A rescission of a contract for breach by the other party must relate to a vital provision going to the very substance or root of the agreement, and cannot relate simply to a subordinate or incidental matter.
The corporate business was run by three partners who were equal stockholders. When one of the partners wanted to retire, they all entered into an oral agreement with the employee whereby he would become an equal participant in the business in place of the retiring partner. The corporation bought the retiring partner's stock and agreed to sell it to the employee over time. Before the employee completed the purchase of the stock, he was discharged for performance related issues. The corporation sought a declaratory judgment that the termination of the contract was proper. The trial court found for the corporation, and denied the employee’s counterclaim for a declaration that the contract was valid and subsisting and that he had a continuing right to purchase the shares.
If a contracting party materially breaches a contract, may the other party rescind the contract as a result of the breach?
On appeal, the employee argued that the employers were not entitled to rescission because any breach on his part did not go the very substance of the contract and that the major purpose of the contract was the sale of the corporate stock. However, the court found that the employers wanted the employee’s services, not his money and that his failure to adequately perform his duties constituted a material breach warranting rescission.