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Material Breach of Contract, Rescission

In breach of contract litigation, the usual remedy is that the breaching party must pay money damages on account of the breach. In some cases, however, a breach may result in an outright cancellation (i.e, rescission) of the contract as if it never occurred. Rescission for breach of contract is available where a material breach of contract has occurred. A material breach for the purpose of justifying rescission is one where the breach relates to a vital provision of the agreement. It must go to the very substance or root of the agreement and cannot relate simply to a subordinate or incidental matter. Ballenger v. Castle Rock Bldg. Corp., 904 S.W.2d 62, 64 (Mo. Ct. App. 1995).  It is not always easy determining what constitutes a material breach. Cases, therefore, have articulated five (5) factors to consider in evaluating whether a breach is material: (1) the extent to which the injured party will be deprived of a reasonably expected benefit; (2) the extent to which the injured party can be compensated for the part of that deprived benefit; (3) the extent to which the party failing to perform will suffer forfeiture; (4) the likelihood that the party failing to perform will cure that failure; and (5) the extent to which the behavior of the party failing to perform comports with standards of good faith and fair dealing.” McKnight v. Midwest Eye Inst. of Kansas City, Inc., 799 S.W.2d 909, 915 (Mo. Ct. App. 1990).

In effect, then, rescission is a remedy which restores the status quo to the contracting parties by voiding their contract. Ehlert v. Ward, 588 S.W.2d 500, 503 (Mo. 1979). Therefore, if the contract called for the payment of money, rescission would have the effect of returning that money because of the contract’s cancellation. Furthermore, a court can enter a restitution order which awards back interest on the amount paid. The rationale for restitution is to put the plaintiff in as good a position as he/she would have been if no contract had been made and restores to plaintiff the value of what he/she parted with. Lopp v. Peerless Serum Co., 382 S.W.2d 620, 626 (Mo. 1964).

Contact with questions about contract litigation or rescission.