Story Case

J. Swan, a promoter, in inducing Frank Black to invest in some Florida land, said that the investment in his opinion would surely make one hundred per cent in a couple of years. At the end of three years the land had decreased in value and it was certain that it would never be worth one-half of what was paid. Black then claimed that the contract was induced by fraud and sued Swan for $2,000, the amount that Black had invested.

Swan defended on the ground that no fact was misrepresented to Black. The statement that the investment would make great profit was only a statement of opinion. Do you think that the defense is good?

Ruling Court Case. Gordon Vs. Parmelee, Volume 2 Allen Reports (Massachusetts), Page 212

Parmelee visited Gordon with a view to buying his land, in case it was suited to his purpose. He stated to Gordon that he desired to buy land which was suitable for stock-raising. Gordon assured him that the land which he owned was most excellent for that purpose. Parmelee was unable to tell much about the land because it was winter time, and the ground was covered with snow. Relying on the statements of Gordon, however, he purchased the land, and gave his note for the payment. The following year, Parmelee learned that the land was not at all suitable for stock raising because the soil was too poor. He refused to pay the note when it became due. Gordon then brought this suit on the note.

Parmelee contended that the note was not binding upon him because his consent was gained to the transaction by false representations as to material facts. But it was insisted by Gordon that his statements were not of fact but of his opinion.

Mr. Chief Justice Bigelow delivered the opinion of the court: "The alleged false statements concerning the productivity of the soil and its capacity to furnish support for cattle constitute no defense to the notes. They fall within that class of affirmations, which although known by the party making them to be false, do not as between vendor and vendee afford any ground for a claim for damages. Affirmations concerning the value of land, or its adaptability to a particular mode of culture, or the capacity of the soil to produce crops or support cattle, are, after all, only expressions of opinion or estimates founded on judgment about which the best of men might differ materially".

Accordingly, judgment was given for Gordon in this action.

Ruling Law. Story Case Answer

If a person's consent to a contract is procured by fraud or fraudulent means, it is clear that the consent of such person is not real. It now becomes necessary to see just what constitutes fraud which renders contractual consent unreal. In the first place, it is necessary that there should be a false representation of an existing or a past fact. A representation of one's opinion, belief, hope or expectation, cannot be made the basis of fraud. In the Court Case of Gordon vs. Parmelee, Gordon stated that the land was suited for a certain purpose. This was a mere expression of opinion on his part; and, although his opinion might have been ungrounded, nevertheless, it cannot be made the basis of fraud. Thus, in the Story Case, the statement of Swan that the value of the land would increase rapidly in value, was a mere expression of opinion or expectation, and did not constitute a fraud. Consequently, judgment in that case should be given for Swan.