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.
Under many codes of civil procedure it is now provided that equitable defenses may be interposed in actions at law. Under such statutes the defense of fraud may be interposed in an action at law on a contract under seal in purpose of avoiding the obligation, is not admissible as between parties and privies to the deed; and, more especially, where there has been a part execution of the contract. The difficulties are in adjusting the rights and equities of the parties in a court of law; and hence, in the states where the two systems of jurisprudence prevail, of equity and the common law, a court of law refuses to open the question of fraud in the consideration, or in the transaction out of which the consideration arises, in a suit upon the sealed instrument, but turns the party over to a court of equity, where the-instrument can be set aside upon such terms as, under all the circumstances, may be equitable and just between the parties. A court of law can hold no middle course; the question is limited to the validity or invalidity of the deed." most jurisdictions.1 By statute an equitable defense may now be interposed in the Federal courts by answer, plea or replication, without the necessity of filing a bill on the equity side of the court.2 This statute will permit the defense of fraud in the inducement to a contract under seal in cases which are tried after such statute was enacted.3 On the other hand, it has been suggested that the effect of such a statute is to make the rule, which formerly applied only to sealed instruments, now applicable to all contracts; and to make it necessary to obtain cancellation in equity and not at law.4 Under a statute which provides that "fraud voids all contracts," a contract under seal may be attacked in an action at law for fraud in a matter of inducement.5
6 Jackson v. Security Mutual Life Ins. Co., 233 111. 161, 84 N. E. 198; Olston v. Water Power & Ry. Co., 52 Or. 343, 96 Ac. 1095 [rehearing denied, 97 Ac. 538],
7 Shampeau v. Connecticut River Lumber Co., 42 Fed. 760; Jackson v. Security Mutual Ins. Co., 233 111. 161, 84 N. E. 198; Babcock v. Farwell, 245 111. 14, 91 N. E. 683; Hartley v. Chicago & A. R. Co., 214 111. 78, 73 N. E. 398; Mclsaac v. McMurray, 77 N. H. 466, L. R. A. 1916B, 769, 93 Atl. 115.
8Milliken v. Thorndike, 103 Mass. 382; Stubb v. King, 14 Serg. & R. (Pa.) 206; Phillips v. Potter, 7 R. I. 289.
9 Pratt v. Pond, 87 Mass. (5 All.) 59; Bassett v. Brown, 100 Mass. 355; Braddy v. Elliott, 146 N. Car. 578, 125 Am. St. Rep. 523, 16 L. R. A. (N.S.) 1121, 60 S. E. 507; Hodges v. Wilson, 165 N. Car. 323, 81 S. E. 340.
There is a conflict of authority upon the question of the effect of a statute which abolishes private seals or which makes the seal only prima facie evidence of consideration. In some jurisdictions in which, by statute, sealed instruments are, in legal effect, only simple contracts which are prima facie valid, a sealed contract is subject at law to the defense of fraud.6 Under a statute which makes a seal "primary evidence" of the contract to which it is affixed, a contract under seal is subject to the defense of fraud at law.7 If the release is as effective without a seal as with a seal, it has been held that it may be avoided at law for fraud in the inducement, without resorting to equity.8 A different result has been reached in other jurisdictions. It has been said that there is no longer any substantial "difference in principle between a formal release under seal and one not under seal."9 This is probably a fair statement of the ultimate development of the sealed instrument at modern law. Instead of deducing from this statement, as to the modern effect of the sealed instrument, the conclusion that a sealed instrument could be avoided at law' for fraud as to a collateral matter, some courts have deduced exactly the opposite principle, and they say that even a simple contract of compromise if it is in writing and carefully drawn, can not be avoided at law, for fraud as to a matter of inducement, but that the party who wishes to set it aside must first resort to equity.10
1 United States. Whitcomb v. Shultz, 223 Fed. 268, 138 C. C. A. 510.'
California. Hopkins v. Beard, 6 Cal. 664.
Kansas. Missouri Pacific Ry. Co. v. Goodholm, 61 Kan. 758, 60 Ac. 1066.
Missouri. Courtney v. Blackwell, 150 Mo. 245, 51 S. W. 668.
New York. Dambmann v. Schulting, 51 How. Pr. (N. Y.) 337.
North Carolina. Bean v. Western North Carolina Ry. Co., 107 N. Car. 731, 12 S. E. 600.
Washington. Sanford v. Royal Insurance Co., 11 Wash. 653, 40 Ac. 609.
2 38 Stats, at L., Part I, 956, 5274b; Third Session of Sixty-third Congress, c. 90, Sec. 274b; Act of March 3, 1915.
3 Whitcomb v. Shultz, 223 Fed. 268, 138 €. C. A. 510 (a proceeding in error to review a case tried before such statute was enacted).
4 Interior Warehouse 6o. v. Dunn, 80 Or. 528, 157 Ac. 806. See Perry v. O'Neil, 78 O. S. 200, 85 N. E. 41.
"There are difficulties in adjusting the rights and equities of the parties in a court of law, and in states where, as in ours, the two distinct systems of jurisprudence, equity, and law prevail, a law court usually refuses to open the question of fraud in the consideration or in the transaction out of which the consideration arises, but turns the party over to a court of equity." Interior Warehouse Co. v. Dunn, 80 Or. 528, 157 Ac. 806.
5 House v. Martin, 125 Ga. 642, 54 S. E. 735.
6 Withers v. Greene, 50 U. S. (9 How.) 213, 13 L. ed. 109; Aller v. Aller, 40 N. J. L. 446; Paddock v. Hume, 6 Or. 82; Olston v. Water Power & Ry. Co., 52 Or. 343, 20 L. R. A. (N.S.) 915, 96 Ac. 1095 [rehearing denied, 97 Ac. 538].
7 Olston v. Water Power & Railway Co., 52 Or. 343, 20 L. R. A. (N.S.) 915, 96 Ac. 1095 [rehearing denied, 97 Ac. 538].