FORT LAUDERDALE BUSINESS LITIGATION: RESCISSION OF A CONTRACT

Florida businesses may seek rescission of a contract in certain circumstances when the contract was entered into because of fraud, accident, or a mistake of facts. To preserve the legal right to invoke the remedy of rescission, when the basis for rescission is discover must immediately reject any further benefits under the contract and must usually offer to restore the other party to the same position that it was in prior to entering into the contract. Peter Mavrick is a Fort Lauderdale business litigation attorney, and also represents clients in business litigation in Miami, Boca Raton, and Palm Beach. The Mavrick Law Firm represents clients in breach of contract litigation, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, and other legal disputes in federal and state courts and in arbitration.

After entering into a contract, a Florida business may discover something that reveals that it was a mistake to enter into the contract. “Courts of equity will rescind an instrument based upon fraud, accident[,] or mistake.” Bass v. Farish, 616 So. 2d 1146 (Fla. 4th DCA 1993). Rescission allows a business to essentially undo a contract. The remedy of rescission allows a Florida business to return to the same position it was in before entering into the contract in certain circumstances. “The prime object of rescission is ‘to undo the original transaction and restore the former status’ of the parties.” Billian v. Mobil Corp., 710 So. 2d 984 (Fla. 4th DCA 1998).

Under Florida law, a business cannot receive the benefit of a contract while simultaneously repudiating that same contract. A party to a contract can waive its right to rescission if it “retains the benefits of a contract after discovering the grounds for rescission.” Mazzoni Farms, Inc. v. E.I. DuPont De Nemours & Co., 761 So. 2d 306 (Fla. 2000). To obtain rescission, a party to a contract must show that it, “with reasonable promptness, denied the contract as binding upon him and that thereafter he was consistent in his course of disavowal of it.” Rood Co. v. Board of Pub. Instruction, 102 So.2d 139 (Fla.1958); Steinberg v. Bay Terrace Apartment Hotel, Inc.,375 So.2d 1089 (Fla. 3d DCA 1979) (“[T]he remedy of rescission is clearly not favored by the courts, particularly when the complaining party has failed to promptly deny the contract as binding upon him and failed to follow a course of conduct manifesting a disavowal of it”). By staying silent or acting as if the contract is still in effect, the party seeking rescission “will be bound by the contract in the same manner as if the [basis for rescission] had not occurred.” Rood Co. v. Board of Pub. Instruction, 102 So.2d 139 (Fla.1958). AVVA-BC, LLC v. Amiel, 25 So. 3d 7 (Fla. 3d DCA 2009) (refusing rescission when purchase of business where landlord did not accept assignment but the business continued to operate).

A party that continues to stay in a leased property without offering to vacate after discovering the grounds for rescission will waive rescission through conduct. Morris Inv. P’ship v. Figueroa, 698 So. 2d 288 (Fla. 3d DCA 1997) (A tenant remaining “on the premises and enjoy[ing] benefits under the lease agreement is totally inconsistent with seeking rescission of [a] lease”). A party that allows the other contracting party to attempt to resolve a grievance about the terms of the contract, once that party is already aware of the basis for rescission, can also waive rescission. Scocozzo v. Gen. Dev. Corp., 191 So. 2d 572 (Fla. 4th DCA 1966) (rejecting rescission on the basis of a false claim concerning water access when the purchaser of a property accepted the benefit of a new water heater to remedy contract).

In addition to refusing any further benefits under the contract, a party seeking rescission must also be able to return the other contracting party to the same position as it was prior to entering into the contract. “A prerequisite to rescission is placing the other party in status quo.” Mazzoni Farms, Inc. v. E.I. DuPont De Nemours & Co., 761 So. 2d 306 (Fla. 2000). Sometimes, circumstances make it impossible to bring the parties back to the status quo through no fault of the parties. In such a situation courts will generally not order rescission, even if it is otherwise justified. For example, in Bush v. Palm Beach Imports, the court reversed the trial court order rescinding a purchase of the vehicle because returning the car would not put the other contracting party into the same position because of depreciation. Bush v. Palm Beach Imports, Inc., 610 So. 2d 68 (Fla. 4th DCA 1992) (“We find that rescission was not the proper remedy here where the trial court had made the finding that the parties could not be put back to their pre-sales positions due to the depreciation of the car”).

However, a party seeking rescission may not need to return the other party to the status quo in the limited circumstance “when the inability of one party to restore is caused by the very fraud perpetrated by the other party. In this situation, the defrauded person is excused from restoration if the inability to restore is caused by the wrongdoer’s conduct.” Bass v. Farish, 616 So. 2d 1146 (Fla. 4th DCA 1993); Mulle v. Scheiler, 484 So. 2d 47 (Fla. 5th DCA 1986) (permitting rescission when the fraudulent conduct of the seller of a business cause the business to collapse before rescission was possible even though it was impossible to undo the sale of the business once the business failed).

Peter Mavrick is a Fort Lauderdale business litigation lawyer who also practices business litigation in Miami, Boca Raton, and Palm Beach. This article does not serve as a substitute for legal advice tailored to a particular situation.