Termination of the Agreement

8/9/2019 Termination of the Agreement

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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

truerescission 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

theobligations 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-k nown 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, mistak e, 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 seek ing 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 seek ing relief.n867 Thus, the vendor of real estate seek ing 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 mak es 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 doso.n871 Also, a vendee of land

who has tak en 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 landthe 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 invok ing the aid of equity to rescind a

contract for the sale ofreal estate.n968 No contract is formed until one party has given an

unqualified and unconditional assent to the offer ofanother; but the offer and acceptance may



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appear to be complete in every respect, and notwithstanding this the contractbe voidable at the

option of one of the parties. Chief among the ways by which apparent consent may be induced

arefraud 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 deliberatelywith a wick ed motive, to cheat or deceive one party to a

transaction; the fraud results in damage or loss to one party andin 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 merehardship.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

k nowledge.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 thecontract 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 thepurchaser held before the contract was consummated. These

remedies, however , are not concurrent, but whollyinconsistent. 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

contractawaiting 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'sown, will be evidence of intention to abide by the

contract.n991 It is a question for the jury to determine whether thepurchaser has relied on the

misrepresentation.n992

In addition to the remedies above mentioned, the purchaser may, upon discovery of the fraud,

rescind the contractabsolutely, and sue in an action at law, and recover the consideration given



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upon the fraudulent contract; and in such acase 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 andrecover damages or may affirm and recover for the

resulting injury, but the remedies are inconsistent.n995 A partydefrauded 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 theactual value of the property at the time of the purchase and its value if the

property had been what it was represented tobe.n1001 The vendee may lose the right to sue for

the fraud by ratification with full k nowledge of the trueconditions.n1002 Courts of equity have a

tendency to permit the grantee to be divestedof title by a cancellation of the deed.n1004 So far as

the grantor is concerned, it is the well established rule that asbetween a fraudulent vendor and

purchaser the contract is valid.n1005 Some courts invok e 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, improperconcealment of k nowledge 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 tospeak .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 uponwhich the party has a right to rely, the party may rescind the contract upon the

discovery of the fraud,n1073 and reliefmay be granted, even if the misrepresentations were not

consciously made to defraud.n1074 However , the power is anextraordinary 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 wasnegligent.n1076



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Today it is generally accepted that the misrepresentation need only be material.n1087Ordinarily,

a misrepresentation as to amatter of law by a person possessing no superior k nowledge of the

particular question of law is insufficient to supportan 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 torescission.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 mak ing the statement must k now 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 thecase.n1192 An action for rescission will lie only in the absence of an

adequate legal remedy.n1193 The remedy ofrescission or cancellation of instruments is not one

of absolute right, but rests in the sound discretion of the court to beexercised 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 theinstrument which embodies the evidence of the contract in

question, or of the obligation arising therefrom, therebyrendering 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.n1197Rescission is a matter of

equitable jurisdiction.n1198 The purpose of this remedy is to procure the cancellation of

theinstrument. A contract for the sale of real estate may be rescinded in this way on the ground

of fraud or mistak e.n1199

Rescission will not necessarily be denied merely because the contract has been executed,n1200

but where the contract isconscionable, and the complaining party has had the full benefit of it, it

will not ordinarily be rescinded.n1201 Statestatutes are beginning to permit rescission of vendor -

purchaser contract where breaches by the vendor are so material asto defeat the purchaser's

object in mak ing the contract.n1202 The equitable remedy of rescission is not one enforceableas

a matter of right, but rests on the sound discretion of the court,n1203 and a court should not

award it except in a clearcase,n1204 nor unless some such element as actual fraud, accident,

mistak e or insolvency appears.n1205 A court ofequity 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 mak etender of performance.n1208 The majority rule

seems to be that proof of pecuniary damages need not be shown toentitle a purchaser to rescind

the contract, even for a misrepresentation as to the quality or value of the propertysold.n1209 A

demand for performance is not necessary where it would be futile if made,n1210 such as where

thevendor admits inability to perform,n1211 or the title is unmar k etable.n1212

A fraudulent transaction must be affirmed or rescinded as a whole by the defrauded party.n1213

The vendor's fraudulentmisrepresentations give the vendee the option of rescission or an action

for damages.n1214 In cases where fraud is theground 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 furtherrelief.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 mak ing the misrepresentations is not a defense.n1217 Notice to the

parties of an intention torescind is ordinarily required.n1218 This requirement in some

jurisdictions is satisfied by the bringing of the action torescind.n1219 No rescission arises by the

offer of the vendee to reconvey at a discount.n1220 The election not torescind 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 contractto be effective.n1223 Demand for performance is a condition

precedent to rescission.n1224 So is tender , unlessuseless.n1225

Upon rescission for failure to convey good title, the vendee is chargeable with reasonable rent

plus interest, and thevendor with return of the purchase money paid plus interest.n1226 Where

the vendee has offered to rescind and theoffer is rejected, the vendee may either abandon the

premises or may continue in possession as caretak er for thevendor.n1227

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Termination of the Agreement