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McElrath v. Electric Investment Co. | 131 N.W. 380 (1911)
A basic rule of law states that a fraud claim can be predicated only on a false statement of actual fact. It can’t be based on a promise to act in the future or on conjecture as to some future event. But can a fraud claim be based on a false statement of someone else’s intentions? The Minnesota Supreme Court considered whether a liar railroaded an innocent party in McElrath versus Electric Investment Company.
The Electric Investment Company owned a summer hotel property in Antlers Park. In nineteen oh nine, the company offered to lease the property to Ulysses McElrath. Electric Investment was the financial agent for the Minneapolis, Saint Paul, Rochester, and Dubuque Electric Traction Company. Electric Investment told McElrath that the train company would complete an electric railroad between Minneapolis and Antlers Park that summer. The company asserted that, due to the railroad, Antlers Park would become an important summer resort for Minneapolis residents, and that if McElrath leased and ran the hotel, McElrath would net at least fifteen hundred dollars over the costs of operating the hotel.
McElrath, relying on the company’s representations, signed the lease. But the railroad never came.
McElrath sued Electric Investment, alleging that the company knew that the railroad company never intended to build to Antlers Park, and Electric Investment had knowingly misrepresented those plans to induce McElrath to rent the hotel. Electric Investment filed a general demurrer, a common law pleading asserting that McElrath hadn’t stated a claim for which relief could be granted. The trial court ruled that McElrath had stated a valid cause of action. Electric Investment appealed to the Minnesota Supreme Court.
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