Rescission of a contract is a remedy available, which attempts to restore the parties who entered into a contract, to the same state they were in prior to the contract being executed. Essentially, rescission seeks to make it as though the contract never existed. Although in some cases it can be impossible to completely restore the parties, rescission may provide for additional monetary damages in an attempt to compensate for these scenarios.
Rescission is different than a claim for breach of contract. Generally, a cause of action from breach of contract occurs when there is a valid contract, and one or more parties fail to perform. Rescission, on the other hand, occurs when there is no valid contract due to the actions of one or more parties. Consequently, just because there is a subsequent breach of a contract, does not necessarily mean there was fraud to justify rescission. These actions that do justify rescission however include a mutual mistake, negligent misrepresentation, fraud, or a material failure of consideration. For purposes of this article we are going to discuss the remedy of rescission based on fraud and misrepresentation.
The first means of rescission of a contract this article will discuss, is rescission based on fraud. In a case of rescission based on fraud, there are nine established elements that must be proved to establish fraud took place. Those elements are: (1) A representation; (2) its falsity; (3) its materiality; (4) the speaker’s knowledge of its falsity or ignorance of its truth; (5) his intent that it should be acted upon by the person and in the manner reasonably contemplated; (6) the hearer’s ignorance of its falsity; (7) his reliance on its truth; (8) his right to rely thereon; (9) his consequent and proximate injury. These elements were set forth in the case of Hall v. Romero, 141 Ariz. 120, 124, 685 P.2d 757 (App. 1984).