WEEK

TOPIC

DATE

INTRODUCTION

26 JAN; 2 FEB

MAXIMS OF EQUITY

9 FEB

APPLICATION OF EQUITY MALAYSIAN EXPERIENCE

16 FEB

JUAL JANJI;

23 FEB

EQUITABLE ASSIGNMENTS

2 MAR

DOCTRINE OF EQUITABLE ESTOPPEL

9 MAR

SPECIFIC PERFORMANCE

16 MAR

SPECIFIC PERFORMANCE (CONT)

23 MAR

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

RESCISSION
Week 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 the
contract
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 is
set aside both retrospectively and prospectively. The aim is to restore the parties to the
position which they were in before they were in before they entered into the contract and in
particular 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 contract
because of the breach by the other party. Effect of the rescission is to release the parties from
their obligations to perform in the future but the contract is not treated as if it had never
existed. 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
The

renders a contract voidable.

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 the
notice 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 by
an order of rescission made by the court at the instance of a party seeking to terminate it or
bring it to an end. (But remember, the decision whether to rescind or not initially lies with the
contracting parties, the court only upholds the wishes of the parties)

Car & Universal Finance v Caldwell [1965] 1 QB 525

Caldwell sold his car to Norris. The cheque was dishonoured when it was presented
the next day. He immediately informed the police and the Automoblie Association of
the fraudulent transaction. Subsequently Norris sold the car to X who sold it to Y who
sold it to Z who sold it to the plaintiffs. In interpleader proceedings one of the issues
to be tried was whether the defendant's conduct and representations amounted to a
rescission of the contract of sale. It was held that the contract was voidable because
of the fraudulent misrepresentation and the owner had done everything he could in
the circumstances to avoid the contract. As it had been avoided before the sale to the
third 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 faith
and gave consideration;
3) by lapse of time (although lapse of time does not, of itself, bar rescission in cases of
fraudulent misrepresentation.)

Long v Lloyd [1958] 1 WLR 753

The defendant advertised for sale a lorry as being in 'exceptional condition' and he told the plaintiff
purchaser that it did 11 miles to the gallon and, after a trial run, all that was wrong with the vehicle. The
plaintiff purchase the lorry and, two days later, on a short run, further faults developed and the plaintiff
noticed that it did only about 5 miles to the gallon. That evening he reported these things to the
defendant and the plaintiff accepted the defendant's offer to pay for some of the repairs. The next day
the lorry set out on a longer journey and broke down. The plaintiff wrote to the defendant asking for the
return of his money. The lorry had not been in a roadworthy condition, but the defendant's
representations concerning it had been honestly made. The Court of Appeal held that the plaintiff was
not entitled to rescission of the contract as he had finally accepted the lorry before he had purported to
rescind. 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 impossible
to restore the parties to their pre-contractual position.

A claimant

who wishes to make rescission must bear in mind the rule: a claimant cannot both
get back what he has parted with and keep what he has received in return. A claimant must be
prepared 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 of
rescission.

At common law the courts insist upon precise restitution.

The
In

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

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

The

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 the
contract, contractual damages cannot be claimed.

Note:

but rescission may give rise to a personal restitutionary claim.

4. Mistake
Common
law

Equity

Mistake

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

Mistakethat
negativesconsent
1.Unilateral
Mistake
2.MutualMistake

Mistakethat
nullifiesconsent
Commonmistake

4.3 Common mistake in equity

Introduction
Where 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 equitable
jurisdiction, 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 a
requirement that the lessor should have a lien on the fishery for such money as he
had 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 not
voidable in equity
The case of Solle v Butcher [1950] 1 KB 671 broke new ground in that the Court of Appeal
enunciated a new doctrine of common mistake in equity under which the courts have a
discretionary jurisdiction to grant such relief as in the circumstances seems just.
However, in Great Peace Shipping v Tsavliris Salvage (The Great Peace) [2002] EWCA Civ
1407; [2003] QB 679, the Court of Appeal declared that where the contract is valid at common
law, 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 and
claimant believed The Great Peace was close to the ship in trouble. It was not. The defendant's
discovered this and cancelled the contract (because The Great Peace would take longer to get to
where it was needed than the charterers had anticipated). The owners of the Great Peace, the
claimant, claimed a cancellation fee. The defendants refused to pay. The owners succeed, on the
basis that the contract, although a bad deal for the charterers, was possible to perform, and
contained 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, though
not formally, overrules Solle v Bucher . The Court said that the test for whether a contract is
void for mistake is in Bell v Lever Bros, and the idea in Solle v Butcher that there is an
alternative, equitable ground for setting aside' a contract for mistake is inconsistent with
Bell v Lever Bros , and is wrong.

4.4 Mutual Mistake in Equity

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

4.5 Unilateral Mistake in Equity

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

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

6. Unconscionable bargains
Fry v Lane (1888) 40 Ch D 312
It was held that where a purchase is made from a poor and ignorant person at a considerable undervalue, the
vendor having had no independent advice, the court has an equitable jurisdiction to set the contract
aside.
Cresswell v Potter [1978] 1 WLR 225
The doctrine was applied to a post office telephonist, who, being a member of the lower income group' and
less highly educated' was held to be the modern equivalent of poor and ignorant.
Lloyd's Bank v Bundy [1975] QB 326
Lord Denning M R had sought to establish a single doctrine whereby all the instances where the courts
intervene to set aside unconscionable transactions (including duress and undue influence) are based on a
single unifying principle, namely, inequality of bargaining power.
However, in National Westminster Bank v Morgan [1985] AC 686 the House of Lords refused to accept
such a wide principle. Lord Scarman said, ... there is no precisely defined law setting limits to the equitable
jurisdiction 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 English
courts have been slow to increase the scope for redressing unfairness' at common law. In this respect many
civilian law jurisdictions, and many United States jurisdictions offer far greater protection to the weaker
party to a bargain. To a lesser extent this is also true in Commonwealth jurisdictions, which have developed
the 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.