FRAUD. By the laws of all civilized nations F. invalidates obligations. In order to produce this effect, however, it is necessary that the misrepresentations, or other dis honest maneuvers of the offending party, shall have induced the other to enter into the agreement or contract, and that he would not otherwise have consented. F. of this description on the one side produces error in essentialibus on the other, and where such error exists there is no consent. But as consent is of the essence of the contract, there is here no contract at all; i.e., the contract, or pretended contract, is, as lawyers say, null ab It is not necessary that the F. which thus gives birth to the contract shall have consisted in positive misrepresentation, or even in studied concealment; and it was well laid down in the case of an English sale, that where the purchaser labored under deception, in which the seller permitted him to remain, on a point which he knew to Be material in enabling him to form his judgment, the contract was void. But there is another kind of F. which, though it he not actually the cause of, is incident to, Abe. contract, and which, though it does not annul the contract, gives rise to an action for damages or restitution by the party deceived. The distinction between these two kinds of F. was well known to the civilians, the first species being described by them as that quod causam dedit contractui," that is to say, which causes the contract; the second as that " good tantum in contractum incidit," which is incident to, or accompanies the contract, but independently of which toe contract would have been entered into (Voet. lib. 4, tit. 3, 3). There is another very important element to lie taken into account in judg ing of the character, and determining the legal effects of a F., viz., whether it proceed&I from one whose position was such as to impose upon him the obligation of making the discovery. In illustration of this principle, the following case was put by lord Thurlow in Fox v. Mackreth (2 Bro. Ch. R. 420): " Suppose that A, knowing there to be a mine on the estate of B, of which he knew B was ignorant, should enter into a contract to purchase the estate of B for the price of the estate, without considering the mine, could the court set it aside? Why not, since B was not apprised of the mine, and A was? Because A, as the buyer, was not obliged, from the nature of the contract, to make the discovery. . . . . . The court will not correct a contract merely because a. man of nice
honor would not have entered into it; it must fall within some definition of fraud. The rule must be drawn so as not to affect the general transactions of mankind." Neither will the commendations usually bestowed on their commodities by tradesmen be regarded as fraudulent statements, so long as they are simply extravagant in degree; but if posi tively at variance with facts known to them, they will not be permitted to enjoy the protection which custom has extended to ordinary " puffing." The same principle will yield the converse result wherever a relation of peculiar confidentiality exists between the contracting parties. Here courts of law require what is called nberrima fides, tbe fullest measure of good faith, to validate the transaction. As an illustration, may he mentioned a case in which the managing partner of a firm purchased the share of his co partner for a sum which he knew from the accounts, of which he had the entire super intendence, to be inadequate, but the inadequacy of which he concealed:The transacticas was reduced, sir John Leach, V. C.. remarking that " the defendant being the partner whose business it was to keep the accounts of the concern, could not in fairness, deal with the plaintiff for his share bf the profits of the concern without putting him in possession of all the information which he himself had with respect to the state of the accounts between them."11-faddeford v. Austwiek, 1 Gim. R. 89.
In addition to direct misrepresentation, and concealment in circumstances in which open dealing was a duty, fraud may be perpetrated by taking advantage of the imbecility of the party who has been led into the contract, and still more flagrantly by inducing this imbecility by intoxication or otherwise. See CoNCEALt!ENT, Enuon,