A rescission example can help you decide whether rescission is the best solution to any sort of contract dispute you might face. A rescission is a complete null and void of a contract, resulting in the relationship among the parties affected being completely restored as though the contract never existed. As such, a rescission differs from other types of contract voids, in which money, goods, or services will still be exchanged for various reasons.

Rescission for Home Borrowers

One common example of a rescission in the United States is known as the 3-Day Right of Rescission. The right gives borrowers and loan refinance customers extra time to carefully consider their decisions. The 3-Day Right of Rescission was part of the Truth in Lending Act of 1968, and it allows home buyers to reconsider until midnight on the third day after signing for a mortgage or refinance. If, before that time, the buyer does decide to cancel, all fees paid by the buyer as part of the contract are refunded to them by the lender.

The above rule came about to protect home buyers, who are often overwhelmed by the process of getting a loan and the amount of legal and technical terms contracts often contain. Home loans are long-term, high-value obligations with many conditions. Without a right of rescission, home borrowers may be locked for a good part of their lives into something they did not fully want or even understand.

Rescission and Insurance Companies

Insurance company policy rescissions are also common examples of invoking rescission. Many times the right to rescission is written directly into the contract (policy) by the insurer's legal team, letting insurers out of their obligation entirely under certain conditions. Often these conditions are classic examples of why rescission is granted in any contract, such as if you purposely list false information when you apply because you think you might not be accepted otherwise. In such a case, if you paid money to the insurer, it would be refunded in full.

The Affordable Care Act of 2010 limited insurance companies' rights to rescission, and specifically took away the right to deny, cancel, or underwrite a policy based on a pre-existing condition. Insurers must now also provide proof that a policyholder intentionally deceived the company regarding pre-existing conditions. If the insurance company intends to keep any portion of the money you paid in, a rescission will not be possible.

Rescission of Other Contracts

The most straightforward rescission is when all parties agree to rescind the contract and no substantial or irreversible investment has been made by any party. In that case, a new agreement is signed invoking a full rescission of the original contract, and any material exchanges are returned. Tearing up the contract would not be enough; as long as it existed and was valid and signed, it is legally binding until a new agreement supersedes it.

If only one side would like a rescission, this becomes grounds for negotiation and in some cases legal action. Many rescissions are based on the idea of fraud, deception, coercion, or some other unfair manipulation in the process. Your legal advisor will tell you how your case takes into account the most common issues:

  • Are you acting of your own free will when requesting a rescission?
  • Were any parties in the contract involved in a confidential relationship that would affect the fulfillment of the contract?
  • Were all parties free of conflict of interest during and after contract negotiations?
  • Are the rescission and the rescinding party being adequately considered?

Disqualifications for Rescission

A court will decide whether a rescission is the most equitable remedy in a contract dispute. Rescission may not be possible in all situations, however.

One of the biggest reasons rescissions are disqualified is that no monetary awards are possible for loss, damage, or injury. If you have filed a civil suit for financial compensation or award, you cannot qualify for a rescission. Because a rescission means the contract legally never existed, you cannot make a claim to compensation from a breach of a contract that is not there.

Another big reason is if at least one party has substantially fulfilled their obligation in the contract. For instance, if a contractor begins to construct a building and the financier decides they no longer wants to back the project, the contractor cannot undo the labor and materials invested in the project, and thus a rescission will not be possible.

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