210

feating its main purpose and object, or to a part so essential to the residue of the contract that it cannot reasonably be supposed that the other party would have made the contract without it.208 Inability of a party to fulfill his contract in respect to an immaterial part, the performance of which would in no way benefit the other party, is no ground for rescission, where compensation can be given and is offered for the default.209 But assuming the materiality of the engagement which the party has disabled himself from performing, as soon as the disability is definitely ascertained, a right of rescission accrues, and it is not necessary for the party rescinding to tender a performance on his own part before taking measures to free himself from the contract.2 Thus, where one of the parties to the contract, before the time for performance, requests an adjustment, and thus recognizes his inability to perform the contract, the other party may act on such declaration, and rescind, without waiting until the arrival of the day fixed for performance.211 A forcible illustration of the application of these rules may be seen in the case where a man obtains property from a woman in consideration of his promise to marry her, but marries another woman, thereby of course disabling himself from keeping his promise.212 So, where two partners agree that certain real estate of the firm shall be assigned to one of them as his separate property, but subsequently they divest themselves of their title thereto by deeds to third parties, thus disqualifying themselves from executing their agreement, the contract is annulled.2 So, where a railroad subcontractor has agreed to subscribe for certain amounts of stock and bonds of the railroad company, and to accept from the principal contractor such stock and bonds at their par value, in part payment of the work to be done, and thereafter the principal contractor pledges all the stock and bonds to a third party, so as to disable himself

213

208 Krebs Hop Co. v. Livesley, 51 Or. 527, 92 Pac. 1084; South Texas Telephone Co. v. Huntington (Tex. Civ. App.) 121 S. W. 242. 209 Foley v. Crow, 37 Md. 51.

210 Seibel v. Purchase (C. C.) 134 Fed. 484.

211 Follansbee v. Adams, 86 Ill. 13.

212 Frazer v. Boss, 66 Ind. 1.

213 Jones v. Neale, 2 Pat. & H. (Va.) 339.

from making delivery thereof, this amounts to a repudiation of the subscription contract, and gives the subcontractor a right to treat it as rescinded.214 Again, the contract embodied in a life insurance policy in the ordinary form is violated by the insurance company when it transfers all its assets to another company and ceases to do business.216 And on the same principle, where an insurance company doing business on the endowment plan, without the knowledge or consent of the plaintiff, a policy holder, obtained an act of the legislature enabling it to abandon such plan and to adopt the "straight insurance system," and induced some of its members to surrender their old certificates, thereby reducing the funds to which the plaintiff had to look for the payment of the endowments contracted for in his policy, it was held that he had a right to maintain an action for the rescission of the contract of insurance and to recover back the assessments paid thereon.2

216

But it should be noticed that the party who has voluntarily disabled himself from performing his contract cannot claim a right to rescind it. He must abide the consequences of what he has done; the right of rescission belongs alone to the other party. Thus, a corporation cannot recover back its stock and bonds, delivered to a contractor on his agreement to construct a railroad on a right of way to be furnished by it, on the ground that they were all the assets it had, and that it has no means to procure the right of way.21

§ 211. Sale of Subject-Matter to Third Party.-One who has contracted to sell a piece of property, whether real or personal, to another, and who sells or transfers the same property to a third person, while the contract still remains in force and executory, violates the contract by disabling himself from performing it, and thereby gives to the other party the right to rescind it or treat it as abandoned and to recover whatever he may have given in consideration of

214 Reynolds v. Manhattan Trust Co., 83 Fed. 593, 27 C. C. A. 620. 215 Meade v. St. Louis Mut. Life Ins. Co., 51 How. Prac. (N. Y.) 1. And see Seipel v. International Life Ins. Co., 84 Pa. 47.

216 People's 'Mut. Ins. Fund v. Bricken, 92 Ky. 297, 17 S. W. 625. 217 Hudson River & W. C. M. R. Co. v. Hanfield, 36 App. Div. 605, 55 N. Y. Supp. 877.

it.218 This rule has been most commonly applied in the case of sales of real estate. But it applies equally to sales of personalty and to contracts for the grant of licenses, privileges, or incorporeal rights. Thus, in a case in the United States courts, a contract granting an exclusive right to produce a series of moving picture films was held to have been broken by the licensor, by granting the right to exhibit the films to another, while the licensee was negotiating with the municipal authorities to avoid the necessity of eliminating certain scenes which they had ordered cut out.219

But in order that this rule should be applied, it is necessary that the sale or transfer to the third person should be such as effectually to preclude the grantor from fulfilling his original contract. Thus, the proposed purchaser of land cannot rescind the contract in consequence of a conveyance to a third person which is entirely void,220 nor, perhaps, where the transfer is alleged to have been fraudulent and to have been taken by the third party with notice of the contract purchaser's rights.221 And an entry of judgment for the plaintiff in a suit to quiet title, involving land which the defendant had contracted to sell, is no ground for rescission by the vendee until the vendor has refused, on a proper tender, to perform his contract.222 So, where a corporation which is composed of only two stockholders undertakes to convey certain land, no cause for rescission arises out of their acts in subsequently dissolving the corporation and forming a partnership to continue the business, and conveying the land from the corporation to themselves individual

218 Vance V. McBurnett, 94 Ga. 251, 21 S. E. 520; Warren v Richmond, 53 Ill. 52; Jones v. Miller, 44 Ill. 181; Auxier v. Taylor, 102 Iowa, 673, 72 N. W. 291; Little v. Thurston, 58 Me. 86; Ft. Payne Coal & Iron Co. v. Webster, 163 Mass. 134, 39 N. E. 786; Atkinson v. Scott, 36 Mich. 18; James v. Burchell, 7 Daly (N. Y.) 531; Smith v. Rogers, 42 Hun (N. Y.) 110; Utter v. Stuart, 30 Barb. (N. Y.) 20; Brodhead v. Reinbold, 200 Pa. 618, 50 Atl. 229, 88 Am. St. Rep. 735. See Shively v. Semi-Tropic Land & Water Co., 99 Cal. 259, 33 Pac. 848.

219 Jesse L. Laskey Feature Play Co. v. Celebrated Players' Film Co. (D. C.) 214 Fed. 861.

220 Clanton v. Burges, 17 N. C. 13.

221 Borough of Woodridge v. Borough of Carlstadt, 60 N. J. Eq. 1, 46 Atl. 540.

222 Latimer v. Capay Valley Land Co., 137 Cal. 286, 70 Pac. 82.

ly, when this is not done in order to evade the contract, but rather to facilitate its performance.223 But on the other hand, where a vendor, after contracting to convey, mortgages the land to a third person and suffers the mortgage to be foreclosed and the purchaser evicted, the latter is entitled to rescind,224 and so also, it appears, without a foreclosure, if the mortgagor becomes insolvent.225 But a sale and transfer of the property to a third person does not warrant a rescission when the conveyance is expressly made subject to the vendee's rights under the contract,226 or when the third person taking the conveyance knows of and recognizes the rights of the contract purchaser, and is willing to carry out the contract and convey to him.227 And it is held in Nebraska that the purchaser of land under a contract which is duly executed and recorded is not entitled to rescind the contract merely because the vendor subsequently conveys the land to another, as such other takes the land subject to the contract.228 And generally, the disappointed purchaser must be able to show that he has suffered or will suffer some loss or damage from the acts of his grantor in dealing with third persons. Thus, under a contract for the sale of malt, by which it was agreed that the seller would not quote prices on malt to other persons in the buyer's state, a sale of malt to another party in that state does not entitle the buyer to rescind, unless he can show that it prevented him from selling at a satisfactory price the malt purchased by him.220

Whether or not the sale to a stranger of a portion of that which was contracted to be conveyed will justify rescission is not entirely clear. That it will warrant such a course has been laid down in general terms.230 It would seem that

223 Tanzer v. Bankers' Land & Mortgage Corp., 159 App. Div. 351, 144 N. Y. Supp. 613.

224 Hawkins v. Merritt, 109 Ala. 261, 19 South. 589.

225 Siglin v. Frost, 173 Mass. 284, 53 N. E. 820.

226 Van Dyke v. Cole, 81 Vt. 379, 70 Atl. 593, 1103; Williams v. Champion, 6 Ohio, 169.

227 Foxley v. Rich, 35 Utah, 162, 99 Pac. 666; Johnson v. Olberg, 32 S. D. 346, 143 N. W. 292.

228 Hoock v. Bowman, 42 Neb. 87, 60 N. W. 391.

229 Mayo v. American Malting Co., 211 Fed. 945, 128 C. C. A. 443. 280 Adams v. Bridges, 141 Ga. 418, 81 S. E. 203.

231

such a rule should certainly be applied in cases where the portion sold was the most valuable part of the property, or a part which was essential to the complete enjoyment of the rest. And accordingly, where one contracted to sell a lot of land with a hotel on it, which was supplied with water from a spring also owned by the grantor, and stipulated to grant the privilege of the water works "as they now are," but afterwards sold the spring and the intervening lands to a stranger, it was held that the purchaser was justified in rescinding. It is also necessary to draw a distinction between cases where the subject of the sale is the land itself and cases where it is the product of the land. In a case in Oregon, the plaintiff contracted to sell and deliver to defendant a certain quantity of hops to be grown on plaintiff's land, during each of the following five years. The plaintiff afterwards sold the land, but it did not appear that the purchaser was unable or unwilling to continue and complete the contract, and it was held that there was no such breach of the contract as justified rescission by the defendant.282 But on the other hand, a decision in Illinois is to the effect that a contract by the owner of a mine for the sale and delivery of coal from the mine, is repudiated by a sale of the mine to a third person.233

The time of making the transfer to a third person may also be of prime importance. On the one hand, a person who has contracted to sell and convey property is not justified in disposing of it to a third person until he has in some way put the original purchaser in default. It is said that if there is a fixed term of credit, the owner of the property cannot sell it to a stranger before the expiration of that term, or if there is no such term fixed, then he is not warranted in selling to a stranger unless he first gives the contract purchaser due notice and an opportunity to acquire the property by paying the price.234 If the subject of sale

231 Durrett v. Simpson's Representatives, 3 T. B. Mon. (Ky.) 517, 16 Am. Dec. 115.

232 Krebs Hop Co. v. Livesley, 51 Or. 527, 92 Pac. 1084.

233 Hunter W. Finch & Co. v. New Ohio Washed Coal Co., 156 Ill. App. 589.

284 Leahy v. Lobdell, Farwell & Co., 80 Fed. 665, 26 C. C. A. 75.