Sec. 1. Of Fraud and Misrepresentation. Sec. 2. Of Duress and Undue Influence.

Sec. 1. - Of Fraud And Misrepresentation

Like other contracts, a contract for the sale of land may he avoided by either party, if he were induced to enter into it by fraud or misrepresentation, that is to say, by a false representation made to him by the other party, either fraudulently or innocently. A representation is a statement made by one party to a proposed contract to the other, before or at the time of entering into the contract, with regard to some fact relating thereto (a). But in order that a false representation may give rise to a right to avoid a contract, it must have induced the party, to whom it was addressed, to enter into the contract; that is to say, that he would not have given his assent to the contract at all, but for his belief that the statement was true (b). A statement of this kind may be made either outside the contract or within it (e). Thus the vendor of a house may state orally to a purchaser about to sign a contract to buy it that the drains are in good order or the cellars dry (d), or he may make the same statement in the particulars of sale; and in either case the representation may induce the purchaser's consent to the sale (e). The present law as to the effect of misrepresentation, fraudulent or innocent, in giving to the party misled the right to avoid the contract is a compound of the principles of common law and equity. It seems necessary, therefore, in order to arrive at a right understanding of the subject, to explain how false representations inducing a contract were treated in courts of common law and equity before their jurisdictions were united in the High Court of Justice.

Contract voidable for fraud or misrepresentation.

Representation.

The representation must have induced the contract.

(a) Behn v. Burness, 3 B. & S. 751, 753.

(b) See Flight v. Booth, 1 Bing. N. C. 370, 377; Attwood v. Small, 6 Cl. & Fin. 232, 444; Smith v.

Kay, 7 H. L. C. 750, 775, 776; Smith v. Land and House Property Corp., 28 Ch. D. 7.

(c) Behn v. Burness, 3 B. & S. 751, 753, 754.

At common law, if an untrue representation inducing a contract were made fraudulently, that is to say, either with the knowledge that it was untrue or in reckless ignorance whether it was true or false (f), the party so misled might at his election adopt one of two alternative courses. He might, where the parties could be restored to their former position, avoid the contract, not only pending its completion, but also after it had been completely performed (g), and sue for the recovery of any money paid or property conveyed thereunder, he on his part surrendering any benefit received thereby; or he might affirm the contract and bring an action of deceit to recover any damages caused by the fraudulent misstatement (h). And the common law allowed the like right of avoiding the contract, though not the same action of deceit, if a party to some contract of the class described as uberrima fidei (principally contracts of insurance) were induced to enter into it by a false representation made innocently or even by the non-disclosure of some material fact(i). But apart from fraud and except in the case of contracts uberrimæ fidei, a representation, at common law, could only affect a contract if it amounted to a warranty ox promise of the truth of the fact stated and so formed a part of the whole agreement entered into (k): otherwise it had no effect at all (/). If it did form part of the contract, it might either be an essential term thereof, going to the whole substance of the contract - that is to say, it might be a stipulation, on the performance of which the performance of the rest of the contract was conditional; or it might be a term independent of the parties' main agreement - that is to say, a stipulation, on the performance of which the performance of the rest of the contract was not dependent. In other words, the representation might be either a condition or a pure warranty (m); and this question was determined by the parties' intention to be gathered from all the circumstances of the case (n). In the former case the untruth of the representation amounted to such a breach of contract by the party, who made the statement, as discharged the other from the performance of his part of the agreement (n). In the latter case, the party misled was not justified in repudiating the contract if the statement proved untrue; he was obliged to perform the main agreement: but he was entitled to damages for the breach of warranty might avoid contracts uberrimæ fidei.

Fraudulent representation at common law.

Innocent misrepresentation and even non-disclosure committed (o). And even in the former case, moreover, if the contract had been executed in favour of the party misled, so that he had received the consideration for his promise, he could not then refuse entirely to perform his part of the contract, unless the representation had amounted to a special stipulation that the contract should be void in case of its non-fulfilment (p); if not, he could only claim damages for breach of the warranty (q). It will thus be observed that in no case (apart from fraud and contracts uberrimæ fidei) was misrepresentation considered to affect the formation of the contract. The view was not taken that the parties only gave their consent, whereby they made a contract with each other, conditionally upon the representation being true; and that the contract was therefore avoided if it were untrue. On the contrary, the contract was treated as having been fully formed; the untruth of the representation occasioned a breach of the entire contract or a part of it; and even where it was held that the contract might be avoided after its execution in favour of the party misled, it was considered that this result was effected, not by an annulment of the parties' consent, but by their express agreement that the contract should be so avoided (r).