When one party to a contract commits a breach that is serious enough for the other party to bring a contract to an end, the contract becomes voidable. The contract is still valid but, at that point; the party suffering the breach may elect to rescinded or affirm the contract. In practice, it can be difficult for innocent parties to spot when a contract might be voidable and their right to rescind can easily be lost unitentionally if care is not taken.
Rescission
There exist a number of bars to rescission including: i) affirmation of the contract, ii)delay, iii)restitution under the contract is impossible, or iv)third party rights may be prejudiced. A court may also decide that another remedy such as damages is more suitable. If any of the bars are effective, the contract will no longer be considered voidable.
Affirmation
If a party to a contract has suffered a breach such as misrepresentation, that party has a right to decide whether to rescind the contract or not. If that party elects not to rescind the contract then it is treated as affirmed.
Making the Election
As long as he has not elected to exercise his right to either rescind or affirm the contract, and none of the bars to rescission exist, then the election remains exercisable. Once a party has elected to affirm a contract, the election is irrevocable and he is bound to that decision.
Affirmation is not an action that requires agreement or further consideration between the parties; it is simply a unilateral election by the party who has suffered a breach. That party must have sufficient knowledge of his right to rescind or affirm and show by his words or conduct that he has elected to affirm. Sufficient knowledge means knowledge of the serious breach of contract by the other party that gives him the right to rescind, and knowledge of the remedy itself.
Affirmation may be effected by either words or conduct. It is important to note here that intention is not a relevant consideration; the question of affirmation is viewed objectively. Strictly speaking the test is whether he has sufficiently shown that he has elected not to claim his right to rescind.
The decision is effectively made when a communication by word or action to the other party is unequivocal. In the case of affirmation, words or actions (other than those minor in context) inconsistent with a decision to rescind will affirm the contract.
If you need advice regarding contractual issues, Rollingsons has lawyers experienced in company law matters. For more information please contact James Crighton via e-mail jcrighton@rollingsons.co.uk or by phone on 0207 611 4848.
