Ws 6 rescission and rectification
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Equitable remedies allow a contract to be set aside and the parties restored to their original positions. Rescission is available in equity when a contract is void ab initio, treating the contract as if it never existed. Equitable rescission aims to deliver practical justice by compensating losses rather than punishing wrongdoers, and seeks to restore parties to their pre-contract positions through remedies like indemnity and accounts of profit. However, rescission may be barred if restitution is impossible or the rights of innocent third parties would be impaired.
Ws 6 rescission and rectification
- 2. Remedy that allows for contract to be set aside and parties restored to there original position Available at CL (void) in a limited fashion but generally and exclusively an equitable remedy (void abintio) Damages not available at CL for rescinded contract Contract remains in effect until rescinded albeit may affect the rights of a third party P may be entitle to indemnity (Nebiggins v Adam: recession granted but me can only get expenses that arise under the contract but not consequential loss or profits) Contracts are set aside retrospectively and prospectively Car & universal finance v Caldwell (rogue disappears with vehicle and P reports it to the police and the car association) Practical Justice overreaching position Aim of equity deliver practical justice ( fairness from a practical standpoint) 2
- 3. Spencer v Crawford: WrightL, …must not seek to tie the hands of the court…with rigid rules. Court must do…what is practically just. PJ objectives Even though defendant is blameworthy, p must still AP enjoyed under the rescinded contract because neither must be unjustly enriched PJs relief is about compensation and not about punishment. Best illustrated by the court granting Recession, indemnity, AP where restituto in tegram has been impaired Equity cannot grant money remedies without rescinding the contract unlike CL Recession granted in certain case to ensure that PJ is effected (applying flexible approach) Indemnity: May be granted at the time of rescission, no entitlement of damages 3
- 4. Indemnity: granting obligation that arises under the contract, no consequential loss or profit (Newbiggins v Adam – grant all obligations arising under the contract but nothing more , (p133) No indemnity if the contract us not rescinded Accounts of profit Cannot be granted with the rescission of the contract AP: all benefits gained under the contract (regal v Guliver – directors purchasing shares in a subsidiary company, then selling it for a profit. Must account for the profits) Based on compensation and not punishment Liability to AP does not depend solely on fraud, merely because profits was made No one that is a part6y to the contract can escape the risk of AP (Erlange v New Sombrero – banker purchasing a land for a low price and reselling to the public at a higher cost. Must account for the profit Recession: Blackburn : general rule is restituto integram (ending the contract and restoring the parties back in the position they were as far as is possible Stumbling block: apart from delay, the ability to restore the parties to there original position Equity is about PJ thus if u no AP or restituto integram, no money can be given 4
- 5. Nature of rescission Its not automatic, must be invoked by a party to the contract Party invoking must give notice of the decision Must be done within a reasonable time (Car & Financial Co v Caldwell – had done all he could do so the contract was rescinded) Rescission in Equity: CL and Equity recession different CL= void but can still claim damages and performance stops at that point Equity: contract rescinded treated as never existed void abinito, absolves the injured party from performance Modes of Recession Contract valid at law cannot be rescinded in equity Mutual mistake: No recession, resolution in favour of one of the parties by way of the objective test (reasonable man test, because equity follows the law) Mutual mistake does not nullify contract, no SP, no recession (no lack of agreement/consideration) 5
- 6. Contract valid parties were just mistaken, cross purposes (Tamplin v James: no misdescription in the state of the land did not represent a mistake and the def is not allowed to evade performance by simply saying he made a mistake) Unilateral mistake: negates consent to the existence of an agreement- void at CL and equity follows the law Misrepresentation Party may rescind the contract but has no right in CL Innocent misrep Fraudulent/non fraudulent misrep – approach the court Spence v Crawford: case of fraud(shares selling), and court exercised the jurisdiction to prevent the def from enjoying the benefits at the expense of P Statutory provision: available where the court considers it to do so (misrep Act 1967) Undue Influence: CL test too narrow, equity wider and looks more than just the threats but the presumptions of the different type of relationships (fiduciary) (Tate v Williams _ setting aside contract because financial advisor breached fiduciary duty) 6
- 7. Bars to rescission Restitution: Putting parties back in the position they would have been before the contract (RI) Rational-party seeking the recession shall not seek to enjoy the benefit RI not always applied in its full rigour (in cases of misrep/UI/FD Transaction may be rescinded even though impossible for RI to be fully applied, provided PJ can be achieved PJ achieved where the wrongdoer gives up AP and compensate for any losses (Erlange v New Sombrero p145, O’Sullivan v New management agency) Where restitution is impossible a contract will cease to be capable of recession (Thorpe v Fasey) monies collected under the contract must be returned. Effects of Equity Spence v Crawford: illustrate that the court looks at both side of the case because ER is not about punishment but to compensate p146 Factors affecting restitution 7
- 8. Deteriorating and declining value: reduction in value through no fault of the def (Armstrong v Jackson broker buy shares for client but in effect sold him his shares that later lost value on the market) Disposal of assets No rights to rescind if subject matter cannot be found Improvement of Benefit (Spence v Crawford: court rescinded contract even though share value had increased and not the shares themselves) Delay and Affirmation: Remedy of recession may not be lose to lapse of time Laches applicable albeit that equity wishes for timely asserting of rights (Leaf International Galleries: delay operates only when there is knowledge-applicant did not know the painting was fake) Affirmation: election to continue with the contract, no right to rescind thereafter (Long v Lloyd defendant accepted defected lorry no recession; Payman v Lanjani: right to rescind was not lost because he did not know that he had the right) Cases of fraud: Pleading fraud without restoring the benefits of the contract 8
- 9. Redgrave v Hurd: P sold worthless practice to def 3rd party rights: No rescission against innocent 3rd party who has acquired interest for value (Shogun finance v Hudson) Recession may be granted against the volunteer (Re Eastgate: 3rd party must acquire the right and not be a mere volunteer) Summary: Rescission is unwinding of contract Brings party back to original position as if contract never existed Equitable remedy therefore it is discretionary Affirmation of contract, no rescission (Long v Lloyd) Innocent third party will get hurt there us a reluctance to rescind Rescission should be mutual so benefits under the contract should be handed back 9