rescission, but apply generally when a contract is voidable, either for fraud or on any other ground, at the option of one of the parties; on a sale of land, for example, it is constantly made a condition that the vendor may rescind if the purchaser takes any objection to the title which the vendor is unable to remove; and then these rules apply so far as the nature of the case admits. a. As to the nature of the right in general, and what is an Of affirmaaffirmation or rescission of the contract. "A contract induced by fraud is not void, but voidable only at the option of the party defrauded;" in other words, valid until rescinded (). Where the nature of the case admits of it, the party misled may affirm the contract and insist on having the representation made good. If the owner of an estate sells it as unincumbered, concealing from the purchaser the existence of incumbrances, the purchaser may if he thinks fit call on him to perform his contract and redeem the incumbrances (). If promoters of a partnership undertaking induce persons to take part in it by untruly representing that a certain amount of capital has been already subscribed for, they will themselves be put on the list of contributories for that amount (c). tion and rescission in general. It is to be remembered that the right of election, and the possibility of having the contract performed with compensation, does not exclude the option of having the contract wholly set aside. "It is for the party defrauded to elect whether he will be bound" (7). But if he does affirm the contract, he must affirm it in all its terms. Thus a vendor who has been induced by fraud to sell goods on credit cannot sue on the contract for the price of the goods before the expiration of the credit the proper course is to rescind the contract and sue in trover (e). When the contract is once affirmed, the election is completely What shall determined; and for this purpose it is not necessary that the determine affirmation should be express. Any acts or conduct which unequivocally treat the contract as subsisting, after the facts (a) Oakes v. Turquand, L. R. 2 H. L. 346, 375-6. (b) Per Romilly, M. R. in Pulsford v. Richards, 17 Beav. 96. (c) Moore and De la Torre's ca. 18 Eq. 661. (d) Rawlins v. Wickham, 3 De G. & J. 304, 322. (e) Ferguson v. Carrington, 9 B, & C. 59. election, giving the right to rescind have come to the knowledge of the party, will have the same effect (a). Taking steps to enforce the contract is a conclusive election not to rescind on account of anything known at the time (b). A shareholder cannot repudiate his shares on the ground of misrepresentations in the prospectus if he has paid a call without protest or received a dividend after he has had in his hands a report showing to a reader of ordinary intelligence that the statements of the prospectus were not true (c), or if after discovering the true state of things he has affirmed his ownership of the shares by taking steps to sell them (d); and in general a party who voluntarily acts upon a contract which is voidable at his option, having knowledge of all the facts, cannot afterwards repudiate it if it turns out to his disadvantage (e). And when the right of repudiation has once been waived by acting upon the contract as subsisting with knowledge of facts establishing a case of fraud, the subsequent discovery of further facts constituting "a new incident in the fraud” cannot revive it (f). The exercise of acts of ownership over property acquired under the contract precludes a subsequent repudiation, but not so much because it is evidence of an affirmative election as because it makes it impossible to replace the parties in their former position; a point to which we shall come presently. When the acts done are of this kind it seems on principle immaterial whether there is knowledge of the true state of affairs or not, unless there were a continuing active concealment or misrepresentation practised with a view to prevent the party defrauded from discovering the truth and to induce him to act upon the contract: for then the affirmation itself would be as open to repudiation as the original transaction. Something like this occurs not unfrequently in cases of undue influence, as we shall see in the next chapter. Omission to repudiate within a reasonable time is evidence, and (a) Clough v. L. & N. W. Ry. Co. (Ex. Ch.) L. R. 7 Ex. at p. 34. (b) Gray v. Fowler (Ex. Ch.), L. R. 8 Ex. 249, 280. (e) Scholey v. Central Ry. Co. of Venezuela, 9 Eq. 266, n. (d) Ex parte Briggs, 1 Eq. 483; this however was a case not of misstated facts but of material departure from the objects of the company as stated in the prospectus, 118. (e) Ormes v. Beadel, 2 D. F. J. 332, 336. (f) Campbell v. Fleming, 1 A. & E. 40. This does not apply where a new and distinct cause of rescission arises: Gray v. Fowler, L, R. 8 Ex. 249. may must be cated to other If on the other hand the party elects to rescind, he is to Election manifest that election by distinctly communicating to the other to rescind party his intention to reject the contract and claim no interest communiunder it. One way of doing this is to institute proceedings to have the contract judicially set aside, and in that case the party. judicial rescission, when obtained, relates back to the date of the commencement of such proceedings (a). Or if the other party is the first to sue on the contract, the rescission may be set up as a defence, and this is itself a sufficient act of rescission without any prior declaration of an intention to rescind (). For the purposes of pleading the allegation that a contract was procured by fraud has been held to import the allegation that the party on discovering it disaffirmed the contract (c). Where the rescission is not declared in judicial proceedings, no further rule can be laid down than that there should be "prompt repudiation and restitution as far as possible" (d). The communication What need not be formal, provided it is a distinct and positive communirejection of the contract, not a mere request or inquiry, which is sufficient. not enough (e). Thus in the case of shares in a company a repudiation expressed by word of mouth to the secretary at the company's office will do (f). But it seems that if notwithstanding an express repudiation the other party persists in treating the contract as in force, then judicial steps should be taken in order to make the rescission complete as against rights "the (a) Reese River Silver Mining Co. v. Smith, L. R. 4 H. L. 73-5. What if proceedings were commenced in an incompetent court? On principle there seems no reason why that also should not be effective as an act of rescission in pais. The proposition that in equity mere assertion of a claim unaccompanied by any act to give effect to it" is not enough (Clegg v. Edmondson, 8 D. M. G. 787, 810) refers only to substantive original rights, and must not be extended to acts of repudiation. In the particular case it was a claim to share in certain partnership profits, (b) Clough v. L. & N. W. Ry. Co. (Ex. Ch.), L. R. 7 Ex. 36. (c) Dawes v. Harness, L. R. 10 C. P. 166. The earlier cases there cited, especially Deposit Life Assurance Co. v. Ayscough, 6 E. & B. 761, 26 L. J. Q. B. 29, are not wholly consistent. (d) Per Bramwell, B. Bulch-yPlum Lead Mining Co. v. Baynes, L. R. 2 Ex. 326. (e) Ashley's ca. 9 Eq. 263, may perhaps be supported on this ground. Otherwise the distinction of it from Pawle's ca. (next note but one) seems untenable. (f) McNiell's ca. 10 Eq. 503, cation exercise able by of third persons which may subsequently intervene (a). Where the original contract was made with an agent for the other party, communication of the rescission to that agent is sufficient, at all events before the principal is disclosed (b). And where good grounds for rescission exist, and the contract is rescinded by mutual consent on other grounds, those grounds not being such as to give a right of rescission, and the agent's consent being in excess of his authority, yet the rescission stands good. There is nothing more that the party can do, and when he discovers the facts on which he might have sought rescission as a matter of right he is entitled to use them in support of what is already done. In Wright's (c) case the prospectus of a company contained material misrepresentations. The directors had at a shareholder's request, and on other grounds, professed to cancel the allotment of his shares, which they had no power to do, though they had power to accept a surrender. Afterwards the company was wound up, and then only was the misrepresentation made known to him. But it was held that as there was in fact a sufficient reason for annulling the contract, which the directors knew at the time though he did not, the contract was effectually annulled, and he could not be made a contributory even as a past member (7). Right of Inasmuch as the right of rescinding a voidable contract is rescission alternative and co-extensive with the right of affirming it, it follows that a voidable contract may be avoided by or against and against the personal representatives of the contracting parties (e). And tives. further, as a contract for the sale of land is enforceable in equity by or against the heirs or devisees of the parties, so it may be avoided by or against them where grounds of avoidance exist (ƒ). representa (a) Kent v. Freehold Land &c. Co. 3 Ch. 493. Sed qu. At any rate, if there are several repudiating shareholders in a like position, proceedings taken by one of them and treated by the company as representative will enure for the benefit of all: Pawle's ca. 4 Ch. 497. (b) Maynard v. Eaton, 9 Ch. 414. (c) 7 Ch. 55. Cp. Clough v. L. & N. W. Ry. Co. supra, p. 481. (d) But Wickens, V.-C. thought otherwise in the court below (12 Eq. 331) and the correctness of the reversal is doubted by Mr. Justice Lindley (2. 1458). (e) Including assignees in bank. ruptcy: Load v. Green, 15 M. & W. 216, 15 L. J. Ex. 113. (f) Gresley v. Mousley, 4 De G. & J. 78: and see cases cited in next chapter, ad fin., and Charter v. Trevelyan, 11 Cl. & F. 714, where the parties on both sides were ultimately representatives, and as to the defendants through more than one succession. B. The contract cannot be rescinded after the position of the No rescisparties has been changed so that the former state of things sion unless cannot be restored. parties can be restored acted on of the contract. This may happen in various ways. The party who made the to former position. misrepresentation in the first instance may have acted on the Where the faith of the contract being valid in such a manner that a party in subsequent rescission would work irreparable injury to him. fault has And here the rule applies, but with the important limitation, it the faith seems, that he must have so acted to the knowledge of the party misled and without protest from him, so that his conduct may be said to be induced by the other's delay in repudiating the contract. Thus where a policy of marine insurance is voidable for the non-disclosure of a material fact, but the delay of the underwriters in repudiating the insurance after they know the fact induces the assured to believe that they do not intend to dispute it, and he consequently abstains from effecting any other insurance, it would probably be held that it is then too late for the underwriters to rescind (a). Or the interest Common taken under the contract by the party misled may have been so dealings with dealt with that he cannot give back the same thing he received. subjectOn this principle a shareholder cannot repudiate his shares if matter of the character and constitution of the company have in the meantime been altered. This was the case in Clarke v. Dickson (b), where the plaintiff had taken shares in a costbook mining company. The company was afterwards registered under the Joint Stock Companies Act then in force, apparently for the sole purpose of being wound up. In the course of the winding up the plaintiff discovered that fraudulent misrepresentations had been made by the directors. But it was by this time impossible for him to return what he had got; for instead of shares in a going concern on the cost-book principle he had shares in a limited liability company which was being wound up (c). It was held that it was too late to repudiate the shares, and his only remedy was by an action of deceit (a) Per Cur. Morrison v. Universal Marine Insurance Co. (Ex. Ch.) L. R. 8 Ex. at p. 205; cp. Clough v. L. & N. W. Ry. Co. (Ex. Ch.) L. R. 7 Ex. at p. 35. (b) E. B. & E. 148, 27 L. J. Q. B. 223, (c) The fact of the winding-up having begun before the repudiation of the shares is of itself decisive according to the later cases under the present Companies Act: but here the point was hardly made, contract. |