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 the defrauded party has been induced to give a negotiable instrument by fraudulent representations as to collateral facts, he is not obliged to resort to equity, but he may wait until an action at law is brought upon such negotiable instrument, and he may then set up such fraud as a defense.1 If the instrument is negotiable and is not yet due, the maker who waits for an action at law upon such instrument takes the risk of a transfer thereof to a bona fide holder for value without notice and before maturity. If the instrument is thus transferred, the maker will be liable thereon to such bona fide purchaser, as he can not set up such defense of fraud against such bona fide holder.2 It is true that in such a case the maker may maintain an action against the party who is guilty of the fraud;3 but if such party is insolvent, or has absconded, such remedy is of no practical value. Accordingly, in cases of this sort equity will grant rescission at the suit of the party who has been induced to execute such instrument by fraud as to a collateral matter.4
11 On the theory that equity will remove a cloud on the title and not drive the party to await prospective and deferred litigation. Billings v. Mann, 156 Mass. 203, 30 N. E. 1136.
12 Sparrow v. Wilcox, 272 111. 632, 112 N. E. 296.
13 French v. McMillion, 79 W. Va. 639, L. R. A. 1917D, 228, 91 S. E. 538.
14 Davis v. William Rosenzweig
Realty Operating Co., 192 N. Y. 128, 20 L. R. A. (N.S.) 175, 84 N. E. 943. 15 Hall v. Catherine Creek Development Co., 78 Or. 586, L. R. A. 1916C, 996, 153 Ac. 97.
1 See Sec. 341 and ch. LXXII.
2 See ch. LXXII.
3 See. Sec. 340.
4 England. Winchester v. Founder, 2 Ves. Sen. 445.