Treatise in Support Termination of Agreement and Dissolution of LLCCs Affects Property

Thompson on Real Property (2009); (Abridged to correspond to issues in dispute).

Vendors and Purchasers, Chapter 96, 11-96

§ 96.15 Termination of the Agreement.n791

Where one party to a land contract defaults, the other has the following possible remedies:
(1) the contract may be avoided or annulled and the parties restored to their original position by
true rescission through mutual agreement,
(2) the unilateral right of the other party to treat the default as an offer of rescission,n794
(3) strict foreclosure, quiet title, ejectment and similar actions which terminate the contract and
the obligations of further performance,n795
(4) specific performance or actions for damages,n796 and
(5) forfeiture and liquidated damages.n797

§ 96.15(a)(1) Right of Rescission of the Contract.

It is good ground for rescission or cancellation that the instrument is voidable for any
reason.n824

Fraud, accident, and misrepresentation are well-known grounds for equitable intervention and
cancellation of a written instrument..n827 Generally courts of equity have jurisdiction to
decree the cancellation of an instrument vitiated by fraud or misrepresentation in its
procurement.n828 Thus, where the execution and delivery or acceptance of a written instrument
has been induced by fraud, and the defrauded party wishes to rescind the agreement and be
relieved from its provisions, the proper remedy is by way of rescission and cancellation.n829

So, in order for the court to grant relief by way of rescission, it must generally appear that the
contract was procured through fraud, mistake, failure of title or defects in title; or, at least, it
must be shown that to deny plaintiff equitable relief will cause an injury for which a court

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of law cannot adequately compensate the plaintiff.n833

''Restoration to status quo,'' as respects contracts for the sale and purchase of real estate, means
the restoration of what was received by the transaction.n863 It is a condition precedent to
rescission,n864 for rescission being an equitable remedy, the party seeking such relief must, as a
prerequisite, offer to do equity.n865

To obtain rescission of a contract for fraud, whether such relief is sought informally or by formal
decree in equity, the adversary party must usually be placed in the pre-contract position by the
party seeking relief.n867 Thus, the vendor of real estate seeking cancellation of a contract of sale
must restore the cash payment if any has been made.n868

As a general rule, in order to dissolve a sale for nonpayment of the purchase price, the situation
must be such as to put both parties in the same position as they were before the sale was
made;n869 but where the contract contains a forfeiture clause and makes no reference to
improvements on the land, the vendor is entitled to stand on the strict terms of the contract
without being required to return or tender any part of the purchase money paid, if the purchaser
can show a right to terminate the contract and declare a forfeiture. n870 The vendee in
possession must restore the property to the vendor or offer to do so.n871 Also, a vendee of land
who has taken possession under contract or conveyance must surrender possession and must
reconvey, or at least be ready to do so, if the vendee has already received conveyance.n873

§ 96.15(a)(4) Rescission Based on Fraud.n966

As a general and basic rule, where fraud has occurred in the inducement in a contract for the sale
and purchase of land the contract is subject to rescission. It has always been the peculiar
province of courts to grant relief against fraud.n967

Fraud, in some form or other, is the most usual ground for invoking the aid of equity to rescind a
contract for the sale of real estate.n968 No contract is formed until one party has given an
unqualified and unconditional assent to the offer of another; but the offer and acceptance may

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appear to be complete in every respect, and notwithstanding this the contract be voidable at the
option of one of the parties. Chief among the ways by which apparent consent may be induced
are fraud and misrepresentation. Fraud as to material matter will vitiate, or render voidable, any
contract.n969

Fraud is something more than mere bad faith; it means proceeding or acting dishonestly,
intentionally, and deliberately with a wicked motive, to cheat or deceive one party to a
transaction; the fraud results in damage or loss to one party and in the advantage or gain for the
other party.n974 Fraud in the consideration will invalidate a contract of purchase.n975
Fraud justifying rescission does not ordinarily include inadequacy of price, improvidence,
surprise, or mere hardship.n976

The fraud may be established by circumstantial evidence,n982 but not by misrepresentations

made after the transaction.n983 The purchaser may waive the fraud by ratification with
knowledge.n984 The contract is rescinded as a whole.n986 The rescission for fraud destroys the
contract ab initio and leaves the parties in the same situation as though no contract had been
made.n987 The injured person may affirm the contract and sue for damages.n988

The purchaser may either affirm the contract and sue for damages, or disaffirm it, and be
reinstated in the position in the purchaser held before the contract was consummated. These
remedies, however, are not concurrent, but wholly inconsistent. The adoption of one is the
exclusion of the other. The purchaser who desires to rescind must act promptly, and return or
offer to return what was received under the contract. The purchaser cannot retain the fruits of the
contract awaiting future developments to determine whether it will be more profitable to affirm
or disaffirm it. Any delay, especially his remaining in possession of the property received under
the contract, and dealing with it as the purchaser's own, will be evidence of intention to abide by
the contract.n991 It is a question for the jury to determine whether the purchaser has relied on the
misrepresentation.n992

In addition to the remedies above mentioned, the purchaser may, upon discovery of the fraud,
rescind the contract absolutely, and sue in an action at law, and recover the consideration given

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upon the fraudulent contract; and in such a case the purchaser must restore, or offer to restore,
whatever was received by virtue of the contract.n993 Where a party to a contract is damaged by
fraud and deceit, the party may rescind and recover damages or may affirm and recover for the
resulting injury, but the remedies are inconsistent.n995 A party defrauded by misrepresentations
in procuring a contract, which the party has elected to affirm, may still seek damages
in tort for deceit.n99

The measure of damages for a sale procured by the vendor's fraudulent representations is the
difference between the actual value of the property at the time of the purchase and its value if the
property had been what it was represented to be.n1001 The vendee may lose the right to sue for
the fraud by ratification with full knowledge of the true conditions.n1002 Courts of equity have a
tendency to permit the grantee to be divested of title by a cancellation of the deed.n1004 So far
as the grantor is concerned, it is the well established rule that as between a fraudulent vendor and
purchaser the contract is valid.n1005 Some courts invoke the support of equity to save
an oral contract of sale and to prevent fraud.n1006

§ 96.15(a)(4)(i) Nondisclosure as Fraud.n1014

Problems of rescission on grounds of fraud turn on the interlacing of three doctrines, actual
misrepresentation, improper concealment of knowledge of facts and caveat emptor.
The general theme followed by the courts is that nondisclosure is not an actionable wrong unless
there was a duty to speak.n1017

§ 96.15(a)(4)(iii) The Extent to Which Representations May Constitute Fraud.

If a party is induced to enter into the contract by fraudulent representations as to a fact deemed
material, and upon which the party has a right to rely, the party may rescind the contract upon the
discovery of the fraud,n1073 and relief may be granted, even if the misrepresentations were not
consciously made to defraud.n1074 However, the power is an extraordinary one, and should
never be exercised unless the fraud is clearly made to appear.n1075 If the purchaser has
been induced to enter into a contract by an intentional misrepresentation, the purchaser may
rescind even if reliance was negligent.n1076

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Today it is generally accepted that the misrepresentation need only be material.n1087Ordinarily,
a misrepresentation as to a matter of law by a person possessing no superior knowledge of the
particular question of law is insufficient to support an action for fraud and deceit.n1088

Fraudulent misrepresentations must be precisely alleged and established by clear and convincing
proof.n1095 A statement as to the value or area of land may be such a statement of fact as will
entitle the other party to rescission.n1108

The following elements must be proved in an action based on fraud:

(1) The misrepresentation must be of a statement of fact;
(2) it must be made for the purpose of influencing the other party to act;
(3) it must be untrue;
(4) the party making the statement must know or believe it to be untrue;
(5) the person to whom it is made must believe and rely on the statement;
(6) the statement must be material.n1149
Rescission of a deed is allowed on parol statements of grantee's false representation of intended
use.n1150

§ 96.15(a)(5) Actions for Rescission.

The rescission of a contract is to be enforced in equity, and it must be just and equitable under
the circumstances of the case.n1192 An action for rescission will lie only in the absence of an
adequate legal remedy.n1193 The remedy of rescission or cancellation of instruments is not one
of absolute right, but rests in the sound discretion of the court to be exercised in accordance with
what is reasonable and just under particular circumstances.n1194 The words ''rescind,'' ''annul,''
and ''cancel'' are interchangeable in the description of this form of action.n1195 ''Rescission'' and
''cancellation'' may be regarded as one and the same remedy; the decree for rescission generally
directs the cancellation of the instrument which embodies the evidence of the contract in
question, or of the obligation arising therefrom, thereby rendering the decree of the court
effectual and complete.n1196 So, where rescission as well as cancellation is sought,

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the latter remedy is a mere auxiliary to effectuate the rescission.n1197 Rescission is a matter of
equitable jurisdiction.n1198 The purpose of this remedy is to procure the cancellation of the
instrument. A contract for the sale of real estate may be rescinded in this way on the ground of
fraud or mistake.n1199

Rescission will not necessarily be denied merely because the contract has been executed,n1200
but where the contract is conscionable, and the complaining party has had the full benefit of it, it
will not ordinarily be rescinded.n1201 State statutes are beginning to permit rescission of
vendor-purchaser contract where breaches by the vendor are so material as to defeat the
purchaser's object in making the contract.n1202 The equitable remedy of rescission is not one
enforceable as a matter of right, but rests on the sound discretion of the court,n1203 and a court
should not award it except in a clear case,n1204 nor unless some such element as actual fraud,
accident, mistake or insolvency appears.n1205 A court of equity may declare a rescission of a
contract of conveyance in order to prevent a manifest wrong.n1206

Where rescission is sought on several grounds, it is enough if the contention is sustained on one
of the grounds.n1207. One who demands cancellation for nonperformance must show
compliance with the terms of the contract or make tender of performance.n1208 The majority
rule seems to be that proof of pecuniary damages need not be shown to entitle a purchaser to
rescind the contract, even for a misrepresentation as to the quality or value of the property
sold.n1209 A demand for performance is not necessary where it would be futile if made,n1210
such as where the vendor admits inability to perform,n1211 or the title is unmarketable.n1212
A fraudulent transaction must be affirmed or rescinded as a whole by the defrauded party.n1213

The vendor's fraudulent misrepresentations give the vendee the option of rescission or an action
for damages.n1214 In cases where fraud is the ground for rescission, the defrauded party may
treat the contract at an end and resort to a court of law for relief, or he
may seek the aid of a court of equity to have the contract avoided, and perhaps incidentally to
obtain further relief.n1215 The purchaser may not maintain suit for rescission for the purchaser's
own default.n1216

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The good faith of the party making the misrepresentations is not a defense.n1217 Notice to the
parties of an intention to rescind is ordinarily required.n1218 This requirement in some
jurisdictions is satisfied by the bringing of the action to rescind.n1219 No rescission arises by the
offer of the vendee to reconvey at a discount.n1220 The election not to rescind is shown by suit
to foreclose a vendor's lien.n1221 Rescission annihilates the contract and an offer to perform
thereafter is without avail.n1222 The grounds for rescission must be related directly to the
subject matter of the contract to be effective.n1223 Demand for performance is a condition
precedent to rescission.n1224 So is tender, unless useless.n1225

Upon rescission for failure to convey good title, the vendee is chargeable with reasonable rent
plus interest, and the vendor with return of the purchase money paid plus interest.n1226 Where
the vendee has offered to rescind and the offer is rejected, the vendee may either abandon the
premises or may continue in possession as caretaker for the vendor.n1227