Appeal No.: BB-46

UNITED SECURITY ALLIANCE, INC.,

Appellant,

vs.

LOVE’S AUTO SALES, INC.,

Appellee.

_________________________________________/

This matter was heard on appeal from the county court of Polk County, Judge Michael Raiden presiding. On April 14, 2000, this court issued an opinion affirming the ruling of the county court. In their motion for rehearing, United correctly noted that White v. Pinellas County, 174 So. 2d 88 (Fla. 2d DCA 1965); 185 So. 2d 468 (quashed on other grounds), and Rest. 2d § 90 do not stand for the proposition for which they were cited. This court grants rehearing on this issue. This court has jurisdiction. Fla. R. App. P. 9.030.

The order of April 14, 2000 contains a complete recitation of the facts. On appeal, United argued that the trial judge erred by awarding damages exceeding the limitation clause of the warranty agreement. United cites the express language of the limitation clause in support of their argument that the clause is enforceable against Love’s because the contract itself is otherwise valid. United also stated that the limitation clause is independent of any repair or replacement remedy and is enforceable although the repair or replace remedy failed in its essential purpose.

Generally, a party must show fraud as to an existing fact, or some other independent basis for equity before a court will grant recission of a contract. Hibiscus Associates, Ltd v. Board of Trustees of Policemen and Firemen Retirement System, 50 F. 3d 908, 916 (11^th Cir. Fla. 1995). However, failure of one party to perform under a covenant may establish grounds for recission if the covenant is such an integral part of the contract that failure of the covenant is substantially failure of the entire contract. Id.; Steak House, Inc. v. Barnett, 65 So. 2d 736, 780 (Fla. 1953). A covenant is dependant if, "performance by one party is conditioned on and subject to performance by the other, and in such case the party who seeks performance must show performance or a tender or readiness to perform on his part; but covenants are independent when actual performance of one is not dependent on another, and where, in consequence, the remedy of both sides is by action." Black’s Law Dictionary, 6^th Edition, 1990.

In the circumstance in which breach of a dependent covenant amounts to a breach of the entire contract, an injured party may recover under the contract, or seek an equitable remedy. Hibiscus Associates, Ltd., 50 F. 3d at 916; cf. Beatty v. Lucas, 150 So. 239 (Fla. 1933)(holding no recission for breach of independent covenant). Recission is an equitable remedy. It will be awarded when the injured party can establish that the remedy at law is inadequate, and that recission will place the parties in their pre-contract posture without prejudice to either. Hibiscus Associates, Ltd., 50 F. 3d at 916.

In Steak House v. Barnett, the parties executed a lese agreement by which the lessor agreed to indemnify and hold harmless against any claim of indebtedness on the lessee’s account up to $18,000. Steak House, Inc. brought suit for recission alleging fraud, and in the alternative, breach of a dependent covenant. The Florida Supreme Court concluded that the facts supported recission on both theories. The court held that while the covenant did not go to the entire consideration, it is reasonable to conclude that the lessee would not have entered the contract if that provision had been omitted. Steak House, Inc., 64 So. 2d at 738.

In Hibiscus Associates, Ltd. V. Board of Trustees of Policemen and Firemen Retirement System, the parties contracted for the construction and operation of a shopping mall. 65 So. 2d 736 (Fla. 1953). Under the terms of the first agreement, Hibiscus was the mortgagee on a construction loan and on a permanent mortgage. The parties agreed to modify the loan in anticipation of Hibiscus’ inability to make future loan payments on time. Hibiscus and their guarantors brought suit under the contract alleging the mortgagor failed to perform under the modified terms. The mortgagor countered that Hibiscus and its guarantors failed to secure an unconditional certificate of occupancy, and failed to manage the property under the terms of the modification until released from the modification. In the portion of the opinion discussion Florida law on recission, the court noted that recission is a remedy for breach when the covenant breached is a dependent covenant. 50 F. 3d at 916 (citing Steak House, Inc.).

In Mease v. Warm Mineral Springs, Inc., Warm Mineral Springs, Inc., the grantor, promised to convey certain real property to Mease in exchange for his promise to build a clinic within one year of conveyance. 128 So. 2d 174, 180 (Fla. 2d DCA 1961). The agreement stated that if Mease should fail to build a clinic, he was to surrender any claim to the property. Mease failed to build and the grantor sought recission. The district court noted that the only consideration Mease gave for the property was his promise to build a clinic. The district court affirmed the trial court ruling that the conveyance was a dependent covenant going to the consideration of the contract, and granting recission. Id.

In Lang v. Horne, et al., the parties entered a contract for the sale of real property. Under the terms of the contract, the seller failed to deliver title to the land after the buyer had satisfied all payments on the property. During the finance term of the agreement, the buyer cut and sold timber from the land. When the seller failed to deliver title, the buyer sought recission. Although the failure to make timely delivery of the title was sufficient to establish relief in equity, the court denied the petition because the buyer had cut timber from the land and recission would not return the parties to the status quo. 23 So. 2d 848, 853 (Fla. 1945); cf Henson v. James M. Barker, Inc., 555 So. 2d 901, 908 (Fla. 1^st DCA 1990) (holding that general rule requiring return to status quo is subject to fraud exception).

The third district court rescinded an oral lease after partial performance on the contract despite changes to the land. In Moore v. Staalac, Inc., No. 2, the Moore’s were real estate brokers who secured five parcels for lease by Staalac. 166 So. 2d 814, 817 (Fla. 3d DCA 1964). Staalac wanted to build a cafeteria on the land. Under the agreement, the Moore’s were to execute a 99-year lease on four of the five parcels, and sublease them to Staalac. They were to then acquire the fifth parcel in fee simple and lease it to Staalac for the same 99-year term. Staalac payed lease payments on all five parcels in full at the beginning of het leases and began preparing the land for construction of the cafeteria and parking lot. Specifically, Staalac had begun clearing and grading the land and securing building permits. However, the Moore’s failed to secure title to the fifth parcel. Staalac sought recission of the lease and recovery of expenses incurred in preparation of construction. The district court affirmed the award of recission despite partial performance, and despite changes to the property. Id. at 816.

The circumstances surrounding the breach are critical to this analysis. Here, the Warranty Agreement was a dependent covenant to the Lease Agreement with Greentree. The Warranty Agreement provided for repair or replacement of the security equipment by United. It also stated that the warranty would be voided in the event the lessee attempted repair. The Lease Agreement stated that the lessor, Greentree, was not responsible for maintaining the equipment. United breached the Warranty Agreement when it failed to perform service sufficient to provide a system on proper working order. The limitation of damages clause stated that the lessee was entitled only to repair or replacement of equipment. After United’s breach, Love’s was left with a malfunctioning security system, and without any option for repair. It is not reasonable to suppose that Love’s would have entered a lease with Greentree, which expressly excluded repair and fitness for purpose, without an express repair warranty in some other provision. The trial judge found that the monitor had never worked properly because of interference from a nearby microwave tower. The trial judge also found, and United’s expert testified that the type of system installed would never function properly due to microwave interference; yet, United failed to correct the problem. United’s service request and repair records show that the problem persisted from late August 1997 through December 1997. The monitor was an essential component of the security system, without which the system served no useful purpose. Love’s had made lease payments for several months, despite the fact that the image quality was inadequate. Even after United’s breach, Love’s remained obligation under the Lease Agreement to Greentree. By the decision below, the contracts were properly rescinded and the parties returned to status quo.

Accordingly, it is ORDERED that the ruling of the trial court is AFFIRMED.

ORDERED 17 May 2000.

Charles B. Curry

Chief Judge