How to rescind a business contract

Written by david carnes
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How to rescind a business contract
Contract (real estate contract image by Keith Frith from

Rescinding a contract is not the same as termination for breach of a contract. In the case of termination for breach, the breaching party may be required to compensate the other party for the loss of any profits that the other party might have made if the contract had been fully performed. In the case of rescission, each party is required only to do what is necessary to put the other party in the same position that he would have been in if the contract had never been signed in the first place.

Skill level:
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Things you need

  • Copy of contract

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  1. 1

    Research the contract law of your state to determine if it allows a 72-hour "cooling-off period" in which to cancel a signed contract for certain types of transactions. If you signed the contract less than 72 hours ago and the contract concerned an eligible transaction, you may rescind it. Cooling-off periods generally apply to buyers in consumer sales contracts.

  2. 2

    Examine the contract to determine if it specifies any grounds for rescission. Real estate contracts, for example, often contain clauses that allow the buyer to cancel the sale if the closing does not take place on the exact date specified in the contract. If specific grounds for rescission apply, you may rescind the contract. If not, you may still look for other grounds to rescind it.

  3. 3

    Check to see if the contract has consideration ("consideration" is a legal term). A contract has consideration only if both parties offer something to the other, even if only a promise. A promise to give a gift, for example, is not an enforceable contract unless the other party gave or promised something of value in return for it. The amount of consideration is unimportant--a contract to sell a car for one dollar is not lacking in consideration.

  4. 4

    Determine if the other party made any misrepresentations to you that are so serious that you wouldn't have signed the contract if you had known the truth. Although it is best to have documentary evidence of the misrepresentation, you may consider rescinding the contract even if the only evidence you have is your own memory.

  5. 5

    Deliver a written notice to the other party by registered mail stating your intention to rescind the contract and explaining the reasons why. If you discovered several grounds for rescission, list them all. You should also demand that the other party perform whatever action is necessary to restore you to the position you were in before you signed the contract--if you paid a deposit, for example, the deposit should be returned.

  6. 6

    Return to the other party anything that is rightfully his--if you purchased goods, for example, you will need to return the goods.

Tips and warnings

  • When negotiating a business contract, keep careful records of every important statement of fact regarding the deal made by the other party. Try to have these statements included in the contract under a section entitled "representations." If the other party has made misrepresentations to you, these steps will help you prove it.
  • Seek the advice of an attorney before attempting to rescind a contract. If you refuse to continue performing a contract without adequate legal grounds, you might lose a lawsuit and have to pay damages to the other party.

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