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Is it possible to back out of a deal without breach of contract?

On Behalf of | Jan 10, 2023 | business litigation

While contracts are legally binding agreements, circumstances may raise legitimate causes for a business owner to want to back out.

Dissolving a contract is valid if it meets specific criteria. For such a situation, California has laws that allow parties to rescind a contract without fear of a breach.

Understanding rescission

Rescinding a contract allows the parties to act as if the contract did not ever exist. This step goes beyond contract cancellation. To comply with rescission arrangements, parties to the agreement must return any consideration they received through the contract up to that point.

The easiest manner to rescind a contract is for all parties to agree to the action. Additionally, arrangements against the law or the public interest cannot stand. If someone enters a contract because of undue influence or misrepresentation, the defrauded party has the right to rescind the agreement.

If a party neglects to fulfill its side of the contract, the other party may rescind. A party might also clearly intend to violate the deal, which can cancel the contract.

Finally, if a party does due diligence but sincerely misunderstands a material fact under the contract, the possibility of rescinding the contract is open. However, this can only occur if the other party was aware of the misunderstanding and used the mistake as an advantage or if both parties mutually misunderstood the fact.

Time period and other cancellations

Various contracts have distinct time limits for cancellation. The length of time depends on the industry and service. The timing for cancellation should be evident in the agreement.

Specific circumstances can allow a person to exit a contract with minimal damage. To prevent such a sticky situation, parties should carefully read contracts before signing and be sure to include termination clauses.