QlnrtiFll ICauJ ^rljnol ICibrarg Cornell University Library KF 839.B62 t "-^ A treatise on the rescission of contract 3 1924 018 919 302 Cornell University Library The original of tiiis book is in tine Cornell University Library. There are no known copyright restrictions in the United States on the use of the text. http://www.archive.org/cletails/cu31924018919302 A TREATISE RESCISSION OF CONTRACTS AND CANCELLATION OF WRITTEN INSTRUMENTS BY HENRY CAMPBELL BLACK, LL. D. AUTHOR OF black's LAW DICTIONARY, AND OF TREATISES ON JUDGMENTS, BANKRUPTCY, INCOME TAXES, CONSTITUTIONAL LAW, INTEKPRETATION OF LAWS, JUDICIAL PRECEDENTS, ETC. VOLUME 1 KANSAS CITY, MO. VERNON LAW BOOK COMPANY 1916 OOPYBIGHT, 1916 BY VERNON LAW BOOK COMPANY (1 Black Beso.) PREFACE It has been the author's purpose to present to the profes- sion, in the following pages, a complete and comprehensive discussion of the rules and principles governing the rescis- sion of contracts and the cancellation of written instru- ments, and to illustrate these rules and their application to the multifarious transactions of modern business life by references to the many thousands of cases which have dealt with one or more aspects of the general subject. The first part of the work, extending from Chapter I to Chapter XIV, contains a detailed examination of the vari- ous causes or grounds which justify the rescission or repu- diation of a contract by one of the parties to it, or which warrant a court in ordering its annulment or cancellation. This has involved an exhaustive consideration of the more usual subjects of fraud, misrepresentation, and mistake, but the exposition of the grounds of rescission has also been made to include the subjects of want, failure, or inadequacy of consideration, deficiency in the quantity or quality of the subject-matter, failure, refusal, or impossibility of perform- ance, duress and undue influence, insanity and intoxication, infancy, illegality or immorality in the subject of the con- tract, and the bankruptcy or insolvency of a party. The second part of the book, including Chapters XV to XXVI, consists of a minute application of the general rules and principles to various classes of contracts. Here the discussion is not general but specific. The various kinds of contracts are taken up in succession, and their rescission or cancellation examined, with special reference to the in- herent peculiarities and legal aspects of each. Thus are passed in review executed and executory contracts, the con- tracts of governments and municipal corporations, mari- time contracts, contracts of brokerage and agency, of sure- tyship and guaranty, partnership agreements, engagements of marriage, the executed contract of marriage, subscrip- (iii) IV PEBFAOH tions to corporate stock, subscriptions to charities and to business enterprises, contracts for work or hire of services, the tenure of pubHc and private office, express trusts and settlements, licenses, contracts of release, compromise, and settlement, notes and bills, sales of personal property, the sale and exchange of real estate, judicial and other public sales, leases of realty, mining contracts and leases, policies of insurance, and gifts and donations. The third division of the virork, occupying Chapters XXVII to XLI, deals with the adjective or administrative law of rescission, or the general subject of when and how it may be effected. Herein are considered the effect of a reservation of the right to rescind, the manner of effecting a rescission by the mutual consent of the parties, the time within which a justifiable rescission must be claimed and the effect of laches or unreasonable delay, the grounds on which a defense of waiver, estoppel, or ratification may be set up, the persons entitled to rescind, the conditions prece- dent which they must observe, the circumstances which de- termine whether a rescission must be entire or may be par- tial, the subject of restitution or the restoration of the status quo, and the effect of intervening rights of third persons. Finally, the proceedings for rescission by the order or de- cree of a court are considered in detail, including the ques- tions of jurisdiction, and of the justification for the inter- ference of a court of equity, and also the parties to the ac- tion, the pleadings, practice, and evidence, the judgment or decree, and the operation and effect of a rescission thus brought about. No major subject of the law can be said to have reached a stage of crystallization, with all its rules immutably set, at any given time. Necessarily the law must grow, by tak- ing cognizance of new conditions and new problems, in keeping pace with the development of industrial and com- mercial life. But if its growth is to be real and vital, it must also expand from within. Gradually it must free it- self from the shackles of convention, and bring its pro- nouncements into accord with the evolution of the social conscience and the progress of a new and more enlightened morality. The subject of rescinding and canceling con- PREFACH T tracts and other business engagements is no exception to this principle. • On the contrary, it would not be easy to find a more perfect example of it than is afforded by the gradual but sure triumph of the humane and sensible doc- trines of equity over the inflexible rules of the common law, as applied to contracts induced by fraud and falsity. In such cases, the Procrustean standard of the ancient law, which refused all relief to the unhappy suitor unless he could show that he had exercised "due care and diligence" to avoid being cheated, or that his conduct had been that of a "reasonably prudent man," was absurd, because it is precisely the credulous and unwary who are the easy vic- tims of fraud and who need the protection of the courts. But now, fortunately, this outworn notion has almost every- where given place to the better rule which we may venture to call the "doctrine of comparative intelligence," — a doc- trine which moves the courts to probe the circumstances of each particular case, instead of judging all by a hard- and-fast rule, which allows no advantage to a trickster be- cause of his superior cunning, and no disadvantage to a dupe because of his careless or confiding nature or his lack of experience or shrewdness, which exacts of a defrauded person no higher degree of care or prudence than he, as an individual, might fairly have been expected to exercise, and which severely discountenances the sharper's plea that the man he has wronged was negligent in failing to detect the trick, — a doctrine, in short, which teaches, as observed by the Supreme Court of Vermont, that "no rogue should en- joy his ill-gotten plunder for the simple reason that his vic- tim is by chance a fool." • HfiNRY CaMPBELI, BIvACK. Washington, D. 0., 1916. TABLE OF CONTENTS VOLUME 1 CHAPTER I DEFINITIONS AND GENERAL PRINCIPLES Section 1. Rescission Defined. 2. In Roman and Modern Civil Law. 3. To Wliat Classes of Obligations Rescission Applies. 4. Voidability as an Element of the Right of Rescission. 5. Rescission and Breach of Contract Distinguished. 6. Abandonment or Repudiation of Contract Distinguished. 7. Rescission and Forfeiture Distinguished. 8. Rescission by Substitution of New Contract. 9. Modification or Alteration of Contract Distinguished. 10. Effect of Novation. 11. Rescission and Reformation Distinguished. 12. Rescission as the Converse of Specific Performance. 13. Parol Rescission of Written Contract. 14. Grounds Required to Support Unilateral Rescission. 15. Statutory Grounds for Rescission. 16. Same ; California, Montana, Oklahoma, North Dakota, South Dakota. 17. Same ; Georgia. 18. Same ; Alabama. 19. Same ; Louisiana. CHAPTER II FRAUD AND FRAUDULENT CONCEALMENT 20. Fraud as Ground of Rescission in GeneraL 21. Definitions of Fraud. 22. Same; Constructive Fraud. 23. Same; Breach of Warranty Distinguished. 24. Essential Elements of Actionable Fraud. 25. Forged Instruments or Signatures. 26. Fraudulent Alteration of Instruments and Additions Thereto. 27. Fraud in Obtaining Possession of Deed. 1 Black Resc. (vli) Vlll TABLE OF CONTENTS Section 28. Substitution of One Instrument for Another. 29. Fraudulent Substitution as to Subject of Purchase. 30. Conspiracy, Bribery, and Perjury. 31. Insolvency of Purchaser and Intent Not to Pay. 32. Frauds by Agents and Other Third Persons. 33. Agent Wrongly Exceeding Authority. 34. Collusion with Agent of Other Party. 35. Intention to Deceive or Defraud. 36. Effect of Fraud in Deceiving or Tricking Party. .37. Resulting Loss or Damage to Defrauded Party. ;;S. Fraud Practised on Both Sides. 39. Duty of Care and Prudence to Detect Fraud. 40. Rule as to Persons Occupying Positions of Trust or Confi- dence. 41. Same 42. Same 43. Same 44. Same 45. Same 40. Same 47. Same 48. Same 49. Same 50. Same 51. Same What Constitutes Fiduciary or Confidential Relation. Principal and Agent. Attorney and Client. Partners, Joint Owners, and Joint Purchasers. Parent and Child. Brother and Sister. Husband and Wife. Executors or Administrators and Beneficiaries. Physicians and Patients. Priests, Pastors, and Spiritual Advisers. Directors and Stockholders of Corporations. 52. Signing Instrument Without Reading It. 53. Same ; Rule for Illiterate Persons and Foreigners. 54. Same; Defective Eyesight Excusing Failure to Read. 55. Same; Dissuading or Preventing Party from Reading. 56. Same ; Misrepresenting Purport or Contents of Instrument. 57. Misreading Instrument. 58. Fraudulent Concealment of Material Facts. 59. Same ; Circumstances Imposing Duty to Disclose. 60. Same ; When Silence is Justifiable. 61. Caveat Emptor. 62. Concealment Coupled with Efforts to Prevent Discovery. 63. Concealment Coupled with False Representations. 64. Concealment of Latent Defects. 65. Acquiescence in Self-Deceptlon of Other Party. 66. Concealment by Purchaser of Property. 67. Same; Concealment Accompanied by Fraud or Falsehood. CHAPTER III FALSE REPRESENTATIONS 68. False Representations as Ground of Rescission In General. 69. Nature of Misrepresentations Justifying Rescission. 70. Materiality of Representations. 71. Representations as to Matters of Law. TABLE OF CONTENTS IX Section 72. Same; Law of Another State. 73. Representations Not Contemporary with Making of Con- tract. 74. " Waiver as to Representations Not Embodied In Contract. 75. Representations Made Ultra Vires. 76. Expressions of Opinion. 77. Tests for Distinguishing Expressions of Opinion from Rep- resentations of Fact 78. False Opinion Fraudulently Asserted. 79. Representations as to Value. 80. Same; Exceptions to Rule. 81. Same; Knowledge or Means of Estimating Value. 82. Same; One Party Possessing Exclusive or Superior Knowl- edge. 83. Same; Facts Stated as Basis for Estimate of Value. 84. Same ; Statement of Cost or Price on Previous Sale. 85. Puffing, Exaggerated Praise, "Dealers' Talk." 86. Statements as to Future Value, Profit, or Efficiency. 87. Representations as to Validity and Scope of Patents. 88. Representations as to Validity and Value of Checks, Notes, and Securities. 89. Promises and Promissory Representations. 90. Same ; Intention as to Performance or Non-Performance. 91. Same ; Promises as to Improvement or Use of Real Property. 92. False Representations as to Agency, Authority, or Official Character. 93. Representations by Agents and Other Third Persons. 94. Repeating Information Received from Third Persons. 95. Representations to Third Parties Communicated to Plain- tiff. 96. Representations to the General Public. 97. Representations to Commercial Agencies. 98. Representations as to Financial Ability. 99. Representations as to Financial Standing of Third Persons. 100. Falsity of Representations. 101. Ambiguous and Misleading Statements. 102. Knowledge of Falsity of Representations. 103. Same; Falsity in Express or Implied Assertion of Knowl- edge. 104. Same; Imputed or Constructive Knowledge of Falsity. 105. Same; Statements Made Recklessly Without Knowledge of Falsity. 106. Same; Good Faith and Honest Belief in Statements Made. 107. Same; Reasonable Ground to Believe Statements True. 108. Intention to Deceive or Mislead. 109. Effect of Representations in Actually Deceiving Party. 110. Reliance Upon Representations. 111. Representations as Inducement to Contract. 112. Necessity of Actual Loss or Injury. 113. Duty to Investigate Truth of Representations. 114. Same; Decisions Repudiating or Modifying Rule. 115. Same ; Extent of Investigation Necessary. X TABLE OF CONTENTS Section 116. Same ; Examination of Public Records. 117. Same ; Constructive Notice and Facts Suggesting Inquiry. 118. Circumstances Excusing Failure to Investigate. 110. Effect of Fiduciary Relations Between the Parties. 120. One Party Possessing Special, Expert, or Technical Knowl- edge. 121. Party Relying on His Own Investigation. 122. In^-estigation Prevented or Thwarted by Other Party. 123. Degree of Care and Vigilance Required. 124. Rejection of Rule Requiring Ordinary Prudence and Care. 125. Relative Situation of Parties as to Mental and Business Capacity. 126. Statements Palpably False, Incredible, or Impossible. CHAPTER IV MISTAKE, INADVERTENCE, ACCIDENT, AND SURPRISE. 127. Mistake as Ground for Rescission. 128. Mutual and Unilateral Mistakes. 129. Mistake of One Party Induced by Fraud or Artifice of Other. 130. Unilateral Mistake Known to and Taken Advantage of by Other Part.y. 131. Mistake Attributable to Party's Own Negligence or Inatten- tion. 132. Mistake of Both Parties. 133. Mutual Ignorance of Material Facts. 134. Materiality of Mistake, l.".".. Mistakes of Agents. 130. Mistake In Transmission of Telegram. 137. Mistakes of Draftsmen. 138. Mistake as to Identity of Party. 139. Mistake a.s to Existence of Subject-Matter. 140. Mistake as to Identity of Subject-Matter. 141. Mistake as to Price or Value of Subject-Matter. ■ 142. Errors in Computations or Estimates. 143. Jlistakes as to Title. 144. Blistake as to Quantity of Land Conveyed. 145. Inadvertence. 146. Mistaken Expectation as to Future Events. 147. Mistake in Matter of Law. 148. Same; Mistake or Ignorance as to Party's Legal Rights. 149. Same; Mistake as to Legal Effect of Instrument. I."i0. Same ; Slistake of Law Induced by Otlier Party. 151. Same; Mistake of Law as Element of I'raud. 152. Same ; Mutual Mistake of Law. 153. Same; Laws of Foreign State or Country. 154. Loss or Injury Resulting from Mistake. 155. Evidence to Prove Mistake. 156. Accident or Surprise as Ground for Relief. TABLE OF CONTENTS .XI CHAPTER V WANT OR FAILURE OP CONSIDERATION Section 157. Original Want of Consideration. 158. Failure of Consideration. 159. Partial Failure of Consideration. 160. Failure of Consideration from Impossibility of Performance. 161. Failure of Consideration Resulting from Operation of Law or from Change in the Law. 162. Instrument Becoming Functus Officio by Performance of Conditions. 163. Same ; Payment or Discharge of Obligation. 164. Depreciation in Value of Consideration. 165. Forged and Counterfeit Documents and Stolen Goods. 166. Want of Value No Ground for Rescission Where Considera- tion is Delivered as Stipulated. 167. Chancing Bargains and Speculative Purchases. 168. Grants in Consideration of Support and Maintenance. CHAPTER VI INADEQUACY OP CONSIDERATION 169. Right of Rescission in General. 170. Improvident Sales or Contracts. 171. Taking Unconscionable Advantage of Circumstances. 172. Inadequacy Combined with Fraud or Imposition. 173. Same; Duress; Undue Influence; Mental Weakness. 174. Catching Bargains and Sales of Expectancies and Remain- ders. 175. Gross Inadequacy Raising Presumption of Fraud. 176. Louisiana Law; Lesion Beyond Moiety. CHAPTER VII DEFICIENCY IN QUANTITY OR QUALITY 177. Right of Rescission in General. 178. Rule of Caveat Emptor. 179. Redhibitory Defects. ISO. Deficiency in Number or Quantity of Articles Contracted for. 181. Defect in Quality as to Installment or Portion of Goods Purchased. 182. Sales by Sample. 183. Sale "With All Faults." 184. Inspection or Testing to Determine Quality. 185. Breach of Warranty. 186. Same ; Seller's Fraud or Knowledge of Unsoundness. 187. Same; Agreement for Return if Defective. 188. Same; Warranty Against Future Defect or Failure. Xll TABLE OF CONTENTS Section 189. Sale by Producer or Manufacturer of Article. 190. Property Purchased for Specified Use. 191. Same ; Warranty of Fitness for Prescribed Use. 192. Sale with Privilege of Return if Not Satisfied. 193. Allowance for Tare, Tret, Leakage, etc. 194. Offer or Opportunity to Make Good Defect. 195. Acceptance and Use of Defective Article. CHAPTER VIII FAILURE, REFUSAL, OR IMPOSSIBILITY OF PERFORMANCE. 196. Non-Performance as Ground of Rescission. 197. Pre-requi.«ite.'^ to Rescission. 198. Partial or Successive Failures of Performance. 199. Performance Not in Accordance with Terms. 200. Defective or Unsatisfactory Performance of Work. 201. Excuses for Default. 202. Refusal of Performance. 203. Anticipatory Breach of Contract. 204. Declared Intention Not to Perform. 205. Performance Prevented by Wrongful Act of Other Party. 206. Inability to Perform. 207. Insolvency of Purchaser. 208. Impossibility of Performance. 209. Same; Destruction or Perishing of Subject-Matter. 210. Effect of Party's Disabling Himself to Perform. 211. Sale of Subject-Matter to Third Party. 212. Breach of Covenant or Condition, in General. 213. Same ; Conditions Subsequent ; Promise of Future Action. 214. Non-Payment of Consideration. 215. Payment or Delivery in Installments. 216. Failure of Punctual Performance; Time of the Essence. 217. Same; Failure to Deliver or Perform at Time Stipulated. 218. Same; Unreasonable Delay in Delivery or Performance. 219. Same; Waiver or Extension of Time. 220. Same; Penalty Fixed for Delay. CHAPTER IX DURESS 221. Definition and Essential Elements of Duress. 222. Same; Illegality of Demand. 223. Same; Duress as Efficient Cause of Action Taken. 224. Same; By and Against Whom Plea of Duress Available. 225. Duress Renders Contract Voidable, Not Void. 226. Duress as Ground for Rescission or Cancellation. 227. Decree or Measure of Duress Required. 228. Duress by Physical Restraint or Coercion. 229. Duress of Goods. 230. Taking Advantage of Financial Necessities. TABLE OF CONTENTS X]ll Section 231. Duress by Threats. 232. Instituting or Threatening Civil Suits or Foreclosures. 233. Duress of Imprisonment. 234. Threats of Arrest or Criminal Prosecution. 235. Prosecution of Husband, Wife, or Relatives. 236. Duress Exerted by Government or Municipalities. CHAPTER X UNDUE INFLUENCE 237. Definitions of Undue Influence. 238. Duress and Fraud Ddstiuguished. 239. Undue Influence as Ground for Rescission or Cancellation. 240. Fraudulent or Unfair Purpose Essential. 241. Acquisition and Exertion of Undue Influence. 242. Effectiveness of Influence Must Appear. 243. Influence Based on Gratitude and Affection. 244. Benefit or Want of Independent Advice. 245. Time of Exerting Influence with Reference to Gift or Grant. 246. Degree or Measure of Influence Required. 247. Age and Infirmity of Grantor or Donor. 248. Temporary or Permanent Mental Weakness of Subject. 249. Confidential Relations of Parties in General. 250. Dealings Between Attorney and Client. 251. Dealings Between Husband and Wife. 252. Dealings Between Parent and Child. 253. Burden of Proof and Evidence. CHAPTER XI INSANITY AND INTOXICATION 254. Insanity as Ground for Rescission. 255. Contracts and Deeds Voidable or Void. 256. Liability for Necessaries and Contracts Beneficial to Lunatic. 257. Notice or Knowledge of Insanity. 258. Same ; Rights of Thli'd Persons Purchasing for Value. 259. Effect of Adjudication of Insanity. 260. Time of Making Contract or Conveyance. 261. Deed or Contract Made in Lucid Interval. 262. Test of Mental Capacity. 263. Weakness of Intellect. 264. Mental Weakness Accompanied by Fraud or Undue Influence. 265. Mental Weakness and Inadequacy of Consideration. 266. Monomania ; Fixed Particular Delusions. 267. Old Age and Senile Dementia. 268. Unconsciousness, Stupor, or Coma. 269. Obscuration of Faculties Immediately Preceding Death. 270. Effects of Violent Grief, Anxiety, or Excitement. 271. Eccentricity and Erratic Habits of Mind. 272. Impairment of Faculties Through Addiction to Drugs. 273. Physical Infirmities Not Affecting Mental Powers. XIV TABLE OF CONTENTS Section 274. Effect Of Restoration to Eeasou. 275. Same; Ratification of Contract. 276. Restitution or Restoration of Consideration. 277. Intoxication as Ground of Rescission. 278. Degree or Measure of Intoxication. 279. Intoxication Voluntary or Induced by Other Party. 280. Habitual Drunkenness. 281. Voidability of Contract ; Ratification or Disaffirmance. 282. Restoration of Consideration. CHAPTER XII INFANCY 283. Capacity of Infants to Contract. 284. Validity of Infants' Contracts in General. 285. Deeds, Mortgages, and Other Transfers of Real Estate. 2S(j. Contracts for Services. 287. Same; Recovery for Services on Avoidance of Contract. 2SS. Infants Engaging in Business. 289. Infants as Members of Partnerships. 290. Loans and Advances. 291. Bills and Notes. 292. Purchase of Coi-porate Stock. 29-'!. Appointment of Agent or Attorney. 294. Contracts of Release, Compromise, or Settlement. 29."). Policies of Life Insurance. 290. Promise to Marry. 297. Contracts for Necessaries. 298. Same ; Pklucation. 299. Same; Services of Attorneys at Law. 300. Contracts Made for Infants by Third Parties. 301. Estoppel Against Infant. 302. Same; Misrepresentations as to Age. 303. Ratification. 304. Disaffirmance or Rescission. 305. Who may Rescind or Avoid. 306. Same; Adult Contracting with Infant is Bound. 307. Time for Rescinding or Disafiirming ; During Minority. 308. Same; After Attaining Majority. 309. Partial Avoidance or Disafiirmance. 310. Restoration of Property or Consideration Received. 311. Same; Property Ix)st, Sold, or Dissipated. 312. Effect of Avoidance. CHAPTER Xni ILLEGALITY AND IMMORALITY 313. General Rule as to Executed Contracts. 314. Rescission of Executory Contracts. 315. Immoral Contracts. 316. Gambling, Wagering Contracts, and Lotteries. TABLE OF CONTENTS XV Section 317. Contrarts Affected by Champerty and Maintenance. 318. Contracts Violative of Statutes. 319. Monopolies and Restraints of Trade. 320. Ultra Vires Contracts. 321. Compounding Crime or Stifling Prosecution. 322. Contracts Contrary to Public Policy. 323. Fraudulent Transfers and Schemes to Defraud. 324. Contracts Violating Sunday Laws. 325. Usurious Contracts. CHAPTER XIV BANKRUPTCY AND INSOLVENCY 326. Effect of Bankruptcy on Executory Contracts in General. 327. Bankruptcy as Anticipatory Breach of Contract. 328. Executory and Option Contracts of Sale. 329. Conditional Sales. 330. Relation of Landlord and Tenant. 331. Election as to Rescission. VOLUME 2 CHAPTER XV PRINCIPLES OF RESCISSION APPLIED TO PARTICULAR CLASSES OF CONTRACTS 332. Executed and Executory Contracts. 333. Contracts with Government or Municipal Corporations. 334. Maritime Contracts. 335. Contracts of Brokerage and Agency. 336. Same ; Agency for Definite Time. 337. Same ; Revocation by Operation of Law or for Cause. 338. Same ; Notice of Revocation of Agency. 339. Same; Reimbursement or Compensation of Agent. 340. Same ; Repudiation or Rescission by Agent. 341. Same; Agency or Power Coupled with an Interest. 342. Contracts of Suretyship and Guaranty. 343. Partnerships. 344. Contract or Engagement to Marry. 345. Marriage as Executed Contract. 346. Sfubscriptions for Corporate Stock; Release or 'Withdrawal. 1 Black Resc. — b XVI TABLE OF CONTENTS Section 347. Same ; Rescission for Fraud or False Representations. 348. Same; Representations by Officers, Agents, and Promoters. 349. Same; False Statements in Prospectus. 350. Same ; False Statements as to Other Subscriptions. 351. Same; Promissory Representations and Statements of Opin- ion. 852. Same ; Effect of Bankruptcy or Insolvency of Company. 353. Subscriptions to Charitable, Philanthropic, and Business En- terprises. 354. Contracts for Work or Hire of Services. 355. Tenure of Office, Public and Private. 35C. Resolutions and Contracts of Directors of Corporations. 357. Contract or Notice of Rescission may be Rescinded. CHAPTER XVI TRUSTS, SETTLEMENTS, AND ANTENUPTIAL AGREEMENTS 358. Revocability of Trusts and Settlements in General. 359. Absence of Power of Revocation. 360. Effect of Mistake. 361. Fraud, Deception, and Undue Influence. 362. Want of Independent Advice. 363. Deed of Trust Testamentary in Character. 364. Trusts in Bank Deposits. 365. Revocation by Consent of All Parties. 366. Resignation or Repudiation by Trustee. 367. Termination of Trust by Failure of Beneficiaries. 368. Antenuptial Agreements. CHAPTER XVII LICENSES 369. Revocability of Licenses in General. 370. License Granted Upon Consideration. 371. Licensee Expending Money and Labor. 372. Same; Divergent Doctrines of Law and Equity. 373. Same; Express and Implied Licenses. 374. License for Permanent Structures or Improvements. 375. License Coupled with an Interest. 376. License for Right of Way. 377. Mining Licenses. 378. Use of Premises for Advertising Purposes. ~ 379. Compensation to Licensee on Revocation. 380. Tickets of Admission to Theaters and Other Places of Amusement. 381. Licenses Under Patent and Copyright Laws. TABLE OF CONTENTS XVll CHAPTER XVIII RELEASES, COMPROMISES, AND SETTLEMENTS Section 382. Right of Rescission lu General. 383. Misreading or Misrepresenting Instrument. 384. Want of Care and Prudence on Part of Releasor. 385. Same; Inability of Releasor to Read or Understand. 386. Representations as to Existence of Cause of Action. 387. Promises and Representations as to Future Events. 388. Mental and Physical Condition of Releasor. 389. Personal Injury Cases. 390. Same; Reliance on Opinion of Physician. 391. Same ; Mistake as to Nature or Extent of Injuries. 892. Settlement and Compromise of Litigation. 393. Settlement and Division of Estates. 394. Settlements Betvpeen Trustees and Beneficiaries. 393. Remedy Against Fraud at Law and in Equity. 396. Restoration or Tender of Consideration Eeceived. 397. Ratification and Estoppel. CHAPTER XIX NOTEIS AND BILLS 398. Right of Rescission or Cancellation in General. 399. Fraud and False Representations. 400. Substitution of Instruments. 401. Duty of Care and Prudence. 402. Mistake. 403. Duress and Undue Influence. 404. Voidability as Against Bona Fide Holder for Valu& 405. Jurisdiction of Equity to Order Cancellation. CHAPTER XX SALES OF PERSONAL PROPERTY 406. Rescission or Modification by Agreement of Parties. 407. Rescission for Cause. 408. Fraud and Misrepresentations. 409. Same; Fraud and False Representations by Purchaser. 410. Purchase and Sale of Corporate Stock. 411. Non-Payment of Price. 412. Same; Sale for Delivery in Installments. 413. Conditional Sales. XVUl TABLE OP CONTENTS CHAPTER XXI SALE AND EXCHANGE OF EBAL PROPERTY Section 414. Modification by Subsequent Agreement. 415. Same ; Extension of Time for Payment or Performance. 416. Option or Reserved Right to Rescind. 417. Rescission by Mutual Agreement. 418. Right to Rescind in General. 419. Fraud and False Representations. 420. Same ; As to Title, Interest, or Estate. 421. Misrepresentation or Concealment of Incumbrances. 422. Same; Existence of Prior Contract to Convey. 42.3. Same; As to Quantity, Boundaries, or Location. 424. Same ; As to "\'alue of Property. 425. Same ; As to Quality, Condition, and Improvements. 426. Same; As to Timber and Mineral Resources. 427. Rescission for Failure or Defect of Title in General. 428. Application of Rule of Caveat Emptor. 429. Certainty and Materiality of Defect. 430. Offer of Doubtful Title. 431. Allowance of Reasonable Time to Make Title. 432. Vendor Disabling Himself to Convey. 433. Defects Cured or Curable Before Conveyance. 434. Defects Cured After Notice of Rescission but Before Decree. 435. Disturbance of Purchaser or Danger of Eviction. 4oG. Failure of Title as to Part of Land Conveyed. 437. Grounds for Equitable Relief. 438. Waiver, Estoppel, or Default of Purchaser. 439. Rescission by Vendor for Non-Payment of Purchase Money. 440. Same; Deferred and Installment Payments. 441. Rights and Duties of Parties on Rescission. 442. Exchange of Properties. CHAPTER XXII JUDICIAL AND OTHER PUBLIC SALES 443. Nature of Contract Created by Bid or Purchase at Public Sale. 444. Jurisdiction of Equity. 445. Application of Rule of Caveat Emptor. 446. Fraud and False Representations. 447. Announcements or Representations by Persons Conducting Sale. 448. Chilling Bids or Stifling Competition. 449. Unfair Combinations Among Bidders. 450. Employment of Puffers. 451. Mistake. TABLE OF CONTENTS XIX Soctloii 452. Irregularities, Errors, and Defects. 453. Inadequacy of Price. 454. Eemedies Before and After Confirmation of Sale. 455. Laches and Estoppel. CHAPTER XXIII LEASES 456. Rescission by Agreement or Consent. 457. Grounds for Kescission in General. 458. False Representations or Concealment. 459. Premises Untenantable or Unfit for Use. 460. Destruction or Deterioration of Premises. 461. Impossibility of Performance. 462. Abandonment or Repudiation. 463. Mistake. 464. Breaebes of Contract by Landlord. 465. Breaches of Contract by Tenant. 466. Same; Improper Use or Abuse of Premises. CHAPTER XXIV MINING CONTRACTS AND LEASES 467. Sale of Mines or Mining Property. 468. Mining Leases. 469. Same; Non-Existence or Exhaustion of Minerals. 470. Same; Unmerchantable or Unprofitable Character of Ore. 471. Delay, Failure to Operate, or Abandonment by Lessee. 472. Remedy at Law or in Equity. 473. Licenses to Mine. 474. Time to Rescind ; Laches. CHAPTER XXV INSURANCE POLICIES 475. Rescission by Agreement of Parties. 476. Rescission by Insurance Company. 477. Rescission by Insured. 478. Same ; Waiver, Estoppel, and Laches. 479. Jurisdiction of Actions for Rescission. 480. Right of Insurer to Cancel Policy. 481. Notice for Cancellation. 482. Same; To Whom Given. XX TABLE OF CONTENTS Section 483. Repayment of Unearned Premium on Cancellation. 484. Delivery of Policy for Cancellation. 4S5. Acts Constituting Cancellation. 486. Validity of Cancellation. 487. Ratification of Invalid Cancellation. 488. Evidence of Cancellation. 489. Operation and Effect of Cancellation. 490. Remedies for Wrongful Cancellation. 491. Surrender of Policy by Insured. 492. Act.s Constituting Surrender and Acceptance. 493. Validity of Surrender. 494. Operation and Effect of Surrender. 495. Repayment or Recovery on Surrender. 496. Abandonment by Insured. CHAPTER XXVI GIFTS 497. Essentials of Valid Gift. 498. Same ; Resumption of Possession by Donor. 499. Same; Reservation of Profits or Income. 500. Revocability in General. 501. Same; Breach of Conditions. 502. Same; Improvidence. 503. Same; Ingratitude of Donee. 504. Setting Aside for Fraud, Undue Influence, or Mistake. 505. Gift to Fiduciary or Trustee. 506. Gifts Between Parent and Cbild. 507. Deposit of Money in Bank to Credit of Another. 508. Revocation by Mutual Consent. 509. Gifts Causa Mortis. 510. Same; Survival of Donor and Revocation. 511. Burden of Proof and Evidence. CHAPTER XXVII RESERVATION OP RIGHT TO RESCIND 512. Validity and Effect of Reservation. 513. Mode of Rescission Under Reserved Right. 514. Notice of Rescission. 515. Stipulation Limiting Time for Itescission or Return. 516. Mutual or Unilateral Right of Rescission. 517. Contingencies Giving Right to Rescind. 518. Building and Construction Contracts. 519. Agreement to Ta!;e Bade Unsold Goods. 520. Rescission for Unsatisfactory Performance. TABLE OF CONTENTS XXI CHAPTER XXVIII RESCISSION BY MUTUAL CONSENT Section 521. Bight tq Rescind by Subsequent Agreement. .522. Agreement for Rescission on Conditions. 523. Consideration. 524. Parol Rescission of Written Contract. 525. Consent of Parties. 526. Implied Consent or Acquiescence. 527. Assent or Acquiescence Inferred from Unexplained Delay. 52S. Acts and Conduct Constituting Rescission. 529. Same; Offer and Acceptance. 530. Same; Substitution of New Contract. 531. Same; Resuming Possession of Goods Sold. 532. Same ; Abandonment of Rights. 533. Same; Deiault or Nonperformance on Both Sides. 534. Evidence of Rescission. 535. Consequences and Effects of Rescission. CHAPTER XXIX TIME TO RESCIND ; LACHES 536. Reasonable Promptness Required. 537. Rule as to Persons Under Disabilities. 538. When "Reasonable Time" Begins to Run. 539. What Constitutes Knowledge or Notice and How Acquired. 540. Same; Diligence Required m Inspection or Examination. 541. What Constitutes Laches. 542. Same; Sales of Personal Property. 543. Same; Contracts Concerning Real Property. 544. Circumstances Explaining or Excusing Delay. 545. Change in Circumstances or in Value of Property. 546. Absence of Loss or Prejudice from Delay. 547. Reasonable Time as Question of Law or Fact. 548. Premature Attempt to Rescind. CHAPTER XXX PERSONS ENTITLED TO RESCIND 549. General Rule; Parties and Privies. 550. Creditors. 551. Heirs and Representatives. 552. Parties Jointly Interested. 553. Party in Default Cannot Rescind. XXll TABLE OF CONTENTS Section 554. Party Cannot Take Advantage of His Own Neglect or De- fault. 555. Parties In Pari Delicto. 556. Same ; Defrauding Creditors. 557. Same ; Inequality of Turpitude. CHAPTER XXXI CONDITIONS PRECEDENT AND ACTS CONSTITUTING RE- SCISSION 558. Existence of Sufficient Grounds for Rescission. 559. Selecting Ground for Rescission ; Motives Immaterial. 560. Necessity of Assent or Acquiescence. 561. Election to Rescind or Affirm. 562. Election of Otlier Remedy. 563. Election Once Made is Final. 564. Tender of Performance. 565. Rescinding Party jNIust be Able and Ready to Perforn). 566. Necessity of Tender Where Vendor Unable to Make Title. 507. Actual or Threatened Loss or Injury as Condition Precedent. 568. Demand for Performance; Putting Party in Default. 560. Notice of Rescission. 570. Same; Effect of Previous Defaults or Forbearance. 571. Same; Waiver of Notice; Facts Excu.sing Failure to Give Notice. 572. Notice Stipulated for in Contract. 573. Form and Sufficiency of Notice. 574. Ambiguous, Alternative, or Conditional Declarations. 575. Service or Delivery of Notice. 576. Institution of Suit as Equivalent to Notice. 577. Acts Constituting or Evidencing Rescission. 578. Same ; Suit to Rescind or to Recover Property. 579. Same ; Regaining or Accepting Possession of Property. 580. Same ; Surrender or Return of Evidences of Title. 581. Same ; Dealing with, or Disposition of, Property. 582. Same ; Refusal to Perform ; Demands Inconsistent with Contract. CHAPTER XXXII ENTIRE OR PARTIAL RESCISSION 583. General Rule. 584. Separation of Beneficial and Onerous Portions of Contract. 585. Separable or Divisible Contracts. 586. Delivery or Performance in Installments. 587. Part of Property Sold by Purchaser. 588. Option for, or Acceptance of, Partial Rescission. 589. Power to Decree Partial Rescission. TABLE OF CONTENTS XXIU CHAPTER XXXIII WAIVER, ESTOPPEL, AND RATIFICATION Section 590. Waiver of Right to Rescind. 591. Knowledge of Rights Essential to Valid Waiver. 592. Contemporary Knowledge of Fraud, Mistake, or Defect. 593. Freedom from Duress, Control, or Disability. 594. Recognition of Contract as Subsisting. 595. Accepting and Retaining Benefits. 596. Waiver of Right to Rescind by Acts or Assertions of Owner- ship. 597. Same ; Contracts for Sale of Land. 598. Same; Sale of Property or Offer to Sell. 599. Same ; Use, Change of Condition, Impairment, or Destruc- tion of Subject. 600. Same ; Possession or Use for Purpose of Testing. 601. Making Payments. 602. Obtaining Indulgence or Extension of Time. 603. Demand or Acceptance of Payment or Security. 604. Same; Waiver of Default or Delay in Payment. 605. Permitting Continuance of Work Under Contract. 606. Acceptance of Partial, Faulty, or Insufficient Performance. 607. Laches as Importing Waiver. 608. Estoppel by Declarations or Conduct. 609. Estoppel by Negligence or Inaction. 610. Ratification of Voidable Deed or Contract. 611. Same; Intention to Ratify. 612. Affirmance by Suing on Contract. 613. Compromise, Settlement, or Further Negotiations. 614. Effect of Waiver or Ratification. 615. Evidence; Question for Jury. CHAPTER XXXIV RESTITUTION OR RESTORATION OF STATUS QUO 616. Restoration of Former Status in General. 617. Necessity of Tender or Restoration of Property. 618. Where Restoration is Impossible. 619. Property Accidentally Destroyed or Lost. 620. Property Sold or Hypothecated to Third Person. 621. Exception as to What Rescinding Party is Legally Entitled to Hold. 622. Exception as to Property Entirely Worthless. 623. Effect of Refusal to Accept Return of Property. 624. To Whom Restoration or Tender Should be Made. 625. Time to Make or Offer Restoration. 626. Mode, Sufficiency, and Extent of Restoration. 627. Payment or Tender of Value in Lieu of Specific Restoration. XXIV TABLE OF CONTENTS Section 628. Holding Property Subject to Seller's Demand or Order. 629. Resale of Goods by Buyer for Seller's Account. 630. Reconveyance of Land. 631. Restoration of Possession of Land. 632. Liability for Interest on Consideration Received. 633. Inability for Waste or Deterioration of Property. 634. Accounting for Rents or Rental Value. 635. Allowance for Cost of Keeping and Expense of Restoration. 636. Allowance for Improvements and Repairs. 637. Allowance for Taxes and Incumbrances Paid. CHAPTER XXXV INTERVENING RIGHTS OF THIRD PERSONS 638. General Rule. 639. Contracts for Benefit of Third Persons. 640. Bona Fide Purchasers for Value. 641. Slame; Sales of Personal Property. 642. Assignee of Purchase-JIoney Notes. CHAPTER XXXVI ACTIONS OR SUITS FOR RESCISSION OR CANCELLATION 643. Jurisdiction of Equity. 644. Same; Discretion of Court. 645. Adequate Remedy at Law. 646. Same; Action for Fraud or Deceit. 647. Same ; Defense to Action on Contract or Instrument. 648. Same; Pendency of Proceedings at Law. 649. Same; Insolvency of Defendant. 650. Cancellation of Instruments. 651. Same ; Void Instruments. 652. Same; Contracts of Insurance. 653. Applicability of Statute of Limltationa 654. Lacbes Barring Relief. 655. Form of Remedy. 656. Venue of Action. CHAPTER XXXVII PARTIES TO ACTIONS 657. General Rule ; All Parties in Interest. 658. Joinder of Defendants. 659. Real Party in Interest. 660. Persons Against Whom Relief is Not Sought TABLE OF CONTENTS XXV Sectioa 661. Subsequent and Intermediate Purchasers, 662. Trustees and Beneficiaries. 663. Heirs and Personal Kepresentatives. CHAPTER XXXVIII PLEADING AND PBACTICB 664. Requisites of Bill or Complaint in General. 665. Allegations of Fraud or False Represeutationa. 666. Allegation of Duress or Undue Influence. 667. Allegation of Mental Incompetence. 668. Allegation of Mistake. 669. Alleging Defects of Title. 670. Setting Out or Describing Instrument. 671. Showing Promptness and Diligence. 672. Offer to Restore or to Do Equity. 673. Frame of Bill and Prayer for Relief. 674. Plea, Answer, or Counterclaim. 675. Trial and Decision by Court or Jury. CHAPTER XXXIX EVIDENCE 676. Presumptions and Burden of Proof. 677. Same; Fraud, Duress, and Undue Influence. 678. Same; Want of Mental Competence. 679. Same ; Knowledge or Notice, Acquiescence, or Laches. 680. Issues, Proof, and Variance. 681. Admissibility of Evidence. 682. Weight and Sxifl3ciency of Evidence. 683. Same ; Fraud and ilistake. 684. Same ; EfCect of Lapse of Time. CHAPTER XL JUDGMENT OR DECREE 685. General Principles of Granting Relief. 686. Decree Ordering Cancellation. 687. Decree Ordering Reconveyance. 688. Recovery of Money Paid and Interest. 689. Adjusting All Rights and Doing Complete Equity. 690. Relief Granted Where Rescission Legally Impossible. 691. Relief to Plaintiff on Refusing Rescission. 692. Conditional or Alternative Relief. 693. Granting Necessary Additional Relief. 694. Decreeing a Lien on Land. XXVl TABLE OF CONTENTS Section 695. Judgment for Damages in Addition to Rescission. 606. Relief to Defendant. 697. Same; Restoration of Money or Property. 698. Decree on Dismissal of Bill. 699. Costs. CHAPTER XLI OPERATION AND EFFECT OF RESCISSION 700. In General. 701. Revesting of Title. 702. Right to Possession and Disposal of Subject-Matter. 703. Recovery or Repayment of Consideration 70i. Action on Rescinded Contract. 705. Rights of Action Based on Rescission. 706. Revival or Renewal of Contract. TABLE OF CASES CITED (Page 1589) INDEX (Page 1715) t RESCISSION OF CONTRACTS AND CANCELLATION OF WRITTEN INSTRUMENTS VOLUME 1 ] Black Resc. (1)* 3 DEFINITIONS AND GENERAL PRINCIPLES § I CHAPTER I DEFINITIONS AND GENERAL PRINCIPLES § 1. Rescission Defined. 2. In Roman and Modern Civil Law. 3. To What Classes of Obligations Rescission Applies. 4. Voidability as an Element of the Right of Rescission. 5. Rescission and Breach of Contract DistiQguished. 6. Abandonment or Repudiation of Contract Distinguished. 7. Rescission and Forfeiture Distinguished. 8. Rescission by Substitution of New Contract. 9. Modification or Alteration of Contract Distinguished. 10. Effect of Novation. 11. Rescission and Reformation Distinguished. 12. Rescission as the Converse of Specific Performance. 13. Parol Rescission of Written Contract. 14. Grounds Required to Support Unilateral Rescission. 15. Statutory Grounds for Rescission. 16. Same ; California, Montana, Oklahoma, North Dakota^ South Dakota. 17. Same ; Georgia. 18. Same ; Alabama. 19. Same ; Louisiana. § 1. Rescission Defined. — To rescind a contract is not merely to terminate it, but to abrogate and undo it from the beginning; that is, not merely to release the parties from further obligation to each other in respect to the sub- ject of the contract, but to annul the contract and restore the parties to the relative positions which they would have occupied if no such contract had ever been made.^ Re- scission necessarily involves a repudiation of the contract and a refusal of the moving party to be further bound by 1 Powell V. F. C. Linde Co., 29 Misc. Rep. 419, 60 N. Y. Supp. 1044 ; Hurst v. Trow Printing & Bookbinding Co., 2 Misc. Rep. 361, 22 N. T. Supp. 371. Etymologlcally, to "rescind" Is to sever or cut ofE or cut apart. The metaphor Involved in the word "obliga- tion" Is that of a binding up or tying together, as, where a party "obliges" himself in a bond, the figure is that of his being bound to its performance as with cords, and so the "obligation" of a con- tract is the union of the parties with respect to Its mutual terms and conditions, as if they were physically tied to each other. The "rescission" of an obligation is therefore the severance or cutting apart of this metaphorical bond. § 1 RESCISSION OF CONTRACTS i it." But this by itself would constitute no more than a breach of the contract or a refusal of performance, while the idea of rescission involves the additional and distin- guishing element of a restoration of the status quo, that is, an offer by the moving party to restore all that he has re- ceived under it, with a demand for the similar restoration to him of all that he has paid or given under it, and, in ef- fect, a mutual release of further obligations.^ As to the manner in which rescission is effected, a right to take this action may be reserved to either or both of the parties in the contract itself, and it may then be exercised without other grounds for it than the mere will of the party rescind- ing, or the occurrence of such conditions as may be stipu- lated in the contract. Such a reservation may be effected by the use of any suitable language, without the necessity of employing the technical word "rescind." * There may also be rescission by the mutual agreement of the parties to the contract, which is in effect the discharge of both par- ties from the legal obligations admittedly existing there- under, by a subsequent agreement made before the com- plete performance of the original contract. ° Or one of the parties may declare a rescission of the contract, without the consent of the other, or against his protest, if a legally sufficient ground therefor exists, such, for instance, as fraud, false representations, mistake, duress, or infancy. Or, finally, a party believing himself entitled to have the con- tract abrogated and to have himself restored to his former position may invoke the aid of a court of equity and obtain a decree for the rescission of the contract and, in proper cases, for the cancellation of the instrument evidencing it. 2 Thus, where the purchaser of goods fails to accept the same, and the seller refuses to take them back, and sues for the price, there is no rescission. The act of refusing to accept an article is not a rescission of the contract, but one of insistence on it. Pots- damer v. Kruse, 57 Minn. 193, 58 N. W. 9S3. 3 Reiger v. Turle.v, 151 Iowa, 491, 131 N. W. 866 ; Ballou v. Bill- ings, 136 Mass. 307; Merrill v. Merrill, 103 Cal. 287, 35 Pac. 768, 37 Pac. 392 ; Jones v. McGinn, 70 Or. 236, 140 Pac. 994. i Seanor v. McLaughlin, 165 Pa. 150, 30 Atl. 717, 32 L. R. A. 467. B Holland v. Rhoades, 56 Or. 206, 106 Pac. 779 ; J. K. Armsby Co. V. Grays Harbor Commercial Co., 62 Or. 173, 123 Pac. 32. 5 DEFINITIONS AND GENERAL PRINCIPLES § 2 § 2. In Roman and Modem Civil Law. — The law of Rome recognized a right of rescission of contracts and a method of effecting it which were not essentially different from those accorded by the principles of English equity jurisprudence. The procedure was denominated "restitutio in integrum," that is, "making whole," or the restoration to the injured party of what he had paid or lost under the con- tract. The tendency of the Roman law was to regard this restoration as the principal matter and the rescission of the contract as an incident of it, while the English law treats the rescission of the contract as the relief to be afforded in a proper case, and the matter of restoration as a condition or consequence of it. But in the Roman law, as in the Eng- lish law, the appeal was to equity and it was necessary to show equitable grounds for the interference of the court (such as fraud, duress, mistake, or infancy) and also that the complaining party had acted promptly and was not chargeable with laches, that he had suffered a substantial injury in consequence of an act or omission without his own fault, and that he had no adequate remedy at law.' These fundamental principles have been carried over into the substantive law of most of the countries of continental Europe, and have also, to a considerable extent, colored the jurisprudence of those of our States whose legal institu- tions, in their formative period, were affected by the French or the Spanish law. Thus, in California, it is said: "In Spanish law, nullity is divided into absolute and relative. The former is that which arises from a law, whether civil or criminal, the principal motive for which is the public in- terest; and the latter is that which affects only certain in- dividuals. Nullity is not to be confounded with rescission. Nullity takes place when the act is affected by a radical vice, which prevents it from producing any effect, as, where an act is in contravention of the laws or of good morals, or where it has been executed by a person who cannot be sup- posed to have any will, as a child under the age of seven years or a madman. Rescission is where an act, valid in appearance, nevertheless conceals a defect which may make 6 Mackeldey, Modern Roman Law, §§ 220-233 ; Dig. 4, 1. § 3 RESCISSION OF CONTRACTS 6 it null if demanded by any of the parties, as, for example, mistake, force, fraud, deceit, want of sufficient age, etc. Nullity relates generally to public order, and cannot there- fore be made good either by ratification or prescription, so that the tribunals ought, for this reason alone, to decide that the null act can have no effect, without stopping to inquire whether the parties to it have or have not received any injury. Rescission, on the contrary, may be made good by ratification or by the silence of the parties, and neither of the parties can demand it unless he can prove that he has received some prejudice or sustained some damage by the act." '' So, also, with special reference to sales of per- sonal property, in the law of Louisiana, derived in this re- spect from the Roman law, "redhibition" is the avoidance of a sale on account of some vice or defect in the thing sold, which either renders it absolutely useless or renders its use so inconvenient and imperfect that it must be supposed the buyer would not have taken it if he had known of the de- fect; and if the thing affected with redhibitory vices has perished, through the badness of its quality, the seller must bear the loss.^ § 3. To What Classes of Obligations Rescission Applies. Loosely the term "rescission" has been employed in a wide and generic sense. But it is not properly applicable to the undoing of anything except that which has been the sub- ject of a mutual agreement. The term does not, for in- stance, properly characterize the repeal of a statute, the setting aside of a judgment or decree, or the revocation of a will. It should be restricted to the cancellation of con- tracts and grants involving mutual obligations. Again, be- fore there can be any "rescission," properly so called, there must be a contract completely formed and in force, or at least provisionally binding on the parties. So long as the subject-matter rests in mere negotiation or the tender of an option, either party may be privileged to recede from his propositions and decline to proceed further. But the mere withdrawal of an offer, or, on the other hand, the refusal to ^ Sunol V. Hepburn, 1 Cal. 255, 281. 8 Morphy v. Blanchln, 18 La. Ann. 13.3 ; Civ. Code La. art. 2.520 ; Poth. Coutr. Sales, 203 ; Mackeldey, Modern Roman Law, § 403. 7 DEFINITIONS AND GENERAL PRINCIPLES § 4 accept an offered proposition, is not a "rescission" of any- thing." Nor is there a rescission when a contract is entered into by agents or representatives of one or both parties, upon the condition that the principals, or one of them, shall accept it. In this case, there is no operative contract until such acceptance, and the refusal to accept, or the lapse of the intended contract for failure of acceptance, is the with- drawal from a negotiation, but is not technically a rescis- sion, because there has been no binding obligation creat- ed." § 4. Voidability as an Element of the Right of Rescis- sion. — Rescission is often spoken of as the undoing of a "voidable" contract. But this is not strictly correct. For it must not be forgotten that the parties themselves, by their mutual consent and agreement, may rescind a contract which is not for any reason subject to be avoided by one alone, but on the contrary is perfectly valid and binding. It is therefore more proper to say that a contract is not re- scindable at the option of one party, against the wish of the other, or on an application to the court by one party, op- posed by the other, unless for some cause it is voidable at the election of the former. On the other hand, where an instrument is void on its face (not merely voidable), it is not in general necessary to resort to any proceeding, legal or equitable, to have it so declared, ^^ although, in a suit to quiet title, equity has jurisdiction to cancel an instrument of title at the suit of one in possession under a good title, even though the instrument be void on its face.^^ 9 Sinltlimeyer v. tJnited States, 147 U. S. 342, 13 Sup. Ct. 321, 37 L. Ed. 196; Walratli v. Hanover Fire Ins. Co., 139 App. Div. 407, 124 N. T. Supp. 54; Dietz v. Farish, 53 How. Prae. (N. Y.) 217; Borst v. Simpson, 90 Ala. 373, 7 South. 814; Scanlon v. Ol- iver, 42 Minn. 538, 44 N. W. 1031; McDonald v. Huff (Cal.) 18 Pac. 243; Gordon v. Darnell, 5 Colo. 302; Miller v. Moffat, 153 111. App. 1 ; Abbott v. Dow, 133 Wis. 533, 113 N. W. 960. But see Harper v. City of Newburgh, 159 App. Div. 695, 145 N. T. Supp. 59. 10 Hartford Fire Ins. Co. v. Wilson, 189 TJ. S. 467, 23 Sup. Ct. 189, 47 D. Ed. 261 ; Brown v. American Central Ins. Co., 70 Iowa, 390, 30 N. W. 647. 11 Ehrlich v. Shuptrine, 117 Ga. 882, 45 S. E. 279. 12 Whitehouse v. Jones, 60 W. Va. 680, 55 S. E. 730, 12 L. R. A, (N. S.) 49. See Burt v. Bowles, 69 Ind. 1. § 5 RESCISSION OF CONTRACTS 8 § 5. Rescission and Breach of Contract Distinguished. One who simply breaches his contract does not thereby re- scind it, though his act may give the other party a right to claim rescission and restoration.^' Yet it is not every breach of a contract which authorizes a rescission, the in- jured party being generally required to seek damages as a remedy.^* For facts which will ordinarily warrant the re- scission of a contract must have existed at the time the con- tract was made.^' Thus, the failure of the seller of a ma- chine to fulfill a promise to put it in good working order will not justify a rescission of the sale and recovery of the purchase price, but merely the recovery of damages.^* So, a plaintiff is not entitled to rescind his contract with de- fendant for the purchase of growing agricultural products, merely because the defendant has violated his duty with respect to the care of the crop, where it is not claimed that the contract is tainted by fraud, accident, mistake, duress, or undue influence, or that there has been a total failure of consideration, or that defendant is insolvent, or that any damages awarded against him could not be recovered.^'' But where, in a contract for service, the employer prevents the other party from performing the contract, it is optional with the latter to rescind the agreement, and resort to an action for work and labor performed. '^'' § 6. Abandonment or Repudiation of Contract Distin- guished. — Where one of the parties to a contract unjustifi- ably abandons it or repudiates it, and refuses to proceed with it, this does not constitute a rescission of the con- tract.^° Such conduct may and generally will justify the 13 City of Nebraska City v. Nebraska City Hydraulic Gaslight & Coke Co., 9 Neb. 339, 2 N. W. 870. 1* Summers Fiber Co. v. Walker, 33 Ky. Law Rep. 153, 109 S. W. 883. 16 Badger State Lumber Co. v. G. W. Jones Lumber Co., 140 Wis. 73, 121 N. W. 933. 10 McSwegan v. Gatti-JIcQuade Co., 50 Misc. Rep. 338, 98 N. Y. Supp. 692. 17 Summers Fiber Co. v. Walker, 33 Ky. Law Rep. 153, 109 S. W. 883. 18 Connelly v. Devoe, 37 Conn. 570. 19 Schweikert v. Seavey, 130 Cal. xviii, 62 Pac. 600; Peabody v. Bement, 79 Mich. 47, 44 N. W. 416. 9 DEFINITIONS AND GENERAL PKINCIPLBS § 6 Other party in declaring a rescission of the contract and in insisting upon a restoration of the status quo and the other usual incidents of a technical rescission.'"' Or such other party may tacitly acquiesce in treating the refusal to con- tinue with the contract as equivalent to a rescission of it. "Where one party assumes to renounce a contract, that is, by anticipation refuses to perform it, he thereby, so far as he is concerned, declares his intention then and there to re- scind the contract. Such a renunciation does not, of course, amount to a rescission of the contract, because one party to a contract cannot by himself rescind it ; but by wrongfully making such a renunciation of the contract he entitles the other party, if he pleases, to agree to the contract being put an end to, subject to the retention by him of his right to bring an action in respect of such wrongful rescission. The other party may adopt such renunciation of the contract by so acting upon it as in effect to declare that he too treats the contract as at an end, except for the purpose of bringing an action upon it for the damages sustained by him in con- sequence of such renunciation." ^^ But in respect to the effect upon the rights of the parties, there is a wide differ- ence between a rescission proper and a mere abandonment of the contract. In the former case the one party in effect says to the other: "I hereby rescind our contract, demand- ing the restoration of whatever I have paid or given under it, and offering to do the like by you." In the latter case, he may be regarded as saying: "I refuse to proceed with the contract. I will restore nothing, and will take my chance of your compelling me, by suit, to make you whole or pay you damages." "^ 20 Fletcher v. Cole, 23 Vt. 114 ; Barbee v. Armstead, 32 N. C. 530, 51 Am. Dec. 404. And see Wood Mfg. & Realty Co. v. Thompson, 149 App. Div. 253, 133 N. Y. Supp. 718. Where the holder of an as- sessment policy of insurance voluntarily ceases payment of assess- ments and abandons his policy, he cannot thereafter recover dam- ages for its cancellation. Green v. Hartford Life Ins. Co., 139 N. C. 309, 51 S. E. 8S7, 1 L. R. A. (N. S.) 623. 21 Koehm V. Horst, 178 TJ. S. 1, 20 Sup. Ct. 780, 44 L. Ed. 953, cit- ing Hochster v. De La Tour, 2 El. & Bl. 678; Jonstone v. Milling Co., 16 Q. B. Div. 467. 22 See Clark v. American Developing & Mining Co., 28 Mont. 468, 72 Pac. 978. § 6 EBSCISSION OF CONTRACTS 10 Either party to an executory contract can stop further performance by the other party, at any time, by an explicit direction to that effect or by a renunciation of the contract and refusal of further performance on his own part. But thereby he renders himself liable to an action for damages, and to the further contingency that a court of equity might, in some circumstances, decree specific performance against him.^^ And since this is not properly a rescission of the contract, the party abandoning it cannot complain if the other party retains whatever he may have received or ac- quired under it.^* But besides the technical rescission of a contract, releasing each party from every obligation under it, as if it had never been made, there is a mode of abandon- ing a contract, as a live and enforceable obligation, which still entitles the party declaring its abandonment to look to the contract to determine the compensation he may be en- titled to under its terms for the breach which gave him the right of abandonment. Such an abandonment, following upon the renunciation of the other party and his refusal to perform, is not a rescission of the contract, but a mere ac- ceptance of the situation which the wrongdoing of the other party has brought about.^^ But merely because a given act or course of conduct by one party is inconsistent with the contract is not sufficient to authorize the other to renounce it, but it must be inconsistent with an intent to be bound by it any longer; and while every breach is inconsistent with the contract, it is not every breach by one party that will authorize the other totally to renounce the contract.-" 23 International Text-Book Co. v. Jones, 166 Mich. 36, 131 N. W. 98; Wigent v. Marrs, 130 Midi. 609, 90 N. W. 423; Robinson v. Stow, 39 111. 568; Trinidad Asphalt JIfg. Co. v. Buckstaff Bros. Mfg. Co., 86 Neb. 623, 126 N. W. 293, 136 Am. St. Eep. 710; Hix- son Map Co. v. Nebraska Post Co., 5 Neb. (I'nof.) 388, 98 N. W. 872. 24 Stratton v. California Land & Timber Co., 86 Cal. 353, 24 Pac. 1065, citing Ketchum v. Evertson, 13 Johns. (N. Y.) 359, 7 Am. Dec. 384 ; Hausbrough v. Peck, 5 Wall. 506, 18 L. Ed. 520. 25 Anvil Min. Co. v. Humble, 1.53 U. S. 540, 14 Sup. Ct. S76, 38 L. Ed. 814; Goodman v. Ilaynes Automobile Co., 2U.j Fed. 352, 123 C. O. A. 480; Hayes v. City of Nashville, 80 Fed. 641, 20 C. C. A. 59; Lake Shore & M. S. Ry. Co. v. Richards, 152 111. 59, 32 N. E. 773, 30 L. R. A. 33. And see Elterman y. Hynian, 192 N. Y. 113, 84 N. E. 937, 127 Am. St Eep. SG2, 15 Ann. Cas. 819. 2« McAllister-Coman Co. v. Matthews, 167 Ala. 361, 52 South. 416 140 Am. St. Eep. 43. 11 DEFINITIONS AND GENERAL PRINCIPLES § 8 Thus, the bringing of a suit by the lessee of land against his lessor, in which the plaintiff claims to be the equitable owner of part of the land and seeks specifically to enforce an alleged contract of sale, is a renunciation or abandon- ment of the lease. ^' But where the purchaser in a contract for the sale of land buys in an incumbrance on the property, has the property sold by the sheriff, and buys it himself, it is held that this does not constitute an abandonment of the contract on his part.^* § 7. Rescission and Forfeiture Distinguished. — While a court of equity, in a proper case, will declare a rescission of a contract for a violation of the covenants contained in it, because it would be against conscience to permit one party to violate the contract on his part, and still hold the other party to a compliance with it, yet this is very different from a forfeiture, such as is meant when it is said that a court of equity does not favor forfeitures and will not lend its aid to declare or enforce them.^" So a provision in a contract for the sale of land, to the effect that it shall be canceled and the earnest money returned if a third person shall decide that the title is defective, is not a provision for forfeiture, such as the statute requires to be declared on no- tice, but one for rescission.^" § 8. Rescission by Substitution of New Contract. — Since it is always in the power of the parties to a contract to rescind or abrogate it by their mutual consent, they may accomplish this result by the substitution of a new contract, implying a mutual discharge from reciprocal obligations un- der the original contract and the restoration of the status quo or compensation for altered conditions,'^ provided that the new contract shall be complete and binding in itself,'^ 27 Snyder v. Harding, 34 Wash. 286, 75 Pac. 812. 28 Grouse's Appeal, 28 Pa. 139. 29 Lincoln Trust Co. v. Nathan, 175 Mo. 82, 74 S. W. 1007. 30 Vittengl v. Vittengl, 156 Iowa, 41, 135 N. W. 63. 31 McCreery v. Day, 119 N. Y. 1, 23 N. E. 198, 6 L. R. A. 503, 16 Am. St. Rep. 793 ; Judson v. Romaine, 8 Ind. App. 300, 35 N. E. 912 ; Caples V. Port Huron Engine & Thresher Co. (Tex. Civ. App.) 131 S. W. 303. 82 Banewur v. Levenson, 171 Mass. 1, 50 N. E. 10. § 8 EESCISSION OF CONTRACTS 12 and shall embrace each and all of the parties to the original contract. '^ Often the effect of thus making a new contract depends on the intention of the parties with respect to the abrogation of the old contract, and this is a question to be determined by the jury upon the evidence.^* Where articles purchased are found unsatisfactory or unsuited to their purpose and are returned to the vendor, and others furnished in their place and accepted, this effects a rescission of the original contract of sale, so that no claims for damages can be founded on it.^^ Such is also the case where an article is returned to the seller and anoth- er substituted for it at a higher price,^" or where the new- contract includes additional articles and a change in the price, ^' or even a new contract for the purchase and sale of the same articles, when fully executed, may be a satisfaction of the former agreement as to such sale.''^ There is also a rescission where the new contract changes a conditional sale into an absolute sale,^** or where a sale of property is changed to a bailment with an option to purchase.*" And so, where parties to a contract which requires their proce- dure in a financial enterprise in a particular manner adopt and pursue without the consent of the other contracting parties an entirely different mode of procedure, a rescission is effected as against the parties so departing from the terms of the contract.*^ The important matter to be noticed in this connection is that if a contract is rescinded by the making of a new agree- ment, all rights under the original contract are gone, and no claims can be founded upon it, either in respect to com- pensation for breach of the new contract or for injuries sus- 33 Bade v. Hibherd, 50 Or. 501, 93 Pac. 3G4. 3 4Pi-iest V. Wheeler, 101 Mass. 479: Hogan v. Peterson, 8 Wyo. 549, 59 Pac. 162. And see Gilmer v. Ware, 19 Ala. 2.52. 3 5 Holbrook v. Electric Appliance Co., 90 111. App. 86. 3 Fitzsimons v. Richardson, 86 Vt. 229, 84 Atl. 811. 3T Keeney v. Mason, 49 Barb. (N. T.) 254. 3 8 Poland Paper Co. v. Foote & Davies Co., 118 Ga. 458, 45 S. E. 374. 39 Quinn v. Parke & Lacy Machinery Co., 9 Wash. 136, 37 Pac. 288. 40 In re Naylor Tilts. Co. (D. C.) 135 Fed. 206. 41 Gray v. Blooniington & N. Ky. Co., 120 111. App. 159. 13 DEFINITIONS AND GENERAL PRINCIPLES § 9 tained under the old. For example, where a sale of goods, after having been executed on the part of the seller, is can- celed by the parties, and a new contract as to the payment is substituted, the seller cannot rescind the sale and claim the goods, by reason of a fraudulent intent on the part of the purchaser not to pay for the goods, existing only at the time of the original contract; and his mere failure to per- form the new contract is not sufficient to show that the fraudulent intent continued in respect to the new con- tract." § 9. Modification or Alteration of Contract Distinguish- ed. — While, as just stated, a contract may be abrogated or rescinded by the substitution of an entirely new contract, it does not follow that a contract as a whole is done away with by a departure from or a modification or alteration of some of its terms.*' It is true that a party is not bound to submit to any change in the terms or conditions of his con- tract, and if this is attempted, with a refusal to perform ac- cording to the original terms, it may give him a right of rescission.** But if the contract is modified by the mutual consent of the parties, and particularly if one asks and ob- tains a modification,*'' it does not justify either in treating the contract as rescinded (so as to effect a change in their relative rights or duties) unless the changes are so funda- mental and material as really to create a new contract.** Thus, a contract is not rescinded by an agreement changing the total price to be paid under it,*^ or the amount of rent to be paid for leased premises,*' or granting an extension of the time for payment,*" or changing the mode of payment 42 Sparks v. Leavy, 19 Abb. Prac. (N. T.) 364. 43 Meyer v. Hallock, 25 N. Y. Super. Ct. 284. 44 Schucbardt v. Allen, 1 Wall. 359, 17 L. Ed. 642 ; Beckwith v. Kouns, 6 B. Mon. (Ky.) 222. 4 5 Hills V. McMunn, 232 111. 488, 83 N. E. 963. 46 Cooney v. McKinney, 25 Utab, 329, 71 Pac. 485; Webb v. Han- ley, 206 Mass. 299, 92 N. E. 429. 47 Drucklieb v. Universal Tobacco Co., 106 App. Div. 470, 94 N. Y. Supp. 777. •48 Haines v. Elf man, 235 Pa. 341, 84 Atl. 349. 4» Smitb V. Sackett, 15 111. 528; Miles v. Hemenway, 59 Or. 318, 111 Pac. 696, 117 Pac. 273. § 10 RESCISSION OP CONTRACTS 14 as to installments or otherwise. °° And so also as to a modi- fication in respect to the time for performance.'*^ And this is also true of any modifications of the contract with re- spect to the method of performing the work to be done un- der it."'' Thus, if a contract for the construction of a build- ing is altered with the consent of the parties, such altera- tions do not amount to a rescission of the contract so as to permit the contractor to recover the reasonable value of his work, but the contract price controls, so far as the work is done under the contract."^ And the re-execution of a con- tract for the sale of land, merely to correct a mistake in the name of the vendor, does not consummate a new contract.^* § 10. Effect of Novation. — If an agreement for novation leaves the subject of the contract unchanged, but introduces a new or substituted party to it, it operates as a rescission of the original contract, so far as to release the retiring party from all further responsibility under it, but not as to enforcement of the original terms against the remaining original party and the new party.''" If, on the other hand, the novation afifects the subject of the contract, but leaves the parties unchanged, it operates to rescind the contract only in case the change is so radical as to give rise to a pre- sumption that the parties intended entirely to abrogate the existing contract and form a new contract. "° § 11. Rescission and Reformation Distinguished. — The importance of distinguishing between the reformation of a written contract and its rescission chiefly arises in cases where a mistake is alleged. Reformation is a proper reme- dy where the parties have reached a definite and explicit 60 Greenwood v. Beeler, 152 Cal. 415, 93 Pao. 98 ; Sanders v. Stokes, 30 Ala. 432 ; Zwicky v. Morris, 146 111. App. 69. 61 Bangs V. Barret, 16 R. I. 615, 18 Atl. 250; General Electric Co. V. National Contracting Co., ITS N. T. 309, 70 N. E. 928. 62 Lewman v. United States, 41 Ct. CI. 470. 63 Garver v. Daubenspeck, 22 Ind. 238 ; Gray v. Jones, 47 Or 40 81 Pac. 813. 6 4 Wellington Realty Co. v. Gilbert, 24 Colo. App. 118, 131 Pac. 803. 6= Douglass V. Roberts, 1 City Ct. R. (N. Y.) 454; Bridgeford's Ex'rs V. Miller, 13 Ky. Law Rep. 927. See Downs t. Marsh, 29 Conn. 409 ; Morris v. Persing, 76 Neb. SO, 107 N. W. 218. 6 6 Supra, §§ 8, 9. 15 DEFINITIONS AND GENERAL PRINCIPLES § 11 agreement, understood in the same sense by both, but, by their mutual or common mistake, the written contract fails to express this agreement. Rescission is the proper remedy where the contract embodies what the parties nominally agreed on, but, in consequence of one party's ignorance of material facts, known to the other, or his mistake or mis- apprehension, not shared by the other, there has been no real meeting of their minds, and hence no valid contract. To warrant the reformation of a written instrument, "the mistake must be mutual and common to both parties to the instrument. It must appear that both have done what nei- ther intended. A mistake on one side may be a ground for rescinding, but not for reforming, a contract. Where the minds of the parties have not met, there is no contract, and hence none to be rectified." °' It follows, therefore, that where one party demands the rescission of a contract on the ground of mistake, the other may insist, if the facts warrant it, that it shall be reformed instead of rescinded. Where the defendant in an action for rescission succeeds in show- ing that there was an actual and definite agreement, and that the only mistake occurred in reducing it to its final form, and that such mistake was common, then, in the ab- sence of fraud, it will be proper for the court to refuse the prayer for rescission, and instead to order the reformation of the instrument and its enforcement as reformed. °* And even if the variance between the written contract and the oral agreement of the parties was brought about by fraud on the one side, inducing the mistake on the other, still, if there is no doubt as to what the agreement actually was, it may be a proper case for reformation instead of rescis- 5 7 Heame v. Marine Ins. Co., 20 Wall. 488, 22 L. Ed. 395; Frazier V. State Bank of Decatur, 101 Ark. 135, 141 S. W. 941. So also, "equity will not reform a written contract unless tlie mistake is shown to be the mistake of both parties ; but it may rescind and cancel upon the ground of mistake of fact, material to the contract, of one party only." Civ. Code Ga., 1910, § 4579. ssBindseil v. Federal Union Surety Co., 130 App. Div. 775, 115 N. Y. Supp. 447; Davy v. Davy, 98 App. Div. 630, 90 N. Y. Supp. 242 ; Schelling v. BischofC, 61 N. Y. Super. Ct. 68, 18 N. Y. Supp. 859 ; Matteson v. Johnston, 139 App. Div. 859, 124 N. Y. Supp. 185 ; Van Donge v. Van Donge, 23 Mich. 321. And see Fitzkee v. Hoeflin, 187 111. App. 514. § 12 RESCISSION OF CONTRACTS 16 sion.^' But it must be carefully noted that this does not apply where there was a unilateral mistake as to the sub- ject-matter of the contract. Thus, where a vendor mis- states the quantity of land to be conveyed, and the pur- chaser relies on his statement, and would not have made the bargain if he had known the true quantity, there is no such meeting of the minds of the parties as is necessary to the formation of a true contract, and there can be no ref- ormation of the contract, but it must be rescinded on the application of the purchaser, and this, even though the mis- statement was not intentional."" Sometimes, also, the cir- cumstances may be such as to give to one of the parties an election either to have the contract reformed or to have it rescinded. Here he must make a definite choice of his rem- edy. He cannot frame a bill with a double aspect, asking either a cancellation or a reformation of the instrument.*^ And he must abide by an election once made. A contract cannot be rescinded for mistake as to its terms, where the party entitled to rescind has completed the contract and afterwards brought an action to reform it."^ And so, where the defendant, a party to a contract to convey land, pro- posed by parol to convey to the plaintiff the property really meant to be conveyed, but which was erroneously described in the contract, and the plaintiff accepted the deed as pro- posed by the defendant, it was held to be in effect a reforma- tion of the contract, and a complete satisfaction of it as reformed. °' § 12. Rescission as the Converse of Specific Perform- ance. — Rescission is often spoken of as the converse of spe- cific performance, meaning that a party who could success- fully resist a suit for specific performance will be entitled affirmatively to demand the rescission of the contract."* B9 Stanek v. Libera, 73 Minn. 171, 75 N. W. 1124; Gillis v. Arring- dale, 135 N. c. 29.j, 47 S. E. 429. 80 Tryon v. Lyon, 133 App. Div. 798, 118 N. X. Supp. 5. And see CuUison V. Connor, 222 111. 135, 78 N. E. 14. 61 Micou V. Ashurst, 55 Ala. 607. 62 Grant Marble Co. v. Abbot, 142 Wis. 279, 124 N. W. 204. 63 Benesh v. Travelers' Ins. Co., 14 N. D. 39, 103 N. W. 405. «* McCrea v. Hlnkson, 65 Or. 132, 131 Pac. 1025 ; Grafeman Dairy Co. V. St. Louis Dairy Co., 96 Mo. App. 495, 70 S. W. 390 ; Gibson v. Fifer, 21 Tex. 260. 17 DEFINITIONS AND GENERAL PRINCIPLES § 12 "In general, where a specific execution would be refused, a rescission will be decreed." °° But this statement must not be taken too literally. It is not invariably a correct guide. The fact that specific performance of a contract cannot be had is not necessarily conclusive of a right to rescind."* Specific performance is much more a matter of grace than rescission. Rescission much more nearly approaches being a matter of right than does specific performance. Hence it is often within the sound discretion of a court of equity to refuse to rescind a contract, although it would also, on the same facts, refuse a decree of specific performance, the re- sult being that the parties are left to their remedies at law."^ In fact, the rule generally accepted is that, to justify the cancellation or rescission of a contract requires a stronger case than is required to resist a specific perform- ance; in other words, the circumstances which would justi- fy a court of equity in denying a specific performance may not be strong enough to warrant it in sustaining or decree- ing a rescission."* The matter may be one of evidence. Thus, to warrant a decree rescinding a contract on the ground of fraud, the evidence must be clear and precise, and the court, in the exercise of its discretion, may refuse a rescission, even though, on the same proofs, it would re- fuse to decree specific performance at the suit of the other party. "" Or the difference may be found in the facts and circumstances of the case. "There is a wide difference be- tween the facts and circumstances necessary to move a chancellor to refuse the execution of a contract and those necessary to induce him to rescind it. In the one case, in- terposition will be refused on the ground of improvidence, «6 Kirby v. Harrison, 2 Ohio St. 326, 59 Am. Dec. 677. 66 Brackenridge v. Dawson, 7 Ind. 383. 67 Kirby v. Harrison, 2 Ohio St. 326, 59 Am. Dec. 677; Thomp- son V. Jackson, 3 Rand. (Va.) 504, 15 Am. Dec. 721 ; Jackson v. Ash- ton, 11 Pet. 229, 9 L. Ed. 698 ; Beck v. Simmons, 7 Ala. 71 ; Wat- kins V. Collins, 11 Ohio, 31 ; Badger State Lumber Co. v. G. W. Jones Lumber Co., 140 Wis. 73, 121 N. W. 933. 6 8 Brainard v. Holsaple, 4 G. Greene (Iowa) 485; Hollis v. Hayes, 1 Md. Ch. 479; Stearns v. Beckham, 31 Grat. (Va.) 379; Husheon V. Kelley, 162 Cal. 656, 124 Pac. 231. 69 Goggins V. Kisley, 13 Pa. Super. Ct. 316. Black Resc. — 2 § 12 RESCISSION OP CONTRACTS 18 surprise, or even mere hardship; in the other, a court will act only on the ground of fraud, illegality, or mistake." '"* It is indeed well settled that a decree of specific perform- ance may be refused where the bargain sought to be enforc- ed is so unjust and unequal as to be unconscionable, al- though this circumstance is never sufficient, by itself, to warrant a rescission, the latter remedy requiring, in addi- tion, some proof of fraud, deceit, duress, or undue influ- ence.''^ So, specific performance of a contract for the sale of land will not be awarded where it has been obtained by sharp or unscrupulous practices or by overreaching or con- cealment of important facts, though these circumstances might fall far short of making a case fori rescission.' - Again, a misrepresentation of a material fact may not be enough to warrant a rescission of a contract into which the other party was induced to enter in reliance upon it, if made without any fraudulent intent and with a sincere be- lief in its correctness, but it will prevent the specific per- formance of the contract.'''' And so, a promissory repre- sentation — relating to some intended future action — if it is not performed, may be ground for refusing specific per- formance, but not for awarding rescission.''^ And equity will in no circumstances enforce the terms of a contract founded in fraud, although there existed and were accessi- ble to the party defrauded the means and opportunity to '0 Lynch's Appeal, 97 Pa. 349. 71 Reynolds v. Craft, 38 Pa. Super. Ct. 46; Chanute Brick & Tile Co. V. Gas Belt Fuel Co., 82 Kan. 752, 109 Pac. 398; Barney v. Chamberlain, 85 Neb. 7N5, 124 N. W. 482; Haack v. Scott (Iowa) 124 N. W. 1008. "Nor is it any reason for rescinding the contract that it has become more burdensome in its operation upon the com- plainants than was anticipated. If it be indeed unequal now, if it has become unconscionable, it might possibly be a reason why a court should refuse to decree its specific performance, but it has nothing to do with the question whether it should be ordered to be canceled It is not the province of a court of equity to undo a bargain because it is hard." Marble Co. v. Ripley, 10 Wall. 339, 19 L. Ed. 955. 72 Gibb V. Mlntline, 175 Mich. 626, 141 N. W. 5:i8. 73 Ginther v. Townsend, 114 Md. 122, 78 Atl. 908 ; New York Bro- kerage Co. V. Wharton, 143 Iowa, 61, 110 N. W. 969, Matthey v. Wood, 12 Bush (Ky.) 293. 7 4 Bowker v. Cunningham, 78 N. J. Eq. 458, 79 Atl. 608. 19 DEFINITIONS AND GENERAL PRINCIPLES § 13 detect the fraud by the exercise of ordinary prudence, which will ordinarily be sufficient to defeat his right to rescis- sion.'^ And the inability of the vendor to make a good title at the time the decree is pronounced, though it forms a sufficient ground for refusing specific performance, will not authorize a court of equity to rescind the agreement, at least in a case where the party has an adequate remedy at law for its breach.'" On the other hand, "in suits for specific performance, the rule which exacts a correspondence between the allegations and the proof of the terms of the contract is adhered to with great strictness, while in suits for the rescission of con- tracts on account of fraud, that rule is not applied with the same strictness." " And the fact that a contract is not suf- ficiently definite to decree its specific performance, or to sustain a judgment for damages, is no ground for the re- fusal of a court of equity to cancel the contract because of the refusal of one of the parties to perform one of its sub- stantial requirements.'^ § 13. Parol Rescission of Written Contract. — Though a contract (such, for example, as a lease) may be in writing, and even though it may be under seal, it may be surrender- ed and abrogated by an executed parol agreement of the parties, or by an agreement inferable from their conduct." Further, a party who has been defrauded in making a con- tract, or deceived by false representations, and who there- fore has the right to demand rescission of it, provided he will act promptly and offer to restore the status quo, is not precluded from exercising this right by the mere fact that the contract was reduced to writing and sealed.*" And it 7 6 Brandt v. Krogh, 14 Cal. App. 39, 111 Pac. 275. And see Wortt V. Watts, 76 N. J. Eq. 299, 74 Atl 434. 7 6 Hepburn v Dunlop, 1 Wheat. 179, 4 L. Ed. 65 77 Pierce v. Wilson, 34 Ala. 596. 7 8 Callanan v. Keesville, A. C. & L. C. R, Co., 131 App. Div. 306, 115 N. Y. Supp. 779. And see Windust v. Sutton, 54 Wash. 340, 103 Pac. 10. 7 9 Wabash Realty & Loan Co. v. Krabbe, 145 111. App. 462 , Bloom- quist V. Johnson, 107 111. App. 154. 60 Herrin v. Libbey, 36 Me. 350; Olston v. Oregon Water Power & Ry. Co., 52 Or. 343, 96 Pac. 1095, 97 Pac. 538, 20 L. R. A. (N. S.) § 14 RESCISSION OF CONTRACTS 20 is no defense to a bill in equity to cancel a written instru- ment for want of consideration that it is under seal.^'^ So, a written contract for the sale of land may be orally re- scinded; though mere oral rescission does not divest the party of the estate which he has taken, or bar him from specific performance, without 'the destruction of the writ- ten contract, or surrender of possession if the contract was oral.*^ And a surrender to the vendor of his written con- tract for the sale of land, to secure the performance by the vendee of a new parol contract of sale, does not, on a failure of the vendee to perform, constitute a cancellation of the written contract.*' It is further to be remarked that the making of false and fraudulent representations to in- duce the making of a contract, and which do actually in- duce it, may be set up as a ground of rescission, or inter- posed in defense to an action on the contract, although the contract does not include or refer to the representations ; and in this case and to this extent, the doctrine that all previous negotiations and representations are merged in the written contract does not apply.** § 14. Grounds Required to Support Unilateral Rescis- sion. — By "unilateral" rescission is meant the undoing of a contract, for good and sufficient cause, on the demand and insistence of one of the parties to it, against the protest or objection of the other. This is not the only way in which a contract may be abrogated. It may be rescinded by the mutual consent of the parties, and in this case it is not necessary that there should be any cause for rescission other than the mere common desire of the parties to do away with the contract and be free from it. Again, a right to rescind at the option of one of the parties may be reserved in the contract, and may then be exercised with- 915 ; Murray v. Boyd, 165 Ky. 625, 177 S. W. 468 ; Getchell v. Kirby, 113 Me. 91, 92 Atl. 1007 ; Faust v. Kohr, 167 N. C. 360, 83 S. E. 622. 81 Way V. Union Cent. Life Ins. Co., 61 S. 0. 501, 39 S. E. 7-12. 82 Cunningham v. Cunningham, 46 W. Va. 1, 32 S. E. 998. 83 Sanborn v. Murphy, 86 Tex. 437, 25 S. W. 610. 84 Watson V. Kirby, 116 Ala. .557, 23 South. 61 ; Leieher v. Keeney, 98 Mo. App. 394, 72 S. W. 145 ; Board of Water Com'rs of New Lon- don V. Robbing, 82 Conn. 623, 74 Atl. 938; Parrish v. Parrish, 33 Or. 486, 54 Pac. 352. 21 DEFINITIONS AND GENERAL PRINCIPLES § 14 out reference to any other conditions than those specified in the contract. Again, some kinds of grants are revocable at will, if no special injury will result to the other party, such as licenses, some forms of settlements and trusts, and some contracts of employment, such as those with brokers and other agents. But aside from these instances, it is a general rule that a contract properly entered into by com- petent parties and founded upon a consideration, and which one of the parties is able and willing to perform, cannot be rescinded by the other, unless he is able to show the exist- ence of some well-recognized title to equitable relief, such as fraud, mistake, or duress. °° The homely proverb teaches that "it takes two to make a bargain." This is both good sense and good law. And the converse is equally good law, — that "it takes two to undo a bargain once properly made," unless, as we have said, it was induced by fraud or is otherwise open to impeachment in a court of equity. Thus, a deed, a contract, or any other kind of an obligation will not be set aside or rescinded merely because the gran- tor or contractor has changed his mind about it,^" or be- cause it was his own inexcusable folly and negligence which led him into it,*^ or because (no concealment or mis- representations having been practised upon him) he finds it will be very much more difficult and expensive to carry out his contract than he had supposed.^^ And so, although 8 5Mendell v. Willy oung, 42 Misc. Kep. 210, 85 N. Y. Snpp. 647; Starling v. State, 5 Ga. App. 171, 62 S. E. 993; Rodman v. Robin- son, 134 N. C. 503, 47 S. E. 19, 65 L. R. A. 682, 101 Am. St. Rep. 877 ; Bevins v. J. A. Goates & Sons, 29 Ky. Law Rep. 978, 96 S. W. 585 ; Commercial Register Co. v. Drew, 168 111. App. 347 ; Ziehme V. Mclnerney, 167 111. App. 577; Harlan v. Logansport Natural Gas Co., 133 Ind. 323, 32 N. B. 930; Tison v. Labeaume, 14 Mo. 198; Bellows v. Crane Lumber Co., 126 Mich. 476, 85 N. W. 1103; Wortman v. Montana Cent. Ry. Co., 22 Mont. 266, 56 Pae. 316 ; Bow- man V. Ayers, 2 Idabo (Hasb.) 465, 21 Pac. 405 ; National City Bank V. Wagner, 216 Fed. 473, 132 C. C. A. 533; Pardoe v. Jones, 161 Iowa, 426, 143 N. W. 405; Listman Mill Co. v Dufresne, 111 Me. 104, 88 Atl. 354. 86 Bretthauer v. Foley, 15 Cal. App. 19, 113 Pac. 356. And see Clark V. Stetson, 113 Me. 276, 93 Atl. 741. 8 7 Hardy v. Brier, 91 Ind. 91; Moore v. Reed, 37 N. C. 580. 8 8TorTey v. Balen Agricultural & Mining Co., 2 City Ct. R. (N. T.) 387. § 14 RESCISSION OF CONTRACTS 22 a mining lease, granted for a money bonus as a considera- tion, does not bind the lessee to do any mining or to pay money in lieu thereof, the lessor cannot annul or revoke it merely on the ground of a want of mutuality of obliga- tion.'" And in general, when courts are called upon to set aside contracts, there must be some substantial reasons shown ; and a court of equity, particularly, will not act when it is kept in the dark as to the reasons or purposes of a transaction in reference to which relief is sought."" To illustrate these principles, where two parties have entered into a written contract for the purchase and sale of goods, neither a countermand of the order for their shipment nor a notice by the purchaser to the seller that he will not ac- cept them will be effectual to cause a rescission of the con- tract, but to that end the assent of the seller is necessary."^ So, where one conveyed land to his two sons in considera- tion of their agreement to support him and to pay a certain sum to a designated charity and a certain other sum to his other children and to mortgage the land as security there- for, it was held that the contract was not revocable at the mere will of the grantor, as a testamentary disposition of the property would have been."^ And it follows from what has been said above that, when an agreement has been properly executed and delivered, a party executing it can- not afterwards discharge his liability upon it, by simply erasing his signature, without the consent of the other parties."^ And on the same principle, one of a number of persons accepting a written proposition cannot, by striking out his name without the consent of the others, relieve him- self from liability upon such contract or acceptance."* 8 Pyle V. Henderson, 65 W. A^a. 39, 63 S. B. 762. 90 Scanlan v Cillan, 5 Cal. 1S!2. Ki Oklahoma Vinegar Co. v. Carter, 116 Ga. 140, 42 S. E. 378, 59 L. R. A. 122, 94 Am. St. Rep. 112 ; Morgan v. Nashville Grain Co., 12 Ga. App. .:i74, 77 S. E. 013. 92 Rutland & B. R. Co. v. Powers' Adm'r, 25 Vt. 15. 93 Natchez v. Minor, 9 Smedes & M. (Miss.) 544, 48 Am. Dec. 727 0* Burton v. Shotwell, 13 Bush (Ky.) 271 ; Merriman v. Norman, 9 Heisk. (Tenn.) 2G9. 23 DEFINITIONS AND GENERAL PRINCIPLES § 16 § 15. Statutory Grounds, for Rescission. — In several of the states where the body of substantive law has been codified, elaborate and detailed provision is made for the rescission of obligations, the causes therefor being pre- scribed and carefully defined, and the process and the re- sults to the parties being also regulated by law. To a large extent, these code provisions merely affirm the common law of the subject. But in some important particulars they have advanced beyond the common law, especially in the way of granting a right of rescission for certain causes (for example, promissory representations), as to which the courts have differed so long and so widely that the common law on the subject cannot even now be said to be definitely settled. It is to be observed that, in these states, the provi- sions of the code are exclusive, so that a party to a con- tract cannot rescind it except upon the occurrence of some one or more of the causes specified in the code, whatever might have been his rights at common law.°^ § 16. Same; California, Montana, Oklahoma, North Dakota, South Dakota. — In all these states, the provisions of the codes on the subject of rescission are either identi- cal or very closely similar, the code of California having served as a model for the legislation, on this subject, of the other states named. Dealing first with the principle that a contract is voidable unless founded on the actual, free, and mutual consent of the parties, they provide that "an apparent consent is not real or free when obtained through duress, menace, fraud, undue influence, or mistake," and that "consent is deemed to have been obtained through one of the causes mentioned in the last section only when it would not have been given had such cause not existed." The principal terms above used are then defined and de- scribed as follows: "Duress consists in (1) unlawful con- finement of the person of the party, or of the husband or wife of such party, or of an ancestor, descendant, or adopt- ed child of such party, husband, or wife; (2) unlawful detention of the property of any such person; or (3) con- es Swanston v. Clark, 153 Cal. 300, 95 Pac. 1117; Dowagiac Mfg. Co. V. Higinbotham, 15 S. D. 547, 91 N. W. 330. § 16 RESCISSION OF CONTRACTS 24 finement of such person, lawful in form, but fraudulently obtained, or fraudulently made unjustly harassing or op- pressive." "Menace consists in a threat (1) of such duress as is specified in subdivisions one and three of the last sec- tion ; (2) of unlawful and violent injury to the person or property of any such person as is specified in the last sec- tion; or (3) of injury to the character of any such person." "Actual fraud consists of any of the following acts, com- mitted by a party to a contract, or with his connivance, with intent to deceive another party thereto or to induce him to enter into the contract: (1) the suggestion as a fact of that which is not true, by one who does not believe it to be true ; (2) the positive assertion in a manner not warranted by the information of the party making it, of that which is not true, though he believes it to be true; (3) the suppression of that which is true by one having knowledge or belief of the fact; (4) a promise made with- out any intention of performing it; or (5) any other act fitted to deceive." "Constructive fraud consists (1) in any breach of duty which, without an actually fraudulent in- tent, gains an advantage to the person in fault, or any one claiming under him, by misleading another to his preju- dice, or to the prejudice of any one claiming under him, or (2) in any such act or omission as the law specially declares to be fraudulent, without respect to actual fraud." "Undue influence consists (1) in the use, by one in whom a con- fidence is reposed by another, or who holds a real or ap- parent authority over him, of such confidence or authority for the purpose of obtaining an unfair advantage over him ; (2) in taking an unfair advantage of another's weakness of mind; or (3) in taking a grossly oppressive and unfair advantage of another's necessities or distress." "Mistake of fact is a mistake, not caused by the neglect of a legal duty on the part of the person making the mistake, and consisting m (1) an unconscious ignorance or forgetfulness of a fact, past or present, material to the contract; or (2) belief in the present existence of a thing material to the contract, which does not exist, or in the past existence of such a thing, which has not existed. Mistake of law con- stitutes a mistake within the meaning of this article [jus- 25 DEFINITIONS AND GENERAL PEINCIPLE3 § 16 tifying the rescission of a contract] only when it arises from (1) a misapprehension of the law by all parties, all supposing that they knew and understood it, and all mak- ing substantially the same mistake as to the law ; or (2) a misapprehension of the law by one party, of which the others are aware at the time of contracting, but which they do not rectify. Mistake of foreign laws is a mistake of fact." »» In connection with these provisions, as being in pari materia with them, should be read the provision that, for the purposes of a statutory action of deceit, a deceit con- sists in "(1) the suggestion as a fact of that which is not true by one who does not believej it to be true; (2) the assertion as a fact of that which is not true, by one who has no reasonable ground for believing it to be true; (3) the suppression of a fact, by one who is bound to disclose it, or who gives information of other facts which are likely to mislead for want of communication of that fact ; or (4) a promise made without any intention of performing it." '^ Applying these definitions and principles to the rescis- sion of contracts, and dealing first with the right of a party to rescind without invoking the aid of a court, the codes provide that "a party to a contract may rescind the same in the following cases only: (1) if the consent of the party rescinding, or of any party jointly contracting with him, was given by mistake, or obtained through du- ress, menace, fraud, or undue influence, exercised by or with the connivance of the party as to whom he rescinds, or of any other party to the contract jointly interested with such party; (2) if, through the fault of the party as to whom he rescinds, the consideration for his obligation fails, in whole or in part ; (3) if such consideration becomes entirely void for any cause; (4) if such consideration, be- fore it is rendered to him, fails in a material respect from 06 Civ. Code Cal., §§ 1567-1579; Kev. Civ. Code Mont., §§ 4973- 4985 ; Rev. Civ. Code N. Dak., §§ 5288-5300 ; Eev. Civ. Code S. Dak., §§ 1196-1208; Bev. Laws Okl., 1910, §§ 898-910. "Civ. Code Cal., § 1710; Rev. Civ. Code Mont, § 5073; Rev. Civ. Code N. Dak., § 5388; Rev. Civ. Code S. Dak., § 1293; Rev. Laws Okl., 1910, § 994. § 16 RESCISSION OF CONTRACTS 26 any cause, or (5) by consent of all the other parties. A stipulation that errors of description shall not avoid a con- tract, or shall be the subject of compensation, or both, does not take away the right of rescission for fraud, nor for mistake, where such mistake is in a matter essential to the inducement of the contract, and is not capable of exact and entire compensation. Rescission, when not effected by con- sent, can be accomplished only by the use, on the part of the party rescinding, of reasonable diligence to comply with the following rules: (1) he must rescind promptly, upon discovering the facts which entitle him to rescind, if he is free from duress, menace, undue influence, or disability, and is aware of his right to rescind, and (2) he must re- store to the other party everything of value which he has received from him under the contract, or must offer to restore the same upon condition that such party shall do likewise, unless the latter is unable or positively refuses to do so." "» Next, the codes take up the subject of rescission by order or decree of court. They provide that the rescission of a written contract may be adjudged, on application of the party aggrieved, in any of the cases mentioned in that sec- tion (quoted above) which enumerates the causes for which a party may rescind on his own initiative, and also "where the contract is unlawful for causes not apparent upon its face, and the parties were not equally in fault, or when the public interest will be prejudiced by permitting it to stand." Further, "rescission cannot be adjudged for mere mistake, unless the party against whom it is adjudged can be restored to substantially the same position as if the con- tract had not been made," and "on adjudging the rescission of a contract, the court may require the party to whom such relief is granted to make any compensation to the other party which justice may require." "" It is likewise provided that "a written instrument, in 9 8 Civ. Code Cal., §§ 1689-lf!91 ; Eev. Civ. Code Mont., §§ 506.3- 5065 ; Eev. Civ. Code N. Dak., §§ 5378-5380 ; Rev. Civ. Code S. Dak., §§ 1283-12S5; Rev. Laws Okl., 1910, §§ 984-986. »i>Civ. Code Cal., §§ 3406-3408; Rev. Civ. Code Mont., §§ 6112- 6114 ; Rev. Civ. Code N. Dak., §§ 6623-6625 ; Rev. Civ. Code S. Dak. §§ 2353-2355. 27 DEFINITIONS AND GENERAL PEINCIPLBS § 16 respect to which there is a reasonable apprehension that if left outstanding it may cause serious injury to a person against whom it is void or voidable, may, upon his applica- tion, be so adjudged, and ordered to be delivered up or can- celed," and that "an instrument, the invalidity of which is apparent upon its face or upon the face of another instru- ment which is necessary to the use of the former in evi- dence, is not to be deemed capable of causing injury, within the provision of the last section." ^''° We may conclude this review by quoting some miscellaneous provisions touching rescission, which are found in the codes of one or more of the states mentioned. Thus, "on an agreement for sale with warranty, the buyer has a right to inspect the thing sold, at a reasonable time, before accepting it, and may rescind the contract if the seller refuses to permit him to do so. The breach of a warranty entitles the buyer to rescind an agreement for sale, but not an executed sale, un- less the warranty was intended by the parties to operate as a condition." ^"^ "If a buyer of personal property does not pay for it according to contract, and it remains in the pos- session of the seller after payment is due, the seller may rescind the sale, or may enforce his lien for the price." ^"^ "The employment by the seller of any person to bid at a sale by auction, without the knowledge of the buyer, with- out an intention on the part of such bidder to buy, and on the part of the seller to enforce his bid, is a fraud upon the buyer which entitles him to rescind his purchase." ^"^ All of these codes also contain detailed provisions re- specting the rescission of contracts made by minors and by persons of unsound mind. These provisions will be quot- ed at length in the chapters specifically devoted to those topics. At present, it may be sufficient to state their gen- eral tenor, as follows : A minor is not permitted to disaffirm a contract for the reasonable value of things necessary for 100 Civ. Code Cal., §§ 3412, 3413; Rev. Civ. Code Mont. §§ 6115, €116 ; Rev. Civ. Code S. Dak., §§ 2356, 2357. And see Rev. Civ. Code N. Dak., § 6626. 101 Civ. Code Cal., § 1785; Rev. Civ. Code Mont, § 5121. 102 Civ. Code Cal., § 1749; Rev. Civ. Code Mont, § 5096; Rev. Civ. Code N. Dak., § 5410; Rev. Civ. Code S. Dak., § 1314. 103 Civ. Code Cal., § 1797; Rev. Civ. Code Mont., § 5127. § 16 RESCISSION OF CONTRACTS 2S his support or that of his family, entered into by him when not under the care of a parent or guardian able to provide for him or them. Neither can he disaffirm an obligation, otherwise valid, entered into by him under the express authority or direction of a statute. But except in these two cases, a contract made by a minor may be disaffirmed by the minor himself either before his majority or within a reasonable time afterwards (but in South Dakota and Oklahoma, "before his majority or within one year's time afterwards"), or in case of his death within that period, by his heirs or personal representatives. As to restoration by the minor of what he has received under the contract, it is provided in all the states of this group, except Montana, that such restoration shall be required only in case the minor was over the age of eighteen at the time of making the contract. In Montana, it appears to be required in all cases of disaffirmance of an infant's contracts.^"* In these states, a person entirely without understanding has no power to make a contract of any kind, but is liable for the reasonable value of things furnished to him which are necessary for the support of himself or his family. A conveyance or other contract of a person of unsound mind, but not entirely without understanding, made before his incapacity has been judicially determined, is subject to rescission in the same way and for the same causes as other contracts ; but after his incapacity has been so de- termined, he can make no conveyance or contract, nor dele- gate any power or waive any right, until his restoration to capacity. In some states, such restoration must have been "judicially determined," but in others, a certificate from the medical officer of any insane asylum to which the patient may have been committed, showing that he has been dis- charged cured and restored to reason, "shall establish the presumption of the legal capacity of such person from the time of such discharge." ^"^ 10* Civ. Code Cal., §§ 35-37; Eev. Civ. Code Idaho, §§ 2603-2605; Rev. Civ. Code N. Dak., §§ 4015-4017 ; Rev. Civ. Code S. Dak., §§ 17- 19 ; Rev. Laws Okl., 1910, §§ 885-887 ; Rev. Civ. Code Mont., §§ 3592- 3594. 105 Civ. Code Cal., §§ 38-40; Rev. Civ. Code Mont, §§ 3595-3597; 29 DEFINITIONS AND GENERAL PRINCIPLES § 17 § 17. Same; Georgia. — The material parts of the Civil Code of Georgia (1910) relating to the rescission of sales and other contracts, are as follows : "Fraud or duress, by which the consent of a party has been obtained to a contract of sale, voids the sale. Fraud may exist by misrepresentation by either party, made with design to deceive, or which does actually deceive the other party, arid in the latter case, such misrepresentation voids the sale, though the party making it was not aware that his statement was false. Such misrepresentation may be per- petrated by acts as well as words, and by any artifice de- signed to mislead. A misrepresentation not acted on is not ground for annulling a contract." (Sees. 4112, 4113.) "Con- cealment of material facts may in itself amount to fraud (1) when direct inquiry is made and the truth evaded, (2) when from any reason one party has a right to expect full communication of the facts from the other, (3) where one party knows that the other is laboring under a delusion with respect to the property sold or the condition of the other party and yet keeps silence, (4) where the conceal- ment is of intrinsic qualities of the article which the other party, by the exercise of ordinary prudence and care, could not discover." (Sec. 4114.) "Duress consists in any illegal imprisonment, or legal imprisonment used for an illegal purpose, or threats of bodily or other harm, or other means amounting to or tending to coerce the will of another, and actually inducing him to do an act contrary to his free will." (Sec. 4116.) "Where one who is insolvent purchas- es goods, and, not intending to pay therefor, conceals his insolvency and intention not to pay, the vendor may dis- affirm the contract and recover the goods, if no innocent third person has acquired an interest in them." (Sec. 4111.) "Mistake of law, if not brought about by the other party, is no ground for annulling a contract of sale. Mistake of a material fact may in some cases justify a rescission of the c'ontract; mere ignorance of a fact will not." (Sec. 4115.) Rev. Civ. Code N. Dak., §§ 4018-4020; Kev. Civ. Code S. Dak., §§ 20-22 ; Rev. Laws Okl., 1910, §§ 88S-890 ; Rev. Oiv. Code Idaho, §§ 2606-2608. § 17 RESCISSION OP COXTRACTS 30 "Mere ignorance of law, on the part of the party himself, where the facts are all known, and there is no misplaced confidence, and no artifice or deception or fraudulent prac- tice is used by the other party either to induce the mistake of law or to prevent its correction, will not authorize the intervention of equity. An honest mistake of law as to the effect of an instrument, on the part of both contracting parties, when such mistake operates as a gross injustice to one and gives an unconscientious advantage to the other, may be relieved in equity. A mistake of law, in the drafts- man or other agent, by which the contract as executed does not fulfill or violates the manifest intention of the parties to the agreement, is relievable in equity." (Sees. 4575- 4577.) "In all cases of a mistake of fact material to the contract, or other matter affected by it, if the party com- plaining applies within a reasonable time, equity will re- lieve." (Sec. 4580.) "If the party by reasonable diligence could have had knowledge of the truth, equity will not relieve ; nor will the ignorance of a fact, known to the opposite party, justify an interference, if there has been no misplaced confidence, nor misrepresentation nor other fraudulent act." (Sec. 4581.) "Ignorance by both parties of a fact does not justify the interference of the court; nor will a mistake in judgment or opinion merely, as to the val- ue of the property, authorize such interference." (Sec. 4582.) In case of a deficiency in the quantity of the land sold, "the purchaser may demand a rescission of the sale or an apportionment of the price according to relative value. If the purchaser loses part of the land from defect of title, he may claim either a rescission of the entire contract, or a reduction of the price according to the relative value of the land so lost." (Sees. 4122, 4124.) "A rescission of the contract by consent, or a release by the other contracting party, is a complete defense. A con- tract may be rescinded at the instance of the party defraud- ed; but in order to the rescission, he must promptly, upon discovery of the fraud, restore or offer to restore to the other whatever he has received by virtue of the contract, if 31 DEFINITIONS AND GENERAL PRINCIPLES § 19 it be of any value. In some cases a party may rescind without the consent of the opposite party, for non-perform- ance by him of his covenants; but this can be done only when both parties can be restored to the condition in which they were before the contract was made. Where a contract of sale is rescinded for fraud, the rights of the vendor re- claiming the goods are superior to those of one who has acquired the goods or a lien thereon in consideration of an antecedent debt." (Sees. 4304-4307.) § 18. Same; Alabama. — In the statutory law of this state it is provided that "misrepresentation of a material fact, made willfully to deceive, or recklessly without knowl- edge, and acted on by the opposite party, or if made by mis- take and innocently, and acted on by the opposite party, constitutes legal fraud," and that "suppression of a fact ma- terial to be known, and which the party is under an obliga- tion to communicate, constitutes fraud. The obligation to communicate may arise from the confidential relations of the parties, or from the particular circumstances of the case." i°« § 19. Same; Louisiana. — The Code of this state pro- vides that "engagements made through error, violence, fraud, or menace are not absolutely null, but are voidable by the parties, who have contracted under the influence of such error, fraud, violence, or menace, or by the representa- tives of such parties. They may be avoided either by ex- ceptions to suits brought on such contracts, or by an action brought for that purpose." "^"^ The term "error," as used above, is substantially equivalent to "mistake" as used in equity jurisprudence, and the terms "violence" and "men- ace" are practically equivalent to the common-law terms "duress of imprisonment" and "duress per minas." But the word "fraud" is defined with great particularity in the law of Louisiana, as follows. "Fraud, as applied to contracts, is the cause of an error bearing on a material part of the contract, created or con- 106 Code Ala. 1907, §§ 4298, 4299. 107 Kev. Civ. Code La., §§ ISSl, 1882. § 19 RESCISSION OF CONTRACTS 32 tinued by artifice, with design to obtain some unjust ad- vantage to the one party, or to cause an inconvenience or loss to the other. From which definition are drawn the following rules : 1. Error is an essential part of the definition; an artifice that cannot deceive can have no effect in influencing the consent and cannot injure the validity of the contract. 2. The error must be on a material part of the contract, that is to say, such part as may reasonably be presumed to have influenced the party in making it, but it need not be the principal cause of the contract, as it must be in the case of simple error without artifice. 3. A false assertion as to the value of that which is the object of the contract is not such an artifice as will inval- idate the agreement, provided the object is of such a nature and is in such a situation that he who is induced to contract by means of the assertion might with ordinary attention have detected the falsehood; he shall then be supposed to have been influenced more by his own judgment than the assertion of the other. 4. But a false assertion of the value or cost or quality of the object will constitute such artifice if the object be one that requires particular skill or habit, or any difficult or in- convenient operation, to discover the truth or falsity of the assertion. Sales of articles falsely asserted to be com- posed of precious metals, sales of merchandise by a false invoice, of any article by a false sample, of goods in pack- ages or bales, which cannot without inconvenience be un- packed or inspected, or where the party making the sale avoids the inspection, with intent to deceive, sales of goods at sea or at a distance, are, with others of like nature, refer- able to this rule. 5. It must be caused or continued by artifice, by which is meant either an assertion of what is false, or a suppres- sion of what is true, in relation to such part of the contract as is stated in the second rule. 6. The assertion and suppression mentioned in the last preceding rule mean not only an affirmation or negation by words either written or spoken, but any other means cal- 33 DEFINITIONS AND GENERAL PRINCIPLES § 19 culated to produce a belief of what is false, or an ignorance or disbelief of what is true. 7. The artifice must be designed to obtain either an un- just advantage to the party for whose benefit the artifice is carried on, or a loss or inconvenience to him against whom it is practised, although attended with advantage to no one. 8. It is not necessary that either of the effects mentioned in the last preceding rule should have actually been pro- duced; it is sufficient to constitute the fraud that such would be the efifect of the contract if it were actually per- formed. 9. If the artifice be practised by a party to the contract, or by another with his knowledge or by his procurement, it vitiates the contract ; but if the artifice be practised by a third person, without the knowledge of the party who ben- efits by it, the contract is not vitiated by the fraud, al- though it may be void on account of error, if that error be of such a nature as to invalidate it ; in this case, the party injured may recover his damages against the person prac- tising the fraud. 10. In the words 'loss or inconvenience' which may be sufifered by the party is included the preventing him from obtaining any gain or advantage which, without the arti- fice, he might have obtained. 11. If the advantage to be gained by the party in favor of whom the artifice is practised gives him no unjust ad- vantage, that is to say, no advantage at the expense of the other party, and this latter would neither suffer incon- venience nor loss in consequence of the deception, if the contract were performed, the artifice does not vitiate it. 12. Combinations with respect to sales to enhance the price by false bids, or to depress it by false assertions, are artifices, which invalidate the contract when practised by those who are parties to it, or give rise to an action for damages where they are not. Fraud, like every other allegation, must be proved by him who alleges it, but it may be proved by simple presump- tions or by legal presumptions, as well as by other evi- dence. The maxim that fraud is not to be presumed means Black Resc. — ^3 § 19 EESCISSION OF CONTRACTS 34 no more than that it is not to be imputed without legal evi- dence." 1"^ It is also provided in the laws of this state that "if a promise to sell has been made with the giving of earnest, each of the contracting parties is at liberty to recede from the promise, to wit: he who has given the earnest, by for- feiting it, and he who has received it, by returning the double." ^"^ Rescission of a contract may also be effected under the civil law (in force in Louisiana) by the operation of a "resolutory condition," which corresponds to what the common law knows as one of the kinds of a condition sub- sequent. It is defined as "that which, when accomplished, operates the revocation of the obligation, placing matters in the same state as though the obligation had not existed. It does not suspend the execution of the obligation. It only obliges the creditor to restore what he has received in case the event provided for in the condition takes place." "» Rescission of the contracts of minors is provided for in the law of this state, with much care and detail. "Simple lesion," that is, any loss or inadequacy of consideration, will warrant the rescission of all contracts in favor of a minor not emancipated, or of contracts beyond the capacity of an emancipated minor, provided it does not happen in consequence of a casual and unforeseen event. A minor en- gaged in trade or being an artisan cannot repudiate en- gagements entered into in the way of his business or art. Nor can a minor disaffirm engagements stipulated in his marriage contract if sanctioned by those whose consent is necessary to the validity of the marriage, nor obligations 108 Rev. Civ. Code La., §§ 1847, 1848. 109 Rev. Civ. Code La., § 24G3. And see Legier v. Braughn, 123 La. 463, 49 South. 22. An agreement for the sale of real estate, con- templating the passing of property by an act to be executed at a later date, and which in other respects contains the elements es- sential to a sale, is a "promise of sale," within the meaning of this provision. Smith v. Hussey, 119 La. 32, 43 South. 902. 110 Rev. Civ. Code La., § 2045; Moss v. Smoker, 2 La. Ann. 991; Police Jury v. Reeves, 6 Mart. (N. S.) 221 ; Miquez v. Delcambre, 125 La. 176, 51 South. 108. 35 DEFINITIONS AND GENERAL PKINCIPLBS § 19 resulting from his offenses or quasi offenses, nor contracts ratified after attaining majority. The fact that the minor, at the time of making the contract, falsely represented him- self to be of full age will be no bar to his relief in a proper case. On the disaffirmance of a contract of a minor, he cannot be required to make restoration or reimbursement of what he has received under the contract, "unless it be proved that what was paid accrued to his benefit." ^^^ The doctrine of rescission on account of "lesion" is a principle of the civil law adopted and in force in Louisiana, which corresponds in some particulars to the rules of the common law with respect to the annulling of contracts for failure or inadequacy of consideration. But it can be in- voked only in the case of the partition, sale, or exchange of real property, and only in behalf of the vendor, not of the purchaser. This subject will be more fully discussed in a later chapter. Ill Rev. Civ. Code La., §§ 2222-2230, 1872. KESCISSION OF CONTBACTS 36 CHAPTER II FRAUD AND FRAUDULENT CONCEALMENT 20. Fraud as Ground of Rescission In GeneraL 21. Definitions of Fraud. 22. Same; Constructive Fraud. 23. Same ; Breach of Warranty Distinguished. 24. Essential Elements of Actionable Fraud. 25. Forged Instruments or Signatures. 26. Fraudulent Alteration of Instruments and Additions Thereto. 27. Fraud in Obtaining Possession of Deed. 28. Substitution of One Instrument for Another. 29. Fraudulent Substitution as to Subject of Purchase. 30. Conspiracy, Bribery, and Perjury. 31. Insolvency of Purchaser and Intent Not to Pay. 32. Frauds by Agents and Other Third Persons. 33. Agent Wrongly Exceeding Authority. 34. Collusion with Agent of Other Party. 35. Intention to Deceive or Defraud. 36. Effect of Fraud in Deceiving or Tricking Party. 37. Resulting Loss or Damage to Defrauded Party. 38. Fraud Practised on Both Sides. 39. Duty of Care and Prudence to Detect Fraud. 40. Rule as to Persons Occupying Positions of Trust or Confi- dence. 41. Same; What Constitutes Fiduciary or Confidential Relation. 42. Same ; Principal and Agent 43. Same; Attorney and Client. 44. Same ; Partners, Joint Owners, and Joint Purchasers. 45. Same ; Parent and Child. 46. Same ; Brother and Sister. 47. Same ; Husband and Wife. 48. Same ; Executors or Administrators and Beneficiaries. 49. Same; Physicians and Patients. 50. Same; Priests, Pastors, and Spiritual Advisers. 51. Same; Directors and Stockholders of Corporations. 52. Signing Instrument Without Reading It. 53. Same ; Rule for Illiterate Persons and Foreigners. 54. Same ; Defective Eyesight Excusing Failure to Read. 55. Same ; Dissuading or Preventing Party from Reading. 56. Same ; Misrepresenting Purport or Contents of Instrument. 57. Misreading Instrument. 58. Fraudulent Concealment of Material Facts. 59. Same ; Circumstances Imposing Duty to Disclose. 60. Same ; When Silence is Justifiable. 61. Caveat Emptor. 62. Concealment Coupled with Efforts to Prevent Discovery. 63. Concealment Coupled with False Representations. 64. Concealment of Latent Defects. 37 FRAUD AND FEAUDULENT CONCEALMENT § 20 § 65. Acquiescence In Self-Deception of Other Party. 66. Concealment by Purchaser of Property. 67. Same; Concealment Accompanied by Fraud or Falsehood. § 20. Fraud as Ground of Rescission in General. — It is a general rule that a party who has been induced to enter into any contract, obligation, or engagement by means of fraud, deceit, artifice, or trickery practised upon him by the oppo- site party, and who would not have placed himself in the situation in which he now is, if it had not been for the fraud or deceit, will be entitled to rescind the contract and de- mand a restoration of the status quo, and may have the aid of a court of equity to accomplish this purpose.^ This rule is not at all restricted to cases of sales of property. Thus, for instance, equity will set aside a conveyance by which the grantee, by means of fraud, oppression, and undue influence, obtained in settlement of a debt a tract of land of much greater value than the amount of the debt.^ 1 Andrews v. Frierson, 134 Ala. 626, 33 South. 6 ; Green v. Clyde, 80 Ark. 391, 97 S. W. 437; Bretthauer v. Foley, 15 Cal. App. 19, 113 Pac. 356; Mutual Life Ins. Co. v. Chambliss, 131 Ga. 60, 61 S. E. 1034 ; Williams v. Moore-Gaunt Co., 3 Ga. App. 756, 60 S. E. 372 ; Pittenger v. Pittenger, 208 111. 582, 70 N. E. 699 ; Security Trust Co. V. Tarpey, 66 111. App. 589 ; Sass v. Thomas, 6 Ind. T. 60, 89 S. W. 656, 11 L. R. A. (N. S.) 260 ; Basye v. Basye, 152 Ind. 172, 52 N. B. 797; Stapleton v. Haight, 135 Iowa, 564, 113 N. W. 351; Bainter V. Fults, 15 Kan. 323; Murray v. Davies, 77 Kan. 767, 94 Pac. 283 ; Rhea v. Yoder, 2 Ky. (Ky. Dec.) 87; Campion v. Marston, 99 Me. 410, 59 Atl. 548; Towle v. Dunham, 76 Mich. 251, 42 N. W. 1117; White V. Mitchell, 38 Mich. 390; Bank of Hallowell v. Baker, 1 Minn. 261 (Gil. 205) ; Liddell v. Sims, 9 Smedes & M. (Miss.) 596 ; Lewis V. Starke, 10 Smedes & M. (Miss.) 120 ; Moore v. Mutual Re- serve Fund Life Ass'n, 121 App. Div. 335, 106 N. Y. Supp. 255 ; Al- len V. Hass, 27 Ohio Oir. Ct. R. 727; Lynch v. United States, 13 Okl. 142, 73 Pac. 1095; St. Dennis v. Harras, 55 Or. 379, 105 Pac. 246, 106 Pac. 789 ; Koehler v. Dennison, 72 Or. 362, 143 Pac. 649 ; Gilbert v. Hoffman, 2 Watts (Pa.) 66, 26 Am. Dec. 103; Deaderick V. Watkins, 8 Humph. (Tenn.) 520; Smith v. Montes, 11 Tex. 24; Murray Co. v. Putman (Tex. Civ. App.) 130 S. W. 631; Gann v. Shaw, 2 Willson, Civ. Cas. Ct. App. (Tex.) § 257; University of Virginia v. Snyder, 100 Ya. 567, 42 S. E. 337; Harris v. Harris' Ex'r, 23 Grat. (Va.) 737 ; Thompson v. Jackson, 3 Rand. (Va.) 504, 15 Am. Dec. 721 ; Scott v. Perkins, 4 W. Va. 591 ; Bostwick v. Mutual Life Ins. Co., 116 Wis. 392, 89 N. W. 538, 92 N. W. 246, 67 L. R. A. 705 ; W. G. Ward Lumber Co. v. American Lumber & Mfg. Co., 247 Pa. 267, 93 Atl. 470. 2 Wagg V. Herbert, 215 U. S. 546, 30 Sup. Ct. 218, 54 L. Ed. 321. § 20 RESCISSION OF CONTRACTS 38 So a corporation may have relief in equity on the ground that its promoters perpetrated a fraud on the corporation and its stockholders by entering into a secret agreement whereby one of them was to obtain a royalty on goods man- ufactured by the corporation.^ Again, fraud inhering in part of a collective claim must be held to taint the whole, and the claim, which, standing alone, would be valid, must fall with the fraudulent one with which it is combined.* But a party seeking to obtain the rescission of an executed contract on this ground must distinctly allege and clearly prove a distinct case of fraud, '^ so that, for example, in an action on notes given for the purchase price of personal property, if the defendant merely alleges that the property was of no value, but does not allege fraud in inducing him to make the purchase, it is not sufficient to make an issue for the jury on the question of rescission." But a contract into which one of the parties is induced to enter by the fraud of the other is not absolutely void for that reason. It is voidable at the option of the injured party, but unless that option is exercised, and until it is ex- ercised, the contract is binding and cannot be treated on either side as a mere nullity.'' Thus, where a vendor deliv- 3 Fred Macey Co. v. Macey, 143 Jlicb. 138, 106 N. W. 722, 5 L. R. A. (N. S.) 1036. " Weiskirclier v. Volk, 29 Pa. Super. Ct. 611. sMattliey v. Wood, 12 Bush (Ky.) 293; Printup v. Fort, 40 Ga. 276. « Jesse French Piano & Organ Co. v. Thomas, 36 Tex. Civ. App. 78, 80 S. W. 1063. ■> Foreman v. Bigelow, 4 Cliff. 508, Fed. Cas. No. 4,934 ; Federal Life Ins. Co. v. Griffin, 173 111. App. 5 ; Jarrett v. Cauldwell, 47 Ind. App. 478, 94 N. B. 790 ; Richards v. School Tp. of .Jackson, 132 Iowa, 612, 109 N. W. 1093 ; El Dorado Jewelry Co. v. Darnell, 135 Iowa, 555, 113 N. W. 344, 124 Am. St. Rep. 309 ; Oeh v. Missouri, K. & T. Ry. Co., 130 Mo. 27, 31 S. W. 962, 36 L. R. A. 442; Smith v. Ryan, 191 N. Y. 452, 84 N. E. 402, 19 L. R. A. (N. S.) 461, 123 Am. St. Rep. 609, 14 Ann. Cas. 505; Smith Eros. v. Mousette, 7."i Misc. Rep. 121, 132 N. T. Supp. 770; Ditton v. I'urcell, 21 N. D. 648, 132 N. W. 347, 36 L. R. A. (N. S.) 149 ; Engeman v. Taylor, 46 W. Ya. 669, 33 S. E. 022; Richardson v. Vick, 125 Tenn. 532, 145 S. W. 174. But see Supreme Council Catholic Knights, etc., v. Beggs, 110 111. App. 1.39; J. A. Fay & Egan Co. v. Independent Lumber Co., 178 Ala. 166, 59 South. 470; Jones v. Rhoades, 167 Iowa, 562, 149 N. W. 637; Winona Wagon Co. v. Feaster, 188 Mo. App. 307, 175 39 FRAUD AND FRAUDULENT CONCEALMENT § 20 ers a deed of real property, which is accepted by the pur- chaser, or delivers the possession of personal property, with the intention to convey to him, the title passes, even though the sale was brought about by the fraud of the pur- chaser, but a title so obtained will be voidable at the elec- tion of the defrauded vendor, provided the property has not been transferred, before avoidance, to a third person taking title in good faith.* Conversely, although a purchaser has accepted a deed and taken possession, he may maintain a bill to rescind the contract if he can show that fraud was practised upon him by the vendor ; " and a bill to set aside a deed procured by fraud may be maintained, though the complainant is not in possession, and though the land is not vacant and unoccupied.^" A contract induced by fraud be- ing therefore not void but voidable, the injured party gen- erally has an election between several different remedies. He may choose to rescind the contract and to be made whole by the recovery of whatever he may have paid or giv- en under it, or he may elect to affirm the contract and seek compensation in damages to the extent of the injury which the fraud has caused him,^^ but of course he must take one course or the other, and cannot pursue both.^^ If he elects to rescind, he should tender back whatever he has already received under the contract, and he may then recover what- ever he has paid or parted with or its value,^^ and in the case of a defrauded vendor of personal property, he may reclaim the goods themselves, if they have not passed into the hands of a bona fide purchaser.^* If the transaction in S. W. 109 ; Gross, Kelly & Co. v. Bibo, 19 N. M. 495, 145 Pac. 480 ; Coffman v. Viquesney (W. Va.) 84 S. E. 1069. 8 Berry v. Anderson, 22 Ind. 36 ; Atlas Shoe Co. v. Bechard, 102 Me. 197, 66 Atl. 390, 10 L. K. A. (N. S.) 245 ; Vance v. Walker, 3 Hen. & M. (Va.) 288. 9 Houston V. Hurley, 2 Del. Oh. 247. 10 Clay V. Hammond, 199 111. 370, 65 N. E. 352, 93 Am. St. Rep. 146. 11 Siltz V. Springer, 236 111. 276, 85 N. E. 748; Yeomans v. Bell, 151 N. y. 230, 45 N. E. 552. 12 Yeomans v. Bell, 151 N. Y. 230, 45 N. E. 552. 13 Fields V. Brown, 160 N. C. 295, 76 S. E. 8; Union Nat. Bank V. Mailloux, 27 S. D. 543, 132 N. W. 168; Davis v. Peabody, 170 Mass. 397, 49 N. E. 750. 1* Hacker v. Munroe, 176 111. 384, 52 N. E. 12; Oberdorfer v. Meyer, 88 Va. 384, 13 S. E. 756. § 20 RESCISSION OF CONTRACTS 40 which the fraud was practised, and which it induced, in- volved the execution of a written instrument, it is also within the jurisdiction and power of a court of equity, on decreeing rescission, to order it surrendered up or canceled, in order that it ma}^ not continue in existence as a color- able obligation against the defrauded party. This rule ap- plies to deeds and other conveyances, bonds, notes, and written contracts, whether relating to real or personal prop- erty. ^^ But it is not necessary for a party thus injured to take the initiative by making a direct attack upon the con- tract or conveyance in respect to which he has been de- frauded. All contracts are open to attack on the ground of fraud, whenever rights are asserted under them.^"' Conse- quently the party who has been wronged may simply wait until suit is brought against him to enforce the contract or to recover damages for its breach, and then plead the fraud in defense.^' But in some jurisdictions a distinction is here taken according to the nature of the fraud involved ; and it is held that only fraud in the execution of an instru- ment may be shown in a court of law, as, for instance, where the nature or purport of the instrument is falsely represented to the party executing it ; but that where the fraud consists in false representations as to collateral facts, or as to the nature or value of the consideration, it is nec- essary to resort to a court of equity for relief.^* But for 15 Mershon v. Bank of Commonwealth, 6 J. J. Marsh. (Ky.) 43S ; Robertson v. Owensboro Savings Bank & Trust Oo.'s Receiver, 150 Ky. 50, 149 S. W. 1144 ; Barrington v. Ryan, 88 Mo. App. 85 ; Bry- son V. Bridges, 51 Fla. 395, 41 South. 2S ; Billups v. Montenegro- Reihms Music Co., 69 W. Va. 15, 70 S. E. 779. 18 Gibson v. Nelson, 111 Miun. 183, 126 N. W. 731, 31 L. R. A. (N. S.) 523, 137 Am. St. Rep. 540. IT Becker v. Colonial Life Ins. Co., 153 App. Div. 382, 138 N. Y. Supp. 491 ; Olston v. Orou'on Water Power & Ry. Co., 52 Or. 343, 96 Pac. 1095, 97 Pac. 538, 20 L. R. A. (N. S.) 915; Turner v. Ware, 2 Ga. App. 57, 58 S. E. 310 ; Elgin Jewelry Co. v. Wilson, 42 Colo. 270, 93 Pac. 1107. 18 Miller v. Mutual Reserve Fund Life Ass'n, 113 111. App. 481; George J. Cooke Co. v. Albert Kaiser & Best Brewing Co., 163 111. App. 210; Friedman v. Schwabacher, 69 111. App. 117; Jackson V. Security Mut. Life Ins. Co., 135 111. App. 86, affirmed, 233 111. 161, 84 N. E. 198; Gage v. Lewis, 68 111. 604; Pacific Mut. Life Ins. Co. v. Webb, 157 Fed. 155, S4 C. C. A. 603, 13 Ann. Cas. 752. 4:1 FRAUD AND FRAUDULENT CONCEALMENT § 21 the most part, this distinction is not recognized, but the courts of law are held competent to g^ve relief as against either kind of fraud. ^'' § 21. Definitions of Fraud. — Fraud may be defined as any trick or artifice, whether perpetrated by means of false statements, concealment of material facts, or deceptive conduct, which is intended to (and does) create in the mind of another an erroneous impression concerning the subject- matter of a transaction, whereby the latter is induced to take action, or to forbear from acting, with reference to a property or legal right of his which results to his disad- vantage, and which he would not have consented to had the impression in his mind been correct and in accordance with the real facts. ^" Thus, it is said that fraud consists in an undue advantage taken of a party under circumstances which mislead, confuse, or disturb the just results of his judgment, and thus expose him to be the victim of the wil- ful, the importunate, and the cunning.^^ "A wilful intent to deceive, or such gross negligence as is tantamount thereto, and the actual deceit of the victim, to his damage, are es- sential elements of actual fraud. The perpetrator must have been guilty of some moral turpitude or of some breach of duty, and the victim must have been deceived and must have acted upon the deceit." ^^ "Fraud is falsehood ap- plied to the purpose of injury, and will not, in the legal sense of the term, exist unless there is, first, an endeavor to deceive, and, next, a false impression produced. Both of these things must concur, and the existence of both must in some appropriate way be established by the complain- ant." "^ 19 Goodwin v. Fall, 102 Me. 3.53, 66 Atl. 727 ; Western Mfg. Co. V. Cotton, 31 Ky. Law Eep. 1130, 104 S. W. 758, 12 L. R. A. (N. S.) 427; Grifflth v. Strand, 19 Wash. 686, 54 Pac. 613. 20 In re Nuttall (D. C.) 201 Fed. 557 ; Alexander v. Churcli, 53 Conn. 561, 4 Atl. 103 ; Maher v. Hibernia Ins. Co., 67 N. Y. 283 ; Ge- win V. Shields, 167 Ala. 593, 52 South. 887 ; Lacoste v. Handy, Man. Unrep. Cas. (La.) 348 ; Great Northern Mfg. Co. v. Brown, 113 Me. 51, 92 Atl. 993. 21 Pursley v. Wlkle, 118 Ind. 139, 19 N. E. 478. 22 Daniels v. Benedict, 97 Fed. 367, 38 C. C. A. 592; New York Life Ins. Co. v. McMaster, 87 Fed. 63, 30 C. C. A. 532; Farmers' & Merchants' Bank v. Farwell, 58 Fed. 633, 7 C. O. A. 391. 23 Vulcan Oil Co. v. Simons, 6 Phila. (Pa.) 561. § 21 RESCISSION OP CONTEACTS 42 But courts of equity are generally disposed to treat fraud as a breach of trust. That is to say, they define fraud as an act, omission, or concealment which involves a breach of legal or equitable duty, trust, or confidence justly reposed, and wrhich is injurious to another, or by which an undue and unconscientious advantage is taken of another.^* And un- doubtedly the strict rules of law require a person who is dealing at arms' length — dealing with a stranger upon whom he is not in any way dependent, and upon whose candor and fairness he has no special right to rely — to act prudently and warily and be vigilant for the protection of his own interests. To a considerable extent these rules have been relaxed, and replaced by the more sensible doc- trine which only weighs the comparative intelligence, shrewdness, and sagacity of the two parties actually before the court. But even now it cannot be said that either law or equity has much compassion for the results of mere blind folly. In such a case, therefore, sharp bargaining, shrewd dealing, or overreaching could not be classed as fraud. For the purpose of the present subject, the rescission of obliga- tions, it may be said that fraud will include any positive act of deception or trickery by which a person is misled to his injury, notwithstanding he has been reasonably careful and prudent, but not the mere negative act of concealing a material fact, which the one person could have discovered for himself, and which the other is not bound, by any trust or confidential relation, to disclose. But all manner of fraud is abhorrent to the law, and if one person sustains injury through the fraud of another, he will be afforded a proper remedy, whether the injury results from some breach of positive law, or from some violation of a right or duty growing out of the relations existing be- 2* See Moore v. Crawford, 130 U. S. 1:22, 9 Sup. Ct. 447, 32 L. Ed. 878 ; City of Clay Center v. Myers, .^i2 Kan. 3&3, 3.") Pac. 25 ; Down- ey V. Atchison, T. & S. F. R. Co., 60 Kan. 499, 57 Pac. 101 ; Cock v. A'an Etten, 12 Minn. 522 ( Gil. 431) ; Yuster v. Keef e, 46 Ind. App. 460, 90 N. E. 920; Dicldnson v. Stevenson, 142 Iowa, 567, 120 N. W. 324 ; Wadsworth v. Board of Sup'rs of Livingston County ( Sup.) 115 N. Y. Supp. 8; Missouri, K. & T. Ey. Co. v. Maples (Tex. Civ. App.) 162 S. W. 426; Horton v. Smith (Tex. Civ. App.) 145 S. W. 1088. 43 FRAUD AND FRAUDULENT CONCEALMENT § 21 tween the parties.^" "Fraud" is said to be a generic term, which embraces all the multifarious means which human ingenuity can devise, and are resorted to by one individual to get an advantage over another by false suggestions or by the suppression of the truth. No definite and invariable rule can be laid down as a general proposition defining fraud, as it includes all surprise, trick, cunning, dissembling, and any unfair way by which another is cheated. The only boundaries defining it are those which limit human knavery.^" And it should be observed that to defraud anoth- er is not only to deprive or withhold from him that which belongs to or is due to him, but also to deprive him of any right, or to induce him to surrender the favorable position in which he has placed himself, by any artifice or wrong practised upon him.^' And it is not essential that fraud should be accomplished by means of spoken or written falsehoods. If the intended result is accomplished, it is im- material whether the means employed are affirmative or negative, that is, whether they consist of false pretenses or representations, deceptive acts or conduct, or the fraudulent suppression of material facts. ^* And again, fraud may arise from facts and circumstances of imposition. It may be ap- parent from the intrinsic value and subject of the bargain itself, being such as no man in his senses would make on the one hand, and as no honest man would accept on the other hand. Or it may be inferred from the circumstances of the parties contracting that it is as much against con- science to take advantage of a man's weakness or necessity 26 Williams v. Goldberg, 58 Misc. Rep. 210, 109 N. Y. Supp. 15. 26 Barr v. Baker, 9 Mo. 850 ; Cooper v. Ft. Smith & W. K. Co., 23 Okl. 139, 99 Pac. 785. 27 Tyner v. United States, 23 App. D. C. 324 ; Ferrell v. MiUican (Tex Civ. App.) 156 S. W. 230. 2 8Tyssowski v. F. H. Smith Co., 35 App. D. C. 403; People v. Clark, 10 Mich. 310 ; Bretthauer v. Foley, 15 Cal. App. 19, 113 Pac. 356. In a case in Iowa, where a vendor, who had by mistake con- veyed land to the plaintiff by quitclaim deed, afterwards executed a warranty deed of the same premises to his nephew, which he fraudulently antedated, and thereby induced the plaintiff to recon- vey the land to him, it was held that this constituted a deliberate fraud, of which equity could take cognizance. Mullen v. Callanan, 16T Iowa, 367, 149 N. W. 516. § 21 RESCISSION OF CONTRACTS 44 as of his ignorance."" Further, the applicable principles of law are the same whether the fraud is alleged to have origi- nated in a conspiracy, or to have been solely committed by the defendant without aid or co-operation.'" The statutory definitions of fraud, contained in the codes of some of the states, do not differ materially from the fore- going definitions drawn from the common law. Thus, in Louisiana, fraud, as applied to contracts, is "the cause of an error bearing on a material part of the contract, created or continued by artifice, with design to obtain some unjust advantage to the one party, or to cause an inconvenience or loss to the other."'^ In Georgia, "fraud may exist by mis- representation by either party, made with design to de- ceive, or which does actually deceive, the other party ; and in the latter case such misrepresentation voids the sale, though the party making it was not aware that his state- ment was false. Such misrepresentation may be perpetrat- ed by acts as well as words, and by any artifice designed to mislead. A misrepresentation not acted on is no ground for annulling a contract." '" In the codes of several of the western states it is enacted that "actual fraud consists of any of the following acts, committed by a party to a con- tract, or with his connivance, with intent to deceive anoth- er party thereto, or to induce him to enter into the con- tract: (1) The suggestion as a fact of that which is not true, by one who does not believe it to be true ; (2) the posi- tive assertion in a manner not warranted by the informa- tion of the party making it of that which is not true, though he believes it to be true ; (3) the suppression of that which is true by one having knowledge or belief of the fact; (4) a promise made without any intention of performing it ; or (5) any other act fitted to deceive." '^ § 22. Same; Constructive Fraud. — Constructive fraud, as distinguished from actual fraud, consists of any act of 29 Hinchman v. Emans' Adm'rs, 1 N. J. Eq. 100. so Von Au V. Magpnhelmer, 196 N. T. 510, 89 N. E. 1114. 31 Eev. Oiv. Code La., § 1847. 82 Civ. Code Ga. 1910, § 4113. 33 Civ. Code Cal., § 1.572; Rev. Civ. Code Wont., § 4978; Eev. Civ. Code N. Dak., § 5293; Rev. Civ. Code S. Dak., § 1201; Rev. Laws Okl., 1910, § 903 ; Joines v. Combs, 38 Okl. 380, 132 Pac. 1115. 45 FRAUD AND FRAUDULENT CONCEALMENT § 22 omission or commission which is contrary to legal or equi- table duty, or trust or confidence justly reposed, and which is contrary to good conscience and operates to the injury of another.^* "By constructive frauds are meant such acts or contracts as, though not originating in any actual evil de- sign or contrivance to perpetrate a positive fraud or injury upon other persons, are yet, by their tendency to deceive or mislead other persons, or to violate private or public confi- dence, or to impair or injure the public interest, deemed equally reprehensible with positive fraud, and are therefore prohibited by law as within the same reason and mischief as acts and contracts done malo animo." ^' "Constructive fraud consists in any breach of duty which, without an ac- tually fraudulent intent, gains an advantage to the person in fault, or any one claiming under him, by misleading an- other to his prejudice, or to the prejudice of any one claim- ing under him, or in any such act or omission as the law specially declares to be fraudulent, without respect to ac- tual fraud." ^° The important distinction lies in the fact that actual fraud involves moral turpitude, dishonest pur- pose, or furtive intent, while, in the case of constructive fraud, the motive is immaterial, and may even have been consistent with an innocent intention.'' Now it has some- times been ruled that the right of a party to rescind a con- tract for fraud exists only where actual fraud is shown, and that a rescission cannot be had for constructive fraud.^* But this is contrary to the weight of authority; and the 3* City of Clay Center v. Myers, 52 Kan. 363, 35 Pac. 25; Civ. Code Ga. 1895, § 4025. 3 6 Haas V. Sternbacli, 156 111. 44, 41 N. B. 51. 3 6 Civ. Code Cal., § 1573; Rev. Civ. Code Mont, § 4979; Rev. Civ. Code N. Dak., § 5294; Rev. Civ. Code S. Dak., § 1202; Eev. Laws Okl., 1910, § 904. And see Curtis v. Armagast, 158 Iowa, 507, 138 N. W. 873. 37 People V. Kelly, 35 Barb. (N. Y.) 444 ; Butler v. Prentiss, 158 N. Y. 49, 52 N. E. 652; Newell v. Wagness, 1 N. D. 62, 44 N. W. 1014; Forker v. Brown, 10 Misc. Rep. 161, 30 N. Y. Supp. 827; Massachusetts Ben. Life Ass'n v. Robinson, 104 Ga. 256, 30 S. E. 918, 42 L. R. A. 261; Frost v. Latham (C. C.) 181 Fed. 866; Con- yers v. Graham, 81 Ga. 615, 8 S. E. 521 ; Blake v. Thwing, 185 111. App. 187; Alsmeier v. Adams (Ind. App.) 105 N. E. 1033; Young v. Barcroft (Tex. Civ. App.) 168 S. W. 392. 3 8 Barnett v. Speir, 93 Ga. 762, 21 S. E. 168. § 23 RESCISSION OP CONTRACTS 46 courts have found no difficulty in giving equitable relief against contracts or conveyances where a case of construc- tive fraud was made out (without showing a dishonest trick or artifice or any evil intent) from the existence of confi- dential or fiduciary relations between the parties, or from the exertion of duress or undue influence, or from mental weakness being matched against superior shrewdness or cunning, or from the illegality of the subject-matter of the contract, supposing, in the latter case, that the parties were not equally in fault."" § 23. Same; Breach of Warranty Distinguished. — Fraud is distinguished from breach of warranty in this re- spect, that, in the case of fraud, there is a guilty knowledge of the falsity of the representation on the part of the party making it, while in a breach of warranty there is not this guilty knowledge.*" "The same transaction cannot be char- acterized as a warranty and a fraud at the same time. A warranty rests on contract, while fraud or fraudulent rep- resentations have no element of contract in them, but are essentially a tort. When judges or law writers speak of a fraudulent warranty, the language is neither accurate nor perspicuous. If there is a breach of warranty, it cannot be said that the warranty was fraudulent with any more pro- priety than any other contract can be said to have been fraudulent because there has been a breach of it. On the other hand, to speak of a false representation as a contract of warranty, or as tending to prove a contract of warranty, is a perversion of language and of correct ideas." *^ § 24. Essential Elements of Actionable Fraud. — The rule is often stated that five things are essential elements of a fraud or deceit sufficient to warrant an action for de- ceit or the rescission of a contract, which are (1) a trick, device, or representation, (2) its false or fraudulent charac- ter, (3) scienter, that is, knowledge or conscious purpose on 39 Forster v. Wilshusen, 14 Misc. Rep. 520, 35 N. Y. Supp. 1083 ; Dorrls V. MclManus, 3 Cal. App. 576, S6 Pac. 909. And see, infra, Cliapters 10, 11, and 13. 10 Murshall y. Gray, 39 How. Prac. (N. Y.) 172. 41 Hose V. Hurley, 39 Ind. 77. And see Koss v. Reynolds, 112 Me. 223, 91 Atl. 952. 47 FRAUD AND FRAUDULENT CONCEALMENT § 24 the part of the one practising it, (4) deception, delusion, or misleading of the other party, and (5) resulting injury to such other party. ^^ But this enumeration is not quite ex- haustive. There must also be an intention to deceive or de- lude, or an intention that the fraud practised shall influence the action of the other party, and there must be the fact that it did influence him and induce him to enter into the contract or obligation.*^ And further, it is necessary that the fraud, artifice, or representation should have been a ma- terial inducement to the contract. "If the fraud be such that, had it not been practised, the contract could not have been made or the transaction completed, then it is material to it ; but if it be made probable that the same thing would have been done if the fraud had not been practised, it can- not be deemed material. "''■' First of all it is necessary that there should have been a trick, device, artifice, false pretense, misrepresentation, or fraudulent concealment. Without something of this kind there can be no such "fraud" as will justify rescission.*'^ *2 Grosiean v. Galloway, 82 App. Div. 380, 81 N. T. Supp. 871 ; Blumenfeld v. Stlne, 96 App. Div. 160, 89 N. Y. Supp. 85; Taylor V. Scoville, 54 Barb. (N. Y.) 34; tJrtz v. New York Cent. & H. R. R. Co., 202 N. Y. 170, 95 N. E. 711; MusslUer v. Rice (City Ct.) 116 N. Y. Supp. 1028; Miller v. John, 111 111. App. 56; Foster V. Oberreich, 230 111. 525, 82 N. E. 858 ; Mizell v. rpchurch, 46 Fla. 443, 35 South. 9; Edwards v. Noel, 88 Mo. App. 434; Whitehurst V. Life Ins. Co. of Virginia, 149 N. C. 273, 62 S. E. 1067 ; Southern Express Co. v. Pox, 131 Ky. 257, 115 S. W. 184, 117 S. W. 270, 133 Am. St. Rep. 241; Ray County Sav. Bank v. Button, 224 Mo. 42, 123 S. W. 47; Moore v. Carrick, 26 Colo. App. 97, 140 Pac. 485; Lembeck v. Gerken, 86 N. J. Law, 111, 90 Atl. 698. 43 Greene v. Mercantile Trust Co., 128 App. Div. 914, 112 N. Y. Supp. 1131; Remmers v. Remmers, 217 Mo. 541, 117 S. W. 1117; Milwaukee Worsted Mills v. Winsor, 157 Wis. 538, 147 N. W. 1068. *4McAleer v. Horsey, 35 Md. 489; Cruess v. Fessler, 39 Cal. 336; Rev. Civ. Code La., § 1847. 4 6 Parker v. Boyd, 108 Ark. 32, 156 S. W. 440; Gray v. Koch, 2 Mich. N. P. 119; Belden v. Henriques, 8 Cal. 87; Coyne v. Avery, 91 111. App. 347 ; Wilson v. Wills, 154 N. C. 105, 69 S. E. 755 ; New v. Jackson, 50 Ind. App. 120, 95 N. E. 328 ; Rev. Civ. Code La., § 1847. Deceit can be grounded on evasions and acts as well as on direct misrepresentations. Providence Oil & Gas Co. v. Allen, 186 Ala. 282, 65 South. 329. Fraud may consist of conduct as well as of words, but must be predicated on material existing facts. Pire- baugh V. Trough, 57 Ind. App. 421, 107 N. E. 301. § 24 RESCISSION OF CONTRACTS 48 Thus, for example, the fact that an option for the purchase of land is taken for the purpose of speculation does not constitute fraud or unfair dealing on the part of the person taking the option towards a person to whom he sells the land.*^ So, where it cannot be shown that a contract sought to be set aside had its inception in the fraud of the party against whom the relief is sought, but he is merely making an unconscientious use of the statute to keep an ad- vantage obtained through the reliance of the opposite party on his good faith, no relief can be granted.*' So again, where a corporation desired to obtain a lease of a certain property, but persuaded the owner to make the lease in the name of one of its employes, instead of the corporation it- self, representing to him that its business would be injuri- ously affected if it was publicly known that it had leased the premises, it was held that this did not make out a case of fraud, though the nominal tenant was irresponsible and the corporation disclaimed any liability on the lease.*' Again, since, in equity, only what is plainly injurious to good faith is considered as fraud, a party cannot have his contract set aside merely on the ground that he repents of it because he did not use good business judgment in enter- ing into it, or that it is improvident, harsh, or unjust. *° Further, the fraud must have been inherent in, or at least contemporary with, the very transaction which is sought to be set aside. ^^ Thus, where a merchant sells goods at various times to the same customer, a fraud practised upon him of such a nature as to justify the rescission of a sale of goods made at one time will not be sufficient to authorize a recovery of goods bought at another time, the last transac- tion being free from fraud. ^^ And again, contemplated or intended future fraud is not enough, but there must be fraud executed at the time of making the contract or relating to 40 Saxby v. Southern Land Co., 109 Va. 196, 63 S. E. 423. ■17 Wilson V. Watts, 9 Md. 356. 4 8 Zinsser v. liuppel, 63 Misc. Rep. 575, 118 N. Y. Supp. 627. 48 liirschman v. Hodges, O'Hara & Kussell Co., 59 Fla. 517, 51 South. 550 ; Poe v. Ulrey, 233 111. 56, 81 N. E. 46. 50 Brown v. Brown, 64 Mich. 75, 31 N. W. 34. 51 Pelham v. Chattahoochee Grocery Co., 146 Ala. 216, 41 South. 12, 8 L. R. A. (N. S.) 448, 119 Am. St. Rep. 19. 49 FRAUD AND FRAUDULENT CONCEALMENT § 24 a State of affairs then existing. This distinction is some- times very delicate, as may be seen in a case in Illinois, where it was ruled that the intention of a party insured to burn the property and collect the insurance is a fraud which will authorize the insurance company to declare an imme- diate cancellation of the policy, because it is a fraud (the concealment of a fraudulent and criminal purpose) contem- porary with the making of the contract; but that, after a loss has occurred, the policy cannot be rescinded on account of such original nefarious purpose, because, if the loss was accidental, the fraud was never executed, and if it was brought about by the assured's own act, then the fraud con- sisted, not in the original design, but in the execution of it, and in this aspect was not contemporary with the con- tracts^ Again, when it is said that the fraud must inhere in the contract or relate to its execution, it is implied (and such is the law) that fraud is not made out by merely showing that the other party has violated the agreement or failed to fuUfil his engagements.^' This is illustrated by a case in New Jersey, where it appeared that the complainant, hav- ing given considerable study to the situation with reference to a certain industry, conceived and formulated a plan for combining in one company the various plants engaged in it. With this view, he obtained options for the purchase of some of the plants and opened negotiations for the others. As the whole plan would require several millions of dollars, and was therefore beyond his own financial ability, he sought the aid of the defendant, a capitalist, proposing on his own part to contribute a certain amount, if defendant would join in the plan and contribute enough to insure its B2 Imperial Fire Ins. Co. v. Gunning, 81 111. 236. But see Smith. V. LigMner (Tex. Civ. App.) 26 S. W. 779, holding that if one who agrees to run a horse race acts so as to induce the belief that he in- tends to practise fraud in the race, the other party may declare the race off and recover the forfeit. 53 Caldwell v. Duncan, 87 S. C. 331, 69 S. E. 660 ; Wilson v. Irish, 62 Iowa, 260, 17 N. W. 511; Crane v. Conklin, 1 N. J. Eq. 346, 22 Am. Dec. 519. And see Maine Northwestern Development Co. v. Northern Commercial Co. (D. C.) 213 Fed. 103; Turner v. Bray, 72 Or. 334, 143 Pac. 1011. Black Kesc. — 4 § 24 RESCISSION OP CONTBACTS 50 success. Defendant expressed himself as willing to join in the enterprise, provided an examination of the plan and papers by his attorneys and experts should confirm what the complainant had told him, and as a matter of fact the examination did confirm such statements. But the defend- ant availed himself of the information which he had thus obtained and proceeded, on his own account entirely, to or- ganize a company and by means of it to gain control of the plants in question, whereby he made large profits, but shut- ting out the complainant entirely. It was held that there might be a remedy by an action at law for the wrongful ap- propriation of the plan, but that equity could give no relief, because there had been no contract entered into, but merely a negotiation for the making of a definite agreement.^* But if there really is fraud, the right to rescind a con- tract on this ground depends on the existence of the fraud, and not on the party's knowledge of it when he exercises the right. "Although complainant acted on suspicion only, he was justified in rescinding, provided his suspicions of fraud were subsequently verified. The right of rescission de- pends on the existence of the fraud, and not on the accuracy or conclusiveness of the party's knowledge of it when he exercises the right." ^^ And finally, to sustain an action for deceit, it is not necessary that the person guilty of the fraud should have derived any advantage from it.^" § 25. Forged Instruments or Signatures. — A person who is tricked into parting with his money, or with any other valuable consideration, by means of a forged docu- ment, such as a deed, note, or bond, may rescind the trans- action and recover back what he has paid or given, pro- vided he acts with due promptness upon discovering the cheat, and his action is maintainable on either of the three grounds of fraud, mistake, or want of consideration.'^ The 64 Hasklns v. Ryan, 76 N. J. Eq. 330, 78 Atl. 566 ; Id., 75 N. J. Eq. 623, 73 Atl. 1118. But compare Jliindy v. Foster, 31 Mich. 313. 56 Cunningham v. Pettigrew, 100 Fed. 335, 01 C. 0. A. 457, citing Peterson v. Chicago, M. & St. P. R. Co., 38 Minn. 511, 30 N. W. 485. 66 Williams v. Goldberg, 58 Misc. Rep. 210, 100 N. Y. Supp. 15. 6 7 Westrop V. Solomon, 8 C. B. 345 ; Jones v. Ryder, 5 Taunt. 488; 51 FRAUD AND FRAUDULENT CONCEALMENT § 25 rule is the same where it is the person's own signature that is forged. That is to say, one who pays a note or other obligation purporting to bear his own signature, in the be- lief that it is genuine, though the signature is really a for- gery, may recover back what he has paid, provided he acts without unnecessary delay and provided no rights of third persons have intervened."^ On similar principles, one who accepts counterfeit money in payment of a debt, or as the price of property sold, supposing it to he good, may rescind and recover, but only in case he acts promptly on discover- ing the fraud.''* Furthermore, a person whose name is forged to a deed, a note, or other written instrument, may maintain a bill in equity to have it surrendered and can- celed, or for a decree pronouncing the instrument null and void and releasing him from all liability thereon.^" And a similar action is maintainable, at least in respect to a forged deed, under those provisions of the codes which declare that a written instrument in respect to which there is a rea- sonable apprehension that, if left outstanding, it may cause serious injury to a person against whom it is void or void- able, may be so adjudged on his application and ordered to be delivered up or canceled.'^ And the fact that the pur- ported maker of a forged instrument could defend against it at law, if the holder should sue on it, is not regarded as such an "adequate remedy" as would oust the jurisdiction of a court of equity. °^ Nor is the case of relief against a forged Gumey v. Womersley, 4 El. & Bl. 133; Furgerson v. Staples, 82 Me. 159, 19 Atl. 158, 17 Am. St. Rep. 470; Allen v. Sharpe, 37 Ind. 73, 10 Am. Rep. 80 ; Carpenter v. Northborough Nat. Bank, 123 Mass. 69; Brewster v. Burnett, 125 Mass. 68, 28 Am. Rep. 203; Eagle Bank v. Smith, 5 Conn. 71, 13 Am. Dec. 37 ; Emerine r. O'Brien, 36 Ohio St. 491 ; Goodrich v. Tracy, 43 Vt. 314, 5 Am. Rep. 281. See Costelo V. Barnard, 190 Mass. 260, 76 N. E. 599, 3 L. R. A. (N. S.) 212, 112 Am. St. Rep. 328; Commercial Nat. Bank v. First Nat. Bank, 97 Tex. 536, 80 S. W. 601, 104 Am. St. Rep. 879. 6 8 Welch V. Goodwin, 123 Mass. 77, 25 Am. Rep. 24; Wilkinson v. Johnson, 3 Barn. & C. 428 ; Ross v. Terry, 63 N. Y. 613. 59 McDonald v. Allen, 8 Baxt. (Tenn.) 446; Atwood v. Cornwall, 28 Mich. 336, 15 Am. Rep. 219 ; Wingate v. Neidlinger, 50 Ind. 520. 6 Huston V. Roosa, 43 Ind. 517; Huston v. Schindler, 46 Ind. 38; Hardy v. Brier, 91 Ind. 91. oiAngus V. Craven, 132 Cal. 691, 64 Pac. 1091. 62 Hardy v. Brier, 91 Ind. 91. So, a federal court of equity has ju- § 25 KBSCISSION OF CONTRACTS 52 deed taken out of the jurisdiction of equity by the fact that the deed is absolutely void, nor is it necessary, before bring- ing such a suit, that the legal owner should establish his title and obtain possession of the land by ejectment or other proceeding at law."' And it is no obstacle to the mainte- nance of such a proceeding that the defendant cannot be compelled to make any answer which would tend to crimi- nate himself.** And it cannot be properly pleaded as a de- fense to an action to cancel a deed and its record as a for- gery, that the plaintiff held title to the land in trust for the defendant, in that the defendant paid the purchase money and took title in plaintiff's name as a matter of conven- ience."'' It is further to be observed that, within the meaning of these rules, an instrument may be a forgery, though the signature to it is genuine. This doctrine was applied in a case in Michigan where the owner of property, upon exe- cuting a lease of it, which he had read and which correctly expressed his intentions, was tricked into signing another paper, which was represented to him as a duplicate of the lease, but which was in reality a deed of conveyance of the land, the date of which had been altered so as to make it ap- pear to have been given several weeks later than the actual date of execution."" The rules stated in this section are applied not only to the case of fraud perpetrated by the forgery of deeds and other conveyances,"^ but to the case of patents to land issued by risdiction of a suit for the cancellation of a forged note, brought by the purported maker against the payee, who is alleged to be assert- ing the validity of the note and attempting to negotiate the same, where, under the state statute, an action to recover on the note would not be barred for more than eleven years, as the complain- ant's remedy at law in such a case, by defending against the note when sued on it, would not be as practical and efficient as that in equity, and therefore not adequate and complete. Schmidt v. West (C. G.) 104 Fed. 272. 6 3 Bunce V. Gallagher, 5 Blatchf. 4S1, Fed. Gas. No. 2,13:j; Hoopes v. DevauiAhn, 43 W. Va. 447, 27 S. E. 251. oi Singery v. Attorney General, 2 Har. & J. (Md.) 487. 6 5 aiitchell V. Mitchell, 41 Golo. 72, 91 Pac. 110.3. 6 McGinn v. Tobey, 62 Mich. 252, 28 N. W. 818, 4 Am. St. Rep. 848. 6 7 James v. City Investing Co. (C. 0.) 188 Fed. 513; Cutler v. Fitz- 53 FRAUD AND FRAUDULENT CONCEALMENT § 25 the General Land Office to fictitious grantees on forged and fraudulent homestead applications and proofs/* to forged mortgages or deeds of trust,"" or assignments of such se- curities/" and to spurious promissory notes/ ^ and bail or replevin bonds. '^ The effect of a rescission for forgery is to annul the en- tire transaction and to establish the invalidity of the false instrument. Thus, in a case in New York, a certified check was given to one of twro partners for the sale and assign- ment of certain accounts due to the firm, but after payment of the check, the other partner asserted' that the firm's in- dorsement was a forgery, whereupon the amount paid there- on was refunded and the check returned to the partner who originally held it, and the accounts referred to were col- lected by the firm. It was held that this constituted a re- scission of the contract of sale, so that the partner holding the check, or his transferee with notice, could not collect it from the bank on which it was drawn.'' The usual rule applicable to one seeking to rescmd a con- tract and recover what he has paid or parted with is that he must also restore what he has received, except in cases where the thing received is absolutely worthless. This ap- plies in the case of a forgery. In the case of negotiable pa- per, for instance, if any of the parties to it are legally liable, though some of the purported signatures or indorsements are forgeries, the holder must surrender it up, as a condition to his own recovery ; but he will not be required to do so if the only signature is a forgery, or if the indorsement is forged and the maker is insolvent, especially if possession gibbons, 148 Cal. 562, 83 Pac. 1075 ; Stafford v. Stafford, 1 N. J. Eq. 525. See Green v. Brown (Miss.) 34 Soutb. 147. And compare Boardman v. Jackson, 119 Mass. 161, as to tbe adequacy of the rem- edy at law. 6 8 United States v. McLeod (C. C) 174 Fed. 508. 69 Ehrler v. Braun, 22 111. App. 391, affirmed 120 111. 503, 12 N. E. 996 ; Helm v. Lynchburg Trust & Sav. Bank, 106 Va. 603, 56 S. E. 598. 7 Nabe V. Bauer, 141 App. Div. 115, 125 N. X. Supp. 592. 71 Miller v. Dill, 149 Ind. 326, 49 N. E. 272. 7 2 Patterson v. Smith, 4 Dana (Ky.) 153. 73 Silverman v. National Butchers' & Drovers' Bank, 50 Misc. Rep. 169, 98 N. Y. Supp. 209. § 26 RESCISSION OF CONTRACTS 54 of the paper may be necessary to enable him to make out his case against a third person.''* § 26. Fraudulent Alteration of Instruments and Addi- tions Thereto. — The alteration of a written instrument aft- er its execution and delivery, whether by erasure or addi- tion or both, when done without authority and for the pur- pose of gaining some benefit or advantage surreptitiously, or placing the maker or grantor in a less advantageous po- sition and one which he never agreed to assume, is a form of fraud which will justify the rescission of the transaction and the maintenance of a proceeding in equity for the sur- render and cancellation of the instrument.'^ This rule has been applied in a case where the signature of the grantor to a blank deed was procured by false representations, and the deed was subsequently filled out by the grantee with a de- scription of lands not sold,'" and in a case where a deed of trust was fraudulently altered after its delivery by incorpo- rating in it additional property not intended to be mort- gaged," and in a case where property was conveyed to a certain person in trust, and he was described in the deed as trustee, and he afterwards erased the word "trustee," and borrowed money on the property and conveyed away the re- version to a third person.'* So, in another case, a grantor executed a deed purporting to be in consideration of the payment of a certain sum in cash. The grantee obtained possession of the deed on a pretext, and at the same time executed and delivered a writing to the grantor, reciting the purchase and the execution of the deed, and agreeing that if the consideration was not paid in three days the deed should T 4 Cornelius v. Lincoln Nat. Bank, 15 Pa. Super. Ot. 82; Brewster V. Burnett, 125 JIass. 68, 28 Am. Rep. 203 ; i3mith v. McNair, 19 Kan. 3;;0, 27 Am. Rep. 117. 7 5 Gregory v. Howell, 118 Iowa, 26, 01 N. W. 778 ; Putnam v. Cnark, :i;! N. J. Bq. 338 ; Hampton v. Mayes, 3 Ind. T. 65, 53 S. W. 483 ; Kennedy v. Kennedy, 194 111. 310, 02 N. E. 707. Compare Wil- son V. Miller, 113 Ala. 264, 39 South. 178, 111 Am. St Rep. 42, 5 Ann. Cas. 724. 7 6Vica A'alley & G. R. Co. v. Mansfield, 84 Cal. 560, 24 Pac. 145. '7 Merchants' & Farmers' Bank v. Dent, 102 Miss. 455, 59 South. 805. 7s Flitcraft v. Commonwealth Title Ins. & Trust Co., 211 Pa. 114, 60 Atl. 557. 55 FRAUD AND FRAUDULENT CONCEALMENT § 27 be void, but otherwise to be in full effect. The grantee also got this writing into his possession and, without authority, altered it so that it read "fifteen" days instead of "three" days, and on the same day the deed was executed he con- veyed the land to a third person. Both deeds were placed on record, but no part of the purchase money was ever paid to the grantor. It was held that both deeds were fraudulent as against him.'" On the same principle, where a deed is completed except for the name of the grantee, which is left blank, and is ex- ecuted by the grantor, and in that condition is placed in es- crow or placed in the hands of an agent, and the blank is filled in, without authority, with the name of a grantee to whom the owner did not intend to convey, or whom he is not willing to accept as a purchaser, it is a fraudulent alter- ation which will support an action for the cancellation of the deed.^o § 27. Fraud in Obtaining Possession of Deed. — Where the grantee in a deed obtains possession of it by any furtive or surreptitious means, when it was not intended to be de- livered to him, or not to be delivered except upon the per- formance of conditions with which he has not complied, it is a fraud cognizable in equity, and the instrument may be ordered surrendered up or canceled.*^ This is the case, for example, where the grantee secretly or fraudulently ab- stracts the deed from the place where the grantor has put it for safe-keeping,^^ or without his permission takes it up from the table where it is lying and carries it off.*^ So where the grantor, wishing to retain the ownership and 79 O'Connor v. O'Connor, 45 W. Va. 354, 32 S. E. 276. 80 Maclellan v. Seim, 57 Kan. 471, 46 Pac. 959 ; Mitchell v. Squire, 128 Iowa, 269, 103 N. W. 783 ; Whitaker v. Miller, 83 111. 381 ; Prin- diville V. Curran, 132 111. App. 162; Wiggenhorn v. Daniels, 149 Mo. 160, 50 S. W. 807. 81 Gragg V. Maynard, 164 Mich. 535, 129 N. W. 723; Co wart v. Aycock, 139 Ga. 432, 77 S. E. 382 ; Bowers v. Cottrell, 15 Idaho, 221, 96 Pac. 936; Ashley v. Denton, 1 Litt. (Ky.) 86. 8 2 Oribbs V. Walker, 74 Ark. 104, 85 S. W. 244; Garner v. Eisinger, 35 Tex. Civ. App. 378, 81 S. W. 343 ; Arnold's Heirs v. Arnold, 26 Ky. Law Rep. 884, 82 S. W. 606. 83 Pierson v. Fisher, 48 Or. 223, 85 Pac. 621. § 28 RESCISSION OF CONTRACTS 56 enjoyment of property during his own life, makes and exe- cutes a deed of it and places the same in the hands of a third person, with instructions not to deliver it to the grantee until after the grantor's death, or delivers it to the grantee himself with directions not to open the package containing it until after the grantor's death, and in either case his di- rections are disobeyed and the deed placed on record, the grantor may maintain an action to have the deed declared void.** For the same reason equity will decree the cancel- lation of a deed which was placed in escrow and which was either fraudulently abstracted from the depositary by the grantee or fraudulently turned over to him without compli- ance with the conditions or the consent of the grantor.*^ And the rule is the same where a deed or an agreement to sell is placed in the hands of the owner's agent, with in- structions not to deliver it to the purchaser save on the per- formance of certain conditions, and the agent disobe3's his instructions and delivers the deed without performance.*^ § 28. Substitution of One Instrument for Another. — It is ground for the rescission or cancellation of an obligation, or of defense to an action upon it, that it is not the instru- ment which the party intended to execute and supposed he was executing, but an instrument of a different kind which was fraudulently or surreptitiously substituted for the one agreed on, a trick, device, or misrepresentation having been practised to secure his signature.*' This rule maybe invok- ed, for example, where a person who meant to execute a mortgage and supposed that such was the character of the instrument which he signed, discovers that a deed had been 8 4 Thompson v. Owens, 121 Mich. 138, 79 N. W. 1092; Gatt v. Shive (Tex. Civ. App.) 82 S. W. 303. 8 5 Jackson v. Lynn, 9i Iowa, 151, 62 N. W. 704, 58 Am. St. Rep. 386; Hogueland v. Arts, 113 Iowa, 634, 85 N. W. 818; Rubie Com- bination Gold Min. Co. v. Princess Alice Gold Mln. Co., 31 Colo. 158, 71 I'ae. 1121 ; Conklln v. Benson, 159 Cal. 785, 116 Pac. 34, 36 L. R. A. (N. S.) 537. scTrlggs V. Jones, 46 Minn. 277, 48 N. W. 1113; Wiard v. Brown, 59 Cal. 104. 87 Papke V. G. H. Hammond Co., 102 111. 631, 61 N. E. 910; Jack- son V. Security Mut. Life Ins. Co., 238 111. 161, 84 N. E. 198 ; Hendrix V. People, 9 111. App. 42 ; Johnson v. Carter, 143 Iowa, 95, 120 N. W. 320. 57 FRAUD AND FRAUDULENT CONCEALMENT § 28 substituted for it,'^ or where one meaning to sign a will is similarly tricked into executing a deed,'" or where a deed in fee is substituted for an option to purchase,'" or for what was intended merely to be a lease of the property,"^ or where the paper which one signed under the belief that it was merely a receipt for money turns out to have been a promissory note,"^ or where an applicant for a policy of life insurance of a certain kind receives a policy of an en- tirely different kind, and finds that he was misled or tricked into signing the wrong application.'^ But it is a sound general rule of law that a person of average intelligence, in the full possession of his senses, must exercise a reasonable measure of care and prudence to avoid being victimized. Unless seduced into a false sense of security, he must be on his guard against fraud and treachery, and cannot be heard to complain of a fraudulent substitution which he had sufficient intelligence and knowl- edge of the subject to detect, where he was not prevented from investigating the matter for himself by any trick or persuasion of the other party. It is not sufficient, therefore, merely to show that the instrument which actually was signed is different from what the party supposed he was signing. Relief may sometimes be given in such a case on the ground of mistake. But that is altogether a different matter from fraud, and governed by a different set of rules. If fraud is the defense relied on, the party must show some- thing more than the mere substitution of one instrument for another. He must show that the substitution was fraudulent. He must overcome the ordinary presumption that a person who is able to read has acquainted himself with the contents of any business document before attach- es Gumpel V. Castagnetto, 97 Cal. 15, 31 Pac. 898. 89 Fellbush V. Fellbush, 216 Pa. 141, 65 Atl. 28 ; Carter y. WaldeB, 136 Ga. 700, 71 S. E. 1047. 9 Gillls V. Arrlngdale, 135 N. 0. 295, 47 S. E. 429. 91 Xufts V. Tufts, 123 U. S. 76, 8 Sup. Ct. 54, 31 L. Ed. 91. 92 Ribner v. Kleinberg (Sup.) 122 N. T. Supp. 239. 93 Bostwick V. Mutual Life Ins. Co., 116 Wis. 392, 89 N. W. 538, 92 N. W. 246, 67 L. E. A. 705 ; Llerhelmer v. Minnesota Mut. Life Ins. Co., 122 Mo. App. 374, 99 S. W. 525; Mutual Life Ins. Co. v. Hargus (Tex. Civ. App.) 99 S. W. 580. § 28 RESCISSION OF CONTRACTS 58 ing his signature.'* Hence, in the case supposed, he must show such facts as that he was unable to read, that the paper was misread to him, that its contents were concealed from him, that he was prevented or dissuaded from reading it, that it was of such a technical nature that a perusal of it would not have enlightened him, or that he justifiably relied on the representations of the other party as to the nature of the instrument."^ As to the last point, there is authority for the proposition that a mere false representation as to the character of the instrument is enough to make out a case of fraud, irrespective of the question whether or not the party could read, as, where it is falsely stated to him that the paper which he is asked to sign is a note instead of a mortgage, or a deed instead of a lease, or a mere receipt for money instead of a release of damages."" And even if this rule is too broad, as excluding entirely the question of the party's own negligence, there are certainly numerous cases in which he will be justified in relying on any state- ments made to him by the opposite party, and therefore will be entitled to relief if misled by false and fraudulent mis- representations. Such a case exists, for instance, where one of the parties occupies a position of trust or confidence to- wards the other, or where their intimate relationship (as in the case of parent and child) justifies the most implicit con- fidence."' So, an applicant for life insurance is warranted in relying on what the company's agent tells him in regard to the application and the terms of the policy to be issued."* And in general, if the defrauded party can show, in addition to a false representation, any trick or artifice resorted to in order to prevent him from discovering the cheat, his case for equitable relief will be complete. This is true, for in- stance, where the other party took advantage of his igno- 9 4 See, Infra, § 52. 9 5 Hardy v. Brier, 91 Ind. 91; History Co. v. Douglierty, 3 Ariz. 387, 29 Pac. 019. 8 6 Tillis V. Austin, 117 Ala. 202, 22 South. 975 ; Gillespie v. Hes- ter, 160 Ala. 444, 49 South. 580. And see, infra, §§ 56, 57. " Tufts V. Tufts, 123 U. S. 76, 8 Sup. Ct. 54, 31 L. Ed. 91. 9 8 Mutual Life Ins. Co. v. Hargus (Te.v. Civ. App.) 99 S. W. 580; Green v. Security Mut. Life Ins. Co., 159 Mo. App. 277, 140 S. W. 325. 59 FRAUD AND FRAUDULENT CONCEALMENT § 28 ranee to deceive and impose upon him, or took measures to prevent him from ascertaining the real character of what he was signing/' or where a person unfamiliar with busi- ness and unable to read English is induced to sign a con- fession of judgment by the false assurance and pretense that it is a chattel mortgage/"" or where one who is entire- ly unaware of the formal requisites of deeds and of wills is falsely induced to sign a deed, supposing it to be a wiU-^°^ For similar reasons, relief may be given in a case where it is shown that, in consequence of the highly technical na- ture of the subject and of the phraseology employed, the person would not have discovered, from even an attentive reading of the paper presented to him, that it was a substi- tute for what he supposed he was signing/"^ So a policy of life insurance may be canceled at the instance of the in- sured where he shows that he was led into signing an ap- plication for a different kind of policy than that which he contracted for by the false representation of the company's agent, and that the agent hurried him into signing without due consideration, and that he was deceived by a mislead- ing indorsement on the policy shown him and by certain prominent headlines in it.^°' Again, one cannot be charged with such negligence or inattention as should preclude him from relief unless he was in the full possession of his facul- ties at the time. To trick a drunken man into signing a contract materially dififerent from the one to which he had verbally agreed when sober is fraud justifying rescission of the contract. '^"* But in an action on a written contract, an answer alleging an antecedent oral agreement, and that the written contract was substituted therefor after objection, and upon threat of a breach of the oral contract by the plaintiff, and in reliance on a statement by the plaintiff that other parties who had previously signed were satisfied with 99 Clements v. Life Ins. Co. of Virginia, 155 N. C. 57, 70 S. E. 1076. 100 Fieseler v. Stege, 86 Hun, 595, 33 N. Y. Supp. 749. 101 Carter v. Walden, 136 Ga. 700, 71 S. E. 1047. 102 Mutual Life Ins. Co. v. Hargus (Tex. Civ. App.) 99 S. W. 580. 103 Glassner v. Johnston, 133 Wis. 485, 113 N. W. 977. 104 Merchants' Nat. Bank v. Brlsch, 154 Mo. App. 631, 136 S. W 28. § 29 RESCISSION OP CONTRACTS 60 the written contract, does not allege such fraud as to avoid the contract. ^"^ § 29. Fraudulent Substitution as to Subject of Purchase. If a grantor of land, in fulfilling an agreement to convey a certain parcel of land for a stipulated price, is induced by fraud or misrepresentation, upon receipt of that price, to execute a deed conveying another parcel also, he may rescind and recover as to the parcel fraudulently included, but not as to the parcel intended to be granted, except upon payment or tender of the money received. ^"'^ Conversely, it is the right of a purchaser to rescind on discovering that the deed given to him describes and conveys a parcel of land different from that which was pointed out to him and which he agreed to buy.'"^ And of course these principles apply equally to the purchase and sale of chattels as to dealings in real estate. ^"^ Thus, where one bargains for the purchase of a bicycle of a certain well-known and high- grade make, and the seller is perfectly aware of what is in the buyer's mind, but fraudulently delivers to him a spuri- ous wheel of a different manufacture and of inferior grade, the buyer may rescind, at least if he had no reasonable op- portunity to discover the cheat until after accepting the bicycle. ^"^ The same rule was applied in a case where an automobile was represented to the buyer as being of the style and equipment of a certain year, but the car sent to him was of an earlier and inferior make.^^" So, where a seller of musical instruments knew that the buyer wanted a pianola piano, and knew that the instrument delivered was 105 Bright V. Siggins, 2 Pa. Super. Ct. 106. 106 Bartlett v. Drake, 100 Mass. 174, 97 Am. Dec. 92, 1 Am. Eep. 101; Walker v. Swasey, 2 Allen (Mass.) 312; Chambers v. Wyatt (Tex. Civ. App.) 151 S. W. SC4. lOTAbbott V. Dow, 133 Wis. 533, 113 N. W. 960; Lindquist v. Gibbs, 122 Minn. 205, 142 N. W. 156 ; Smith v. Eoseboom, 10 Ind. App. 126, 37 N. E. 559. 108 Kenyon Printing & Mfg. Co. v. Barnsley Bros. Cutlery Co., 143 Mo. App. 518, 127 S. W. 666 ; Howe Mach. Co. v. "Willie, 85 111. 333; Doylestown Agr. Co. v. Braekett, Shaw & Limt Co., 109 Me. 301, 84 Atl. 146; People v. O'Brien, 209 N. T. 366, 103 N. E. 710; Handy v. Roberts (Tex. Civ. App.) 165 S. W. 37. 109 Smith V. Kingman, 70 Minn. 453, 73 N. W. 253. 110 Grout V. Moulton, 79 Vt. 122, 04 AU. 453. 61 FRAUD AND FRAUDULENT CONCEALMENT § 29 not a pianola, but did not inform the buyer of the fact, and the latter received the instrument on the seller's assurance that it was what he wanted, it was held that the buyer might rescind, whether or not the seller made a mistake.^^^ So where the buyer of an alleged imported Percheron stal- lion was induced to purchase by the seller's false repre- sentations that the horse was imported and a Percheron, and was without knowledge that such statements were un- true, he was held entitled to maintain an action for rescis- sion of the sale.^^^ In another case, it appeared that the plaintiff undertook and contracted to perform a certain comedy act or vaudeville turn at the defendant's theater. Defendant had previously seen plaintiff perform this act and was pleased with it, and contracted on the supposition that it would be rendered in the same form and manner at his theater. But the performance as presented under the contract was materially different from that previously giv- en. It was held that the defendant was justified in ter- minating the contract.^^' Similar rules apply in cases where, although the subject of the contract remains the same, there is a fraudulent sub- stitution of parties. Where one person is engaged to act as the agent of the other in a matter of purchase or sale, and, pretending to have found a purchaser or buyer, or to have negotiated with a third person, substitutes himself as the other party to the contract, it is a breach of trust in the nature of a constructive fraud, and warrants the rescis- sion of the contract. ^^* Thus, if one employs another as his agent to purchase for him a certain amount of stock in a given company, and the agent, in the pretended fulfillment •of his duty, but with the intention of deceiving and de- frauding his principal, buys no stock but transfers to his principal his own holdings in the company, and receives and retains the money paid therefor, the principal has the 111 Smith & Nixon Co. v. Lewis (Ky.) 112 S. W. 1113. 112 Brucker v. Kairn, 89 Neb. 2T4, 131 N. W. 382. 113 McLaughlin v. Hammerstein, 99 App. Dlv. 225, 90 N. Y. Supp. ■943. iiiRohrof V. Schulte, 154 Ind. 183, 55 N. E. 427; Peuchen v. Behrend, 54 App. Div. 585, 66 N. X. Supp. 1092. § 30 RESCISSION OF CONTRACTS 62 right to rescind the contract because of its fraudulent per- formance."^ But the mere fact that a purchaser of land presents to the seller a deed running to a dififerent grantee than the one named in the contract, and procures its execu- tion without the grantor's being aware of the difference, is not such a fraud as will warrant the intervention of a court of equity."" And so the fact that a purchaser of land takes title in the name of a third person, his father, does not, in the absence of any other circumstances showing fraud, constitute a fraud on the grantor, although the lat- ter believes the purchaser to be the one named in the deed."' § 30. Conspiracy, Bribery, and Perjury. — A common type of fraud is found in the case where several persons conspire together to induce another to part with his money or property, by means of false representations or a trick, each of the confederates having his own part to play in the plot, and the cumulative effect of their combined efforts being the deception and plundering of the victim. Each of the persons who participates in such a scheme is liable for the damages sustained thereby,^^* and where a number of persons thus pursue a common scheme, and by their acts render themselves liable to an action for deceit, they are not relieved from that liability by the fact that they after- wards use a corporate form as a means to advance the busi- ness in hand.^'" Further, the defrauded party in such a case may rescind the transaction as against each and all of the conspirators, although no one of them went far enough with the plot, considering only his own words or actions, to make out a case of fraud against him.^="> Thus, if sev- 115 Mayo V. Knowlton, 134 N. Y. 250, 31 N. E. 9S5 ; Miller v. Curtiss, m N. Y. Super. Ct. 503, 15 N. Y. Supp. 140. Compare Tal- bott V. Manard, 106 Tenn. 60, 59 S. W. 340. 118 rnited States v. Payette Lumber & Mfg. Co. (D. C.) 19S Fed. 881. 117 Hall V. Bollen, 148 Ky. 20, 145 S. W. 11:',G, Ann. Cas. 1913B, 436. 118 Wiekersliam v. Jobnson, 51 Mo. 313 ; Brucker v. Kairn, 89 Neb, 274, 131 N. W. 3S2. 110 Baker v. Crandall, 7 Mo. App. 564. 120 McDonald v. Smitb, 139 Mich. 211, 102 N. W. 668. 63 FRAUD AND FRAUDULENT CONCEALMENT § 30 eral persons enter into a fraudulent agreement that certain false representations shall be made to another, to induce him to enter into a transaction with them, it is enough to justify the rescission of the contract that such representa- tions were actually made (with knowledge of their falsity) by any one or more of the conspirators, not necessarily by each and all of them."^^^ Neither is it necessary to prove a conspiracy in the strict sense of the term. Concert of ac- tion by several persons, fraudulently inducing another to enter into a transaction, is enough to render them liable for the fraud. '^^ And a party to the plot, who participates in the spoils, cannot escape liability on the ground that he was not cognizant of the specific acts of deceit practised by his associates, if he could have informed himself there- of,^^^ nor on the ground that his participation was not the special cause which induced the victim to act. Thus, in an action of deceit against the directors and officers of a bank, who published a false report as to its financial condition, upon which the plaintiff relied, one of the directors can- not escape liability on the ground that there was no special reliance upon him, where it appears that the plaintiff relied on the report and on the entire directorate.^^* Again, it is not necessary, in such a case, that all of the conspirators should have been principals or equally active in the fraud. Those who have actual or constructive knowledge of the fraudulent character of an enterprise, and with such knowl- edge aid and abet its furtherance, and by means of false representations induce a person to invest in it, are all jointly and equally liable with the principal in the enter- prise. ^^^ Even one who knowingly accepts the benefit of a contract procured by another by fraud, partly in his in- terest, or who, without having participated in the original fraud, claims and receives a part of the fruits thereof, be- 121 1. L. Corse & Co. v. Minnesota Grain Co., 94 Minn. 331, 102 N. W. 728. 122 Hanson v. Kline, 136 Iowa, 101, 113 N. W. 504. 123 Baker v. Cranclall, 7 Mo. App. 564. 124 Gerner v. Yates, 61 Neb. 100, 84 N. W. 596. 125 White V. Moran, 134 111. App. 480; Moreliouse v. Yeager, 71 N. Y. 594. § 30 RESCISSION OF CONTRACTS 64 comes equally liable for the fraud.^^" For example, an ac- tion was brought to recover money bet on a race, the result of which was determined in advance, and the plaintiff join- ed as defendants, with the conspirators, a bank and its cashier, who were alleged to have assisted in the plot by allowing the use of the bank for the transference of money and to give an air of respectability to the affair, and it was held that they were liable, on this ground, although their further participation in the scheme, by assuring the plain- tiff that the conspirators were men of honor, had nothing to do with the result because the plaintiff knew the fact to be otherwise/^' But no one can be held liable unless there is evidence to connect him in some way with the con- spiracy, either as a principal, as an abettor, or as a sharer in the resulting gains. ^^^ Another type of conspiracy is that which involves the co- operation of several persons, all acting in concert for a com- mon purpose but each confining his activity to one detail, because the successful carrying through of the plot requires more actors than one. For instance, where persons con- spire to obtain large tracts of government land, by procur- ing others to enter the land in separate parcels as cash purchasers, and pay for it with money furnished by the main conspirators, and to hold the land in secret trust for them, whereby the conspirators expect to obtain title to land which they could not have obtained in their own names, the transaction is fraudulent and illegal, and the title acquired by the entrymen may be vacated in equity. ^''^ So, where a shipper of cotton procured a compress com- pany to divide the bales and issue certificates for half bales as full bales, on which bills of lading were issued, on the faith of which plaintiffs paid drafts and were defrauded, it 120 Goldsmith v. Koopman, 152 Fed. 173, 81 C. 0. A. 465; Blome V. Wahl-Heuius Institute, 150 111. App. 164. 12' Hobbs V. Bdatrlgbt, 195 Mo. 693, 93 S. W. 934, 5 L. R. A. (N. S.) 906, 113 Am. St. Rep. 709. "swells V. Houston, 23 Tex. Civ. App. 629, 57 S. W. 584; De Klotz V. Broussard, 203 Fed. 942, 122 C. C. A. 244. 129 Wilson Coal Co. v. United States, IRS Fed. 545, 110 C. C. A. 343 ; United States v. Robbins (D. 0.) 157 Fed. 999 ; United States V. Clark (0. 0.) 129 Fed. 241. 65 FRAUD AND FRAUDULENT OONCBALMBNT § 30 was held that the compress company was a party to the fraud and liable for the damages."" A similar fraud, giv- ing a right of rescission or to recover damages, is per- petrated by the use of a decoy, as where a respectable third person is put forward as being willing to join with the in- tended victim in the purchase of a piece of property or a patent right, each to pay half the stipulated price, but such person is only a "stool pigeon," having a secret agreement with the vendor that he is to pay no money at all but to have his half interest for the use of his name and influ- ence. ^'^ Again, where the treasurer of a municipality, con- federating with another to assist him in raising money, and for the purpose of misleading the public, takes a mu- nicipal warrant which really was illegally issued and is void, and indorses on it a statement that payment of it had been refused only because of a lack of funds, and officially certifies that it will be paid as soon as there are funds in hand, and thereby induces an innocent purchaser to take the warrant for a valuable consideration, he is liable to such purchaser.^^^ And the case is essentially the same, as also the remedies, where the owner of a piece of land of little value, acting in confederation with another, places the title colorably in the name of such other, the deed reciting the payment of a large consideration in cash, and the confed- erate then places a mortgage on the property securing an issue of notes of considerable aggregate value, and they are disposed of in the market to unsuspecting purchasers. ^^^ Still another type of fraudulent conspiracy is that which is worked out by a person occupying a position of trust or confidence towards the defrauded party, who treacherously and in betrayal of his trust colludes with a third person, for their joint advantage, to rob or cheat his principal. This kind of fraud always gives ground for an action for rescission or for the cancellation of any conveyance which 130 WicMta Falls Compress Co. v. W. L. Moody & Co. (Tex. Civ. App.) 154 S. W. 1032. 131 King V. White, 119 Ala. 429, 24 South. 710. 132 Whitbeck v. Sees, 10 S. D. 417, 73 N. W. 915. 183 Leonard v. Springer, 197 111. 532, 64 N. B. 299; Borders v. Kattleman, 84 111. App. 582. Black Resc. — 5 § 30 RESCISSION OF CONTRACTS 66 may have been made.^^* And the rules and principles are the same whether the conspirator be an agent for the vic- tim/^' or his attorney at law or in fact,^^" or his trustee for the benefit of creditors,'^' or a person entitled to his implicit confidence on account of the relationship between them, as in the case of a husband or wife or a brother/^^ Bribery of a public official to do an act which is illegal or contrary to his duty, for the purpose and with the effect of defrauding a third person, is a form of fraud which war- rants the latter in rescinding any obligation into which he may have entered. Thus, a person who has obtained a pat- ent to public lands by means of bribery and corruption of officers of the government, will not be permitted, when his claim is questioned in a court of equity, to derive any ben- efit thereby, but the patent will inure to the party entitled to recover the land.'^" So a contract obtained by bribing those having control, for the purchase of state lands, is a fraud on the state, against public policy, and void, and the state may obtain its cancellation without returning or offer- ing to return the money paid thereon. ^^° On similar prin- ciples, in an action against a board of county commissioners for an alleged breach of a contract, whereby they accepted plaintiff's bid for doing certain work for the county, it is a sufficient defense that plaintiff, by promises of reward, induced another person, who had intended to bid a less sum, not to make a bid.^*"^ Perjury also always involves fraud, and hence, for in- stance, patents to public lands which are procured by the use of false affidavits or testimony before the officers of the 134 Billboard Pub. Co. v. JlcCarahan, 151 111. App. 227; Co-swell V. Mitts. 90 Mich. 35.3, 51 N. W. 514; Jones v. Steelman, 22 Wash. 636, 61 Pac. 7G4. 135 Maliry v. Randolph, 7 Cal. App. 421, 04 Pac. 403. 136 Bush V. Prescott & N. W. It. Co., 76 Ark. 497, SO S. W. 86; Kilgore v. Norman (C. C.) 119 Fed. 1006. 137 Ames V. WitLeck, 170 111. 45S, .":! X. E. OCO. 138 Pribble V. Hall, 13 Bush (Ky.) 61; Llndley v. Kemp, 3S Ind. App. ■■','>:,, 76 N. E. 798. i3!)rhini|is V. (ieorge, 17 Kan. 419; Lynch v. United States, 13 Okl. 142. TA Par. 1005. 140 State V. Cross, 38 Kan. 606, 17 Pac. 190. 141 Jennings County Com'rs v. Verbarg, 63 Ind. 107. 67 FRAUD AND FRAUDULENT CONCEALMENT § 31 land department are fraudulent, and may be canceled for this reason at the suit of the United States.^*'' § 31. Insolvency of Purchaser and Intent Not to Pay. — If one who is insolvent purchases goods on credit from an- other, with an intention not to pay for them, or with no reasonable expectation of being able to pay, and induces the sale by false representations concerning his financial ability, upon which the seller relies, or else by fraudulently concealing his insolvent condition, which would have pre- vented the sale if it had been known to the seller, then, in either case, the seller has the right to rescind the sale and recover his goods, and this, notwithstanding the fact that they may have passed into the possession of a trustee in bankruptcy or insolvency, ^*^ or he may even recover from 142 J. J. McCaskill Co. v. Tnited States. 216 XJ. S. 504, 30 Sup. Ct. 386, 54 L. Ed. 590 ; Washington Securities Co. v. United States, 194 Fed. 59, 114 C. C. A. 79. 1*3 Donaldson v. FarvTell, 90 r. S. 631, 23 L. Ed. 993; Mont- gomery V. Bucyrus Maeliine Works, 92 U. S. 257, 23 L. Ed. 6.50 ; Halsey v. Diamond Distilleries Co., 191 Fed. 498, 112 C. C. A. 142 ; Bloomingdale v. Empire Rubber Mfg. Co. (D. C.) 114 Fed. 1016; In re Patterson (D. C.) 125 Fed. 562; In re Salmon (D. C.) 145 Fed. 649; William Openhym & Sons v. Blake, 157 Fed. 536, 87 C. C. A. 122 ; Haywood Co. v. Pittsburgh Industrial Iron Works (D. C.) 163 Fed. 799; Davis v. Stewart (C. C.) 8 Fed. 803; McKensie V. Kothschild, 119 Ala. 419, 24 South. 716; Bugg v. Wertheimer- Schwartz Shoe Co., 64 Ark. 12, 40 S. W. 134; Freeman v. Topkis, 1 Marvel (Del.) 174, 40 Atl. 948; Hacker v. Munroe, 176 111. 3S4, 52 N. E. 12 ; Peninsular Stove Co. v. Ellis, 20 Ind. App. 491, 51 N. E. 105 ; Curme v. Eauh, 100 Ind. 247 ; P. Cox Shoe Mfg. Co. v. Ad- ams, 105 Iowa, 402, 75 N. W. 316 ; Reager v. Kendall, 39 S. W. 257, 19 Ky. Law Rep. 27 ; Lowry v. Hitch's Assignee, 33 Ky. Law Rep. 573, 110 S. W. 833, 17 L. R. A. (N. S.) 1032 ; Skinner v. Michigan Hoop Co., 119 Mich. 467, 78 X. W. 547, 75 Am. St. Rep. 413 ; Grat- ton & Knight Mfg. Co. v. Troll, 77 Mo. App. 339 ; Stein v. Hill, 100 Mo. App. 38, 71 S, W.'1107; Stewart v. Emerson, 52 N. H. 301; Roth V. Palmer, 27 Barb. (N. Y.) 6.j2 ; Ditton v. Purcell, 21 N. D. 648, 132 N. W. 347, 36 L. R. A. (N. S.) 149; Davis v. Co^icl, 4 Pa. Super. Ct. 519; Richardson v. Tick, 125 Tenn. 5.'52, 145 S. W. 174; ■\Vertheimer-Schwartz Shoe Co. v. Fai-is (Tenn. Ch. App.) 46 S. W. 336 ; B. F. Avery & Sons v. Dickson (Tex. Civ. App.) 49 S. W. 662 ; Goodyear Rubber Co. v. Sehreiber, 29 Wash. 94, 69 Pac. 64S; Ger- man Nat. Bank v. Princeton State Bank, 128 Wis. 60, 107 N. W. 454, 6 L. R. A. (N. S.) 556, 8 Ann. Cas. 502 ; Ferguson v. Carrington, 9 Barn. & C. 59; In re K. Marks & Co., 218 Fed. 453, 134 C. C. A. 253 ; Scandinavian-American Trading Co. v. Skinner, 56 Ind. App. 520, 105 N. E. 784. § 31 EBSCISSION OF CONTRACTS 68 such trustee the proceeds of the sale of the goods to a third person, provided the money accruing from the sale of the particular goods can be distinguished from other funds in the hands of such trustee.^** While the general principle, as above stated, is abundant- ly well supported by the authorities, there is still much difference of opinion as to the details of the various ele- ments which make up the general rule. In the first place, however, it is very nearly settled that the actual insolvency of the purchaser at the time of the sale is strictly essential to found a right of rescission, ^*° although some cases hold it sufficient to show that he was "in a failing condition" at the time,^*° and others maintain that it is not necessary to show insolvency, if specific misrepresentations as to his debts and assets are brought home to him and are shown to have induced the sale.'-*' And a sale to two persons jointly, who are not partners, cannot be rescinded by the seller upon the insolvency of one of the purchasers, but he must make an offer of performance if the other is solvent.^** Next, it is necessary that the fraudulent purchaser should have distinctly known the fact of his own insolvency,^*^ and purchasers who merely have good reason to know or to believe that they are insolvent are not to be visited with the consequences of actual knowledge of that fact.^^" It is likewise essential that the fact of the purchaser's in- solvency should not have been known to the seller. The latter will have no right to rescind the sale and reclaim the goods if he delivered them with knowledge that the buyer 144 Gillespie v. J. C. Piles & Co., 178 Fed. 8S6, 102 C. O. A. 120, 44 L. R. A. (N. S.) 1 ; In re Weil (D. C.) Ill Fed. 897. 146 Pelham v. Ctattahoocbee Grocery Co., 146 Ala. 216, 41 South. 12, 8 L. R. A. (N. S.) 448, 119 Am. St. Rep. 19 ; In re Sol. Aarons & Co., 193 Fed. 646, 113 C. C. A. 514; Pratt v. S. Freeman & Sons Mfg. Co., 115 Wis. 648, 92 N. W 368; Landauer v. Espenhaln, 95 Wis. 169, 70 N. W. 287. And see Loeschigk v. Peck, 3 Rob. (N. Y.) 700. 1-16 Pelham v. Chattahoochee Grocery Co., 146 Ala. 216, 41 South. 12, 8 L. R. A. (N. S.) 448, 119 Am. St. Rep. 19. 147 In re Bendall (D. C.) 183 Fed. 816. 148 Soloman v. Neidig, 1 Daly (N. T.) 200. 149 Hartwell v. Receivers of Carlisle Mfg. Co., 17 Pa. Co. Ct. Rep. 565. leoDiggs V. Denny, 86 Md. 116, 37 Atl. 1037. 69 FRAUD AND FRAUDULENT OONCBALMBNT § 31 was in failing or precarious circumstances,^"^ or that he was heavily embarrassed and was carrying on his business only by the grace of his creditors/"^ or if the seller fairly understood the buyer's weak financial condition and situa- tion,^"^ or did not take an offered security because he thought the purchaser was abundantly able to pay.^"* As to the meaning of "insolvency,'' the common-law definition was that it was the condition of one who is not able to meet his debts as they mature in the ordinary course of busi- ness.^^'^ But this definition has generally given way to that brought into force by the federal bankruptcy act, namely, that a person is insolvent when the aggregate of all his assets, if brought together and converted into cash, would not be sufficient to pay off all his debts and liabilities. ^"° But the mere insolvency of a buyer of goods on credit does not, by itself alone, justify the seller in refusing to deliver or in rescinding the sale after delivery and reclaim- ing the goods, though the purchaser was aware of his own financial condition and omitted to disclose it, provided he had not at the time a fraudulent intention with respect to getting the goods without paying for them.^'*' And such 151 In re Sweeney, 168 Fed. 612, 94 C. C. A. 90; Chase v. Miller, 90 Va. 323, 18 S. B. 277. 152 Hill Veneer Co. v. Monroe (C. C.) 189 Fed. 834. 153 In re Hess (D. C.) 138 Fed. 954. 15 4 Boone v. Collins, 43 Ga. 278. 155 Phelps, Dodge & Palmer Co. v. Samson, 113 Iowa, 145, 84 N. W. 1051. 156 Duncan v. Landis, 106 Fed. 839, 45 C. C. A. 666; In re Rome Planing Mill Co. (D. C.) 99 Fed. 937; Mackel v. Bartlett, 36 Mont. 7, 91 Pac. 1064 ; P. Cox Shoe Mfg. Co. v. Adams, 105 Iowa, 402, 75 N. W. 316; Mann v. Salsberg, 17 Pa. Super. Ct. 280; Noble v. Worthy, 1 Ind. T. 458, 45 S. W. 137. That a debtor's property is so situated that it cannot be reached by process of law and sub- jected, without his consent, to the payment of his debts, may con- stitute insolvency, within the meaning of the rule stated in the text, Pelham v. Chattahoochee Grocery Co., 156 Ala. 500, 47 South. 172. 157 Roberts Cotton Oil Co. v. F. E. Morse & Co., 97 Ark. 513, 135 S. W. 334; Freeman v. Topkis, 1 Marvel (Del.) 174, 40 Atl. 948; West V. Grate, 23 Ind. App. 410, 55 N. B. 506; Levi v. Bray, 12 Ind. App. 9, 39 N. E. 754; Holmes v. Henderson, 12 Ind. App. 698, 40 N. E. 151 ; J. J. Smith Lumber Co. v. Scott County Garbage Reduc- ing & Fuel Co., 149 Iowa, 272, 128 N. W. 389, 30 L. K. A. (N. S.) 1184; Keid v. Lloyd, 67 Mo. App. 513; Pinckney v. Darling, 158 N. T. 728, 53 N. E. 1130; Hirsch Lumber Co. v. Hubbell, 143 App. § 31 RESCISSION OF CONTRACTS 70 knoA\n and undisclosed insolvency is not by itself suffi- cient evidence that the purchaser had no intention of pay- ing for the property, so as to justify the avoidance of the sale by the vendor on this ground/^* In the next place, many of the cases apply the strict rule that the purchaser must have had an actual intention not to pay for the goods at the time he acquired them, that is, a positive and predetermined intention, entertained and acted upon at the time of making the purchase, never to pay for the goods. "^^^ Hence the sale cannot be rescinded on this ground if the vendee can make it appear by satisfac- tory evidence that, at the time of buying the property, he had an honest intention of paying the price and reasonably thought he would be able to do so at the appointed time, even though he then knew himself to be insolvent and un- able to pay,^"" or even if the purchase was made with a hope that he would be able to pay and with an intention to Div. 317, 128 N. X. Supp. 85 ; Johnson v. Groff, 22 Pa. Srcfr. Ct. 8.5 ; Paul v. Euricli, 3 Pa. Super. Ct. 209 ; Slayden-Kirlisey Woolen Mills V. Weber, 46 Tex. Civ. A],)!. 4."3, K>2 S. ^\'. 471; University of Virginia v. Sn.vder, 100 Va. 507, 42 S. E. ,337. i!is stein v. Hill, 100 Mo. App. 38, 71 S. W. 1107; German Nat. Bank v. I'rinceton St:;te Bank, 128 Wis. 60, 107 N. W. 454, 6 L, R. A. (N. S.) 556, 8 Ann. Cas. 502. But see Gratton & Kniu'lit Mfg. Co. v. Troll, 77 Mo. App. 339, ^Yllere it is said that Insolveuey, with the additional proof that the purchaser, at the time of the sale, knew his insolvency to be so gross and complete that he would not he al le to pay for the ;:uods, is tantamount to an intention not to pay for them. i!-.o In re Sol. Aarons & Co., 1!)3 Fed. 046, 113 C. C. A. 514; In re Levi (D. C.) 148 Pi-d. G51; Catlin v. Vv'arren, 16 111. App. 418; Iloushtaling v. Hills, 59 Iowa, 287, 13 N. W. 1^,05 ; Munzer v. Stern, 105 Mich. .523, 63 N. W. 513, 29 L. R. A. S.59, 55 Am. St. Rep. 4r„s ; Syracuse Knitting Co. v. Blanchard, 69 N. H. 447, 43 Atl. 6.:7; David Adler & Sons Clothing Co. v. Thorp, 102 Wis. 70, 78 N. W. 184. 180 Illinois Leather Co. v. Flynn, 108 Mich. 91, 65 N. W. 519; Wnclitel V. Keichel, 19 Ohio Cir. Ct. R. 626; Cohn v. Broadhead, 51 Ni'It. 8.34, 71 N. W. 747; Ronio Furniture & Lumber Co. v. Walling (Tenn. Cb. App.) 58 S. W. 1094. The fact that a vendee of gcdds bought on cr.'dit knew that he was unable to pay for the gords, when the same woi'o ordered, is not equivalent to an intention not to pay for them. It is the knowledge that he will not be able to pay for them which constitutes the vitiating fraud which authorizes a re- scission by the vendor. Eeid v. Lloyd, 07 Mo. App. 513. 71 FRAUD AND FRAUDULENT CON'CEALJIENT § 31 pay if possible.'^^ And further, to avoid the sale on this ground, the purchaser must have entertained an intention not to pay in any event, an intention merely not to pay ac- cording to the contract not being sufficient,^"^ nor an inten- tion to force the seller to credit the price of the goods on a claim for damages which the purchaser is urging against him.^"'' Again, the intention not to pay must have been formed at the time of making the contract, or at any rate before or, at the time of receiving the goods/"* An inten- tion to refuse or evade pa3'ment, and thereby to defraud the seller, conceived some time after the sale, is not equivalent to the necessary predetermined intention. ^^^ Thus, a sale cannot be rescinded as fraudulent, though the buyer knew that he was insolvent and made no statement as to his con- dition, and though he mortgaged the goods on the same day he received therfi and soon after made an assignment for the benefit of creditors, where it appears that, at the time of ordering the goods, he intended to pay for them and had no thought of mortgaging them until after they were in his store and he was threatened with suit by a third person.^"" As to the difficult matter of showing this secret purpose in the mind of the purchaser, it is said that "the intent not to pay for property bought on credit may be proved by evidence of other fraudulent purchases, part of the same scheme of fraud, by the secreting of the prop- erty bought as soon as obtained, or by turning it over to another creditor, or by evidence o£ admissions or of subse- quent conduct indicating a design to defraud, or by other circumstances." ^"' Thus, where a merchant obtains goods lai Watson v. Silsby, 166 Mas.s. 57, 43 N. E. 1117. 162 Beebe v. Hatfield, 67 Mo. App. 609; Strickland v. Willis (Tex. Civ. App.) 4.3 S. W. 602. 163 Royal Remedy & Extract Co. v. Gregory Grocer Co., 90 Mo. App. 53. 164 Ayers v. Farwell, 196 Mass. 349, S2 N. E. 35. 165 Leedom v. Mayer, 114 Wis. 267, 90 N. W. 169. 160 Consolidated Milling Co. c. Fogo, 104 Wis. 92, 80 N. W. 103; England v. Adams, 157 Mass. 449, 32 N. E. 60.j. 107 1 Ben.i. Sales (Corbin's edn.) § 656, note, citing Wiggin v. Day, 9 Gray (Mas.s.) 97 ; Parker v. Byrnes, 1 Lowell, 539, Fed. Cas. No. 10,728 ; Jordan v. Osgood, 109 Mass. 462, 12 Am. Rep. 731 ; Davis v. MeWhirter, 40 U. C. Q. B. 598. And see Samaha v. aiason, 27 App. D. C. 470; Hallacher v. Henlein (Tenn. Ch. App.) 39 S. W. 869. § 31 RESCISSION OF CONTRACTS 72 on credit with the intention of at once placing them beyond the reach of his creditors by exchanging his whole stock for a homestead, the proceeding is evidence of a fraudulent intent in the purchase of the goods at the outset/"^ So where he confesses a judgment to a third person which is enforceable at once, and the effect of which, as he knows, will be to disable him from carrying on his business. '^''° So, where an insolvent corporation orders large quantities of goods in anticipation of its failure, and for the purpose of surrendering them to a preferred creditor, and the carrying out of the scheme is started by a fraudulent attachment of the goods at the suit of such creditor, it is such evidence of an intention not to pay as will warrant the seller in re- scinding.^^" And a like ruling was made in a case where an insolvent firm executed mortgages covering its entire stock to a bank, which mortgages were not recorded, and then bought goods from the plaintiff, and before delivery thereof agreed with the bank that it should collect all ac- counts of the firm and apply the proceeds on the mort- gages.^'^ But even the fact that defendant's entire cap- ital had been secured by obtaining the discounting of forg- ed notes is not so inconsistent with an intention on his part to pay for goods purchased that the goods may be retaken by the seller on the ground of fraud. ^'^^ It should here be observed that if the goods have not yet been delivered, the seller will be justified in refusing to ship them when facts come to his knowledge which induce a reasonable doubt of the purchaser's ultimate intention to pay for them.^'^ But in several of the states, the authorities do not go to the length of requiring a fixed and preconceived intention not to pay, as an essential element of the fraud which will justify a rescission of the sale. They hold that if the buyer knew of his own insolvency and knew that he would not 168 Meigs V. Dibble, 73 Mich. 101, 40 N. W. 935. 169 Cluster V. Katz, 6 Pa. Super. Ct. 487. 17 Craig V. California Vineyard Co., 30 Or. 43, 46 Pac. 421. But compare Levi v. Bray, 12 Ind. App. 9, 39 N. E. 754. I'l Deere v. Morgan, 114 Iowa, 287, 86 N. W. 271. 172 Sinnott v. German- American Bank, 164 N. Y. 386, 58 N. E. 286. I's Bostick V. Mendenhall, Man. Unrep. Cas. (La.) 113. 73 FRAUD AND FRAUDULENT CONCEALMENT § 31 be able to pay for the goods when due, or had no reason- able expectation of being able to pay, this is a state of facts legally equivalent to the holding of an intention not to pay, or at least a state of facts from which such an in- tention may legally be presumed.^'* If, however, there does exist an intention of not paying for the goods, this is the gist of the fraud, and in this case the sale may be avoid- ed or rescinded though there were no fraudulent represen- tations or no concealment of the fact of insolvency, these being not necessary elements, but evidentiary facts tend- ing to establish the intent not to pay.^'° Or, according to 174 In re B«rg (D. 0.) 183 Fed. 885; In re Hamilton Furniture & Carpet Co. (D. C.) 117 Fed. 774; Pelham v. ChattahooctLee Grocery Co., 146 Ala. 216, 41 South. 12, 8 U R. A. (N. S.) 448, 119 Am. St. Rep. 19; McKensie v. Rothschild, 119 Ala. 419, 24 South. 716; Wilk v. Key, 117 Ala. 285, 23 South. 6 ; John Blaul & Sons v. Wandel, 137 Iowa, 301, 114 N. W. 899; Diggs v. Denny, 86 Md. 116, 37 Atl. 1037; EdelhoflE V. Horner-Miller Straw Goods Mfg. Co., 86 Md. 595, 89 Atl. 314 ; Talcott v. Henderson, 31 Ohio St. 162, 27 Am. Rep. 501 ; Wilmot V. Lyon, 11 Ohio Cir. Ct. R. 238 ; Boaz v. Coulter Mfg. Co. (Tex. Civ. App.) 40 S. W. 866; Contra, Dorman v. "Weakley (Tenn. Ch. App.) 39 S. W. 890. In Talcott v. Henderson, supra, it was said: "An intention on the part of the purchaser of goods not to pay for them, existing at the time of purchase, and concealed from the vendor, is unquestionably such a fraud as will vitiate the con- tract. But it is as certainly true, on the other hand, that, where no such fraudulent intent exists, the mere fact that the purchaser has knowledge that his debts exceed his assets, though the fact be unknown and undisclosed to the vendor, will not vitiate the purchase. Whether, therefore, a contract of purchase, where the purchaser fails to disclose his known insolvency, is fraudulent or not depends on the intention of the purchaser, and whether that intention was to pay or not to pay is a question of fact and not a question of law. In the solution of this question, though it be one of fact, it is true, however, that certain presumptions arise which are entitled to consideration and force. Thus, while it may be said that fraud must be proved and will not be presumed, there is a presumption that every reasonable person anticipates and intends the ordinary and probable consequences of known causes and conditions. Hence if a purchaser of goods has knowledge of his own insolvency and of his inability to pay for them, his intention not to pay should be presumed. I would go a step farther, and hold that an Insolvent purchaser, without reasonable expectations of ability to pay should be presumed to intend not to pay. Indeed, I would not deny that an intention not to pay might be inferred from the mere fact that the purchaser had undisclosed knowledge of his gross insolvency, but in such ca,se the inference may be rebutted by other facts and circumstances." 17 6 Atlas Shoe Co. v. Bechard, 102 Me. 197, 66 Atl. 390, 10 L. R. § 31 RESCISSION OF CONTRACTS 74 some of the cases, a buyer, in giving his order and receiv- ing the goods, is to be understood as impliedly represent- ing that he intends to pay for them, and is guilty of fraud if he entertains a contrary intention."" But the fraud does not consist in the unfulfilled promise to pay, but in the ex- press or implied false representation of an intention to pay.^'^ On the other hand it is not fraudulent per se for a person who is insolvent or in embarrassed circumstances to buy goods, withholding from the seller information as to the actual condition of his business affairs, but with this there must be combined an intention not to pay for the property, or otherwise to cheat the seller.^" But the chief difference of opinion among the authorities arises upon the question whether or not there must coexist with the foregoing elements of fraud a false representation of solvency or some trick or device to deceive the seller on this point, and thereby to get credit which would not otherwise have been given. It is held, by a very strong line of authorities, that no actual misrepresentation or affirmative fraudulent concealment as to his solvency by a purchaser of goods on credit is necessary to entitle the seller to rescind, but the sale is rescindable for fraud if the purchaser, being at the time insolvent and knowing the fact, and having no intention of paying for the goods or no reasonable expectation of being able to do so, fails to dis- close his financial condition to the seller and is silent with regard to his intention or expectation as to payment, pro- vided that the seller was induced by such concealment and silence to make the sale.^"* But some of the cases, while A. (N. S.) lM.5; Hart v. Moulton, 104 Wis. 349, SO N. W. .599, 76 Am. St. Rep. 8N1 ; Reager v. Kendall, 19 Ky. Law Itep. 27, .■;;9 .S. W. 257 ; Jliirrill v. Blackman, 42 Conu. 324. And see W. AV. .Johnson Cu. V. Triplett, 66 Ark. 233, 50 S. W. 455. 1"' I'helps, Dodge c5t Palmer Co. v. Samson, 113 Iowa, 145, S4 N. W. 1051 ; Atlanta Skirt Mfg. Co. v. Jacobs, 8 Ga. App. '299, 68 S. E. 1077. 1-7 MrCready v. Phillips, 56 Neb. 446, 76 N. W. 885. ITS Harrlsburs Pipe-Bending Co. v. Welsh, 26 App. Div. 515, 50 N. Y. Supp. 209. I '9 Union Manufacturing & Commission Co. v. East Alabama Xat. Bank, 129 Ala. 292, 29 South. 781; Pelham v. Chattahoochee Gro- cery Co., 146 Ala. 216, 41 South. 12, S L. R. A. (N. S.) 448, 119 Am. 75 FRAUD AND FRAUDULENT CONCEALMENT § 31 accepting this rule in the main, hold that there must be a "concealment" of the fact of insolvency, that is, some false- hood on this point, or some successful effort either to mis- lead the seller or to induce him to forbear making an in- vestigation, and that the mere failure of the purchaser to volunteer information, or his mere silence as to his financial condition when no inquiry is made, is not equivalent to concealment, and therefore not such fraud as to vitiate the sale/*" And in some jurisdictions (notably Pennsylvania) it is settled law that, in order to constitute such fraud as will render a sale void or rescindable by the seller, the buy- er's intention not to pay the price and his concealment of his own insolvency are not alone sufficient, but in addition there must have been some artifice or trick, intended and fitted to deceive the vendor, or some false pretense or false representation.'-*^ But a fraud is committed within the meaning of this rule (the other elements being present) if the buyer falsely represents that he owns a valuable farm and has other means amply sufficient for his business, and always buys for cash, and owes no debts, ^'^ or if he obtains St. Rep. 19; Maxwell v. Brown Shoe Co., 114 Ala. 304, 21 South. 1009 ; Upchurch v. Mlzell, 50 Fla. 4.56, 40 South. 29 ; Tennessee Coal, Iron & R. Co. v. Sargent, 2 Ind. App. l.l.s, 2.s N. E. 215; Cswego Starch Factory v. Lendrum, 57 Iowa, 57.3, 10 X. W. 900, 42 Am. Rep. 53; In re Spann (D. C.) 183 Fed. 819; Donaldson v. Farwell, 93 U. S. 631, 23 L. Ed. 993 ; Johnson v. O'Donnell, 75 Ga. 453. Com- pare In re Davis (D. C.) 112 Fed. 204. In Georgia, the rule stated in tie text is enacted into statutory law. ''AVhere one who is insolvent purchases goods, and,, not intending to pay therefor, conceals his insolvency and intention not to pay, the vendor may disaffirm the contract and recover the goods, if no innocent third person has ac- quired an interest In them." Civ. Code Ga., § 4111. ISO Stein V. Hill, 100 Mo. App. 38, 71 S. W. 1107; Kaminer v. Wolf, 13 Ohio Cir. Ct. R. 612 ; Strickland v. Willis (Tex. Civ. App.) 43 S. W. 602. 181 Smith V. Smith, 21 Pa. ."G7, 60 Am. Dec. 51; Baekentoss v. Speicher, 31 Pa. 324 ; Rodman v. Thalheimer, 75 Pa. 2:;2 ; Diller v. Nelson, 10 Pa. Super. Ct. 4-19 ; Shirk v. Konigmacher, 3 Pa. Super. Ct. 45 ; North American Smelting Co. v. Temple, 12 Pa. Super. Ct. 99 ; Collings Tailor Co. v. Appenzellar, 42 I'a. Super. Ct. 414 ; Reed V. Felmlee, 25 Pa. Super. Ct. :;7; In re Lewis (D. C.) 125 Fed. 143: Thompson v. Peck, 115 Ind. 512, IS N. E. 16, 1 L. R. A. 201 ; Levi V. Bruy, 12 Ind. App. 9, 39 N. E. 754 ; Holmes v. Henderson, 12 Ind. App. 698, 40 N. E. 151. 182 Kline v. Baker, 99 Mass. 253. § 31 RESCISSION OF CONTRACTS 76 a fictitious credit with the seller by making false returns of property for taxation, ^^^ or if, about the time of the de- livery of the goods, he executes a judgment note and a bill of sale to a creditor, which practically closes up his business/"* Finally, if a sale of chattels was induced and procured by means of false and fraudulent representations made by the buyer, this alone constitutes a sufficient ground for the seller to rescind and reclaim his goods, without the neces- sity of showing that the purchaser did not at the time in- tend to pay for them, and even though, as a matter of fact, the purchaser did actually expect and intend to pay, his purpose in this respect being immaterial.^'*" "Where a sale of goods is induced by false and fraudulent representations, intention to pay for them does not sanctify the fraud, and the party defrauded is entitled to rescind without regard to such intention. In such a case of active and aggressive fraud, the question whether or not the wrongdoer intended to pay is immaterial." ^"^ It is said, however, that the false representations or statements must have been made to the particular vendor, and it is not enough for him to show a general scheme to defraud creditors.^*' § 32. Frauds by Agents and Other Third Persons. — A contract or conveyance may be rescinded for fraud, al- though the principal in the transaction was not personally guilty of any fraud, where fraud was practised by his agent or representative or by a third person, and the principal either procured or authorized it or knowingly took the ben- efit of it, or if the agent was acting in the ordinary course 183 Seisel v. Wells, 99 .Ga. 159, 25 S. E. 266. 184 Bughman v. Central Bank, 159 Pa. 91, 28 Atl. 209. 18 5 EUet-Kendall Shoe Co. v. Ward, 187 Fed. 9>2, 110 C. C. A. 320 ; La Salle Pressed-Brick Co. v. Coe, 65 111. App. 619 ; Atlas Shoe Co. V. Bee-hard, 102 Me. 197, 66 Atl. 390, 10 L. R. A. (N. S.) 245; Gallipolis Furniture Co. v. Symmes, 10 Ohio Cir. Ct. R. 659; Hart V. Moulton, 104 Wis. 349, SO N. W. 599, 76 Am. St Rep. 881 ; In re Hamilton Furniture & Carpet Co. (D. 0.) 117 Fed. 774; Judd v. Weber, 55 Conn. 2G7, 11 Atl. 40. 186 In re Hamilton Furniture & Carpet Co. (D. C.) 117 Fed. 774. 187 In re O'Connor (D. C.) 112 Fed. 666. But compare In re John- son (D. C.) 208 Fed. 164. 77 FRAUD AND FRAUDULENT CONCEALMENT § 32 of his business and employment.^" "Deceits and frauds practised by agents do not fall upon the principal unless the principal adopts and takes the benefit of the fraudulent act with knowledge of the fraud, or unless the fraud was committed by the agent in the transaction of the ordinary business of the principal. The general rule is that the mas- ter is answerable for every such wrong of the servant or agent as is committed in the course of the service and for the master's or principal's benefit, though no express com- mand or privity by the master or principal be proved." ^" And where a principal and agent jointly participate in and share the fruits of actionable fraud, they are jointly liable for the resulting damages.^"" Thus, a person who has been induced to purchase shares of stock in a corporation by the fraud of the agent of the company, has a remedy by rescis- sion of his contract of purchase and reclamation of the money he has paid. But "if he is once debarred from seek- ing that relief by the declared insolvency of the company or from any other cause, there is no other remedy open to him except to bring a personal action against the agent who has been actually guilty of the fraud." "^ The rule also applies to sales of property at auction. Standing by and hearing the auctioneer make a false statement concerning the property, without correcting him, constitutes an ac- quiescence on the vendor's part in the false statement made by the auctioneer, and is an active fraud. ^'^ So, where the agents for the sale of land conceal from the purchaser the fact that they are part owners of the land, and instead ex- press an intention to purchase an interest themselves upon the same terms as are offered to the purchaser, such repre- sentations will constitute such a fraud as will avoid the 188 Felt V. Bell, 205 111. 213, 68 N. E. 794; McBonald v. Metro- politan Life Ins. Co., 68 N. H. 4, 38 Atl. 500, 73 Am. St. Rep. 548 ; Rankin v. Rankin (Tex. Civ. App.) 134 S. W. 392 ; Porter v. O'Don- ovan, 65 Or. 1, 130 Pac. 393. 189 2 Add. Torts (Wood's edn.) § 1197, citing Udell v. Atherton, 7 Hurl. & N. 181 ; Barwick v. English Joint Stock Bank, L. R. 2 Ex. 259; Bostock v. Floyer, L. R. 1 Eq. Cas. 26. 190 Dresher v. Becker, 88 Neb. 619, 130 N. W. 275. 191 1 Benj. Sales, § 709. 192 Dayton v. Kidder, 105 111. App. 107. § 32 RESCISSION OF CONTRACTS 78 sale."'' But the mere fact that a vendor paid to his agent a very liberal commission for making the sale does not necessarily show that fraud was practised on the purchas- er."* On the other hand, a party to a contract cannot have it set aside for fraud practised upon him by a third person, not the agent of the other party, where such other did not instigate the fraud nor participate in it, and did not know- ingly take a benefit or gain attributable to it."^ Thus, in one of the cases it appeared that the plaintiff was induced by his co-owners to convey his one-third interest in certain mining property, they representing to him that the entire property was to be sold for $8,000, whereas in fact, by a secret agreement with the purchaser, they were to receive, in addition to their share of the purchase price, $20,000 in capital stock of a corporation to be organized to work the property. The purchaser had knowledge of the fraud thus practised upon the plaintiff by his co-owners, but he did not participate in the deception, nor did he benefit by it, since the concealment did not enable him to acquire the property at any better price, nor othervrise operate to his advantage. And it was held that the relation of the pur- chaser to the plaintiff was different from that of the co- owners, and that a judgment against him for a proportion- ate share of the stock issued was wrong. ^'"' And again, the fact that the organizers of a syndicate for the purpose of buying land were also agents for the sale of the land will not avoid the sale, where the vendor had no knowledge of such syndicate. "^^^ In another illustrative case, it was 193 Wren v. Moncure, 95 ^'a. P.fJl), 28 S. E. 588. 194 Brackett v. Carrico, 18 Ky. Law Rep. 874. .38 S. W. DOl. lasCtison V. Crtsoii, 11(1 Tenn. 17:;, 'Xi S. W. S'.J ; Iloljinson v. Glass, '.)! Ind., 211. This is also the rule by statute in Loui-:iana. "If the artifice be practLseci l^y a paily to the contract, or by another with his knowledge or by his procurement, it vitiates the contract ; but if the artifice be practiswl by a third peison, without the knowl- edge of the party who benefits by it, the contract is not vitiated l.iy the fraud, althcjugh it may be void on account of error [mistal^e] if that error be of such a nature as to invalidate it ; in this case, the party injured may recover his damages asainst the person prac- tising the fraud." Rev. Civ. Corli^ IjA., § 1S47. IOC T'pton V. Weisling, 8 Ariz. 2'..IN. 71 Pac. 917. 197 Quinlan v. Keen, 72 111. App. llilj. 79 FRAUD AND FRAUDULENT CONCEALMENT § 33 shown that the defendant was induced to purchase a worth- less tract of land by extravagant assurances as to the ex- istence and value of mineral veins supposed to underlie it. These representations were made by a person who pro- fessed to be able to detect the presence of minerals by the "impressions produced by passing over the place." Also a spiritualistic medium had advised the purchase. The evi- dence seemed to show that the vendor knew of the influenc- es at work upon the purchaser, and that he took advantage of them to demand an extravagant price for the land, but aside from this, no fraud was brought home to him. It was held that these facts constituted no defense to a suit to foreclose a purchase-money mortgage.^"' On the same principle, if a husband practises fraud, compulsion, or un- due influence upon his wife, to induce her to execute a deed or a mortgage of her property, it cannot avail her against the grantee or mortgagee, if the latter did not instigate or participate in the fraud or improper influence. ^"^ § 33. Agent Wrongly Exceeding Authority. — Where an agent, in making a contract with a third person, wrongly exceeds his authority or acts contrary to his instructions, it constitutes a constructive fraud against his principal, and may make him liable in damages to the latter.^"" But it does not necessarily follow that the principal will be en- titled to rescind the contract as against the other party to it. That must in general depend upon whether or not the latter had knowledge of the wrong done by the agent and meant to profit by it.^°^ Thus, an action cannot be main- tained to cancel a policy of fire insurance at the instance of the company, as having been obtained by fraud, after a 198 Law V. Grant, 37 Wis. 548. i99Mohr V. Griffin, 137 Ala. 456, 34 South. 378; Butner v. Blev- ins, 125 N. C. 585, 34 S. B. 629 ; Shell v. Holston Nat. B. & L. Ass'n (Tenn. Ch. App.) 52 S. W. 909; Walker v. Nlcrosi, 135 Ala. 353, 33 South. 161. But see Cage v. Perry (Tex. Civ. App.) 142 S. W. 75. 20 As where a broker, by certain representations to a customer, succeeded in selling him a piece of land for a price greater than that asked by the owner, and kept the difference. He was held guilty of fraud and deceit, making him liable to the customer. Ilokanson v. Oatman, 165 Mich. 512, 131 N. W. Ill, 35 L. R. A. (N. S.) 423. 201 Morton v. Morris, 27 Tex. Civ. App. 262, 66 S. W. 91. And see Schultz V. McLean (Cal.) 25 Pac. 427. § 34 RESCISSION OP CONTRACTS 80 loss has occurred, on the ground that the agent of the com- pany who wrote the policy was not permitted to insure property at the particular place, where the assured shows that he had no knowledge of any such limitation on the agent's powers and took out the policy in good faith. ^"^ So, where an agent made a contract to sell land to defendant at a price less than what he was authorized to take, and he had sold other land in the same survey for the same own- ers and had acted as their agent for years, and the defend- ant, supposing that the agent had full authority to sell on the terms agreed, occupied the land for a year, making val- uable improvements thereon, without being notified that the contract was invalid, it was held that, if the owner re- fused to accept the contract as made by his agent, defend- ant was entitled to be compensated for his improvements.^"^ On the other hand, however, in a case in Mississippi, where the agent of a water company, without authority, executed a contract to furnish water at rates below the company's regular tariff rates, it was held that the court of chancery had jurisdiction of a suit to cancel the contract, although the complainant could obtain redress by refusing to carry it out.^"* And so, where a deed to land by an agent is void for want of written authority on his part to fill in a blank left for the name of the grantee, the grantee should not be adjudged to reconvey the land, but he should be ordered to deliver up the deed for cancellation, as the deed, being void in its inception, conveyed no title. ^"'^ Naturally the other party to the contract may rescind it when he finds that the agent with whom he has been dealing has exceeded or contravened his authority. But it is no ground for the rescission of a contract for the sale of land that one who sold the land as agent had no authority to act, if the prin- cipal ratifies his act and is able and willing to make title. ^'"' § 34. Collusion with Agent of Other Party. — If one of the parties to a business transaction does not deal directly 202 PhGenix Ins. Co. v. Smith, 95 Miss. 347, 48 South. 1020. 20 3 Van Zandt v. Brantley, 16 Tex. Civ. App. 420, 42 S. W. 617. 204 Meridian Water Works Co. v. Marks (Miss.) 16 South. 357. 206 Upton V. Archer, 41 Cal. 85, 10 Am. Rep. 266. 206Alderson v. Harris, 12 Ala. 580. 81 FRAUD AND FRAUDULENT CONCEALMENT § 34 with the other party, but with the latter's agent or employe, and enters into a secret and corrupt agreement with the agent, by which the agent undertakes, for a reward or com- mission given or promised, to induce his principal to contract with the party so bribing him, or to sell the property to him, or otherwise to deal with him, according to the case, the transaction is so far tainted with fraud that the prin- cipal may rescind and repudiate it, if he acts with due promptness upon discovering the facts. ^"'^ "It is too well settled to admit of discussion that no sale where any sub- stantial advantage has been taken can be sustained when he who actively promoted it acted as the ostensible agent for the vendor, when he was in reality the secret agent for the purchaser. It inaugurates so dangerous a conflict between duty and self-interest to allow the agent of a vendor to be- come interested as the purchaser, or the agent of a pur- chaser, in the subject-matter of his agency, that the law wisely and peremptorily prohibits it." '"'^ "The rule which prevents the agent or trustee from acting for himself in a matter where his interest would conflict with his duty also prevents him from acting for another whose interest is ad- verse to that of the principal ; and in all cases where, with- out the assent of the principal, the agent has assumed to act in such double capacity, the principal may avoid the transaction at his election. No question of its fairness or unfairness can be raised. The law holds it constructively fraudulent and voidable at the election of the principal. "^'" As stated in another case, the rule which forbids an agent to act for parties adversely interested, being not merely 207 Commonwealth S. S. Co. v. American Shipbuilding Co. (D. C.) 197 Fed. 780; Litchfield v. Browne, 70 Fed. 141. 17 C. C. A. 28; Gross V. George W. Scott Mfg. Co. (C. C.) 48 Fed. 35; Daniel v. Brown (0. 0.) 33 Fed. 849; O'Meara v. Lawrence, 159 Iowa, 448, 141 N. W. 312; Baltimore Sugar Refining Co. v. Campbell & Zell Co., 83 Md. 36, 34 Atl. 869 ; Kuntz v. Tonnele, SO N. J. Eq. 373, 84 Atl. 624; Yeoman v. Lasley, 40 Ohio St. 190; Lightcap v. Nicola, 34 Pa. Super. Ct. 189 ; Ripley v. Jackson Zinc & Lead Co., 221 Fed. 209, 136 C. C. A. 619. But see Hearn v. Schuchman, 80 Misc. Rep. 311, 141 N. Y. Supp. 242. 208 Donovan v. Campion, 85 Fed. 71, 29 C. C. A. 30. 209 United States Rolling Stock Co. v. Atlantic & G. W. B. Co., 34 Ohio St. 450, 460, 32 Am. Rep. 380. Black Besc. — 6 § 34 RESCISSION OF CONTRACTS 82 remedial of actual wrong, but preventive of the possibility of it, it may be invoked not only against the unfaithful agent in an action involving his commissions or other form of compensation, but also against the seller who employed the purchaser's agent to assist him in making the sale, as the foundation of a right in the purchaser to rescind the contract of sale upon discovery of the constructive fraud. -^^ These principles are well illustrated by a recent case in a federal court. A bill in equity was filed by a steamship company, alleging that it was organized by certain named persons as promoters ; that such persons had previously procured from the defendant an option for a contract under which defendant was to build a steamship for a price stated therein; that the promoters represented that they had large experience in such matters, and that the option was very favorable as to price, and so on ; that on securing subscribers to the stock they entered into a contract with defendant for building the vessel, and that complainant corporation, on its organization being effected, assumed the contract, received and paid for the vessel, partly in cash and partly by the issuance of bonds, and also paid the promoters for their services in procuring the contract and superintending the building of the vessel in its behalf; that in fact the contract was fraudulent, in that defendant, with knowledge of their purpose to organize a corporation to take over the contract, agreed to and did pay to the promoters a secret commission thereon. It was held that, on the facts alleged, the promoters, in the trans- actions with the defendant, acted as trustees and agents for complainant and its stockholders, and that the payment to them by defendant of a secret commission was in effect a bribery of its agent which vitiated the contract for fraud, and entitled complainant to its rescission in equity, and on surrender of the vessel to recover the consideration paid therefor. ^^^ 2ioLifflitcap V. Nicola, 34 Pa. Super. Ct. 189. 211 Commonwealth .S. S. Co. v. American Shipbuilding Co. (D. C.) 197 Fed. 7S0. See this case on appeal, 215 Fed. 296. And see Yeiser v. United States Board & Paper Co., 107 Fed. 340, 46 C. C. A. 567, 52 L. R. A. 724. 83 FRAUD AND FRAUDULENT CONCEALMENT § 34 The application of this rule is not affected by the fact that no active fraud or misrepresentation was practised by the agent.^^^ Nor is it necessary that the principal shall have suffered any actual loss or damage, though the fact that he will be prejudiced is almost necessarily implied in a transaction of this sort. As stated in one of the cases, "no question of its fairness or unfairness can be raised; the law holds it constructively fraudulent." ^^^ Neither is it necessary to show that the agent entertained an actual wrongful intention or that he was corruptly influenced by the practices of the other party. "How far a fact of this kind may have influenced the agent is in its nature an intangible mental condition very largely, and could only be rationally judged of by what follows. It would probably never be in the power of the principal complaining of the transaction to affirmatively show what was the secret op- eration of such an influence on the mind of a treacherous representative. It is well settled, consequently, that the fact of the agent having been bribed or tempted to betray his principal is sufficient to entitle the principal to repudiate the transaction, and it is not necessary as a basis for re- lief for such principal to show the actual effect of the bribe or gift upon the agent. The ground on which the rule rests is much deeper and broader than a mere question of evi- dence, and takes into full account human nature. The agent is not allowed, by gift, commission, or other form of compensation or consideration, to assume an attitude in conflict with the very best interests of his principal. It is a relation which, on grounds of public policy, demands the utmost loyalty to the principal at all times." ^^* And fur- ther, the right of a vendee of property to rescind because the vendor gave a secret commission to the vendee's agent is not affected by the fact that a part of the commission paid by the vendor to such agent was for services previous- ly rendered by such agent to the vendor in prior transac- tions. "° 212 Mastin v. Noble, 157 Fed. 506, 85 C. C. A. 98. 213 United States Rolling Stock Co. v. Atlantic & G. W. R. Co., 34 Ohio St. 450, 460, 32 Am. Rep. 380. 2i*Alger V. Anderson (C. C.) 78 Fed. 729. 2i5Liglitcap V. Nicola, 34 Pa. Super. Ct. 189. § 34 RESCISSION OF CONTRACTS 84 But the secret bribery or corruption of an agent does not make the resulting contract absolutely void, but only voidable at the election of the principal. ^"^^ "The right to avoid the contract because the agent has a personal interest in the subject-matter adverse to that of the principal, or has assumed an incompatible duty, is one arising in equity for the principal's protection. He may avail himself of the right to avoid the contract, or he may waive it, at his op- tion," and "if the principal, with full knowledge of all the facts affecting his rights, ratifies the act of the agent, the right to avoid the contract or transaction is gone." ^^' Thus, in a case in New York, the purchasing agent of a company reported to his principal that a seller of goods such as the principal desired had made a proposition to him (the agent) to pay him a commission on goods which should be sold to the principal through his procurement or instrumentality. This was not only an attempt to corrupt the agent which would have vitiated the contract at com- mon law, as we have seen, but it was also in violation of a penal statute of the state. Thereupon the principal direct- ed the purchasing agent to buy some goods from the seller, "and see what he would do about it, to make a test case." Afterwards the principal made a purchase with knowledge of the offering of a commission to his agent. It was held that the purchaser was liable for the price of the goods, not- withstanding the offer and actual payment of a commis- sion. ^^^ But to bring the rule into operation, it is necessary that the agent should have played an active part in the trans- action, and that his efforts should at least have contributed materially to the making of the contract. Thus, specific per- formance of a contract for the sale of realty will not be de- nied on the ground that the agent whom plaintiff had en- gaged to sell the property had wrongfully acted as agent 2ie Llghtcap v. Nicola, 34 Pa. Super. Ct. 1S9. 2" United States Rolling Stock Oo. v. Atlantic & G. W. R. Co., .84 Ohio St. 450, 460, 461, 402, 32 Am. Rep. 380 ; Gross v. George W. Scott Mfg. Co. (C. C.) 59 Fed. 388. 2i8Ballin V. Fourteenth Street Store, 123 App. Div. 582, 108 N. Y. Supp. 26. 85 FRAUD AND FRAUDULENT CONCEALMENT § 35 for both parties, where it appears that the agent had noth- ing more to do with the negotiation than merely to trans- mit the offer of the one party to the other. ^^^ § 35. Intention to Deceive or Defraud. — Actual fraud necessarily involves an intention to deceive or mislead, or at least an intention to do an act the necessary result of which will be the deception or misleading of the other par- ^y_22o Fraud is a fact, but it originates in a mental state, and it requires the concurrence of a fraudulent intention and an act performed in the execution of that intention. Just as a sinister design upon the property or rights of an- other amounts to nothing in law if nothing is done in the execution of it, if it goes no further than a mere mental concept, so an act done honestly and with no purpose to deceive another to his injury does not constitute fraud in fact. Thus, for instance, where the evidence in an action to cancel a deed shows that the defendant's object in what he did was not to defraud the plaintiiT, but, by obtaining a deed from him, to avoid the expense of foreclosing a mort- gage held by a relative, and of a receivership, which would have been necessary, no relief will be granted. ^^^ So, in another case, an agent who had charge of certain property for an absent owner received instructions to sell it for a price of about $5,000. The agent wished to purchase it himself, and reported to his principal that, subject to his approval, he had accepted an offer of $4,500 net, and sent 219 Croghan v. Worthington Hardware Co., 115 Va. 497, 79 S. E. 1039. 220 Guy V. Blue, 146 Ind. 629, 45 N. E. 1052 ; Polhemus v. Pol- hemus, 114 App. Div. 781, 100 N. Y. Supp. 263 ; Maxwell v. Martin, 130 App. Div. SO, 114 N. Y. Supp. 349 ; Kent County R. Co. v. Wilson, 5 Honst. (Del.) 49, 56 ; Hanson v. Bdgerly, 29 N. H. 343 ; Sentman V. Gamble, 69 Md. 293, 13 Atl. 58, 14 Atl. 673 ; Gardner v. Heartt, 3 Denio (N. Y.) 232; Nichols v. Pinner, 18 N. Y. 205; Alexander V. Church, 53 Conn. 561, 4 Atl. 103; Pauly Jail Building & Mfg. Co. V. Hemphill County, 62 Fed. 698, 10 C. C. A. 505 ; Holt v. Sims, 94 Minn. 157, 102 N. W. 386 ; Enright v. Pellheimer, 25 Misc. Eep. 664, 56 N. Y. Supp. 366; Jolliffie v. Collins, 21 Mo. 338; Stratton V. Dudding, 164 Mo. App. 22, 147 S. W. 516; Summers v. Metropol- itan Life Ins. Co., 90 Mo. App. 691 ; Hodgkins v. Dunham, 10 Cal. App. 690, 103 Pac. 351 ; Andalman v. Chicago & N. W. Ey. Co., 153 111. App. 169. And see, infra, § 108. 221 Brehm v. Gushal, 31 Misc. Rep. 112, 64 N. Y. Supp. 927. § 35 RESCISSION OF CONTRACTS 86 him a deed of the property with the grantee's name left blank. The owner executed the deed, returned it, and ac- cepted the agent's check for $4,500, which was the full value of the land. The agent did not understand himself to be in the owner's employment, and did not know that a selling agent's name could not be written in a deed as the grantee without the grantor's consent, and, intending no fraud, he entered into possession. It was held that eject- ment could not be maintained against him on the ground of a fraudulent concealment. ^^^ So again, persons who re- ceive money from an administrator in payment of supposed claims against the estate can be held guilty of a tort in receiving the money only in case of an actual fraudulent intent to appropriate money of the estate to a purpose Avhich they know, or as reasonable men ought to know, is tmlawful.^^^ Further, the fact that the execution of a deed is in line with a purpose previously entertained by the grantor, and that its effect is simply to carry out an agree- ment previously made between the parties, goes far to- wards negativing alleged fraud on the part of the grantee in securing its execution. ^^* And on the other hand, the fact that the original contract between the parties was made without any fraudulent intention or design is immaterial when one of them afterwards repudiates it, and by fraud and collusion succeeds in cheating the other out of the rights which would have accrued to him under the con- tract. ^^'^ Conversely, fraud cannot be predicated upon acts which the party charged has a right by law to do, nor upon the non-performance of acts which by law he is not bound to do, whatever may be his motive, design, or purpose ei- ther in doing or not doing the acts complained of.^'" But it should be remarked in passing that the main rule above stated has been considerably modified by statutes in some of the states. Thus in Georgia, it is enacted that "fraud may exist by misrepresentation by either party, made with 222 Burke v. Bours, 3 Cal. Unrep. Cas. 393, 26 Pac. 102. 223 Miles V. Pike Mln. Co., 124 Wis. 27.S, 102 N. W. 55.5. 224 Brennan v. Zebner, 97 Micli. 98, 56 N. W. 231. 225 Hayer v. Devore, 99 Mo. 437, 13 S. W. 201. 226 Keiter v. Cumback, 1 Ind. App. 41, 27 N. E. 443. 87 FRAUD AND FRAUDULENT CONCEALMENT § 36 design to deceive, or which does actually deceive, the other party,"-" thus apparently making the result the important matter, and not the intention. So in California, the intent which is an element of the fraud is the intent to induce an- other to enter into a contract, and not the intent to deceive ; so that, if a materially false statement is made, with knowl- edge of its falsity or without sufificient ground for believing it to be true, in order to induce another to buy an article, and which does so induce him to his prejudice, the seller cannot escape liability on the ground that he acted in good faith and without any actual intention to deceive.^^^ As to constructive fraud, or fraud in law, the rule is dif- ferent. There may be fraud in law where no actual fraud- ulent intent is proved, but it is said that it exists only when the acts upon which it is based carry in themselves in- evitable evidence of it, independently of the motive of the actor.^^° Thus, for example, where one who was the con- fidential adviser of a widow, and also the executor of her husband's will, purchased land with the proceeds of an in- surance policy on the husband's life, and conveyed the same to the widow for life, with remainder to her children, she supposing that she was receiving a conveyance of the fee, such conveyance was held to be a constructive fraud on the widow, although the executor honestly believed, because of a want of business capacity in the widow, that such procedure was the best method of protecting the prop- erty."'"' § 36. Effect of Fraud in Deceiving or Tricking Party. — To be available as ground for the rescission of a contract or obligation, it is necessary that the fraud alleged to have been practised by one party upon the other should have been effective in deceiving or misleading hirii and also in inducing him to enter into the contract or assume the ob- 227 Civ. Code Ga. 1910, § 4113. And see Holcomb v. Noble, 69 Mich. 396, 37 N. W. 497. 228 Civ. Code Cal., § 1572 ; Spreckels v. Gorrill, 152 Cal. 383, 92 Pac. 1011. 229 Delaney v. Valentine, 154 N. Y. 692, 49 N. B. 65. 23 Lampman v. Lampman, 118 Iowa, 140, 91 N. W. 1042. But compare Home v. Higgins, 76 Miss. 813, 25 South. 489. § 36 RESCISSION OF CONTRACTS 88 ligation. ^'^ To constitute fraud justifying the rescission of a contract, "it is essential that the means used should be successful in deceiving. However false and dishonest the artifices or contrivances may be by which one man may at- tempt to induce another to contract, they do not constitute a fraud if that other knows the truth, and sees through the artifices or devices. Haud enim decipitur qui scit se de- cipi. If a contract is made under such circumstances, the inducement or motive for mailing it is, ex concessis, not the false or fraudulent representations, which are not be- lieved, but some other independent motive. And even if the one party is unaware of the truth, yet if the artifice adopted by the other has not induced him to enter into the contract, that is to say, if the fraud is not fraus dans locum contractui, he will not be entitled to relief." ^^^ The ma- teriality of the fraud as an inducement to the contract is not to be overlooked. It must be shown that the party al- leged to have been defrauded would not have given his con- sent to the contract, or acted as he did, if it had not been for the fraud. -^^ If he was not deceived, if he detected the attempted fraud, it may be presumed that his decision was in no way influenced by the artifice or falsehood which the other party endeavored to carry through. But if he really was deceived or tricked, it is still necessary to show that his consent would not have been given if his eyes had been opened. These principles have been embodied in the legislation of several of the states. Thus, in Louisiana, it is said that "error," that is, mistake or deception, "is an essential part of the definition of fraud as applied to contracts; an artifice that cannot deceive can have no effect in influencing the consent and cannot injure the validity of the contract," and "the error must be on a material part of the contract, that is to say, such part as may reasonably be presumed to have 231 Studer v. Bleistein, 115 N. Y. 316, 22 N. E. 243, 5 L. E. A. 702; Stewart v. Fleming, 105 Ark. 37, 150 S. TV. 128 ; Monad Engineer- ing Co. V. Stewart (Del. Super.) 2 Boyce, 35, 78 Atl. 598; Chicago Bldg. & Mfg. Co. Y. Heaven, 149 Ky. 267, 148 S. W. 37. 232 1 Beuj. Sales, § 637. And see Gregory v. Schoenell, 55 Ind. 101. 233 Wann v. ScuUin, 210 Mo. 429, 109 S. W. 688. 89 FRAUD AND FRAUDULENT CONCEALMENT § 37 influenced the party making it, but it need not be the prin- cipal cause of the contract, as it must be in the case of simple error without artifice," that is, what the common law knows as "mistake" without fraud."* So, in Georgia, "fraud may exist by misrepresentation by either party, made with design to deceive, or which does actually de- ceive, the other party. A misrepresentation not acted on is not ground for annulling a contract." ^^° So, by the codes of several other states, "consent is deemed to have been ob- tained through one of the causes mentioned [duress, men- ace, fraud, undue influence, or mistake] only when it would not have been given had such cause not existed." ^'^ But to impeach a transaction for fraud practised by one party upon the other, it is not necessary that the fraud complained of should have been the sole cause or induce- ment to the making of the contract, but it is sufficient if it forms one factor in the transaction.^'' Thus, for instance, in an action for damages for personal injuries, which in- volves the setting aside of a release executed by the plain- tiff soon after the accident, if it is shown that the extent of his injuries was misrepresented to him, and that this fact, at least to some extent, induced him to sign the release, the defendant cannot escape liability by showing that the plain- tiff, at the time, was in need of money and anxious to get home to his family, and that these considerations also in- fluenced him in accepting the settlement offered.^'^ § 37. Resulting Loss or Damage to Defrauded Party. — As a general rule, a fraud which causes no injury is not 234 Kev. Civ. Code La., § 1847. 23 6 Civ. Code Ga. 1910, § 4113. 23 6 Civ. Code Cal., § 156S; Rev. Civ. Code Mont, § 4974; Rev. Civ. Code N. Dak., § 5289; Rev. Civ. Code S. Dak., § 1197; Rev. Laws Okl. 1910, § 899. 23 7 Farrar v. Churchill, 135 V. S. 609, 10 Sup. Ct. 771, 34 L. Ed. 246 ; In re Gany (D. C.) 103 Fed. 930 ; Rice v. Gilbreath, 119 Ala. 424, 24 South. 421; Kelty v. McPeake, 143 Iowa, 567, 121 N. W. 529 ; Safford v. Grout, 120 Mass. 20 ; Light v. Jacobs, 183 Mass. 206, 66 N. E. 799; American Hardwood Lumber Co. v. Dent, 121 Mo. App. 108, 98 S. W. 814; Burnham v. Ellmore, 66 Mo. App. 617; State V. Merry, 20 N. D. 337, 127 N. W. 83 ; Handy v. Waldron, 19 R. I. 618, 35 Atl. 884. 23 8 Texas & P. Ry. Co. v. Jowers (Tex. Civ. App.) 110 S. W. 946. § 37 RESCISSION OF CONTRACTS 90 legally cognizable; and it is an essential part of the defini- tion of fraud, as a cause for the intervention of equity, or for a party to take steps to rescind a contract or other ob- ligation into which he has entered, that it should have re- sulted, or that it will result, in some loss, damage, detri- ment, or injury to him.^^^ Neither courts of law nor courts of equity exercise their powers for the purpose of enforcing moral obligations or correcting unconscientious acts which are not followed by any loss or damage; fraud and injury must concur to furnish a ground of judicial action.^*" In the case of executed contracts, the loss, if any, will natural- ly have occurred before steps are taken to rescind. But in the case of executory contracts, the rule does not mean that the party complaining should have sustained actual loss at the moment of rescinding or filing his bill for rescis- sion, but it is enough to show that such will be the inevita- ble result if the contract is completed according to its terms. In the state of Louisiana, this has been incorporat- 239 United States v. Conklln (C. C.) 169 Fed. 177 ; Hodges v. Coleman, 70 Ala. 103; United Eeal Estate & Trust Co. v. Barnes, 159 Cal. 242, 113 Pac. 167; Woodson >-. Winchester, 16 Cal. App. 472, 117 Pac. 565; Morrison v. Martin, 84 Conn. G2S, 80 Atl. 716; Pickler v. Pickler, 180 111. 168, 54 N. E. 311 ; Sieveking v. Litzler, 31 Ind. 13 ; Anderson v. Evansville Brewing Ass'n, 49 Ind. App. 403, 97 N. E. 445 ; Donaldson v. Donaldson, 249 Mo. 228, 155 S. W. 791 ; Kuper v. Snetlien, 96 Neb. 34, 146 X. W. 991 ; Carpenter Paper Co. V. Xews Pub. Co., 63 Xeb. .59, 87 N. W. 1050; Marquis v. Tri- State Land Co., 77 Neb. 353, 109 N. W. 397 ; Goar y. Thompson, 19 Tex. Civ. App. 330, 47 S. W. 61 ; Thouron v. Skirvin, 57 Tex. Civ. App. 105, 122 S. W. 55 ; Blair v. Baird, 43 Tex. Civ. App. 134, 94 S. W. 116; Noble v. Llbby, 144 Wis. K;2, 129 N. W. 791; Alsmeier V. Adams (Ind. App.) 105 N. E. 10.33; Van A'liet Fletcher Automobile Co. V. Crowell (Iowa) 149 N. W. 861; Reynolds v. Evans, 123 Md. 365, 91 Atl. 564; Jlcrlau v. Kalamazoo Circuit Judge, 180 Mii-h. ;J0:!, 147 N. W. 503; Stacey v. Eobinson, 184 Mo. App. 54, 16S S. W. 261 ; Home v. John A. Hertel Co., 184 JIo. App. 725, 171 S. W. 598 ; Pickett v. Wren, 187 Mo. App. 83, 174 S. W. 156 ; Dunn & JlcCarthy V. Bishop (R. I.) 90 Atl. 1073. Compare Hall v. Santangelo, 178 Ala. 447, 60 South. 168. A person who through misrepresentations is induced to make an expensive investigation of certain machinery, but who does not purchase it, may recover for the injuries sustained by reason of sm-h misrepresentations. Williams Patent Crusher & Pulverizer Co. v. Lyth Tile Co. (Sup.) 150 N. Y. Supp. 6. 240 Galford v. Eastman, 242 111. 41, 89 N. B. 783. 91 FRAUD AND FRAUDULENT CONCEALMENT § 37 ed in the Code,^''^ but it would probably be recognized everywhere as a sound principle of equity jurisprudence. To illustrate these principles,— concealment of a material fact does not necessarily invalidate a mortgage if the other party was in no way injured thereby. ^*^ And where one, induced to part with land by fraud, nevertheless received a fair price therefor and a price equivalent to that given for similar lands in the vicinity, equity will not set aside the sale.^*^ So the government cannot set aside a patent for lieu land for fraud in a conveyance of land exchanged for it, if unable to show damage.^** Again, a widow executed an instrument releasing her interest in the estate of her de- ceased husband, whose will made no provision for her, and subsequently a dispute arose between her and the bene- ficiaries under the will, and for a consideration she execut- ed a subsequent instrument releasing her claim to the es- tate. It was held that she could not maintain an action for damages for fraud in inducing the execution of the subse- quent instrument, because, on account of the existence of the first instrument, she could not show any damages. ^*° On the same principle, a person cannot recover damages for having been fraudulently induced to execute a release of a cause of action for personal injuries, because, if the release was fraudulently procured, it is void, and the plaintiff was not damaged.^'"' And since, to create a liability against a defendant for depriving plaintiff of a legacy through fraud in inducing the testator to execute an invalid codicil, there must be not only a wrong inflicted by the defendant, but also damage to the plaintiff resulting directly therefrom, the plaintiff must show facts excluding the possibility that 2" Rev. Civ. Code La., § 1847. Where a note procured by fraud is negotiated to an innocent purchaser, the maker is damaged so as to be entitled to recover lor the fraud, though the note is not due. Hoffman v. Toft, 70 Or. 488, 142 Pac. 365, 52 L. R. A. (N. S.) 944. 242 Sheridan v. Nation, 159 Mo. 27, 59 S. W. 972. 243 Storthz V. Arnold, 74 Ark. 68, 84 S. W. 1036. 214 United States v. Conklin (C. C.) 169 Fed. 177. 24 5Anderson v. Smltley, 141 App. Div. 421, 126 N. Y. Supp. 25. 246 Lomax v. Southwest Missouri Electric Ry. Co., 106 Mo. App. 551, 81 S. W. 225. § 37 RESCISSION OF CONTRACTS 92 the testator changed his purpose respecting the legacy be- fore his death. ^*' Again, where one of two partners se- cured purchasers for his partner's interest in the firm by falsifying the books so as to conceal some of the firm debts, but the purchasers assumed only the debts of the firm as they appeared on the books at the time of the sale, they were not injured by the fraud and therefore could not re- scind. -^^ There is, however, one well-recognized exception to the general rule above stated, which relates to sales of prop- erty. A purchaser of personal property is entitled to re- ceive the identical property bought, and if the vendor, by fraud or trick, palms off on him, or induces him to accept, a substituted article or something not contemplated by his contract, the purchaser may rescind the sale and recover what he has paid, without showing any pecuniary damage, or even though the substituted article is worth full as much as the one intended, for "the purchaser is entitled to the bargain which he supposed and was led to believe he was getting, and is not to be put off with any other, however good." ^*° So also as to realty. A person cannot, with in- tention to mislead a purchaser by deceiving him concerning facts as to which he is in the dark, sell him land for one purpose, and then, in a suit in equity, brought to annul the transaction by reason of such fraud, defend on the ground that, while he knowingly and willfully deceived the pur- chaser in the manner claimed, the grantee will lose noth- ing thereby if he will avail himself of the land for some other or different purpose designated by the grantor. ^^^ If damage is shown, the extent of the injury occasioned by the fraud will not be inquired into in a suit to rescind the contract.-" And the injury need not be accurately 2" Lewis V. Corbln, 195 Mass. 520, 81 N. E. 218, 122 Am. St. Eep. 261. 248 JlcCarrell v. Hayes, 186 Ala. 32.3, 65 South. 62. 249 Mather v. Barnes (C. C.) 146 Fed. 1000 ; Jakway v. Proudfit, 76 Neb. 02, 106 X. W. 1039, 109 N. W. 3SS, 14 Ann. Cas. 258 ; Fuller V. Chenault, 157 Ala. 46, 47 South. 197 ; Maxfleld v. Jones, 106 Ark. .346, 153 S. W. r,Sri. 250 steeu V. Weisten, 51 Or. 473, 94 Pac. 834. 261 Engeman v. Taylor, 46 W. Va. 660, 33 S. E. 922. 93 FKAUD AND, FRAUDULENT OONCBALMBNT § 37 measurable in money, but it is sufficient if it is of a pecuni- ary nature.^^2 And an allegation in a petition to cancel a conveyance of real property, that in reliance on the fraudu- lent representations the plaintiff parted with title to the land, is a sufficient plea that he was damaged by the fraud."' So, in a suit to set aside a deed for fraud, the fact that plaintiff was injured sufficiently appears from a find- ing that the price paid was grossly inadequate. ^°* Another point, very important to be noticed in this connection, is that it is not necessary to show that the defendant against whom relief is sought had any interest of his own to serve in the fraud which he practised, or that he himself derived any benefit or advantage from its results, provided that loss or injury to the plaintiff is shown. ^'*^ Thus, a defendant who was an active participant in a scheme by which the complainants, with whom he was in close and confidential business relations, were fraudulently induced to make a transfer of their property, cannot escape liability to make restitution on a cancellation of the transfer, on the ground that he did not himself profit by the fraud. ^^° So, in an action for damages for deceit in placing on the market val- ueless notes in pursuance of a scheme to defraud, it is im- material to defendant's liability, that he did not obtain any of the plaintift''s money, as he is liable, not because of ben- efit to himself, but for the wrongful act and the consequent injury to the plaintiff.-'^' So, a vendor who gives a false receipt, purporting to be in payment of half the price of land, to enable the vendee, through it, to sell the land for double the actual price, is a joint wrongdoer with the ven- dee, and is responsible for the consequences of the fraud, though personally he receives no benefit from it.^^' 252 Spreckels v. Gorrill, 152 Cal. 383, 92 Pac. 1011. 253Rihiier V. Jacobs, 79 Neb. 742, 113 N. W. 220. 2 64 Hick V. Thomas, 90 Cal. 289, 27 Pac. 208, 376. 25 5Hindman v. First Nat. Bank, 112 Fed. 931, 50 C. C. A. 623, 57 L. R. A. 108 ; Page v. Bent, 2 Mete. (Mass.) 371. Compare Ken- nah V. Huston, 15 Wash. 275, 46 Pac. 236. See Bingham v. Fish, 86 N. J. Law, 316, 90 Atl. 1106. 2 66 Goldsmith v. Koopman (C. C.) 140 Fed. 616. 257 Leonard v. Springer, 197 111. 532, 64 N. E. 299. 268 Stoney Creek "Woolen Co. v. Smalley, 111 Mich. 321, 69 N. W. 722. § 37 RESCISSION OP CONTRACTS 94 Finally, a party cannot legally be said to have been in- jured by a fraud which does not touch him or in any way affect his rights, though it may work wrong to some other person concerned in the transaction. Thus, the fact that a committee appointed by the owners of certain lands to sell the same, stipulate with the purchaser that a large part of the purchase money shall be paid to them, is no ground for a rescission of the contract by such purchaser, since, if any fraud is committed thereby, it is not a fraud upon him, but upon the rights of the other owners. "'''' So the fact that persons acting as bankers for another stop payment of his checks, with intent to cheat the owners of property sold to him, and appropriate the property to their own use, does not constitute such fraud as would give the seller a cause of action against them, the buyer having bought the property in good faith and with intent to pay for it.^"" § 38. Fraud Practised on Both Sides. — Where there have been false and fraudulent representations or deceit practised on both sides, both parties endeavoring to mislead and cheat each other, the inequitable conduct of the one party may be set off against that of the other, and relief denied in equity. ^"^ This principle is sometimes expressed in the maxim "Fraus non est fallere fallentem," meaning that it is not fraud to deceive a deceiver, that is, that a party to a contract who cheated and deceived the other can- not raise the cry of fraud because he himself was also made the victim of a deceit in the same transaction. But it is no defense to an action to cancel a deed procured by fraud and undue influence that the plaintiff, in making the deed to the defendant, intended to defraud a third person. ^'^- In other words, to bring into operation the rule for setting off fraud against fraud, the frauds must have been mutual. An in- 2 59 Fariisworth \ . Duffner, 142 U. S. 43, 12 Sup. Ct. 164, 35 L. Ed. 931. And see Stratton's Independence v. Dines, 135 Fed. 449, 68 C. 0. A. 161. 260Theusen v. Bryan, 113 Iowa, 496, 85 N. W. 802, 201 Greenfield v. Edwards, 11 Law T. (N. S.) 663; Supreme Council Catholic Knights v. Beggs, 110 111. App. 139 ; Maurice v. Devol, 23 W. Va. 247. Contra, Blair v. Baird, 43 Tex. Civ. App. 134, 94 S. W. 116. 262 Gatje V. Armstrong, 145 Cal. 370, 78 Pac. 872. 95 FRAUD AND FRATJDTJLBNT CONCEALMENT § 39 teresting illustration of this principle is found in a case in Michigan, where the vendor of land was a speculator and dealer in lands containing deposits of iron ore. He had been prospecting on the lands in question and had discov- ered iron ore and for. that reason bought the property. He offered it for sale to certain scientific men, and negotiations were opened. The vendees visited the lands themselves, and made the discovery not only that the property con- tained iron ore, but also that it was of a peculiarly high grade and of great value. They pretended that they wished to purchase the lands only for the sake of the timber on them, but the vendor replied that the property was also valuable on account of the iron ore, and it was eventually sold for a price much greater than the timber was worth, but much less than the actual value of the ore considering its grade. It was held that the vendor had no ground to set aside the sale. The court said : "On both sides they were dealers and speculators in iron lands ; there was no relation of confidence between him and them ; they were dealing with each other at arms' length ; and the whole course of the correspondence shows that each party ex- pected the other to obtain his own information in his own way, and to decide as to the value at his own risk, and that neither was acting in reliance upon the statements of the other as to the value of the lands." '"^ § 39. Duty of Care and Pruderice to Detect Fraud. — It is the duty of a person negotiating with reference to the formation of a contract, the execution of a conveyance, or any other business transaction, to be on his guard against any attempt to trick or cheat him, and to exercise proper care and vigilance to avoid any fraud or imposition, and if he fails in this, and is defrauded and injured, equity will not ordinarily grant him any relief.^"* As it is sometimes 263 Williams v. Spurr, 24 Mich. 3.35. 2 64 Great Western Mfg. Co. v. Adams, 176 Fed. 325, 99 C. C. A. 615; Arkadelphia Lumber Co. v. Thornton, 83 Ark. 403, 104 S. W. 169 ; Brandt v. Krogh, 14 Cal. App. 39, 111 Pac. 275 ; Pool v. Tuck- er, 36 111. App. 377; Stedman v. Boone, 49 Ind. 469; Williamson V. Hitner, 79 Ind. 233 ; Wood v. Wack, 31 Ind. App. 252, 67 N. B. 562; Mansfield v. Watson, 2 Iowa, 111. Compare White Sewing I 39 RESCISSION OP CONTRACTS 96 Stated, a person who engages in a business transaction with his eyes deliberately closed cannot complain of having been overreached for the lack of information which he might have obtained if he had kept his eyes open.^"^ Thus, in an instructive case in Indiana, it appeared that the plaintiff, a widow, was requested by the defendant to sign and ac- knowledge a paper which he presented to her, stating that it was a receipt for money which he had advanced to her. She accepted his assurance as to its nature and complied with his request. In reality the paper was an assignment to defendant of a policy of insurance on the life of her deceas- ed husband. The plaintiff's suit was to cancel this assign- ment as having been procured by fraud. She had not known that her husband was carrying any life insurance, and alleged that defendant concealed this fact from her, but did not allege any affirmative acts of concealment or that he knew she was unaware of the existence of the policy. No reason was given for her failure to read the assignment, which was indorsed on the policy, nor did the complaint allege that she did not know that an acknowledgment to a mere receipt for money was unusual. It was held that the complaint did not show a cause of action, as the deception was not the result of defendant's artifice, but of the plain- tiff's own negligence.^*" So, the fact that a minor son, to induce his father to convey land to his mother, fraudulently agreed to and did convey his land to his father, with inten- tion to repudiate the conveyance, as he afterwards did, can- not be relied on by the father as ground for setting aside the conveyance to his wife, as he must be presumed to have known his son's age and that he could not make a binding conveyance.-"' More especially if a person has his suspi- Mach. Co. V. Bullock, 161 N. C. 1, 76 S. E. 634 ; Van Metre v. Nunn, 116 Minn. 444, 133 N. W. 1012. "If the party by reasonable dili- gence could have bad knowledge of the truth, equity will not re- lieve ; nor will the ignorance of a fact, known to the opposite party, justify an Interference, if there has been no misplaced confidence, nor misrepresentation nor other fraudulent act." Civ. Code Ga. 1910, § 4581. 26 5 Exchange Bank v. B. B. Williams & Co., 120 La. 901, 45 South. 935. 20 6 Miller v. Powers, 119 Ind. 79, 21 N. E. 455, 4 L. R. A. 483. 29rAnderson v. Anderson, 122 Wis. 480, 100 N. W. 829. 97 FRAUD AND FRAUDULENT CONCEALMENT § 39 cions aroused, or becomes cognizant of circuiflstances which strongly suggest an investigation, he cannot safely neglect to follow up the clue, but will be held responsible for such information as he might have obtained.^"' But these rules do not apply where the subject-matter of the contract is not at hand, and the facts are within the knowl- edge of the one party, but cannot be ascertained by the oth- er without trouble and expense,^°° or are such as require the exercise of special skill, technical knowledge, or extraordi- nary care to ascertain and judge of them, which the party does not possess or cannot exercise.^'"* But while the general rule, as above stated, is not contro- verted, there has been much difiference of opinion among the authorities as to the measure or degree of care to be re- quired of a person in safeguarding his own interests against fraud and imposition, before he can apply to equity for relief. Some of the cases have held the complaining party to a high degree of care and vigilance. Others have not hesitated to give redress where his negligence and folly were gross and apparent. Perhaps the majority have ap- plied the standard of "ordinary care and prudence" or have demanded to be satisfied that the conduct of the plaintiff was such as would befit a man of "average intelligence" or of "ordinary prudence." But there is an increasing per- ception of the fact that this is, after all, but a rough-and- ready principle, and that a rule which would be fairly ap- plicable as between two business men of equal sagacity would be ludicrously unjust if applied as between a shrewd knave and an inexperienced woman, or between a sharper and a fool. And the modern decisions go far towards es- tablishing what we may call the doctrine of "comparative intelligence," that is to say, that the question must be de- termined in the light of the special circumstances of each particular case, and that, to arrive at any just conclusion in a case where it is claimed that the complaining party should 26 8 Steele y. Lawyer, 47 Wash. 266, 91 Pac. 958; Veney v. Furtli, in Mo. App. 678, 154 S. W. 793. 269 Borde v. Kingsley, 76 Wash. 613, 136 Pac. 1172. 270 sanford & Brooks Co. v. Columbia Dredging Co., 177 Fed. 878, 101 O. C. A. 92. Black Resc. — 7 ^ 40 RESCISSION OP CONTRACTS 98 be deprived of any relief because of his own negligence or want of care, it is necessary to take into account the mental, physical, and pecuniary condition of each of the parties at the time of the contract, and to weigh .their comparative intelligence, with respect to the successful practice of fraud or its successful detection, the one against the other, tak- ing into account such elements as shrewdness or simplicity, caution or improvidence, intelligence or stupidity, experi- ence or the lack of it, suspicion or credulity, education or ignorance, and also to consider the temporary condition of the party's mental faculties, as being at their brightest on the one hand, or, on the other hand, as being at the time ob- scured or weakened from any cause.-''- § 40. Rule as to Persons Occupying Positions of Trust or Confidence. — When one of the parties to a contract or business transaction occupies a confidential or fiduciary re- lation towards the other, they do not deal at arms' length, nor are they required to be on their guard against each oth- er for the detection or prevention of fraud. On the con- trary, the person occupying the subordinate or dependent position has the right to rely implicitly upon the integrity and good faith of the other, and upon the information and advice which he may give him, while the party who is in the superior or dominant position is bound to exercise the utmost good faith, to state the truth in all that he says, to disclose all material information, and to refrain from tak- ing any personal advantage of the influence or authority which he may possess. So that, if any contract or dealing between them results in an unfair or inequitable advantage to the dominant party, it will be set aside in equity, with- out proof of any actual fraud or sinister purpose on his part, and notwithstanding the fact that the injured party might have protected himself if he had been on the alert and had exercised care and prudence.-''- To state the rule 2" See King v. Cohorn, 6 Yerj;. (Tenn.) 75, 27 Am. Dee. 455; Jackson v. Collins, 3'J Mich. 557 ; Stone v. Moody, 41 \^'ash. 6S0, 84 Pac. 617, 85 Pac. :UG, 5 L. li. A. (N. S.) 799; Kendall v. Wilson, 41 Vt. 507. And see, infra, § 123. 272 Rogers V. Briglitman, 189 Ala. 228, 66 South. 71; Lee v Lee, 258 Mo. 599, 167 S. W. 1030 ; Payne v. Payne, 12 Cal. App. 251, 107 99 FRAUD AND FRAUDULENT CONCEALMENT § 40 somewhat differently, where two persons stand in a rela- tion such that, while it continues, confidence is necessarily reposed by one, and the influence which naturally grows out of that confidence is possessed by the other, and the confidence is abused, or the influence exerted to obtain an advantage at the expense of the confiding person, the per- son so availing himself of his position cannot retain the ad- - vantage, although the transaction could not have been im- peached if no such relation had existed between them.^''' The rule of caveat emptor does not apply to a transaction between parties so situated,^'* and in an action between such parties, it is no defense to bring home to the defraud- ed party knowledge of facts which would have sufficed to cause an ordinarily prudent person to make inquiries, for in such conditions nothing short of actual knowledge will do.^''' And while it is true that the mere existence of a fiduciary relation between contracting parties will not ren- der the contract void or even voidable, where it is open, honest, and fair,^'"* yet a court of equity, when complaint is made to it, will subject all such dealings to a very close and jealous scrutiny.^''' Further, fraud may be predicated upon the suppression of a material fact, and when a confi- dential relation exists, it is the duty of the person in whom Pac. 148 ; Mackall v. Mackall, 3 Mackey (D. C.) 286 ; Beacti v. Wil- ton, 244 111. 413, 91 N. E. 492 ; Baker v. Wheeler, 149 111. App. 579 ; Peter v. Wright, 6 Ind. 183; Hetland v. Bilstad, 140 Iowa, 411, 118 N. W. 422; Reck v. Reek, 110 Md. 497, 73 Atl. 144; Thiede v. Startzman, 113 Md. 278, 77 Atl. 666; Seeley v. Price, 14 Mich. 541; Naeseth v. Hommedal, 109 Minn. 153, 123 N. W. 287; Cohen v. Ellis, 16 Abb. New Cas. (N. Y.) 320; Smith v. Firth, 53 App. Div. 369, 65 N. y, Supp. 1096 ; Fjone v. Fjone, 16 N. D. 100, 112 N. W. 70; Johnson v. Savage, 50 Or. 294, 91 Pac. 1082; Matthaei v. Pownall, 235 Pa. 460, 84 Atl. 444. As to fraudulent misrepresentations of facts by party occupying position of trust or confidence, and duty to investigate, see, infra, § 119. 273Hawkes v. Lackey, 207 Mass. 424, 93 N. E. 828; Martin v. Baker, 135 Mo. 495, 36 S. W. 369. 27 4 Manheim v. Woods, 213 Mass. 537, 100 N. E. 747.. 27 5 McDonough v. Williams, 86 Ark. 60O, 112 S. W. 164. 276 Crosby v. Dorward, 248 111. 471, 94 N. E. 78, 140 Am. St. Rep. 230. 27 7 Payne v. Payne, 12 Cal. App. 251, 107 Pac. 148; FJone v. F^'one, 16 N. D. 100, 112 N. W. 70 ; Tindal v. Sublett, 82 S. C. 199, 63 S. E. 960. § 40 RESCISSION OF CONTRACTS 100 confidence is reposed to disclose fully and fairly every ma- terial matter in his knowledge of which he knows the other party is ignorant, failing of which he is guilty of fraud. ^''^ Thus, where a person occupying a position of trust towards another possesses exclusive information concerning the rights of that other to property, and makes a contract with him for the property without disclosing his exclusive knowledge, the contract may be avoided. ^^^ In fact, many of the cases go to the length of holding that any bargain or transaction by which one holding a fiduciary or confidential relation to another gains an advantage for himself, or which results in detriment to the other, is not only inequitable but presumptively fraudulent, and that it will be set aside or annulled unless the person benefited by it shall sustain the burden of proving, by clear and satisfac- tory evidence, that he did not abuse or betray his trust, that he acted in entire good faith, that the party worsted in the transaction fully understood his position and acted delib- erately, and that there was an adequate consideration giv- g^ 280 gy^ ^Yie jealous care of the law for the protection of persons in dependent or subordinate positions is some- times carried even beyond this point. Some of the authori- ties (particularly in the case of gifts and voluntary trusts) hold that it is additionally necessary for the person seeking to sustain the transaction to show that the donor or grantor had the benefit of competent independent advice; ^'^ that is, as explained in one of the cases, disinterested advice on 27 8 Bacon V. Soule, 19 Gal. App. 41'S, 126 Pac. 384; Beam v. Macomber, 33 Mich. 127; Oliver v. Oliver, 118 Ga. 362, 45 S. E. 232. 27» Boren v. Boren, 38 Tex. Civ. App. 139, 85 S. W. 48. 280 Hensan v. Cooksey, 237 111. 620, 86 N. B. 1107, 127 Am. St. Rep. 345; Roberts v. Welmer, 130 111. App. 297 (affirmed, 227 111. 138, 81 N. E. 40) ; Thomas v. Whitney, 83 111. App. 247 (affirmed, 186 111. 225, 57 N. E. 808) ; Curtis v. Armagast, 158 Iowa, 507, 138 N. W. 873; Tindal v. Sublett, 82 S. C. 199, 63 S. E. 960; Peterson v. Budge, 35 Utah, 596, 102 Pac. 211 ; Landis v. Wlntermut-.e, 40 Wash. 673, 82 Pac. 1000. It Is said that, where a confidential relation exists between the parties, a presumption of fraud arises more readily in the case of a gift than in the case of a contract. Shacklette v. Goodall, 151 Ky. 20, 151 S. W. 23. 281 Smith V. Boyd, 61 N. J. Eq. 175, 47 Atl. 816; Chanfrau v. Alexander (C. C.) 185 Fed. 537; Whitridge v. Whitridge, 76 Md. 54, / v 101 FRAUD AND PEAUDULBNT CONCEALMENT _. ■ Jl 41 the subject given in private, by some one of tTte-parfy^s own selection, and when not surrounded with dominant influenc- es favoring the contract or transfer.^*^ Thus, it is said that proper independent advice to a parent who is infirm or aged, as to a voluntary conveyance to his child, means that the donor had the benefit of conferring fully and privately on the subject of the intended gift with a person who was not only competent to inform him correctly as to its legal effect, but was so disassociated from the interests of the donee as to be able to advise him impartially and confiden- tially as to the consequences to the donor of his proposed benefaction.^^' But the principle as to the necessity of persons seeking independent advice before making disposi- tions of property to persons occupying positions of trust or confidence towards them applies only in cases where these parties are seeking to obtain some benefit or ad- vantage for themselves. If they are not seeking such ad- vantage, and the conveyance is not for their benefit or at their solicitation, but is made to them in trust for a benev- olent or charitable use, it will be sufficient that the grantor had an opportunity to obtain independent advice, and that he was not in any way prevented from doing so, and that he fully comprehended'what he was doing, and that it was his own voluntary act.^** § 41. Same; What Constitutes Fiduciary or Confiden- tial Relation. — Within the meaning of the rules under con- sideration, typical cases of fiduciary or confidential rela- tions are seen in the instances of trustee and cestui que trust, attorney and client, principal and agent, guardian and ward, and the like. The principle has been generalized by saying that a fiduciary relation is any relation existing be- tween parties to a transaction whereby one of them is in duty bound to act with the utmost good faith for the benefit 24 Atl. 645; Russell's Appeal, 75 Pa. 269: Riddle v. Cutter, 49 Iowa, 547 ; Kleeman v. Peltzer, 17 Neb. 381, 22 N. W. 793. 2 82 Nobles V. Hutton, 7 Cal. App, 14, 93 Pac. 289. 28 3 Post V. Hagan, 71 N. J. Eq. 234, 65 Ail. 1026, 124 Am. St Rep. 997. 284 Bowdoin College v. Merritt (C. 0.) 75 Fed. 480. § 42 RESCISSION OF CONTRACTS 102 of the other, ^'^ or that a person is said to stand in a fiduci- ary relation to another, when he has rights and powers which he is bound to exercise for the benefit of that other person.^'" But the rule which presumes fraud from the gaining of an inequitable advantage in such cases is by no means limited to instances of strict or technical trusts. On the contrary, it extends to every case where there is con- fidence justly reposed on the one side, and a resulting in- fluence, ascendency, or superiority on the other side.^*' But mere friendship between the parties does not justify the one in trusting the other implicitly or in assuming that the latter is not consulting his own interests in any business transaction between them,^^* although the friendly rela- tions of the parties may be considered, in connection with other facts and circumstances, in determining whether fraud was practised.^'" And the fiduciary position must be alleged and shown. Equity will not presume a relation of trust and confidence in order to exercise its jurisdiction to relieve against fraud. ^'"' Further, the fact that a fiduciary relation once existed between the parties cannot be relied on as ground for avoiding a transaction between them, after it has been definitely terminated, where the new trans- action is entered into with full knowledge and understand- ing of the facts, and uninfluenced by the former relation. ^"^ § 42. Same ; Principal and Agent. — The relation of prin- cipal and agent is one^ of trust and confidence, within the meaning of the rule under consideration. There is nothing to prevent them from contracting together. But in any business dealing between them there must be complete 28 6 Bacon v. Soule, 19 Cal. App. 428, 120 Pac. 3S4. 286 Ryan V. Kyan, 174 Mo. 270, 73 S. W. 494. 287 Boykin v. Franklin Life Ins. Co., 14 Ga. App. 666, S2 S. E. 60; In re Spann (Okl.) I.ii2 Pac. 68; Ehrich v. Brunshwiler, 241 111. 592, 89 N. E. 799 ; Bmgliam v. Sheldon, 101 App. Div. 48, 91 N. Y. Supp. 917; Cannon v. Gilmer, ISr, Ala. 302, 33 South. 659. The relatUiU of teacher and pupil Is not such as to justify the latter m relying implicitly upon the former's statements hi a business trans- action. Jlayo V. AVahlgreen, 9 Colo. App. 500. 50 Pac. 40. 2S8Bo,sley v. Monahan, 137 Iowa, 650, 112 N. W. 1102. 289 Wells V. Houston, 29 Tex. Civ. App. 619, 69 S. W. 183. 290 Todd V. Pratt, 149 App. Div. 459, 133 N. Y. Supp. 949. 201 Banner v. Eosser, 96 Va. 23S, 31 S. E. 67. 103 FRAUD AND FRAUDULENT CONCEALMENT § 42 good faith, no exercise by the agent of the influence which his position gives him, no concealment of any material fact from the principal nor misrepresentation of any fact to him, and no advantage gained by the agent which it would be inequitable for him to retain. Further, no actual fraudulent purpose on the part of the agent need be proved, and the principal is not chargeable with negligence in relying on the statements and representations of the agent. If the transaction is not characterized by the extreme fairness and good faith which these requirements imply, it may be set aside in equity at the instance of the injured principal.'"^ Thus, if an agent authorized to sell land belonging to his principal discovers facts which make it more valuable than had been supposed, it is his duty to make a full and prompt disclosure of the circumstances to the principal, and if he omits this duty, and so effects a sale of the land below its real value, and makes a profit out of the transaction, either by receiving a bonus from the purchaser or by becoming a joint purchaser himself, it is a fraud in law which will jus- tify setting aside the sale.^°^ And the same rule applies where an agent induces his principal to purchase various lands at excessive prices, himself benefitting by the trans- actions, either in the way of commissions or otherwise.^"* So, where defendant, who acted as plaintiff's agent in mak- ing an investmant for her, falsely represented that the mort- gage taken as security was a first mortgage, the plaintiff was held justified in relying on defendant's representations and not guilty of negligence in failing to resort to the rec- ords to ascertain their falsity.- °'^ And where an attorney in 292 Hayward v. McDonald, 192 Fed. 890, 113 C. C. A. 368 ; Taus- sig V. Hart, 58 N. Y. 425 ; Owk v. Berlin Woolen Mill Co., 43 Wis. 444 ; Thomas v. Whitney, 186 111. 225, 57 N. E. 808 ; Kochester v. Levering, 104 Ind. 562, 4 N. E. 203 ; Todd v. Grove, 33 Md. 191 ; Mc- Harry v. Irvin's Ex'r, 85 Ky. 322, 3 S. W. 374, 4 S. W. 800 ; Ealston V. Turpin, 129 U. S. 663, 9 Sup. Ct. 420, 32 L. Ed. 747; German Savings & Loan Soc. v. De Lashmutt (C. 0.) 83 Fed. 33; Le Gendre V. Byrnes, 44 N. J. Eq. 372, 14 Atl. 621 ; Koehler v. Dennlson, 72 Or. 362, 143 Pac. 649. 29 3 Keith V. Kellam (0. 0.) 35 Fed. 243; Hegenmyer v. Marks, 37 Minn. 6, 32 N. W. 785, 5 Am. St. Rep. 808. 20i Somen'alll v. McDermott, 116 Wis. 504, 93 N. W. 553. 29 5 Faust V. I-Iosford, 119 Iowa, 97, 93 N. W. 58. § 43 RESCISSION OF CONTRACTS 104 fact induced the wife of his principal to join in a deed, on the false statement that it was at the request of her hus- band, the attorney knowing at the time that the husband was dead, the deed was held void as to the wife.^"" § 43. Same; Attorney and Client. — The relation of at- torney and client is likewise one which requires the exercise of the utmost good faith and integrity. Any transaction or dealing between them will be closely scrutinized by the courts, and the attorney will not be allowed to retain any unconscientious advantage which he may have gained, even though he was guilty of no actual fraud. It is necessary, in fact, for him to show, in order to defend his position, that there was no fraud or mistake, no undue influence or bad advice on his part, no concealment or misrepresentation, and no inequitable advantage taken of his dominating po- sition. ^"^ An attorney who bargains with his client in a matter of advantage to himself must, if the transaction is afterwards questioned, show that it was fairly conducted, and that he discharged his duties to his client not only by refraining from all misrepresentation and concealment, but by diligence to see that the client was fully informed of the nature of the transaction and of his own rights and inter- ests, either by independent advice or else by such advice from the attorney himself as he would have given if he had been a stranger to the transaction.^"" These rules are ap- plicable with perhaps peculiar severity where the attorney buys property from his client or sells to him. While a con- tract by which an attorney purchases an interest of his 29 6 Green v. Tuttle, 5 Ariz. 179, 48 Pac. 10O9. 29' Carlock v. Oarlock, 249 111. 330, 94 N. E. 507; Bumham v. Heselton, 82 Me. 495, 20 Atl. 80, 9 L. R. A. 90 ; Jennings v. McCon- nel, 17 111. 148 ; Cooper v. Lee, 75 Tex. 114, 12 S. W. 483 ; Condit V. Blackwell, 22 N. J. Eq. 481 ; Hill v. Hall, 191 Mass. 253, 77 N. E. 831; Mills v. Mills, 26 Conn. 213; Howell v. Ransom, 11 Paige (N. T.) 538 ; Eysamen v. Nelson, 79 Misc. Rep. 304, 140 N. X. Supp. 183 ; Savery v. King, 5 H. L. Cas. 655 ; McPherson v. Watt, L. R. 3 App. Gas. 254 ; Harris v. Tremenbere, 15 Ves. 84. 298 Hill V. Hall, 191 Mass. 253, 77 N. E. 831; United States v. Coffin (O. C.) 83 Fed. 337 ; Barrett v. Ball, 101 Mo. App. 288, 73 S. W. 865; Goldberg v. Goldstein, 87 App. Div. 516, 84 N. Y. Supp. 782 ; In re Holland, 110 App. Div. 799, 97 N. Y. Supp. 202 ; Yea- mans V. James, 27 Kan. 195 ; Young v. Murphy, 120 Wis. 49, 97 N. W. 496. 105 FRAUD AND FRAUDULENT CONCEALMENT § 43 client in a claim in litigation is to be closely scrutinized, it is not necessarily invalid ; and where it appears that the parties dealt on equal terms, that the purchase was at the solicitation of the client, and that no advantage was taken of the relationship, it will be sustained." "'' But a very dif- ferent situation was disclosed in another case, in which it appeared that an attorney at law had among his clients two old men who were feeble-minded if not actually insane and who were also his own relatives. He obtained from them an assignment of certain claims against the United States government which he was prosecuting and which he suc- ceeded in collecting. He did not require them to act under independent advice. Further, in an action to set aside the assignment, it appeared that one of the assignors did not understand the meaning of it, and that the attorney on sev- eral occasions had advised them not to mention it to their other relations, and in several of his letters to them he had made incorrect statements, and he did not testify frankly as to what had become of a prior assignment. It was held that the assignment should be set aside.'""' Where an at- torney sells property to his client, the latter may be en- titled to rescind the transaction on account of concealments by the former which would not have given any such right but for the confidential relation of the parties; as, where the sale was of stock in a corporation, and the attorney concealed both the fact that it was his own stock which he was selling and that stock could be bought directly from the corporation at a lower price.^"^ The rule applies also to transactions relating to the very substance of the rela- tion, that is, the employment and compensation of the at- torney. Thus, false representations made by an attorney to an inexperienced client, as a basis for an extravagant overcharge for services in securing certain property for the client, that the other claimant of the property had employed all the attorneys in the place, will support a suit for fraud.^o" 209 Myers v. Luzerne County (C. C.) 124 Fed. 436. 800 Brooks V. Pratt, 118 Fed. 725, 55 C. C. A. 515. 301 Landis v. Wlntermute, 40 Wash. 673, 82 Pac. 1000. 3 02Manley v. Felty, 146 Ind. 194, 45 N. E. 74. § 43 RESCISSION OF CONTRACTS 106 There is one further circumstance which distinguishes the relation of attorney and client from other fiduciary rela- tions, namely, that the client does and must necessarily rely implicitly upon the attorney for information and guid- ance in matters of law. And it is as much a fraud for the attorney to deceive or mislead him by misrepresenting the law or giving him known bad advice, from motives of self- interest, as to deceive him in a matter of fact.^"' § 44. Same; Partners, Joint Owners, and Joint Pur- chasers. — The relation between partners is one of trust and confidence, so that each has the right to rely fully upon the other's good faith in any business transaction between them, and upon his making a full disclosure of all pertinent facts in his knowledge, and neither can retain an unjust advantage gained over the other by deception or treachery, though no actual and intentional fraud may be shown. ^'''' Thus, a purchase by a managing partner of his co-part- ner's interest in the business, the seller being ignorant of the condition of the firm's affairs, will not be sustained un- less it is shown that the price given was adequate and that the buyer communicated all the information in his posses- sion necessary to enable the seller to form a correct judg- ment.^"'' The same rule applies in the case of persons join- ing together in the purchase of property, and in the case of joint owners of property making a sale of it.^"'^ Where one person occupies towards another the position of a joint pur- chaser, it becomes his duty fully and honestly to disclose the true purchase price of the property to be acquired, and he lays himself open to an action for fraud or for deceit if 303Allen V. Frawley, 106 Wis. 6:;8, 82 N. W. 593. 304 Oolton V. Stanford, 82 Cal. .351, 23 Pac. 16, 16 Am. St. Eep. 137; Hasberg v. McCarty, 13 Daly (N. Y.) 41.j ; Pomeroy v. Benton, 77 Mo. Gl. 305 Brooks V. Jlartln, 2 Wall. 70, 17 L. Ed. 732. The managing partner in a mine, having concealed from his eo-partner the fact that valuable ore had been found during the tatter's absence, and having misled him as to the true condition of the mine by letters in which he concealed this fact, a sale by the latter to the former at a grossly inadequate price will be set aside as fraudulent. Bow- man V. Patrick (C. O.) 36 Fed. 138. 3oa Hodge V. Twitchell, 33 Minn. 389, 23 N. W. 547; King v. Wise, 43 Cal. 629. 107 FRADD AND FRAUDULENT CONCEALMENT § 44 he misrepresents the matter and induces his associate to contribute more than his share of the actual consideration paid.'"' In a case in Ohio, it appeared that several persons formed a syndicate or partnership for the purchase of a tract of land, expecting to sell it again at a profit. They relied on the representations of one of their number that the land contained valuable deposits of coal. That person, however, was secretly the agent of the vendor of the land, and was in reality merely taking the land at a fixed price and selling it to his associates at a much larger price. On discovering the fraud, and failing to find coal on the land, the associates promptly elected to rescind the contract and tendered a reconveyance to the vendor, who had retained possession. It was held that a decree for rescission should be granted.'"^ In another illustrative case, lessees of a min- ing property held an option to purchase it for $75,000, but they also had a separate agreement with the owner to re- fund them $35,000 in case they bought at the price named in the option. They solicited one P. to join them in the purchase of the mine, showing him the option, but conceal- ing the fact that the other agreement existed. He agreed to take a half interest in the property for $37,500. The les- sees had not enough money to carry out their part of the purchase, and applied to C. to advance funds to them. To him they disclosed all the facts and showed both the agree- ments, and he agreed to advance the money necessary to make the payments until the real consideration ($40,000) should be paid, and then he was secretly to receive the sub- sequent payments made by P. For this accommodation he was to receive interest on his money and also a third inter- est in the lessees' half of the property. A first payment of $20,000 was made, but then P. became suspicious and re- fused to pay any more, and through some arrangement with the lessees, C. completed the payments and obtained title to the property. It was held that by intentionally joining 307HIiiton V. King, 111 111. App. .369; Paddock v. Bray, 40 Tex. Civ. App. 226, 88 S. W. 419; Bunn v. Schnellbacher,^ 163 111. 328, 45 N. E. 227 ; McMuUen v. Harris, 165 Iowa, 703, 147 N.' W. 164. 308 Yeoman v. Lasley, 40 Ohio St. 190. And see Houts v. Schar- bauer, 46 Tex. Civ. App. 605, 103 S. W. 679. § 44 RESCISSION OP CONTEACTS 108 with the others in the deception of P., he became a joint purchaser and assumed the obligations of good faith inci- dent to that relationship, and that both he and the property in his hands were liable for the amount necessary to make restitution for the fraud.^"® So, also, the relation between several persons who are joint owners of a property is so far a relation of trust and confidence as to require a full disclosure to all of them of all the facts concerning a proposed sale of the property and the consideration therefor; and if some of the joint owners induce the others to sell their interests, for an inadequate price, by concealing facts which enhance the value of the property, or concealing the fact that they are to receive a secret bonus, or that they intend to resell at a higher price which has already been offered to them, it is a fraud in law.^^° And on similar principles it is held that, in the formation of a corporation, there is a mutual trust between the parties, and a false representation as to the actual cost of material furnished by one of the parties and going into such joint enterprise, and for part of which the party mak- ing the representations receives the price from the other, cpnstitutes a breach of faith and is actionable.^^^ § 45. Same; Parent and Child. — The doctrine of the best modern authorities is that the relation of parent and child is one of such trust and confidence that each is en- titled to rely implicitly upon the truth and fairness of the other in any business transaction between them, and that any abuse of the affection or the influence springing from their relationship is constructively fraudulent. Hence any contract or conveyance by which the one gains an appar- ently inequitable advantage over the other, or which bears a suspicious aspect, will be closely scrutinized by a court of equity.^^'' At the same time, a contract between parent 308 Cunningham v. Pettlgrew, 169 Fed. 335, 94 C. C. A. 457. 810 Upton V. Weisling, 8 Ariz. 298, 71 Pac. 917; Jennings v. Rickard, 10 Colo. 395, 15 Pac. 677; Cliristy v. Campbell, 30 Colo. 261, 87 Pac. 548 ; Jones v. McElroy, 134 Ga. 857, 68 S. E. 729, 137 Am. St. Rep.* 276. 311 Garrett v. Wannfried, 67 Mo. App. 437. 812 Saunders v. Greever, 85 Va. 2.'j2, 7 S. E. 391; "Wright v. Ver 109 FRAUD AND FRAUDULENT CONCEALMENT § 45 and child, or a gift or grant from one to the other, is not to be presumed fraudulent from the mere fact of their rela- tionship, so as to impose on the party defending it the bur- den of showing affirmatively the honesty and good faith of the transaction, but, to overturn it, there must also be some evidence of deceit, trickery, imposition, or undue influence, or of advantage taken of circumstances giving the one party a dominating position over the other.*^^ A deed or grant to a parent, made by a minor child or by one who has recently attained his majority, will be sub- ject to some suspicion in a court of equity, and the circum- stances attending will be carefully examined. But if it is shown that such a conveyance was voluntarily made and fully understood by the child, and that the transaction was fair and reasonable, and not disadvantageous to the gran- tor, there is no reason why it should be set aside as con- structively fraudulent. ^^* But it should be observed that we are at present only considering transactions of this kind as viewed in the light of actual or legal fraud. Undue in- fluence is a different matter, which will be discussed in a later chapter. At present it may suffice to remark that a minor child is presumed to be under the influence of his Plank, 8 De G., M. & G. 13T; Cocking v. Pratt, 1 Ves. 40O; Berk- meyer v. Kellerman, 32 Ohio St. 239, 30 Am. Rep. 577. 313 Jenkins v. Pye, 12 Pet. 241, 9 L. Ed. 1070 ; Alcorn v. Alcorn (C. C.) 194 Fed. 275 ; Broaddus v. James, 13 Cal. App. 464, 110 Pae. 158; Saufley v. Jackson, 16 Tex. 584; Bnrcli v. Nicholson, 157 Iowa, 502, 137 N. W. 1066; Gabriel v. Gabriel, 79 Misc. Rep. 346, 139 N. Y. Supp. 778 ; MllUcan v. Millican, 24 Tex. 426 ; Mackall v. Mackall, 135 U. S. 167, 10 Sup. Ct. 705, 34 L. Ed. 84; Kennedy v. Bates, 142 Fed. 51, 73 0. C. A. 237; Towson v. Moore, 173 U. S. 17, 19 Sup. Ct. 332, 43 L. Ed. 597; Sawyer v. White, 122 Fed. 223, 58 C. C. A. 587 ; Neal v. Neal, 155 Ala. 604, 47 South. 66 ; Soberanes V. Soberanes, 97 Cal. 140, 31 Pac. 910 ; Fitzgerald v. Allen, 240 111. 80, 88 N. E. 240 ; Bishop v. Hilliard, 227 111. 382, 81 N. E. 403 ; Burt V. Quisenberry, 132 111. 385, 24 N. E. 622 ; Wright's Ex'r v. Wright, 32 Ky. Law Rep. 659, 106 S. W. 856 ; Rader v. Rader, 108 Minn. 139, 121 N. W. 393; Jones v. Thomas, 218 Mo. 508, 117 S. W. 1177; Carney v. Carney, 196 Pa. 34, 46 Atl. 264 ; Marking v. Marking, 106 Wis. 292, 82 N. W. 133. Contra, see Whitridge v. Whitridge, 76 Md. 54, 24 Atl. 645 ; Berkmeyer v. Kellerman, 32 Ohio St. 239, 30 Am. Rep. 577. 31* Ferns v. Chapman, 211 111. 597, 71 N. E. 1106; Chapman v. Ferns, 118 111. App. 116. I 45 RESCISSION OF CONTRACTS 110 parent, though there is also the natural presumption that a parent intends to benefit rather than to injure his child. The result is that if a conveyance from a child to its par- ent is shown to have been without consideration, or for an inadequate consideration, the burden will be cast upon the parent to show either that it was not induced by any pa- rental duress or control or else that it was for the best in- terests of the child. ''^'^ And in any circumstances, a court will be justified in setting aside such a conveyance if there is any proof of intimidation, misrepresentation, or actual fraud.'*' ° But it is said that, after a child has attained his majority, there is no such confidential relation between him and his mother that a conveyance by the former to the lat- ter must be regarded as presumptively fraudulent, though it may be set aside on proof of any actual fraud or deceit. ''' In the converse case — that of a gift or grant from a par- ent to a child — there is no necessary presumption of fraud, but on the contrary, the conferring of benefits by a par- ent on a child is presumptively valid, even though the act was unwise or improvident, and a presumption of construc- tive fraud arises only when it is shown that the child had a dominating or controlling influence over the parent.^^* But in this case any actual fraud will be fatal to the validity of a transfer or contract, as in a case where a son misleads his father into signing a deed when he supposes it is a release of curtesy rights,^'" or obtains a deed of his mother's prop- erty for an inadequate consideration by falsely represent- ing to her that there is a lien on the property for a sum which she is unable to pay,^='' or where one takes advantage of a parent's advanced age and impaired faculties to get property from him for a small consideration and by a trans- action which the grantor does not clearly understand. ^^' aisCooley v. Stringfellow, 164 Ala. 460, 51 South. 321. 316 Stevens v. Stevens, 10 Kan. App. 259, 62 Tac. 714. 31' Burch V. Nicholson, 157 Iowa, 502, 137 X. W. 1066. 318 Curtis V. Armagast, 1.58 Iowa, 507, 138 N. W. 873; Powers V. Powers, 46 Or. 470, 80 Pae. 1058; Wright's Ex'r v. Wright, 32 Ky. Law Kep. 659, 106 S. W. 850. 319 Morgan v. Owens, 228 111. 598, 81 N. B. 1135; Brown v. Trent, 36 Okl. 230, 128 Pac. 805. 320 Davis V. Yancy, 31 Ky. Law Eep. 1155, 104 S. W. 697. 321 Thorn v. Thorn, 51 Mich. 167, 16 N. W. 324. Ill FRAUD AND FRAUDULENT CONCEALMENT § 46 So also, secrecy and the absence of any independent advice may go far towards stamping a transaction as fraudulent, where the parent was old and feeble and confided much to the judgment and discretion of the child.^^^ And great in- adequacy of price may be sufficient to justify the interfer- ence of a court of equity, where it is also shown that the grantee took advantage of the financial troubles of the grantor.^^' But the advanced age of the parent, even though extreme, will not be sufficient, by itself alone, to warrant a presumption of fraud,'^* especially when there is nothing to show that he depended in any way upon the advice or guidance of the child. '^^ § 46. Same ; Brother and Sister. — The relation between a brother and sister is normally one of such trust and con- fidence that they are required to exhibit the utmost good faith in any business transaction between them, and each is entitled to rely upon the statements and advice of the other, without assuming that attitude of vigilance and dis- trust which is expected of persons dealing at arms' length. Hence if the one takes advantage of his knowledge of facts concerning the subject-matter of the contract, which are unknown to the other, and abuses the confidence reposed in him, and thereby gains an unjust advantage, the con- tract is presumptively fraudulent, and will be set aside unless the party so benefiting by it can show it to have been such as equity may approve. ^^'^ This presumption is of course much strengthened if it is shown that the party al- leged to have been defrauded did actually and habitually repose great confidence in the other, or was usually man- 322 Hensan v. Cooksey, 2.37 111. 620, 86 N. E. 1107, 127 Am. St. Hep. 345. 323 Bradley v. Bradley, 28 Ky. Law Eep. 1261, 91 S. W. 1143. 3 24 Gabriel v. Gabriel, 79 Misc. Rep. 346, 139 N. Y. Supp. 778, af- firmed, 160 App. Div. 901, 144 N. Y. Supp. 1117. 325 Lodge V. Hulings, 63 N. J. Bq. 1.59, 51 Atl. 1015. 320 Bowen v. Kutzner, 167 Fed. 281, 93 C. C. A. 33 ; Sears v. Shaf- er, 6 N. Y. 268 ; Eeeder v. Meredith, 78 Ark. Ill, 93 S. W. 558, 115 Am. St. Eep. 22; Todd v. Grove, 33 Md. 188; Eichards v. Sutter, 94 Ark. 621, 125 S. W. 1018 ; Thornton v. Ogden, 32 N. J. Eq. 723 ; Harvey v. Mount, 8 Beav. 439. But compare Albrecht v. Hunecke, 196 111. 127, 63 N. E. 616; Goar v. Thompson, 39 Tex. Civ. App. 330,. 47 S. W. 61 ; Bacon v. Soule, 19 Cal. App. 428, 126 Pac. 384. § 46 RESCISSION OP CONTRACTS 112 aged and controlled by the other in his conduct and his business affairs,^-' and on the other hand, the presumption is much weakened, if not entirely removed, when it appears that the party complaining was fully informed of the facts and had the benefit of independent advice. ^'^^ But any ac- tual false representations made by the one to the other, when coupled with their confidential relationship, will in- validate the contract, though perhaps they might not have been sufficient to do so in the case of strangers dealing with each other.^^' There is no presumption of a fiduciary relationship be- tween two brothers where both are men of mature years and both have had experience in the matters of business to which their contract relates. But if it is shown that the one brother was the elder, and was much superior to the other in intelligence, business capacity, and firmness of character, and in fact sustained a quasi paternal relation to him, these circumstances impose such a special duty upon the dominant brother that any transaction by which he gains an undue advantage over the other will be con- structively fraudulent and will be annulled in equity. ^^° But the presumption does not extend to the case of broth- ers-in-law. The affinity between them does not create a fiduciary relation of one to the other nor raise any presump- tion of confidence and trust reposed by one in the other.'" § 47. Same; Husband and Wife. — It has generally been held that the relation of husband and wife is peculiarly one of trust and confidence, within the rules we are considering, that each owes to the other the duty of perfect fairness in any transaction between them, and that, while a contract be- tween them is not presumptively fraudulent from the mere fact of their marital relation, yet if either complains of hav- 327 Creamer v. Bivert, 214 Mo. 473, 113 S. W. 1118; Jenkins v. Jenkins, C6 Or. 12, 132 Pac. 542. 328 Lozier v. Hill, 68 N. J. Eq. 300, 59 Atl. 234. 328 Kelley v. Eadakin, 24 R. I. 101, 52 Atl. 678 ; Akers v. Martin, 110 Ky. 335, 61 S. W. 465; Dashner v. Bufflngton, 170 Mo. 260, 70 S. W. 099. 330 shevUn v. Shevlin, 96 Minn. 398, 105 N. W. 257. 331 Bawden v. Taylor, 254 111. 464, 98 N. E. 941. 113 FRAUD AND FBAUDULBNT OONCEALMKNT § 47 ing been overreached, equity will scrutinize the matter with a most jealous eye and will seize upon any slight evi- dence of fraud, deceit, or undue influence to annul the transaction. ^^^ Probably this rule is a survival from the rigorous doctrines of the common law, prevalent in a by- gone age, by which husband and wife could not validly contract with each other at all. And undoubtedly it is still reasonable and just in so far as it means that a wife is en- titled to trust her husband fully in any business affair and is not bound to suspect him of a sinister purpose or be on her guard against fraud, and vice versa. But so far as con- cerns the presumption that a husband dominates his wife or may be supposed to have exercised an undue influence over her in any dealing between them, the emancipation of married women has now proceeded so far that such a pre- sumption would be discredited as a fact in sociology, and therefore is no longer tenable in law. In effect, it has been distinctly ruled that a husband is not dominant over his wife as a matter of law, so as to create a presumption that any gift which she may make to him results from the exer- cise of his undue influence, but the question of his actual dominance is one of fact.^^^ And where, as a matter of fact, the parties are not on good terms with each other, and the terms of a settlement between them are fully discussed and maturely considered, each being careful and deliberate in looking after his own interests, and there is no great dis- parity between them in respect to mental capacity and firmness of mind, nothing whatever in the way of fraud or undue influence can be inferred from the mere fact of their relationship.^^* 332 Jones V. Jones, 140 Cal. 5S7, 74 Pac. 143 ; Dolliver v. Dolliver, 94 Cal. 642, 30 Pac. 4 ; Jleldrum v. Meldrum, 15 Colo. 478, 24 Pac. 1083, 11 L. R. A. 65 ; Corcoran v. Corcoran, 119 Ind. 138, 21 N. B. 468, 4 L. R. A. 782, 12 Am. St. Rep. 390 ; Paulus v. Reed, 121 Iowa, 224, 96 N. W. 757 ; Douglass v. Douglass, 51 La. Ann. 1455, 26 South. 546 ; Menne's Heirs v. Menne, 15 Ky. Law Rep. 774, 25 S. W. 592 ; Jenne v. Marble, 37 Mich. 319; Witbeck v. Wltbeck, 25 Mlcb. 439; Farmer v. Farmer, 39 N. J. Eq. 211 ; Garver v. Miller, 16 Ohio St. 527. 333 Mahan v. Schroeder, 236 111. 392, 86 N. B. 97 ; Griffin y. Birk- head, 84 Va. 612, 5 S. B. 6S5. 3 34 Crawford v. Crawford, 24 Nev. 410, 56 Pac. 94. Black Bksc. — 8 § 48 RESCISSION OF CONTRACTS 114 § 48. Same; Executors or Administrators and Bene- ficiaries. — Executors and administrators occupy a position of technical trust, and the rules under consideration apply to them with full force. They are not absolutely prohibited from dealing with the legatees or beneficiaries in respect to the interests of the latter in the estate. But if they do, they must meet and overcome the presumption of fraud which the law raises against them. That is, they must show the entire fairness of the transaction, and will not be allowed to retain any advantage they may have gained if there is evidence of any misrepresentation, concealment or deceit, or evidence of any advantage taken of the inexperience, ig- norance, or trustfulness of the other party .'^'^ And the fact that a testator appoints a certain man to be the executor of his will, and excuses him from giving bonds, amounts, in effect, to a declaration by the testator to his wife that the executor named is, in his opinion, a man on whose personal integrity she can implicitly rely, and therefore the executor occupies a fiduciary relation to the wife.* § 49. Same; Physicians and Patients. — From the time tlie relation of physician and patient is established until it is definitely terminated, it is regarded in law as strictly and necessarily a confidential relation, and any business trans- actions between the parties will be closely scrutinized. To invalidate a conveyance or gift from the patient to his medical adviser, it is not necessary to show any actual fraud. But if the latter gains an inequitable advantage over the former in any business dealing between them, he will not be allowed to retain it if it appears that it was gamed by any misrepresentation or deceit, by undue influ- ence or overpersuasion, by playing upon the patient's fears or hopes, by taking advantage of his feeble condition to im- 33 5 Swayze v. Burke, 12 Pet. 11, 9 L. Ed. 980; Williams v. Pow- ell, C6 jVla. 20, 41 Am. Rep. 742 ; Humphreys v. Burleson, 72 Ala. 1 ; West V. Waddill, 3:! Ark. 575: Collier v. Collier, i::;7 <;a. 658, 74 S. E. 275, Ann. ("as. l!)i:!A, 1110: Elirich v. Brunsliwiler, 241 111. 592, 89 N. E. 700 ; Stephens v. Collison, 249 111. 225, 04 N. E. 6G4 ; Da- voue V. Fanning, 2 .Johns. Ch. (N. Y.) 252; Whitted v. Nash, 66 N. C. 590. ♦Rogers v. Brightman, 189 Ala. 228, 66 South. 71. 115 FRAUD AND FRAUDULENT CONCEALMENT § 50 pose Upon him, or merely by abusing his mistaken trust and confidence.*^" Of course the suspicion of undue influence or unfair play may be removed by satisfactory evidence.**'' But generally the physician must assume the burden of proving that the patient had competent and disinterested advice, or else that he entered into the transaction volun- tarily, with a full understanding of its nature and efifect, and without being unduly influenced.*** As to pecuniary transactions between a patient and his nurse the authorities are scanty and in conflict. In one case it is said that there is, perhaps, no relationship be- tween men more calculated to make the will of one sub- servient to that of the other than the relation of patient and nurse, especially when continued throughout a period of years.**" But in another case, it is ruled that the relation- ship of mistress and servant, patient and nurse, and aunt and nephew, all combined, does not raise a presumption of undue influence.**" § 50. Same; Priests, Pastors, and Spiritual Advisers. — A person is supposed to be so far under the influence and control of any ecclesiastical personage who occupies the position of his pastor or spiritual adviser, and to repose such confidence in his advice, that any transaction between them which appears to be improvident or without adequate consideration — such, for instance as a grant or donation either to the ecclesiastic himself or to some religious use suggested by him — will be subject to a strong suspicion of undue influence or constructive fraud, and can be sustained 336 Zeigler v. Illinois Trust & Sav. Bank, 245 111. ISO, 91 N. E, 1041, 28 L. R. A. (N. S.) 1112, 1& Ann. Cas. 127; Butler v. Gleason, 214 Mass. 248, 101 N. E. 371 ; Norfleet v. Beall, 82 Miss. 538, 34 South. 328 ; Cadwallader v. West, 48 Mo. 483 ; Matthaei v. Pownall, 235 Pa. 460, 84 Atl. 444; AudenreiU's Appeal, 89 Pa. 114, 33 Am. Rep. 731; Viallet v. Consolidated Ry. & Power Co., 30 Utah, 2G0, 84 Pae. 496, 5 L. R. A. (N. S.) 663 ; Peterson v. Budge, 35 Utah, 596, 102 Pac. 211 ; Pratt v. Barker, 4 Russ. 507 ; Popham v. Brooke, 5 Russ. 8; Billage v. Southee, 9 Hare, 534. 337 Kellogg V. Peddicord, 181 111. 22, 54 N. E. 623. 33 8 Zeigler v. Illinois Trust & Sav. Bank, 245 111. 180, 91 N. E.. 1041, 28 L. R. A. (N. S.) 1112, 19 Ann. Cas. 127. 339 Dlngman v. Romine, 141 Mo. 466, 42 S. W. 1087. 34 Bade v. Feay, 63 W. Va. 166, 61 S. E. 348. § 51 RESCISSION OF CONTRACTS 116 only on proof of perfect fairness and candor, the full dis- closure of all material facts, and the exercise of an intel- ligent and unconstrained will.^*^ Such was the ruling made in a case where a priest induced one of his parishion- ers to make a deed conveying land for the use of a certain Catholic school. He accomplished this purpose by exhibit- ing to the grantor a paper writing which the grantor's de- ceased father had left with his will, in which the father stated that it was his wish that the property in question should go to the said school. But this paper, though sign- ed, was not witnessed. The priest had been advised by attorneys that it was entirely invalid as a will for the want of proper attestation, but he failed to disclose this advice to the grantor. It was held that it was his duty to have given proper information and advice on this point, in view of the relation of the parties, and for that reason the deed was subject to be set aside. ^*^ § 51. Same; Directors and Stockholders of Corpora- tions. — Ordinarily, the relation between a director and a shareholder of a business corporation is not of such a fiduci- ary character that the director may not purchase the share- holder's stock without disclosing to him the facts within his knowledge which may affect its value. ^''^ But special cir- cumstances in the particular case may clothe the director with such a trust as to make his concealment of material facts a fraud which will justify the setting aside of a pur- chase so made.'** Thus, in a case before the Supreme 341 McGlellan v. Grant, 181 N. Y. 5S1, 74 N. E. 1119; Ross v. Con- way, 92 Cal. 632, 2S Pac. 785 ; Ford v. Henne.ssj', 70 Mo. 580 ; Cas- parl V. First German Church, 12 Mo. App. 293 ; Corrigan v. Pironi, 48 N. J. Eq. 607, 23 All. ^o.j ; liuguenin v. Basely, 14 Ves. 273 ; Nor- ton V. Relly, 2 Eden, 2SG. Contra, Jackson v. Ashton, 11 Pet. 229, 9 L. Ed. 698. aisFlnegan v. Thelsen, 92 Mich. 173, 52 N. W. 619. 343 Bacon v. Soule. 19 Cal. App. 428, 126 Pac. 384; Krumbhaar T. Griffiths, 151 Pa. 2213, 25 Atl. 64 ; Carpenter v. Danforth, 52 Barb. (N. Y.) 581 ; Boddy v. Henry, 113 Iowa, 462, 85 N. W. 771, 53 L. R. A. 769 ; Tippecanoe County v. Reynolds, 44 Ind. 509, 15 Am. Rep. 245 ; Crowell v. Jackson, 53 N. J. Law, 656, 23 Atl. 426. 344 strong V. Repide, 213 U. S. 419, 29 Sup. Ct. 521, 53 L. Ed. 853 ; Stewart v. Harris, 69 Kan. 498, 77 Pac. 277, 66 L. R. A. 201, 105 Am. St. Rep. 178, 2 Ann. Cas. 873 ; Oliver v. Oliver, 118 Ga. 362, 45 S. B. 117 FRAUD AND FRAUDULENT CONCEALMENT § 61 Court of the United States, it appeared that the action Was to set aside a sale of corporate stock. At the time of the sale, the defendant was a director of the corporation, the owner of three-fourths of its stock, and its general man- ager, invested with large powers, and he was then engaged in negotiations which finally led to the sale of the com- pany's lands to the government at a price which greatly en- hanced the value of the stock, so that, at the tjme of suit brought, it was worth more than eight times as much as at the date of the sale. He employed an agent to buy up the plaintiff's stock, and concealed from the plaintiff both his own identity as the purchaser and his knowledge of the state of the negotiations and their probable successful re- sult. In these circumstances, it was held that he occupied such a fiduciary relation to any and all of the stockholders as required him to disclose all the facts within his knowl- edge affecting the value of the shares before making any purchase, and that his concealment of such matters was such a fraud as justified the rescission of the sale.^*" So, where a director and active manager of a corporation, who owns five-sixths of its stock, alarms a fellow director, the owner of the remaining sixth, by false statements of the financial condition of the company, with intent to induce him to part with his holdings at a grossly inadequate price, and procures from him a contract to sell for such price, pay- able partly in cash, partly in notes made or indorsed by the manager, and partly in the stock of a corporation organ- ized by him for the purpose of acquiring the assets of the other corporation, and constituting the manager attorney in fact to carry out the transaction, and, in consummating the contract, the manager secretly takes title to the stock him- self, such facts show such a case of fraud and deceit as to entitle the seller to relief against the buyer, aside from any question as to the relations between the parties at the time of the transaction. '** 232; Fisher v. Budlong, 10 R. I. 525; HofCman Steam Coal Co. v. Cumberland, etc., Co., 16 Md. 456, 77 Am. Dec. 311. 346 strong V. Repide, 213 U. S. 419, 29 Sup. Ct. 521, 53 L. Ed. 853. 3 46 George v. Ford, 36 App. D. C. 315. § 52 RESCISSION OP CONTRACTS 118 § 52. Signing Instrument Without Reading It. — A per- son who signs a written instrument without reading it, when he had ability and opportunity to do so, cannot after- wards complain that he did not know its contents. To state the rule more fully, — when a person can read English, and is so far in the possession of his faculties that he can read and understand a written instrument at the time it is presented to him for signature, and is not in any way pre- vented or dissuaded from doing so, and is not tricked into signing it by any false representation or positive fraud, but nevertheless signs without reading, he is guilty of such negligence that he cannot obtain relief in equity upon after- wards discovering that the instrument is different from what he supposed it to be, or that it imposes obligations which he had not intended to assume, or is more onerous or disadvantageous than he expected it to be.^*' This rule, 347 Wagner v. National Life Ins. Co., 90 Fed. 395, .3.3 C. C. A. 121 ; Ellicott Machine Co. v. United States, 43 Ct. C'l. 409; Wooddy v. Matttiews (Ala.) 69 South. 607; Lester v. Walker, 172 Ala. 104, 55 South. 619 ; Alosi v. Birmingham Waterworks Co., 1 Ala. App. 630, 55 South. 1029 ; Walter Pratt & Co. v. Metzger, 78 Ark. 177, 95 S. W. 451 ; Mitchell Uig. Co. v. Ike Kempner & Bro,, 84 Ark. 349, 105 5. W. 880 ; Ingram v. Coleman, 110 Ark. (;32, 160 S. W. 886 ; Stone v. Prescott Special School Dlst. (Ark.) 178 S. W. 399; Sisk v. Cas- well, 14 Cal. App. 377, 112 Pac. 185; Muncy v. Thompson, 26 Cal. App. 634, 147 Pac. 1178 ; Harrison v. Wilson Lumber Co., 119 Ga. 6, 45 S. B. 730; Georgia Medicine Co. v. Plyman, 117 Ga. 851, 45 S. E. 238; Patapsco Shoe Co. v. Bankston, 10 Ga. App. (J75, 74 S. E. 60; Beist v. Site, 16 Ind. App. 4, 44 N. E. 702; Norris y. Scott, 6 Ind. App. 18, 32 N. E. 103, 805 ; Bonnot Co. v. Newman, 108 Iowa, 158, 78 N. W. 817 ; Mower Hardwood Creamery & Dairy Sup- ply Co. V. Hill, i;i5 Iowa, 000, 113 N. W. 466; Blossl v. Chicago & N. W. R. Co., 144 Iowa, 097, 123 N. W. 360, 26 L. R. A. (N. S.) 255; J. I. Case Threshing Machine Co. v Blattingly, 142 Ky. 581, 134 S. W. 1131 ; McGregor v. Metropolitan Life Ins. Co., 143 Ky. 488, 136 S. W. 889; J. M. Case Mill Mfg. Co. v. A'kkers, 147 Ky. 396, 144 S. W. 76; Huber JIfg. Co. v. Piersall, 150 Ky. 307, 150 S. W. 341 ; United Talking Mach. Co. v. Metealf, 104 Ky, 258, 175 S. W. 357 ; Bakhaus v. Caledonian Ins. Co., 112 Md. 07(;, 77 Atl. 310 ; Smith V. Humphreys, 104 Md. 285, 65 Atl. 57; McEwau v. Ortman, 34 Mich. 325; (J win v. Waggoner, 98 Mo. 315, 11 S. W. 227; Paris Mfg. & lujporting Co. v. Carle, 116 Mo. App. 581, 92 S. W. 748; International Text Book Co. v. Lewis, 130 Mo. App. 15S, 108 S. w'. 1118 ; Ely v. Sutton, 177 Mo. App. 546, 102 S. W. 755 ; Avery Co. v. Powell, 174 Mo. App. (128, 161 S. W. 335 ; Spelman v. Delano, 1S7 Mo. App. 119, 172 S. W. 1163; Sanden v. Northern Pac. Ry. Co., 119 FRAUD AND FRAUDULENT CONCEALMENT § 52 however, is subject to numerous exceptions, or rather, there are numerous circumstances which will rebut the presump- tion of negligence in signing a paper without reading it, or which will excuse the party for his failure to do so, as, for instance, where it is misread to him or its contents misrep- resented, where, he is prevented from reading it, or where he is illiterate, or temporarily deprived of the use of his eye- sight. These various cases will be fully considered in the succeeding sections. At present it is necessary to observe that the general rule does not apply where one's signature to a document is obtained, without his reading it, by means of any actual fraud, trick, or artifice,'*' or by representa- tions upon which he has a right to rely, but which are false and fraudulent,^** as, when they are made by one occupy- 43 Mont. 209, 115 Pac. 408, 34 L. R. A. (N. S.) 711; Hennessy v. Holmes, 46 Mont. 89, 125 Pac. 132 ; Howell v. Bloom (Sup.) 117 N. y. Supp. 893; Leonard v. Southern Power Co., 155 N. C. 10, 70 S. E. 1061 ; Colonial Jewelry Co. v. Bridges, 43 Okl. 813, 144 Pac. 577 ; Powers V. Powers, 46 Or. 479, 80 Pac. 1058 ; Foster v. University Lumber & Sliingle Co., 65 Or. 46, 131 Pac. 736; Cosgrove v. Wood- ward, 49 Pa. Super. Ct. 228; Sloan v. Courtenay, 54 S. C. 314, 32 S. E. 431; Eeed v. Coughran, 21 S. D. 257, 111 N. W. 559; Gulf, C. & S. F. Ky. Co. V. Fenn, 33 Tex. Civ. App. 352, 76 S. W. 5!)-; Kan- sas City Packing Box Co. v. Spies (Tex. Civ. App.) 109 S. W. 432; Lewis V. Whiitwortli (Tex. Civ. App.) 54 S. W. 1077 ; Parrott v. Pea- cock Military College (Tex. Civ. App.) 180 S. W. 132; Larsen v. Oregon Short Line R. Co., 38 Utah, 130, 110 Pac. 983; Fulton v. Messenger, 61 W. Va. 477, 56 S. E. 830 ; Hale v. Hale,' 62 W. Va. 609, 59 S. E. 1056, 14 L. R. A. (N. S.) 221 ; R. D. Johnson Milling Co. V. Read (W. Va.) 85 S. E. 726; Bostwick v. Mutual Life Ins. Co., 116 Wis. 392, 89 N. W. 538, 92 N. W. 246, 67 L. R. A. 705 ; Ross V. Northrup, King & Co., 156 Wis. 327, 144 N. W. 1124. The rule that both parties in making a contract must assent to the same thing in the same sense has no reference to the misconception of a party to the contract wholly unauthorized by the language of the contract. Teachout v. Clough, 143 Mo. App. 474, 127 S. W. 672. 348 Bostwick V. Mutual Life Ins. Co., 116 Wis. 392, 89 N. W. 392, 92 N. W. 246, 67 L. R. A. 705 ; Providence Jewelry Co. v. Crowe, 113 Minn. 209, 129 N. W. 224 ; Goetz v. Sona, 65 111. App. 78 ; Birming- ham Ry. Light & Power Co. v. Jordan, 170 Ala. 530, 54 South. 280 ; Muller V. Rosenblath, 157 App. Div. 513, 142 N. Y. Supp. 602. 3 49Givan v. Masterson, 152 Ind. 127, 51 N. E. 237; Disney v. St. Louis Jewelry Co., 76 Kan. 145, 90 Pac. 782 ; St. Louis Jewelry Co. V. Bennett, 75 Kan. 743, 90 Pac. 246 ; Loyd v. Phillips, 123 Wis. 627, 101 N. W. 1092; J. Well & Co. v. Quidnick Mfg. Co., 33 R. I. 58, 80 Atl. 447 ; Compagnie Des Metaux Unital v. Victoria Mfg. Co. (Tex. Civ. App.) 107 S. W. 651. § 52 RESCISSION OF CONTRACTS 120 ing a fiduciary or confidential relation to him."'" Thus, a business man had been accustomed for several years to sign deeds prepared by his son conveying small town lots, with- out reading them, on the representation of the son in each case. On one occasion the son presented to him a deed for his signature, stating, as usual, that it conveyed one of the town lots, and the father signed without reading it. But in reality it conveyed all the father's interest in his de- ceased wife's real estate for a nominal consideration. It was held that the deed might be set aside as fraudulent.'" So, a traveling salesman who procures an order for goods and undertakes to write out the order must write it accord- ing to the agreement, and if the written order does not em- body the agreement, the buyer, signing it through inad- vertence or negligence without reading it, may neverthe- less avoid it on the ground of fraud. ^''- So again, where two persons were induced to sign their names to a printed form of contract for the purchase of a book, by a fraudulent representation made to one that he was writing his name only to show how it was spelled, and to the other that he was signing his name only as an autograph, it was held that neither was bound, though they were negligent in fail- ing to ascertain what was printed on the papers they sign- g(j_353 gy^ where a defendant knows that he is signing a contract which imports an obligation, and has an opportu- nity to read it, but chooses to sign without reading, he is bound by its terms, although the plaintiff may have stated its contents imperfectly, if there has been no concealment 360 Haag V. Burns, 22 S. T>. 51, 115 N. W. 104. 3B1 Hale V. Hale, 62 W. Va. 609, 59 S. E. 1056, 14 L. R. A. (N. S.) 221. 8 52 J. Weil & C!o. V. Quldnick Mfg. Co., 3:! R. I. 58, SO Atl. 447. And see Granger v. Kishi (Tex. Civ. App.) IfjS S. W. 1161. 3 63 Alexander v. Brogley, 6.3 N. J. Law, 307, 43 Atl. SS8. But see Williams v. Leisen, 72 N. .T. Law, 410, 60 Atl. 1096. In this case, to avoid liability on a written contract for the purchase of books, de- fendant testified that plaintiff's agent told him that he wanted to get some influential citizens to indorse tlie work ; that he did not read the contract, but signed his name only to indorse the work to other citizens, and that the agent did not tell him that he was signing a contract to buy the books. But this was held insuflicient to exonerate the defendant from the contract. 121 FEAUD AND FRAUDULENT CONCEALMENT § 52 or misrepresentation of its purport.'"* And in a case such as this, if a person trusts to representations which are not calculated to impose upon a person of ordinary prudence, or neglects the means of information within easy reach, he must suffer the consequences.'"'* Again, it is said that the failure to read a written instru- ment before signing it may be excused by the presence of an emergency requiring haste in its execution.'"" Such an emergency might well be supposed to exist, for instance, in the case of a person who has suffered personal injuries in an accident, and who is urged and hurried into signing a release of damages while he is in a dazed or stupefied con- dition, or suffering so severely from shock or pain as to be incapable either of resisting pressure or understanding dis- tinctly what he is doing; and it is so ruled.'"' But no such emergency exists, nor any sufficient excuse for failure to read the instrument, merely because the party signing it was in a hurry to attend to other business, to catch a train, or the like,'"* nor because the person at whose instance it was signed represented himself as being pressed for time and therefore urged hasty action.'"" And it will be difficult, if not impossible, for one to pro- duce an excuse acceptable in law for his failure to read over an instrument before signing it, when his attention was par- ticularly directed to the importance of acquainting himself 36 4 Alexander v. Ferguson, 73 N. J. Law, 479, 63 Atl. 998. 365 Bradford v. Wright, 145 Mo. App. 623, 123 S. W. 108. S56a?ruitt-Silvey Hat Co. v. Callaway & Trultt, 130 Ga. 637, 61 S. B. 481; Rounsaville & Bro. v. Leonard Mfg. Co., 127 Ga. 735, 56 S. E. 1030. 367 Union Pac. R. Co. v. Whitney, 198 Fed. 784, 117 C. C. A. 392 ; Chesapeake & O. R. Co. v. Howard, 14 App. D. C. 262; Bliss v. New York Cent. & H. R. R. Co., 160 Mass. 447, 36 N. E. 65, 39 Am. St. Rep. 504; Brickson v. Northwest Paper Co., 95 Minn. 356, 104 N. W. 291; Ballard v. Chicago, R. I. & P. R. Co., 70 Mo. App. 108; Mensforth v. Chicago Brass Co., 142 Wis. 546, 126 N. W. 41, 512, 135 Am. St. Rep. 1084. 358 Phelps V. Jones, 141 Mo. App. 223, 124 S. W. 1067; J. L Case Threshing Machine Co. v. Mattingly, 142 Ky. 581, 134 S. W. 1131 ; Reilly v. Daly, 2 Pa. Super. Ct. 540. 3 59 United Breeders' Co. v. Wright, 139 Mo. App. 195, 122 S. W. 1105 ; Potts V. Riddle, 5 Ga. App. 378, 68 S. B. 253 ; Wikle v. John- son Laboratories, 132 Ala. 268, 31 South. 715. § 53 RESCISSION OF CONTRACTS 122 with its contents. Such is the case, for example, where the very first line of the contract, printed in heavy type, warns the person to read it before signing,'"*" or where one signed a paper without reading it, supposing it to be merely a re- ceipt for money, but the instrument itself stated in capital letters at the beginning that it was a release of all claims for damages,^"^ or where a draft of the paper had been sub- mitted to the party's counsel, who made some changes and additions.'"'- In another case, the defendant omitted to read a contract which he was signing, supposing it to be a contract for the consignment of goods on commission, whereas it was a contract of sale. There was some evi- dence that the plaintiff's agent had misled him as to the character of the contract. But the plaintiff and his agent were both strangers to the defendant, and it was shown that the latter had good eyesight and was a business man of average intelligence and considerable experience, and that he had been requested to read the contract. Further, it was shown that a few lines of the paper, just before his signature, were such that a casual glance at them would have shown that the instrument was not a commission contract. The defendant's only excuse for failure to read it was that he was busy, and that he was not accustomed to read papers when signing them. It was held that he was not justified in relying on what was told him, and must abide by the contract. '"'' And of course one who signs a contract after having read it cannot complain of false repre- sentations as to its contents.^"* § 53. Same; Rule for Illiterate Persons and Foreign- ers. — It is the duty of one who understands the English language when spoken, but who cannot read it, to make himself acquainted with the contents of any business docu- ment which he is asked to sign, before signing it, and to 30 International Text-Book Co. v. Lewis, 130 Mo. ApiD. 158, 108 S. W. 1118. 361 HiU-lley V. Chicago & A. E. Co., 214 111. 78, 73 N. E. .398. 3 8 2American Fine Art Co. v, Simon, 140 Fed. 520, 72 C. C. A. 45. 383 Standard Mfg. Co. v. Slot, 121 Wis. 14, 98 N. W. 923, 105 Am. St. Kep. 1016. 3 6 4 Nlcol V. Young, 68 Bio. App. 448. 123 FRAUD AND FRAUDULENT CONCEALMENT § 53 that end, to procure it to be read aloud to him by a friend -or adviser or by some disinterested third person, to listen attentively, and to have it explained to him if necessary, and he is chargeable with knowledge of the contents of the paper whether he does this or not.^"'* If he omits this ordi- nary precaution of having the instrument read to him, he is chargeable with such negligence as will estop him from denying knowledge of its terms and preclude him from ob- taining relief from it, in the absence of any fraud or trick practised upon him.^''" The opposite party to the contract may assume the duty of reading it to the illiterate person •or of informing him of its nature, terms, and conditions. But if he does so, he must read or state it with scrupulous fidelity. If he misreads it, either by reciting provisions which it does not contain or by omitting part of what it does contain, if he falsely states that it embodies correctly the oral agreement which the parties had already reached, or if in any way he misrepresents the nature of the instru- ment or any of its terms or stipulations, it is a fraud which will justify the giving of relief to the injured party, not- withstanding the latter signed the paper without any other i^nformation as to what it contained.'"' It is even said that it is not enough for one who has made a written contract with an illiterate person to show that the contract was read to him, but it must also appear that he understood it and assented to it knowingly.'"* As stated in another case, an illiterate person is not bound by an instrument where he 365 Chicago, St. P., M. & O. Ry. Co. v. Belliwith, 83 Fed. 437, 28 C. C. A. 358 ; Murphy v. Hussey, 117 La. 390, 41 South. 692 ; Stem V. Moneyweight Scale Co., 42 App. D. C. 162. 3 66 Wilson, Close & Co. v. Pritchett, 99 Md. 583, 58 Atl. 360; Mc- Kinney v. Boston & M. R. Co., 217 Mass. 274, 104 N. E. 446 ; Mul- derrig v. Burke, 24 Misc. Rep. 716, 53 N. Y. Supp. 1004; Hurt v. Wallace (Tex. Civ. App.) 49 S. W. 675. Contra, see Trambly v. Ric- ard, 130 Mass. 259 ; Melle v. Candelora (Sup.) 88 N. T. Supp. 385. 367 Frank v. Schnuettgen, 187 Fed. 515, 109 C. C. A. 281; Bates V. Harte, 124 Ala. 427, 26 South. 898, 82 Am. St. Rep. 186 ; Alexan- der V. Dickinson (Ark.) 101 S. W. 739; Blrdsall v. Coon, 157 Mo. App. 439, 139 S. W. 243 ; American Harrow Co. v. Swoope, 16 Pa. Super. Ct. 451 ; Atlanta & O. A. Ry. Co. v. Victor Mfg. Co., 93 S. C. 397, 76 S. E. 1091; Baldwin v. Postal Telegraph Cable Co., 78 S. C. 419, 59 S. E. 67. 36 8 Brummond v. Krause, 8 N. D. 573, 80 N. W. 686. § 53 RESCISSION OP CONTRACTS 124 signs it in ignorance of its character, believing it to be an instrument of a different nature, and is induced to do so by misrepresentations of the other party, whose good faith he had no ground reasonably to suspect, though he does not re- quest any one to read the instrument to him before signing it.^"" And in general, any fraud, trick, artifice, deceit, or misrepresentation practised upon an illiterate person, to in- duce him to sign an instrument to which he would not have agreed if he had fully understood it, will be cause for avoid- ing it."" A similar rule obtains in the case of a person who, being of foreign birth, can neither read nor understand the English language, whether or not he is literate as respects his na- tive tongue. Such a person, before signing a business doc- ument, should procure a competent interpreter to read and translate it to him and explain anything which he does not understand ; and if he neglects to do this, not being pre- vented in any way, and no fraud or misrepresentation being practised upon him, and signs the paper nevertheless, he cannot escape liability on the plea that it is different from what he supposed he was signing.^''^ If the services of an ipterpreter are brought into use, care should be taken to select one who is entirely competent. But if this is done, and if every effort is made to explain matters fully to the foreigner, and he apparently comprehends and agrees to all that is said and done, his latent misunderstanding of the situation, unknown to and not due to any fault, fraud, or collusion of the other party, will not be chargeable to the 360 Grimsley v. Slngletary, 133 Ga. 56, 65 S. E. 92, 134 Am. St. Rep. 196. 370Amerlcaii Standard Jewelry Co. v. Wltherlngton, 81 Ark. 134, 98 S. W. cm ; Mason v. Postal Telegraph Cable Co., 71 S. C. 150, 50 S. E. 781; Ward v. Spelts, 39 Neb. 809, 58 N. W. 426; Sands v. Melchiouda, 186 Mass. 270, 71 N. B. 546. 3 71 International Text Book Co. v. Anderson, 179 Mo. App. 631, 162 S. W. 641 ; Constantino v. McDonald, 25 Idaho, 342, 137 Pac. 531 ; DowiiKiac Mfg. Co. v. Schroeder, 108 Wis. 109, S4 N. W. 14 ; Muller V. Kelly (C. C.) 116 Fed. 545. The decision in the case last cited was reversed on appeal (125 Fed. 212, 60 C. C. A. 170), but only on the ground that it should have been left to the jury to say whether or not the contract in question (between attorney and client) was ex- tortionate, unconscionable, and obtained by undue means. 125 FRAUD AND FRAUDULENT CONCEALMENT § 54 latter.''^ But if it is the opposite party to the contract who calls in the interpreter, such interpreter is the agent of the person calling him, and not of the foreigner, and if the pur- port of the instrument is not fully explained to the latter, either because it is not adequately stated to the interpreter, or because the interpreter does not correctly repeat it, the instrument is not binding.^'^ And if the opposite party (or his agent or representative) assumes himself to act as in- terpreter, he is bound to translate and explain with exact fidelity, the foreign person having in that case the right to rely fully upon him, so that any misrepresentation or mis- leading statement will invalidate the contract.^'* § 54. Same; Defective Eyesight Excusing Failure to Read. — A person whose eyesight is so defective that he can- not read without the aid of spectacles, and who is tempo- rarily deprived of the use of them, is in much the same posi- tion, in fact and in law, as one who cannot read at all. Be- fore afHxing his signature to any business document, he should take the precautiqn of having it read over to him, so that he may fully comprehend it, and if he omits to do so, he is nevertheless chargeable with a knowledge of its contents. "^^ He may be justified, however, in relying on the opposite party's statement of the contents of the paper, more particularly where he has dictated it himself. Thus, one who employs bankers to make a draft for the price of a shipment, and forward it with the bill of lading for col- lection, having given the correct data, and not having with him his spectacles, without which he cannot read, is not neg- ligent in signing the draft without having it read over to him.'^° And if a person in this situation is deceived or 372Blossi V. CMcago & N. W. Ry. Co., 144 Iowa, 697, 123 N. W. 360, 26 L. R. A. (N. S.) 255 ; Demark v. Milwaukee Electric Ry. & Light Co., 142 Wis. 624, 126 N. W. 18. See Savage v. Chicago & J. Ry. Co., 142 111. App. 342. 373 Burik V. Dundee Woolen Co., 66 N. J. Law, 420, 49 Atl. 442. 374 Great Northern Ry. Co. v. Kaslschke, 104 Fed. 440, 43 C. C. A. 626. 375 Golle V. State Bank of Wilson Creek, 52 Wash. 437, 100 Pac. 984. See Eldorado Jewelry Co. v. Darnell, 135 Iowa, 555, 113 N. W. 344, 124 Am. St. Rep. 309 ; Netherton v. Netherton, 142 Ga. 51, 82 S. E. 449. 37 6 Stoner v. Zacharay, 122 Iowa, 287, 97 N. W. 1098. § 55 EBSCISSION OF CONTRACTS 126- misled by the false representations of the other party as to the terms or contents of the instrument, and therefore signs without reading it, he may avoid it on account of fraud.'" But a contrary rule was applied in a case in Kentucky, where the treasurer of a school district laid before the pres- ident of the district, for his signature, a number of orders, and among them there was a promissory note. The pres- ident, who was near-sighted and did not have his spectacles, signed the note supposing it to be an order. The treasurer also signed the note and obtained the money thereon from the payee, who had no knowledge of the fraud. It was held that the president was estopped by his negligence from avoiding the note.''* § 55. Same; Dissuading or Preventing Party from Reading. — The rule that a party's own negligence in sign- ing a written instrument without reading it will estop him from claiming any relief against it, does not apply where he was induced so to sign it without examination by any trick, artifice, or fraud practised by the other party, whereby he was either prevented entirely from reading the instrument or successfully dissuaded from doing so."^ This rule was applied in a case where a woman, able to read and in the full possession of her senses, signed a release of damages without reading it, at the instance of a claim agent, who not only falsely told her that it was a mere receipt, but fold- ed it so that she could not see what she was signing and held it so as to prevent a proper inspection,'*" and in a case where, at the time a party signed a certain paper, some print- 377 Muller V. Ko.senlilath, 157 App. Div. ."i;!, 142 X. Y. Supp. 602; Kobiuson v. Roberts, :jO Okl. 7S7. li.j Pae. 1!1C ; McDonald v. McKln- ney Nuiscry (.'o., 44 Okl. 62, 143 I'ac. 191. 3T8 McCoy V. Gouvion, 102 Ky. :;nij, 4:; S. W. 699. 3 79 New York Life Ins. Co. v. McMaster, S7 Fed. (Jo, .30 C. C. A. .532; Baltimore & O. R. Co. v. Morgan, .3.5 App. D. C. 195; Shook V. Puritan Mfi;. Co., 75 Kau. .301, M) Pae. 65:',, S L. R. A. (N. S.) 1043; Redfield v. Baird, 75 Kan. ,s::7. 90 Pae. 7S2 ; E,;;-]fston v. Ad- vance Thre.sher Co., 96 Minn. 241, 104 N. W. .'^:91 ; Woodbrid-e v. De Witt, 51 Neb. 9S, 70 N. W. 506; Dixon y. AYilndngton Sayings & Trust Co., 115 X. C. 274, 2(1 S. K. 464; Loveland v. Jenkins-Boys Co., 49 Wash. .■UiO, 95 Pae. 490. sso Roberts V. Colorado Springs & I. Ey. Co., 45 Colo. ISS, 101 Pae. 59. 127 FRAUD AND FRAUDULENT CONCEALMENT § 56 ed matter therein was intentionally concealed from his view by the other party, so that he did not know that he was signing a promissory note.^'^ It is also said that, while a contracting party is not ordinarily justified in relying on the other party's statements as to what the paper contains, but should examine it for himself, yet this does not apply where the party making the representations has, by his own act, rendered such examination a matter of more than ordinary difficulty.'"*^ So, where the seller of goods was handed a written contract drawn up by the buyer, and glanced at it hurriedly, but took the buyer's word for it that it embodied the agreement they had already reached, being well ac- quainted with such buyer, and the contract was long and involved, and was so written that if the seller had read it he probably would not have discovered the particulars in which it differed from the agreement, he was held entitled to repudiate the written contract in so far as it conflicted with the understanding between the parties.^*^ And so, though a party can read and fails to read a paper offered him for signature, being a release of damages, it may be an excuse that the defendant told him it was merely a receipt and that it was too dark in the room to see to read.^^* § 56. Same; Misrepresenting Purport or Contents of In- strument. — If a person is induced to sign a contract, con- veyance, or other instrument without reading it, by the fraudulent misrepresentations of the other party as to its character or contents, and in reliance on such representa- tions, he may repudiate it on discovering that it is not the kind of instrument which he intended to execute or that it contains stipulations to which he never agreed, notwith- standing the fact that he might have discovered the fraud by scrutinizing the instrument, and though he is to some extent chargeable with negligence for his failure to do so.^^^ 381 Palo Alto Stock Farm v. Brooker, 131 Iowa, 229, 108 N. W. 307. 3 82 Keller v. Equitable Fire Ins. Co., 28 Ind. 170. 383 Lilienthal v. Herren, 42 Wash. 209, 84 Pac. 829. 38 4 Robertson v. George A. Fuller 'Ctonst. Co., 115 Mo. App. 456, 92 S. W. 130. 385 Capital Security Co. v. Holland, 6 Ala. App. 197, 60 South. 495; Moline Jewelry Co. v. Crew, 171 Ala. 415, 55 South. 144; § 56 RESCISSION OP CONTRACTS 128 Thus, where the parties have negotiated concerning a busi- ness transaction and reached an oral agreement, and one of them undertakes to reduce it to writing, and brings to the other for his signature a paper which he falsely represents as embodying the agreement, whereas it is of a different character or contains different provisions, and the other, relying on such representations, signs the contract without reading it, it is a fraud justifying the rescission of the con- tract.^*"" For an even stronger reason, a person may have relief who is tricked into signing an instrument of an en- tirely different character than that which it is represented to him to be,^*^ as, where a quitclaim deed is falsely pre- tended to be a receipt for a payment of money then mad-e,^^' or where the signer is told that the document is a paper re- lating to his application for a pension, whereas it is a deed of land,^*° or where the document signed grants a right of Prestwood v. Carlton, 162 Ala. 327, 50 South. 254; Patapsco Shoe Co. V. Bankston, 10 Ga. App. 675, 74 S. E. 60 ; Pictorial Review Co. V. Fitzgibbon, 163 Iowa, 644, 145 N. W. 315; Alexander v. Brogley, 62 N. J. Law, 584, 41 Atl. 691 ; Dunston Lithograph Co. v. Borgo, 84 N. J. Law, 623, 87 Atl. 334; Leszynsky v. Ross, 35 Misc. Rep. 652. 72 N. Y. Supp. 352 ; Baldwin v. Postal Telegraph Cable Co., 78 S. C. 419, 59 S. E. 67 ; Charleston & W. C. Ry. Co. v. Devlin, 85 S. C. 128, 67 S. E. 149. But see J. I. Case Threshing Mach. Co. v. Mattlngly, 142 Ky. 581, 134 S. W. 1131 ; Terry v. JIutual Life Ins. Co., 116 Ala. 242, 22 South. 532. See, also. Stern v. Moneyweight Scale Co., 42 App. D. C. 162 ; Great Northern Mfg. Co. v. Brown, 118 Me. 51, 92 Atl. 993 ; Hammel v. Benton (Tex. Civ. App.) 162 S. W. 34. 38 Colorado Inv. Loan Co. v. Beuchat, 48 Colo. 494, 111 Pac. 61; McBride v. Macon Tel. Pub. Co., 102 Ga. 422, 30 S. B. 999 ; Burling- ton Lumber Co. v. Evans Lumber Co., 100 Iowa, 469, 69 N. W. 558 ; (iermer v. Gambill, 140 Ky. 469, 131 S. W. 268; Griffin v. Roanoke R. & Lumber Co., 140 N. C. 514, 53 S. E. 307, 6 L. R. A. (N. S.) 463. But where a written contract expressly stated that it included all of the agreements between the parties, it was held that one who signed it without ascertaining its terms, relying on the other party's statement that a collateral agreement was contained therein, could not avoid it unless his signature was procured by fraud. Outcult Advertising Co. v. Barnes, 176 Mo. App. 307, 162 S. W. 631. 387 Moore v. Sawyer (C. C.) 167 Fed. 826; Carter v. Walden, 1.36 Ga. 700, 71 S. E. 1047; Webb v. Webb, 99 Miss. 234, 54 South. 840; Acme Fdod Co. v. Older, 64 W. Va. 2r,r>, 61 S. E. 2;.;.!i, 17 L. R. A. (N. S.) 807. See Harrington v. Cliiflln, 28 Tex. Civ. App. 100, 66 S. W. S9S. 388 Kemery v. Zelgler, 176 Ind. 660, 96 X. E. 950. S89 Johnson v. Hall, 87 Miss. 667, 40 South. 1. 129 FRAUD AND FRAUDULENT CONCEALMENT § 56 way over his lands to a telephone company, but is repre- sented to him as being a receipt for a trifling sum of mon- gy^s9o Qj. -^yhei-e one who has read and executed a lease of his premises is induced to sign another paper, really a deed of the leased premises, by the representation that it is merely a duplicate of the lease.^'^ So also the rule applies where fraud is practised to induce the party to sign a paper which is genuine, in the sense of being the kind of instru- ment he meant to execute, but which is covertly made to include more land than he intended to convey,'"^ or, in the case of a lease, a promise to pay the lessor a sum in cash (not originally agreed to) in addition to the agreed rent.^°^ Relief will also be granted in the case of the fraudulent sub- stitution of one instrument for another, that is to say, where an instrument embodying what the parties have agreed on is shown to one of them and read and approved by him, but, at the moment of his signing it, another instrument of an entirely different character is secretly substituted for it.^'* A device somewhat similar to this was disclosed in an early case in Virginia, where a grantor, desiring to settle certain property on her niece free from the control of her husband, requested a third person to prepare the deed. The hus- band handed to such third person a deed prepared for sig- nature, stating that the grantor approved of it, and on such third person bringing this deed to the grantor, she executed it under the belief that it conformed to the directions she had given. But in reality it gave the husband an interest in the property. It was held that the deed should be set aside for fraud. '"^ But although the rules above set forth are supported by a great and impressive body of authority, there are still 3 90 Wilcox V. American Teleplione & Telegraph Co., 176 N. Y. 115, 68 N. E. 153, 98 Am. St. Rep. 650. 391 McGinn v. Tobey, 62 Mich. 252, 28 N. W. 818, 4 Am. St. Rep. 848. 392Tyeonard v. Roebuck, 152 Ala. 312, 44 South. 390. 383 Schroeter v. Bowdon, 53 Tex. Civ. App. 135, 115 S. W. 331. 3 94 Gi van v. Masterson, 152 Ind. 127, 51 N. E. 237; Togni v. Ta- minelli, 11 Cal. App. 7, 103 Pac. 899; McGinn v. Tobey, 62 Mich. 252, 28 N. W. 818, 4 Am. St. Rep. 848. 386 Shepherd v. Henderson, 3 Grat. (Va.) 367. Black Resc. — 9 § 56 RESCISSION OF CONTRACTS 130 many very respectable decisions which lay a predominating weight on the negligence or improvidence of a person who signs a business paper without reading it. According to these authorities, a person who can read and understand a paper presented for his signature and has an opportunity to do so, and is not prevented or dissuaded from doing so, is bound to acquaint himself with its contents, in the ab- sence of any special circumstances excusing him from read- ing it. And if he does not read it, he is chargeable with such negligence as will estop him from pleading fraud. And although the purport or contents of the instrument may have been misrepresented to him, still, as he had no right to rely on such representations, they do not consti- tute fraud in law.^"" More especially is this rule applied where his attention was called to the necessity of perusing the document, as, for instance, by a warning printed in bold type not to sign without reading.^"^ But even in these cases there may be special circumstances which will suffice to excuse the party's failure to read the document, as, where the misrepresentations were made for the very purpose of inducing him to refrain from reading it,^''^ where a fiduciary relation existed betwen the parties, such as that of husband and wife,'"" or principal and agent, ^'"' or where, for any special reason, the one party imposed implicit trust and con- fidence in the other,*"^ or where the party defrauded was ignorant, illiterate, or easily deceived,*"' or was under such 3 86 Heck V. Missouri Pac. Ry. Co. (C. O.) 147 Fed. 775; Toledo Computing Scale Co. v. Garrison, 28 App. D. 0. 243; Kimmell v. Skel- ly, 130 Cal. 555, 62 Pac. 1067; Shores-Mueller Co. v. Lonning, 159 Iowa, 95, 140 N. W. 197; Magee v. ^'erily, 97 Mo. App. 486, 71 S. W. 472 ; Johnston v. Covenant Mut. Life Ins. Co., 93 Mo. App. 580 ; McNinch v. Northwest Thresher Co., 2?, Okl. 386, 100 Pac. 524, 138 Am, St. Rep. 803; Farlow v. Chambers, 21 S. D. 128, 110 N. W. 94; Hubenthal v. Spokane & I. Ry. Co., 43 Wash. 677, 86 Pac. 955. 3" Zeller v. Ranson, 140 Mo. App. 220, 123 S. W. 1016. 398Lotter V. Knospe, 144 Wis. 426, 129 N. W. 614. 3 99Loewenberg v. Glover, 19 Wash. 544, 53 Pac. 839. And see, supra, § 47. ^ooRoiiluson V. Glass, 94 Ind. 211. And see, supra, § 42. *oi Moore v. Copp, 119 Cal. 429, 51 Pac. 630 ; Cooper v. Lee, 1 Tex. Civ. App. 0, 21 S. W. 998 ; Oar v. Davis (Tex. Civ. App.) 135 S. W. 710. 402Ballouz V. Higgins, 61 W. Va. 68, 56 S. E. 184; Carter v. Wal- den, 136 Ga. 700, 71 S. E. 1047. 131 FRAUD AND FRAUDULENT CONCEALMENT § 57 physical or mental pain or distress as to be incapable of judging of the necessary precautions to be taken against fraud."^ On the other hand, many courts have felt the doctrine of negligence precluding relief, as thus applied, to be extreme- ly harsh. To visit a perfectly innocent person with severe consequences simply because of his mistaken trustfulness is too much like enforcing a forfeiture, and scarcely seems consistent with the beneficent purposes for which the juris- diction in equity was established. And on the other hand, it is revolting to the conscience to permit a trickster to re- tain the fruits of his iniquity simply because his victim was too guileless to suspect him, or too unsophisticated to catch him in the fraud. Accordingly, many of the later cases have boldly taken the position that the doctrine that a par- ty is conclusively presumed to know the contents of an in- strument signed by him shall not and does not obtain as against fraud practised upon him, and that, contrary to the older rule, the principle should be that one who perpetrates. a fraud is estopped to claim that the party defrauded ought not to have believed or trusted him, or could have detected the fraud by proper vigilance.*"* But finally, it should be observed that if the person claiming to have been defrauded is shown to have read the document before he signed it, and it appears that nothing contained in it was concealed from him, evidence merely that he was misled as to its meaning is not sufficient to justify a finding that he was induced by fraud to execute it.*'*^ § 57. Misreading Instrument. — Where one of the parties to a contract undertakes to read it to the other, in order 403 Porter v. United Railways Co., 165 Mo. App. 619, 148 S. W. 162. 404 Vaillaneourt v. Grand Trunk Ry. Co., 82 Vt. 416, 74 Atl. 99 ; Tanton v. Martin, 80 Kan. 22, 101 Pac. 461 ; Electrical Audit & Re- bate Co. V. Greehberg, 56 Misc. Rep. 514, 107 N. Y. Supp. 110; M. E. Smith & Co. v. Kimble, 31 S. D. 18, 139 N. W. 348; McCaskey Register Co. v. Bennett, 6 Ala. App. 185, 60 South. 541 ; McCarty v. New York Life Ins. Co., 74 Minn. 530, 77 N. W. 426; Hough Cash Register Co. v. Mowry, 35 App. Div. 631, 55 N. Y. Supp. U41 ; Frank V. Strauss & Co. v. Welsbach Gas Lamp Co., 42 Misc. Rep.^ 184, 85 N. Y. Supp. 367. 405 Nesbit v. Jencks, 81 App. Div. 140, 80 N. ¥. Supp. 1085. § 67 RESCISSION OF CONTRACTS 132 that the other may thereupon execute it, it is his duty to read it with scrupulous accuracy; and if he misreads it in- tentionally, either by changing the words, by omitting ma- terial provisions, or by pretending to read what is not in the contract, and thereupon the other signs in reliance upon such reading, it is a fraud which will justify the repudia- tion of the contract or relief in equity.'""' "Fraud in the execution of an instrument has always been admitted in a court of law, as where it has been misread, or some other fraud or imposition has been practised upon the party in procuring his signature and seal. The fraud in this aspect goes to the question whether or not the instrument ever had any legal existence." *"'' But still the question arises wheth- er a person who signs a document without reading it is jus- tified in relying implicitly upon the fidelity with which the other party may have read it to him. There is authority for the statement that he is not to be charged with negligence in this case,*"* and the fact that a majority of the cases dealing with the general rule make no mention of this cir- cumstance warrants the inference that it was considered unimportant, in the face of such a positive and actual fraud, that the injured person might have protected himself by in- sisting on reading the document himself. But of course a stronger case in law is made if there was any sufficient rea- son why he did not or could not inform himself at first hand of the contents of the instrument, as, for example, where he 406 George v. Tate, 102 V. S. 564, 26 L. Ed. 232 ; Hartshorn v. Day, 19 How. 211, 15 L. Ed. 605 ; American Fine Art Co. v. Beeves Pulley Co., 127 Fed. SOS, 02 C. 0. A. 4SS; Jaclcson v. Security Mut. Life Ins. Co., 2.3.S 111. 161, S4 N. E. 198 ; Papke v. G. H. Hammond Co., 102 111. G:!1, 61 N. E. 910; Indiana, D. & TV". Ry. Co. v. Fowler, 103 111. App. .CiOo ; Heitsman v. TA'indahl, 125 Iowa, 207, 100 N. W. 1118; Shoic.v-ilueller Co. v. Lonning, 1.59 Iowa, 05, 140 N. W. 197; Western Mfg. Co. v. Cotton, 31 Ky. Law Rep. 1130, 104 S. W. 758, 12 L. K. A. (N. S.) 427 ; Van Deusen v. Brown, 167 Mich. 49, 132 N. W. 472; Monnett v. Columbus, S. & H. i;y. Co., 26 Ohi<5 Cir. Ct. R. -ISO; Fine V. .Stuart (Tenn. Ch. App.) 48 S. W. 371 ; Harrison v. Middle- ton, 11 Grat. (Va.) 527. 407 Hartshorn v. Day, 19 How. 211, 15 L. Ed. 605. 408 Tait V. Locke, 130 Mo. App. 273, 109 S. W. 105. And see what is said in the next preceding section on the modern doctrine of ex- cluding the question of negligence when an actual fraud is pleaded as a ground for relief. 133 FRAUD AND FRAUDULENT CONCEALMENT § 58 was illiterate and could not read,*"' or where he could not read without the aid of spectacles and did not have them with him at the time/^" or where he was too infirm to read the paper himself, ''^^ or where he relied on the reading and expounding of it by his own attorney. *^^ § 58. Fraudulent Concealment of Material Facts. — Fraud justifying the rescission of an obligation may be committed not only by "suggestio falsi" but also by "sup- pressio veri," that is to say, not only by the representation of that which is false, but also by the suppression or con- cealment of that which is true. A contract or other trans- action may be avoided on the ground of that kind of deceit which exists where one party obtains the consent of the other to the agreement by means of concealing or omitting to state material facts with intent to deceive, by reason of which omission or concealment the other party is induced to give a consent which he would not otherwise have given, provided that the one was bound in good faith to disclose his knowledge to the other.*^^ This is not only the rule of 409 Sibley v. Holcomb, 104 Ky. 670, 47 S. W. 765; Skym v. Weske Consolidated Co., 115 Cal. xvii, 47 Pac. 116; Birdsall v. Coon, 157 Mo. App. 439, 139 S. W. 243. iioBixler v. Heilman, 44 Pa. Super. Ct. 603; Stewart v. Koberts, 33 Ky. Law Kep. 332, 110 S. W. 340 ; Loucks v. Taylor, 23 Ind. App. 245, 55 N. E. 238. 411 Baton V. Eaton, 37 N. J. Law, 108, 18 Am. Kep. 716. 412 Nicol V. Young, 68 Mo. App. 448. 413 Strong V. Eepide, 213 U. S. 419, 29 Sup. Ct. 521, 53 L. Ed. 853 ; Stewart v. Wyoming Cattle Ranch Co., 128 U. S. 3.S3, 9 Sup. Ct. 101, 32 L. Ed. 439 ; Edward Malley Co. v. Button, 77 Conn. 571, 60 AU. 125 ; Rutherford v. Irby, 1 Ga. App. 499, 57 S. E. 927 ; Dick- inson T. Stevenson, 142 Iowa, 567, 120 N. W. 324 ; Howerton v. Au- gustine, 130 Iowa, 389, 106 N. W. 941; Fred Macey Co. v. Macey, 143 Mich. 138, 106 N. W. 722, 5 L. R. A. (N. S.) 1036; Witham v. Walsh, 156 Mich. 582, 121 N. W. 309 ; Decker v. Diemer, 229 Mo. 296, 129 S. W. 936; Owens v. Rector, 44 Mo. 389; Morley v. Harrah, 167 Mo. 74, 66 S. W. 942 ; Barnard v. Duncan, 38 Mo. 170, 90 Am. Dec. 416 ; Moore v. Mutual Reserve Fund Life Ass'n, 121 App. Div. 335, 106 N. Y. Supp. 255; Miller v. Wissert, 38 Okl. 808, 134 Pac. 62 ; White v. Cox, 3 Hayw. (Tenn.) 79 ; Engeman v. Taylor, 46 W. Va. 669, 33 S. B. 922 ; Tolley v. Poteet, 62 W. Va. 231, 57 S. B. 811 ; Manuel v. Shafer, 135 Wis. 241, 115 N. W. 801. And see Corry v. Sylvia y Cia (Ala.) 68 South. 891 ; Stotts v. Fairfield, 163 Iowa, 726, 145 N. W. 61 ; Boileau v. Records, 165 Iowa, 134, 144 N. W. 336 ; Linton v. Sheldon, 98 Neb. 834, 154 N. W. 724; Deyo v. Hudson, § 58 RESCISSION OP CONTRACTS 134 the common law, but in those states where the substantive law has been codified it has been re-enacted in the codes, and the essential elements of the rule clearly set forth and described.*^* A fraudulent concealment, it is said, is the intentional concealment of some fact known to the defendant which it is material for the plaintifif to know to prevent being de- frauded, the concealment of a fact which one is bound to disclose being the equivalent of an indirect representation that such fact does not exist, and differing from a direct false statement only in the mode in which it is made.*^^ In another case, it is said that a fraudulent concealment is the failure to disclose a material fact, which the seller knows himself, which he has a right to presume that the 89 Misc. Rep. 525, 153 N. T. Supp. 693 ; Ford & Denning v. Shepard Co., 36 E. I. 497, 90 Atl. 805. 414 "Concealment of material facts may in itself amount to fraud (1) when direct inquiry is made and the truth evaded, (2) when from any reason one party has a right to expect full com- munication of the fact.s from the other, (3) when one party knows that the other is laboring under a delusion with respect to the prop- erty sold or the condition of the other party, and yet keeps silence, (4) when the concealment is of intrinsic qualities of the article which, the other party, by the exercise of ordinary prudence and care, could not discover." Civ. Code Ga. 1910, § 4114. "Suppression of a fact material to be known, and which the party is under an obligation to communicate, constitutes fraud. The obligation to communicate may arise from the confidential relations of the parties, or from the particular circumstances of the case." Code Ala. 1907, § 4299. "Ac- tual fraud consists of any of the following acts, committed by a party to the contract or with his connivance, with intent to de- ceive another party thereto, or to induce him to enter Into the con- tract * * * the suppression of that which is true by one hav- ing knowledge or belief of the fact." Civ. Code Cal., § 1572 ; Rev. Civ. Code Mont., § 4978 ; Rev. Civ. Code N. Dak., § 5203 ; Rev. Civ. Code S. Dak., § 1201 ; Rev. Laws Okl., 1910, § 903. And it may be remarked that, in the five states last mentioned, by other provisions of their codes, a deceit is defined, for the purposes of the statutoiy action of deceit, as being, among other things, "the suppression of a fact by one who is bound to disclose it, or who gives information of other facts which are likely to mislead for want of communication of that fact." And in Louisiana, fraud "must be caused or continued by artifice, by which is meant either an assertion of what is false or a suppression of what is true," in relation to a material part of the contract. Rev. Civ. Code La., § 1847. 415 T. C. Power & Bro. v. Turner, 37 Mont. 521, 97 Pac. 950. And see Page v. Parker, 43 N. PI. 363, 80 Am. Dec. 172. 135 FRAUD AND FRAUDULENT CONCEALMENT § 58 person with whom he is dealing is ignorant of, and of the existence of which the other party cannot by ordinary dili- gence inform himself. That it may furnish a sufficient cause of action, the fact suppressed must not only be ma- terial, but the materiality must either be known to the sell- er, or the facts must so constitute an element of the value of the contract as to authorize the inference of knowledge of its materiality. The concealment must be for the pur- pose of continuing a false impression or delusion under which the purchaser has fallen, or of Suppressing inquiry, and thereby effecting a sale, with the intention to conceal or suppress, and it must operate as an inducement to the contract.*^" A fraud arising from the suppression of the truth is as prejudicial as that which springs from the as- sertion of a falsehood, and courts have not hesitated to sus- tain recoveries where the truth has been suppressed with intent to defraud.*^^ The saying that "silence gives consent" may therefore be as correct in law as it is in morals ; and keeping silence may in some circumstances be as active a misrepresentation as the most positive assertion.*^* But on the other hand, mere silence, in the absence of any duty to speak, is not ac- tionable fraud. *^° Hence it will be seen that the question of responsibility for concealment depends entirely upon the circumstances which may or may not impose upon the party a legal duty to disclose the facts within his knowl- edge. This subject will be fully discussed in the succeed- ing sections.*^" As instances of fraudulent concealment justifying rescis- sion or relief in equity, we may mention the case where a seller of property conceals the fact that there is a mortgage upon it,*^^ or where the holder of a promissory note, ne- *i6 Jordan v. Pickett, 78 Ala. 331. 417 Tompkins v. HoUister, 60 Mich. 470, 27 N. W. 651. iisBawden v. Taylor, 166 111. App. 443. 419 Boileau v. Records, 165 Iowa, 134, 144 N. W. 336. 420 See, infra, §§ 59-62. And see Strong v. Repide, 213 U. S. 419, 29 Sup. Ct. 521, 53 L. Ed. 853. 421 Junkins v. Simpson, 14 Me. 364 ; Firestone v. Werner, 1 Ind. App. 293, 27 N. E. 623; Elliott v. Clark (Tex. Civ. App.) 157 S. W. 437. § 58 RESCISSION OF CONTRACTS 136 gotiating its sale to another, conceals his knowledge of the insolvency of the maker,*^^ or where the assignee of a bond, after he knew that the bond had been paid and discharged before its assignment to him, obtained a new bond from the surety by threatening suit, hiding the important fact of the payment, which was unknown to the surety.*^' So, where one sold a lease and carefully concealed the fact, which he well knew, that the lease had already been forfeited in con- sequence of a breach of covenant by the lessee, and the purchaser bought the lease in ignorance of this fact, it was held that the seller was responsible in damages as for a deceit/^* Again, a credit insurance policy may be rescind- ed for fraudulent concealment of the insolvency of a cus- tomer.*^^ And a fraudulent attempt to sell a defective or imperfect title to land, or concealment of defects in the title, will warrant a repudiation of the bargain. ^^^ So, where a person sells land and conceals the fact that he had pre- viously conveyed the coal under it to another person (though the latter deed is on record), the purchaser, on dis- covering the fraud, may rescind the contract.^^^ And a similar ruling was made in a case where, pending negotia- tions for a known body of coal land supposed to contain 300 acres, the vendor conveyed to his children some of the more desirable or valuable portions, reducing the whole to less than 200 acres, and concealed this fact from the purchaser until after the execution of the deed.*^^ And where a mer- cantile company contracted to assume the indebtedness of a third person, being induced thereto by a fraudulent con- cealment of its extent, it was considered that it had an op- tion, on discovering the fraud, to affirm or repudiate the contract. ■'^^ In another case, one purchased a judgment 422 Gordon v. Irvine, 105 Ga. 144, 31 S. E. 151. 423 Thigisen v. Balfour, 6 N. C. 242. 424 tstevens v. Adamson, 2 Stark. 422. 425Anierican Credit-Indemnity Co. v. Wimpfheimer, 14 App. Div. 498, 43 N. Y. Supp. 909. 426 Kronfeld v. Missal, 87 Conn. 491, 89 Atl. 95. And see, infra, §§ 427-436. 427 Vemam v. Wilson, 31 Pa. Super. Ct, 257. 428 Carney v. Harbert, 44 W. Va. 30, 28 S. B. 712. 429 Hargadine-McKittriclv Dry-Goods Co. v. Swofford Bros. Dry- Goods Co., 10 Kan. App. 198, 63 Pae. 281. 137 FRAUD AND FRAUDULENT CONCEALMENT § 58 against a deceased debtor for a trifling sum, the seller, who was not the original judgment creditor, but a receiver of a bank, supposing the judgment to be worthless and being unaware of the existence of valuable collateral security for the judgment, which fact the purchaser had discovered but did not communicate. This was held to be a fraudulent concealment justifying rescission. ^^^ On the same prin- ciple, in prospectuses and other literature inviting the pub- lic to subscribe for corporate stock, as also in accounts giv- en verbally to subscribers, the suppression or concealment of material facts, such as, if known, would discourage or repel investors, is as much a fraud as willful misstatements of facts, and will equally entitle subscribers to cancel their contracts. *^^ Thus, a person may so cancel his subscrip- tion where the person soliciting it, to induce him to give it, represented that a person named, who was well known in the community as a successful business man of wide ex- perience and capacity, and whose example in such a matter would be likely to influence others, had subscribed for a large amount of the stock, but without disclosing the fact that such stock was given to such person as a gratuity for the use of his name.*^^ The same rules apply to the contract to marry. Per- sons contemplating a matrimonial engagement are not bound to volunteer information to each other on all points relating to their character and antecedents, and mere si- lence on the part of one, without any inquiry by the other, will not constitute fraud, though resulting in the conceal- ment of matters which would have prevented the engage- ment if known. But a partial and fragmentary disclosure, accompanied by the willful concealment of material and qualifying facts will be as much a fraud as an actual mis- representation. Hence, for instance, where a woman about to marry told her intended husband that she had been mar- 43 pues V. Rankin, 153 Fed. 537, 82 C. C. A. 491. 431 Central Ry. Co. of Venezuela v. Kiscli, L. R. 2 H. L. 99, 113; Oabes v. Turquand, L. R. 2 H. L. 325, 342 ; New Brunswick & Can- ada Ry. & Land Co. v. Muggeridge, 1 Dr. & Sm. 363 ; Stewart v. .Joyce, 201 Mass. 301, 87 N. E. 613. 12 Coles v. Kennedy, 81 Iowa, 360, 46 N. W. 1088, 25 Am. St. Rep. 503. § 58 RESCISSION OF CONTRACTS 138 ried and had obtained a divorce from her husband, but fail- ed to state that her husband had procured a divorce from her on a cross-bill in the same action, which charged her with being a woman of violent temper and with cruelty, it was held to be a fraudulent concealment and a good de- fense to an action for breach of promise of marriage. *'' In another case, it appeared that one applied for a policy of life insurance, and the application stipulated that the insur- ance should not take effect "until the first premium shall have been paid during my continuance in good health." Shortly afterwards the insured became suddenly ill with appendicitis, and the next day his secretary paid the pre- mium to the agent of the insurance company and received the policy, concealing the fact of the illness. Two days later the insured died. It was held that the company could sue in equity for the cancellation of the policy.*^* But in all cases of fraudulent concealment, it is distinctly and fundamentally necessary that the fact or circumstance concealed should have been material to the contract or ob- ligation, that is, of such a nature, or having such a rela- tion to the subject-matter, that it may fairly be presumed that the party deceived would not have entered into the en- gagement at all if the fact had been disclosed to him instead of being hidden. Without this the fraud is not of such a nature as to entitle him to relief.''^'' § 59. Same ; Circumstances Imposing Duty to Disclose. To justify the rescission of a contract on the ground of a fraudulent concealment, there must have been a willful sup- pression of such facts in regard to the subject-matter as the party making it is bound to disclose.*^" This obligation to disclose may arise from various circumstances. In the 433 Van Houten v. Morse, 162 Mass. 414, 38 N. E. 705, 26 L. R. A. iF.O, 44 Am. St. Rep. 373. 434 Mutual Life Ins. Co. v. Pearson (0. C.) 114 Fed. 395. 435 Jordan v. Pickett, 78 Ala. 3:!1 ; T. C. Power & Bro. v. Turner, 37 Mont. 521, 97 Pac. 950; Latrobe v. Dietrich, 114 Md. 8, 78 Atl. 983 ; Brown v. Strimple, 21 Mo. App. 338 ; Eecknagel v. Steiuway, 33 Misc. Rep. 633, 68 N. Y. Supp. !I57 ; Lafayette Street Churcli So- ciety V. Norton, 159 App. Div. 1, 144 N. Y. Supp. 2(j5. 430Kison V. Newberry, 90 Va. 513, IS S. B. 916; Stotts v. Fair- field, 163 Iowa, 726, 145 N. W. 61. 139 FRAUD AND FRAUDULENT CONCEALMENT § 59 first place, if a direct inquiry is addressed to a party having knowledge, in such a manner as to show that the inquirer means to accept the information which he may give him and rely upon it, and that the fact inquired about has an im- portant or essential bearing on the making of the contract, it is his duty, if he answers at all, to answer not only truly but fully, and if he disclaims all knowledge of the fact, evades the truth, or gives a misleading reply, it is a fraud- ulent concealment for which the injured party may have redress.*"' In the next place, if one of the parties to the transaction occupies a fiduciary or confidential relation to the other (as in the case of attorney and client, principal and agent, guardian and ward, parent and child, or the like), it is the right of the one to rely implicitly upon the good faith of the other, with a corresponding obligation to ex- ercise the utmost degree of fairness in all dealings between them.*"* And this involves a full and frank disclosure of all material fact-s within the knowledge of the fiduciary or trustee. He cannot safely deal with the other party on any other terms. He is bound not only to answer fully all in- (quiries addressed to him, but to volunteer information if necessary, in respect to every material matter of which he knows the other party to be ignorant, until that other is completely advised of all circumstances which may proper- ly influence his decision. And though the fiduciary may do nothing to deceive or mislead the other, yet if he inten- tionally keeps back or conceals any material matter within his knowledge, it is a constructive fraud and will warrant the rescission or setting aside .of the resulting contract or bargain. *"° Thus, where an attorney sells property to his *37 James v. Crosthwait, 97 Ga. 673, 25 S. E. 754, 36 L. E. A. 631 ; Van Houten v. Morse, 162 Mass. 414, 38 N. B. 705, 26 L. K. A. 430, 44 Am. St. Rep. 373 ; Burrows v. Fitch, 62 W. Va. 116, 57 S. E. 283 ; Civ. Code Ga. 1910, § 4114. Compare Cook v. BagneU Timber Co., 78 Ark. 47, 94: S. W. 695, 8 Ann. Cas. 251. See Tillis v. Smith Sons Lumber Co., 188 Ala. 122, 65 South. 1015. 438 See, supra, § 40 et seq. 4 39 Bacon v. Soule, 19 Cal. App. 428, 126 Pac. 384; Oliver v. Oliver, 118 Ga. 362, 45 S. E. 232 ; Beam v. Macomber, 33 Mich. 127 ; Bonz V. Bonz, 165 Mich. 45, 130 N. W. 306; Noban v. Shoup, 171 Mich. 191, 137 N. W. 75 ; Lafayette Street Church Society v. Norton (Sup.) 133 N. X. Supp. 671; American Credit Indemnity Co. v. § 59 RESCISSION OF CONTRACTS 140 client, the latter may be entitled to rescind the transaction on account of concealments by the former which would not have given any such right but for the confidential re- lation of the parties.^''" So, where an agent for the sale of land represented to his principal that the land had been sold for taxes (which was correct) and that the principal no longer had any interest in it, and thereby obtained a quitclaim deed for a small consideration, but withheld from the principal the fact which he well knew himself, that the tax sale was void, it was held that the deed was voidable at the option of the principal.**^ In the next place, the rule applies where the parties do not stand upon an equal footing as respects knowledge of the subject-matter or the means of acquiring information. AVhere one of the parties conceals a fact material to the transaction which is exclusively or peculiarly within his own knowledge, being aware that the other party is acting on the belief that no such fact exists, it is not a mere jus- tifiable silence, but the violation of an actual duty to dis- close, and therefore is as much a fraud as if the existence of that fact were expressly denied or the reverse of it ex- pressly affirmed."*^ Thus, for instance, one who sells per- sonal property, knowing that he has no title to it and con- cealing that fact from the purchaser, is liable for the fraud.**^ So again, where a machine sold is a scientific de- vice, and the seller knows all about it, but the purchaser is unfamiliar with it, and is therefore compelled to rely on what the seller may tell him about it, it is the duty of the seller to inform the purchaser of all material facts of pure- ly scientific Cognizance (that is, all such facts as the buyer Wimpfheimer, 14 App. Div. 498, 43 N. Y. Supp. 909 ; Boren v. Boren, 38 Tex. Civ. App. 139, 85 S. W. 48 ; Code Ala. 1907, § 4299. *4i> Landis v. Wintermute, 40 Wash. 673, 82 Pac. 1000. *4i Cantwell v. Nunn, 45 Wash. 530, 88 Pac. 1023. *42 Thomas v. Murphy, 87 Minn. 358, 91 N. W. 1097; Barrett v. Lewiston, B. & B. St. Ry. Co., 110 Me. 24, 85 Atl. 306 ; Morgan v. Hodge, 145 Wis. 143, 129 N. W. 1083. See Rosenbaum v. United States Credit System Co., 64 N. J. Law, 34, 44 Atl. 966; Id., 65 X. J. Law, 255, 48 Atl. 237, 53 L. R. A. 449 ; Bullock v. Crutcher (Tex. Civ. App.) 180 S. W. 940. 4*3 Jarrett v. Goodnow, 39 W. Va. 602, 20 S. E. 575, 32 L. R. A. 321. 141 FRAUD AND FEAUDULENT CONCEALMENT § 60 cannot discover from his own unaided inspection), and the concealment of any such fact is fraudulent.*** And even though the matter in hand does not involve any trained skill or technical knowledge, yet it is a fraud to conceal material facts where the matter is not equally open to the investigation of both parties,**"* or at least, where the dam- aging circumstance is not within the reach of ordinary ob- servation or could not have been discovered by the other party in the exercise of ordinary prudence and care.**' Thus, it is a rule that if the lessor of premises has knowl- edge of defects in the premises, which are not discoverable by the tenant, and which will imperil his person or prop- erty, a liability arises from the fraudulent concealment thereof.**^ So, in another case, the plaintiff sold to de- fendant certain tailing mills, with the right to operate them in mining dumps which were supposed to contain lead and zinc ores. The plaintiff knew that the dumps were of no value and that the mills could not be operated at a profit, and also knew that defendant relied on his representation to the contrary. It was held to be the plaintiff's duty to disclose truthfully his kriowledge of the entire matter, and a fraud to conceal it, and this, although no special skill was necessary to discover the worthless condition of the prop- erty.*** And finally, if the seller of personal property knows that the buyer is purchasing it for a specific use, and is aware of any defect which would unfit it for that particular use, it is his duty to disclose his knowledge on the point, and the concealment of it is fraudulent.**' § 60. Same; When Silence is Justifiable. — Where per- sons deal with each other at arms' length, — that is to say, where there is no relation of trust or confidence between them, but each is supposed to be on his guard against the iii Phelps V. Jones, 141 Mo. App. 223, 124 S. W. 1067. 44 5 White V. Walker, 5 Fla. 478; Seal v. Holcomb, 48 Tex. Oiv. App. 330, 107 S. W. 916. 446 Oliver v. Oliver, 118 Ga. 362, 45 S. E. 232 ; Boyer v. State, 169 Ind. 691, 83 N. E. 350 ; Civ. Code Ga. 1910, § 4114. *47 Shinkle, Wilson & Kreis Co. v. Blrney, 68 Ohio St. 828, 67 N. E. 715. 448 Evans v. Palmer, 137 Iowa, 425, 114 N. W. 912. 448 Grojean v. Darby, 135 Mo. App. 586, 116 S. W. 1062. § 60 RESCISSION OF CONTRACTS 142 Other, — and no direct inquiries are made, and all the sources of information are equally open to both, so that each can, if he will, possess himself of all the knowledge possessed by the other, then there is no duty of disclosure resting on either party. And if one of them knows circumstances af- fecting the matter in hand of which the other is ignorant, it is an advantage of which he may legitimately avail him- self, so that his mere silence or failure to volunteer informa- tion is not fraudulent, either actually or constructively.*^" For the "concealment" which the law denounces as fraud- ulent implies a purpose or design to hide facts which the other party ought in justice to know, and mere silence is not in itself concealment. *°^ For example, although the owner of real estate may have determined to sell his prop- erty at a certain price, he is under no obligation to com- municate that fact to a prospective purchaser, but may ob- tain a larger price if the purchaser is willing to pay it.*^^ So a vendor of land is not bound (in the absence of inquiry) to communicate to the purchaser his knowledge that one of the boundaries is in question or dispute. ""^^ And the seller of bank stock is not liable to the buyer in an action of deceit merely because he failed to disclose the insolvent condition of the bank, when he had no connection with the bank, and no actual knowledge of its condition.""^* So, where the indorser of a note for the price of land allows the *iio Cherry v. Brizzolara, 89 Ark. 309, 116 S. W. 668, 21 L. R. A. (N. S.) 508; Bank of NewjMDrt v. Watson, 71 Ark. 644, 74 S. W. 15; Oliver v. Oliver, 118 na. 362, 45 S. E. 2:;2 ; Garnet v. Haas, 165 Iowa, 565, 146 N. W. 465 ; Boileau v. Records, 165 Iowa, 134, 144 N. W. 336 ; Ferguson-McKinney Dry-Goods Co. v. Grear, 76 Kan. 164, 90 Pac. 770; Hlnes v. Royee, 127 Mo. App. 718. 106 S. W. 1091; Jones v. Stewart, 62 Neb. 207, S7 X. W. 12; Jones v. Ck>mmercial Travelers' Mut Accident Ass'n, 134 App. Div. 936, 118 N. T. Supp. 1116; Williams v. Hay, 21 Misc. Rep. 73, 46 N. Y. Supp. S9.5; Iron City Nat. Bank v. Du Puy, 194 I'a. 205, 44 Atl. 1066 ; Bishop v. Buck- ley, 33 Pa. Super. Ct. 123 ; Pennybacker v, Laidley, 33 W. Va. 624, 11 S. E. 39; Deyo v. Hudson, 89 Misc. Rep. 525, 153 N. Y. Supp. 603. 401 Barrett v. Lewlston, B. & B. St. Ry. Co., 110 Me. 24, 85 Atl. 306; Bacon v. Soule, 19 Cal. App. 428, 126 Pac. 384. 452 Morrow v. Moore, 98 Me. 373, 57 Atl. 81, 99 Am. St. Rep. 410. 453 Baker v. Sherman, 71 Vt. 4.39, 46 Atl. .57. 4 54 Kirtley's Adm'x v. Shinkle, 24 Ky. Law Rep. 608, 69 S. W. 723. And see Garnet v. Haas, 165 Iowa, 565, 146 N. W. 465. 143 FRAUD AND FRAUDULENT CONCEALMENT § 61 contract of purchase to be made out in his name as security for his indorsement, and is fully informed of the nature of such contract, and of his liability in case of defq.ult of the purchaser, he is not entitled to rescission of the contract on the ground that an agreement between the vendor and the maker of the note for a discount to the latter on his pro- curing a purchaser was not disclosed.*°° Again, the fact that the seller did not inform the buyer that certain powders for use with a fumigating apparatus, the patent for which was the subject of the sale, contained sulphur, the use of which as a fruit preservative was forbidden by statute, does not constitute deceit or misrepresentation. ^^^ So, where the purchaser of a herd of dairy cows was a competent judge of such property and had full opportunity and ample time for inspection before the purchase, and a written con- tract of sale was made, which contained no express war- ranty, it was held that the rule of caveat emptor applied, and the purchaser was not entitled to rescind the contract on account of the diseased condition of some of the cows, in the absence of any actual fraud on the part of the sell- er."' § 61. Caveat Emptor. — The maxim "caveat emptor" ("let the buyer beware") expresses a rule of the common law applicable to sales of property which implies that the buyer must not trust blindly that he will get value for his money, but must take care to examine and ascertain the kind and quality of the article he is purchasing, or, if he is unable to examine it fully or intelligently, or lacks the knowledge to judge accurately of its quality or value, to protect himself against possible loss by requiring an ex- press warranty from the seller.*^* "According to the prin- ces Spence v. Geilfuss, 89 Wis. 499, 62 N. W. 529. 466 Smith V. AlpWn, 150 N. C. 425, 64 S. B. 210. 4 67 Dorsey v. Watkins (C. C.) 151 Fed. 340. 458 The Monte Allegre, 9 Wheat. 616, 6 L. Ed. 174; Wright v. Hart, 18 Wend. (N. X.) 449 ; Walsh v. Schmidt, 206 Mass. 405, 92 N. B. 496, 34 L. R. A. (N. S.) 798; Farrell v. Manhattan Market Co., 198 Mass. 271, 84 N. E. 481, 15 L. R. A. (N. S.) 884, 126 Am. St. Rep. 436, 15 Ann. Cas. 1076; Barnes-Smith Mercantile Co. v. Tate, 156 Mo. App. 236, 137 S. W. 619 ; Galbraith v. Wythe, 2 N. C. 464 ; Wil- cox V. Oalloway, 1 Wash. (Va.) 38. See Walker, Evans & Cogs- § 61 RESCISSION OF CONTRACTS 144 ciples of decided cases, and upon clear grounds of justice, the fundamental inquiry must always be whether, under the circumstances of a particular case, the buyer had the right to rely and necessarily relied on the judgment of the seller and not upon his own. In ordinary sales, the buyer has an opportunity of inspecting the article sold, and the seller, not being the maker, and therefore having no special or technical knowledge of the mode in which it was made, the parties stand upon grounds of substantial equality. If there be in fact, in a particular case, any inequality, it is such that the law cannot and ought not to attempt to pro- vide against it. Consequently the buyer in such cases, the seller giving no express warranty, and making no repre- sentations intended to mislead, is holden for the purchase entirely on his own judgment." ^^^ But the rule or doctrine of caveat emptor should be in- voked where it is necessary in order that the seller may not be deprived of his just rights, but will not be applied to assist him in getting or keeping that to which he is not entitled. ^°° Therefore it has no application in cases of ac- tual fraud. That is to say, with reference to our immediate subject, if the seller has perpetrated an actual fraud upon the purchaser, either by fraudulent misrepresentations or by the fraudulent concealment of facts which the circum- stances made it his duty to disclose, the maxim caveat emptor has no application, and the seller cannot shelter himself behind the contention that the buyer ought to have been on his guard against fraud.*^^ Mere silence is not well Co. V. Ayer, SO S. C. 292, 61 S. E. 557 ; Baker v. Kamantowsky (Mich.) 155 N. W. 430. 458 Kellogg Bridge Co. v. Hamilton, 110 U. S. 116, 3 Sup. Ct. 542, 28 L. Ed. 86. And see Shackelford v. Fulton, 139 Fed. 97, 71 C. C. A. UO-'i ; Hansen v. Baltimore Packing & Cold-Storage Co. (C. C.) 86 Fed. 832 ; Woods v. Nicholas, 92 Kan. 258, 140 Pac. 862. iooTarnow v. Carmichael, 82 Neb. 1, 116 N. W. 1031. 4oiKell V. Trenchard, 142 Fed. 16, 73 C. C. A. 202; Hennessy v. Damourette, 15 Colo. App. 354, 02 Pac. 229 ; Eeval v. Miller, 178 111. App. 208 ; Burnett v. Hensley, 118 Iowa, 575, 92 N. W. 678 ; Wolf V. Michael, 21 Misc. Rep. 86, 46 N. Y. Supp. 991 ; Beetle v. Anderson, 98 ^^'is. 5, 73 N. W. 560 ; Hadley v. Clinton County Importing Co., 13