7. Rescission and rectification

Rescission

Rescission sets a contract or gift aside and puts the parties back where they were. Equity allows it for misrepresentation, some kinds of mistake, undue influence, unconscionable bargains and fraud.

Misrepresentation: a false statement of fact that induces the contract. Equity allowed rescission even for an innocent misrepresentation. In Redgrave v Hurd the buyer could rescind although he might have found out the truth by checking the books. It is no answer to say he could have discovered it. Lanbuk on the Law of Contract covers misrepresentation in more detail.

Fraud: deliberate dishonesty. A transaction procured by fraud can always be rescinded, and the common law gives damages in deceit too.

Mistake: equity gives rescission in some cases of common mistake. In Cooper v Phibbs a man leased a fishery that, unknown to both parties, already belonged to him. The House of Lords set the lease aside on terms. English courts have since narrowed rescission for common mistake, so it is treated cautiously.

Undue influence: where one person has influence over another and uses it to obtain a transaction, equity will set it aside. Royal Bank of Scotland v Etridge (No 2) explains the law. In some relationships, such as solicitor and client, influence is presumed. In others, the claimant must show a relationship of trust and confidence and a transaction that calls for explanation. A bank that takes a wife's guarantee of her husband's debts is put on inquiry, and should make sure she gets independent legal advice.

Bars to rescission

Rescission is lost in these cases.

Affirmation: the innocent party, knowing the facts, confirms the contract.

Delay: lapse of time can bar rescission. In Leaf v International Galleries a buyer who waited five years to complain that a painting was not a Constable could not rescind for innocent misrepresentation.

Restitution impossible: if the parties cannot be put back substantially in their old positions. Equity is flexible and will order accounts and allowances.

Third-party rights: once an innocent third party acquires an interest for value, rescission is barred.

Rectification

Rectification corrects a written document that does not record the parties' real agreement. It does not change the agreement. It changes the paper.

For a common mistake, the claimant must show that the parties had a continuing common intention when they signed, which the document fails to record. Joscelyne v Nissen held that a concluded contract before the document is not required, so long as there is an outward expression of accord. The evidence must be convincing, because the document is meant to be the record.

For a unilateral mistake, rectification is rare. It is available where one party knew the other was mistaken and let him sign without telling him, so that it would be unconscionable to hold him to the document.

Rectification is discretionary. Delay, affirmation and the rights of a bona fide purchaser can bar it. A voluntary settlement, like a gift, can be rectified on the settlor's evidence alone.