Understanding Rescission

You’ve probably been hearing the word “rescission” or “rescinding” lately.  These legal terms have something to do with contracts and in simple terms, it is the act of canceling an agreement. 

As a general rule, parties to a contract are bound by its terms and must comply with all its provisions or be considered in breach (violation).

Oftentimes, when business relationships turn sour and the parties no longer are interested in pursuing their agreement or contract, the law allows either party or both to “rescind” or cancel the agreement.  When both agree, it is a mutual rescission and does not result in any problem.

It is when one party defaults or fails to comply with his obligation that problems begin because the breaching party or the other party may not always agree to cancel the contract. 

The law (Civil Code) specifies grounds when a contract is rescissible (Art. 1381).  These grounds are actually defects in the contract which are why rescissible contracts are sometimes called defective contracts.  Examples of such grounds are:

  • contracts entered in fraud of creditors
  • those which refer to things under litigation (special circumstances must apply)

Other than the legal causes of rescission provided in Art. 1381, the Civil Code also allows a party to rescind when the other party violates its terms.  This remedy is found in Art. 1191.

The Supreme Court had the occasion to explain the difference between the two:
“Article 1191, is not predicated on economic prejudice to one of the, parties but on breach of faith by one of them that violates the reciprocity between them.”     (See related post in Florido Law.com)

So, if your reason for “rescinding” or canceling is not based on any defect in the contract but on the breach or violation of the other party, then Art. 1191 will apply for which you must go to court and ask for judicial rescission (plus damages) or your failure to comply with your own obligations under the same agreement can be used against you by the other party.

When can you file the action or case for rescission? Read more.