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Clarke v Dickson (1858) 120 E.R. 463

Contract law – Misrepresentation – Rescission of contract

Facts

The plaintiff claimed that he had been induced to invest in shares in a lead and copper mining company by the three defendants, who were directors of the company. The mine was operated by the mining company for three years, with dividends claimed each year. The following year, the company was in poor circumstances and it was registered as a limited liability company and was wound up. During this process, the plaintiff realised that the representations that were made by the defendants were fraudulent and the dividends that had been paid previously were false. He brought an action to have the deposits for his shares repaid.

Issue

A prominent issue for the judges to consider was that the shares that had been previously purchased by the plaintiff were now worthless as the lead and copper mining company had been closed down. Therefore, it would be unlikely that the plaintiff could recover the value of the shares that he invested as a result of the defendant’s misrepresentation.

Held

The judges held that the contract between the parties could not be rescinded as the shares were worthless, following the wrapping up of the company. In circumstances where a party wished to rescind an offer, they must be able to return to their original state that they had before the contract was agreed. The court subsequently found that the plaintiff was required to seek remedy by special action for deceit in which he could potentially recover damages for the misrepresentation, rather than trying to recover the original price of the shares.


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