DM Residential Fund v. First Tennessee Bank

A party seeking the remedy of rescission must rescind promptly upon discovering the facts that would entitle rescission, and not engage in activities inconsistent with canceling the contract.

First Tennessee Bank National Association (“FTB”) initiated a private sale via non-judicial foreclosure regarding the real property in dispute. The property was sold to DM Residential Fund II, LLC (“DM”). After the sale, DM discovered the property lacked certain material components to the function of the home, including a certificate of occupancy and a utilities easement necessary for electrical services. DM brought suit against FTB two years later, seeking to rescind the contract. The district court granted FTB summary judgment. On appeal, the Ninth Circuit determined whether DM was entitled to rescind the contract. The panel noted that under California Civil Code § 1691, a party seeking the remedy of rescission must rescind promptly upon discovering the facts that would entitle the party to rescind on the contract. The panel held that because DM immediately discovered the easement and certificate of occupancy issues after purchasing the home but took time to pursue its rescission claims, including building improvements before attempting to resell the property, that a grant of summary judgment in favor of FTB was proper. AFFIRMED.