The third major type of relief, which can awarded when a contract goes bad is rescission. California Civil Code Section 1689.  Rescission means that the contract is set aside or annulled, as if it had not existed.  When a contract is rescinded, the agreement is extinguished, neither side has any more obligations under the contract and both sides are, as much as possible, restored to their condition prior to entering the contract.

Civil Code Section 1689 sets out the various grounds upon which a contract can be rescinded.  If both parties agree to rescind the contract, then rescission is simple.  If only one side wants the contract to be set aside, they need to prove that their consent to the agreement was given by mistake or fraud, or that the value which they were to receive under the contract has failed in whole or in substantial part, due to the fault of the other side.  Contacts can also be rescinded, if their purpose was unlawful, or under the specific terms of a number of special laws.  For example, a contract to purchase land divided in violation of the Subdivision Map Act may be rescinded within one year of the discovery of the problem.  California Government Code Section 66499.32.

When a contract is rescinded, the court has a great deal of power to make any orders needed to fairly unwind the deal.  The aggrieved party may recover consequential damages, in addition to obtaining rescission.

A party may not obtain rescission, however, if the contract has already been fully performed.  Further, a party who has him or herself breached the contract generally cannot obtain rescission.