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Mindy Chen-Wishart. Contract Law (2018 6 edn). p 359-360.

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Howes Percival LLP Partner Geraint Davies Manchester Polytechnic (1988 LLB), Guildford College of Law (LSF 1989). outlined (the defence of) Change of Position on 7 Aug 2017

Background

Where innocent third parties have been in receipt of funds that were misappropriated by an individual from a company, it may be lawful for them to retain the funds if they can demonstrate that they have changed their position in good faith following receipt of the funds. Otherwise, the company may be able to recover the funds if it can show that the third party has been enriched (or received another benefit) at its expense and that such enrichment was unjust. The remedy in such cases is an order for restitution (i.e. that the unjustly enriched party must return the funds/benefit). The court in this case has drawn a distinction where an otherwise “innocent” recipient defendant may have grounds to suspect that the funds they have received have been misappropriated.

Can someone please expatiate the red underline? It contains too many technical terms.

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I rectified some typos in this Reddit comment.


The passage as a whole doesn't make sense. It mixes up a bar to a claim in equity (rescission of a contract, here one of guarantee, for UI) and a defence to a claim in restitution.

In Etridge, Lord Scott was speaking of a two party example at [144]:

If contractual consent has been procured by undue influence or misrepresentation for which a party to the contract is responsible, the other party, the victim, is entitled, subject to the usual defences of change of position, affirmation, delay etc, to avoid the contract.

That is different from (and was given as a counterpoint to) the case at hand, which was where:

the undue influence has been exerted or the misrepresentation has been made not by the party with whom the victim has contracted, but by a third party.

The "change of position" Lord Scott was speaking about was not "change of position" created as a defence in restitution, but the classical bar to rescission in equity, circumstances where it was impossible to achieve restitutio in integrum. ie rescission would be denied because it was no longer possible to unscramble the egg. See Alati v Kruger at 223:

The validity of his rescission depended, therefore, only upon the question whether restitutio in integrum was possible in the circumstances as they existed at the commencement of the action.

This is more than "a simple handing back of property or repayment of money" (which was all that was available at common law) and included any case where it was possible to "put them in as good a position as before they entered into their transaction".

If they were, rescission was available; if not, it wasn't.

See also at 228:

The fundamental factor in the situation is, of course, the rule that restitutio in integrum is a condition of rescission. It seems to me necessarily to follow from this that a purchaser remaining in possession after giving notice of rescission is under a duty to take reasonable care to preserve the property, so that what he has received from the other party may, so far as reasonably practicable, be restored to that other party.

Lord Scott mentioned it along with other classical bars to rescission: delay (ie laches) and affirmation (ie acquiescence).

I really like Mindy, but I think she has missed the point here and read restitutionary meaning in that is not there. Note that the plaintiff in the rescission action (ie the party seeking equitable relief; in Etridge, the wife) may not have (and is probably unlikely to have) conferred any benefit under the contract

Your highlighted passage picks up the restitutionary meaning (a la Brisbane v Dacres) but it doesn't make sense in the context.

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