This section is from the book "The Law Of Contracts", by William Herbert Page. Also available from Amazon: Commercial Contracts: A Practical Guide to Deals, Contracts, Agreements and Promises.
To constitute fraud, the representation must be false when made.1 This is so obvious that the question is rarely considered specifically. Its chief importance is in cases where the representation is substantially true though literally false, where it is held that fraud does not exist.2 An insolvent purchaser who informs the seller that he is continuing business only by permission of his creditors is not guilty of fraud.3 If A represents to B, who owns certain land, that the land "would not sprout peas" and that it is worth less than the amount offered, and thus induces B to convey land upon which A believes mineral deposits are to be found, such representation is not fraudulent, the land being, in fact, of little value for agricultural purposes.4 A representation that a house is located on the best residence street in town, which is true, although that part of the street is not as good as other parts;5 that a secret process is to be used, even though it has been patented and the patent has expired, if it is unknown to the public;6 that A has authorized B to secure C 's signature, though false, if made in A's presence as A is estopped to deny such authority;7 or that a lease has been extended, if such extension has been agreed on, and is afterward made;8 or that certain bicycles were completed and set aside for the vendee, when in fact the frames were set aside and the parts ready to assemble on receiving instructions from vendee as to tires and sprocket wheels,9 are not fraud, as they are substantially true. So it is not fraud to capitalize at five million dollars though the property owned was bought for one hundred thousand dollars, when it was sold in ignorance of large deposits of coal from which a profit exceeding five million dollars might reasonably be expected.10 If the statement is true, no fraud exists, even though the party making the statement believes that it is false.11 Accordingly, a statement intended by the party making it to be false but which works an estoppel has been held by some courts not to amount to fraud.12 Thus, since subscribers on condition who hold themselves out to subsequent subscribers as having subscribed unconditionally are estopped to deny it, such representation can not be fraud.13 So while employing "puffers" to bid at an auction is of itself a fraud on the bidder,14 still no fraud exists if the puffer would be liable personally on his bid, even if third parties who have hired him have agreed to take over the land bid in by him.15 Some authorities, however, differ from this view on the ground that the defrauded party may rescind on discovering the falsity and should not be compelled to take the chances of litigation over the falsity of such statements at a future time. Thus where A, an illiterate woman, was induced by the false representations of an agent to insure her husband's life without his knowledge, which under the rules of the insurance company avoided the insurance, she was allowed to rescind and recover the premiums paid in, although the company would have been bound by the representations of its agent.16 On the other hand, a statement literally true may constitute fraud if substantially false.17 Where A sold B stock in a corporation, representing that the report of the secretary of the corporation showed a certain monthly profit, fraud existed though such a report had been made if it was false and A knew it.18 A statement by an applicant for life insurance that he had never been rejected by any life insurance company is fraudu-
22 Aetna Life Ins. Co. v. Claypool, 128 Ky. 43, 107 S. W. 325.
1 See Sec. 290.
2 Black v. Wichita Union Terminal Ry. Co., - , Kan. - , 173 Ac. 1068; Diamond v. Shriver, 114 Md. 643, 80 Atl. 217.
3 Diamond v. Shriver, 114 Md. 643, 80 Atl. 217.
4 Black v. Wichita Union Terminal Ry. Co., - Kan. - , 173 Ac. 1068.
Arkansas. Vaughan v. Hinkle, 131 Ark. 197, 198 S. W. 705.
Illinois. People v. Healy, 128 111. 9, 15 Am. St. Rep. 90, 20 N. E. 692.
Iowa. P. C. Austin Mfg. Co. v. Decker, 109 la. 277, 80 N. W. 312.
Kansas. Balmer v. Long, 179 Ac. 371.
Massachusetts. Potts v. Chapin, 133 Mass. 276.
Michigan. Hoeft v. Kock, 119 Mich. 458, 78 N. W. 556; First National Bank v. Johnson, 133 Mich. 700, 103 Am. St. Rep. 468, 95 N. W. 975.
Pennsylvania. Frishmuth v. Barker, 159 Pa. St. 549, 28 Atl. 368.
Tennessee. Hamburger v. Lusky (Tenn. Ch. App.), 56 S. W. 24.
Washington, Bates v. Little & Kennedy Co., 179 Ac. 794.
As to the effect of the act of the party guilty of the fraud in making his representation good, see Can Frauds Be Purged by E. H. Abbott, Jr., 67 University of Pennsylvania Law Review, 37.
2 United States. Benton v. Ward, 59 Fed. 411.
Colorado. Beard v. Bliley, 3 Colo. App. 479, 34 Ac. 271.
Iowa.. F. C. Austin Mfg. Co. v. Decker, 100 la. 277, 80 N. W. 312.
Michigan. World Mfg. Co. v. Cycle Co., 123 Mich. 620, 82 N. W. 528.
New Jersey. Hollinger v. Zimmerman, 59 N. J. Eq. 644, 44 Atl. 1100 [affirming 58 N. J. Eq. 217, 42 Atl. 726].
A representation that a certain automobile is the latest make or style is not rendered false by the fact that soon 'after a few samples of a newer style were placed with agents of the automobile company for advertising purposes, months before they would be manufactured in quantities sufficient for the general market. Bates v. Little & Kennedy Co. (Wash.), 179 Ac. 794.
3 Hill Veneer Co. v. Monroe, 189 Fed. 834.
4 Storthz v. Arnold, 74 Ark. 68, 84 S. W. 1036.
5 Hollinger v. Zimmerman, 59 N. J. Eq. 644, 44 Atl. 1100 [affirming 58 N. J. Eq. 217, 42 Atl. 726].
6 Benton v. Ward, 59 Fed. 411.
7 F. C. Austin Mfg. Co. v. Decker, 109 la. 277, 80 N. W. 312.
8 Beard v. Bliley, 3 Colo. App. 479, 34 Ac. 271.
9 World Mfg. Co. v. Cycle Co„ 123 Mich. 620, 82 N. W. 528.
10 Trust Co. v. Coal Co., 19 Wash. 493, 53 Ac. 951.
11 F. C. Austin Mfg. Co. v. Decker, 109 la. 277, 80 N. W. 312.
12 Hart v. Waldo, 117 Ga. 590, 43 S. E. 998.
13 Wilson v. Hundly, 96 Va. 96, 70 Am. St. Rep. 837, 30 S. E. 492.
14 Bexwell v. Christie, Cowp. 395; Howard v. Castle, 6 T. R. 642.
15 McMillan v. Harris, 110 Ga. 72, 78 Am. St. Rep. 93, 48 L. R. A. 345, 35 S. E. 334.
16 Delouche v. Ins. Co., 69 N. H. 587, 45 Atl. 414 [citing Insurance Co. v. Fletcher, 117 U. S. 519, 29 L. ed. 934; Concord Bank v. Gregg, 14 N. H. 331; Presby v. Parker, 56 N. H. 409; McDonald v. Ins. Co., 68 N. H. 4, 38 Atl. 500].
17 United States. Aetna Life Ins. Co. v. Moore, 231 U. S. 543, 58 L. ed. 356.
Iowa. Coles v. Kennedy, 81 la. 360, 25 Am. St. Rep. 503, 46 N. W. 1088.
Kansas. Lee v. Lemert, 26 Kan. 111.
Massachusetts. Van Houten v. Morse, 162 Mass. 414, 44 Am. St. Rep. 373, 26 L. R. A. 430, 38 N. E. 705.
Nebraska. Foley v. Holtry, 43 Neb. 133, 61 N. W. 120.
New Jersey. Lomerson v. Johnston, 47 N. J. Eq. 312, 24 Am. St. Rep. 410, 20 Atl. 675.
Tennessee. George v. Johnson, 25 Tenn. (6 Humph.) 36, 44 Am. Dec. 288.
A statement that certain accounts which are to be assigned are "good" is fraudulent if such accounts are barred by the statute of limitations. Balmer v. Long (Kan.), 179 Ac. 371.
18 Foley v. Holtry, 43 Neb. 133, 61 N. W. 120.
lent if such applicant had made an application and had withdrawn it when he learned that it would be rejected.19 If certain material statements are false, the fact that they are coupled with some truthful statements does not prevent fraud from existing.20 Thus fraudulent statements that certain bonds were marketable and were adequate security for the money paid therefor are not proved true by the fact that interest was paid promptly on such bonds for several years.21 A statement made to be acted on at a future time may be fraudulent if false when acted on though true when made.22 Thus a representation to induce the purchase of a lot, that it is unencumbered, is fraudulent if false when the sale is consummated, though true when the statement is made.23 If A makes a statement to B as to A's financial condition in order to obtain credit, and it is expressly agreed that such statement is to be regarded as a continuing statement, and that it is to be regarded as repeated at every purchase of goods on credit, a sale on credit by B to A after A has become insolvent, is induced by fraud if A did not disclose his insolvency at the time to B, even if A's statement as to his financial condition was true when it was made.24