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Facts[]

Gordon had purchased a Financial Institution Bond from Guarantee Co. to insure it against losses. During the period in which the bond was in place, one of Gordon's employees was involved in fraudulent activity with customers. The activity was discovered in the summer of 1991 and an investigation was commenced. Due to the complexity of the matter, Guarantee Co. agreed to postpone the filing of a proof of loss until March 1992. The eventual proof of loss claimed a loss of more than $42 million. On August 5, Guarantee Co. responded to the proof of loss, stating that due to material misrepresentations made by the firm, the bond was being rescinded. It refunded the premium paid under the bond, but Gordon refused to accept it. On July 15, 1993, Gordon issued a claim against Guarantee Co. in Quebec. A week later, it commenced action in Ontario. Guarantee Co. submitted that the Ontario action was started more that two years after the discovery of the loss.

Issue[]

  1. When is recission available.

Decision[]

Appeal allowed.

Reasons[]

On dealing with the issue of rescission, Iacobucci and Bastarache hold that rescission is a remedy available to the representee when the other party has made a false or misleading representation. Repudiation, by contrast, occurs by words or conduct evincing an intention not to be bound by the contract. Contrary to rescission, which allows the rescinding party to treat the contract as if it were void, the effect of repudiation depends on the election made by the non-repudiating party. If the non-repudiating party accepts the repudiation, the contract is terminated, and the parties are discharged from future obligations, although rights and obligations that have already matured are not extinguished. If the repudiation is not accepted, the contract remains in being for the future and each party has the right to sue for damages for past or future breaches. The held that courts must be sensitive to the potential for misuse of the term rescission and must analyse the entire context of the contract and give effect, where possible, to the parties' intent. In this case, the misrepresentation was a term of the contract, thus rescission will be available if the misrepresentation is "substantial", "material" or "goes to the root of the contract". Here the bond specifically provided that misrepresentations of "material fact" would be grounds for rescission. As the parties are sophisticated actors, it is appropriate to give effect to their intent as expressed in the plain words of the contract. The appellant's attempt to effect a restitution of the premiums paid by the respondent confirms that "rescission" is appropriately used in the bond.

Ratio[]

Rescission is available when a misrepresentation is substantial/material/goes to the root of the contract.

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