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.
What is Repudiation & Rescission
Repudiation is where one party to a contract decides to terminate it by informing the other party, or acts as if they no longer wish to be bound to their obligations. This generally takes place before they have actually breached their obligations. From here, the other party can choose whether to end the contract or continue. Where they decide to continue, this will mean that the rescinding party is in breach of the contract.
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 major 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 requires an actual defect in the contract.
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 and obligations already accrued to the parties because of the contract remain valid. If a party has already delivered goods, the other party remains obliged to pay them for those goods.
Repudiation stops future performance of the contract. But you should 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, as if the contract had never been made in the first place.
- 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
- Rescission: 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.
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.
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