13.6 RESCISSION
13.601 In General. The remedy of rescission contradicts strong public policy considerations favoring the finality of documents and the enforcement of contractual obligations freely agreed to. 311 Accordingly, rescission is only available where there are strong reasons to support it and where the court has the ability to restore the parties to their pre-contract positions. 312 The Virginia Supreme Court has recognized, however, that "[i]t is immaterial that the status quo cannot be literally restored." Instead, "the trial court need only 'be able substantially to restore the parties to the position they occupied before entering into the contract.'" 313 Additionally, because rescission is an equitable remedy, this requirement of restitution is relaxed somewhat where the request for rescission is based on a claim of fraud. 314 As an equitable doctrine, rescission is also subject to the requirement that the plaintiff have no adequate remedy at law. 315
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It is clear under Virginia law, that rescission is a distinct remedy that must be specifically pled in order to be awarded. 316
13.602 Rescission Versus Specific Performance. Rescission of a contract and specific performance are viewed by Virginia courts as alternative remedies. As the Virginia Supreme Court has explained:
The remedies of rescission and specific performance are sometimes described as "counterparts." A party who has been wronged by conduct constituting a ground for rescission, such as fraud, may elect to waive that ground and seek specific performance instead, but his election must be made promptly and is thereafter binding. A party may pray for both remedies, in the alternative. Where a party prayed for specific performance but it was made to appear in the course of the suit that specific performance would be impossible or unjust, we held, in the early case of Bowles v. Woodson, 47 Va. (6 Gratt.) 78, 89 (1849), that the court might grant rescission as an alternative. Later, in Ferry v. Clarke, 77 Va. 397, 407 (1883), we observed that in circumstances where specific performance had become impossible, the complainant should be allowed to amend his bill to seek rescission. 317
At least as to these two specific remedies, therefore, the Virginia cases have not strictly enforced an election of remedies where the plaintiff has initially sought the remedy of specific performance but it later appears that specific performance is either "impossible or unjust."
13.603 Grounds for Rescission. 318
A. Fraud. Perhaps the most common ground for seeking rescission of a contract is actual or constructive fraud. Only fraudulent conduct
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that induced a party to enter into a contract will support a claim for rescission. 319 Fraudulent conduct occurring after execution of the contract (while perhaps actionable on other grounds) will not support a claim for rescission. 320 Actual fraud encompasses both affirmative, intentional misstatements of fact and deliberate concealment of a material fact by word or conduct, with the intent to mislead, and reasonable reliance by the other party to his or her detriment. 321 A finding of constructive fraud requires proof
that a false representation of a material fact was made, innocently or negligently, and that the injured party suffered damage as a result of his reliance on the misrepresentation. In addition, the evidence must show that the false representation was made so as to induce a reasonable person to believe it, with the intent that the person would act on this representation. 322
Whichever ground is relied upon, the fraud must be pled with particularity and proven by clear and convincing evidence. 323
B. Mutual Mistake of Fact. In Virginia, a trial court may give relief on the ground of mistake in connection with a written instrument if "there has been an innocent omission or insertion of a material stipulation, contrary to the intention of both parties, and under a mutual mistake." 324 Rescission is not available, however, to parties who fail to discover a mistake because of their own carelessness in failing to read the written document, since "[s]uch conduct is evidence of negligence, not of mistake, and does not constitute grounds for rescission of a contract." 325 A mutual mistake that will support rescission must be one of fact, not of law. "The general rule is that
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mistake of law is never a ground for rescission unless the other party knowingly has taken advantage of such ignorance for fraud." 326
C. Illegality. An illegal contract is not only unenforceable but is deemed to be void, by virtue of the illegality, on grounds of public policy. 327 Because the contract cannot be enforced, any attempt to enforce it can be opposed by a request for rescission. 328
D. Mental Disability. Rescission is an appropriate remedy when a party has entered into an unfair agreement while laboring under a mental impairment or diminished mental capacity. The Virginia Supreme Court's decision in Payne v. Simmons 329 is illustrative. As the court explained:
While a contract made by a person of fair understanding should not be set aside merely because it was a rash, improvident or hard bargain, yet if made with a person of impaired mind or feeble intelligence, the inference is that it was obtained by imposition, deception or undue influence, so as to cast upon the other party the burden of showing its fairness. And it is said that a comparatively slight degree of mental incapacity will justify a court in setting aside a contract for which no valuable consideration has been received. In these cases, also, it is not necessary that the inadequacy of consideration should be such as to "shock the conscience." A court of equity will see to it that a bargain made with a person of weak intellect shall be fair. 330
On the facts of that case, even though the contract party was not legally incompetent, his diminished mental capacity, combined with the "grossly inadequate
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consideration he received," were held to justify the remedy of rescission. 331
E. Undue Influence; Unconscionability; Failure of Consideration. A court will grant equitable relief in the case of a contract that appears to be the product of duress or overreaching and will grant rescission where an agreement is found to be so inequitable that it amounts to a fraud. In Texas Co. v. Northup, 332 the court, noting the general rule that "an improvident contract, or one based upon inadequate consideration, will not be set aside for these reasons alone," explained that despite this rule, the contract may be rescinded where "the improvidence or inadequacy is so great as to furnish of itself convincing evidence of fraud." 333 On the facts of that case, the court held that a contract that permitted a corporation to partially terminate an agreement, so as to repudiate all of its obligations while leaving the individual party bound to perform substantial obligations, was so fundamentally unfair and lacking in consideration that equity was compelled to relieve the individual from its enforcement. 334 Similarly, in Southeast Lumber Co. v. Friend, 335 the court held that a contract permitting one party to retain all the benefits of the contract and at the same time to repudiate all of its obligations was so inequitable and lacking in consideration that it should be rescinded. As the court explained, "a substantial failure of consideration is a well recognized ground for rescission." 336
13.604 Rescission of Sales Contracts Under the UCC. The UCC does not specifically grant a remedy of rescission. However, section 8.2-608 of the Virginia Code permits a buyer of goods to revoke acceptance under certain circumstances. The remedy of revocation of acceptance, while perhaps similar to rescission, is in fact a distinct remedy that permits a buyer to revoke acceptance of...
