What is the difference between restitution and rescission

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Number of of Fee Earners Click to edit. Office postcode. Office postcode Click to edit. Office postcode No Content This field is required. Public Law. Legal Categories. Discover LexisPSL. News 4. Practice notes 5. The function of a court in which proceedings for rescission are taken is to adjudicate upon the validity of a purported disaffirmance as an act avoiding the transaction ab initio, and, if it is valid, to give effect to it and make appropriate consequential orders : see Abram Steamship Co.

The difference between the legal and the equitable rules on the subject simply was that equity, having means which the common law lacked to ascertain and provide for the adjustments necessary to be made between the parties in cases where a simple handing back of property or repayment of money would not put them in as good a position as before they entered into their transaction, was able to see the possibility of restitutio in integrum , and therefore to concede the right of a defrauded party to rescind, in a much wider variety of cases than those which the common law could recognize as admitting of rescission.

Of course, a rescission which the common law courts would not accept as valid cannot of its own force revest the legal title to property which had passed, but if a court of equity would treat it as effectual the equitable title to such property revests upon the rescission. Outside the context of fraud and duress, however, the role of election in equitable rescission is far less clear.

On the one hand, there is considerable authority supporting the view that election is always required for rescission, whether common law or equitable. On this approach, claimant election has no independent proprietary effect beyond that determined by the court in its discretion, on hearing the parties to the claim. Any proprietary consequences of rescission are in the discretion of the court and effected by its order.

In a rigorous review of the authorities concerning election for equitable rescission, the learned authors of The Law of Rescission have concluded that they are impossibly incoherent. It is possible to find a strong principled argument for this proprietary conception of the role of claimant election. A claimant to such a vitiated transfer is entitled to revoke her consent to the transfer of title and obtain a proprietary interest in the asset.

This analysis both explains and justifies the availability of proprietary restitution in cases of vitiated consent transfers.

It is immediately apparent that the three objectives of election identified above, namely its contractual role, change of position aspect and proprietary effect, do not appear to be co-extensive with one another. A contract may be rescinded notwithstanding that no property has passed under it.

And a transfer of title can be rescinded notwithstanding that it was by way of gift, not contract. This suggests that election in the context of rescission may be operating to protect different interests, which may in turn be protected through mechanisms other than election.

It follows that in order to determine in what circumstances election is properly a pre-requisite to restitutionary liability, those interests must be identified and the effectiveness of election as a mechanism for protecting those interests assessed.

A claimant does not have to bring a claim for restitution, after all, if the completed transaction works in her favour. And if she chooses to seek restitution, no election beyond the bringing of her claim is required. Additionally, however, election on the foregoing analysis further serves as a trigger for proprietary restitution, thereby enabling the claimant to get back the precise benefit conferred or its traceable substitute.

An election requirement no doubt assists in notifying original recipients of assets transferred by a claimant of the danger of impending liability or the risk of uncompensated loss.

For example, a defendant recipient of an asset transferred as a result of her duress [75] will, on election, be on notice of the danger in dealing with the asset and thus committing conversion. Likewise, if rescission occurs in equity and a trust arises over the asset, notice of election protects the original recipient still holding the asset from unwittingly dealing with the asset in such a way that she becomes personally liable for its loss.

Election further gives notice to defendant parties of contracts that they are no longer obliged to perform. However, it will be recalled that notice does not always appear to be required for a valid election to occur. Recaption and certain limited cases of fraud are exceptions. In Car and Universal Finance Co Ltd v Caldwell , [76] the defendant sold a car to a fraudster Norris , who on-sold the car to a firm of motor-dealers who had notice of the fraud. The car was eventually sold to the claimant, a bona fide purchaser without notice of the fraud.

On realising he had been duped, the defendant notified the police and automobile association and sought to contact the fraudster, who had absconded and could not be located. When the car was eventually located, the claimant and defendant both laid claim to it. If so, legal title had revested prior to sale to the defendant and the claimant was entitled to the car.

In considering whether actual communication was required, it was the interests and position of the other party to the original transaction that was regarded by the Court of Appeal as paramount. However, their Lordships also noted that notice was not always required, as evidenced by the example of recaption.

In those circumstances, because the fraudster would already be expecting rescission and had deliberately evaded contact with the claimant, the protection otherwise offered through the notice requirement could safely be waived.

The somewhat convoluted reasoning in this case highlights the objections to justifying the role of election solely in terms of considerations applicable to parties to the contract. Election here is not required to protect the defendant from unknowing restitutionary liability, because he already has knowledge of the insecurity of his receipt.

Why not, then, simply remove the requirement in all cases of fraud? However, if that is correct, then the notice requirement is not terribly effective.

We have seen that election traditionally must be made by giving notice to the other party to the original transaction. A third party defendant who takes the benefit of the impugned transaction from the original recipient may not receive that notice. In that respect, a broadly available change of position defence would arguably protect that defendant from unjust enrichment claims adequately, and indeed better than a notice requirement.

Election plays a crucial independent role in such a case in limiting the relevance of security of bargain to dealings with the subject matter of the contract before the claimant elected to rescind. That leaves third parties including those who ultimately become defendants who obtain competing proprietary rights in the transferred benefit.

Bryson J of the New South Wales Supreme Court did not hesitate to order the defendant to make restitution of the value of the property assessed as at the point of sale.

It is only where rescission is proprietary that third parties are affected. If it is determined that the conditions that were not met amount to a full breach, the plaintiff may be awarded damages equal to the total amount that would have been made had the contract been fully executed.

On the other hand, the contract can be termed as a partial breach, this means that the offended party may seek damages equal to what is required to correct the anomaly. In the case of a partial breach, courts may also decide to award an amount that is equal to the difference in actual value from the expected value. Unlike with damages, with restitution, the plaintiff does not seek to be compensated for any breach of the contract.

The customary measure of damages is the reasonable expense of completion. Completion refers to a fulfillment of the same work, if possible, which does not involve unreasonable economic waste. The injured party is not automatically entitled to recover the difference between the contract price and the amount it would cost to have the work completed when a contract is breached after partial performance; he or she will be entitled to recover that amount only if completion is actually accomplished at a greater cost.

A provision in a building contract that allows the owner, in the event of a default by the contractor, to complete the job and to deduct the expenses from the contract price does not preclude the owner's recovering damages also where the contractor intentionally leaves the work undone. A plaintiff may also recover the monetary value of materials that are lost through a breach of contract. A plaintiff contractor who subsequently performs the work upon breach of a contract will ordinarily recover the reasonable value of the labor and materials that he or she has furnished, with the contract price used as a guideline.

The award may not properly exceed the benefit that the owner received in the properly completed work, and it will be reduced by the amount of damages that the owner incurs as a result of the contractor's failure to complete performance of the contractual obligation. If the value of the work performed exceeds the contract price, the contractor will not receive the excess.