Rescission, Rectification and Declarations

Abstract

Introduction The word ‘rescission’ is ambiguous, and its various meanings must be carefully distinguished. Here, we will be discussing rescission in the sense of the process for setting aside a voidable contract and restoring the parties to their pre-contractual position. This is distinct from rescission (sometimes known as repudiation) for breach of contract, where the innocent party to a breach of contract exercises her right to terminate the contract and sue for damages and restitution of benefits conferred under the contract. The principal difference between rescission of a voidable contract and rescission for breach of a valid contract is that the former operates retrospectively, restoring both parties to their pre-contractual position, whereas rescission for breach operates prospectively, entitling both parties to enforce their accrued rights under the contract but removing any obligation to carry out the terms of the contract in the future. When can a voidable transaction be rescinded? A contract is voidable in equity for mistake, misrepresentation, duress, undue influence, unconscionable conduct, for breach of fiduciary obligation and under the rule in Yerkey v Jones. A voidable contract is valid until the plaintiff has elected to avoid it. It will then be set aside and both defendant and plaintiff must be restored to their pre-contractual position. Gifts may also be rescinded in equity on any of these grounds except under the rule in Yerkey v Jones, which only applies to contracts of guarantee. It is unclear, however, whether a donor has to elect to rescind a gift that is voidable due to one of these vitiating factors, or whether a constructive trust will be automatically imposed over the property as soon as it is received by the donee, so that no election to rescind has to be made. The aim of rescission Rescission is a restitutionary remedy; it restores both parties to the position in which they would have been if the contract had not been entered into or the gift not made. If P buys a defective car for $10 000 as a result of D's misrepresentation as to the car's roadworthiness, P can rescind the contract. P is entitled to the return of her $10 000 (restitution) while D is entitled to the return of the car (counter-restitution).