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Rescission

Wrong Or Default Of Adverse Party

No ARBITRARY right exists to rescind a contract. An executory contract that is VOIDABLE can be rescinded on the grounds of FRAUD, mistake, or incapacity.

A contract, whether oral or written, can be rescinded on the ground of fraud. The right to rescind for fraud is not barred because the defrauded party has failed to perform. Generally, false statements of value, or the failure to perform a promise to do something in the future without fraudulent intent, will not provide a basis for rescission for fraud or MISREPRESENTATION. A party proves sufficient grounds for rescission by showing that he or she was induced to part with some legal right or to assume some legal liability that he or she otherwise would not have done but for the fraudulent representations.

On discovering the fraud, the victimized party can affirm the contract and sue for damages. He or she might instead repudiate the contract, tender back what he or she has received, and recover what he or she has parted with, or its value; the adoption of one remedy, however, excludes the other.

A contract obtained by duress can be rescinded, and in such a case, the same rules apply as in the case of fraud. A contract cannot be avoided because of duress or coercion, however, unless the duress was sufficient to overcome completely the will of the party who is seeking to avoid the contract.

A mutual mistake concerning a material fact entitles the party affected by the mistake to rescind the contract, unless the contract has already been completed and rescission would be an injustice to the other party. Rescission can also be allowed even for a unilateral, or onesided, mistake in order to prevent an UNJUST ENRICHMENT of the other party. On rescission, the aggrieved party can recover the money he or she has paid or the property he or she has delivered under the contract.

A contract made by a person of unsound mind can be rescinded when the parties can be restored to the status quo. This rule applies even if the opposite party was unaware of the mental condition, and the contract was fair, reasonable, and made in GOOD FAITH for adequate consideration. When one party knows of the other's incapacity, the contract can be rescinded on the ground of fraud. When both parties are sane and the contract is valid, subsequent insanity of one of the parties is not a ground for rescission, unless it affects the substance or purpose of the contract, as in the case of a personal services contract.

As a general rule, a contract cannot be rescinded because one of the parties was intoxicated at the time it was made. If, however, unfair advantage was taken of a person's intoxicated condition, or if the intoxication was induced by the party seeking to take advantage of the contract, the contract can be set aside on the ground of fraud. Similarly, habitual drunkenness that impairs a party's mental abilities can constitute a ground for rescission.

Additional topics

Law Library - American Law and Legal InformationFree Legal Encyclopedia: Reputation to Owen Josephus RobertsRescission - By Agreement, Wrong Or Default Of Adverse Party, Nonperformance Or Breach - Inadequate Consideration, Time