The short answer is yes.
When entering a business contract, both parties sign with the assumption that the other will perform their end of the agreement. However, sometimes, a party will learn that they entered into a contract mistakenly believing it had a particular meaning when it meant another or that they signed the contract based on the other person’s fraud. The solution in this circumstance is rescission, which allows you to get out of the promises made in the contract as if it never existed. Rescission helps maintain integrity in business transactions and prevents individuals and companies from being bound to fraudulent agreements.
Only specific circumstances warrant contract rescission. Let’s examine these situations, the rescission process, potential challenges, and how an attorney can help.
What Does It Mean to Rescind a Business Contract?
Unlike other methods of ending a contract, rescission is retroactive, erasing all obligations and benefits that resulted from the agreement. However, don’t mistake rescission for termination. When you terminate a contract, you end the agreement moving forward. You may not recover payments you made before termination. Rescission nullifies the agreement from the beginning, requiring the parties to return what they received after they signed the contract.
Grounds to Rescind a Business Contract
There are several reasons why you may rescind a contract, including:
- Fraud: If one party intentionally misrepresents facts to deceive the other before signing the contract, the wronged party can rescind the contract.
- Mistake: If both parties are mistaken about a fundamental fact included in the contract, for example, if the contract includes the sale of equipment that both parties don’t realize is unavailable — they can rescind the business contract.
- Unconscionable terms: Rescission for unilateral mistake of fact is available where enforcement of the contract would be unconscionable (e.g., a contract with terms that are overly harsh or one-sided).
- Duress or undue influence: If one party forces or threatens the other to sign the contract, the wronged party can pursue rescission.
- Lack of legal or mental capacity: If one party isn’t of legal age or mentally sound when signing a contract, they can pursue rescission.
- Failure of consideration: If one party fails to fulfill their obligations, significantly affecting the other party, the harmed party can seek rescission.
- Unlawful contract: If the contract includes obligations for illegal activities that harm the public interest, either party can rescind it.
If you are simply dissatisfied with the contract’s terms or experience minor issues, then you won’t have legal grounds to rescind the contract.
Types of Rescission
Rescission can occur in two ways. The result is cancellation of the agreement as if it never existed.
- Mutual consent: Both parties can agree to rescind a contract. All they need to do is document their decision to rescind and the steps to restore their original position.
- Court order: A court may order rescission when a party (either the plaintiff or the defendant) proves fraud, mistake, duress, etc. To obtain a rescission order, the aggrieved party must provide evidence for the court to evaluate and decide whether the contract is subject to rescission.
Document the Grounds for Rescission
If you are seeking a court order to rescind a contract, evidence may include but may not be limited to:
- The signed agreement
- Amendments to the contract
- Drafts of the contract
- Correspondence between the parties
- Testimony about the parties’ negotiations
- Invoices and receipts
Your attorney might find laws that address particular provisions in the contract supporting a rescission order.
Notify the Other Party
If you think that you have grounds to rescind a contract, then you should seek the advice of an attorney to guide you because you must, promptly (upon discovering the facts that entitle you to rescind) do the following:
(a) Give notice of rescission to the other party; and
(b) Restore to the other party everything of value you have received from that party under the contract or offer to restore the same on the condition that the other party do likewise, unless the latter is unable or positively refuses to do so.
These are steps that most people need good counsel to complete.
No matter your circumstances, always remember to be professional in your communication via mail or email and keep all copies of your communications if the other party disputes your claims.
Attempt an Amicable Resolution
In many cases, both parties will not want to escalate the situation, as any legal recourse surrounding a dispute will be costly — both in time and money. Instead, they may want to negotiate a settlement, adjust contract terms, or accept the rescission without further complications.
Suppose both parties agree to rescission, an attorney can draft an agreement to formally document the cancellation and restore both parties to their original positions.
If financial transactions, property exchanges, or service obligations have already occurred, work together to determine a fair and reasonable way to undo or compensate for these exchanges. This may involve refunds, returning goods, or negotiating a partial settlement.
Seek Legal Assistance if Necessary
Contract rescission — during every step — requires a qualified attorney. An attorney specializing in contract and business law can formally demand rescission, negotiate with the other party, or if necessary, initiate a lawsuit to have the contract rescinded by a court.
They will walk you through the steps of a formal rescission case during which the court will evaluate the following factors:
- Validity of the grounds for rescission: The court will examine whether the claim is valid and includes grounds for rescission, such as fraud, misrepresentation, mistake, or duress.
- Restoration of the original positions: Courts assess whether it is possible to return both parties to their original positions before the contract. If significant exchanges have occurred, rescission may not be feasible.
- Timing of the request: Courts will evaluate whether one or both parties pursued rescission within a reasonable amount of time after discovering the issue. Delays may invalidate the case.
If the court grants rescission, both parties must reverse transactions or benefits exchanged under the contract. In some cases, the court may also award damages if one party suffered financial harm caused by the contract.
Challenges and Limitations of Rescinding a Contract
While rescission may be an option to dissolve a contract, there are some challenges involved, primarily with timing and the waiver of benefits.
- Timing: A rescission claim does not have a fixed statute of limitations that applies to all situations (i.e., deadline to file suit). The statute of limitations depends on the basis you are seeking rescission. For instance, if you are seeking rescission based on fraud, then the statute of limitations will likely be three years because that is the limitation period for fraud claims. If you are seeking rescission of a written contract, the claim is probably subject to a four-year statute of limitations. You also must provide timely notice of rescission to the other side. It’s important to seek the advice of an attorney as soon as you suspect you have a right to rescission to ensure you know the deadline to file suit. If you fail to timely file a lawsuit or fail to timely provide notice of rescission, your claim will be barred.
- Return of benefits: If you’ve benefited from your contract, you will need to return these benefits after rescission. For example, if you received money for a contract and want to rescind the contract, you must return that money.
- Legal costs: Whether you are the person seeking rescission or on the end of a rescission claim, you will incur attorney fees, court costs, and potentially the fees of an expert witness. You might be able to recover these expenses from the other side, depending on the terms of the written contract.
Regardless of the challenges, an attorney can help you decide if rescission is right based on your situation. You don’t want to be obligated to complete a contract’s terms if it’s causing more harm than good.
Why Legal Counsel Is Essential for Contract Rescission
A qualified attorney can help in nearly every step of a contract rescission. This can be vital — contract law is complex, often requiring expert legal knowledge. For one, an attorney can help you decide if your case merits a rescission claim and how best to navigate your situation based on the available evidence.
They can also draft correspondence for you, maintaining a professional and formal tone with other parties, and represent your interests when interacting with them. If the other side refutes your claim, a lawyer can negotiate on your behalf, seek a settlement, or, if necessary, file a lawsuit to have the court rescind the contract. If the case proceeds to litigation, an experienced lawyer can present evidence, argue your position, and help secure a favorable outcome.
No matter the circumstance, a knowledgeable trial attorney with years of success on their side can help you prevent costly mistakes and increase your chances of achieving a favorable outcome.
Need Help With Contract Rescission? Contact Klein & Wilson
When picking a trial attorney to rescind a contract, there’s no one better than Klein & Wilson. Our legal team has years of experience handling business and contract disputes, as well as rescission. We’ll be able to recommend a plan of action if your contract includes grounds of rescission and guide you through every step. Contact us today to get started!
FAQs About Contract Recission
Can You Rescind a Contract For Any Reason?
No, you cannot rescind a contract for any reason. Rescission is only allowed under specific legal grounds, such as fraud, misrepresentation, mistake, duress, or a material breach of contract. Both parties must typically return any benefits received, restoring them to their original positions.
What Is the Difference Between Rescission and Termination?
Rescission cancels a contract as if it never existed, restoring both parties to their pre-contract state. Conversely, termination ends a contract moving forward but does not undo past obligations or benefits received.
How Long Do You Have To Rescind a Contract?
The time frame for rescinding a contract varies depending on the type of contract and jurisdiction. Generally, rescission must occur within a reasonable time after discovering the grounds for rescission. Failure to act promptly may result in losing the right to rescind.
Is Rescission Possible After Completing Part of the Contract?
Yes, rescission may still be possible after partial performance, but it depends on the circumstances. Courts assess whether both parties can assume their original positions before the contract. If full restoration is not possible, they will deny rescission.
Can a Contract Be Rescinded If Both Parties Agree?
Yes, both parties can rescind a contract after agreeing to cancel it. This process is often more straightforward than unilateral rescission, as it does not require proving legal grounds or seeking court intervention. Both parties must document their agreement in writing to avoid future disputes.
Don’t navigate challenges alone — let Klein & Wilson guide you. With years of experience in business litigation and contract law, we’re here to help you protect your rights, represent your interests, and resolve disputes. Contact us today to schedule a consultation and ensure your business is on solid legal ground.