Legal Question in Business Law in California

Re: Rescission of Contract

You'll get the real answers to those questions from a judge as a result of court battles over the dispute, unless the parties agree. The case will turn on the provable facts, fault finding, etc.

Re: Rescission of Contract

It depends on a number of factors, beginning with your use of the word rescission. Rescission is a legal remedy for when a contract is breached or was improperly formed.

It's unclear from your question whether a court has actually "rescinded" the contract. If by rescission, you mean termination or breach, you have to look at the contract language to see what provisions survive the contract termination.

It is likely that some provisions of the contract could survive even if others had been breached, or even if the contract has ended or been terminated. It really depends on the specific facts.

( There are also some legal obligations, like protection of trade secrets might be imposed by other laws, regardless of the contract's enforceability. )

Re: Rescission of Contract

Binding arbitration is a matter of private contract; however, rescission of a contract containing the arbitration clause a party hopes to rely upon does not always terminate the agreement to arbitrate as well.

The California Supreme Court has held: ".....an arbitration clause is separable from other portions of a contract, such that fraud in the inducement relating to other contractual terms does not render an arbitration clause unenforceable, even when such fraud might justify rescission of the contract as a whole..... By entering into the arbitration agreement, the parties established their intent that disputes coming within the agreement's scope be determined by an arbitrator rather than a court; this contractual intent must be respected even with regard to claims of fraud in the inducement of the contract generally. In light of Prima Paint and its progeny, we disapprove Bertero v. Superior Court, supra, 216 Cal.App.2d 213, 30 Cal.Rptr. 719, to the extent it holds that a party's assertion of the invalidity of an entire contract categorically waives that party's right to arbitrate pursuant to a provision in that contract." Saint Agnes Medical Center vs. PacifiCare of California (2003) 31 Cal.4th 1187 at page 1199.

The foregoing case doesn't necessarily mean that an arbitration provision will invariably survive a rescission of the contract it was in; it only goes so far as to hold that the arbitration agreement can be severed from the rescinded agreement if it is clear the parties intended, beforehand, that disputes over that subject matter be arbitrated. In another part of the St. Agnes decision, the Court explained that agreements to arbitrate should be treated like any other contract, and the rules allowing a court to sever valid provisions from an invalid contract and enforce them, when justice requires, apply to arbitration agreements as well as other contracts.

Also, terminating a contract is not the same as rescinding it. Merely termination of a contract is a step less than rescission, and provisions of a terminated contract are very likely to survive and have a direct impact on the outcome of a lawsuit or, for that matter, an arbitration.