## Facts

- In 2002, Tracy agreed to purchase a tractor from Morell for $12,500.
- Tracy signed a promissory note to pay the purchase price in monthly installments.
- Tracy stopped making payments in June 2003, after paying $8,500 on the note.
- In September 2003, the State charged Morell with receiving stolen tractors and other farm equipment; Morell later pled guilty.
- After learning of the charges, Tracy asked law enforcement to investigate whether his tractor had been stolen.
- Police inspection showed the tractor’s identification number had been ground out, filled with putty, and painted over.
- Authorities were unable to determine conclusively whether Tracy’s tractor was stolen, but they impounded it.
- Tracy sued Morell for fraud, alleging Morell knowingly misrepresented that he owned the tractor when he sold it.
- Morell denied knowing the identification number had been altered and counterclaimed for the remaining $4,000 due under the promissory note.
- After a bench trial, the trial court found Tracy failed to prove the state of mind required for fraud and entered judgment for Morell on his counterclaim, ordering Tracy to pay the $4,000 balance.

## Issues

1. Whether Tracy proved actionable fraud/misrepresentation by showing Morell knowingly or intentionally misrepresented that he owned the tractor at the time of sale.
2. Whether the promissory note and sales agreement were enforceable when the tractor’s identification number had been obliterated, creating uncertainty about lawful ownership and marketability.
3. If the agreement was unenforceable, whether rescission and restitution were the proper remedies.

## Decision

- The Indiana Court of Appeals affirmed the trial court’s rejection of Tracy’s fraud claim because the evidence supported the finding that Morell lacked the required knowledge or intent.
- The Court of Appeals reversed the portion of the judgment enforcing the promissory note and requiring Tracy to pay the remaining $4,000.
- The court held that, given the obliterated identification number and the resulting inability to confirm lawful provenance, enforcing the bargain would rest on a basic mistaken assumption shared by both parties and would conflict with public policy against validating transactions in goods lacking reliable identifying information.
- The court ordered rescission and remanded with instructions to enter judgment returning Tracy to his pre-contract position as nearly as possible, including restitution of the $8,500 Tracy had paid (with interest) and relieving Tracy of further obligation on the note.

## Legal Principles

- Fraud (actionable misrepresentation) requires proof that the defendant made a material misrepresentation with the required mental state (knowledge or intent); appellate courts defer to trial-court findings that turn on witness credibility and state of mind.
- A contract may be set aside for mutual mistake when both parties share a mistaken assumption about a basic fact that materially affects the agreed exchange and goes to the essence of the deal.
- Courts may refuse to enforce an agreement on public-policy grounds where enforcement would validate a transaction involving goods with obliterated or altered identification numbers, which impairs traceability and lawful transfer in commerce.
- When a contract is rescinded due to mutual mistake or public policy, restitution is used to restore the parties, as nearly as possible, to their pre-contract positions, including repayment of amounts paid and cancellation of remaining payment obligations.

## Conclusion

In *Tracy v. Morell*, the Indiana Court of Appeals agreed that Tracy did not prove fraud because the trial court could reasonably find Morell lacked the necessary knowledge or intent, but the court refused to enforce the tractor sale note once it was shown the tractor’s identification number had been obliterated and the tractor’s lawful status could not be confirmed; the court therefore ordered rescission and restitution, requiring repayment of Tracy’s prior payments (with interest) and eliminating any remaining obligation under the note.


Tracy v. Morell, 948 N.E.2d 855 (2011)