This is a right to rescind. The right is available to a party to a transaction to set that transaction aside and be restored to his former position. It is not strictly a judicial remedy. Rather, it is effected by the act of the party entitled to rescind. However, it is still a remedy to the extent that the assistance of the court is usually required to determine whether a party can rescind and also obtain restitution of property handed over pursuant to the transaction.
It is an equitable remedy since only a court of equity could do what was necessary to make restitution.
The plaintiff whom the court has decided has right to rescind has to take steps to rescind the contract. All the court rules is that a party is entitled to rescind but does not order a particular contract rescinded and this is why we say that it is not strictly a judicial remedy, though one still requires the assistance of the judiciary to rescind. This is important if property has changed hands as the only way that the property can get back is to get the court to rescind the contract. The assistance of the court is important.
Rescission can be seen in different senses.
1. Strict Sense. The contract contains an inherent cause of invalidity. This is a remedy that will arise where the contract contains an inherent cause of invalidity such as mistake, validity, lack of consent that makes the contract voidable at the suit of one of the parties. If and when that party declares his intention not to be bound by the contract, he is said to rescind it.
2. Loser Sense: Includes one of the options which the innocent parties may have where a perfectly valid contract is broken by the other party. It is a perfect contract and had each party done their party should have been concluded but where one party has broken his part of the bargain (repudiation).
A party may rescind a transaction due to the following.
a. Fraudulent misrepresentation:
The party may have been induced to enter into a contract by fraudulent misrepresentation. A fraud is proven when it is shown that a false representation has been made knowingly or without belief in its truth or recklessly or carelessly whether it is true or false. That false statement must have been made with the intent that it should be acted upon and it must have actually been acted upon by the other party.
b. Innocent Misrepresentation:
A misrepresentation is innocent if the defendant believes in the truth of his assertion even if he has no reasonable ground for his belief. See: Derry v. Peek (1889 14 A.C. 337. The misrepresentation is also innocent if the defendant once knew the true facts but has forgotten them. See Low v. Bouverie (1891) 3 Ch. 82 and Hedley Byrne v. Heller (negligent misrepresentation)
c. Constructive Fraud:
Gifts and bargains procured by undue influence and unconscionable bargains may be set aside by the victim. Constructive Fraud may be implied in two circumstances: It is for the court to interpret the circumstances and to declare that there is fraud. There are two fine distinctions.
(i) Undue Influence: This is where the person who agreed to enter into the contract was induced to do so because of the special relationship existing between him and the other party to the contract. Special relationships in which undue influence is presumed by law include the following: parent and dependent child, religious adviser and disciple, advocate and client, doctor and patient and trustee and beneficiary. The courts have laid down rules as to when undue influence will be presumed by the court. There is a presumption of law about relationship between a child and parent. A parent has influence over the child. Religious adviser and disciple, trustee and beneficiary.
(ii) Unconscionable Bargain: This is where one of the parties has a great advantage over the other party such that the contract entered into is unconscionable. This will occur where the party who is at a disadvantage is, for example, illiterate, unskilled or has no experience in the area in which he contracts. Where one party is at a disadvantage, i.e. from being illiterate, lack of skill etc. for example when one buys a car, if one is not conversant with the workings of a car one is disadvantaged if dealing with a dealer. The starting point is that once a bargain always a bargain.
When can a bargain be said to be unconscionable? No principle appears to exist to decide what is unconscionable. It is a question of whatever shocks the conscience of whoever is deciding the case.
2. By impossibility of “restitution in integram”:
A contract liable to be rescinded is generally valid until set aside, i.e. it is voidable. A contract may cease to be capable of being set aside or rescinded where the parties cannot be restored to their original position.
3. After completion:
Innocent misrepresentation gives no right to rescind after completion. If it is contract for the sale of goods, the right is lost after the goods have been accepted as was held in Long v. Lloyd (1958) 1 WLRL 753
4. By Intervention of third parties:
If the third party is a purchaser, the right is lost if such third party has acquired rights there-under for value without notice.
If the third party is a volunteer, the right to rescind is not lost.
Effect of Rescission
A person who rescinds a contract is entitled to be restored to the position he would have been in had the contract not been made. Property must therefore be returned, possession given up and accounts taken of profits or deterioration. However, NO damages are recoverable.
Contracts of utmost good faith like insurance. Contracts that require full disclosure. Non disclosure where full disclosure is required gives a right to rescission.
Misdescription: if a property is misdescribed equity cannot act in vain by allowing a contract that contains a wrong description of property. The right to rescind can also be a term of contract itself.
Limits to the use of the right or Rescission
1. A vendor can claim that he was not able to secure a title to the property: he is supposed to ensure that at the time he sets to enter into a contract with the other party, he must have the title and should do everything possible to have the title. He will be compelled to do what is required.
2. If a judicial decision has been used against him such as specific performance, the seller cannot purport to rescind the contract;
3. If the payment of purchase price is by way of instalment, if the buyer delays in remitting a certain instalment, the delay does not entitle the seller to rescind the contract.
The loss of the right as opposed to the limits
One can lose the right if they acquiesce, waiver, delay and laches – equitable principles can be applied to say that the party has waived their right under the contract and they thus lose the right to rescind the contract and must be compelled to complete the contract.
Affirmation – if the representee affirms the contract by express words or act, which shows an intention to affirm it, then the right to rescind the contract is lost:
The right to rescind a contract will be lost by impossibility of restitution in integram – parties are not able to go back into the state they were in before the contract was entered into. It is impossible to take them to the original position. Where parties cannot be restored, there cannot be rescission. It may well be that circumstances have changed that it may well be impossible.
After completion of the contract, the right to rescind ceases to be available. Long v. Lloyd pronounces that in a contract for the sale of goods the rights is lost after the goods have been accepted.
There are rules that govern when completion of a contract takes place. The contract itself will stipulate when completion takes place.
Right to rescind can also be lost if there is intervention by 3rd parties. Where a 3rd party has interest in the property, (bona fide purchaser without notice) the original two parties to the contract will lose right to rescind. If the 3rd party has paid valuable consideration equity recognises the bona fide purchaser for value without notice.
Where rescission has taken place, damages will not be recoverable. If there were any profits accruing, accounts will be taken; if any deterioration has taken place the court will take notice and decide who is responsible for the deterioration.
Workers Trust and Merchant Bank Ltd
The privy council held that only 10% deposit was to be forfeited if rescission arose.
If the seller decides to resell the property
Dojap Investments Ltd 2 WLR 702
Equity mitigates the harsh common law position of requiring that the purchaser forfeits the deposit money whatever amount but equity will only demand that only the required 10% be forfeited.
A Plaintiff may in his suit pray for more than one remedy: See
Abdul Karim Khan v. Mohammed Roshan  EA 289
The Appellant sued the Respondent on an agreement in writing whereby the Respondent agreed to sell to him an undivided half share in a property for a price which he had paid. Subsequently, the respondent charged the property to a company and refused to complete the sale. The Appellant claimed specific performance of the agreement, damages for breach of the contract, rescission and a return of the money paid, in alternatives.
The court held it was quite in order to put all the reliefs in the alternative. It would have been invalid had he claimed the remedies together.
Rescission is an equitable remedy and the court has discretion to grant it.