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Mutual rescission and release agreement: How-to guide

When two parties want to invalidate an agreement and mutually agree to release the other from further obligations under that contract, they can use a mutual rescission to meet their objectives.

A rescission and release is the definitive end of the parties’ commitments under an agreement. If well-drafted, it can help prevent future disputes and save business relationships. A rescission agreement turns the clock back and puts each party in the position they were in before the agreement became effective.

Key elements of a mutual rescission agreement

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The following instructions will help you understand the terms of your mutual rescission and release agreement. Please review the document in its entirety before starting the step-by-step process.

Introduction

This section identifies the document as the rescission of an existing agreement. Herein, add the parties’ names and the date you want the rescission to be effective. The parties entered must be the same as those who signed the original agreement unless the new signers are personal representatives of the company that initially signed. This section must also contain the parties' certified or registered mail address.

Recitals

This section talks about the rescission of the original contract and explains that the parties acknowledge the need to void the agreement. Put in the original contract’s effective date. A signed copy of the original agreement and other related documents must be attached hereto as the current agreement.

Rescission

This section explains that the respective parties agree to rescind the agreement and be returned to the respective positions they were in before it was signed. Any further rights specified in the original contract will be deemed null.

Mutual release of liability

This section eliminates the future rights to claim that either party still owes something under the original agreement. The parties release and forever discharge all liabilities that could arise from the original agreement. In other words, due to the mutual covenants of the parties, one party can’t sue the other for any unfinished duties or fees.

Confidential information

This section reminds the parties that confidential information must remain confidential in full force, even after the rescission date. Review this section closely to ensure it provides sufficient security for your company and its proprietary information.

Covenant not to sue

This section guarantees that neither party will have legal obligations thereunder based on claims released explicitly by the rescission.

No assignment

This section verifies whether either party has transferred or promised to transfer any rights or obligations under the existing contract.

Governing law

Review the original contract prior to signing this, as it probably includes a choice-of-law provision that selects the laws that will be used to interpret its terms. If it does not, this section allows you to choose those laws.

Severability

This section protects the rescission terms as a whole, even if one part is later invalidated. For example, if a state law is passed prohibiting choice-of-law clauses, it will not undo the entire document. Instead, only the section dealing with the choice of law would be invalidated, and the other provisions of the rescission enforceable.

Counterparts; electronic signatures

This section mentions that even if the parties hereto sign the rescission in different locations or use electronic devices for signatures, all the separate pieces will be considered part of the same document. In a modern world, this provision ensures that business can be transacted efficiently without giving up the validity of the rescission.

Entire agreement

The parties’ agreement that the release agreement, mutual rescission of the contract they’re signing (when taken together with the original agreement) is “the agreement” about the issues involved.

Authority

This section verifies whether the parties taken into consideration have the right and power to sign the agreement.

Headings

This part clarifies that the headings at the beginning of each section are meant to organize the document and should not be considered operational parts of the agreement.

Frequently asked questions

What's a mutual release agreement?

Sometimes, for any number of reasons, the terms of a contract go unfulfilled. Sometimes, it is in both parties’ interest to invalidate it rather than have it linger or be forgotten until there is a problem or dispute. That is when you need a mutual rescission of the contract and release agreements to annul the contract and officially move on with your business.

Which information is needed in a mutual rescission agreement?

Here's the information you'll need to have handy to complete your mutual rescission and release agreement:

  • Who it's coming from: Determine if a business or individual is sending the document and have the name and contact information ready
  • Who it's going to: Know who this document is going to and have the individual or business name and contact information ready. If it's a business, know the business type (LLC, corporation, etc.)
  • Which state will govern it: Specify a state so it's clear what laws apply to the document
  • Agreement details: Decide if any confidentiality provisions obligate both parties and if they agree to keep this matter private
  • Date: Know the effective date of the original agreement
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