RESCISSION

This is a right to rescind. The right is available to a party to a transaction to set that
transaction aside and be restored to his/her former position. It is not strictly a judicial remedy.
Rather, it is effected by the act of the party entitled to rescind. However, it is still a remedy to the
extent that the assistance of the court is usually required to determine whether a party can rescind
and also obtain restitution of property handed over pursuant to the transaction.

It is an equitable remedy since only a court of equity could do what was necessary to make
restitution.

Why Rescind?

A party may rescind a transaction due to the following:

a) Fraudulent Misrepresentation – The party might be induced to enter into a contract by

fraudulent misrepresentation.
b) Innocent Misrepresentation – A misrepresentation is innocent if the defendant believes
in the truth of his assertions even if there is no reasonable ground for his belief. See:
Derry v. Peek (1889) 14 AC 331. The misrepresentation is also innocent if the defendant
once knew the true facts but has forgotten them. See: Low v. Bouverie (1891) 3 Ch. 82.
c) Constructive Fraud – Gifts and bargains procured by undue influence and
unconscionable bargains may be set aside by the victim. Constructive fraud may be
implied in two circumstances.
i) Undue influence – This is where the person who agreed to enter into the contract
was induced to do so because of the special relationship existing between him and
the other party to the contract. Special relationships in which undue influence is
presumed by law include: parent and dependent child, religious adviser and
disciple, advocate and client, doctor and patient and trustee and beneficiary.
ii) Unconscionable bargain – This is where one of the parties has a great advantage
over the other party such that the contract entered into is unconscionable. This
will occur when the party who is at a disadvantage is, for example, illiterate,
unskilled, or has no experience in the area in which he contracts.

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 Per Phadke, J. in Syedna and Others v. Jamil Engineering Company [1973] EA
254 at 264:
“When can a bargain be said to be unconscionable? Should a bargain be
set aside when there has been no fraud, undue influence, breach of
fiduciary duty, or proved inequality about the respective positions of the
parties? No principles appear to determine what is unreasonable or
unconscionable or unjust, which are emotive rather than precise terms,
and so it is presumably a question of what shocks the conscience of
whoever is trying the case, leaving equity to vary with the length of the
judge’s foot.”
d) Non-disclosure in contracts “uberrimae fidei”(utmost great faith) – These are, for
example, contracts of insurance. They are characterized by the fact that one party has
commands of means of knowledge not available to the other party who may therefore
rescind the contract if he is not fully informed, though normally there is no duty on one
party to a contract to disclose to the other.
e) Misdescription – The right to rescind may be included as term of the contract. The
contract will usually stipulate such a right if one party does not or is unable to fulfill
certain obligations.

Limits to the use of the Right

1. A vendor cannot claim that he was unable to secure a title to the property. Such a claim is
not ground for rescission. The court regards it as an unreasonable use of the right. The
vendor must not have any failure on his part. There must be no element of shortcoming.
He must have done what a reasonable man would do.
2. The vendor cannot rescind after a judicial decision has been given against him. E.g.
specific performance.
3. The vendor cannot rescind merely because the purchaser has delayed in the payment of
installments unless such delays amount to total abandonment of the contract. See:
Cornwall v. Henson (1900) 2 Ch. 298.

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 Loss of Right of Rescission
i) By acquiescence – Here, the person entitled to rescind elects to waive the right
and affirm the contract after the facts concerning the right have come to his
notice.
ii) By impossibility of “restitutio in integrum” – A contract liable to be
rescindable is generally valid until set aside, i.e. it is voidable. A contract may
cease to be capable of being set aside or rescinded where the parties cannot be
restored to their original position.
iii) After Completion – Innocent misrepresentation gives no right to rescind after
completion. If it is contract for the sale of goods, the right is lost after the goods
have been accepted as was held in Long v Lloyd (1958) 1 WLR 753.
iv) By intervention of third parties – If the third party is a purchaser, the right is
lost if such third party has acquired rights thereunder for value without notice. If
the third party is a volunteer, the right to rescind is not lost.

Effect of Rescission

A person who rescinds a contract is entitled to be restored to the position he would have
been in had the contract not been made. Property must therefore be returned, possession given up
and accounts taken of profits or deterioration. However, no damages are recoverable.

Forfeiture of Deposit

If a vendor rescinds on the purchaser’s default, he does so under a contractual term that
enables the vendor and to charge the defaulting purchaser with the deficiency on a resale. In that
case, any deposit paid by the purchaser must be taken into account when competing the
deficiency on a resale, even though the deposit has been forfeited. See: Shuttleworth v. Clews
[1910] 1 Ch. 176; only 10% deposit to be forfeited.

See also Jamaican Workers Trust & Merchant Bank Ltd.

Privy Council Dojap Investments Ltd [1993] 2WLR 702 (PC).

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 Multiple Remedy

A plaintiff may in this suit pray for more than one remedy.

See Abdul Karim Khan v. Mohammed Roshan [1965] EA 289

The appellant sued the respondent on an agreement in writing whereby the

respondent agreed to sell him an undivided half share in a property for a price,
which he had paid. Subsequently, the respondent charged the property to a
company and refused to complete the sale. The appellant claimed specific
performance of the agreement, damages for breach of contract, rescission and a
return of the money paid, in alternatives.The respondent argued that the appellant
should elect which of the remedies he sought and that it was bad in law to put
them in alternatives.

Held:

1. That the appellant in putting his reliefs distinctly and separately was in order
and should not be put in an election. The appellant, over and above the claim
for specific performance, was entitled to claim damages for breach of contract
at common law.
2. That rescission is an equitable remedy and the court has discretion to
determine whether it ought to be granted.

The appeal was allowed.

DISTINCTION BETWEEN REPUDIATION AND RESCISSION OF A

CONTRACT

RESCISSION

Rescission is an equitable remedy, which arises when a person has been induced to enter
into a contract by a misrepresentation. The effect on the contract is to give the affected party an

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option whether to avoid or to affirm to it. The party that wishes to exercise this remedy must
communicate this to the other party.

Although the right to claim damages for fraudulent and negligence in misrepresentation is
still available, there are several limitations to the exercise of this remedy, namely:

1. Affirmation – If the representee affirms the contract by express word or act, which
shows the intention to affirm it, then the right to rescind the contract is lost.
2. Lapse of Time – This is treated as evidence of affirmation of the contract. However,
mere lapse of time may not be treated as affirmation. In Leaf v. International
Galleries [1950] 2 KB 86. It was held, inter alia, that rescission for innocent
representation may be barred for lapse of time, In this case, five years, after the
plaintiff had bought a picture of Salisbury Cathedral which the defendants innocently
represented to him to be painted by constable was held by the Court of Appeal to be
time barred.
3. Since the contract is valid until rescinded, a third party bona fide purchaser for value
has a right against the party misled provided that the contract has not been rescinded
at that time.
4. The party who wishes to rescind must be in a position to restore parties to their
original state before the contract. If estitutio integrum is impossible the right to
rescind is destroyed.
5. Except for cases of fraud, the court has discretion to refuse to allow rescission and
award damages in lieu of rescission where misrepresentation is negligent or innocent.

REPUDIATION

On the other hand, repudiation of a contract arises when a breach of contract gives a party
who has suffered from such breach a right not to perform his contractual obligations. This may
arise in the following ways: -

- Refusal by the other party to perform his part of the contract.

- Inability by the other party to perform.
- Total or substantial failure by the other party to perform – the failure may be willful
or deliberate.
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