Chapter 28 RESCISSION

• Jurisdiction: New York

Chapter Twenty-Eight

Rescission

In Robinson v. Robinson,⁴³⁵⁸ the Appellate Division underscored that if agreements are to be practicable and efficacious to the contracting parties as well as society at large, they must be accorded some degree of finality. They cannot be altered, or rescinded, simply because a party becomes dissatisfied. The law views the equitable distribution of marital assets as a snapshot, not a movie. If an agreement distributing marital assets is not subject to vacatur, on the date of its execution, on grounds sufficient to vitiate a contract, it may not be modified or set aside on the ground that future events have rendered the division of assets inequitable.⁴³⁵⁹

I. Equitable Relief As Sound Judicial Discretion

The fundamental, neutral precept of contract interpretation is that agreements are construed in accord with the parties' intent.⁴³⁶⁰ It is a cardinal principle that the granting of an equitable remedy is ordinarily a matter of discretion, not an arbitrary, capricious discretion, but a sound judicial discretion, controlled by established principles of equity, and exercised upon a consideration of all of the circumstances of each particular case.⁴³⁶¹ While policy of the courts encourages the settlement of differences privately, agreements fairly executed after negotiation and full disclosure of all relevant facts should not be casually undone and the bargain redesigned to satisfy a court's retrospective idea of what is important or wise.⁴³⁶²

II. Prevalence of Vacatur Proceedings

The Court of Appeals has emphasized the strong public policy favoring individuals ordering and deciding their own interests through contractual arrangements, including prenuptial and postnuptial agreements.⁴³⁶³ However, although separation agreements are concluded in hope of laying disputes to rest with finality, there is, nevertheless, a surfeit of proceedings to vacate settlement agreements long after both parties have complied with the terms of the agreements; the payor having met the required property transfers and support payments, and the recipient having accepted them without protest or objection as to their appropriateness or adequacy, to wit, ratification.

In a cogent dissent in Gottlieb v. Such,⁴³⁶⁴ Justice David Saxe bemoaned " 'the prevalence of excessive post-divorce litigation' " and the necessity "to find ways to discourage baseless postjudgment proceedings and offer instead protection against the enormous financial burden they entail." In Kojovic v. Goldman,⁴³⁶⁵ the First Department stated, "This Court does not stand alone in its disdain for post-divorce claims of concealment";⁴³⁶⁶ that divorce settlements are deserving of "integrity and finality."

III. Sanctions For Frivolous Suits to Vacate Agreements

Frivolous suits to vacate agreements are sanctionable under N.Y. Comp. Codes R. & Regs. title 22, § 130-1.1 (N.Y.C.R.R.). Summary relief is available. "Reverse duress" consists of pressure by way of meritless litigation upon the financially well-anchored payor-former spouse with the misdirected notion that the mere incantation of the terms "fraud," "duress," "overreaching," or "unconscionability" can alchemically produce a more favorable renegotiation of goodies. Although an award of counsel fees is statutorily unavailable for an action to set aside an agreement,⁴³⁶⁷ the litigation expenses incurred during the course of defending such meritless actions may be awarded as a sanction under 22 N.Y.C.R.R. § 130-1.1.⁴³⁶⁸

IV. No Grace Period to Rescind Agreement Once It Is Signed, Disavowal of an Agreement Before Order Is Signed

A grace period is like any other provision in an agreement which must be specifically negotiated because the law does not permit a court to read or infer provisions not within the agreement.⁴³⁶⁹ Once an agreement is signed, it may be impugned only by the traditional principles of contract doctrine; there is no grace period during which time either party may repudiate the agreement on whim, so that an effort to disavow a settlement before the order was signed and entered could not defeat an otherwise valid agreement. While the trial court has discretionary power to relieve parties from the consequences of a stipulation entered into during litigation, such relief should sparingly be granted and only for good cause shown.⁴³⁷⁰

The fact that the appellant sought to disavow the settlement before the order was signed and entered would not defeat an otherwise valid agreement.⁴³⁷¹

V. Grounds For Setting Aside Agreements

A stipulation between parties will generally be enforced unless shown to have been the product of fraud, overreaching, duress,⁴³⁷² collusion,⁴³⁷³ mutual mistake, mistake induced by misrepresentation,⁴³⁷⁴ failure of consideration, fraud in making the contract, inability to perform after it is made, repudiation of the contract or an essential part thereof, and such a breach as substantially defeats its purpose.⁴³⁷⁵

The sufficiency of a complaint must be measured against what the law requires of pleadings in the particular case.⁴³⁷⁶ There is no requirement of heightened particularity in a contract claim.⁴³⁷⁷ The law is not settled as to what additional factors must support an application for rescission based on unilateral mistake.⁴³⁷⁸

Stipulations of settlement can also be set aside when there is sufficient evidence of an accident,⁴³⁷⁹ some other ground of the same nature⁴³⁸⁰ or similar cause,⁴³⁸¹ or mental capacity.⁴³⁸² A court may not set aside any portion of an agreement upon a finding based on its own independent recollection of representations made at the settlement conference but dehors the record.⁴³⁸³ Unsupported assertions of coercion cannot form the basis for vacating a stipulation of settlement, particularly where there was nothing inequitable about the subject settlement.⁴³⁸⁴

A court may not sua sponte set aside an agreement where neither side requested that relief.⁴³⁸⁵

In Rabinovich v. Shevchenko,⁴³⁸⁶ the Appellate Division held that "the particular circumstances" of the cases warranted a finding that the prenuptial agreement was unenforceable because it had been the result of coercion: (1) the agreement was presented to the defendant just before the marriage ceremony; (2) it was drafted in English, a language which she did not then understand;⁴³⁸⁷ and (3) she did not have the opportunity to have it reviewed by an attorney or translated into her native language before she signed it. A request for such equitable relief must be contained in the pleadings as a cause of action or by way of an affirmative defense, set forth in detail and with particularity.⁴³⁸⁸ One appellate decision sua sponte granted rescission.⁴³⁸⁹

A party may be estopped from attacking the validity of an agreement where the attacking party is seeking to avoid the agreement in order to obtain rights arising from a marriage that never would have occurred but for the agreement.⁴³⁹⁰

VI. Voidable Agreements: Fraud, Misrepresentation, Duress

Contracts secured by duress which precluded the exercise of the other party's free will are voidable⁴³⁹¹ as are contracts procured by fraud.⁴³⁹² A contract procured by fraud is valid until disaffirmed, to wit, it is voidable, not void.⁴³⁹³ Generally, a contract entered into under mutual mistake of fact is voidable and subject to rescission.⁴³⁹⁴

Perl v. Perl⁴³⁹⁵ held that a divorce settlement tainted by duress is void ab initio, not merely voidable, and is, therefore, not subject to ratification by the mere passage of time. This proposition in Perl is incorrect.⁴³⁹⁶

VII. Rescission, Reformation, Equitable Relief; Elementary Duty Between Contracting Parties

"Rescission . . . is usually only applicable where, because of fraud, misrepresentation, or mistake, 'there is an absence of the requisite "meeting of the minds" to the contract,' and then all or a part of the contract will be annulled."⁴³⁹⁷ A mistake not mutual but only on one side may be a ground for rescinding but not for reforming a contract.⁴³⁹⁸ The court's power to order rescission is an exceptional one and should be exercised with caution, only justified by some element such as fraud, accident, or mistake, and then only when such element is clearly evident.⁴³⁹⁹ The burden of proving fraud at trial is one of clear and convincing evidence, and not mere preponderance.⁴⁴⁰⁰ The elements of fraud are narrowly defined, requiring proof by clear and convincing evidence. Not every misrepresentation or omission rises to the level of fraud. An omission or misrepresentation may be so trifling as to be legally inconsequential or so egregious as to be fraudulent, or even criminal. Or it may fall somewhere in between.⁴⁴⁰¹ A party can affirm or rescind a contract; he or she cannot do both, and there must be a time when the election should be considered final.⁴⁴⁰² A party may not seek protection under the terms of an agreement while simultaneously attempting to rescind the agreement.⁴⁴⁰³

A party's remedy for fraud in the course of a legal proceeding lies exclusively in that lawsuit itself, i.e., by moving pursuant to CPLR 5015 to vacate the civil judgment due to its fraudulent procurement, not a second plenary action collaterally attacking the judgment in the original action.⁴⁴⁰⁴

As with other contracts, a separation agreement can be impeached through the equitable doctrines of reformation or rescission.⁴⁴⁰⁵

Parties to any contract owe an elementary duty not to hinder or obstruct the performance of the other party to the contract.⁴⁴⁰⁶ It is well settled that the imposition of an equitable remedy must not itself work an inequity.⁴⁴⁰⁷

Somogye v. Somogye⁴⁴⁰⁸ affirmed Family Court's termination of the husband's spousal maintenance obligation where, under a stipulation, those obligations were to continue only until the wife completed a course as a court stenographer and became fully employed. Since she quit the course before completing it, she prevented the occurrence of the condition upon which her husband's obligations...