Rescission (contract

law)

In contract law, rescission is an equitable

remedy which allows a contractual party
to cancel the contract. Parties may rescind
if they are the victims of a vitiating factor,
such as misrepresentation, mistake,
duress, or undue influence.[1] Rescission is
the unwinding of a transaction. This is
done to bring the parties, as far as
possible, back to the position in which they
were before they entered into a contract
(the status quo ante).

Taxonomy
Rescission is used throughout the law in a
number of different senses.[2] The failure
to draw these crucial distinctions is
productive of serious confusion. Although
Judicature legislation has been enacted
throughout the common law world, and
jurisdictions vary in their recognition of a
distinct body of law known as equity,
reference to the jurisdictional origins is
still important for the purposes of
exposition.

"Rescission" in the sense of termination.

Rescission in this sense is not the focus
of this article. Where a contract is
terminated, obligations under the
contract are only discharged
prospectively; the contract is not
rendered void ab initio. Rescission in the
sense of termination covers two key
situations:
First, where a party to a contract
exercises an express right of
termination, he or she is sometimes
 said to have exercised a right to
rescind the contract.
Secondly, where a party is faced
with a repudiation, the party can
elect to terminate the contract; this
too has often been referred to as an
election to rescind.
"Rescission" at common law. Rescission
at common law (as distinct from
rescission in equity) is a self-help
remedy: historically, the common law
courts simply gave effect to the
rescinding party's unequivocal election
to rescind the contract. Rescission at
common law is only available for
fraudulent misrepresentations and
duress. Rescission renders the contract
void ab initio, and courts will only grant
rescission under common law if the
parties can be restored to their original
positions prior to the formation of the
contract ("restitutio in integrum").[3]
Courts of Equity exercised a jurisdiction
to effect rescission where restoring the
parties to the contract to their pre-
contract positions was not possible at
common law.
"Rescission" in Equity's exclusive
jurisdiction. Rescission is available in
Equity's exclusive jurisdiction in a wide
range of situations. For example, where
 there has been an innocent but material
misrepresentation, a breach of fiduciary
duty, unconscionable conduct, or
equitable fraud.

In court
Rescission is an equitable remedy and is
discretionary.[4] It is used as a synonym for
termination at law. A court may decline to
rescind a contract if one party has
affirmed the contract by his action,[5] or a
third party has acquired some rights or
there has been substantial performance in
implementing the contract. To improve
chances of being granted rescission,
parties may do well to describe those
circumstances are giving rise to an
entitlement to terminate, as was done in
Koompahtoo Local Aboriginal Land Council
v Sanpine Pty Ltd.[6] Furthermore, because
rescission is supposed to be imposed
mutually upon both sides to a contract, the
party seeking rescission normally must
offer to give back all benefits he or she has
received under the contract (an "offer of
tender").

The US state of Virginia uses the term

"cancellation" for equitable rescission.
Furthermore, a minority of common law
jurisdictions, like South Africa, use the
term "rescission" for what other
jurisdictions call "reversing", "overturning"
or "overruling" a court judgment. In this
sense, the term means to be set aside or
make void, on application to the court that
granted the judgment or to a higher court.
Applications to rescind a judgment are
usually made on the basis of error or for
good cause.

Most common law jurisdictions avoid all

this confusion by holding that one rescinds
a contract and cancels a deed (i.e., of real
property), and treat rescission as a
contractual remedy rather than a type of
procedural remedy against a court
judgment.
In Australia, the Court of Equity may grant
partial relief under the contract if good
conscience and practical justice is
observed by the court.[7][8]

By private companies
In finance, law, and insurance, rescission is
the termination of a contract from the
beginning (as if it never existed), rendering
it void ab initio. In 2009, one judge ruled
that borrowers who refinanced into an
adjustable-rate mortgage could force a
bank to rescind mortgage loans if it acted
similarly inappropriately.[9] Rescission is
typically viewed as "an extreme remedy"
which is "rarely granted".[10]

Stock market transactions

In order to have legal certainty and in order

to avoid the situation that courts have to
decide ex-post if a trade should be binding
or not, erroneous trade rules of exchanges
usually exclude civil-law rescission
rights.[11][12]

This explains why banks usually have to

carry huge losses when clearly erroneous
trades occurred that have not been
detected within 30 minutes.[13]
Insurance

Insurers have the right to rescind an

insurance policy due to concealment,
material misrepresentation, or material
breach of warranty. Generally, to rescind,
an insurer will send a notice to the insured
and tender a check in the amount of the
premium paid for the relevant policy period

In health insurance and specifically the

individual and small group insurance
markets, rescissions have generally
followed the diagnosis of an expensive-to-
treat illness in the patient (policyholder),
typically because of withheld information
about a pre-existing medical condition.[14]
Public awareness of this practice
increased during the 2009 US healthcare
debate, when it was described colloquially
as "cancel coverage when you get sick".
The practice of health insurance
rescission was partially limited starting
September 23, 2010,[15] following the
adoption of the Patient Protection and
Affordable Care Act in 2010. A House
committee report[16] found that WellPoint
(now Anthem), UnitedHealth Group and
Assurant rescinded policies for more than
20,000 people over a five-year period;[14]
the House report also highlighted 13
particular cases.[16]
In 2010, it was revealed that WellPoint
specifically targeted women with breast
cancer for aggressive investigation with
the intent to cancel (rescind) their
policies.[17] The disclosures followed the
discovery that Assurant Health similarly
targeted all recently diagnosed HIV-
positive (AIDS) policyholders for
rescission.[18] U.S. Department of Health
and Human Services (HHS) Secretary
Kathleen Sebelius sent a letter to
WellPoint urging the insurer to
immediately end their practice of dropping
health insurance coverage for the
women.[19]
The software technology used by
Wellpoint as well as other major American
health insurance companies[20] is provided
by MIB Group. The software automatically
triggered a fraud investigation on every
policyholder recently diagnosed with
breast cancer and searched for conditions
not disclosed in the application.[17][21] The
MIB Group provides a "Follow-up Service"
which allows for a "second chance" to
underwrite based on additional, discovered
information during the contestable
period.[22] The service is maintained for
two years after initial underwriting and
may include, among other information
credit history, medical conditions, driving
records, criminal activity, drug use,
participation in hazardous sports, and
personal or family genetic history.[23]
Consumers can request a copy of the data
in their report from MIB Group.[24] The
insurer is additionally required to prove an
"intent to deceive" in the
misrepresentation, this fraud or intent
requirement was extended federally for
health insurance contracts effective
September 23, 2010[19] by Section 2712 of
the Patient Protection and Affordable Care
Act. In the long-run the change may have
little effect in practice given that the bill
eventually will not allow underwriting
based on preexisting conditions.[25]
Previously, most states required proving
"intent to deceive".[26]

Notes
1. Abdallah, Inc. v. Martin, 242 Minn. 416,
420, 65 N.W.2d 641, 644 (1954).
2. See generally, Heydon, Leeming and
Turner, Meagher, Gummow & Lehane's
Equity: Doctrine and Remedies (5th ed,
2015) 897-8
3. Bant, E. "Reconsidering the Role of
Election in Rescission" . (2012) 32(3)
Oxford Journal of Legal Studies 467.
4. Alati v Kruger [1955] HCA 64 , (1955)
94 CLR 216 at p 223, High Court
(Australia).
5. Long v Lloyd [1958] EWCA Civ 3 ,
[1958] 1 WLR 753, Court of Appeal
(England and Wales).
6. Koompahtoo Local Aboriginal Land
Council v Sanpine Pty Ltd [2007] HCA
61 , (2007) 233 CLR 115, High Court
(Australia).
7. Vadasz v Pioneer Concrete (SA) Pty
Ltd [1995] HCA 14 , (1995) 184 CLR
102.
 8. Groves v Matt O'Connor & Associates
Pty Ltd [2015] NSWSC 664 , Supreme
Court (NSW, Australia).
9. G. Keating (July 7, 2008). "Mortgage
Rescission Could Be Class Action
Nightmare for U.S. Banks" . Insurance
Journal.
10. Ferrara D. (2007). Directors and
Officers: Side A Only Coverage
Working Through the Hype . FDCC
QUARTERLY Summer 2007.
11. "Rules of the London Stock Exchange"
(PDF). London Stock Exchange.
January 3, 2018.
12. "Bedingungen für Geschäfte an der
Frankfurter Wertpapierbörse" (PDF).
January 3, 2018. p. 22. Archived from
the original (PDF) on 2018-02-25.
13. Editor, Helen Dunne, Associate City
(2001-12-01). "Trader's slip leaves UBS
Warburg £71m poorer" . ISSN 0307-
1235 . Retrieved 2018-02-25.
14. L. Girion (June 17, 2009). "Blue Cross
praised employees who dropped sick
policyholders, lawmaker says" . Los
Angeles Times.
15. HealthCare.Gov Website Timeline
"What's Changing and When"
16. Committee on Energy and Commerce.
(2009). Supplemental Information
Regarding the Individual Health
Insurance Market Archived 2010-12-
03 at the Wayback Machine. U.S.
House of Representatives. See also
Case studies: examples of health
insurance companies rescinding
individual policies Archived 2010-08-
06 at the Wayback Machine.
17. Murray Waas (April 22, 2010).
"Exclusive: WellPoint Routinely Targets
Breast Cancer Patients" . Reuters.
18. Emily Barry (April 9, 2010). "Health
Plan Loses Court Battle over
Rescission; Records show that
Assurant Health routinely targeted
HIV-positive members for fraud
review" . American Medical
Association News.
19. HHS Press Office (April 23, 2010).
"HHS Secretary Kathleen Sebelius
Urges WellPoint to Immediately Stop
Dropping Coverage for Women with
Breast Cancer" . U.S. Department of
Health and Human Services. Archived
from the original on October 18, 2013.
20. "Nation’s Largest Insurance Reporting
Agency Agrees To Expand Consumer
Rights" Archived 2013-10-04 at the
Wayback Machine FTC.
21. WellPoint Inc. (April 22, 2010). "PR
Newswire: WellPoint's Reuters
Response" . PR Newswire.
22. MIB Group Inc. "Follow Up Service"
Archived 2010-08-03 at the Wayback
Machine
23. FTC Press Office (June 21, 1995).
"Nation's Largest Insurance Reporting
Agency Agrees To Expand Consumer
Rights" . Federal Trade Commission.
Archived from the original on October
4, 2013.
24. "MIB Group Inc. Catches Consumers
Because it Can" .
AnnualMedicalReport.com. January 7,
2010.
25. Harrington SE. The Health Insurance
Reform Debate . Journal of Risk and
Insurance.
26. Ables A. (2007).
MISREPRESENTATION AND
RESCISSION OF INSURANCE
CONTRACTS Archived 2011-07-26 at
the Wayback Machine. FORC Journal.

References
O'Sullivan, Dominic; Steven Elliot; Rafal
Zakrzewski (February 2008). The Law of
Rescission . Oxford University Press.
ISBN 0-19-925011-1.

External links

Look up rescission (contract law) in

Wiktionary, the free dictionary.
 Health Care Rescission Legislative
Hearing , video playlist of testimony by
legislators, health care industry officials,
as well as people who were denied
health care due to up to 2000 points of
criteria which could trigger a rescission
investigation and deny a person access
to essential services emergency health
care during that investigation period.

Retrieved from
"https://en.wikipedia.org/w/index.php?
title=Rescission_(contract_law)&oldid=917637946"

Last edited 1 month ago by Monkbot

Content is available under CC BY-SA 3.0 unless
otherwise noted.