Lesson 5: Tort & Contract Law
Rescission of a contract terminates liability and restores the parties to their former positions by requiring each party to return whatever benefit he or she received under the contract. [CC §1692.] The effect of a rescission is to extinguish the contract. [CC §1688.] The rescinding party is entitled to restitution.
When faced with a party who has rescinded a contract, first determine whether the rescinding party’s election to rescind was justified, i.e., did the rescinding party have proper legal justification for rescinding, and second, adjust the equities between the parties by granting to each party the relief to which that party is entitled. [CC §1692.]
Grounds for rescission include the following:
- Fraud [CC §1689(b)(1)],
- Mistake or misrepresentation [CC §1689(b)(1)],
- Duress, menace, or undue influence [CC §1689(b)(1)],
- Void contract [CC §§1565–1568, 1550, 1581],
- Illegal contract [CC §§1596–1599, 1689(b)(5)] or contrary to public interest [CC §1689(b)(6)],
- A party is a minor [CC §§1550(1), 1556, 1557(a)],
- Insufficient consideration [CC §§1689(b)(3), (4), 1550, 1605–1615],
- Material breach of contract [see CC §1689(b)(1)], and
- Material breach of warranty [Com C §2711].
Restitution is a remedy for rescission. In other words, the rescinding party is entitled to restitution of the consideration given to the other party.
Restitution may also be a quasi-contractual remedy used to prevent unjust enrichment. [Beasley v Wells Fargo Bank (1991) 235 CA3d 1383 (unlawful credit card fees).]