Legal Definitions - Rescind

To rescind a contract means to cancel it and effectively undo it, as if it never existed. When a contract is rescinded, both parties are generally returned to the position they were in before they entered into the agreement. This means any rights or obligations that arose from the contract are eliminated.

There are two primary ways a contract can be rescinded:

• Mutual Rescission: This occurs when both parties to a contract voluntarily agree to cancel it. This agreement can be explicit, such as signing a new document stating the old contract is terminated, or it can be implied through their actions and circumstances that clearly show an intent to abandon the original agreement.
• Unilateral Rescission: In certain specific situations, one party may have the legal right to rescind a contract without the other party's consent. This is typically allowed when there's a serious problem with how the contract was formed or if a fundamental condition of the contract is not met. Common grounds for unilateral rescission include situations where one party entered the contract due to fraud, significant mistake, duress (being forced), undue influence, or if the other party failed to provide what they promised in a major way. Courts often view unilateral rescission as an extraordinary remedy, usually granted only when monetary damages wouldn't adequately fix the problem and it's possible to restore the parties to their original positions.

Here are some examples to illustrate how rescission works:

• Example 1 (Mutual Rescission by Agreement):

  Sarah hired a catering company, "Gourmet Bites," for her wedding reception, signing a contract three months in advance. A month later, Sarah decided to elope and no longer needed catering services. She contacted Gourmet Bites, and they mutually agreed to cancel the catering contract. Since no food had been prepared and no significant expenses incurred by Gourmet Bites, they agreed to return Sarah's deposit in full, and both parties signed a short document confirming the cancellation. This illustrates mutual rescission because both Sarah and Gourmet Bites willingly agreed to terminate the contract, effectively undoing their agreement and returning Sarah's deposit, placing them back in their pre-contractual positions.

• Example 2 (Unilateral Rescission due to Fraud):

  Mark purchased a used car from a dealership, "Speedy Motors," after the salesperson assured him it had never been in an accident and had a clean title. Mark signed the purchase agreement. A week later, Mark took the car to his mechanic, who discovered extensive frame damage indicating a major prior accident that had been poorly repaired. Mark also found out the title had been "salvaged" and then "rebuilt," a fact the dealership deliberately concealed. Mark immediately informed Speedy Motors that he was rescinding the contract due to their fraudulent misrepresentations. This is an example of unilateral rescission because Mark, as the defrauded party, is exercising his right to cancel the contract without Speedy Motors' consent, seeking to return the car and get his money back, thereby undoing the sale due to the dealership's deceit.

• Example 3 (Unilateral Rescission due to Material Mistake):

  A small business owner, David, signed a contract to lease a commercial space for his new bakery, believing it was zoned for commercial food preparation. The landlord's agent had verbally confirmed this during negotiations. After signing the lease and before moving in, David applied for the necessary permits and discovered the property was, in fact, zoned only for retail sales, making it impossible to operate a bakery there. The zoning issue was a fundamental mistake that went to the core purpose of the lease. David informed the landlord he was rescinding the lease agreement. This demonstrates unilateral rescission because David is canceling the contract due to a significant, material mistake about a fundamental aspect of the property's use, a mistake that prevents him from achieving the primary purpose for which he entered the lease, and which was based on incorrect information provided by the landlord's agent.