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In this discussion, the speakers differentiate between two legal concepts: cancellation of a contract and rescission of a contract. Rescission implies that the contract was never valid from the beginning, while cancellation indicates that a valid contract is being terminated. An example provided is the three-day rescission period applicable when a homeowner refinances a mortgage on their primary residence, allowing them to revoke the contract post-signing. This highlights the specific scenarios in which rescission applies, emphasizing its role in real estate transactions.