A defrauded party to a contract may ask for the alternative right of cancellation of the contract and restitution of the consideration, rather than a right to damages for being led into the fraudulent transaction. This restitutionary remedy is the right of the defrauded party to be restored to the situation which he occupied prior to the fraudulent transaction.
In Bluff City Company v. Davis, seller falsely represented that an automobile was new, and buyer relied on that representation. Within a reasonable time after buyer learned that he had bought a used automobile, he offered to return it. It was held that buyer was entitled to have the sale rescinded and the consideration returned to him. In Waller v. Hodges, the evidence showed that defendent had prepared a building contract, deeds of trust and notes and told complain- ants, who were simple, uneducated landowners, that they did not need a lawyer. Complainants then signed a written contract to pay to defendant $10,250 for the erection of a building, whereas their oral bargaining agreement with defendant was to pay $8,000 for the erection of the building. This evidence was held to sustain a finding of fraud justifying the chancellor in ordering a cancellation of the contract.
A party who has been fraudulently induced to enter into a contract may elect either to affirm the contract and sue for damages for the deceit, or to disaffirm the contract and sue for cancellation and restitution. The defrauded party is not entitled to maintain actions on both remedies, as that would result in double compensation for a single injury. The traditional view is that the mere bringing of an action for damages is a conclusive election by the defrauded party to affirm the contract.
Restitution--1959 Tennessee Survey,
12 Vanderbilt Law Review
Available at: https://scholarship.law.vanderbilt.edu/vlr/vol12/iss4/22