Elements in a Contract 27
Rescission is an equitable remedy that is available for
misrepresentation. The effect of misrepresentation is that the contract becomes
voidable i.e. the contract continues to exist until the innocent or aggrieved
party chooses to set it aside as opposed to a contract that is void where it is
no longer possible to comply with the terms of the contract.
It is available for all three categories of
misrepresentation and its intent is to put the parties back in the same
position they were in before the contract was made.
In Car and Universal Finance Co. Ltd v Caldwell (1965) the
defendant sold a car to a buyer who purchased it with a nominal sum, a cheque,
and left behind his own car as security. Once the buyer had taken possession of
the car, the defendant attempted to cash the cheque and the cheque bounced. The
defendant immediately notified the police and the other relevant authorities
but by that time the buyer had disappeared with the car. The buyer later sold
the car to a car dealer who in turn sold it to a third party who bought it in
good faith. The Court of Appeal held that the contract had been rescinded as
soon as the defendant had contacted the police and the other relevant
authorities. The moment he did that the car had returned to him.
It is worth comparing the decision in Car and Universal
Finance Co. Ltd. v Caldwell (1965) with the decision in Lewis v Avery (1971) -
the plaintiff sold his car to the buyer who used a false name and purchased the
car with a cheque. The cheque later bounced but in the meantime the buyer had
sold the car to a third party. The plaintiff brought an action in court to have
the contract rescinded but the court refused. To allow the contract to be
rescinded would be unfair to the purchaser who had bought the car in good faith.
Rescission is an equitable mechanism and therefore the courts will try and be
as just and as fair as possible when awarding it.
There are however certain instances or circumstances where
the parties cannot be put back to their original positions or their pre-contractual
positions and in these instances or circumstances the innocent or aggrieved
party may no longer be able to rescind the contract.
In Vigers v Pike (1848) which concerned the sale of a mine,
the court ruled that rescission would not be possible because by the time the
matter was brought before the court, the mine had been exhausted.
In Long v Lloyd (1958) the plaintiff advertised a lorry for
sale and in his advertisement he stated that the lorry was in excellent
condition. The defendant who’d read the advertisement contacted the plaintiff
stating his intention to purchase the lorry. Before the sale was concluded the
defendant test drove the lorry and found that there were numerous faults with
it.
The defendant conveyed his concerns to the plaintiff who
offered to pay for half the repairs and the defendant accepted. Once the sale
was concluded the lorry broke down completely and the defendant wished to
rescind the contract. The plaintiff sued. The court held that by accepting the
plaintiff’s offer to make payments for half the repairs the defendant had
waived his right to rescind the contract.
In Leaf v International Galleries (1950) the parties entered
into a contract to sell and purchase a painting done by a prominent artist,
John Constable, and at the time of sale both parties believed the painting to
be indeed the work of the artist. 5 years down the track when the purchaser
tried to resell the painting it was discovered that the painting was not a
Constable and as soon as the buyer realized his mistake he tried to rescind the
contract.
The courts held that the contract cannot be rescinded
because it was up to the purchaser to take all the necessary measures to ensure
that the painting was indeed what it was made out to be or to do so within a
reasonable time. 5 years was just too long a period and the contract could not
be rescinded because of a lapse of time.
The court further added that rescission is an equitable
remedy and therefore it is at the discretion of the courts to either award it
or otherwise.
In Zanzibar v British Aerospace (Lancaster House) Ltd.
(2000) the Zanzibar government purchased a jet from British Aerospace and
failed to make the necessary payments. British Aerospace repossessed the jet
and resold it. Several years later the Zanzibar government made a claim to have
the contract rescinded because of representations made during the negotiations.
The court refused. The lapse of time had caused the right of rescission to be
lost.
Copyright © 2019 by Dyarne Ward and Kathiresan
Ramachanderam
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