it is not a nullity. "It is now well settled," said Lord Campbell, C. J., in The Deposit and General Life Assurance Co. Registered v. Ayscough, (c) "that a contract tainted by fraud is not void but only voidable at the election of the party defrauded." It is valid till disaffirmed; not void till affirmed. (d)

§ 705. From this distinction, many important consequences follow: it follows that the defrauding party is bound until the defrauded party elect to the contrary, and that he can never set up any invalidity in the contract: it follows that the defrauded party is equally bound, until he rescind ;(e) it follows that the property the subiect of the contract passes to the purchaser, whether defrauding or defrauded, until avoidance; it follows that all mesne dispositions by the defrauding party to third persons not parties or privies to the fraud are valid, so that third persons may acquire absolute interests and rights under the fraudulent contract;(f) and lastly it follows that the defrauded party may, by electing to be bound or by losing his right to repudiate, become absolutely bound by the contract.

§ 706. The right of rescinding a contract may, however, be precluded or lost by any one of the following circumstances, viz., (1) impossibility; (2) the vesting of an interest under the contract in an innocent person which renders rescission inequitable; (3) the election of the defrauded party to abide by the contract; or (4), the inability of the defrauded party to perform the obligation which rests upon him to make restitution on his part.(g)

§ 707. (1) The recission has become impossible when its object is to get back something which is actually destroyed, as, e. g., if A. sought to rescind a contract for the sale of a sheep to B., which sheep B. had killed and eaten. (h)

The rescission would be equally impossible, but for a legal and not a physical reason, if B. instead of killing the sheep had sold it; for the contract between A. and B., not being void, vested the property in B., and consequently before rescission B. could make a good title to C., and C. could

(c) 6 El. & Bl., 671. See, also, Nicol's Case, 3 De G. & J., 387, 431; Clarke v. Dickson, El. B. & E., 148; Oakes v. Turquand, L. R. 2 H. L., 325, 346; Urquhart v. Macpherson, 3 App. C., 831.

(d) See per Lord Cairns in Reese River Silver Mining Co. v. Smith, L. R. 4 H. L., 69.

(e) Deposit and General Life Assurance Co. Registered v. Ayscough, 6 El. & Bl., 761. (f) Stevenson v. Newnham, 13 C. B., 285, 302.

(g) See Clough v. London and North Western Railway Co, L. R. 7 Ex., 26.

(h) Pothier, du Contrat de Vente, s. 348.

hold free from any right of rescission in A.(i) It is too late for the defrauded vendor to declare his election to rescind when the property has passed from the fraudulent vendee to a third person.(j)

§ 708. (2) The rescission is inequitable when third persons innocent of the fraud have acquired interests under the contract, and such innocent persons would consequently be injured by its rescission. So in the great case arising out of Overend Gurney & Co.'s failure, it was held by the House of Lords that the person who took shares by reason of a fraudulent misrepresentation could not, after a winding up order, rescind this contract and have his name removed from the list, because the creditors of the company had acquired an interest in the enforcement of the contract which, as they were innocent, the shareholder could not defeat by rescinding.(k)

§ 709. (3) An election to abide by the contract will prevent its rescission. A person defrauded into making a contract has but an election, and an election once determined is determined for ever. (7) Whether this election must be made within a reasonable time, or whether the party entitled to elect may do so at any time, unless he has, in the meanwhile, lost that right on some other ground-as, e. g., the acquisition of rights by third parties, is a question left open by the most recent case on this subject. (m) It is certain, however, that in the case of rescission for fraud, the election once determined in favor of the contract precludes any subsequent rescission. (n)

§ 710. In the case of contracts to take shares induced by a misrepresentation of the objects of the company, it is now determined that the date of the allotment of the shares is the very latest date to which the reasonable time for election extends. (0)

§ 711. The election to abide by a contract may be by express words, or may be inferred from acts done with a

(i) Kingsford v. Merry, 11 Ex, 577; Load v. Green, 15 M. & W., 216, 219.

(5) White v. Garden, 10 C. B., 919. (k) Oakes v. Turquand, L. R. 2 H. L. 325; Mixer's Case, 4 De G. & J., 575.

(1) Comyn, Dig. Election, c. 2. Clough v. London and North-Western Railway Co., L. R. 7 Ex., 26, 34.

(m) Morrison v. Universal Marine Insurance Co., L. R. 8 Ex, 40, 197, particularly 205.

(n) Campbell v. Fleming, 1 A. & E., 40; Clough v. London and North-Western Railway Co., L. R. 7 Ex., 26. See, also, Gray v. Fowler, L. R. 8 Ex., 249.

(0) Oakes v. Turquand, L. R. 2 H. L., 325, and particularly 352, where the earlier cases are considered.

knowledge of the invalidity of the contract.(p) The election is not necessarily formal or express.

As soon as the fraud is discovered the right to elect arises; and if this has been exercised by affirming the contract, the subsequent.discovery of fresh incidents of the same fraud will not give rise to a new right to rescind. (q)

§ 712. (4) The person who seeks rescission and thereby restitution to his state before the contract, must do the like on his part and make restitution. "Restitutio in integrum," said Lord Cranworth, (r) "can only be had where the party seeking it is able to put those against whom it is asked in the same situation in which they stood when the contract was entered into."

If, by any act on his part, done even in ignorance of the fraud, the defrauded party has made this impossible, he cannot obtain recission ;(s) as, e. g., if A. has by fraud been induced to buy a sheep of B. and seeks the repayment of the money paid to B., he must offer to restore the sheep, and if he has himself killed the sheep, he cannot seek such rescission, (t) though he may still maintain his action against B. for the fraud practiced on him.

In the case of Clarke v. Dickson, (u) the plaintiff sought to rescind a contract for the sale of shares in a mine, and the following facts were held to be several grounds of objection all falling under this principle; (1) that he had held the shares for three years, and that they were not the same shares at the beginning of the time as at the end; (2) that he had received dividends; (3) that he had concurred in the conversion of the concern from a partnership on the costbook principle, into a joint-stock corporation; and (4) that at the time of the offer to restore the company was being wound up and all chance of profit was gone.

§ 713. In a more recent case in the House of Lords the plaintiff complained of fraud in inducing a contract on his part to take shares in an unincorporated banking company :

(p) Per Lord Lyndhurst in Attwood v. Small, 6 Cl. & Fin., 432; Macbryde v. Weekes, 22 Beav., 533. Comyn, Dig. Election, c. 1. Clough v. London and North-Western Rail way Co., L. R. 7 Ex, 26; Morrison v. Universal Marine Ins. Co., L. R 8 Ex., 197, 203 (9) Campbell v. Fleming, 1 A. & E., 40. (r) In Western Bank of Scotland v. Addie, L. R. 1 H. L. Sc, 164. (8) S. C., 166.

(t) See Clarke v. Dickson, El. B. & El., 148.

Nicol's Case, 3 De G. & J., 387, 431; Great Luxembourg Railway Co. v. Magnay, 25 Beav, 5-6, This case, so far as it determined that the plaintiff's had lost their remedies besides rescission, seems bad law. See Kimber v. Barber, L. R. 8 Ch., 56

(u) El. B. & E, 148 See, too, Sheffield Nickel Co. v Unwin, 2 Q B. D., 214, 223; Urquhart v. Macpherson, 3 App. C., 831; and consider Maturin v. Tredennick, 12 W. R., 740.

and the circumstances that the plaintiff had in ignorance of the fraud taken part in proceedings to convert this company into an incorporated company, and that the company was in course of winding up, were held to preclude the plaintiff from rescission. Lord Cranworth thought that the former circumstance would of itself have been sufficient. (v)

§ 714. The receipt of dividends before discovery of the fraud was relied upon in the case of Clarke v. Dickson, (w) as precluding rescission; and there are other authorities to show that, at common law, the reception of any benefit under a contract will preclude its rescission for default of performance by the other party.(x) But it is submitted that no such rule prevails where the rescission is on the ground of fraud, and that where a benefit has been received and is capable of restoration eitheir in kind or by way of compensation, and the defrauded party offers such restoration, he has not lost his right to rescind.

For to return to the illustration of the sheep:-if, before the discovery of the fraud, A. has sheared the sheep, it appears reasonable to hold that such change in the condition of the sheep will not deprive A. of his right to rescind, if he offer to restore the sheep and account for the wool.

So, in Earl Beauchamp v. Winn, (y) the House of Lords held that the construction of a warping-drain and the inclosure of a common would not have prevented the rescission of a contract for the sale of the land on the ground of mistake and in The Lindsay Petroleum Co. v. Hurd (2) the privy council took the same view of the facts that possession had been taken under the contract and a trial well sunken. In that case the court below had offered an account of the profit of the well, if any, which was not accepted.

§ 715. In the rule as above stated, (a) the act precluding restoration is referred to the party bound to restore. Is it essential that it should be by his act, or is it enough that even by another's act the restoration is impossible? To return once more to the sheep. Can the defrauded purchaser claim to rescind though the sheep have died by the act of

God? The point seems to have never been decided. On the one side there are cases in which are found general statements of the law which imply that the impossibility of restoration from whatever cause is a bar to rescission.(b) And it may be open to question whether any real distinction can be drawn between the innocent act of the defrauded party which precludes him from restoration, and the act of God, or of a third person, leading to a similar result. On the other side is the language of Crompton, J., in Clarke v. Dickson, (c) that "the true doctrine is that a party can never repudiate a contract after, by his own act, it has become out of his power to restore the parties to their original condition."

§ 716. As our law is far from clear on this point it may be useful to refer to the principles of French law as expounded by Pothier. (d) According to him, an action for rescission was not precluded by the change or destruction of the thing sold If the destruction took place without the act of the plaintiff, he was not bound to do more than he could. If the horse had died, the plaintiff must give back his skin; if the cow sold had died of a contagious discase, and been buried, he need return nothing. If, on the other hand, the change or destruction was due to the act of the plaintiff, he was bound to account to the defendant for the value of the thing but did not lose his action.

§ 717. The right to rescind does not arise from an innocent misrepresentation, unless it be such as to show there is a complete difference in substance between what was supposed to be and what was taken so as to constitute a failure of consideration. (e)

§ 718. It must not be assumed that in every case in which the right of rescission is lost, every other remedy in respect of the transaction is lost also. This is not the case. Thus, a person induced to take shares by fraud may have lost the right of rescinding the contract, but may yet sue the deceiver for indemnity against the loss resulting from the contract. (f) A principal authorizes an agent to buy shares at

(b) Hunt v. Silk, 5 East, 449; Blackburn v. Smith, 2 Ex., 783.

(c) El. B. & E., 155, approved in P. C. Urqu. hart v. Macpherson, 3 App. C., 831. See, too, Sheffield Nickel Co. v. Unwin, 2 Q. B. D., 214,

(d) Traite du Contrat de Vente, §§ 220-223. (e) Kennedy v. Panama, etc., Mail Co, L. R. 2 Q. B., 580; Torrance v. Bolton, L. R. 8 Ch., 118. Cf. Brett v. Clowser, 5 C. P. D., 376. (f) Peek v. Gurney, L. R. 6 H. L., 377.