Rescission is the act of cancelling a contract and returning the people that signed it to the positions they were in before they made the agreement.

Rescission is a way for one party to back out of an existing contract due to some sort of mistake. It is a process that rolls back any action initiated by the initial agreement as if the contract never existed.

What Is Rescission?

Almost everyone gets involved in a contractual agreement at some point in their lives. From employment deals with salary guarantees to a simple agreement to loan money to a friend in need, we use contracts to hold each other accountable for all kinds of agreements. However, there are times when some contracts need to end. When one or more parties involved in a contract aren’t satisfied with the terms, they can request a rescission that will allow them to “hit the reset” on their agreement.

When one party rescinds a contract, it is no longer legally binding. The courts can help parties who are not responsible for breaking a contract get out of their obligations and restore them to their original financial position.

Here are some things you should know about rescission and how it could impact you if someone uses it.

Example of Rescission

One of the most common examples of rescission occurs during the financing of a loan.  When people consider their reasons for a personal loan, they may not have understood the loan’s actual cost and may not be able to afford it. For this reason, many loans have a 72-hour “cooling off” period where customers can back out of the agreement.

It is important to note that the responsibilities of a contract cannot be removed on a whim. For example, if a debt collector contacts you demanding payment, you cannot rescind your way out of what you owe. Rescission is a way for parties to get back to their original position essent++ially, and a debt collector is seeking money for services already rendered.

How Does Rescission Work?

The goal in rescission is to get both parties involved restored to whatever state they were in before creating the contract. The process is a legal action that takes place in a court of law. Local and state courts typically handle rescission cases, which means that action varies from state to state. Some cases—particularly those involving contracts between private lenders and consumers—are decided by federal courts.

Reasons/Grounds for Rescission

You cant receive a contract rescission just because you are dissatisfied with the terms of a contract. A rescission can occur on the following grounds:


One of the most common grounds for rescission is fraud. Fraud is any action done to deceive or mislead the victim for some sort of gain. You may have heard of instances of tax fraud or credit card fraud in which people falsify everything from income reports to personal information. Fraud can also occur when one party withholds or conceals information that may affect another party’s decision to enter into the contract.

Misrepresentation of Fact

If two parties enter into a contract based on facts that turn out to be false, either party can make a case. The misrepresented facts must be essential to the contract. Let’s look at an example.

Suppose you have a contract with a broker to buy a series of prints signed by the original artist. If you discover that someone forged the signatures, you haven’t purchased the item described in the contract. In this case, you have a basis for action.

Mistake of Law

A mistake of law happens when both parties believe to be acting according to law but later discover that they are acting unlawfully. For example, if you and your broker create a contract in a state that outlaws the private sale of art. To void the contract, you and the broker must prove that you both acted with ignorance of the law. Such an instance would be a mutual mistake of the law.

Undue Influence and Duress

For a contract to be valid, both parties must enter into the contract willingly. That is, no party can be threatened or coerced into a contractual agreement they would otherwise decline. When courts consider cases of undue influence or coercion, they consider the presence of a fair exchange of value and if both parties took all action with free will. One of the essential elements of a binding contract is mutual assent. Mutual assent is the “meeting of the minds” that indicates both parties’ understanding of the whole nature of the contract. Contract rescission can take place when there is no presence of mutual assent.

Process of Rescission

The party that wants the rescission must inform the other party of their desire to nullify their contract. If both parties agree, they can each take action to restore the other party to their conditions pre-contract. A typical restoration act is when one party refunds payments or returns an exchanged piece of property to the other party. If both parties don’t agree to a mutual restoration, one party can take legal action against the party that opposes the rescission.

Rescission in Consumer Contracts

Many businesses have guidelines for requesting rescission included in their contracts. Mandated by state laws, business-to-consumer(B2C) contracts include this information to help protect consumers against fraud. The guidelines will list the specific period in which a party has to request a rescission after signing the original contract. Some states allow anywhere from a day to a few months, while others allow requests for rescission at any time.

Rescission in Business Contracts

Rescission of a business contract happens much less frequently than with consumer contracts. The conditions for rescission of a business contract are typically so severe that they would no longer allow the contract to be valid. They include:

  • A lack of mental capacity (particularly at the time the contract was formed)
  • Duress or the threat of physical or psychological harm
  • Misrepresentation of fact
  • Breach of contract (i.e., one party fails to fulfill their contractual obligations)

On the whole, companies are more inclined to settle contract issues through mediation, where a mediator can guide two parties towards a solution that keeps the agreement.

Are You Considering Rescission?

Financial experts advise anyone considering rescission to seek legal advice as soon as possible. Any rescission process will involve lots of paperwork and written communication. An attorney can guide the process to take legal action (e.g., involving courts and entering into litigation) only after other means are exhausted. Any settlement you receive can also be subject to legal fees and court costs. You can save time and money with professional help.

In Conclusion

Rescission is a way that you can get out of a contract that doesn’t live by every letter of its fine print. But it’s important to remember that when you sign any agreement—whether it’s a cash advance loan from a lender or a contract for home repairs—both parties are responsible for fulfilling their obligations. Before you take legal action like rescission, be sure that you have done everything in your power to be the responsible party in the contract. Diligence will strengthen any case for rescission.


  1. The Equitable Remedy of Rescission | San Diego Business Lawyer Blog
  2. Rescissible Contract: Everything You Need to Know | 
  3. Rescission Definition | Investopedia 
  4. 72-Hour Contract Law |

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