4 See ch. on Auctioneers.

5 Pidcock v. Bishop, 3 B. & C. 605; Smout v. Ilbery, 10 M. & W. 1; Railton v. Mathews, 10 CI. & Finn. 934; Smith v. Bank of Scotland, 1

So, it has been held, directors of a company issuing a prospectus, are bound to disclose every material fact, or they will be liable to indemnify a person who has taken shares on the faith of their prospectus, although they might have thought the concealment would be beneficial to the persons taking shares; but this doctrine was overruled in the House of Lords, and it was there decided that an action in tort could not be maintained for a mere concealment.1

§ 646. A distinction should here be observed between the concealment of extrinsic circumstances, affecting the value of the subject-matter of sale, or operating as an inducement to a contract, such as the state of the market; and the concealment of intrinsic circumstances appertaining to its nature, character, and condition, such as natural defects or injuries. In respect to extrinsic circumstances, the rule is, that; mere silence as to any thing which the other party might by proper diligence have discovered, and which is open to his examination, is not fraudulent, unless a special trust or confidence exist between the parties, or be implied from the circumstances of the case. But any concealment, by one party, of intrinsic defects, which could not have been discovered by the other, and which were especially within the knowledge of the former, would avoid the contract; silence being considered a fraud, when trust is necessarily implied by the circumstances. A fortiori, any artifice employed to conceal a defect, or to deter a person from perceiving it, would be a direct fraud upon him.2 In respect to extrinsic circumstances, the rule is, that neither party is ordinarily bound to notify them to the other, and mere concealment will not nullify the contract. But the party concealing a fault must be careful to do no act, and say no word indicative of his assent to any mistaken proposition by the other, and must play an entirely negative part, for if he do any thing positive, he will render himself liable.1 For exam-

Dow, 272; 2 Kent, Comm. 483, 4th ed. Some of the later cases have said that the language of Mr. Justice Bailey, in Pidcock v. Bishop, must be taken in connection with the actual facts in that case, in which there was actual fraud; and it has recently been held that a creditor who takes a guaranty is not bound to disclose to the surety every fact in his own knowledge which might affect the surety or his willingness to enter into the contract. See North British Ins. Co. v. Lloyd, 10 Exch. 523; 28 Eng. Law & Eq. 456; Owen v Homan, 25 ib. 1; 4 H. L. C. 997; Hamilton v. Watson, 12 CI. & Finn. 109. See Evans v. Keeland, 9 Ala. 42. See post, § 1125.

1 Peek v. Gurney, Law R. 13 Eq. 79; reversed 43 Law J. Ch. 19. See also New Brunswick, etc, Co. v. Muggeridge, 1 Drew. & Sm. 363; Central Railway Co. v. Kisch, Law R. 2 H. L. 113; Henderson v. Lacon, Law R. 5 Eq. 263; Oakes v. Turquand, Law R. 2 H. L. 325.

2 Chisolm v. Gadsden, 1 Strob. 220; Baglehole v. Walters, 3 Camp. 154; Schneider v. Heath, 3 Camp. 506.

1 Lord Brougham, in the case of Attwood v. Small, 6 CI. & Finn. 232, speaking upon this subject, says: "If two parties enter into a contract, and if one of them, for the purpose of inducing the other to contract with him, shall state that which is not true in point of fact, which he knew at the time that he stated it not to be true, and if, upon that statement of what is not true, and what is known by the party making it to be false, the contract is entered into by the other party, then, generally speaking, and unless there is more than that in the case, there will be at law an action open to the party entering into such contracts, an action of damages grounded upon the deceit, and there will be a relief in equity to the same party to escape from the contract which he has so been inveigled into making by the false representation of the other contracting party. In one casekit is not necessary that all those three circumstances should concur in order to ground an action for damages at law, or a claim for relief in a court of equity; I mean in the case of warranty given, in which the party undertakes that it shall in point of fact be so, and in which case, therefore, no question can be raised upon the scienter, upon the fraud or wilful misrepresentation. In this case that is clearly out of the question, therefore all those three circumstances must combine: first, that the representation was contrary to the fact; secondly, that the party making it knew it to be contrary to the fact; and thirdly, and chiefly, in my view of the case, that it should be this false representation which gave rise to the contracting of the other party. ' Dolus dans locum con-tractui,"1 is the language of the civil law, not dolus malus generally; not the mere fraudulent conduct of the party trying to overreach his adversary; not mere misconduct and falsehood throughout, unless dedit locum contractui; because then comes in the equitable principle of the civil law, which forms a part of all other systems of jurisprudence, whether founded upon it or not, being grounded on the highest consideration of natural equity, Ex dolo non oritur contractus.

"My lords, the cases which have been referred to, and which are perfectly clear upon this point, may be shortly recalled to the recollection of your lordships, for the purpose of clearly showing that the materiality as well as the falsehood of the statement, and the knowledge of the party making it, that it was untrue, must concur in order to give relief in equity, and to give an action for damages at law, the two remedies being coextensive and acting in exactly the same circumstances.

"The first case that is mentioned in suits of this sort is that of Lysney v. Selby, Ld. Raym. 1118, a case for affirming the rent of houses sold by defendant, to plaintiff to be more than it was, in which Lord Chief Justice pie, if a vendee, having private information of an extrinsic event or fact, unknown to the vendor, and materially affecting any news calculated to enhance the price of tobacco, to which he did not give any answer; it was held, that his concealment was not a legal fraud, because he was not legally bound to communicate the fact.1