Rescission

Key Takeaways

• Rescission unwinds a contract and puts both parties back where they stood before it was signed, which normally means returning deposits and anything else that changed hands.
• Rescission differs from cancellation, which ends future obligations but leaves completed performance and any existing claim in place.
• A contract may be rescinded by agreement of both parties, by a court where consent was defective, or by a statute that gives one party a fixed number of days to back out.
• In Washington, a buyer of improved residential property may rescind within three business days of receiving the seller disclosure statement and recover the deposits (RCW 64.06.030).

What It Means

Rescission is the undoing of a contract. The goal is restoration, meaning each side gives back what it received so the parties stand where they stood before the agreement existed. A rescinded purchase agreement sends the earnest money back to the buyer and leaves the seller free to sell to someone else, with no damages owed in either direction.

There are three routes to it. The parties can agree to rescind, which is itself a new agreement to tear up the old one. A court can order rescission where consent was defective, for example where a signature was obtained by fraud, Duress, or undue influence, or where both sides shared a mistake about a basic fact. A statute can also hand one party a rescission window that runs for a set number of days no matter who was at fault.

Rescission gets confused with Cancellation constantly, and the two are not the same. Cancellation stops future performance but leaves completed performance and accrued rights alone, so a cancelling party can still sue over a breach that already happened. Rescission aims to erase the contract entirely.

How It Works in Washington

In Washington, the rescission right a residential broker meets most often is the disclosure one. RCW 64.06.030 gives the buyer of improved residential real property three business days from receipt of the seller disclosure statement to either approve and accept it or deliver a written statement of rescission to the seller, and a buyer who rescinds inside that window gets the deposits back. A buyer who says nothing is treated as having approved and accepted the statement, so this right is easy to lose by silence rather than by choice.

Washington's other rescission windows are separate statutes with their own clocks, and they should never be blended together on an exam or in a file. A purchaser in a common interest community, such as a Condominium, may cancel within seven days after first receiving the public offering statement under RCW 64.90.635, and that cancellation is without penalty with all payments refunded promptly. Neither statutory window is the same thing as contract rescission for fraud or mutual mistake, which carries no fixed deadline and is decided by a court on the facts. The Right Of Rescission entry covers the individual statutory windows in more detail.

Example

Chen agrees to buy a Vancouver rambler from the Ortegas for $445,000 with $10,000 earnest money, and mutual acceptance falls on a Tuesday. The Ortegas deliver the seller disclosure statement on Thursday. It discloses that the crawl space flooded twice in the last three winters and that the sump pump was never replaced, neither of which Chen knew when he wrote the offer.

Chen has three business days from Thursday, which counts Friday, Monday, and Tuesday, so he has through that Tuesday to act. On Monday his broker delivers written notice rescinding the agreement. Under RCW 64.06.030 the contract is unwound, the full $10,000 comes back to Chen, the Ortegas owe him nothing further, and they may relist immediately. Had Chen let Tuesday pass without delivering notice, the disclosure statement would be deemed approved and accepted, the $10,000 would stay at risk under the contract terms, and his only remaining route out would be a contingency he had already negotiated into the deal.

Common Mistakes and Exam Traps

• Rescission and cancellation are not interchangeable; rescission restores the parties to their pre-contract positions while cancellation ends future duties and leaves accrued rights intact.
• A statutory rescission window runs on the calendar and does not require the buyer to prove the seller did anything wrong.
• Rescission by mutual agreement is itself a contract, so it needs the same offer, acceptance, and consideration as any other agreement.
• In Washington the three business day disclosure right in RCW 64.06.030 runs from receipt of the seller disclosure statement, not from mutual acceptance.