WEEK TOPIC DATE

1 INTRODUCTION 26 JAN; 2 FEB

2 MAXIMS OF EQUITY 9 FEB

3 APPLICATION OF EQUITY MALAYSIAN EXPERIENCE 16 FEB

4 JUAL JANJI; 23 FEB

5 EQUITABLE ASSIGNMENTS 2 MAR

6 DOCTRINE OF EQUITABLE ESTOPPEL 9 MAR

7 SPECIFIC PERFORMANCE 16 MAR

8 SPECIFIC PERFORMANCE (CONT) 23 MAR

9 RECTIFICATION 30 MAR

10 RECISSION 6 APR

11 INJUNCTIONS 13 APR

12 INJUNCTIONS (CONT) 20 APR

13 INJUNCTIONS (CONT) 27 APR

14 INJUNCTIONS (CONT) 4 MAY

15 INJUNCTION AND BREACH OF CONFIDENCE 11 MAY

RESCISSIONWeek 9, Lecture 1 & 2

Faculty of Shariah and Law, Maldives National University

Shafeea Riza

1. Introduction Equitable Remedies Equity created new remedies:

(a) Specific performance

(b) Rectification

(c) Rescission: which allowed parties to a contract to be put back in their original position in the case of a contract induced by a misrepresentation.(d) Injunctions

2. Introduction - General Rescission, ie setting aside the contract, is possible in all cases of misrepresentation.

The aim of rescission is to put the parties back in their original position, as though thecontract had not been made.

Rescission is an equitable remedy and is awarded at the discretion of the court.

Grounds for rescission:

(1) Misrepresentation

(2) Mistake

(3) Undue Influence

(4) Unconscionable bargains

3. MISREPRESENTATION Rescission, in principle, is available for all types of misrepresentation.

There are two types of rescission (Atiyah and Treitel 1967):

1) Rescission for misrepresentation: where contract is set aside for all purposes contract isset aside both retrospectively and prospectively. The aim is to restore the parties to theposition which they were in before they were in before they entered into the contract and inparticular to ensure that the claimant is not unjustly enriched at the defendants expense.

2)Rescission for breach: where one contracting party terminates performance of the contractbecause of the breach by the other party. Effect of the rescission is to release the parties fromtheir obligations to perform in the future but the contract is not treated as if it had neverexisted. Therefore rescission for breach does not operate retrospectively.

3.1 When does rescission occur?Rescission does not occur automatically when a misrepresentation is made.

Misrepresentation renders a contract voidable.

The representee can elect either to rescind or affirm the contract.

If he decides to rescind the general rule is that he must bring his decision to rescind to thenotice of the other party.

Islington London Borough Council v UCKAC [2006] EWCA Civ 340

Dyson LJ stated that a voidable contract continues to exist until and unless it is set aside byan order of rescission made by the court at the instance of a party seeking to terminate it orbring it to an end. (But remember, the decision whether to rescind or not initially lies with thecontracting parties, the court only upholds the wishes of the parties)

Car & Universal Finance v Caldwell [1965] 1 QB 525Caldwell sold his car to Norris. The cheque was dishonoured when it was presentedthe next day. He immediately informed the police and the Automoblie Association ofthe fraudulent transaction. Subsequently Norris sold the car to X who sold it to Y whosold it to Z who sold it to the plaintiffs. In interpleader proceedings one of the issuesto be tried was whether the defendant's conduct and representations amounted to arescission of the contract of sale. It was held that the contract was voidable becauseof the fraudulent misrepresentation and the owner had done everything he could inthe circumstances to avoid the contract. As it had been avoided before the sale to thethird party, no title was passed to them and the owner could reclaim the car.

3.2 Limits to the right to rescind

The right to rescind may be lost by:

1) affirmation of the contract by the claimant after he/she discovered the truth;

2) by the intervention of innocent third party rights where the third party acted in good faithand gave consideration;

3) by lapse of time (although lapse of time does not, of itself, bar rescission in cases offraudulent misrepresentation.)

Long v Lloyd [1958] 1 WLR 753

The defendant advertised for sale a lorry as being in 'exceptional condition' and he told the plaintiffpurchaser that it did 11 miles to the gallon and, after a trial run, all that was wrong with the vehicle. Theplaintiff purchase the lorry and, two days later, on a short run, further faults developed and the plaintiffnoticed that it did only about 5 miles to the gallon. That evening he reported these things to thedefendant and the plaintiff accepted the defendant's offer to pay for some of the repairs. The next daythe lorry set out on a longer journey and broke down. The plaintiff wrote to the defendant asking for thereturn of his money. The lorry had not been in a roadworthy condition, but the defendant'srepresentations concerning it had been honestly made. The Court of Appeal held that the plaintiff wasnot entitled to rescission of the contract as he had finally accepted the lorry before he had purported torescind. The second journey amounted to affirmation of the contract.

Leaf v International Galleries [1950] 2 KB 86

The plaintiff bought a painting after an innocent misrepresentation was made to him that it was by 'J. Constable'. He did not discover this until five years later and claimed rescission immediately. The Court of Appeal held that the plaintiff had lost his right to rescind after such a period of time. His only remedy after that length of time was for damages only, a claim which he had not brought before the court.

3.3 Note The principal ground in which the right to rescind may be lost arises where it is impossibleto restore the parties to their pre-contractual position.

A claimant who wishes to make rescission must bear in mind the rule: a claimant cannot bothget back what he has parted with and keep what he has received in return. A claimant must beprepared to give restitution of what he has earned at the defendants expense.

The aim of this rule is to ensure that the claimant is not unjustly enriched as a result ofrescission.

At common law the courts insist upon precise restitution.

The harshness of this rule is mitigated by the intervention of equity.

In equity a party who can make substantial, but not precise, restitution can rescind thecontract if he returns the subject matter of the contract in its altered form and gives anaccount of any profits made through his use of the product together with an allowance forany deterioration in the product.

Example:Where the claimant has made use of the asset which he obtained from the defendant under the contract, the claimant obviously cannot return the use of which he has made of the chattel but he can make a money payment to the defendant which represents the use of which he has made of the chattel.

3.4. Consequences of rescissionThe legal consequence of rescission is that the contract comes to an end.

Or in other terms the contract is set aside for all purposes.

Because the contract is set aside for all purposes and there is no basis for any claim on thecontract, contractual damages cannot be claimed.

Note: but rescission may give rise to a personal restitutionary claim.

4. Mistake

Commonlaw

Mistake

Equity

If mistake operates at all, it operates so as to negative or in some cases to nullify consent

Bell v Lever Bros Ltd [1932], per Lord Atkin, p217

4.1 General Introduction

Mistake

Nullifies consent

Negatives Consent

4.2 Types of mistake

Mistakethatnegativesconsent

1.UnilateralMistake

2.MutualMistake

Mistakethatnullifiesconsent

Commonmistake

4.3 Common mistake in equityIntroductionWhere a contract is void at common law on the ground of common mistake (e.g.existence of the subject matter, title and quality) the court, exercising its equitablejurisdiction, may refuse specific performance of the contract.Alternatively, the court may rescind any contractual document between the parties,and in order to do justice between them, impose terms.In Cooper v Phibbs , while setting aside the lease, the House of Lords imposed arequirement that the lessor should have a lien on the fishery for such money as hehad spent on improvements during the time he wrongly thought it belonged to him.

Where there is a mistake as top quality although the agreement is probably valid at law, it is notvoidable in equityThe case of Solle v Butcher [1950] 1 KB 671 broke new ground in that the Court of Appealenunciated a new doctrine of common mistake in equity under which the courts have adiscretionary jurisdiction to grant such relief as in the circumstances seems just.However, in Great Peace Shipping v Tsavliris Salvage (The Great Peace) [2002] EWCA Civ1407; [2003] QB 679, the Court of Appeal declared that where the contract is valid at commonlaw, there is no jurisdiction to set it aside in Equity.In The Great Peace the defendant owned a ship which was in trouble. Both defendant andclaimant believed The Great Peace was close to the ship in trouble. It was not. The defendant'sdiscovered this and cancelled the contract (because The Great Peace would take longer to get towhere it was needed than the charterers had anticipated). The owners of the Great Peace, theclaimant, claimed a cancellation fee. The defendants refused to pay. The owners succeed, on thebasis that the contract, although a bad deal for the charterers, was possible to perform, andcontained no warranty about the relative position of The Great Peace to the ship in trouble.The Court of Appeal, in refusing to set aside the contract in The Great Peace, effectively, thoughnot formally, overrules Solle v Bucher . The Court said that the test for whether a contract isvoid for mistake is in Bell v Lever Bros, and the idea in Solle v Butcher that there is analternative, equitable ground for setting aside' a contract for mistake is inconsistent withBell v Lever Bros , and is wrong.

4.4 Mutual Mistake in EquityIf the contract is void at law on the ground of a mutual mistake, equity follows thelaw and specific performance will be refused, and any contractual document theparties have entered into, e.g. a lease, will be rescinded. However, even where thecontract is valid at law, specific performance will be refused if to grant it would causehardship. Thus the remedy of specific performance was refused in a sequel to Wood vScarth (1855), in Wood v Scarth (1858) 1 F & F 293.

4.5 Unilateral Mistake in EquityAs with mutual mistake, equity follows the law and will rescind a contractualdocument affected by operative unilateral mistake or refuse specific performance.Webster v Cecil (1861) 54 ER 812D, having refused to sell his property to P for 2,000, wrote offering to sell it to himfor 1,250. This offer was immediately accepted. The defendant had intended to write2,250. It was held that the mistake was operative and specific performance wasrefused.

5. Undue InfluenceIntroductionThe narrow scope of the common law doctrine of duress led to the development, in equity, of the doctrine of undue influence. The doctrine applies to certain situations where improper pressure (not amounting to duress at common law) was brought to bear on a party to enter a contract. - The effect of undue influence is to render the contract voidable. - There are two classes of case which fall within the doctrine; first, where there is no special relationship between the parties in which case undue influence must be proved, and secondly, where, because of the relationship between the parties, there is a presumption' of undue influence.

5.1 Remedy for Undue Influence- Remedy for undue influence is RescissionThe remedy for a plaintiff who has entered into a contract tainted by undue influence isrescission of the contract. The remedy may be lost in two ways (bars to rescission):(i) AffirmationIf, after the undue influence has ceased, the influenced party expressly or impliedly affirmsthe transaction, the right to rescind will be lost. It seems that a private, secret mentalreservation not to affirm will not suffice. The most significant factor will be the lapse of timeafter the termination of the influence. In Allcard v Skinner (1887) 36 Ch D 145, theplaintiff, under the influence of the defendant spiritual adviser, gave a large sum of money tothe defendant. Six years after leaving the religious order in question the plaintiff sought torecover the money but it was held that her claim was barred by delay.(ii) Third party rightsIf third party rights have intervened, for example by a resale of the property which is thesubject-matter of the contract, rescission will not be available. Of course, if the third party isactually aware of the undue influence then the transaction which he has entered into will belikewise tainted and will also be voidable; Bridgeman v Green (1757) Wilm 58.

6. Unconscionable bargainsFry v Lane (1888) 40 Ch D 312It was held that where a purchase is made from a poor and ignorant person at a considerable undervalue, thevendor having had no independent advice, the court has an equitable jurisdiction to set the contractaside.Cresswell v Potter [1978] 1 WLR 225The doctrine was applied to a post office telephonist, who, being a member of the lower income group' andless highly educated' was held to be the modern equivalent of poor and ignorant.Lloyd's Bank v Bundy [1975] QB 326Lord Denning M R had sought to establish a single doctrine whereby all the instances where the courtsintervene to set aside unconscionable transactions (including duress and undue influence) are based on asingle unifying principle, namely, inequality of bargaining power.However, in National Westminster Bank v Morgan [1985] AC 686 the House of Lords refused to acceptsuch a wide principle. Lord Scarman said, ... there is no precisely defined law setting limits to the equitablejurisdiction of a court to relieve against undue influence.Legislation has gone some way to prevent abuse of unequal bargaining power. On the other hand the Englishcourts have been slow to increase the scope for redressing unfairness' at common law. In this respect manycivilian law jurisdictions, and many United States jurisdictions offer far greater protection to the weakerparty to a bargain. To a lesser extent this is also true in Commonwealth jurisdictions, which have developedthe remedial constructive trust, a concept not recognized in English law.

7. Tutorial- Prepare case briefs for the cases.-Read contract law on misrepresentation, mistake, undue influence and unconscionable bargaining for information for exams.