## Facts

- Sellers (Kents) and buyer (Clark) entered a written executory contract for sale of a house and lot for \$4,500; Clark paid \$200 down and agreed to pay the balance in installments with interest and to pay taxes; the contract stated time was of the essence.
- Clark was placed in possession and, over about three years, made payments that were sometimes late; the sellers accepted the late payments.
- Clark later failed to pay an installment and was delinquent on taxes; the sellers demanded cure and then threatened forfeiture unless taxes and overdue principal were paid within three days.
- After the forfeiture threat, Clark served written notice of rescission, refused to make further payments, and offered to restore the property if the sellers returned amounts paid minus reasonable value of use.
- The sellers declared forfeiture, demanded possession, and brought an ejectment action seeking only possession.
- Clark admitted the contract, possession, and default, but alleged the contract was induced by the sellers’ fraudulent misrepresentations; she asserted fraud as a defense and by cross-complaint seeking rescission with restitution (including improvements) or damages for deceit.
- The trial court struck the fraud-based defense and cross-complaint and entered judgment for the sellers for possession.

## Issues

1. In a vendor’s ejectment action against a vendee in default under an executory land-sale contract, may the vendee assert fraudulent inducement as a defense to possession?
2. May the vendee, in that ejectment action, file a cross-complaint seeking rescission with restitution (including value of improvements) or damages for fraud despite the default?
3. Did the trial court err by striking the vendee’s fraud and rescission allegations and entering judgment for the vendor?

## Decision

- The California Supreme Court reversed the judgment for the sellers.
- A vendee sued for possession under an executory land-sale contract may plead fraud in the inception of the contract, even if the vendee is in default.
- The vendee may assert fraud both defensively and by cross-complaint seeking rescission and restitution or damages for deceit.
- The case was remanded with directions to allow Clark to proceed on her fraud-based answer and cross-complaint.

## Legal Principles

- Equitable defenses may be raised in an action legal in form (including ejectment) when necessary to determine the parties’ rights arising from the same transaction.
- A party alleging fraudulent inducement may elect to affirm the contract and seek damages or disaffirm by rescission and seek restitution; that election may be asserted in response to the opposing party’s suit on the contract.
- A vendee’s default does not, by itself, bar litigation of fraudulent inducement when the vendor seeks possession or relies on forfeiture under the same contract.
- If rescission is granted, equity may condition relief on appropriate restoration and restitution, including offset for reasonable value of use and, where appropriate, compensation for improvements placed on the property.

## Conclusion

The court held that a defaulting buyer sued in ejectment under an executory land-sale contract is not barred from asserting fraudulent inducement and may litigate rescission, restitution (including improvements), or damages by defense and cross-complaint, requiring reversal of a judgment that struck those allegations.


Kent v. Clark, 20 Cal. 2d 779 (Cal. 1942)