The Guide is an invaluable online tool for litigation and transactional attorneys. The Guide provides for more than 70 common law causes of action:

- Each action’s elements;
- The most recent state and federal cases that cite the actions’ elements;
- The applicable statute of limitations for each action; and
- Defenses to each cause of action.
- AND, The Guide is updated annually.

FREE – No credit card or payment required. Testimonials

Rescission

1 Elements and Case Citations

See Cal. Civ. Code § 1689 (“When party to a contract may rescind.”).

Rescission based on mutual mistake of fact. See Cal. Civ. Code § 1640 (“When, through fraud, mistake, or accident, a written contract fails to express the real intention of the parties, such intention is to be regarded, and the erroneous parts of the writing disregarded.”).

A factual mistake by one party to a contract, or unilateral mistake, affords a ground for rescission in some circumstances.

When the party opposing rescission “knew of or caused the mistake.” Stewart v. Preston Pipeline Inc., 134 Cal. App. 4th 1565, 1587-88 (2005) (“traditional rule” in Restatement of Contracts).

Where the plaintiff has no reason to know of and does not cause the defendant’s unilateral mistake of fact, the defendant must establish the following facts to obtain rescission of the contract:

(1) the defendant made a mistake regarding a basic assumption upon which the defendant made the contract;
(2) the mistake has a material effect upon the agreed exchange of performances that is adverse to the defendant;
(3) the defendant does not bear the risk of the mistake; and
(4) the effect of the mistake is such that enforcement of the contract would be unconscionable.

Restatement Second of Contracts § 153(a) (adopted by court in Donovan v. Rrl Corp., 26 Cal. 4th 261, 281 (2001) (“Because the rule . . . authorizing rescission for unilateral mistake of fact where enforcement would be unconscionable, is consistent with our previous decisions, we adopt the rule as California law”)).

“A mistake of law vitiates consent only if (1) all contracting parties shared the same misunderstanding of the law or (2) one party misunderstood the law, and the other contracting parties were aware of this and failed to rectify it.” Dowling v. Farmers Ins. Exchange, 208 Cal. App. 4th 685, 699 (2012); see Cal. Civ. Code § 1578).

CALIFORNIA STATE COURTS

Supreme Court of California: Donovan v. RRL Corp., 26 Cal. 4th 261, 281 (2001).

California 1st District: Grenall v. United of Omaha Life Ins. Co., 165 Cal. App. 4th 188, 193 (2008).

California 2d District: Chapman v. Skype Inc., 220 Cal. App. 4th 217, 234 (2013) (requirements for rescission based on fraud); Dowling v. Farmers Ins. Exchange, 208 Cal. App. 4th 685, 699 (2012) (limits on rescission for mistake of law); California Federal Bank v. Matreyek, 8 Cal. App. 4th 125, 131-32 (1992) (unilateral mistake of fact).

California 3d District: None.

California 4th District: Hernandez v. Badger Construction Equipment Co., 28 Cal. App. 4th 1791, 1814 n.18 (1994).

California 5th District: White v. Berrenda Mesa Water Dist., 7 Cal. App. 3d 894, 900-01 (__).

California 6th District: Stewart v. Preston Pipeline Inc., 134 Cal. App. 4th 1565, 1587-88 (2005).

CALIFORNIA FEDERAL COURTS

United States Court of Appeal for the 9th Circuit: White v. Autozone, Inc., 213 Fed. Appx. 628, 630 (9th Cir. 2006).

Central District: Hartford Underwriters Ins. Co. v. Newco Int’l, Inc., No. CV 11-6091 RSWL (MRWx), 2012 U.S. Dist. LEXIS 162203, at *5-6 (C.D. Cal. Nov. 9, 2012); YTY Indusries SDN. BHD. v. Dow Chemical Co., No. CV 05-8881 SGL (AJWX), 2009 U.S. Dist. LEXIS 101203, at *61 (C.D. Cal. Oct. 28, 2009) (rescission based on unilateral mistake rendering enforcement unconscionable).

Eastern District: YTY Indus. SDN BHD v. Dow Chem. Co., No. CV 05-8881 SGL (AJWX), 2009 U.S. Dist. LEXIS 101203, at *59-61 (E.D. Cal. Oct. 28, 2009)..

Northern District: Perth v. Davis, No. CV 08-03115 CRB, 2009 U.S. Dist. LEXIS 116067, at *5-6 (N.D. Cal. Dec. 14, 2009).

Southern District: Genesis Merch. Partners, LP. v. Nery’s USA, Inc., No. 3:11-cv-1589-JM (WVG), 2013 U.S. Dist. LEXIS 105148, at *25-26 (S.D. Cal. July 26, 2013); Scott v. Napolitano, No. 08cv0735 BTM(JMA), 2012 U.S. Dist. LEXIS 139616, at *8 (S.D. Cal. Sept. 27, 2012).

2 Issues and Defenses to Claim for Rescission

(1) Cal. Code Civ. Proc. § 431.30(b)(2) (pleading affirmative defenses), and other standard defenses. See Chapter 1 for all defenses.

(2) Statute of Limitations: Cal. Code Civ. Proc. § 339.3 (two years for “An action based upon the rescission of a contract not in writing. The time begins to run from the date upon which the facts that entitle the aggrieved party to rescind occurred. Where the ground for rescission is fraud or mistake, the time does not begin to run until the discovery by the aggrieved party of the facts constituting the fraud or mistake.”); Cal. Civ. Proc. Code §337(3) (four years for rescission of contract based in writing) .

(3) Neglect of Legal Duty: “[T]he mistaken party’s “neglect of legal duty” will bar relief.” Stewart v. Preston Pipeline Inc., 134 Cal. App. 4th 1565, 1588 (2005). However, for purposes of allocation of risk, “ordinary negligence does not constitute neglect of a legal duty.” Donovan v. RRL Corp., 26 Cal. 4th 261, 283 & 284 (2001).

(4) Party Seeking Rescission Should Bear the Risk: “‘A party bears the risk of a mistake when (a) the risk is allocated to him by agreement of the parties, or (b) 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 (c) the risk is allocated to him by the court on the ground that it is reasonable in the circumstances to do so.’” Donovan v. RRL Corp., 26 Cal. 4th 261, 283 (2001).
Under California Civil Code section 1577, the risk of a mistake must be allocated to a party where the mistake results from that party’s neglect of a legal duty.

(5) “A Significant Error in the Price Term of a contract constitutes a mistake regarding a basic assumption upon which the contract is made, and such a mistake ordinarily has a material effect adverse to the mistaken party.” Donovan v. RRL Corp., 26 Cal. 4th 261, 282 (2001).

(6) Party Aware of Own Limited Knowledge: “A contracting party bears the risk of a mistake when the agreement so provides or when the party is aware of having only limited knowledge of the facts relating to the mistake but treats this limited knowledge as sufficient.” Grenall v. United of Omaha Life Ins. Co., 165 Cal. App. 4th 188, 193 (2008).

(7) Failure to Read is not Excusable Neglect: “‘It is well established, in the absence of fraud, overreaching or excusable neglect, that one who signs an instrument may not avoid the impact of its terms on the ground that he failed to read the instrument before signing it.’” Stewart v. Preston Pipeline Inc., 134 Cal. App. 4th 1565, 1588 (2005).

(8) Subsequent Events: “Where a belief or assumption under which a contract is made is rendered mistaken by subsequent events, the mistake generally will not support rescission of the contract.” YTY Indusries SDN. BHD. v. Dow Chemical Co., No. CV 05-8881 SGL (AJWX), 2009 U.S. Dist. LEXIS 101203, at *61 (C.D. Cal. Oct. 28, 2009).

(9) Unilateral Mistake of Law: Unilateral mistake of law does not excuse performance o a contract. Cal. Civ. Code § 1578.

(10) How Effected: See Cal. Civ. Code § 1691 regarding requirements to effect rescission.

(11) Relief/Damages Based on Rescission: See Cal. Civ. Code § 1692.

(12) Delay Resulting in Substantial Prejudice:

When relief based upon rescission is claimed in an action or proceeding, such relief shall not be denied because of delay in giving notice of rescission unless such delay has been substantially prejudicial to the other party.
A party who has received benefits by reason of a contract that is subject to rescission and who in an action or proceeding seeks relief based upon rescission shall not be denied relief because of a delay in restoring or in tendering restoration of such benefits before judgment unless such delay has been substantially prejudicial to the other party; but the court may make a tender of restoration a condition of its judgment.”

Cal. Civ. Code § 1693.