Understanding contract rescission

On Behalf of | Jan 17, 2022 | Uncategorized |

Contracts are signed every day in Oregon, and many of them include a right of rescission that can be used shortly after the contract is signed. Other contracts may be rescinded if there is sufficient evidence to prove that the agreement was invalid.

What is rescission?

In contract law, rescission is a cancellation that treats the contract as though it never existed. Once a contract is rescinded, all parties to it are free of any and all of the obligations that they previously had.

Right of rescission

Contracts may be rescinded without a court order if there is a right of rescission in the contract. For example, many lending contracts allow the borrower the right to rescind the contract within the first few days after signing it. In other words, if a borrower changes their mind, they have a grace period to give the money back and free themselves of future interest payment obligations.

The right of rescission is often used to protect consumers, but it may also be used to protect businesses. If a consumer provides false information on an application, for example, a business may rescind a contract that they have with the consumer without obtaining court approval.

Going to court

If there is no right of rescission or the right of rescission has expired, a contract can still be rescinded with approval from the court. However, the court will require proof that the contract was invalid from the beginning. A contract could be considered invalid if it contains material errors or it was signed under false pretenses. A party may also argue that they lacked mental capacity to sign a contract or they only signed a contract because they were being threatened or coerced.