Cornfoot v.

Fowke.

Sixthly, in order to give rise to the right to rescind the contract, the representation must have been made as a part of the transaction ending in the formation of the contract. It must not have been a statement made independently of the negotiation preliminary to the contract (x). Seventhly, the representation must have actually induced the party misled to make the contract; it must have been an effective cause of his entering into the agreement (y). If he did not act in reliance on the statement made, but used his own judgment, there is no ground for rescinding the contract (z), or for maintaining an action of deceit where the misrepresentation was fraudulent (a). So it has been held, in a case where active concealment of a defect was alleged as a fraud justifying the rescission of a contract, that a purchaser who had made no inspection of the defective article before buying it, did not act upon any implied representation of its soundness, and so could not avoid the agreement (b). But if any artifice were used to conceal a defect prior to the sale of land, it is thought that the vendor could not enforce the specific performance of the contract, although the purchaser had not inspected the property (c). "Where a person has acted on the faith of a false representation made to him, it is no defence to any proceedings founded thereon that he might have found out the truth if he had made inquiry (d). Lastly, the party to whom the representation was made must not have known that it was false; he must reasonably have believed it to be true. We have seen that he has no cause of action if he were aware of the true facts of the case (c).

6. The representation must be a part of the transaction ending with the formation of the contract.

7. The representation must have induced the contract.

(.') See Hopkins v. Tanqueray, 15 C. B. 130; Way v. Hearn, 13 C. B. N. S. 292; Peek v. Gurney, L. R. 6 H. L. 377; and cf. above, p. 731.

(y) Above, p. 722, and n. (b).

(z) Jennings v. Broughton, 17 Beav. 234, 238, 239, 5 De G. M. & G. 126, 138.

(a) Smith v. Chadwick, 9 App. Cas. 187, 195, 196.

To maintain an action of deceit for a false representation, which has induced one to enter into a contract, the same conditions are in general necessary as are required to confer the right to rescind the contract (f); and in addition to these, it must be shown that the false statement was made, either knowingly, that is, without belief in its truth, or recklessly, that is, without caring whether it were true or false (g). Where these conditions are fulfilled, it is not necessary to prove that the false statement was made with the actual intention of defrauding, cheating or wrongfully gaining some advantage over the party so deceived; for if the statement were made knowingly or recklessly, a fraudulent intention will be inferred (A). So also where an action of deceit is founded, not on a false statement in words, but on a fraudulent representation made by conduct (as in the case of active concealment of a defect (i) ), it appears that an intention to defraud or cheat the party misled is of the gist of the action, but such intention may be inferred from the facts of the case (k). A principal is liable in an action of deceit for a false representation made by his agent, if it were untrue or reckless to the knowledge of the principal and were expressly authorised by him (l); or if it were untrue or reckless to the knowledge of the agent (though not of the principal) and were made either with the principal's express authority or without such authority within the scope of the agent's employment (m). But if the principal were aware of the untruth or recklessness of the statement, and the agent were not, and the representation were made by the agent, without fraud and in the honest belief that it was true, and without the express authority of the principal but within the scope of (he agent's employment, it appears that, in order to charge the principal in an action of deceit (n), the party misled must prove some conduct positively fraudulent on the part of the principal; as for instance, that the principal, being aware of the agent's ignorance of the true state of the facts, purposely employed him to transact the business with the object of avoiding any discovery which would or might be made by inquiries put to the principal himself. Such conduct would, it is considered, amount to an active concealment (o) by the principal, for which he would be personally liable (p). But unless such fraudulent conduct on the part of the principal himself could be shown, it is thought that there would be no cause of action of deceit against him; for he could not be liable for his agent's tort, as the agent did no wrong ; nor would the agent's statement amount to a tort committed by the principal himself, if the principal did not expressly authorise it to be made, and did not in any way wrongfully conceal the truth. The principal is not liable for a fraudulent representation by his agent which is not within the scope of the agent's general authority (q), or is made by the agent for his own personal advantage and not for the benefit of the principal (r). The agent is himself liable to the party misled in an action of deceit, if he made the false representation knowingly or recklessly: but otherwise not (s). If both principal and agent honestly believed the statement to be true, neither is liable to an action of deceit (t). Of course an action of deceit for a false representation inducing one to enter into a contract may be brought, not only against a party to the contract or his agent, but also under similar conditions (u) against any other person, who has fraudulently (x) made a false statement with the intent that the party, to whom the statement was made, should act upon it or in a manner apparently calculated to induce him to act upon it (y).

8. The party claiming to have been misled must not have known that the statement was false.