Legal Definitions - right of rescission

The right of rescission is a legal entitlement that allows a party to a contract to cancel or undo the agreement, effectively returning all parties to the positions they were in before the contract was made. It's as if the contract never existed. This right is typically exercised within a specific timeframe and is often available in situations involving fraud, misrepresentation, mutual mistake, or as a consumer protection measure in certain types of transactions.

• Example 1: Home Loan Refinancing

  Imagine a homeowner, Sarah, decides to refinance her existing mortgage to get a lower interest rate. After signing all the paperwork with the lender, federal law (specifically the Truth in Lending Act) grants her a three-business-day "cooling-off" period. During this time, Sarah can change her mind and cancel the refinancing agreement without penalty, even though she has already signed the documents.

  This illustrates the right of rescission because it allows Sarah to unilaterally undo a signed contract within a specific timeframe, returning her to her original mortgage agreement as if the refinancing never happened.

• Example 2: Misrepresented Property Purchase

  A small business owner, David, purchases a commercial property after the seller explicitly stated in writing that the building's roof was recently replaced and under warranty. A month after closing, a major leak occurs, and David discovers through an inspection that the roof is actually very old and was only patched, not replaced, and has no warranty. The seller's statement was a material misrepresentation.

  David may have a right of rescission, allowing him to cancel the property purchase agreement, return the property to the seller, and get his money back, effectively undoing the sale due to the seller's false claim.

• Example 3: Timeshare Contract

  A couple, Maria and Roberto, attend a high-pressure sales presentation for a timeshare while on vacation. Feeling pressured, they sign a contract to purchase a timeshare unit. However, after returning home and reviewing the terms more calmly, they realize it's not a good financial decision for them. Many states have laws that provide a statutory right to rescind timeshare contracts within a certain number of days (e.g., 5 to 10 days) after signing.

  This demonstrates the right of rescission as it grants Maria and Roberto a legal window to cancel the timeshare contract, even after signing it, without incurring penalties, thereby voiding the agreement and relieving them of their obligations.