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 transaction into which the defrauded party has been induced to enter does not result in the transfer of title, or in the delivery of the sealed instrument, or in the delivery of the negotiable instrument, the party who has been defrauded may, of course, set up such fraud in an action at law upon such transaction;1 and the transfer of such contract does not cut off such defense.2 There is no need of equitable relief to enable the defrauded party to set up the defense of fraud whenever an action at law is brought upon such fraudulent transaction.3 There is, however, a risk to which the defrauded party may be subject by reason of delay, especially if the period of limitations is a long one. The party who is guilty of the fraud may refrain from bringing an action upon the fraudulent transaction for so long a time that the defrauded party may not be able to prove the facts, because of the death or absence of his witnesses, or by reason of loss of written evidence. In some jurisdictions equity has given greater weight to the latter considerations, and has held that the party who is defrauded may have rescission of a contract into which he has been induced to enter by fraud, as a means of protecting him against the risks of loss of evidence, or against the necessity of adjusting his affairs to the possibility of being defeated on the issue of fact when he sets up fraud as a defense.4 In such jurisdictions equity will set aside a written contract which is entered into by reason of a partial disclosure and concealment of material facts, even though there might be a remedy
United States. Louisville, New Albany & Chicago Ry. Co. v. Louisville Trust Co,, 174 U. S. 552, 43 L. ed. 1081.
California. Ingram v. Smith, 83 Cal. 234, 23 Ac. 298.
Michigan. Maclean v. Fitzsiraons, 80 Mich. 336, 45 N. W. 145; Hulett v. Marine Savings Bank, 143 Mich. 219, 4L.R .A. (N.S.) 1042, 106 N. W. 879.
Missouri. Cass County v. Green, 66 Mo. 498.
Washington. Park v. Newell, 87 Wash. 431, 151 Ac. 783.
Wisconsin. Scott v. Menasha, 84 Wis. 73, 54 N. W. 263.
1 See Sec. 341.
2 See ch. LXXI.
3 See Sec. 342 et seq.
4 Alabama. Cannon v. Birmingham
Trust & Savings Co., 194 Ala. 469, 69 So. 934.
Arkansas. Bush v. Prescott & N. W. Ry. Co., 76 Ark. 497, 89 S. W. 86.
California. Swan v. Talbot, 152 Cal. 142, 17 L. R. A. (N.S.) 1066, 94 Ac. 238.
Kentucky. Robertson v. Owensboro Sav. Bank & Trust Co., 150 Ky. 50, 149 S. W. 1144.
Massachusetts. Billings v. Mann, 156 Mass. 203, 30 N. E. 1136; Nathan v. Nathan, 166 Mass. 294, 44 N. E. 221; Long v. Inhabitants of Athol, 196 Mass. 497, 17 L. R. A. (N.S.) 96, 82 N. E. 665.
Michigan. John Hancock, etc., Ins. Co. v. Dick, 114 Mich. 337, 43 L. R. A. 566, 72 N. W. 179; Mactavish v. Kent at law therefor.5 If equitable relief is necessary to place the defrauded party in statu quo, it is not necessary that the party who is guilty of the fraud should be insolvent,6 or that a legal action for damages should be inadequate.7
Equity will grant rescission to one who has entered into a contract in reliance upon a fraudulent statement as to the amount of work remaining to be done.8 One who has been induced to buy land in reliance upon a fraudulent statement as to a material fact,9 such as a statement that the land sold was natural ground and not made ground;10 or one who has by fraud been induced to enter into a contract for the sale of stock,11 as one who has been induced to buy stock by fraudulent concealment of certain contracts which a corporation has entered into by which it has agreed to pay certain royaltes on patents,12 may have rescission in equity. Equity will decree cancellation of a note and mortgage obtained by fraud.13 The jurisdiction of equity to rescind an ante-nuptial contract for fraud is not ousted by a statute giving concurrent jurisdiction to the probate court.14 The fact that the defrauded party was very careless in the transaction does not prevent him from obtaining rescission in equity.15
Circuit Judge, 122 Mich. 242, 80 N. W. 1086; Fred Macey Co. v. Macey, 143 Mich. 138, 5 L. R. A. (N.S.) 1036, 106 N. W. 722.
Minnesota. Corse v. Minnesota Grain Co., 94 Minn. 331, 102 N. W. 728.
New Jersey. Hubbard v. International Mercantile Agency, 68 N. J. Eq. 434, 59 Atl. 24.
New York. Davis v. William Rosen-zweig Realty O. Co., 192 N. Y. 128, 20 L. R. A. (N.S.) 175, 84 N. E. 943.
Washington. Stone v. Moody, 41 Wash. 680, 5 L. R. A. (N.S.) 799, 84 Ac. 617; Kohl v. Taylor, 62 Wash. 678, 35 L. R. A. (N.S.) 174, 114 Ac. 874.
5 Fred Macey Co. v. Macey, 143 Mich. 138, 5 L. R. A. (N.S.) 1036, 106 N. W. 722. An insurance company may have an insurance policy canceled before loss occurs thereunder. Fenn v. Craig, 3 Younge & C. Exch. 216; Pacific Mutual Life Insurance Co. v. Glaser, 245 Mo. 377, 45 L. R. A. (N.S.) 222, 150 S. W. 549; and in some jurisdictions such relief may he had after loss. Carter v. Metropolitan Life Insurance Co. (Mo.)f L. R. A. 1918F, 325, 204 S. W. 399; and even after an action at law has been brought on the policy. Filing a cross-petition in such action sets up a cause for equitable relief which must be tried in the court before the action on the policy is heard.
Carter v. Metropolitan Life Insurance Co. (Mo.), L. R. A. 1918F, 325, 204 S. W. 399.
6 Stone v. Walker, - Ala. - , 77 So. 554.
7 Stone v. Walker, - Ala. - , 77 So. 554.
8 Long v. Inhabitants of Athol, 196 Mass. 497, 17 L. R. A. (N.S.) 96, 82 N. E. 665.
9 Consumers' Coal & Fuel Co. v. Yar-brough, 194 Ala. 482, 69 So. 897; Haga-dorn Investment Co. v. Rieke, 60 Colo. 555, 155 Ac. 381; Ross v. Sumner, 57 Neb. 588, 78 N. W. 264; Davis v. William Rosenzweig Realty Operating Co., 192 N. Y. 128, 20 L. R. A. (N.S.) 175, 84 N. E. 943.
Where the party seeking relief has been careless in relying on fraudulent statements that there was a demand for such land for building lots and a syndicate had been formed to secure it, equity will give relief, but at the costs of the plaintiff. Sutton v. Morgan, 158 Pa. St. 204, 38 Am. St. Rep. 841, 27 Atl. 894.
10 Davis v. William Rosenzweig Realty Operating Co., 192 N. Y. 128, 20 L. R. A. (N.S.) 175, 84 N. E. 943.
11 Sherman v Stove Co., 85 Mich. 169, 48 N. W. 537; Ramsey v. Mfg. Co., 116 Mo. 313, 22 S. W. 719.
In other jurisdictions the courts of equity have given greater weight to the fact that the defrauded party may always set up fraud as a defense in contracts of this sort, and have accordingly held that since the defrauded party has a plain, adequate and complete remedy at law, equity will not give relief.16 It is said that if equity were to grant rescission of an executory and non-negotiable simple contract, upon the ground of fraud, the constitutional right of trial by jury would be abrogated.17 If A induces B to buy property by means of fraudulent representations as to the quality of such property, and B gives a non-negotiable note therefor, B can not have rescission and cancellation against A or against a third person to whom A has transferred such note, since B has an adequate remedy at law.18 It is held, by the weight of authority, that after loss, an insurance company can not have an insurance policy canceled on the ground of fraud alone, since the insurance company may set up such fraud in an action at law on the policy; and this remedy is adequate.19 If A brings an action at law against B in a state court, and B files an answer and cross-petition alleging fraud and asking for rescission, and A then dismisses such action in the state court and brings another action in the federal court, it is held that B can not have a hearing upon his answer and cross-petition, since equity can not grant relief, as the instrument is overdue and therefore non-negotiable.20
12 Fred Macey Co. v. Macey, 143 Mich. 138, 5 L. R. A. (N.S.) 1036, 106 N. W. 722.
13 Kohl v. Taylor, 62 Wash. 678, 35 L. R. A. (N.S.) 174, 114 Ac. 874.
14 Nathan v. Nathan, 166 Mass. 294, 44 N. E. 221.
15 Stone v. Moody, 41 Wash. 680, 5 L. R. A. (N.S.) 799, 84 Ac. 617.
16 United States. Grand Chute v. Winegar, 82 U. S. (15 Walk) 373, 21 L. ed. 174; Cable v. United Life Insurance Co., 191 U. S. 288, 48 L. ed. 188.
Idaho. Miller v. Kettenbach, 18 Ida. 253, 138 Am. St. Rep. 192, 109 Ac. 505.
Kentucky. Cole v. Young, 167 Ky. 600, 181 S. W. 177.
New York. Venice v. Woodruff, 62 N. Y. 462, 20 Am. Rep. 495.
Ohio. Quebec Bank v. Weyand, 300. S. 126.
Tennessee. Woelfle v. The Sailors, 118 Tenn. 755, 12 L. R. A. (N.S.) 881, 102 S. W. 1109.
West Virginia. Big Huff Coal Co. v. Thomas, 76 W. Va. 161, 85 S. E. 171.
Wisconsin. Johnson v. Swanke, 128 Wis. 68, 5 L. R. A. (N.S.) 1048, 107 N. W. 481; Hall v. Bell, 143 Wis. 296, 127 N. W. 967.
17 Johnson v. Swanke, 128 Wis. 68, 5 L. R. A. (N.S.) 1048, 107 N. W. 481.
18 Johnson v. Swanke, 128 Wis. 68, 5 L. R. A. (N.S.) 1048, 107 N. W. 481.
19 Hoare v. Bremridge, L. R. 8 Ch. 22; Cable v. United States Life Ins. Co., 191 U. S. 288, 48 L. ed. 188; Woelfle v. The Sailors, 118 Tenn. 755, 12 L. R. A. (N.S.) 881, 102 S. W. 1109.