§ 857.. "It is not necessary to constitute fraud," he continues, "that there should be a clear knowledge that the statement made is false. But statements which are intended to be acted upon, if made recklessly and with no reasonable ground of belief, may furnish such evidence of dishonest motive as to bring their maker within the remedies appropriate to fraud.1 "And so neither the intent to defraud nor deliberate assertion of untruth are necessary elements in fraud. And the best distinction which we can make between misrepresentation and fraud is that the former is a misstatement of facts not known to be false, or a non-disclosure of facts not intended to deceive; while the latter consists in representations known to be false, or made with no real belief in their truth or falsehood, and entitles the original party to the action of deceit." § 858. How representation to be distinguished from a term of the contract.-The misrepresentation which may be thought to affect the contract may have been made under any of a variety of circumstances or at any of a variety of times. The most important distinction is whether the representation is or is not a part of the contract. For, 1. A representation may be made prior to the making of a contract and not as any part of that contract, but rather as an inducement to the making of it; or, 2. The representation, whether made prior to or contemporaneously with the making of the contract, may have been intended by the parties to be a term of the contract and to constitute a part of it. for believing them to be true, are not fraudulent, although it may turn out that they were not true." Lewark v. Carter (1888), 117 Ind. 206, 20 N. E. R. 119, 10 Am. St. R. 40, citing Furnas v. Friday, 102 Ind. 129, 1 N. E. R. 296; Watson Coal, etc. Co. v. Casteel, 68 Ind. 476. 1 Mr. Anson here refers to Reese River Mining Co. v. Smith, L. R. 4 H. L 64, saying: "Where directors issue a prospectus setting forth the advantages of an undertaking into the circumstances of which they have not troubled themselves to inquire, intending to induce those who read the prospectus to incur liabilities in respect of the undertaking, they commit a fraud if the statements contained in the prospectus turn out to be untrue; they represent themselves to have a belief $859. ——— Illustrations.- For example: A says to B one day, "I have a fine, sound horse for sale. Come around to my stable some time and look at it." On a later day B goes to A's stable, examines the horse and buys it, without any reference to the previous conversation and without any further statement whatever as to the soundness of the horse. A, in good faith, believed the horse to be sound, but it proves to have been, in fact, unsound at and since the first conversation. Has B any remedy against A? The answer may be suggested by reference to a case in Minnesota.1 The action was upon an alleged warranty by the defendant on the sale of a span of horses to the plaintiff. The plaintiff alleged "that at the time of such purchase, and before the same was made, one of the said horses was affected with what defendant said was a cold, which caused said horse to discharge at the nose; that before this plaintiff bought said horse the defendant told him, the plaintiff, that nothing ailed said horse but a cold, and that it was only such cold that caused the said horse to discharge from the nose as aforesaid." Plaintiff also alleged that he relied upon such statement and was thereby led to purchase the horses, and that the horse in question, in fact, then had the glanders, from which he afterwards died. § 860.. In speaking of the sufficiency of this evidence the court said: "It is not only not such that, if submitted to a jury without any other evidence, they would be bound to find a contract of warranty, but it is such that a jury could not, from it, find such a contract; for it does not appear under what circumstances, nor, except that it was before the sale, at what time defendant told plaintiff what is stated in the complaint. It is not stated that it was during the negotiations for the sale, or in any way connected with them, or with a view to a sale, or to induce the plaintiff to buy. None of the cir which they know they do not pos- Minn. 383, 10 N. W. R. 416; Hopkins sess." v. Tanqueray (1854), 15 Com. B. 130 80 Eng. Com. L. 129, and the discussions in the chapter on Warranty, post, §§ 1224 et seq. 1 Zimmerman v. Morrow (1881), 28 Minn. 367, 10 N. W. R. 139. See also Torkelson v. Jorgenson (1881), 28 cumstances under which the words were spoken are stated so that it may be known whether they were intended and were understood as merely expressing an opinion, or as indicating that the defendant undertook or contracted that the horse had nothing more than a cold. The fact alleged, that plaintiff was led to purchase the horses by the representation, does not alter the case; for, there being no fraud, he had no right to rely upon it in making the purchase, unless it was made in such a manner and under such circumstances as gave him a right to understand that defendant intended to be bound by it as a part of the contract of sale." . § 861. Importance of distinction. To distinguish between those representations which are and those which are not terms of the contract is a matter of importance, because, as has been clearly pointed out both by Sir Frederick Pollock and Sir W. R. Anson in their respective works on Contract, it must be borne in mind, "first, that a representation which is embodied in a contract ceases to be a representation and becomes a promise that a certain thing is or shall be; and next, that, unless a representation is so embodied, it cannot of itself confer any right of action with a view to its realization." 3 If the representation be found to be a term of the contract, "it receives the name of a condition or a warranty, and its untruth does not affect the formation of the contract, but operates to discharge the injured party from his obligation, or gives him a right of action ex contractu for loss sustained by the untruth of a statement which is regarded in the light of a promise." 5 1 Pollock on Contract (4th ed.), 480 that Behn's ship, then in the port of et seq. Amsterdam, should proceed to New 2 Anson on Contract (7th ed.), 146. port for a cargo of coal. At the time 3 As to this, see post, § 1218. As to this, see post, § 1231. 5 Anson on Contract, ubi supra. This question was fully discussed in the leading case of Behn v. Burness (1863), 1 B. & S. 877, 3 id. 751, where a charter was entered into of the contract the ship was not at Amsterdam, and did not arrive there until four days later. When she reached Newport, Burness repudiated the contract, and the question was whether the words now in the port of Amsterdam amounted to a condi $862. Question for the jury. Whether the assertion made was, under the circumstances, a mere representation, or was designed to be a term of the contract and thus to consti 66 tion the breach of which gave him a right to repudiate the contract or only gave him a right of action after he had performed the contract. It was held that the former was the true construction. Said Williams, J.: 'Properly speaking, a representation is a statement or assertion, made by one party to the other, before or at the time of the contract, of some matter or circumstance relating to it. Though it is sometimes contained in the written instrument, it is not an integral part of the contract; and consequently the contract is not broken though the representation proves to be untrue; nor (with the exception of the case of policies of insurance, at all events marine policies, which stand on a peculiar anomalous footing) is such untruth any cause of action, nor has it any efficacy whatever, unless the representation was made fraudulently, either by reason of its being made with a knowledge of its untruth, or by reason of its being made dishonestly, with a reckless ignorance whether it was true or untrue. (See Elliott v. Von Glehn, 13 Q. B. 632; Wheelton v. Hardisty, 8 E. & B. 232.) "If this be so, it is difficult to understand the distinction which is to be found in some of the treatises. and is in some degree perhaps sanctioned by judicial authority (see Barker v. Windle, 6 E. & B. 675, 680), that a representation, if it differs from the truth to an unreasonable extent, may affect the validity of the contract. Where, indeed, the misrepresentation is so gross as to amount to sufficient evidence of fraud, it is obvious that the contract would on that ground be voidable. are. "The representations are not usually contained in the written instrument of contract, yet they sometimes But it is plain that their insertion therein cannot alter their nature. A question, however, may arise, whether a descriptive statement in the written instrument is a mere representation, or whether it is a substantive part of the contract. This is a question of construction which the court, and not the jury, must determine. If the court should come to the conclusion that such a statement by one party was intended to be a substantive part of his contract, and not a mere representation, the often discussed question may, of course, be raised, whether this part of the contract is a condition precedent, or only an independent agreement, a breach of which will not justify a repudiation of the contract, but will only be a cause of action for a compensation in damages. "In the construction of charterparties, this question has often been raised with reference to stipulations that some future thing shall be done or shall happen, and has given rise to many nice distinctions. Thus a statement that a vessel is to sail, or be ready to receive a cargo, on or before a given day, has been held to be a condition (see Glaholm v. Hays, 2 M. & G. 257; Oliver v. Fielden, 4 Exch. 135; Croockewit v. Fletcher, 1 H. & N. 893; Seeger v. Duthie, 8 C. B., N. S., 45), while a stipulation that she shall sail with all convenient speed, tute a condition or a warranty, is, where the facts are in dispute, a question for the jury.' 863. Effect of innocent misrepresentation.- The rule respecting such misrepresentations as are being here considered has been said to be that a misrepresentation, not fraudulent and or within a reasonable time, has been held to be only an agreement. (See Tarrabochia v. Hickie, 1 H. & N. 183; Dimech v. Corlett, 12 Moo. P. C. C. 199; Clipsham v. Vertue, 5 Q. B. 265.) But with respect to statements in a contract descriptive of the subject matter of it, or of some material incident thereof, the true doctrine, established by principle as well as authority, appears to be, generally speaking, that if such descriptive statement was intended to be a substantive part of the contract, it is to be regarded as a warranty, that is to say, a condition on the failure or non-performance of which the other party may, if he is so minded, repudiate the contract in toto, and so be relieved from performing his part of it, provided it has not been partially executed in his favor. If, indeed, he has received the whole or any substantial part of the consideration for the promise on his part, the warranty loses the character of a condition, or to speak perhaps more properly, ceases to be available as a condition, and becomes a warranty in the narrower sense of the word, viz., a stipulation by way of agreement, for the breach of which a compensation must be sought in damages (see Ellen v. Topp,6 Exch. 424-441; Graves v. Legg, 9 Exch. 709-716, adopting the observations of Serjt. Williams on the case of Boone v. Eyre, 1 H. Bl. 273, in note a in 1 Saund. 320d (6th ed.); Elliott v. Von Glehn, 13 Q. B. 632). Accordingly, if a specific thing has been sold, with a warranty of its quality, under such circumstances that the property passes by the sale, the vendee having been thus benefited by the partial execution of the contract, and become the proprietor of the thing sold, cannot treat the failure of the warranty as a condition broken, unless there is a special stipulation to that effect in the contract (see Bannerman v. White, 10 C. B., N. S., 844); but must have recourse to an action for damages in respect of the breach of warranty. But in cases where the thing sold is not specific, and the property has not passed by the sale, the vendee may refuse to receive the thing proffered to him in performance of the contract, on the ground that it does not correspond with the descriptive statement, or, in other words, that the condition expressed in the contract has not been performed. Still if he receives the thing sold, and has the enjoyment of it, he cannot afterwards treat the descriptive statement as a condition, but only as an agreement, for a breach of which he may bring an action to recover damages." 1 Kinley v. Fitzpatrick (1839), 4 How. (Miss.) 59, 34 Am. Dec. 108; Morrill v. Wallace (1837), 9 N. H. 111; Baum v. Stevens (1842), 2 Ired. (N. C.) 411; Foggart v. Blackweller (1844), 4 Ired. 238; House v. Fort (1837), 4 Blackf. (Ind.) 293; Bradford v. Bush (1846), 10 Ala. 386. |