Wikipedia

Rescission (contract law)

For American presidential procedure, seeRescission bill.

Incontract law,rescissionis anequitableremedywhich allows a contractual party to cancel the contract. Parties may rescind if they are the victims of a vitiating factor, such asmisrepresentation,mistake,duress,orundue 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 (thestatus quoante).

Taxonomy

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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. AlthoughJudicaturelegislation has been enacted throughout the common law world, and jurisdictions vary in their recognition of a distinct body of law known asequity,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 voidab 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 inequity) 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 voidab 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 Equityexercised 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.Rescission is available in equity's exclusive jurisdiction in a wide range of situations. For example, where there has been an innocent but materialmisrepresentation,a breach offiduciaryduty, unconscionable conduct, or equitable fraud.

In court

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Rescission is anequitable remedyand 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 which may give rise to an entitlement to terminate, as was done inKoompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd.[6]Furthermore, because rescission is supposed to be imposedmutuallyupon 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 ofVirginiauses 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 makevoid,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 onerescindsa contract andcancelsa 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, theCourt of Equitymay grant partial relief under the contract if good conscience and practical justice are observed by the court.[7][8]

By private companies

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In finance, law, and insurance, rescission is the termination of a contract from the beginning (as if it never existed), rendering itvoid ab initio.In 2009, one judge ruled that borrowers who refinanced into anadjustable-rate mortgagecould 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

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In order to havelegal certaintyand in order to avoid the situation that courts have to decideex-postif 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 clearlyerroneous tradesoccurred that have not been detected within 30 minutes.[13]

Insurance

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Insurers have the right to rescind aninsurance policydue to concealment, materialmisrepresentation,or materialbreach 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

Inhealth insuranceand 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 the2009 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 thePatient Protection and Affordable Care Actin 2010. A House committee report[16]found that WellPoint (nowAnthem),UnitedHealth GroupandAssurantrescinded 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 targetedwomenwithbreast cancerfor aggressive investigation with the intent to cancel (rescind) their policies.[17]The disclosures followed the discovery that Assurant Health similarly targeted all recently diagnosedHIV-positive (AIDS) policyholders for rescission.[18]U.S.Department of Health and Human Services(HHS) SecretaryKathleen Sebeliussent a letter to WellPoint urging the insurer to immediately end their practice of dropping health insurance coverage for the women.[19]

Thesoftwaretechnology used by Wellpoint as well as other major American health insurance companies[20]is provided byMIB 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 thePatient 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

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  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 (2012)."Reconsidering the Role of Election in Rescission".University of Melbourne Law School Research Series.(2012) 32(3)Oxford Journal of Legal Studies467.
  4. ^Alati v Kruger[1955] HCA 64,(1955) 94CLR216 at p 223,High Court(Australia).
  5. ^Long v Lloyd[1958] EWCA Civ 3,[1958] 1WLR753,Court of Appeal(England and Wales).
  6. ^Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd[2007] HCA 61,(2007) 233CLR115,High Court(Australia).
  7. ^Vadasz v Pioneer Concrete (SA) Pty Ltd[1995] HCA 14,(1995) 184CLR102.
  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[permanent dead link‍].FDCC QUARTERLYSummer 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 fromthe original(PDF)on 2018-02-25.
  13. ^Editor, Helen Dunne, Associate City (2001-12-01)."Trader's slip leaves UBS Warburg £71m poorer".ISSN0307-1235.Retrieved2018-02-25.{{cite news}}:|last=has generic name (help)CS1 maint: multiple names: authors list (link)
  14. ^abL. 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. ^abCommittee on Energy and Commerce. (2009).Supplemental Information Regarding the Individual Health Insurance MarketArchived2010-12-03 at theWayback Machine.U.S. House of Representatives. See alsoCase studies: examples of health insurance companies rescinding individual policiesArchived2010-08-06 at theWayback Machine.
  17. ^abMurray Waas (April 22, 2010)."Exclusive: WellPoint Routinely Targets Breast Cancer Patients".Reuters.[dead link‍]
  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. ^abHHS 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 fromthe originalon October 18, 2013.
  20. ^"Nation’s Largest Insurance Reporting Agency Agrees To Expand Consumer Rights"Archived2013-10-04 at theWayback MachineFTC.
  21. ^WellPoint Inc. (April 22, 2010)."PR Newswire: WellPoint's Reuters Response".PR Newswire.
  22. ^MIB Group Inc. "Follow Up Service"Archived2010-08-03 at theWayback Machine
  23. ^FTC Press Office (June 21, 1995)."Nation's Largest Insurance Reporting Agency Agrees To Expand Consumer Rights".Federal Trade Commission.Archived fromthe originalon October 4, 2013.
  24. ^"MIB Group Inc. Catches Consumers Because it Can".AnnualMedicalReport.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 CONTRACTSArchived2011-07-26 at theWayback Machine.FORC Journal.

References

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Look uprescission (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.
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