Peek v. Way v. 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: its main principle, as explained in a later case in the House of Lords, being that a person who remains a shareholder, either by having affirmed his contract with the company or by being too late to rescind it, cannot have a remedy in damages against the corporate body for representations on the faith of which his shares were taken (f). In Peek v. Gurney (g) the important point is decided that the 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 (h) are expressly overruled. The proceeding there in hand was in the nature of an action of deceit, but the doctrine must equally apply to the rescission of a contract. In Way v. Hearn (i) the action was on a promise by the defendant to indemnify the plaintiff against half of the (f) Houldsworth v. City of Glasgow Bank, 5 App. Ca. 317. (g) L. R. 6 H. L. 377, 395: and see the case put by Lord Cairns as an illustration at p. 411. (h) Bedford v. Bagshaw, 4 H. & N. 538, 29 L. J. Ex. 59; Bagshaw v. Seymour, 18 C. B. 903, 29 L. J. Ex. 62, n. The authority of Gerhard v. Bates, 2 E. & B. 476, 22 L. J. Q. B. 364, is saved by a rather fine distinction: L. R. 6 H. L. 399. (i) 13 C. B. N. S. 292, 32 L. J. C. P. 34. loss he might sustain by having accepted a bill drawn by one R. Shortly before this, in the course of an investigation of R.'s 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 plaintiff 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 afterwards 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 be thus described: may The party who has been induced to enter into a contract by fraud, or by concealment or misrepresentation in any matter such that the truth of the representation made, or the disclosure of the fact, is by law or by special agreement of the parties of the essence of the contract, 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 (4) 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. (k) But qu. whether time is in itself material: see L. R. 7 Ex. 35, 8 Ex. 205. Of affirma tion and rescission in general. Election to avoid or affirm. It will be necessary to dwell separately on the several points involved in this. And it is to be observed that the principles here considered are not confined to any particular ground of 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 affirmation 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 (m). 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 (n). 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" (o). But if he does (1) Oakes v. Turquand, L. R. 2 H. L. 346, 375-6. (m) Per Romilly, M. R. in Pulsford v. Richards, 17 Beav. 96. Cp. Ungley v. Ungley, 5 Ch. D. 887. (n) Moore and De la Torre's ca. 18 Eq. 661. (0) Rawlins v. Wickham, 3 De G. & J. 304, 322. termine 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 (p). When the contract is once affirmed, the election is com- What pletely determined; and for this purpose it is not necessary shall dethat the affirmation should be express. Any acts or election. conduct which unequivocally treat the contract as subsisting, after the facts giving the right to rescind have come to the knowledge of the party, will have the same effect (9). Taking steps to enforce the contract is a conclusive election not to rescind on account of anything known at the time (r). 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 (s), or if after discovering the true state of things he has taken an active part in the affairs of the company (t) or has affirmed his ownership of the shares by taking steps to sell them (u); 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 (x). 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 (p) Ferguson v. Carrington, 9 B. & C. 59. This is unimportant in practice now that the old forms of action are abolished, but it is retained as a good illustration of the principle. (a) Clough v. L. & N. W. Ry. Co. (Ex. Ch.), L. R. 7 Ex. at p. 34. (r) Gray v. Fowler (Ex. Ch.), L. R. 8 Ex. 249, 280. (8) Scholey v. Central Ry. Co. of Venezuela, 9 Eq. 266, n. (t) Sharpley v. Louth & East Coast Ry. Co. (C. A.), 2 Ch. D. 663. (u) Ex parte Briggs, 1 Eq. 483; this however was a case not of mis-stated facts but of material departure from the objects of the company as stated in the prospectus. (x) Ormes v. Beadel, 2 D. F. J. 332, 336. Election to rescind must be cated to other party. incident in the fraud" cannot revive it (y). 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 may be conclusive evidence, of an election to affrm the contract; and this is in truth the only effect of lapse of time. Still it will be more convenient to consider this point separately afterwards. If on the other hand the party elects to rescind, he is to manifest that election by distinctly communicating to the communi- other party his intention to reject the contract and claim no interest under it. One way of doing this is to institute proceedings to have the contract judicially set aside, and in that case the judicial rescission, when obtained, relates back to the date of the commencement of such proceedings (). Or if the other party is the first to sue on the (y) Campbell v. Fleming, I A. & E. 40. This does not apply where a new and distinct cause of rescission arises: Gray v. Fowler, L. R. 8 Ex. 249. (2) Reese River Silver Mining_Co. v. Smith, L. R. 4 H. L. 73-5. What if proceedings were commenced in an incompetent court? On prin ciple 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 as a general proposition only to sub |