Can You Rescind a Contract?

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Terminating or cancelling a contract is not always easy. The purpose, however, is to restore both parties back to their original status before signing the contract. In order to rescind a contract, you must terminate the contract entirely – you cannot pick and choose portions to cancel. Rescissions are often used when issues regarding the contract arise – such as how the contract was formed.

What Circumstances Constitute a Termination?

To cancel a contract, a judge must determine there is a valid reason. Contracts cannot be cancelled just because you or the other party changed their mind. Instead, you need to meet specific criteria, including:

• Consent Issues – Both parties must agree to the termination of the contract. The consent to cancel should be provided in writing to the courts for validation.
• Contract Formation Issues – A contract must be drafted in accordance with the law and have a legally binding reason for creating the contract. If for some reason the contract was formed illegally, it may be cancelled. Common illegal contract formation issues include fraud, lack of capacity by one party, undue influence or duress, and a mistake.
• Public Interest Factors – If a contract is against the public or harms public interest, it may qualify for a termination.

Can the Court Deny a Rescission?

Yes. There are times when the courts may deny the termination of a contract, even if both parties agree. Some situations where the judge can deny your termination include, but are not limited to:

• Performance – One party has already started to perform their duties of the contract, such as making goods for distribution.
• Benefits – Another party has already received benefits from that contract; therefore, cancelling it would now impact that third party.

If a person has request monetary damages, the judge may also deny the termination. You can file for monetary damages after your contract is terminated, but not before.

How to Avoid Contract Terminations

Contract rescissions are very costly and time consuming – and there is no guarantee the courts will terminate them. It is best to hire a contract lawyer to draft your contracts and review other party contracts before you sign them. Because written contracts can be legally binding, you want to ensure you’re signing a good contract ahead of time – rather than deal with attempting to cancel it later.