Final answer:
When a contract is entered into based on fraud, the injured party can rescind the contract. This step cancels the contract and aims to restore the parties to their pre-contract position. The injured party must show that the fraud materially influenced their decision and that they acted quickly to rescind after discovering it.
Step-by-step explanation:
If fraud is committed by either party of a contract, the injured party has the option to rescind the contract. Rescission of a contract involves the cancellation or annulment of the contract, effectively returning the parties to the position they were in before the contract was made. If a contract is entered into based on fraudulent representations, the injured party is not required to perform their obligations under the contract and may sue to recover any losses incurred due to the fraud.
Rescinding a contract is a remedy typically available in cases of fraud, mistake, misrepresentation, lack of capacity, duress, or undue influence. To rescind a contract, the injured party must demonstrate that the fraud was material to their decision to enter into the contract and that they acted promptly upon discovering the fraud. Additionally, the injured party cannot have affirmed the contract after becoming aware of the fraud.