Breach of Contract, Without More, Insufficient to Justify Rescission

On September 26, 2014, Justice Whelan of the Suffolk County Commercial Division issued a decision in Huntington Village Dental, PC v. Rathbauer, 2014 NY Slip Op. 51545(U), explaining the circumstances under which a plaintiff is entitled to rescission of a contract.

In Huntington Village Dental, the court refused to grant the plaintiff summary judgment on its claim for rescission, notwithstanding “evidence of slight, causal and/or technical breaches of the” parties’ contract and instead granted the defendants summary judgment on the plaintiff’s rescission claim, explaining:

As a general rule, rescission of a contract is permitted for such a breach as substantially defeats its purpose. It is not permitted for a slight, casual or technical breach, but only for such as are material and willful, or, if not willful, so substantial and fundamental as to strongly tend to defeat the object of the parties in making the contract. A finding of a material breach must be premised upon proof that the departure from the terms of the contract or defects in its performance pervaded the whole of the contract so as to defeat the object that the parties intended.

The remedy of rescission is thus an extraordinary remedy that is only appropriate when a breach may be said to go to the root of the agreement between the parties. The issue of whether a purported breach by an obligee under a note constitutes a material breach of such note or related agreements that would suspend the payment obligations of the obligor thereunder is generally a question of fact.

A party seeking summary judgment on a contract rescission claim must establish, in the first instance, that a material breach occurred, that it lacks an adequate remedy at law and that the status quo may be substantially restored in the event that rescission is granted. Where a contract has been materially breached, the non-breaching party may elect to continue to perform the agreement and give notice to the other side rather than terminate it. When performance is continued and such timely notice is given, the nonbreaching party does not waive the right to sue for the alleged breach. However, by choosing not to terminate the contract at the time of the breach, the nonbreaching party surrenders his or her right to terminate later based on that breach.

(Internal quotations and citations omitted) (emphasis added). The court went on to find that the plaintiff had not made a prima facie showing of a material breach needed to justify the remedy of rescission.