§3. Let us now examine the third of the conditions above mentioned: that there must be no wilful or negligent misrepresentation of material facts. We may begin by observing that---notwithstanding the general presumption above stated---experience continually shows us cases in which an exchange of utility has actually been disadvantageous to one of the parties, owing to an erroneous idea of the value of the thing or service bargained for. The question then arises how far the law should interfere to prevent or repair this disadvantage. Now it is obvious that if a seller's erroneous idea of the value of a purchased commodity, even when shared by the buyer, were broadly held to be a ground for treating the transfer as substantially invalid, the insecurity thus introduced into agreements would be so widespread as to be intolerable: no purchaser (e.g.) of a picture would ever know whether the exchange was really completed or not. The only question that raises any doubt is, whether A should not be bound to disclose all material facts known to him, which are such as would affect B's judgment if he knew them, supposing B to be a person of ordinary common sense. I think that our first impulse would certainly be to affirm that he ought: but reflection seems to show that if the knowledge was of a kind that it was equally open to B to acquire, it accords with our principle, that A should profit by his superior knowledge, and B bear the loss arising from his ignorance,---provided that his mistake is not caused by wilful or careless misrepresentation on A's part. And even when---as in ordinary cases of sale---the seller may be supposed to have superior knowledge of the qualities of the articles sold to the buyer: still it is prima facie in accordance with the principle of mutual non-interference that each should be left to ascertain unaided the adaptation to his own needs and desires of the thing or service that he transfers or receives in exchange.
There are, however, certain kinds of exchanges, in which one of the parties is from the nature of the case generally placed at an obvious and marked disadvantage as compared with the other, in respect of his means of acquiring knowledge upon the subject to which the agreement relates: in which, therefore, there is a special utilitarian argument for giving him legal security that the statements on the other side are not only true as far as they go, but substantially complete. Contracts for the allotment of shares in companies afford a familiar example of this class. And there is a different class of cases in which concealment of material facts seem to be a reasonable ground for allowing an exchange to be invalidated: i.e. when the exchanging parties stand in special relationship (e.g. solicitor and client, or ex-guardian and ex-ward), in which A would naturally suppose B to be advising him for his (A's) own good. Still, in either of these cases, the reason for invalidating the agreement seems hardly consistent with the fundamental individualistic assumption that government may safely leave a sane adult to take care of his own interests.
Putting aside these special cases, we may say that the only adequate ground for invalidating an exchange of utility freely made between persons in possession of mature reason---if it turns out disadvantageous to one of the exchangers through his ignorance of material facts---is that this ignorance has been caused by the other party to the exchange in some active or positive manner, and not merely negatively through non-disclosure. Here, however, a further limitation seems necessary, to avoid a degree of interference that would do more harm than good. It seems inexpedient to lay down that every misleading statement made by one of the exchangers, which has in any way contributed to induce the other to enter into an agreement disadvantageous to himself, is to invalidate the agreement or give a legal claim to reparation: to lay this down would hamper too much the general freedom of conversation between human beings, whenever there was a possibility that the conversation might ultimately lead up to an agreement. So far, then, as innocent misrepresentation is concerned, it seems sufficient to provide that each party to an agreement should be responsible for the truth of any statement that substantially formed a part of the agreement, i.e. any statement upon the truth of which it was understood by both sides to be conditional.
The case is different where there has been a demonstrable intention on one side to deceive the other: all kinds of acts prompted by such intention, if actual mischief to the person deceived follows, may reasonably be regarded as violations of the utilitarian principle of non-interference, and are prima facie proper subjects for legal repression. And it seems right to extend the notion of ``deceptive acts'', to include cases in which the act itself, that caused or contributed to the erroneous belief of the other party, was not designed to deceive, but in which the erroneous belief caused by it was known to the agent and allowed by him to remain uncorrected.[Back to:] [Elempol, Chapter 6, Section 2]