A person who has been induced by fraudulent representations to buy property has three remedies to elect from: (1) He may rescind the contract absolutely, restore or offer to restore the property, and sue at law to recover the consideration parted with; (2) he may bring suit to rescind; and (3) he may retain what he has received, and sue at law for damages. (Sec. 313-320.)
Rescission, if resorted to, must be prompt. (Sec. 310, 316.)
The right to rescind a contract secured by fraud may be waived, if a party with knowledge that a fraud has been perpetrated upon him, confirms the transaction by making new agreements or engagements respecting it, or retains and uses the subject of it after knowledge, or otherwise recognizes it as binding.1 The court in Pryor v. Foster, 130 N. Y. 175, 176 (1892) quotes from Bigelow on Fraud, 184, as follows: "If a party with knowledge that a fraud has been perpetrated upon him in a particular transaction, confirmed the transaction by making new agreements or engagements respecting it, or by retaining and using the subject of it after knowledge, or otherwise recognize it as binding, he thereby waives the right to treat it as invalid and abandons his right to rescind if it be a case of contract, or to redress if it be a tort not attended with a contract with the wrongdoer. If, however, the fraud result in a contract, performance of the same after discovering that it was fraudulently obtained by the opposite party does not preclude a person from suing for damages on account of the fraud. The injured party may retain the benefits of the contract, confirm its validity, and still recover damages for the fraud by which he was induced to make it; or he may recoup any damages which he has sustained if the opposite party sue him for money due on the contract or other failure to perform it." 2
1 Pryor v. Foster. 130 N. Y. 175. 176 (1892); Schtffer v. Dietz. 83 N. Y. 307, 308 (1880): Remmers v. Berbling, 66 Misc. 291 (N. Y. 1910) ; State Bank v. Brown. 119 N. W. 81 ( lowa 1909); Schmidt v. Mesneer. 48 Pac. 54 (Cal. 1897). (citing Doherty v. Bell, 55 Ind. 205; St. John v. Hendrickson, 81 Ind. 350; Negley v. Lindsay, 67 Penn. St. 217; Noninan v. Land Co., 81 Cal. 1).
Where any benefit is received under the contract, after knowledge of the fraud, it is a ratification and affirmance of the contract.3 The right to rescind a contract for fraud must be exercised immediately4 upon its discovery, and any delay in doing so, or the continued employment, use and occupation of the property received under the contract, will be deemed an election to affirm it.5 Continuance in possession after discovery of the fraud is evidence of an intent to abide by the contract.6
But the mere bringing of an action on a contract, unless brought with knowledge of the fraud which induced the contract, is not a binding election to ratify the contract nor a waiver of the right to rescind the contract for the fraud.7 But by suing on the contract after knowledge of the fraud, the right to disaffirm on account of the fraud is waived.8 The fact that a deed of the premises was executed and delivered subsequent to the fraud, is no defense unless the deed was received and accepted with notice of the fraud.9
2 Modlin v. Railroad. 145 N. C. 223 (1907). 3Cobb v. Hatfield, 46 N. Y. 536 (1871). 4 See Sec. 316 infra.
5 Strong v. Strong, 102 N. Y. 73 (1886). See also Pryor v. Foster, 130 N. Y. 175 (1892).
6 Schlffer v. Dietz, 83 N. Y. 308 (1880).