induced the other party to enter into the contract to his injury. Many decisions. have held that there can be no rescission in any form of common law action, such as actions for breach of contract, trover, and replevin; and that no counterclaim for damages based upon such representations will be allowed in actions for the purchase money. It would seem, however, that in legal actions involving only rescission the law courts might conveniently adopt the reasoning of courts of equity and grant relief on the ground of mistake.

In equity "the general doctrine is elementary that a misrepresentation relating to and connected with a contract, is ground for denying a specific performance when demanded by the party to the agreement who made it, and may be a sufficient ground for granting the relief of rescission in favor of the contracting party to whom it was made" and according to the weight of authority, equity will give its protection as freely against misrepresentations of law as against those of fact. The knowledge, belief, or intent of the party making the untrue representation is wholly immaterial. The important point is the fact that the party seeking relief has been misled by it. As said by Justice Story in a suit for rescission, "the question is not whether he (the defendant) acted basely and falsely, but whether the plaintiff purchased on the faith of the truth of his representations."10

This doctrine in equity, it is sometimes said, is based substantially in fraud since even an innocent misrepresentation of a material matter operates as a surprise and imposition upon the other party. But a better view is that a contract so induced is in fact based on mutual mistake.11 According to this theory, the party who made the misrepresentations might in some instances be relieved from the contract because of his own mistake, provided that

thing different

the granting of such relief would not inflict injury upon the other party. In almost all cases, however, the party injured by the mistake is the one to whom the misrepresentations are made, and he may of course show that when he gave his assent he was misled by the other party and that what he assented to was in reality something different from what he supposed. Or, looking at the matter from another angle, some decisions apply the principle that a loss which must fall on one of two innocent persons should be borne by him. whose act has occasioned it.12 It is quite evident, whatever view we adopt, that it would be contrary to the plainest principles of justice to allow one who, whether intentionally or not, has caused another to enter into a contract through a material mistake or misapprehension to hold the other to his agreement, either by having it specifically enforced or by preventing its rescission.

The specific enforcement of a contract rests entirely in the sound discretion of a court of equity, and, therefore, the party who seeks a decree of specific performance must make out a much stronger case to maintain his bill than must the defendant to defeat it. An innocent misstatement relating to the terms of a contract may be a complete defense in a suit for specific performance when it would not be ground. for affirmative relief, such as rescission. Courts of equity refuse to give their aid to the enforcement of a contract which contains any element of fraud, unfairness, or hardship; and in most cases it is held that a material misrepresentation, no matter how innocently made, vitiates the contract in toto, giving the plaintiff no right to exonerate the defendant from the party affected by the misrepresentation and to enforce the residue.18 Under some circumstances, nevertheless, as where the contract is divisible or where the representation relates only to some subordinate or

(12) Robinson v. Justice, 2 Pen. and W., 21 Am. Dec. 407.

(13) Parson on Contracts (6th Ed.) Vol. 111, p. 415, Note.

collateral portion of it, equity may decree a partial specific performance or specific performance with an abatement of the price or some other form of compensation to the injured party. For example, contracts for the sale of land have been specifically enforced against the vendee with a deduction from the purchase price because of a small deficiency in the quantity.1 In many cases, however, compensation would not be adequate relief for the injury; as for instance, where land which neither party had seen was sold upon a representation that it was located in one county when in fact it was located in another.15 On the other hand, it may sometimes be competent for the injured party to waive a right to rescind and to insist upon a partial specific performance with compensation for the defect.

Mr. Pomeroy, in his work on Specific Performance of Contracts, states that a greater amount of knowledge, belief, or intention must enter into the representation when it is the basis of a legal action or defense, and of an equity suit for affirmative relief than is required when it is used merely to defeat the specific enforcement of a contract.16 While this is undoubtedly true of a representation as the basis of legal actions, there may be some doubt whether in equity a greater amount of knowledge, belief, or intent is required when the representation is relied on as a ground for rescission than when it is used as a defense against specific performance. In a great many suits for the rescission of contracts induced by an innocent misrepresentation of a material matter, courts of equity have held that the knowledge of the falsity of the representation and the intent with which it was made are wholly immaterial. As has been said, these decisions are often put on the basis of mutual mistake. It has even been stated that a

right of rescission in equity on the ground of an innocent misrepresentation "will only

17

be the case when the error between the parties is of such a nature and character as to destroy the consent necessary to the validity of the contract. The distinction. to be gathered from the decisions, therefore, as to the different requirements in suits for rescission and in defenses to specific performance would seem to be that the misrepresentation must be of a more material matter and a stronger case must be made in order to give a right to rescind than in order to defeat specific performance.

At one time in England it was thought that equity would not set aside an executed contract on the ground of misrepresentation unless there was fraud,18 but it is now settled in this country as well as in England, that an executed agreement may be set aside even in the absence of fraud.19 A stronger case, however, is probably necessary than to set aside a contract still executory; and the party seeking to rescind, furthermore, must repudiate the transaction. promptly and return the consideration just as in other cases of rescission.

The question of reformation of a written contract does not properly arise in a discussion of this subject. That equitable remedy merely corrects the written instrument so that it will express the real intention of the parties at the time of the formation of the contract; and in the case of innocent misrepresentations leading up to the contract the written instrument expresses this real intention, although the consent of one party was due to misapprehension caused by the other.

The general principles which have been stated in this paper are quite well recognized, but, nevertheless, confusion has often arisen.20 An illustration of this is the statement of a Justice of the Supreme Court of the United States in an equity suit for rescission that the complainant must show "that such representation was not actually believed by the defendant, on reasonable

parent, after a careful and painstaking study of the authorities, that the decisions are in irreconcilable conflict. No decision of this court upon the precise question has been called to our attention, and we have not been able to find anything in our books which arrays our court on the one side or the other. Thompson on Corporations, vol. 2, § 1457 (2d Ed.), speaking of the conflict in the authorities, has this to say:

"The effect of these divergent views, on the one hand, is to relieve the complaining party of making proof of the president's authority, for the reason that, where he is in active conduct and management of the business, he must be presumed to have all the powers of any agent exercising like control and management, and to have authority to do what is usually and ordinarily done by such agents or managers. On the other hand, and under the other cases, the burden is cast upon the party seeking to charge the corporation upon a contract made by the president of proving his authority in some of the recognized modes, reducing the proposition to a question of fact rather than of law."

We think that the wiser and more practical rule is expressed by the Supreme Court of Illinois in Lloyd & Co. v. Matthews, 223 Ill. 477, 79 N. E. 172, 7 L. R. A. (N. S.) 376, 114 Am. St. Rep. 346, viz.:

"It is contended that, even though it be conceded that George E. Lloyd & Co., by E. C. Williams, its president, signed the guaranty, still, as a matter of law, the corporation cannot be held liable without proof of special authority from the corporation to its president to execute the contract of guaranty. A corporation can act only through its agents, and the president of a corporation, as the agent and corporate representative, has the power, in the ordinary course of business and in furtherance of the corporate interest, to execute contracts and to bind the company in so doing. He is, by virtue of his office, recognized as the business head of the company, and any contract pertaining to the corporate affairs, within the general powers of such officer, executed by the president on behalf of his corporation, will, in the absence of proof to the contrary, be presumed to have been done by authority of the corporation. Atwater v. American Exch. Nat. Bank, 152 Ill. 605, 38 N. E. 1017; Bank of Minneapolis v. Griffin, 168 Ill. 314, 48 N. E. 154; Anderson v. South Chicago Brewing Co., 173 Ill. 313, 50 N. E. 655; Anderson Transfer Co. v. Fuller, 174 III. 221, 51 N. E. 251; Williams v. Harris, 198 Ill. 501, 64 N. E. 988. If the contract in question had been executed by some agent who

ordinarily does not have the power to sign such instruments, and the execution had been put in issue by properly verified plea, as is the case here, then it would be necessary to go beyond the mere fact of the execution of the instrument and prove the authority of the agent to execute the same; but when the contract is properly executed for the corporation by its president, and it is such a contract as the corporation might lawfully make, the proof of the execution by the president is all that is required, in the absence of any evidence to the contrary showing that the contract was not made by the authority of the corporation."

Nearly all of the big business and a large part of the small business is now conducted by corporations, and if it be the law that persons dealing with the president of a corporation about matters of business clearly within the powers of the corporation to transact must deal at arm's length, and demand that the president exhibit his credentials before entering into contracts with him, it seems to us that not only the corporation, but also those dealing with corporations, will be seriously hampered. It is not our purpose to hold that a president of a corporation has the inherent power to bind the corporation, but we do hold that the fact that the president of a corporation has executed a contract for his corporation is prima facie evidence that the president had the authority to bind the corporation.

If it be true that the president did not possess the authority assumed by him in the present case, the proof of his lack of authority was in the possession of the corporation, and there would have been no difficulty in the way of its production. On the other hand, it might be very difficult and expensive for the plaintiff to have secured the evidence to show his authority. This corporation was domiciled in New York City, and while there are means whereby the plaintiff might have secured affirmative proof, yet it is conceivable that the unwilling corporation might see fit to throw many obstacles in the way. Presidents of corporations generally exercise the powers of a general agent, usually by the tacit consent of the corporation, and the public rarely stops to inquire about his authority. National Bank v. Vigo Bank, 141 Ind. 352, 40 N. E. 799, 50 Am. St. Rep. 330; Patterson v. Robinson, 116 N. Y. 193, 22 N. E. 372. The acts done by the president pertaining to the business of the corporation, not clearly foreign to his powers, will, in the absence of proof to the contrary, be presumed to have been authorized by the corporation. This, we think, is a salutary rule, and imposes no hardship upon either party

to the contract. The corporation selects its president, and the ordinary business man, generally speaking, assumes that the man made president is the head and front of the corporation. If it be true that the president of any particular corporation is a mere figurehead, with no powers or duties, except as a presiding officer of the board of directors, this fact can be readily established by the corporation. Affirmed.

NOTE.-Prima Facie Validity of Corporate Note Executed by Corporation's President.-It seems to be claimed that though the early rule was that a president of a corporation had no power virtute officii to bind his corporation by issuing a promissory note in its name, yet this rule has changed to conform to modern methods in corporate administration. But this change cannot be said to have taken place except as to trading corporations.

Thus in St. Vincent's College v. Hallett, 119 C. C. A. 647, 201 Fed. 471, it was ruled by Seventh Circuit Court of Appeals, that the president of a college presumptively has no authority to issue a promissory note in the name of a college, a non-trading corporation.

This case concerned an Illinois transaction and the court ruled that, assuming Illinois decision to hold that a corporation was presumptively bound by such a promissory note, yet said that all of the cases announcing it concerned trading corporations and in Illinois the question as regards a non-trading corporation had never been expressly decided. It was said that "no court has held, so far as we have been able to find, a charitable corporation bound on the contracts or notes of its president or other officers, in the absence of some showing either of authority, ratification or estoppel. All the authorities are the other way."

In People's Bank v. St. Anthony's Roman Catholic Church, 109 N. Y. 512, 17 N. E. 408. notes were signed by the president, secretary and treasurer of the corporation. It was said: "It is not common usage or understanding that the president, secretary and treasurer of a religious corporation possess power, by virtue of their offices, to borrow money or issue notes of the corporation. The same rule is applied to a nontrading business corporation. Craft v. So. Boston Street R. R. Co., 150 Mass. 207, 22 N. E. 920, 5 L. R. A. 641. There it was said that: "Whatever may be true of trading corporations, there is nothing in the nature of the business of a horse-rairoad corporation, or of the duties of a treasurer of such a corporation, which implies that the treasurer. by virtue of his office, has authority to borrow money for the company and give its notes therefor."

In Jewett v. West Somerville Corporation Bank, 173 Mass. 54. 52 N. E. 1085, 73 Am. St. Rep. 250. it was held that a treasurer of a Co-operative savings bank cannot create a liability for it by signing notes. It was said: "There is a material difference between the implied powers of treasurers of manufacturing and trading corporations and those of treasurers of corporations organized for special purposes, which ordinarily do not have occasion to use com

mercial paper in the transaction of their business."

It is said that virtute officii a president even of a trading corporation has very little authority but if he has been held out as its general agent, the matter is different. St. Clair v. Rutledge, 115 Wis. 583, 92 N. W. 234, 95 Am. St. Rep. 964; Trephagen v. South Omaha, 69 Neb. 577, III Am. St. Rep. 570; Wait v. Nashua Armory Assn., 66 N. H. 581, 23 Atl. 77, 49 Am. St. Rep. 630.

In Iowa Nat. Bank v. Sherman, 17 So. Dak. 396, 97 N. W. 12, 106 Am. St. Rep. 778. it was held that the president of a manufacturing corporation is presumed to have authority to transfer by indorsement a note payable to the corporation. It was urged in this case that there was no authority virtute officii to do this, but the court said that "much of its (corporation's) business was transacted by way of notes taken by it for machinery delivered, and that it was in the habit of transferring such notes to plaintiff bank by the indorsement of the president." Here it seems was what amounted to a holding

out.

In Gould v. W. J. Gould & Co., 134 Mich. 515. 96 N. W. 576, 104 Am. St. Rep. 624, the ruling was against liability of the corporation on a note signed by the president in its name. The record does not disclose what the corporation was organized to do. It was said: "The ruling of the circuit judge apparently rests upon the idea that the president and secretary are presumed to have authority to execute commercial paper, and proof that commercial paper was signed by them shifts the burden of proof upon the defendant. We think this holding cannot be sustained upon authority." If there had been proof the president was engaged in managing the business, the matter might be different, and that this power was requisite in the conduct of the business.

Remarks by Seventh Circuit Court of Appeals in St. Vincent's College v. Hallet. supra, seem not inapt in estimating the value of all cases where even trading corporations have been held liable upon promissory notes signed by the president in the name of the corporation. It was said that in all of the Illinois cases there was some accompanying fact. such as ratification or benefit received or a particular holding out by the corporations and the question as one of pure abstract law was not passed upon. Thus seems the rule also in Michigan and very probably an analysis of the cases from other states will show there was no decision upon a pure question of principle.

Thus it was held in Ninth Circuit Court of Appeals, that if the corporate seal is attached to an instrument signed by officers, courts will assume it was affixed by proper authority and the execution was duly authorized. Pacific State Bank v. Coats. 123 C. C. A. 634, 205 Fed. 618. But even in this case it is recited that the instrument. a mortgage, was executed by the president and secretary, not only the sole trustees of the corporation. but its sole stockholders receiving money for the benefit of the corporation. In Blakely Artesian Ice Co. v. Clarke. Ga.. 70 S. E. 526, it was said that the corporate seal attached to a naner signed by the president created a rebuttable presumption of authority.

C.