Rescission and Reformation Flashcards
Grounds for Rescission
Grounds for rescission must have occurred either before or at the time the contract is entered into. Grounds include mistake, misrepresentation, duress, undue influence, illegality, lack of capacity, or failure of consideration.
Grounds for Rescission
Mutual Mistake
Remember that the general rule is that only a mutual mistake of a material fact will suffice for rescission.
Grounds for Rescission
Unilateral Mistake
Unilateral mistake generally will not suffice for rescission. However, exceptions to the rule exist when the other party knew or should reasonably have known of the mistake or, under the modern trend, when the nonmistaken party has not yet taken steps in reliance on the contract or when the mistaken party would suffer great hardship.
Grounds for Rescission
Mistake of Law
Mistake of law is a sufficient basis for rescission in a number of jurisdictions.
Grounds for Rescission
Misrepresentation
For the court to rescind the contract, there must be a material misrepresentation of fact or law.
Other Grounds for Rescission
Rescission may also be granted for duress, undue influence, illegality, lack of capacity, or failure of consideration.
Defenses to Action for Rescission
Defenses Generally
The usual equitable defenses (e.g. unclean hands or laches) are available. Note that under the general rule, negligence of a plaintiff is not a defense to suit for rescission.
Defenses to Action for Rescission
Damage Action as Bar
In many jurisdictions, an election to bring an action for damages bars a subsequent rescission action, even if the damages action is unsuccessful, but an unsuccessful rescission action does not bar a subsequent damages action. Florida avoids this problem by allowing plaintiffs to plead inconsistent theories in the alternative.
Reformation Generally
Reformation changes the written agreement to make it conform to the original intent of the parties.
[Be careful not to confuse rescission with reformation. With rescission, you are arguing that the is no contract because there was no true ‘meeting of the minds.’ With reformation, you are arguing that there was a ‘meeting of the minds’ but that the agreement is not accurately reflected in the written contract.]
Reformation
Is There a Valid Contract?
Remember that to be reformed, a valid contract must exist in the first instance.
Grounds for Reformation
Mistake
Mutual mistake will always suffice. The recent trend is to allow reformation for unilateral mistake where the writing does not conform to the original agreement and one of the parties is aware of this (unilateral mistake coupled with fraud or inequitable conduct). The mistake can be of either fact or law.
Grounds for Reformation
Misrepresentation
Misrepresentation is sufficient grounds for reformation. It may be innocent or fraudulent. An instrument will be reformed to reflect the expressed intent of the parties.
Defenses to Reformation
Look for the usual equitable defenses such as unclean hands, laches, etc. Note the following special cases:
(a) Bona Fide Purchaser.
(b) ‘Nondefenses.’ A plaintiff’s negligence (e.g., failure to read the contract) is not a bar to reformation. And, as a general rule, the Statute of Frauds and parol evidence rule do not apply in reformation cases.
Reformation of Gifts
Reformation by Donor
A donor may have a gift instrument reformed if it does not express his true intention except where the donee has substantially relied on the gifts as conveyed.
Reformation of Gifts
Reformation by Donee
A donee may not have a gift instrument reformed even if the gift instrument does not conform to the original intent of the donor. Some courts allow reformation where the donee has detrimentally relied on the donor’s original intent not expressed in the instrument. The majority would allow the donee to have a gift reformed against the donor’s heirs.
