Rescission of Written Contracts- The Art of Unwinding the Deal
Basic overview of understanding rescission of contracts under California law.
Grounds to Rescind Contracts under California LawAccording to Black's Law Dictionary, the legal term "rescission of contract" amounts to the unmaking of a contract, or an undoing of it from the beginning, and not merely a termination. It may be effected by mutual agreement of parties, or by one of the parties declaring rescission of contract without consent of the other if a legally sufficient ground therefor exists and then applying to the courts for a decree of rescission. The definition also describes rescission as "an action of an equitable nature in which a party seeks to be relieved of his obligations under a contract on the grounds of mutual mistake, fraud, or impossibility."
According to California law, if a party entered into a contract because of fraudulent representations or under a mistaken belief, the party can go to Court for relief which cancels the contract to return the parties to the status quo. The burden of proof is on the plaintiff to prove his or her case. Alternatively, the parties can mutually rescind if all parties consent to rescission. See Cal. Civil Code Section 1689(a). This may be done outside of Court, and is more cost effective than litigation.
One party may unilaterally rescind if the party's consent to the contract was given by mistake or obtained through duress, menace, fraud, or undue influence. This is done by filing a Court action after giving written notice of an intention to rescind the contract. Other grounds for unilateral rescission are that consideration failed in whole or in part through the fault of the other party, consideration for the rescinding party is void, or the contract is unlawful for reasons that do not appear in the contract, or the contract is contrary to the public interest to permit the contract to stand. See Cal. Civil Code Section 1689(b).
As far as the remedies you receive if you have a strong case for rescission- you can obtain judgment for restitution of the benefit conferred on the other party (usually money), or have the court impose a constructive trust on the object of the contract (title to real estate) so that the object is returned to you. Rescission causes of actions are generally tried in front of judges, not juries.
Rescission of a contract should not be confused with "breach of contract." When a party sues for breach of contract, the party is seeking to enforce the contract, and obtain money damages or specific performance (a court order making the other party perform). The suit for breach of contract is not seeking to "unmake the contract," but rather to hold the party to the terms of the contract.
The issues in a rescission action are complex, and you should consult experienced legal counsel who has experience with contract law litigation.
Take Action if you Need to Rescind a Bad DealThe issues in a rescission action are handled in Courts of equity, and are complex, and you should consult experienced legal counsel who has experience with contract law litigation.