Caveat Emptor or Justifiable Reliance?

In the recent case of Haugen v. Netswonger the respondent, whose sawmill was encumbered and who was in danger of having to cease operations, induced the appellant to enter into a partnership for the operation of the mill. During the preliminary negotiations he told the appellant that he would get back, in a short time, everything that he put into the venture. The partnership agreement, which was signed on May 9, 1947, contained a covenant of the respondent, that he had good title to the sawmill free of all encumbrances. At the time, there was an outstanding chattel mortgage of record against the property, which was not satisfied until September 30, 1947, more than four months after the date of the partnership agreement