Contract Remedies: Rescission

Question 1

What is rescission?

Answer 1

“Rescission” - cancels the K. Usually accompanied by restitution of benefits received.

Question 2

When is rescission available?

Answer 2

• K is materially breached
• K is voidable by one party due to:
  mistake, misrepresentation, fraud, duress, illegality, impossibility to perform, lack of capacity.

Question 3

What are the two types of rescission?

Answer 3

1. legal rescission

2. equitable rescission

Question 4

What is “legal rescission”?

Answer 4

“legal rescission” = effected by P when there has been a MATERIAL BREACH by:
1. giving prompt notice and
2. returning back anything received under K
AFTERWARDS –> P can seek restitutionary remedies of quasi-contract or replevin

Question 5

What is “equitable rescission”?

Answer 5

• requires court intervention

- legal remedy must be inadequate

Question 6

What are the grounds for rescission?

Answer 6

May be grounds making K voidable at option of one party:
- mistake, misrepresentation, fraud, duress, illegality, impossibility to perform, lack of capacity.

MOST TESTED –> mistake and misrepresentation

Question 7

With regards to rescission, what is the rule w regards to MUTUAL MISTAKE in formation of K?

Answer 7

Rescission ALWAYS granted –>
MUTUAL MISTAKE effecting BASIS OF BARGAIN

Rescission NEVER granted –>
- collateral or immaterial mistake
EXAMPLE –> quantity and quality of item (although resulting hardship may be a defense to specific performance)

Question 8

With regards to rescission, what is the rule w regards to UNILATERAL MISTAKE in formation of K?

Answer 8

Traditional rule –> no rescission for UNILATERAL mistake UNLESS other party KNEW or SHOULD HAVE KNOWN of mistake

Modern trend –> there can be relief for unilateral mistake IF:

(1) it goes to basis of bargain; and
(2) HARDSHIP to mistaken party outweighs detriment to other party’s expectations

Question 9

What is the rule w regards to rescission and misrepresentation?

Answer 9

P can seek rescission upon showing of:

1. ACTUAL RELIANCE on
2. MATERIAL MISREPRESENTATION of fact

(see torts outline for other elements)

Question 10

What are the defenses to rescission?

Answer 10

1. laches
2. unclean hands
3. estoppel - if P by word or conduct affirms K WITH knowledge of facts justifying rescission

Question 11

What is the rule w regards to rescission and election of remedies?

Answer 11

If DAMAGES are sought first –> subsequent suit to rescind is NOT ALLOWED
EXCEPTION –> in SOG, damages and rescission can be sought in the alternative

If RESCISSION is sought first –> legal action is NOT precluded, but P must elect one form of relief prior to judgment