Document 3OQm4R6V7wRZ3XV92eQ6BBY0

/- / I ifUS * ' Pro- y ' ami f the Law Law iver- f1 ) VANDERBILT LAW Volume 19 March, 1966 REVIEW Number 2 Misrepresentation and Third Persons William L. Prosser* Although modem tort law rejects the lack of privity as a defense in most cases, there remains considerable uncertainty and confusion when a third party institutes a suit based on misrepresentation. Dean Prosser examines the various factors which affect the decison in a third-party misrepresentation case and finds a pattern which he reduces to a concise summary of the law in this area. "The assault upon the citadel of privity is proceeding in these days apace." So said Cardozo in 1931, and he has been much quoted since. But the case1 in which he said it was one of misrepresentation causing pecuniary loss to a third person who acted in reliance upon it, but to whom it was not made. It is in this area that the assault upon the citadel has made,'during the intervening thirty-five years, the least headway, and has broken down into a tangle of more or less uncon nected struggles which are apparently making no great progress in any definite direction. It is here that there is still the greatest uncertainty, and even confusion.2 It is the purpose of this discussion to suggest that there are a great many more cases dealing with the problem than is generally realized, that there is a pattern to be dis cerned from the decisions, and that some conclusions may be drawn. I. Factors Affecting the Decision The defendant makes a misrepresentation of fact to A. B learns of the misrepresentation and in reliance upon it suffers loss. Under what circumstances is the defendant liable to B? Much of the difficulty in * Professor of Law, University of California, Hastings College of the Law. 1. Ultramares Corp. v. Touche, Niven & Co., 255 N.Y. 170, 180, 174 N.E. 441, 445 (1931). 2. See generally Goodhart, Liability for Innocent but Negligent Misrepresentations, 74 Yale L.J. 286 (1964); Keeton, The Ambit of a Fraudulent Representator s Respon sibility, 17 Tex. L. Rev. 1 (1938); Keeton, Fraud: The Necessity for an Intent to Deceive, 5 U.C.LA. L. Rev. 583 (1958); Stevens, Hedley Byrne v. Heller: Judicial Creativity and Doctrinal Possibility, 27 Moo. L. Rev. 121 (1964); Note, 31 Colum. L. Rev. 858 (1931); 16 Coenell L.Q. 419 (1931); 36 Iowa L. Rev. 319 (1951); 37 Mkil L. Rev. 1091 (19%); 16 Vans. L. Rev. 266 (1962); 1964 Wash. U.L.Q. 77. 231 a I -r r r K*- e rr V ? a-': r: - / DSW 441227 STLCOPCB4102654 232 VANDERBILT LAW REVIEW [ Vol. 19 dealing with this problem arises from the interplay of a number of different factors affecting the decision--each of which, pulling in one direction or the other, may affect it, so that the result is not unlike that of a man being tom to pieces by an assortment of horses. It is necessary to begin by listing these, factors, and indicating their bearing. A. The Nature of the Damage In reliance upon the misrepresentation, B may suffer personal injury or harm to his land or chattels. These are lumped together hereafter under the general term "physical harm." Where this is the case, the courts have been most willing to throw overboard privity, and allow recovery to the third person. On the other hand, B may suffer only pecuniary loss, as where he is induced to buy something at a price in excess of its value. Throughout the law of torts, the courts have been a great deal more reluctant to compensate the plaintiff for a loss of a purely economic character, and this is particularly true where the defendant's conduct has been no more than negligent. For example, there is the tort of interference with contract, which is commonly held not to lie where the conduct is merely negligent.3 Another, actually involving misrepresentation, is the tort called, for want of a better name, injurious falsehood, where the statement is made to A and B suffers loss because it is A, rather than B, who be lieves and acts upon it. Here there appears to be agreement that the action will not he for mere negligence.4 Where the misrepresentation reaches B himself as a third person and he suffers loss because of his own reliance and action upon it, the courts, as in these other actions, have been alarmed at the spectre of pecuniary losses vastly dispro portionate to the defendant's fault; and they have been much less eager to impose liability. There are other kinds of damage which may result from misrepre sentation and result in liability; for example, the plaintiff is deceived into cohabitation with the defendant by an invalid marriage,5 or in- 3. Numerous cases are collected in Prosser, Torts 123, at 962-64 ( 3d ed. 1964) [hereinafter cited as Prosser] . 4. See, e.g.. Dale System v. General Tderadio, Inc., 105 F. Supp. 745 (S.D.N.Y. 1952); Remiclc Music Corp. v. American Tobacco Co., 57 F. Supp. 475 (S.D.N.Y. 1944); Sacco v. Herald Statesman, Inc., 32 Misc. 2d 739, 223 N.Y.S.2d 329 (1961); Advance Music Corp. v. American Tobacco Co., 183 Misc. 645, 50 N.Y.S.2d 287 (1944), ofd, 268 App. Div. 707, 53 N.Y.S.2d 337 (1945), reo'd on other grounds, 269 N.Y. 79, 70 N.E.2d 401 (1946). See also Prosser, Infusions Falsehood: The Basis of Liability, 59 Colum. L. Rev. 425 (1959). 5. Jekshewitz v. Groswald, 265 Mass. 413, 164 N.E. 609 (1029); Morgan v. McNab, 25 N.J. 271, 135 A.2d 657 (1957); Friedman v. Libin, 4 Misc. 2d 248, 157 N.Y,S.2d 826 (1957), affd, 3 App. Div. 2d 827, 161 N.Y.S.2d 826 (1957); Humphreys v. Baird, 197 Va. 667,90 SJL2d 796 (1956). - 19 r of one ilike ft is ing. jury fter the Jow inly e in iave loss lere For 1 is nt.3 for t is bethe tion his 5ns, jroless jreved in- 164) N.Y. s.Y. 31); 287 ndt, latit lab, 5.2d i v. (\ ) 1966 ] MISREPRESENTATION 233 duced to leave a husband, or induced to incur criminal penalties.7 No cases have been found in which such harm has resulted to a third person; and in the nature of things they are not likely ever to arise. In what follows, therefore, the discussion will be limited to "physical harm" and "pencuniary loss." B. The Basis of Liability . Tort liability traditionally is founded upon one of three bases: intent, negligence, or strict liability without either. Liability for misrepresentation is no exception, and it must be divided into the three familiar categories. The intent involved is intent to mislead, to deceive; and it requires something in the way of knowledge or belief that what is misrepresented is in fact false--or what the courts have called scienter, i The negligence involved is a failure to exercise rea sonable care to make sure that the representation is true, even where the defendant honestly believes it to be true. Strict liability, which is a late comer to the field, holds the defendant responsible merely be cause he has made the false statement, even though he reasonably believes it to be true and has exercised all reasonable care under the circumstances. Intentional misrepresentation has been identified with the action of deceit since the leading English case of Derry v. Peek,11 which held that that action could not be maintained against a defendant who had made his statement in good faith, even though his honest belief in the truth of what he said was an entirely unreasonable one. Lord Herschell, in that case, was willing to extend the action to cover representations made with reckless disregard as to whether what was said was true or false;9 and there are several American decisions which have agreed.10 Likewise, it appears that all of the American courts have been willing to extend it to representations made by one who is conscious that he has no sufficient basis of information to justify them.11 A defendant who asserts a fact as of his own knowledge or , / 6. Work v. Campbell, 164 Cal 343, 128 Pac. 943 (1912). 7. Burrows v. Rhodes, [1899] 1 Q.B. 816. 8. 14 App. Cas. 337 (1889). 9. Id. at 360-61. 10. Cooper v. Schlesinger, 111 U.S.' 148 (1884); Otis 4 Co. v. Grimes, 97 Colo. 219, 48 P.2d 788 (1935); Rosenberg v. Howie, 56 A.2d 709 (D.C. Mun. App. 1948); Richards v. Foss, 126 Me. 413, 139 Atl. 231 (1927); Zager v. Setzer, 242 N.C. 493, 88 S.E.2d 94 (1955); Atkinson v. Charlotte Builders, 232 N.C. 67, 59 N.E.2d 1 (1950). Or without any bdief at all as to truth or falsity. Shackett v. Bickford, 74 N.H. 57, 65 Atlr252 (1906); Griswold v. Cebbie, 126 Pa. 353, 17 Atl. 673 (1889). illy Sovereign Pocahontas Co. v. Bond, 120 F.2d 39 (D.C. Cir. 1941); Byars v. Sanders, 215 Ala. 561, 112 So. 127 (1927); Fausett & Co. v. Bullard, 217 Ark. 176, 229 S.W.2d 490 (1950); Davis v. Central Land Co., 162 Iowa 269, 143 N.W. 1073 (1913); Bullitt v. Farrar, 42 Minn. 8, 43 N.W. 568 (1889); State Street Trust Co. v. i i r fc- - fcv DSW 441229 J-; . STLCOPCB4102656 234 VANDERBILT LAW REVIEW [Vol. 19 so positively as to imply that he has knowledge,*12 under circumstances where he is aware that he will be so understood,13 when he knows that he does not know whether what he says is true, is found to have the intent to deceive, not so much as to the fact itself, but rather as to the extent of his information. In order to avoid repetition and tedious detail, all of these types of conduct will be grouped together hereafter under the single name of intent. There appears to be no doubt that an intentional misrepresentation is actionable even when it is made quite gratuitously, by one who has no interest whatever in making it.14 The misrepresentation may be an entirely honest one, but may be negligently made, because of lack of reasonable care in ascertaining the truth,15 or carelessness in the manner of expression,16 or want of the skill and competence required by a particular business or pro fession.17 After Derry v. Peek the English courts drew the unfortunate conclusion that, at least in the absence of some fiduciary relation between the parties,18 there was no remedy for merely negligent misrepresentation, honestly believed, where the harm that resulted Ernst, 278 N.Y. 104, 15 N.E.2d 418 (1938); Ultramares Corp. v. Touche, Niven & Co., supra note 1; Hadcock v. Osmer, 153 N.Y. 604, 47 N.E. 923 (1897); Zager v. Setzer, supra note 10. 12. Kirkpatrick v. Reeves, 121 Ind. 280, 22 N.E. 139 (1889); Bullitt v. Farrar, supra note 11; Schlossman's, Inc. v. Niewinski, 12 N.J. Super. 500, 79 A.2d 870 (1951); Pumphrey v. Quillen, 165 Ohio St 343, 135 N.E.2d 328 (1956); First Natl Bank v. Hackett, 159 Wis. 113, 149 N.W. 703 (1914). A fortiori when the defendant repre sents that he has special knowledge. Holland Furnace Co. v. Korth, 43 Wash. 2d 318, 252 P.2d 772 (1953). e'l: 13. Thus where the matter is clearly susceptible of knowledge by the defendant Wiley v. Simmons, 259 Mass. 159, 156 N.E.Q 23 (1927). Otherwise where it is clear to the plaintiff that it is not, or that the defendant is not asserting knowledge. Harris v. Delco Products Co., 305 Mass. 362, 25 N.E.2d 740 (1940); Smith v. Badlam, 112 Vt 143, 22 A.2d 161 (1941); cf. Duryea v. Zimmerman, 121 App. Div. 560, 106 N.Y.S.0L237 (1907). 14. Lahay v. City Natl Bank, 15 Colo. 339, 25 Pac. 704 (1891); Flaherty v. Till, 119 Minn. 191, 137 N.W. 815 (1912); Robb v. Cylock Corp., 384 Pa. 209, 120 A.2d 174 (1956). 15. Maxwell Ice Co. v. Brackett Shaw & Lunt Co., 80 N.H. 236, 118 At], 34 (1921); International Prod. Co. v. Erie R. Co., 244 N.Y. 331, 155 N.E. 662 (1927); Houston v. Thornton, 122 N.C. 365, 29 S.E. 827 (1898). 16. See Slater Trust Co. v. Gardiner, 183 F.2d 268 ( 2d Cir. 1910); Nash v. Min nesota Title & Trust Co., 163 Mass. 574, 40 N.E. 1039 (1895); Angus v. Clifford, 2 Ch. Div. 449, 472 (1891). 17. Brown r. Sims, 22 Ind. App. 317, 53 N.E. 779 (1899); Dickie v. Nashville Abstract Co., 89 Term. 431, 14 S.W. 896 (1890). See Hawkins, Professional Negligence Liability of Public Accountants, 12 Vand. L. Rev. 797 (1959); Roady, Professional Liability of Abstractors, 12 Vand. L. Rev. 783 (1959); Rouse, Legal Liability of the Public Accountant, 23 Ky. L.J. 3 (1934). 18. Nocton v. Lord Ashburton, [1914] A.C. 932 (solicitor and client); Woods v. Martins Bank, [1959] 1 Q.B. 55 (banker and customer); Burke v. Cosy, [1959] 19 D.L.R.2d 252, (Ont App.) (investment counselor). L. 19 nces lows lave :r as and ther ; no hen r in ' be ling t of pro late iion ;ent ted Co., tzer, ipra 51); t v. pre 2d ant. tear rris 112 106 'ill, .2d 34 7); .2 He ice Kll he v. 19 ) 1960 J MISREPRESENTATION 235 to the plaintiff wafc only pecuniary loss.19 They did, however, recog nize a cause of action for negligence where there was physical harm.20 It was not until 1964 that the House of Lords, in Hedley Byrne 6Co. v. Heller 6- Partners,21 overthrew the existing law, and extended the liability for negligence to pecuniary loss in any case where some "special relation" between the parties could be found. The decision ii still too recent for the extensive dicta, strewn throughout the five (Opinions in the case, to do more than leave a good many unsolved problems for the English courts, as to the third persons to whom this liability may extend.*2 . In the United States the English rule was at first accepted, although a small minority of our courts refused to follow Derry v. Peek and held that the deceit action would he for negligent statements--either declaring that the fault was sufficient and the reliance of the plaintiff equally justified or resorting to the rather obvious fiction that a duty to learn the facts, or not to speak without knowing them, was the equivalent of actual knowledge.23 With the passage of time other courts, recognizing the real basis of the liability, began to carry over the negligence action from physical harm to pecuniary loss34 and to allow the recovery. This view has ultimately prevailed and appears now to be generally accepted American law.25 19. Cann v. Wilson, 39 Ch. Div. 39 (1888), began by finding liability for negligence; / but the case was overruled in Le Lievre v. Gould, [1893] 1 Q.B. 491, which was followed in Old Gate Estates v. Toplis, [1939] 3 All E.R. 209, and Candler v. Crane, Christmas & Co.,. [1951] 2 K.B. 164. See Goodhart, Liability for Negligent Misstate ments, 78 L.Q. Rev. 107 (1962); Seavey, Candler o. Crane, Christmas 6- Co., 67 L.Q. Rev. 466 (1951). 20. The Spollo, [1891] A.C. 499; Clayton v. Woodman & Son, [1962] 2 Q.B. 533; Watson v. Buckley, [1940] 1 All E.R. 174; Sharp v. Avery, [1938] 4 All E.R. 85; White v. Broadbent, [1958] Crim. L. Rev. 129 (Eng.). 21. [1964] A.C. 465. I 22. The actual decision was for the defendant, upon the ground of an effective disclaimer of responsibility. The judges agreed that the liability would arise only where there was some "special relation" between the parties, but they manifested little agreement as to what that relation might be. See Stevens, supra note 2. Goodhart, supra note 2; Gordon, Hedley Byrne o. Heller in the House of Lords, 38 Aust. LJ. 39 (1964), 2 U. Brit. Col. L. Rev. 113 (1965). 23. See, e.g., Anderson v.- Tway, 143 F.2d 95 (6th Cir. 1944); Scholfield Gear & Pulley Co. v. Scholfield, 71 Conn. 1, 40 Atl. 1046 (1898); Watson v. Jones, 41 Fla. 241, 25 So. 678 (1899); Mullen v. Eastern Trust & Banking Co., 108 Me. 498, 81 Atl. 948 (1911); Vincent v. Corbitt, 94 Miss. 46, 47 So. 641 (1908). 24. Expressly spelled out in Weston v. Brown, 82 N.H. 157, 131 Atl. 141 (1925). 25. Gediman v, Anheuser Busch, Inc., 299 F.2d 537 ( 2d Cir. 1962); De Zemplen v. Home Federal Savings & Loan Ass'n, 221 Cal. Ann. 2d 197, 34 CaL Rptr. 334 (1963); Gagne v. Bertran, 43 Cal. 2d 481, 275 P.2d 15 (1954); Mulroy v. Wright, 185 Minn. 84, 240 N.W. 116 (1931); Suit v. Scandrett, 119 Mont. 570, 178 P.2d 405 (1947); McCray v. Refrigerator Co., 79 Nev. 296, 382 P.2d 600 (1963); International Prod. Co. v. Erie R. Co,, supra note 15; Houston v. Thornton, supra note 15; Dickie v. Nashville Abstract Co., supra note 17; Brown v. Underwriters at Lloyd's, 53 Wash. 2d 142, 332 P.2d 228 (1958); Restatement, Torts 8 552 (1939). >> ftc t - f fv %t b F i rs b- % >* W F STLCOPCB4102658 {) ) 236 VANDERBILT LAW REVIEW [ Vol. 19 Liability for negligent misrepresentation, like other negligence liability, requires a duty to the plaintiff to exercise reasonable care; and it is about the question of the duty that the third-person eases have revolved. Even between the immediate parties, the lack of any duty may prevent recovery, particularly where the statement made is an entirely gratuitous one. A casual answer from a bystander to an inquiry as to the safety of premises26 or the weight of a tombstone27 requires only an honest answer--not reasonable care. The same is . undoubtedly true of the curbstone advice or information given by an I attorney28 or a physician29 to one who is not a client or a patient. It was on this basis that the Pennsylvania court30 held that a trust com pany was not liable for negligence when it did a favor for the plaintiff by permitting him to look at a will. On the other hand, there are a good many cases holding that a truck driver who takes the initiative by signaling an automobile driver that it is safe to pass31 or a pedestrian that he may walk in front32 has by his affirmative conduct assumed the duty of care, and so is liable if he is negligent. Particularly where the representation, al though in itself gratuitous, is made in the course of the defendant's business or professional relations, the duty is readily found to be assumed;33 and a physician who treats a contagious disease has been held liable when he negligently assures those in the vicinity that there 26. Holt v. Kolker, 189 Md. 036, 57 A.2d 287 (1948); Webb v. Cerasoli, 275 App. Div. 45, 87 N.Y.S.2d 884 (1949), aff'd, 300 N.Y. 603, 90 N.E.2d 64 (owner assuring contractor in presence of workman). 27. Avery v. Palmer; 175 N.C. 378, 95 S.E. 553 (1918). 28. Fish v. Kelly, 17 C.B.(n.s.) 194, 144 Eng. Rep. 78 (1804). - 29. Buttersworth v. Swint; 53 Ga. App. 602, 168 S.E. 770 (1936). 30. Renn v. Provident Trust Co., 328 Pa. 481, 196 AtL 2 (1938). In accord is Low v. Bouverie, [1891] 3 Ch. 82, where a trustee answered an inquiry from one about to deal with the cestui. See also Vartan Garapedian, Inc. v. Anderson, 92 N.H. ' 390, 31 A.2d 371 (1943), where there was an answer to an inquiry about the credit of a third person. Compare, as to information published in a newspaper, MacKown v. Illinois Pub. & Printing Co., 289 111. 59, 6 N.E. 526 (1937), and Curry v. Journal Pub. Co., 41 N.M. 318, 68 P.2d 168 (1937). 31. Petroleum Carrier Corp. v. Carter, 223 F.2d 402 ( 5th Cir. 1956); Haralson v. Jones Truck Lines, 223 Ark. 813, 270 S.W.2d 892 (1954); Shirley Cloak & Dress Co. v. Arnold, 92 Ga. App. 885, 90 S.E.2d 662 (1956); Thelen v. Spillman, 251 Minn. 89, 86 N.W.2d 700 (1957); Armstead v. Holbert, 146 W. Va. 582, 122 S.E.2d 43 (1961). 32. Sweet v. Ringwelski, 362 Mich. 138, 106 N.W.2d 742 (1961); Miller v. Watkins, 355 S.W.2d 1 (Mo. 1962) (waving driver on to pass bus); cf. Wolf v. Rebbun, 25 Wis. 2d 499, 131 N.W.2d 303 (1964) (exit from alley). 33. Washington & Berkeley Bridge Co. v. Pennsylvania Steel Co., 226 Fed. 169 (4th Cir. 1915) (contractor to subcontractor); Virginia Date Stores v. Schuman, 175 Md. 287, 1 A.2d 897 (1938) (owner to invitee); Manock v. Amos D. Bridge's Sons, Inc., 86 N.H.- 411, 169 AtL 881 (1934) (supplier of truck, as to insurance); Robb v. Gylock Corp., tupra note 14 (delivery of carboy); Valz v. Coodykoontz, 112 Va. 853, 72 SJE. 730 (1911) (owner to invitee). ' I ; i j j i ` j j 1 i I , j DSW 441232 "J* STLCOPCB4102659 i . 19 1966] MISREPRESENTATION 237 $ nee is no danger.34 It is no doubt on this basis that the Hedley Byrne case35 ire; in England, where one bank gratuitously gave information about the ises credit of its depositor to another bank, is to be justified.38 any Strict liability for entirely innocent misrepresentation originated in ade cases of rescission, where equity would grant the relief even where an there was only mutual mistake as to a fact basic to the transaction, le27 and no less readily where the mistake of the plaintiff had been induced : is by the defendant's representation.37 The first decision38 in which this an was carried over to a tort action for damages was one in which the It court appeared serenely ignorant that there was any difference in the >m- remedies; but it was followed by others39 in which the extension was the made quite deliberately, affording an additional remedy rather than a new basis for the action to one who found it impossible or unde t a sirable to rescind. There are now some eighteen of our courts40 which ver allow the remedy41 in cases of the sale or rental of property.42 The nt32 liability has been rather narrowly limited to defendants who have > is some pecuniary interest in making the representation,43 to the exclu- alnt's be een ere 275 mer 34. Skillings v. Allen, 143 Mich. 323, 173 N.W. 663 (1919); Edwards v. Lamb, 69 N.H. 599, 45 Atl. 580 (1899). In O'Neill v. Montefiore Hospital, 11 App. Div. 2d 132, 202 N.Y.S.2d 436 (1960), this was carried to the length of finding an assumed duty where a hospital nurse and its physician attempted to give free advice over the telephone. 35. Supra note 21; cf. Ciddings v. Baker, 80 Tex. 308, 16 S.W. 33 (1891), where a bank president answering an inquiry was found to be acting in his capacity as a bank officer. 36. The case was attacked on this ground of gratuitous information in Cordon, supra r note 22. 37. Equitable Life Assur. Soc'y v. New Horizons, Inc., 28 N.J. 307, 146 A.2d 466 (1958); Seneca Wire & Mfg. Co. v. A. B. Leach & Co., 247 N.Y. 1, 159 N.E. 700 (1928); Fields v. Haupeft, 213 Ore. 179, 323 P.2d 332 (1958); De Joseph v. Zambelli, i is 392 Pa. 24, 139 A.2d 644 (1958). one , 38. Holcomb v. Noble, 69 Mich. 396, 37 N.W. 497 (1931). l.H. 39. Such as Trust Co. v. Fletcher, 152 Va. 868, 148 S.E. 785 (1929). edit 40. Alabama, District of Columbia, Georgia, Idaho, Indiana, Iowa, Kansas, Mas awn sachusetts, Michigan, Minnesota, Nebraska, New Mexico, Ohio, Texas, Virginia, Wash mal ington, and West Virginia. Cases are listed in Prosser 102, at 726. 41. E.g., Stein v. Treger, 86 App. D.C. 400, 182 F.2d 696 (1949) (sale of whiskey); i v. Co. inn. 43 Gulf Elec. Co. v. Fried, 218 Ala. 684, 119 So. 685 (1928) (lease of building); Becker v. McKonnie, 106 Kan. 426, 186 Pac. 496 (1920) (sale of water rights); ' New England Foundation Co. v. Elliott A. Watrous Co., 306 Mass. 177, 27 N.E.2d 756 (1940) (sale of chattel); Ham v. Hart, 58 N.M. 550, 273 P.2d 748 (1954) (sale of land); B-W Acceptance Corp. v. Benjamin T. Crump Co., 199 Va. 312, 99 S.E.2d 606 (1957) (transfer of trust receipt); Jacquot v. Farmers' Straw Cas tins, Producer Co., 140 Wash. 482, 249 Pac. 984 (1926) (sale of patent rights). 25 42. The only cases found not involving die transfer of property are Baker v. Moody, 219 F.2d 368 ( 5th Cir. 1955) (inducing investment); Fidelity & Cas. Co. v. J. D. 4th Pittman Tractor Co., 243 Ala. 354, 13 So.2d 669 (1943) (liability insurance policy); Md. Jefferson Standard Life Ins. Co. v. Hedrick, 181 Va. 824, 27 S.E.2d 198 (inducing he., loon). There appears to be no essential reason why the liability should not extend to > V. any commercial transaction. 153, 43. As in Krause v. Cook, 144 Mich. 365, 108 N.W. 81 (1906) (agent receiving commission); Tischer v. Bardin, 155 Minn. 361, 194 N.W. 3 (1923) (same); Kuehl STLCOPCB4102660 238 VANDERBILT LAW REVIEW [ Vol. 19 sion of others4*4--such as an agent who receives no commission and has no other personal interest in the matter.45 So far as third persons are concerned, the strict liability has been identified46 with the "express warranty," without privity of contract, given by the seller of chattels to the ultimate user or consumer.47 This originated in 1932 in Baxter v. Ford Motor Co.,48 where the court at first found a "warranty" in disseminated literature stating that the glass in an automobile windshield was "shatterproof," but on a second ap peal49 justified the recovery on the basis of strict liability for misrepre sentation. The courts have continued to talk warranty, where few of the usual rules applicable to warranties between the immediate parties can apply; but a recent decision in Tennessee50 has returned, and surely quite properly, to the theory of misrepresentation. All of the cases have involved the sale of chattels by the defendant, and in most of them the damage has been physical harm; but in several recent cases the strict liability has been extended to pecuniary loss, as where the ultimate purchaser of an automobile discovers that he has a bad bargain because it is not as represented by the manufacturer.51 v. Pamienter, 195 Iowa 497, 192 N.W. 429 (1923); Huntress v. Blodgett, 206 Mass. 318, 92 N.E. 427 (1910); Giddings v. Baker, supra note 35; Osborne v. Holt, 92 W. Va. 410, 114 S.E. 801 (1922). Corporate officers, directors and promoters, whose interest is sufficiently obvious, have been held liable for statements maue to induce dealings with the corporation. 44. Dykema v. Muskegon Piston Ring Co., 348 Mich. 129, 82 N.W.2d 467 (1957); Kolinski v. Reichstein, 303 Mich. 710, 7 N.W.2d 117 (1942); Rosenberg v. Cyrowski, 227 Mich. 508, 198 N.W. 905 (1924); Steele v. Banninga, 225 Mich. 547, 196 N.W. 404 (1923); Neelund v. Hansen, 144 Minn. 228, 175 N.W. 538 (1919); Noble v. Libby, 144 Wis. 632, 129 N.W. 791 (1911). - 45. Aldrich v. Scribner, 154 Mich. 23, 117 N.W. 581 (1908); Williamson v. Hannan, 200 Mich. 658, 166 N.W. 829 (1918); Wimple v. Patterson, 117 S.W. 1034 (Tex. Civ. App. 1900). 46. Thus in Russo v. Merck & Co., 138 F. Supp. 147 (D. R. I. 1956), it was held that the supplier of blood plasma was not strictly liable in deceit to one with whom there was no privity of contract. 47. See Prosser 98, at 684. 48. 168 Wash. 456, 12 P.2d 409, 15 P.2d 1118 (1932). 49. Baxter v. Ford Motor Co., 179 Wash. 123, 35 P.2d 1090 (1934). 50. Ford Motor Co. v. Lonon, 398 S.W.2d 240 (Tenn. 1966). The court relied ' on a proposed Restatement of Torts, Second 552D (Draft Nov. 7, p. 76) not yet finally approved by the American Law Institute. Another decision to the same effect is Cooper v. R. J. Reynolds Tobacco Co., 234 F.2d 170 (1st Cir. 1956). 51. Laclede Steel Co. v. Silas Mason Co., 67 F. Supp. 751 (W.D. La. 1946); Seely v. White Motor Co., 45 Cal. Rptr. 17, 403 P.2d 145 (1965); Posey v. Ford Motor Co., 128 So.2d 149 (Fla. App: 1961); Beck v. Spindler, 256 Minn. 593, 99 N.W.2d 670 (1959); Inglis v. American Motors Corp., 3 Ohio St. 2d 132, 209 N.E. 583 (1965); Ford Motor Co. v. Lonon, supra note 50. Contra, Dimoff v. Ernie Major, Inc., 55 Wash. 2d 385, 347 P.2d 1056 (1960). Another way in which pecuniary loss may be recovered, without privity of contract,' is by way of indemnity for liability incurred to one to whom the chattel has been resold. See, Suvada v. White Motor Co., 32 111. 2d 612, 210 N.E.2d 182 (1965); 3L. 19 d has been itract. This art at glass d aprepre2W Of arties surely : have them the e the i bad a > Mass, olt, 92 whose induce , 1957); rowski, i N.W. able v. i son v. '. 1034 as held whom relied 6) not e same ieely v. or Co., 2d 670 1965); nc.t 55 ontract, is been i 1965); 1966 J MISREPRESENTATION 239 --C. Purpose, Expectation and Foresight That the Plaintiff May Act - The defendant may intend that his statement shall reach the plain tiff, and that he shall take action in reliance upon it; and he may make the statement solely for that purpose, or for that purpose among others. Without any such purpose or intent, and without any interest of his own in inducing such action, he may have some special reason to expect that it may be taken. He may, for example, be informed that die plaintiff is interested in the matter and intends to rely on the information; or/he may know that the recipient of the representation intends to pass it on to the plaintiff, or to a group in which he is included, in the hope of inducing action^ The representation may be incorporated in a document intended to circulate, as in the case of a bill of lading or a stock certificate; or it may be affixed to a chattel expected to be resold. The tendency_has been to treat such cases on the same basis as those of purpose. On the other hand, the defendant may have no special reason to anticipate that the representation will reach others and induce their action, but because of the ever-present fact that any human words, written or oral, are capable of being repeated and passed on in definitely, in a very general sense, it is always foreseeable that they may come into the hands of any number of third persons. "Our echoes roll from soul to soul, and grow forever and forever.^ An extreme illustration is the case of Howell v. Betts,*3 where the plaintiff, in 1958, bought land in reliance upon a survey and description negli gently made by the defendant in 1934. It is here that the courts have become genuinely disturbed at the possibility of "a liability in an indeterminate amount for an indetermi nate time to an indeterminate class,"84 and the prospect of a huge and crushing burden of liability out of all proportion to the magnitude of the defendant's fault. D. The Size of the Group in Which Plaintiff Is Included The plaintiff may be identified and known to the defendant as a Tri-City Fur Foods, Inc. v. Ammennan 7 Wis. 2d 149, 96 N.W.2d 495 (1959); cf. Free v. Sluss, 87 Cal. App. 2d 933, 197 P.2d 854 (1948); see note, 1965 U. III. L. Forum 144. 52. Tennyson, The Princess. 53. 211 Term. 134, 362 S,W.2d 924 (1962). 54. "If liability for-negligence exists, a thoughtless slip or blunder, the failure to detect a theft or forgery beneath the cover of deceptive entries, may expose ac countants to a liability in an indeterminate amount for an indeterminate time to an indeterminate class. The hazards of a business conducted on these terms are so extreme as to enkindle doubt whether a flaw does not exist in the implication of a duty that exposes to these consequences." Cardozo, C. J., in Ultramares Corp. v. Touche, Niven & Co, 255 N.Y. 170, 179, 174 N.E. 441 444 (1931). E t> DSW 441235 STLCOPCB4102662 -^.svV-Vr';<; :& vVv <'c*`^g $v^'- n ,.-r .. ..-.. f ^sa /MI ** yjS;# (V 240 VANDERBILT LAW REVIEW [Vol. 19 person likely to take action at the time the representation is made. He may be one of two, of five, of fifty, or of five hundred, whom it may be intended or expected to reach and to influence. Or he may be merely one member of an indeterminate class who may foreseeably come into possession of the information and rely on it. It is here again that the same spectre has haunted the courts. / E. The Character of the Transaction The transaction into which the plaintiff enters in reliance upon the representation may be identical with that which it was intended to induce; or it may be substantially similar. There seems to be little doubt that substantial similarity is enough. If a balance sheet is certified for a corporation in the expectation that it will be used to obtain a bank loan in the amount of $10,000, the fact that the loan is made for $15,000 will certainly not defeat any liability. It is a different matter when the balance sheet is used to float a bond issue of -$500,000. Not only is there a great difference in amount, but the bond issue is substantially a different thing from the loan. When the transaction is clearly a different one--as where a letter praising the plant of a title insurance company is written to aid it in obtaining title business, but is used by the company to sell its corporate stock55 *-the same ghost has walked the corridors, and the line has been /drawn. . II. Classification of the Cases After this lengthy review of the various factors that bear upon the liability to the third person, we may proceed to attempt some classification of the cases. A. Plaintiff Is Identified; Defendant's Purpose Is To Influence Him, Here there is invariably liability for intentional deceit. The de fendant is held liable when the misrepresentation is made to A in order that he may communicate it to B;56 where it is made to A in the presence of B in order to induce B to act;57 where the defendant refers \ 55. New York Title & Mortgage Co. v. Hutton, 63 App. D.C. 266, 71 F.2d 689 1(1934). 56. Hoyt v. Clancey, 180 F.2d 158 (8th Cir. 1950); Harold v. Pugh, 174 Cal. App. 2d 603, 345 P.2d 112 (1959); Hubbard v. Weare, 79 Iowa 678, 44 N.W. 91S (1890); Campbell v. Goch, 131 Kan.. 546, 292 Pac. 752 (1930); Watson v. Crandall, 7 Mo. App. 233 (1899), tiff'd, 78 Mo. 583 (1883); cf. Chubbuck v. Cleveland, 37 Minn. 466, 35 N.W. 152 (1929). ,57. Alexander v. Beresford, 27 Miss. 747 (1854); Hunter v. McKenzie, 197 CaL 176 139 Pac. 1090 (1925). DSW 441236 STLCOPCB4102663 .. 19 He nay be ibly , iere the ded be leet lsed oan is a ;sue the hen sing ling ck55 teen I the 1 rnie 'Tim de i in the fers 989 App. 190); Mo. 466, 176, MISREPRESENTATION ) 241 to A as one who has the information;58 and, of course, where A is ie agent of B and is known to be acting for him.59 Surprisingly nough, there appear to be few cases of negligence80 or strict liability 81 although there can be little doubt that the plaintiff would recover. B. Plaintiff Is Identified; Defendant Has Special Reason To Expect His Action Again the liability for intentional misrepresentation is sufficiently clear. The defendant has been held liable when he knows that C is interested in the information and is considering a deal, and he makes the statement to B in the presence of C62 or with the expectation that C will obtain it from B.83 He has been held liable also when he I knows that B can be expected to approach C and seek to induce his [action.84 In the same category can perhaps be placed the cases in which the representation is made to those who are known to intend to form a corporation85 or a partnership68 to take action, and the intention is carried out. There are also two cases of the deceitful seller of a chattel, who knows that it is intended for use by an iden- 58. Hindman v. First Natl Bank, 112 Fed. 931 (6th Cir. 1902); Hiller v. Ellis, 72 Miss. 701, 18 So. 95 (1895); Jamestown Iron & Metal Co. v. Knofsky, 291 Pa. 60, 239 Atl. 611 (1927). 59. Lewis v. McClure, 127 Cal. App. 439, 16 P.2d 166 (1932); Advance-Rumely Thresher Co. v. Jacobs, 51 Idaho 160, 4 P.2d 657 (1931); Ettlinger v. Weil, 94 App. Div. 291, 87 N.Y.S. 1049 (1904) (letter to agent to be shown to principal). 60. Pearlman v. Carrod Shoe Co., 276 N.Y. 172, 11 N.E.2d 718 (1937) involved a sale of shoes for a child brought along by its mother. In Hedley Byrne & Co. v. Heller & Partners, [1964] A.C. 465, the defendant knew that the information was intended for one customer of the bank to which it was sent, but did not know his identity. See also the cases of special reason to expect action on the part of an identified plaintiff, infra notes 68-77. 61. There is Odell v. Frueh, 146 Cal. App. 2d 504, 304 P.2d 45 (1956), where the representation was made to a school district to induce it to specify a product to be used by plaintiff contractor. Compare Jeffery v. Hanson, 39 Wash. 2d 855, 239 P.2d 346 (1952), and Lindroth v. Walgreen Co., 329 111. App. 105, 67 N.E.2d 595 (1946), both of which might perhaps be classified as involving purpose. 62. Southern States Fire & Cas. Ins. Co. v. Cromartie, 181 Ala. 295, 61 So. 907 (1913). In this case the court also found a duty to disclose the falsity when the plaintiff subsequently bought from him. ' 63. Pilmore v. Hood, 5 Bing. N.C. 98, 132 Eng. Rep, 1042 (1838); Peabody Bldg. & Loan Ass'n v. Houseman, 89 Pa. St. 261 (1879); Houseman v. Girard Mutual Bldg. & Loan Assn, 81 Pa. St. 256 (1876). . i 64. Gulf Oil Corp. v. Newton, 130 Conn. 37, 31 A.2d 462 (1943). Defendant made I the statement to one of two guarantors, knowing that he could be expected to com- / municate it to the other. , 65. E. M. Fleischmann Lumber Corp- v- Resources Corp. International, 105 F. Supp. 681 (D. Del. 1952); Iowa Economic Heater Co. v. American Economic Heater Co., 32 Fed. 735 (N.D. 111. 1887); Crystal Pier Amusement Co. v. Caiman, 219 CaL 184, 25 P.2d 839 (1633); Scholfield Gear & Pulley Co. v. Scholfield, supra note 23. 66. Cf. Henry v. Dennis, 95 Me. 24, 49 Atl. 58 (1601), where defendant answered an inquiry sent to him on the letterhead of a firm. > F * 6 STLCOPCB4102664 242 VANDERBILT LAW REVIEW [Vol. 19 tified person other' than the buyer.87 The negligence liability is no less clear. The defendant is liable where, without proper care, he provides B with a title88 or weight certificate,89 an abstract of title,6707a6n8a6p9praisal,71 7a2n audit,71 or a report of a boiler inspection,73 knowing that B intends to pass it on to C and that C is contemplating action in reliance upon it. The report may even be sent by the defendant to C at the request of B,74 or the defendant may be informed that B and C expect to act in concert.75 76 Strict liability is represented by one case78 of an express "warranty" sent by the defendant to a dealer who had requested it for a particular customer, and perhaps by another77 where a retailer made the state ment to a mother knowing that she intended to use the chattel for her infant child. C. plaintiff Is Identified: Defendant Has No Special Reason To I Expect His Action Thejre are a few cases involving intentional misrepresentation. In one of them, in Texas,78 the defendant, offering lots for sale, made 67. ^Voodward v. Miller & Karwich, 119 Ga. 618, 46 S.E. 847 (1904); Langridge v. Lexfy, 2 M.&W. 519, 150 Eng. Rep. 519 (1836). 68. /Economy Bldg. & Loan Assn v. West Jersey Title & Guarantee Co., 64 N.J.L. 27,44Atl. 854 (1899). 69. Plata American Trading Co. v. Lancashire, 29 Misc. 2d 246, 214 N.Y.S.2d 43 (1957); Glanzer v. Shepard, 233 N.Y. 236, 135 N.E. 275 (1922). 70. Beckovsky v. Borton Abstract & Title Co., 208 Mich. 224, 175 N.W. 225 (1919); Western Loan & Savings Co. v. Silver Bow Abstract Co., 31 Mont. 448, 78 Pac. 774 (1904); Dickie v. Nashville Abstract Co., 89 Tenn. 431, 14 S.W. 896 (1890); Decatur Land, Loan & Abstract Co. v. Rutland, 185 S.W. 1064 (Tex. Civ. App. 1916); Anderson v. Spriestersbach, 69 Wash. 393, 125 Pac. 166 (1912); see Phoenix Title & Trust Co. v. Continental Oil Co., 43 Ariz. 219, 29 P.2d 1065 (1934). 71. United States v. Neustadt, 281 F.2d 596 (4th Cir. 1960) (federal housing appraisal). 72. American Indem. Co. v. Ernst & Ernst, 106 S.W.2d 763 (Tex. Civ. App.' 1937). 73. Du Rite Laundry v. Washington Elec. Co., 263 App. Div. 396, 33 N.Y.S. 2d 925 (1942). The inspection was made for the buyer of the boiler, knowing that the seller expected to rely on it in giving warranties, on which he was held liable. Cf. Robitscher v. United Clay Products Co., 143 A.2d 99 (Mun. App. D.C. 1958), where a layout for air conditioning was prepared for a builder, knowing that he would rely on it in doing work on plaintiff's house. Hopelessly out of line is Bilich v. Barnett, 103 Cal. App. 2d 921, 229 P.2d 492 (1951), where grade sheets were prepared for intended use by an identified con tractor. To the contrary is M. Miller Co. v. Central Contra Costa Sanitary District, 198 Cal. App. 2d 305, 18 Cal. Rptr. 13 (1961), where the contractor was not even identified. , 74. Cann v. Willson, 39 Ch.'Div. 39 (1888); Brown v.'Sims, 22 Ind. App. 317, 53 NJE. 779 (1899). 75. Bradley v. Bradley, 165 N.Y., 183, 58 NJE. 887 (1900). 76. Jeffery v. Hanson, tupra note 61. 77. Lindroth v. Walgreen Co., 329 111. App. 105, 67 N.E.2d 595 (1946). 78. Westcliff v. Wall, 153 Tex. 271, 267 S.W.2d 544 (1954). () ) 19 I960] MISREPRESENTATION 243 false statements about them to A in the presence of B, without any le reason to believe that B had any interest in the lots. He was held lit not to be liable when B purchased a lot There are a few others79 in rt which the representation was made to A as an agent acting for B, C with no reason to suppose that A had any personal interest in the rt matter, and it was held that there was no liability when A subse le quently purchased the property in question from B. Cases of negli is '*w / gence and strict liability appear to be lacking; but if the intentional deceit is not actionable, there could scarcely be recovery on the other IT grounds. 1 I. e>r D. Plaintiff Is an Unidentified Member of a Group Or Class: Defendant'p Purpose Is To Influence Any of Its Members There are a good many cases, all of them holding that the plaintiff P- can recover. As to intentional deceit, the simplest case80 is that in which the defendant sent false statements to "Mr. Hadcock." There were two brothers named Hadcock, and the purpose was to influence either one n of them who would be willing to make a loan. But the group or class le need not be a small one, and may in fact be very large.81 Thus a fraudulent seller of stock82 or a manipulator of the market83 has been held liable when he brought about publication of a newspaper story L. and a reader bought stock in reliance upon it. 13 There is liability for deceit when false statements as to credit are made to a commercial credit agency, for the purpose of reaching its ); subscribers,84 or even others,85 in order to obtain credit from them. '4 a 79./McCane v. Wokoun, 189 Iowa 1010, 179 N.W. 332 (1920); Walker v. Choate, )i 228 Ky. 101, 14 S.W.2d 406 (1929); Wells v. Cook 16 Ohio St. 67, 88 Am. Dec. 436 & (186^); Butterfield v. Barber, 20 R.I. 99, 37*tlr32 (1897). 80. Hadcock v. Osmer 153 N.Y. 604, 47 N.E. 923 (1897). 'g 81. Compare the cases of direct representation to the public by advertising, such as /Rohrschneider v. Knickerbocker Life Ins. Co., 76 N.Y. 216, 32 Am. Rep. 290 (1879); De Kalb v. Hybrid Seed Co., 293 S.W.2d 64 (Tex. Civ. App. 1956). a $2. Holloway v. Forsyth, 228 Mass. 358, 115 N.E. 483 (1917). v/ 83. Willcox v. Harriman Securities Corp., 10 F. Supp. 532 (S.D.N.Y.) 1933). W- it |B4. Reliance Shoe Co. v. Manly, 25 F.2d 381 (4th Cir. 1928); In re Weissman, e. 19 F.2d 769 ( 2d Cir. 1927); Manly v. Ohio Shoe Co., 25 F.2d 384 ( 4th Cir. 1928); ). li re Epstein, 109 Fed. 874 (W.D. Ark. 1901); In re Weil, 111 Fed. 897 (S.D.N.Y. ic l901); Fechheimer v. Baum, 37 Fed. 187 (S.D. Ga. 1889); Hulsey v. M. C. Kiser Co., 21 Ala. App. 123, 105 So. 913 (1925); Forbes v. Auerbach, 56 So. 2d 895 (Fla. 12 /l952); P. Cox Shoe Co. v. Adams, 105 Iowa 402, 75 N.W. 316 (1898),- Courtney v. l- ' William Knabe & Co. Mfg. Co., 97 Md. 499, 55 AtL 614 (1903); Genesee Savings Bank t, v. Barge Co., 52 Mich. 164, 17 N.W. 790, 18 N.W. 206 (1883); Mooney v. Davis, n 75 Mich. 188, 42 N.W. 802 (1889); Pier Bros. v. Doheny, 93 App. Div. 1, 86 N.Y. Supp. 971 (1904); Arnold v. Richardson, 74 App. Div. 581, 77 N.Y. Supp. 763 r. (1902); Tindle v. Birkett, 171 N.Y. 520, 84 N.E. 210 (1902); Cainesville Natl Bank v. Bamberger, 77 Tex. 48, 13 S.W. 959 (1890); National Bank "v. Illinois Lumber Co., 101 Wis, 247, 77 N.W. 185 (1898); cf. Stevens, v. Ludlum, 46 Minn. 160, 48 N.W. 771 (1891); Eaton Cole & Burnham Co. v. Avery, 83 N.Y. 31, 38 Am. Rep. 389 (1880). 85. Davia v. Louisville Times Co., 181 F2d 10 (6th Cir. 1910); Jamestown Iron A is- '' \ DSW 441239 Js STLCOPCB4102666 J -'=i vmimm r#fe# wC**wS/.-'..fS.f.et-'.lSw,S'O*a* ft*' {) 244 VANDERBILT LAW REVIEW [Vol. 19 Also where a trustee falsely certifies an overissue of bonds,8*888o69r8a7bank officer makes a false report,87 for the purpose of inducing the public to buy. And when a prospectus is found to be issued for the purpose, among others, of inducing the purchase of stocks or bonds on the market, there is liability to such a purchaser.88 Likewise where A is '.given a letter saying that his credit is good, to be exhibited to anyone jwho may care to deal with him, the defendant is liable even though Jhe never heard of B, who deals with A.88 There has been recovery for personal injury when the maker of a product misrepresents it, for the purpose of reaching the ultimate user.90 The few negligence cases follow the same rule. The Hedley Byrne case91 in England found liability where the information was negli gently furnished for a particular customer of the recipient bank, but the defendant did not know his identify. In Granberg v. Turnham,92 a California court found liability when the defendant negligently gave information concerning its lands to a real estate board, to be included in the board's multiple listing sent out to a large number of prospective buyers. In New York a trustee negli gently certifying bonds for a corporation, in order to aid in their Metal Co. v. Knofsky, 291 Pa. 60, 139 Atl. 611 (1927). In Irish Am. Bank v. Ludlum, 49 Minn. 344, 51 N.W. 1046 (1892), where the question was one of estoppel the court found no purpose to reach one who obtained the information from a subscriber. 86. Mullen v. Eastern Trust & Savings Bank, 108 Me. 498, 81 Atl. 948 (1911). 87. Taylor v. Thomas, 55 Misc. 411, 106 N.Y. Supp. 538 (1907). Accord, Leonard v. Springer, 197 111. 532, 64 N.E. 210 (1902) (false statements in trust deed to be recorded, liable to plaintiff who bought notes in reliance on the record); Stickel v. Atwood, 25 R.I. 456, 56 Atl. 687 (1903) (corporate officer representing bonds secured by all the property of corporation, liable to plaintiff lending money and taking bonds as security). ' 88. Andrews v. Mockford, [1896] 1 Q.B. 372; Sims v. Tigrett, 229 Ala. 486, 158 So. 326 (1934). A fortiori where the plaintiff buys from the defendant. Accord, Greene v. Mercantile Trust Co., Ill N.Y. Supp. 802 (Sup. Ct. 1908) (prospectusconcerning bonds, intended also to reach purchasers of stock). 89. Young v. Hall, 4 Ga. 95 (1848); Diel v. Kellogg, 163 Mich. 162, 128 N.W. 420 (1910); Clopton v. Cozart, 11 Misc. 365 (1850); Williams v. Wood, 14 Wend. 126 (N.Y. 1835); Allen v. Addington, 7 Wend. 9 (N.Y. 1831), atfd, 11 Wend. 374 (N.Y. 1833); cf. Strutzel V. Williams, 109 Cal. App. 2d 512, 240 P.2d 788 (1952) (statement intended to be repeated to others to secure additional investors). In Nash v. Minnesota Title Ins. & Trust Co., 159 Mass. 437, 34 N.E. 625 (1893), a letter concerning the title to land was given to its owner, to be used in the sale of mort gage bonds. It was held that there was liability to purchasers from the owner, but not to subpurchasers, since there was no purpose of aiding the first purchaser to resell. 90. Hruslca v. Parke, Davis & Co., 6 F.2d 537 ( 8th Cir. 1925); Wechsler v. Hoffman-La Roche, Inc., 198 Misc. 540, 09 N.Y.S.2d 588 (1950) (false state ments to druggists and physicians intended to reach users of the product). Accord, as to false labels on products: Graham v. John R. Watts & Son, 238 Ky. 96, 36 S.WJJd 859 (1931); Cold Kist Peanut Growers Assn v. Waldman, 377 P.2d 807 (Okla. 1962). 91. Hedley Byrne & Co. v. Heller & Partners, supra note 60. 92. 166 CaL App. 2d 390, 333 P.2d 423 (1958). DSW 441240 STLCOPCB4102667 [ Vol. 19 r a bank e public purpose, ; on the iere A is > anyone i though >very for s' it, for 'ij Byrne is negliank, but m/wm" gligently ; board,' a large e negliin their i. Ludlum, toppcl the subscriber. ill). . Accord, s in trust e record); presenting ng money 486, 158 . Accord, prospectus N.W. 420 Vend. 126 Vend. 374 18 (1952) . In Nash ), a letter ? of mortiwner, but rchaser to ' echsler v. rise state Accord, 38 S.WJ2d da. 1962). : j * ! i *. j J j | . < __ , . ; j -I , i , 1 1966 ] MISREPRESENTATION 245 sale, was held liable to a purchaser of the bonds.93 There is one case94 of a report negligently made to a mercantile credit agency and in tended to reach its subscribers. And where the seller of chattels negligently mislabels them, in order that the label may reach the ultimate consumer, liability for physical harm has been imposed.95 As for strict liability, the seller's advertising usually can be found to be a representation made directly to the consumer;96 but the liability has been found in the case of labels on the goods,97 or manuals, brochures and other literature98 supplied to a dealer for delivery to any purchaser, or an "insurance policy"99 *g*iv*en him for the same purpose. It is apparently quite immaterial how the representation reaches the plaintiff, so long as it is intended to do so and does. 93. Doyle v. Chatham & Phoenix Natl Bank, 253 N.Y. 369, 171 N.E. 574 (1930). 94. Durham v.'Wichita Mill & Elevator Co., 202 S.W. 138 (Tex. Civ. App. 1918). 95. Hoskins v. Jackson Grain Co., 63 So.2d 514 (Fla. 1953); La Plant v. E.I. Du Pont de Nemours & Co., 346 S.W.2d 231 (Mo. App. 1961); Peterson v. Standard Oil Co., 55 Ore. 511, 106 Pac. 337 (1910); Wise v. Hayes, 58 Wash. 2d 106, 361 P.2d 171 (1961), rehearing denied, June 19, 1961. 96. Pritchard v. Liggett & Myers Tobacco Co., 295 F.2d 292 ( 3d Cir. 1961); Hansen v. Firestone Tire & Rubber Co., 276 F.2d 254 ( 6th Cir. 1960); Arfons v. E. I. Du Pont dc Nemours & Co., 261 F.2d 434 ( 2d Cir. 1958); Grcenman v. Yuba Power Products, Inc., 59 Cnl. 2d 57, 377 P.2d 897 (1963); Lane v. C. A. Swanson & Sons, 130 Cal. App. 2d 210, 278 P.2d 723 (1955); Rogers v. Toni Home Permanent Co., 167 Ohio St. 244, 147 N.E.2d 612 (1958); Hamon v. Digliani, 148 Conn. 710, 174 A.2d 294 (1961); Connolly v. Hagi, 24 Conn. Supp. 198, 188 A.2d 884 (1963); Spiegel v. Saks 34th St., 252 N.Y.S.2d 852 (Sup. Ct. 1964); Inglis v. American Motors Corp., supra note 51; Baxter v. Ford Motor Co., supra notes 48 & 49.________ ____ _____ 97. Bonker v. Ingersoll Products Co., 132 F. Supp. 5 (D. Mass. 1955) ("boneless chicken"); Maecherlein v. Sealy Mattress Co., 145 Cal. App. 2d 275, 302 P.2d 331 (1956) (mattress, plaintiff stabbed by a spring in her "gluteal prominence"); Lane v. C. A. Swanson & Sons, 130 Cal. App. 2d 272, 278 P.2d 723 (1955) (canned chicken); Hoskins v. Jackson Crain Co., 63 So. 2d 514 (Fla. 1953) (watermelon seed); Graham v. John R. Watts & Son, 238 Ky. 96, 36 S.W.2d 859 (1931) (seed); .Worley v. Procter & Gamble Mfg. Co., 241 Mo. App. 1114, 253 S.W.2d 532 (1952) I (detergent); Darks v. Scudder-Gale Grocery Co. 146 Mo. App. 246, 130 S.W. 430 (1910) (ginger extract); Simpson v. American Oil Co., 217 N.C. 542, 8 S.E.2d 813 (1940) (insecticide). 98. Hansen v. Firestone Tire & Rubber Co., 296 F.2d 264 ( 6th Cir. 1960) (tire); Arfons v. E. I. Du Pont de Nemours & Co., supra note 96 (dynamite, literature); Bahlman v. Hudson Motor Car Co., 290 Mich. 683, 288 N.W. 309 (1939) (automo bile); Brown v. Globe Lab., 165 Neb. 138, 84 N.W.2d 151 (1957) (sheep vaccine, circular); see Mannsz v. Macwhyte Co., 155 F.2d 445 ( 3d Cir. 1946) (wire rope, manual). In Randy Knitwear, Inc. v. American Cyanamid Co., 11 N.Y.2d 5, 181 N.E. 2d 399, 226 N.Y.S.2d 363 (1962), garment tags and labels, advertising and sales literature were all involved. 99. Studebaker Corp. v. Nail, 82 Ga. App. 779, 62 S.E.2d 198 (1950) (automobile); Beck v. Spindler, supra note 51 (house trailer); Bennett v. Richardson-Merrell, Inc., 231 F. Supp. 150 (E.D. 111. 1964) (representations concerning drug to physicians, intended to reach users). Cf. Seely v. White Motor Co., supra note 51 (contract form for purchase of automobile); General Motors Corp. v. Dodson, 47 Tenn. App. 438, 338 S.W.2d 655 (1960) (written warranty of automobile). / i STLCOPCB4102668 246 VANDERBILT LAW REVIEW [Vol. 19 U E. Plaintiff Is an Unidentified Member of a Group or Class: 'A Defendant Has Special Reason To Expect That Any Member of It May Be Reached and Influenced There 4s quite definitely liability here for intentional deceit. One group of cases has involved embodiment of the representation in some document, such as a stock certificate,100 a promissory note,101 or a bill of lading,102 which is by its nature intended to circulate, or even a label on a chattel expected to be resold.103 Other courts have found liability where the information is furnished with the expectation that it will be published,104 and of course all the more readily when the publication is required by law.105 10L6ikewise there has been recovery when the seller of goods intentionally misrepresents their character or safety to a dealer, knowing that he intends to resell them.108 As these cases indicate, the group may be a very large one. Where physical harm results from a misrepresentation as to chattels sold, it has been held to include any ultimate user of the chattel.107 But 100. Shotwell V. Mali, 38 Barb. 445 (N.Y. 1862); Bruff v. Mali, 36 N.Y. 200 (1867); Merchants' Natl Bank v. Robison, 8 Utah 256, 30 Pac. 985 (1892); cf. Bank of Atchison County v. Byers, 139 Mo. 627, 41 S.W. 825 (1897) (bond); Bank of Montreal v. Thayer, 2 McCrary 1 (C.C. Iowa 1881) (receiver's cerificate). 101. National Shawmut Bank v. Johnson; 317 Mass. 485, 58 N.E.2d 849 (1945); People's Natl Bank v. Dixwell, 217 Mass. 436, 105 N.E. 435 (1914). 102. National Bank v. Kershaw Oil Mill, 202 Fed. 90 (4th Cir. 1912); cf. Baker v. Hallam, 103 Iowa 43, 72 N.W. 419 (1897) (false abstract and blank deed to be used) 103. Graham v. John R. Watts & Son, 238 Ky. 96, 36 S.W.2d 859 (1931). 104. Bedford v. Bagshaw, .4 H. &N. 538, 157 Eng. Rep. 951 (1859) (report to stock exchange to qualify as member); Morse v. Swits, 19 How. Pr. 275 (N.Y. 1859) (report by bank officer to bank, expecting it to be published). 105. Warfield v. Clark, 118 Iowa 69, 91 N.W. 833 (1902) (to state auditor); Ver Wys v. Vander Mey, 206 Mich. 499, 173 N.W. 504 (1919) (filed articles of incorpora-' tkm, public right to rely); City Bank v. Phillips, 22 Mo. 85, 64 Am. Dec. 254 (1855) (to insurance authorities); Gemer v. Mosher, 58 Neb. 162, 122 N.W. 540 (1909) (report of financial condition to Secretary of State); Parsons v. Johnson, 28 App. Div. 1, 50 N.Y. Supp. 780 (1898); Mason v. Moore, 73 Ohio St 275, 76 N.E. 932 (1906) (report by bank directors to Comptroller of the Currency); Coughlin v. State Bank, 117 Ore. 83, 243 Pac. 78 (1926) (report to Superintendent of Banks). 106. Sterchi Bros. Stores v. Castleberry, 236 Ala. 349, 182 So. 474 (1938); Quirici v. Freeman, 98 Cal. App. 2d 194, 219 P.2d 899 (1950); Lewis v. Terry, 111 Cal. 39, 43 Pac. 398 (1896); West Disinfecting Co. v. Plummer, 44 App. D.C. 345 (1916); State to Use of Hartlove v. Fox, 79 Md. 514, 29 AtL 601 (1894); Skinn v. Reuter, 135 Mich. 57, 99 N.W. 152 (1903); Schubert v. J. R. Clark Co., 49 Minn. 331, 51 N.W. 1103 (1892); Kuelling v. Roderick Lean Mfg. Co., 183 N.Y. 78, 75 N.E. 1098 (1905); Maytag v. Arbogast, 42 Ga App. 666, 157 S.E. 350 (1931). Usually these cases have called the cause of action one of negligence toward the plaintiff. 107. Johnson v. Ernest G. Beaudry Motor Co., 170 F. Supp. 164 (N.D. Ga. 1958) (wife driving car); Holland v. Sanfax Carp., 106 Ga. App. 1, 126 S.E.2d 442 (1962) (employee <fag chattel); Pullman Co. v. Ward, 143 Ky. 727, 137 S.W. 1047 (1911) (same); Jones v. Raney Chevrolet Co., 213 N.C. 775, 197 S.E. 757 (1938) (wife riding in car). Vol. 19 s: t. One tion in te,101 or late, or courts ith the e more e there (resents o resell Where sold, it 07 But (1867); Bank of ' Bank of (1945); rf. Baker ed to be j .; J ] ; j . I| . i ' ; ' 1 report to V. 1859) :or); Ver acorporaI (1855) ' (1909) ipp. Div. >(1906) ite Bank, Quirici Cal. 39, (1916); uter, 135 51 N.W. (1905); ises have a. 1958) l (1962) r 0911) S) (Wife ' } . ] \ i '! ! j i 1 `j I(' 19G6 ] MISREPRESENTATION 247 even in the cases of pecuniary loss the liability for intentional mis representation may be quite extensive. In Ultramares Corp. v. Touche, I Niven (? Co.?08 which is still the great leading case in this field, ; accountants who certified a balance sheet for a corporation were held : liable to a company which made a loan to it on the basis of conscious ` ignorance whether the balance sheet was correct. The defendants knew that in the usual course of business the balance sheet when certified would be exhibited by the [recipient] to banks, creditors, stockholders, purchasers or sellers, according to the needs of the occasion, as the basis of financial dealings. . . . The range of the transactions in which a certificate of audit might be expected to play a part was as indefinite and wide as the possi bilities of the business that was mirrored in the summary.109 There was, in other words, mere expectation of some entirely un-) specified business use of the certificate--it was not obtained to be thrown in the waste-basket. This approaches, although it does not; quite reach, the general possibility of reliance by others from which \ the courts have recoiled.110 The decision was reaffirmed in State Street ` Trust Co. o. Ernst,111 where the accountants knew merely that the certificate was to be used "to obtain credit"; and there are a few other cases of such certificates apparently in accord.112 There is also a California decision113 where a certificate of termite clearance given to j a buyer of land was held to inure to the benefit of a subpurchaser i on the ground that it was intended for use by "such persons as were ( transacting business" with the buyer in connection with the property. When the misrepresentation is only negligent, the liability for physical harm has been quite as extensive as in the case of deceit. The seller of goods expected to be resold has been held liable not only to the ultimate buyer,114 but also to anyone making the expected If the liability for negligence is to extend to those in the vicinity of the expected use, infra note 116, it is probable that the liability for intentional misrepresentation would also be so extended. No cases have been found. 108. 255 N.Y. 170, 174 N.E. 441 (1931). 109. Id. at 173, 174 N.E. at 442. "To creditors and investors to whom the employer exhibited the certificate, the defendants owed a like duty to make it without fraud, since there was notice in the circumstances of its making that the employer did not intend to keep it to hmiself." Id. at 179, 174 N.E. at 444. A significant fact is that the defendant supplied the corporation with thirty-two copies certified with serial numbers as!counterpart originals. Id. at 173, 174 N.E. at 442. /110. Infra notes 141-55. 111. 278 N.Y. 104, 15 N.E.2d 416 (1938). 112. Duro Sportswear, Inc. v. Cogen, 131 N.Y.S.2d 20 (1954), aff'd mem., 285 App. Div. 867, 137 N.Y.S.2d 829 (1954) (it is not altogether clear that the plaintiff was not identified); Mutual Ventures, Inc. v. Barondess, 17 Misc. 2d 483, 186 N.Y.S.2d 308 (1939); see Fidelity & Deposit Co. v. Atherton, 47 N.M. 443, 268 P.2d 231 (1954). , 113. Wice v. Schilling, 124 Cal. App. 2d 735, 268 P.2d 231 (1954). j 114. Riggs v. Standard Oil Co., 130 Fed. 199 (D. Minn. 1904); Kentucky Inde- STLCOPCB4102670 ) 248 VANDERBILT LAW REVIEW [ Vol. 19 use of the thing sold,*115 and even to one in the vicinity injured by such use.11* The defendant who inspects a boiler or an elevator and reports it to be safe117 becomes liable to those to whom injury may be foreseen if he is negligent in doing so. It is when pecuniary loss is in question that difficulties begin to arise. Certainly there is a much narrower limitation of liability in pecuniary loss cases than in the cases of intentional deceit and those of physical harm. In the Ultramares case118 Cardozo refused to extend the liability of accountants who were merely negligent to one whomade a loan, but could claim nothing more in the way of special reason to anticipate his action than the general use of certified balance sheets for some kinds of business purposes. He raised a host of terrifying spectres:119 Liability for negligence if adjudged in this case will extend to many callings other than an auditor's. Lawyers who certify their opinion as to the validity of municipal or corporate bonds, with knowledge that the opinion will be brought to the notice of the public, will become liable to the in vestors, if they have overlooked a statute or a decision, to the same extent as if the controversy were one between client and adviser. Title companies insuring titles to a tract of land, with knowledge that at an approaching auc tion the fact that they have insured will be stated to the bidders, will become pendent Oil Co. v. Schnitzler, 208 Ky. 507, 271 S.W. 570 (1925); Driekosen v. Black, Suvalls ic Bryson, 158 Neb. 531, 64 N.W.2d 88 (1954);Marsh v. Usk Hardware Co., 73 Wash. 543, 132 Pac. 241 (1913); Peterson v. Standard Oil Co., 55 Ore. 511, 106 Pac. 337 (1910). There are also a good many cases such as Waters-Pierce Oil Co. v. Deselms, 212 U.S. 159 (1909), in which failure to disclose a known danger has been equated with negligent misrepresentation. 115. Johnson v. Ernest G. Beaudry Motor Co., supra note 107 (wife driving car); Davidson v. Montgomery Ward 4c Co., 171 111.' App. 355 (1912) (employee); Fort Wayne Drug Co. v. Flemion, 93 Ind. App. 129, 175 N.E. 170 (1931) (same); La Plant v. E. I. Du Pont de Nemours & Co., supra note 95 (user); Cunningham v. C. R. Pease House Furnishing Co., 74 N.H. 435, 69, Atl. 120 (1908) (spouse using stove polish); Rosenbusch v. Ambrosia Milk Corp., 181 App. Div. 97, 168 N.Y. Supp. 505 (1917) (child of buyer); Crist v. Art Metal Works, 230 App. Div. 97, 168 N.Y. Supp. 505 (1917) (same). . 116. Nichols v. Clark, McMullen & Riley, Inc., 261 N.Y. 118, 184 N.E. 729 (1933) (product misrepresented to engineers as proper covering for air duct, and used on plaintiff's house); Flies v. Fox Bros. Buick Co., 196 Wis. 196, 218 N.W. 855 (1928). 117. Van Winkle v. American Steam Boiler Ins. Co., 52 N.J.L. 240, 19 Atl. 472 (1899). Usually this is put on the ground of negligent performance of the assumed duty to inspect, without mention of the report to the owner which in all probability was made. Sheridan v. Aetna Cas. & Sur. Co., 3 Wash. 2d 423, 100 P.2d 1024 (1940); Smith v. American Employers' Ins. Co., 102 N.H. 530, 163 A.2d 564 (1960); Dickerson v. Shepard Warner Elevator Co., 287 F.2d 255 ( 6th Cir. 1961); Nelson v. Union Wire Rope Corp., 31 1H. 2d 69, 199 N.E.2d 769 (1964); Wolfmeyer v. Otis Elevator Co., 262 S.W.2d 18 (Mo. 1953); Durham v. Warner Elevator Co., 166 Ohio St. 31, 139 N.E.2d 10 (1956); Evans v. Otis Elevator Co., 403 Pa. 13, 168 A.2d 573 (1961); Bollin v. Elevator Const. & Repair Co., 361 Pa. 7, 63 A.2d 19 (1949); see Mays v. Liberty Mut Ins. Co., 323 F.2d 174 (3d Cir. 1963). See Note, 18 Vand. L. Rev. 1615 (1965). 118. Supra note 108. 119. Id. at 173,174 N.E. at 442. . STLCOPCB4102671 [ Voi~ 19 ijured by vator and ijury may begin to ability in md those to extend .one who >f special certified ed a host d to many nion as to :he opinion to the in line extent companies ching aiic'ill become n v. Black, dware Co., ;. 511, 106 Oil Co. v. danger has iving car); yee); Fort same); La m v. C. R. using stove Supp. 505 . 168 N.Y. '29 (1933) d used on 55 (1928). 9 Atl. 472 te assumed probability 24 (1940); ; Dickerson Jnion Wire evator Co., it 31, 139 61); Bollin v. Liberty 15 (1965). 1966], ^ MISREPRESENTATION 249 - liable to purchasers who may wish the benefit of a policy without payment of a premium. These illustrations may seem to be extreme, but they go little, if any, farther than we are invited to go now. Negligence, moreover, will have one standard when viewed in relation to the employer, and another and at times a stricter standard when viewed in relation to the public. Ex planations that might seem plausible, omissions that might be reasonable, if the duty is confined to the employer, conducting a business that pre sumably at least is not a fraud upon his creditors, might wear another aspect if an independent duty to be suspicious even of one's principal is owing to investors. 'Every one making a promise having the quality of a contract will be under a duty to the promisee by virtue of the promise, but under another duty, apart from contract, to an indefinite number of po tential beneficiaries when performance has begun. The assumption of one relation will mean the involuntary assumption of a series of new relations, inescapably hooked together.'120 "The law does not spread its protection so far."121 In two other decisions122 other courts have reached the same con clusion as to the "accountant negligently certifying a balance sheet. But what if the defendant is informed that his representation is to be passed on to some more limited group, as a basis for action on the part of one or more of them? In M. Miller Co. v. Central Contra Costa Sanitary District,123 a California decision, an engineering com pany was hired to prepare a soil report, knowing that it was intended to be made available to all bidders for work on a sewer system and to be used by the successful bidder to do the work. It prepared the report negligently and the bidder lost money; accordingly it was held liable for negligent misrepresentation. The same conclusion, upon quite similar facts, was reached by the district court in Texas Tunnel ing Co. v. City of Chattanooga;m but on appeal125 the Sixth Circuit reversed the decision and held that there was no liability. There are, however, three elements that tend to weaken the au thority of the Texas Tunneling Co. case. One is that the court con sidered itself bound, as a matter of Tennessee law, by a Tennessee case128 in which there was no special reason to expect the plaintiffs action. Another is that the court adopted a very narrow interpretation of the Ultramares case, saying that it held (as it assuredly did not) that the accounting firm was not liable for simple negligence "to a 120. Quoted from H. R. Moch Co. v. Rensselaer Water Co., 247 N.Y. 160, 168, 159 N.E. 896, 899 (1928). 121. Quoted from Robins Dry Dock & Repair Co. v. Flint, 275 U.S. 303, 309 (1927). . 122. O'Connor v. Ludlam, 92 F.2d 50 (2d Cir. 1937); Landell v. Lybrand, 264 Pa. St 406,107 Atl. 783 (1919). 123. 198 Cal. App. 2d 305, 18 Cal. Rptr. 13 (1961). 424. 204 F. Supp. 821 (E.D. Term. 1962). ' 125. 329 F.2d 402 ( 6th Cir. 1964). 126. Howell v. Betts, 211 Tenn. 324, 362 S.W.2d 924 (1962). , l t tlV - l l-J STLCOPCB4102672 ' V.` f'y-fjKS -m , ;-v~ f'. . v v 'y.ri. m- m i\ 250 VANDERBILT LAW REVIEW [Vol. 19 plaintiff who Was neither specifically foreseeable by it nor in privity with it."127 The third is that the court laid considerable stress upon a disclaimer of accuracy and responsibility contained in the report itself. Other cases will no doubt have to resolve the conflict; but the writer would hazard the guess that of the two cases it is the MQler decision which is the more likely to be followed. Strict liability is represented by one California case128 in which representations made to a contractor concerning the suitability of plastic pipe for a particular heating system were held to constitute an express "warranty" to the plaintiff when the contractor used it in constructing his building. The case was one of pecuniary loss. , F. The Effect of a Public Duty Statutes requiring information to be filed for public record,129 and particularly those which require it to be published after filing, may considerably expand the class of persons whom the defendant has special reason to expect his representation to reach. Such statutes commonly are held to create a duty130 to such members of the public as may enter into transactions of the kind in which the legislation is intended to protect them. There is, consequently, liability for inentional misrepresentations131 and also for those which are merely negligent132 Strict liability is imposed under section 12(2) of the Securities Act of 1933,133 as amended, a discussion of which is beyond the scope of this paper.134 It is apparently on the same basis that public officers who give out information in the performance of their public duties have been held liable for mere negligence to those members of the public who are intended to be protected by the creation of the office and the 127. 329 F.2d at 407. (Emphasis added.) 128. Corporation of Presiding Bishop v. Cavanaugh, 217 Cal. App. 2d 492, 32 Cal. Rptr. 144 (1963). 129. Ver Wys v. Vander Mey, 206 Mich. 499, 173 N.W. 504 (1919) (public right to rely). 130. Otherwise where the filing requirement was construed as not intended for the protection of the public.' Hunnewell v. Duxbury, 154 Mass. 286, 28 N.E. 267 (1891) (statement as to paid-up capital stock); Webb v. Rockefeller, 195 Mo. 57, 93 S.W. 772 (1906) (articles of incorporation). It may be doubted that such an interpretation would be given to the requirement today. 131. See note 105 supra. 132. Vandewater & Lapp v. Sacks Builders, Inc., 20 Misc. 2d 677, 186 N.Y.S.2d 103 (1959) (certified map pled as public record; surveyors and engineers held liable); Mason v. Moore, supra note 105 (bank report to Comptroller of the Currency). 133. 48 Stat 84 (1933), as amended, 15 U.S.C. 771(2) (1958). 134. See 3 Loss, Securities Regulation 1719-42 (2d ed. 1961); Douglas, The Federal Securities Act, 43 Yale LJ. 171 (1933); Shulman, Civil Liability and the Securities Act, 43 Yale L.J. 227 (1933). See also, as to possible liability under section 10B of the amended act. Note, 74 Yale L.J. 658 (1965). DSW 441246 STLCOPCB4102673 [Vol. 19 n privity ess upon le report ; but the le Miller n which bility of titute an ;ed it in ;s. d,129 and ing, may dant has statutes ie public gislation y for in ; merely ) of the ; beyond /ho give ive been ffic who and the 2, 32 CaL lie right to ed for the 37 (1891) . 93 S.W. eipretation - I N.Y.S.2d Id liable); Vh lglas, The / and the ler section o 1966] MISREPRESENTATION 251 duty.135 Thus an official food inspector who certifies that fish is fit for human consumption becomes liable to the ultimate purchasers of the food.135 The same rule has been applied to recording clerks137 who sup ply certified copies of their records, and to notaries taking acknowledg ments and certifying the identity of the person who signs.138 These cases are probably not to be classified as opening the door to mere general foreseeable possibility of reliance and action, but rather as statutory expansion of the class whose action there is special reason to expect. . G. Plaintiff Is Unidentified: Defendant Has No Special Reason To Expect that he May Act in Reliance It is here that the line is definitely drawn. The defendant may well be aware that his' representation is capable of being passed on to others, and that at some subsequent date it may come into the hands of someone who will rely on it, act upon it, and suffer loss if it is false.13 But this amounts to nothing more than the general foresee- 135. There are occasional cases where no public duty has been found. New England Bond & Mortgage Co. v. Brock, 270 Mass. 107, 169 N.E. 803 (1930), where a notary's acknowldegment of the discharge of a first mortgage was held to involve a duty only to the register of deed, and not to a second mortgagee who relied on the record, appears quite indefensible. The same is true of the grain inspection in Cordon v. Livingston, 12 Mo. App. 267 (1882). But Kahl v. Love, 37 N.J.L. 5 (1874), where a tax collector gave a receipt, and Day v. Reynolds, 30 N.Y. (23 Him) 131 (Sup. Ct 1880), where a county clerk made a title search, and Houseman v. Girard Mut. Bldg. & Loan. Ass'n, 81 Pa. 256 (1876), where a register of deeds did the same, are probably to be justified on the ground that this was no part of the officer's public duties. 136. Pearson v. Purkett, 32 Mass. (15 Pick) 264 (1834); Hickerson v. Thompson, 33 Me. 433 (1851); Tardos v. Bryant, 1 La. Ann. 199 (1846). 137. Mulroy v. Wright, 185 Minn. 84, 240 N.W. 116 (1907) (city clerk); cf. Cole v. Vincent, 229 App. Div. 520, 242 N.Y. Supp. 644 (1930) (county clerk erroneously docketing judgment); Commonwealth to Use of Green v. Johnson, 123 Ky. 437, 96 S.W. 801 (1906) (county clerk taking acknowledgement). 138. Anderson v. Aronsohn, 181 Cal. 294, 184 Pac. 12 (1919); Bellport v.' Harkins, 104 Kan. 543, 180 Pac. 220 (1919); Curtiss v. Colby, 39 Mich. 456 (1878); Barnard v. Schuler, 100 Minn. 289, 110 N.W. 966 (1907); Gardner v. Webber, 177 Mo. App. 60, 164 S.W. 184 (1914); Harrington v. Vogle, 103 Neb. 677, 173 N.W. 699 (1919); Peterson v. Mahon, 27 N.D. 92, 145 N.W. 596 (1914); Erie County United Bank v. Berk, 73 Ohio App. 314, 56 N.E.2d 285 (1943); Clapp v. Miller, 56 Okla. 29, 156 Pac. 210 (1916); Figuers v. Fly, 137 Tenn. 358, 193 S.W. 117 (1917); Lowe v. Wright, 40 Tenn. App. 525, 292 S.Ww2d 413 .(1956). Mention should be made of statutes in a few states which have imposed a duty of care upon abstractors of title, for the benefit of those who take action in reliance upon the abstract. EL T. Arnold & Co. v. Bamer, 91 Kan. 768, 139 Pac. 404 (1914); Gate City Abstract Co. v. Post, 55 Neb. 742, 76 N.W. 471 (1898); Sackett v. Rose, 55 Okla. 398, 154 Pac. 1177 (1916); Goldberg v. Sisseton Land A Title Co., 24 S.D. 49, 123 N.W. 266 (1909). These, of course, are . more specific, but have the same effect 139. "Any sophisticated surveyor will know that his survey, though prepared for a particular transaction, will become a part of the file containing the title papers to the land surveyed and will most likely be passed on from one owner to the next / I' ! .0 rr *tti: i, r h : I f I I I S?E r v I r. STLCOPCB4102674 252 VANDERBILT LAW REVIEW [ Vol. 19 ability of transmission to others which is inseparable from the human word. In the face of the entirely indeterminate extent, magnitude and duration of the liability, the courts always have drawn back from its imposition. ! Even for intentional deceit there is no liability to one who reads a I letter concerning the credit of A, addressed only to B and not in ! tended or expected to be transmitted.140 Neither is there liability to subpurchasers of land,141 stock,142 or bonds,143 or the assignees of mortgages144 or leases,145 whom the false representation was not intended or expected to reach. A prospectus sent out to induce the purchase of treasury stock from the defendant creates no liability to purchasers who buy from others on the open market.145 The trustees of a bank who make statements as to its soundness are not liable to those who learn of them and go surety oh the bond of the bank's treasurer.147 As might be expected, the cases are no less clear when the repre sentation is only negligent The outstanding object lesson is the case of Jaillet v. Cashman,145 where a stock ticker service negligently sent out the report that the Supreme Court had held stock dividends j Such successive owners often do rely upon such surveys even though they have no contractual rights in them." Texas Tunneling Co. v. City of Chattanooga, supra note 124, at 407. : 140. McCracken v. West, 17 Ohio 16 (1848). Compare Williamson v. Patterson, 106 S.W.2d 753 (Tex. Civ. App. 1937), where the statement was made to A before he became the agent of B. 141. Lembeck v. Cerken, 88 N.J.L. 329, 96 Atl. 577 (1916); Cohen v. Citizens Natl Trust & Sav. Bank, 143 Cal. App. 2d 480, 300 P.2d 14 (1956); Bechtel v. Bohannon, 198 N.C. 730, 153 S.E. 316 (1930); Ellis v. Hale, 13 Utah 2d 279, 373 P.2d 382 (1962). Even where the subpurchaser is the identified agent to whom the statement was made. See note 79 supra. 142. Abel v. Patemo, 245 App. Div. 285, 281 N.Y. Supp. 58 (1935). 143. Nash v. Minnesota Title Ins. & Trust Co., supra note 89. . ' 144. Ibid. Accord, as to contracts to purchase land. Nearpark Realty Corp. v. City Investing Co., 112 N.Y.S.2d 816 (Sup. Ct 1952); Puffer v. Welch, 144 Wis. 506, 129 N.W. 525 (1911). Contra, under statute, Jackson v. Meinhardt, 99 Cal. App. 283, 278 Pac. 462 (1929) (contract). 145. Pamela Amusement Co. v. Scott Jewelry Co., 190 F. Supp. 465 (D. Mass. 1960); Abel v. Patemo, supra note 142; cf. Simar v Canaday, 53 N.Y. 298 (1873) (donee of securities). * '' 148. Compare, where there was an entirely different type of transaction, New York Title & Mortgage Co; v. Hutton, 63 App. D.C. 266, 71 F.2d 989 (1934); Cheney v. Dickinson, 172 Fed. 109 (7th Cir. 1909); Greenville Natl Bank v. National Hardwood Co., 241 Mich. 524, 217 N.W. 486 (.1928); Peek v. Gurney, L.R. 6 Eng. & Ir. 377 (1873); King v. Livingston Mfg. Co., 180 Ala. 118, 60 So. 143 (1912); cf. Gillespie r. Hunt, 276 Pa. 119, 119 Ad. 815 (1923); Wollenberger v. Hoover, 346 111. 511, 179 NX 42 (1931). 147. Aihuelot Savings Bank v. Albee, 63 N.H. 152 (1884); cf. Cliftex Clothing Co. v. Di Santo, 88 R.I. 338, 148 A.2d 273, 754 (1959) (statement to buyer of stock of merchandise and fixtures that there were no creditors does not redound to benefit of creditors). ` 148. 235 N.Y. 511.139 NX 714 (1923). " DSl/V 441248 STLC0PCB4102675 [Vol. 19 lie human nagnitude back from 10 reads a id not iniability to ilgnees of was not aduce the iability to ie trustees t liable to lie bank's the repreon is the legligently dividends ley have no , supra note v. Patterson, to A before i v. Citizens ; Bechtel v. 2d 279, 373 o whom the | . _ v =. [ j lorp. v. City Vis. 506, 129 pp. 283, 278 Mass. 1960); _ i) (donee of n, New York ); Cheney v. al Hardwood ig. & Ir. 377 cf. Gillespie I1L 511, 179 Clothing Co. r of stock of to benefit of 1966] MISREPRESENTATION 253 to be taxable income, and the plaintiff sold short on the market in reliance upon the report. Even the most enthusiastic partisans of the plaintiffs are likely to be somewhat startled at the prospect that everyone in the nation who did so could recover losses beyond estima tion for an inadvertent error. Other cases have agreed. An abstractor of title,1 a surveyor,115409one reporting on the progress of a building,151 an inspector of goods,151 a telegraph company negligently transmitting a message,151 1o5n3e who signed a release of lien claims in the wrong place,154 and even the seller of a chattel who the court found rea sonably did not expect it to be used by a third person155 1h5a6ve been held to be under no duty to a plaintiff who is merely a member of the world at large. The same rule has been carried over, in a few cases, to strict liability, where the express "warranty" has been given to a dealer, or to a, purchaser of the chattel, without any special reason to expect that it would be passed on to a third person.150 149. Abstract & Title Guar. Co. v. Kigin, 21 Ala. App. 397, 108 So. 626 (1926); Phoenix Title & Trust Co. v. Continental Oil Co. 43 Ariz. 219, 29 P.2d 1065 (1934); Talpey v. Wright, 61 Ark. 275, 32 S.W. 1072 (1895); Hawkins v. Oakland Title Ins. & Guar. Co. 165 Cal. App.2d 116, 331 P.2d 742 (1958); Siclder v. Indian River Abstract & Guar. Co., 142 Fla.-528, 195 So. 195 (1940); Ohmart v. Citizens' Sav. & Trust Co., 82 Ind. App. 219, 145 N.E. 577 (1924); Symns v. Cutter 9 Kan. App. 210, 59 Pac. 671 (1900); Cole v. Vincent, supra note 138; Thomas Guarantee Title & Trust Co., 81 Ohio St. 432, 91 N.E. 183 (1910); Equitable Bldg. & Loan Ass'n v. Bank of Commerce & Trust Co., 118 Tenn. 678, 102 S.W. 901 (1907); Peterson v. Gales, 191 Wis. 137 210 N.W. 407 (1926). Accord, as to attorneys reporting on a title search. Savings Bank v. Ward, 100 U.S. 195 (1879); Dundee Mortgage & Trust Inv. Co. v. Hughes, 20 Fed. 39 (C.C. Ore. 1884). 150. Howell v. Betts, supra note 126. 151. Le Lievre v. Gould, [1891] 1 Q.B. 491. 152. National Iron & Steel Co. v. Hunt, 312 I1L 245, 143 N.E. 833 (1924). See also Anglo-American & Overseas Corp. v. United States, 144 F. Supp. 635 (S.D. N.Y. 1956), afd, 242 F.2d 236 ( 2d Or. 1957). 153. Western Union Tel. Co. v. Schriver, 141 Fed. 538 ( 8th Cir. 1905). 154. Treadway v. Ingram, 102 Pa. Super. 450, 157 Atl. 4 (1931); cf. New York Title c Mortgage Co. v. Hutton, supra note 146 (letter written to reach customers of title insurance business relied on by purchaser of stock in the company). 155. Heggblom v. Wanamaker, 178 Misc. 792, 36 N.Y.S.2d 777 (1942), aff'd mem., 266 App. Div. 916, 43 N.Y.S.2d 508 (1943). The case appears to be out of line with those holding the seller liable to the user of the chattel. Supra note 115. 156. Senter v. B. F. Goodrich Co., 127 F. Supp. 705 (D. Colo. 1954); Hermanson v. Hermanson, 19 Conn. Supp. 479, 117 A.2d 840 (1954); Barni v. Kutner, 45 Del. 550, 76 A.2d 801 (Del. Super. Ct 1950); Pearl v. William Filene's Sons Co., 317 Mass. 529). 58 N.E.2d 825 (1945); Turner v. Edison Storage Battery Co., 248 N.Y. 73, 161 N.e! 423 (1928); Silverman v. Samuel Malinger Co., 375 Pa. 422, 100 A.2d 715 (1953)- Berger v. Standard Oil Co., 126 Ky. 155, 103 S.W. 245 (1907). ' A plaintiff whose injury is not caused by reliance upon the representation cannot recover on the basis of the express warranty. Torpey v. Red Owl Stores, Inc., 228 F.2d 117 (8th Cir. 1955); Sears, Roebuck & Co. v. Marhenke, 121 F.2d 598 (9th Cir. 1941); Randall v. Goodrich-Camble Co.,, 238 Minn. 10, 54 N.W.2d 769; Dobbin v Pacific Coast Coal Co,, 25 Wash. 2d 190, 170 P.2d 642 (1946). I i .K r > 1 ' ' . . DSW 441249 STLCOPCB4102676 U- >}>{. -.>1 ' * ~ " " : J. v-ViS T-l JT-'-tf.*' -^iVaSsI UxM^:& iS! -;;^iCiC}:Vsa8 s&sg&ga i\ 254 VANDERBILT LAW REVIEW [ Vol. 19 H. The Different Transaction Where the transaction into which the plaintiff enters is of a sub stantially different kind from that which the defendant intended or expected to induce, the line is always sharply drawn. This has received frequent mention in the cases of subpurchasers,157 particularly where stock is purchased on the open market instead of directly from the defendant.158 But the same conclusion has been reached where the plaintiff buys the property securing bonds instead of the bonds,159 or stock in a title insurance company instead of title insurance.160 Somewhat analogous are one or two cases holding that the express "warranty" of the seller of a product does not extend to abnormal uses not intended or expected.161 , III. Summaby One who makes a false representation is liable, whether on the basis of intent, negligence or strict liability, to 1. Those whom he intends, for his own purposes, to reach and influence by the representation. This may be a very large group.162 2. Those to whom a public duty is found to have been created by statute, or pursuant to statute.163 3. Those members of a group or class whom he has special reason to expect to be influenced by the representation.1^4 It is here that there is some uncertainty. In the cases of intentional misrepresenta tion, it has been held that knowledge that the recipient of the informa tion intends to make some unspecified business use of it is sufficient special reason. Where there is only negligence, this is clearly not enough, and something more in the way of special likelihood that the representation will reach a limited group or class is at least required. The two cases165 which have faced the problem have disagreed as to whether even this is enough. One who makes a false representation is not liable, whether on the basis of intent, negligence or strict liability, to 157. Supra notes 142-45. 158. Supra note 146. 159. Wollenberger v. Hoover, 346 111. 511, 179 N.E. 42 (1931). 160. New York Title & Mortgage Co. v. Hutton, supra note 146; cf. Ashuelot Sav, Bank v. Albee, 63 N.H. 152 (1884), where oral statements as to the soundness of a bank induced the plaintiffs to become surety on the bond of its treasurer. 161. Mannsz v. Macwhyte Co., 155 F.2d 445 ( 3d Cir. 1946) (wire rope put to wrong use); cf. Magee v. Wyeth Laboratories, Inc., 214 Cal. App. 2d 340,' 29 CaL Rptr. 322 (1963) (no implied warranty where drug sold without prescription). ' 162. See text accompanying notes 56-61, 80-99 supra. ` 163. See text accompanying notes 130-38 supra. ' 164. See text-accompanying notes 62-77,100-28 supra. ' 165. See text accompanying notes 123-25 supra. DSW 441250 STLCOPCB4102677 [Vol. 19 of a sub ended or Tliis lias irticularly ctly from ed where bonds,1" urance.1" e express abnormal :r on the each and roup.1 reated by ial reason here that ;presenta: informasufficient early not 1 that the required, eed as to er on the ihuelot Sav. ndness of a rope put to 40, 29 CaL iptioo). 1966] MISREPRESENTATION 255 1. Those whom he has no purpose to reach and influence, and as to whom he has no special reason to expect that it will do so.166 2. Those who enter into transactions of a substantially different kind from that which was intended or to be expected.1*1 166. See text accompanying notes 78-79, 139-56 tupra. 167. See text accompanying notes 157-61 supra. I- t. i- I: %5= II DSW 441251 STLCOPCB4102678