but did so without any fraudulent intention and believing the statement to be true, it was held that the contract was binding, and could not be avoided on the ground of fraud, although the principal was aware of the truth respecting the matter (a).

of contract

Where an agreement has been induced by the fraud of one Avoidance of the parties upon the other, the party defrauded has the induced by right of avoiding the agreement upon the discovery of the fraud. fraud; but, subject to the exercise of such right, the agreement is binding. So, a deed of which the execution has been induced by fraud is not therefore void; but the party defrauded may at his election treat it as void (b). In an action on a contract, in order to enable the defendant to assert an avoidance of the contract on the ground that it was induced by fraud, the defence of fraud must be specially pleaded (c).

If a party who has been induced to enter into an agreement by the fraud of the other party, after discovering the fraud, treats the agreement as binding, he loses his right of avoiding it. A person was induced to purchase shares in a company by misrepresentations of the seller, some of which he afterwards discovered to be fraudulent, but he continued to deal with the shares as his own; he was held to be precluded from avoiding the sale, and it was also held that the subsequent discovery of a new incident in the fraud served only to corroborate the original fraud, but did not revive the right of avoidance which he had waived (). The plaintiff was induced to undertake certain work for the defendant at a certain price upon a fraudulent representation of the defendant as to the quantity of the work, and after discovering the fraud continued and completed the work; it was held that he could not avoid the contract and claim payment from the defendant according to the value of the work, but could only claim according to the terms of the contract (e).

(a) Cornfoot v. Fowke, 6 M. & W. 358, Lord Abinger, C. B. dissentiente; and see Fuller v. Wilson, 3 Q B. 58, 68, 1009.

(b, Per Maule, J., Pilbrow v. Pil· brow's Atmospheric Ry. Co., 5 C. B. 440, 453.

(c) Reg. Gen. 8 T. T. 1853; and see Robson v. Luscombe, 2 D. & L. 859.

(d) Campbell v. Fleming, 1 A. & E. 40; and sce Ex p. Briggs, L. Rep. 1 Eq. 483; 35 L. J. C. 320.

(e) Selway v. Fogg, 5 M. & W. 83.

Avoidance of contract induced by fraud.

So, where one party, after full knowledge of the misrepresentations alleged to have been made, gave notice to the other party that he insisted on the performance of the contract by a certain time, otherwise he should consider it at an end, and offered to perform his part of the contract, he was held in equity to have precluded himself from resisting specific performance on the ground of fraud (a); and where the plaintiffs sought to avoid an agreement for the lease of a mine on the ground of fraudulent misrepresentations of its value, having continued to work the mine after full knowledge of all the circumstances of the fraud, they were held not to be entitled to relief (b).

The agreement cannot be avoided upon the discovery of the fraud, if it has then been so far acted upon and performed, or if the circumstances have so far changed, that the parties can no longer be restored to the original position in which they were at the time of the agreement being made, or if they are not so restored (c). Accordingly, in an action by a public company against a shareholder for calls, a plea, that the defendant was induced to become a shareholder by the fraud of the plaintiffs, was held bad, as admitting that the defendant was still a de facto shareholder; and it was said that to make the plea good, if it could be made good at all, it ought to have alleged that he had not taken any benefit as a shareholder, and that as soon as he discovered the fraud he disaffirmed the transfer to him, and gave up the shares, and ceased to be a shareholder (d). The plaintiff took shares in a mining company on the cost book principle, which he continued to hold and upon which he received the dividends; afterwards the company was registered as a joint stock company with limited liability and an order was made for winding up the latter company, and pending the proceedings the plaintiff discovered that he had been deceived into taking the shares by the fraudulent misrepre

(a) Macbryde v. Weekes, 22 Beav.

533.

(b) Vigers v. Pike, 8 Cl. & F. 562. (c) Deposit and General Life Ass. Co. v. Ayscough, 6 E. & B. 761; 26 L. J. Q. B. 29; Clarke v. Dickson,

E. B. & E. 148; 27 L. J. Q. B. 223; and see Hunt v. Silk, 5 East, 449; Blackburn v. Smith, 2 Ex. 783.

(d) Deposit and General Life Ass. Co. v. Ayscough, 6 E. & B. 761; 26 L. J. Q. B. 29.

sentation of the directors; it was held that he could not repudiate the shares and recover the original price paid for them on the ground of the fraud, because it was no longer possible for him to return the shares in their original state, or reinstate the parties in their original positions (a).

In the case of an agreement for a lease induced by a fraud upon the landlord, it was held that whilst the agreement was executory the landlord had a right, on discovering the fraud to exercise his option to avoid the agreement, but that, after letting the tenant into possession and executing the lease, he could not avoid the agreement and turn the tenant out of possession (). In an action upon the acceptance of a bill of exchange the defendant pleaded that the bill was accepted by him in payment of a ship sold to him by the plaintiff, and that he was induced to purchase the ship by false and fraudulent representations of the plaintiff respecting the state of the ship; the plea was held bad, because it appeared from it that the defendant still had the ship (c).

Although from the causes above mentioned it may be no longer open to the party defrauded, upon the discovery of the fraud, to avoid the agreement, he may have his remedy for the fraud by a special action upon the case to recover the amount of damages occasioned by it, treating the fraud as a substantive cause of action (d).

avoidance

The effect of the avoidance of an agreement on the ground Effect of of fraud is to place the parties in the same position as if it of the conhad never been made; and all rights which were transferred tract upon or created by the agreement are revested or discharged by of the parthe voidance.

Thus, a person who has been induced to buy goods by the fraud of the seller may avoid the contract of sale and return the goods, and recover back the money paid for the price as money received by the seller for his use (e). So, a person who

(a) Clarke v. Dickson, E. B. & E. 148; 27 L. J. Q. B. 223.

(b) See per Blackburn, J., R. v. Saddlers Co., 32 L. J. Q. B. 337, 343; Feret v. Hill, 15 C. B. 207; 23 L. J. C. P. 185; and see Stewart v. Aston,

8 Irish C. L. Rep. 35.

(c) Sully v. Frean, 10 Ex.535.
(d) See Clarke v. Dickson, E. B. &
E. 148; 27 L. J. Q. B. 223.

(e) Gompertz v. Denton, 1 C. & M.
207; see ante, p. 49.

the rights

ties.

Effect of avoidance

of the con

has been induced by fraud to sell goods may avoid the contract and recover back his goods from the buyer. A seller of goods under a contract induced by the fraud of the buyer was held entitled to disaffirm the contract and revest the property in himself and recover the goods, notwithstanding the buyer had become bankrupt and his assignees had taken possession of the goods; for the assignees took only the interest of the bankrupt, and they could not claim the goods as having been in the possession of the bankrupt with the consent of the true owner, because the contract only showed a consent to the bankrupt taking the profession as buyer (a).

If a person has been induced to enter into a contract by fraud, under which he has delivered his goods or money, or rendered his services, and he disaffirms the contract, he cannot charge the other party with any other contract as arising out of the transaction, but is remitted to his remedies for the fraud and for the recovery of his property (b).

The rights of third parties acquired through a contract induced by fraud, before avoidance of the contract, and without tract upon participation in or notice of the fraud, cannot be affected by the rights of third a subsequent avoidance. parties.

Thus, where a person has purchased goods from another by means of a fraudulent sale, and before avoidance of the contract resells them to a third party, who takes them without knowledge of the fraud, the latter acquires a good title to the goods, which cannot be defeated by the original seller subsequently disaffirming the contract (c).

In the judgment delivered in the case of Kingsford v. Merry (d), the effect of a fraudulent sale upon the property in the goods sold was explained as follows:-" It is quite clear that when a vendee obtains possession of a chattel with the intention, by the vendor, to transfer both the property and the possession, although the vendee has committed a false and fraudulent misrepresentation in order to effect a contract, or to obtain the possession, the property vests in the vendee

(a) Load v. Green, 15 M. & W. 216.

(b) See the cases cited ante, p. 30.

(c) White v. Garden, 10 C. B. 919. (d) 11 Ex. 577, 579; 25 L. J. Ex. 166, 168.

until the vendor has done some act to disaffirm the transaction; and the legal consequence is, that if before the disaffirmance the fraudulent vendee has transferred over the whole or part of the chattel to an innocent transferee, the title of such transferee is good against the vendor."

The judgment of the Court of Exchequer in that case was reversed on appeal, but without impugning the law as stated in the passage above quoted. The Court of Exchequer had decided the case upon the supposition that the goods had in fact been obtained from the original owner by a contract of sale induced by the fraud of the vendee, and that the fraudulent vendee had transferred the goods before disaffirmance of the contract to a third party who took them bonâ fide and without notice of the fraud, and that therefore the case came within the principle of law above laid down. The Court of Exchequer Chamber however decided, upon the facts, that there was not any contract of sale, but that the possession of the goods was obtained from the original owner by a mere fraud without any contract to support a transfer of property, and consequently there was no title in the fraudulent transferee which he could transfer to a third party (a).

The plaintiff, intending to sell goods to a certain firm, delivered them to a person who in order to obtain the goods had falsely represented himself to the plaintiff as a member of the firm and authorized to buy for them, and who after receiving the goods pledged them with the defendant; it was held that the plaintiff was entitled to recover the goods from the defendant, because, the contract having been professedly made with the firm, there was no contract conferring any property on the person to whom the goods were delivered and from whom the defendant claimed title (b).

Upon this principle, where a person has been induced to become a shareholder of a company through fraud of the company, he cannot, by avoiding his contract with the company and repudiating his shares, evade his liability to creditors of the company who dealt with the company whilst

(a) Kingsford v. Merry, 11 Ex. 577; 25 L. J. Ex. 166; 1 H. & N. 503; 26 L. J. Ex. 83; and see Parker v. Patrick, 5 T. R 175; Boyson

v. Coles, 6 M. & S. 14; Higgons v. Burton, 26 L. J. Ex. 342.

(b) Hardman v. Booth, 1 H. & C. 803; 32 L. J. Ex. 105.