Bars to rescission - Flashcards
What are the bars to rescission?
a) Affirmation
b) Lapse of time
c) Impossibility of “Restitutio in integrum”
d) Supervening third party rights
What is affirmation?
Affirmation is when the innocent party decal res or acts in accordance with their intention to proceed with the contract, with full knowledge of the facts and of the misrepresentation.
What is affirmation?
Affirmation occurs when the innocent party either declares his/her intention to proceed with the contract or does some act from which such an intention can unequivocally be inferred, after s/he has full knowledge of the facts and of the misrepresentation.
What is the case used to display affirmation?
Long v Llyod - Lorry represented falsely as in excellent condition. Faults occurred and seller agreed to pay half for repairs - affirmation of the contract.
What is lapse of time?
Can serve as evidence for affirmation but not a separate matter with fraudulent misrepresentation.
What about innocent misrepresentation? Lapse of time
Lapse of time can be an independent ground for loss of the right to rescind.
Leaf v International Galleries [1950] - fake painting of constable only realized after 5 years - few days would’ve been sufficient to discover the truth. (Denning) - Salt v Stratstone Specialist - new car actually old
What apart from time is lapse of time constituted of?
It was also said that the bar is not just about the time that has passed. Instead, it is about whether it is unfair to grant rescission in view of the time that has passed. Such fairness will be based on the facts of the case.
The impossibility of restitution
Thign bought has undergone some form of change.
Is partial recession allowed?
In theory - no
What is the exception to partial recession?
However, in practice in cases where full restitution is not completely possible but it is nevertheless substantially possible the court will often allow rescission. Allows to restore the party back to the original position.
What was held in Erlanger v New Sombrero Phosphate Co?
The claimant purchased a phosphate mine which they worked for some time. They then discovered that they had been victims of a misrepresentation and attempted to rescind despite precise restitution being impossible because the mine had been worked. The court allowed rescission (i.e. the return of the mine to the defendant and return of the price to the claimant), but required the plaintiffs to account, to the defendant, for the profits made from working the mine.
Supervening third party rights - what is meant by bona fide?
If a bona fide third party acquires the property for value then the right to rescission is lost. ‘Bona fide means ‘good faith’, so a bona fide third party is some person.
Bona Fide - law bars recession between A and B, C is innocent. Technical way the law deals with this is by -
(a) misrepresentation only makes a contract voidable and
(b) While it is voidable (but has not yet been rescinded/avoided) the parties still have rights under the contract and
(c) these rights include the right of ownership of the property, so that even the rascal (like B above) is the owner of the property and has the right to pass ownership to someone else as long as this someone else buys in good faith) and all this means that
(d) the good faith purchaser obtains ‘good title’ (i.e. a right of ownership in the property) so that the property cannot be given back to the original owner.
What was held in Lewis v Averay 1972?
L sold car to R. R had fake cheque but sold car to A. Rescission barred A had obtained property right and therefore allowed to keep car.
What is the Court discretion under s.2(2) Misrepresentation Act to refuse rescission and award damages?
This is not a bar to rescission but is a relevant to whether a party is entitled to rescind. Section 2(2) of the Act allows rescission to be refused by a court and for damages to be awarded ‘in lieu’. This is at the discretion at the judge based on the facts. The idea is to ensure that rescission is not unfairly used (or abused) by the innocent party.
