Remedies: Rescission and Reformation

Application of Rescission

Rescission cancels the contract where it results from: (1) mistake; (2) fraud; (3) duress; or (4) special cases of material breach. It is usually accompanied by restitution of benefits conferred

Legal Rescission

Legal rescission is effected by the plaintiff giving prompt notice and tendering back anything received under the contract. Thereafter, the plaintiff can seek restitutitonary remedies of quasi-contract or replevin

Equitable Rescission

Equitable rescission is appropriate if legal rescission is inadequate, which occurs when court intervention is necessary

Grounds for Rescission

Rescission may be based on grounds making the contract voidable at the option of one party. Mistake and Misrepresentation are the most common on the bar

Rescission and Mistake in Formation of Contract

All courts grant rescission for mutual mistakes affecting the basis of the bargain, such as the nature of the subject matter. No relief for collateral or immaterial mistakes (quality or quantity of item for instance) is available, but resulting hardship may serve as a defense against specific performance. Traditionally, there was no rescission for one party’s uniltateral mistake unless the other party knew or should have known of the mistake. The modern trend is to grant relief for all unilateral mistakes going to the basis of the bargain where the hardship of the mistaken party outweighs the detriment to the other party’s expectations

Misrepresentation

The plaintiff can seek rescission upon a showing of actual reliance on a material misrepresentation of fact

Negligence and Rescission

Normally negligence is not a good defense for rescission based on mutual mistake

Election of Remedies

An action for damages affirms the contract and bars a subsequent suit to rescind (except for the sale of goods, where suits for damages and rescission can be sought in the alternative). An action to rescind does not preclude a legal action, but the plaintiff must elect one form of relief.

Rescission Estoppel

Rescission is barred on an estoppel theory where the plaintiff by word or conduct affirms the contract with knowledge of the facts justifying rescission

Availability of Restitution

If a plaintiff who is entitled to rescission has previously rendered performance on the contract, they can get compensated for it or get the property back

Cancellation

A written instrument that is voidable may be canceled if there is apprehension that the outstanding instrument may cause injury to a person entitled to void it

Reformation Basic Definition

An equitable remedy for modifying a written instrument to reflect the parties’ original understanding

Reformation: Original Contract

There must be showing of a valid prior agreement free from grounds for rescission. The contract can’t be ambiguous or incomplete and there can be no mutual mistake. It cannot be used to fill in terms required by the SoF, but it can be used to reform a deed to conform to a sufficient memorandum

Grounds for Reformation

The writing does not conform to the parties’ valid prior agreement because of mistake or fraud. If the mistake relates to entering into the agreement in the first place, the case must be analyzed under rescission

Reformation Mistake of Fact

Reformation is proper if both parties mistakenly believed the writing confirmed to their agreement (“scrivener’s errors). Reformation may be granted for a unilateral mistake if the nonmistaken party knows of the mistake, but unlike rescission, this does not extend to where the nonmistaken party should have known of the mistake

Reformation Mistake of Law

Reformation is proper to correct a written instrument because of mistake in the legal meaning of a term used to incorporate the underlying agreement

Reformation and Fraud

An instrument fraudulently represented as incorporating the prior agreement of the parties may be reformed

Reformation Misrepresentation

Reformation will be granted for a misrepresentation. The rewriting will reflect the parties’ expressed intent

Reformation Defenses

Laches, unclean hands, and sale to BFP are all defenses to reformation. Parol evidence is not a defense, and the SoF is not a defense under the majority view. The minority view permits reduction, but not addition, of land conveyed by written instrument. Negligence by the plaintiff is not a defense

Interlocutory Injunctions

As in a tort action, if irreparable injury can arise from a change in the status quo before final judgment, a party to a contract may seek an interlocutory injunction.