An ex-husband purchases an annuity to be paid for the life of his ex-wife. The ex-wife dies before any payments are made. The ex-husband sues to rescind. The risk of death is on the payer. What is the result?

• A. Yes, rescission is available due to death of the payee.
• B. No, rescission is not available because the risk of death was assumed by the contract.
• C. Yes, because the contract was ill-advised.
• D. No, because the annuity is illegal.

Answer: (B)

Life-contingent contracts allocate the risk of the contingency to the party who bears the cost. An annuity “for the life of” someone is a promise conditioned on that person’s survival. If the payee dies before any payments begin, there is no breach—the obligation simply terminates because the life contingency never occurred. Rescission isn’t available merely because the payee died; rescission would require a fault like misrepresentation or mutual mistake about a material fact that induced the contract. Since the risk of death was assumed by the contract terms, there’s no basis to unwind the deal. The other options misread the effect of a life-contingent contract or misstate grounds for rescission.