## Facts

- Bates and Cashman executed a written agreement under which Cashman would buy Bates’s capital stock and bonds of the Newbury Cordage Company, as the method of obtaining control of land, a factory, and machinery in Newburyport.
- During negotiations, Bates stated that a particular right of way, affecting the property’s value, belonged to the company and could not be interfered with.
- The master found the right-of-way representation was false and concerned a material fact, but that Bates did not know it was false.
- The master found Cashman relied on the representation and would not have signed the contract had he known the truth.
- After learning the true state of the right of way, Cashman refused to perform; Bates filed a bill in equity seeking specific performance.
- The case was reserved to the full court on the pleadings, the master’s report, and exceptions, without a report of the evidence.

## Issues

1. Whether a contract may be avoided, and specific performance resisted, based on a false but innocent misrepresentation of a material fact stated as of the speaker’s own knowledge and relied upon by the other party.
2. Whether it is fraud in equity to state a fact as true of one’s own knowledge when the speaker lacks such knowledge, even if the speaker believes the statement.
3. Whether Cashman was estopped from asserting misrepresentation because he did not always advance that ground as his reason for nonperformance.

## Decision

- The court denied specific performance and ruled for Cashman.
- A party may seasonably rescind, and defend against specific performance, when induced by a false but innocent misrepresentation of a cognizable material fact made as of the other party’s own knowledge and relied upon.
- In equity, it is fraud to state a fact as true of one’s own knowledge when one has no such knowledge, even absent intentional deceit.
- Cashman was not estopped from relying on misrepresentation because there was no showing of dishonesty in his shifting explanations or that Bates was misled to his harm.

## Legal Principles

- Specific performance will not be granted where the defendant’s assent was materially induced by the plaintiff’s false representation, even if the plaintiff was innocent of intentional wrongdoing.
- A false statement of a material fact asserted as of the speaker’s own knowledge constitutes fraud in equity when relied on to enter the contract.
- Rescission (and defense to equitable enforcement) is available for innocent but material misrepresentation when timely asserted and causally connected to the agreement.
- A defendant is not estopped from raising a valid defense in equity merely because the defense was not consistently asserted, absent bad faith or detrimental reliance by the plaintiff.

## Conclusion

The court refused to compel performance of the stock-and-bond purchase agreement because the buyer was induced by the seller’s innocent but material misrepresentation stated as personal knowledge, and the buyer was not barred by estoppel from asserting that defense.


Bates v. Cashman, 230 Mass. 167, 119 N.E. 663 (Mass. 1918)