Oregon 30-Hour Real Estate Law Practice Test

Bob and Ingrid mutually agreed to cancel their purchase contract before any transaction took place, with Bob getting his earnest money back. What is this process called?

1. Rescission

2. Termination

3. Modification

4. Discharge

The correct answer is: Rescission

The process in which Bob and Ingrid mutually agreed to cancel their purchase contract before any transaction took place is known as rescission. Rescission refers to the mutual agreement of the parties to nullify a contract, thereby returning both parties to their pre-contractual status. In this scenario, since Bob is getting his earnest money back, it indicates that both parties agree to undo the transaction without any penalties or further obligations. Rescission is often pursued when both parties realize that carrying through with the contract is not in their best interest, and they seek to return to their original positions. This legal remedy is appropriate when there has been no substantial performance of the contract, as in this case where no transaction occurred. While termination also refers to ending a contract, it generally implies that one party may have the right to end the contract due to specific conditions or breaches. Modification involves changing the terms of the original agreement rather than canceling it, and discharge is a broader term that can refer to the extinguishing of obligations under various circumstances. The mutual agreement between Bob and Ingrid to cancel their purchase contract is aptly described as rescission, as it underscores their collaborative decision to revert to their previous state without further implications.