company to repudiate their shares on the ground of fraud but have not yet done so. For their obligations under their contracts with the company, including the duty to contribute in the winding-up, were valid until rescinded, and the creditors in the winding-up must be considered as being, to the extent of their claims, purchasers for value of the company's rights against its members. They are not entitled to any different or greater rights no shareholder can be called upon to do more than perform his contract with the company (a). volunteers fraudulent On the other hand persons who have taken any gratuitous Persons benefit under a fraudulent transaction, though themselves taking as ignorant of the fraud, are in no better position than the under original contriver of it. Thus where a creditor was induced contract, to give a release to a surety by a fraud practised on him by though innocent, the principal debtor, of which the surety was ignorant, and no better the surety gave no consideration for the release, it was held off than that this release might be disaffirmed by the creditor on dis- original covering the fraud. But third persons who on the faith of the release being valid had advanced money to the surety to meet other liabilities would be entitled to assert a paramount elaim (). defrauder. within d. The contract must be rescinded within a reasonable time, Rescission that is, before the lapse of a time after the true state of things is must be known (e), so long that under the circumstances of the reasonable particular case the other party may fairly infer that the right of rescission is waived. time. It is believed that the statement of the rule in some such form Explanaas this will reconcile the substance and language of all the leading this: the tion of authorities. On the one hand it is often said that the election importmust be made within a reasonable time, while on the other hand it has several times been explained that lapse of time as such has per se, but no positive effect of its own. The Court is specially cautious (a) Waterhouse v. Jamieson, L. R. 2 Sc. & D. 29. (b) Scholefield v. Templer, Johns. 155, 165, 4 De G. & J. 429. The Court below endeavoured to provide for the payment of the third persons in question, Johns. 171, but the Court of Appeal varied the decree by making it simply without preju dice to their rights, 4 De G. & J. 435. (c) Perhaps we might add "or after it might have been known with reasonable diligence" but authority, so far as it goes, and the analogy of other branches of the law where the same question arises, are in favour of considering means of knowledge as only evidence of either actual knowledge or a determination to waive all inquiry. ance of time is not as evidence cence. Authori ties in equity. of acquies in entertaining charges of fraud or misrepresentation brought forward after a long interval of time; it will anxiously weigh the circumstances, and consider what evidence may have been lost in consequence of the time that has elapsed (a). But time alone is no bar to the right of rescinding a voidable transaction; and the House of Lords in one case set aside a purchase of a principal's estate by his agent in another name after the lapse of more than half a century, the facts having remained unknown to the principal and his representatives for thirty-seven years (7). In a later case the Lord Justice Turner stated expressly that "the two propositions of a bar by length of time and by acquiescence are not distinct propositions." Length of time is evidence of acquiescence, but only if there is knowledge of the facts, for a man cannot be said to have acquiesced in what he did not know (c). Lord Campbell slightly qualified this by adding that although it is for the party relying on acquiescence to prove the facts from which consent is to be inferred, "it is easy to conceive cases in which, from great lapse of time, such facts might and ought to be presumed" (). The rule has lately been laid down and acted upon by the Judicial Committee in this form: "In order that the remedy should be lost by laches or delay, it is, if not universally, at all events ordinarily . . necessary that there should be sufficient knowledge of the facts constituting the title to relief" (e). Acquiescence need not be manifested by any positive act; the question is whether there is sufficient evidence either from lapse of time or from other circumstances of "a fixed, deliberate and unbiassed determination that the transaction should not be impeached" (f). In estimating the weight to be given to length of time as evidence of acquiescence the nature of the property (a) Cp. Bright v. Legerton, 2 D. F. J. 606, 617. (b) Charter v. Trevelyan, 11 Cl. & F. 714, 740. (c) Life Association of Scotland v. Siddal, 3 D. F. J. 58, 72, 74: on the point that there cannot be acquiescence without knowledge, cp. Lloyd v. Attwood, 3 De G. & J. 614, 650; and per Alderson, B. Load v. Green, 15 M. & W. at p. 217: "A man cannot permit who does not know that he has a right concerned is material (a). And other special circumstances may prevent lapse of time even after everything is known from being evidence of acquiescence; as when nothing is done for some years because the other party's affairs are in such a condition that proceedings against him would be fruitless (). If a party entitled to avoid a transaction has precluded himself by his own acts or acquiescence from disputing it in his lifetime, his representatives cannot come forward to dispute it afterwards (e). obligation share It is said that holders of shares in companies are under a Special special obligation of diligence as to making their election, but of diligence the dicta relate chiefly if not wholly to objections apparent on in case of the face of the memorandum or articles of association. With holders. the contents of these a shareholder is bound to make himself acquainted, and must be deemed to become acquainted, when his shares are allotted (7). But objections which can be taken upon these must proceed on the ground, not of fraud or misrepresentation as such, but of the undertaking in which shares are allotted being substantially a different thing from that which the prospectus described and in which the applicant offered to take shares. Nor are we aware of any case in which the rule has been applied to a repudiation of shares declared before a winding up and on the ground of fraud or misrepresentation not apparent on the articles. Still it seems quite reasonable to hold that in the case of a shareholder's contract lapse of time without repudiation is of greater importance as evidence of assent than in most other cases. rule at Thus much of the exposition of the rule in equity. The same Same general principle has recently been laid down in the Exchequer general Chamber. "We think the party defrauded may keep the question law, per open so long as he does nothing to affirm the contract. In such cases the question is, has the person on whom the fraud was practised, having notice of the fraud, elected not to avoid the contract or has he elected to avoid it? or has he made no election? We think that so long as he has made no election he (a) 8 D. M. G. at p. 150. (b) Scholefield v. Templer, 4 De G. & J. 429. (c) Skottowe v. Williams, 3 D. F. J. 535, 541. (d) Central Ry. Co. of Venezuela v. Kisch, L. R. 2 H. L. at p. 125, Oakes v. Turquand, ib. at p. 352; and see Ch. VIII. p. 390 above. K K Cur. in Ex. Ch. Fixed retains the right to determine it either way, subject to this, that if in the interval whilst he is deliberating an innocent third party has acquired an interest in the property, or if in consequence of his delay the position even of the wrongdoer is affected, it will preclude him from exercising his right to rescind. And lapse of time without rescinding will furnish evidence that he has determined to affirm the contract, and when the lapse of time is great it probably would in practice be treated as conclusive evidence to show that he has so determined" (a). The French law treats the right of having a contract judicially period of set aside for fraud, &c., as a substantive right of action, and limitation by Fr. law. limits a fixed period of ten years, running from the discovery of the truth, within which it must be exercised (b). : as Unfounded One or two points remain to be mentioned, which we have charges of fraud dis reserved to the last as being matter of procedure, but which couraged depend upon general principles. Courts of justice are anxious parties to discover and discourage fraud in every shape, but they are no making them must less anxious to discourage and rebuke loose or unfounded charges pay costs. of fraud and personal misconduct. The facts relied on establishing a case of fraud must be distinctly alleged and proved (e). Where such charges are made and not proved, this will not prevent the party making them from having any relief to which he may otherwise appear to be entitled, but he must pay the costs occasioned by the unfounded charges (d). And in one recent case, where the plaintiff made voluminous and claborate charges of fraud and conspiracy which proved to be unfounded, the Court of Appeal not only made him pay the costs of that part of the case, but refused to allow him the costs even of the part on which he succeeded. It was held that he had so mixed up unfounded and reckless aspersions upon character with the rest of the suit as to forfeit his title to the costs which he otherwise would have been entitled to receive (e). (a) Per Cur. Clough v. L. & N. W. Ry. Co. L. R. 7 Ex. at p. 34, repeated in Morrison v. Universal Marine Insurance Co. L. R. 8 Ex. at p. 203. (b) Code Civ. 1304. (e) In equity pleading a charge of fraud in general terms would not support a bill on demurrer: Gilbert v. Lewis, 1 D. J. S. at p. 49, per Lord Westbury. (d) Hilliard v. Eiffe, L. R. 7 H. L. 39, 51, 52; London Chartered Bank of Australia v. Lemprière, L. R. 4 P. C. at p. 597; Clinch v. Financial Corporation, 5 Eq. at p. 483. (e) Parker v. McKenna, 10 Ch. 96, 123, 125. diction of cancel in The special jurisdiction of courts of equity to order the cancel- Indepenlation of an instrument obtained by fraud or misrepresentation dent jurisis not affected by the probability or practical certainty that the equity to plaintiff in equity would have a good defence to an action on struments the instrument, nor is it the less to be exercised even if the for fraud, &c. instrument is already in his possession. He is entitled not only not to have the contract enforced against him, but to have it judicially annulled (a). (a) London and Provincial Insurance Co. v. Seymour, 17 Eq. 85: and see Hoare v. Bremridge, 8 Ch. 22, there explained and distinguished. It would seem that for the future a judgment of any branch of the High Court in favour of a defendant on the ground of the instrument he is sued upon being voidable will include an order for its cancellation, at all events if such order is properly sought by counter- |
