Francis H. (Francis Hermann) Bohlen.

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tion of Devonport refused their consent to the company opening the
completed part of their lines until the remainder was ready for use.
In consequence the company was wound up, and immediately there-
after the plaintiff hrought this action against the defendants.

The action came on for hearing before Mr. Justice Stirling,
and both parties appeared and testified.

The defendants pleaded that statements complained of, if un-
true, were made in good faith, and that they had reasonable grounds
for believing them to be true.

The evidence given by them showed that four months after the
prospectus was issued, they had in fact obtained the consent of the'
corporation of Devonport for the use of steam-power for the part
of the line within that corporation.

Mr. Wilde, one of the defendants, testified that while he was
aware that the consent of the Board of Trade was necessary, he
thought that such consent had practically been given; that before
obtaining the Act the plans had been laid, pursuant to standing
orders, before the Board of Trade with the statement that it \yas
intended to use mechanical as well as horse-power, and no objection
having been raised by the Board of Trade, and the bill having been
obtained, he took it for granted that no objections would be raised
afterwards, provided the works w-ere properly carried out.

The testimony of Mr. Pethick, another defendant, w^as substan-
tially the same; he thought that the Board of Trade had no more
right to refuse their consent than they would in the case of a railway.
It never entered his thoughts that after the Board had passed their
plans, with the knowledge that it was proposed to use steam, they
would refuse their consent,

Mr. jNIoore testified that he understood from the statements of
the solicitor of the Board of Trade that the consent had already
been obtained and the company had the right to use steam.

The testimony of the other two defendants was substantially
that the company having got the Act of Parliament, they thought
that the consent of the Board of Trade would follow as a matter of
course.

Stirling, Justice, dismissed the action, having come to the
conclusion that the directors all believed that the company had the
rights stated in the prospectus and that their belief was not un-
reasonable, nor was their conduct so reckless or careless that they
ought to be held liable in an action of deceit.

On appeal by the plaintiff to the Court of Appeals the judgment
of Stirling, J., was reversed by Cotton. Hannen and Lopes, L. JJ..
on the ground that while the defendants honestly believed that the
statements in the prospectus were true, the statements were madej
without any reasonable grounds for believing them. The defendants
appealed from the decision of the Court of Appeals to the House of
Lords. The House of Lords unanimously reversed the decision of
the Court below and unanimously restored the opinion of Stirling, J.



694 PEEK Z'. DERRY.

Lord Fitzgerald — "The action for deceit at common law is
founded on fraud. It is essential to the action that moral fraud
should be established, and since the case of Collins v. Evans, 5 O. B.
804, 820, in the Exchequer Chamber, it has never been doubted that
fraud must concur with tiie false statement to maintain the action.
It would not be sufficient to shew that a false representation had
been made. It must further be established that the defendant
knew at the time of making it that the representation was untrue, or,
to adopt the language of the learned editors of the Leading Cases,
that 'the defendant must be shewn to have been actually and fraudu-
llently cognisant of the falsehood of his representation or to have
Imade it fraudulently without belief that it was true.' "

(The opinions of Lords Halsbury, L. C, and Bramwell are
omitted.)

Lord Hersciiell: — "j\Iy Lords, in the statement of claim in
this action the respondent, who is the plaintiff, alleges that the ap-
pellants 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 com-
pany.

"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 per-
son who made it, the contract, having been obtained by misrepre-
sentation, 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 ob-
servations made by learned judges in actions for rescission have beei^
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 extends beyond the particular action which was
dealt with, it must be remembered that the learned judges vere not
engaged in determining what is necessary to support an .ction 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 oerson desirous of ascertaining the fact for the purpose of deter-



PEEK V. DERRY. 695

mininj^ his course accordingly, and has been held bound to make
good the assurances he has given. Burrozves v. Lock, lo Ves. 470,
may be cited as an example, where a trustee has been asked by an
intended lender, upon the security of a trust fund, whether notice
of any prior incumbrance upon the fund had been giveato 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 atiords no defense
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 con-
sider the law which has been laid down by the learned judges in the
Court of Appeals 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. Kewhould, 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
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 w-hom 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 reason-
able ground for believing it to be true, I find myself, wnth all respect,
unable to agree that these are convertible expressions. To make a
statement careless whether it be true or false, and therefore with-
out any real belief in its truth, appears to me to be an essentially dif-
ferent 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 was no sufficient grounds to warrant his belief. I shall have to
consider hereafter whether the want of reasonable ground for believ-
ing the statement made is sufficient to support an action of deceit. T
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,
aft"ords sufficient foundation for such an action.

That the learned Lord Justice thought that if a false statement
were made without reasonable ground for believing it to be true an



696 PEEK Z'. DERRY.

action of deceit would lie, is clear from a subsequent passage in his
judgment. He says that when statements are made in a prospectus
like the present, to be circulated amongst persons in order to influ-
ence them to take shares, 'there is a duty cast upon the director or
other persoi> who makes those statements to take care that there are
no expressions in them which in fact are false ; to take care that he
has reasonable ground for the material statements which are con-
tained in that document which he prepares and circulates for the
very purpose of its being acted upon by others.' "

Sir James Hannen says : "I take the law to be that if a man
takes upon himself to assert a thing to be true which he does not
know to be true, and has no reasonable ground to believe to be true,
in order to induce another to act upon the assertion, who does so
act and is thereby damnified, the person so damnified is entitled
to maintain an action for deceit." Again, Lopes, L. J., states what,
in his opinion, is the result of the cases. I will not trouble your
Lordships with quoting the first three propositions which he lays
down, although I do not feel sure that the third is distinct from,
and not rather an instance of, the case dealt with by the second
proposition. But he says that a person making a false statement,
intended to be and in fact relied on by the person to whom it is
made, may be sued by the person damaged thereby : "Fourthly, if it
is untrue in fact, but believed to be true, but without any reasonable
grounds for such belief."

It will thus be seen that all the learned judges concurred in
I 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 the 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.

(He then discusses the cases of Pasley v. Freeman, 2 Smith's
L. C. 74; Crosse v. Gardiner, Carth. 90; Risney v. Selby, i Salk.
211 ; Haycraft v. Creasy, 2 East, 92 ; Foster v. Charles, 7 Bing. 105 ;
Corhett v. Brozvn, 8 Bmg. 33; Polhill v. Walter, 3 B. & Ad. 114;
Crawshay v. Thompson, 4 M. & Gr. 357 ; Moens v. Heyzvorth, 10
M. & W. at p. T57 ; Taylor v. Ashton, 11 M. & W. 401 ; and Collins
v. Evans, 5 Q. B. 804, 820 ; in all of which he points out that knowl-
edge of the falsehood of the thing asserted is regarded as essential
to actionable fraud.)

In Evans v. Edmonds, 13 C. B. 777; Maule J. expressed an im-



PF.F.K Z'. DERRY. 697

portant opinion, often quoted, which has been thought to carry the
law further than the previous authorities, though I do not think it
really does so. He said : "if a man having no knowledge whatever
on the subject takes upon himself to represent a certain state of facts
to exist he does so at his peril, and if it be done either with a view
to secure some benefit to himself or to deceive a third person he is
in law guilty of a fraud, for he takes upon himself to warrant his
own belief of the truth of that which he so asserts. Although the
person making the representation may have no knowledge of its
falsehood the representation may still have been fraudulently made."
The foundation of this proposition manifestly is, that a person
making a statement which he intends another to act upon must be
taken to warrant his belief in its truth. Any person making such a
statement must always be aware that the person to whom it is made
will understand, if not that he who makes it knows, yet at least that
he believes it to be true. And if he has no such belief he is as much
guilty of fraud as if he had made any other representation which
he knew to be false, or did not believe to be true.-

I now arrive at the earliest case in which I find the suggestion
that an untrue statement made without reasonable ground for be-
lieving it will support an action for deceit. In Western Batik of
Scotland v. Addic, Law Rep. i H. L., Sc. 145, 162, the Lord Presi-
dent told the jury "that if a case should occur of directors taking
upon themselves to put forth in their report statements of import-
ance in regard to the affairs of the bank false in themselves and
which they did not believe, or had no reasonable ground to believe
to be true, that would be a misrepresentation and deceit." Exception
having been taken to this direction without avail in the Court of
Session, Lord Chelmsford in this House said: "I agree in the propri-
ety of this interlocutor. In the argument upon this exception the
case was put of an honest belief being entertained by the directors,
of the reasonableness of which it was said the jury, upon this direc-
tion, would have to judge. But supposing a person makes an untrue
statement which he asserts to be the result of a bona fide belief in
its truth, .how can the bona fides be tested except by considering
the grounds of such belief? And if an untrue statement is made
founded upon a belief which is destitute of all reasonable grounds,
or which the least inquiry would immediately correct, I do not see
that it is not fairly and correctly characterized as misrepresentation
and deceit."

I think there is here some confusion between that which is
evidence of fraud, and that which constitutes it. A consideration of
the grounds of belief is no doubt an important aid in ascertaining
whether the belief was really entertained.^ A man's mere assertion



'"If, when a man thinks it is highly probable that a thing exists, he
chooses to say he knows the thing exists, that is really asserting what is false
— it is positive fraud." Lord Blacklnirn. Brownlie v. Campbell. L. R. 5 A. C.
925 (1880), p. 953.

'So in Griszi'old v. Cebbie. 126 Pa. 353 (1889V Mitchell. J., says, "the
plaintiff had proved that the statement was made, and that in fact it was un-
true." The defendant had given evidence as to her innocence of the mis-



698 PEEK Z'. DERRY.

that he beHeved the statement he made to be true is not accepted as
conchisive proof that he did so. There may be such an absence of
reasonable ground for his behef as, in spite of his assertion, to carry
conviction to the mind that he had not really the belief which he
alleges. If the learned Lord intended to go further, as apparently
he did, and to say that though the belief was really entertained, yet
if there were no reasonable grounds for it, the person making the
statement was guilty of fraud in the same way as if he had known
what he stated to be false, I say, with all respect, that the previous
authorities afford no warrant for the view that an action of deceit
would lie under such circumstances. A man who forms his belief
carelessly, or is unreasonably credulous, may be blameworthy when
he makes a representation on which another is to act, but he is not,
in my opinion, fraudulent in the sense in which that word was used
in all the cases from Paslcy v. Freeman, 2 Smith's L. C. 74, down to
that with which I am now dealing. Even when the expression
"fraud in Law" has been employed, there has always been present,
^and regarded as an essential element, that the deception was wilful
'either because the untrue statement was known to be untrue, or be-
cause belief in it was asserted without such belief existing.

I have made these remarks with the more confidence because
they appear to me to have the high sanction of Lord Cranworth. In
delivering his opinion in the same case he said : "I confess that my
opinion was that in what his Lordship (the Lord President) thus
stated, he went beyond what principle warrants. If persons in the
situation of directors of a bank make statements as to the condition
of its affairs which they bona fide believe to be true, I cannot think
they can be guilty of fraud because other persons think, or the Court
thinks, or your Lordships think, that there was no sufficient ground
to warrant the opinion which they had formed. If a little more
care and caution must have led the directors to a conclusion different
from that which they put forth, this may aft'ord strong evidence to
show that they did not really believe in the truth of what they stated,



representation, but John Griswold (her agent, who sold the land and made
the statements,) "had not been called to state his knowledge or belief, nor to
explain his statements. In this state of the evidence the judge submitted to
the jury whether Griswold had any reasonable grounds for believing his
statements to be true, or, in other words, could the jury find from the cir-
cumstances, as shown by the evidence, any ground to suppose that Griswold
did so believe. The language was a fair statement of so much of the general
rule as applied to the evidence then before the jury. As it is well stated by
the learned judge in his opinion on the rule for a new trial, 'Had John Gris-
wold been put on the stand, to vindicate his good faith and state the grounds
of his belief, or show how he came to believe in the absence of information
. it might have been proper to instruct the jury that whether the
causes which influenced his mind were or were not reasonable, or such as
they could approve, still if he acted in good faith and expressed a sincere
opinion, he should not be found guilty of fraud. But as the case actually
stood, such an instruction would have tendered to mislead, by raising an issue
for which there was no foundation in the evidence.' " Compare with this,
Watson. V. Jones, note to Scholfield Gear and Pulley Co. v. Scholfield, post.



PEEK r. DERRV. 699

and so that they were guilty of fraud. But this would be the conse-
quence not of their having stated as true wiiat they had not reason-
able ground to believe to be true, but as their having stated as true
what they did not believe to be true."

Sir James Hannen, in his judgment below, seeks to limit the
application of what Lord Cranworth says to cases where the state-
ment made is a matter of opinion only. With all deference I do not
think it was extended to be or can be so limited. The direction
which he was considering, and which he thought went beyond what
true principle w'arranted, had relation to making false statements
of imj)ortance in regard to the affairs of the bank. When this is
borne in mind, and the words which follow these quoted by Sir
Tames Hannen are looked at, it becomes to my mind obvious that
Lord Cranworth did not use the words "the opinion which they had
formed" as meaning anything dififerent from "the belief which they
entertained."

The opinions expressed by Lord Cairns in two well-known cases
have been cited as though they supported the view that an action of
deceit might be maintained without any fraud on the part of the
person sued. I do not think they bear any such construction. In
the case of Reese Silver Mining Co. v. Smith, Law Rep. 4 H. L. 64,
79, he said: "If persons take upon themselves to make assertions as
to which they are ignorant whether they are true or untrue they
must, in a civil point of view, be held as responsible as if they had
asserted that which they knew to be untrue." This must mean thatl
the persons referred to were conscious when making the assertion
that they were ignorant whether it was true or untrue. For if not,
it might be said of an}' one who innocently makes a false statement.
He must be ignorant that it is untrue, for otherwise he w^ould not
make it innocently ; he must be ignorant that it is true, for by the
hypothesis it is false. Construing the language of Lord Cairns in
the sense I have indicated, it is no more than the adoption of the
opinion expressed by Maule J- in Evans v. Edmonds, 13 C. B. yyy.
It is a case of the representation of a person's belief in a fact when
he is conscious that he knows not whether it be true or false, and
when he has therefore no such belief. When Lord Cairns speaks of
it as not being fraud in the more invidious sense, he refers, I think,
only to the fact that there was no intention to cheat or injure.

(He then discusses the language used by Lord Cairns in Peek v.
Gurney, Law Rep. 6 H. L. 377, 409, which he holds to be but a for-
mation of the law as laid down in Poster v. Charles and Polhill v.
Walker.)

I come now to very recent cases. In JJ'eir v. Bell, 3 Ex. D. 23S,
Lord Bramwcll vigorously criticised the expression "legal fraud,"
and indicated a very decided opinion that an action founded on fraud
could not be sustained except by the proof of fraud in fact. I have
already given my reasons for thinking that, until recent times at all
events, the judges who spoke of fraud in law did not mean to ex-
clude the existence of fraud in fact, but only of an intention to
defraud or injure.



^OO PEEK V. DERRY.

It onl}^ remains to notice the case of Smith v. Chadxvlck, 20
Ch. D. 2"/, 44, 67. The late Master of Rolls there said, "A man may
issue a prospectus or make any other statement to induce another
to enter into a contract, believing that his statement is true, and not
intending to deceive, but he may through carelessness have made
statements which are not true, and if he does so he is liable in an
action for deceit ; he cannot be allowed to escape merely because he
had good intentions, and did not intend to defraud." This, like
everything else that fell from that learned judge, is worthy of re-
spectful consideration, ^^'ith the last sentence I quite agree, but I
cannot assent to the doctrine that a false statement made through
carelessness, and which ought to have been known to be untrue, of
itself renders the person who makes it liable to an action for deceit.
This does not seem to me by any means necessary to amount to
fraud, without which the action will not, in my opinion, lie.

It must be remembered that it was not requisite for Sir George
Jessel in Smith v. Chadivick, supra, to form an opinion whether a
statement carelessly made, but honestly believed, could be the
foundation of an action of deceit. The decision did not turn on any
such point.

The case of Smith v. Chadwick was carried to your Lordships'
House. Lord Selborne thus laid down the law : "I conceive that in
an action of deceit it is the duty of the plaintiff to establish two
things: first, actual fraud, which is to be judged of by the nature
land character of the representations made, considered with refer-
jence to the object for which they were made, the knowledge or
means of knowledge of the person making them, and the intention
which the law justly imputes to every man to produce those conse-