Remedies (types of relief sought by injured parties) can be either legal or equitable in nature. The recovery of money damages (monetary damages) is a legal remedy. An equitable remedy is designed to provide more flexible relief to aggrieved parties. The goal of equitable remedies is fairness. Injunctive relief where a court orders a party to do or refrain from doing something is a common example of an equitable remedy. In contract law, a common equitable remedy is rescission. The word “rescission” is derived from the word “rescind” which means to cancel. It seeks to restore the parties to a contract to the positions they held before they first entered into the contract. Rescission nullifies or “undoes” the contract which relieves all parties of their duties and obligations under the contract. Its effect can be analogized to restoring your computer to its factory settings. In California, there can be no partial rescission. The entire contract must be rescinded. A contract can be rescinded for a variety of reasons, including fraud, mutual mistake of fact or law, undue influence and duress. If the parties do not agree that a contract should be rescinded, the party seeking rescission will need to file a legal action to seek resolution.
There are numerous grounds for rescission. The following are some of the most common grounds upon which a party may rescind a contract:
Mistake of Fact or Law: If both parties entered into the contract based on a mistake of fact, the contract may be rescinded. The fact must be material to the contract. A fact only collateral to the contract will not suffice. Sometimes, parties may be mutually mistaken about a material fact. For example, if the contract is for the sale of a book that contains the original signature of the author, it would be a mutual mistake of fact if the signature was forged and both the buyer and seller believed it to be real. A unilateral mistake of fact may serve as the basis for rescission where the effect of the mistake is such that enforcement of the contract would be unconscionable. Similarly, a mutual mistake of law is grounds for rescission. A mistake of law exists where all parties believe they know the law as it pertains to their contract but are wrong (i.e. both parties enter into a gambling contract believing gambling is legal in their state). A unilateral mistake of law is not a basis for rescission except where one party misunderstands the law and the other party knowing this fails to clarify the misunderstanding.