Conditions may be created by the very words of a contract.Of such cases there is nothing to be said, for parties may agree to what they choose.But they may also be held to arise by construction, where no provision is made in terms for rescinding or avoiding the contract in any case.The nature of the conditions which the law thus reads in needs explanation.It may be said, in a general way, that they are directed to the existence of the manifest grounds for making the bargain on the side of the rescinding party, or the accomplishment of its manifest objects.But that is not enough.Generally speaking, the disappointment must be caused by the wrong-doing of the person on the other side; and the most obvious cases of such wrong-doing are fraud and misrepresentation, or failure to perform his own part of the contract.
Fraud and misrepresentation thus need to be considered once more in this connection.I take the latter first.In dealing with it the first question which arises is whether the representation is, or is not, part of the contract.If the contract is in writing and the representation is set out on the face of the paper, it may be material or immaterial, but the effect of its untruth will be determined on much the same principles as govern the failure to perform a promise on the same side.If the contract is made by word of mouth, there may be a large latitude in connecting words of representation with later words of promise; but when they are determined to be a part of the contract , the same principles apply as if the whole were in writing.
The question now before us is the effect of a misrepresentation which leads to, but is not a part of, the contract.Suppose that the contract is in writing, but does not contain it, does such a previous misrepresentation authorize rescission in any case? and if so, does it in any case except where it goes to the height of fraud? The promisor might say, It does not matter to me whether you knew that your representation was false or not; the only thing I am concerned with is its truth.If it is untrue, I suffer equally whether you knew it to be so or not.But it has been shown, in an earlier Lecture, that the law does not go on the principle that a man is answerable for all the consequences of all his acts.An act is indifferent in itself.It receives its character from the concomitant facts known to the actor at the time.If a man states a thing reasonably believing that he is speaking from knowledge, it is contrary to the analogies of the law to throw the peril of the truth upon him unless he agrees to assume that peril, and he did not do so in the case supposed, as the representation was not made part of the contract.
It is very different when there is fraud.Fraud may as well lead to the making of a contract by a statement outside the contract as by one contained in it.But the law would hold the contract not less conditional on good faith in one case than in the other.
To illustrate, we may take a somewhat extreme case.A says to B, I have not opened these barrels myself, but they contain No.1mackerel: I paid so much for them to so and so, naming a well-known dealer.Afterwards A writes B, I will sell the barrels which you saw, and their contents, for so much; and Baccepts.The barrels turn out to contain salt.I suppose the contract would be binding if the statements touching the contents were honest, and voidable if they were fraudulent.
Fraudulent representations outside a contract can never, it would seem, go to anything except the motives for making it.If outside the contract, they cannot often affect its interpretation.Apromise in certain words has a definite meaning, which the promisor is presumed to understand.If A says to B, I promise you to buy this barrel and its contents, his words designate a person and thing identified by the senses, and they signify nothing more.There is no repugnancy, and if that person is ready to deliver that thing, the purchaser cannot say that any term in the contract itself is not complied with.He may have been fraudulently induced to believe that B was another B, and that the barrel contained mackerel; but however much his belief on those points may have affected his willingness to make the promise, it would be somewhat extravagant to give his words a different meaning on that account."You" means the person before the speaker, whatever his name, and "contents" applies to salt, as well as to mackerel.
It is no doubt only by reason of a condition construed into the contract that fraud is a ground of rescission.Parties could agree, if they chose, that a contract should be binding without regard to truth or falsehood outside of it on either part.
