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Law School Case Brief

Bates v. Cashman - 230 Mass. 167, 119 N.E. 663 (1918)

Rule:

A person seasonably may rescind a contract to which he has been induced to become a party in reliance upon false though innocent misrepresentations respecting a cognizable material fact made as of his own knowledge by the other party to the contract. The fraud in such a representation consists in stating as a fact that which is not known positively to be a fact. It is no excuse for making such a statement as of one's own knowledge that it was believed to be true or that the true state of affairs had been forgotten. It is fraud to state a fact as true of one's own knowledge when he has no such knowledge.

Facts:

This is a suit to recover for the breach of a written contract to buy the stocks and bonds of the Newburyport Cordage Company. The securities were the means by which to convey control of land with a factory and machinery. There is no controversy that the contract was made. The defendant contends that he was induced to sign it by such false representations by the plaintiff as would release him from obligation to perform. The case was referred to a master. 

Issue:

May a person rescind a contract to which he has been induced to become a party in reliance upon false though innocent misrepresentations respecting a cognizable material fact made as of his own knowledge by the other party to the contract?

Answer:

Yes

Conclusion:

Dismissing the bill, the court found that during the negotiations preceding the contract the plaintiff represented that a right of way, which was a substantial factor of value in the real estate, was owned by the Newburyport Cordage Company and could not be interfered with. This representation was untrue; however, the plaintiff did not know that it was untrue. The defendant relied upon it and would not have signed the contract if he had known that it was false.The court explained that a person seasonably may rescind a contract to which he has been induced to become a party in reliance upon false though innocent misrepresentations respecting a cognizable material fact made as of his own knowledge by the other party to the contract. The fraud in such a representation consists in stating as a fact that which is not known positively to be a fact. It is no excuse for making such a statement as of one's own knowledge that it was believed to be true or that the true state of affairs had been forgotten. It is fraud to state a fact as true of one's own knowledge when he has no such knowledge. 'This rule has been steadily adhered to in this commonwealth and rests alike on sound policy and on sound legal principles.' In view of the express finding of fact by the master, this principle of law is decisive against the right of the plaintiff. The defendant is not prevented from setting up this defense. Although the defendant wrote respecting other reasons for declining to perform the contract, he expressly reserved different grounds for his refusal. While of course one cannot fail in good faith in presenting his reasons as to his conduct touching a controversy, he is not prevented from relying upon one good defense among others urged simply because he has not always but it forward, when it does not appear that he has acted dishonestly or that the other party has been misled to his harm, or that he is estopped on any other ground.

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