Francis H. (Francis Hermann) Bohlen.

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quences which are the natural result of his acts ; and secondly, he
must establish that this fraud was an inducing cause to the contract."
It will be noticed that the noble and learned Lord regards the proof
of actual fraud as essential, all the other matters to which he refers
are elements to be considered in determining whether such fraud
has been established. Lord Blackburn indicated that although he
nearly agreed with the Master of the Rolls, that learned judge had
not quite stated what he conceived to be the law. He did not point
out precisely how far he differed, but it is impossible to read his
judgment in this case, or in that of Brownlie v. Campbell, 5 App.
Cas. 925, without seeing that in his opinion proof of actual fraud or
of a wilful deception was requisite.

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 noth-
ing" short of that will suffice. Secondly, fraud is proved when it is
shewn that a false representation has been made (i) 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.



PEEK V. DERRY. 7OI

for one who makes a statement under such circumstances can have
no real bcHef 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. 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, supra, down to
Western Bank of Scotland v. Addic, supra, 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 Cran worth, 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 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 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 indi-
cated, 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, shews 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, appearsto be
in direct conflict with the dictum of Sir George Jessel, and incon-
sistent 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, supra, 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 reason-
able grounds for believing it, and what were the means of knowledge



702 PEEK V. DERRY.

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 rea-
sonable 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.
at p. 592, 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 com-
mercial 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 occa-
sion. 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 desig-
nated.

It now remains for me to apply what I believe to be the law
to the facts of the present case :

"What conclusions ought to be drawn from their evidence? I
think they were mistaken in supposing that the consent of the Board
or Trade would follow as a matter of course because they had ob-
tained their Act. It was absolutely in the discretion of the Board
whether such consent should be given. The prospectus therefore
was inaccurate. But that is not the question. If they believed that
the consent of the Board of Trade was practically concluded by the
passing of the Act, has the plaintiff made out, which it was for
him to do, that they have been guilty of a fraudulent misrepresenta-
tion ? I think not. 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, and I am of opinion that the charge of fraud made
against them has not been established.

It is not unworthy of note that in his report to the Board of



PEEK V. DERRY.



703



Trade, General Hutchinson, who was obviously aware of the pro-
visions of the special Act, falls into the very same inaccuracy of
language as is complained of in the defendants, for he says : "The
Act of 1882 gives the company authority to use mechanical power
over all their system."

I quite admit that the statements of witnesses as to their belief
are by no means to be accepted blindfold. The probabilities must
be considered. Whenever it is necessary to arrive at a conclusion
as to the state of mind of another person, and to determine whether
his belief under given circumstances was such as he alleges, we can
only do so by applying the standard of conduct which our own
experience of the ways of men has enabled us to form ; by asking
ourselves whether a reasonable man would be likely under the cir-
cumstances so to believe. I have applied this test, with the result
that I have a strong conviction that a reasonable man situated as the
defendants were, with their knowledge and means of knowledge,
might well believe what they state they did believe, and consider
that the representation made was substantiallv true.

Adopting the language of Jessel AI. R. in Smith v. Chadzvick,
20 Ch. D. at p. 67, I conclude by saying that on the whole I have
come to the conclusion that the statement, "though in some respects
inaccurate and not altogether free from imputation of carelessness,
was a fair, honest and bona fide statement on the part of the de-
fendants, and by no means exposes them to an action for deceit."

I think the judgment of the Court of Appeal should be reversed.

Order of the Court of Appeal reversed ; order of Stirling J.
restored ; the respondent to pay to the appellants their costs below
and in this House : cause remitted to the Chancery Division.*

Lords Journals ist July 1889.



* Accord: Cantzvcll v. Harding, 249 111. 354 (1911) ; Boddy v. Henry, 113'
Iowa 462 (1901) ; (John Gund Brczving Company v. Peterson. 130 Iowa 301
(1906)), and Riley v. Bell. 120 Iowa 618 (1903) :'which contain language ap-
parently contra, are cases where the actual falsity of statements, made as of
the defendant's personal knowledge, raised a presumption of conscious ignor-
ance or recklessness which prevailed in absence of evidence tending to show
honest belief in the truth) : Cahill v. Applcgarth, 98 Md. 493 (1904) : Ham-
viatt V. Emerson. 27 Maine 308 (1847) : but see Bralev v. Powers. 92 Maine
203 (1898): Boulden v. Stilwell. 100 Md. 543 (1905)"; Riggs v. Thorpe. 67
Minn. 217 (1897) : People's National Bank v. Central Trust Co.. 179 Mo. 648
(1904) : Cumminos v. Cass. 52 N. J. L. 77 (1889). semhle; Kountce v. Ken-
nedv. 147 N. Y. 124 (1895) ; Hadcock v. Osmcr. 153 X. Y. 604 (1897) ; Lam-
berton v. Dunham. 165 Pa. 129 (1895); Scott v. Heisner, 33 Pa. Super. Ct.
286 (1907) Northii'estern S. S. Co. v. Dexter. Norton & Co.. 29 Wash. 565
(1902) : Ilindman v. First National Bank. 112 Fed. 931 (C. C. A. 6th Circ.
1902), per Lurton. J.; Kimher v. Young. 137 Fed. 744 (C. C. A. 8th Circ.
1905). per Hook. T. : Pittsburgh Life & Trust Co. v. Northern Central Ins.
Co.. 140 Fed 888, 148 Fed. 674 (C. C. A. 1906) ; but see Lehigh Zinc &Jron
Co. V. Bamford, 150 U. S. 665 (1893). ""-



704 CHATHAM FURNACE COMPANY V. LAWRENCE MOFFATT.



A'O



KniBER V. YOUNG.

y^ \\ 137 Fed. Rep. 744 (1905). C. C. A. 8th Circ.

* Hook, J. "The basis of the deceit is the actual fraud of the

Ij defendant — his moral delinquency; and therefore his knowledge of
the falsity of the representation, or that which in law is equivalent
thereto, must be averred and proved. There is much confusion
in the authorities upon this subject, due in part to the erroneous
assumption that that which is merely evidence of fraud is equivalent
to the ultimate fact which it tends to prove, ^ and also to the assump-
tion, likewise erroneous, that an untrue representation which would
be sufficient to support a suit in equity for the rescission of a con-
tract is equally as available in an action of deceit."-



/



CHATHAM FURNACE COMPANY v. LAWRENCE

MOFFATT.



^' Supreme Judicial Court of Massachusetts, 1888. 147 Mass. 403.

C. Allen, J. It is well settled in this Commonwealth that the
charge of fraudulent intent, in an action for deceit, may be main-
tained by proof of a statement made, as of the party's own knowl-
edge, which is false, provided the thing stated is not merely a matter
of opinion, estimate, or judgment, but is susceptible of actual knowl-



"See McCain, J., in Baddy v. Henry, 113 Iowa 462 (1901), p. 470, "it is

\one thing to hold as a matter of fact that from certain evidence the court

iwill find knowledge to have existed in a particular case, and on the other

jhand, to charge the jury that such facts, as a matter of law, render the de-

• fendant liable without a finding of knowledge as a fact."

^ See Lurton, J., in Hindman v. First National Bank, 112 Fed. 931 (C. C.
A. 6th Circ. 1902), p. 944: "Such an action (of deceit) differs essentially
from one brought for rescission of a contract on the ground of misrepre-
sentation. In the latter kind of suit it is immaterial whether the represen-
tation was made dishonestly or not. If the contract was obtained by misrep-
resentations, however honestly made, it can not stand."

This distinction is often lost sight of. In Holcomh v. Noble, 69 Mich.
396 (1888), it was held that the only difference between fraud in law and in
equity is in the relief sought and that where the facts could justify relief by
w^y of rescission of the contract they will support an action for money dam-
ages, for which equitable relief is refused only because the legal remedy exists
and is the better. Consequently the defendant if, but only if, he has profited
iby the false statement though he neither knew of its falsity nor was reckless
jin making it, must answer in damages and the plaintiff may recover the loss
Iwhich he has in fact sustained, though it is greater than the benefit which the
^defendant has derived from his innocent misrepresentation.

So in Jordan & Sons v. Pickett, 78 Ala. 331 (1884), it is said that "a con-
tract may be avoided or an action for damages sustained, though the assert-
ing party may not know that the statement is false." Here, too, this 's oakg*
so if the assertor is «•*• a party to the contract or interested in it. but'iya
stranger thereto acting erratuitiouslv ; Einstein, Hirsch & Co. v. Marshall &
Confev. 58 Ala. 153 (1877) ; and New v. Jackson. 95 N. E. 328 (Ind. Ct. of
App. 1911); and Cotzhaiisen v. Simon, 47 Wis. 103 (1879). But it is not
enough that the defendant has made the statements, he must benefit directly
by them, as where he is a party to the contract induced thereby. So he is not



CHATHAM FURNACE COMPAXV f. LAWREXCE MOFFATT. 705

edge ; and in such case it is not necessary to make any further
proof of an actual intent to deceive. The fraud consists in stating
that the party knows the thing to exist, when he does not know it to
exist;' and if he does not know it to exist, he must ordinarily be
deemed to know that he docs not.- Forgetfulness of its existence
after a former knowledge, or a mere belief of its existence, will not
warrant or excuse a statement of actual knowledge.^ This rule has



Jjable if he is acting as an agent for the vendor, though he thereby earns
coin miss ions; Aldrich v. Scribiicr, 154 Mich. 23 (1908), but see the vigorous
dissenting opinion of Alontgomcrj-, J. No distinction is drawn between state-
ments made as of the defendant's personal knowledge and those obviously
founded on information obtained from others, see as to this, Wells v. Driskell,
149 S. W. 205 (Tex. Civ. App. 1912).

Mn Cabot v. Christie, 42 Vt. 121 (1869), it was held that while it was not
enough that the quantity of land was incorrectly represented and while "the
defendant must have made some representation that he did not believe to be ^
true, * * * j^ representation of a fact as of a party's own knowledge, if
it prove false, is, unless explained, inferred to be wilfully false and made
with intent to deceive, at least with respect to the knowledge which is pro-
fessed." "A party," says Steel, J., "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." The judgment of the County Court was reversed
because the Court had charged the jury that the plaintiff could only recover
if "the defendant represented the quantity of land different from what he
knew or believed to be true," whereas there was sufficient evidence to justify
the jury in finding that he represented that he know the quantity while only
having a mere belief in respect thereto.

"The use of the word "ordinarily," like the phrase "unless explained"
used in a similar connection in Cabot v. Christie, 42 Vt. 121 (1869), taken
alone indicates that the falsity of fact capable of personal knowledge and
asserted as of defendant's knowledge, merely raises a presumption that the
defendant either knew his statement to be false or was conscious that he knew
nothing of it, or, at most, that he had onlv a mere belief in its existence, (see
Andrews, C. J., in Koimtze v. Kennedy, 147 X. Y. 124 (1895), p. 130. When
however, it is held, as in the principal case, that "mere forgetfulness will
not warrant or excuse a statement of actual knowledge," or that "due dili-
gence to ascertain the truth is not enough to relieve the maker of them of
liability," as in Huntress v. Blodgctt, 206 ]\lass. 318 (1910) ; or when it is inti-
mated, as in Cabot v. Christie, that the only satisfactory explanation would
be that the statement "could be only understood as a strong expression of
opinion," it seems clear that the courts are not dealing with the evidentiary
value of the actual falsity of the statement as proof of the maker's conscious-
ness that he did not have the knowledge he professed. Mere forgetfulness is
incompatible with conscious ignorance, due dilig'ence to ascertain the truth
may well lead to a mistaken belief in one's knowledge of the fact investigated.
So the defendant is forbidden to show his actual belief in his knowledge of
the fact asserted and such belief becomes immaterial and he is made liable
whether he so believes or not. If this be a presumption at all, it is a con-
clusive presumption of law, which by making an arbitrary equation between
two things not necessarily the same, and making the legal effect of the one —
the actual falsity of the fact asserted — equivalent in legal effect to proof of
the other — consciousness that the defendant docs not know it — changes \\'.z
substantive law while professing to deal only with the effect of evidence.

' It is no defense that the defendant believed or supposed thnt the fact
was true, Johnson v. Cate, 75 Vt. 100 (1902) : even though the belief is bae 1
on reasonable grounds, Cole v. Cassidy. 138 Mass. 437 (1885) ; or even though
due diligence has been used to ascertain the truth. Huntress v. Blodgett. 20')
Mass, 318 (1910) ; or that he has been so informed by others, Fisher v. Me'len,
103 Mass. 503 (1870). Still less can he assert that he had no knowledge at
all on the subject, Bullitt v. Farrar, 42 Minn. 8 (1889).



yo6 CHATHAM FURNACE COMPANY Z'. LAWRENCE MOFFATT.

been steadily adhered to in this Commonwealth, and rests alike on
sound policy and on sound legal principles. Cole v. Cassidy, 138
Mass. 437. 'Litchfield v. Hutchinson, 117 Mass. 195. Milliken v.
Thorndike, 103 Mass. 382. Fisher v. Mellen, 103 Mass. 503.
Stone V. Denny, 4 ^vletc. 151. Page v. 5^i?^ 2 Mete. 371. Hazard v.
Irz^'in, 18 Pick. 95. And though this doctrine has not always been
fully maintained elsewhere, it is supported by the following author-
ities, amongst others. Cooper v. Schlesinger, iii U. S. 148. Bozver
V. Fetin, 90 Penn. St. 359. Brozvnlie v. Campbell, 5 App. Cas. 925,
953, by Lord Blackburn. Reese River Mining Co. v. Smith, L. R. 4
H. L. 64, 79, 80, bv Lord Cairns. Slim v. Croucher, 1 DeG. F. & J.
518, by Lord Campbell. See also, Peek v. Derry, 59 L. T. (N. S.) 78,
which has been published since this decision was announced.

In the present case, the defendant held a lease of land, in which
there was iron ore. The mine had formerly been worked, but opera-
tions had ceased, and the mine had become filled with water and
debris. The defendant sought to sell this lease to the plaintiff, and
represented to the plaintiff, as of his own knowledge, that there was
a large quantity of iron ore, from 8,000 to 10,000 tons, in his ore
bed, uncovered and ready to be taken out and visible when the bed
was free from water and debris. The material point was, whether
this mass of iron ore, which did in truth exist under ground, was
within the boundaries of the land included in the defendant's lease,
and the material part of the defendant's statement was, that this
was in his ore bed ; and the representations were not in fact true
in this, that while in a mine connecting with the defendant's shaft
there was ore sufficient in quantity and location relative to drifts
to satisfy these representations, if it had been in the land covered
by the defendant's lease, that ore was not in the defendant's mine,
but was in the adjoining mine ; and the defendant's mine was in fact
worked out.

During the negotiations, the defendant exhibited to the plaintiff
a plan of a survey of the mine, which had been made for him, and
the plaintiff took a copy of it. In making this plan, the surveyor,
with the defendant's knowledge and assent, did not take the course
of the first line leading from the shaft through which the mine was
entered, but assumed it to be due north; and the defendant never
took any means to verify the course of this line. In point of fact,
this line did not run due north, but ran to the west of north. If it
had run due north, the survey, which was in other respects correct,
would have correctly shown the mass of iron ore in question to have
been within the boundaries of the land covered by the defendant's
lease; but in consequence of this erroneous assumption the survey
was misleading, the iron ore being in fact outside of those bound-
aries. It thus appears that the defendant knew that what pur-
ported to be a survey was not in all respects an actual survey, and
that the line upon which all the others depended hadnot been veri-
fied, but was merelv assumed; and this was not disclosed to the
plaintiff. The defendant took it upon himself to assert, as of his
own knowledge, that this large mass of ore was in his ore bed, that



PALMER V. GOLDBERG. 707

is, within his boundaries ; and in support of this assertion he ex-
hibited the plan of the survey, the first hue of which had not been
verified, and was erroneous. Now this statement was clearly of a
thing which was susceptible of knowledge. A real survey, all the
lines of which had been properly verified, would have shown with
accuracy where the ore was situated. It was within the defendant's
knowledge that the first line of the plan had not been verified. If'
under such circumstances he chose to take it upon himself to say|
that he knew that the mass of ore which had been discovered was
in his ore bed, in reliance upon a plan which he knew was not fully'
verified, it might properly be found that the charge of fraudulent/
misrepresentation was sustained, although he believed his stateme nt ^
to be true.

Exceptions overruled.''



PALMER V. GOLDBERG.

Supreme Court of Jl'isconsin. 128 JVis. 103 (1906).

Marshall J. (p. no). The jury, on evidence proper for their
consideration, found all the facts in respondent's favor essential
to a cause of action for damages caused by an executed conspiracy
to defraud: (i) The combination to injure; (2) representations in
furtherance thereof to induce respondent to part with his horses in
exchange for the promissory note of Bain; (3) the falsity of such
representations; (4) the reasonable reliance thereon as true in part-
ing with the horses in exchange for the note; (5) the injury. The
jury went further and found that when the representations were
made they were not only untrue, but that appellant knew that fact
or ought to have known it, and did not believe them himself. The
latter elements were not essential. McNanghton v. Conklings, 9
Wis. 316; Tobey v. McAllister, 9 Wis. 463 ; Mann v. Stmvell, 3 Pin.
220; Beetle v. Anderson, 95 Wis. 5, 73 N. W. 560; Hart v. Moidton,
104 Wis. 349, 80 N. W. 599 ; Krause v. Busacker, 105 Wis. 350, 8r
N. W. 406; Znnker v. Kuehn, 113 Wis. 421, 88 N. W. 605 ; Matteson
V. Rice, 116 Wis. 328, 92 N. W. T109; Kaiser v. Nummerdor, 120