therefore is not bound to tell him if they are in bad repair or even ruinous (a). E. Family Settlements. In the negotiations for family settlements and compromises it is the duty of the parties and their professional agents not only to abstain from misrepresentations, but to communicate to the other parties all material facts within their knowledge affecting the rights to be dealt with. The omission to make such communication, even without any wrong motive, is a ground for setting aside the transaction. "Full and complete communication of all material circumstances is what the Court must insist on" (b). "Without full disclosure honest intention is not sufficient," and it makes no difference if the non-disclosure is due to an honest but mistaken opinion as to the materiality or accuracy of the information withheld (c). The operation of this rule is not affected by the leaning of equity, as it is called, towards supporting re-settlements and similar arrangements for the sake of peace and quietness in families (d). F. Partnership, Contracts to take Shares in Companies, and Contracts of Promoters. The contract of partnership is always described as one in which the utmost good faith is required. So far as this principle applies to the relations of partners after the partnership is formed, it belongs to the law of partnership as a special and distinct subject; and in fact the principle is worked out in definite rules to such an extent that it is (a) Keates v. Earl Cadogan, 10 C. B. 591, 20 L. J. C. P. 76. The general rule does apply as to matters of title: Mostyn v. West Mostyn Coal, &c. Co., 1 C. P. D. 145. (b) Gordon v. Gordon, 3 Sw. 400, 473. (c) Ib. 477. How far does this go? It can hardly be a duty to communicate mere gossip on the chance of there being something in it. Probably the test is (as in the case of marine insurance, p. 503, above) whether the judgment of a reasonable man would be affected. (d) Ib.; Fane v. Fane, 20 Eq. 698. seldom appealed to in its general form. But it also applies to the transactions preceding the formation of a partnership, or rather its full and apparent constitution. For example, an intending partner must not make a private profit out of a dealing undertaken by him on behalf of the future firm (a). There is little or no direct authority to show that a person inviting another to enter into partnership with him is bound not only to abstain from misstatement, but to disclose everything within his knowledge that is material to the prospects of the undertaking. But the existence of such a duty (the precise extent of which must be determined in each case by the relative position and means of knowledge of the parties) is postulated by the stringent rules which have been laid down as binding on the promoters of companies. These are expressed with the more strictness, inasmuch as the public to whom promoters address themselves are for the most part not versed in the particular kind of business proposed, but are simply persons in search of an investment for their money, and with slight means at hand, if any, of verifying the statements made to them. must be "The public," it is said," who are invited by a prospectus Prospectus to join in any new adventure, ought to have the same both posi opportunity of judging of everything which has a material tively and negatively bearing on its true character as the promoters themselves correct. possess" (b): and those who issue a prospectus inviting people to take shares on the faith of the representations therein contained are bound "not only to abstain from stating as fact that which is not so, but to omit no one fact within their knowledge the existence of which might in any degree affect the nature or extent or quality of the privileges and advantages which the prospectus holds out (a) Lindley, 1. 579; Fawcett v. Whitehouse, 1 R. & M. 132. Yet the duty is incident, not precedent, to the contract of partnership: for if there were not a complete contract of partnership there would be no (b) Lord Chelmsford in Central Duty of promoter to com pany. as an inducement to take shares" (a). Therefore if untrue or misleading representations are made as to the character and value of the property to be acquired by a company for the purposes of its operations (b), the privileges and position secured to it, the amount of capital (c), or the amount of shares already subscribed for (d), a person who has agreed to take shares on the faith of such representations, and afterwards discovers the truth, is entitled to rescind the contract and repudiate the shares, if he does so within a reasonable time and before a winding-up has given the company's creditors an indefeasible right to look to him as a contributory. For full information on this subject the reader is referred to Mr. Justice Lindley's treatise (e). There is likewise a fiduciary relation between a promoter and the company in its corporate capacity, which imposes on the promoter the duty of full and fair disclosure in any transaction with the company, or even with persons provisionally representing the inchoate company before it is actually formed (ƒ). Promoters who form a company for the purpose of buying their property are not entitled to deal with that company as a stranger (g). They must provide it with "a board of directors who can and do exercise an independent and intelligent judgment on the transaction" (h). The Companies Act 1867, s. 38, makes it the duty of promoters of a company to disclose in the prospectus any (a) Kindersley, V.-C. New Brunswick, &c. Co. v. Muggeridge, 1 Dr. & Sm. 363, 381, adopted by Lord Chelmsford, l. c. (b) Reese River Silver Mining Co. v. Smith, L. R. 4. H. L. 64, affg. s. c. nom. Smith's ca. 2 Ch. 604. (c) Central Ry. Co. of Venezuela v. Kisch, supra. (d) Wright's ca. 7 Ch. 55; cp. Moore & De la Torre's ca. 18 Eq. 661. (e) Lindley on Partnership, 2. 935, 1424. And see American Law Review, N. S. vol. 1, p. 177 (March, 1880), "Effect of Fraud on Subscriptions to Stock," by Seymour D. Thompson, where English and American authorities are very fully collected. (f) New Sombrero Phosphate Co. v. Erlanger, 5 Ch. D. 73, per James, L. J. at p. 118; affd. in H. L. nom. Erlanger v. New Sombrero Phosphate Co. 3 App. Ca. 1218; Bagnail v. Carlton, 6 Ch. D. 371. (g) Erlanger v. New Sombrero Phosphate Co. 3 App. Ca. at p. 1268. (h) Ib. at pp. 1229, 1236, 1255. previous contract entered into by the company or the promoters; in default of which the prospectus is deemed “fraudulent on the part of the promoters, directors, and officers of the company knowingly issuing the same as regards any one taking shares on the faith of the prospectus and without notice of the contract. This creates no duty on the part of any one who was not a promoter at the date of the contract (a), nor towards any one but shareholders (b): and it seems the right it gives the shareholder is to bring an action of deceit against the delinquent personally, and not to be released from his contract (a). The contracts mentioned in this very loosely drawn enactment include not only contracts binding or intended to bind the company itself, but all contracts involving dealings with the company's shares or assets which, if known to a prudent man, would be material to determine his judgment as to taking shares (c). to marry. Thus much of the classes of contracts to which special Contract duties of this kind are incident. The absence of any such duty in other cases is strongly exemplified by the contract to marry. Here there is no obligation of disclosure, except so far as the woman's chastity is an implied condition. The non-disclosure of a previous and subsisting engagement to another person (d), or of the party's own previous insanity (e), is no answer to an action on the promise. If promises to marry are to give a right of action, one would think the contract should be treated as one requiring the utmost good faith but such are the decisions. : Marriage itself is not avoided even by actual fraud (ƒ), but the reasons for this are obviously of a different kind: (a) Gover's ca. 20 Eq. 114, 1 Ch. D. 182. (b) Cornell v. Hay, L. R. 8 C. P. 328. (c) Twycross v. Grant (C. A.), 2 C. P. D. 469, Sullivan v. Mitcalfe (C. A.), 5 C. P. D. 455 (with con siderable differences of opinion). (e) Baker v. Cartwright, 10 C. B. (f) Swift v. Kelly, 3 Knapp, P. C. 257, 293. Fraud includes sentation. nor is a marriage settlement rendered voidable by the wife's non-disclosure of previous misconduct (a). Reasons have already been given for abstaining from the attempt (though such an attempt was made in the former editions) to state a more general rule for the treatment of contracts entered into by one party in consequence of representations made by the other which were not true in fact, but not known to be untrue by the person making them. We proceed to deal with the question of fraudulent misrepresentation, deceit, or fraud in the strict and only proper sense. PART 2.-FRAUD. Fraud generally includes misrepresentation. Its specific generally mark is the presence of a dishonest intention on the part misrepre- of him by whom the representation is made. In this case we have a mistake of one party caused by a representation of the other, which representation is made by deliberate words or conduct with the intention of thereby procuring consent to the contract, and without a belief in its truth. But not always: as when a contract is made with a collateral There are some instances of fraud, however, in which one can hardly say there is a misrepresentation except by a forced use of language. It is fraudulent to enter into a contract with the design of using it as an instrument of wrongful wrong or deceit against the other party. Thus a separation or unlaw deed is fraudulent if the wife's real object in consenting or ful purprocuring the husband's consent to it is to be the better pose, or without able to renew a former illicit intercourse which has been intention concealed from him. "None shall be permitted to take advantage of a deed which they have fraudulently induced another to execute that they may commit an injury against morality to the injury and loss of the party by whom the of perform ing it. (a) Evans v. Carrington, 2 D. F. J. 481. It is there said however that non-disclosure of adultery would be enough to avoid a separation deed. |