Rescission of a purchase agreement

A buyer who finds the seller’s statements were false may ask to unwind the purchase agreement rather than sue only for money. The Supreme Court of Canada, in Guarantee Co. v. Gordon Capital, described rescission as a remedy available to the representee, among other cases, when the other party has made a false or misleading representation. It allows the rescinding party to treat the contract as if it were void from the start.

How it differs from ending a contract

The Court contrasted rescission with repudiation. When one party accepts the other’s repudiation, the contract is terminated, but the Court, quoting Keneric Tractor Sales v. Langille, said it is not rescinded in the true legal sense. The Court noted a fundamental confusion over the two terms and said courts must analyse the entire context of the contract and give effect, where possible, to the parties’ intent. For a misrepresentation that became a term of the contract, the Court quoted Waddams that setting the transaction aside depends on whether the breach is substantial or goes to the root of the contract.

Statutory rescission: an Ontario example

Statutes can create their own rescission rights. Ontario’s Arthur Wishart Act (Franchise Disclosure), 2000 lets a franchisee rescind, without penalty or obligation, no later than 60 days after receiving the disclosure document, if the franchisor failed to provide it or a statement of material change within the time required by section 5, or its contents did not meet section 5’s requirements (s. 6(1)). Under s. 6(2), if the franchisor never provided the disclosure document, the limit is two years after entering into the franchise agreement. Section 5(7) lists cases where the disclosure requirement does not apply. Section 9 says the Act’s rights are in addition to any other right or remedy at law. For a resale, see whether rescission rights apply to a franchise resale. This entry covers the common-law remedy and Ontario’s franchise Act only; check the rules where you are.