Bates v. Cashman

Supreme Judicial Court of Massachusetts · Contracts

Contractscontractsmisrepresentationinnocent misrepresentationrescissionmaterial factreliancedefense to enforcement

Facts

The parties entered into a written contract for the defendant to buy the stocks and bonds of the Newbury Cordage Company, securities that conveyed control of land, a factory, and machinery. During negotiations, the plaintiff represented that a right of way, an important element of the real estate's value, was owned by the company and could not be interfered with. The representation was untrue, although the plaintiff did not know it was untrue. The master found that the defendant relied on that representation and would not have signed the contract had he known the truth.

Issue

May a defendant avoid performing a contract when he was induced to enter it by the plaintiff's false but innocent representation of a material fact made as of the plaintiff's own knowledge? Also, is the defendant barred from raising that defense because he had previously mentioned other reasons for refusing performance?

Rule

A party may seasonably rescind or avoid a contract induced by false though innocent misrepresentations concerning a cognizable material fact when the representations are made as of the speaker's own knowledge and are relied on by the other party. It is fraudulent to state a fact as true of one's own knowledge when one has no such knowledge, and it is no excuse that the speaker believed the statement to be true or had forgotten the actual facts. A party is not barred from asserting such a defense merely because he previously advanced other reasons for nonperformance, absent dishonesty, harmful misleading of the other party, or estoppel on some other ground.

🔒

See the holding & full analysis

Create a free KwikCourt account to unlock the rest of this brief — and practice the case.

The court's holding and reasoning
Doctrine tests, pitfalls & exam hypotheticals
10 practice questions + 4 AI-graded essays on this case

Free sample · practice this case

Test yourself

One of 10 multiple-choice questions for this case. Pick an answer to see why.

In Portland, Maine, Lena Ortiz agreed in writing to buy all membership interests in Harbor Loom Works from Victor Dane. During negotiations, Victor told Lena, as a matter of his own knowledge, that the company held a perpetual dock-use license essential to shipping its goods; in fact, the license had expired years earlier, though Victor honestly believed it remained valid. Lena signed in reliance on that statement and would not have agreed had she known the truth.

If Victor sues Lena for refusing to close, which is the strongest argument for Lena under the governing rule?

Explanation. A party may seasonably rescind or defend against enforcement when induced to contract by a false though innocent misrepresentation of a cognizable material fact stated as of the speaker's own knowledge and relied upon by the other party. The speaker's honest belief does not preserve enforcement when he asserted personal knowledge he did not actually have. (Derived from Bates v. Cashman (n.d.).)