How Do You Rescind, Cancel, or Reform a Contract or other Legal Instrument?

Rescission, cancellation, and reformation are separate and distinct actions to undo or correct contracts and other legal instruments and have different legal consequences.

Rescission

Rescission avoids a contract or other legal instrument ab initio; it is the retroactive annulment, abrogation, or unmaking of an agreement or instrument and places the parties in the position they were in prior to entering into the agreement or instrument.¹ When a contract or other legal instrument is rescinded, it is as if the contract or legal instrument never existed in the first place; the contract or legal instrument is abrogated from its inception.²

The grounds for rescission are fraud, mutual mistake, false representations, or the impossibility of performance.³ In addition, the mental incompetence of a party may justify rescission.⁴ Rescission is also not available as a matter of right; it lies within the sound discretion of the court.⁵

To state a claim for rescission, a party must allege:

1. the character or relationship of the parties;
2. the making of a contract;
3. the grounds for rescission – fraud, mutual mistake, false representations, impossibility of performance, or other grounds for rescission or cancellation;
4. that the party seeking rescission has rescinded the contract and informed the other party to the contract of the rescission;
5. if the rescinding party has received benefits from the contract, that the party has offered to restore the benefits if possible; and
6. the party has no adequate remedy available at law.⁶

A condition precedent to granting rescission is that the other party must be returned to its status quo.⁷ In addition, the plaintiff must demonstrate equitable conduct and diligent protection of its rights.⁸ The plaintiff must also show that the mistake was not the result of its own negligence and lack of foresight.⁹

In addition to common law rescission, consumer protection legislation provides additional grounds for rescission of transactions, including regarding the sale of real property and mortgage lending, such as those regulating truth in lending (15 U.S.C. 1601 et seq), land sales practices (15 U.S.C. § 1701 et seq.), home improvement agreements (Fla. Stat. § 520.60 et seq.), sales of residential condominiums (Fla. Stat § 718.503, § 718.506), and sales of cooperative apartments (Fla. Stat. § 719.503, § 719.506).

Cancellation

Cancellation is defined as the termination of an agreement or instrument, operating prospectively, rather than retroactively.¹⁰ Cancellation merely terminates a contract or legal instrument as of the time when the cancellation becomes effective and discharges future obligations, but does not abrogate the contract or legal instrument ab initio as with rescission.¹¹

In an action for cancellation of an agreement, the plaintiff seeks to terminate the binding effect of an agreement (such as a lease) based upon a material breach of the agreement and to obtain relief from any further obligation to perform under the agreement, while still being able to maintain claims for breach of the agreement.¹² For example, pursuant to section 680.505, Florida Statutes, with regards to the cancellation of a lease contract under the Uniform Commercial Code, all obligations that are executory are discharged, but any right based on a prior default or performance survives. Further, the canceling party retains any remedy for default of the whole lease contract or any unperformed balance. Cancellation is usually sought as of the date some default occurred rather than retroactively to the date of the transaction.¹³

Cancellation of an instrument, such as a promissory note or other negotiable instrument, prevents future claims against an obligor based upon the promissory note or negotiable instrument.¹⁴ Cancellation of an instrument is also commonly an incident to various proceedings, including an action for rescission or quiet title.¹⁵

Reformation

Reformation is an equitable remedy to correct an error not in the parties’ agreement or legal instrument but in the writing that constitutes the embodiment of the agreement or legal instrument.¹⁶ In reforming a written instrument, a court does not alter the agreement of the parties. Instead, the court’s reformation only corrects the defective written instrument so that it accurately reflects the true terms of the parties’ agreement.¹⁷

Similar to rescission and cancellation, Florida courts have delineated that fraud, inequitable conduct, accident, inadvertence, and mutual mistake may support a claim for reformation.¹⁸ The plaintiff has the burden of proving the intent of the parties and, by clear and convincing evidence, demonstrating some ground for reformation.¹⁹ Parol evidence is admissible in a reformation action for the purpose of demonstrating that the true intent of the parties was something other than that expressed in the written instrument.²⁰ The plaintiffs also must have acted in good faith and been diligent in protecting its rights. Unreasonable or unnecessary delay is construed as a waiver or ratification and may defeat a claim for reformation.²¹

Pleading Claims for Rescission, Cancellation, and Reformation

The general rules for pleading a claim for reformation, rescission, and cancellation apply in that a claim based on fraud or mistake must be pleaded with particularity.²² In addition,

all material documents and relevant excerpts from the contract must be set out in, or attached as exhibits to, the complaint. ²³ Additionally, all interested parties must be named as parties to the action.²⁴

Conclusion

Rescission, cancellation, and reformation are separate and distinct actions that operate to create different legal consequences; rescission avoids the contract or legal instrument ab initio; cancellation merely terminates the contract or legal instrument as of the time when the cancellation becomes effective. Reformation is an equitable remedy that corrects an error not in the parties’ agreement, but in the writing that embodies the parties’ agreement.

1. Billian v. Mobil Corp., 710 So.2d 984, 991 (Fla. 4th DCA 1998); Borck v. Holewinski, 459 So.2d 405 (Fla. 4th DCA 1984).
2. United Auto. Ins. Co. v. Salgado, 22 So.3d 594, 603 (Fla. 3d DCA 2009).
3. Billian 710 So.2d at 991.
4. Long v. Moore, 626 So.3d. 1387, 1388 (Fla 1st DCA 1993).
5. Billian, 710 So.2d at 991.
6. Waterside at Boynton Homeowners’ Assoc., Inc. v. Southern Homes of Palm Beach, LLC, 373 So.3d 351, 354 (Fla. 4th DCA 2023); Billian, 710 So.2d at 991.
7. Walker v. Eris, 886 So.2d 414 (Fla. 1st DCA 2004) (citing Billian, 710 So.2d at 991).
8. Billian, 710 So.2d at 991.
9. Limehouse v. Smith, 797 So.2d 15 (Fla. 4th DCA 2001).
10. Id.
11. Salgado, 22 So.3d at 603.
12. Jeffrey Fridkin, Michael T. Traficante, Alexandra Gable, and Manuel Farach, Re-creating and Correcting Instruments and Agreements, The Florida Bar, Florida Real Property Litigation CLE, Chapter 6, § 6.9 E, p.22.
13. Id.
14. Id.
15. Id.
16. Mt. Hawley Ins. Co. v. Miami River Port Terminal, LLC, 228 F.Supp.3d 1313, 1327 (S.D. Fla. 2017) (other citations omitted).
17. Id.; Losner v. HSBC Bank USA, N.A., 190 So.3d 160, 161 (Fla. 4th DCA 2016).
18. Mt. Hawley Ins. Co., 228 F.Supp.3d at 1327.
19. Markel American Ins. Co. v. Baker, 152 So.3d 86, 90 (Fla. 5th DCA 2014); Losner, 190 So.3d at 161; Winn-Dixie Stores, Inc. v. Big Lots Stores, Inc., 2016 WL 2918152, at *9 (S.D. Fla. 2016).
20. Id.; Providence Square Ass’n, Inc. v. Biancardi, 507 So.2d 1366, 1371 (Fla. 1987); Mueller v. Marks, 576 So.2d 1337, 1338 (Fla. 4th DCA 1991).
21. Dep’t. of Transp. v. Ronlee, Inc., 518 So.2d 1326 (Fla. 3d DCA 1988)
22. Fla. R. Civ. P. 1.120(b).
23. Fla. Rule Civ. P. 1.130.
24. Fla. Stat. § 46.011, et seq; Fla. R. Civ P. 1.210.