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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
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RESCISSIONWeek 9, Lecture 1 & 2
Faculty of Shariah and Law, Maldives National University
Shafeea Riza
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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
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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
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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.
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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)
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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.
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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.)
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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.
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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.
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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.
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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.
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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
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4.1 General Introduction
Mistake
Nullifies consent
Negatives Consent
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4.2 Types of mistake
Mistakethatnegativesconsent
1.UnilateralMistake
2.MutualMistake
Mistakethatnullifiesconsent
Commonmistake
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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7. Tutorial- Prepare case briefs for the cases.-Read contract
law on misrepresentation, mistake, undue influence and
unconscionable bargaining for information for exams.