Rescission
Rescission entitles a party to a right to elect to rescind the contract that they were induced to enter as a result of misrepresentation. To be effective, a notice of intention to rescind must be communicated to the other party to the contract in clear and unequivocal terms: Car Finance Ltd v Caldwell. Limits on the Right to Rescind The right to rescind may be lost in a number of circumstances, listed below: Redgrave v Hurd. Affirmation The right to rescind the contract will be lost if the party who has suffered the misrepresentation has elected to affirm the contract: Coastal Estates v Melevende. Once the election is made it cannot be retracted: Sargent v ASL Developments. Authorities suggest that in order for a contract to be affirmed, the representee requires knowledge of the right to rescind as well as knowledge of facts falsifying the representation: Coastal Estates v Melevende. Any election to affirm must be made in clear and unequivocal terms to be effective. Lapse of Time The representee must exercise the right to rescind within a reasonable time: Leaf v International Galleries. Any delay by the representee in electing to rescind may amount to an affirmation of the contract. What constitutes a reasonable time is a question of fact. It is suggested that this rule is limited to contracts for the sale of land and contracts for the purchase of shares. Where the contract has been completely performed Once a contract has been executed, the execution prevents the representee from relying on the right to rescission: The rule in Sheldon’s Case. The rule only applies in the case of innocent misrepresentation. The rule only applies to contracts for the sale of land and the purchase of shares. Impossibility of restitutio in integrum In order for the court to allow rescission for a pre-contractual misrepresentation, it must be possible for the parties to be returned to the pre-contractual position: Brown v Smit. Equity will allow a rescission to be granted if the parties can be substantially restored to their pre contractual positions: Alati v Kruger. The court can make orders for compensation or indemnity if such an order could more precisely restore the parties to their pre-contractual position for example compensation for deterioration of property, use of stock or goods, and costs incurred in fulfilling contractual obligations: Alati v Kruger. Third Party Rights The right to rescission will be lost where a third party bona fide and for valid consideration acquires an interest in the subject matter. It is important to note that if the property is purchased in good faith by an innocent third party prior to the rescission of the voidable contract, the third party obtains good title. No title will pass in any property transferred after the rescission of the contract: McKenzie v McDonald