McElrath v. Electric Investment Co.

Brief Fact Summary.

Plaintiffs leased a property from defendant under the belief that a busy railroad would pass through the property. The railroad was never constructed and plaintiff brought suit against defendant for misrepresentation.

Synopsis of Rule of Law.

If a party intended to create the belief that promises or conjectures were fact, and a party relying on those promises or conjectures understood them as fact, then a valid cause of action exists.

Facts.

The McElraths (plaintiffs) leased a summer hotel property from Electric Investment Company (“Electric Investment”) (defendant). At the time of sale, Electric Investment had told the McElraths that an electric railroad would run cars to and from the city of Minneapolis and that the railroad would pass through the property. Therefore, the property would become an important summer resort for people in Minneapolis. The railroad was never constructed. The McElraths sued Electric Investment for the alleged false and fraudulent representations.

Issue.

Whether plaintiffs’ complaint stated a cause of action for misrepresentation as against defendants’ demurrer?

Held.

Yes. McElrath’s complaint, as against the demurrer, states a cause of action. The order of the trial court is affirmed.

Discussion.

The general rule is that promises of future of events are not actionable for fraud. However, if the defendant intended to create the belief that promises or conjectures were fact, and the plaintiff(s) understood them as fact, then a valid cause of action for fraud exists. Here, the McElraths stated a valid cause of action. If Electric Railroad intentionally made a statement to induce the McElraths to believe as fact that the electric railroad would be built, then that statement may base an action for fraud because it is based in fact.