Rescission And Damages For Buyer Dut To Seller’s Fraudulent Inducement Of An Article 2 Contract For Sale

Thursday, January 1st, 1998 at 12:00 am by Gary L. Monserud
Gary L. Monserud, Rescission And Damages For Buyer Dut To Seller’s Fraudulent Inducement Of An Article 2 Contract For Sale, 1998 Colum. Bus. L. Rev. 331

In section 2-721, the drafters of Article 2 recognized a buyer’s right of rescission for a seller’s fraudulent inducement of an Article 2 contract for sale. The drafters also recognized a buyer’s right to damages in conjunction with rescission. There are surprisingly few reported cases that provide any meaningful guidance to the awkward language of the section. The objectives of this article are: (1) to analyze cases citing section 2-721 where buyers’ claims for damages have been joined with buyers’ claims for rescission on account of sellers’ fraud or material misrepresentation; (2) to suggest lines of analysis that will better accomplish the Code’s remedial purpose than cases to date have done; (3) to analyze the role of punitive damages in rescission for sellers’ fraud cases; and (4) to comment upon the March, 1998 draft of revised Article 2 as it bears upon rescission and damages. This article discusses case law in painstaking detail, for only by an intense focus upon the facts of the cases will underuse and misuse of section 2-721 be illuminated. Close scrutiny of case law will help to avoid two common and related errors: (i) the tendency to over-generalize, and (ii) the tendency to compute damages without articulating a remedial objective. A general statement that remedies should make an injured party whole does not help a judge or lawyer unless there is an agreed upon definition of wholeness. Similarly, setting out to compute all losses proximately caused by a misrepresentation is meaningless unless the person making the computations decides on whether the objective is restoring an aggrieved party’s precontract position, recreating a lost expectancy as nearly as possible, or simply preventing unjust enrichment of a party liable for misrepresentation. In undertaking to read the cases closely, it should also be borne in mind that the amount in controversy has nothing to do with the principles at stake. Occasionally, reflection upon a few dollars contained in a damage award is as illuminating of the underlying remedial theory as is the contemplation of millions of dollars in another award. Hence, the cases are discussed in an effort to tease out underlying principles and objectives, and the time devoted to individual cases bears no correspondence to their economic significance.

Author Information

Professor of Law, New England School of Law.