Rescind Contract Law: Everything You Need to Know
Rescind contract law refers to the legal boundaries for terminating or rescinding, a contract between two parties. 3 min read
2. Contract Basics
3. How to Rescind
4. What Are Legal Grounds for Rescinding a Contract?
Rescind contract law refers to the legal boundaries for terminating or rescinding, a contract between two parties.
What Does it Mean to Rescind a Contract?
The right to revoke a contract, known as rescission or overturning, is a legal principle that dates back to early British common laws. The founding fathers of the United States adopted British common law as the law of the new land. Some modifications were made in 1789 with the U.S. Constitution, but much of the principles of the old country stayed put.
Under rescind contract law, the offering party in an agreement has the right to rescind or terminate their contract with the accepting party. When exercised properly, this right gives both parties involved in the agreement full freedom from their obligations under the contract. This action is, however, irreversible.
Once rescission has taken place, assuming the agreement was legal and formed correctly, the terms and conditions of the contract are unenforceable and, it's as if the two parties never entered into a contract at all.
If there was never a meeting of the minds or offer and acceptance, then a contract was never formed. There are a few basic elements that need to be in place in order to create an enforceable contract:
- Offer extended
- Offer accepted
- Two parties with the legal capacity to enter into a contractual agreement
- Legality (cannot form a contract for illegal activity)
- Contractual equity
- Consideration (exchange of value)
Rescind contract law is in place to allow two parties to return to "business as usual" or the status quo once a contract has been canceled or annulled. Both parties can agree together to terminate their contract, one of the two parties can decide to end it with good reason, or it can be canceled on legal grounds.
If a court rescinds a contract, they rule that the agreement must be ended for justice, fairness, and equity. In the case of rescission, the whole contract has to be voided, you can't rescind only a portion of an agreement. Contract law allows for agreements to be changed or amended with contract reformation laws, not under rescind contract law.
How to Rescind
Rescind contract law can be enacted as a remedy when one or both parties in an agreement have a problem with how the contract was created. Before filing an official claim for rescission with the court, it's a good idea to get in contact with an experienced business lawyer for guidance through the very complex process. An attorney can help you weigh out your options and decide whether rescission is the proper remedy for your situation.
Rescission must be filed with the court before you request any monetary damages.
What Are Legal Grounds for Rescinding a Contract?
In order for rescission to take place, there must be valid reasoning for voiding the contract in the eyes of a judge. Because contracts are legally-binding agreements with duties required from both parties, changing your mind is not a good enough reason to rescind.
Rescission can take place according to a mutual decision made by both parties or by one of the two parties with proper reasoning. The act of rescission comes about in the form of a lawsuit meant to enforce the right to rescind and return both parties to the way things were before the contract and relieve them of their contractual duties.
If two parties find legal grounds for rescission, it is unlikely that they will also have grounds for legal damages or a breach of contract suit. The following remedies affirm an agreement and are therefore incompatible with the act of rescission:
- Breach of contract
- Contract reformation
- Specific performance
In the event that both parties agreed for the need to rescind, they must show mutual consent. If a contract is still in process, also called an incomplete or executory contract, both parties can decide to rescind the agreement at any point in the negotiations. Even contracts with provisions contrary to rescission can be rescinded when they are not yet fully enacted.
If only one of the two parties involved in the agreement wants to pursue rescission, they must give notice on legal grounds and file with the court for enforcement of the rescission.
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