Smith v. Bolles

Mr. Bolles bought 4,000 shares of stock in a mining company at $1.50/share for a total purchase price of $6,000. Bolles relied on the representation of Mr. Smith in deciding to buy the stock.

Later on, Bolles learned that Smith had mis-represented the stock value.

Bolles filed a suit against Smith for fraudulent misrepresentation & sought damages.

Bolles claimed that Smith's representation made the stock appear $10/share.

The judge instructed that

(Bolles's damages) = (reasonable market value of the stock if it was as Smith represented) - (amount Bolles paid)

The jury decided in favor of Bolles.

Smith appealed to SCOTUS under a writ of error.

Is the proper measure of damages in a fraudulent inducement action

= (the reasonable value of the property if it'd been as represented) - (contract price)  ?

No. The proper measure of damages in a fraudulent inducement case isn't the difference between the contract price & the reasonable value of the property if it'd been as represented.

SCOTUS: The jury had awarded improper compensation to Bolles.

SCOTUS reversed & remanded the case for re-trial.

Melville Fuller: A claim for fraudulent inducement sounds in tort, not contract. In tort law, plaintiffs can recover for damages that naturally & proximately flow from the defendant's misconduct.

Fuller: The question is

• What did the plaintiff (Bolles) lose?

• not "What would plaintiff have gained?"