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Rescission Part 1

This document discusses the equitable remedy of rescission and the grounds for equitable rescission, including mistake, misrepresentation, undue influence, and unconscionable transactions. Rescission allows a party to void a contract and restore the status quo ante. Misrepresentation and undue influence are common grounds for rescission if one party was unfairly induced into the contract.

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14 views

Rescission Part 1

This document discusses the equitable remedy of rescission and the grounds for equitable rescission, including mistake, misrepresentation, undue influence, and unconscionable transactions. Rescission allows a party to void a contract and restore the status quo ante. Misrepresentation and undue influence are common grounds for rescission if one party was unfairly induced into the contract.

Uploaded by

tomleechaffey
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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TOPIC 3 RESCISSION

What is it?

It is an equitable remedy.
It is a process which allows a party to a contract to have it set aside or void.
It places the parties back in the position he or she would have been in had the contract never
been entered.
Status Quo Ante
It is distinguished from contractual rescission and rescission at common law in that it is the
court which makes the decision to use rescission as a remedy.
Northern Bank Finance v Charleton -
Will be granted when the court considers that it would be just and equitable to do so in order
to restore the parties to their respective positions.

Grounds for equitable rescission:


1. Mistake
2. Misrepresentation
3. Undue influence
4. Unconscionable transactions

Mistake
Unlikely to lead to rescission unless it is induced by fraud or misrepresentation.

Unilateral mistake
Mistake on the part of one party of a contract

Mutual mistake
Where the parties to a contract reach an agreement, but a mistake exists as to the facts
underlying the formation of the contract
EXPANDED IN PART 2
Misrepresentation
Refers to the act of giving false or misleading accounts of the nature (such as untrue
statement which recklessly, inadvertently, or mistakenly causes the other party to agree to the
contract), the courts can rescind the contract.

Northern Bank Finance v Charlton


Background
Northern Bank Finance loaned Charlton a sum of money to buy a public company. Charlton
defaulted on the loan and the bank sued while Charlton counter-claimed for recission as they
only entered the loan agreement due to fraudulent misrepresentation made to them by the
bank. Bank falsely represented that one of the promoters had deposited his share of the
money.
Held
Dismissed the bank’s claim on the basis that Charlton was induced into the contract by
fraudulent misrepresentations.
In the supreme court it was held – ‘the purpose of recission of a contract due to
misrepresentation is to restore the status quo ante on the grounds that a voidable contract is to
be deemed wholly void ab initio.
Bank had to repay defendants money it never received
Rescission with these results does not restore the status quo
Bank must do what is practically just

Used for
Rescission will be granted when the court considers that it would be just and equitable to do
so to restore the parties to their positions before fraudulent misrepresentation.
The purpose of the rescission of a contract is the restoration of the status quo ante.

Innocent misrepresentation
Must distinguish between contracts that are completed and not.
If contract is complete, then rescission will only be granted where the misrepresentation was
fraudulent.

Gahan v Boland
Boland wanted to buy a house from Gahan
Boland was worried about a motorway being built
Gahan assured it would not be built in their lifetime
Motorway was eventually projected to cross the house
Decision
Innocent misrepresentation.
Boland relied on Gahan’s claim
Rescission is only possible if the contract was not completed.
Undue influence
Concept that involves one party taking advantage of their power over another party,
pressuring them into making decisions that are not in their best interest.
judgement ‘to become clouded through exercise or some form of domination’

Two types of undue influence:


1. Actual Undue Influence
2. Presumed Undue Influence

Actual Undue Influence


Concerns where it can be expressly proved that undue influence was exercised. Courts
intervene on the principle that no one should be allowed to retain any benefit from his own
fraud or wrongful act.

Presumed Undue Influence


Cases where the relation between the donor and the done raises a presumption that the done
exerted influence over the donor.
Courts intervene on grounds of public policy and to prevent relations which existed between
the parties from being abused.

Burden of proof
Plaintiff must prove that an unfair advantage has been gained by an unconscientious use of
power by unfair or improper conduct.

Relationships that give rise to the presumption of undue influence

Parent and child


Guardian and Ward
Trustee and Beneficiary
Solicitor and Client
Medical adviser and Patient
Religious Adviser and Pupil

Carroll v Carroll
Background
Parent and Child
Thomas Carroll Senior transferred his property to Thomas Carroll Junior for tax purposes. He
had been reminding the daughter they will always have a home Jr died and the sisters sought
to recover the property from jrs widow on undue influence.
Sr alleged the transfer was influenced by jr who was not in the best interest of sr.
Issue
Was it undue influence?
Held
Father did not receive independent legal advice (same solicitor advising him and son – paid
by son)
Solicitor did not know asset being transferred was the sole asset of donor and could not
advise him of the consequences of his action.

What will amount to independent legal advice


Using Carroll v Carroll:
1. A solicitor who acts for both parties cannot be independent of the done
2. It should be established the gift was fully explained to the donor by some independent
qualified person.

Bank of Nova Scotia v Hogan


Background
Ben Hogan deposited the deeds to two properties as an equitable mortgage
Margaret Hogan deposited the deeds to another property as an equitable mortgage.
Bank advised wife that the property could be sold if her husband defaults.
Husband defaults
Hogans claimed the bank held a fiduciary position and exercised dominance over them.
Issue
Did the bank exercise dominance over them
Held
No evidence of undue influence.
Bank ensured that Hogan had adequate advice and did not exercise undue influence.
Hogan did not claim of any undue influence by her husband.

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