But, as has been said before in these Lectures, although the law starts from the distinctions and uses the language of morality, it necessarily ends in external standards not dependent on the actual consciousness of the individual. So it has happened with fraud.If a man makes a representation, knowing facts which by the average standard of the community are sufficient to give him warning that it is probably untrue, and it is untrue, he is guilty of fraud in theory of law whether he believes his statement or not.The courts of Massachusetts, at least, go much further.They seem to hold that any material statement made by a man as of his own knowledge, or in such a way as fairly to be understood as made of his own knowledge, is fraudulent if untrue, irrespective of the reasons he may have had for believing it and for believing that he knew it. It is clear, therefore, that a representation may be morally innocent, and yet fraudulent in theory of law.Indeed, the Massachusetts rule seems to stop little short of the principle laid down by the English courts of equity, which has been criticised in an earlier Lecture, since most positive affirmations of facts would at least warrant a jury in finding that they were reasonably understood to be made as of the party's own knowledge, and might therefore warrant a rescission if they turned out to be untrue.The moral phraseology has ceased to be apposite, and an external standard of responsibility has been reached.But the starting- point is nevertheless fraud, and except on the ground of fraud, as defined by law, I do not think that misrepresentations before the contract affect its validity, although they lead directly to its ******.But neither the contract nor the implied condition calls for the existence of the facts as to which the false representations were made.They call only for the absence of certain false representations.The condition is not that the promisee shall be a certain other B, or that the contents of the barrel shall be mackerel, but that the promisee has not lied to him about material facts.
Then the question arises, How do you determine what facts are material? As the facts are not required by the contract, the only way in which they can be material is that a belief in their being true is likely to have led to the ****** of the contract.
It is not then true, as it is sometimes said, that the law does not concern itself with the motives for ****** contracts.On the contrary, the whole scope of fraud outside the contract is the creation of false motives and the removal of true ones.And this consideration will afford a reasonable test of the cases in which fraud will warrant rescission.It is said that a fraudulent representation must be material to have that effect.But how are we to decide whether it is material or not? If the above argument is correct, it must be by an appeal to ordinary experience to decide whether a belief that the fact was as represented would naturally have led to, or a contrary belief would naturally have prevented, the ****** of the contract.
If the belief would not naturally have had such an effect, either in general or under the known circumstances of the particular case, the fraud is immaterial.If a man is induced to contract with another by a fraudulent representation of the latter that he is a great-grandson of Thomas Jefferson, I do not suppose that the contract would be voidable unless the contractee knew that, for special reasons, his lie would tend to bring the contract about.
The conditions or grounds for avoiding a contract which have been dealt with thus far are conditions concerning the conduct of the parties outside of the itself. Still confining myself to conditions arising by construction of law,--that is to say, not directly and in terms attached to a promise by the literal meaning of the words in which it is expressed,--I now come to those which concern facts to which the contract does in some way refer.
Such conditions may be found in contracts where the promise is only on one side.It has been said that where the contract is unilateral, and its language therefore is all that of the promisor, clauses in his favor will be construed as conditions more readily than the same words in a bilateral contract; indeed, that they must be so construed, because, if they do not create a condition, they do him no good, since ex hypothesi they are not promises by the other party. How far this ingenious suggestion has had a practical effect on doctrine may perhaps be doubted.
But it will be enough for the purposes of this general survey to deal with bilateral contracts, where there are undertakings on both sides, and where the condition implied in favor of one party is that the other shall make good what he on his part has undertaken.
The undertakings of a contract may be for the existence of a fact in the present or in the future.They can be promises only in the latter case; but in the former, they be equally essential terms in the bargain.
