dishonest conduct on the part of the defendant. Moreover, the difficulty in extending the limits of liability beyond cases where the defendant is consciously dishonest has been increased by the objection of modern judges and lawyers to the use of fiction in expressing the law. Conclusive presumptions are not now much favored, and such terms as "constructive fraud” and "legal fraud” share the disfavor into which conclusive presumptions of fraud have fallen. This disposition is certainly not to be quarreled with. It is better to state the law in terms which will give rise to as little misunderstanding as possible; but the result reached by means of fictitious statement must not be discarded with the fiction when, as has commonly been the case with fictions in the law, the result reached is desirable though the mode of statement is confusing.

The real issue which should be discussed is thus constantly obscured by the terminology of the subject. The real issue is no less than this: When a defendant has induced another to act by representations false in fact though not dishonestly made, and damage has directly resulted from the action taken, who should bear the loss?

In considering which doctrine is the better, consideration should be given chiefly to two things. First: logical consistency with itself in all parts of the law governing misrepresentation. Secondly: the inherent justice of the rule proposed. That the law of misrepresentation as laid down in Derry v. Peek 1 is hopelessly inconsistent with the law governing misreprsentaCiv. Code, § 5073 (2); N. Dak. Civ. Code, § 5388 (2); S. Dak. Civ. Code, § 1293 (2); all of which provide that a deceit includes "the assertion, as a fact, of that which is not true, by one who has no reasonable ground for believing it to be true." "What's in a name is well illustrated by Carpenter v. Sugden, 231 Mass. 1, 119 N. E. 959. No court has gone further than that of Massachusetts in holding that statements of fact made by one who asserted knowledge which he did not have are fraudulent whether made with conscious dishonesty or not. But in the case just cited the plaintiff who had

bought from the defendant the good will and contents of a garage under a written contract relied on an oral "warranty" that the articles purchased cost the defendant the amount set forth in the inventory. The court held the evidence properly rejected and said "There was no evidence of fraud." Surely whatever else a warranty of an existing fact may be it is at least an assertion of the truth of the fact, and surely also the seller of goods may be supposed to know what they cost him and when he warrants the cost, to assert that he has that knowledge.

41 14 App. Cas. 337.

tion when relied on as the basis of warranty or estoppel, can hardly be denied. Adherence to what may be regarded as established English doctrine in deceit, estoppel, and warranty is absolutely illogical, and with simplified pleading becomes nearly, if not quite, impossible. It is a just ground of reproach to the law if a harmonious doctrine cannot be developed.

The inherent justice of the severer rule of liability which in some cases at least holds a speaker liable for damages for false representations, though his intentions were innocent and his statements honestly intended, is equally clear. However honest his state of mind, he has induced another to act, and damage has been thereby caused. If it be added that the plaintiff had good reason to attribute to the defendant accurate knowledge of what he was talking about, and the statement related to a matter of business in regard to which action was to be expected, every moral reason exists for holding the defendant liable.

§ 1511. Limitation of liability for honest misrepresentation. The precise limits of liability in damages for honest misreprsentation are not fixed at the same place by all the courts which hold that such liability may exist. Two qualifying principles may claim some support in authority or reason. The first of these finds support in the early law, in the dissenting opinion in Pasley v. Freeman, and in sundry expressions in modern decisions, as in Michigan. 42 This principle would confine liability to cases where the misrepresentation was made to induce another to enter into a contract with the person making the misrepresentation, and would be consistent with the modern law of seller's warranty, and indeed would find its chief support in cases relating to sales. On the other hand, the principle, though not inconsistent with most decisions relating to the implied warranty by an agent of his authority, since most of them relate to cases where the agent purported to enter into a contract, has been expressly repudiated by the House of Lords as a limitation on the agent's liability.43 Further, there is no such limitation to liability for misrepresentation created by means 43 Starkey v. Bank of England, [1903] A. C. 114.

42 Aldrich v. Scribner, 154 Mich. 23, 117 N. W. 581, 18 L. R. A. (N. S.) 379.

of an estoppel, and in the action of deceit the authority, both of courts which approve of Derry v. Peek 44 and of courts which do not, gives little support for a distinction between representations which induce a contract with the person making them and representations which induce a contract with another person, or indeed any other detrimental action. Nor is it easy to see on logical or ethical grounds why such a distinction should be made.

§ 1512. Negligence as a basis of liability.

The second qualifying principle suggested is that no liability should exist if there was reasonable ground for believing that the statements made were true. This amounts in effect to denying liability except for statements, made negligently, though it is not, in terms at least, an adoption of the action on the case for negligence for carelessly spoken words. A court might indeed adopt this qualifying principle without holding doctrines of contributory negligence applicable. The statutes of California and other States 45 excuse a defendant from liability if he had reasonable ground for believing his statement to be true. A similar doctrine seems to exist in North Carolina. 46 It is certainly by no means clear that the courts of these States would put the whole subject on the footing of a duty to use reasonable care in regard to spoken or written words.

It has been ably urged, however, that, subject to appropriate limitations, an action on the case for negligence is properly applicable to misrepresentations made carelessly but not dishonestly.47 Doubtless under any theory of liability which excludes dishonesty as a necessary element of the cause of action it will generally be found that a defendant who is held liable has been guilty of culpable negligence. But there are objections to throwing the whole matter into the law of negligence, and treating spoken words in the same way that acts are treated. In the first place, the law of liability for false representations has

"14 App. Cas. 337. 45 Supra, n. 40.

"See North Carolina decisions cited in n. 40.

"Judge Jeremiah Smith, 14 Harv.

L. Rev. 184, cited and followed in Cunningham v. C. R. Pease Co., 74 N. H. 435, 69 Atl. 120, 20 L. R. A. (N. S.) 236, and in Conway Nat. Bank v. Pease, 76 N. H. 319, 82 Atl. 1068.

grown up on other lines than the law of negligence. There is a violation of historical continuity in forcing the two together. This should not be an insuperable obstacle if logic and practical convenience demanded the joinder, but this does not seem true. Neither the law of warranty nor that of estoppel is based on negligence, so that no general consistency of the law governing misrepresentation would be attained. Furthermore, if negligence is to be the basis of liability for words regarded from the standpoint of misrepresentation, the same test should logically be applied to defamatory words; but the whole law of defamation is inconsistent with any application of the law of negligence to either spoken or written words, for the law governing defamation "is not a law requiring care and caution in greater or less degree, but a law of absolute responsibility qualified by absolute exceptions." 48 It is also an objection that if an action for negligent misrepresentation as such were permitted, it would be necessary to limit somewhat arbitrarily the scope of the action; for it is probably true, as has often been said, that to hold every man liable for the consequences of words carelessly spoken would be to impose a degree of liability beyond what is reasonable. Again, the doctrine of contributory negligence would be troublesome to apply. Is it contributory negligence for a man to rely on what he is told by a person in a position to know, and to fail to make an investigation for himself? Though many decisions require that a plaintiff should not have been too foolish in believing what no reasonable man in his position should believe, it is going too far, both in reason and on the authorities, to say that a plaintiff, unless his conduct was not wholly irrational, should lose his rights because he failed to make independent investigation and believed what he was told. It should not lie in the mouth of the man who induced his reliance to assert that the reliance was negligent.50

48 Pollock, Torts, 8th ed. 553, n. (x). See also Peck v. Tribune Co., 214 U. S. 185, 53 L. Ed. 960, 29 Sup. Ct. 554.

"It was applied, however, in Conway Nat. Bank v. Pease, 76 N. H. 319, 82 Atl. 1068. The person deceived must have acted like "a reasonably prudent man."

50 Goodale v. Middaugh, 8 Colo. App. 223, 231, 46 Pac.. 11; Morrow v. Bonebrake, 84 Kan. 724, 115 Pac. 585, 34 L. R. A. (N. S.) 1147; Gerner v. Mosher, 58 Neb. 135, 78 N. W. 384; Bower v. Fenn, 90 Pa. 359, 35 Am. Rep. 662; Krause v. Busacker, 105 Wis. 350, 81 N. W. 406.

If a man makes a statement in regard to a matter upon which his hearer may reasonably suppose he has the means of information, and that he is speaking with full knowledge, and the statement is made as part of a business transaction, or to induce action from which the speaker expects to gain an advantage, he should be held liable for the consequences of reliance upon his misstatement. Such a principle most nearly harmonizes the law of misrepresentation in its various aspects.

To avoid misapprehension it should be added that where because of a contract of employment a person is under a duty to speak, as by making a report or giving an opinion as an expert, the law of negligence governs his liability. "As a consequence of his contract of employment the law throws the risk of his statements upon him at an earlier point than it would do otherwise. But for the contract he would not be liable for statements unless fraudulent, or for advice unless dishonest." 51

There seems no reason whatever for not holding a defendant for the natural consequences of his actions when the question involved relates to tort as well as when it relates to contract. In the formation of contracts the parties are rightly held to the natural consequences of what they say. The idea that conscious dishonesty is necessary in an action of tort has perhaps been due to the use of such words as "fraud" and "deceit," which ordinarily connote dishonesty. 52

51 Corey v. Eastman, 166 Mass. 279, 287, 44 N. E. 217, 55 Am. St. Rep. 401, per Holmes, J.

The idea that a consciously dishonest state of mind is essential for an action of tort for deceit leads to other consequences than decisions that the statement made by the defendant must be known by him to be false. For instance, if the defendant makes a statement which is false if his words are given the natural meaning which his hearer would give them, but which are true if taken in some unnatural sense which he himself put on them, no liability is imposed on the defendant, even though he knew that the facts did not accord with the natural meaning of his words, provided that natural

meaning did not occur to him. Both in England and in Massachusetts it has been held that under these circumstances a defendant is not liable. Derry v. Peek, 14 App. Cas. 337; Angus v. Clifford, [1891] 2 Ch. 449 (Ct. App.); Nash v. Minnesota Title & Trust Co., 163 Mass. 574, 40 N. E. 1039, 28 L. R. A. 753, 47 Am. St. Rep. 489.

In the Massachusetts decision the dissenting opinion of Holmes, J., in which Field, C. J., concurred, is a very effective argument against the view of the majority of the court. It seems odd that in Massachusetts, where it has been held since, as well as before, the decision in question, that a man is liable, who positively but erroneously asserts as facts matters about which