Equitable Remedies of

Rescission and Rectification

Olubunmi Afinowi
Rescission
• Restitutio in integrum (restore parties to the position which they had
occupied originally).
• Rescission is an equitable remedy which seeks to set aside contracts and to
restore the parties to their positions prior the contract.
• The remedy of rescission is applicable in several circumstances as seen
below.
• In cases of fraudulent misrepresentation, the claimant is entitled to rescind
the contract to prevent the wrongdoer from benefiting from its
wrongdoing.
• Rescission is also a remedy available in cases of unconscionable
(unreasonable) bargains, or in instances where there is evidence of undue
influence to the detriment of a party to the contract.
Introduction
• Material mistakes will avail the parties to a contract. Where a material
mistake is made by both parties to a contract the remedy of rescission will
enable that contract to be rescinded. Whereas, a unilateral mistake may
lead to rescission only where it can be shown that there has been some
unconscionability in the agreements leading to the contract.
• It has been noted that mistakes of law and of fact provide good grounds for
rescission.
• Note that the remedy of Rescission at Common Law is a self help remedy,
which takes effect by communication from the party seeking to rescind to
the other party to the contract and does not require a court order. By
contrast, rescission in Equity is effected by a court order.
• Rescission would apply to contracts that are voidable; such as where the
contract is voidable because of some vitiating factor, e.g. mistake,
misrepresentation or undue influence.
• In cases where the contract is void ab initio, there is issue of setting aside
can not arise and rescission becomes inapplicable in the circumstances.
The rationale here is that the courts can not set aside a contract that never
existed, that is, such a contract is taken never to have existed.
• There is only a question as to the rescission of a contract if that contract is
capable of being affirmed by either party.
• Note that while a party to a contract may decide that he no longer wishes
to be bound by a contract, this remedy is based on an order of the Court
upon application made by a party.
• The Courts have held that a contract cannot be rescinded by one
party unless both parties can be put in status quo as before the
contract.
• In Blackburn v. Smith (1848) 2 Ex. 783, 792, there was a contract for
the sale of a piece of land between the plaintiff and the defendant.
The plaintiff, having paid a deposit, went into possession. He later
gave notice to rescind the contract on the ground of certain events
which had occurred and brought an action to recover his deposit. The
Court held that inasmuch as the plaintiff had or retained the
possession of the property the parties could not be placed in status
quo.
Misrepresentation as a ground for Rescission
• In the case of fraudulent misrepresentation, the claimant will be
entitled to rescind the contract to prevent the wrongdoer from
benefiting from its wrongdoing. Such a misrepresentation to be
fraudulent must have been made knowingly, or without belief in its
truth, or with recklessness as to whether or not it was true (Derry v.
Peek (1889) 14 App. Cas. 337).
• The justification for this remedy is that a party should not be allowed
to benefit or profit from their fraudulence. Given the circumstances,
it would be inequitable to allow a person profit from their common
law rights.
Misrepresentation as a ground for Rescission
• A remedy would lie in equity for what may be regarded as being an innocent
misrepresentation. That is, a misrepresentation made without intention or with
reckless indifference.
• See, Redgrave v Hurd (1881), the plaintiff agreed to sell his house to the
defendant, on the grounds that the defendant would also take over his law
practice. In the course of negotiations, the plaintiff mentioned that his practice
was worth £300/year, In actual fact, the documents showed that the practice was
worth only £200 a year. The defendant, without examining the documents, took
on the practice. He subsequently found it to be worth less that £300 as claimed
by the plaintiff. On that ground, he refused to complete the contract to buy the
house. The plaintiff sued for specific performance and the defendant
counterclaimed to have the contract rescinded, even though no fraud had been
alleged against the plaintiff. The court allowed rescission in equity based upon
the innocent misrepresentation.
• Note that in Smith v Chadwick (1882) it was held that for the remedy to avail an
applicant, the misrepresentation must have induced them to enter into the
contract. The remedy of rescission cannot be obtained if the misrepresentation
did not cause the claimant to enter into the contract.
• In Sule v. Aromire (1951) 20 N.L.R 20 at 21-22, the defendant put up for sale by
auction a piece of land and the poster advertising the sale mentioned that the
defendant had obtained a court judgment in respect of the land. The defendant
went further to give the plaintiff a copy of the judgment which showed that the
plaintiff was the owner. But in truth, the judgment did not relate to the piece of
land. The plaintiff, having bought the land on the strength of the
misrepresentation made to him by the defendant, made unsuccessful attempt to
obtain possession; he therefore brought this action claiming annulment of the
conveyance and damages. The court agreed with the submission of the
defendant that where there has been a. conveyance no rescission is possible
unless there has been fraud. However, the court rejected the submission that the
defendant had hidden nothing and that the principle caveat emptor applies. The
principle is that if the plaintiff had acted on the faith of a false representation
made to him by the defendant, it is no defence for the latter that the plaintiff
might have found out the truth if he had made enquiry.
Contracts uberrimae fidei
• In certain circumstances, the nature of the contract requires a standard of the
parties acting in the utmost good faith. Utmost good faith implies an obligation
on parties to such contracts to make full disclosure of all material facts.
Therefore, there is an obligation not to conceal any matter which might be of
importance.
• In essence, non-disclosure in contracts uberrimae fidei is a ground for rescission
of such contracts.
• In Gordon v. Gordon (1821) 3 Swans. 400; 36 E.R. 910, there was an agreement
between two brothers as to the division of an estate. The younger brother had
obtained an advantage because of the erroneous belief that the elder brother
was illegitimate, when in truth the younger brother knew all along that his elder
brother was legitimate which fact he failed to disclose. The agreement was later
set aside when it became known that the elder brother was legitimate and that
the younger brother knew of the true position.
Mistake as a ground for rescission
• Mistake provides a viable ground for the remedy of rescission. The
mistake must be a material one made by both parties to a contract,
that is, it must be a common mistake. In certain instances, a unilateral
mistake may lead to rescission only where there has been some
unconscionability in the formation of the contract ( that is, the party
who was not operating under a mistake was aware that the other
party was mistaken and they sought to benefit from the other’s
mistake) . See Hartog v Colin & Shields [1939] 2 All ER 566.
• Further, where the parties have made a mistake as to some material
fact which both parties relied upon in the creation of their contract,
that contract will be capable of being rescinded.
Mistake as a ground for rescission
• In the case of Abraham v. Oluwa (1944) 17 N.L.R. 123 at 126, the
Court held that ‘if parties enter into an agreement with reference to a
supposed actual state of things does not in fact subsist, the
consideration for the agreement fails and the agreement is
consequently void.’
• See also, Solle v. Butcher (1950) 1 K.B. 671 at 693 C.A, where the
Court of Appeal held that a contract is liable in equity to be set aside
if the parties were under a common misapprehension either as to
facts or as to their relative and respective rights, provided that the
misapprehension was fundamental and that the party seeking to set
it aside was not himself at fault.
• Rescission lies in equity where a contract is based on a mutual
mistake (common mistake) by both parties. In the case of Cooper v
Phibbs (1867) LR 2 HL 149, the parties agreed on the lease of a
salmon fishery, both of them believing that it was not the subject of
an entail when in fact it was. The potential tenant was granted
rescission of the contract.
• In Grist v. Bailey (1967) both the buyer and seller of a house believed
that the tenant in it was protected by the Rent Acts. The purchase
price was £850. The tenant was not protected and had the parties
known this the price would have been about £2,250. The contract
was rescinded on terms that the seller would make a new offer to the
buy at a proper price.
Undue Influence and constructive fraud
• According to Lord Eldon in Huguenin v. Baseley (1807) in relation to a person who
was the victim of undue influence, ‘The question is, not whether she knew what
she was doing, had done or proposed to do, but how the intention was
produced’. There is a presumption of undue influence when the will of a party is
coerced into a transaction which he does not desire to enter into.
• Thus, rescission will be available in cases of unconscionable bargains, constructive
frauds or in cases of some undue influence which induces one party to enter into
the contract. Undue influence is often implied in confidential or fiducial
relationships.
• Undue influence exists whenever one party has acted in manner to exploit their
power direct the will/conduct of another which is derived from the relationship
between them’. Constructive fraud comprises various of unconscientious
conducts which may induce a party to enter into a transaction.
• See Johnson & Or. v. Maja & Or. (1951) 13 W.A.CA 290, 295; Allcard v Skinner
(1887) 36 Ch D 145.
• Undue influence could be actual or presumed.
• In cases of presumed undue influence, the claimant has the onus of proving that
there was a relationship of trust and confidence between them and the other
party and the nature of the relationship is such that it is fair to presume that the
other party abused that relationship in procuring the claimant to enter the
contract sought to be rescinded. Wingrove v. Wingrove (1885) 11 P.O. 81.
• However, in certain relationships, such as a doctor and patient, solicitor and
client, etc., existed at the time of the transactions, such relationship creates a
presumption of undue influence and the onus is upon the defendant to rebut
such presumption.
• In Johnson v. Williams (1935) 2 W.A.C.A. 248 at 250, a deed of conveyance in
which certain property was conveyed by a patient to her medical adviser was set
aside on the ground that it was obtained from her by undue influence arising
from the fact that the defendant was her medical adviser.
• In cases of actual undue influence, the proof required on the claimant is
that there was actually some undue influence or that the other party acted
upon their minds to make them enter into the contract sought to be
rescinded. See Williams v. Bayley (1866) where a father was induced to
enter into a mortgage in order to prevent his son from being prosecuted by
a lender for forgery of some bills held by the lender.

• Thus in the presumed undue influence, what is to be proved is the

existence of such a relationship; while in the actual undue influence, what
must be proved the exercise of influence on the will of the claimant by the
other party.
Loss of right to rescind
• In some circumstances, a claimant may loose their right to rescind.
• Affirmation: Where the party seeking rescission affirms the contract with full knowledge of his
right to rescind, for instance, where he is aware of a falsity but enters into the contract
nonetheless (and gains some benefit from it) with the intention to rescind at a later date.
• Where precise restitution is impossible: The essence of the remedy is to restore the parties to
their pre-contract position. Where this is no longer practicable, the remedy shall not avail the
claimant. Note however, that rescission can still be granted if substantial restitution can be made,
e.g. if the subject matter can be returned even though it is altered and an allowance made for any
deterioration caused by its use (Erlanger v. New Sombrero Phosphate Co (1878)).
• Rights of third parties: Such contracts upon which this remedy is sort are valid and enforceable,
in their own rights, until they are rescinded, thus if an innocent third party acquires for value
rights under the contract then the right to rescind is lost (see Phillips v. Brooks Ltd (1919)).
• Lapse of time will constitute a bar to rescission where a misrepresentation is innocent. Further, it
would be unfair and unreasonable to allow a claimant to speculate whether it is beneficial to
rescind the contract.