Story Case

The Ideal Studios, in New York City, had for sale paintings by old masters. They had a Titian which they wished very much to sell, because it kept a large amount of money invested. John Schell, a millionaire art collector, came to the studio in search for a Raphael. The manager represented that the Titian was a Raphael. Schell was a good judge of paintings. He thought that the picture was not a Raphael but he expressed no opinion. He promised that he would return the next day and give his decision.

In the afternoon of the same day, Schell consulted an expert and learned that the picture was a Titian but worth as much as was asked for it. The next day he purchased it. Later, he regretted the purchase, and in two months told the manager that he wanted his money returned, because the picture was not a Raphael as had been represented to him.

The manager replied, that Schell had consulted an expert before paying for the picture; that he knew all the time that he was not purchasing a Raphael and that therefore, he had no right to claim fraud. Schell thought that the fact that he had not relied on the false representation was immaterial and that he could get his money. He brought suit. Can he recover?

Ruling Court Case. Mary Wagner Vs. National Life Insurance Company, Volume 90 Federal Reporter, Page 395

The husband of Mary Wagner, who is the plaintiff in this action, had taken out insurance on his life in the National Life Insurance Company, the defendant herein. Being in need of money, the deceased husband had determined to surrender his policy, secure the cash surrender value, and take out a new policy. With this purpose in view, he had made a visit to the local agent of the company. When he told his desire and intention, the agent called in the company physician, who made a physical examination of Wagner. The examination revealed the fact that Wagner was then in a perilous condition. His heart was very weak, and the doctor knew that he would live only a few days. This he communicated to the agent. The agent then refused to grant Wagner a new policy, stating that, though his condition was not dangerous and that death would not result immediately, yet his condition was such that the company could not afford to write him any insurance. He also advised Wagner not to surrender the policy he then had. But the deceased had insisted and so it was done. He died within ten days after the policy was surrendered. This was an action brought by Mary Wagner, seeking to have the surrender set aside, on the ground that the false representations of the agent as to time of death had been the cause of the surrender. She contended that if her husband had been told the truth he would not have surrendered the policy.

On the part of the company it was insisted, that he did not rely upon the representations made by the agent. For, if the agent had said nothing - and he was under no duty to speak - the deceased would have surrendered the policy even more quickly. It was insisted for the company that if Wagner had relied upon their representations, he would not have surrendered the policy.

Decision

Unless the deceived person relies upon the misrepresentations he has no right to complain of his action. In this case, the deceased put no reliance in the untruth told to him by the agent of the company. Consequently, Mary Wagner cannot complain of the fact that the policy was surrendered.

Mr. Justice Taft said: "Again, the untrue statements did not cause the surrender of the policy. It is apparent that Wagner would have insisted upon surrender if nothing had been said, and what was said, was said only to prevent surrender, and that, though the physical condition of Wagner was misrepresented, Wagner's action would have been the same if the misstatements had been omitted. Therefore, they did not cause the surrender and cannot be made the ground for setting it aside".

Therefore, judgment was given for the company.

Ruling Law. Story Case Answer

The representations, however false, do not constitute fraud unless they actually deceive the person who is intended to be misled by them. If a person knows of the false representations and pays no attention to them, or puts no reliance in them, obviously he has not been deceived; and he has not been defrauded. Thus, in the Story Case, Schell can recover nothing. Before he purchased the picture in question he was well aware that it was not the picture that it was represented to be. Accordingly, he cannot now set up the claim that he has been defrauded. Judgment, therefore, should be given against him.