PastPaperHero | Remedies - Rescission and reformation

Learning Outcomes

This article explains rescission and reformation in contract law, including:

When and why courts grant rescission, focusing on classic formation defects such as misrepresentation, mistake, duress, undue influence, illegality, failure of consideration, and incapacity.
How rescission operates procedurally—notice, prompt election, and tender back of benefits—and how it interacts with legal rescission, restitution, and the election of remedies doctrine.
When reformation is available to correct a defective writing, the required showing of a valid prior agreement, and the clear‑and‑convincing evidence standard used to prove the variance.
How to distinguish rescission, reformation, damages, and specific performance on MBE fact patterns by identifying whether the defect lies in contract formation, performance, or in the written instrument itself.
Key equitable defenses and limitations—laches, unclean hands, ratification or affirmation, inability to restore the status quo, and bona fide purchaser protection—and how these often control the correct answer choice.
Typical exam fact patterns illustrating mutual and unilateral mistake, economic duress, failure of consideration, and scrivener’s error, and how to translate those facts into the proper remedy request.
Practical spotting strategies for quickly determining whether a party truly wants out of the deal or instead wants the written contract conformed to the bargain they actually struck.

MBE Syllabus

For the MBE, you are required to understand equitable remedies affecting contracts, with a focus on the following syllabus points:

Recognizing the grounds for rescission, including misrepresentation, mistake, duress, undue influence, illegality, and failure of consideration
Distinguishing between rescission at law (as a defense) and rescission in equity (as an affirmative remedy)
Identifying when reformation is available to correct a writing that misstates the parties’ prior agreement
Understanding limitations, including laches, unclean hands, ratification, and bona fide purchaser protection
Applying these principles to select the appropriate remedy or defense on exam-style fact patterns

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

Which of the following is NOT a typical ground for rescission of a contract?
1. Mutual mistake of material fact
2. Innocent misrepresentation
3. Failure of consideration
4. Substantial performance
Reformation of a contract is generally available when:
1. The contract is void for illegality
2. The written contract fails to reflect the parties’ prior agreement due to mistake or fraud
3. The contract is unconscionable
4. The contract is unenforceable under the Statute of Frauds
Which of the following is a defense to a suit for rescission?
1. Laches (unreasonable delay)
2. The contract was induced by fraud
3. The contract is executory
4. The contract is for the sale of goods
If a party seeks to reform a contract, what standard of proof is generally required?
1. Preponderance of the evidence
2. Clear and convincing evidence
3. Beyond a reasonable doubt
4. Probable cause

Introduction

Rescission and reformation are equitable contract remedies that correct serious problems in the bargain or in the written memorial of that bargain.

Rescission treats the contract as if it never existed and restores the parties to their pre‑contract positions.
Reformation assumes there is a valid agreement, but the writing is wrong, and it modifies the writing to match that agreement.

On the MBE, these remedies are commonly tested as alternatives to expectation damages or specific performance and are often intertwined with formation defenses such as mistake, misrepresentation, duress, and illegality.

Key Term: Rescission
The avoidance or cancellation of a contract so that the parties are restored, as nearly as possible, to the positions they occupied before contracting.

Key Term: Reformation
An equitable remedy that corrects a written instrument so that it accurately reflects the parties’ actual prior agreement.

Two recurring exam themes:

You cannot both affirm a contract and rescind it. Seeking rescission is usually treated as an election to avoid the contract rather than enforce it.
Reformation is not a way to fix a bad deal; it is only used where the writing, not the actual deal, is defective.

Rescission vs. Other Outcomes

Key Term: Election of Remedies
The principle that a claimant must choose between inconsistent remedies (for example, rescinding a contract or affirming it and suing for expectation damages).

Rescission: contract is voidable and is unwound; restitution is usually awarded.
Damages: contract is affirmed; plaintiff seeks the benefit of the bargain.
Reformation: contract remains in force but the writing is corrected; performance is then compelled in its reformed form (often via specific performance).

On the MBE, read carefully whether the party wants out of the contract (rescission) or wants the deal as they say it truly was (reformation).

Grounds for Rescission

Rescission is available when a contract is voidable due to a defect in formation or a serious failure in performance. The classic grounds are:

Misrepresentation (fraudulent or material innocent)
Mistake (mutual, or qualifying unilateral)
Duress or undue influence
Illegality or strong public‑policy concerns
Lack or failure of consideration
Incapacity or lack of contractual intent (less commonly framed as rescission on the MBE)

Key Term: Misrepresentation
A false statement of material fact (not mere opinion) that is either fraudulent or material and that induces the other party’s assent under circumstances in which reliance is justified.

Misrepresentation and Rescission

Any material misrepresentation—whether deliberate fraud or innocent—can support rescission if the misled party justifiably relied on it. Fraud can also support damages in tort or contract; rescission is the remedy that unwinds the deal.

Key points:

The misstatement must concern a material fact at or before contracting (e.g., mileage on a car, zoning status of land).
Opinions, puffery (“this is a great car”), and predictions about the future usually do not qualify unless given by someone with special knowledge and treated as fact.
The misled party must act promptly upon discovering the truth and must not continue to accept benefits under the contract; otherwise, the contract may be deemed affirmed.

Mistake

Key Term: Mutual Mistake
A shared erroneous belief by both parties about a basic fact existing at the time of contracting that materially affects the exchange.

Key Term: Unilateral Mistake
An erroneous belief held by only one party about a basic fact existing at the time of contracting.

The MBE expects you to separate:

Mutual mistake of material fact – usually a strong ground for rescission.
Unilateral mistake – more limited; rescission only in specific circumstances.

For mutual mistake, rescission is available when:

The mistake relates to a basic assumption on which the contract was made (e.g., identity of the subject matter, its existence, or a fundamental quality).
The mistake materially affects the agreed exchange.
The party seeking relief did not assume the risk (for example, did not knowingly contract “as is” or in “conscious ignorance”).

For unilateral mistake, rescission is available if:

The same elements as mutual mistake are met, and
Either the effect would be unconscionable, or the other party knew, had reason to know, or caused the mistake.

Typical MBE pattern: many bidders, one dramatic error in a bid that the other side clearly should recognize (e.g., one bid is $10,000 when all others are near$ 100,000). The mistaken party may rescind.

Duress and Undue Influence

Key Term: Duress
An improper threat that leaves the victim with no reasonable alternative but to assent, rendering the contract voidable.

Key Term: Undue Influence
Unfair persuasion exerted by a dominant party over a susceptible party, often where there is a relationship of trust or dependence.

Contracts induced by duress or undue influence are voidable at the option of the victim. Rescission removes the unfair bargain and restores any benefits conferred.

Economic duress arises when a party wrongfully threatens to breach an existing contract to force a modification, and the other side has no reasonable alternative.
Undue influence is often tested through facts showing a confidential relationship (lawyer–client, caregiver–elderly person) plus unusual haste or pressure in contracting.

Illegality and Public Policy

Key Term: Illegality
A situation where the subject matter or consideration of the contract is criminal, tortious, or otherwise prohibited by statute or strong public policy.

An illegal contract is generally unenforceable. Rescission in the usual sense may not be available because courts will not assist either party to an illegal bargain. However:

If one party is within the class protected by the statute, that party may sometimes rescind and recover what was paid.
If the contract is not itself illegal but was made in anticipation of an illegal act, rescission may be allowed.

MBE focus: you are not asked to enforce illegal arrangements; instead, illegality is a defense or ground to deny relief.

Lack or Failure of Consideration

Key Term: Failure of Consideration
A situation where the promised performance or return exchange fails to occur or is destroyed, even though the parties validly formed a contract.

Where the promised consideration fails completely—for example, the other party’s performance is impossible or never occurs—rescission may be granted to avoid unjust enrichment. This often overlaps with doctrines of conditions and material breach.

Legal vs. Equitable Rescission

Legal rescission: Historically, a party could declare a contract rescinded and plead that as a defense to an action on the contract (e.g., “I have rescinded due to fraud”). No separate equity suit was necessary.
Equitable rescission: A party brings an affirmative suit in equity asking the court to decree rescission and order restitution and cancellation of documents.

Today, both ideas have largely merged procedurally, but the MBE still reflects equitable concepts:

Rescission is discretionary; courts may impose conditions (such as requiring restitution) to do justice.
Rescission is typically not granted if damages would be adequate and simpler, or if it would unfairly affect third parties.

Procedure and Effect of Rescission

A party seeking rescission must usually:

Act promptly after discovering the ground (fraud, mistake, etc.).
Give notice of the intent to rescind.
Tender back any benefits received, or at least offer to restore the other party as far as possible.

Key Term: Restitution
A remedial concept that requires a party who has been unjustly enriched at another’s expense to restore the value of the benefit received.

Effects of rescission:

The contract is set aside and treated as if it never existed.
Each party must return any benefits received. If physical return is impossible, a money equivalent is ordered.
The court may order partial rescission only where the parts of the contract are truly separable; usually rescission is all‑or‑nothing.

Defenses to Rescission

Equitable defenses are frequently tested:

Key Term: Laches
An unreasonable delay in asserting a right that prejudices the other party, allowing a court of equity to deny relief.

Key Term: Unclean Hands
A doctrine denying equitable relief to a party who has engaged in serious misconduct related to the subject matter of the claim.

Common defenses:

Affirmation / Ratification: After learning of the grounds, the party continues performance, accepts further benefits, or expressly confirms the contract; this waives rescission.
Laches: Delay in seeking rescission that harms the other party (e.g., evidence lost, third‑party transactions).
Unclean hands: The party seeking rescission engaged in comparable wrongdoing regarding the transaction.
Inability to restore status quo: If the parties cannot be put back in their pre‑contract positions and adjustment is impracticable, rescission may be denied.
Third‑party rights: If property has passed to a bona fide purchaser, rescission may be refused as to that property.

Key Term: Bona Fide Purchaser (BFP)
A person who gives value for property without notice of prior claims or defects in the seller’s title.

Worked Example 1.1

A seller and buyer enter into a contract for the sale of land. Both believe the parcel is 10 acres, but it is actually 5 acres. The buyer seeks rescission. Is rescission available?

Answer:
Yes. Both parties are mistaken about a basic existing fact (the size of the parcel) that materially affects the bargain. The buyer did not assume the risk. This is a classic mutual mistake, so rescission is appropriate.

Worked Example 1.2

A contractor mistakenly types a bid of $10,000 instead of$ 100,000. All other bids are between $95,000 and$ 115,000. The owner promptly “accepts” the $10,000 bid. When the contractor discovers the error and refuses to perform, the owner sues for breach. Can the contractor obtain rescission?

Answer:
Yes. This is a unilateral mistake about a basic fact. The bid is so low compared to others that the owner had reason to know of the mistake. Enforcing the contract would be unconscionable, so rescission is available.

Worked Example 1.3

A car dealer knowingly tells a buyer that a used car “has never been in an accident,” when the dealer’s records show a prior major collision. The buyer later discovers the truth and seeks rescission after driving the car for several months. The dealer argues that the buyer affirmed the contract. How should a court rule?

Answer:
The misrepresentation is fraudulent and supports rescission, but the timing matters. If the buyer continued to use the car after discovering the fraud and unreasonably delayed in seeking rescission, a court may find ratification and deny rescission, limiting the buyer to damages.

Reformation

Reformation is not about cancelling a contract; it is about correcting a written instrument to match the parties’ real agreement. The key is that the agreement itself is valid; only the writing is flawed.

Key Term: Clear and Convincing Evidence
A standard of proof requiring a high probability that the asserted facts are true, greater than a preponderance but less than beyond a reasonable doubt.

Reformation is generally available when:

The parties reached an actual agreement.
They intended to express that agreement in a writing.
Because of a mutual mistake in expression (often a scrivener’s error) or a unilateral mistake coupled with fraud or other inequitable conduct, the writing does not reflect the agreement.
The party seeking reformation proves the prior agreement and the variance between it and the writing by clear and convincing evidence.

Typical grounds:

Mis‑described property (wrong lot number or metes‑and‑bounds description).
Omitted or misstated terms (interest rate, duration, quantity).
Wrong party named due to clerical error.

Key Term: Scrivener’s Error
A clerical or drafting mistake in reducing the agreed terms to writing, such as transposing numbers or omitting an agreed‑upon clause.

Reformation and Misrepresentation

Key Term: Misrepresentation in the Instrument
A false statement or insertion in the written document itself (for example, a term added or changed without the other party’s awareness), as opposed to a misrepresentation about the subject matter of the contract.

If a writing is inaccurate because of a misrepresentation about its contents or legal effect, the misled party can either:

Avoid the contract (rescission), or
Seek reformation so the writing matches what they were led to believe it said.

Misrepresentations about the subject matter of the deal (e.g., the quality of goods) are not cured by reformation; the actual bargain, not the writing, is defective, so rescission or damages are appropriate.

Parol Evidence and Statute of Frauds

Courts allow parol evidence in reformation actions.

The parol evidence rule does not bar showing that the writing fails to reflect the true agreement.
The Statute of Frauds usually does not bar reformation, because the court is enforcing the agreement the parties actually made, not creating a new one. Some courts, however, are reluctant to reform a writing to add land that was not described in compliance with the Statute of Frauds.

Importantly, negligence in failing to read the document usually does not bar reformation. Almost every mistake of expression involves someone failing to read carefully; equity will not reward the other side for exploiting such errors.

Limitations on Reformation

Reformation is not available when:

There was no antecedent agreement (no “meeting of the minds”) to begin with.
The contract is void for illegality or lack of capacity.
Reformation would prejudice a bona fide purchaser for value.
The party seeking reformation has been grossly negligent in a way that would make relief inequitable.

Key Term: Gross Negligence in Reviewing the Instrument
An extreme failure to exercise even minimal care in reading or understanding a document, sometimes treated as barring equitable relief.

Defenses to Reformation

The primary defenses mirror those for rescission:

Laches – unreasonable delay in seeking reformation after discovering the error.
Unclean Hands – misconduct by the proponent related to the instrument or the transaction.
Estoppel – the other party changed position in reliance on the written terms, and it would be unjust to alter the writing now.
Third‑party rights – reformation is denied if it would unfairly harm a bona fide purchaser or lender who relied on the record.

Worked Example 1.4

Two parties agree orally that a lease will last for five years. The written lease, due to a scrivener’s error, states a term of three years. Can the court reform the lease?

Answer:
Yes. There was a prior agreement (five‑year term), and the writing does not reflect that agreement because of a mutual mistake in drafting. If the lessee proves the five‑year term by clear and convincing evidence, the court may reform the lease to five years.

Worked Example 1.5

Seller agrees in writing to sell “Lot 12” to Buyer. Both parties intended “Lot 21”; the wrong lot number appeared because the seller’s agent mis‑copied the number from a prior form. Buyer sues to reform the deed to Lot 21. Seller argues the buyer should have read the deed more carefully. How should the court rule?

Answer:
Reformation is proper. There was an agreement on the identity of the property (Lot 21), and the mis‑numbering is a scrivener’s error—a mutual mistake in reducing the agreement to writing. Buyer’s failure to catch the error is ordinary negligence, which does not bar reformation.

Worked Example 1.6

Landowner and Developer negotiate a loan agreement. Landowner’s lawyer drafts the note with a 5% interest rate, consistent with the negotiations. Developer’s manager, without telling Landowner, changes the document to 15% before signing and returning it. Landowner signs without reading carefully. When Developer later demands 15% interest, Landowner seeks reformation to 5%. Is reformation available?

Answer:
Yes. Developer’s conduct is fraudulent; the written instrument does not reflect the agreement Landowner was led to believe it contained. Reformation is an appropriate remedy to correct the note to 5% upon clear and convincing evidence of the prior agreement.

Exam Warning

Be careful: Reformation is not available to create a contract where none existed, to fix an illegal agreement, or to supply essential terms the parties never agreed on. Always ask: “Did the parties actually reach an agreement on this term before the writing was executed?”

Revision Tip

On the MBE, identify where the defect lies.

If the problem is with assent (fraud, mistake, duress, illegality), think rescission.

If the problem is with the writing and there is a prior agreement, think reformation.
Then consider defenses such as laches, ratification, and bona fide purchaser rights.

Key Point Checklist

This article has covered the following key knowledge points:

Rescission cancels a contract and restores the parties, as far as possible, to their pre‑contract positions.
Grounds for rescission include misrepresentation, mutual mistake, qualifying unilateral mistake, duress, undue influence, illegality, and failure of consideration.
Rescission is an equitable remedy; defects include formation problems, but rescission can also respond to serious failures of consideration.
A party seeking rescission must act promptly, give notice, and offer to restore benefits received; restitution typically accompanies rescission.
Defenses to rescission include affirmation (ratification), laches, unclean hands, inability to restore the status quo, and protection of bona fide purchasers.
Reformation corrects a writing to match the parties’ true agreement, usually because of mutual mistake in expression or unilateral mistake plus fraud or inequitable conduct.
Reformation requires clear and convincing evidence of both the antecedent agreement and the variance between that agreement and the writing.
The parol evidence rule and Statute of Frauds do not generally bar reformation; negligence in failing to read the instrument usually does not defeat it.
Both rescission and reformation are equitable, discretionary remedies that may be denied where granting them would unfairly prejudice innocent third parties.
On the MBE, selecting the correct remedy often turns on whether the problem is with contract formation (rescission) or with the written memorial of an agreement (reformation).

Key Terms and Concepts

Rescission
Reformation
Election of Remedies
Misrepresentation
Mutual Mistake
Unilateral Mistake
Duress
Undue Influence
Illegality
Failure of Consideration
Restitution
Laches
Unclean Hands
Bona Fide Purchaser (BFP)
Scrivener’s Error
Misrepresentation in the Instrument
Clear and Convincing Evidence
Gross Negligence in Reviewing the Instrument

Remedies - Rescission and reformation