strictest good faith is required between persons in fiduciary or confidential relations, and for this reason an innocent misrepresentation may avoid the contract. Thus, a contract between an attorney and his client, a guardian and his ward, a parent and his child, or a trustee and his beneficiary, will be vitiated by any misrepresentation or non-disclosure of material facts. As to a Term of Contract. Where the fact misrepresented is a term of the contract, it does not affect the formation of the contract, but merely operates, either to give the obligor a discharge, or to give him a right of action for the damage sustained because of the misrepresentation. Where B offered to sell certain hops to W, who asked if sulphur had been used on them and was innocently given an untrue negative answer by B, it was held that W was discharged from liability to take the hops. 20 Here the court evidently regarded the truth of B's statement as a condition at the basis of the contract. In other cases the innocent but false representation has been regarded only as a breach of warranty, giving only a right of action for its breach but not discharging the contract. The tendency of the common-law courts is to bring the representation into the contract as a term if sufficiently material to affect the consent of the opposite party. § 60. What Amounts to a Representation. The law as to what amounts to a representation was stated by Mr. Justice Story in the Supreme Court of the United States, with reference to an insurance contract, as follows: "To constitute a representation, there should be an explicit affirmation or denial of a fact, or such an allegation as would irresistibly lead the mind to the same conclusion. If the expressions are ambiguous, or such as the parties might fairly use without intending to authorize a particular conclusion, the assured ought not to be bound by the conjectures, or calculations of probability, of the underwriter. "'21 20 Bannerman v. White, 10 C. B. N. S. 844. 21 Livingston v. Maryland Ins. Co., 7 Cranch 506, 541, 3 L. ed. 421. Expressions of opinion or statements of intention do not constitute representations, nor do commendatory expressions often used to induce some one to enter into a bargain. It is also necessary, in order to avoid a contract because of misrepresentation, that the injured party relied upon the misrepresentation and by it was induced to enter into the contract.22 § 61. Remedies Resulting from Misrepresentation. Misrepresentation will give the injured party a right to refuse to be bound by the contract or to recover damages only in cases involving certain special kinds of contracts previously mentioned. In courts of equity, it is held, however, that misrepresentation of a material fact is in other cases a good defense to a bill for specific performance brought by the one who made the misrepresentation or that the injured party may have a court of equity rescind or cancel the contract. FRAUD Fraud is a false representation of a material fact, or nondisclosure of a material fact, under such circumstances that it amounts to a false representation, made by a party to the agreement, with knowledge of its falsity or without regard as to whether it is true or false, with the intention that it shall be acted upon by the other party, and which is acted upon by the other party to his injury under a reasonable belief that it is true.23 § 62. False Statement or False Representation. A false statement made by one party which induces the other party to enter into the agreement, will entitle the party deceived to avoid the contract. Thus, a false statement that a certain book was copyrighted is fraud which will give one who accepted the agency for it a defense to an action to enforce the contract.24 Other cases where a false statement has been held fraud which will avoid the contract, are where a contract for advertising was secured by a false statement 22 Tuck v. Downing, 76 Ill. 71. 23 Southern Development Company v. Silva, 125 U. S. 247, 31 L. ed. 678. 24 Coffey v. Hendrick, 23 Ky. Law Rep. 1328, 65 S. W. 127. as to circulation; where a contract for canal digging was induced by false statements as to the character of the materials to be excavated; where a sale was induced by overstatements as to the profits of the business sold; where a buyer made false statements as to his connections and financial standing; and where A obtained a contract to teach by a false representation that B whom the directors had agreed to employ upon condition of securing a certificate, could not secure a certificate because there would be no examination in time for the opening of school.25 The court held it to be immaterial whether A's statement was known to him to be false or not, and that the directors were justified in employing B rather than A upon B's having presented a certificate. § 63. Non-Disclosure of Facts as False Representation. Subject to certain exceptions to be noted presently, mere silence or non-disclosure of material facts, without more, is not fraud. The general rule is that neither the buyer nor the seller of an article is obliged to disclose facts which may materially affect the value or usefulness of the subject matter or in any other way materially influence the other party in determining whether he will enter into the proposed agreement. Neither is bound to give the other the benefit of his knowledge or experience unless requested, but must simply refrain from employing artifice or making any false representation of material facts.26 This rule has certain exceptions, one of which has already been noted under the subject of misrepresentation, with reference to certain special contracts where one party is naturally the possessor of peculiar facts not accessible to the other party. Another well recognized exception is found in contracts between persons in a fiduciary relation. Thus, mere non-disclosure will avoid a contract between an attorney and his client or a trustee and his beneficiary, where it would not if the contract were between persons standing on an equal footing. So also it has been held that a promise to marry cannot be enforced where one party has 25 School Directors v. Boomhour, 83 Ill. 17. failed to disclose previous immoral conduct, since their relationship demands the utmost good faith.27 Silence or mere non-disclosure will also avoid a contract where the party knows that the other party is relying upon him for all material facts. Thus, it is held that one selling an animal is guilty of fraud if he conceals the fact that it is infected with a not apparent disease,28 and a lease may be avoided for failure of the landlord to disclose that the premises are infested with bed-bugs, or infected with a contagious disease, or subject to a nuisance prejudicial to life and health. So also, if an employer fails to disclose to one who signs a fidelity bond of his employe, that such employe is a defaulter, he is guilty of fraud which will give a defense to an action on the bond.29 These cases are based on the ground that the information was not easily accessible to the one sought to be held and that, therefore, the one failing to disclose must have known that the other party relied upon him to disclose such material facts. § 64. Active Concealment. Fraud may also be founded on an active effort to conceal or on a suppression of certain facts which makes what is disclosed convey a wrong impression. It is stated by the Supreme Court of the United States as follows: "The basis of the fraud is fraudulently producing a false impression upon the mind of the other party; and if this result is accomplished, it is unimportant whether the means of accomplishing it are words or acts of the defendant, or his concealment or suppression of material facts not equally within the knowledge or reach of the plaintiff." 30 Thus, where a vendor rolled a mahogany log over so as to conceal a hole, it was held a fraud on the buyer.31 Sometimes certain facts are suppressed so as to create a false representation out of the facts disclosed. Thus, in an Iowa 27 Bell v. Eaton, 28 Ind. 468, 92 Am. Dec. 329. 28 Grisby v. Stapleton, 94 Mo. 423, 7 S. W. 421. 29 State v. Sooy, 39 N. J. Law 135. 30 Stewart v. Wyoming Ranch Company, 128 U. S. 383, 388, 32 L. ed. 439. 31 Udell v. Atherton, 7 Hurl. & Nor. 172, 30 L. J. Ex. 337. case,32 the representation of a promoter of a corporation to one to whom he was selling its stock, that a well-known business man had subscribed for a large amount of it, was held fraudulent because of his further failure to state that the stock held by this man was a gift in return for the use of his name. § 65. Materiality of False Representation. Statements of opinion, intention, or expectation, however unfounded, cannot invalidate a contract because they do not concern past or existing facts. Thus, the statement of a vendor that an article is worth so much is merely his opinion, while his statement that he paid so much for it is one of fact upon which fraud might usually be predicated. Other illustrations of mere opinions, upon which the buyer may rely or not, are where the vendor says that what he has to sell is "good corn land", or that certain land will produce so many bushels of a certain crop per acre, or that the receipts from a business will be so much per day. On the other hand, it has been held fraudulent to falsely state that the receipts from a business were so much per day, or that a carriage has been used only one month, or that an old stock of goods was "fresh and new", or that a building is "fireproof." 34 So also, a willful misstatement of an opinion by an expert may constitute fraud.35 33 § 66. Statements of Intention or Expectation. These are not statements of fact. Thus, the statement of the vendor to a purchaser of his business, that he is selling out because he intends to go to California, cannot be ground for avoiding a note given in part payment of the purchase price upon the vendor's later changing his mind and setting up in business in the same neighborhood. But if the statement of intention was absolutely false and not his intention at all at the time, it will be treated as a statement of fact, namely, a representation as to his statement of mind. The 32 Coles v. Kennedy, 81 Ia. 360, 40 N. W. 1088. |