A contract is usually complete when both parties have performed the terms of the contract, however, occasionally contracts can finish in other ways. It’s wise to know the difference between repudiation and rescission as they are two common ways of contract termination without the contract being fulfilled. While both of them will conclude the contract, they differ in why the contract can be terminated and the termination’s effects.
Table of Contents
What is Repudiation & Rescission
Repudiation
Repudiation is where one party to a contract decides to terminate it. The party in this case usually informs the other that they cannot fulfil the terms of the contract usually before the contract is breached. From here, the other party can choose whether to end the contract or continue (where the other party will likely breach the terms of the contract).
Rescission
By contrast, rescission is a remedy the Courts award to a contracted party. This has the effect of ‘un-doing’ the contract. This usually occurs where the circumstances for the party entering the contract were unfair. This can be due to misrepresentation, duress or error.
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Differences between repudiaton and rescission
1. Repudiation requires one party decides to terminate a contract
A key difference between repudiation and rescission, are why the contract can be ceased. Grounds for repudiation are when one of the parties indicate that they will not perform the contract. A party’s breach of an ‘essential’ term or a large breach of a non-essential term shows they will not do their part of the contract. The other party can cancel the contract and stop its duties for both actual or anticipated breaches. This contrasts to rescission, which needs an actual defect.
2. Rescission voids a contract due to error in its preparation
On the other hand, rescission of a contract is when there is a error in the making of the contract. Undue influence or being against public policy are some ways contracts can be void or voidable. To learn more about void contracts, read ‘What Can Make a Contract Void?’ here.
3. Rescission voids a contract due to unconscionable conduct
You can rescind contracts for unconscionable conduct, which are words or actions that are not in good practice. Thus it is vital to ensure both parties comply with section 21 of the Australian Consumer Law (ACL)when making contracts.
Effects of Termination
Contracts that are brought to an end by repudiation are finished when the contract has been repudiated. The rights already given to the parties because of the contract remain valid. Instead, repudiation stops future performance of the contract. Be careful if you think that a contract has been repudiated because you must still do your duties until it is actually repudiated.
In contrast, a rescission will cancel a contract before it was formed. Rescission attempts to return the parties to their position before the contract. It is like the contract was never made in the first place.
Article Summary
- Repudiation: When one party assigned to a contract decides to terminate their contract. The party doing so will usually inform the other party, notifying that they cannot fulfil the contract agreement
- Recission: When a contract is terminated by the court as a remedy to a contracted party. The usual reasons behind this are either unconscionable conduct on behalf of the other party or an error in the contract preparation
Repudiation means a contract is cancelled by one party involved., whereas recission means a contract is cancelled by a court.
Conclusion
It is therefore important to know the grounds and effects of termination to see whether a contract can be repudiated or rescinded. Get in contact with a contract lawyer if are unsure about this.
