UNIVERSITY OF IBADAN

FACULTY OF LAW
DEPARTMENT OF PRIVATE AND
PROPERTY LAW
LPP 403: EQUITY AND TRUST I
RECISSION
• Rescission is an equitable right of a contracting party to set
aside a contract in order to restore the contracting parties to
their original positions.
• A contract is rescinded where one party to a contract
expresses by word or act in an unequivocal manner that by
reason of fraud or essential error of a material fact inducing
him to enter into a contract, he has resolved to rescind it
and refuses to be bound by it.
• The right to rescind applies to voidable contracts which are
valid on the face of it but which either of the parties desires
that it be set aside.
• The effect of recission then is that the contract is
terminated ab initio as if it had never existed.
• This means property and money transferred must be
returned and accounts taken.
• Consequently, where restitutio in integrum is no longer
possible, the right to rescind cannot be exercised: Blackburn
v Smith.
• Rescission is not merely a judicial remedy as a party can
rescind without seeking the assistance of the court.

Grounds for Recission

1. Mistake: where the two parties laboured under a common
or mutual mistake, rescission may be granted: Huddersfield
Banking Co. v. Henry Lister & Son; Solle v. Butcher.
• The principle is that equity would relieve a party from the
consequences of his own mistake, so long as it could do so
without injustice to third parties.
• The principle is that equity would relieve a party from the
consequences of his own mistake, so long as it could do so
without injustice to third parties.
2. Misrepresentation:
• A contract that is induced by a material
misrepresentation made either fraudulently or
innocently cannot stand; such misrepresentation is a
ground for rescission.
a) Fraudulent Misrepresentation: this is where a false
representation has been made knowingly and
intentionally. At law and in equity such
misrepresentation renders the contract induced by it
voidable.: Derry v. Peek; Peek v. Gurney; Sule v. Aromire.
(b) Innocent Misrepresentation: though innocent
misrepresentation cannot support an action at law for
damages it is, in equity, a ground for rescission. See
Derry v. Peek; Newbigging v. Adam; Redgrave v. Hurd;
Low v. Bouverie.
3. Mere silence and Non-Disclosure: a party to a contract
is generally not under a duty to make any disclosure
regarding the transaction unless where non-disclosure
may amount to misrepresentation of material facts
capable of inducing the other party to enter into the
contract or where the circumstances of the particular
transaction impose a duty to make disclosure: Oakes v.
Turquand.
• Secondly, non-disclosure in contracts uberrimae fidei
("utmost good faith") is a ground for rescission of such
contracts.
• This class of contracts includes contracts of insurance of
all kinds, family settlements or arrangements.
• A party to a contract of this class is under a duty to
make full disclosure of all facts within his knowledge:
Harvey v. Cooke .
4. Constructive Fraud: Constructive fraud consists of a variety
of unconscientious conduct which, if made use of to induce
a party to enter into a transaction, may constitute a ground
for rescinding such transaction.
• Undue influence is a common example of constructive
fraud.:Wingrove v. Wingrove.
• The onus of proof lies on the person who alleges undue
influence: Johnson & Or. v. Maja & Or.
5. Misdescription: the right to rescind is an appropriate
remedy where one of the parties to the contract has
misdescribed property, the subject matter of the contract.
• However, misdescription that would sustain an action for
rescission must be substantial.: Smith v. Land and House
Property Corporation; Sodipo v. Coker .
• 6. Conditional Terms in Contract: parties to a contract
to include in the terms of the contract a provision
empowering either of the parties to rescind the contract
on the occurrence of certain events.
• However, the courts have placed some limitation on the
exercise of this right purposely to prevent fraudulent
and arbitrary exercise of the right. See re Jackson and
haden’s Contract .
• A vendor's power under the terms of the contract to
rescind the contract may be exercised only in good faith
and with promptitude and must not be used as an
engine for fraud.
• As stated in Re Jackson and Haden’s Contract (, in all
cases in which the vendor was allowed to avail himself
of such condition, nothing in the nature of recklessness
or dishonesty must be imputed to him.
• Where a vendor having such power under the contract
took advantage of it for purposes of delay while he
opened negotiations, unknown to the purchaser for a
better bargain with a third person, thus putting the
purchaser in an uncertain position, the court held that
by his conduct he deprived himself of his election to
affirm the contract and the purchaser was entitled to
treat the contract as rescinded: Smith v. Wallace.
Loss of the Right to Rescind
1. Affirmation of the Contract and Acquiescence: Where
there are circumstances upon which a party to a
contract may rescind or avoid the contract and those
circumstances are known to the party, the contract
continues to be valid till the party has determined his
election by avoiding the contract.
• But if it can be shown that he has at any time after notice of these
circumstances either by express words or by unequivocal acts, affirmed
the contract, then his election has been determined forever and can no
longer avoid the contract.: Leaf v. Intemational Galleries.
• The length of time that would constitute a conclusive evidence of
affirmation may depend on the nature of the contract.:Senanayake v.
Cheng.
• The right to rescind may also be lost where the party entitled to the
right does any act that is inconsistent with avoiding the contract. In
Taiwo v. Princewill ; Erhumwunse v. Omoregbe.
2. Impossibility of Restitutio in Integrum:rescission will not be granted
where the parties cannot be restored into their original state before the
contract: Blackburn v. Smith.
• If a contract cannot be rescinded in toto it cannot be
rescinded at all; as the parties, or one of them, cannot
be restored to their status quo: Thorpe v. Facey.
Consequence of Rescission
• The condition for granting the relief is that the parties,
as between them, be restored to their precontract
position.
• Therefore, where the relief is granted, the contract is no
longer in existence, and the party entitled to rescind
cannot at the same time obtain damages for a breach of
the contract which he is asking the court to rescind:
Henry v. Schroder .