
appears to have been an impression that the necessity which recent
authorities have established of proving moral fraud in order to
succeed in an action of deceit has narrowed the scope of this remedy.
For the reasons which I am about to offer to your Lordships, I do not
think that this is so....

My Lords, it is known that in cases of actual fraud the Courts of
Chancery and of Common Law exercised a concurrent jurisdiction from
the earliest times. For some of these cases the greater freedom which,
in early days, the Court of Chancery exercised in admitting the
testimony of parties to the proceedings made it a more suitable
tribunal. Moreover, its remedies were more elastic. Operating _in
personam_ as a Court of conscience it could order the defendant, not,
indeed, in those days, to pay damages as such, but to make
restitution, or to compensate the plaintiff by putting him in as good
a position pecuniarily as that in which he was before the injury.

But in addition to this concurrent jurisdiction, the Court of Chancery
exercised an exclusive jurisdiction in cases which, although
classified in that Court as cases of fraud, yet did not necessarily
import the element of _dolus malus_. The Court took upon itself to
prevent a man from acting against the dictates of conscience as
defined by the Court, and to grant injunctions in anticipation of
injury, as well as relief where injury had been done. Common instances
of this exclusive jurisdiction are cases arising out of breach of duty
by persons standing in a fiduciary relation, such as the solicitor to
the client, illustrated by Lord Hardwicke’s judgment in Chesterfield
_v._ Janssen, 2 Ves. Sen. 125. I can hardly imagine that those who
took part in the decision of Derry _v._ Peek, 14 App. Cas. 337,
imagined that they could be supposed to have cast doubt on the
principle of any cases arising under the exclusive jurisdiction of the
Court of Chancery. No such case was before the House, which was
dealing only with a case of actual fraud as to which the jurisdiction
in equity was concurrent....

So far as the equity jurisdiction in cases of what is called fraud is
concurrent only and exercised in actions for mere deceit apart from
breach of special duty, an actual intention to cheat has now to be
proved. But there are cases of other classes to which, as I have
already said, the Court of Chancery undoubtedly did apply the term
fraud, although I think unfortunately.

Fraud in such cases is, as James, L. J., said in Torrance _v._ Bolton,
L. R. 8 Ch. 118, at p. 124, “_nomen generalissimum_, and it must not
be construed so as to mislead persons into the notion that contracts
for the sale and purchase of lands are in any respect privileged, so
as to be free from the ordinary jurisdiction of the Court to deal with
them as it deals with any instrument, or any other transactions, in
which the Court is of opinion that it is unconscientious for a person
to avail himself of the legal advantage which he has obtained. Indeed,
the books are full of cases in which the Court has dealt with
contracts of that kind—contracts obtained by persons from others over
whom they have dominion, contracts obtained by persons in a fiduciary
position, contracts for the sale of shares obtained by directors
through misrepresentation contained in the prospectus, in respect of
which it was never necessary to allege or prove that the directors
were wilfully guilty of moral fraud in what they had done.” In
Chancery the term “fraud” thus came to be used to describe what fell
short of deceit, but imported breach of a duty to which equity had
attached its sanction. What was laid down by Lord Eldon in this House
in Bulkely _v._ Wilford, 2 Cl. & F. 102, at p. 177, explains the
nature of the duty.

My Lords, I have dealt thus fully with this distinction because I
think that confusion has arisen from overlooking it. It must now be
taken to be settled that nothing short of proof of a fraudulent
intention in the strict sense will suffice for an action of deceit.
This is so whether a Court of Law or a court of equity in the exercise
of concurrent jurisdiction is dealing with the claim, and in this
strict sense it was quite natural that Lord Bramwell and Lord
Herschell should say that there was no such thing as legal as
distinguished from moral fraud. But when fraud is referred to in the
wider sense in which the books are full of the expression, used in
Chancery in describing cases which were within its exclusive
jurisdiction, it is a mistake to suppose that an actual intention to
cheat must always be proved. A man may misconceive the extent of the
obligation which a Court of Equity imposes on him. His fault is that
he has violated, however innocently because of his ignorance, an
obligation which he must be taken by the Court to have known, and his
conduct has in that sense always been called fraudulent, even in such
a case as a technical fraud on a power. It was thus that the
expression “constructive fraud” came into existence. The trustee who
purchases the trust estate, the solicitor who makes a bargain with his
client that cannot stand, have all for several centuries run the risk
of the word fraudulent being applied to them. What it really means in
this connection is, not moral fraud in the ordinary sense, but breach
of the sort of obligation which is enforced by a Court that from the
beginning regarded itself as a Court of conscience.

KAY, L. J., IN LOW _v._ BOUVERIE
(1891) _3 Chancery, 82, 111–113._

The result of the authorities seems to be as follows:—

1. There has been from ancient time a jurisdiction in Courts of Equity in certain cases to enforce a personal demand against one who made an untrue representation upon which he knew that the person to whom it was made intended to act, if such person did act upon the faith of it and suffered loss by so acting.

2. This was readily done where the representation was fraudulently made, in which case an action of deceit would lie at law.

3. Relief will also be given at Law and in Equity, even though the representation was innocently made without fraud, in all cases where the suit will be effective if the defendant is estopped from denying the truth of his representation.

4. Where there is no estoppel, an innocent misrepresentation will not support an action at law for damages occasioned thereby.

5. Estoppel is effective where an action must succeed or fail if the defendant or plaintiff is prevented from disputing a particular fact alleged: for example, if an assign of A. sues A.’s trustee to recover the fund assigned, and the trustee is prevented from denying its existence in his hands; or at law, if the assign of a debt should sue the alleged debtor and he was prevented from denying that the debt was due. Or, in the converse case, an estoppel may be a defence; as if a joint stock company were to sue a shareholder for calls and they were estopped from denying that the shares were paid up, their action would fail.

It is obvious that this rule does not apply to an action for deceit. In such an action the plaintiff relies, not on the truth of the statement, but upon its falsehood; and he is bound to prove, not only that the representation was untrue, but also that it was made fraudulently. Derry _v._ Peek, 14 App. Cas. 337, very well illustrates the difference. It was an action by a person who had been induced to take shares in a joint stock company by an untrue statement in a prospectus. The action was not against the company, but against the directors who had issued the prospectus. The representation was not fraudulently made. Preventing the defendants from denying the truth of their representation would not enable the plaintiff to succeed in such an action; so that the plaintiff could not rely on estoppel. That could only be if the defence had been that the statement was inaccurate, and the defendants were estopped from denying the accuracy of their own statement. The plaintiff’s case was not that the statement must be treated as accurate: on that supposition he could not have had any relief against the defendants. The plaintiff sued the defendants upon the ground that the statement was false, and false to their knowledge—that is, fraudulent; and the defence that prevailed was that, if it was inaccurate, it was not fraudulent.

6. I am not satisfied that relief in the nature of a personal demand against the defendant has been given in Equity in cases which did not involve fraud or to which this doctrine of estoppel would not apply. Slim _v._ Croucher, 1 D. F. & J. 518, is the only instance I know of; and, as Lord Campbell said that there might be relief at law in that case, he probably considered, either that it was a case of estoppel, or that an action of deceit would lie—which latter view is not consistent with Derry _v._ Peek, 14 App. Cas. 337.

FARWELL, L. J., IN FRY _v._ SMELLIE
(1912) _3 King’s Bench Division, 282, 294–295._

I can only say that certificates and a blank transfer are in everyday use as securities for raising money, and that every man who lends money to A. on documents which show a title in B. is of course put on inquiry. This does not mean that he must refuse to deal with the agent at all but must refer to the principal, but that he must make such inquiry as is reasonable under the circumstances. If he is foolish enough to lend to A. without inquiry, and A. has no right or authority to deal with the documents, he loses his money, and it is perfectly immaterial whether the security is a deposit of title deeds to real estate or certificates of shares with a blank transfer. Such a question as arises in the present case can only arise when the owner of the property has authorized such a dealing with the property as is corroborated by the possession of the indicia of title. If no authority at all has in fact been given it is quite immaterial whether the lender inquires and is given an untrue answer or does not inquire at all; in either case he loses his money. But if the owner has in fact given the borrower authority to deal with the property by way of loan or by way of sale, and has entrusted him with the indicia of title, enabling him so to deal, then the owner cannot be heard to say that there is any limit on the authority so given. If the indicia of title are apparently co-extensive with the authority claimed there is nothing to suggest any limit. The estoppel arises out of the conduct of the owner of the property. Estoppel is merely a rule of evidence which prevents the person estopped from giving certain facts in evidence. If A.’s conduct amounts to an invitation to B. to advance money to C. without limit on the title deeds of A.’s property, he cannot be heard to say that he had imposed on C. a limit, any more than if he had written or said to B. that he had given C. authority to borrow money and had not mentioned any limit. If he has simply deposited his deeds with C. such deposit involves no such representation, and there is therefore no such estoppel. In speaking of estoppel, I am referring to the doctrine of estoppel by representation which Lord Macnaghten, in Whitechurch _v._ Cavanagh, [1902] A. C. 117, at p. 130, says “is a very old head of equity.” (See Low _v._ Bouverie, [1891] 3 Ch. 82.) It is sometimes called equitable estoppel or a rule of equity, and has been expressed in some of the cases as the rule which compels a man to make good his representations of fact, in reliance on which the person to whom they have been made for the purpose of inducing him to act on them has so acted. Indeed equitable estoppel is the only way in which this doctrine of making good representations has survived the decision in Derry _v._ Peek, 14 App. Cas. 337. The circumstances must necessarily be such as to show a duty to some one to disclose fully on the person making the representation, but it is not a question of negligence in the sense that an action for damages would lie at common law, and no bill in equity would ever have been filed for damages.[342]

CARTER, J., IN WATSON _v._ JONES
(1899) _41 Florida, 241, 253–255._

[After citing Wheeler _v._ Baars, 33 Florida, 696.]

It is there said that the _scienter_ may be proved by showing, first, actual knowledge of the falsity of the representation by defendant; second, that defendant made the statement as of his own knowledge, or in such absolute unqualified and positive terms as to imply his personal knowledge of the fact, when in truth defendant had no knowledge whether the statement was true or false; or, third, that the party’s special situation or means of knowledge were such as to make it his duty to know as to the truth or falsity of the representation. Under each phase the proof must show that the statement was in fact false, and in addition, under the first, that defendant had actual knowledge that it was false; under the second, that defendant made the statement as of his own knowledge, when in fact he had no knowledge whether it was true or false, which seems to bear a close resemblance to the English rule, “without belief in its truth, or recklessly careless whether it be true or false”; and under the third, that defendant’s special situation or means of knowledge were such as made it his duty to know as to the truth or falsity of the representation. From this statement it is quite evident that proof sufficient to sustain the third phase tends very strongly to sustain the idea that the defendant had actual knowledge of the falsity of his statement; for when it is shown that the statement was material and false, and that the defendant’s situation or means of knowledge were such as to make it incumbent upon him as a matter of duty to know whether the statement was true or false, the conclusion is almost irresistible that he did know that which his duty required him to know. For this reason the law conclusively presumes from the existence of these facts that defendant had actual knowledge of the falsity of his statement, or, more properly speaking, proof of these facts is sufficient to sustain a charge of actual knowledge, dispensing with further proof upon that subject, and admitting no proof to rebut the fact of actual knowledge, but only proof to rebut the existence of the facts from which such actual knowledge is inferred. We are therefore of opinion that proof of _scienter_ in the third phase does not give another or different right or ground of action from that given by proof under the first phase, but that it simply establishes the same ultimate fact, viz., knowledge, by a different class of evidence, and consequently that an allegation that defendant “knew” his representation to be false is provable by evidence embraced in the third phase. In other words, an averment that defendant’s situation or means of knowledge were such as made it his duty to know whether his statement was true or false, and an averment that defendant well knew his statements to be untrue, are but different methods of stating the same ultimate fact, viz., knowledge.[343]

CABOT _v._ CHRISTIE
SUPREME COURT, VERMONT, FEBRUARY TERM, 1869.
_Reported in 42 Vermont Reports, 121._

Case for false warranty in the sale of a farm. Plea, not guilty. Trial by jury, May term, 1868, Barrett, J., presiding.

The plaintiff gave evidence tending to show that he bought the farm at the time and for the price stated in the declaration, and that the defendant made representations in respect to the number of acres, as of his own knowledge, designedly intending to induce the plaintiff to suppose and believe, and thereby the plaintiff was induced to and did suppose and believe, that the farm contained at least one hundred and thirty acres of land, and relying thereupon, the plaintiff made the purchase; that the defendant knew that there was not one hundred and thirty acres, or he didn’t know that there was that quantity; that in fact there was only one hundred and seventeen acres and a few rods in the farm; that the plaintiff had no knowledge of the quantity except from the defendant’s representation.

The defendant gave evidence tending to show that he supposed there was one hundred and thirty acres and a little more in the farm, derived from what he had heard said, and from various deeds in his possession of various grantors and of various parcels, but that he did not know, and did not profess or represent to the plaintiff that he knew how many acres there were in fact; that he gave the plaintiff all the information and sources of information he had on the subject, neither making any false representation, nor fraudulent concealment, nor any undertaking as to the number of acres in the farm. There was no evidence or claim that the farm was sold by the acre; but it appeared that it was sold in lump, or as a farm entire.

The plaintiff requested the Court to charge the jury:—

_First_, That under the declaration the plaintiff is entitled to recover if he proves a warranty of the number of acres in the farm, or if he proves a fraudulent representation of the number of acres.

_Second_, That the fraudulent representation may be proved either by evidence of false representations, known to the defendant to be false, and relied upon by the plaintiff, or by proof of an absolute representation of the number of acres, which representation was made with intent that the plaintiff should rely upon it, and was made upon professed knowledge, but without actual knowledge, and which was in fact false, but was relied upon by the plaintiff as true.

The Court complied with said requests only so far as is shown by the charge, and charged as follows:—

In order to entitle the plaintiff to recover he must satisfy the jury that the defendant knew the farm did not contain one hundred and thirty acres, or that he did not believe it contained one hundred and thirty acres; and that in order to induce the plaintiff to buy the farm he falsely represented it to contain one hundred and thirty acres; and that the plaintiff was by such false representation induced to make the purchase, believing it to contain that quantity.

If he honestly believed it contained one hundred and thirty acres, the plaintiff cannot recover, though the defendant was in error about it. Honest mistake is not fraud. Incorrect is not the same as false. You must find that he represented the quantity different from what he knew or believed to be true, with the fraudulent intent. Also, that the plaintiff was thus induced to make the purchase. That is, that the plaintiff would not have made the purchase if the defendant had not represented it to be one hundred and thirty acres. Inquire as to these several points. Fraud is not presumed, but must be proved.

The jury returned a verdict for the defendant. The plaintiff excepted to the charge in the respects in which it failed to comply with, or was against said requests. In other respects the charge was satisfactory.

The declaration counted both upon a false warranty of the defendant in regard to the number of acres contained in the farm, and a warranty in regard to said quantity.

The opinion of the Court was delivered by

STEELE, J. 1. The plaintiff cannot recover upon the ground of a parol warranty of the quantity of the land. If the quantity was warranted it should be provable by the deed. It is true that a deed of conveyance need not contain all the stipulations of the parties. For example, the agreements as to consideration and mode of payment need not be embraced in the deed, for the instrument purports to be the deed of but one of the parties. But it does purport to contain the convenants of the grantor with respect to the property conveyed. To add a new covenant by parol proof would be a palpable violation of the familiar rule that written contracts are not to be varied by oral testimony. Such a parol stipulation, it has been held, could not be proved in respect to an ordinary bill of sale of personal property.

Nor is the plaintiff entitled to recover in this action upon the ground of mistake. A mutual and material mistake, by which the purchaser was misled as to the quantity of land, would be a more appropriate ground for relief in a court of chancery than in a court of law. If, then, the plaintiff was entitled to recover at all in this case, it was by reason of some fraud on the part of the defendant by which the bargain was induced.

2. The plaintiff complains of the ruling of the County Court upon the subject of fraud. It is conceded that the quantity of land was represented incorrectly. The Court properly told the jury that this, in itself, would not amount to fraud. To entitle the plaintiff to a recovery upon that ground, the defendant must have made some representation upon the subject that he did not believe to be true. The plaintiff claims, and his evidence tended to prove, that the defendant did make such a representation by stating the quantity of land as a matter within his own knowledge, when, in fact, as the defendant concedes, it was a matter upon which he had only a belief. We think it very clear that a party may be guilty of fraud by stating his belief as knowledge. Upon a statement of the defendant’s mere belief, judgment, or information, the plaintiff might have regarded it prudent to procure a measurement of the land before completing his purchase. A statement, as of knowledge, if believed, would make a survey or measurement seem unnecessary. A representation of a fact, as of the party’s own knowledge, if it prove false, is, unless explained, inferred to be wilfully false and made with an intent to deceive, at least in respect to the knowledge which is professed. A sufficient explanation however sometimes arises from the nature of the subject itself, or from the situation of the parties being such that the statement of knowledge could only be understood as an expression of strong belief or opinion. But the quantity of land in a farm is a matter upon which accurate or approximately accurate knowledge is not at all impossible or unusual. If the defendant had only a belief or opinion as to the quantity of land, it was an imposition upon the plaintiff to pass off such belief as knowledge. So, too, if he made an absolute representation as to the quantity, which was understood and intended to be understood as a statement upon knowledge, it is precisely the same as if he had distinctly and in terms professed to have knowledge as to the fact. It is often said that a representation is not fraudulent if the party who makes it believes it to be true. But a party who is aware that he has only an opinion how a fact is, and represents that opinion as knowledge, does not believe his representation to be true. As is well said in a note to the report of the case of Taylor _v._ Ashton, 11 Mees. & Wels. 418 (Phila. Ed.), the belief of a party to be an excuse for a false representation must be “a belief in the representation as made. The _scienter_ will therefore be sufficiently established by showing that the assertion was made as of the defendant’s own knowledge, and not as mere matter of opinion, with regard to facts of which he was aware that he had no such knowledge.” The same principle of law has been repeatedly recognized. Hammatt _v._ Emerson, 27 Maine, 308, 326; Bennett _v._ Judson, 21 N. Y. 238; Stone _v._ Denny, 4 Met. 151; Hazard _v._ Irwin, 18 Pick. 95.

In the case before us the plaintiff, under the charge of the Court, was denied the benefit of this rule of law, although there was evidence tending to show every necessary element of a fraud of the nature we have been considering. The plaintiff’s request was refused, and the jury were instructed that the plaintiff could only recover in case they found “that the defendant represented the quantity of land different from what he knew or believed to be true.” Under these instructions it would be immaterial whether he made the representation as a matter of knowledge or as a matter of opinion so long as he kept within his belief as to the quantity of land. In this we think there was error. The Court properly instructed the jury that the representation, to warrant a recovery, must have been relied on and have been an inducement to the purchase. The subsequent remark that the jury, to hold the defendant, must find that the plaintiff would not have made the purchase but for the representation, we regard as probably inadvertent.

What the plaintiff would have done but for the false representation is often a mere speculative inquiry, and is not the test of the plaintiff’s right. If the false representations were material and relied upon, and were intended to operate and did operate as one of the inducements to the trade, it is not necessary to inquire whether the plaintiff would or would not have made the purchase without this inducement.

The judgment of the County Court is reversed and the cause is remanded.[344]

FOSTER _v._ CHARLES
IN THE COMMON PLEAS, NOVEMBER 10, 1830.
_Reported in 7 Bingham, 105._

Case for deceit; the declaration alleging that certain false representations were made by the defendant to the plaintiffs, merchants in London, in order to induce them to engage one Jacque as their agent at Manchester.[345]

Plea, the general issue.

At the trial before Tindal, C. J., London sittings after Michaelmas term, it appeared that in November or December, 1824, the defendant, a soap manufacturer, called on the plaintiffs, wholesale tea dealers, with whom he was on terms of intimacy, and after asking them if they did business at Manchester, said “he had a young friend for whom he was anxious to procure a commission in the tea trade at Manchester; a nice young man, who had an excellent connection there, and would be a great acquisition to any person who wanted to do business there; the defendant being on such terms with the plaintiffs, he had offered it to them before he proposed it to Smith and Co.,—a respectable house in the same line of business; that Smith and Co. would jump at the offer; that his friend was so excellent a young man, that he would rather trust him without security than most men with; that this young man had been doing business at Manchester for a London tea house, who could no longer execute his extensive orders; that he had an uncle at Manchester, a clergyman of the Scotch Church, who would afford him great facilities in the way of business, and knew all the Scotch travellers in the trade; that defendant would like him to sell soap for defendant and his partner, but feared his other connections would not allow him time.”

The plaintiffs said they had an objection to giving commissions; but the very strong recommendation defendant had given of his friend would induce them to think of it.

Accordingly, in the beginning of 1825, the plaintiffs employed James Jacque, the defendant’s young friend, to do business for them on commission at Manchester. But by the middle of 1827, after repeatedly sending incorrect statements of the amount of his receipts on their behalf, he contrived to be a defaulter to them to the extent of £900 and upwards, and to involve them in bad debts to a much greater amount.

He then took the benefit of the insolvent debtors’ act.

Instead of having been employed in the Manchester commission tea trade in the year 1824, as the defendant had stated to the plaintiffs, it appeared that he had, at the recommendation of the defendant, been taken into partnership without any capital by Mr. R. C. Stewart, a warehouseman in London, in July, 1823; but great losses having been incurred in that concern, aggravated by a robbery to some amount, Mr. Stewart closed the concern and dissolved the partnership in October, 1824.

Jacque was then indebted to Stewart in the sum of £800, which he undertook by deed, dated November 13, 1824, to pay by instalments, in two, three, and four years; but nothing was ever paid.

All this was known to the defendant, who had acted throughout for Jacque, and had negotiated the terms of the dissolution of partnership.

Letters were also put in, written by the defendant to Jacque, after the exposure of the Manchester transactions, in which the defendant exhorted Jacque to write various falsehoods to the plaintiffs with a view to the exculpation of the defendant, and to conceal from the plaintiffs his knowledge of some of the transactions at Manchester.

When the defendant was first applied to on the subject by the plaintiffs, he expressed his regret that his house should have been the means of introducing an unworthy agent to the plaintiffs; but that as they had been instrumental in bringing the loss on the plaintiffs, he would see his partner on the subject, and see what could be done towards relieving them from it. No step of that kind having been taken, the present action was commenced.

Tindal, C. J., told the jury to consider whether the representation complained of by the plaintiffs had ever been made, and if made, whether it was false within the knowledge of the defendant; for unless it were false within his knowledge, the action did not lie.

The jury returned a verdict for the defendant, which was set aside by the Court. [6 Bingham, 396.]

Upon a new trial, Tindal, C. J., told the jury that if the defendant made representations concerning Jacque, the tendency of which was to occasion loss to the plaintiff, knowing such representations to be false, and intending thereby to benefit himself, he was guilty of fraud in the common acceptation of the term; if he made such representations, knowing them to be false, without proposing thereby any advantage to himself, but proposing, perhaps, to benefit a third person, he was guilty of fraud in the legal acceptation of the term, and responsible to the plaintiff for any injury resulting from such representations.

The jury thereupon found for the plaintiff, damages £800; but added: “We consider there was no actual fraud on the part of the defendant, and that he had no fraudulent intention, although what he has done constituted a fraud in the legal acceptation of the term.”

_Jones_, Serjt., now contended that this amounted to a verdict for the defendant; and therefore moved that the verdict might be entered for him, instead of the plaintiff.

He urged, at some length, nearly the same arguments as he had advanced on a former occasion, and adverted to the same authorities (see 6 Bing. 402); contending that this action was substituted for the ancient writ of deceit; that the gist of the action was a fraudulent intent on the part of the defendant to injure the plaintiff by deceiving him; that a defendant was not responsible for the consequences of a statement, merely because he knew it to be false; he was not responsible for the consequences of a bare lie; in order to render him responsible, it ought to be shown that he intended to defraud the plaintiff of something by the deceit he had practised. That if a party were responsible for the consequences of a lie told without any intention to defraud the hearer of something, no line could be drawn, and parties might be called on to answer for those excusable untruths, which were sometimes told for the purpose of avoiding a greater mischief.

TINDAL, C. J. No sufficient ground has been laid to induce us to disturb the verdict which has been found for the plaintiff. The application arises on a misconception of what the jury have found. They first deliver a verdict for the plaintiff, with damages, and then add, that in point of fact they consider the defendant had no fraudulent intention, although he had been guilty of fraud in the legal acceptation of the term.

Their attention had been drawn by me to two classes of motives possible on the part of the defendant; first, a desire to benefit himself by making a statement which he knew to be false; secondly, a desire to benefit some third person; and I stated that, although there might be no intention on his part to obtain an advantage for himself, it would still be a fraud, for which he was responsible in law, if he made representations productive of loss to another, knowing such representations to be false.

The jury in finding that he had no intention to defraud mean only that he was not actuated by the baser motive of obtaining an advantage for himself, but that he was guilty of fraud in law by stating that which he knew to be false, and which was the cause of loss to the plaintiff.

The question, therefore, is, whether, if a party makes representations which he knows to be false, and occasions injury thereby, he is not liable for the consequences of his falsehood.

It would be most dangerous to hold that he is not.

The confusion seems to have arisen from not distinguishing between what is fraud in law and the motives for actual fraud. It is fraud in law if a party makes representations which he knows to be false, and injury ensues, although the motive from which the representations proceeded may not have been bad; the person who makes such representations is responsible for the consequences; and the verdict, therefore, in this case ought not to be disturbed.

PARK, J. I am of the same opinion. In what fell from this Court in the case of Tapp _v._ Lee, and upon the former decision of the present case, the doctrine has been laid down most accurately. It would be unfair to take the expressions of the jury, without connecting them with what the Chief Justice had just presented for their consideration. It is clear that the jury meant to draw the distinction between the sordid motive of personal advantage and the legal fraud which might be committed by a representation false within the knowledge of the speaker, although made without any view to his own advantage. For such a representation the defendant is responsible if mischief ensues, whatever may have been his motive; and as to its being necessary to prove the motive by which he was actuated: when the case was last before the Court, Tindal, C. J., said, “I am not aware of any authority for such a position, nor that it can be material what the motive was; the law will infer an improper motive, if what the defendant says is false within his own knowledge, and is the occasion of damage to the plaintiff.”

Here the defendant said “That his friend was so excellent a young man, that he would rather trust him without security than most men with;” when he knew the contrary to be the fact, he was guilty of a fraud in law in making such a representation; and fraud in law is sufficient to support this action.

GASELEE, J. When this verdict is taken in connection with the direction of the Chief Justice, there is an end to all doubt as to the meaning of the jury, and the finding is a perfect finding. What the jury meant by actual fraud was a sordid regard to self-interest; but the legal fraud, which is sufficient to sustain the action, was complete when the intention to mislead was followed by actual injury.

BOSANQUET, J. There seems to me to be no reason for disturbing this verdict. In the course of the trial, it is probable that improper motives had been ascribed to the defendant. The Chief Justice, therefore, stated to the jury, and stated correctly, that motives of that description in the defendant were not essential to the plaintiff’s action. If a person tells a falsehood, the natural and obvious consequence of which, if acted on, is injury to another, that is fraud in law. Coupling that with what the Chief Justice addressed to the jury, their verdict only means that the defendant did not propose to benefit himself, perhaps intended to benefit another; but that what he said, intending to benefit another, was false within his own knowledge, injurious to the party who received the communication, and, consequently, a fraud in the legal acceptation of the term.

_Rule refused._[346]

POLHILL _v._ WALTER
IN THE KING’S BENCH, JANUARY 20, 1832.
_Reported in 3 Barnewall & Adolphus, 114._

LORD TENTERDEN, C. J.[347] In this case, in which the defendant obtained a verdict on the trial before me at the sittings after Hilary Term, a rule _nisi_ was obtained to enter a verdict for the plaintiff, and cause was shown during the last term. The declaration contained two counts: the first stated, that a foreign bill of exchange was drawn on a person of the name of Hancorne, and that the defendant falsely, fraudulently, and deceitfully did represent and pretend that he was duly authorized to accept the bill by the procuration, and on behalf of Hancorne, and did falsely and fraudulently pretend to accept the same by the procuration of Hancorne. It then proceeded to allege several indorsements of the bill, and that the plaintiff, relying on the pretended acceptance, and believing that the defendant had authority from Hancorne to accept, received the bill from the last indorsee in discharge of a debt; that the bill was dishonored, and that the plaintiff brought an unsuccessful action against Hancorne. The second count contained a similar statement of the false representation by the defendant, and that he accepted the bill in writing under pretence of the procuration from Hancorne; and then proceeded to describe the indorsements to the plaintiff, and the dishonor of the bill, and alleged, that thereupon it became and was the duty of the defendant to pay the bill as the acceptor thereof, but that he had not done so.

On the trial it appeared, that when the bill was presented for acceptance by a person named Armfield, who was one of the payees of the bill, Hancorne was absent; and that the defendant, who lived in the same house with him, was induced to write on the bill an acceptance as by the procuration of Hancorne, Armfield assuring him that the bill was perfectly regular, and the defendant fully believing that the acceptance would be sanctioned, and the bill paid at maturity, by the drawee. It was afterwards passed into the plaintiff’s hands, and being dishonored when due an action was brought against Hancorne; the defendant was called as a witness on the trial of that action, and he negativing any authority from Hancorne, the plaintiff was nonsuited. I left to the jury the question of deceit and fraud in the defendant, as a question of fact on the evidence, and the jury having negatived all fraud, the defendant had a verdict, liberty being reserved to the plaintiff to move to enter a verdict, if the Court should think the action maintainable notwithstanding that finding.

On the argument, two points were made by the plaintiff’s counsel. It was contended, in the first place, that although the defendant was not guilty of any fraud or deceit, he might be made liable as acceptor of the bill; that the second count was applicable to that view of the case; and that, after rejecting the allegations of fraud and falsehood in that count, it contained a sufficient statement of a cause of action against him, as acceptor. But we are clearly of opinion that the defendant cannot be made responsible in that character. It is enough to say that no one can be liable as acceptor but the person to whom the bill is addressed, unless he be an acceptor for honor, which the defendant certainly was not.

This distinguishes the present case from that of a pretended agent making a promissory note (referred to in Mr. Roscoe’s Digest of the Law of Bills of Exchange, note 9, p. 47), or purchasing goods in the name of a supposed principal. And, indeed, it may well be doubted if the defendant, by writing this acceptance, entered into any contract or warranty at all, that he had authority to do so; and if he did, it would be an insuperable objection to an action as on a contract by this plaintiff, that at all events there was no contract with, or warranty to him.

It was in the next place contended that the allegation of falsehood and fraud in the first count was supported by the evidence; and that, in order to maintain this species of action, it is not necessary to prove that the false representation was made from a corrupt motive of gain to the defendant, or a wicked motive of injury to the plaintiff; it was said to be enough if a representation is made which the party making it knows to be untrue, and which is intended by him, or which, from the mode in which it is made, is calculated to induce another to act on the faith of it, in such a way as that he may incur damage, and that damage is actually incurred. A wilful falsehood of such a nature was contended to be, in the legal sense of the word, a fraud; and for this position was cited the case of Foster _v._ Charles, 6 Bing. 396; 7 Bing. 105, which was twice under the consideration of the Court of Common Pleas, and to which may be added the recent case of Corbet _v._ Brown, 8 Bing. 33. The principle of these cases appears to us to be well founded, and to apply to the present.

It is true that there the representation was made immediately to the plaintiff, and was intended by the defendant to induce the plaintiff to do the act which caused him damage. Here, the representation is made to all to whom the bill may be offered in the course of circulation, and is, in fact, intended to be made to all, and the plaintiff is one of those; and the defendant must be taken to have intended, that all such persons should give credit to the acceptance, and thereby act upon the faith of that representation, because that, in the ordinary course of business, is its natural and necessary result.

If, then, the defendant, when he wrote the acceptance, and thereby, in substance, represented that he had authority from the drawee to make it, knew that he had no such authority (and upon the evidence there can be no doubt that he did), the representation was untrue to his knowledge, and we think that an action will lie against him by the plaintiff for the damage sustained in consequence.

If the defendant had had good reason to believe his representation to be true, as, for instance, if he had acted upon a power of attorney which he supposed to be genuine, but which was, in fact, a forgery, he would have incurred no liability, for he would have made no statement which he knew to be false: a case very different from the present, in which it is clear that he stated what he knew to be untrue, though with no corrupt motive.

It is of the greatest importance in all transactions that the truth should be strictly adhered to. In the present case, the defendant no doubt believed that the acceptance would be ratified, and the bill paid when due, and if he had done no more than to make a statement of that belief, according to the strict truth, by a memorandum appended to the bill, he would have been blameless. But then the bill would never have circulated as an accepted bill, and it was only in consequence of the false statement of the defendant that he actually had authority to accept, that the bill gained its credit, and the plaintiff sustained a loss. For these reasons we are of opinion that the rule should be made absolute to enter a verdict for the plaintiff.

_Rule absolute._[348]

BUTTERFIELD _v._ BARBER
SUPREME COURT, RHODE ISLAND, MAY 15, 1897.
_Reported in 20 Rhode Island Reports, 99._

Case for deceitful representations by a debtor to his creditor, the plaintiff having subsequently purchased the claim from the latter in the form of a promissory note. Heard on defendant’s petition for new trial.

PER CURIAM. Assuming that the representations testified to by the plaintiff were made by the defendant, the testimony shows that they were made for the purpose of being communicated to Murphy, to procure an extension of time for the payment of his claim against the defendant. At the time they were made the defendant had no expectation that the note, which was subsequently made, was to be taken by the plaintiff, who, in the meantime, had purchased the claim from Murphy. We do not think that in these circumstances the plaintiff had the right to rely on the representations, if they were made, because they were not made with the intention of inducing his action, and consequently that he has no ground to maintain an action for deceit.

Case remitted to the Common Pleas Division, with direction to enter judgment for the defendant for costs.[349]