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an adequate and complete remedy, a court of equity had no jurisdiction to entertain the suit.440

442

§ 100. Falsity of Representations.-To justify the rescission of a contract or its cancellation on the ground of fraudulent representations, it is absolutely essential to show that the alleged representations were false in fact, for this is one of the indispensable elements of a fraud, and it cannot be established without proving this fact. And the proof of this point must be full and convincing. A mere suspicion that a transaction was induced by false representations will not justify a court of equity in setting it aside, but their falsity must be certainly proved by evidence which leaves an abiding conviction in the mind. Hence, whatever fraudulent purpose the defendant may have entertained, and although he did not know the truth of the matter of which he spoke, and even although he actually believed that the representations which he made were false, yet this kind of relief cannot be granted if they turn out to have been true after all.443 Moreover, to make a "false representation," it is not sufficient that the statement made should be technically or literally false, if it is substantially true.*** For instance, a statement by a corporation that its "capital" amounts to a certain sum may be technically

444

440 Buzard v. Houston, 119 U. S. 347, 7 Sup. Ct. 249, 30 L. Ed. 451.

441 Varley Duplex Magnet Co. v. Ostheimer, 159 Fed. 655, 86 C. C. A. 523; Belden v. Henriques, 8 Cal. 87; Van Buskirk v. State Bank of Rocky Ford, 35 Colo. 142, 83 Pac. 778, 117 Am. St. Rep. 182; Hart v. Waldo, 117 Ga. 590, 43 S. E. 998; Marietta Fertilizer Co. v. Beckwith, 4 Ga. App. 245, 61 S. E. 149; Hicks v. Deemer, 187 Ill. 164, 58 N. E. 252; Wesselhoeft v. Schanze, 153 Ill. App. 443; Long's Ex'r v. Owen, 30 Ky. Law Rep. 495, 98 S. W. 1010; Atlas Shoe Co. v. Bechard, 102 Me. 197, 66 Atl. 390, 10 L. R. A. (N. S.) 245; Martin v. Hill, 41 Minn. 337, 43 N. W. 337; Hampton v. Webster, 56 Neb. 628, 77 N. W. 50; Scarsdale Pub. Co. v. Carter, 63 Misc. Rep. 271, 116 N. Y. Supp. 731; Whitmire v. Heath, 155 N. C. 304, 71 S. E. 313; Deppen v. Light, 228 Pa. 79, 77 Atl. 247; Konikow v. Reiseroff (R. I.) 82 Atl. 785; Mach. Mfg. Co. v. Donovan, 86 N. J. Law, 327, 91 Atl. 310.

442 Eureka Dairy Co. v. McSween, 37 App. D. C. 1.

448 Hart v. Waldo, 117 Ga. 590, 43 S. E. 998; Fox v. State, 102 Ark. 451, 145 S. W. 228.

444 Kimber v. Young, 157 Fed. 199, 84 C. C. A. 647.

446

false if the capital with which it began business is materially less than the sum stated, but substantially true if it be the fact that the corporation holds undivided profits, enough to make up the difference, which it uses in its business as capital.445 So, a representation by the seller of a business that a lease covering the premises is a "four year straight lease" is not actionable as fraudulent because it appears that the lessor had reserved the right to terminate the lease on five days' notice for violation of any covenant by the lessee. In another case, it appeared that plaintiff had contracted to purchase a large number of bicycles from a corporation engaged in their manufacture, the same to be shipped subject to plaintiff's orders. He gave notes for certain invoices of bicycles, not shipped, in reliance on a representation that they had been completed and set apart as his property. This was not literally true, but it was shown (in an action to cancel the notes) that the frames had been set apart, and that other parts were kept on hand, so that they could be quickly assembled, and that the bicycles could not be put together until instructions had been received from the plaintiff as to tires and sprocket wheels. It was held that the representation was not so substantially false as to constitute a legal fraud.447 So a statement that the charter of a corporation is perpetual is not shown to be false in the legal sense where it appears that the statement was made in reliance on a decision of a court of the state, though the point is afterwards drawn in question on an appeal.+48 Again, a representation that defendant's son had a clear annual income of a certain amount from his father's estate, which was his own without restriction, was held not falsified by the fact that the will provided that the income should not be liable for the son's debts.* But on the other hand, a representation that a certain lease was

449

445 Bradley v. Seaboard Nat. Bank, 46 App. Div. 550, 62 N. Y. Supp. 51. (See this case on appeal, 167 N. Y. 427, 60 N. E. 771.) 446 Goldman v. Kleinhenz (Sup.) 129 N. Y. Supp. 374.

447 World Mfg. Co. v. Hamilton-Kenwood Cycle Co., 123 Mich. 620, 82 N. W. 528.

448 Donnelly v. Baltimore Trust & Guarantee Co., 102 Md. 1, 61 Atl. 301.

449 Gleason v. Thaw, 205 Fed. 505, 123 C. C. A. 573.

perpetual was held false in fact where it appeared that the lease ran for ninety-nine years.450 And so, where the seller of mining stock represented that the stock offered was treasury stock and that the money paid for it would go to the development of the property, but in fact sold stock which he owned himself, it was held that the buyer was entitled to rescind.451

In the next place, a statement may be composite and may be partly true and partly false. In this case, if the untrue part of the statement is trifling or unimportant, and cannot be supposed to have had any influence on the mind of the contracting party, it will not make the representation a fraud in its entirety. But if the false part of the statement is material, so that the party would not have agreed to the contract if he had known the truth, this will be sufficient to vitiate it.452 For example, where the owner of a patent right exhibits a model, and states that the patent which he owns covers the machine exhibited, and on the strength of that representation sells the right to manufacture it, the contract may be rescinded if an important device shown in the model is covered by another patent, and the purchaser cannot, for that reason, manufacture under the right the machine shown to him.453 Again, it may happen that parts of a statement are false, but are contradicted or set right by other parts. Here it is necessary to consider the statement as an entirety. Thus, where a person invited to subscribe for stock in a corporation is handed several documents, which he reads, and one of them contains statements which are false or at least misleading, but the others contradict, explain, or limit these statements so as to show the ultimate truth, he cannot repudiate his subscription on the ground of having been deceived by the false statements, though he also alleges that he did not notice or understand the corrections or explanations; for he ought to have done

450 Edwards v. Noel, 88 Mo. App. 434.

451 Gray v. Reeves, 69 Wash. 374, 125 Pac. 162.

452 Hasse v. Freud, 119 Mich. 358, 78 N. W. 131; Jesse French Piano & Organ Co. v. Garza, 53 Tex. Civ. App. 346, 116 S. W. 150. 453 Moyle v. Silbaugh, 105 Iowa, 531, 75 N. W. 362.

SO.454

But it may be that this rule should not be applied too inflexibly. If the correcting or modifying statements are printed in small type, with the evident hope that they may escape notice, it has been considered such evidence of a fraudulent purpose as to warrant repudiation of the contract.155 Finally, we have to consider the case where representations were false at the time they were made, but become true by the course of events, or are made good by the voluntary action of the party, before the person claiming to have been defrauded parts with his money or otherwise changes his situation. It is generally held that such a case does not warrant rescission or the granting of equivalent relief.15 The theory appears to be, not so much that the original fraud is condoned or wiped out, as that the party claiming to have been defrauded has suffered no injury and has nothing to complain of, for he entered into his contract on the assumption of a state of facts which, however it may have been originally, has now become a reality. But the change of affairs must be such as to make the original representations become wholly and entirely true. There is ground for rescission if they remain false in any material particular, though corrected in others.457

§ 101. Ambiguous and Misleading Statements.-If a statement made to induce another to enter into a contract is literally true, but is presented in such a light or aspect as to create a false impression, or if a statement, taken as a whole, is designedly deceptive and misleading, though each of its details may be true, in either case it is as much a fraudulent misrepresentation as a known falsehood deliberately asserted.458 In other words, a false representation

454 Scholey v. Central Ry. Co. of Venezuela, L. R. 9 Eq. 266, note.

455 Cunningham v. Morris, 56 Wash. 341, 105 Pac. 839.

456 Ship v. Crosskill, L. R. 10 Eq. 73; Lagunas Nitrate Co. v. Lagunas Syndicate, [1899] 2 Ch. 392; Adams v. Hill (Tex. Civ. App.) 149 S. W. 349. But see, contra, Davis v. Scher, 73 N. J. Law, 155, 62 Atl. 193; Lehman-Charley v. Bartlett, 135 App. Div. 674, 120 N. Y. Supp. 501.

457 Hamilton v. American Hulled Bean Co., 156 Mich. 609, 121 N. W. 731.

458 Match v. Hunt, 38 Mich. 1; Marietta Fertilizer Co. v. Beck

may be made by presenting that which is true so as to create an impression which is false, and then profiting by the false impression thus created.59 "To constitute a fraudulent representation, it need not be made in terms expressly stating the existence of some untrue fact, but if it be made by one party in such terms as would naturally lead the other party to suppose the existence of such state of facts, and if such statement be so made designedly and fraudulently, it is as much a fraudulent misrepresentation as if the statement of the untrue facts were made in express terms.” 460 For instance, if the facts set forth in a company's prospectus are so combined or manipulated as to create a certain impression in the mind of a reader, which impression is false and is fraudulently intended to be deceptive, one who is induced to subscribe for stock on the basis of the prospectus will be entitled to rescind his contract, although no one statement in the document, taken by itself, is untrue.461 To take another illustration, one selling stock represented to the purchaser that the last dividend declared by the company was a semi-annual dividend of seven per cent. and that the fiscal year of the company ended June 1st. This was true. But the inference naturally drawn by the purchaser was that the dividend spoken of had been declared in June of the current year, whereas it really had been declared two years before and the company was insolvent at the time of the sale. This, with other misrepresentations as to the prosperous condition of the company, was held fraud sufficient to avoid the sale.462

Again, if one is under a duty to disclose facts in his possession or volunteers to do so, he must make a full and fair disclosure. And although that which he states is perfectly true, yet if it constitutes only a part of the truth, that which

with, 4 Ga. App. 245, 61 S. E. 149; Melick v. Metropolitan Life Ins. Co., 84 N. J. Law, 437, 87 Atl. 75; Jones v. Commercial Travelers' Mut. Accident Ass'n, 134 App. Div. 936, 118 N. Y. Supp. 1116; Lehman-Charley v. Bartlett, 135 App. Div. 674, 120 N. Y. Supp.

501.

459 Tolley v. Poteet, 62 W. Va. 231, 57 S. E. 811.

460 Lee v. Jones, 17 C. B., N. S., 482, 510.

461 Aaron's Reefs v. Twiss [1896] A. C. 273.

462 Tyler v. Savage, 143 U. S. 79, 12 Sup. Ct. 340, 36 L. Ed. 82.

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