Loudon v. Taxing Dist. - 104 U.S. 771 (1881)

Rule:

The failure of a defendant to keep its contract and pay over its obligations is no ground for setting aside the contract altogether. The more appropriate relief is provision for the payment of the balance that remains due.

Facts:

Plaintiff contractor entered into an agreement with the city of Memphis to pave certain streets and public areas. When the city failed to meet its obligation to pay, the contractor had to borrow money at unfavorable interest rates to meet its obligations, which it paid back by transferring the notes issued to it by the city. The contractor was also unable to collect assessments from property holders under a law that was later held unconstitutional. The contractor and the city agreed to fulfill the additional obligation with a series of notes paid for by property taxes. The city breached this obligation as well, forcing the contractor to sell the notes at a discount. The contractor sought rescission of the second contract. The circuit court enforced the agreement. The contractor appealed.

Issue:

Was rescission of the second contract the proper remedy under the circumstances?

Answer:

No.

Conclusion:

The court affirmed the circuit court’s decision, holding that the city's failure to meet its obligation was no basis for rescission. According to the court, the failure of a defendant to keep its contract and pay over its obligations was no ground for setting aside the contract altogether. The court held that the proper remedy was provision for payment of the remaining balance out of future collections of taxes.