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A Florida appeals court has ruled on whether a purchaser can cancel a sales contract and receive a full refund three years after contracting when the developer failed to provide notice of rescission within the sales contract, as required by the federal Interstate Land Sales Full Disclosure Act.
In 1994, Fred and Rita Krasna ("Purchasers") entered into an agreement with Engle Homes, Inc. ("Developer") for the construction of a new home. The Purchasers took possession of their new home in 1995. In 1997, a neighbor informed them that they could have cancelled the purchase contract seven days after signing it and received a full refund of the purchase price, pursuant to the federal Interstate Land Sales Full Disclosure Act ("Act"). A month later, the Purchasers notified the builder of their intent to rescind the contract and sought a full refund of their purchase price. "Rescission" is an equitable remedy where a court cancels an agreement and attempts to return the parties to their position prior to the time of contracting. The Developer refused to rescind the purchase contract, and the Purchasers filed a lawsuit. The trial court ruled in favor of the Purchasers and rescinded the contract, and the Developer appealed.
The District Court of Appeal of Florida, Fourth District, affirmed the trial court. The court stated that this was an issue of first impression. The court first looked at the Act. The Act provides that a Purchaser has the option to revoke any purchase contract and receive a refund "until midnight of the seventh day following the signing of [a purchase] contract...and such contract or agreement shall clearly provide this right." Nowhere within the sales contract was the right of rescission set forth, as required by the Act.
The Developer argued that the Purchasers were not entitled to judgment because the Purchasers waived the right to rescission by accepting the property and its deed. The Developer also argued that it was entitled to receive compensation for the almost two years that the Purchasers lived in the home.
The court rejected the Developer's arguments. First, the court ruled that the Purchasers did not wave their right to rescission. Waiver is the relinquishment of a known right, and the Purchasers were not made aware of this right until 1997 and so did not waive their right to rescission by moving into the new home.
The court also ruled that the Purchasers were entitled to receive a refund of the entire amount of the purchase price and the Developers were not entitled to any compensation. The Act clearly granted the Purchasers the right to rescind the contract and receive a refund of the entire amount of the purchase price, so long as the property was returned in the same condition as it was originally conveyed. The Developer did not allege that the property was not in the original condition, and so the Purchasers were entitled to receive a refund of the entire purchase price. The court also rejected the argument that the purchase agreement limited the Purchasers to liquidated damages, stating that since the Developers drafted this contract without the rescission provision, it cannot try to limit the remedies that the Act makes available to purchasers. Thus, the trial court was affirmed.
Engle Homes, Inc., v. Krasna, 766 So. 2d 311 (Fla. Dist. Ct. App. 2000).