Contracts: Tender Back of Consideration Not a Rigid Requirement for Equitable Rescission

Plaintiffs brought suit, seeking, inter alia, rescission of a transaction in which they conveyed six million shares of stock in return for an interest in real property. Defendants moved for summary judgment, inter alia, on the grounds that Plaintiffs' claim for rescission was barred because they had not tendered back the consideration that they had received. The district court denied the motion. The court noted that, under Michigan law, the general rule is that a party seeking rescission at law must tender back the consideration received before making a rescission claim. However, in a rescission in equity the tender back rule is not rigid. A rescission at law is based on a past election to rescind; a rescission in equity proceeds on the theory that there has been no prior act of rescission. In equitable rescission, the court may take into account the difficulty of tendering back and the possibility of incorporating a tender back as part of a final judgment. In the present case, a tender back before judgment would be difficult because the property is in the hands of a third party. Moreover, once the rights of the parties are determined, the final judgment can incorporate any tender back condition that the court deems appropriate.

Stroh v Keady, et al, Civ No. 95-72635-DT, ED Mich, 8/8/97, Gilmore, J. (dkt #126, 11 pages)
This article was written by Mark A. Goldsmith, a partner in our Litigation Department, and previously appeared in the October 1997 edition of the Michigan Bar Journal.