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The State of California - State and Consumer Services Agency

LEGAL AFFAIRS
400 R Street, Suite 3090
Sacramento, CA 95814-6200

CONSUMER CONTRACT FORMATION AND CANCELLATION

November 2000

The law of private contracts provides a legal framework in which private transactions of all kinds - including sales of consumer products and services on the Internet - can be planned and carried out.

Contract law gives people broad, but not unlimited, freedom to fashion relationships in ways that suit them best. When used honestly and carefully, contract law can benefit everyone.

Just like games have rules, the contracting process has rules. "There is no such thing as a truly 'unregulated market': every market is based on legal rules - rules that establish the parties' starting positions and the bargaining ground rules." #1

In California, the basic rules governing the formation, interpretation and enforceability of private contracts are expressed in the California Civil Code and the California Commercial Code.

The California Civil Code states that a contract is an agreement to do or not to do a certain thing. #2 It gives rise to a legal duty that can be enforced in a lawsuit. #3 While some kinds of contracts must be in writing, the general rule is that both written and oral contracts are valid and enforceable.

A breach of a contract -- that is, a failure to carry out one's agreement -- gives rise to a variety of legal remedies, including damages (compensation for the resulting losses), rescission (cancellation of the transaction), and restitution (return of what was received). (See discussion of grounds for canceling and procedure for canceling in Parts 2-4 below.)

The Commercial Code distinguishes "agreement" from "contract." "Agreement" is "the bargain of the parties in fact as found in their language or by implication. #4 "Contract" is defined as the "legal obligation which results from the ... agreement." #5 Therefore, an agreement is what the parties really intend; but an agreement has only the legal effect determined by the law of contracts.

The most common kind of contract is the sale of a consumer product or service. While leases of goods and sales of services are not expressly covered by the Commercial Code, courts have held that they are nonetheless subject to the Commercial Code's standards. For example, a contract for the mixed sale of home improvements (a sale of goods) and their installation (a sale of services) is subject to Commercial Code's rules on sales of goods. #6

A contract for a sale of goods may be formed "in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a contract .., even though the moment of its making is undetermined." #7

"Even though ... terms are left open, a contract for sale does not fail for indefiniteness, if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy." #8

Recently-adopted laws facilitate electronic commerce by removing the necessity of a handwritten signature and paper notices, disclosures and records in some situations. (See Legal Guide K-11, Electronic Signature Contracts in Consumer Internet Transactions.)

PART 1
HOW TO FORM A CONTRACT

1.1) Elements of a Contract

The California Civil Code expresses the basic rules that govern the formation of a contract: "It is essential to the existence of a contract that there should be: (1) Parties capable of contracting; (2) Their consent; (3) A lawful object; and (4) A sufficient cause or consideration." #9

Despite the statutory standards, no perfectly satisfactory definition of the term "contract" has ever been devised. The difficulty of definition arises from the diversity of the kinds of consent which can give rise to legally enforceable "contracts." #10

In determining whether a contract has been formed, the threshold inquiry is whether a reasonable person would believe a contract was formed by the writings of the parties, their oral communications, their conduct, or a combination of these acts.

The rules discussed in Part 1 of this Legal Guide apply in determining (a) whether a contract exists, and (b) its interpretation and legal effect. #11

As noted above, all of the following four prerequisites must be present in order for there to be a contract:

a. "Parties capable of contracting." #12 The Civil Code then goes on to state that, "All persons are capable of contracting, except minors, persons of unsound mind, and persons deprived of civil rights." #13

b. "Their consent." #14 The Civil Code requires that, "The consent of the parties to a contract must be: (1) Free; (2) Mutual; and, (3) Communicated by each to the other." #15

c. "A lawful object." #16 The Civil Code describes this requirement as follows: "The object of a contract must be lawful when the contract is made, and possible and ascertainable by the time the contract is to be performed." #17 "That is not lawful which is: (1) Contrary to an express provision of law; (2) Contrary to the policy of express law, though not expressly provided; or, (3) Otherwise contrary to good morals." #18

d. "A sufficient cause or consideration." #19 The Civil Code states that "consideration" is: "Any benefit conferred, or agreed to be conferred, upon the , by any other person, to which the promisor is not lawfully entitled, or any prejudice suffered, or agreed to be suffered, by such person, other than such as he is at the time of consent lawfully bound to suffer, as an inducement to the promisor .... #20

Absent any one of these prerequisites, the resulting contract is voidable at the election of the innocent party. #21

1.2) Mutual Intent and Understanding

The general rule is that a contract must be interpreted so that it gives effect to the mutual intention of the parties as it existed at the time of contracting, insofar as that intention is ascertainable and lawful. #22

There are both "express contracts," whose "terms are stated in words", #23 and "implied contracts," whose "existence and terms are manifested by conduct." #24 Both types "are based upon the expressed or apparent intention of the parties. #25

The courts look to the objective (expressed and manifested) intent of the parties - traditionally expressed in some kind of written document -- rather than their subjective or unexpressed intent. "It is the outward expression of the agreement, rather than a party's unexpressed intention, which the court will enforce." #26

1.3) Statute of Frauds

Certain contracts are legally invalid and unenforceable unless the contract, or some note or memorandum of the contract, is in writing and is personally signed by the party to be charged. #27 While the general rule is that oral contracts are enforceable, some kinds of contracts must be in writing. The rule that requires tangible written documentation of certain transactions is called the "statute of frauds."

The central purpose of the statute of frauds is to limit the opportunity for parties to fabricate proof of an oral agreement when there really was no agreement. #28 In some instances, an incomplete writing or written confirmation may be sufficient evidence of a writing to satisfy the statute of frauds. #29

As discussed in Legal Guide K-11 on electronic signatures in consumer Internet transactions, newly adopted laws override some of these rules when a transaction is consummated electronically, but only if the parties have expressly agreed to this, and if certain other statutory prerequisites are met.

There are several different statutes of fraud that may apply (subject to the newly-adopted laws applicable to electronic commerce):

a. Sales. Section 2201 of the Commercial Code prescribes a statute of frauds for the sale of goods. An oral agreement will be enforced when one or more of the following is true: The goods are sold for a price of less than $500; payment has already been made; goods have been received and accepted; or goods have been specially manufactured for the buyer and are not suitable for sale to others in the ordinary course of the seller's business. A contract for the sale of goods for a price of $500 or more is not enforceable unless there is some writing indicating that a contract has been made. The writing must also identify the parties to the transaction and contain the signature of the party against whom enforcement is sought, or of the person's agent.

b. Non-sale transactions. Section 1624 of the Civil Code, applicable to contracts other than sales, states that the following kinds of contracts are invalid unless the contract, or some note or memorandum of the contract, is in writing, and is signed by the person to be charged, or the person's agent: (1) agreements not to be performed within a year; (2) a guarantee of payment or performance by someone else; (3) most real estate transactions; and, (4) numerous kinds of financial services transactions.

c. Consumer contracts. As a general rule, contracts for personal, family, or household purposes (often referred to as "consumer contracts") must be in writing (subject to the recently-adopted laws on electronic commerce). These include: (1) installment sales of motor vehicles; #30 (2) leases of motor vehicles; #31 (3) installment sales of other goods and services; #32 (4) retail installment accounts; #33 and (5) consumer loans. #34 Many other categories of consumer contracts must also be written. #35

d. Consumer disclosures and notices. Many federal and state statutes -- for example, the federal Truth in Lending Act #36, -require that certain written disclosures and notices be given to consumers.

1.4) Interpretation and Legal Effect of Contract

The law of contracts gives private parties effective lawmaking power, in that the force of law is given to private agreements that meet the prerequisites for enforceable contracts. That is why stringent requirements must be met in order for an agreement to result in an enforceable contract.

A variety of rules of interpretation determine the legal effect that is given to those agreements that are legally enforceable. In other words, these rules determine what each party is legally obligated to do under an enforceable agreement. The following are the key statutes governing the interpretation of contracts: #37

a. Intention of the parties governs. "A contract must be so interpreted as to give effect to the mutual intention of the parties as it existed at the time of contracting, so far as the same is ascertainable and lawful." #38

b. Common sense meanings. "The words of a contract are to be understood in their ordinary and popular sense, rather than according to their strict legal meaning ..." #39 "The terms of a writing are presumed to have been used in their primary and general acceptation...#40 "Words in a contract which are wholly inconsistent with its nature, or with the main intention of the parties, are to be rejected." #41

c. All components given effect. "The whole of a contract is to be taken together, so as to give effect to every part, if reasonably practicable, each clause helping to interpret the other." #42 "Several contracts relating to the same matters, between the same parties, and made as parts of substantially one transaction, are to be taken together." #43 The terms of a contract may include advertising that led to it. #44 "[W]here there are several provisions or particulars, such a construction is, if possible, to be adopted as will give effect to all." #45

d. Surrounding circumstances. "A contract may be explained by reference to the circumstances under which it was made, and the matter to which it relates." #46 "[T]he circumstances under which it was made, including the situation of the subject of the instrument, and of the parties to it, may also be shown, so that the judge be placed in the position of those whose language he is to interpret." #47

e. Interpretation against dominant party. "If the terns of a promise ...are ambiguous or uncertain, it must be interpreted in the sense in which the promisor believed, at the time of making it, that the promisee understood it." #48 "[T]he language of a contract should be interpreted most strongly against the party who caused the uncertainty to exist." #49 "[W]hen different constructions of a provision are otherwise equally proper, that is to be taken which is most favorable to the party in whose favor the provision was made." #50 This rule requires that an ambiguity in an adhesion contract (prepared by a dominant party and offered on a "take-it-or-leave-it" basis) must be interpreted in the manner more favorable to the weaker party.

f. Documentary evidence. "When a contract is reduced to writing [a tangible written documentation of its terms], the intention of the parties is to be ascertained from the writing alone, if possible; subject, however, to the other provisions of the law." #51 "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." #52

g. Reasonable and lawful interpretations. "A contract must receive such an interpretation as will make it lawful, operative, definite, reasonable, and capable of being carried into effect, if it can be done without violating the intention of the parties. #53 "Stipulations which are necessary to make a contract reasonable, or conformable to usage, are implied, in respect to matters concerning which the contract manifests no contrary intention." #54

h. Conflicting evidence of contract terms. If the parties to a contract agree that a written document is the exclusive embodiment of the terms of their agreement - price, description of product or service, time for performance, warranties, and possibly remedies -- courts endeavor to give effect to the parties' mutual intention. The law that covers this is called the "parol evidence rule."

If the parties have, in fact, hammered out a single and final memorial of their understanding, courts give effect to the parties' agreement by refusing to consider evidence -- such as the seller's advertising, or what a sales agent said - that contradicts what the parties put in writing, #55 but only such the extrinsic evidence is untrustworthy. #56

In a key decision, the California Supreme Court held that evidence of an oral collateral agreement should be excluded from consideration only when the finder of fact (jury or judge) is likely to be misled. #57 Unless extrinsic evidence is untrustworthy, it therefore not ordinarily excluded in determining the legal effect of a contract.

1.5) Adhesion Contracts

a. Definition of "Adhesion Contract." An "adhesion contract" is one that is entered into between two parties of unequal bargaining strength, and that is expressed in the language of a standardized contract. The distinctive feature of an adhesion contract is that the weaker party has no choice as to its terms. #58 It is offered to the weaker party (ordinarily a consumer) on a "take it or leave it" basis, without affording the weaker party a realistic opportunity to bargain and modify the terms of the offered contract, and under such conditions that the weaker party cannot obtain the offered product or service except by accepting the form of the offered contract.

b. Enforceability of "Adhesion Contracts." The vast majority of consumer contracts are contracts of adhesion that meet the legal prerequisites for enforceability, and are, therefore, enforceable. While most consumer contracts are enforceable, a contract of adhesion may be unenforceable, in whole or in part, on one or several legal grounds:

• Unfair surprise. Courts deny enforcement of a contract of adhesion if the contract, or a term of the contract, falls outside the reasonable expectations of the weaker party. #59
  
  
• Unduly oppressive or unconscionable. Courts deny enforcement of a contract of adhesion even if the contract or provision is consistent with the parties' expectations, if it is unduly oppressive or unconscionable. #60

In one case, for instance, the California Supreme Court held that a life insurance policy's limitation of coverage to passage on scheduled air carriers was ineffective, where the consumer had no opportunity to learn this until after purchasing the policy. In so holding, the court noted that "[I]n standardized contracts ... which are made by parties of unequal bargaining strength, the California courts have long been disinclined to effectuate clauses of limitation of liability which are unclear, unexpected, inconspicuous or unconscionable." #61

Similarly, it is a basic principle of insurance contract interpretation that ambiguities arising out of insurance policy language ordinarily are resolved in favor of the insured party, so as to protect the insured party's reasonable expectations. This rule of construction applies only when the insurance policy language is found to be unclear. #62

The application of this principle to electronic commerce means that in order to assure that its transactions are not unenforceable on this basis, an Internet seller whose contracts are subject to California law must structure the display of information on its website, including content, graphic presentation and timing, as well as the "mouse clicks" that signify a buyer's decisions, so as to avoid unfair surprise, oppression, or unconscionable results to the buyer.

1.6) Contract Terms That Disclaim Liability.

Traditionally, the law has looked carefully, and with skepticism, at those individuals and businesses that attempt to evade legal liability for the commission of torts (legal wrongs) by including in their contracts terms that excuse them from their own wrongful or careless acts or omissions.

This general policy against this was expressed early in California's history with the enactment of an 1872 statute that states that "contracts which ... directly or indirectly ... to exempt any one from responsibility for his own fraud, or willful injury to the person or property of another, or violation of law, whether willful or negligent, are against the policy of the law." #63

This statute prohibits a party from evading legal responsibility for fraudulent or intentional acts, or for willful or negligent violations of statutory law. However, the courts have held that a contract exempting someone from liability for ordinary negligence is legally valid, if no public interest is involved and no statute expressly prohibits it. #64

The California Supreme Court has established a clear policy of enforcing exculpatory provisions (those purporting to limit liability) which do not affect "the public interest." #65 But a California court of appeal found that an automobile repair garage disclaimer of liability did affect the public interest, and thus was invalid, #66 and courts also have consistently declined to invalidate exculpatory agreements in the recreational sports content. #67

In those situations in which it is legally permissible for a seller of goods or services to disclaim liability, the agreement that excuses the drafter from liability for negligence must clearly and explicitly express that this is the intention of the parties. Otherwise, the exculpatory language will be ineffective for lack, of clarity in its expression.

PART 2
STATUTORY RIGHTS TO CANCEL CERTAIN CONSUMER CONTRACTS

A number of federal and state statutes give consumers the right to cancel contracts in specific kinds of transactions shortly after the consumer signs the contract. A consumer-buyer can cancel these contracts for any reason (or for no reason).

In order to cancel, the buyer ordinarily must send the seller written notice of his or her decision to cancel and must do so within the period allowed by statute. Most cancellation periods begin only when the consumer receives written notification of his or her right to cancel. Some cancellation periods are measured in calendar days and some in business days.

A buyer who decides to cancel should sign and date the cancellation notice that the seller is required to provide and follow the instructions provided. A buyer may also communicate his or her decision to cancel by writing a letter that expresses that decision. The notice should make it clear that the buyer is canceling the contract. The buyer should send the notice to the seller by certified mail return, receipt requested, at the address the seller has given in the sale documents, although this is not legally required. The buyer should keep a copy of the cancellation notice, and a copy of the return receipt, to be able to prove that the notice was given. Generally, a buyer's notice of cancellation is effective when it is deposited in the mail with the proper address and postage. The buyer should note the exact date, time and place of mailing on the retained copy.

There is no statutory cancellation period for automobile sales or leases. Nor is there a statutory cancellation right for Internet transactions as such. #68 However, an Internet transaction to which California law applies is subject to cancellation if there is a statute (California or federal) that specifically confers a right of cancellation for that kind of transaction.

As noted above, there is a limited right to cancel many kinds of consumer contracts, including the following:

Credit Repair Services -- five days; #69 Dance Studio Services -- six months; #70 Dating Services -- three business days; #71 Dental Services Contract -- three business days; #72 Discount Buying Services -- three days; #73 Door-to-Door Sales -- three business days; #74 Electric Service Contract -- three business days; #75 Employment Counseling Services - three business days; #76 Endless Chain Scheme -- indefinite (if unlawful under the Penal Code); #77 Funeral Contracts (pre-need) -- indefinite. #78

Health Studio Services -- three business days; #79 Home Equity Sale During Foreclosure -- five business days; #80 Home Repair or Restoration Contracts Following a Disaster -- seven business days (unless automatically void) #81 Home-Secured Transactions -- three days; #82 Home Solicitation Sales -- three business days; #83 Home Study or Correspondence Vocational School Courses -- eight business days; #84 Immigration Consultant Services -- three days; #85 Internet Sales (when order has not been filled) - 30 days; #86 Job Listing Services -- three business days. #87

Legal Document Assistant -- one day; #88 Mail/Telephone Sales (if order not filled) -- 30 days; #89 Membership Camping Contracts: If buyer visits site -- three business days, #90 or if buyer does not visit site, 10 business days; #91 Mortgage Foreclosure Consultant Services -- three business days; #92 Personal Emergency Response Unit -- seven business days; #93 Real Estate Transfer (delayed or materially amended transfer disclosure statement) -- three days (if statement delivered personally) or five days if (statement delivered by mail). #94

Seller Assisted Marketing Plans -- three business days; #95 Seminar Sales -- three business days; #96 Service Contracts: for used cars, home appliances, and home electronic products, 30 days, #97 or for new motor vehicles, 60 days, #98 or for any type of goods, pro-rata refund less penalty, indefinite; #99 Subdivided Land Sales -- 14 days; #100 Telephone Sales (when order has not been filled), 30 days; #10 Timeshares -- three days; #102 Unlawful Detainer Assistants -- one day; #103 Vocational School Courses -- five business days; #104 Water Treatment Devices -- three business days; #105 and, Weight-loss Services -- three business days. #106

For a discussion of each of these cancellation rights, see Legal Guide K-6, Consumer Transactions With Statutory Contract Cancellation Rights, and Legal Guide K-10, Contracting With a Contractor: The Homeowner's Rights to Cancel.

PART 3
WHEN A CONTRACT CAN BE CANCELED FOR LACK OF CONSENT

One of the essential prerequisites for a valid contract is the parties' consent, which must be both mutual and free. (See Part 1, above.)

Consent is determined from the reasonable meaning of the words and acts of the parties, and not from their unexpressed intentions or understanding. #107 Ordinarily, the outward manifestation or expression of a party's consent -- such as a written contract signed by both parties, an exchange of letters or electronic messages, or an exchange of oral communications - is controlling. As noted, such apparent consent may be voidable (subject to cancellation or rescission) in some situations.

When the California Legislature adopted the California Civil Code in 1982, it included a key provision which states that a contract that seems to reflect the parties' "apparent consent" is voidable and therefore not enforceable if the consent is not both "real" and "free." #108 That means that a party may rescind (cancel) a contract, even a written contract in which both parties' consent seems apparent, if the party's consent was actually obtained through duress, menace, fraud, or undue influence, or was given by mistake. #109 In those situations, the apparent consent is not real or free, and the contract can be rescinded (canceled) at the option of the innocent party.

The enforcement of such statutory prerequisites to the enforceability of private contracts helps to motivate parties who regularly enter into contracts to ensure that the legal prerequisites are actually present, and to avoid conduct that could undermine the enforceability of the contracts that they desire to enter into.

Since these rules apply equally to electronic commerce, the protections that consumers enjoy under these traditional rules of contract law are still applicable. That means that Internet sellers of goods and services have the duty that sellers have traditionally had to assure that the selling and buying process satisfies all of the prerequisites for enforceable contracts (as well as the prerequisites added by the recently-adopted laws that authorize "electronic signatures").

There are five major legal grounds on which a contract which appears to be valid is voidable by the innocent party (that is, can be rescinded or canceled) for lack of consent: (a) fraud; (b) mistake; (c) undue influence; (d) duress; and, (e) menace.

Each of the five grounds for canceling for lack of consent is discussed in this part. Additional grounds for canceling (such as lack of capacity due to mental illness) are summarized in Part 4, on When a Contract Can Be Canceled on Other Grounds.

3.1) Fraud

Fraud is either actual or constructive. #110

a. Actual fraud. Actual fraud exists when all of the following elements are present: #111

i) A false representation or concealment of a material fact (or, in some cases, an opinion) susceptible of knowledge.

ii) Knowledge of its falsity, or not having sufficient knowledge on the subject to warrant a representation.

iii) Intent to induce the person to whom the representation is made to act on it.

iv) Action in reliance upon the representation. The reliance must be justified (and not based merely on a statement of opinion). When it is reasonable to do so, the recipient may interpret the statement as an assertion that the facts known to the person making the representation are not incompatible with his or her opinion, or that he or she knows facts that justify the opinion. #112

v) Resulting damage. It is unnecessary to prove specific pecuniary loss in order to obtain rescission based on fraud. It is sufficient to show some substantial injury. Injury or damage may, however, be an essential element of actionable fraud where only damages are sought. The court may allow rescission based on fraud alone. #113

The Civil Code describes five different kinds of "actual fraud:"

i) Intentional misrepresentation: Intentional misrepresentation is the suggestion, as a fact, of something that is not true, by someone who does not believe it to be true. #114

ii) Negligent misrepresentation: Negligent misrepresentation specifically requires a positive assertion or assertion of fact, in a manner not warranted by the information of the person making it, of something that is not true, though he or she believes it to be true: An implied assertion or representation is not enough. #115

iii) Fraudulent concealment: Fraudulent concealment is the suppression of that which is true, by one having knowledge or belief of the fact. #116 Concealment is an affirmative act equivalent to misrepresentation, and usually consists either of actively hiding something from the other party or preventing the other party from making an investigation that would disclose the true facts. Nondisclosure is equivalent to misrepresentation only in special circumstances. #117

iv) False promise: A false promise is one made without any intention of performing the promised act. #118 The recipient's belief in the promise must be reasonable.

v) Other deceptive acts: Actual fraud also includes "other deceptive acts." This is a "catch-all" provision which includes any other act fitted to deceive. #119 Hence, new methods of trickery may also constitute fraud.

b. Constructive fraud. "Constructive fraud" consists of any breach of duty which, without an actual fraudulent intent, results in the person at fault gaining an advantage by misleading the other party to his or her prejudice. Constructive fraud also consists of any act or omission that the law specifically declares to be fraudulent, without respect to actual fraud. #120

"Constructive fraud" includes all acts, omissions, and concealments that involve a breach of a legal or equitable duty, trust or confidence and that result in damage to another. Constructive fraud exists in cases in which conduct, although not actually fraudulent, has all the consequences and legal effects of actual fraud. #121

If a confidential (fiduciary) relationship exists between the parties, the failure of the party in whom confidence is placed to disclose material facts may constitute constructive fraud. The confidential relationship may exist whenever a person justifiably places trust and confidence in the integrity and fidelity of another. #122 However, it takes something more than friendship or confidence in the professional skill and the integrity and truthfulness of another to establish a fiduciary relationship. #123

3.2) Mistake

Since the goal of contract law is to give effect to the mutual intention of the parties, a mistake on the part of one or both parties makes it impossible to effectuate that goal. The law on "mistake" defines the circumstances in which a "mistake" makes the resulting contract voidable.

A mistake may be either of fact or law, and a mistake of fact may be either mutual or unilateral. #124

a. Mistake of fact. A mistake of fact is a mistake that is not caused by the neglect of a legal duty on the part of the person making the mistake, and that consists of either: (1) an unconscious ignorance or forgetfulness of a fact past or present that is material to the contract, or (2) a belief in the present existence of a thing that is material to the contract which does not exist, or in the past existence of such a thing which has not existed. #125

The mistake on which a party is relying as a basis for canceling must affect in some material way one of the essential elements of the contract, such as the parties, the subject matter, offer, or acceptance. It also must clearly appear that the complaining party would not have entered into the contract if it had not been for the mistaken belief. #126

b. Mistake of law. Mistake of law constitutes a mistake only when it arises from either: (1) a misapprehension of the law by all parties, or (2) a misapprehension of the law by one party of which the others are aware at the time of contracting, but which they do not rectify. #127

c. Mutual mistake. A mutual mistake occurs when both parties are mistaken, and neither is at fault, or both are equally to blame. #128 A contract entered into on the basis of a mutual mistake, whether of fact or law, which affects an essential element of the contract, and is harmful to one of the parties, is subject to rescission by the party who is harmed. #129 A contract entered into on the basis of mutual mistake is voidable if, (1) the mistake relates to a basic assumption on which the contract was made; (2) the mistake has a material effect on the agreed exchange of performances; and, (3) the mistake is not one as to which the party seeking relief bears the risk. #130

d. Unilateral mistake. Unilateral mistake - that is, mistake by one party only - is, under some circumstances, grounds for relief. Relief for a unilateral mistake is authorized only where one party knows of, does not correct, and takes advantage or enjoys the benefit of the other party's mistake. #131

The concept of "unilateral mistake" was described by the California Supreme Court in ruling on a request to reform a written contract on the basis that the requesting party's consent was based on a mistake which the other party knew or suspected. The court said, "When only one party to the contract is mistaken as to its provisions and his mistake is known or suspected by the other, the contract may be reformed to express a single intention entertained by both parties. #132

The effect of the mistake, however, must be such that enforcement of the contract would be unfair. Moreover, reliance by the other party on an offer made by mistake may make enforcement of the contract proper. In a California Supreme Court case, the plaintiff, a contractor, relied on the defendant subcontractor's bid in obtaining a job. The next day the defendant informed the plaintiff that the bid was a mistake. The plaintiff found another subcontractor to do the work for a higher price, and the court allowed the plaintiff to recover the difference in price from the defendant. #133

Situations in which one party has engaged in "sharp dealing" that falls short of actual fraud will often result in a contract that is subject to either rescission, or reformation (modification), to effect the single intention expressed by both parties.

e. Negligence of mistaken party. Judicial relief will not be granted for a mistake if the mistaken party has neglected a legal duty. #134 However, ordinary negligence may be excusable neglect, and, therefore, not act as a bar to relief. Not all carelessness constitutes the neglect of a legal duty. Often, the type of error involved is one which occasionally occurs in the conduct of reasonable and cautious business people, and does not always amount to a neglect of a legal duty that would bar equitable relief. #135

3.3) Undue Influence

The California Civil Code defines undue influence as the use, by a person in a confidential or authoritative position, of that confidence or authority to obtain an unfair advantage over another. #136 Court decisions on this subject have identified several factors that indicate undue influence:

• Discussion at an unusual or inappropriate time.
  
• Consummation at an unusual or inappropriate place.
  
• Insistent demand that the business be finished at once.
  
• Extreme emphasis on unfavorable consequences of delay.
  
• Use of multiple persuaders by the dominant party.
  
• Absence of third party advisors for the weaker party.
  
• Statement that there is no time to consult financial advisors or attorneys. #137

The remedy of a party who is the victim of undue influence is limited to rescission. There can be no affirmance and recovery of damages, as in the case of fraud. #138

3.4) Duress

Duress involves the use of fear as a mechanism to induce a person to give his or her consent to a contract. #139

Duress consists of an unlawful act (such as an unlawful confinement of a person or wrongful detention of a person's property) which compels a person's assent through fear.

Duress is not limited to threats against the person, but may also consist of threats to a person's business or property interests. #140 In the case of physical compulsion, a contract entered into under such compulsion is void. In all other cases, a contract entered into under duress is voidable. #141

3.5) Menace

"Menace" means the threat of duress, of unlawful injury to the contracting party's person or property, or of injury to the contracting party's character. #142 Examples of improper threats constituting a menace include:

• A threatened act that may give rise to a crime or a tort, or a threat that would itself be a crime or a tort if it resulted in obtaining property;
  
• A threat of criminal prosecution;
  
• A threat of the use of civil process which is made in bad faith; or,
  
• A threat that is a breach of the duty of good faith and fair dealing under a contract with the recipient.

A threat is improper if the resulting exchange is not on fair terms, and one of the following is true:

• The threatened act would hams the recipient and would not significantly benefit the party making the threat;
  
• The effectiveness of the threat in inducing the manifestation of assent is significantly increased by prior unfair dealing by the party making the threat; or,
  
• The threatened activity is otherwise a use of power for illegitimate ends. #143

3.6) Totally Void Consent

A manifestation of mutual consent (if the other prerequisites are present) ordinarily results in a contract. However, something that purports to be a contract may be wholly void if there is fraud in its execution. If, without negligence on his or her part, a signer attaches his or her signature to a paper assuming it to be a paper of an entirely different character, the paper is totally void. #144

There is a distinction between fraud in the inducement and fraud in the execution of a contract. Fraud may induce a party -- through, for example, misrepresentation or concealment -- to assent to do something that he or she would not otherwise have done. In that case, there is mutual assent, and the contract is not void, but is voidable and can only be rescinded if the grounds for rescission exist. Fraud, however, may go to the inception or execution of the agreement, so that the promisor is deceived as to the very nature of his or her act, and does not know what he or she is signing, or does not intend to enter into a contract at all. In that kind of situation, mutual assent is lacking, and the contract is void and may be disregarded without the necessity giving a notice of rescission. #145

PART 4
WHEN A CONTRACT CAN BE CANCELED ON OTHER GROUNDS

4.1) Incapacity of the Buyer

An essential element to the formation of a contract is that the parties have the legal capacity to enter into a contract. Parties incapable of contracting due to incapacity have traditionally been limited to minors and the mentally infirm. In both instances, the California Civil Code and the California Family Code state that contracts entered into by these parties are voidable by them only, and not by the other party to the contract. The intent of the law is to protect these classes of individuals from their own actions.

a. Minor Person. California's Family Code states that "minors" are "all persons under 18 years of age." #146 An "adult" is "an individual who is 18 years of age or older." #147 Hence, all persons 18 years or older, male or female, married or unmarried, are now adults, and may enter into binding contracts to the same extent and in the same manner as other adult persons. #148

i. Void contract. A minor lacks the legal capacity to make contracts relating either to real property, or to personal property not in his or her immediate control, with the result that such contracts are void. Nor can a minor give 4 binding delegation of power to make such a contract. #149

ii. Disaffirmance of voidable contract. A minor has the capacity to enter into other kinds of contracts, subject, in most situations, to a power to disaffirm the contract. A minor may disaffirm a voidable contract before his or her majority, or within a reasonable time afterwards. In case of the minor's death within this period, contracts may be disaffirmed by the minor's heirs or personal representatives. #150 The disaffirmance may be made by any act or declaration disclosing an unequivocal intention to repudiate. Express notice to the other party is unnecessary. However, disaffirmance must be complete. The minor cannot disaffirm part of the contract while enforcing its benefits. The fact that a minor lied about his or her age does not affect the power to disaffirm. #151

The Family Code neither requires nor excuses failure to restore any consideration received by a disaffirming minor. "Whether restoration is required after disaffirmance may depend on whether the consideration is in the minor's possession at the time of disaffirmance. #152 In the event of a disaffirmance, the other party to the contract cannot recover the goods from a bona fide purchaser from the minor. #153

iii. Contracts not voidable by minor. Certain contracts of a minor cannot be disaffirmed under the laws that give minors a right of disaffirmace. In those situations, the minor can lawfully consent to the furnishing of the goods or services and is legally obligated to pay the contract price, subject to other applicable laws, including those discussed in Parts 1, 2 and 3. The following kinds of contracts cannot be disaffirmed:

• Authority of statute: A minor cannot disaffirm an otherwise valid obligation that was entered into under express authority or direction of a statute. #154
  
  
• Contracts for necessaries: An otherwise valid contract of a minor cannot be disaffirmed on the ground of minority, either during the minority or at any later time, if all of the following requirements are met: (1) the contract is to pay the reasonable value of things necessary for the support of the minor, or of his or her family; (2) these things have been actually furnished to the minor, or to his or her family; and, (c) the contract is entered into by the minor when he or she is not under the care of a parent or guardian who is able to provide for the minor or his or her family. #155
  
  
• Emancipation: A person under 18 years of age is emancipated if he or she: (1) has entered into a valid marriage, whether or not it has been dissolved; (2) is on active jury with the armed forces of the United State; or, (3) has received a declaration of emancipation under the Family Code. #156 A minor who is at least 14 years of age may petition the superior court for a court declaration of emancipation. #157 An emancipated minor is considered an adult for most purposes. The effects include the emancipated minor's power to "[e)nter into a binding contract or give a delegation of power." #158
  
  
• Artistic or creative services: A minor's contract, otherwise valid, to provide artistic or creative services, or services as a participant or player in professional sports, is binding under certain conditions. The cited statutes should be consulted for details. #159 Contracts that have been judicially approved are not subject to disaffirmance. #160
  
  
• Medical treatment: Some contracts for hospital, medical or dental services are binding on minors. #161 Special provision is made for the provision of services in the following kinds of situations where the minor's parent or guardian cannot give the needed consent: (a) consent by person having care; #162 b) consent given by a court; #163 (c) married minor; #164 d) unmarried pregnant minor; #165 (e) minor in military service; #166 (f) minor exposed to communicable disease; #167 (g) minor raped or sexually assaulted; #168 (h) minor with drug or alcohol problem; #169 (i) minor needing mental health treatment; #170 and, (j) minor over 15 living apart. #171

b. Mental incapacity. The contracts of a person wholly without understanding or whose insanity has been judicially determined are void and therefore need not be rescinded. Those of a person of unsound mind, but not wholly without understanding, are voidable and are binding unless rescinded. #172

i) Persons "entire without understanding." A person who is entirely without understanding has no power to make a contract of any kind. However, he or she is liable for the reasonable value of things necessary for his or her support or the support of his or her family. #173 The phrase "entirely without understanding" means a want of capacity to understand the particular act or transaction in dispute. #174 Legally, a person may be "entirely without understanding" in two different kinds of situations:

• Where the person has been adjudicated incompetent: After incapacity has been judicially determined, the incompetent person cannot make a contract, delegate any power, or waive any right. #175 Any conveyance made by such a person is void, and not merely voidable. #176
  
  
• Where there has been no adjudication of incompetence: Where an adjudication of insanity has not been made, complete insanity may be proved as a fact. The party alleging insanity bears the burden of proof, and the court may consider the following factors as evidence of the party's incapacity to contract: Hospitalization under a court order, mental illness or deficiency, irrational conduct, and opinions of experts or laymen. #177

ii) Persons of unsound mind: A contract by a person who is of unsound mind, but not entirely without understanding, made before the incapacity of the person has been judicially determined, is subject to rescission. #178 There is a rebuttable presumption (affecting the burden of proof) that a person is of unsound mind if the person is substantially unable to manage his or her own financial resources or resist fraud or undue influence. #179 Substantial inability cannot be proved solely by isolated incidents of negligence or improvidence. #180 Rescission of the voidable contract requires restoration of what was received. #181

4.2) Insufficient Consideration

One of the required elements of an enforceable contract is "consideration." A contract cannot exist unless there is sufficient "cause" or "consideration" -- an element that courts have consistently required to assure fairness and equity to both parties to an alleged contract. #182

"Consideration" may be either: (a) a benefit conferred upon the promisor, or (b) a detriment suffered by the promisee. #183 The benefit may be to a third person, and not the promisor. The detriment may be a legal one, rather than an economic or actual loss. #184

If there is insufficient consideration, a contract may be voidable. Factors that may result in lack of sufficient consideration for the rescinding party's obligation include:

• Illegal consideration: Consideration that is void for illegality or any other reason. #185
  
• Past consideration: Acts or forbearances previously performed cannot be consideration for a new promise. #186
  
• Existing legal duty: A promise to perform an existing legal duty. #187 This principle is illustrated by a California court decision that hinged on the fact that a wife has an existing obligation to care for her husband that could not serve as consideration for a promise. #188
  
• Legally-required duty: A promise to perform a legally required duty, where the duty is imposed by a law of crimes or torts: #189
  
• A compromise of an invalid claim: If a claim is wholly invalid, neither forbearance to sue nor a compromise can be valid consideration. #190
  
• A moral obligation: Performance of a moral obligation may not be adequate consideration. #191

4.3) Material Breach of Contract

"Breach of contract" is defined as a failure, without legal excuse, to perform any promise which forms a whole or a part of a contract. When performance of a duty under a contract is due, any nonperformance is a breach. #192

A breach of contract excuses the injured party's performance, and gives the injured party the election of certain remedies, but it does not automatically discharge the contract. The remedies for a breach of contract include rescission and restitution (discussed immediately below) as well as specific performance (injunction to perform) and damages. An injured party must be free from substantial default or wrongful conduct in order to be entitled to a remedy for the other party's breach of contract. #193

If one party has materially failed to perform his or her promise, or if there has been a material delay in his or her performance, the other party's duty to perform is discharged (legally forgiven), #194 thereby giving that party the right to elect to rescind (cancel) the contract. A party to a contract may rescind (cancel) the contract on the basis of failure of consideration (another name for "breach of contract") in any of the following instances:

• If the consideration for the obligation of the rescinding party fails in whole or in part through the fault of the other party. #195
  
• If the consideration for the obligation of the rescinding party becomes entirely void from any cause. #196
  
• If the consideration for the obligation fails in any material respect from any cause before being tendered to the rescinding party. #197

a. Breach must be material. Only a "material" failure of consideration by one party discharges the other party's duty. However, a slight or partial failure of consideration may not have that effect. "Case law [the decisions of appellate courts] has uniformly held that a failure of consideration must be material or go to the essence of the contract before rescission is appropriate." #198 If the failure is of minor importance and does not go to the root of the matter, and if the breach of contract can be readily compensated for in money damages, the party injured cannot rescind, but must perform his part of the contract and seek compensation in damages. #199

The following factors are considered in determining whether there has been a "material" breach of contract:

• The extent of performance or preparation and the good faith of the defaulting party;
  
• The hardship on the defaulting party of a termination of the contract; and,
  
• The ability of damages to adequately compensate the other party.

Delay in performance is a "material" failure of consideration only if time is of the essence. If prompt performance is, by the express language or by the nature of the contract, a vital matter, delay may constitute a material failure. #200

b. Substantial performance doctrine. Recovery under a contract does not require absolutely complete performance. Subject to limits such as those described in the next paragraph, the courts now state that substantial, and not exact, performance, if carried out in good faith, is sufficient. The general rule is that substantial performance of a contract will enable the performing party to recover the contract price, less allowances (such as a reduction in the agreed price) for defects in performance or damages for failure to comply with the contract strictly. While the doctrine of substantial performance is applied most frequently in building and construction contracts, it is not so limited, and may be applied in the case of any kind of contractual obligation to perform. #201

The rule permits recovery for less than full performance extends only to cases in which there has been an honest attempt to fully perform, and not a willful omission. The doctrine of substantial performance cannot be invoked where the failure to perform was intentional, or was due to carelessness or negligence. In determining what constitutes substantial performance, it is essential that there be good faith and no willful departure from the contract terms: It is further necessary that the defects be easily remedied, or compensated by money damages, so that the other party may get practically what the contract calls for. #202

4.4) Material Breach of Warranty

The rules and procedures for rejecting and revoking acceptance of a product and canceling the contract for breach of warranty also may give the buyer the option to cancel a contract. #203

When a product does not perform according to the terms of the contract, the Commercial Code establishes the basic legal framework for several self-help remedies which are available to the aggrieved party. These include rejection and revocation of acceptance by a buyer who has purchased a product that does not conform with the seller's contractual obligations (that is, the seller's express and implied warranties). If the seller does not cure the nonconformity, Commercial Code states that the buyer may cancel the purchase. #204

a. Rejection of nonconforming product. If the "goods or the tender of delivery fail in any respect to conform to the contract," the buyer may reject the goods. #205 This is called the "perfect tender rule." Rejection of goods must take place "within a reasonable time after their delivery or tender." #206 The right of the buyer to reject a nonconforming product is subject to the seller's right to cure the nonconforming tender or delivery. During the period while the time for performance has not expired, the seller may cure any nonconformity. #207

b. Revocation of acceptance of nonconforming product. A buyer may revoke his or her acceptance of a nonconforming product if the nonconformity substantially impairs its value to the buyer, and (a) the product was accepted on the reasonable assumption that its nonconformity would be cured and it has not been cured in a timely manner, or, (b) if the product was accepted without discovery of such nonconformity, where the buyer's acceptance was reasonably induced either by the difficulty of discovery before acceptance or by the seller's assurances. #208

The buyer's rejection or revocation of acceptance must be timely. Acceptance ordinarily does not occur "until the buyer has had a reasonable opportunity to inspect." #209 Revocation must take place "within a reasonable time after the buyer discovers or should have discovered the ground for it." #210 What is a reasonable time for taking any action depends on the nature, purposes, and circumstances of such action." #211

A buyer who has justifiably revoked acceptance has the right to cancel the transaction and recover, as damages, the amount of the purchase price, plus incidental and consequential damages, unless such remedy is limited. #212

4.5) Illegality

A party may rescind (cancel) a contract if (1) it is unlawful, (2) the causes for which it is unlawful do not appear in its terms or conditions, and (3) the parties are not equally at fault. #213 The court may allow the innocent party to obtain restitution (return) of the consideration or its value. The Civil Code divides unlawful contracts into three separate groups: (1) those contrary to express statutes; (2) those contrary to the policy of express statutes; and, (3) those otherwise contrary to good morals. #214

a. Illegal object. The object of a contract must be lawful. #215 If the contract has a single object, and that object is unlawful, the entire contract is void. #216 A 1992 court decision applied this rule to the lease of real property. Where an occupancy violated a zoning or building code enacted for the benefit of the general public, the use itself was illegal, and the defect thus was uncorrectable. The court decided that the lease agreement was void and unenforceable by either party. #217

b. Illegal consideration. The consideration for a promise must be lawful. #218 If any part of the consideration is unlawful, the entire contract is void. In other words, where the illegal consideration goes to the whole of the promise, the entire contract is illegal. #219 A court held, for example, that a political candidate's promise not to defame other candidates was not lawful consideration because of the general legal duty that exists not to defame others. #220

c. Partial illegality and severability. Where the contract has several distinct objects, one of which is lawful, the contract is valid and enforceable as to the lawful object if it is clearly severable from the rest. #221 California courts have taken a liberal view of severability, and will enforce the valid parts of an apparently indivisible contract where the interests of justice or the policy of the law will be furthered. Where the object or consideration is not severable, however, the entire contract is void. #222

d. Contract contrary to public interest. A party may rescind a contract if the public interest will be prejudiced by permitting the contract to stand. #223 The definition of the public interest is primarily left to the courts. In addition to ascertaining public policy by examining relevant legislation, a court may also look to whether there is an applicable need to protect some aspect of the public welfare. Some examples include judicial policies against restraint of trade, impairment of family relations, and interference with other protected interests. #224

In a 1993 decision, a California court of appeal refused to enforce gambling debts incurred by a California resident in Nevada. The Nevada statute permitted enforcement of gambling debts, but the plaintiff sought to enforce the Nevada claim in California. The court held that California could refuse to enforce payment if enforcement would violate a recognized standard of morality and the general interests of California citizens. Since California has always had a strong public policy against judicial enforcement of gambling debts, the court refused to enforce the cause of action. #225

PART 5
HOW TO CANCEL A CONTRACT

5.1) Overview of Right to Rescind

A consumer contract may be subject to cancellation (a) if there is a statutory right to cancel (discussed in Part 2 above); (b) if the consumer's consent is absent or voidable (discussed in Part 3 above); or, (c) if other legal grounds are present, such as mental infirmity or breach of contract (discussed in Part 4 above).

The general rule is that in order to rescind (cancel) a contract on one of the legal grounds for canceling (such as fraud), a party must (a) give notice to the other party, and (b) restore or offer to restore to the other party everything of value which the rescinding party has received from him or her under the contract. #226

The party who decides to rescind a contract must give this notice to the other party promptly after discovering the facts which entitle him or her to rescind, provided that the rescinding party is free from duress, menace, and undue influence, and is aware of his or her right to rescind. #227 As long as a party remains under the influence of duress, menace, undue influence, or ignorance of the right to rescind, that party does not lose the right to rescind.

5.2) Exercise Cancellation Rights Carefully

The basis for a desired cancellation may be either (a) a statutory right of cancellation (in which the buyer is not required to demonstrate a legal ground for canceling), or (b) some legal ground for canceling. If the right to cancel exists only if there is a legal ground, it is important that a party who desires to cancel assure himself or herself that both the facts and the law support his or her right to cancel -- in other words, that there is a right to cancel. Determining that may require a consultation with an attorney or other expert in both the law and perhaps also the product or service that is the subject of the contract.

If the transaction is one in which the other party or parties have expended resources in reliance on the canceling party's performance, an attempt to exercise a right to cancel that is not legally present may result in wrongful injury and damages to the other party or parties. The other party also may have a reasonable expectation that he, she or it will receive the payment or other performance that the canceling party purported to agree to provide. If a court should later determine that a party who cancels had no legal right to cancel, that party may have committed a breach of contract for which he or she may be liable for the other party's or parties' losses.

Since contract law has many facets, and since a particular transaction can also have many facets, it may be impossible for a person who is not an expert in both the law and the subject matter to fully assess the risks that may be present. That is why a party to a contract who desires to cancel on one of the legal grounds should consult with an experienced person (lawyer or non-lawyer) before deciding to cancel.

5.3) Exercising Statutory Right to Cancel

In order to exercise a statutory right to cancel (such as the three-day right to cancel "home solicitation sales"), the canceling party must comply with any statutory requirements contained in the statute that confers the right to cancel.

As noted in Part 2, most statutes that confer a right to cancel without cause (that is without proving fraud or other grounds for canceling) require the canceling party (typically the buyer) to give notice in writing, and to comply with written instructions on how to cancel which the seller must provide to buyers when they first enter into the contract. This typically involves mailing or delivering to the seller a written notice of cancellation within a specified number of days after entering into the transaction and transmitting the notice to a particular address.

If the seller did not provide the statutorily required instructions, the right to cancel is typically extended to the date (if ever) when the required instructions are in fact provided by the seller to the buyer, plus the number of days in which the buyer is permitted to cancel after receiving that information. In all situations, the statute conferring the right to cancel must be consulted. (These are discussed in Legal Guide K-6, Transactions With Statutory Consumer Contract Cancellation Rights, and Legal Guide K-10, Contracting With a Contractor: The Homeowner's Rights to Cancel.)

5.4) Electronic Commerce

If the parties have agreed that a transaction or series of transactions may be carried out electronically (see Legal Guide K-11, Electronic Signature Contracts in Consumer Internet Transactions), the parties' agreement to substitute electronic signatures and electronic records may enable the buyer to give electronically a notice that is otherwise required to be in writing (in the same way, if it is so agreed, that his or her original consent or other communications were transmitted). #228

5.5) Notice of Rescission

The rescinding (canceling) party must give the other party to the contract a notice of the rescinding party's decision to rescind. #229 The notice must be clear and unambiguous -- that is, must communicate an unquestionable decision to cancel.

A formal or written notice is not ordinarily required, but may be desirable as a means to document what was said if the available electronic notice (such as a telephone call) does not include a mechanism of retention. A mere threat to rescind is not sufficient notice. The rescinding party may state in the notice the legal basis for the rescission, but may rely upon other legal authority later.

A notice of cancellation given by the buyer in exercising a statutory right to cancel typically must be in writing, but it need not include any reason for canceling. In other words, the right to cancel is typically a right to cancel "without cause." This contrasts with the right to rescind (cancel) for fraud, mistake, or other legal cause, which is a right that only exists when the facts warrant it -- that is, for example, when the other party has committed fraud.

A notice based on fraud or other legal ground for canceling also should briefly state the facts that entitle the buyer to rescind, and include at least some reference to the legal basis for the cancellation (such as fraud).

5.6) Restoration or Offer of Restoration

The rescinding party must either restore or offer to restore to the other party to the contract everything of value which the rescinding party has received under the contract, on the condition that the other party do the same, unless the other party is unable or positively refuses to do so. #230 In other words, the offer of restoration may be conditional (for example, "I offer to return the car on receipt of my $1,500 down payment").

Where an offer to restore the benefits received under the contract has not otherwise been made, a notice of rescission given in a lawsuit that seeks relief based on rescission is deemed to be such an offer. #231 Hence, a right of rescission probably can be exercised at a court hearing.

In a court action that seeks relief based on rescission (such as the return of a down payment), the court may require the winning party to make restoration to the other party, and otherwise adjust the equities between the parties. #232 For example, a buyer who rescinds the purchase of a motor vehicle ordinarily must offer to return the motor vehicle that he or she purchased. The court also might require the rescinding buyer to compensate the seller for the net use value (if any) of the vehicle.

The rule that a party seeking to rescind a contract must restore or offer to restore what he or she received is not strictly construed where restoration of the purchased product is impossible or unreasonable. The rule is equitable and not technical, and does not require more restoration than is reasonably possible, and only as much as the merits of the case demand. All that is generally necessary is that the rescinding party be placed in substantially his or her original situation, and that the other party derive no unconscionable advantage from his or her conduct. #233

Exceptions to the duty to restore:

The requirement that the rescinding party restore or offer to restore what was received from the other party is subject to the following exceptions:

• Where nothing of value was received by the rescinding party.
  
• Where the rescinding at party received merely the individual promissory note or uncashed check of the defendant.
  
• Where the rescinding party is entitled for some reason to keep what he or she received and defendant could not possibly be injured.
  
• Where an accounting or showing of the facts independent of the contract itself is necessary to ascertain the respective obligations of the parties.
  
• Where, without the rescinding party's fault, restoration has become impossible.
  
• Where the rescinding party is entitled to rescission for the defendant's breach or fraud and does not seek the money value of his or her prior performance, but rather the specific recovery of land or personal property transferred pursuant to the contract #234

5.4) Delay in Notice or Offer

The right to rescind a contract must be exercised with reasonable promptness. Therefore, the right to rescind may be waived (lost) by unreasonable delay. However, courts do not deny relief because of the rescinding party's delay in giving notice of rescission, or because of his or her delay in restoring or in offering restoration of benefits received under the contract, unless the delay has been substantially prejudicial to the other party. The court may, however, make a rescinding party's tender of restoration to the other party a condition of the court's judgment. #235

PART 6
COURT RELIEF BASED ON A RESCISSION

6.1) Court Action for Equitable Relief

When a contract has been rescinded in whole or in part, any party to the contract may either (a) maintain a legal action to recover any money or thing believed to be owing to that party, by any other party to the contract as a consequence of the rescission, or (b) assert the rescission as a defense or in a cross-complaint. #236

6.2) Court Has Broad Equitable Powers

If a party maintains a court action seeking relief based upon rescission, and the court fords that the contract has not been rescinded, the court may grant any party to the action any other relief to which he or she may be entitled under the circumstances, even if the parties have not specifically requested such relief. #237 In effect, the court has broad equitable powers to adjust and adjudicate the rights and duties of the parties in that situation.

6.3) Non-Restitutionary Damages

A rightfully rescinding party can recover anything that he or she gave (such as a cash down payment or property traded in), and any other compensation necessary to restore the party to his or her original position. #238 The rescinding party can be awarded complete relief, including restitution of any benefits that he or she conferred on the other party as a result of the transaction, and any consequential damages to which he or she is entitled. However, such relief may not include duplicate or inconsistent items of recovery. #239

Prepared by:
Richard A. Elbrecht
Supervising Attorney
Legal Services Unit
November 2000

NOTICE: We attempt to make our Legal Guides accurate as of the date of publication, but they are only guidelines and not definitive statements of the law. Questions a bout the law's application to particular cases should be directed to a specialist.

[This document will be available on the Internet. See the Department of Consumer Affairs homepage at www.dca.ca.gov.]

This document may be copied if all of the following conditions are met: the meaning of the copied text is not changed; credit is given to the Department of Consumer Affairs; and all copies are distributed free of charge.

ENDNOTES

1. Kim, Pauline T., "Privacy Rights, Public Policy, and the Employment Relationship," 5 7 Ohio State Law Journal 671, 709 (1996). See also Sunstein, Cass R, Free Markets and Social Justice, p. 5 ("Free markets depend for their existence on law.").

2. Civil Code § 1549.

3. Civil Code §§ 1427, 1428.

4. Commercial Code § 1201(3).

5. Commercial Code § 1201(11).

6. See Aced v. Hobbs-Sesack Plumbing Company (1961) 55 Cal.2d 573 [12 Ca1.Rptr. 257].

7. Commercial Code § 2204.

8. Ibid.

9. Civil Code § 1550.

10. Calamari and Perillo, The Law of Contracts (3d ed. 1987) p. 1.

11. For a discussion of the law, see I Witkin, Sum. of Cal.Law (9th ed. 1987) Contracts, §§ 128-162.

12. Civil Code § 1550(1).

13. Civil Code § 1556.

14. Civil Code § 1550(2).

15. Civil Code § 1565.

16. Civil Code § 1550(3).

17. Civil Code § 1596.

18. Civil Code § 1667.

19. Civil Code § 1550(4).

20. Civil Code § 1605.

21. Civil Code § 1689.

22. Civil Code § 1636.

23. Civil Code § 1620.

24. Civil Code § 1622.

25.1 Witkin, Sum. of Cal. Law (9th ed. 1987) Contracts, § 11.

26. Winet v. Price (1992) 4 Cal.App.4th 1159, 1166 [6 Ca1.Rptr.2d 554, 558].

27. Civil Code § 1624(a); other writing requirements are found at Civil Code §§ 683, 1135, 1698, 2309; Code of Civil Procedure §§ 360, 1280, 1974; Commercial Code §§ 2201, 19203; Probate Code § 9604..

28. Juran v. Epstein (1994) 23 Cal.App.4th 907 [28 Cal.Rptr.2d 558].

29. Commercial Code § 2201 and Official Comments; see also 1 Witkin, Sum. of Cal. Law (9th ed. 1987) Contracts, §§ 261-331.

30. Civil Code § 2981.1.

31. Civil Code § 2985.8.

32. Civil Code § 1803.2.

33. Civil Code § 1810.1.

34. Financial Code §§ 18605, 21201, 22332-22333.

35. For example, see Civil Code § 1633.3(c).

36. 15 USC §§ 1601 et seq, 12 CFR part 226.

37. See 1 Witkin, Sum. of Cal. Law (9th ed. 1987) Contracts, §§ 864-704.

38. Civil Code §§ 1636.

39. Civil Code § 1644.

40. Code of Civil Procedure § 1861.

41. Civil Code § 1653.

42. Civil Code § 1641.

43. Civil Code § 1642.

44. Gherna v. Ford Motor Co. (1966) 246 Cal.App.2d 639, 55 Ca1.Rptr. 94; Hayman v. Shoemake (1962) 203 Ca1.App.2d 140, 21 Ca1.Rptr.519; Rudd, "Manufacturer's Liability for Representations, 8 UCLA L. Rev. 251 (1965).

45. Code of Civil Procedure § 1858.

46. Civil Code § 1647.

47. Code of Civil Procedure § 1860.

48. Civil Code § 1649.

49. Civil Code § 1654.

50. Code of Civil Procedure § 1864.

51. Civil Code § 1639.

52. Civil Code § 1640.

53. Civil Code § 1643.

54. Civil Code § 1655.

55. Civil Code § 1625; Code of Civil Procedure § 1856; Commercial Code § 2202.

56. Masterson v. Sine (1968) 68 Cal.2d 222, 65 Ca1.Rptr. 545.

57. Masterson v. Sine (1968) 68 Cal.2d 222, 65 Cal.Rptr. 545.

58. For a discussion of the law, see 1 Witkin, Sum. of Cal. Law (9th ed. 1987) Contracts, §§ 23-30, and 11 Witkin, Sum of Cal. Law (9th ed. 1987) Equity, § 43.

59. Steven v. Fidelity & Casualty Insurance Co.(1962) 58 Cal.2d 862, 878-879 [27 Ca1.Rptr. 172,182-183].

60. Graham v. Scissor-Tail, Inc. (1981) 28 Cal.3d 807 [171 Cal.Rptr. 604].

61. Steven v. Fidelity & Casualty Insurance Co.(1962) 58 Cal.2d 862, 878-879 [27 Ca1.Rptr. 172,182-183].

62. Steven v. Fidelity & Casualty Co. (1962) 58 Cal.2d 862 [27 Ca1.Rptr. 172].

63. Civil Code § 1668.

64.1 Witkin, Sum. of Cal. Law (9th ed. 1987) Contracts, § 485.

65. Tunkl v. Regents of California (1963) 60 Cal.2d 92, 98 101 [32 Cal.Rptr. 33, 37-38].

66. Gardner v. Downtown Porsche Audi (1986) 180 Cal.App.3d 713 [225 Cal.Rptr. 757].

67. Westlye v. Look Sports, Inc. (1993) 17 Cal.App.4th 1715, 1734 [22 Cal.Rptr.2d 781].

68. A seven-day right of cancellation is conferred by the law of the United Kingdom. For details, see www.dti.gov.uk.

69. Civil Code § 1789.16).

70. Civil Code § 1812.54(6)(1).

71. .Civil Code § 1694.1.

72. Civil Code § 1689.3.

73. Civil Code § 1812.118.

74. Civil Code § 1689.5).

75. Pub. Util. Code § 395.

76. Civil Code § 1812.511(a)(6).

77. Civil Code § 1689.2.

78. Bus. & Prof Code § 7737.

79. Civil Code § 1812.85(6).

80. Civil Code § 1695.4.

81. Civil Code § 1689.6(c).

82. 12 CFR § 226.23.

83. Civil Code § 1689.5.

84. Ed. Code §§ 94822, 94867(a)(2).

85. Bus. & Prof Code § 22442(e).

86. Bus. & Prof Code § 17538(a).

87. Civil Code § 1812.516(a).

88. Bus. & Prof Code § 6410(e).

89. Bus. & Prof Code § 17538(a), 16 CFR Part 435.

90. Civil Code § 1812.303.

91. Civil Code § 1812.304.

92. Civil Code § 2945.3.

93. Civil Code § 1689.6(b).

94. Civil Code § 1102.3.

95. Civil Code § 1812.209.

96. Civil Code § 1689.20.

97. Civil Code § 1794.41(a)(4)(A).

98. Civil Code § 1794.41(a)(4)(A).

99. Civil Code § 1794.41(a)(4)(B).

100. Bus. & Prof Code § 11028.

101. Bus. & Prof Code § 17538(a), 16 CFR Part 435.

102. Bus. & Prof Code § 11024.

103. Bus. & Prof Code § 6410(e).

104. Ed. Code §§ 94867(a)(1), 94868.

105. Bus. & Prof Code § 17577.3.

106. Civil Code § 1694.6.

107. Civil Code §§ 1550, 1565; see 1 Witkin, Sum. of Cat Law (9th ed. 1987) Contracts, § 119.

108. Civil Code § 1567.

109. Civil Code §§ 1566, 1689(b)(1).

110. Civil Code § 1571.

111. See 1 Witkin, Sum. of Cal. Law (9th ed. 1987) Contracts, § 393; Masters a San Bernardino County Retirement Assoc. (1995) 32 Cal.App.4th 30 [37 Cal.Rptr.2d 860]

112. See 1 Witkin, Sum. of Cal. Law (9th ed. 1987) Contracts, § 406.

113. See I Witkin, Sum. of Cal. Law (9th ed. 1987) Contracts, § 408-409.

114. Civil Code § 1572(1).

115. Civil Code § 1572(2); see also Wilson v. Century 21 Great Western Realty (1993) 15 Cal.App.4th 298, 306 [18 Cal.Rptr.2d 779, 783].

116. Civil Code § 1572(3).

117. 1 Witkin, Sum. of Cal. Law (9th ed. 1987) Contracts,§ 348.

118. Civil Code § 1572(4).

119. Civil Code § 1572(5).

120. Civil Code § 1573.

121.1 Witkin, Sum. of Cal. Law (9th ed. 1987) Contracts, § 400.

122. Odorizzi v. Bloomfield School District (1966) 246 Cal.App.2d 123, 129 [54 Cal.Rptr. 533].

123.1 Witkin, Sum. of Cal. Law (9th ed. 1987) Contracts, § 401.

124.1 Witkin, Sum. of Cal. Law (9th ed. 1987) Contracts, § 424.

125. Civil Code § 1577.

126. See 1 Witkin, Sum. of Cal. Law (9th ed. 1987) Contracts, § 368.

127. Civil Code §§ 1578.

128. Civil Code § 1578(1).

129. Guthrie v. Times-Mirror Co. (1975) 51 Cal.App.3d 879, 884 [124 Cal.Rptr. 577, 580J.

130.1 Witkin, Sum. of Cal. Law (9th ed. 1987) Contracts, § 369.

131. Civil Code § 1578(2); see Hernandez v. Badge Construction Equipment Co. (1994) 28 Cal.App.4th 30 [34 Cal.Rptr.2d 732].

132. Lemoge Electric v. County of San Mateo (1956) 46 Cal.2d 659, 664 [297 P.2d 638, 641].

133. Drennan v. Star Paving Co. (1958) 51 C.2d 409 [333 P.2d 757J; see 1 Witkin, Sum. of Cal. Law (9th ed. 1987) Contracts, § 370.

134. Civil Code § 1577.

135.1 Witkin, Sum. of Cal. Law (9th ed. 1987) Contracts, § 375.

136. Civil Code §1575.

137. Odorizzi v. Bloomfield School Dist., supra, at 132.

138.1 Witkin, Sum. of Cal. Law (9th ed. 1987) Contracts, § 424.

139. Leeper a Beltrami (1959) 53 Cal.2d 195, 204 [I Cal.Rptr. 12]; Civil Code § 1569.

140. Civil Code § 1569; Leeper v. Beltrami (1959) 53 Cal.2d 195, 204 [i Cal.Rptr. 12].

141. 1 Witkin, Sum. of Cal. Law (9th ed. 1987) Contracts, § 417.

142. Civil Code § 1570; see 1 Witkin, Sum. of Cal. Law (9th ed. 1987) Contracts, § 418.

143. Rest.2d Contracts, § 176.

144. See 1 Witkin, Sum. of Cal. Law (9th ed. 1987) Contracts, §§ 403-405.

145. C.I.T. Corp. v. Panac (1944) 25 Cal.2d 547, 548 [154 P.2d 710, 712]; Ford v. Shearson Lehman American Express Inc. (1986) 180 Cal.App.3d 1011, 1028 [225 Cal.Rptr. 895, 904].

146. Family Code § 6500.

147. Family Code § 6501.

148. See 1 Witkin, Sum. of Cal. Law (9th ed. 1987) Contracts, §§ 332, 340, 356A.

149. Family Code § 6701; see 1 Witkin, Sum. of Cat Law (9th ed. 1987) Contracts, §§ 334-336.

150. Family Code § 6710.

151. See 1 Witkin, Sum. of Cal. Law (9th ed. 1987) Contracts, § 337.

152. See 1 Witkin, Sum. of Cat Law (9th ed. 1987) Contracts, § 337, citing Rest.2d, Contracts § 14.

153. Family Code § 6713; see 1 Witkin, Sum. of Cal. Law (9th ed. 1987) Contracts, §§ 339, 356D(4).

154. Family Code § 6711; see 1 Witkin, Sum. of Cat Law (9th ed. 1987) Contracts, §§ 354, 356D(2).

155. Family Code § 6712; see I Witkin, Sum. of Cal. Law (9th ed. 1987) Contracts, §§ 341, 365D(3).

156. Family Code § 7122.

157. Family Code § 7110.

158. Family Code § 7050(e)(2); see 1 Witkin, Sum. of Cal. Law (9th ed. 1987) Contracts, § 356K-3560.

159. Family Code § 6712, 6750, 6751; B&P § 18702; see 1 Witkin, Sum. of Cal. Law (9th ed. 1987) Contracts, §§ 343, 356E, 356E. 160. Family Code § 6751. 161. Ballard v. Anderson (1971) 4 Cal-2d 873, 884 [95 Cal.Rptr. 1, 9]; see 1 Witkin, Sum. of Cal. Law (9th ed. 1987) Contracts, §§ 345-353 and 356F-356H. 162. Family Code § 6910; see 1 Witkin, Sum. of Cal. Law (9th ed. 1987) Contracts, § 356G(1). 163. Family Code § 6911; see 1 Witkin, Sum. of Cal. Law (9th ed. 1987) Contracts, § 356G(2). 164. Family Code §§ 7002 (a), 7050(e)(1); see 1 Witkin, Sum. of Cal. Law (9th ed. 1987) Contracts, §§ 347, 356J, 356K. 165. Family Code §§ 6920, 6921, 6925; see 1 Witkin, Sum. of Cal. Law (9th ed. 1987) Contracts, §§ 346, 356H. 166. Family Code §§ 7002(a), 7050(e) (1); see 1 Witkin, Sum. of Cal. Law (9th ed. 1987) Contracts, §§ 348, 356J, 356K. 167. Family Code §§ 6920, 6921, 6926; see I Witkin, Sum. of Cal. Law (9th ed. 1987) Contracts, §§ 349, 356H. 168. Family Code §§ 6920, 6921, 6927, 6928; see 1 Witkin, Sum. of Cal. Law (9th ed. 1987) Contracts, §§ 350, 356H. 169. Family Code §§ 6920, 6921, 6929; see 1 Witkin, Sum. of Cal. Law (9th ed. 1987) Contracts, §§ 351, 356H. 170. Family Code §§ 6920, 6921, 6924; see 1 Witkin, Sum. of Cal. Law (9th ed. 1987) Contracts, §§ 352, 356H. 171. Family Code §§ 6901, 6902, 6920, 6921, 6922; see 1 Witkin, Sum. of Cal. Law (9th ed. 1987) Contracts, §§ 353. 172. See 1 Witkin, Sum. of Cal. Law (9th ed. 1987) Contracts, §§ 357-364. 173. Civil Code § 38. 174. Markus v. Lester (1922) 59 Cal.App. 564, 565 [211 P.2d 240]. 175. Civil Code § 38. 176. Gibson v. Westoby (1953) 115 Cal.App.2d 273, 275 [251 P.2d 1003]. 177.1 Witkin, Sum. of Cal. Law (9th ed. 1987) Contracts, § 358. 178. Civil Code § 39(a). 179. Civil Code § 39. 180. Civil Code § 39(b); see 1 Witkin, Sum. of Cal. Law (9th ed. 1987) Contracts, § 361. See also Smalley v. Baker (1968) 262 Cal.App.2d 824, 832 [69 Cal.Rptr. 521], and Prob. Code § 812. 181. Burgess v. Security First Nat. Bank (1941) 44 Cal.App.2d 808 [113 P.2d 198]. 182. Civil Code § 1550. 183. Civil Code § 1605. 184.1 Witkin, Sum. of Cal. Law (9th ed. 1987) Contracts, § 208. 185. Civil Code §§ 1607, 1689(b)(3); see also discussion of Illegality. 186. Simmons v. California Institute of Technology (1949) (34 Cal.2d 264, 272 [209 P.2d 581]. 187. Civil Code § 1605.

188. Borelli v. Brusseau (1993) 12 Cal.App.4th 647 [16 Cal.Rptr.2d 16].

189. Civil Code § 1605.

190. Orange County Foundation v. Irvine Co. (1983) 139 Cal.App.3d 195, 200 [188 Ca1.Rptr. 552]; see 1 Witkin, Sum. of Cal. Law (9th ed. 1987) Contracts, §§ 219-225.

191. Civil Code § 1606.

192. 17A Am.Jur.2d (Rev. ed. 1991) Contracts, § 716.

193.1 Witkin, Sum. of Cal. Law (9th ed. 1987) Contracts, §§ 796-798.

194.1 Witkin, Sum. of Cal. Law (9th ed. 1987) Contracts, § 757.

195. Civil Code § 1689(b)(2).

196. Civil Code § 1689(b)(3).

197. Civil Code § 1689(b)(4).

198. Wyler v. Feuer (1978) 85 Cal.App.3d 392, 404 [149 Cal.Rptr. 626, 633].

199. Integrated Inc. v. Alec Fergusson Electrical Contractor (1967) 250 Cal.App.2d 287, 295 [58 Cal.Rptr. 503, 509].

200.1 Witkin, Sum. of Cal. Law (9th ed. 1987) Contracts, §§ 758-759.

201. See 17A Am.Jur.2d (Rev. ed. 1991) Contracts, § 631.

202. See 17A Am.Jur.2d (Rev. ed. 1991) Contracts, §§ 633 634; I Witkin, Sum. of Cal. Law (9th ed. 1987) Contracts, § 762.

203. See Com. Code § 2711.

204. Commercial Code § 2711.

205. Commercial Code § 2601(a).

206. Commercial Code § 2602(1).

207. Commercial Code § 2508; see 3 Witkin, Sum. of Cal. Law (9th ed. 1987) Sales, § 141.

208. Commercial Code §§ 2608(1)(a)-(b).

209. Commercial Code § 2606(1)(b).

210. Commercial Code § 2608(2).

211. Commercial Code § 1204(2).

212. Commercial Code § 2711.

213. Civil Code § 1689(b)(5); see 1 Witkin, Sum. of Cal. Law (9th ed. 1987) Contracts, §§ 441-446.

214. Civil Code § 1667.

215. Civil Code § 1550.

216. Civil Code § 1598; see I Witkin, Sum. of Cal. Law (9th ed. 1987) Contracts, § 430.

217. Salazar v. Maradeaga (1992) 10 Cal.App.4th Supp. 1, 4 [12 Cal.Rptr.2d 676, 678].

218. Civil Code § 1607.

219. See 1 Witkin, Sum. of Cal. Law (9th ed. 1987) Contracts, § 429.

220. Schaefer v. Williams (1993) 15 Cal.App.4th 1243, 1246-1247 [19 Cal.Rptr.2d 212, 214].

221. Civil Code § 1599; see Keene v. Harling (1964) 61 Cal.2d 318, 324 [38 Cal.Rptr. 513].

222.1 Witkin, Sum. of Cal. Law (9th ed. 1987) Contracts, §§ 431-432.

223. Civil Code § 1689(b)(6).

224. Rest. 2d, Contracts §§ 178-179; see I Witkin, Sum. Of Cal. Law (9th ed. 1987) Contracts, §§ 462 et sea.

225. Metropolitan Creditors Service of Sacramento v. Sadri (1993) 15 Cal.App.4th 1821 [19 Cal.Rptr.2d 646].

226. Civil Code § 1691.

227. Civil Code § 1691.

228. E-Sign Act § 101(2)(i).

229. Civil Code § 1691(a).

230. Civil Code § 1691(b).

231. Civil Code § 1691.

232. Civil Code § 1692.

233. 17A Am.Jur.2d (Rev. ed. 1991) Contracts, §§ 592. See Rose v. Chrysler Motors Corp. (1963) 212 Cal.App.2d 755 [28 Ca1.Rptr. 185].

234.1 Witkin, Sum. of Cal. Law (9th ed. 1987) Contracts, §§ 889-890.

235. Civil Code § 1693.

236. Civil Code § 1692.

237. Civil Code § 1692.

238. Civil Code § 1692; see 1 Witkin, Sum. of Cal. Law (9th ed. 1987) Contracts, §§ 883-885.

239. Civil Code § 1692.-20

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