McElrath v. Electric Investment Company

Supreme Court of Minnesota · 1911 · Torts

114 Minn. 358 (1911)

Updated July 23, 2026

TortsFraudMisrepresentationfuture promisespresent intentiondemurrerexisting factspeculation

Facts

Defendant leased a summer hotel property and related personal property at Antlers Park to plaintiffs under a written lease requiring semiannual payments and operation of the hotel along specified lines. Plaintiffs alleged defendant fraudulently induced them to enter the lease by representing that an electric traction company would complete and operate its line to and beyond Antlers Park by about July 1, 1909, that defendant would make Antlers Park an important summer resort, and that plaintiffs would make at least $1,500 per year above expenses. Plaintiffs further alleged defendant was the traction company's financial agent, the officers of both companies were the same, defendant had full knowledge of the traction company's plans, the truth or falsity of the representations was peculiarly within defendant's knowledge, and plaintiffs relied on the statements in entering the lease. The complaint alleged the statements were false and known by defendant to be false, and sought damages.

Issue

Does a complaint state a cause of action for fraud when it alleges that a defendant, to induce a contract, falsely represented that a railroad would be completed and operating by a future date, along with other assurances about future resort development and profits? Also, is the complaint defective for not expressly alleging that the railroad was not in fact constructed as represented?

Rule

As a general rule, actionable fraud must rest on misrepresentations of existing fact and not on mere promises, conjectures, or assurances about future acts or events. But a statement concerning a future event may support fraud if it was intended and understood as an assertion of the speaker's present existing intention or of a then-existing intention of the relevant actor, and that asserted intention was false when made. Promises to create future conditions or predictions of profits that are speculative and beyond the promisor's control are not actionable fraud.

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

In Duluth, Nora Kim leased a marina café from Harbor Bluff Properties after its manager told her that North Shore Ferry Lines would begin docking passenger ferries at the marina by Memorial Day. Harbor Bluff served as the ferry line’s financial adviser, shared officers with it, knew the ferry line had no present plan to add the stop, and made the statement to induce the lease.

If Nora sues for fraudulent inducement, which is the strongest basis for finding the statement actionable?

Explanation. The majority recognized the general rule that fraud must be based on existing fact, but carved out an exception when a statement about a future event is intended and understood as asserting a present existing intention, and that asserted intention is false when made. Here, the future ferry-service statement can be treated as implying the ferry line’s then-existing plan, especially given Harbor Bluff’s alleged inside knowledge and relationship to the ferry line.