Rescission

Definition

Rescission is the act of cancelling or annulling a contract, effectively undoing the contractual obligations and restoring the parties to their pre-contract positions. It is a legal remedy available when there has been a breach of contract or other grounds for voiding the agreement.

5 Must Know Facts For Your Next Test

1. Rescission is a remedy available to the non-breaching party when the other party has committed a material breach of the contract.
2. Rescission allows the parties to be restored to their original positions before the contract was formed, undoing any exchanges or performances that occurred.
3. The remedy of rescission is equitable in nature, meaning the court has discretion in determining whether it is an appropriate remedy based on the circumstances.
4. Rescission may be sought through a court order or by the unilateral action of the non-breaching party, depending on the grounds for rescission.
5. Grounds for rescission include fraud, duress, mistake, and in some cases, a substantial breach of a material term of the contract.

Review Questions

• Explain the purpose and effect of the remedy of rescission in the context of a breach of contract.
  • The purpose of rescission is to undo a contract and restore the parties to their pre-contract positions. When a material breach of contract has occurred, the non-breaching party may seek rescission as a remedy. This allows the parties to be released from their contractual obligations and any exchanges or performances under the contract to be reversed, as if the contract had never been formed. Rescission is an equitable remedy, meaning the court has discretion in determining whether it is an appropriate solution based on the specific circumstances of the case.
• Describe the grounds under which a party may seek rescission of a contract.
  • There are several grounds under which a party may seek to rescind a contract, including fraud, duress, mistake, and substantial breach of a material term. Fraud occurs when one party intentionally misrepresents a material fact, leading the other party to enter the contract. Duress is the use of improper pressure or threats to coerce a party into entering the contract. Mistake refers to a fundamental error in the underlying facts or assumptions of the contract. Finally, a substantial breach of a material term by one party may give the non-breaching party the right to seek rescission, as it undermines the purpose and basis of the contract.
• Analyze the relationship between the remedies of rescission and restitution in the context of a breach of contract.
  • Rescission and restitution are closely related remedies in the context of a breach of contract. When a contract is rescinded, the goal is to restore the parties to their original pre-contract positions. Restitution is the mechanism by which this is accomplished, as it involves the return of any benefits, payments, or performances that were exchanged under the contract. For example, if a buyer pays for goods that are never delivered due to the seller's breach, rescission would allow the buyer to cancel the contract, while restitution would require the seller to return the buyer's payment. The two remedies work in tandem to effectively undo the contractual relationship and put the parties back where they started, as if the contract had never been formed.

Related terms

Breach of Contract: A failure to perform any term of a contract, without a legitimate legal excuse, which discharges the injured party's duty of performance and allows them to seek a remedy.

Restitution:

The restoration of the parties to their original position before the contract, by returning any benefits or payments exchanged under the contract.

Voidable Contract:

A contract that is valid and enforceable, but may be rescinded or voided by one or both parties under certain circumstances, such as fraud, duress, or mistake.