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Bhavsar v. Aditya

A-2094-98T2 (N.J. Super. App. Div. 2000) (Unpublished)

CONTRACTS; REMEDIES; MISTAKE—Once a party has elected to seek recission based upon mutual mistake, if the court denies such relief, the party may not then seek damages as a remedy.

In a contract for the sale of a business entity where components of the sale cannot be provided due to mutual mistake, a buyer may either affirm the agreement by taking certain actions after the mistake was realized (possibly entitling the buyer to damages), or timely rescinding the contract (without entitlement to damages). One individual was interested in buying a doughnut franchise from another. The buyer began to work at a doughnut franchise owned by the seller’s brother and then began to work at a new doughnut franchise owned by the seller. Then, both began negotiations over the sale of this new store. Although no written agreement had been drawn, the buyer began making payments towards the purchase of the store. Eventually, a contract was signed. Thereafter, the buyer discovered that the seller had inflated the daily sales figures by about $75 per day. As a result, the buyer canceled the contract. The seller responded that he would return money already paid when he was able to sell the store to another party. A portion was returned. Then, the seller sold the store to another party, but after the new owner’s failed attempt to operate the store, the seller regained ownership. The seller and buyer then renewed discussions about the sale of the store and the buyer paid an additional $45,000, but no written agreement was drafted. A new dispute arose wherein certain delivery routes agreed to be a component of the sale were terminated by third parties. Nonetheless, the buyer opened the store and began making monthly payments until business began deteriorating. Then the buyer sued the Seller for recission of the contract and various other relief. The lower court held that the parties entered into a contract for the sale of the business entity; that the sale included the delivery routes; and that these components of the sale could not be provided due to a mutual mistake that made the contract voidable. It also held, to the buyer’s chagrin, that the buyer had affirmed the agreement by continuing to operate the store and making payments. Consequently, its call for recission was untimely, and the buyer’s “power to avoid the contract [was] lost.” The buyer appealed and the Appellate Division began by holding that “the factual findings and legal conclusions of the [lower court must stand] unless they are so manifestly unsupported by or inconsistent with the competent, relevant and reasonable credible evidence as to offend the interests of justice.” The Appellate Division then reviewed the analysis conducted by the lower court and found that the lower court record supported its findings. Since the buyer sought recission below, the Appellate Division held that its only remedy was termination of the agreement and that it abandoned any claims for damages based upon affirmance. The Appellate Division concluded that the lower court “carefully assessed the credibility of both parties, finding neither of them entirely credible. Under Rova Farms principles, and considering the proofs as a whole, the lower court’s findings are based on substantial evidence.”

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