Introduction

Contracts are among the most important legal instruments governing relationships between individuals and companies, whether they are sales, lease, construction, or service contracts. However, the performance of a contract does not always proceed as agreed; one party may breach its obligations, or circumstances may arise that make continuing the contract impossible or unfair.

Here, contract rescission emerges as a legal solution aimed at restoring balance and protecting the affected party, in accordance with clear rules set by the Saudi legal system.

In this article, we explain the concept of contract rescission, its legal grounds, its legal effects, and the difference between rescission and contract termination.

First: What Is Contract Rescission?

Contract rescission is the dissolution of the contractual relationship with retroactive effect due to a breach by one of the parties or for a legitimate reason recognized by law, such that the contracting parties—so far as possible—are returned to the position they were in before entering into the contract.

Rescission differs from termination in that rescission is usually linked to fault or breach, whereas termination may occur for legitimate reasons without fault.

Second: Legal Grounds for Contract Rescission in Saudi Arabia

Saudi law permits contract rescission in several cases, most notably:

1. Material Breach of Obligation
If one party breaches a fundamental obligation upon which the contract is based, the other party may request rescission, such as:

  • Failure to pay the price

  • Failure to deliver the subject matter of the contract

  • Substantial delay in performance

2. Existence of a Resolutory Clause
The parties may agree in advance on an express resolutory clause providing for automatic rescission upon the occurrence of a specific event, without the need to resort to court, unless proof or dispute requires judicial intervention.

3. Impossibility of Performance
If performance becomes impossible due to a cause beyond the control of both parties, the contract may be rescinded without liability, subject to the legal consequences provided by law.

4. Fraud or Misrepresentation
If fraud, deception, or exploitation of one party’s ignorance is proven, the affected party has the right to seek rescission.

5. Judicial Rescission
In the event of a dispute, the competent court has jurisdiction to rule on a rescission request after assessing the circumstances and terms of the contract.

Third: The Difference Between Contract Rescission and Contract Termination

Although the two terms are sometimes used interchangeably, there is an important legal distinction:

Contract Rescission

  • Usually linked to a breach or unlawful cause

  • Has retroactive effect

  • Restores the parties, as far as possible, to their pre-contract position

Contract Termination

  • May occur by mutual agreement

  • Or upon expiry of the contract term

  • Or upon fulfillment of its purpose

  • Generally without liability or compensation

Understanding this distinction helps in choosing the correct legal action and avoiding unexpected legal claims.

Fourth: Legal Effects of Contract Rescission

Contract rescission results in several legal consequences, including:

  • Extinction of future obligations

  • Restitution of what has been delivered, where possible

  • The right to claim compensation for damage

  • Lapse of certain ancillary contractual clauses

The judge determines these effects based on the nature of the contract and the damage suffered by each party.

Fifth: Does Contract Rescission Entail Compensation?

Not every rescission results in compensation. Compensation requires:

  • Proof of fault

  • Occurrence of damage

  • A causal link between fault and damage

The court may rule for compensation, rescission only, or both, depending on the facts of the case.

Sixth: Common Mistakes When Seeking Contract Rescission

Common mistakes that may lead to rejection of a rescission claim include:

  • Requesting rescission without proving a material breach

  • Ignoring the existence of a resolutory or penalty clause

  • Confusing rescission with termination

  • Delaying the assertion of the right

Poorly considered legal action may turn a right into a liability.

Conclusion

Contract rescission in the Saudi legal system is not an arbitrary measure, but a precise legal remedy governed by clear rules aimed at achieving justice and preventing abuse of rights. With the diversity of contracts and the complexity of commercial and civil relationships, awareness of rescission grounds and effects has become essential to protect interests and avoid prolonged disputes.

Early and informed handling of any contractual breach can save significant time, effort, and losses.