This section is from the book "The Law Of Contracts", by William Herbert Page. Also available from Amazon: Commercial Contracts: A Practical Guide to Deals, Contracts, Agreements and Promises.
If a simple contract is executory as to the liability of the defrauded party, he may avoid liability thereunder, and interpose the defense of fraud in an action brought against him on the contract at law.1
Fraud as to a material but collateral matter is a defense in equity as against an attempt to enforce such contract on behalf of the party who is guilty of such fraud. The most frequent application of this principle is found in cases in which fraud as to a material though collateral matter is held to be sufficient to prevent the specific performance of the contract at the instance of the party
4 Richardson v. Vick, 125 Tenn. 532, 145 S. W. 174.
5 Pelham v. Chattahoochee Grocery Co., 146 Ala. 216, 8 L. R. A. (N.S.) 448, 41 So. 12.
6 Pelham v. Chattahoochee Grocery Co., 146 Ala. 216, 8 L. R. A. (N.S.) 448, 41 So. 12.
7 Mead v. Welch, 67 N. H. 341, 39 Atl: 970.
8 See ch. XLIV.
1 United States. Harriman National Bank v. Seldom ridge, 249 U. S.l, 63 L. ed. -; Hickman v. Sawyer, 218 Fed. 281; Whitoomb v. Shultz, 223 Fed. 268, 138 C. C. A. 510 [certiorari refused, Whitcomb v. Shultz, 238 U. S. 632]; DuPont v. Gardiner, 238 Fed. 755, 151 C. C. A. 605.
Alabama. Dean v. Brown, - Ala. - , 78 So. 966.
Colorado. Zang v. Adams, 23 Colo. 408, 58 Am. St. Rep. 249, 48 Ac. 509.
Georgia. House v. Martin, 125 Ga. 642, 54 S. E. 735.
Illinois. Mexican Amole Soap Co. v. Clarke, 72 111. App. 655.
Iowa. Martin v. Davis, 96 la. 718, 65 N. W. 101; Welch v. Ins. Co., 108 la. 224, 50 L. R. A. 774, 78 N. W. 853.
Kentucky. National Protective Legion v. Allphin, 141 Ky. 777, 133 S. W. 788.
Maine. Marston v. Ins. Co., 89 Me. 266, 56 Am. St. Rep. 412, 36 Atl. 389.
Maryland. German Union Fire Ins. Co. v. Cohen, 114 Md. 130, 78 Atl. 911.
Massachusetts. Milliken v. Thorndike 103 Mass. 382; Reagan v. Union Mutual who is guilty of fraud, or to prevent him from enforcing it by injunction.2 This is, in one sense, informal rescission, since no decree in equity is necessary. It differs, however, from what is sometimes termed informal rescission in that the injured party is not seeking to recover what he has parted with under the contract, but is seeking to avoid further liability thereunder.
A credit upon the books of the defrauded party may be cancelled by him, on learning of the fraud, without resorting to a proceeding in equity.3