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.
In order to rescind, whether informally or by formal decree in equity, the party who commits the fraud must be placed in statu quo by the party seeking relief.1 If a party who has been induced to enter into a contract of compromise by reason of fraud seeks to avoid such contract and to maintain an action at law upon his original cause of action, he must restore what he received under such contract of compromise.2 If a compromise is pleaded as a defense to the plaintiff's cause of action, and fraud is pleaded as an avoidance of such release in plaintiff's replication, plaintiff must tender, with his replication, the amount received under such contract of release.3 The rule that the defrauded party must restore what he received under a contract of compromise before he brings an action upon his original cause of action, does not apply, however, where the adversary party does not set up such compromise as a defense.4 If an insurance company seeks a decree of cancellation of an insurance policy on the ground of fraud, the insurance company must return the premiums which have been paid in to it,5 even if the insurance policy provides that in case of fraud all payments shall be forfeited.6 It has been held, however, that the insured can not recover such payments,7 and that the insurance company may set up such defense at law without returning such premiums.8 If the insurance company is a mutual benefit company and collects assess-ments and disburses them, the insurance company can not be placed in statu quo, and accordingly it is not bound to return the premiums or assessments which it has received.9 If A is induced to buy a horse by fraudulent representations, and on discovering the facts he notifies the seller that he repudiates the contract, and instead of returning the horse he turns it into a pasture where the horse is injured so that it has to be killed, A can not use such facts as a defense against the check which he gave for the purchase price of such horse, if it is shown that the horse had a con-siderable value when it was thus turned into the pasture and injured.10
5Rembe v. Ferguson (la.), 166 N. W. 720.
6Rembe v. Ferguson (la,), 166 N. W. 720.
1United States. Vandervelden v. Ry., 61 Fed. 54.
Georgia, Western, etc., R. R. v. Burke, 97 Ga. 56Q, 25 S. E. 498; Petty v. Ry., 109 Ga. 666, 35 S.E. 82; Jordy v. Dunlevie, 139 Ga. 325, 77 S. E. 162; Hinkle v. Hinkle, - Ga. - , 96 S. E.
Illinois. Rigdon v. Walcott, 141 111. 649, 31 N. E. 158; Mortimer v. Mc-Mullen, 202 111. 413, 67 N. E. 20; Bab-cock v. Farwell, 245 111. 14, 137 Am. St. Rep. 284, 91 N. E. 683.
Indiana. Balue v. Taylor, 136 Ind. 368, 36 N. E. 269; Starke v. Dicks, 2 Ind. App. 125, 28 N. E. 214.
Iowa. Swayne v. Waldo, 73 la. 749, 5 Am. St. Rep. 712, 33 N. W. 78.
Massachusetts. Snow v. Alley, 144 Mass. 546, 59 Am. Rep. 119, 11 N. E. 764.
Michigan. Hinchman v. Matheson Motor Car Co., 151 Mich. 214, 115 N. W. 48.
Minnesota. Carlton v. Hulett, 49 Minn. 308, 51 N. W. 1053; Loveridge v. Coles, 72 Minn. 57, 74 N. W. 1109
(obiter); Clark v. Wells, 127 Minn. 353, L. R. A. 1916F, 476, 149 N. W. 547.
Missouri. Och v. Ry. Co., 130 Mo. 27, 36 L. R. A. 442, 31 S. W. 962.
Nebraska. Tootle v. Bank, 34 Neb. 863, 52 N. W. 396.
New York. Kley v. Healy, 149 N. Y. 346, 44 N. E. 150.
North Dakota. Swan v. Great Northern Ry. Co., - N. D. - , L. R. A. 1918F, 1063, 168 N. W. 657.
Ohio. R. R. v. Steinfeld, 42 O. S. 449; Insurance Co. v. Hull, 51 O. S. 270, 37 N. E. 1116 [distinguished, Manhattan Life Insurance Co. v. Burke, 69 O. S. 294, 70 N. E. 74].
Oregon. Hadley v. Hadley, 79 Or. 573, 155 Ac. 195.
South Dakota. Johnson v. Burnside, 3 S. D. 230, 52 N. W. 1057.
Texas. Wells v. Houston, 23 Tex. Civ. App. 629, 57 S. W. 584.
Virginia. Fayette National Bank v. Summers, 105 Va. 689, 7 L. R. A. (N.S.) 694, 54 S. E. 862; Jordan v. Annex Corporation, 109 Va. 625, 64 S. E. 1050.
2 Swan v. Great Northern Ry. Co., - N. D. - , L. R. A. 1918F, 1063, 168 N. W. 657; Insurance Co. v. Hull, 51 O. S. 270, 37 N. E. 1116 [distinguished, Manhattan Life Insurance Co. V. Burke, 69 O. S. 294, 70 N. E. 74].
3 Harrison v. Alabama Midland Ry. Co., 144 Ala. 246, 40 So. 394; Rabitte v. Ry., 158 Ala. 431, 47 So. 573; Vindicator Consolidated Gold Mining Co. v. Firstbrook, 36 Colo. 498, 86 Ac. 313; Wells v. Royer Wheel Co. (Ky.), 114 S. W. 737; Memphis St. Ry. Co. v. Giardino, 116 Tenn. 368, 92 S. W. 855.
4 Rockwell v. Capital Traction Co., 25 D. C. App. 98.
5 Metropolitan L. Ins. Co. v.Freed-man, 159 Mich. 114, 32 L. R. A. (N.S.) 298, 123 N. W. 547.
6 Metropolitan L. Ins. Co. v. Freed-man, 159 Mich. 114, 32 L. R. A. (BUS.) 298, 123 N. W. 547.
7 Elliott v. Knights of Modern Maccabees, 46 Wash. 320, 13 L. R. A. (N.S.) 856, 89 Ac. 929.
8 Taylor v. Grand Lodge A. O. U. W., 96 Minn. 441, 3 L. R. A. (N.S.) 114,
105 N. W. 408; Elliott v. Knights of Modern Maccabees, 46 Wash. 320, 13 L. R. A. (N.S.) 856, 89 Pac.-929.
9 Elliott v. Knights of Modern Maccabees, 46 Wash. 320, 13 L. R. A. (N.S.) 856, 89 Ac. 929.
10 Fayette Nat. Bank v. Summers,
106 Va. 689, 7 L. R. A. (N.S.) 694, 54 S. E. 862.
If the defrauded person has parted with the possession of what he has received under the contract, he must regain possession thereof and tender it back,11 but if he does this, such sale and repurchase will not prevent rescission.12 Restitution in specie is not necessary if the nature of the transaction makes it impracticable.13 The fact that one who has bought a going business has sold a part of the stock, does not prevent him from obtaining rescission for fraud if he tenders such of the stock as is left, together with his profits thereon, and offers to make compensation for such part of the stock as has been sold.14 If A seeks rescission of an oil lease on the ground of fraud as to the quantity of oil which such land produces, the fact that A made use of a part of such oil after he discovered the facts does not prevent rescission, but A will be granted rescission upon the payment of the reasonable value of the oil thus used by him.15 It is not necessary that the person who is defrauded make compensation for board and nursing which were furnished to him after his injury when he had no real opportunity to refuse.16 It is not necessary that he restore the identical coins or bills which he received.17 He may avoid if he has restored the money paid to him under the fraudulent release, even if he has not paid for the services of a physician furnished by the adversary party, as long as the injured party did not know for whom such physician was acting or by whom he was in fact paid.18 The right of being placed in statu quo may be enforced by persons, such as execution creditors, who have acquired liens on the property which the vendor replevins as sold by fraud.19