Rescission, Restitution, & Reformation

Question 1

Rescission of a K

Answer 1

Avoid or undoes a contract

Question 2

Grounds for rescission of a K

Answer 2

1. Available if parties mutually assent
2. Available if a party was fraudulently induced
3. Available if unilateral mistake by party seeking to rescind

Question 3

A party seeking rescission based on fraudulent inducement must show:

Answer 3

1. Other party to the contract knowingly made a false statement of material fact or concealed a material fact despite having a duty to disclose
2. Other party made the representation to induce the first party’s reliance;
3. First party justifiably relied to that party’s detriment; and
4. Before suing, defrauded party either returned or offered to restore what he received as a result of the contract (unless other party made that impossible)

Question 4

A party seeking rescission based on unilateral mistake must show:

Answer 4

1. The the mistake was to a basic assumption of the agreement
2. The assumption had a material affect on the agreement; and
3. Either: Enforcing the agreement will be unconscionable or the other party knew of the mistake or the other party caused the first party to be mistaken

Question 5

Can rescission be waived?

Answer 5

Yes, affirming the contract waives the ability to rescind

Question 6

T or F: A party is precluded from seeking rescission as a remedy if a party affirms the contract after learning of the grounds for rescission

Answer 6

True

Question 7

Constructive Trust

Answer 7

A means of recovering specific property from the holder of legal title who has just been unjustly enriched by the acquisition

Question 8

Restitution

Answer 8

When a plaintiff confers a material benefit to the defendant, which unjustly enriches the defendant at the plaintiff’s expense

Question 9

Requirements for a Constructive Trust

Answer 9

Plaintiff must show:
1. The defendant holds title to the property to be subject to the constructive trust (mere possession is not sufficient)
2. The defendant’s retention of the property would violate an equitable principle (usually unjust enrichment)
3. The legal remedy (money) is inadequate

Question 10

What is the effect of a P gaining title by way of constructive trust?

Answer 10

The P is not required to account for any increase in value of the property while the D had title. But, the D is not liable for any decrease in value.

Question 11

Tracing

Answer 11

Useful if the defendant exchanges property wrongfully-acquired from plaintiff for other property. A constructive trust may be imposed on property provided that all the requirements for a constructive trust are met

Question 12

T or F: A constructive may be brought against a TP transferee, even if the person is a bona fide purchaser

Answer 12

False, constructive trust may be brought against a TP-transferee, unless the person is a bona fide purchaser for value who took without notice.

Question 13

Equitable Lien

Answer 13

Imposes a lien on the defendant’s property as a security for the plaintiff’s claim

Question 14

Requirements for an equitable lien

Answer 14

Same as a constructive trust

Question 15

Does the plaintiff get title to the property when it seeks an equitable lien?

Answer 15

No, it only gives the plaintiff priority to the property over the defendant’s unsecured creditors

Question 16

Equitable Lien or constructive trust?

Answer 16

1. If the property has declined in value, an equitable lien is better for the plaintiff who can satisfy the remaining portion of its claim from the defendant’s other assets.
2. If the property has increased in value, a constructive trust is better for the plaintiff because the plaintiff receives title to the property