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Clearly such legislation is not arbitrary and consequently it could not be invalidated as in conflict with the Fifth Amendment. In this amendment would be found, of course, a safeguard against any prohibitions of interstate commerce which subserved no purpose of public advantage whatsoever--a consideration which would seem readily to dispose of any difficulties which might be suggested with reference to the powers of Congress to prohibit the transportation interstate of commodities harmless in themselves, and producing by their transportation no collateral public detriment either in the locality of their origin or the locality of their destination.
And if it is a regulation of commerce, the Tenth Amendment would furnish no ground upon which to attack it, since that amendment retains to the States such powers only as have not been granted to the Federal Government. The power to regulate commerce among the States has been so granted.
And yet when the opinion of the Supreme Court is analyzed, the real reason for the decision seems to be a fear that to sustain the law might disturb the proper distribution of power between the Nation and the States, and might constitute "an invasion of the powers of the States.” But such a conclusion should, of course, be rested on the specific provisions of the Constitution establishing the respective provinces of State and Federal activity, and not upon any general consideration of their proper authority. And if the legislation deals with interstate commerce and subserves the public interest, so as to avoid the prohibitions of the Fifth Amendment, it would seem immaterial that, collaterally—and even though this is its prime purpose—it has an effect upon matters customarily dealt with by the States.
That the power to regulate commerce is sought to be exerted in new ways naturally invites discussion, particularly since the exertion of such authority is bound to have a material influence upon matters which heretofore have been dealt with by the States. But this is believed to be merely one more indication of the increasing commercial unity of the country/ And
if such legislation should prove to be contrary to the public interest there is always the opportunity for the repeal of the law.37
Henry Wolf Biklé.
CAN FRAUD BE PURGED?
Can fraud be purged ? Suppose that B makes to A a false, fraudulent and material representation of fact upon which B relies and which induces him to act. B attempts to purge his fraud by making his representation good. Can he do so?
Let us take a concrete case. B to induce A to purchase a certain mortgage upon Blackacre falsely and fraudulently represents that the mortgage is a first mortgage. In truth the mortgage is a second mortgage. A, relying upon the representation, agrees to purchase the mortgage three months from date. B thereafter pays and discharges the first mortgage so that the mortgage purchased by A becomes in truth a first mortgage. When, if ever, will B’s discharge of the first mortgage cure the fraud previously perpetrated on A?
Many other similar cases may be imagined. B may fraudulently represent that he has good title to Blackacre, or that the title is free and clear from incumbrances, or that certain bonds are first mortgage bonds, or that certain improvements have been made. In all these cases and in many others that might be put, the facts may ultimately be made to square exactly with the representation. The question which we shall consider is whether the fraudulent party can improve his legal position by making true that which he previously had fraudulently represented to be true, assuming, of course, that the defrauded party in no way assents to what might be described as “specific repentance.”
It is of course familiar law that a defrauded party has two courses open to him upon discovery of the fraud. He may return whatever he has received and rescind the whole transaction. He may affirm the transaction, and sue for damages in deceit. If the transaction has not been wholly executed he may likewise invoke the fraud as a defense, -provided of course that he seasonably returns whatever he has received and disaffirms. This, however, is simply rescinding an executory bargain as compared with undoing a completed transaction. Broadly speaking, therefore,
the defrauded party has but two options open,—to rescind and recover whatever he has paid or parted with, or to affirm and sue for damages.
It is also plain that the repentance of the fraudulent party may occur at any stage in the proceedings. Conceivably he might make his false representation good even before its falsity is discovered and before it is acted on. Again, he may make the representation true after it has been acted on, but before the defrauded party has made any election to affirm or disaffirm. Finally, the fraudulent party may conform the facts to the representation after the defrauded party has discovered the fraud and taken some step for his protection either by way of rescission, or by bringing an action of deceit, or by setting up the fraud as a defense to any rights asserted by the fraudulent party. These situations seem to exhaust all the real possibilities of the case. They will be considered in inverse order.
II. What are B's rights where he is induced by A to act upon a false and fraudulent representation, and after he has discovered the fraud and has asserted rights based upon it, A, without B's assent, makes the representation good? Can A in that case defeat an action for rescission? Has B in that case a defense to an action of deceit? If the transaction be still executory, can A destroy the defense of fraud by making his representation good against B's will? Each situation will be taken up in turn.
On principle, A cannot defeat rescission by making the false representation good, after B has elected to rescind. A transaction procured by fraud is voidable at the election of the defrauded party. This right of election is vested in the defrauded party at the moment the fraud is consummated. According to circumstances it may be exercised either at law or in equity. On principle, it would seem that this right being already vested in the defrauded party, cannot be taken away by the fraudulent party, nor can he substitute something else therefor. Still less can the fraudulent party determine how the defrauded party shall elect, or the consequences of an election, if made. To permit
the fraudulent party, by making his representation true to affirm the transaction and defeat the election to rescind, would enable him to force a compromise upon terms to which the defrauded party does not assent. A compromise is essentially a matter of contract in which both parties must concur. Certainly, the law should not, even if it could, permit a fraudulent party to dictate the terms upon which his own fraud shall be adjusted.
Merritt v. Robinson was an action of replevin for a mule. The evidence tended to show that Merritt (the defendant below) induced the plaintiff Robinson to trade the mule for a pony, Merritt knowing and concealing that the pony was mortgaged to one Pierce. Robinson, on discovery of the facts, tendered the pony (on Sunday) to Merritt and demanded the mule. Merritt declined to rescind, and after this action was brought obtained a release of the mortgage from Pierce. The court in deciding that the fraudulent concealment would entitle Robinson to rescind, and that the release of the mortgage after action brought was no defense, said by English, C. J.:
“Appellant could not defeat appellee's (Robinson's) right of action for the mule by procuring the pony to be released from the mortgage after the commencement of the suit."
Thompson v. Coultas 2 was a bill in equity to rescind an exchange of lands upon the ground that the defendant fraudulently represented that the title to his lands was perfect, and free from incumbrances, although in truth these lands were subject to judgment liens aggregating $1300. After the bill was brought the defendant (appellant) paid off the liens. The court below held that this was no defense to the action and decreed rescission. In affirming this decree the court said, by Walker, C. J.:
"Nor does it matter that the judgments have been paid since the suit was commenced. When the appellees filed their original bill they thereby rescinded the contract, and elected to recover
*35 Ark. 483. The case ultimately went for the defendant below (Merritt) on the ground that the plaintiff's tender was insufficient because made on Sunday,
* 76 III. 493.