Contract rescission is a legal remedy whereby two or more parties mutually rescind a contractual agreement. Contracts are rescinded when both parties agree to cancel the agreement, thereby giving up their respective legal rights and obligations under the contract. Contract rescission reunites all parties to their pre-contractual positions. The parties may then go their separate ways, and both are relieved from any further contractual obligations.
In the event that a party breaches the terms of the contract, the innocent party is given the option to demand damages (compensation for losses due to wrongful acts committed by the other party) or seek to rescind the contract. Rescission is the easier option in cases where the breach is minor or where it cannot be proved that the non-breaching party has suffered any consequential damages from the breach.
Rescission may also be sought in the following circumstances:
1. Misrepresentation: All parties to a contract must make full disclosure of any relevant facts so that the other party can make an informed decision on whether to enter into the contract. If a party has made a false statement or omitted any material facts, the innocent party can seek to rescind the contract on the grounds of fraudulent misrepresentation.
2. Mistake: If a mistake is made by one or more of the parties, they may be able to rescind the contract. However, a mistake will not be a valid reason to set aside the agreement if it was not of a fundamental nature, or if its consequences were foreseeable by the party making the mistake.
3. Illegality: A contract may be declared void if its purpose is illegal or against public policy. For example, a contract for prostitution or for the supply of illegal drugs will be deemed unenforceable by the court.
When seeking rescission, the innocent party must take reasonable steps to inform the other party. This typically involves sending a ‘Rescission Notice’ which sets out the details of the party’s claim for rescission. If the parties cannot come to a mutual agreement, rescission will be decided by the court. The court may order that rescission be given, or the rescission may be implied from the facts and the overall situation.
Rescission can only be given if the contract has not already been acted upon by both parties. If any benefits of the contract have already been accepted, rescission may not be feasible. In such cases, the parties should seek out other forms of legal relief such as damages, rescission ab initio, or another remedy that is applicable to the particular situation.
Contract rescission is a beneficial remedy when two parties mutually agree to rescind the contract. It puts both parties back in the position they were in before the contract was entered into, thus eliminating any further contractual obligations. However, if only one party is seeking rescission, other remedies may be more appropriate. In any event, rescission should only be sought in certain circumstances, and it is important to understand the legal process before resorting to rescission.
