Edington v Fitzmaurice - Thomson Reuters

FN6 3 Ex. D. 238.Crossley, Q.C., J. Cutler, S. Hall, A. Young, S. Brice, and F. A. Lewin, for otherDefendants, cited Smith v. Chadwick [FN7]; Arkwright v. Newbold [FN8]; Eaglesfieldv. Marquis of Londonderry [FN9]; Kennedy v. Panama, New Zealand, and AustralianRoyal Mail Company [FN10].FN7 20 Ch. D. 27.FN8 17 Ch. D. 301.FN9 4 Ch D. 693.FN10 Law Rep. 2 Q. B. 580.Sir F. Herschell, in reply:--An allegation of intention may be fraudulent: Ex parte Whittaker [FN11]. The test iswhether the Plaintiff would have taken these debentures unless he had relied on thesestatements: Clarke v. Dickson [FN12]; Kerr on Fraud [FN13].FN11 Ibid 10 Ch. 446.FN12 6 C. B. (N.S.) 453.FN13 2nd Ed. p. 35.May 12. DENMAN, J.(After referring shortly to the facts of the case and expressing his opinion that no caseof contract between the Plaintiff and the company had been shewn, if indeed it wasalleged, proceeded):--I therefore agree with those learned counsel for the several Defendants who have saidthat this case is substantially, as indeed the Solicitor-General admitted, reduced to, ifit ever was more than, an action of, I am sorry to say not a very unusual character.The ground is that the Defendants did make affirmative statements of non-existingfacts as facts which statements they knew not to be true, or recklessly stated withoutknowing or caring to inquire whether they were true or not, by which statements (andthis would of course be necessary), or by them materially, the Plaintiff was induced topart with his money, and has sustained damage by parting with his money onsecurities which turned out to be worthless. Unless all these things are made out the*465 action must fail against all or against any of the Defendants against whom theyare not made out.Unfortunately for me, perhaps, I have lately had to look into this part of the law morethan once in cases which are not very far from analogous to the present case, andinasmuch as this is really a common law action when put in the way in which it is nowput, it is right to formulate as well as I can before dealing with such a case the way inwhich the questions would have to be put before a jury in order that they mightdecide whether the cause of action is made out, taking the ruling of points of law fromthe Judge. Now, in such a case several things would be told to the jury. They wouldbe told that the only way in which persons could be made responsible for fraudulentmisstatements in a prospectus would be first that the prospectus contained not amere statement of a possibility, or of a contingency, or of an intention as to whatmight occur according to the opinion of the person who is making the statement, butthere must be something which amounts in the opinion of the Judge or jury(sometimes it may be for the Judge, and sometimes for the jury; but generally Iapprehend this would be for the Judge where it is upon a written document) to astatement of a fact as existing which is not in truth existing. It will not be enough thatthe Defendants gave a mere loose opinion, because that might be an erroneousopinion, but there must be something which, solidly looked at, is a positive statement

of fact. I am putting this, according to my own view of the matter, as a sine quâ non.Next it must be proved that that statement was made fraudulently. Then a jury wouldhave the legal meaning of the word "fraudulently" explained to them, and I take it tobe now established beyond all question that a statement is in the eye of the law madefraudulently not only if the person who makes it is stating something as the fact whichis not the fact--absolutely telling a lie--but less than that suffices in the eye of thelaw. If persons who have the full means of acquiring knowledge about a particularthing, yet with the intention of inducing other people to spend their money upon thatthing, especially on such a venture as a limited company, recklessly, and so to speak,in a gambling spirit, without properly inquiring into the truth or falsehood of the thing,*466 without caring sufficiently whether it is true or false, and will or will not misleadpeople--if such persons wilfully abstain from making inquiries, and make an incorrectstatement about the thing without which the money would not have been advanced,then that is in the eye of the law a fraudulent statement as much as if the personsmaking it had known it to be false. There is, I think, no doubt of the correctness ofthis doctrine, which was stated in the case of Peek v. Gurney [FN14], and has eversince been acted upon by the common law Judges in summing- up to juries. If thestatement is one which is false in this sense, that it is so fragmentary and soimperfect as that it must necessarily lead a person to think that to be the case whichis not the case, that statement does amount sometimes, and may amount--it wouldbe for the jury, and possibly for the Judge, in particular cases to say whether it doesor does not--to a statement fraudulently made within the meaning of those two headsof the definition. Thirdly, a jury would be told that in these cases it must beaffirmatively made out that the Plaintiff was materially--not solely, but materially--influenced in the purchase of the thing which turns out to be useless, or in doing theact which turns out to be disastrous by one or more of the statements so made. Allthose things should be carefully laid down to any jury before they can be left to holdpersons liable upon charges such as these. It is an affirmative case for the Plaintiff tomake out, and any Court, whether it be a Court of Law or Equity, in deciding cases ofthis sort ought to give to itself the same cautions and the same directions as tomatters of this kind, and as to all that is necessary for the foundations of the actions.FN14 Law Rep. 6 H. L. 377.Now with all those conditions before me I have to approach the evidence in thisparticular case, and except as far as the action is against Hunt I think it clear that thePlaintiff's case must stand or fall upon the question whether any or all of thesestatements in the circular were false, and were made either with knowledge that theywere false, or so recklessly as to fall within the rule of fraud arising from that kind ofrecklessness. As to the Defendants, I may say at once that it is hard to see anyreason why any distinction should be drawn between them, saving the cases of *467Clench and Hunt, with whose cases I will deal hereafter. I mean to deal with it as acase in which the question is whether any one of three particular statements, allegedto have been relied on by the Plaintiff, was false, and whether it was false either tothe knowledge of the Defendants, or made so recklessly, without care whether it wastrue or false, as to amount to the same thing. Further, whether it was made in orderto induce people to sub-scribe, and whether in consequence of those statements, orany of them (because one if it did materially induce would be enough), the Plaintiffsubscribed his money to the company and whether he did lose his money thereby.[His Lordship then expressed his opinion that the Plaintiff had not been guilty oflaches, and proceeded:--]Now upon the statements of the circular, I do not think that in cases such as this it isincumbent upon the Court or upon the jury necessarily to look at each statement byitself without regard to the other statements. I think one can easily suggest cases,and that this may be such a cage, in which taking one statement separately youmight say there is nothing in it, or that there is very little in it, or much less thanthere is if you couple it with the other two. In all such cases, in considering theanimus with which the statement was made, I think it is only common sense that,whether jury or Judge, you should look at the whole of the document together, andconsider every statement in it with a view of forming a judgment as to the intention,

and that it is not a fair way of dealing with these cases to say, I take statement A.,there is nothing in it; I take statement B. there is nothing in it; and I take statementC., there is nothing in it--there is nothing in them if they stood alone, and thereforeas you cannot make three nothings into something the whole thing falls to theground. I think you must take the whole, together with its history, and then, it maybe that there is just reason for holding statement A., statement B., and statement C.to be all inaccurate, and all falling within the definition of an actionable falsestatement. There may be cases in which that is so, though, if you had only one, thedecision might be quite the other way as regards that one statement. It is quitecertain that you must always take into consideration the surrounding facts of *468the case in construing every document, and not only so, but in considering theanimus of the parties who issue that particular document.I think it is right to run through the history of this company so far as it appears fromthe documents which were put in evidence in the case, especially the minutes of themeetings of the directors.[His Lordship then read passages from the minutes of the meetings of the directors,referring to them in many cases on the question whether Clench, one of theDefendants was liable. His Lordship was of opinion that in July, 1880, the state of thefinances of the company was a matter of considerable anxiety, and that the companywas not prosperous. There were frequent meetings, and they owed money to theirbankers. In August of that year the mortgage for £5000 was made. In August, 1880,resolutions were passed for spending £110 in repairs, and £150 on horses, and £350for fish. In September, 1880, a proof of the circular was read at a meeting, so that inhis Lordship's opinion this circular was discussed at the same time when there wereconsiderable difficulties as to money. The Defendants certainly advanced their ownmoney, and it was said that this shewed bona fides on their part. On the 14th ofOctober the circular was again discussed, and again on the 19th and 28th, in all whichtime the company was in great difficulties for ready money. The minutes of thesubsequent meetings were only important on the question of bona fides. At a meetingon the 25th of November there was a resolution to lay out £150 in the purchase ofhorses, as to which his Lordship rather took the view of the Plaintiff, that it wasabsurd to suppose that for that sum they would get horses of their own. His Lordshipfeared that when the circular was issued the intention was to apply the money raisedby the debentures in payment of pressing debts. No evidence had been given of theexpenditure of the money in any purchase of horses. It appeared that £6575 hadbeen offered, and £5500 had been received by the 1st of December, nearly the wholeof which was applied in payment of then existing debts. His Lordship then expressedhis regret that the directors had not paid sufficient attention to the advice of theirsolicitors as to the form of the bond.]*469 I have been perhaps unnecessarily minute in going through the salient pointsas they appeared to me, but I have done so because it appears to me that both uponthe question of the construction of the document which is impeached, and also uponthe question of the conduct of the directors, and whether it can be looked upon asbonâ fide in all senses, or as impeachable on the grounds on which it is impeached, itis desirable to look at the surrounding circumstances and at the whole of theirconduct. It is impossible to leave out any matter bearing upon the true condition ofthe company, or bearing upon this circular, without leaving out something whichought legitimately to be taken into account in considering the questions which arebefore the Court.Now, having done that, I must look at the document itself. As I have already said, Iconsider that the action is one founded on this, and this only, as it now stands: it isan allegation by the Plaintiff that the directors were parties to this circular; that theypublished it; that it contains three specific statements which amount to statements offact which were inaccurate and misleading and not substantially true; that they atleast were most reckless in publishing this document with those statements, lookingat either the knowledge they possessed or the knowledge which they did not care topossess; and that the Plaintiff was misled by those statements and was inducedthereby, or by one or some of them, to part with his money, and that so he has losthis £1500.The document is headed "Six per cent. debenture bonds." When I first read these

onds I was myself under the impression, an erroneous impression I find, that therehad been in the opinion of Courts something to the effect that there was in the mereword "debenture" something indicating to people that the document was more than amere promise to pay, and that it amounted to something like a charge upon theproperty, or the takings, or the profits of the concern. That does not appear to be so,though it is said that through certain expressions of James, L.J., in the case of In reFlorence Land and Public Works Company [FN15], there had been an impression thatthe mere use of the word "debenture" did imply something more than in point of lawit does imply. I think, however, that it was not a very unlikely thing that the *470mere title of these bonds might, however erroneously, be supposed by persons in theposition of the Plaintiff to be a more important thing than a covenant' on the part ofthe company to pay him principal and interest, with no power on his part, whatevermight happen, to seize the property of the company at any intermediate time. Butthat was an erroneous view, and it is clear that in point of law this is nothing morethan a promise to pay under the seal of the company. The document contains,however, certain statements which no doubt must be held to be made for the purposeof inducing people to take these bonds, and they are statements relating at least tothe advantages of the company, and if they are not, they are idle and unnecessaryand irrelevant statements. If one were to speculate upon the kind of way in whichsuch statements would be discussed at a meeting (and they certainly were discussedat many meetings by the directors, though the directors remember nothing about it),one feels as certain as if one were present at one of these deliberations, that theymust have considered what they should insert and what they should not insert in thiscircular, with reference to how the public or the invited subscribers would look at it.That I think is made more certain by the minutes, which shew how often the matterdid come before the board, and how all the Defendants must have had it before themfrom time to time, and how very important it was at the time at which thosediscussions took place that they should get the money.FN15 10 Ch. D. 530.[His Lordship then read the first paragraph of the circular, as to which there was nocomplaint. But as to the statements with respect to the mortgages, his Lordship heldthat this would be of great importance, and that as the circular stated what thecharges were, that amounted to a statement that there were no other charges,whereas there was the mortgage for £5000.]If so, then the case seems to fall expressly within the language which was used inPeek v. Gurney [FN16], and which was referred to by the late Master of the Rolls inSmith v. Chadwick [FN17]. It is said in answer that they contemplated that the £5000would be soon paid off. Suppose they had said, "subject also to a mortgage to Messrs.Hores & Pattisson, of which so many thousand pounds *471 are still due and whichwe intend to be paid immediately out of these debenture bonds." How can one for amoment say that that is not a matter which might most seriously have entered intothe consideration of a person who was subscribing money upon such bonds as these?If so, is not that statement, put in that way, fragmentary, misleading and imperfect,condescending to a particular which makes it all the more misleading? Is it not areckless and a gambling statement in the mere hope that at some time, if they getsufficient money for these debentures, they may clear this debt away? Is it not amatter which in all frankness and truthfulness ought to have been stated, and whichwas deliberately not stated with a view of making the prospects more taking to thosewho would be thinking of advancing money to the company? My view is that it is animportant omission amounting to a misstatement, and therefore if the Plaintiff wasmaterially induced by that non-statement to take the debenture bonds, I think hewould have a right to complain, and if he suffered by it, to recover his money backagainst any person who had recklessly led him astray by that kind of statement.FN16 Law Rep. 6 H. L. 377.FN17 20 Ch. D. 58.

Then, was the Plaintiff induced by that statement to take the bonds? He does notexpressly say he was induced partly by that statement. I do not think his wordsamount exactly to that. But upon examination, and upon cross-examination, thoughhe does say that if he had thought that this document did not give a charge upon theproperty he should not have had anything to do with it, he said, "If it had been statedto me that there was a second mortgage on this property beyond the £21,500 whichhad not been paid, and the object of the debenture was at once to be urgentlygathering up the money for the purpose of paying that particular mortgage, then Ishould have had nothing to do with the concern." Now, it is for a jury, or any tribunalthat has to draw inferences of fact, to say whether with that evidence, and looking atthe materiality of the thing, that is a matter which did tend materially to induce thePlaintiff to take the debentures in question, by which he has lost money. He says thathe thought sufficiently of the importance of the thing to go to the secretary and askthe secretary whether this would be a first charge, and the secretary solemnlyassured him it would. It shews that he *472 felt it of importance, and he does saythat if he had the least notion that there was this second mortgage, he should nothave taken the property. I think, therefore, it was a thing which did go materially toinduce him to take the debenture bonds, and in that sense also I think it was astatement of fact. That being so, I think that on that ground alone he would beentitled to relief. But, as I said before, I do not think it necessary to say what,supposing that had been the only misstatement, the Court might have done, becauseI think that each of the statements and the whole of the documents are to be lookedupon together. But I do hold that even if it stood upon this alone, looking at theopinion of the Lord Chancellor in Peek v. Gurney [FN18] and the opinion of the Masterof the Rolls in Smith v. Chadwick [FN19], where he comments on the LordChancellor's judgment, there was a partial and fragmentary statement, calculated todeceive, and that it was a thoroughly misleading statement, though in the shape of anon-statement, and that the parties are responsible.FN18 Law Rep. 6 H. L. 377.FN19 20 Ch. D. 58.[His Lordship then expressed his opinion that the statements as to the half- yearlypayments of £500, and as to the power of calling in the balance of the mortgage for£21,500, did not shew that it might be called in at the end of four years.] I think thatthis is so important a matter that it clearly is most material; that it ought to havebeen stated; and that, not being stated, it is a matter which makes this prospectussubstantially incorrect.But mere inaccuracy will not affect the matter. This is a case in which the action isbrought for fraud. Fraud, however, as I have said, may be committed by recklessrepresentations made without knowing how the matter stands one way or the other.Then, does this fall within that doctrine. Upon the whole, though not so confidently asI hold upon the other matter, I think it does. I think that where five or six directorsare constantly attending at meetings, constantly discussing how they can obtainadvances, what mortgages they can get, who will deal with them, and whether theyshall raise debentures in a particular form from persons, shareholders or otherwise ofthe company, it is their bounden duty, before they send out a document such as this,to inquire and to know for certain what is the effect of the *473 document as to amatter so plain and important. The Plaintiff says that if he had known that themortgage was liable to be called in in four years, and that in the last year such a sumas £18,000 was to be at once called in, he would not have thought of lending hismoney to the society. And, though I think that this is not quite so clear a point as theother, I do think it is sufficiently clear, and on that ground also the Plaintiff has a rightto say that he has been taken in and misled, and that he has been deceived byreckless statements of a gambling character made by persons who had no right to beso sanguine as they were, with such difficulties about them as at that time wereexisting, and that on that ground also he is entitled to maintain this action.Then there is a third point. [His Lordship then read the statement as to the objects ofthe issue, and expressed his opinion that the intention was to tell people that the

purchase of horses and carts was very important to the company, whereas there wasno real expectation or intention of so laying out the money, though if all had gone onwell it might at some future time have been done.] This, therefore, was illusory andmisleading. Nor did it appear that anything was done as to the supply of fish. Withregard to the alterations in the buildings the only evidence we have is of very slightand trifling alterations. It would have been easy of proof if there was anything seriousexpended, or likely to be expended. It does strike me, therefore, that these objectswere inserted merely in this way. "The persons who are about to subscribe will requireus to say why we want this enormous issue of debenture capital. If we have thisvaluable property, if we are going on so prosperously, if we have 13,000 members,and the numbers are daily increasing; if we have no other mortgage than themortgage mentioned in the circular, which is not to be paid off for twenty-one and ahalf years, people will say why are you coming to us to ask for £25,000 additionalcapital?" And it being seen that this would be asked, the directors felt that unless theyput in some statement which would make people comfortable and satisfied as to theobjects of the issue of the debentures, they would not get subscribers."Does that amount to a false statement? Is it a statement *474 calculated to misleadto such an extent, and is it within the law a statement of a kind, liable to beconsidered a fraudulent statement in an action for fraud against an individual. Heremany points are made. One point is that it does not state facts, but that it statesintentions of the mind, and on that ground it is said, it is not sufficient. Another is,that it is a mere statement of intention which does not amount to any guarantee orcontract to do it, and that it might be altered at any time; that it is not a matter withwhich the persons lending the money would have any concern; and it is also seriouslyargued that it was solidly and substantially true. I think myself that there is somedoubt about what might be the law applicable to this kind of statement. I had toconsider it very recently with my Brother Manisty in a case in the Queen's BenchDivision of Bellairs v. Tucker [FN20]. It was a different case in many respects, butthere was a statement in the prospectus which was issued by the defendants in thecase that it was believed that a certain French company would be successful insubstance because of the success of an English company. The English company hadonly very recently been established, and I think both my Brother Manisty and myselfhad considerable doubt whether there was any dishonesty, and whether thestatement of success was not a statement of a mere matter of opinion. But then theprospectus went on to say "which English company having only been started eighteenmonths has already entered into a contract which will have a certain effect." We hadthe whole matter before us, and we thought that looking to the history of the matter,and looking at the evidence in the case, this was not a statement of a fact as existingwhich was nonexistent. But whether we were right or not, that case appears to me tobe very different from the present, because the decision in that case went on theparticular facts of the case and the circumstances of those particular companies. Ithink that in every one of these cases it will be found that it is a very dangerous ruleto take a decision in one case as a precedent, on account of the great variety of factswith regard to the conduct of directors in different companies.FN20 Law Rep. 10 Ch. 446.But looking at the facts of the present case and at the surrounding *475circumstances, is this statement: "The objects of the present issue are" a falsestatement of a fact existing which did not exist? If it is not, then I should say thePlaintiff would have no right to rely on it. But upon the whole I think it is. It has notbeen directly held in any of the cases cited that if the thing stated to exist is anintention of the mind that may not be a statement of fact which is obviously andcertainly false.It was said that it is idle and absurd to suppose that so small a sum as £ 7000 or£8000 would have had that effect, and that if they had got the whole £ 25,000 thenthey might set to work to perform these objects. But I think that cannot be saidtowards any individual subscriber of the bonds. When you tell me that the objects ofthis issue are to enable you to complete present alterations, to purchase horses andvans, and to further develope the supply of cheap fish from the coast, that is telling

me in so many words, not only that such objects are in your mind, but that if I giveyou so much money towards that, or if 100 other subscribers give you the whole orpart of the £25,000, you are able with reasonable certainty to employ any moneysubscribed on the faith of your words in doing the things which you tell me it is yourobject by this issue to obtain. The Lord Justice Mellish, in Ex parte Whittaker [FN21]says, that if it were clearly made out that at the time there was no intention to pay heshould consider that a case of fraudulent misrepresentation had been shewn. I thinkthat this statement, if not substantially false, is, looking at the whole of the case, amost reckless statement, one shewing an amount of sanguineness which, if reallyentertained, was under the circumstances, as against people who are asked toadvance their money, of the most gambling and speculative character, and on thatground also the Plaintiff is entitled to recover.FN21 Law Rep. 10 Ch. 446.I have already stated that I think Major Clench who played a leading part in verymany of these transactions is quite as liable as the other directors. I feel very sorryfor Colonel Snow, because at one period he seems to have protested against thatwhich I think was very wrong as regards some of the statements they were making tothe subscribers. Still, with his eyes open, he was a party to the prospectus, and thePlaintiff ought not to be *476 deprived of such security as he may get from ajudgment against Colonel Snow as well as against the others. [His Lordship thenconsidered the case against Hunt, coming to the conclusion that he was merely aservant of the company and was not liable, nor was Hanley. His Lordship gavejudgment against the five directors for £1500 less £45 received as interest on thedebentures. As against Hunt and Hanley he dismissed the action, but without costs,as they ought to have been mere cautious.](C. M.)From this judgment the Defendants Fitzmaurice, Rich, Snow, Taylor, and Clenchappealed. The appeal came on for hearing on the 27th of February, 1885.Davey, Q.C., Crossley, Q.C., and A. Young, for the Appellants:--The first ground of complaint put forth in the pleadings, namely, that the prospectuswas so framed as to lead the public to believe that the holders of debentures wouldhave a charge upon the property of the company, has been virtually given up. ThePlaintiff's expectation of having such a charge was simply his own mistake, assisted, itmay be, by the unauthorized statements of the secretary and manager, for which thecompany are not responsible. And if there had been anything in the circular to lead tothat expectation, the Plaintiff's remedy would have been an action for specificperformance of the contract for a charge, not an action for deceit.In order to maintain this action the Plaintiff must shew not only that the statementsmade by the Defendants were false, but that they were false to their knowledge, andthat he was induced by those statements to advance his money.With respect to the omission of the mortgage to Hores & Pattisson for £5000, ouranswer is, that the circular did not profess to state all the liabilities to which thecompany's property was liable. It was only intended to shew the condition and valueof the property when they bought it. As the directors were not offering a charge onthe property, there was no reason for them to set out all the incumbrances on it. The£5000 advance was only a temporary loan, which was expended on the improvement*477 of the property, and was to be paid off in a few months. The mere omission of afact in a statement will not sustain an action for deceit: Arkwright v. Newbold [FN22].FN22 17 Ch. D. 301.With respect to the statement as to the first mortgage, the directors have sworn thatthey were themselves ignorant of the exact terms of it, and supposed that the wholewas to be paid off by instalments. The property was bought subject to the mortgage,and the mortgage deed was not in their possession. There is no evidence of anyintention to deceive the public, nor could the misstatement have any effect on thosewho were willing to advance money. The Plaintiff says that he relied upon thedebentures giving him a charge. If so, the alleged misstatement was immaterial to

him; he knew that he took subject to the first mortgage, and it made no difference inwhat way it was to be paid off.The last point relied on by the Plaintiff is the misstatement as to the object for whichthe loan was required. In the first place, the directors had a bonâ fide intention at thetime of expending the money, or a substantial part of it, in the way proposed. Theevidence clearly shews that they were sanguine as to the ultimate success of theconcern. And they did in fact apply some of it in this way. Moreover, the loan fromHores & Pattisson had been expended in the improvement of the property, andtherefore paying off that loan was practically an employment of the money in the wayproposed.But, secondly, the Plaintiff was not misled by this statement, whether it wasinaccurate or not. He says himself that he was induced to lend his money by the beliefthat he would have a charge on the property, and this is admitted to be a mistake. Sothat it was his own mistake that misled him, and therefore the statements of thecircular as to the objects in which the money was to be employed were immaterial:Smith v. Chadwick [FN23]. There was nothing more than an expression of intentionon the directors' part as to the application of the money. That is not such arepresentation as can be a ground for an action of deceit: Jorden v. Money [FN24];Maddison v. Alderson [FN25].FN23 9 App. Cas. 187.FN24 5 H. L. C. 185.FN25 8 App. Cas. 467.*478 Sir F. Herschell, S.G., Rigby, Q.C., and Willis Bund, for the Plaintiff:--The statement, which is now admitted to be untrue, as to the first mortgage, and theomission of mention of the second mortgage were not immaterial. The Plaintiffexpected to have not only a charge, but a first charge, subject only to the payment ofthe £500 instalments of the first mortgage. He would not have advanced his money ifhe had known that the property was so heavily charged. It is contended that theobjects for which the money was required were immaterial. This is a fallacy. Whetherthe Plaintiff expected to have a charge or not, it made a great difference whether thecompany was in a position to expend the money raised in improving its premises anddeveloping its business, or would have to spend the greatest part in paying offpressing liabilities. In fact, as the directors well knew, the company was in financialdifficulties, and the money was really wanted to relieve them from pressing liabilities.The intention with which the directors raised the loan is a matter of fact, which can beascertained by evidence; and it is clear from the evidence, and was so found by theJudge at the trial, that they did not really issue the debentures for the purpose ofimproving their buildings--that in fact a very small part, under £150, was spent in thismanner. Then it is said that if it was a misstatement it did not affect the Plaintiff,because he was deceived by his own mistake. But if a man is influenced in his conductby the misstatement of the defendant the defendant is not relieved from liabilitybecause the plaintiff may have also himself made a mistake. If the defendant'smisrepresentation contributed to his conduct the defendant is liable for it.Davey, in reply.COTTON, L.J.:--This case has been very fully and ably argued. It is what is called an action of deceit,the Plaintiff alleging that statements were made by the Defendants which wereuntrue, and that he had acted on the faith of those statements so as to incur damagefor which the Defendants are liable. In order to sustain such an *479 action thePlaintiff must shew that the Defendants intended that people should act on thestatements, that the statements are untrue in fact, and that the Defendants knewthem to be untrue, or made them under such circumstances that the Court mustconclude that they were careless whether they were true or not. The statements inquestion were made in a prospectus or circular issued by the Defendants for thepurpose of getting subscribers to a loan, and the Plaintiff alleges that he understood

from them that the advances were to be secured by a mortgage on leasehold propertyof the company. In my opinion there was no good ground for his so believing. Therewas nothing in the prospectus to lead him to such a conclusion. The debentures weremerely bonds, and the Plaintiff made no objection to their form at the time when hereceived them. Therefore if the question had rested on that alone there could be nodifficulty. But it does not end there. The Plaintiff also complains that the circularreferred to one mortgage, and stated that it was to be paid off by half-yearlyinstalments of £500, but did not state that the mortgage money could be demandedin a lump sum in a few years; and further, that it omitted to state another mortgagefor £5000, which was not to be paid off by instalments, but was payable in twomonths. I do not think it necessary to go into the consideration of these statements.As regards the first mortgage the Defendants say that they had reasonable groundsfor making the statement which they made, and as to the second mortgage they saythat they did not mean to imply that there was no other mortgage affecting thecompany's property. But it is not necessary to give any decision respecting thesestatements, because, giving credit to the Defendants for having made them fairly,there are other statements which follow, which, in my opinion, cannot be justified. Iallude to statements respecting the objects for which the loan was effected:--[HisLordship read the passage from the prospectus in which the objects of the issue of thedebentures were stated, and proceeded:--] It was argued that this was only thestatement of an intention, and that the mere fact that an intention was not carriedinto effect could not make the Defendants liable to the Plaintiff. I agree that it was astatement of intention, but it is nevertheless a statement of fact, and if it could not befairly said *480 that the objects of the issue of the debentures were those whichwere stated in the prospectus the Defendants were stating a fact which was not true;and if they knew that it was not true, or made it recklessly, not caring whether it wastrue or not, they would be liable. Did the Defendants know or believe that thecompany was in a flourishing condition? I think they must have thought that it wouldturn out well and that the loan could be paid back, for they had shewn theirconfidence in the company by advancing money of their own. But the question iswhether they did not make a statement of a fact which was not correct, and whichthey knew to be not correct when they stated the objects for which the loan wasasked. I do not say that it was necessary to shew that they intended that all themoney raised should be applied in carrying out those particular objects, but certainlythey ought to shew that it was to be spent in improving the property and business ofthe company. What is the fact? The financial state of the company was openlydiscussed at the board meetings, at which the Defendants were all present, and it isclear that they were in great financial difficulties at the time. Although I should not, asI have said, have held the Defendants liable merely for not referring to the secondmortgage in the prospectus, yet the existence of that mortgage was strong evidenceof their financial difficulties; and, considering all the other evidence, and theadmissions of the Defendants in their cross-examination, I cannot doubt that the realobject of the issue of debentures was to meet the pressing liabilities of the companyand not to improve the property or develope the business of the company. I cannotbut come to the conclusion that however hopeful the directors may have been of theultimate success of the company, this statement was such as ought not to have beenmade. It was said, How could those who advanced the money have relied on thisstatement as material? I think it was material. A man who lends money reasonablywishes to know for what purpose it is borrowed, and he is more willing to advance it ifhe knows that it is not wanted to pay off liabilities already incurred.But it was urged by the counsel for the Appellants that the Plaintiff himself stated thathe would not have taken the debentures unless he had thought they were a chargeupon the property, *481 and that it was this mistaken notion which really inducedthe Plaintiff to advance his money. In my opinion this argument does not assist theDefendants if the Plaintiff really acted on the statement in the prospectus. It is truethat if he had not supposed he would have a charge he would not have taken thedebentures; but if he also relied on the misstatement in the prospectus, his loss nonethe less resulted from that misstatement. It is not necessary to shew that themisstatement was the sole cause of his acting as he did. If he acted on thatmisstatement, though he was also influenced by an erroneous supposition, the

Defendants will be still liable. Did he act upon that misstatement? He states distinctlyin his evidence that he did rely on the Defendants' statements, and the learned Judgefound, as a fact, that he did, and it would be wrong for this Court, without seeing orhearing the witness, to reverse that finding of the Judge. We must therefore come tothe conclusion that the statements in the prospectus as to the objects of the issue ofthe debentures were false in fact, and were relied upon by the Plaintiff.With respect to the Defendant Clench, we are not called on to express an opinion onthe points in which his case differs from that of the other directors. I am notinfluenced by the misstatement as to the mortgage. The point on which I rely is themisstatement as to the objects of the loan, in which the Defendants all joined, and forwhich they are all equally responsible.The judgment must be affirmed.BOWEN, L.J,:--This is an action for deceit, in which the Plaintiff complains that he was induced totake certain debentures by the misrepresentations of the Defendants, and that hesustained damage thereby. The loss which the Plaintiff sustained is not disputed. Inorder to sustain his action he must first prove that there was a statement as to factswhich was false; and secondly, that it was false to the knowledge of the Defendants,or that they made it not caring whether it was true or false. For it is immaterialwhether they made the statement knowing it to be untrue, or recklessly, withoutcaring whether it was true or not, because to *482 make a statement recklessly forthe purpose of influencing another person is dishonest. It is also clear that it is whollyimmaterial with what object the lie is told. That is laid down in Lord Blackburn'sjudgment in Smith. v. Chadwick [FN26], but it is material that the defendant shouldintend that it should be relied on by the person to whom he makes it. But, lastly,when you have proved that the statement was false, you must further shew that theplaintiff has acted upon it and has sustained damage by so doing: you must shew thatthe statement was either the sole cause of the plaintiff's act, or materially contributedto his so acting. So the law is laid down in Clarke v. Dickson [FN27], and that is thelaw which we have now to apply.FN26 9 App. Cas. 201.FN27 6 C. B. (N.S.) 453.The alleged misrepresentations were three. First, it was said that the prospectuscontained an implied allegation that the mortgage for £21,500 could not be called inat once, but was payable by instalments. I think that upon a fair construction of theprospectus it does so allege; and therefore that the prospectus must be taken to havecontained an untrue statement on that point; but it does not appear to me clear thatthe statement was fraudulently made by the Defendants. It is therefore immaterial toconsider whether the Plaintiff was induced to act as he did by that statement.Secondly, it is said that the prospectus contains an implied allegation that there wasno other mortgage affecting the property except the mortgage stated therein. I thinkthere was such an implied allegation, but I think it is not brought home to theDefendants that it was made dishonestly; accordingly, although the Plaintiff may havebeen damnified by the weight which he gave to the allegation, he cannot rely on it inthis action: for in an action of deceit the Plaintiff must prove dishonesty. Therefore ifthe case had rested on these two allegations alone, I think it would be too uncertainto entitle the Plaintiff to succeed.But when we come to the third alleged misstatement I feel that the Plaintiff's case ismade out. I mean the statement of the objects for which the money was to be raised.These were stated to be to complete the alterations and additions to the buildings, topurchase horses and vans, and to develope the supply of fish. *483 A meresuggestion of possible purposes to which a portion of the money might be appliedwould not have formed a basis for an action of deceit. There must be a misstatementof an existing fact: but the state of a man's mind is as much a fact as the state of hisdigestion. It is true that it is very difficult to prove what the state of a man's mind at aparticular time is, but if it can be ascertained it is as much a fact as anything else. A

misrepresentation as to the state of a man's mind is, therefore, a misstatement offact. Having applied as careful consideration to the evidence as I could, I havereluctantly come to the conclusion that the true objects of the Defendants in raisingthe money were not those stated in the circular. I will not go through the evidence,but looking only to the cross-examination of the Defendants, I am satisfied that theobjects for which the loan was wanted were misstated by the Defendants, I will notsay knowingly, but so recklessly as to be fraudulent in the eye of the law.Then the question remains--Did this misstatement contribute to induce the Plaintiff toadvance his money. Mr. Davey's argument has not convinced me that they did not.He contended that the Plaintiff admits that he would not have taken the debenturesunless he had thought they would give him a charge on the property, and thereforehe was induced to take them by his own mistake, and the misstatement in the circularwas not material. But such misstatement was material if it was actively present to hismind when he decided to advance his money. The real question is, what was the stateof the Plaintiff's mind, and if his mind was disturbed by the misstatement of theDefendants, and such disturbance was in part the cause of what he did, the mere factof his also making a mistake himself could make no difference. It resolves itself into amere question of fact. I have felt some difficulty about the pleadings, because in thestatement of claim this point is not clearly put forward, and I had some doubtwhether this contention as to the third misstatement was not an afterthought. But thebalance of my judgment is weighed down by the probability of the case. What is thefirst question which a man asks when he advances money? It is, what is it wantedfor? Therefore I think that the statement is material, and that the Plaintiff would beunlike the rest of his race if he was not *484 influenced by the statement of theobjects for which the loan was required. The learned Judge in the Court below cameto the conclusion that the misstatement did influence him, and I think he came to aright conclusion.FRY, L.J.:--I am of the same opinion. I do not think it necessary to refer to the two allegedmisstatements as to the mortgages, because I do not rely on that portion of the case.But with respect to the statement of the objects for which the debentures wereissued, I have come to the conclusion that there was a misstatement of fact, that thestatement contained in the circular was false in fact and false to the knowledge of theDefendants. Was the statement true in fact? The circular was adopted at a meeting ofthe board when all the Defendants were present. The financial state of the companywas considered. They owed £5000 to their bankers, and £5000 to Hores & Pattisson.They owed large sums to tradesmen and other persons. They were under anobligation to pay £3500 in instalments on the mortgage for £21,500 before April,1884, and they knew that if they did not pay the instalments, the whole would becalled in. The necessity of raising money must have been discussed at the meeting. Itis clear that their object in raising the money was to meet their pressing liabilities. Butthe Defendants say that the mortgage for £5000 to Hores & Pattisson was only atemporary loan, and that the greater part of it was expended in alterations andadditions to the buildings, and therefore the mortgage was merely an anticipation ofthe loan for the objects stated in the prospectus. But the statement in the prospectuswas that a large sum of money had been already expended in improving the building(and that included the greater part of the advance by Hores & Pattisson), and that thedirectors intended to apply the money raised by the debentures in further improvingthe buildings. This statement was therefore false.It is not necessary to call attention to the evidence, that the Defendants knew at thetime that a large proportion of the loan would have to be expended in paying pressingliabilities. It is hardly denied by the Defendants. I come, therefore. to the *485conclusion, with regret, that this false statement was not only false in fact, but wasfalse to the knowledge of the Defendants.The next inquiry is whether this statement materially affected the conduct of thePlaintiff in advancing his money. He has sworn that it did, and the learned Judge whotried the action has believed him. On such a point I should not like to differ from theJudge who tried the action, even though I were not myself convinced, but in this case

the natural inference from the facts is in accordance with the Judge's conclusion. Theprospectus was intended to influence the mind of the reader. Then this question hasbeen raised: the Plaintiff admits that he was induced to make the advance not merelyby this false statement, but by the belief that the debentures would give him a chargeon the company's property, and it is admitted that this was a mistake of the Plaintiff.Therefore it is said that the Plaintiff was the author of his own injury. It is quite truethat the Plaintiff was influenced by his own mistake, but that does not benefit theDefendants' case. The Plaintiff says: I had two inducements, one my own mistake, theother the false statement of the Defendants. The two together induced me to advancethe money. But in my opinion if the false statement of fact actually influenced thePlaintiff, the Defendants are liable, even though the Plaintiff may have been alsoinfluenced by other motives. I think, therefore, the Defendants must be held liable.The appeal must therefore be dismissed.RepresentationSolicitors: Markby, Stewart & Co.; Crowdy, Son, & Tarry; Last & Sons; J. Holmes;Lewin & Co.; A. E. Copp.(M. W.)(c) Incorporated Council of Law Reporting For England & Wales(1885) L.R. 29 Ch. D. 459END OF DOCUMENT