In general, a contract is a written or oral agreement that imposes certain legal responsibilities on the parties to it. Contract rescission is the legal term used when a contract is terminated or cancelled. It may also be called “overturning” or “cancellation” of a contract. Contract rescission ends the contract. Rescission cancels any of the legal responsibilities that were created by the contract. Contract rescission makes the contract void and unenforceable.
The term “rescission” comes from the word “rescind.” The definition of “rescind” is “to cancel, revoke, repeal or annul.” Contract rescission is used to put the parties back to their original position before the agreement was made. In legal terms, this is called “status quo ante.” “Status quo ante” is a Latin phrase that means the “previously existing state of affairs.” The purpose of contract rescission is to rewind time and put the parties in the position they were in before the contract.
To rescind a contract you must cancel the whole contract. You cannot rescind just one part or section of a contract. The whole contract must be ended or cancelled.
In some cases, there are ways to cancel or change only part of a contract. This is done through contract reformation or revision. Contract reformation is a way for the parties to cancel or rewrite certain sections of the contract. This is allowed by a judge. It is used so that the parties can fix a mistake or misunderstanding in a contract. Contract reformation is not the same as contract rescission.
Contract rescission can be used when there has been a breach of contract. Breach of contract means that one party did not complete their promised performance.
Rescission for breach of contract is an equitable remedy sometimes used by a court. An equitable remedy means that the court uses its discretion to arrive at a resolution of a dispute. A court can also use other remedies for breach of contract. Legal remedies can include the payment of damages. Money damages to compensate a party for their economic losses are often used in breach of contract cases.
Rescission for breach of contract is available when the payment of money alone would not be enough to make the situation right. Contract rescission is also a remedy in cases where there was an issue with forming a contract, such as fraud. This means that there was some type of problem with how the contract was created.
Under What Circumstances Can a Contract Be Rescinded?
There must be certain circumstances for a court to find grounds for rescinding a contract.This means that a judge must make a decision that there is a very good reason to cancel the contract. Since a contract creates legal responsibilities, a court will not rescind a contract without a valid basis. You cannot just change your mind about the agreement and have a contract rescinded.
Contract rescission is most often available in certain specific circumstances. There are grounds for rescinding a contract in the following situations:
- Mutual consent: Mutual consent means that both parties must show that they agree to have the contract cancelled. The best way to show consent is by using another written document. The written document should say clearly that both parties agree that the contract should be terminated.
- Problems with contract formation: A contract must be created legally. Both parties must have consented to the contract. The consent must be legal under contract law. If there were illegal conditions when the contract was created, a court can rescind the contract. The most common issues with formation include:
- Incapacity: This happens when one or both of the parties have a lack of capacity. Lack of capacity means that the party does not have the ability to enter or negotiate a contract under the law. Examples of lack of capacity include mental incompetency, certain illnesses, intoxication, or being a minor. Usually, a minor is someone who is underage. In many states, a minor is a person under 18 years of age.
- Fraud: Fraud is a false representation about the subject of the contract or things related to the contract. Contract fraud can be many things. It usually happens when a party lies or uses deceit to get you to form the agreement.
- Duress/Coercion/Undue Influence: You cannot force a party to sign a contract by threatening them. You also cannot use hostile or scary conditions to get them to agree to a contract. Duress, coercion and undue influence are all examples of when a party does not sign a contract of their own free will.
- Mistake: A mistake is when the parties do not understand the terms in a contract. Often this is a mistake of fact about one of the terms. For example, the parties might be mistaken about whether a contract about the sale of cups means paper cups or plastic cups.
- Anticipatory Repudiation: Anticipatory repudiation means that one party acts in a way that shows that they will not perform their legal obligations under the contract.
- Consideration: Consideration is a requirement for forming a contract. In certain cases, consideration can fail, be inadequate, or is not legal.
- Against the Public Interest: Sometimes a contract can be rescinded if it is against the public interest. This means that it would be bad for the general public. For example, a contract that requires a person be an indentured servant.
State/Variations: Contract laws, including those related to rescission, can vary from state to state. This means that the specific requirements for rescinding a contract and the reasons for which rescission might be denied may be different in different states.
However, much about the law of rescission of contract is also similar in different states. Still, It is important to consult with a legal professional who is familiar with the contract law in the state in which you live. Your local lawyer understands the specific rules and procedures that apply to your situation.
When Is Rescission Not Available?
No person has an automatic right to rescind a contract. As discussed above, rescission is an equitable remedy. A judge can use their discretion or opinion to make a decision about whether a contract should be rescinded. The right to rescind a contract is only allowed by a judge in certain situations. A court will deny the request to rescind a contract in the following circumstances:
- Substantial Performance: Substantial performance is when one party has completed most of their legal obligation under the contract. For example, if a seller has delivered items to a buyer, there is likely substantial performance.
- Third Party Benefit: A third party is a party that is not part of the contract. If that other party got some benefit or right from the contract, a court might not rescind the contract.
- Available Defenses: If other available defenses apply, a court might not rescind the contract. Defenses include:
- Unclean hands: Unclean hands means that the party filing for breach of contract has done something wrong themselves.
- Laches: Laches means that there has been a filing delay that was not necessary, and it hurt the other party in some way.
Lastly, if a party has already asked for money damages, a judge can deny a contract rescission. If you are asking that a contract be rescinded, you must ask for that first before seeking compensatory damages.
Risks/Penalties: When a party seeks rescission and the court denies this relief, the contract remains in effect. The parties would still be bound by its terms. A court might find that the claim for rescission was so completely without merit, that the party who sought it should pay the legal fees and court costs of the other party.
A party cannot ask the court for money damages then decide later that they want the contract rescinded instead. You can ask for contract rescission first and then possibly seek money damages also for breach of contract in your complaint. Requesting that a contract be rescinded does not mean you cannot ask for money damages for breach of contract also.
How Long Do I Have to Rescind a Contract?
In general, once a contract is signed, it is effective. In most situations, you do not have a time period in which you have a right to rescind a contract. There are, however, a few exceptions to this general rule.
- High Pressure Sales: The Federal Trade Commission (“FTC”) has a 3 day, or 72 hour, cooling off period rule. This rule usually applies in situations that involve high pressure sales. Most often, these situations happen in your home, e.g. door-to-door sales, at a car dealership, or at a convention. If this law applies to your case, you may have 3 days to back out of a contract.
- Specific Industries: State and federal law also has a cooling-off period for very specific industries. Again, these laws usually apply to high pressure sale situations. Some examples include: campground memberships, gym or fitness agreements, and contracts for home repair.
Remember that if there is any specific time period to rescind a contract, it may depend on your situation and the state in which you reside. It is always best practice to immediately contact a contract lawyer in your area as soon as you think you may wish to rescind a contract. You do not want to miss any deadlines that might apply to your case.
It is important to note that contract rescission is a remedy that can be used in a breach of contract lawsuit. In general, the time limit to sue for breach of contract is six years. This deadline does not apply to all contract cases. As an example, if it is an employment contract that has been breached or is otherwise in dispute, a case must be started within 3 months. There also may be many benefits to filing a lawsuit immediately, even if any deadline is still some time in the future.
Process/Steps: The process for contract rescission typically involves several steps. First, it is important to gather all relevant documentation related to the contract. This would include the original agreement itself, any amendments, and all communications between the parties about the contract.
Evidence/Documents: If the case involves claims of fraud, then any evidence to show misrepresentation or deceit would be required. If the claim for rescission is based on duress or undue influence, evidence that shows coercion or manipulation would be necessary. In cases involving a claim of mistake, evidence showing a misunderstanding of the contract terms would be relevant. It is important to gather and present all available evidence to support the claim for rescission.
Next, the party who wants to rescind the contract would attempt to negotiate rescission with the other party.
If this proves not to be possible, the party would draft a complaint that would initiate a lawsuit seeking rescission as the remedy. Of course, the complaint must clearly state the grounds for the rescission and why it is justified under the circumstances. The complaint would then be filed with the clerk of the appropriate court, and the other party served with it. The case would then proceed through the pre-trial process, and there would be a trial if necessary.
Costs/Fees: Obtaining rescission of a contract certain costs and fees. These may include the court filing fee, which has to be paid when a complaint is filed with the court. Additionally, there may be expenses related to gathering evidence, such as obtaining documents or hiring expert witnesses. If a person retains an attorney to negotiate a settlement and then initiates a lawsuit if negotiation is not successful, attorney’s fees will also be a factor.
The specific costs can vary depending on the complexity of the case and the state in which the case is fought.
The Importance of Hiring a Lawyer: A complaint in a civil lawsuit is a technical document that is probably best prepared by a lawyer who knows their state’s contract law. Having a lawyer handle the other steps in a lawsuit would be equally advantageous as well. Persuading a judge to rescind a contract is not easy and is a task for a professional contract lawyer.
Do I Need a Lawyer for Contract Rescission?
It is highly recommended that you hire a specialized contract lawyer in your area. If you or another party want to have a contract rescinded, you will likely need to file a request with the court. A skilled lawyer can help you with this process and represent you in court. Contract rescission is often complicated. It can also be a big decision in your life.
A lawyer who specializes in contract law can explain your options and the process. They can also tell you whether it is likely that you will succeed in getting the contract cancelled. A knowledgeable contract lawyer can also help you figure out if you can receive money damages.
