Rescission of Contract

Rescission is a formative right that eliminates a contract from the outset. Where the law or the contract provides for it, it is exercised by a unilateral declaration to the other party.

Main Grounds

• Debtor’s default: In bilateral contracts, if performance is not made within the period given, the creditor may rescind, immediately declaring that it waives performance (TCO Article 125); see Default.
• Defective performance: Rescission for defects in sale and work contracts (e.g. defective goods).
• Hardship: The debtor’s right to rescind if adaptation is impossible; see Hardship.
• Contractual right of rescission: Agreed by the parties under certain conditions.
• Consumer contracts: The right of withdrawal in distance contracts has similar effects.

Effects

• The parties are mutually released from their obligations.
• Performances already made can be reclaimed.
• In rescission for default, unless the debtor proves it was not at fault, it compensates the creditor’s loss from the contract becoming void, i.e. its reliance damages (TCO Article 125(3)).

Difference from Termination

In continuing contracts where performance has begun (leases, distribution, services, subscriptions), termination is used instead; it takes effect for the future and performances up to that point remain valid (TCO Article 126). See Extraordinary Termination.

In Practice

The rescission notice should be clear and provable. Before giving it, check that any statutory duty to grant a period for performance has been met. Once a rescission notice reaches the other party, it generally cannot be withdrawn.