This section is from the book "The Law Of Contracts", by William Herbert Page. Also available from Amazon: Commercial Contracts: A Practical Guide to Deals, Contracts, Agreements and Promises.
As has already been stated1 one who has been induced to enter into a contract by the fraud of the adversary party, has an election of remedies, one of which is to avoid the contract and recover what be has parted with or a reasonable compensation therefor. Where fraud exists, we have few of the complications that limit recovery of payments made by mistake. The chief question that makes TBS branch of the subject difficult is the extent of the right to waive tort and sue in contract. If money has been paid under such contract, the right of the party defrauded to waive the tort and recover such payment on the theory of an implied contract, in general assumpsit, is very generally recognized.2 Thus one who pays money, deceived by fraudulent representations of the adversary party with reference to the mortgage which the latter is selling to the former, may recover such payment in assumpsit.3 So if a vendor is induced by fraudulent representations to accept securities in payment for bis goods, he may credit the value of such securities on the purchase price of such goods and sue in assumpsit to recover the difference.4 So money paid by drawee on a draft accepted "against indorsed bills of lading" attached to the draft, may be recovered when these bills of lading were in fact fictitious.5 Money paid by shippers to a carrier of goods in excess of charges made to other shippers of similar goods by such carrier, induced by the statement of such carrier that it gave no lower rates, may be recovered.6 Recovery exists in cases of fraud though the party guilty of fraud is thus securing from the party who seeks recovery, the payment of a debt due from a third party. Thus A had embezzled money from a railway company B. B's agent represented to X that payment of a certain sum would make good such shortage and enable A to retain his position. In fact the shortage was much greater, and A was discharged. It was held that X could recover such payment from B.7 Money paid for realty, under a contract voidable for fraud may be recovered if a reconveyance is tendered.8 If payment is obtained by fraudulent representation of fact as to the existence of liability, such payment may be recovered, even though no contract existed between the parties.9 Thus, if an agent obtains money as commissions from his principal by fraudulently representing that certain parties to whom he had sold on credit were solvent, such payment may be recovered.10 So if A obtains money from B under a contract to use it in making a joint purchase, which contract A has no intention of performing;11 or if A obtains money from B by falsely claiming to be the holder of B's note, which he has in fact transferred, and on which he then declines to pay such money,12 such payments may be recoverd. A volunteer cannot recover on this theory, however. The right of recovery is limited to the party making the payment or his legal representatives. A obtained a loan of money from B through B's agent X, by fraud. B was thereafter dissatisfied, and X, being under no legal liability, repaid him the amount advanced and took A's security. It was held that X could not recover from A in quasi-contract.13 This right of recovery cannot be made a means of collecting damages in tort. Only the person who receives the payment is liable. Thus A, agent of X, by fraudulent representations, induced B to enter into a contract with X and to pay money thereunder to X. B cannot recover from A for money had and received.14 By statute in some states assumpsit may be brought against the person guilty of deceit, even if no money was paid to him or for his benefit under such transaction.15 Recovery may be had where payments are induced by constructive fraud.16 Thus where bonds of a corporation are in effect, though under a disguise in outward form, sold to its directors at a discount, the amount of such discount may be recovered from such purchasers.17 If goods are sold under a contract induced by fraud, we have, by reason of the divergent theories concerning the right to waive tort and sue in assumpsit,18 two views: one that the vendor may waive the tort and sue in assumpsit,19 and one that he cannot sue in assumpsit, but must sue either in replevin or trover.20 A constructed for B an apparatus for making gas. Soon afterwards it was destroyed by fire. On B's fraudulent statement that this was the fault of the gas apparatus, A agreed to do certain repairing, without charge. After making such repairs, A learned of B's fraud and brought suit in assumpsit for a reasonable compensation.
47 Reynolds v. Hosmer, 45 Cal. 616; Gould v. Sternberg, 128 111. 510; 15 Am. St. Rep. 138; 21 N. E. 628; McJilton v. Love, 13 111. 486; Smith v. Zent, 83 Ind. 86; 43 Am. Rep. 61.
1See Sec. 131.
2Hanrahan v. Provident Association, 67 N. J. L. 526; 51 Atl. 480; affirming 66 N. J. L. 80; 48 Atl. 517; Jackson v. Hough, 38 W. Va. 236; 18 S. E. 575; Weis v. Ahren-beck, 5 Tex. Civ. App. 542; 24 S. W. 356; Robinson v. Welty, 40 W.
Va. 385; 22 S. E. 73; Burke v. Ry., 83 Wis. 410; 53 N. W. 692.
3 Cornell v. Crane, 113 Mich. 460; 71 N. W. 878; Robinson v. Welty, 40 W. Va. 385; 22 S. E. 73. So of a purchase of a bond. Ripley v. Chase, 78 Mich. 126; 18 Am. St. Rep. 428; 43 N. W. 1097.
4Blalock v. Phillips, 38 Ga. 216; Hidey v. Swan, 111 Mich. 161; 69 N. W. 225; Willson v. Foree, 6 Johns. (N. Y.) 110; 5 Am. Dec. 195.
5 Guaranty Trust Co. v. Grotrian, 114 Fed. 433; 57 L. R. A. 689; 52 C. C. A. 235.
6 Cook v. Ry., 81 la. 551; 25 Am. St. Rep. 512; 9 L. R. A. 764; 46 N. W. 1080.
7 Burke v. Ry., 83 Wis. 410; 53 N. W. 692.
8McKinnon v. Vollmar, 75 Wis. 82; 17 Am. St. Rep. 178; 6 L. R. A. 121; 43 N. W. 800.
9 People v. Foster, 133 111. 496;
23 N. E. 615; Ingalls v. Miller, 121 Intl. 188; 22 N. E. 995; Frick v. Larned, 50 Kan. 776; 32 Pac. 383; Holland v. Bishop, 60 Minn. 23; 61 N. W. 681; Gillespie v. Evans. 10 S. D. 234; 72 N. W. 576.
10 Frick v. Larned, 50 Kan. 776; 32 Pac. 383.
11 Holland v. Bishop, 60 Minn. 23; 61 N. W. 681.
12 Gillespie v. Evans, 10 S. D. 234: 72 X. W. 576.
13Steiner v. Clisby, 103 Ala. 181; 15 So. 612.
14 Minor v. Baldridge, 123 Cal. 187; 55 Pac. 783.
15Hallett v. Gordon, 122 Mich. 573; 82 N. W. 827; modifying on rehearing 122 Mich. 567; 81 N. W. 556.
16 See Ch. XI.
17 Fitzgerald v. Construction Co., 41 Neb. 374; 59 N. W. 838.
18 See Sec. 840 et seq.
19 Where credit is obtained by fraud the vendor may sue in assumpsit at once. Crown Cycle Co. v. Brown, 39 Or. 285; 64 Pac. 451.
20 Jones v. Brown, 167 Pa. St. 395; 31 Atl. 647.
It was held that he could recover.21 The right to recover in assumpsit assumes that on discovering the fraud the party defrauded elects to disaffirm the express contract. If he elects to affirm, he cannot sue in general assumpsit. Thus a defrauded vendor who affirms the contract, cannot thereafter sue the vendee for the amount realized by him on a resale.22