TITLE VI. THE OPERATION OF ERROR, FRAUD, FORCE, AND FEAR, IN ERROR. CHAPTER I. IF the consent, which is indispensable to the constitution of an obligation or contract, be given by a party in unavoidable error as to essentials, or brought about through fraudulent means by the other party, the obligation or contract will be voidable at the instance of the party in error, or upon whom the fraud has been practised, though not so as to affect the rights of onerous bona fide third parties; and, if a deed be extorted by the influence of force and fear, it is not the act of the person by whom it bears to be subscribed, and it will be voidable at his instance against all concerned. First, under this title, may be noticed Error, which, in order to authorize the reduction of a contract or obligation, must be in substantialibus. Stair says,Those who err in the substantials of what is done, contract not.' Erskine says the same." On the question, whether an error in point of law will authorize reduction, and whether the error must not, in order to such consequence, be in the fact, it is now settled that, where the reduction infers repayment of money, paid under error in point of law only, it cannot be sustained. The leading Scotch cases on this point are Wilson and M'Lellan, and Dixon. These cases related to money paid in error in point of law, and of which repayment was unsuccessfully sought. But this rule has been found not to extend to the discharge of a claim granted under a material error, as to the legal rights of the granter, and consequently without consideration.5 The case of Dickson, which was a very nice and difficult one, will be 3 Dixon, 27th May 1830, 8 Sh. 826; affirmed 7th Sept. 1831, 5 Wil. & Sh. 445. 5 Dickson, 17th Feb. 1854, 16 D. 586. further examined when we are on the subject of the discharge of ordinary personal obligations. The subject of the error in fact may be the person on whose engagement or obligation the parties rely; and if the person contracting be an essential of the transaction, and the right acquired from the party pleading the error has not been transferred to a bond fide third party, the contract will be reduced. Thus, where the seller had been led to believe he was transacting with a company, whereas the purchaser, though one of the partners of the company, was acting for himself individually, and had become insolvent, the sale was set aside.1 And, even after goods sold in error had been re-sold, the original seller was found to have a preferable claim on the price.2 The re-sale was a transaction with third parties acting in bond fide, and was therefore good and valid; but the original seller was found preferably entitled to the price due under the re-sale, as a surrogatum for the article which he had parted with, under an essential error. Again, the error may be in relation to the subject of the contract or obligation; as when one commodity is mistaken for another; for example, when one, contracting to sell a piece of gold plate, delivers one of brass ;3 or as to the extent, or the particulars, of what is for sale.* But, even as to matters of fact, it is necessary that the mistake shall be unavoidable, or at least that the party in error shall not have himself to blame for his ignorance. If, when he entered into the obligation, he had the means of knowledge of the fact within his power, and did not use these means, it would seem that he cannot, by proceedings at law, rescind his contract, or be freed of his obligation. Thus, in a slump sale, without inventory, articles of value may be included, although no adequate price is paid.5 Lord Murray in Dawson's case says, 'Nothing is 'more common than a slump sale of moveables, which, after descending 'from father to son with the estate, it may be for centuries, are separated 'as executry, and go to the nearest of kin, while the estate goes to the 'heir. There may have been family portraits of little or no apparent ' value; violins that have not been strung or played upon for forty years; ' old books, much rubbish, and innumerable other articles, in one or more 'country houses. Such executry is usually valued by persons employed by the parties, and sold in the slump. Would it be a ground for 'setting aside such sales, that some old books, violins, or portraits, had 'not been looked at? Yet what was thought to be a portrait worth a 'few shillings, turned out to be a valuable Vandyke, which had been 'painted over, or accommodated with a periwig like those mentioned in the Spectator, and could be sold for £800 or £900; or that among 'the unstrung violins there was one which could be recognised as a 1 Dunlop, 18th Jan. 1752, M. 4879; reference may also be made to the case of Love, 24th June 1786, M. 4948. Chrystie, 17th Dec. 1748, M. 4897. 3 Erskine, iii. 1. 16. 4 Hepburn, 4th July 1781, M. 14, 168. 5 Dawson, 6th March 1851, 13 D. 843. 'Straduarius, and was worth from £250 to £400; or a paltry-looking 'edition of Boccaccio, which might turn out to be worth £1000, though 'the valuators might truly swear that they had never observed it, or 'did not consider it worth 12s.' 1 Another case, which occurred in England, but is of the class now under consideration, is that of Hawkins. There the Court decided that a sum of £12,000, of which both buyer and seller were ignorant, was included in a sale of all the seller's interest under a certain will, although the total consideration given by the purchaser for the £12,000, and other estate, was only £2000. Moreover, the seller's ignorance was apparently attributable to the fraud of another party, but not the purchaser. The case of Hawkins, however, is to be contrasted with that of Purdon,2 in which the receiver of the deed granted in error, or his agent, knew that it embraced, in its words, claims of which the granter knew nothing. A discharge in these circumstances was reduced. 3 We have an instructive case of an obligation undertaken in error, but held good. A creditor holding a preferable security over certain lands, with power of sale, had exposed the lands to sale. The trustee, under a private trust-deed granted by the debtor, for behoof of his creditors generally, and who also had power of sale, with power to transact all disputes and questions, served a protest against the intended sale by the creditor, in which he set forth that the estate was greatly more than sufficient to pay all the truster's debts; and that, if the sale was allowed to proceed, the debtor, in place of having a comfortable reversion, would be utterly ruined. A negotiation ensued, and the creditor was induced to abandon the intended sale; the trustee engaging, in respect of the abandonment, to pay him the amount of his debt out of the price of the first trust-lands that should be sold. Afterwards it was found that the creditor's security was null, owing to a technical objection, and the trustee then endeavoured to reduce his obligation, on the ground of error in substantialibus; but the Court, though with much difficulty, held the obligation good. There had plainly been an error, but the trustee had shown, when protesting against the sale by the creditor, that he expected full payment of the whole debts due by the estate; in which case the validity or non-validity of the security was immaterial; and, moreover, matters were not entire. This judgment was affirmed, contrary, however, to the opinion of Lord Wynford, who would have annulled the contract, because a material 'error' entered into it. The last case I will notice on this head is that of Wilson and M'Lellan, before referred to. A messenger-at-arms had failed to obey an order to execute ultimate diligence for payment of a debt. His cautioner being thereupon prosecuted for payment of the debt, decreet was ob 1 Hawkins, 30th Jan. 1850, Law Journal Reports, vol. xix. p. 451. 2 Purdon, 19th Dec. 1856, 19 D. 206. 3 Grieve, 25th Jan. 1828, 6 Sh. 454. 4 19th Aug. 1833, 6 Wil. & Sh. 543. tained against him. Several months afterwards, the cautioner paid the debt; and, more than a year subsequently, he took an assignation of the debt from the creditor, with the ordinary obligation of warrandice from fact and deed. Afterwards, when he attempted to recover the debt from the proper debtor, it was found (as would have been found at first, had the papers been properly examined) that the writ constituting the debt (a promissory-note) was vitiated in substantialibus; at least, that the instrument of protest taken on it was open to a fatal objection. The cautioner thereupon prosecuted the granters of the assignation in his favour for repetition, and got judgment against them in the Court of Session; but the House of Lords reversed the judgment, on the ground that the cautioner's ignorance of the facts was not unavoidable. Lord Lyndhurst's remarks when deciding the case are impressive and instructive. These cases will, I think, show the nature and requisites of the plea of error, as a ground of impeaching the validity of a contract or obligation. CHAPTER II. FRAUD is defined a machination, or contrivance to deceive; and, FRAUD. where there would have been no contract, if the one party had not been fraudulently led into it by the other, the party so led is justly said not to have contracted, but to have been deceived.1 The above definition applies to cases of fraud which the Common Law reaches; but we have also to consider those frauds which are struck at by Statute; and which generally consist in attempts by parties to give to relatives or friends what the state of the parties' affairs does not warrant; or to confer an unlawful benefit upon one creditor or claimant, in preference to others. As to what will be dealt with as fraud at Common Law, it is impossible to give any specification. There are unfortunately few large branches of this course, in which examples of deception, or the intention to overreach, are not exhibited. By the Roman Law, where the lesion was very great, fraud was presumed; as when the price was more than double the value of the subjects; or vice versa. Small differences between price and value were not considered. We have not expressly adopted the above as a general rule in Scotland. With us, fraud in general is not presumed, but must be proved; and where contracting parties are substantially on equal terms, and have equal opportunities in regard to preliminary in1 Erskine, iii. 1. 16. quiries and negotiations, the mere inadequacy of consideration, on one side or the other, will not per se support the plea of fraud. But inadequacy of consideration is a material element in any case of reduction, on the plea of fraud at Common Law. Mr. Brodie, in his Notes on Stair,' says, 'If the transaction have been fair, and understood, there is no ground for complaint, however inadequate the price, provided the other party were of sound mind; but the real question is whether or not fraud and circumvention are to be inferred from the inadequacy ' of the consideration; and this was well stated by Lord Thurlow in the following words: "If there be such inadequacy as to show that · the person did not understand the bargain he made, or was SO oppressed that he was glad to make it knowing its inadequacy, it 'will show a command over him which may amount to a fraud." 'As to the inequality requisite to set aside a conveyance, the same 'learned Lord observed in another case, that "it must be so strong, 'gross, and manifest, that it must be impossible to state it to a man ' of common sense without producing an exclamation at the inadequacy ' of it." Does not this approach to the principle of the civil law; for would not any man of common sense exclaim at a purchase at more 'than double the just price?' A case of reduction, on grounds similar to those stated by Lord Thurlow, is to be found in Gordon. A party heavily burdened with debt, and who had been for many years in prison for debt, was induced by a creditor, holding an adjudication, or judicial security for debt, on his estate, to make over the estate in consideration of some temporary relief, but really almost without any value. The bargain, moreover, was not plainly told in the deeds executed on the occasion; these, professing to relate to an onerous sale, consisted of a disposition, a bond, a back bond, and a letter, -no fewer than four documents applicable to what is usually settled by one. The House of Lords dealt with the case as one of fraud, and reduced, apparently on the ground of fraud and circumvention, inferred from the distressed state of the granter of the disposition, the deceitful terms of the writings, and the great inequality of the bargain. Two other cases may be here quoted under this general head: An obligation was granted by a man of eighty years of age, and who had become facile, agreeing to discharge bonds to the amount of £3000 and upwards, on obtaining his debtor's bill at three months for £230, and an annuity for his life at the rate of 7 per cent. on the balance of the £3000. A large part of the debt proposed to be discharged was heritably secured; but there was no proposal to give any security for the annuity, the amount of which, with reference to the party's age, was totally inadequate to the value of the debt. The debtor had the assistance of his agent in the transaction; the old man, though he had an agent in 1 Brodie's Stair, p. 90. 2 Gordon, 28th April 1730, 1 Craigie & Stewart's App. 47. |