Recission - Irish Equity

Recission

Grounds for recission

Mistake

• Cooper v Phibbs (HL)

  • The plaintiff entered into a contract to rent land from his nieces, which in reality belonged to him.

  • Later, believing the property to belong to himself, he sought an order for recission of the contract.

  • Held that, the parties concluded the agreement under a mutual mistake and misapprehension as to their relative and respective rights and the plaintiff, though there was no fraud, was entitled to have it set aside.

• Solle v Butcher

  • A landlord restored a war damaged house which, prior to the war, had been let in flats subject to the Rent Restrictions Acts.

  • The landlord, having restored the flat, could have increased the rent if he served the appropriate notices but chose not to do so after the tenant indicated to him that he understood the house to be sufficiently altered to be removed from the remit of the Acts.

  • The tenant later sued for the difference between the rent he had been charged and the maximum rent under the Acts and won.

  • Bucknill LJ (concurring)

    • The parties had addressed their mind to the material issue of the identity of the new flat and their mistake (as to whether the alterations had destroyed the identity of the earlier flat) was a mistake of fact, allowing the contract to be set aside.

  • Denning LJ (concurring)

    • There are two kinds of mistake those that render the contract void (common law) or those that render it voidable (equity) – in the latter case the court can set the contract aside on such terms as it deems fit.

    • The correct interpretation of Bell is that where, objectively and regardless of subjective intentions or beliefs, two parties appear to have contracted on the same terms and the same subject matter, the court will not interfere unless it must be set aside for breach of some condition (e.g. non-existence of subject matter) or for fraud or on grounds of equity.

    • Where the parties are under a common and fundamental misapprehension, and the party seeking to rely on it was not himself at fault, then the courts may set the contract aside in equity – in this case there was such a fundamental mutual mistake that the contract and equity should impose what terms are just.

  • Jenkins LJ (dissenting)

    • The parties knew all the material facts - they had not made a mistake as to fact, but rather a mistake as to the effect the facts with which they were acquainted had on their legal relationship.

• Great Peace Shipping v Tsavliris Salvage (CA)

  • The plaintiffs contracted with the defendants to provide salvage services, with both parties believing that the plaintiffs' vessels was considerably closer to the salvage site than it actually was.

  • When the defendants discovered this they sought another vessels before terminating the contract and, when sued by the plaintiffs, claimed that the contract was void for mistake.

  • Held that, Solle v Butcher does not constitute a true equitable doctrine (i.e. discretionary rules which follow the common law to ameliorate its harshness), rather it runs contrary to the common law in Bell v Lever Bros.

• O'Neill v Ryan (No. 3) (SC)

  • The defendants were being sued by the plaintiff on a number of separate grounds and sent him an offer to settle some of them.

  • The defendants then later claimed that they had intended to settle on a ground which the plaintiff did not believe to be in issue in the offer.

  • Solle v Butcher approved of, but not applied.

Misrepresentation

• Northern Bank Ltd v Charlton (SC)

  • Where a person has been induced by fraudulent misrepresentation made collaterally by the other party to a contract to alter his position to his disadvantage he may sue for recission of the contract which was induced by the misrepresentation.

  • This remedy will only be granted where the court decides that it would be just and equitable to do so in order to restore the parties to their respective positions before the fraudulent misrepresentation was acted upon.

Undue influence

• Allcard v Skinner (CA)

  • The plaintiff joined a sisterhood and bequeathed all her property to the lady superior.

  • The plaintiff later sued the lady superior on the basis that she had joined the sisterhood under the undue influence of the latter.

  • Held that, in this case it was clear that the lady superior exercised paramount influence over the plaintiff – this being so, the burden was on her to show that the gifts had been free (and, in particular, whether the plaintiff had competent independent advice)

• Carroll v Carroll (SC)

  • A father left a property to his son and both parties subsequently died.

  • The plaintiffs claimed that the property had been conveyed as a result of undue influence.

  • Held that, the relationship between the donor and donee was such as to imply a relationship in which the latter had influence over the former and the onus was on the donee to show that the transaction had been free.

  • There was evidence on which the trial judge could find that this presumption had not been rebutted.

  • Denham J: There are two classes of undue influence – A) where the gift was given as a direct result of the donee's influence and B) where the relationship gives rise to a presumption that the donee had influence over the donor.

  • In the case of B) it must be established that the gift was the independent and well-understood act of a man in a position to exercise judgment as free as that of the donee – this gives rises to two issues, A) whether independent legal advice has been received and whether the donee acted of his own free will.

  • In this case the solicitor was engaged by the son and the tranfer was not read over to the donor – thus the gift is invalid.

• Barclay's Bank v O'Brien (HL)

  • The defendants, a husband and wife, used their home as security for overdraft facilities for a company that only the husband had an interest in.

  • The husband lied to the wife in relation to the amount of money involved and when the bank tried to take possession of the house, she claimed that the contract was executed under the undue influence of her husband.

  • Held that, where a wife had been induced to stand as surety by her husband's undue influence, misrepresentation or other legal wrong, she had an equity against him to set aside the transaction.

  • On the ordinary principles of equity the wife's right to set aside the transaction would be enforceable against a third party who had actual or constructive notice of the circumstances giving rise to her equity or for whom the husband was acting as agent.

  • In this case the circumstances put the plaintiffs on constructive notice of the wife's rights and in the absence of reasonable steps to ensure her consent had been properly obtained, the wife was entitled to set aside the charge on the matrimonial home.

  • Lord Browne-Wilkinson: There are a number of categories of undue influence:

    • Actual: the claimant establishes that the wrongdoes exerted undue influence on the complainant to enter into the particular transaction which is impugned

    • Presumed: the relationship between the parties is such that it is fair to presume that the alleged wrongdoer abused that relationship in procuring the complainant to enter into the impugned transaction – the burden then shifts to the alleged wrongdoer to show that the transaction was entered into freely (e.g. for showing that the complainant had independent advice)

      • certain relationships (solicitor-client, doctor-patient) raise this presumption as a matter of law

      • other relationships where it can be shown that the plaintiff generally reposed trust and confidence in the alleged wrongdoer

  • The relationship between a husband and wife, while not falling into the former category above, is likely to give rise to undue influence, due to the wife relying on her husband in financial affairs and the leverage arising from their wider relationship.

  • The reasonable steps which should be taken of a creditor consist of:

    • making inquiry of the holder of the prior equity (i.e. the wife) or where this is not possible,

    • warn the wife of the dangers of the transaction and advise her to take independent legal advice

  • More steps (e.g. insisting the wife seeks legal advice) where the creditor has special knowlege of equitable wrongs.

• CIBC Mortgages v Pitt (HL)

  • A husband pressured his wife into mortgaging the house so as to realise money which he invested in shares.

  • He lost money and the bank sued for the debt.

  • Held that, a person who could show the exercise of actual undue influence was entitled of right against the other to have the transaction set aside without proof of manifest damage.

  • The plaintiff was, however, entitled to enforce the charge, as the husband was not acting as its agent, they had no actual notice of the equity and there no reason for them to think that anything other than normal advance to the spouses for their joint benefit.

• Massey v Midland Bank (CA)

  • The defendant owned a house which under the influence and subject to the fraudulent representation of her lover, she mortgaged as security for a loan for a business which he was starting up.

  • The bank insisted that the defendant be independently advised by a solicitor before granting the money and her boyfriend arranged for her to be advised by his solicitor.

  • The business failed and the bank sued the defendant.

  • Held that, the firm had notice of the equity, but was entitled to assume that a reputable firm of solicitors had provided the defendant with honest and professional advice – the bank was under...