Rescission: Everything You Need to Know
After a rescission is granted, the legal status is the same as if the contract had never existed. 3 min read
A rescission is the rescinding of a contract to “status quo ante.” That means the contract is canceled or overturned, thus restoring the status of the parties involved to what it was previously.
After a rescission is granted, the legal status is the same as if the contract had never existed. This differs from a cancellation, which is only meant to discontinue the contract from that moment forward. After the rescission, no benefit of value can be claimed by either party.
Why the Court Grants Rescissions
Civil courts may grant a rescission based on fraud or other conditions of misrepresentation, misinformation, duress, or undue influence. However, a rescission may simply be found to be the most equitable way to resolve a civil case. The court may also find other reasons why the contract is not legally binding, such as:
- Lack of legal capacity
- Material error
- Impossibility to perform the responsibilities detailed in the contract
- The contract is inadequate
Invoking a Rescission
Contrary to what you might think, going to court straight away is not the best way to invoke a rescission. Before taking any action, consulting an attorney is a wise, as your attorney will be able to tell you whether you fit the criteria for a rescission. Then, after making sure a path to rescission is clear, you must first inform the other party if they have not agreed to a rescission already. When stating the grounds for your case, be very specific.
After you have stated the grounds for rescission, you are the rescinding party, and in most jurisdictions, that means you have unilateral rescission. Unilateral rescission means you have given notice of rescission and now have the right to file a civil judgment to enforce the rescission. If the other party does not cooperate, you may also be able to obtain a judgment in relief.
Qualifying for a Legal Rescission
Some jurisdictions refer to cancellation and rescission interchangeably. However, a rescission in most jurisdictions means that the contract never existed, and that means all benefits received while the contract was in effect must be returned. Rescission in some jurisdictions also refers to overturning a judgment from a lower court.
After notification of rescission, written statements from all parties rescinding the syndicate contract, for a fair and valid cause, are enough for a legal rescission. Qualifying factors for fairness and validity:
- One of the parties declares bankruptcy or financial insolvency and, therefore, is unable to fulfill financial or business obligations.
- One or more violations or contract breaches, with or without fault, by at least one of the parties.
- With or without fault, one or more parties finds it impossible to make a contribution or undertake a certain activity.
Taking a Rescission Case to Court
In all cases, the notification of rescission must be given to all parties. If at least one party contests the rescission, a legal case may be made with the aid of an attorney. In this case, there will be more stringent requirements for demonstrating legal grounds for the rescission. These include:
- Fraud was committed by any of the parties.
- A mistake was made when drawing up the original terms of the contract.
- All or part of the contract was made or signed under duress.
- A mutual rescission agreement or other dispute agreement could not be reached.
A civil lawsuit can be filed directly; however, this is the most costly option with the highest burden of proof.
Denial of Rescission Cases
Because a rescission involves completely undoing an entire contract, judges may deny a rescission in cases where that would be impossible. For instance:
- At least one party has already fulfilled a substantial part of the contract, in a way that cannot be undone. For instance, one party put in many hours of labor as agreed in the contract that cannot be undone.
- Benefits from the contract have already been received by a third party unrelated to the contract.
- The “unclean hands” rule is invoked, meaning that the party requesting the rescission has or is suspected of committing some wrong relating to the contract.
- Prejudice to the other party has occurred as a result of the requesting party unnecessarily delaying the request for rescission.
- Money for damages has already been asked for by the requesting party, thus making a rescission impossible.
If you are considering whether a rescission may be the right course of action, consult a civil attorney today and post your job on the UpCounsel job board. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Stripe, and Twilio.