(11) Recission

What is the primary purpose of rescission?

To undo a contract because of a serious problem affecting the agreement.

What types of problems most commonly justify rescission?

Fraud in the inducement, undue influence, duress, mistake, or a substantial breach.

Why does fraud in the inducement justify rescission?

Because it is a serious defect in the formation of the contract.

Why does undue influence justify rescission?

Because the contract was not entered into through the free and voluntary choice of the party.

Why does duress justify rescission?

Because the party's assent was obtained through improper coercion.

Why does mistake justify rescission?

Because a serious mistake undermines the validity of the agreement.

Can a substantial breach of contract justify rescission?

Yes.

When is rescission unavailable because of the plaintiff's conduct?

When the plaintiff has affirmed the contract expressly or through conduct.

What remedy is usually coupled with rescission?

Restitution.

Why is restitution usually awarded together with rescission?

To prevent unjust enrichment.

What is meant by "restoration" in rescission?

Placing the parties back into their original positions before the contract.

What phrase describes returning the parties to their original positions?

Restoring the status quo ante.

What must a plaintiff establish to obtain rescission at law?

Notice of intent to rescind and tender back of the goods or consideration.

What is the first requirement for rescission at law?

The plaintiff must notify the defendant of the intent to rescind.

Why must notice of rescission be given?

To clearly communicate that the plaintiff is canceling the contract.

What must generally be tendered back in a legal rescission?

The goods or consideration originally received.

How must the tender back of consideration be made?

Promptly, in good faith, and unequivocally.

What does it mean for a tender to be unequivocal?

It clearly demonstrates the plaintiff's intent to rescind the contract.

What additional requirement exists for rescission in equity?

The same general requirements apply, but tender is traditionally unnecessary.

Is tender traditionally required in equitable rescission?

No.

Do some modern jurisdictions nevertheless require tender before equitable rescission?

Yes.

What is the effect of rescission on an executed contract?

Generally unavailable unless the contract resulted from fraud, mistake, duress, or undue influence.

Why is rescission generally unavailable for fully executed contracts?

Because it is usually impossible to restore the parties to their original positions.

Does rescission generally apply to executory contracts?

Yes.

Why is rescission more appropriate for executory contracts?

Because the parties can still be restored to their pre-contract positions.

If the plaintiff first seeks rescission and loses, may the plaintiff later seek damages?

Yes.

If the plaintiff first seeks damages, may the plaintiff later seek rescission?

No.

Why does first seeking damages bar rescission?

Because seeking damages affirms the contract.

What equitable defense bars rescission because of unreasonable delay?

Laches.

What equitable defense bars rescission because the plaintiff acted inequitably?

Unclean hands.

How does affirmance of the contract operate as a defense to rescission?

It demonstrates the plaintiff chose to continue the contract rather than cancel it.

What is estoppel by conduct?

After learning facts justifying rescission, the plaintiff continues accepting benefits under the contract and is therefore barred from rescinding.

When does estoppel by conduct arise?

When the plaintiff continues accepting contractual benefits after discovering grounds for rescission.

Testable Issue: What is the difference between rescission and restitution?

Rescission cancels the contract, while restitution returns the parties' consideration to prevent unjust enrichment.

Testable Issue: What is the difference between rescission at law and rescission in equity?

Legal rescission generally requires tender back of consideration, while equitable rescission traditionally does not, although some modern jurisdictions require it.

Testable Issue: What is the difference between an executed and an executory contract for rescission purposes?

Executory contracts are generally rescindable, while executed contracts usually are not unless fraud, mistake, duress, or undue influence exists.

Testable Issue: How does the election of remedies affect rescission?

A plaintiff who first seeks rescission may later pursue damages if rescission fails, but a plaintiff who first seeks damages affirms the contract and cannot later rescind.

Essay Rule: How should you analyze a rescission issue?

Determine whether valid grounds for rescission exist, determine whether the contract is executed or executory, analyze the procedural requirements for legal or equitable rescission, determine whether restitution is necessary to restore the status quo ante, and evaluate any equitable defenses.

Master Synthesis: What is the overall purpose of rescission?

To cancel a contract because of a serious defect and, together with restitution, restore both parties to the positions they occupied before entering the agreement.