the sale of a vessel, which was represented to be British, whereas in fact she was Spanish, Story, J., before whom the cause was tried, held the rule of damages to be the difference between the value of the vessel if she had been what she was represented to be, and her actual value, together with such part of the costs of repairs laid out on her, on faith of the false representations, as the jury should see fit to allow. He said:

"The true rule of damages in cases of this nature is, to allow the difference between the value of the vessel, if her real character had been known, and the price at which she was bought, under the faith of her being a vessel entitled bona fide to the privileges and benefits of such a British character. To this extent, at least, he has sustained a loss. Now, it is in proof that, as a Spanish vessel, at the time of the purchase, she was not worth more than $500, that is, than the value of her materials, if she were broken up. As a British vessel, she was worth $1,500, and on the faith of the representation made of her possessing such character, the plaintiff gave that sum for her. The difference between the sum is a loss actually sustained by the plaintiff; for he had paid $1,000 more for the vessel than she was worth, and that upon a false representation of the defendant. But it further appears that, upon the faith of this representation, the plaintiff went on and expended about $1,900 in repairs; and I am of opinion that of this sum the jury are at liberty to allow the plaintiff such portion as they deem reasonable, to remunerate any loss for which the plaintiff has not received any indemnity or compensation by the subsequent earnings of the ship or otherwise; for the loss was a direct consequence of the fraudulent representation."

So, again, where fraud has been practiced in a sale, as of a horse, the measure of damages is, as in an action for the breach of warranty, the difference between the value of the article sold and the value of such an article as it was represented to be, even if, at the time of the sale, the property was fairly worth the price paid. **

'Stiles v. White, 11 Met. 356.

1

The contract price is frequently taken as the value of the property represented,(^) and in the absence of other evidence of value, it is properly so taken. If the plaintiff rescinds the contract on account of the fraud, upon returning the consideration he may recover the purchasemoney and interest.(")

§ 778. Smith v. Bolles. In a recent case in the Supreme Court of the United States, however, that tribunal seems to have refused to follow this well-established rule. It was an action of tort for fraud in the sale of stock; and it was held that the measure of damages was not the same as upon breach of warranty, but was compensation for the injury done by the fraud, that is, the purchasemoney less the actual value of the stock. () Fuller, C. J., said:

"The measure of damages was not the difference between the contract price and the reasonable market value if the property had been as represented to be, even if the stock had been worth the price paid for it; nor if the stock were worthless could the plaintiff have recovered the value it would have had if the property had been equal to the representations. What the plaintiff might have gained is not the question, but what he had lost by being deceived into the purchase. The suit was not brought for breach of contract. The gist of the action was that the plaintiff was fraudulently induced by the defendant to purchase stock upon the faith of certain false and fraudulent representations, and so as to the other persons on whose claims the plaintiff sought to recover. If the jury believed from the evidence that the defendant was guilty of the fraudulent and false representations alleged, and that the purchase of stock had been

(^) Estell v. Myers, 56 Miss. 800; Carr v. Moore, 41 N. H. 131. () Hauk v. Brownell, 120 Ill. 161.

(c) Smith v. Bolles, 132 U. S. 125, 129; followed in Atwater v. Whiteman, 41 Fed. Rep. 427; and in Glaspel v. The Northern Pac. Ry. Co., 43 Fed. Rep. 900; both these cases being actions for deceit in the sale of land. In Buschman v. Codd, 52 Md. 202, the same rule was applied where the misrepresentation related to a business sold.

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made in reliance thereon, then the defendant was liable to respond in such damages as naturally and proximately resulted from the fraud. He was bound to make good the loss sustained, such as the moneys the plaintiff had paid out and interest, and any other outlay legitimately attributable to defendant's fraudulent conduct, but this liability did not include the expected fruits of an unrealized speculation. The reasonable market value, if the property had been as represented, afforded, therefore, no proper element of recovery.

"Nor had the contract price the bearing given to it by the court. What the plaintiff paid for the stock was properly put in evidence, not as the basis of the application of the rule in relation to the difference between the contract price and the market or actual value, but as establishing the loss he had sustained in that particular. If the stock had a value in fact, that would necessarily be applied in reduction of the damages. The damage to be recovered must always be the natural and proximate consequence of the act complained of,' says Mr. Greenleaf;(") and 'the test is,' adds Chief-Justice Beasley in Crater v. Binninger,(*) 'that those results are proximate which the wrong-doer from his position must have contemplated as the probable consequence of his fraud or breach of contract.'"

The ratio decidendi of this case would seem to be that the action is brought, not upon the contract of warranty, but for a tort. Compensation is asked for loss caused by the defendant's false statements; and to determine its amount, the question should be, what greater amount of property would the plaintiff have if the defendant's statements had not been made? The plaintiff's loss is not the value of his bargain; for it is necessary to the very maintenance of the action to show that the bargain would not have been made if the defendant had not made the false statements complained of. If these had not been made, therefore, the plaintiff would have the consideration he paid, but nothing more; and the difference be

() Vol. 2, § 256.

() 33 N. J. L. 513.

tween that consideration and the actual value of the property represents all the loss that was caused by the defendant's tort. It is usually said that if the statements had not been false the plaintiff would have property of the quality represented, which he loses by the defendant's wrong, and, therefore, that his loss is measured by the rule as ordinarily stated. To this the answer seems to be that the defendant's tort did not consist in the falseness of the statement, but in the making of the statement fraudulently; the result of the tort being not to change the value of a bargain, but to cause the plaintiff to part with his property against his will. The whole value of the consideration would be the amount to be recovered, if the rule of reduction of damages did not require the value of property obtained by the defendant's act to be subtracted.

§ 779. English rule.—And this is the rule in England. In Peek v. Derry, (^) an action for false representations in the sale of shares, Cotton, L. J., delivering the opinion of the Court of Appeal on the question of damages, said: "The damage to be recovered by the plaintiff is the loss which he sustained by acting on the representations of the defendants. That action was taking the shares. Before he was induced to buy the shares, he had the £4,000 in his pocket. The day when the shares were allotted to him, which was the consequence of his action, he paid over that £4,000 and he got the shares; and the loss sustained by him in consequence of his acting on the representations of the defendants was having the shares, instead of having in his pocket the £4,000. The loss, therefore, must be the difference between his £4,000 and the then value of the shares." And Sir James Hannen added: "The question is, how much

(*) 37 Ch. Div. 541, 591, 594.

worse off is the plaintiff than if he had not bought the shares? If he had not bought the shares he would have had his £4,000 in his pocket. To ascertain his loss we must deduct from that amount the real value of the thing he got."

$780. Results of the doctrine of Smith v. Bolles. It is to be observed of these cases that not only do they overthrow what has always been considered to be the general rule, but it necessarily follows that if the plaintiff is able to dispose of the property for as much as he paid for it, he cannot recover substantial damages. Under the decision in Smith v. Bolles only nominal damages, at most, could be recovered in such a case, and it might be that the fraud would be treated as damnum absque injuria, and no action could be maintained.

§ 781. General conclusions. With this remarkable difference of authority on a point hitherto supposed to be well settled, we may be permitted to offer one or two suggestions. The theory adopted in England and by the Supreme Court of the United States is that a totally dif ferent rule obtains if the plaintiff sues in contract from that which holds good if he sues in tort; that in a suit upon a warranty that an article corresponds with representations, he gets the benefit of his contract; while in a suit for the fraud committed he gets back only the money paid out. Such a result is objectionable, since it introduces two different rules for the same state of facts, dependent solely on the question whether the action sounds. in tort or contract; while, as we have often seen, the general principle is, that the rules of compensation are the same in tort and contract, in all cases where the measure of damages is loss of or injury to property rights.

But besides this, the tort may be one of a peculiar character. The decisions just cited treat it as merely a