This is a series of posts about contract terms to help you understand your business better. To see the previous post in this series, click this link: Post 1.
Post 2. Contract Glossary of Terms: Rescission
When a contract is rescinded by one of the parties it stops being a contract. This is different from a breach, which occurs when a contracts continues to live and the parties have their rights to damages for the breach of the contract instead of rescission.
Contractor agrees to build a home in exchange for $500,000 which Buyer would pay after the home is built. If Contractor then refuses to build, because he wants more money for example, then Contractor has failed to perform under the contract. Buyer then has 2 options: (1) claim breach or (2) rescind the contract.
The theory behind a breach of contract claim would be that Contractor failed to perform under the contract. The theory behind a rescission is based on slightly different reasoning, that Buyer’s “performance” under the contract (a.k.a. duty to pay Contractor $500,000) is now impossible. It’s impossible, because under the contract Buyer is required to pay only after the house is built. If the house is never built, then it is impossible for Buyer to perform under the contract.
Buyer could claim breach. In doing so, the court may award Buyer damages (money), including any “consequential” damages, like lost profits, caused by Contractor’s breach.
If Buyer did not experience a monetary loss, or if Buyer just wants to end the entire situation and move on with life, then that is when Buyer would want to ask the court to rescind the contract. When a contract is rescinded, it rewinds the clock back to before it was ever made.
The effect of rescission is that the contract never existed.
After rescinding the contract, Buyer is not able to get any money from a breach claim, but Buyer is also not required to pay Contractor and Contractor is never be able to go back to court and sue Buyer for that money– because the effect of rescission is that the contract never existed.
If you have any questions about this article or would like to know more about contracts, contact Boyer Law Firm today.