Editing Contracts/Rescission

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In [[contract law]], '''rescission''' is an [[Equity (law)|equitable]] [[legal remedy|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 (contract law)|mistake]], [[duress]], or [[undue influence]].<ref>''Abdallah, Inc. v. Martin'', 242 Minn. 416, 420, 65 N.W.2d 641, 644 (1954).</ref> 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.<ref>See generally, Heydon, Leeming and Turner, ''Meagher, Gummow & Lehane's Equity: Doctrine and Remedies'' (5th ed, 2015) 897-8</ref> The failure to draw these crucial distinctions is productive of serious confusion. Although [[Judicature Acts|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 (law)|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 (law)|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''").<ref>{{cite web |author=Bant, E |title=Reconsidering the Role of Election in Rescission |url=http://www.austlii.edu.au/au/journals/UMelbLRS/2012/2.html}} (2012) 32(3) ''Oxford Journal of Legal Studies'' 467.</ref> 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 in English law|misrepresentation]], a breach of [[fiduciary]] duty, unconscionable conduct, or equitable fraud.

==In court==
Rescission is an [[equitable remedy]] and is discretionary.<ref>{{cite AustLII|HCA|64|1955|litigants=Alati v Kruger |parallelcite=(1955) 94 [[Commonwealth Law Reports|CLR]] 216 at p 223 |courtname=auto}}.</ref> 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,<ref>{{cite BAILII |litigants=[[Long v Lloyd]] |year=1958 |court=EWCA |division=Civ |num=3 |courtname=auto |parallelcite=[1958] 1 [[Weekly Law Reports|WLR]] 753}}.</ref> 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''.<ref>{{cite AustLII|HCA|61|2007|litigants=[[Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd]] |parallelcite=(2007) 233 [[Commonwealth Law Reports|CLR]] 115 |courtname=auto}}.</ref> 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 (law)|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.<ref>{{cite AustLII|HCA|14|1995|litigants=Vadasz v Pioneer Concrete (SA) Pty Ltd |parallelcite= (1995) 184 [[Commonwealth Law Reports|CLR]] 102}}.</ref><ref>{{cite AustLII|NSWSC|664|2015|litigants=Groves v Matt O'Connor & Associates Pty Ltd |courtname=auto}}.</ref>

==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 (law)|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.<ref>{{Cite news|author=G. Keating |date=July 7, 2008 |url=http://www.insurancejournal.com/news/national/2008/07/07/91590.htm |title=Mortgage Rescission Could Be Class Action Nightmare for U.S. Banks |work=Insurance Journal }}</ref> Rescission is typically viewed as "an extreme remedy" which is "rarely granted".<ref name=Ferrara2007>Ferrara D. (2007). [http://fdcc.digitalbay.net/documents/V57N4-Ferrara.pdf Directors and Officers: Side A Only Coverage Working Through the Hype]{{dead link|date=January 2018 |bot=InternetArchiveBot |fix-attempted=yes }}. ''FDCC QUARTERLY'' Summer 2007.</ref>

=== Stock market transactions ===
In order to have [[legal certainty]] and in order to avoid the situation that courts have to decide [[Ex post|ex-post]] if a trade should be binding or not, erroneous trade rules of exchanges usually exclude civil-law rescission rights.<ref>{{Cite web|url=http://www.londonstockexchange.com/traders-and-brokers/rules-regulations/rules-lse.pdf|title=Rules of the London Stock Exchange| |work=[[London Stock Exchange]] | date=January 3, 2018}}</ref><ref>{{Cite web|url=http://www.xetra.com/blob/1198488/296f8c6def9e43733f7867318952622c/data/2018-01-03_Bedingungen-fuer-Geschaefte-an-der-Frankfurter-Wertpapierboerse.pdf|title=Bedingungen für Geschäfte an der Frankfurter Wertpapierbörse| |website=|page=22| date=January 3, 2018|archive-url=https://web.archive.org/web/20180225205602/http://www.xetra.com/blob/1198488/296f8c6def9e43733f7867318952622c/data/2018-01-03_Bedingungen-fuer-Geschaefte-an-der-Frankfurter-Wertpapierboerse.pdf|archive-date=2018-02-25|dead-url=yes|df=}}</ref>

This explains why banks usually have to carry huge losses when clearly [[Fat-finger error|erroneous trades]] occurred that have not been detected within 30 minutes.<ref>{{Cite news|url=https://www.telegraph.co.uk/finance/2744129/Traders-slip-leaves-UBS-Warburg-71m-poorer.html|title=Trader's slip leaves UBS Warburg £71m poorer|last=Editor|first=Helen Dunne, Associate City|date=2001-12-01|access-date=2018-02-25|language=en-GB|issn=0307-1235}}</ref>

===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.<ref name=Girion2009>{{Cite news|author=L. Girion |date=June 17, 2009 |url=http://articles.latimes.com/2009/jun/17/business/fi-rescind17 |title=Blue Cross praised employees who dropped sick policyholders, lawmaker says |work= Los Angeles Times}}</ref> 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,<ref>[http://www.healthcare.gov/law/timeline/index.html#event11-pane HealthCare.Gov Website Timeline "What's Changing and When"]</ref> following the adoption of the [[Patient Protection and Affordable Care Act]] in 2010. A House committee report<ref name=CommitteeReport2009>Committee on Energy and Commerce. (2009). [http://energycommerce.house.gov/Press_111/20090616/rescission_supplemental.pdf Supplemental Information Regarding the Individual Health Insurance Market] {{webarchive|url=https://web.archive.org/web/20101203171310/http://energycommerce.house.gov/Press_111/20090616/rescission_supplemental.pdf |date=2010-12-03 }}. U.S. House of Representatives. See also [http://energycommerce.house.gov/Press_111/20090727/15%20Fact%20Sheet-Examples%20of%20Health%20Insurance%20Companies%20Rescinding%20Individual%20Policies.pdf Case studies: examples of health insurance companies rescinding individual policies] {{webarchive|url=https://web.archive.org/web/20100806143424/http://energycommerce.house.gov/Press_111/20090727/15%20Fact%20Sheet-Examples%20of%20Health%20Insurance%20Companies%20Rescinding%20Individual%20Policies.pdf |date=2010-08-06 }}.</ref> found that WellPoint (now [[Anthem (company)|Anthem]]), [[UnitedHealth Group]] and [[Assurant]] rescinded policies for more than 20,000 people over a five-year period;<ref name=Girion2009/> the House report also highlighted 13 particular cases.<ref name=CommitteeReport2009/>

In 2010, it was revealed that WellPoint specifically targeted [[women]] with [[breast cancer]] for aggressive investigation with the intent to cancel (rescind) their policies.<ref name="Murray Waas">{{Cite news|author=Murray Waas |date=April 22, 2010 |url=https://www.reuters.com/article/idUSTRE63L2LS20100422 |title=Exclusive: WellPoint Routinely Targets Breast Cancer Patients |work= Reuters}}</ref> The disclosures followed the discovery that Assurant Health similarly targeted all recently diagnosed [[HIV]]-positive ([[AIDS]]) policyholders for rescission.<ref>{{Cite news|author=Emily Barry |date=April 9, 2010 |url=http://www.ama-assn.org/amednews/2010/04/05/bisg0409.htm |title=Health Plan Loses Court Battle over Rescission; Records show that Assurant Health routinely targeted HIV-positive members for fraud review |work= American Medical Association News}}</ref> 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.<ref name=HHSLetter>{{Cite news |author=HHS Press Office |date=April 23, 2010 |url=https://www.hhs.gov/news/press/2010pres/04/20100423a.html |title=HHS Secretary Kathleen Sebelius Urges WellPoint to Immediately Stop Dropping Coverage for Women with Breast Cancer |work=U.S. Department of Health and Human Services |deadurl=yes |archiveurl=https://web.archive.org/web/20131018160825/http://www.hhs.gov/news/press/2010pres/04/20100423a.html |archivedate=October 18, 2013 |df= }}</ref>

The [[software]] technology used by Wellpoint as well as other major American health insurance companies<ref>[http://www.ftc.gov/opa/1995/06/mib.shtm "Nation’s Largest Insurance Reporting Agency Agrees To Expand Consumer Rights"] {{webarchive|url=https://web.archive.org/web/20131004215646/http://www.ftc.gov/opa/1995/06/mib.shtm |date=2013-10-04 }} FTC.</ref> 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.<ref name="Murray Waas"/><ref>{{Cite news|author=WellPoint Inc. |date=April 22, 2010 |url=http://www.prnewswire.com/news-releases/wellpoints-reuters-response-91845649.html |title=PR Newswire: WellPoint's Reuters Response |work= PR Newswire}}</ref> 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.<ref>[http://www.mib.com/html/plan-f.html/ MIB Group Inc. "Follow Up Service"] {{webarchive|url=https://web.archive.org/web/20100803005635/http://www.mib.com/html/plan-f.html |date=2010-08-03 }}</ref> 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.<ref>{{Cite news |author=FTC Press Office |date=June 21, 1995 |url=http://www.ftc.gov/opa/1995/06/mib.shtm |title=Nation's Largest Insurance Reporting Agency Agrees To Expand Consumer Rights |work=Federal Trade Commission |deadurl=yes |archiveurl=https://web.archive.org/web/20131004215646/http://www.ftc.gov/opa/1995/06/mib.shtm |archivedate=October 4, 2013 |df= }}</ref> Consumers can request a copy of the data in their report from MIB Group.<ref>{{Cite news|date=January 7, 2010 |url=http://www.annualmedicalreport.com/mib-catches-consumers-because-it-can/ |title=MIB Group Inc. Catches Consumers Because it Can |work= AnnualMedicalReport.com}}</ref> 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<ref name=HHSLetter/> 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.<ref>Harrington SE. [http://www.scottharringtonphd.com/harrington%20health%20care%20reform%20aei.pdf The Health Insurance Reform Debate]. ''Journal of Risk and Insurance''.</ref> Previously, most states required proving "intent to deceive".<ref>Ables A. (2007). [http://www.forc.org/public/journals/43#286 MISREPRESENTATION AND RESCISSION OF INSURANCE CONTRACTS] {{Webarchive|url=https://web.archive.org/web/20110726062104/http://www.forc.org/public/journals/43#286 |date=2011-07-26 }}. ''FORC Journal''.</ref>

==Notes==
{{Reflist}}

==References==
* {{Cite book |last=O'Sullivan |first=Dominic |author2=Steven Elliot |author3=Rafal Zakrzewski |title=The Law of Rescission |url=https://books.google.com.au/books/about/The_Law_of_Rescission.html?id=YjXAMQEACAAJ |publisher=[[Oxford University Press]] |date=February 2008 |isbn=0-19-925011-1 }}

==External links==
*[https://www.youtube.com/watch?v=U3DgLB7Uo9c&feature=PlayList&p=CFD1E3A83E1F8575&index=0&playnext=1 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.