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.
In many of these cases the court bases its result on the theory of innocent misrepresentation.1 "At common law the misrepresentation of a material 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.' Chatham Furnace Co. v. Moffatt, 147 Mass. 403, 404, 18 N. E. 108, 9 Am. St. Rep. 727; Litchfield v. Hutchinson, 117 Mass. 105; Goodwin v. Massachusetts
Loan & Trust Co., 152 Mass. 180, 202, 25 N. E. 100; Adams v. Collin, 196 Mass. 422, 82 N. E. 498; Huntress v. Biodgett, 206 Mass. 318, 324, 92 N. E. 427; Kerr v. Shurtleff, 218 Mass. 167, 171, 172, 105 N. E. 871." Bates v. Cashman, 230 Mass. 167, 119 N. E. 663.
3 This defense can be made at law "under our liberal rules of procedure." Reddington v. Blue, 168 la. 34, 149 N. W. 933 [quoted in Clark v. Northern Pacific Ry. Co., 36 N. D. 503, L. R. A. 1917E, 399, 162 N. W. 400].
4 Denver & Rio Grande R. Co. v. Ptotemy, - Colo. - , 169 Ac. 541; Callan v. Peck, 37 R. I. 227, 91 Atl. 34. See Sec. 149.
5 Denver & Rio Grande R. Co. v. Ptolemy, - Colo. - , 169 Ac. 541.
1 Bates v. Cashman, 230 Mass. 167, 119 N. E. 663; Mooney v. Davis, 75 fact made by one of the parties to a contract, though made by mistake and innocently, if acted on by the opposite party constitutes full knowledge of the facts,2 or by acquiescence for an unreasonable time, especially if third persons are thereby induced to alter their position to their disadvantage.3 Possession of a written contract has been held equivalent to knowledge of its terms even though it was not read.4 While such waiver prevents rescission,5 and prevents the party performing from recovering on a quantum meruit, ignoring the terms of the contract,6 it does not prevent recovery for failure of consideration.7
Mich. 188, 13 Am. St. Rep. 425, 42 N. W. 802; Helvetia Copper Co. v. Hart-Parr Co., 137 Minn. 321, 163 N. W. 665; Clark v. Northern Pacific Ry. Co., 36 N. D. 503, L. R. A. 1917E, 399, 162 N. W. 406.
"It may be conceded that an essential element of the old common-law action of deceit is intentional fraud and deception, and that, as a general rule, no recovery can be had in such an action where intentional deception does not appear. And there are many authorities holding to a strict application of the rule, and as requiring an affirmative showing of an intent to defraud and deceive in all cases where relief is sought on the ground of fraudulent representations. As thus strictly applied, much injustice has resulted, and the courts have ingrafted upon the rule modifications and qualifications, and the present trend of judicial opinion does not require in all cases a showing of an evil intent. The injury suffered by the defrauded party may be just as great whether the fraud was intentional or unintentional. So in actions the result of which places the parties in statu quo, restoring to each what he parted with, equity will grant relief where the representations which induced and brought about the contract were, in fact, false, though made in good faith; the additional requirement being that the representations must appear to have been material, not mere opinion, and of a character to justify reliance thereon by the defrauded party. In such cases the courts grant relief either upon the ground of fraud in law, sometimes spoken of as constructive fraud, or mutual mistake. It is not material whether it be termed fraud in law or mistake; the result is the same in either case. The rule now often applied is tersely summed up by the Iowa supreme court in the statement that 'a party can not falsely assert a fact to be true and induce another to rely upon such statement to his prejudice, and thereafter hide behind a claim that he did not know it was false at the time he asserted it.'" Haigh v. White Way Laundry Co., 164 la. 143, 50 L. R. A. (N.S.) 1091, 145 N. W. 473.
"The rule has frequently been stated and applied in our former decisions, both in actions for a rescission of the contract and where the alleged fraud has been presented as defensive matter. Dunnell's Dig. 3819; Drake v. Fair-mount Drain Tile & Brick Co., 129 Minn. 145, 151 N. W. 914; Brooks v. Hamilton, 15 Minn. 26, Gil. 10; Hedin v. Minneapolis Medical & S. Inst., 62 Minn. 146, 35 L. R. A. 417, 54 Am. St. Rep. 628, 64 N. W. 158; Busterud v. Farrington, 36 Minn. 320, 31 N. W. 360. It was held in Bullitt v. Farrar, 42 Minn. 8, 6 L. R. A. 149, 18 Am. St. Rep. 485, 43 N. W. 566, that it is a fraud for one to make an unqualified representation not knowing whether it is true or false, and that an unqualified statement amounts to an affirmation as of one's own knowledge. Numerous decisions in other states support the same doctrine. 14 Am. & Eng. Enc. Law 94; Holcomb v. Noble, 69 Mich. 396, 37 N. W. 497; Johnson v. Gulick, 46 Neb. 817, 50 Am. St. Rep. 629, 65 N. W. 883; Pattison v. Seattle, R & S. R. Co., .55 Wash. C25, 104 Ac. 825; Carroll v. United R. Co, 157 Mo. App. 247, 137 S. W. 303; Missouri, K. & T. R. Co. v. Maples (Tex. Civ. App.), 1G2 S. W. 426; Kathan v. Comstock, 28 L. R. A. (N.R.) 201, and cases cited in note (140 Wis.
607 Misrepresentation in the Inducement Sec. 378 legal fraud."2 It is said that in order to avoid a contract induced by false representations "it is not necessary to aver or prove that the party making them.at the time knew they were untrue."3 The right to rescind is, however, often placed on other grounds than mere misrepresentation; such as warranty4 or mistake,5 or on the ground that the vendor is bound to know the truth of statements made by him concerning the property sold.6 This doctrine is the point at which, under the treatment of many courts, fraud and misrepresentation merge into an indistinguishable whole. The difficulty of making the distinction is increased by the inclination of the courts to refer to misrepresentation as "legal fraud."7 Other courts tend to class such a misrepresentation as "constructive fraud,"8 or as "fraud."9 Indeed, if the false statement is sufficient to avoid the contract, it makes no difference in the specific case as far as the validity of the contract is concerned whether it is a case of misrepresentation or of fraud.