California Real Estate Broker ExaminationContractsEasy
A buyer and seller have a signed purchase agreement. Before the close of escrow, the buyer discovers that the property's foundation has significant, undisclosed structural damage. The buyer decides to terminate the contract and demands the return of their earnest money deposit. Which of the following legal remedies is the buyer most likely pursuing?
- ASpecific performance
- BDamages
- CReformation
- DRescission
Show answer & explanationAnswer & explanation
Correct answer: D. Rescission
Rescission is the act of canceling a contract and returning the parties to their original positions before the contract was made. In this scenario, the undisclosed structural damage constitutes a material breach, allowing the buyer to seek rescission and the return of their deposit.
Why the other options are wrong
- A. Specific performance compels a party to fulfill the terms of the contract, which is not what the buyer wants here.
- B. Damages seek monetary compensation for losses due to breach, but the buyer's primary goal is to terminate and get their deposit back.
- C. Reformation is used to correct a mistake in a written contract to reflect the true agreement of the parties, not to terminate it.
Rescission
The cancellation of a contract, allowing the parties to return to their original positions as if the contract had never existed.
- Often due to fraud, mistake, or material misrepresentation.
- Restores parties to 'status quo ante'.
- Returns any consideration exchanged.
Memory trick: SCRD: Some Contracts Really Don't work out.