ex 'Peerless' from Bombay": it so happened that there were two ships sailing from Bombay named 'Peerless,' and A. meant one vessel and B. the other. It was held that there was no contract.

§ 94. (5) Mistake of One Party known to the Other.— In all contracts of sale the law as a rule leaves the buyer to use his own judgment, and if he makes any mistake as to the quality of the thing sold, the loss falls upon himself (§ 146). To this rule there are, as we shall see (§ 147), certain exceptions; for example, where the vendor is regarded as warranting the quality of the thing sold. If therefore A. buys from B. a length of cloth believing it to be of better quality than it really is, B. making no representations on the subject, and A. not communicating his views to B., the contract is good. But if A. buys the cloth thinking it is made entirely of silk, when it is made of a mixture of silk and cotton, and B. knows that A. thinks that he (B.) is selling the cloth as pure silk, the sale is void. Of course A. might protect himself by asking B. to warrant the cloth to be pure silk, but we are assuming that there is no warranty asked for or given. It is also assumed that B. makes no representation of any kind; he is merely supposed to know that A. thinks that he (B.) is selling pure silk. The following example may also be given: A. bought some oats from B.; the oats were new, but A. thought they were old, and B. knew that A. thought that he (B.) was selling old oats; it was held that the sale was void.

§ 95. Misrepresentation.-Previous to or at the time of entering into a contract representations may be made by either party to the other with the object of inducing him to agree to the terms proposed. A vendor of goods, for instance, may represent them as being the manufacture of a particular firm, or as possessing certain qualities. Another type of representation may be seen in the statements contained in the prospectus of a company inviting the public to take shares. Closely connected with misrepresentations is the non-disclosure of facts known to one party and not to the other. In certain contracts, such as insurance (§ 163), the fullest disclosure of all material facts is required, but

apart from these contracts one party is not bound to disclose to the other facts that he knows, and which might affect the other party's judgment. For instance, a seller of goods is not obliged to point out defects to the purchaser. Actual misrepresentation is forbidden, and a contract is liable to be set aside where a misrepresentation is made, even though the person making it believes he is speaking the truth. In order that a misrepresentation may avoid the contract, it must be (1) of fact and not of law, (2) made by a party to the contract, and (3) the misrepresentation must have induced the contract acted on the misrepresentation.

1. The misrepresentation must be of fact.

Every one is supposed to know the law, and therefore the courts will not avoid a contract where one party entered into it on the faith of a representation of its legal effects which was untrue. There are exceptions to this rule, as, for example, where such an advantage has been taken by one party of the other as to amount to a fraud. The representation must not be a mere opinion opinion is not a fact. Hence statements of "belief" are not representations of fact.

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2. The misrepresentation must be made by a party to the contract.

If A. contracts with B. on the faith of representations made by C., he cannot avoid the contract. But if B. is the agent of C., the question arises, Are principals responsible for the misrepresentations of their agents? As a rule a principal is only liable for the act of his agent if it is within the scope of his authority (§ 128), and hence if the misrepresentation was within the agent's authority, the contract of the principal is void. Directors are agents of the company, and if they induce persons to contract with the company by misrepresentations, such contracts are liable to be avoided.

3. The misrepresentation must have induced the contract. A party to a contract cannot avoid a contract on the ground of misrepresentation, if such misrepresentation did not induce him to make the contract. The misrepresenta

tion, in other words, must relate to a material fact; and a fact is said to be material when it would affect the judgment of a reasonable man, acting on the principles which men follow in the kind of business to which the contract relates. It is no reply to an alleged misrepresentation to say that the other party might have ascertained the truth— the making of the representation tends to put the other party off his guard. Nor is it any reply to prove that the party making it believed in its truth. There is no duty, in the cases of which we are speaking, of making any representations whatever, and he who makes them and thereby induces a party to enter into a contract with him cannot enforce such contract.

§ 96. Fraud. - A misrepresentation will amount to fraud where the party making it (1) knows that it is untrue, or (2) makes it recklessly, not caring whether it be true or false.

That knowledge of the falsehood of the thing asserted is necessary to fraud, has always been recognised. But the circumstances under which false statements made without such knowledge amount to fraud, have been the subject of much discussion. It is not sufficient that the false statement be made carelessly, it must be made recklessly. An honest belief in the truth of the statement excludes the idea of fraud.

For example, where the directors of a company stated in a prospectus that the company had the right to use steam power, honestly believing this to be true, when in fact the company had no such power, it was held that there was no fraud.

Whether a false statement is made recklessly or whether there are reasonable grounds for believing it to be true is a matter of evidence. Careful inquiry is made into the circumstances under which the statement was made, or upon which the belief was founded. A man may deliberately represent himself as having a belief which he does not possess. This will amount to fraud; the person is wilfully misrepresenting his state of mind, which is a matter of

fact.

The distinction between misrepresentation and fraud lies in this, that in fraud there is a wilful misrepresentation. Fraud involves misrepresentation, but requires in addition either a knowledge that the statement is untrue, or a reckless state of mind as to its truth or falsehood.

§ 97. Remedies in case of Misrepresentation or Fraud.

I. Contracts induced by misrepresentation or fraud are not void but voidable, i.e. the party injured may elect to uphold the contract or to avoid it. If he upholds the contract, he may claim damages for such loss as he has sustained. If he desires to avoid the contract, he must give notice of such intention to the other side. He cannot, however, take this course if he has taken any benefit under the contract, or if circumstances have so altered that the parties cannot be placed in their original position, or if third parties have acquired rights under it.

2. In the case of fraud an action may be brought for deceit.

Fraud is a wrong giving rise to an action for damages, apart from any damages that can be claimed for any loss arising under the contract.

CHAPTER VII

THE ASSIGNMENT OF CONTRACTS

§ 98. Introductory.-An unperformed contract gives rise to certain rights and duties. The rights belong to, and the duties are binding on the parties to the contract. A person who is not a party to the contract cannot enforce the rights or be compelled to undertake the duties. It may, however, happen that one of the parties may desire to transfer his rights or his liabilities to another person, and we have to examine how far the law will recognise such transfer. A distinction must be drawn between rights and duties or liabilities.

§ 99. Liabilities cannot be assigned.—The law does not permit a person who has promised to do anything under a contract to transfer such duty to another person. If A. contracts with B. that he, B., shall manufacture and supply certain goods, B. is not allowed to transfer the duty of fulfilling the contract to C. A. may have been induced to make the contract by his reliance on the credit and character of B.: in any case the law assumes that A. contracted with B., and with B. alone.

A liability, however, may be assigned with the consent of the party entitled to call for performance. This practically amounts to a rescission of the contract with one person and the making of a new contract with another.

§ 100. Assignment of Rights.—Formerly it was a rule that rights under a contract were not assignable, but partly by the decisions of the courts and partly through the