Remedies

• Author: Val Ricks
• Pages: 241-365

241

III. Remedies

A. Rescission

NEW YORK LIFE INS. CO. v. SISSON

W. D. Pennsylvania (1926), 19 F.2d 410

THOMSON, District Judge.

[¶1] This is a motion by the defendant, "in the nature of a demurrer," to dismiss the

plaintiff's bill.

[¶2] On July 22, 1924, the plaintiff issued a policy of insurance on the life of Jacob

Silverstein in the sum of $25,000, containing a clause making the policy incontestable after

two years from its date. On June 16, 1926, the plaintiff filed a bill in equity against the

insured and S. A. Sisson, his committee, requesting the cancellation of the policy on the

ground that the insurance had been procured by the said Silverstein by fraudulent

misrepresentations and answers to questions contained in the applications for insurance

filed with the company on July 16, 1924, upon the reliance of the truth of which the policy

was issued. The plaintiff also asked an injunction restraining the defendants from

instituting any action, either under the policy or for disability benefits, which might be

claimed during the life of the insured. It was learned that the insured died the same day on

which the action was instituted.

[¶3] On July 2, 1926, no administrator of the estate of the decedent having been

appointed, the plaintiff took action to [have one appointed], which resulted [ in the

appointment of] S. A. Sisson * * * , and the plaintiff then amended its suit, designating the

said administrator as defendant, filed a new bill against the present defendant, securing a

restraining order similar to the one originally made, which order was made permanent

following service of process.

[¶4] As grounds for the dismissal of the plaintiff's bill defendant urges: First, that the bill

does not state any matter of equity or sufficient facts to entitle plaintiff to relief; second,

that there is no allegation in the bill that the plaintiff returned or offered to return to the

defendant, prior to the institution of the proceedings, the premiums paid by the insured on

the policy; third, that it was necessary for the plaintiff to restore, or offer to restore, the said

premiums before commencing suit. When the original bill was filed an order of court was

made, directing the plaintiff to pay to the clerk the premiums paid by the insured, with

interest to the date of the institution of suit, which was accordingly done.

[¶5] Without going into the questions involved in detail, my conclusions are as follows:

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1. The insurance policy is a contract, and there can be no doubt that such contract is subject

to equitable rescission and cancellation on the ground of fraud. Harwi v. Metropolitan Life

Insurance Co. (D. C.) 297 F. 479; Sunset Telephone & Telegraph Co. v. William (C. C.

A.) 162 F. 301, 22 L. R. A. (N. S.) 374, and many other cases.

2. Sufficient facts are averred in the bill which, if found to be true by the court, would

probably sustain a decree for cancellation.

3. In an action at law, the status quo must be restored before an action will lie. There, in

order that the plaintiff may have a legal remedy based upon rescission by the act of the

party himself, he must restore or attempt to restore the consideration. The rescission

reinvested him with the legal title to the thing for which he subsequently sues, and therefore

must be conditioned upon a surrender of the thing received by him in pursuance of the

transaction he thus avoids. This may be appropriately termed a legal rescission, and is the

act of the party thereto.

4. In equity, by reason of the change of situation, a different rule prevails. A bill in equity

is an action brought to rescind, and is not based on any idea, or on any theory, that the

contract has already been rescinded, as in an action at law. Here the plaintiff sues for

rescission. The plaintiff simply seeks the aid of the court to set aside and rescind the

contract, and it is in no sense essential that he should previously have attempted a

rescission, or should have made a tender of the thing received, to the other party. In such

an action the plaintiff simply expresses a willingness to perform such conditions as the

court may regard necessary to impose as proper terms upon which relief shall be granted.

In case of rescission, what the plaintiff should do to reinstate the other party in statu quo

as a condition for rescission is for the court to determine, having fully heard the case. This

has been termed an equitable rescission, and the distinction between it and a legal rescission

is perfectly plain, and has been fully recognized by the authorities. Pomeroy, Equity

Jurisprudence, vol. 5, p. 4765; 9 Corpus Juris, p. 1215; Plews v. Burrage (C. C. A.) 274 F.

881; Twin Lakes Land & Water Co. v. Dohner (C. C. A.) 242 F. 402; and numerous

authorities.

5. It might be added, in addition, that the complainant has no remedy at law, and can have

none until the defendant brings its suit on the policy, and it could hardly be denied that the

defense to an action, the bringing of which depends upon the will of the defendant, does

not afford to the complainant that prompt and efficient relief which it has a right to claim

under the bill. In a short time after the bringing of the suit, the right of action would have

failed by reason of the incontestable clause in the policy.

[¶6] The motion to dismiss must therefore be overruled.

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Questions:

1. What act must the party do to accomplish a legal rescission? One court wrote that the

legally rescinding party “merely gives notice to the other party that he does not propose to

be bound by the contract.” Binkholder v. Carpenter, 152 N.W.2d 593, 596 (Iowa 1967)

(internal quotations omitted). What kind of legal action do you suppose the rescinding party

should file after giving the notice? Another court said, “[W]here a contract is entered into

between the parties, and upon proper grounds the plaintiff gives notice of rescission and

offers to restore the consideration he has received, it is settled by innumerable decisions

that a quasi contractual obligation arises on the part of the defendant to restore what he has

received.” Bennett v. Superior Ct., 21 P.2d 946, 951 (Cal. 1933). What do we normally call

such an action? Is it broad enough to allow the court to determine whether the plaintiff

properly rescinded and whether it now has a right to the return of the consideration? Would

any other kind of action be appropriate?

2. In paragraph 5 subparagraph 5, the court says that, in this case, “the complainant has no

remedy at law.” Is that true? Was it true on June 16, when this action was filed?

3. What grounds for rescission can you name? One court summarized as follows: “The

grounds for rescission under California law include mistake, lack of capacity, undue

influence, material failure of consideration, duress, illegality . . . and, of course, fraud.”

Merritt v. Erickson, Opinion, 2011 WL 664770 *2 (Cal. App., Feb. 23, 2011) (internal

quotations omitted). That’s a good list.

4. Some courts are not as circumspect about distinguishing legal and equitable rescission.

Where law and equity is considered merged, this is understandable. For instance, Wiseman

v. First Mariner Bank, Mem. Op., 2013 WL 5375248 *16 (D. Md., Sept. 23, 2013), claims,

[T]he elements of a claim for rescission are:

1) That [the plaintiff] was induced into assenting to the contract as the result

of fraud, negligent misrepresentation, undue influence or duress, or there

was a material breach by the other party, or there was a mutual or unilateral

mistake in contracting;

2) That he or she returned the consideration or was unconditionally willing

to return to the other party both the consideration that was given and any

benefits received under the contract;

3) That he or she exercised the right to rescind promptly and did not treat

the contract as a continuing obligation; and

4) That he or she gave notice of the intention to rescind.

Plenty of courts claim that the party wishing rescission must act promptly whether acting

at law or in equity. But are elements (2) and (4) legal or equitable?