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When should you resort to contract rescission?

On Behalf of | Jul 29, 2021 | Contract Disputes |

If you have a business contract in California, there may be a time when it is appropriate to rely on rescission. Contracts are binding, but if you have a dispute, you can turn to rescission to void the terms so that you’re no longer legally bound to them. It’s important to know when rescission may be necessary.

What is rescission?

Rescission refers to wiping a business contract’s terms. When contract disputes arise, rescission is an available option to ensure that the party is no longer legally obligated to follow the terms of that contract. When a person seeks rescission, they can rely on the court and be freed of contractual obligations. It also allows them to resume their position prior to the signing of that contract. Sometimes, rescission is used in contract disputes where there may be evidence of errors, fraud, duress, undue influence or questions of mental capacity.

How does rescission work?

When a person turns to the court for rescission of a contract, it effectively wipes out that contract and treats it as if it never existed. All of the obligations included in the terms of the contract become null and void. All parties are returned to their previous state and position. Any money that was exchanged is also ordered to be returned.

If a contract is discovered to have a material error or there’s proof of fraud, mutual errors or other problems, rescission is a viable option. Other things that can warrant rescission of a contract include undue influence, lack of mental capacity or legal capacity, and duress.

Something to keep in mind is that a contract is usually legally binding and often cannot be broken. In order to use rescission, there must be a valid reason behind it. The courts will only consider rescinding a contract if there is a legitimate reason.