Fraud and Forbearance Principle In California Law
The principle of inaction invoked by plaintiff goes by the legal rubric of forbearance.
The idea is that if a person has the right or the power to do something, the refusal to exercise that power has worth and legal significance.
Accordingly, California courts accept that a party's forbearance can be sufficient consideration to support a contract and likewise has the potency to overcome the statute of frauds. (E. g.,Schumm v. Berg (1951) 37 Cal. 2d 174, 185, 187-188, 231 P.2d 39; Rest.2d Contracts, 90, 139; 1 Witkin, Summary of Cal. Law, supra, Contracts, 214, p. 223.)
There is no reason why forbearance which is induced by fraud and which is the cause of damage should not be actionable.
The American Law Institute was clearly of this opinion when it formulated the misrepresentation provisions for the Second Restatement of Torts. Section 525 of the restatement states:
"One who fraudulently makes a misrepresentation of fact, opinion, intention or law for the purpose of inducing another to act or to refrain from action in reliance upon it, is subject to liability to the other in deceit for pecuniary loss caused to him by his justifiable reliance upon the misrepresentation."
Section 531 states the "general rule" that "one who makes a fraudulent misrepresentation is subject to liability to the persons or class of persons whom he intends or has reason to expect to act or to refrain from action in reliance upon the misrepresentation, for pecuniary loss suffered by them through their justifiable reliance in the type of transaction in which he intends or has reason to expect their conduct to be influenced."
And section 551(1) states:
"One who fails to disclose to another a fact that he knows may justifiably induce the other to act or refrain from acting in a business transaction is subject to the same liability to the other as though he had represented the nonexistence of the matter that he has failed to disclose . . . ."
The principle of forbearance has deep roots in the law of fraud. (See, e.g., 37 Am.Jur.2d (1968) Fraud and Deceit, 225, pp. 300-301; 37 C.J.S. (1997) Fraud, 53, pp. 241-242; Guild v. More (N. D. 1915) 32 N.D. 432, 155 N.W. 44, 48-49 and decisions cited; Butler v. Watkins (1871) 80 U.S. 456, 463, 20 L. Ed. 629 ["A manufacturer . . . may not fraudulently or by deceitful representations induce another to withhold from sale his products without being answerable for the injury occasioned by the fraud."].)