The law of restitution is concerned with situations in which a plaintiff may recover a money sum equal in value to a benefit obtained by the defendant at the expense of the plaintiff - the giving back of something improperly retained.

- A defendant is subject to a liability in restitution whenever the circumstances indicate that the receipt or retention of a benefit obtained by the defendant from the plaintiff is unjust.

3 elements:

1. Benefit
2. At the Plaintiffs Expense
3. Injustice

An action for restitution is not a contractual one, it is not based on a wrong

Quantum Meruit – An action by a plaintiff to recover a reasonable sum of money for the provision of goods and services.

Pavey & Mathews v Paul (1987)

Facts: Pavey (appellant – plaintiff) orally agreed to renovate a cottage at Swansea Heads for Mrs Paul in return for a reasonable remuneration calculated by reference to the prevailing rates of payment in the building industry.
Issue: Whether the plaintiff is entitled to restitution of the cost of the work and materials in a quantum merit?
Held: Appeal allowed (by majority)

Vitiating Factors

Factors that may affect the quality of the consent that one or both parties have given to the entry into of a contact.

Misrepresentation

A misrepresentation is a false statement of a material fact may by one person (the representor) to another (the representee) in order to induce the representee to enter into the contract and which has this effect.

A fraudulent misrepresentation generates a right to damages for deceit; a negligent misrepresentation may generate a right to damages in negligence.

- If the statement made is not a term of the contract then it may be a representation.

Elements of Misrepresenation

The statement must satisfy the following points:

A – Statement must be one of fact
B - Must be false
C - Reliance it must induce the representee to enter into a contract.

The Represenation must be a statement of Fact

- Statements must be of a past or present fact.
- Traditionally statements of fact do not include statements of law so that a misstatement of the law cannot be a misrepresentation because there is a ‘legal fiction’ or presumption that ‘all people know the law’.

Davis Securities v Commonwealth Bank Of Australia.

- The traditional rule amounts to a misrepresentation in the following circumstances:
- If the misstatement was as to a persons private legal rights.
- If the misstatement of law was a deliberate or willful one.
- If the misstatement was a composite one of both fact and legal issues.
- Statements of opinion, intention , or of law, are not representations.

- Advertising or sales “puffs” are not statements of facts along with promises or assurances as to the future.

Balfour and Clark v Hollandia Ravensthorpe (1978) - SC of SA, Full Court

Facts: Balfour and Clark (the plaintiffs, respondents) purchased a Hollandia home at Happy Valley on short-teerm finance provided by Hollandia, and took possession.
Issue: Was the statement a misrepresentation?
Held: The plaintiffs succeeded.

Bray: “In my view in the circumstances of this case the representation was clearly false by reason of what was omitted from it. fraud may consist in suppression veri as well as in suggestion false”

* Misstatements of future intention – If you know that your intention to do something in the future is a complete life then it will be a misrepresentation.

* Statements of Opinion – general proposition is that an inaccurate opinion does not amount to misrepresentation. If the opinion statement is made on the basis of facts that are known only to the representor then the opinion becomes a misstatement of fact.

Representation Has To Be False

It can be verbal or can be the conduct also i.e. a wink. However there is no obligation on a person to disclose facts. Contracts said to be of ‘utmost good faith’ allows both parties to disclose material facts and a failure to do so amounts to false representation.

- If a statement made is partially true – the failure to disclose the ‘full story’ still amounts to a misrepresentation.
- If a statement made before the contract is true but overtime it changes the truth must be disclosed. The failure to disclose on these counts is said to be fraudulent misrepreseantion.
- If the representor is never aware of the misstatement that it will be classified as innocent misrepresentation. Demagogue Pty Ltd v Ramensky

Reliance On the Representation

The representation must actually induce the representee to enter into the contract. The representation need not be the sole inducement, provided it is one of the factors that influenced the representee to enter into the contract.
- I.e. the representee must’ve relied on the statement upon entering the contract.

Holmes v Jones

Facts: Jones and others (plaintiffs, respondents) purchased a pastoral property from Holmes and other, and subsequently claimed damages for an allegedly fraudulent misrepresentation as to the number and ages of the cattle upon the property
Issue: Whether the plaintiff relied on the representation?
Held: Appeal allowed.

Griffith: “It appears to me to be common sense as well as law that, when a purchaser chooses to rely upon his own judgment or upon that of his agent, he cannot afterwards say that he relied upon a previous representation made by the vendor”

- Representee must establish that a false statement was made and there was a calculation that the said statement induced you into the contract – you have then prima facie established misrepresentation.

- If the representee is aware of the falsity of the statement – that can no longer be an inducing statement.

- The onus is not on you to test the truth of the statement being made.

The Issue of Materiality

Does the statement made have to be one of a material fact. It is an element of establishing reliance however it is harder to do is the statement is a material fact; Nicholas v Thompson
 
Remedies For Misrepresentation

Recission: This is the right to set aside a contract - The purpose of rescission is to put the parties back into the position they were in before the contract was entered into referred to by latin phrase restitution in integrum: Abram Steamship Co Ltd v Westville Shipping Co [1923].

Rescission takes effect from the date and time of communication by the representee to the representor  à the innocent party must, as a general rule, clearly and unequivocally communicate his or her election to rescind to the other party: Immer (No 145) Pty Ltd v Uniting Church in Australia Proprty Trust (NSW) (1993).

A representee can generally elect to rescind a contract notwithstanding that the representation became a term of the contract.

A representee cannot seek rescission for misrepresentation and sue for damages of a breach of a term of the contract.

Damages in Tort:

The meaning of Restitutio in integrum

    * The purpose of rescission is to bring about Restitutio in integrum - if this cannot be achieved a contract cannot be rescinded.

It is restoring the contract parties to their pre-contractual positions.

    * The right to rescind in common-law (as compared to equity) is quite restrictive – rescission at common – law was kept to fraudulent misrepresentation.

Common–law restitutio requires EXACT restitution in integrum and if they could not be restored exactly then rescission is not available.
Equity it only requires restitutio in SUBSTANCE – the fact that they were not exactly in the same position did not matter:

Altli v Krugner (1955)

- Krugner (plaintiff) was induced to purchase a fruit shop from Atali by representations that the average takings were 100 pounds per week
- Krugner found representations to be false within two weeks and commenced proceedings for recission.
- He carried on with the business for several months, but closed it down and left the premises before judgement was given
- Townley declared that the contract was lawfully rescinded by Krugner and all copies to be cancelled.
- When Alati appealed to the High Court it was dismissed.
- The judges stated: ‘…it is necessary here to apply the doctrines of equity, and equity has always regarded as valid the disaffirmance of a contract induced by fraud even though precise restitution in integrum is not possible, if the situation is such that, by the exercise of its powers including the power to take accounts of profits and to direct inquiries as to allowances proper to be made for deterioration, it can do what ispractically just between the parties, and by doing so restore them substantially to the status quo’

- Krugner was entitled to rescind and obtain a decree declaring and giving effect to the rescission as an avoidance of the transaction from the beginning.

- The remedy was discretionary but in the circumstances it was impossible to convict Krugner of any unfairness in discontinuing the business, and he had not lost his right to a decree.


Rescission is different to other remedies because in others that plaintiff makes an application to the court and it’s the court that declares the remedies - in rescission it is not an order of the court – it is an act of the contracting party itself.

Until the notice of rescission is communicated the contract remains valid until rescission takes place à contract is voidable but not void - Significance of the issue lies in ascertaining the date the contract is rescinded.

If rescission is the act of the party, rescission takes place when the party seeking to rescind gives not of rescission to the other party - if it is an order of the court, it takes place when the court order is made: Alati v Krugner

    * The role of the court is to adjudicate on the validity of the rescission which arises in relation to three things:

         1. was there misrepresentation?
         2. whether or not restitutio in integrum has been or can be achieved - if it has not or cannot then rescission cannot be granted: Kramer v McMahon [1970]
         3. whether or not there are any other limitations on the right to rescind.

    * There are five instances where the representee’s right to rescind a contract may be lost. They are where:

         1. a representee has affirmed the contract
         2. restitution is impossible
         3. an innocent third party has acquired an interest in the subject matter of the contract prior to the purported rescission
         4. there has been a lapse of time (that is, delay)
         5. the contract has been executed.

A more controversial issue is whether the court can order a partial rescission:

Vadasz v Pioneer Concrete (SA) Pty Ltd (1995)

- Vadasz executed a guarantee to pay ‘all monies which now or may at any time until we are released be owing’ by his company, Vadipile Drilling, to Pioneer Concrete.
- Vadipile became insolvent, but when Vadasz was sued for $357,427.37 he claimed that the guarantee was unenforceable because it was induced by misrepresentations that it would be with respect to indebtedness on for future supplies by pioneer.
- Judgement was entered for $170,929.32 - Vadasz was entitled to relief in equity by which the guarantee was rescinded as regards past indebtedness.
- The court must look at what was practically just for both parties, and to enforce the guarantee to the extent of future indebtedness was to do no more than hold Vadasz to what he was prepared to undertake independently of any misrepresentation.