Sec. 33. Introduction

We have discussed what will constitute offer and what acceptance. In so doing we have assumed a true contractual intent on both sides without mistake as to subject matter, or any undue advantage taken by one side over the other by way of fraud, coercion or undue influence. In other words we have looked only to the words used or acts done indicating offer and acceptance without inquiring whether there may be extrinsic circumstances which prevent those words or acts from expressing the true contractual intent of the parties. We will find that we may group these circumstances under the following headings:

(A) Circumstances defeating contractual intent (mistake and deception as to act done).

(B) Circumstances of unfairness giving party imposed on a right to disaffirm the contract (fraud as to consideration or in the inducement, duress and undue influence).

A. Extrinsic Circumstances Defeating Contractual Intent.

Sec. 34. Fraud In The Inception Or Execution

A fraud practiced by one person upon another, whereby the other's seeming assent is procured to a contract which he in reality never agreed to, prevents a contract from being formed. This is variously called fraud in the inception, in the execution, and in the procurement.

Suppose A is sued upon a note, to which his signature is attached, but which he does not know he has signed, having been misled by the payee into believing he was signing an agreement for an agency. Is he bound on the note ? A contract signifies an agreement, and clearly there has not been such an agreement in this case. We have heretofore considered that one may sign an instrument and still be bound thereon, though .he has not read it, but this is upon the theory that he has been willing to take a chance on what it contains, and no other rule would be a workable one. But in those cases there has been no misrepresentation as to what the instrument contains. We are now considering a case of fraud by which the content of the alleged contract is misrepresented. The rule is that such a contract is void.

Example 28. Plaintiff was injured in a railroad accident. While in a dazed condition and about an hour and a half after the accident, he was conducted into the superintendent's office, and told that the railroad company was willing to pay the sum of $17.00 for the injury to his hat and trousers, and asked him to sign a receipt for same. Plaintiff was seriously injured and brought suit. It turned out the paper he signed was a release in full for his injuries. Held, that it was a question for the jury whether he was defrauded or not, and a jury's verdict that he had been so defrauded, would not be disturbed.44

In these cases the contention is sometimes made that it is the defendant's own negligence that he did not read what he signed, and therefore ought not to be permitted to avoid it. In answer we may say, first, that in many cases there is no ground for claiming negligence, as in the case above, where the party was dazed, or in cases where the other party by some excuse or device prevents him from reading. And, second, that in a contest between one who has been guilty of fraud, and one who has been merely negligent, the justice ought to be with the latter, or in other words that it ought not to be for the court to assist one guilty of fraud to recover the gains thereof, on the ground that his victim was careless.45 This is therefore regarded as the better rule, although the contrary rule has been laid down in some cases, and a negligent person held to be bound to a contract which he never really assented to, by reason of the fraud of the other.

44. Bliss v. N. Y. C. & H. R. Co., 160 Mass. 447.