UNIT 3 : RESCISSION

CONTENTS

1.0      Introduction

2.0      Objectives

3.0      Main content

3.1        Act of a party or a judicial remedy

3.2       Grounds for rescission

3.3       Loss of the right to rescind

3.4       Consequence of rescission

4.0      Conclusion

5.0      Summary

6.0      Tutor-Marked Assignments

7.0      References / Further Reading

1.0     INTRODUCTION

In the last unit, we considered the equitable remedy of specific performance. In this unit, we will look at the rescission of contract. Where a contract is voidable, but not void, such a contract is valid until rescinded. The right to rescind, which may arise in certain circumstances, is exercised where a party to a contract expresses by word or act in an unequivocal manner, that he is no longer willing or that he refuses to be bound by the contract. That course of conduct or action, if justified by the circumstances or by the facts of the case, puts an end to the contract and restores the parties as between them, to the position in which they were before the contract was entered into. The full effect of rescission, therefore, is to treat the contract as though it had never been entered into.

2.0     OBJECTIVES

By the end of this unit you should be able to:

(i)       Determine whether rescission can be be accomplished by the act of a party;

(ii)      List the grounds for rescission;

(iii)     Determine the instances when the right to rescind is lost; and

(iv)      Explain the consequence of rescission.

3.0     MAIN CONTENT

3.1      Act of a party or a judicial remedy

Resitutio in integrum is a fundamental feature of the remedy of rescission; where this is not poss- ible, the right cannot be validly exercised. Therefore, where the circumstances of the case impose upon a party desiring to rescind the duty of making resitutio in integrum, until he discharges that duty rescission cannot be accomplished. See the following cases:

1. Clough v. London and North Western Rly. Co. (1871) L.R. 7. Exch. 26.
2. Abram Steamship Co. v. Westville Shipping Co. (1923) A.C. 773.
3. Erlanger v. New Sombrero Phosphate Co. (1878) 3 App. Cas. 1218,1278.
4. Newbigging v. Adams (1886) 34 Ch.D. 582 at 592.

It is a settled law that a contract cannot be rescinded by one party for the default of the other un- less both can be put in status quo as before the contract. See Hunt v. Silk (1804) 5 East, 449. In Blackburn v. Smith (1848) 2 Ex. 783, 792, there was a contract for the sale of a piece of land be- tween the plaintiff and the defendant. The plaintiff, having paid a deposit, went into possession. He later gave notice to rescind the contract on the ground of certain events which had occurred and brought an action to recover his deposit. Parke, B. delivering the judgment of the Court said that inasmuch as the plaintiff had or retained the possession of the property the parties could not be placed in status quo and, therefore, the action for the recovery of the deposit could not be maintained. Thus the fact of possession of the land by the plaintiff, made impossible for the act of rescission to have its natural effect.

If rescission can be accomplished by the act of a party, the question as to whether the right to res- cind is in fact a judicial remedy becomes relevant. Surely the assistance of a court of equity is dispensed with where the act of rescission is not challenged by the other party to the contract. But a different situation may arise where for example there remain some question to be settled as be- tween the parties such as taking account of property which might have passed between them with a view to restoring the parties to status quo as before the contract, or where the other party to the contract challenges the right of the first to rescind. See Erlanger v. New Sombrero Phosphate Co. (supra) at 1278.

In such cases, the assistance of a court of equity becomes indispensable; it would have to decide whether the act of rescission relied upon was in itself effect. Nevertheless, 'it is an entire mistake to suppose that it is this verdict which by itself terminates the contract and restores the antecedent status. The verdict is merely the judicial determination of the fact that the expression by the plaintiff of his election to rescind was justified, was effective; and put an end to the contract.’ See Abram Steamship Co. v. Westville Shipping Co. (supra) at 781. See further, Reese River Silver Mining Co. v. Smith (1869) L.R. 4 H.L. 64. 73; Oakes v. Turquand (1867) L.R. 2 H.L. 325.

3.2     Grounds for Rescission

1. 1. Mistake:

Where  the two parties  laboured  under  a common  or mutual  mistake,  rescission  may be granted.  Lindley,  L.J. said: in Huddersfield  Banking  Co. v. Henry Lister & Son (1895) 2 Ch. 273 at 281, 'An  agreement  founded  upon  a common  mistake,  which  mistake  is im- pliedly treated as a consideration  which must exist in order to bring the agreement into operation,  can be set aside,  formally  if necessary,  or treated  as set aside  and as invalid without any process or proceedings  to do so.'

In Solle v. Butcher (1950) 1 K.B. 671 at 693 C.A, the Court of Appeal held that a contract is liable in equity to be set aside if the parties were under a common misapprehension either as to facts or as to their relative  and respective  rights, provided  tha the misapprehension was fundamental  and that the party seeking  to set it aside was not himself  at fault. See Lord Westbury in Cooper v. Phibbs (1867) L.R 2 H.L. 149, 170. In Abraham  v. Oluwa (1944) 17 N.L.R. 123 at 126, the plaintiff at the time he purchased the property was labouring under the mistaken idea that he had either a defective title or no title at all. Similarly, the defendant possessed the mistaken idea that the property belonged to the judgement creditor. In an action brought by the plaintiff to recover the purchase money which he had paid to the defendant, Banker J. said: 'if parties enter into an agreement with reference to a supposed actual state of things does not in fact subsist, the consideration for the agreement fails and the agreement is consequently void.

The principle is that equity would relieve a party from the consequences of his own mistake, so long as it could do so without injustice to third parties. This is, however, on the supposition that the mistake renders the contract void ab initio and a mistake which renders a contract not void, but voidable. The position seems to be that contracts will be void for mistake if the mistake is such as to prevent the formation of any contract at all. See Solle v. Butcher (supra)  at 690-692.  It is, however, clear that rescission will be granted for mutual mistake whether the mistake be one of fact or one of law.

2. 2. Misrepresentation:

A contract that is induced by a material misrepresentation made either fraudulently  or innocently cannot stand; such misrepresentation is a ground for rescission.

(a) Fraudulent  Misrepresentation:

There is fraudulent misrepresentation when it is shown that a false representation has been made knowingly and intentionally or without belief in its truth or recklessly without caring whether it is true or false and with the intention that the other party should act on it and has been so acted upon by the other party. At law and in equity such misrepresentation renders the contract induced by it voidable. See the following cases:

Derry v. Peek (1889) 14 App. Cas. 337.

Peek v. Gurney (1873) L.R. 6 H.L. 377.

Horsfall v. Thomas (1862) 1 H. & C. 90; Smith v. Chadwick (1884) 9 App. Cas. 187 at 196.

In Sule v. Aromire (1951) 20 N.L.R 20 at 21-22, the defendant put up for sale by auction a piece of land and the poster advertising the sale mentioned that the defendant had obtained a court judgment in respect of the land. The defendant went further to give the plaintiff a copy of the judgment which showed that the plaintiff was the owner. But in truth, the judgment did not relate to the piece ofland. The plaintiff, having bought the land on the strength of the misrepresentation made to him by the defendant, made unsuccessful attempt to obtain possession; he therefore brought this action claiming annulment of the conveyance and damages. The court agreed with the submission of the defendant that where there has been a. conveyance no rescission is possible unless there has been fraud. However, the court rejected the submission that the defendant had hidden nothing and that the principle caveat emptor applies. The principle is that if the plaintiff had acted on the faith of a false representation made to him by the defendant, it is no defence for the latter that the plaintiff might have found out the truth if he had made enquiry. See Redgrave v. Hurd (1881) 20 Ch.D. 1.

The court found that the defendant knowingly made a false representation which was a material one and it was designed to, and did put the plaintiff off his guard and that the fraudulent misre- presentation entitled the plaintiff to annul the sale and a refund of the purchase price. It is suffi- cient if a coursc of action or conduct satisfies the definition of fraudulent misrepresentation; the motive for making such misrepresentation is completely irrelevant. See Pasley v. Freeman (1739) 3 T.R. 51; Polhill v. Walter (1832) 3 B. & Ad. 114.

(b) Innocent Misrepresentation:

Though innocent misrepresentation cannot support an action at law for damages26 it is, in equity, a ground for rescission. See Derry v. Peek (supra); Newbigging v. Adam (1886) 34 Ch.D. 582; Heilbit Symons &  Co. v. Buckleton (1913) AC. 30 at 49. Where rescission of a contract is claimed on the ground of innocent misrepresentation it is sufficient if the plaintiff can prove that there was misrepresentation which induced him to enter into the contract. However, honestly, such misre- presentation might have been made and however free from blame the person who made it, the contract having been obtained by misrepresentation cannot stand. See Redgrave v. Hurd (1881) 20 Ch.D. 1 at 12; Derry v. Peek (supra); Low v. Bouverie (1891) 3 Ch.D.82 at 100.  The Court of Eq- uity has power to set aside contracts whenever the court is of the opinion that it would be unconscientious for a party to avail himself of a legal advantage which he had obtained. See Torrance v. Bolton (1872) L.R. 8 Ch. 118, 124; see generally, the recent changes made in the law of England by the Misrepresentation Act, 1967.

3. Mere silence and Non-Disclosure:

A party to a contract is generally not under a duty to make any disclosure regarding the transaction unless where non-disclosure may amount to misrepresentation of material facts capable of inducing the other party to enter into the contract or where the circumstances of the particular transaction impose a duty to make disclosure. In Oakes v. Turquand (1867) L.R. 2 H.L. 325 at 342, the court held that where a person has been, by the fraudulent misrepresentations of directors of a company or by their fraudulent concealment of facts, drawn into a contract to purchase shares in the com- pany the directors  cannot  enforce  the contract  against him but he may rescind  it. In that case Lord Chelmsford said: 'it is said that everything which is stated in the prospectus is literally true and so it is, but the objection to it is not that it does not state the truth as far as it goes, but that it conceals most material facts with which the public ought to have been made acquainted, the very concealment of which gives to the truth which is told, the character of falsehood.

Secondly, non-disclosure in contracts uberrimae fidei is a ground for rescission of such contracts. This class of contracts includes contracts of insurance of all kinds, family settlements or arrange- ments. A party to a contract of this class is under a duty to make full disclosure of all facts within his knowledge; there must not only be good faith and honest intention, but also full disclosure; and without full disclosure, honest intention is not sufficient. See Harvey  v. Cooke (1827) 4 Russ. 34 at 53; 38 E.R. 717, 725. Thus, a transaction purported to be family arrangement was set aside on the ground that the doubts existing as to the rights alleged to compromised by the transaction were not presented to the party interested.

In Gordon v. Gordon (1821) 3 Swans. 400; 36 E.R. 910, there was an agreement between two brothers as to the division of an estate. The younger brother had obtained an advantage because of the erroneous belief that the elder brother was illegitimate, when in truth the younger brother knew all along that his elder brother was legitimate which fact he failed to disclose. The agree- ment was later set aside when it became known that the elder brother was legitimate and that the younger brother knew of the true position.

What is required however is full disclosure; the court is not concerned with the attendant conse- quences of such disclosure. Thus an agreement of compromise, the very object of which is to avoid the necessity of having the exact relative legal rights determined by litigation, and which was entered into after the parties have had full consultation with the family solicitor, will not be set aside even though the agreement may not be quite in accordance with the right of parties. What is essential is that there should be no fraud or improper conduct on the part of the party or parties under a duty to make full disclosure. But where full disclosure is required as to the exact legal rights and the person under a duty to make such disclosure concealed the facts because he thinks that it is for the advantage of all parties to compromise, and that if they knew their exact rights there would be no chance of compromise, the court will set aside a compromise which proceeded on that basis, since the very object of the compromise is to ascertain what the re- spective legal rights of the parties are. See See Roberts v. Roberts (1905) 1 Ch. 704, 710, 771.

4. 4. Constructive Fraud

Constructive fraud consists of a variety of unconscientious conduct which, if made use of to induce a party to enter into a transaction, may constitute a ground for rescinding such transaction. Undue influence is a common example of constructive fraud. There is undue influence when the will of a party coerced into a transaction which he does not desire to enter into. See Wingrove v. Wingrove (1885) 11 P.O. 81; Johnson & Or. v. Maja & Or. (1951) 13 W.A.CA 290, 295. If the party has only been persuaded or induced by consideration which may be condemned or disap- proved, this may not amount to undue influence, if the party is not coerced into doing that which he does not desire to do; thus undue influence is an influence exercised either by coercion or fraud. See Boyse v. Rossborough (1856-57) 6 H.L.C. 1 at 48-49; 10 E.R 1192.

The onus of proof lies on the person who alleges undue influence. See Johnson v. Maja (1951) 13 WAC.A. 290; Johnson v. Aderemi (1955) 13 WACA 297, P.C. To discharge this onus, it would not be sufficient merely to establish that a person has the power to unduly coerce a party to enter into a transaction; it is also necessary to prove that in the particular case that power was exer- cised, and that it was by means of the exercise of that power that the transaction which the plain- tiff sought to rescind has been produced. See Wingrove v. Wingrove (1885) 11 P.O. 81.

However, if certain relationships, such as a doctor and patient, solicitor and client, etc., existed at the time of the transactions, such relationship creates a presumption of undue influence and the onus is upon the defendant to rebut such presumption. In Johnson v. Williams (1935) 2 W.A.C.A. 248 at 250, a deed of conveyance in which certain property was conveyed by a patient to her medical adviser was set aside on the ground that it was obtained from her by undue influence arising from the fact that the defendant was her medical adviser. Strother Stewart, J. said that such relationship creates a presumption of undue influence, and the onus is upon the defendant to rebut such presumption.

In Taylor v. Brew (1942) 2 W.A.C.A. 201; Cf. Erhumwunse v. Omoregbe (1961) W.N.L.R 301, 305, a trust deed by which property was to be conveyed to the settlor's father and solicitor was set aside on the ground that the deed was executed whilst the settlor was unduly under the influence of her par- ent/solicitor and with that influence operating on her mind (at the time) she executed the trust deed.

5. Misdescription:

The right to rescind is an appropriate remedy where one of the parties to the contract has misdescribed property, the subject matter of the contract. However, misdescription that would sustain an action for rescission must be substantial. In Smith v. Land and House Property Corporation (1884) 28, Ch.D. 7 at 13, the plaintiffs put up an hotel for sale stating in the particulars that it was let to 'F, a most desirable tenant, at a rental of £400 for an unexpired term of 27½years.' The defendants entered into the contract of sale in reliance upon these particulars. But the truth of the matter was that the tenant did not pay his rent properly. When this became known, the defendant refused to complete. In a counter claim by the defendant for rescission. Baggaly, L.J. said that it is material representation for the vendors to describe a tenant who did not pay his rent properly as a very desirable tenant.

In Sodipo v. Coker (1932) 11 N.L.R. 138, the plaintiff purchased certain land at an auction sale held by the defendant who had described the land as about 50 acres whereas it measured 22.2 acres in reality. The plaintiff brought an action to set aside the sale on the ground of the defen- dant's misdescription of the extent of the land. Kingdom, C.J. took the view that the misdescrip- tion was in a material and substantial point and that it was calculated to deceive and it did dece- ive the purchaser. He therefore held that the plaintiff was entitled to have the sale set aside on the ground of misdescription.

6. 6. Conditional Terms in Contract:

It is not  unusual for  parties to a contract to include in the  terms of the contract a pro-vision empowering either of the parties to rescind the contract on the occurrence of certain events. Prima facie, the right to rescind becomes exercisable on the occurrence of the stipulated events; but the courts have placed some limttation on the exercise of this right purposely to pre- vent fraudulent and arbitrary exercise of the right. Thus a condition giving a vendor the right to rescind in the event of his willingness to comply with an objection to the title is not to be consi- dered as giving the vendor an arbitrary power to rescind the contract. See In re Jackson and ha- den’s Contract (1906) 1 Ch.D. 412, 420.

Before he can lawfully exercise that power, he must establish to the satisfaction of the court, some reasonable grounds for his unwillingness to meet the purchaser's objection; for instance, that compliance with the objection would involve him in litigation and expenses far beyond what he ever contemplated, (see Duddell v. Simpson (1866) L.R. 2 Ch. 102.) or that at the time the contract of sale was entered into, the vendor reasonably and honestly, though erroneously, be- lieved that he was or that he should be in a position to make a complete title to the property he purported to sell. In addition, the conduct of the vendor in the transaction must not have fallen below that of a prudent man of business, having regard to his contractual relations with other per- sons. See Re Jackson and Haden’ s Contract (supra) at 421.

As Collins M.R. stated in Re Jackson and Haden s Contract (supra) at 422, in all cases in which the vendor was allowed to avail himself of such condition, nothing in the nature of recklessness or dishonesty must be imputed to him. Thus, where knowing the exact facts, the vendor has reck- lessly made a description of them which would mislead another person who did not know as much as himself (even though he thought that person might know as much as himself), there is a clear failure of duty on the part of the vendor which fairly disentitles him to say that a clause in- troduced to meet a reckless disregard by the vendor of his duty as to accuracy of statement when he is making a statement with a view to other people acting on it as correct.

In re Des Reaux and Setchfield’ s Contract (1926) Ch.D. 178 at 189-190, the vendor knew at the time he entered into the contract, that he had no title to the property and did not avail himself the opportunity of taking advice from a competent legal adviser as to the title to the property. When he was required to take certain steps that would put him in a position to make title in favour of the purchaser, he refused and decided to rescind the contract under the conditions of sale. Romer, J. held that the vendor was reckless in entering into the contract, and moreover, the vendor's un- willingness to comply with the requisition being unreasonable and arbitrary disentitled him the benefit of the conditions of sale. See also Re Deighton and Harris’ s Contract (1898) 1 Ch.D. Where Lindley L.J. held that the ordinary condition of sale giving the power of rescission applies only where the vendor has some title and not where he has none.

A vendor's power under the terms of the contract to rescind the contract may be exercised only in good faith and with promptitude and must not be used as an engine for fraud.  Thus, where a vendor having such power under the contract took advantage of it for purposes of delay while he opened negotiations, unknown to the purchaser for a better bargain with a third person, thus putting the purchaser in an uncertain position, the court held that by his conduct he deprived himself of his election to affirm the contract and the purchaser was entitled to treat the contract as rescinded. See Smith v. Wallace (1895) 1 Ch.D. 385.

In all cases, the vendor must do his best to comply with the obligations which by contract he has undertaken towards the purchaser; the vendor would not be allowed to ride off upon a condition to rescind which was obviously not framed with reference to the circumstances under which.the vendor claims to exercise the power. See Re Des Reaux and Setchfields Contract (1926) Ch.D.

178 at 190; and Rigby L.J. in Re Deighton and Harris’s Contract (supra).

SELF ASSESSMENT EXERCISE 1

Enumerate the grounds for rescission of a contract.

3.3     Loss of the Right to Rescind

The right to rescind is not indefeasible, and therefore, it may be lost in certain circumstances.

1. Affirmation of the Contract and Acquiescence:

Where there are circumstances upon which a party to a contract may rescind or avoid the con- tract and those circumstances are known to the party, the contract continues to be valid till the party has determined his election by avoiding the contract. See Clough v. London and N.W. Rly. Co. (1871) L.R. 7 Ex. Ch. 26, 34. But if it can be shown that he has at any time after notice of these circumstances either by express words or by unequivocal acts, affirmed the contract, then his election has been determined for ever and can no longer avoid the contract. Since the party has the right to elect either way, he may keep the question open so long as he does nothing to af- firm the contract. However, lapse of time without rescinding the contract will furnish evidence of acquiescence and that he has elected to affirm the contract. Furthermore, when the lapse of time is great, it would, in practice, be treated as conclusive evidence to show that he has affirmed the contract. See Denning, L.J. in Leaf v. Intemational Galleries (1950) 2 KB. 86, 91.

The length of time that would constitute a conclusive evidence of affirmation may depend on the nature of the contract. See Senanayake v. Cheng (1965) 3 All E.R. 296. In a contract for the sale of goods, lapse of a reasonable time will be a bar to rescission. For instance, where five years have elapsed without any notice of rejection, the buyer cannot claim to rescind. See Leaf   v. 1ntemational Galleries (supra) 2 K.B. 86, 90-91. In the case of repudiating shares in a company, the shareholder must act with promptitude; he must have done more than mere repudiation as is the case in ordinary voidable contracts; he must ensure that his name is removed from the register of the company before the commencement of winding up.See Re Scottish petroleum Co. (1883) 23 Ch.D. 414 at 437; First National Ins. Co. Ltd. v. Greenfield (1921)2 K.B. 260. It has been held that a delay of a fortnight in repudiating the shares makes it doubtful whether the re- pudiation in the case of a going concern would have been in time. See Re Scottish Petroleum Co. (supra)  at 234. Except where investigation is necessary to enable the shareholder to be fully in- formed, he ought to lose no time in repudiating.

The right to rescind may also be lost where the party entitled to the right does any act that is in- consistent with avoiding the contract. In Taiwo v. Princewill (1961) 1 All N.L.R. 240, the defen- dant had refused to complete a building under a building contract with the plaintiff on the ground that the plaintiff, contrary to the building contract had failed to make certain payments to him. It was, however, shown in evidence that the defendant later continued to work and received some payments from the plaintiff. Affirming the decision of the trial court, the Federal Supreme Court held that because the defendant had later continued with the work and accepted further in- stallments under the contract, he had lost the right to repudiate the contract for failure on the plaintiff's part to pay the agreed sum though he retained the right to recover the sum due by ac- tion. See further, Erhumwunse v. Omoregbe (1961) W.N.L.R. 301, 305.

2. Impossibility of Restitutio in Integrum:

It is a settled principle of general justice that rescission will not be granted where the parties cannot be restored into their original state before the contract. See Blackburn v. Smith (1848) 2 Ex. 783, 792. See also Lord Blackburn in Erlanger v. New Sombrero Phosphate (1878) 3 App. Cas. 1218, 1278. Thus, where a contract is voidable at the option of a party, it follows that when that party exercises his option to rescind the contract, he must be in a state to rescind, that is, he must be in such a situation as to be able to put the parties into their pre-contract position. See Clarke v. Dickson (1858) E.B. & E. 148 cited with approval by the Privy Council in Urquhart v. Macpherson (1878) 3 App, Cas. 831, 838; Western Bank of Scot. v. Addie (1867) LoR 1 Sc. & Div. 145 at 164.

As Lord Blackburn observed in Erlanger’ s case (supra) at 1278,  'it would be obviously unjust that a person who has been in possession of property under the contract which he seeks to repu- diate should be allowed to throw that back on the other party's hands without accounting for any benefit he may have derived from the use of the property, or if the property, though not de- stroyed, has been in the interval deteriorated, without making compensation for that deteriora- tion.'

If a contract cannot be rescinded in toto it cannot be rescinded at all; the reason for not directing rescission in such a case is that the parties, or one of them, cannot be restored to their status quo. See Thorpe v. Facey (1949) Ch. 649, 664; Hunt v. Silk (1804) 5 East. 449. Thus, a plaintiff who has taken the whole benefit of a contract so far as it was beneficial to him, without at any time attempting to repudiate it, would not be allowed to rescind one particular part of the contract for it would be impossible to restore the defendant to his pre-contract position. See Urquhart v. Macpherson (supra).

However, it would appear that the doctrine of restitutio in integrum may not be applied literally since the larger basis of the doctrine is to maintain fairness and justice between the parties; thus, the practice had always been for a court of equity to grant the relief of rescission whenever by the exercise of its powers, it could do what is practically just, though it cannot restore the parties precisely to the state they were in before the contract. See Erlanger.v. New Sombrero Phosphate Co. (supra) at 1278-1279.

In Spence v. Crawford (1939) 3 All E.R 271 at 283, repayment of the price of shares, the sub- ject-matter of the contract, with interest was held to satisfy the doctrine of restitutio in integrum, as what is ordered to be restored is fair and just and substantially identical to the subject-matter of the contract. This flexible approach to the application of the doctrine is, however, limited to cases where rescission is the result of innocent misrepresentation and not where there is proof of fraud. See Lagunas Nitrate Co. v. Lagunas Syndicate (1899) 2 Ch. 392, at pp. 456-57; Adam v. Newbigging (1888) 13 App. Cas. 308.

3. Completion of Contract:

Generally, completion of a contract constitutes a bar to the relief of rescission. A court of equity will not grant rescission of an executed lease on the ground of innocent misrepresentation. See Brownlie v. Campbell (1880) L.R. 5 App. Cas. 925; Long v. Lloyd (1958) 7 W.L.R. 753, 756. The lessee would have gone into possession under the lease and nothing remained to be done and therefore there is nothing to rescind. See Darling, J. in Angel v. Jay (1911) 1 K.B. 666 at 672.

As Carey, J. said in Bada v. The Premier Thrift Society (1938) 14 N.L.R. 20 at 83, because the contract must have been merged in the conveyance and therefore there is no longer anything to rescind, there is no existing executory contract or transaction which is binding on the parties; the court does not make unnecessary orders nor rescind what is non-existent. The position is the same where there had been a part execution of an agreement; for, the contract could no longer be rescinded  in toto arid the parties placed in their pre-contract position. See Spence v. Crawford (1939) 3 All E.R 271, 290.

Completion of contract is a bar to rescission only where the contract is voidable for misrepresentation that is not fraudulent. See Long v. Lloyd (supra);Brownlie v. Campbell (1880) L.R 5 App. Cas. 925. Lord Campbell stated the general position in Wilde v. Gibson (1848) 1 HL.C. 605 at 632-633; 9 E.R 897, where he said: 'in the court below the distinction between a bill to set aside a conveyance that had been executed has not been distinctly borne in mind; with regard to the first, if there be misrepresentation or concealment which is material to the purchaser a court of equity will not compel him to complete the purchase; but where the conveyance has been executed….. a court of equity will set aside the conveyance only on the ground of actual fraud; and there would be no safety for the transaction of mankind if, upon discovery being made at any distance of time of a material fact not disclosed to the purchase of which the vendor had merely constructive notice, a conveyance which had been executed could be set aside.' See also, Seddon v. North Eastern Salt Co. (1905) 1 Ch. 326.

Therefore, proof of actual knowledge of a defect, amounting to fraud, is essential before an executed con- tract could be set aside. But there seems to be an exception in contracts for the taking of shares in compa- nies. Even though the shares have been allotted and the shareholder's name has been placed on the com- pany's register, it is not necessary for a shareholder who desires to avoid the contract to take shares to prove fraud; it is enough if he proves a misrepresentation of fact. See First National Reinsurance Co. v. Greenfield (1921) 2 K.B. 260 at 272.

4. 4. Acquisition  of Rights by Third Parties:

The right to rescind is lost where third parties have, bona fide and for value acquired rights or interests under the contract. Where the party entitled to rescind has made no election he retains the right to deter- mine the contract either way. This is, however, subject to the important condition that if  in the interval whilst he is deliberating, an innocent third party has acquired an interest in the subject matter of the con- tract, or if as a result of his delay the position even of the wrongdoer in relation to the subject-matter is affected, such will preclude him from exercising his right to rescind. See Clough v. London and North Western railway Co. (1871) 7 Ex. Ch. 26, 35.

Thus, where a contract to purchase shares in a company has been induced by fraud, the defrauded pur- chaser cannot rescind after the commencement of the winding up of the company, since the creditors of the company have, thereby bonafide, acquired an interest in the shares of the company. See Oakes v. Turquand (1867) L.R 2 H.L. 325.

A person who derives title to the subject-matter of the contract from the wrongdoer takes subject to the right of third parties. Therefore, a trustee of goods which have been obtained by the purchaser under a contract that is voidable acquired the property subject to the rights of third parties. One of these rights is the right of the defrauded vendor of the goods to disaffirm the contract and to retake the posses- sion of the goods. See In re Eastgate, Ex parte Ward (1905) 1 K.B. 465, 467. See further, Tilley v. Bowinan Ltd. (1910) 1 K.B. 745, 758.

3.4     Consequence of Rescission

The condition for granting the relief is that the parties, as between them, be restored to their pre- contract position. Therefore, where the relief is granted, the contract is no longer in existence, thus the question of claiming damages for its breach does not arise since the full effect of rescis- sion is to treat the contract as if it had never been entered into. As was stated by Romer, J. in Barber v. Wolfe (1945) Ch. 187 at 189-190, where a party entitled to rescind elects that course of action, he cannot at the same time obtain damages for a breach of the contract which he is asking the court to rescind. See further Henry v. Schroder (1879) 12 Ch. 666, 667; Hall v. Burnell (1911) 2 Ch. 551.

4.0     CONCLUSION

It is a settled law that a contract cannot be rescinded by one party for the default of the other unless both can be put in status quo as before the contract. Where the relief of rescission is granted, the contract is no longer in existence, thus the question of claiming damages for its breach does not arise since the full effect of rescission is to treat the contract as if it had never been entered into.

5.0     SUMMARY

In this unit, we have considered the remedy of rescission. You should now be able to: determine whether rescission can be accomplished by the act of a party; list the grounds for rescission; de- termine the instances when the right to rescind is lost; and explain the consequence of rescission.

6.0     TUTOR-MARKED ASSIGNMENT

The right to rescind is not indefeasible. Discuss.

7.0     REFERENCES / FURTHER READING

Hackney J., (1987) Understanding Equity and Trusts; London: Fontana press

Jegede M. I. (2007rep.) Principles of Equity; Ibadan: Unique Design/Prints