CHAPTER XXXVI

ACTIONS OR SUITS FOR RESCISSION OR CANCELLATION

§ 643.

Jurisdiction of Equity.

644. Same; Discretion of Court.

645. Adequate Remedy at Law.

646. Same; Action for Fraud or Deceit.

647. Same; Defense to Action on Contract or Instrument 648. Same; Pendency of Proceedings at Law.

649. Same; Insolvency of Defendant.

650.

Cancellation of Instruments.

651. Same; Void Instruments.

652. Same; Contracts of Insurance.

653. Applicability of Statute of Limitations, 654. Laches Barring Relief.

655. Form of Remedy.

656. Venue of Action.

§ 643. Jurisdiction of Equity.-Courts of equity have jurisdiction to grant relief, by way of rescission or cancellation, against contracts or conveyances procured by means of deception, fraudulent concealment, false representations, or fraud in any of its other forms or manifestations.1 This jurisdiction is sometimes said to be concurrent with that of the courts of law. That is to say, fraud is a species of tort, which may lay a foundation for an action at law, in which compensation is claimed by way of damages. But this does not exclude the wider jurisdiction of equity, under

1 Robinson v. Yetter, 238 Ill. 320, 87 N. E. 363; Hardwick v. Forbes' Adm'r, 1 Bibb (Ky.) 212; Trask v. Chase, 107 Me. 137, 77 Atl. 698; Rosenthal v. Mahon, 65 Md. 418, 5 Atl. 246; Dodd v. Cook, 11 Gray (Mass.) 495; Gilbert v. Haire, 43 Mich. 283, 5 N. W. 321; Lynch v. Herrig, 32 Mont. 267, 80 Pac. 240; Hubbard v. International Mercantile Agency, 68 N. J. Eq. 434, 59 Atl. 24; Ring v. New Auditorium Pier Co., 77 N. J. Eq. 422, 77 Atl. 1054; Davis v. William Rosenzweig Realty Operating Co., 192 N. Y. 128, 84 N. E. 943, 20 L. R. A. (N. S.) 175, 127 Am. St. Rep. 890; Adams v. Gillig, 199 N. Y. 314, 92 N. E. 670, 32 L. R. A. (N. S.) 127, 20 Ann. Cas. 910; Higgins v. Crouse, 63 Hun, 134, 17 N. Y. Supp. 696; McGeary v. Jenkins, 187 Pa. 440, 41 Atl. 315; Hotchkiss v. Fortson, 7 Yerg. (Tenn.) 67; Deveny v. Hart Coal Co., 63 W. Va. 650, 60 S. E. 789; Crislip v. Cain, 19 W. Va. 438.

2 Waddell v. Lanier, 62 Ala. 347; Weeks v. Currier, 172 Mass. 53, 51 N. E. 416; Fred. Macey Co. v. Macey, 143 Mich. 138, 106 N. W. 722, 5 L. R. A. (N. S.) 1036; Culver v. Avery, 161 Mich. 322, 126 N. W. 439.

which a fraudulent transaction may be unravelled, the contract or transfer completely undone, and the parties restored to their former position. If the remedy which the law affords, a recovery of damages, is adequate to the case, equity may properly refuse to interfere. But if the injury caused by allowing the contract to stand would be irreparable, if no proceeding at law would afford adequate relief, or if complete justice can be done only by rescinding the fraudulent transaction, then the jurisdiction of equity is clear and undoubted. A court of law, it should be observed, can award damages for the breach of a contract or for the deceit or fraud by which a party was induced to enter into it, but cannot rescind a contract or cancel a deed. But in equity, on the other hand, when a case of fraud is established, the court may set aside all transactions founded on it, however they may have been effected, and notwithstanding any contrivance by which it may have been attempted to protect them," and may also treat acts as having been done which ought to have been done, and convert the party who has committed a fraud and profited by it into a trustee for the injured party. But a court of equity can act only on the conscience of a party, and hence, if a party has done nothing which taints his conscience, no demand can attach upon it so as to give jurisdiction."

We may say, therefore, that while the jurisdiction of equity in cases of fraud is undoubted, it does not necessarily follow that a suit is maintainable in equity for the rescission of a contract merely on an allegation of fraud, but there must be, in connection with that element, some special circumstances which render rescission by the mere act of

3 Dixie Cotton Picker Co. v. Bullock (C. C.) 188 Fed. 921; Montgomery v. McLaury, 143 Cal. 83, 76 Pac. 964; Patterson v. People, 23 Colo. App. 479, 130 Pac. 618; Teft v. Stewart, 31 Mich. 367; Sumner v. Staton, 151 N. C. 198, 65 S. E. 902, 18 Ann. Cas. 802; Olston v. Oregon Water Power & Ry. Co., 52 Or. 343, 96 Pac. 1095, 97 Pac. 538, 20 L. R. A. (N. S.) 915; Tibbins v. Burrell, 46 Pa. Super. Ct. 466.

4 Riverside Residence Co. v. Husted, 109 Va. 688, 64 S. E. 958. Furlong v. Sanford, 87 Va. 506, 12 S. E. 1048.

• Bennett v. Harper, 36 W. Va. 546, 15 S. E. 143.

7 Boone v. Chiles, 10 Pet. 177, 9 L. Ed. 388; Hemmer v. United States, 204 Fed. 898, 123 C. C. A. 194.

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the plaintiff and his remedy at law not adaptable adequately to cure the wrong. Such special circumstances, however, are present where it is shown that recourse to equity is necessary to avoid a multiplicity of suits, or to save the complainant from the expense of a double litigation and the hazard of a double recovery against him,1o or where he cannot obtain adequate relief without compelling a discovery, or an accounting is necessary to ascertain and adjust the relative rights of the parties,12 or where fraud and want of consideration, relied on as grounds for the cancellation of a deed, do not appear on the face of the deed, nor on any record on the validity of which the deed depends.18

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But the jurisdiction of equity to order the rescission or cancellation of a transaction is not limited to cases of fraud. It may also be invoked, the other requirements being fulfilled, in cases of mutual mistake, or of unilateral mistake fraudulently availed of by the other party,11 and in cases of want of capacity to make the deed or contract in question, whether arising from permanent mental weakness or from alcoholic intoxication.15 And the authority of equity to afford relief in proper cases is not restricted to contracts and deeds of real estate, but extends as well to sales or other transactions concerning personal property.10 But the mere fact that a complaint in equity contains an allega

8 Hall v. Bell, 143 Wis. 296, 127 N. W. 967.

Louisville, N. A. & C. Ry. Co. v. Ohio Val. Improvement & Contract Co. (C. C.) 57 Fed. 42; Rodgers v. Stern, 112 Ga. 624, 37 S. E. 877; Mohr v. Smith, 176 Ill. App. 64. Compare Scott v. McFarland (C. C.) 70 Fed. 280.

10 McHenry v. Hazard, 45 N. Y. 580.

11 Smythe v. Henry (C. C.) 41 Fed. 705; Neis v. Farquharson, 9 Wash. 508, 37 Pac. 697; Mohr v. Smith, 176 Ill. App. 64.

12 Eggers v. Anderson, 63 N. J. Eq. 264, 49 Atl. 578, 55 L. R. A. 570; Mohr v. Smith, 176 Ill. App. 64.

13 Summers v. Abernathy, 234 Mo. 156, 136 S. W. 289.

14 Quincy Horse Ry. & Carrying Co. v. Omer, 109 Ill. App. 238; Kleis v. Niagara Fire Ins. Co., 117 Mich. 469, 76 N. W. 155; Bruner v. Miller, 59 W. Va. 36, 52 S. E. 995.

15 Jordan v. Kirkpatrick, 159 Ill. App. 231; Swan v. Talbot, 152 Cal. 142, 94 Pac. 238, 17 L. R. A. (N. S.) 1066.

16 Bradberry v. Keas, 5 J. J. Marsh. (Ky.) 446; Taymon v. Mitchell, 1 Md. Ch. 496; Smith v. Ryan, 191 N. Y. 452, 84 N. E. 402, 19 L. R. A. (N. S.) 461, 123 Am. St. Rep. 609, 14 Ann. Cas. 505.

tion of fraud does not give the court jurisdiction where it has no jurisdiction of the subject-matter." But a state court of general jurisdiction having original cognizance of causes at law and in equity has jurisdiction of the subject-matter of a suit to cancel a mortgage on real property, provided the property lies within its territorial jurisdiction.18 Further, to justify the rescission of a contract, it is not only necessary to show that the plaintiff is equitably entitled to the relief asked, but the court must be able substantially to restore the parties to the position they occupied before entering into the contract.1o

§ 644. Same; Discretion of Court.-A decree for the rescission of a contract or the cancellation of a written instrument is not granted as of course, even when the jurisdiction of the court is undoubted. Applications for such relief are addressed to the just and sound discretion of the court, to be exercised, it is true, in conformity with established principles and precedents, but still having a regard to the specific facts before the court, and seeking to determine what is reasonable and proper under the circumstances of the particular case; and moreover, in the exercise of such discretion, the court has power to impose on the complainant, under penalty of having his bill dismissed, such terms as it may deem that justice requires, as, for instance, that he shall restore all that he has received under the transaction proposed to be rescinded.20

§ 645. Adequate Remedy at Law.-It is a general rule that a court of equity will not interfere to order or enforce the rescission of a contract or decree the cancellation of a written instrument where the law affords the complaining

17 Riverside County v. San Bernardino County, 134 Cal. 517, 66 Pac. 788.

18 Ridge v. Manker, 132 Fed. 599, 67 C. C. A. 596.

19 Sweeney v. Foster, 112 Va. 499, 71 S. E. 548. And see, supra, §§ 616, 618.

20 Witt v. Sims, 140 Ga. 48, 78 S. E. 467; Springfield & N. E. Traction Co. v. Warrick, 249 Ill., 470, 94 N. E. 933, Ann. Cas. 1912A, 187; Shaeffer v. Sleade, 7 Blackf, (Ind.) 178; Johnson v. United Rys. Co., 227 Mo. 423, 127 S. W. 63; Town of Venice v. Woodruff, 62 N. Y. 462, 20 Am. Rep. 495; Thomas v. McCue, 19 Wash. 287, 53 Pac. 161.

party a plain, adequate, and complete remedy for the injuries he claims to have suffered.21 But an occasional dissent from this doctrine is to be found in the decisions. Some of the cases maintain that, where a clear right of rescission exists, the remedy which the law may afford by the recovery of a judgment for money or property is necessarily incomplete and inadequate, because of the lack of power to effect a rescission by a direct adjudication thereof, so that, when the law has done its utmost in the way of giving compensation in damages, it must still leave the contract or conveyance in force, which may be a detriment to the complaining party or a benefit to his adversary.22 On this ground, a bill which seeks to set aside a contract alleged to have been procured by fraud, and also prays an injunction to prevent the defendant from deriving benefit from the contract pending the determination of the question of fraud, cannot be dismissed on the ground that the plaintiff has an adequate remedy at law. And in some states it is provided by statute that contracts entered into through fraud, mistake, or duress may be avoided either by way of defense to suits brought on them or by actions brought for that purpose."

23

In pursuance of the general rule above stated it is held that an executed contract for the sale of real estate, where no actual fraud has been perpetrated, will not be rescinded in equity on account of defects in the title, or the discovery of undisclosed incumbrances, or other such matters, since the purchaser has an adequate remedy at law by an action

21 San Diego Flume Co. v. Souther, 90 Fed. 164, 32 C. C. A. 548; Letohatchie Baptist Church v. Bullock, 133 Ala. 548, 32 South. 58; Farmers & Merchants' Bank v. Hall, 120 Ala. 14, 24 South. 347; Lewis v. Tobias, 10 Cal. 574; Naugle v. Yerkes, 187 Ill. 358, 58 N. E. 310; Gore v. Kramer, 117 Ill. 176, 7 N. E. 504; Creamer v. James, 116 Ill. App. 465; Shoup v. Cook, 1 Ind. 135; Case v. Fishback, 10 B. Mon. (Ky.) 40; Bellows v. Stone, 14 N. H. 175; Walter v. Garland Automobile Co., 164 App. Div. 183, 149 N. Y. Supp. 653; Balestier v. Mechanics' Nat. Bank, 15 N. Y. St. Rep. 46; Appeal of Travis (Pa.) 8 Atl. 601; Jones v. Fox, 20 W. Va. 370. Compare Griffin v. Sketoe, 30 Ga. 300.

22 Bruner v. Miller, 59 W. Va. 36, 52 S. E. 995; Allread v. Harris, 75 Ga. 687; Merrill v. Comstock, 154 Wis. 434, 143 N. W. 313. 23 Patton v. Glatz (C. C.) 56 Fed. 367.

24 Rev. Civ. Code La., § 1881.