National Real Estate Exam (PSI)ContractsHard
A buyer and seller mutually agree to cancel their signed purchase agreement and return each other to their original positions before the contract was formed, with the earnest money refunded to the buyer. This action is known as:
- APartial performance
- BMutual rescission
- CAssignment
- DNovation
Show answer & explanationAnswer & explanation
Correct answer: B. Mutual rescission
Mutual rescission occurs when both parties agree to cancel a contract and restore each other to their pre-contract positions. This differs from novation, which substitutes a new party or obligation rather than canceling the agreement entirely.
Why the other options are wrong
- A. Partial performance refers to incomplete completion of contract duties, not cancellation.
- C. Assignment transfers contract rights/duties to a third party, not a cancellation.
- D. Novation replaces one party or term with a new agreement, not a full cancellation and restoration.
Mutual Rescission
An agreement by both parties to cancel a contract and restore each other to the positions they held before the contract was formed.
- Requires mutual consent of both original parties
- Distinct from novation, which substitutes new terms/parties
- Typically involves returning consideration, such as earnest money
Memory trick: Rescission hits rewind — back to before the deal began.