When might business owners need to rescind a contract?

On Behalf of | Sep 27, 2023 | Business Formation

As a business owner, you can agree that contracts are the backbone of nearly every transaction. They serve as legally binding agreements that outline the terms and conditions under which parties are expected to perform their obligations. However, situations may arise where business owners need to rescind a contract. 

Contract rescission is a legal remedy that allows parties to a contract to cancel or annul the agreement. When a contract is rescinded, it is essentially treated as if it never existed, and both parties are released from their obligations. Delving the scenarios in which contract rescission becomes necessary enables you to discover the steps to take to navigate this complex terrain.

Discovering misrepresentation

Misrepresentation occurs when one party makes false statements or conceals material facts that induce the other party to enter into the contract. If you discover the contract was based on deceptive information, you may have grounds for rescission.

Imagine entering into a contract to purchase a company’s assets based on their financial statements, only to find out later that they inflated their profits. In this case, you might consider rescission due to misrepresentation.

Coercion or threats

Duress involves situations where one party was coerced or forced into signing the contract under threat or pressure. If you prove that you signed the contract under duress, it may be eligible for rescission.

For example, suppose you are pressured into signing a contract with a supplier under the threat of discontinued service. If you can prove duress, rescission becomes an option to nullify the contract.

In the dynamic business world, contract rescission is a vital tool that enables business owners to rectify unfavorable agreements and help protect their interests. It is essential to understand the legal grounds for rescission, recognize scenarios where it applies and follow the proper legal channels to help ensure a successful outcome. 




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