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.
Where a person makes representations as to matters which from his situation he should have known, or which it was his duty to know,1 as where officers of a corporation make statements concerning the affairs of the corporation,2 or a partner makes a statement as to the resources of the firm,3 or where a mortgagor states that he has given only one mortgage on his real estate,4 such representations will, if false, amount to fraud. Knowledge that the books of an employe do not balance, puts the employer upon inquiry, so that his statement to an indemnity insurer made without further inquiry to the effect that the accounts of such employe are correct avoids the contract.5 So one who knows facts from which a reasonable man could infer the falsity of the statement which he makes is held as guilty of fraud as if he had actual knowledge.6 Rescission in equity may be had in such cases.7 However, in tort some courts hold that no liability exists if there is no active, conscious and intentional fraud.8 Some jurisdictions treat fraud in such cases as merely a prima facie inference which may be rebutted by showing good faith.9
1 United States. Moline Plow Co. v. Carson, 72 Fed. 387, 18 C. C. A. 606; Swofford, etc., Co. v. Mills, 86 Fed. 556.
Kentucky. Foard v. MoComb, 75 Ky. (12 Bush.) 723.
Minnesota. Kiefer v. Rogers, 19 Minn. 14.
Texas. Davis v. Driscoll, 22 Tex. Civ. App. 14, 54 S. W. 43.
Wisconsin, Montreal, etc., Co. v. Mi-hills, 80 Wis. 540, 50-N. W. 507; Beetle v. Anderson, 98 Wis. 5, 73 N. W. 560; Kranse v. Busacker, 105 Wis. 350, 81 N. W. 406.
2 Connecticut. Shelton v. Healy, 74 Conn. 265, 50 Atl. 742.
Iowa. Hubbard v. Weare, 79 la. 678, 44 N. W. 915.
Kentucky. Prewitt v. Trimble, 92 Ky. 176, 36 Am. St. Rep. 586, 17 S. W. 356.
Michigan. Silberman v. Monroe, 104 Mich. 352, 62 N. W. 555.
Missouri. Bank v. Hunt, 76 Mo. 439.
Nebraska. Olcott v. Bolton, 50 Neb. 779, 70 N. W. 366; Gerner v. Mosher, 58 Neb. 135, 46 L. R. A. 244, 78 N. W. 384.
North Carolina. Tate v. Bates, 118 N. Car. 287, 54 Am. St. Rep. 719, 24 S. E. 482.
In Hubbard v. Weare, 79 la. 678, 687,
44 N. W. 915, the court said: "Officers of corporations who hold out to individuals or to the public advantages which will accrue to persons who take shares in their corporation, and invite them to take shares on the faith of their representations, are bound to state everything with strict and scrupulous accuracy, and not only to abstain from stating as facts that which is not so, but to omit no fact within their knowledge, the existence of which might affect the advantages held out as inducements to take shares. Such officers will be presumed to have known that which it was their duty to know. Before making representations as to the condition of the company as inducements to take stock therein or extend credit thereto, it is their duty to use reasonable diligence to know that the representations are €rue, and they will be presumed to have used such diligence and to possess the knowledge which its exercise would bring to them." Contra, Cahill v. Applegarth, 98 Md. 493, 56 Atl. 794.
3 Tennent Shoe Co. v. Stovall (Ky), 78 S. W. 417.
4 Kiefer v. Rogers, 19 Minn. 14.
5 Poultry Producers' Union v. Williams, 58 Wash. 64, 107 Ac. 1040.