Opinion ID: 2378811
Heading Depth: 1
Heading Rank: 9

Heading: Avoidance

Text: Finally, it is apparent that the doctrine of avoidance, as set forth in Restatement (Second) of Contracts § 381 (1979), would bar Newcastle's attempts to avoid the February 2006 rescission agreements. Under Restatement § 381(2), [t]he power of a party to avoid a contract for misrepresentation or mistake is lost if after he knows of a fraudulent misrepresentation or knows or has reason to know of a non-fraudulent misrepresentation or mistake he does not within a reasonable time manifest to the other party his intention to avoid it. Restatement § 381, comment a, further explains: A party who has the power to avoid a contract may lose that power by delay alone, even without such conduct as amounts to affirmance (§ 380). Under the rule stated in this Section the power is lost if it is not exercised within a reasonable time. The application of this doctrine to contracting parties is contained in an example set forth in Illustration 1 to Restatement § 381: 1. A is induced by B's misrepresentation to contract in January to sell B 1,000 shares of stock in the X Corporation for $100,000, delivery and payment to be on May 1. A discovers the fraud in February but does not manifest his intention to avoid the transaction until April. In view of the extent to which A's delay of two months enabled him to speculate at B's expense, A has lost his power of avoidance, and his manifestation is not effective to avoid the transaction. Here, similar to the above illustration, Newcastle claims that it was induced by the Thyes' misrepresentations to contract in February 2006 to rescind the May 2005 sales contract. Newcastle should have discovered the alleged fraud and damages at the very latest when it was doing the extra work on the property, which would have occurred between the time when Barnes signed the February 2006 rescission agreements and when Newcastle sold the property on March 16, 2006. Newcastle, however, did not file suit and manifest its intention to avoid the February 2006 rescission agreements until June 2007. In view of Newcastle's delay of 16 months in attempting to avoid the rescission agreements, Newcastle lost its power of avoidance. As a result, its attempt to avoid the rescission agreements were not effective. If Newcastle wanted to avoid the February 2006 rescission agreements, it could have contacted the Thyes in February or March 2006 when it was doing all the extra work on the property to sell it. At that point, Newcastle would have been aware of the extra money that it had to pay contractors to come in and finish the work that Alpha homes and/or Thomas Dressler failed to complete and of any additions that the Thyes had made that were not authorized by the contract. Newcastle could have offered to tender the custom-built home back to the Thyes and place them in the same position that they had been in before the rescission agreements were signed. Nevertheless, it seems that Newcastle chose to make the improvements and to speculate on getting a better sale price for the property, which, in fact, it ultimately did receive. As a result, Newcastle should not be allowed, 16 months after the February 2006 rescission agreements were signed, to avoid the agreements and claim that the Thyes breached the May 2005 sales contract. See Hoke v. Stevens-Norton, Inc., 60 Wash.2d 775, 778-79, 375 P.2d 743 (1962) (where defendant failed to make demand upon defendant for rescission when he learned true character of transaction, he waived any right to rescind or for damages).