Lloyd v. Turner

Tennessee Court of Appeals · Property

PropertyRescissionFailure of ConsiderationContractsrescissionfailure of considerationpartial failure of considerationentire contract

Facts

Mrs. Lloyd agreed to convey her Bluebird Lane residence to Mrs. Turner in exchange for a one-half interest in Sonic Recording Studio, with profits and liabilities to be shared equally. Although the written contract stated it was the entire agreement, the uncontroverted proof showed an additional material agreement that the Turners would secure a house for Mrs. Lloyd on Almo Avenue by making a $4,000 down payment or equity payment. The Turners paid $2,000 to Robert Newman and $2,000 to Alvin Porter, and Mrs. Lloyd took possession of the Almo property for several months, but title was never transferred to her and she was later evicted after foreclosure. The chancellor found no actionable inadequacy of consideration regarding Sonic's value, but found failure of consideration as to the promised Almo property and rescinded the entire transaction.

Issue

Whether the chancellor properly rescinded the entire transaction based on failure of consideration arising from the Turners' failure to provide Mrs. Lloyd title to the Almo property. A related issue was whether rescission could be conditioned on plaintiffs reimbursing defendants $4,000 that defendants had paid in connection with the Almo property.

Rule

Inadequacy of consideration, standing alone, is not a ground for rescission unless mixed with fraud or so gross as to shock the conscience of the court. By contrast, failure of consideration is a want of consideration, and a partial failure of consideration may justify rescission when the contract is entire and the failed part affects the whole contract, defeats the object of the contract, or concerns a matter of such prime importance that the contract would not have been made had default in that particular been expected. A party seeking rescission generally must return or offer to return what he received under the contract so as to restore the other party as nearly as possible to the pre-contract position.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

In Nashville, Dana Pike conveyed her duplex to Mira Kessler in exchange for a half interest in Mira's boutique print shop. After taking over, Dana learned the shop was worth far less than she had expected, but there is no evidence of fraud; the only additional promise in the deal was fully performed.

If Dana seeks rescission solely because the print shop turned out to be a bad bargain, what is the strongest answer?

Explanation. The controlling distinction is between inadequacy of consideration and failure of consideration. Mere inadequacy means the exchange was not equal in value, and by itself it does not justify rescission unless mixed with fraud or so gross as to shock the conscience. On these facts, Dana complains only that the business interest was worth less than expected, so rescission should be denied. (Derived from Lloyd v. Turner (n.d.).)