What Does Rescinded Mean in Legal Terms?

Key Takeaways

• “Rescind” means to cancel or void a contract and return all parties to their pre-contract position.
• Rescission can be initiated voluntarily by mutual consent or imposed by a court under specific legal grounds.
• Common legal grounds for rescission include fraud, mistake, misrepresentation, undue influence, or incapacity.
• Not all contract terminations qualify as rescissions; the key feature is the restoration of the original state.
• Rescission requires returning all exchanged benefits and must occur within a reasonable timeframe.
• Insurance, real estate, consumer protection, and employment law frequently involve rescission provisions.

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 It is a commonly used legal term when discussing contracts because contracts can be rescinded, either by a court or by agreement between parties involved.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 There is no such thing as a partial rescission, a contract is either rescinded or not.

Related Legal Terms

• 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.

Key Elements Courts Consider Before Granting Rescission

Courts will evaluate several elements when deciding whether to approve a rescission request:

• Material Misrepresentation: Was the misstatement significant enough to affect the agreement?
• Unilateral or Mutual Mistake: Did either or both parties misunderstand a fundamental fact?
• Injustice Without Rescission: Would enforcing the contract lead to unfair outcomes?
• Restoration Feasibility: Can both parties be reasonably restored to their pre-contract state?
• Prompt Action: Was the rescission requested in a timely manner after the grounds were discovered?

If any of these elements are not met, courts may deny rescission and suggest alternative remedies like damages instead.

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For a contract to be rescinded it must first be reviewed to check it if contains specific instructions for this situation.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.

Legal and Equitable Remedies Related to Rescission

Rescission is an equitable remedy, meaning it's rooted in fairness rather than strict legal entitlement. When courts grant rescission, they often accompany it with related remedies:

• Restitution: Each party must return what they received. If goods or services cannot be returned, their value may be reimbursed.
• Declaratory Judgment: A legal declaration may clarify that a contract is void and has no binding effect.
• Reformation (in contrast to rescission): Sometimes, rather than canceling the contract, courts may reform or modify it to reflect the true intention of both parties—especially in cases of mutual mistake.

Equitable remedies like rescission require that the party requesting relief is not at fault and acted promptly upon discovering the issue.

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.

Legal Process for Rescinding a Contract

While rescission may sound simple, the process involves several steps, especially when done through the courts:

1. Identify Legal Grounds: First, establish a valid reason such as fraud, duress, or mistake.
2. Notification: The party seeking rescission must notify the other party in writing, stating their intent to rescind and the grounds for doing so.
3. Offer to Restore Consideration: The party must offer to return the benefits received under the contract.
4. File a Legal Action (if needed): If mutual agreement cannot be reached, a lawsuit may be necessary to obtain a court-ordered rescission.
5. Court Review: A judge will examine the facts, evidence of inequity, and whether both parties can be restored to their original state.

Failing to act quickly—also known as “laches”—can disqualify a rescission request. Timeliness and clean hands (good faith behavior) are key factors courts consider.

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.

Common Examples of Rescission in Practice

Rescission is more than a legal concept—it plays out in various industries and circumstances. Below are common real-world contexts where rescission is applied:

• Real Estate Transactions: A buyer may rescind a contract due to undisclosed structural issues or zoning problems.
• Consumer Protection: Under laws like the Truth in Lending Act, consumers may rescind certain credit transactions within a limited time.
• Insurance Policies: An insurer may rescind a policy if the insured made a material misrepresentation during application.
• Employment Agreements: If a job offer was accepted based on misleading information, the employer or employee may have grounds to rescind the agreement.
• Loan Agreements: Federal law sometimes provides borrowers a “cooling-off” period to rescind a loan agreement without penalty.

In each case, the goal of rescission is to restore fairness by placing both parties back into their original positions.

Frequently Asked Questions

What does rescinded mean in law?It means a contract or legal agreement has been canceled or voided, returning the parties to their original state as if it never existed.

Can a contract be rescinded after it's been performed?Yes, but it becomes more complex. Full or partial performance may impact whether parties can be returned to their original state, which is a key requirement for rescission.

Is rescission the same as termination?No. Termination ends the contract from the point of termination forward. Rescission voids the contract from the beginning and seeks to undo all effects.

Do both parties need to agree to rescind a contract?Not always. While mutual rescission is possible, one party can seek rescission through the courts if there are valid legal grounds like fraud or duress.

Can I rescind a contract just because I changed my mind?No. Rescission requires a legally recognized reason, such as misrepresentation, mistake, or undue influence. A simple change of heart is insufficient.

If you need help rescinding a contract, you can post your legal need on UpCounsel's marketplace. UpCounsel's lawyers have worked on behalf of companies like Google, Menlo Ventures, and Airbnb.