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(1885) JELR 80163 (CA)

Court of Appeal  •  2 Mar 1885  •  United Kingdom

Cotton, Bowen and Fry LJJ


COTTON LJ:(reading the leading judgment)

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 were untrue, and that he had acted on the faith of these statements so as to incur damage for which the defendants are liable. In order to sustain such an action the plaintiff must show that the defendants intended that people should act on the statements, that the statements are untrue in fact and that the defendants knew them to be untrue, or made them under such circumstances that the court must conclude that they were careless whether they were true or not.

The statements in question were made in a prospectus or circular issued by the defendants for the purpose of getting subscribers to a loan, and the plaintiff alleges that he understood from them that the advances were to be secured on leasehold property of the company. In my opinion there was no good ground for his so believing. There was nothing in the prospectus to lead him to such a conclusion. The debentures were merely bonds, and the plaintiff made no objection to their form at the time when he received them. Therefore, if the question had rested on that alone, there could be no difficulty. But it does not end there. The plaintiff also complains that the circular referred to one mortgage, and stated that it was to be paid off by half-yearly instalments of 500 pounds, but did not state that the mortgage money could be demanded in a lump sum in a few years; and further, that it omitted to state another mortgage for 5,000 pounds, which was not to be paid off by instalments, but was payable in two months.

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 grounds for making the statement which they made, and as to the second mortgage they say that they did not mean to imply that there was no other mortgage affecting the company's property. But it is not necessary to give any decision respecting these statements, because, giving credit to the defendants for having made them fairly, there are other statements which follow, which in my opinion cannot be justified. I allude to statements respecting the objects for which the loan was effected. [HIS LORDSHIP read the passage from the prospectus in which the objects of the issue of the debentures were stated, and proceeded:] It was argued that this was only the statement of an intention, and that the mere fact that an intention was not carried into effect could not make the defendants liable to the plaintiff. I agree that it was a statement of intention, but it is nevertheless a statement of fact; and if it could not be fairly said that the objects of the issue of the debentures were those which were 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 was true or not, they would be liable.

Did the defendants know or believe that the company was in a flourishing condition? I think they must have thought that it would turn out well and that the loan could be paid back, for they had shown their confidence in the company by advancing money of their own. But the question is, whether they did not make a statement of fact which was not correct, and which they knew to be not correct, when they stated the objects for which the loan was asked. I do not say that it was necessary to show that they intended that all the money raised should be applied in carrying out these particular objects, but certainly they ought to show that it was to be spent in improving the property and business of the company. What is the fact? The financial state of the company was openly discussed at the board meetings at which the defendants were all present, and it is clear that they were in great financial difficulties at the time. Although I should not, as I have said, have held the defendants liable merely for not referring to the second mortgage in the prospectus, yet the existence of that mortgage was strong evidence of their financial difficulties, and, considering all the other evidence and the admissions of the defendants in their cross-examination, I cannot doubt that the real object of the issue of debentures was to meet the pressing liabilities of the company and not to improve the property or develop the business of the company. I cannot but come to the conclusion that, however hopeful the directors may have been of the ultimate success of the company, this statement was such as ought not to have been made.

It was said, how could those who advanced the money have relied on this statement as material? I think it was material. A man who lends money reasonably wishes to know for what purpose it is borrowed, and he is more willing to advance if he knows that it is not wanted to pay off liabilities already incurred. But it is urged by the counsel for the defendants that the plaintiff himself stated that he would not have taken the debentures unless he had thought they were a charge upon the property, and that it was this mistaken notion which really induced the plaintiff to advance the money. In my opinion this argument does not assist the defendants if the plaintiff really acted on the statement in the prospectus. It is true that, if he had not supposed he would have a charge, he would not have taken the debentures; but, if he also relied on the mis-statement in the prospectus, his loss none the less resulted from that mis-statement. It is not necessary to show that the mis-statement was the sole cause of his acting as he did. If he acted on that mis-statement, though he was also influenced by an erroneous supposition, the defendants will be still liable. Did he act upon that mis-statement? He states distinctly in his evidence that he did rely on the defendants' statements, and the learned judge found as a fact that he did, and it would be wrong for this court, without seeing or hearing the witness, to reverse that finding of the judge. We must therefore come to the conclusion that the statements in the prospectus as to the objects of the issue of the 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 on the points in which his case differs from that of the other directors. I am not influenced by the mis-statement as to the mortgage. The point on which I rely is the mis-statement as to the objects of the loan in which the defendants all joined, and for which they are equally responsible. The judgment must be affirmed.


This is an action for deceit, in which the plaintiff complains that he was induced to take certain debentures by the misrepresentation of the defendants, and that he sustained damage thereby. The loss which the plaintiff sustained is not disputed. In order to sustain his action he must first prove that there was a statement as to facts which 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 immaterial whether they made the statement knowing it to be untrue, or recklessly without caring whether it was true or not, because to make a statement recklessly for the purpose of influencing another person is dishonest. It is also clear that it is wholly immaterial with what object the lie is told. That is laid down in LORD BLACKBURN'S judgment in Smith v. Chadwick (1) but it is material that the defendant should intend 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 show that the plaintiff has acted upon it, and has sustained damage by so doing; you must show that the statement was either the sole cause of the plaintiff's act or materially contributed to his so acting. So the law is laid down in Clarke v. Dickson (2) and that is the law which we have now to apply.

The alleged misrepresentations were three: First, it was said that the prospectus contained an implied allegation that the mortgage for 21,500 pounds could not be called in at once, but was payable by instalments. I think that upon a fair construction of the prospectus it does so allege, and therefore that the prospectus must be taken to have contained an untrue statement on that point, but it does not appear to me clear that the statement was fraudulently made by the defendants. It is therefore immaterial 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 was no other mortgage affecting the property except the mortgage stated therein. I think there was such an implied allegation, but I think it is not brought home to the defendants that it was made dishonestly; accordingly, although the plaintiff may have been damnified by the weight which he gave to the allegation, he cannot rely on it in this action, for in an action of deceit the plaintiff must prove dishonesty. Therefore, if the case had rested on these two allegations alone, I think it would be too uncertain to entitle the plaintiff to succeed.

But when we come to the third alleged mis-statement, I feel that the plaintiff's case is made out. I mean the statement of the object for which the money was to be raised. These were stated to be to complete the alterations and additions to the buildings, to purchase horses and vans, and to develop the supply of fish. A mere suggestion of possible purposes to which a portion of the money might be applied would not have formed a basis for an action of deceit. There must be a mis-statement of an existing fact; but the state of a man's mind is as much a fact as the state of his digestion. It is true that it is very difficult to prove what the state of a man's mind at a particular 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 of fact. Having applied as careful consideration to the evidence as I could, I have reluctantly come to the conclusion that the true objects of the defendants in raising the 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 the objects for which the loan was wanted were misstated by the defendants. I will not say knowingly, but so recklessly as to be fraudulent in the eye of the law.

The question remains. Did this mis-statement contribute to induce the plaintiff to advance his money? The argument of counsel for the defendants has not convinced me that it did not. He contended that the plaintiff admits that he would not have taken the debentures unless he had thought they would give him a charge on the property, and therefore he was induced to take them by his own mistake, and the mis-statement in the circular was not material. But such misstatement was material if it was actively present to his mind when he decided to advance his money. The real question is what was the state of the plaintiff's

mind, and if his mind was disturbed by the mis-statement of the defendants, and such disturbance was in part the cause of what he did, the mere fact of his also making a mistake himself would make no difference. It resolves itself into a mere question of fact. I have felt some difficulty about the pleadings, because in the statement of claim this point is not clearly put forward, and I had some doubt whether this contention as to the third mis-statement was not an after. thought. But the balance of my judgment is weighed down by the probability of the case. What is the first question which a man asks when he advances money? It is, what is it wanted for? Therefore I think that the statement is material, and that the plaintiff would be unlike the rest of his race if he was not influenced by the statement of the objects for which the loan was required. The learned judge in the court below came to the conclusion that the mis-statement did influence him, and I think he came to a right conclusion.


I am of the same opinion. I do not think it necessary to refer to the alleged mis-statements 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 were issued I have come to the conclusion that there was a misstatement of fact, that the statement contained in the circular was false in fact, and false to the knowledge of the defendants. Was the statement true in fact? The circular was adopted at a meeting of the board, when all the defendants were present. The financial state of the company was considered. They owed 5,000 pounds to their bankers, and 5,000 pounds to Hores and Pattisson. They owed large sums to tradesmen and other persons. They were under an obligation to pay 3,500 pounds in instalments on the mortgage for 21,500 pounds before April 1884, and they knew that if they did not pay the instalments the whole would be called in. The necessity of raising money must have been discussed at the meeting. It is clear that their object in raising the money was to meet their pressing liabilities. But the defendants say that the mortgage for 5,000 pounds to Hores and Pattisson was only a temporary loan, and that the greater part of it was expended in alterations and additions to the buildings, and therefore the mortgage was merely an anticipation of the loan for the objects stated in the prospectus. But the statement in the prospectus was 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 and Pattisson) and that the directors intended to apply the money raised by the debentures in further improving the buildings. This statement was, therefore, false. It is not necessary to call attention to the evidence that the defendants knew at the time that a large proportion of the loan would have to be expended in paying pressing liabilities. It is hardly denied by the defendants. I come, therefore, to the conclusion with regret that this false statement was not only false in fact, but was false to the knowledge of the defendants.

The next inquiry is, whether this statement materially affected the conduct of the plaintiff in advancing the money. He has sworn that it did, and the learned judge who tried the action has believed him. On such a point I should not like to differ from the judge 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. The prospectus was intended to influence the mind of the reader.

Then this question has been raised. The plaintiff admits that he was induced to make the advance, not merely by this false statement, but by the belief that the debentures would give him a charge on the company's property, and it is admitted that this was a mistake of the plaintiff. Therefore it is said the plaintiff was the author of his own injury. It is quite true that the plaintiff was influenced by his own mistake, but that does not benefit the defendant's case. The plaintiff says:

"I had two inducements, one my own mistake and the other the false statement of the defendants. The two together induced me to advance the money."

But in my opinion, if the false statement of fact actually influenced the plaintiff, the defendants are liable, even though the plaintiff may have been also influenced by other motives. I think, therefore, the defendants must be held liable. The appeal must therefore be dismissed.

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