CANCELLATION OF AN INSTRUMENT
An equitable remedy by which a court relieves both parties to a legal document of their obligations under it due to FRAUD, duress, or other grounds.
Cancellation is a term often used interchangeably
with RESCISSION, but whereas only a
document can be canceled, any agreement—
whether oral or written—can be rescinded. Cancellation
is distinguishable from reformation,
which is an action by a court to enforce a document
after its terms have been reframed in
accordance with the intent of the parties, in that
cancellation abrogates the duties of the parties
under the instrument.
Any instrument by which two or more parties
agree to exchange designated performances,
such as a contract, deed, lease, insurance policy,
COMMERCIAL PAPER, or a mortgage, may be
canceled if the circumstances of the case warrant it.
The judicial remedy of the cancellation of an
instrument is granted by a court in its sound
discretion exercising its EQUITY powers to do
justice. If it is apparent that no injustice will
result from restoring both parties to the positions
they had prior to the execution of the
instrument, an instrument may be set aside.
If the party seeking the cancellation has an
adequate remedy at law, for example, and can
recover damages that will give complete relief,
cancellation will be denied. It is available, however,
if the defendant is judgment-proof or
financially unable to pay damages awarded
against him or her. Statutes, too, may provide
this equitable remedy as concurrent relief, in
addition to damages, in particular cases. The
UNIFORM COMMERCIAL CODE permits merchants
in sales transactions to seek the cancellation
of a contract, in addition to an award of
damages in a breach of contract suit.
A plaintiff is entitled to have an instrument
canceled only if he or she has acted equitably in
dealings with the defendant. The principles of
equity apply to any case in which this equitable
remedy is sought.
Grounds
The cancellation of an instrument must be
based upon appropriate grounds, the gist of
which makes the enforcement of the instrument
inequitable. Such grounds must be proven by a
PREPONDERANCE OF THE EVIDENCE presented
in the civil action. A term of a document may
provide for its cancellation, and courts will usually
act accordingly when the facts warrant it.
The setting aside of an instrument that appears
to record the agreement of the parties to it is
considered a significant intervention by a court,
which will not be done for a trivial reason or
merely because of a change of mind by one
party. The primary grounds for cancellation
involve the validity of the instrument itself and
the agreement that it embodies.
Duress An instrument that was obtained by
duress, the use of threats or physical harm to
compel one party to enter an agreement that he
or she would not have made otherwise, can be
canceled at the request of the victimized party. If
duress was present at the time the contract was
entered, the agreement of the parties is a sham,
as the victim was forced to act against his or her
will. It would be inequitable for a court to
enforce such an agreement.
Fraud An instrument may be set aside if it
was induced by fraud—an intentional deception
of another—to gain an advantage over him or
her. To justify cancellation, it must be clearly
established that the representations made to the
victim were untrue and of such a material
nature that without them the victim would not
have agreed to the transaction. In addition, it
must be shown that such statements were made
intentionally to defraud the victim and that the
statements were relied upon by him or her in the
decision to enter the agreement. Fraud vitiates
an agreement, which makes it unjust to enforce
a document embodying its terms.
If, however, a material MISREPRESENTATION
is made innocently by one party, the victim is
still entitled to have the instrument set aside, as it does not reflect the mutual assent of the
parties.
Mental Incapacity If an agreement has
been made by one party who, at the time of its
execution, was mentally incapable of understanding
the nature of the transaction, it may be
canceled at the request of the victim or the victim’s
legal representative. This is particularly
true when the other party has taken advantage
of the victim’s incompetence in drawing the
terms of the agreement.
Courts frequently cancel an instrument
entered by a person so intoxicated at the time of
executing the document that he or she does not
comprehend its legal ramifications. Cancellation
is justified particularly when the intoxication is
brought about by the other party in order to
deceive the victim about the nature of their
agreement.
Mistake When the parties have both made a
mutual MISTAKE OF FACT concerning the agreement
entered, an instrument may be canceled,
since there is no real agreement between them. If
a unilateral mistake exists, that is, a mistake by
one party, a court may set aside the document
and restore the parties to their position prior to
its execution. In order to justify cancellation, a
mistake must be material and involve a significant
part of the agreement without which the
contract would not have been entered into. If the
mistake is the result of the carelessness of one or
both parties, a court may deny a request for cancellation.
Undue Influence UNDUE INFLUENCE, which
is the unfair use of pressure on the will of another
to gain an advantage over him or her, is a ground
for the cancellation of an instrument because
one party’s will is so overcome by pressure that
the person is effectively deprived of freedom of
choice. Undue influence is usually established
when there is a confidential relationship between
the parties and one of them has a greater bargaining
power or influence on the other.
Forgery or Alteration The cancellation of
an instrument is justified when it has been
forged. Moreover, if an instrument has been
materially altered without the consent or knowledge
of the party against whom the change is
effective, the instrument may be set aside.
Preclusion of Relief
A person seeking the equitable relief of the
cancellation of an instrument might be precluded
from it by waiver or ESTOPPEL. The right
to such relief may be waived or relinquished by
a plaintiff ’s conduct, such as by failing to pursue
a remedy within a reasonable time from the execution
of the document, a form of LACHES. The
doctrine of equitable estoppel—by which a person
is precluded by conduct from asserting his
or her rights because another has relied on that
conduct and will be injured if the relief is not
precluded—may also operate in a case in which
cancellation of an instrument is sought.
The ratification of a document by a party
prevents its subsequent abrogation. If a party
knowingly affirms or ratifies an instrument—
whether by stating so, or by using the property
received under it—he or she is precluded from
having it set aside.
FURTHER READINGS
Ruff, Anne. 1999. Contract Law. London: Sweet and
Maxwell.
CROSS-REFERENCES
Duress; Fraud; Sham.
