Sec. 301. General Statement

The authorities are not entirely harmonious as to how far a vendee may rely upon the representations of the vendor. In some jurisdictions it is held that representations to be relied upon must be such as an ordinarily prudent man would rely upon. In other words, the vendee must exercise ordinary care. In other jurisdictions it is held that negligence on the part of the vendee is no bar to relief in case of fraud. Most authorities are in accord that the exercise of prudence and caution is excused (1) where confidential relations exist between the parties, and (2) where fraud or artifice is used to divert or prevent inquiry or investigation, or to mislead. (Sec. 302-307.)

Sec. 302. May Vendee Rely Upon Statement Of Vendor?

As to whether a person may rely absolutely upon representations made, or is bound to make independent investigation, the authorities are not altogether clear and harmonious. In Mead v. Bunn, 32 N. Y. 279 (1865), it is said that it is a mistake to assume "that a false representation by one of the parties to a contract puts the other on inquiry as to its truth. Every contracting party has an absolute right to rely on the express statement of an existing fact, the truth of which is known to the opposite party and unknown to him, as the basis of a mutual engagement; and he is under no obligation to investigate and verify statements, to the truth of which the other party to the contract, with full means of knowledge, has deliberately pledged his faith."1 In Forster v. Wil-husen, 14 Misc. 520 (N. Y. 1895), it was held that where by his agent an owner, with intent to deceive the purchaser, made representations as to the rentals of the property, and those representations were untrue and material in inducing the purchaser to purchase, and where with due diligence, after discovery of the fraud, the purchaser demanded a rescission of the contract and the return of the money paid upon it, the facts sufficed to support an action. It is no answer that the purchaser made no effort to ascertain from tenants the actual rent, where the owner diverted the purchaser from such inquiry. In fact, the purchaser has a right to rely on the mere statement of the broker, and want of diligence in discovering the fraud is not sufficient to deprive a party of his right to rescind a fraudulent contract. Moreover, a mistake or innocent misrepresentation, if material, is enough for rescission of the contract.

In an action brought to recover damages for false representations alleged to have been made in respect to liens and encumbrances upon the property sold, the court said that the fact that the plaintiff could have informed himself as to encumbrances by an examination of the public records does not preclude him from maintaining his action. "Negligence is no defense to fraud. That the victim was an easy mark has not yet been heard to justify garroting."2

Sec. 303. Vendor Not Ordinarily Required To Volunteer Information

On the other hand it is said that "the general rule is, that a party engaged in a business transaction with another can commit a legal fraud only by fraudulent misrepresentations of facts, or by such conduct or such artifice for a fraudulent purpose as will mislead the other party or throw him off from his guard, and thus cause him to omit inquiry or examination which he would otherwise make. A party buying or selling property, or executing instruments, must by inquiry or examination gain all the knowledge he desires. He cannot proceed blindly, omitting all inquiry and examination, and then complain that the other party did not volunteer all the information he had. Such is the general rule. But there are exceptions to this rule. Where there is such a relation of trust and confidence between the parties, that the one is under some legal or equitable obligation to give full information to the other party - information which the other party has a right, not merely in foro conscien-tioe, but juris et de jure, to have, then the withholding of such information purposely may be a fraud.3 It is not always easy to define when this relation of trust and confidence exists; and no general rule can be formulated by which its existence can be known."4

1 And see Townsend v. Felthousen. 156 N. Y. C24, 625 (1898). 2 Blumenfeld v. Stine, 42 Misc. 413 (N. Y. 1904).