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Under what circumstances can a contract be rescinded by either

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Under what circumstances can a contract be rescinded by either party? What facts have to be alleged and proven? What is the result of a contract that is rescinded?
Submitted: 3 years ago.
Category: Business Law
Expert:  lwpat replied 3 years ago.
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The only situation I can think of where either party may rescind is where there is a mutual mistake. A mutual mistake occurs when the parties to a contract are both mistaken about the same material fact within their contract. They are at cross-purposes. There is a meeting of the minds, but the parties are mistaken. Hence the contract is voidable. Collateral mistakes will not afford the right of rescission. A collateral mistake is one that 'does not go to the heart' of the contract. For a mutual mistake to be void, then the item the parties are mistaken about must be material to the contract.

The classic case of mistake is Sherwood v. Walker. Seller Walker owned breeding cows, worth between $750.00 and $1,000.00 and barren cows, worth about $80.00. Buyer Sherwood inspected an apparently barren cow, Rose 2nd of Aberlone, and decided to buy her. A price was agreed on 5.5 cents per pound but before the exchange of money and cow, Walker found Rose was pregnant and refused to part with her. The court said that if both parties thought the cow was barren (a question for the jury), the contract was voidable on grounds of mutual mistake.

As to the effect it depends on which party assumed the risk

Restatement of Contracts 154. When a Party Bears the Risk of a Mistake
A party bears the risk of mistake when
  1. the risk is allocated to him by agreement of the parties, or
  2. he is aware, at the time the contract is made, that he has only limited knowledge with respect to the facts to which the mistake relates but treats his limited knowledge as sufficient, or
  3. the risk is allocated to him by the court on the ground that it is reasonable in the circumstances to do so.
lwpat, Attorney
Category: Business Law
Satisfied Customers: 25384
Experience: Attorney with over 35 years of business experience.
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