Opinion ID: 1218400
Heading Depth: 2
Heading Rank: 2

Heading: Did the Stewarts Meet the Conditions for Rescission?

Text: The Stewarts based their cause of action on a theory of innocent misrepresentation. They argue that the Wilburns had a duty to disclose the true value of the assets of the corporation because the Stewarts had no knowledge of the RV business. In Ledbetter v. Webb, 103 N.M. 597, 600, 711 P.2d 874, 877 (1985), we stated that the innocent misrepresentation of a material fact will entitle the party who has justifiably relied thereon to rescind the contract. (Emphasis added.) Assuming, arguendo, that the representations excluded by the court were material, the Stewarts have not demonstrated, either by the evidence admitted by the court or through their offers of proof, that their reliance on the representations was justified. They contend that they had no experience in or familiarity with the RV business, and thus their reliance was justified. However, the evidence indicates that Mr. Stewart was an experienced mechanic; Mrs. Stewart was an attorney with experience in business transactions, and they both had the opportunity to work in the business for six weeks prior to the consummation of the sale. Mrs. Stewart testified that she was given the opportunity to inspect the books prior to the sale, and that when she found what she thought was an inconsistency, she confronted Mr. Wilburn, who told her that she should believe him  books can be made to say anything. As an experienced attorney, it would have been reasonable for her to question the representations made. Yet, she accepted his word, did not seek an independent valuation of the business, and did not even seek to negotiate on the price. See Miller v. Golden W. Motel, 78 N.M. 116, 118, 428 P.2d 655, 657 (1967), and Bell, 51 N.M. at 120, 179 P.2d at 761 (where `vendee undertakes to make investigation of his own, and is given full means to ascertain all the facts, and is not prevented from making the examination as full as he likes, he cannot be heard to complain because he relied upon representations of the vendor if his purchase proves unsuccessful' (quoting Berrendo Irrigated Farms Co. v. Jacobs, 23 N.M. 290, 305, 168 P. 483, 487 (1917))); cf. Smith v. Price's Creameries, 98 N.M. 541, 650 P.2d 825 (1982) (party to agreement who was given time and opportunity to fully examine contract, opportunity to be represented by counsel, yet failed to negotiate over terms, bound to terms of the agreement). [2] Furthermore, the party seeking rescission must return or offer to return what has been received as a condition precedent to maintaining a suit for rescission. Ledbetter, 103 N.M. at 601, 711 P.2d at 878. We do not, however, apply this rule rigidly; strict compliance is not necessary where it `has been rendered impossible by circumstances for which the purchaser is not responsible, or for which the vendor is responsible.' Robison v. Katz, 94 N.M. 314, 319, 610 P.2d 201, 206 (Ct.App.) (quoting Gottwald v. Weeks, 41 N.M. 18, 21, 63 P.2d 537, 538 (1936)), cert. denied, 94 N.M. 675, 615 P.2d 992 (1980). In the present case, the Stewarts did not attempt or offer to return the business until after litigation commenced, several years after the alleged misrepresentations were discovered. In fact, the Stewarts indicated a contrary intent  after they stopped paying Wilburn on the note, they continued operating the business, took out a business loan for improvements, transferred personal assets to the corporation, and, in response to Wilburn's demand letter, stated: you know that I am still interested in continuing the business. Accordingly, we find that the Stewarts' reliance on the alleged misrepresentations was not justified and that they have not met the conditions required for rescission, and we hold that they do not have any grounds to rescind the contract.