What does rescind mean in law? To nullify, take back, or invalidate. It is a commonly used legal term when discussing contracts because contracts can be rescinded, either by a court or by agreement between parties involved.

Rescinding a contract means ending it and returning all parties to the position they were in prior to the contract's existence. All benefits must be returned. No damages are awarded and rescission prevents parties from future action in relation to the contract. There is no such thing as a partial rescission, a contract is either rescinded or not.

  • Rescission ab Initio - returning to how things were prior to the contract being made.
  • Rescission de Futuro - describing the position of an individual given permission to terminate a contract due to a breach of terms.
  • Restitutio in Integrium - no party must be worse off than they were at the outset but exactly how things are left depends on the underlying causes of the rescission.

Who Can Rescind a Contract?

For a contract to be rescinded it must first be reviewed to check it if contains specific instructions for this situation. If it does not, then a lawyer should be consulted. If state or federal law doesn't allow for a rescinding then negotiation may be attempted.

  • A court can order a contract rescission as a remedy in a civil lawsuit.
  • Contracts can be mutually rescinded.
  • Insurance companies can rescind customers' policies if they discover correct information was not provided at application. The Affordable Care Act has removed the right to deny coverage and has limited grounds for insurance rescission.
  • Home-owners receive three days to reconsider mortgages since 'The Truth In Lending Act' (1968) - if a borrower decides against the loan then all fees are refunded.
  • The President can rescind a contract according to The Congressional Budget And Impoundment Control Act (1974). S/He can also make Congress vote to rescind funds that have already been allocated.

A Judge may deny rescission based on particular facts, including:

  • One party has fulfilled their part of a contract.
  • A third party has benefited from the contract.
  • The requesting party has committed some wrong relating to the contract - referred to as 'unclean hands'.
  • The requesting party has delayed its request, resulting in prejudice to the other party.
  • The requesting party has requested financial compensation.

When Can a Contract Be Rescinded?

A contract can be rescinded in a number of cases including fraud or innocent misrepresentations that make the contract agreement impossible to uphold.

  • Rescission ab Initio may occur if a contract was entered into by mistake or due to misrepresentation.
  • Fraud - actual (when one party deliberately deceives the other) and constructive (accidental fraud).
  • Undue influence, threat, coercion or duress - a court will consider the following when deciding to grant rescission:
    • Free will of rescinding party.
    • Was there a confidential relationship between the parties?
    • Was the contract negotiated at arms' length?
    • The adequacy of the consideration given to the rescinding party
  • Lack of legal capacity including being under 18, intoxicated, lack of mental capacity or being incapacitated due to illness.
  • For equitable reasons.
  • Inability, due to circumstances not imagined, to carry out the contract.
  • Mistake Of Law. This requires one of two things:
    • All parties believed they understood the law but they were mistaken.
    • One party misunderstood the law when entering into the contract and the other party did nothing to remedy this.
  • If one party is, deliberately or not, not abiding by the contract - can be rescinded for 'anticipatory repudiation'.
  • If the item of value being given in return for goods or services is no longer available or is illegal.

What Is Not a Rescission?

Revoke, Repudiate, and Rescind have similar meanings but subtle differences in English law. Some jurisdictions use rescission and cancellation to mean the same thing.

  • A contract must have begun to be rescinded. It one party didn't understand or didn't want the contract then there was no contract and rescission is not necessary.
  • A contract termination is not a rescission. Only a situation where the facts are returned to a pre-contract state is a rescission.
  • It is not a rescission if a contract is terminated due to a breach that entitles the innocent party to terminate.
  • A contractual offer can be withdrawn prior to acceptance but this is 'revoking an offer'.
  • A court withdrawing a driving license.
  • Intellectual Property (IP) licenses are referred to as being revoked despite being contracts.
  • A 'repudiatory breach' in an IP license is where one person makes it clear they won't stick to their contractual obligations.

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