The term “rescind” is used to describe the act of canceling a contract that had been previously agreed to. In contract law, this is referred to more fully as “rescission.” The purpose of a rescission is to start over with a clean slate, to allow the parties to return to the status quo that existed before the agreement was made. To explore this concept, consider the following rescind definition.
Origin
Mid-16th century Latin (rescindere)
To rescind something in law means to invalidate it. Examples of rescission often come up in contract law, as parties may decide to void, or rescind, a contract they had previously entered into. The parties can either agree between themselves to rescind the contract, or they can bring the matter before the court and have a judge sign off on it.
Once a contract has been rescinded, things must go back to the way they were before the contract was entered into. Any benefits earned from the contract must be returned to their respective parties. No damages can be awarded to the parties for terms left unfulfilled, and no further activity should be carried out.
Once the parties, or a judge, rescinds a contract, that’s it. There is no such thing as a partial rescission. A rescinded contract is considered to be voided in its entirety. If the parties wish to agree to similar terms as those that were contained within the rescinded contract, then they must draft up a new contract.
A contract can be rescinded for a number of reasons. For example, rescind can occur:
In order to rescind a contract, its terms must first be reviewed to determine whether there is a process in the contract to be followed when seeking rescission.
If there are no terms listed, then the parties should speak with an attorney before they proceed. This is because there may be certain state of federal laws that prohibit them from rescinding the contract. If that’s the case, then they may attempt to negotiate their way out of the contract.
There are three terms in law that more clearly define the processes involved with rescission. These terms are outlined below:
The term rescission ab initio refers to the parties returning back to the way things were before the contract was made. (Incidentally, “ab initio” translates to “in the beginning.”) This is the same as simply using the term “rescission” to describe the situation.
Once a contract has been rescinded, to the parties it’s as if the contract never even existed in the first place. A rescission ab initio would be permitted in the event the parties entered into the contract either by mistake, or because of a misrepresentation (fraud).
The term rescission de future describes the position that a party to the contract is in when he has permission to cancel the contract if another of its parties breaches the contract’s terms. The “de futuro” of the term refers to the idea that a party may cancel the contract “in the future,” if another party to the contract does not act accordingly.
However, the irony here is that, if the party actually does cancel the contract, it is only a rescission if the parties can be restored to their original status quo. This makes the term a bit of a misnomer.
If a party to a contract has been so severely damaged by the contract that he cannot be returned to the status quo that existed before he entered into it, the parties may lose their right to rescind. Instead, the matter would need to proceed to litigation, and the court presiding over the matter would award damages to the appropriate party.
If a contract is discovered to be the product of a fraud, a rescission can still be granted. However, the court may, and understandably so, deny a rescission if any of the following elements apply:
An example of rescind can be found in a significant event that happened in U.S. history: the Rescission Act of 1946. During World War II, over 200,000 Filipinos fought to defend the U.S. against the Japanese.
The Philippines was a commonwealth of the U.S. before the war started and during the war, which meant that Filipinos were considered American citizens who were fighting alongside their fellow Americans. As such, these Filipinos were promised all of the benefits that American soldiers received for serving their country.
However, in 1946, Congress passed the Rescission Act, which effectively took all of those benefits away from the Filipinos. The bill gets its name from its infamous rider which stated, in part, that:
“…service in the Commonwealth Army of the Philippines should not be deemed to have been service in the military or naval forces of the United States.”
The rider served to rescind the executive order signed by President Roosevelt five years prior, which promises the Philippine Commonwealth Army the same benefits as those enjoyed by U.S. veterans. During the war, 66 countries served as allies to the U.S., and the Filipinos were the only ones to be denied the military benefits they had been promised – a $3 billion loss.
President Truman immediately vetoed the bill, however Congress passed an identical bill in February of that same year. This time, Truman signed the bill into law. After Sen. Daniel K. Inouye criticized the bill 62 years later, the Philippines was awarded $200 million in benefits – a far cry from the estimated $3 billion expected by Philippine Commonwealth President Sergio Osmena and Philippine General Omar Bradley.
In 2009, President Barack Obama signed the American Recovery and Reinvestment Act of 2009. This bill included a rider that provided a tax-free payout of $15,000 to each of the surviving Filipino veterans who were U.S. citizens, and $9,000 to each of those veterans who were not.