Rescission of Contract Available Against Defendant Who Made False Representations to Induce Plaintiffs to Enter Into Contract

On February 28, 2025, Justice Andrew Borrok of the New York County Commercial Division issued a decision in Freedman v. Rakosi, Index No. 655608/2023, denying defendants' motion to dismiss plaintiffs' rescission claim, explaining:

Rescission requires a material and willful breach of contract that substantially defeats the object of the parties in making the contract (Bisk v Cooper Sq. Realty, Inc., 419 [1st Dept 2014]). In this case, the plaintiffs allege that Michael Rakosi promised that he would take certain steps in managing the properties (i.e. clearing title, opening a line of credit, and obtaining bids from multiple vendors for building repairs) to induce the plaintiffs to enter into certain agreements and to oust the former manager. The plaintiffs allege that this was knowingly false when made, and that Michael Rakosi has willfully breached agreements with the plaintiffs including the settlement agreement. This is sufficient at this stage of the lawsuit.

As this case shows, if a defendant makes knowing misstatements to induce a plaintiff to enter into a contract, rescission of that contract is one remedy that is available to the plaintiff. Contact the Commercial Division Blog Committee at commercialdivisionblog@schlamstone.com if you or a client have questions concerning a rescission claim.