Rescission



Historically, rescission was used where the parties wanted to be reinstated to their original position if something went wrong. However, contracts now often use rescission simply as another word for termination, whereby only the performance of future obligations are terminated.

In some cases, for example where something invalidates the contract from forming (such as a misrepresentation, fraud or undue pressure to sign the contract), a rescission or termination will mean the contract is set aside so that the parties can be restored as much as possible to their original position.

In these cases the parties will have no accrued rights or obligations under the contract because the contract has been fully cancelled as if it had never existed.

CASE STUDY



Stocznia Gdanska SA v Latvian Shipping Co and Others

[1998] 1 All ER 883



Facts

  • Six shipbuilding contracts contained a right to 'rescind' the contracts if certain payments were not made.

Result

  • The court stated that a right to 'rescind' the contract was to be interpreted as a right to terminate because the parties showed a clear intention to retain their accrued rights rather than to be restored to their original position.
  • There is a presumption that parties want to retain their accrued rights and clear words are needed to show that this is not intended.

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