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Care must be taken to distinguish between terminating a defaulting party’s right to perform a contract and the concept of ‘rescission’ of a contract. They are very different things and are available in different circumstances.
As already explained, termination is a remedy for a serious breach of contract. It does not affect the existence of the contract and it does not discharge the contractual obligations that are outstanding. Following termination, the non-defaulting party can bring an action for breach of contract and claim damages caused by the failure of performance.
‘Rescission’ of a contract means making a contract void (of no legal effect) from its very beginning (ab initio). The effect of rescission is as if no contract had ever existed at all. It follows that, after rescission, no contractual obligations remain in existence. However, recission is not a remedy for breach of contract. It is a remedy that is available when particular circumstances affect the validity of a contract, such as when one party is forced by unlawful threats to agree to enter a contract. Circumstances that may affect the validity of a contract are explained in the module Circumstances which may invalidate a legal transaction.
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