Statements of Intention

A statement about what the speaker intends to do poses a problem that statements of fact, opinion, and law do not. Its subject is the speaker's own state of mind, and the conduct it points toward lies in the future. Restatement (Second) of Contracts § 171 handles the problem in two subsections, each with its own job. Subsection (2) explains how a promise can be a misrepresentation at all: if it is reasonable to do so, the promisee may properly interpret a promise as an assertion that the promisor intends to perform it.¹ Subsection (1) then limits the result. To the extent an assertion is one of intention only, the recipient is not justified in relying on it if, in the circumstances, a misrepresentation of intention is consistent with reasonable standards of dealing.² Subsection (2) therefore supplies the false assertion, and subsection (1) decides whether reliance on it meets the justified-reliance requirement of § 164(1).³ The promise comes first below, and the limit second.

Promissory Fraud

A misrepresentation is an assertion that is not in accord with the facts, and a statement about the future seems to have no fact to be out of accord with, since the future has not yet happened.⁴ The answer is that intention exists now. What a person intends at the moment of speaking is a fact, and the person can misstate it. Restatement (Second) of Torts § 530(1) says so directly: a representation of the maker's own intention to do or not to do a particular thing is fraudulent if the maker does not have that intention.⁵

A promise joins the two ideas. It speaks about future conduct and carries an unstated message about present purpose. A buyer who hears a promise to deliver on Friday ordinarily takes the promisor to be saying, 'I plan to deliver on Friday,' and § 171(2) adopts that reading whenever it is reasonable.⁶ The qualifier matters: a statement that no one in context would hear as a representation of present plans supports no such inference.

A promise made with no intention of performing it is therefore a misstatement of an existing fact, the promisor's own intention. Most jurisdictions now treat promissory fraud this way, and it can support an action for deceit, avoidance of the contract, or reformation.⁷ Because a promisor in that position knows that the implied assertion does not match the facts, the misrepresentation is fraudulent under § 162(1)(a).⁸

A broken promise is not for that reason a false one, and students cross this boundary more often than any other in the topic. A promisee who proves only that the other side failed to perform has proved a breach of contract, and contract law already supplies the remedy. To assert fraud, the victim must prove that the promisor intended not to keep the promise at the time the contract was made.⁹ The reason lies in what each promisor said. A sincere promisor who later fails was wrong about the future, a risk every promisor runs. A promisor who never meant to perform lied about the present. If every breach could be recast as fraud, the contract measure of recovery would give way to avoidance, restitution, and tort damages, including punitive damages for intentional deceit, and the line between failing to perform and deceiving would disappear.¹⁰

Three decisions show the test at work. In American Directories, Inc. v. Stellhorn One Hour Photo, a seller of advertising in a telephone directory promised that the buyer could cancel the contract after a year, intending when it made the promise not to honor it. The court held that the promise could qualify as fraud.¹¹ The promise was the assurance that moved the buyer to sign, and the moment of promising is all that separates the directory seller from the peach packer: the packer's intention matched its words, and the seller's did not.

Carey v. FedEx Ground Package System, Inc. applied the same test to a series of assurances instead of a single contract term. FedEx kept a driver waiting almost two years for a delivery route while repeating that he would receive it, and the court held that he had made out a cause of action for fraud, since a promise can be fraudulent when the promisor had no intention of keeping it at the time of making it.¹²

The assertion of intent can also be implied. In Kaloti Enterprises, Inc. v. Kellogg Sales Co., Kellogg had already decided to sell directly to the large stores that bought from its long-time reseller, yet it accepted the reseller's order without saying so, and the fraud claim survived dismissal. The court spoke of Kellogg's decision as a fact, but the fact in issue was really Kellogg's intention: whether Kellogg had impliedly promised not to undercut the reseller while knowing it was about to break that promise.¹³

Promisors rarely announce that they do not mean to perform, so the proof is usually circumstantial. Fraud can be established that way without an admission, but the circumstantial evidence must be compelling enough to show that the promisor had already decided to breach when entering the contract, and it may be scarce when the promisor kept that decision hidden.¹⁴ The evidence must therefore reach back to the moment of promising. A later failure fits a changed circumstance as comfortably as it fits a plan to deceive, and so it distinguishes neither.

An exam stem that reports only that a promise went unperformed has therefore not described fraud. Look for facts that existed when the promise was made, such as a prior commitment of the same resources or other evidence that the promisor had already settled on a different course.

The rule reaches only the maker's own intention. A representation of a third person's intention is fraudulent under the knowledge, confidence, and basis conditions that govern ordinary assertions.¹⁵ That is why, in Hoffman v. L&M Arts, L&M's assurance that a painting would disappear into a private collection and not be sold was nonactionable. It was a prediction about the future conduct of a third party, and it rested on no present fact. A contrary result is imaginable if L&M had had no factual basis for the prediction.¹⁶

Reasonable Standards of Dealing

Proving that a statement of intention was false does not finish the defense, because § 164(1) also requires that the recipient be justified in relying. Section 171(1) supplies the test for statements of intention, and it asks one question: whether, in the circumstances, a misrepresentation of intention is consistent with reasonable standards of dealing. If it is, reliance is not justified, to the extent the assertion is one of intention only.¹⁸ The words to the extent confine the limit to the part of a statement that is intention and nothing more, just as § 169 confines the opinion default to the opinion-only part of a statement. The limit rests on the ordinary understanding that intentions may change and that one party's future plans are not ordinarily of significant concern to the other, so they are a poor foundation for reliance.¹⁹ A party who does care about the other side's plans can bargain for them by taking a promise, and § 171(2) then protects that promise. The same logic reaches statements about how a party will behave at the bargaining table, such as a bidder's declaration that a stated figure is the most the bidder will pay, since each side expects the other to guard its own position.

The standard illustration is a buyer who lies about the intended use of land, and the first question to ask is what the seller still owns. A buyer tells the owner that the land is wanted for a pasture while planning to build an oil refinery. When the buyer is acquiring the whole tract, the misstatement ordinarily does not support a misrepresentation action.²⁰ The seller has been paid and has parted with the land entirely, and the buyer's plans for it lie outside the interests the sale was meant to serve, so a buyer who keeps those plans to himself, or shades them, is doing what bargainers commonly do.

The result reverses when the seller is selling only part of the property and would be harmed or offended by a refinery beside the remaining holdings. The buyer's misstatement of present intention may then justify reliance and supply a basis for rescission.²¹ The retained land gives the seller a concrete stake in how the buyer will use the rest, and a buyer who lies about that use exploits the very interest the seller is trying to protect, which reasonable standards of dealing do not tolerate.

This limit explains why the directory seller in the previous part did not escape liability. Falsely promising a term of the very deal being struck is hard to square with reasonable standards of dealing, whereas a loose statement about plans for land the seller is giving up entirely is the kind of statement that bargaining norms tolerate. Both statements are false statements of intention, and the difference lies in whether the circumstances make the falsehood acceptable conduct between parties at arm's length.

Exam Analysis Steps

A statement of intention must pass two tests, one asking whether a misrepresentation exists and one asking whether reliance on it was justified, so run it in sequence:

Identify whether the statement is a promise or a statement of the speaker's own plan, since a statement about a third person's intention follows the ordinary fraud tests instead.
Ask whether it is reasonable for the recipient to read the statement as an assertion that the speaker presently intends to act as stated.
Determine what the speaker intended at the moment of speaking, using evidence that existed then, because a later failure to act proves a breach and nothing more about the earlier intention.
If the intention was false, ask whether misstating it was consistent with reasonable standards of dealing in the circumstances, looking for an interest of the recipient that the stated plan was meant to protect, such as retained adjoining land.
If reliance was justified, return to the remaining requirements of § 164(1): the misrepresentation must be fraudulent or material, and it must have induced the recipient's assent.²²