Rescission

Rescission undoes a contract rather than ending it going forward. A rescinded contract is treated as void from inception: each side returns what it received, so money paid comes back and the benefit received is surrendered. That is what separates rescission from cancellation, which stops a contract prospectively and leaves the past in place.

In securities law, rescission runs in the buyer's favor. Under the Uniform Securities Act, an investor who buys a security sold in violation of the act — an unregistered non-exempt security, a sale by an unregistered agent, or a sale made through a material misstatement — may sue to recover the purchase price plus interest, less any income already received on the security, plus costs and reasonable attorney's fees. A seller who realizes it has violated the act can head off the lawsuit by making a written offer of rescission; once the buyer accepts it, or lets the statutory window lapse, the right to sue ends.

In insurance, rescission runs the other way — the insurer uses it. The usual ground is a material misrepresentation, concealment, or warranty breach in the application: a misstatement significant enough that the insurer would have declined the risk or priced it differently had it known the truth. The insurer voids the policy and refunds premiums as though coverage never existed. The incontestability clause and the time limit on certain defenses close that window, typically after about two years.

The Series 63, Series 65, and Series 66 exams test rescission as a civil remedy in the enforcement section, alongside criminal penalties and statutes of limitations. Know the components of the rescission formula, that an accepted written offer of rescission extinguishes the buyer's right to sue, and — on the insurance side — how incontestability limits an insurer's ability to rescind.