92

of the parties and was subject to vacation. So, in a case in New York, the defendant insured the plaintiff against the loss of an arm and also against loss of time by accident. Plaintiff's arm was injured, and, relying upon the advice of physicians that the injury was only temporary, which both the plaintiff and defendant believed, and under a mistaken belief that plaintiff would not lose his arm, plaintiff executed a release of all claims upon payment of the amount due for loss of time only; but conditions existed in the' plaintiff's arm of which neither party knew, which afterwards caused it to be amputated. It was held that there was a mutual mistake of fact, which would entitle plaintiff to rescind the release."

Again, it is maintained by some of the authorities (and with sound legal reason, as it would seem) that if both parties suppose they know and understand the nature and extent of the injuries sustained, and a settlement is effected on the basis of a discussion and estimate of those injuries, and a release is given which specifically mentions those particular injuries known and considered as a basis of settlement, general language following in the release will not include a particular injury, then unknown to both parties, and of a character so serious as clearly to indicate that, if it had been known, the release would not have been given."* But it is also held that, while a release may be avoided for a mutual mistake of a past or present fact material thereto, yet it cannot be avoided for mistake in forming an opinion upon facts which are fully known or disclosed or for conscious ignorance of a matter of fact.95

§ 392. Settlement and Compromise of Litigation.—A compromise and release of the claims and demands involved in a pending action or suit cannot be rescinded by one of the parties alone, without the consent of the other and with

92 Great Northern Ry. Co. v. Fowler, 136 Fed. 118, 69 C. C. A. 106. 93 Dominicis v. United States Casualty Co., 132 App. Div. 553, 116 N. Y. Supp. 975.

94 Lumley v. Wabash R. Co., 76 Fed. 66, 22 C. C. A. 60; Tatman v. Philadelphia, B. & W. R. Co. (Del. Ch.) 85 Atl. 716.

* McIsaac v. McMurray, 77 N. H. 466, 93 Atl. 115.

out legally sufficient cause," but may be set aside where it was obtained from one of the parties by fraud, trickery or deceit practised upon him by the other, or by the making of false promises which the party making them had no intention of keeping." And the fact that a person who has been fraudulently induced to assign and compromise a cause of action might obtain relief from the fraud by a motion to reinstate the action compromised, or by bringing a new action at law, does not oust the concurrent jurisdiction of a court of equity to grant relief by canceling the assignment and compromise.98 To illustrate, the plaintiff in a damage suit against a railroad obtained a judgment in the lower court, and, pending an appeal by the railroad, assigned her interest in the judgment to one of her attorneys in consideration of a conveyance by him to her of a tract of land. The judgment was reversed and the cause remanded for a new trial, whereupon the plaintiff entered into a contract with both her attorneys, by which the one to whom she had assigned her interest in the judgment was to receive one-half of any sum recovered not exceeding $1,200, and one-fourth of any sum recovered in excess of $1,200, and the other was to receive one-half of any sum recovered. Subsequently the former of the attorneys conspired with the railroad and fraudulently procured from plaintiff an assignment of her whole cause of action and a compromise of the same, representing to her that the papers she executed were only an assignment of the part of the cause of action which she had agreed to assign to him. On this state of facts, it was held that the assignment and compromise would be set aside, so far as the rights of the plaintiff and the attorney who did not participate in the fraud were concerned, but would stand as to the rights of the attorney who procured the same.""

96 Hutchings v. Buck, 32 Me. 277.

97 Ettinger v. Jones, 139 Pa. 218, 21 Atl. 137; Interstate Coal Co. v. Trivett, 155 Ky. 825, 160 S. W. 728.

98 Bush v. Prescott & N. W. R. Co., 76 Ark. 497, 89 S. W. 86.

99 Bush v. Prescott & N. W. R. Co., 76 Ark. 497, 89 S. W. 86.

§ 393. Settlement and Division of Estates.-Releases given in pursuance of arrangements for the settlement and distribution of decedents' estates, or of testamentary trusts, may be set aside or ordered canceled when obtained by fraud, deecit, false representations, duress, or undue influence.100 And where such a plan is carried into effect by means of a consent decree, similar causes would be sufficient ground for setting it aside. But if such a decree is inoperative as a judgment, for lack of jurisdiction in the court, though binding on the parties as an agreement, those having cause to complain of it must generally seek their remedy in an action at law, instead of filing a bill in equity to vacate it.101 Settlements in such cases, however, are favored by the law, especially where the object is to prevent threatened litigation or to avoid the sacrifice of valuable property by throwing it upon a depressed market.102 And thus, where heirs stipulate in court that the executor may be fully discharged from all liability for all money, property, and choses in action and property rights which came into his hands as the estate of his testator, they will not be allowed to show that certain land belonging to the estate, but held by the executor in his individual name, was not included in the agreement, in the absence of fraud or mutual mistake.103 And in these cases, as in all others, a party seeking to rescind must act with reasonable promptness and cannot obtain relief if he has been guilty of laches,104 nor will equity grant him relief in such cases if it appears that he has an adequate and complete remedy at law.105

§ 394. Settlements Between Trustees and Beneficiaries. Settlements, compromises, and releases as between a trustee and the beneficiary under the trust are upheld by the courts when perfectly fair and entirely free from fraud or

100 Thompson v. Graham, 1 Paige (N. Y.) 384; Hessig v. Hessig's Guardian, 131 Ky. 514, 115 S. W. 748.

101 Sapp v. Williamson, 128 Ga. 743, 58 S. E. 447.

102 Reggio v. Warren, 207 Mass. 525, 93 N. E. 805, 32 L. R. A. (N. S.) 340, 20 Ann. Cas. 1244.

103 Duane v. Paige, 82 Hun, 139, 31 N. Y. Supp. 310.

104 Lutjen v. Lutjen, 64 N. J. Eq. 773, 53 Atl. 625.

105 Gale v. Nickerson, 151 Mass. 428, 24 N. E. 400, 9 L. R. A. 200.

imposition. But if the least suspicion of fraud appears in such a transaction, it will be scrutinized with the utmost care, on account of the rule which binds a trustee, in dealing with his beneficiary, to exercise the utmost good faith, to make a full and frank disclosure of all pertinent facts, and to avoid any misleading statements. Moreover, although a person who is dealing with a stranger may be required to exercise a reasonable measure of care and prudence in safeguarding his own interests, and may not be justified in placing implicit reliance on the other's candor or truthfulness, yet this doctrine does not apply when he is dealing with one occupying a confidential or fiduciary relation to him.100 Thus, it is said: "It is clear that the duty of a trustee or person occupying a fiduciary relationship to exercise the utmost good faith in all dealings with his cestui que trust or beneficiary extends to the matter of obtaining a release from such beneficiary; that it is his duty in making settlement to put the beneficiary in possession of a full and fair statement of the affairs of the trust, uberrima fides on his part being required; and that a release obtained from the beneficiary through concealment or misrepresentation of essential or material facts is of no effect.” 107

§ 395. Remedy Against Fraud at Law and in Equity.— It is generally held that a court of equity has jurisdiction to order the cancellation or annullment of a release obtained by fraud or mistake,108 and this is more especially the case where, if such relief is not granted, the initiative must come from the other party, and it is possible that the validity of the release may never come in question in any proceeding at law until the evidence to prove its invalidity may have been lost through death or lapse of time.109 But in most jurisdictions, one who has been fraudulently induced

106 On the general subject of fraud as between trustees and bene ficiaries, see, supra, §§ 40-51.

107 Maas v. Lonstorf, 194 Fed. 577, 114 C. C. A. 419, and numerous cases there cited.

108 Wagg v. Herbert, 215 U. S. 546, 30 Sup. Ct. 218, 54 L. Ed. 321; Roberts v. Central Lead Co., 95 Mo. App. 581, 69 S. W. 630. See Wentworth v. Eichorn, 185 Mass. 6, 69 N. E. 366.

109 Beaton v. Inland Tp., 149 Mich. 558, 113 N. W. 361.

to release a valid claim may sue at law upon the claim as an original cause of action, disregarding the release, and then, if it is set up in defense to the action, plead its invalidity and produce the evidence necessary to impeach it.110 In the federal courts, however, where the distinction between legal and equitable defenses is preserved, the rule is that the only fraud which may be availed of in an action at law, to avoid a formally executed release of the claim sued on, is misrepresentation, deceit, or trickery practised to induce the execution of a release which the signer never intended to execute, and upon which the minds of the contracting parties never met, so that the alleged release would have no existence as a legal instrument, and does not include any of those misrepresentations of fact which may have been resorted to in order to persuade the claimant to agree to the release as actually made. In the latter class of cases, the remedy is a proceeding in equity to have the release set aside.1 111

§ 396. Restoration or Tender of Consideration Received. It is a general rule that although a release or compromise may have been obtained by fraud, and may be liable to be set aside for that reason, it is nevertheless valid and binding until repudiated, and the party seeking to vacate it must first tender a return of what he has received under it and offer to restore the other party to the former status.112 But

110 St. Louis & S. F. R. Co. v. Richards, 23 Okl. 256, 102 Pac. 92, 23 L. R. A. (N. S.) 1032.

111 Hartshorn v. Day, 19 How. 211, 15 L. Ed. 605; George v. Tate, 102 U. S. 564, 26 L. Ed. 232; De Lamar v. Herdeley, 167 Fed. 530, 93 C. C. A. 239; Pacific Mut. Life Ins. Co. v. Webb, 157 Fed. 155, 84 C. C. A. 603, 13 Ann. Cas. 752; Such v. Bank of State of New York (C. C.) 127 Fed. 450; Hill v. Northern Pac. Ry. Co. (C. C.) 104 Fed. 754; Manchester Fire Assur. Co. v. Stockton Combined Harvester & Agricultural Works (C. C.) 38 Fed. 378.

112 Birmingham Ry., Light & Power Co. v. Jordan, 170 Ala. 530, 54 South. 280; St. Louis & S. F. R. Co. v. McCrory, 2 Ala. App. 531, 56 South, 822; Hite v. Mercantile Trust Co., 156 Cal. 765, 106 Pac. 102; Petty v. Brunswick & W. Ry. Co., 109 Ga. 666, 35 S. E. 82; Indianapolis Abattoir Co. v. Bailey, 54 Ind. App. 370, 102 N. E. 970; Bramble v. Cincinnati, F. & S. E. R. Co., 132 Ky. 547, 116 S. W. 742; Whitwell v. City of Aurora, 139 Mo. App. 597, 123 S. W. 1045; Boehm v. American Patriots, 172 Mo. App. 104, 154 S. W. 448; Carroll v. United Rys. Co., 157 Mo. App. 247, 137 S. W. 303; North v.