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April 2011

Gordon & Rees Prevails in Commercial Lease Dispute

San Diego Senior Counsel David Chasin prevailed in a contract dispute on behalf of the owner of a commercial shopping center in San Diego, California. In August 2009, defendants, lessees who were renting and operating a family-owned produce market in a space in the shopping center, requested that the owner, Gordon & Rees's client, take back possession of the space. In response, the owner sent the lessees a one and one-half page Voluntary Surrender Agreement which contained four numbered terms, the third of which provided that the defendants/lessees would remain liable for rent until a replacement tenant was located.

The owner sent the agreement in a revisable format. The lessees changed four words in the agreement to provide that the owner was releasing them from liability, including revision to the bolded, underlined heading for the third term located three inches above the owner's signature line. The lessees sent an executed copy back to the owner. The two-page document was reviewed by three of the owner's employees who did not notice the change, ultimately signed by its Vice President, and returned to the lessees who had since vacated the premises. When the document was being processed, a file clerk noticed the irregularity. The owner immediately sought to rescind the agreement and the lessees refused.

Gordon & Rees filed a lawsuit on behalf of the owner seeking rescission of the agreement and damages, and the lessees cross-complained. At trial, Gordon & Rees conceded the owner's neglect in signing the agreement, but argued that such neglect could not prevent rescission of the agreement based on fraud, mistake and lack of consideration. In response, the lessees testified that the owner agreed to the changes in exchange for the lessees moving out a month earlier than contemplated in the agreement and the lessees' release of a potential mold claim (despite the fact that neither was documented nor included in the agreement). Lessees further testified that they had sent an alleged fax cover page describing the changes and that a representative of the owner had confirmed receipt.

The Court found the lessees' testimony was not credible, that the alleged fax cover page was not sent and that the agreement was unconscionable given the circumstances. Thus, despite the owner's failure to employ good business practices, the Court rescinded the agreement due to mistake and lack of mutual assent. The rescission claim had been bifurcated from the other issues. Upon the Court's finding that lessees' testimony was not credible, the remainder of the claims settled for $75,000. Up until trial, the lessees had maintained that they had no money and would file bankruptcy if a judgment was entered against them, and they had served a 998 offer for $1.01.

David A. Chasin