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with RESCISSION, but whereas only a document can be canceled, any agreement—whether oral or written—can be rescinded.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.