Facts[]
The Kupchaks bought the shares of a motel company from Dayson Holdings giving in exchange two properties on Haro Street and North Vancouver and a mortgage for $64,500 for the motel. In July 1960, the lawyer for the Kupchaks stopped making payments on the mortgage as they had discovered that past earnings of the hotel were false. On September 16 their solicitor wrote to Dayson referring to "proposed action against your client". Dayson subsequently (on October 19) sold half of their interest in the Haro Street Property to Marks Estates Ltd. and the existing building was torn down and an apartment complex erected. Dayson issued an unsuccessful writ for foreclosure against the Kupchaks in 1961. On November 21, 1961 the Kupchaks commenced their action against Dayson for rescission; in the meantime they had continued to live in and operate the motel. At trial the judge found there was fraud but denied rescission and awarded only damages and the Kupchaks appealed.
Issue[]
- Can the plaintiffs claim a rescission and if so, what can they get?
- Did the plaintiffs affirm the exchange?
- Is the plaintiff's right to rescission barred by laches (delay/lapse of time)?
Decision[]
Appeal allowed, contract rescinded and compensation ordered.
Reasons[]
Davey, writing for the majority, analyses the case law to see if the plaintiff's are entitled to recission in the circumstances. Looking at the British case of Spence v Crawford, Lord Wright held that dealings in property obtained by fraud cannot be used to bar restitution - there must be flexible remedies to attempt to restore parties to their original positions. Davey holds that a remedy of rescission (accompanied by restitution) is equitable and its application is discretionary while noting that when applied it must be moulded to the exigencies of the case. He further notes that in cases of innocent misrepresentation courts will not be as interventionist as the parties are not at fault, however in fraudulent misrepresentation the courts will exercise their jurisdiction to order recission to the fullest unless that order would be impractical or unjust. In the case at bar, to return the property at Haro Street would be unjust due to the fundamentally altered nature.
Even though equity is not supposed to give damages, it can order compensation to make good some deficiency in perfect restitution, and so orders recission and compensation of the value of property as it was at the time the contract was signed, plus a 5% per annum interest.
In considering the defence of affirmation (that the plaintiffs affirmed the contract by retaining the shares of the motel and remaining as directors of the company), Davey finds that they had no other option - to return the shares would have required the defendant's signature and the defendant would have had to nominate new directors, neither of which there is any indication Dayson would have agreed to. On laches, the facts show that the defendant was aware of an action as early as September of 1960 and there was no prejudice against them as a result of the action not being commenced until November 1961.
Sheppard, in the dissent, finds that the definitively positive action of the Kupchaks continuing to administer the motel is sufficient evidence for the defence of affirmation.
Ratio[]
- Monetary compensation may be granted under rescission where it is impossible or inequitable to restore the original property.
- Situations where the misrepresentee is not entitled to claim rescission:
- When restitutio in integrum is not possible
- When third party rights intervene
- When there is election or affirmation
- When there is laches or delay
- When rescission would cause radical injustice to misrepresentor
- When there is innocent misrepresentation and the contract has been executed