Repudiation vs Rescission of Contract: Understanding the Difference

When contracts go wrong, two terms often come up: repudiation and rescission. While both involve ending a contract, they work in completely different ways and apply in different situations. Understanding the distinction is crucial for protecting your rights in contract disputes.

Repudiation happens when one party refuses to perform their obligations under a contract or makes it clear through their actions that they won’t fulfill the agreement. It’s essentially one party saying “I’m not doing what I promised” before their performance is due or while the contract is still ongoing.

Repudiation looks forward. When someone repudiates a contract, they’re abandoning their future obligations. Everything that happened before the repudiation remains valid: the contract existed and was binding up until the repudiation occurred.

Rescission means canceling a contract and returning both parties to their positions before the agreement was made. It’s like pressing an undo button that erases the contract as if it never existed.

Rescission looks backward. When a contract is rescinded, you treat it as void from the beginning. The goal is to restore both parties to their pre-contract positions, unwinding everything that happened under the agreement.

Timing and Effect:

Repudiation ends the contract going forward but doesn’t erase what already happened. Past performance remains valid.

Rescission wipes out the contract entirely, including past actions taken under it.

Grounds Required: 

Repudiation occurs through one party’s conduct: their refusal to perform or breach of essential terms.

Rescission requires specific legal grounds like fraud, misrepresentation, duress, or mistake that existed when the contract was formed.

What You’re Claiming:

With repudiation, you’re saying “the other party broke the contract, so I’m ending it and claiming damages for their breach.” 

With rescission, you’re saying “this contract should never have existed because of problems with how it was formed.”

Express Repudiation: One party clearly states they won’t perform. For example, a supplier tells you two weeks before delivery that they’re not shipping the goods you ordered.

Implied Repudiation: Actions demonstrate an intention not to perform. A contractor walks off your job site and removes all their equipment with work only half complete. Their conduct shows they’ve abandoned the contract.

Fundamental Breach: A party breaches a condition of the contract, an essential term that goes to the heart of the agreement. This breach is so serious it effectively destroys the purpose of the contract.

Misrepresentation: Someone made false statements that induced you to enter the contract. A seller lied about a property’s condition, and you relied on those lies when signing.

Fraud: Deliberate deception designed to trick you into the contract. This goes beyond innocent misrepresentation; it involves intentional dishonesty.

Duress or Undue Influence: You were forced, threatened, or pressured into signing. The contract wasn’t entered freely and voluntarily.

Mistake: Both parties were fundamentally mistaken about something essential to the contract. This is rare and applies only to serious mistakes about the subject matter.

Unconscionability: The contract is so unfair and one-sided that enforcing it would be unconscionable. This usually involves taking advantage of someone’s vulnerability.

When the other party repudiates, you have a choice. You can accept the repudiation, which ends the contract immediately. You’re then entitled to sue for damages for their breach. Your obligation to perform ends, and you can move on.

Or you can reject the repudiation and insist they perform. The contract continues, and you can wait until the performance date arrives to see if they actually breach. If they do, you can then sue for damages.

This choice is important. Sometimes keeping the contract alive serves your interests better than immediately ending it.

When grounds for rescission exist, you must act quickly. You can choose to rescind the contract, which requires notifying the other party and returning anything you received under the agreement.

Or you can choose to affirm the contract despite the grounds for rescission. This means proceeding with the agreement anyway. However, once you affirm, you lose the right to rescind later based on the same grounds.

Unlike repudiation, you can’t have it both ways. You either rescind or you don’t.

After Repudiation: You typically claim damages or compensation for losses caused by the other party’s breach. This puts you in the position you would have been in if the contract had been properly performed.

After Rescission: You seek restitution, returning both parties to their pre-contract positions. You give back what you received, and they return what you gave. The goal is unwinding the transaction, not compensating for breach.

Contract disputes move quickly. The other party’s actions and your responses create legal consequences. Understanding whether you’re dealing with repudiation or rescission, and acting appropriately, can mean the difference between recovering your losses and being left with nothing. Contact us at 416.901.9984 or info@pintoshekib.ca.