Generally speaking, a contract becomes binding once it is signed by all parties. A binding contract is required to be performed in accordance with its terms and conditions.
There are several instances where the contract is no longer binding.
Rescission of a Contract
One instance where a contract is no longer binding is when the contract is rescinded. The word ‘rescission’ means revoked or cancelled.
There is a substantial difference between the ‘termination of a contract’ and the ‘rescission of a contract’. When a contract is terminated, it ceases to be enforceable from the date of termination. However, when a contract is rescinded, it is as if it never existed.
The reason why a rescission of a contract is preferred by legal practitioners is because when a contract is terminated, the obligations under the contract remain in place and each party can sue the other for those obligations even after the contract is terminated.
On the other hand, when a contract is rescinded, all the obligations under it vanish.
Furthermore, a rescission is often agreed to by all parties to the contract. On that basis, when a contract is rescinded, it is rescinded on mutual terms.
Where does a rescission of contract apply?
A rescission of contract often occurs with respect to Sale of Land contracts and Sale of Business contracts. However, any contract can be rescinded provided that the parties agree to the rescission.
How is a rescission done?
A rescission of a contract is normally done through a Deed of Rescission. The Deed (which is a type of an agreement) sets out the terms and conditions of the rescission and is signed by all parties to the contract.
The Deed also sets out the date on which the contract is rescinded.
How does this apply to you?
If you are looking to get out of a contract, or someone else has proposed to you getting out of a certain contract, it is recommended that this is not done by mere words of mouth.
Although it is important to document the agreement in writing, the safe way to rescind a contract is through a Deed of Rescission.
