A contract may be rescinded at the instance of the party defrauded; but, in order to rescind, the defrauded party must promptly, upon discovery of the fraud, restore or offer to restore to the other party whatever he has received by virtue of the contract if it is of any value.
(Civil Code 1895, § 3711; Civil Code 1910, § 4305; Code 1933, § 20-906.)
Cross references.- Fraud generally, § 23-2-50 et seq.
Law reviews.- For article discussing the historical background of the doctrine of tender and the application in Georgia of tender requirements, and proposing reforms, see 21 Mercer L. Rev. 413 (1969). For article discussing ex parte rescission of sales contract for fraud and suit for fraud and deceit, in light of City Dodge, Inc. v. Gardner, 232 Ga. 766, 208 S.E.2d 794 (1974), see 11 Ga. St. B.J. 172 (1975). For note discussing rescission for fraud as a consumer remedy, see 25 Emory L.J. 445 (1976). For note, "Misrepresentations and Nondisclosures in the Insurance Application," see 13 Ga. L. Rev. 876 (1979). For comment discussing action of fraud where injured purchaser did not first seek rescission of contract, in light of Mutual Home & Sav. Ass'n v. Westgerdes, 33 Abs. 490, 35 N.E.2d 882 (1941), see 4 Ga. B.J. 69 (1941).
JUDICIAL DECISIONSANALYSIS
Rule of section is same in equity. Roberts v. Southern Ry., 73 Ga. App. 759, 38 S.E.2d 48 (1946).
Contract procured by fraud is not void, but voidable only. Manning v. Wills, 193 Ga. 82, 17 S.E.2d 261 (1941).
Voidable contract by party defrauded.
- While it is true that fraud vitiates a contract, a contract is nevertheless voidable only at instance of person defrauded. Jordy v. Dunlevie, 139 Ga. 325, 77 S.E. 162 (1913).
When fraud is discovered, party defrauded is put to one's election to disaffirm contract; one should not delay without cause. Newton v. Burks, 139 Ga. App. 617, 229 S.E.2d 94 (1976).
Misrepresentation designed to deceive other party renders sale voidable by injured party.
- Fraud may exist from misrepresentation by either party, made with design to deceive, or which does actually deceive the other party, and in the latter case renders sale voidable at election of party injured. McBurney v. Woodward, 84 Ga. App. 807, 67 S.E.2d 398 (1951).
Must show due care and reliance on false representations.
- In the absence of special circumstances, one must exercise ordinary diligence in making an independent verification of contractual terms and representations. Failure to do so will bar an action based on fraud. Hubert v. Beale Roofing, Inc., 158 Ga. App. 145, 279 S.E.2d 336 (1981).
In order to show fraud and misrepresentation in the procurement of the contract as a defense to an action on the contract, it must be shown that the defendant exercised due care to discover the fraud and that the defendant relied upon the false representations to the defendant's injury. Bimbo Bldrs., Inc. v. Stubbs Properties, Inc., 158 Ga. App. 280, 279 S.E.2d 730 (1981).
In order to show fraud and misrepresentation in the procurement of the contract as a defense to an action on the contract, it is not sufficient to show that false representations were made, which were known to be false and which were made with the intention to deceive. It must also be shown that the defendant exercised due care to discover the fraud. Charter Medical Mgt. Co. v. Ware Manor, Inc., 159 Ga. App. 378, 283 S.E.2d 330 (1981).
Reliance must be justified.
- Misrepresentations are not actionable unless the hearer was justified in relying on the misrepresentation in the exercise of common prudence and diligence. Charter Medical Mgt. Co. v. Ware Manor, Inc., 159 Ga. App. 378, 283 S.E.2d 330 (1981).
In a consumer's suit against a car dealer for rescission, regarding the sale of a used car which the dealer's salesperson falsely represented had not been in a wreck, it was error for the trial court to grant a directed verdict to the dealer because whether the consumer reasonably relied on the salesperson's representation was a jury question. Mitchell v. Backus Cadillac-Pontiac, Inc., 274 Ga. App. 330, 618 S.E.2d 87 (2005).
When parties have equal opportunities for knowing the truth, a party grossly failing to inform oneself must take the consequence of one's own neglect. A party may not voluntarily accept the statements and representations of another and act thereon, instead of looking personally, and then obtain relief in equity from the obligation which the person assumes. Bimbo Bldrs., Inc. v. Stubbs Properties, Inc., 158 Ga. App. 280, 279 S.E.2d 730 (1981).
Fraud cannot be predicated upon misrepresentations of law.
- A claim of fraud cannot be predicated upon misrepresentations of law or misrepresentations as to matters of law. Capitol Materials, Inc. v. Kellogg & Kimsey, Inc., 242 Ga. App. 584, 530 S.E.2d 488 (2000).
Party to a contract who can read must read or show legal excuse for not doing so and, ordinarily, if fraud is the excuse, it must be such fraud as to prevent the party from reading. Curtis v. First Nat'l Bank, 158 Ga. App. 379, 280 S.E.2d 404 (1981).
Such things as soil, timber, or springs on land are open to inspection, and the purchaser is willfully negligent if the purchaser fails to look and see personally, and neither law nor equity will relieve the purchaser from the purchaser's own want of diligence. Bimbo Bldrs., Inc. v. Stubbs Properties, Inc., 158 Ga. App. 280, 279 S.E.2d 730 (1981).
Victim of fraud may affirm contract and seek damages for fraud, or rescind.
- One who has been fraudulently induced to purchase property may, after discovering fraud, affirm contract and sue for damages resulting from fraud, or he may rescind contract for fraud and, after offering to restore, recover purchase price which one has paid. Dunn v. Citizens' & S. Co., 47 Ga. App. 600, 171 S.E. 170 (1933); Butts v. Groover, 66 Ga. App. 20, 16 S.E.2d 894 (1941).
If purchaser of personal property has been injured by false and fraudulent representations of seller as to subject matter thereof, the purchaser ordinarily has election whether to rescind contract, return article and sue in tort for fraud and deceit, or whether to affirm contract, retain article and seek damages resulting from fraudulent misrepresentation. Bob Maddox Dodge, Inc. v. McKie, 155 Ga. App. 263, 270 S.E.2d 690 (1980).
Section inapplicable to defense of false representations in action on insurance policy. Columbian Nat'l Life Ins. Co. v. Mulkey, 146 Ga. 267, 91 S.E. 106 (1916).
Mere receipt is not a contract. Mackle Constr. Co. v. Wyatt, 29 Ga. App. 617, 116 S.E. 877 (1923).
Fraud cannot consist of mere broken promises, unfulfilled predictions, or erroneous conjectures as to future events. Curtis v. First Nat'l Bank, 158 Ga. App. 379, 280 S.E.2d 404 (1981).
Cited in Strodder v. Southern Granite Co., 94 Ga. 626, 19 S.E. 1022 (1894); Pearce & Williams v. Borg Chewing-Gum Co., 111 Ga. 847, 36 S.E. 457 (1900); Fulghum v. Beck Duplicator Co., 121 Ga. 273, 48 S.E. 901 (1904); Tuttle v. Stovall, 134 Ga. 325, 67 S.E. 806, 20 Ann. Cas. 168 (1910); Georgia Supply Co. v. Coffee, 8 Ga. App. 502, 69 S.E. 1083 (1911); Ruff v. Copeland, 137 Ga. 56, 72 S.E. 506 (1911); Story v. Williams, 10 Ga. App. 392, 73 S.E. 549 (1912); Coca-Cola Bottling Co. v. Anderson, 13 Ga. App. 772, 80 S.E. 32 (1913); Couch v. Crane, 142 Ga. 22, 82 S.E. 459 (1914); Garner v. Butler, 144 Ga. 441, 87 S.E. 471 (1915); Cabaniss v. Dallas Land Co., 144 Ga. 511, 87 S.E. 653 (1916); Finch v. Hill, 146 Ga. 687, 92 S.E. 63 (1917); Knox v. Harrell, 26 Ga. App. 772, 107 S.E. 594 (1921); Avera Loan & Inv. Co. v. Jackson, 30 Ga. App. 504, 118 S.E. 432 (1923); Board of Drainage Comm'rs v. Arnold, 156 Ga. 733, 120 S.E. 310 (1923); Horne & Ponder v. Evans, 31 Ga. App. 370, 120 S.E. 787 (1923); DeLamar v. Fidelity Loan & Inv. Co., 158 Ga. 361, 123 S.E. 116 (1924); Gibson v. Alford, 161 Ga. 672, 132 S.E. 442 (1926); Henderson v. Lott, 163 Ga. 326, 136 S.E. 403 (1926); Williams v. Fouche, 164 Ga. 311, 138 S.E. 580 (1927); Decatur County v. Praytor, Howton & Wood Contracting Co., 165 Ga. 742, 142 S.E. 73 (1928); Barfield v. Farkas, 40 Ga. App. 559, 150 S.E. 600 (1929); Swint v. Adams, 42 Ga. App. 705, 157 S.E. 249 (1931); Griffin v. Haden, 172 Ga. 478, 157 S.E. 686 (1931); Fellows v. Sapp, 45 Ga. App. 89, 163 S.E. 314 (1932); Floyd v. Boss, 174 Ga. 554, 163 S.E. 606 (1932); Equitable Bldg. & Loan Ass'n v. Brady, 175 Ga. 43, 164 S.E. 674 (1932); Darnell v. Tate, 177 Ga. 269, 170 S.E. 63 (1933); Louisville & N.R.R. v. Gattis, 180 Ga. 389, 178 S.E. 740 (1935); Woodruff v. Cooper, 180 Ga. 476, 179 S.E. 104 (1935); Neely v. Oliver Farm Equip. Sales Co., 52 Ga. App. 166, 182 S.E. 630 (1935); Beaudry v. United States, 79 F.2d 650 (5th Cir. 1935); Cooper v. Peevy, 185 Ga. 805, 196 S.E. 705 (1938); Cobb v. Daughtry, 188 Ga. 70, 2 S.E.2d 638 (1939); Karpas v. Candler, 189 Ga. 711, 7 S.E.2d 243 (1940); Thompson v. Thompson, 190 Ga. 264, 9 S.E.2d 80 (1940); Atlantic Mut. Fire Ins. Co. v. McKenzie, 63 Ga. App. 384, 11 S.E.2d 72 (1940); Crowell v. Brim, 191 Ga. 288, 12 S.E.2d 585 (1940); Cohen v. Cohen, 200 Ga. 33, 35 S.E.2d 908 (1945); Reardon v. Bland, 206 Ga. 633, 58 S.E.2d 377 (1950); Texeira v. Wagar, 209 Ga. 820, 76 S.E.2d 385 (1953); Cardin v. Riegel Textile Corp., 217 Ga. 797, 125 S.E.2d 62 (1962); Daugert v. Holland Furnace Co., 107 Ga. App. 566, 130 S.E.2d 763 (1963); Green Hotels, Inc. v. Citizen & S. Nat'l Bank, 108 Ga. App. 286, 132 S.E.2d 800 (1963); Smith v. Brown, 220 Ga. 845, 142 S.E.2d 262 (1965); Gay v. AMOCO, 115 Ga. App. 18, 153 S.E.2d 612 (1967); Griggs v. Dodson, 223 Ga. 164, 154 S.E.2d 252 (1967); Williams v. Bituminous Cas. Co., 121 Ga. App. 175, 173 S.E.2d 250 (1970); Henry v. Allstate Ins. Co., 129 Ga. App. 223, 199 S.E.2d 338 (1973); Preiser v. Jim Letts Oldsmobile, Inc., 160 Ga. App. 658, 288 S.E.2d 219 (1981); Touche, Inc. v. Dearborn, 161 Ga. App. 188, 291 S.E.2d 35 (1982); Miller v. Economy Trading & Liquidating, Inc., 193 Ga. App. 344, 387 S.E.2d 620 (1989); English Restaurant, Inc. v. A.R. II., Inc., 194 Ga. App. 639, 391 S.E.2d 462 (1990); Carpenter v. Curtis, 196 Ga. App. 234, 395 S.E.2d 653 (1990); Reaugh v. Inner Harbour Hosp., 214 Ga. App. 259, 447 S.E.2d 617 (1994); McNatt v. Colonial Pac. Leasing Corp., 221 Ga. App. 768, 472 S.E.2d 435 (1996).
Waiver
Contract obtained by fraud may be ratified by party defrauded, and when so ratified the contract becomes valid and binding upon all. Manning v. Wills, 193 Ga. 82, 17 S.E.2d 261 (1941).
Contract obtained by fraud may be ratified, and when so ratified, fraud is waived and contract cannot be rescinded. Puckett v. Reese, 203 Ga. 716, 48 S.E.2d 297 (1948).
Delay in seeking rescission and restoration of benefits may constitute waiver of fraud.
- Delay in seeking rescission and restoring or offering to restore benefits received under contract may constitute waiver of fraud and bar to rescission. Manning v. Wills, 193 Ga. 82, 17 S.E.2d 261 (1941).
When, following discovery of a seller's deceptive practices, buyers of a business attempted to continue to operate the business and delayed seven months in sending a letter of rescission, the buyer's released and waived the buyer's claims. Orion Capital Partners, L.P. v. Westinghouse Elec. Corp., 223 Ga. App. 539, 478 S.E.2d 382 (1996).
Mere delay to sue for damages in tort will not operate as waiver unless barred by statute. Tuttle v. Stovall, 134 Ga. 325, 67 S.E. 806, 20 Ann. Cas. 168 (1910).
Any act, after discovery of fraud, inconsistent with repudiation, amounts to acquiescence.
- When one who is entitled to rescind contract on ground of fraud or false representations, and has full knowledge of material circumstances of the case, freely and advisedly does anything which amounts to recognition of transaction, or acts in manner inconsistent with repudiation of contract, such conduct amounts to acquiescence, and, though originally impeachable, contract becomes unimpeachable in equity. Gibson v. Alford, 161 Ga. 672, 132 S.E. 442 (1926).
One accepting and retaining benefits after discovery of fraud cannot thereafter rescind.
- Ordinarily one who knowingly accepts and retains any benefit under contract which one has been induced to make by fraud, after one has knowledge of such fraud, affirms validity of contract and will not be heard thereafter to repudiate the contract. Legg v. Hood, 154 Ga. 28, 113 S.E. 642 (1922).
Rescission
One must be diligent in discovering fraud and in announcing intent to rescind.
- Duty is placed upon party who seeks to avoid contract on ground of fraud to make such efforts to discover fraud as would amount to ordinary diligence in law. Massachusetts Benefit Life Ass'n v. Robinson, 104 Ga. 256, 30 S.E. 918, 42 L.R.A. 261 (1898); Reynolds & Hamby Estate Mtg. Co. v. Martin, 116 Ga. 495, 42 S.E. 796 (1902).
To rescind contract obtained by fraud one must be diligent in discovering fraud and upon discovery of fraud one must act at once and announce one's purpose to rescind. Manning v. Wills, 193 Ga. 82, 17 S.E.2d 261 (1941).
While contract may be rescinded for fraud, party defrauded must exercise ordinary diligence in discovering fraud, and must thereupon promptly announce decision to rescind, and restore or tender benefits received under contract. Puckett v. Reese, 203 Ga. 716, 48 S.E.2d 297 (1948).
What is reasonable or proper time for rescission is ordinarily a jury question.
- Question as to what is reasonable or proper time within which to rescind contract depends upon facts of particular case and is ordinarily a question for the jury. Newton v. Burks, 139 Ga. App. 617, 229 S.E.2d 94 (1976).
Rescission is available remedy for inceptive fraud as well as for subsequent breach of contract. Head v. Walker, 243 Ga. 108, 252 S.E.2d 440 (1979).
The buyer's misrepresentations became a part of the contract for the sale of a motel and a consideration for the contract so that there was no merger or waiver for purposes of determining if the seller could maintain a claim for fraud in the inducement, where the buyer's misrepresentations as to the buyer's financial condition induced the seller to change the seller's position to the seller's detriment by refinancing a loan and incur substantial loan closing costs so that it could be assumed by the buyer, who subsequently refused to close. Woodhull Corp. v. Saibaba Corp., 234 Ga. App. 707, 507 S.E.2d 493 (1998).
Rescission of contract by injured party must be in toto; the injured party cannot affirm contract in part and repudiate the contract in part. Thompson v. Growers' Fin. Corp., 49 Ga. App. 119, 174 S.E. 192 (1934).
Rescission of contract must go to whole. There can be no rescission of contract in part. Baker v. Corbin, 148 Ga. 267, 96 S.E. 428 (1918).
Rescission abrogates contract, not partially but completely; it leaves rights of parties and amount of damages, if any, to be determined, not by rescinded contract, but by court of equity. Eller v. McMillan, 174 Ga. 729, 163 S.E. 910 (1932).
Rescission of release of claims denied.
- Daughter's complaint against an heir seeking to rescind a release of claims against an estate was properly dismissed where the daughter admitted in the complaint that the daughter failed to tender the return of the funds paid as consideration for the release; it was disputed whether the daughter would have received anything for the claim against the estate, and tender was not impossible as the daughter could have paid the heir individually, or could have paid the money into the registry fund of either the probate court or the trial court where the daughter filed the rescission complaint. Daly v. Mueller, 279 Ga. App. 168, 630 S.E.2d 799 (2006).
Elements necessary to sustain action are that representations of vendor were material and knowingly false; that the representations were made for purpose of inducing purchaser to enter into contract; that the purchaser relied upon false misrepresentations and was thereby induced to act, and that the purchaser did so to the purchaser's injury. General Mach. Corp. v. Best Supply Co., 99 Ga. App. 250, 108 S.E.2d 158 (1959).
Essential elements of action for fraud and deceit are: (1) that defendant made representations; (2) that at time the defendant knew the representations were false (or had what law regards as equivalent of knowledge); (3) that the defendant made the representations with intention and purpose of deceiving plaintiff; (4) that plaintiff relied upon such representations; and (5) that plaintiff sustained alleged loss and damage as proximate result of the representations having been made. McBurney v. Woodward, 84 Ga. App. 807, 67 S.E.2d 398 (1951).
Nature of damage justifying rescission.
- Insofar as the right to rescind a contract for fraud is concerned, injury or damage within the rule does not mean such actual pecuniary damage as might be estimated and recovered by a money judgment. Thomson v. Walter, 160 Ga. App. 542, 287 S.E.2d 562 (1981).
In a consumer's suit against a car dealer for rescission, regarding the sale of a used car which the dealer's salesperson falsely represented had not been in a wreck, it was error for the trial court to grant a directed verdict to the dealer because there was evidence that the consumer suffered loss due to the misrepresentation as, for instance, the consumer testified that the windshield, which had to be replaced after the wreck, leaked water and drained onto the control module. Mitchell v. Backus Cadillac-Pontiac, Inc., 274 Ga. App. 330, 618 S.E.2d 87 (2005).
Fraudulent inducement to enter sales contract.
- False and fraudulent representations as to an existing fact which induced the signing of a sales contract give the purchaser the right to rescind the contract. Crews v. Cisco Bros. Ford-Mercury, Inc., 201 Ga. App. 589, 411 S.E.2d 518, cert. denied, Cisco Bros. Ford-Mercury, Inc. v. Pettig, No. S92C0221, 1991 Ga. LEXIS 1022 (Ga. Dec. 4, 1991).
"Merger clause" in a vehicle sales contract, which stated that any verbal promises by a salesperson were waived and were not a part of the contract, did not prohibit plaintiff from claiming fraudulent inducement to enter the contract. Crews v. Cisco Bros. Ford-Mercury, Inc., 201 Ga. App. 589, 411 S.E.2d 518, cert. denied, Cisco Bros. Ford-Mercury, Inc. v. Pettig, No. S92C0221, 1991 Ga. LEXIS 1022 (Ga. Dec. 4, 1991).
In a consumer's suit against a car dealer for rescission, regarding the sale of a used car which the dealer's salesperson falsely represented had not been in a wreck, it was error for the trial court to grant a directed verdict to the dealer because it could be inferred from evidence that the salesperson's employment was terminated about the time the consumer informed the dealer the customer had learned the car was in a wreck that the salesperson's statements, which were attributable to the dealer, were fraudulent. Mitchell v. Backus Cadillac-Pontiac, Inc., 274 Ga. App. 330, 618 S.E.2d 87 (2005).
Rescission for fraudulent misrepresentations unavailable when truth reasonably ascertainable.
- Party cannot rescind on ground of fraudulent misrepresentations of vendor, if, in exercise of reasonable diligence, one could have ascertained personally that representations were untrue. General Mach. Corp. v. Best Supply Co., 99 Ga. App. 250, 108 S.E.2d 158 (1959).
Negligence in failing to discover fraud may bar relief. Commercial Union Assurance Co. v. Chattahoochee Lumber Co., 130 Ga. 191, 60 S.E. 554 (1908).
O.C.G.A.
§ 13-4-60 inapplicable to constructive fraud or breach of warranty. - Rescission, where right to rescind is not expressly reserved, cannot be had for mere constructive fraud or breach of warranty, but only for actual fraud. General Mach. Corp. v. Best Supply Co., 99 Ga. App. 250, 108 S.E.2d 158 (1959).
Rescission for constructive fraud may be available in equity.
- While only actual fraud will authorize ex parte rescission of sale of personalty so as to enable aggrieved party to sue at law, as in trover, for property that one may have delivered to other under contract, sale either of realty or of personalty may be rescinded by court of equity for mere constructive fraud, if other essentials of case are established. Puckett v. Reese, 203 Ga. 716, 48 S.E.2d 297 (1948).
Mere executory agreement to rescind not an accord and satisfaction of debt absent express agreement to that effect. Redman v. Woods, 42 Ga. App. 713, 157 S.E. 252 (1931).
One accused of fraud to be made party to action for rescission.
- In action by insurer to rescind for fraud, other party or that party's legal representative should be made party to proceeding in order that one may be afforded opportunity to defend against accusation that one committed fraud. Weems v. American Nat'l Ins. Co., 197 Ga. 493, 29 S.E.2d 500 (1944).
When contract is rescinded, parties are not to be left where rescission finds them; original status must be restored, or equivalent therefor must be provided in contract or furnished by law. Eller v. McMillan, 174 Ga. 729, 163 S.E. 910 (1932).
Measure of damages payable to the purchaser of a truck who elected to rescind a contract, rather than affirm the contract, was measured by the amount it would take to restore the purchaser to the status the purchaser held before the transaction, not the difference in the value of the truck with and without the "defect." Evans Toyota, Inc. v. Cronic, 233 Ga. App. 318, 503 S.E.2d 358 (1998).
When contract rescinded and action brought for fraud, disclaimer of warranty is no longer binding. Bob Maddox Dodge, Inc. v. McKie, 155 Ga. App. 263, 270 S.E.2d 690 (1980).
Parol agreements.
- The rule that parol agreements shall not be received to change or add to the terms of a written contract does not apply where the alleged contract was procured by fraud. Potomac Leasing Co. v. Thrasher, 181 Ga. App. 883, 354 S.E.2d 210 (1987).
Insistence of new car buyers that the buyers would not have defective door repaired but would accept only a new car in its stead did not amount in fact or effect to a tender back of the car purchased. By suing for damages, the buyers were deemed to have elected to affirm the contract, and thus could not rescind the contract. DeLoach v. General Motors, 187 Ga. App. 159, 369 S.E.2d 484 (1988).
Car dealer's failure to comply with Fair Business Practices Act.
- Plaintiff's action based on a dealer's failure to comply with the Fair Business Practices Act, O.C.G.A. § 10-1-390 et seq., and with O.C.G.A. § 40-1-5(a) was not barred on the basis that plaintiff failed to rescind the sales contract after learning of the purported misrepresentation because, after learning of the car's repair history, plaintiff promptly offered to return the vehicle to the manufacturer, also offered to return the car to the dealer, and then stopped making payments on the car. Neal Pope, Inc. v. Garlington, 245 Ga. App. 49, 537 S.E.2d 179 (2000).
Purchaser was entitled to rescission of a real estate sales contract, after the purchaser asked the vendor to "rescind the deal" and return the purchaser's money because the property was of no use to the purchaser unless the purchaser could rent the property. Morris v. Cowart, 201 Ga. App. 288, 411 S.E.2d 81, cert. denied, 201 Ga. App. 904, 411 S.E.2d 81 (1991).
Purchaser was entitled to rescission of a real estate sales contract, where the evidence was sufficient for the jury to conclude that the vendor had "passively concealed" the defective condition of prospective rental property. Morris v. Cowart, 201 Ga. App. 288, 411 S.E.2d 81 (1991).
Finance leases held not rescindable.
- Since there was no evidence of a relationship pursuant to which purported fraud of an equipment supplier's employees could be imputed to a finance lessor, finance leases were not rescindable by the business lessee, and "hell or high water" clauses in the leases were viable. Colonial Pac. Leasing Corp. v. McNatt, 268 Ga. 265, 486 S.E.2d 804 (1997).
Letters from counsel that expressly reserved the right to rescind did not constitute rescission under Georgia law. Weed Wizard Acquisition Corp. v. A.A.B.B., Inc., 201 F. Supp. 2d 1252 (N.D. Ga. 2002).
Rescission and timing of lawsuit.
- Although, pursuant to O.C.G.A. § 13-4-60, an attempt to seek rescission contemporaneously with the filing of a lawsuit is usually insufficiently prompt, a buyer did not waive its fraud claim under Georgia's tender rule where the buyer raised factual issues concerning whether requiring tender would be reasonable under the circumstances. Further, the buyer filed the buyer's action in state court only four days after the buyer received notification from the seller that the seller would not defend or indemnify buyer in a claim for patent infringement. American Family Life Assur. Co. v. Intervoice, Inc., 659 F. Supp. 2d 1271 (M.D. Ga. 2009).
Genuine fact dispute existed as to whether the plaintiff timely sought rescission under O.C.G.A. § 13-4-60 when the plaintiff sought rescission contemporaneously with the filing of the plaintiff's lawsuit because the plaintiff's management decisions and continued operation of a manufacturer after a defendant arguably walked away from the joint venture were not inconsistent with rescission. Denim N. Am. Holdings, LLC v. Swift Textiles, LLC, 816 F. Supp. 2d 1308 (M.D. Ga. 2011).
Former employee's rescission suit was properly dismissed because the suit was not promptly filed since the suit was filed seven months after the employee learned of the underlying facts, and the employee did not provide a reasonable excuse for the delay in making an offer to restore the status. Payne v. DOCO Credit Union, 734 Fed. Appx. 623 (11th Cir. 2018)(Unpublished).
Rescission of settlement not prompt.
- In an action by a trust grantor and remainder beneficiary against the trust's former trustee, successor trustee, and successor corporation to a business that had funded the trust, the trial court did not err in refusing to declare the grantor's previous settlement agreement void because the grantor, although learning of the transfer of the trust's business within a month of the agreement, did not seek to rescind the agreement or tender the proceeds "promptly" as required by O.C.G.A. § 13-4-60. Avery v. Grubb, 336 Ga. App. 452, 784 S.E.2d 817 (2016).
Unambiguous rescission of sales contract not made.
- It was error to vacate an arbitrator's award to a seller under O.C.G.A. § 9-9-13(b)(5) on grounds that the arbitrator manifestly disregarded the law of rescission. The arbitrator found that as the buyer did not make an unambiguous rescission of the sales contract, the buyer's suit for fraud failed; in making this finding, the arbitrator cited O.C.G.A. § 13-4-60 and the applicable case law concerning rescission and applied that law to the circumstances of the case. Hansen & Hansen Enters. v. SCSJ Enters., 299 Ga. App. 469, 682 S.E.2d 652 (2009).
Restoration of Benefits
1. In General
Rescission at law is effected by either restoring, or making bona fide offer to restore, to defendant the fruits of the contract. Coleman v. Ellenberg (In re Cohen), 6 Bankr. 708 (Bankr. N.D. Ga. 1980).
Party charged with fraud should be given opportunity to redress wrong before subject to suit for rescission. The party might be willing, without suit, to give back to complaining party what the party received under contract, and to take back from such party that latter received from the party thereunder. This would end controversy and save litigation. Williams v. Fouche, 157 Ga. 227, 121 S.E. 217 (1924).
Reason for rule requiring restoration or offer to restore before attacking contract for fraud, is that attack amounts to admission that such contract was made, and involves also election to rescind contract; and rule of rescission always is that opposite party must be placed in status quo. Roberts v. Southern Ry., 73 Ga. App. 759, 38 S.E.2d 48 (1946).
Equitable right to restitution upon rescission of contract, rests upon doctrine that party who has received from another anything of value by virtue of contract cannot rescind the contract without restoring whatever thing of value one has so gotten. Kerlin v. Young, 159 Ga. 95, 125 S.E. 204 (1924).
This principle is based on equitable doctrine that one who seeks equity must do equity.
- Principle incorporated in law is predicated on broad equitable doctrine that one who asks equity must do equity. If a party intends to rescind a contract on ground of fraud, one must promptly disown the contract, return property, and restore status. Jordy v. Dunlevie, 139 Ga. 325, 77 S.E. 162 (1913).
Restoration must place parties in status the parties were in prior to contract. Booth v. Atlanta Clearing-House Ass'n, 132 Ga. 100, 63 S.E. 907 (1909).
Vendee rescinding under law entitled to restoration of payments made before discovering fraud.
- If, because of false material representations by vendor, contract of conditional sale is promptly rescinded by vendee or by both parties, and vendee restores, or unsuccessfully offers to restore, vendor to the vendor's original status quo, vendee, being likewise entitled to restoration of vendee's own status, may recover any part of purchase price paid before discovery of fraud. Walters v. Hagan, 53 Ga. App. 547, 186 S.E. 563 (1936).
Upon restoration, purchaser entitled to return of payments made without equitable action for rescission.
- Upon restoration, purchaser, without taking any independent proceeding in equity to rescind contract, is entitled to recover amount of purchase-price actually paid by the purchaser. Cochran v. Meeks, 25 Ga. App. 61, 102 S.E. 550 (1920).
Restoration unnecessary when party elects to sue in tort for fraud.
- Party may elect to bring action in tort for fraud, and in that event rule or restoration does not apply. Tuttle v. Stovall, 134 Ga. 325, 67 S.E. 806, 20 Ann. Cas. 168 (1910).
When subject matter of sale is worthless, restoration to status quo not required. Harris v. Daly, 121 Ga. 511, 49 S.E. 609 (1904).
No tender of the original consideration by the defrauded party is required when nothing of any value is received by the party seeking to rescind, or when the amount received under the contract sought to be rescinded may be less than the amount actually due the party seeking to rescind. Metter Banking Co. v. Millen Lumber & Supply Co., 191 Ga. App. 634, 382 S.E.2d 624 (1989).
Party need not return that which the party is entitled to retain. Bankers Health & Life Ins. Co. v. Griffeth, 59 Ga. App. 740, 1 S.E.2d 771 (1939).
Used car buyers not obligated to return purchased vehicles.
- Used car buyers who sought rescission of the buyers' sales contracts were not obligated to tender or offer to tender back the purchased vehicles, where the defrauding party would then have had both the money paid by a third party credit firm and the vehicles, and the buyers would have been put to trouble and expense to try to get the credit firm to absolve the buyers' debts, meanwhile having neither the vehicles nor the money. Crews v. Cisco Bros. Ford-Mercury, Inc., 201 Ga. App. 589, 411 S.E.2d 518, cert. denied, Cisco Bros. Ford-Mercury, Inc. v. Pettig, No. S92C0221, 1991 Ga. LEXIS 1022 (Ga. Dec. 4, 1991).
In a consumer's suit against a car dealer for rescission, regarding the sale of a used car which the dealer's salesperson falsely represented had not been in a wreck, it was error for the trial court to grant a directed verdict to the dealer based on the fact that the consumer still had possession of the car because the consumer was not necessarily required to return the car, and there was evidence that the consumer's attempt to return the car was refused by the dealer. Mitchell v. Backus Cadillac-Pontiac, Inc., 274 Ga. App. 330, 618 S.E.2d 87 (2005).
Trial court did not err in denying the seller's motion for a directed verdict on the purchaser's rescission claim for fraud because the purchaser made a sufficient offer to restore to support a claim for rescission pursuant to O.C.G.A. § 13-4-60 and the purchaser did not have to return the car when the seller refused to give the purchaser the money back. Krayev v. Johnson, 327 Ga. App. 213, 757 S.E.2d 872 (2014).
Leased vehicle.
- Although lessees informed lessor-company that it "could come pick up the vehicle", which arguably could be construed as an attempt at restoration of the benefit of the contract, the lessees' conduct following that notification was inconsistent with such a construction, since the lessees' continued to drive the vehicle for months afterwards. Hall v. World Omni Leasing, Inc., 209 Ga. App. 115, 433 S.E.2d 297 (1993).
Equity does not require restoration by plaintiff of receipts which would become part of recovery.
- Equity does not require useless procedure on part of plaintiff to return part of plaintiff's just proportion only to have it included in larger sum due to plaintiff and which plaintiff seeks to recover. Atlanta Life Ins. Co. v. Walker, 53 Ga. App. 80, 184 S.E. 776 (1936).
When there is evidence tending to show that the amount received under the contract by those seeking to rescind may be less than the amount to which they are actually entitled, and that the opposing party may be still in possession of funds owing to the plaintiffs, the rule is that a party is not obliged to return that which the party is entitled to retain. Corbitt v. Harris, 182 Ga. App. 81, 354 S.E.2d 637 (1987).
One induced to accept much less alimony than amount due need not restore amounts received. Ellis v. Ellis, 161 Ga. 360, 130 S.E. 681 (1925).
Word "promptly" as used in the law means within reasonable time. Equitable Bldg. & Loan Ass'n v. Brady, 171 Ga. 576, 156 S.E. 222 (1930), later appeal, 175 Ga. 43, 164 S.E. 674 (1932); Chapman v. Telex, Inc., 129 F. Supp. 567 (N.D. Ga. 1954).
Word "promptly" as used in the law, does not mean immediately, but means within reasonable time. Kerr Glass Mfg. Co. v. Americus Grocery Co., 13 Ga. App. 512, 79 S.E. 381 (1913); Stovall & Strickland v. McBrayer, 20 Ga. App. 93, 92 S.E. 543 (1917).
Party must restore benefits with promptitude necessitated by circumstances.
- Party must proceed with offer to restore what one has received with that promptitude which nature of case and environment of circumstances would require, as manifesting intention to treat from discovery of fraud, what one has received as property of other party. Jordy v. Dunlevie, 139 Ga. 325, 77 S.E. 162 (1913); Manget v. Cunningham, 166 Ga. 71, 142 S.E. 543 (1928).
Party aggrieved must act with promptitude which nature of case and circumstances require. Chapman v. Telex, Inc., 129 F. Supp. 567 (N.D. Ga. 1954).
Party defrauded must proceed with the defrauded party's offer to restore what the party has received, with that promptitude which nature of case and environment of circumstances would require. Newton v. Burks, 139 Ga. App. 617, 229 S.E.2d 94 (1976); Thomson v. Walter, 160 Ga. App. 542, 287 S.E.2d 562 (1981).
Patent licensee's failure to rescind a license agreement by offering or tendering benefits the licensee received under the contract precluded the licensee's claim of fraud in the inducement against the licensor. Meadow River Lumber Co. v. University of Ga. Research Found., Inc., 233 Ga. App. 169, 503 S.E.2d 655 (1998).
Shareholder was not entitled both to retain the shares and to recover the purchase price, because to rescind the contract and sue for restitution, the plaintiff must first restore or make a bona fide effort to restore to the other party whatever benefits one has received from the transaction. Graham v. Cook, 179 Ga. App. 603, 347 S.E.2d 623 (1986).
When no offer to restore benefits received has been made, contract must stand as written. Ulmer v. Ulmer, 86 Ga. App. 319, 71 S.E.2d 558 (1952).
Contract will not be set aside, on ground of fraud in the contract's procurement, at instance of one who has neither restored, nor offered to restore, fruits thereof. Chattanooga Beauty Supply Co. v. Fanin, 61 Ga. App. 736, 7 S.E.2d 302 (1940); Roberts v. Southern Ry., 73 Ga. App. 759, 38 S.E.2d 48 (1946).
Notice of intention to disaffirm is insufficient, there must be offer to restore status. Jordy v. Dunlevie, 139 Ga. 325, 77 S.E. 162 (1913).
Offer to restore, made for first time in bill of complaint is insufficient. Roberts v. Southern Ry., 73 Ga. App. 759, 38 S.E.2d 48 (1946).
Restoration or offer of restoration of receipts must be made prior to suit for rescission.
- General rule is that one who seeks rescission of contract on ground of fraud must restore or offer to restore consideration received thereunder as condition precedent to bringing action. Napier v. Adams, 166 Ga. 403, 143 S.E. 566 (1928).
One who seeks rescission of contract on ground of fraud must restore, or offer to restore, consideration received thereunder, as condition precedent to bring action; and petition which fails to allege restoration or offer to restore before institution of suit is subject to demurrer (now motion to dismiss). Chattanooga Beauty Supply Co. v. Fanin, 61 Ga. App. 736, 7 S.E.2d 302 (1940); Puckett v. Reese, 203 Ga. 716, 48 S.E.2d 297 (1948); Wheeler v. Pioneer Invs., Inc., 217 Ga. 367, 122 S.E.2d 518 (1961); Scott v. Scott, 107 Ga. App. 443, 130 S.E.2d 753 (1963).
Party seeking rescission for fraud must restore or offer to restore what the party has received before entering suit. Party charged with fraud should be given opportunity to redress wrong before being subjected to suit for rescission. Georgia Baptist Orphans Home, Inc. v. Moon, 192 Ga. 81, 14 S.E.2d 590 (1941).
Generally, restoration or offer to restore must be made promptly upon discovery of fraud, and before suit is filed, by one seeking rescission of contract on ground of fraud. Roberts v. Southern Ry., 73 Ga. App. 759, 38 S.E.2d 48 (1946).
Restitution before absolution is general rule. Bankers Health & Life Ins. Co. v. Griffeth, 59 Ga. App. 740, 1 S.E.2d 771 (1939).
Offer to restore whatever of value one has received under contract is condition precedent to bringing action for cancellation or rescission of contract, and such tender must be made before action is commenced. Dimmick v. Pullen, 224 Ga. 452, 162 S.E.2d 427 (1968).
Even if there were grounds for recession of a note between a chapter debtor and trustee, recession for fraud required return of the money received under O.C.G.A. § 13-4-60, which the debtor failed to do. The fact that the debtor was financially unable to do so did not excuse this requirement. Ivey Mgmt. Corp. v. Ivey (In re Ivey Mgmt. Corp.), Bankr. (Bankr. M.D. Ga. Dec. 22, 2011).
Insurer seeking to rescind policy required to return premiums paid under contract, even if insured originally obtained policy by fraud.- Georgia law generally required an insurer seeking to rescind a policy to return any premiums paid under the contract, even if the insured originally obtained the policy by fraud; thus, while a default against defendant insured entered on plaintiff life insurer's fraud and rescission claims, the insurer could not retain the premiums paid defendant beneficiary trust. PHL Variable Ins. Co. v. Faye Keith Jolly Irrevocable Life Ins. Trust, F.3d (11th Cir. Mar. 14, 2012)(Unpublished).
2. Pleadings and Practice
Petition must allege restoration of or offer to restore benefits.
- Restoration of or offer to restore status quo must be pled. Garner v. Butler, 144 Ga. 441, 87 S.E. 471 (1915); Williams v. Fouche, 157 Ga. 227, 121 S.E. 217 (1924).
In suit to rescind, petition must show that there has been restoration of or offer to restore benefits received. Puckett v. Reese, 203 Ga. 716, 48 S.E.2d 297 (1948).
Trial judge did not err in sustaining general demurrer (now motion to dismiss) to petition which sought rescission of deed to secure debt and note on ground of fraud since petition failed to allege restoration or offer to restore prior to institution of suit. Wheeler v. Pioneer Invs., Inc., 217 Ga. 367, 122 S.E.2d 518 (1961).
Petition must allege restoration of benefits or excuse for failure to do so.
- One seeking to avoid effects of release and plea of accord and satisfaction based thereon on ground of fraud must show either rescission and tender back to other party of fruits of that contract before commencing suit, or excuse for failure to do so. Drew v. Lyle, 88 Ga. App. 121, 76 S.E.2d 142 (1953).
One who seeks rescission of a contract on the ground of fraud must restore, or offer to restore, the consideration received thereunder, as a condition precedent to bringing the action; and a petition which fails to allege restoration or offer to restore before institution of the suit is demurrable. This principle applies to answer or crossbill where defendant seeks rescission of contract for fraud. Hardware Mut. Cas. Co. v. Dooley, 68 Ga. App. 230, 22 S.E.2d 625 (1942).
Party must allege offer to return party's premiums before bringing action to declare policy void. Belt v. Allstate Ins. Co., 140 Ga. App. 740, 231 S.E.2d 831 (1976).
RESEARCH REFERENCES
Am. Jur. 2d.
- 13 Am. Jur. 2d, Cancellation of Instruments, § 16 et seq. 17 Am. Jur. 2d, Contracts, §§ 476, 488, 496, 499, 506. 37 Am. Jur. 2d, Fraud and Deceit, §§ 15, 16, 52, 136, 375, 376.
Proof of Fraudulent Inducement of a Contract and Entitlement to Remedies, 48 POF3d 329.
C.J.S.- 17 C.J.S., Contracts, § 167. 17A C.J.S., Contracts, §§ 415, 418, 438, 439, 441, 445.
ALR.
- Presence of noxious weeds as ground for rescission of contract for purchase of land, 2 A.L.R. 1511.
Validity and effect of stipulation to the effect that vendee or purchaser does not rely upon representations of vendor or seller, or the latter's agent, 10 A.L.R. 1472.
Validity of agreement to pay an officer or employee of a bank or trust company to disclose the existence of, or to assist one to establish, a deposit, 18 A.L.R. 979.
Seller's concealment of ownership of other property inducing exclusion of same from contract as actionable fraud, 26 A.L.R. 990.
Fraudulent misrepresentation or concealment by a contracting party concerning title to property or other subjects which are matters of public record, 33 A.L.R. 853; 56 A.L.R. 1217.
Recovery in action of deceit for fraudulently inducing contract of expense of other litigation incident to contract, 41 A.L.R. 1156.
False statement by vendor, or his agent, as to price for which property in question, or property in vicinity, had been sold as ground for relief of purchaser, 66 A.L.R. 188.
Examination of real property by purchaser before entering into contract as precluding rescission on ground of falsity of representations, 70 A.L.R. 942.
Time for rescission by purchaser of chattel for fraud or breach of warranty, 72 A.L.R. 726.
Principle which denies relief to party who has conveyed or transferred property in fraud of his creditors, as affected by execution, as part of, or as contemplated at time of, the fraudulent transaction, of reconveyance or retransfer of the property to him, 89 A.L.R. 1166.
Misrepresentations by one party's agent, who was not authorized in that regard, as ground of rescission by the other party, 95 A.L.R. 763.
Fraud inducing deposits or subscription to stock in building and loan association as ground of rescission or preference where association is insolvent, 100 A.L.R. 573.
Stamp or transfer tax as payable in respect of tender or return of securities or documents incident to rescission of contract, 100 A.L.R. 1420.
Pecuniary damage as essential to rescission of contract for purchase of real or personal property, 106 A.L.R. 125.
Rescission as essential to cancellation of instrument or lien voidable for fraud or failure of consideration, 109 A.L.R. 1032.
Remedy of rescission for grantee's breach of agreement to support grantor, 112 A.L.R. 670.
Sufficiency of buyer's attempt to rescind as affected by his apparent recognition of or insistence upon continuance of seller's obligation under the contract, 118 A.L.R. 530.
Rights of parties to conditional sale as affected by breach of warranty, 130 A.L.R. 753.
Return or tender of consideration for release or compromise as condition of action for rescission or cancellation, action upon original claim, or action for damages sustained by the fraud inducing the release or compromise, 134 A.L.R. 6.
Breach of obligation to pay tax or assessment on land sold as ground for rescission of contract, 139 A.L.R. 971.
Partial rescission of contract, 148 A.L.R. 417.
Seller's advertisements as affecting rights of parties to sale of personal property, 158 A.L.R. 1413.
Assignability of right to rescind or of right to return of money or other property as incident of rescission, 162 A.L.R. 743.
What amounts to fraud on contractor, sustaining rescission or action for damages under building or construction contract, 166 A.L.R. 938.
Commitment of grantor to institution for insane as ground for setting aside conveyance in consideration of support, 18 A.L.R.2d 906.
Timeliness of tender or offer of return of consideration for release or compromise, required as a condition of setting it aside, 53 A.L.R.2d 757.
What constitutes abandonment of land contract by vendee, 68 A.L.R.2d 581.
Venue of action for rescission or cancellation of contract relating to interests in land, 77 A.L.R.2d 1014.
Necessity of showing damage to establish fraud as defense to action on contract, 91 A.L.R.2d 346.
Seller's liability for fraud in connection with contract for the sale of long-term dancing lessons, 28 A.L.R.3d 1412.
Purchaser's misrepresentations as to intended use of real property as ground for vendor's equitable relief from contract and deed, 35 A.L.R.3d 1369.
Automobile or motorcycle as necessary for infant, 56 A.L.R.3d 1335.
Public contracts: duty of public authority to disclose to contractor information, allegedly in its possession, affecting cost or feasibility of project, 86 A.L.R.3d 182.
Construction and effect of provision in contract for sale of realty by which purchaser agrees to take property "as is" or in its existing condition, 8 A.L.R.5th 312.