Contract Rescission: When a Contract Can Be Legally Undone

Unlike monetary damages, which are a legal remedy, rescission is an equitable remedy. This means it is rooted in fairness. A judge will only grant rescission if they find that allowing the contract to stand would be unconscionable. It is the legal equivalent of an "Edit -> Undo" command for a tainted transaction.

It is a common error to use these terms interchangeably.

• Termination: 
• Acknowledges the contract was valid but stops performance moving forward (usually due to a breach).
• Rescission: 
• Asserts that the contract was never validly formed. It wipes the slate clean, aiming for the status quo ante (the state of affairs before the deal).

If you were induced to sign a contract based on a lie, the deal is voidable. However, you must prove that the misrepresentation was material—meaning it was a central factor in your decision to enter the deal. If you would have signed regardless of the lie, rescission is rarely available.

• Mutual Mistake: 

Both parties were wrong about a fundamental fact (e.g., both thought a piece of land was zoned for commercial use when it was actually a protected wetland).

• Unilateral Mistake: 

Only one party was mistaken, but the other party knew about the mistake and stayed silent to take advantage of it.

Rescission is often granted if a party lacked the legal capacity to sign (due to age or mental state) or if they were subjected to undue influence, where one party’s will was overborne by another in a position of trust.

The defect must go to the "heart" of the deal. If the error or lie was regarding a minor detail that didn't fundamentally change the value of the exchange, the court will likely tell you to sue for damages instead of undoing the whole transaction.

This is a critical forensic rail. If you discover you were defrauded but continue to accept benefits from the contract for six months, you may have "waived" your right to rescind. Equity rewards the diligent. Any significant delay after discovering the grounds for rescission can lead to a terminal loss of this remedy.

The party seeking to undo the deal must provide clear, unequivocal notice of rescission to the other party. This notice should state exactly why the contract is being nullified and that the party is no longer bound by its terms.

This is the "Price of Entry" for rescission. Because the goal is to return to the original position, you must generally tender back whatever you received under the contract. If you bought a business and want to rescind the deal, you must be prepared to give the business back in substantially the same condition you received it.

If your conduct suggests you intend to keep the deal alive despite the flaw, you have "affirmed" the contract. This can happen by making payments, accepting services, or explicitly stating you will follow through. Once a contract is affirmed, it can no longer be rescinded.

If the subject matter of the contract has been destroyed, significantly altered, or sold to an innocent third party, the court cannot put the "toothpaste back in the tube." In such cases, the court will deny rescission and instead award monetary damages to compensate for the loss.