This rule has been incorporated in the statutes of some of the states. Thus, in Alabama and Georgia, it is provided: "Misrepresentation of a material fact, made willfully to deceive, or recklessly without knowledge, and acted on by the opposite party, or if made by mistake and innocently, and acted on by the opposite party, constitutes legal fraud." 529 § 107. Same; Reasonable Ground to Believe Statements True. In several of the states where the substantive law has been codified, the statutes declare that "actual fraud” may be committed by "the positive assertion in a manner not warranted by the information of the party making it, of that which is not true, though he believes it to be true," and that "deceit" shall include, among other things, "the assertion as a fact of that which is not true, by one who has no reasonable ground for believing it to be true."530 Under these statutes, therefore, a positive representation which is actually untrue has exactly the same effect, when the person making it has no reasonable ground for believing it to be true, as when he knows it to be false.531 And on the other hand, if the person making the representation believes it to be true, and has reasonable grounds for so believing, there is no actionable fraud committed, however false it may actually be.582 In some other states also this principle is recognized as valid. That is to say, it is held that a statement or representation is considered false and fraudulent 529 Code Ala. 1907, § 4298; Civ. Code Ga. 1895, § 4026. And see Southern States Fire & Casualty Ins. Co. v. Wilmer Store Co., 180 Ala. 1, 60 South. 98; Hafer v. Cole, 176 Ala. 242, 57 South. 757; Shahan v. Brown, 167 Ala. 534, 52 South. 737; Camp v. Carithers, 6 Ga. App. 608, 65 S. E. 583; Walters v. Eaves, 105 Ga. 584, 32 S. E. 609. 530 Civ. Code Cal., §§ 1572, 1710; Rev. Civ. Code Mont., §§ 4978, 5073; Rev. Civ. Code N. Dak., §§ 5293, 5388; Rev. Civ. Code S. Dak., §§ 1201, 1293; Rev. Laws Okl. 1910, §§ 903, 994. 531 Howe v. Martin, 23 Okl. 561, 102 Pac. 128, 138 Am. St. Rep. 840; Crandall v. Parks, 152 Cal. 772, 93 Pac. 1018; Garvin v. Harrell, 27 Okl. 373, 113 Pac. 186, 35 L. R. A. (N. S.) 862, Ann. Cas. 1912B, 744; Joines v. Combs, 38 Okl. 380, 132 Pac. 1115. If the seller does not believe his representations to be true, it is no defense that he gained the information upon which they were based from an apparently reliable source. Hockensmith v. Winton, 11 Ala. App. 670, 66 South. 954. 532 Hodgkins v. Dunham, 10 Cal. App. 690, 103 Pac. 351. in law, although the person making it does not know it to be false, if he has no reasonable ground to believe it to be true; that is, if he either makes the statement with absolutely no knowledge of its truth or falsity, or asserts it as a fact when he has such slight and inconsequential knowledge of the conditions that no reasonably prudent man would act upon such information, in a matter important to himself, without a further investigation.533 And conversely, if the circumstances are such as to justify a belief in the truth of the statement made, it is not fraudulent, although false,534 But while this test may be fairly satisfactory in an action of deceit or an action to recover damages for alleged fraud, it has been considered inappropriate when the relief sought is the rescission of a contract or other obligation. To establish the fact that the party making a representation believed it to be true, and had reasonable grounds for his belief, will prove his sincerity, and so eliminate from the case that element of turpitude or sinister design which lies at the base of any action of tort. But one who relies upon a false representation, and is injured thereby, is in exactly the same position whether the party making the representation was sincere or insincere. There may not have been such conscious fraud as would lay a foundation for the recovery of damages; yet it does not follow that the injured party should not be entitled to rescind. Accordingly, some of the decisions have rejected the test proposed, as to whether the party had or had not reason to believe his representations true, and have found a sufficient ground for rescission in the deception of, and consequent injury to, the other party.535 And it has been held by a court of high authority that even due diligence to ascertain the truth in 533 Western Bank of Scotland v. Addie, L. R. 1 Sc. App. 145; Reese River Co. v. Smith, L. R. 4 H. L. 64; Weir v. Bell, 3 Exch. Div. 238; Etna Ins. Co. v. Reed, 33 Ohio St. 283; Hunter v. French League Safety Cure Co., 96 Iowa, 573, 65 N. W. 828; Crooker v. White, 162 Ala. 476, 50 South. 227; Cox v. Frazer, 21 Ky. Law Rep. 579, 52 S. W. 796. 534 Gill v. Anglo-American Ass'n, 21 Ky. Law Rep. 690, 52 S. W. 535 Hammatt v. Emerson, 27 Me. 308, 46 Am. Dec. 598. regard to statements made as of matters of fact within one's own knowledge is not enough to relieve the maker of them of liability, if they are false and are relied upon as true, and if the person to whom they are made suffers loss thereby.536 Still there may be circumstances under which a defendant might well be entitled to plead his reasonable belief in the truth of his statements, as, for instance, where the determination of the truth of the matter requires technical or specialized knowledge, and the statements were based on advice or information received from persons relied on as possessing that kind of knowledge and as imparting it truthfully. Thus, fraud cannot be imputed by law to one who makes representations concerning the title to real estate in honest reliance on a certificate furnished by the keeper of the records and on the advice of counsel.537 And where a defendant is shown to have used care in investigating the validity of a franchise owned by a corporation which he represented, and was advised by counsel on whom he had a right to rely, he is not liable for fraud in representing the validity and value of such franchise, in selling the stock and bonds of the corporation, although the franchise afterwards proved to be almost worthless.538 But on the other hand (even under the statutory provisions mentioned in the beginning of this section), where a seller makes representations as to the kind or quality of the goods sold, which are relied on by the purchaser, the seller is liable for any damages accruing to the purchaser by reason of the falsity of the representations, even though the seller believed the representations to be true, since, in this case, he is bound to know as a matter of fact whether or not the representations are true.539 § 108. Intention to Deceive or Mislead.-In an action of deceit or to recover damages for fraudulent misrepresentations, or where such misrepresentations are set up in defense to an action on a contract, it is necessary to allege and show 536 Huntress v. Blodgett, 206 Mass. 318, 92 N. E. 427. an intention to deceive, or to defraud by means of a deception, and the action cannot be sustained, or the defense prevail, if it appears that the representations were made innocently and in good faith, without any intention to deceive, or through mere negligence or inadvertence.540 Thus, for example, it has been held that a pawnbroker who negligently issues a ticket for a diamond ring, when the stone in the ring is not genuine, is not liable in an action for fraud brought by one who bought the pawn ticket and afterwards redeemed the ring.541 And so, to recover against a "Christian Science" healer, on account of deceit based on his statement that he could and would cure the plaintiff, the latter must not only prove that the representation was false, but also that it was made with a fraudulent intent.542 This rule, however, has not been universally accepted. In a few states it is held that where one has made representations of fact, shown to be false, and on which the other party has relied, the good faith of the party making the representations is immaterial in an action by the injured party to recover damages, or in an action by the other party where the injured party pleads the fraud as a defense, because in such cases the person making the representations should be held responsible for the reasonable consequences of his acts. 543 Some of the decisions have also applied a similar rule in cases where the action was not one of tort, but to obtain the 540 Pittsburg Life & Trust Co. v. Northern Central Life Ins. Co. (C. C.) 140 Fed. 888, affirmed, 148 Fed. 674, 78 C. C. A. 408; Brown v. Le May, 101 Ark. 95, 141 S. W. 759; Hodgkins v. Dunham, 10 Cal. App. 690, 103 Pac. 351; Andalman v. Chicago & N. W. Ry. Co., 153 Ill. App. 169; Furnas v. Friday, 102 Ind. 129, 1 N. E. 296; Clement, Bane & Co. v. Swanson, 110 Iowa, 106, 81 N. W. 233; Pierce v. Cole, 110 Me. 134, 85 Atl. 567; Jolliffe v. Collins, 21 Mo. 338; Stratton v. Dudding, 164 Mo. App. 22, 147 S. W. 516; Summers v. Metropolitan Life Ins. Co., 90 Mo. App. 691; Vogt v. Vogt, 119 App. Div. 518, 104 N. Y. Supp. 164. And see Hawkins v. Edwards, 117 Va. 311, 84 S. E. 654. 541 Feingold v. I. Wiesenberger Co., 81 Misc. Rep. 126, 142 N. Y. Supp. 319. 542 Spead v. Tomlinson, 73 N. H. 46, 59 Atl. 376, 68 L. R. A. 432. 543 Bauer v. Taylor, 4 Neb. Unof. 710, 98 N. W. 29; Hilligas v. Kuns, 86 Neb. 68, 124 N. W. 925, 26 L. R. A. (N. S.) 284, 20 Ann. Cas. 1124; O'Neal v. Weisman, 39 Tex. Civ. App. 592, 88 S. W. 290. rescission of a contract or the cancellation of an obligation. According to these authorities, such an action cannot be maintained without showing an actual fraudulent intention to deceive, as well as the reliance of the injured party on the false representations.544 Thus, it has been said: "Fraud means more than a mere false statement ignorantly or erroneously made under a misapprehension and without any intention or design to deceive. It consists in the false representation or concealment of material facts with intent to deceive. Fraud occurs where one party substantially misrepresents a material fact peculiarly within his own knowledge, in consequence of which a delusion is created, or makes a statement which he knows to be untrue, and which is naturally calculated to lull the suspicions of a careful man, and induce him to forego inquiry into a matter upon which the other party had knowledge or information, although such information may not be exclusively within his own reach. But a representation, though false, will not vitiate a contract unless it be fraudulent also, and operates as an inducement influencing the party to enter into it." 545 So the rule stated by the English cases is that, "where there has been an innocent misrepresentation or misapprehension, it does not authorize a rescission unless it is such as to show that there is a complete difference in substance between what was supposed to be and what was taken, so as to constitute a failure of consideration," and where a representation as to a state of facts is made in good faith, the party believing it to be true at the time, and its falsity is demonstrated only as the result of a lawsuit with third parties, it cannot be said to have been fraudulent.540 But these views are not sustained by the preponderance of judicial opinion. On the contrary, and especially in the later decisions, it is generally laid down that no corrupt or sinister intention to deceive or mislead need be shown in Wood v. Evans, 43 Rep. 664, 56 N. Y. 544 Holt v. Sims, 94 Minn. 157, 102 N. W. 386; Mo. App. 230; Enright v. Fellheimer, 25 Misc. Supp. 366; Jalass v. Young, 3 Pa. Super. Ct. 422; Scott v. Boyd, 101 Va. 28, 42 S. E. 918. 545 Kent County R. Co. v. Wilson, 5 Houst. (Del.) 49, 56. 546 Kennedy v. Panama, New Zealand & Australian Royal Mail Co., L. R. 2 Q. B. 580. |