Also known as: equitable rescission · rescission
Written by attorneys · grounded in primary & secondary sources — see below
An equitable remedy by which a court orders cancellation of a contract and restores the parties to their pre-contractual positions or enforces a party agreement discharging duties. The remedy is available when restitution at law cannot compel effective restoration because the plaintiff has paid with a negotiable instrument that may reach a holder in due course or when other circumstances require destruction of instruments or flexible relief.
Allied Production agreed to sell a factory to Dusk Plastics for $4.8 million and promised marketable title at closing. A title search revealed a recorded option allowing a former tenant to repurchase part of the land, and the option holder could not be located. Dusk refused to close. The court permitted Dusk to rescind and recover its deposit because the outstanding claim rendered title unmarketable.
Elm Grain and Field Rural shook hands at a farm show after Field Rural said the wheat delivery deal should be canceled. No property transfer had occurred. The later written releases confirmed the parties' intent. The oral agreement discharged all remaining duties under the harvest contract.
Select any source to read its text and confirm it supports the definition.
Elm Grain and Field Rural exchanged signed letters releasing each other from the harvest contract after drought reduced yields. Each party agreed to discharge the other's remaining obligations. The agreement of rescission eliminated any continuing duty to deliver wheat.
After the drought, Elm Grain and Field Rural signed mutual releases discharging further performance. The letters contained no provision for returning any partial payments already made. The court interpreted the agreement as discharging duties without requiring restitution of prior performance.
Dorris Reed bought a house from Robert King without learning that a multiple murder had occurred there ten years earlier. After closing Reed discovered the fact from a neighbor and sued for rescission. The court held that the seller's failure to disclose the stigma supported equitable rescission of the sale.
Alcoa and Essex entered a long-term aluminum supply contract with a price formula based on a wholesale price index that both parties assumed would track Alcoa's actual costs. Electricity costs later spiked far beyond the index. The court denied full rescission and reformed the price term to avoid an unfair windfall to Essex.
Rescission in equity is required when restitution at law cannot compel effective restoration, such as when the plaintiff paid with a negotiable note that may reach a holder in due course. Equity can destroy the instrument and restore the parties to their original positions.
Supporting sources
An oral agreement of rescission discharges all unperformed duties under an enforceable contract even though the statute of frauds applies to the original contract. The statute may still govern a contract that rescinds a transfer of property.
Each party agrees to discharge all remaining duties of performance owed by the other. The agreement ends those duties, and whether restitution for prior performance is also required is a question of interpretation.
A buyer may refuse to close and obtain rescission when title is unmarketable because of recorded encumbrances, gaps in the chain, or adverse claims that would cause a reasonably prudent purchaser to hesitate. The seller generally must convey marketable title unless the contract provides otherwise.
…(1993) (requiring disclosure of repairs costing more than 5 percent of suggested retail price and prohibiting revocation or rescission of sales contract on the basis of less costly repairs); Okla. Stat., Tit. 47, § 1112.1 (1991) (defining "material" damage to a car as damage requiring repairs costing in excess of 3 percent…