Rescission of Contract

Rescission of contract is when a party to a contract rightfully cancels a contract for any of the following legal reasons 1) mistake, duress, fraud, or undue influence, 2) failure to provide consideration, 3) or material breach by the other party.

By Brad Nakase, Attorney

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Parties can rescind a contract if proof exists that the contract has a material error. Parties can also rescind contracts due to fraud, a lack of legal capacity, duress, a lack of mental capacity, one party not fulfilling its obligations, or additional errors.

Regardless of the agreement’s express terms, parties have the ability to rescind a signed contract. However, both parties need to complete the rescission by returning the contract’s considerations that were already given.

This article will explain how to rescind a contract and when annulling a contract is the right choice for the parties involved.

In this article, our business dispute attorney in Los Angeles discusses how to rescind a contract and when annulling a contract is the right choice for the parties involved.

1. What is the Right to Rescind a Contract?

2. On What Grounds Can One Rescind a Contract?

3. How Long Do Parties Have to Rescind a Contract?

4. Why Contact an Attorney for Help Rescinding a Contract?

What is the Right to Rescind a Contract?

In California, Civil Code§1689 states that parties can agree to annul an original contract without court intervention and without consulting the agreement’s express terms.

However, the parties must return all considerations exchanged under the original agreement.

On What Grounds Can One Rescind a Contract?

Parties also decide to rescind contracts when there are:

A lack of mental capacity among the parties
A lack of legal capacity among the parties
Duress, when signing the contract
Undue influence when signing the contract
One or more parties not fulfilling their obligations
Fraud

Mistake

If one party makes a mistake regarding the facts or terms of the contract, and the other party exploits that mistake to their advantage, the initial party may rescind the contract under the category of “unilateral mistake.”

However, if one party did not read the contract and make themselves aware of the terms, their mistake may not be enough for rescission.

If both parties are mistaken, either party can seek to rescind the contract.

Fraud or undue influence

If one party is dishonest about the terms of the contract or misrepresents themselves, the other party can rescind the contract.

Anticipatory Repudiation

Anticipatory repudiation implies that one party shows, through action, that they will not fulfill the contract. The other party may notice these actions or verbal signs and seek to rescind the contract.

Duress

Parties cannot threaten other parties to force them to sign contracts. They also cannot coerce them to sign the contract under any circumstance.

Problems with Contract Formation

Parties must create contracts legally and equitably. Both parties must have consented to the contract. The consent must be lawful under contract law. If the parties created the contract under illegal conditions, the court could rescind it.

Failure of Consideration

One party can rescind the contract if the other party fails to provide consideration. For example, if one party agrees to provide the other with payment in exchange for services and then does not pay, the party refuses to perform their duty according to the contract. In this case, the other party has the right to rescind the contract.

For example, if a person buys a car at a certain price but then drives off without paying, the seller of the car can rescind the contract and take the automobile back.

Unlawful Contract And Public Interest

The court does not allow contracts against the law or the public good to stand, and therefore if a party can prove that the contract goes against the public good, they can rescind the contract.

How Long Do Parties Have to Rescind a Contract?

The FTC uses a 3 day “cooling” period for high-pressure sales. When this law applies to a case, the participants in the deal may have up to 72 hours to decide to abandon the contract. This rule usually applies to sales at dealerships or door-to-door sales. Contact an attorney to determine if the FTC’s rule applies to your situation.
There is also a “cooling” timeframe for specific industries in high-pressure scenarios under federal and state provisions. For example, gym memberships sometimes fall under this rule.

If a timeframe does exist for canceling the contract, the person’s location may dictate the specific period. Individuals who want to find out more about the terms of rescinding specific contracts should do so immediately. Contact a lawyer to find out more about possible local deadlines.

When a violation of a contract occurs, victims often use contract rescission. Typically, individuals have six years to sue a party for breach of contract. However, some cases, such as employment cases, feature a time frame of only three months. Taking legal action often benefits the party and helps them win the case.

Why Contact an Attorney for Help Rescinding a Contract?

When parties seek to rescind a contract, the process is complex and challenging. Contact Nakase Wade’s experienced breach of contract attorney to discuss the problems with your contract and identify possible solutions.

Have a quick question? We answered nearly 2000 FAQs.

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