Rescission Essay



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The basic definition of rescission is that of termination of the transaction or situation, so that the parties are placed in their original positions before the transaction or situation had occurred. Unjust enrichment main aim is to give back to a plaintiff value transferred directly from the plaintiff’s assets to a defendant. This could be by the way of restitution as the suitable remedy to unjust enrichment.  Rescission is another remedy which is very hard to implement in unjust enrichment. It is also quite important to bear in mind that proof of a wrong is not dependant of claims of unjust enrichment.

Having said that, it is possible that on a single set of facts a claim based on unjust enrichment and a claim based on a wrong may both be available. An obligation to make restitution is always brought about by a claim that is based on an unjust enrichment. For an obligation to make compensation there has to be a claim based on a wrong. However, this may additionally result in an obligation to make restitution and on the other hand it will result in an obligation to make reimbursement which will allow the normal citizen to the courts for its wrongdoing which it never intended to do so.

 This paper will be divided in two parts:

a) Money has been received

b) Services.

Research suggests that implementing rescission with money had been received is obtainable and services “quantum meruit” is not possible.

Money had been received

In the case of Maguire v Makaronis (1997) 188 CLR 449, the appellants were a firm of solicitors were acting for the respondents, who were husband and wife borrowers.  However, the solicitors acted as intermediaries for bridging finance and actually took out the loan in their own names.  The solicitors gave full disclosure of their own names as mortgagees on the certificate of title but failed to tell the respondents what they had done.  Neither did they ask the respondents to seek independent legal advice.  When the borrowers defaulted on the loan, the solicitors pursued enforcement of the mortgage.

The High Court of Australia upheld the respondents’ equity to have the transaction rescinded, so that the parties returned to their original positions.  However, the Court further held that the best way to “do equity” was for the parties to “honour their contractual obligations to pay money and interest secured by the mortgage”. Otherwise it would have been unjust and unfair for the appellants to have remained the legal owners of the property and the respondents, the beneficial owners, whilst the lenders suffered detriment.  (Levmore, 1986)

The Court did lower the interest rate charged on the mortgage from the then 1989 bridging loan rate of 22% to the then current commercial rates. Research would further argue that his premise is evidenced by the fact that the borrowers needed to seek a large loan to enter the purchase transaction in the first place.  Hence research emphasis that returning the parties to their position before the transaction has been made is very difficult in such case. (Levmore, 1986)

However, there are some other cases which could bring the parties to their original position.  For instance where defendants purchase an asset in reliance of his unjust enrichment, a court stated that such a change is reversible because the asset can be put up for sale.

Research argues that rescission as a remedy could be achieved in a contract but with case of failure of consideration and in mistaken payment.  For instance in the case of Roxborough ?­v Rothmans of Pall Mall Ltd (2001) 208 CLR 516, the defendant company did not obliged to pay a government tax.

The plaintiff paid the amount of the tax to the defendant.  But the tax was unconditional.  The court held that the defendant has enriched by way of failure of consideration and therefore he must return the money back to the plaintiff.  This could show that the court was able to return the parties to the same positions before the contract made. (Levmore, 1994)

The occurrence of the mistaken payment is sufficient to bring an action for restitutions.   But is it possible for a court to bring the parties to the same position before making the mistaken payment? In Kelly v Solari (1841) 9 M & W 54, 152 ER 24, the plaintiff company pays to an executrix the proceeds of a life assurance policy.  The plaintiff company was actually negligently missing the fact that the insured was failed to provide the premium payments.  The court held that the recovery of the mistaken payment is available for the plaintiff company.

The court also dismissed the fact that the plaintiff company only had the meant of discovering the true facts but had carelessly neglected to do so.  In fact, if the plaintiff company by intention decision ignore to investigate the fact and intended to make the payment then the story will be deferent.  in that case the company is keen to make the payment no matter what the true fact is.  research indicate that this case is an example of the mistake of fact which the remedy of rescission is available.  (Gordon, 1992)

   Hence, research believes that there is no distinct approach between mistaken payment in fact or laws by the court.  So rescission as a remedy for mistaken payment is available for the plaintiff.  In other words, a court could bring the parties to the same position before they entered into a contract. Services “quantum meruit” is not possible. Rescission as a remedy for services which been made is very difficult to implement.  Moreover, calculating the value of the services bring the difficulties to implement a rescission remedy for the plaintiff.  A good example which could support this argument is the case of NEA PTY v MAGENTA MINING PTY LTD [2005] WASC106.

The partly verbal, partly oral contract provided for the modification, transportation and set up of the crushing equipment by the Plaintiff in addition to the intention that it would process significant volumes of gold ore.

After the Plaintiff made the crushing equipment operational at the Defendant’s mining lease, the equipment only functioned briefly and eventually broke down completely in mid October 1995.  After re-possessing the equipment and terminating the contract, the Plaintiff commenced legal proceedings against the Defendant, claiming $28,040.06 for the remaining balance of hire and associated costs.  in addition to filing a counterclaim, the Defendant defended the Plaintiff’s claim on the basis of total failure of consideration.  The Defendant argued that the Plaintiff had represented to them that the equipment was capable of crushing the particular ore at Hawkins Find and consequently the contemplated basis of the enrichment was for the possession and use of a functioning crushing circuit that would process all the stocking ore.  As the machinery had barely operated before entirely breaking down, the Defendant disputed its liability for the hire charges on the ground that the basis of the enrichment totally failed. (Gordon, 1992)

Was the enrichment unjust?

      In the vast majority of cases, there are two established approaches to this issue. Normally, the common legislative systems like those of the United States and England have continued on the basis of what may be termed the ‘unjust factor’ approach. In addition, the other civil law systems like those of France and Germany have continued as a result of what may be referred to as the ‘absence of basis’ approach. Recently, many common systems of law have exhibited signs of a possible move towards the absence of basis.

      The ‘factors of injustice’ approach requires that the person claiming to identify/ point out a number of factors recognized by the law as rendering the defendant’s enrichment unjust. Taking the English law into consideration, we notice that it recognises the following factors of injustice:

1.   Mistake of fact

2.   Mistake of law

3.   Duress

4.   Undue influence

5.   Total failure of consideration

It is also necessary to state that the English law also recognises these factors of unjust, though some controversy surrounds each:

1.   Ignorance/powerlessness

2.   Unconscionability

3.   Partial failure of consideration

4.   Absence of consideration

   It is important to take note that the example just given above would lead to exactly the same conclusion using the ‘unjust factors’ approach. Using the ‘unjust factors approach’, one would not easily manage to clearly identify an unjust factor even if the contract was valid. However if one could point to the unjust factor using a properly developed ‘unjust factors’ approach and a properly developed ‘absence of basis’ approach, he/she would reach the same result. (Bant ; Edelman, 2006)

Remedies are available to the claimant

    Personal remedies differ from proprietary remedies in that a personal remedy will require that the defendant pays the claimant a given amount of money. On the other hand, a proprietary remedy requires that some of the defendant’s properties also belong to the claimant possession belongs to the claimant, either at common law or in equity. However there are several examples in the English law which are arguable especially when it comes to giving a proprietary remedy in an unjust enrichment claim (Bant & Edelman, 2006)

   There are several reasons as to why it would be necessary for the claimant to seek a proprietary rather than a personal remedy. One reason that is quite obvious is when it comes to showing a proprietary interest in some property means that one need not compete with the defendant’s unsecured creditors in the event of his insolvency. It is also accepted in general terms that a claimant is entitled to a personal remedy only will be restricted to simple interest, while a claimant who is entitled to a proprietary remedy can get compound interest.  (Levmore, 1994)

     Looking at one of William Swadling’s view, it states that the resulting trusts either arise automatically or in response to a presumed intention (on the part of the transferring party) to create them. However, response to unjust enrichment does not arise in either way. Taking Peter Birks’ and Robert Chambers’ suggestions which account for the opposing view, they argue that the resulting trusts arise in response to unjust enrichment. It is also important and allowable to cite English cases that support both views. In these cases there is a great deal in discussion of the presumptions which might be thought to lend particular support to the Swadling view. On the other hand, Birks and Chambers try to explain this view by stating that the presumption in question is not a presumption of intention to create a trust but a presumption of lack of intention to benefit the recipient or to make the recipient an express trustee for a third party. (Barker, 2006)

      Whilst Heenan J found in favour of the Defendant for parts of its counterclaim, he dismissed the defence, concluding that there had been no total failure of consideration.  Heenan J dismissal of counter-restitution is questionable, as he does not explain exactly what part of the benefits received by the Defendant could not be easily valued. , it would appear that the only aspect of performance that was not relatively simple to value was the actual use of the equipment for the few short periods it operated.  The Plaintiff hired the equipment out on a monthly charges, it would be more difficult to determine exactly what benefit the Defendant had received from its short use during the time it was actually functioning.  Research will argue finally that such case could explain the reason why rescission as a remedy for unjust enrichment for the contract of services is very hard to implement.  It will bring the difficulties to bring the parties to the same position before the contract is made.  (Kull, 1994)


      To sum up, bringing the parties of a contract to the same position before contracting in unjust enrichment is difficult but not impossible. Rescission as a remedy for unjust enrichment is obtainable with some transactions. To explain that we need to classify the relationship of contract into two approaches.  The first is money which has been received.  Rescission in this case is obtainable with failure of consideration and mistaken payment but not with irreversible things.  Rescission is obtainable where mistaken payments occur.  When a mistaken payment in the fact occur a court could return the parties to the same position before contracting and the example of that is the case of Kelly v Solari.  Moreover, mistaken payment in the laws should be treated same as the mistaken in fact. The second approach is the contract of services where the parties complete some of their obligations.  Rescission is very hard to implement because for example calculating the services which have been done is difficult. Research finally emphasis that rescission as a remedy in unjust enrichment is possible with some cases such as failure of consideration


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