Scotland v. Addie. which presents itself as an alternative, but is in fact included in this-namely that the representation must be made to the other party or with a view to his acting upon it. The effect of the rule is that the untruth of a representation made to a third person, or even to the party himself on some former occasion, in the course of a different transaction and for a different purpose, cannot be relied on as a ground either for rescinding a contract or for maintaining an action of deceit. Thus in Western Western Bank of Scotland v. Addie (a) the directors of the bank Bank of had made a series of flourishing but untrue reports on the condition of its affairs, in which bad debts were counted as good assets. The shareholder who sought relief in the action had taken additional shares on the faith, as he said, of these reports. But it was not shown that they were issued or circulated for the purpose of inducing existing shareholders to take more shares, or that the local agent of the bank who effected this particular sale of shares used them or was authorized to use them for that purpose. Thus the case rested only on the purchaser having acted under an impression derived from these reports at some former time; and that was not such a direct connexion between the false representation and the conduct induced by it as must be shown in order to rescind a contract. This, however, was not the only ground of the decision. In Peek v. Gurney (b) the important point is decided that the Peek v. Gurney. sole office of a prospectus is to invite the public to take shares in the company in the first instance. Those who take shares in reliance on the prospectus are entitled to their remedy if the statements in it are false. But those statements cannot be taken as addressed to all persons who may hereafter become purchasers of shares in the market; and such persons cannot claim any relief on the ground of having been deceived by the prospectus unless they can show that it was specially communicated to them by some further act on the part of the company or the directors. Some former decisions the other way (r) are expressly overruled. The proceeding there in hand was in the nature of (a) L. R. 1 Sc. & D. 145, (b) L. R. 6 H. L. 377, 395: and see the case put by Lord Cairns as an illustration at p. 411. (c) Bedford v. Bagshaw, 4 H. & N. 538, 29 L. J. Ex. 59; Bagshaw v. Seymour, 18 C. B. 903, 29 an action of deceit, but the doctrine must equally apply to the rescission of a contract. In Way v. Hearn (a) the action was on a promise by th defendant to indemnify the plaintiff against half of the loss he might sustain by having accepted a bill drawn by one R Shortly before this, in the course of an investigation of R affairs in which the defendant took part, R. had at the plaintiff's request concealed from the accountant employed in the matter the fact that he owed a large sum to the plaintiff; the plaintif said his reason for this was that he did not wish his wife to know he had lent so much money upon bad security. At this time the bill which was the subject of the indemnity was not thought of; it was in fact given to get rid of an execution after i wards put in by another creditor. Here a misrepresentation as to R's solvency was made by R. in concert with the plaintiff, and communicated to the defendant; but it was in a transaction unconnected with the subsequent contract between the plaintiff and the defendant, and the defendant was therefore not entitled to dispute that contract on the ground of fraud. 2. As to the right of the party misled. This right is one which requires, and in several modern cases of importance has received, an exact limitation and definition. It may be thus described: The party who has been induced to enter into a contract by fraud or misrepresentation may affirm the contract and insist, if that is possible, on being put in the same position as if the representation had been true: Or he may at his option rescind the contract within a reasonable time (1) after discovering the misrepresentation, unless it has become impossible to restore the parties to the position in which they would have been if the contract had not been made, or unless any third person has in good faith and for value acquired any interest under the contract. It will be necessary to dwell separately on the several points involved in this. And it is to be observed that the principles here not considered are not confined to any particular ground of (a) 13 C. B. N. S. 292, 32 L. J. C. P. 34. (b) But qu. whether time is in itself material: see L. R. 7 Ex. 35, 8 Ex. 205. escission, but apply generally when a contract is voidable, ither for fraud or on any other ground, at the option of one of he parties; on a sale of land, for example, it is constantly made condition that the vendor may rescind if the purchaser takes ny objection to the title which the vendor is unable to remove; nd 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 (b). 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 (e). 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" (d). 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. ( & C. 59. ? B. 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 (). A shareholder cannot repu diate 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. (c) 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, as to which see Lindley, 1. 109, 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. ay be conclusive evidence, of an election to affirm the contract; nd this is in truth the only effect of lapse of time. Still it will e more convenient to consider this point separately afterwards. to rescind must be other If on the other hand the party elects to rescind, he is to Election ..manifest that election by distinctly communicating to the other arty his intention to reject the contract and claim no interest communiinder it. One way of doing this is to institute proceedings to cated to have the contract judicially set aside, and in that case the party. ¡udicial 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 (b). 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 communi. rejection 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 (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 "the 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. C'h.), 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 Parcle's ca. (next note but one) seems untenable. (f) 10 Eq. 503. cation |