Rescission and reformation Flashcards
Rescission
Voids the K and leaves the parties as though the K had never been made.
Grounds for rescission
Must have occurred either before or at the time the K is entered into.
Rescission for Mutual mistake
Only mutual mistake will suffice for rescission, and the mistake must go to a material fact.
Rescission for Unilateral mistake
Not enough for rescission. However, rescission available for unilateral mistakes if the other party knew or reasonably should have known of the mistake, or, under the modern trend, when the non mistaken party has not yet taken steps in reliance on the K or when the mistaken party would suffer great hardship.
Rescission for Mistake of law
Sufficient basis for rescission in a number of jurisdictions.
Rescission for Misrepresentation
Rescission of K only if a material misrepresentation of fact or law.
Other grounds for rescission
May also be granted for duress, undue influence, illegality, lack of capacity, or failure of consideration.
Defenses to rescission and reformation
Usual equitable defenses available, such as unclean hands and laches.
Note that under the general rule, negligence of a P is not a defense to a suit for rescission or reformation.
Reformation
Changes the written agreement to make it conform to the original intent of the parties.
A valid K must exist in the first instance.
Reformation for 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.
Reformation for Misrepresentation
Sufficient grounds for reformation.
It may be innocent or fraudulent.
An instrument will be reformed to reflect the expressed intent of the parties.
Defenses only applicable to reformation
Equity courts will not allow reformation where the subject matter of the K sought to be reformed has been sold to a BFP for value and without notice.
SoF and parol evidence rule do not apply in reformation cases.
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 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, however, allow reformation where the donee has detrimentally relied on the donor’s original intent which was not expressed in the instrument. The majority would allow the donee to have a gift reformed against the donor’s heirs.
