Rescission of Contract

This article has been written by Anmol Mandawra

• Introduction
The Indian Contract Act was constituted on 1st September 1872. The Act was introduced by the British Government and is based on the principle of English Common Law. It was applicable to all the states including Jammu and Kashmir. It determines the situation in which promises made by both parties to a contract shall be legally binding and the enforcement of their rights and duties. The act originally carries 266 sections and had a wide scope.

What is Contract?
Section 2(h) of Indian Contract Act, 1872 says that “Contract is an agreement enforceable by law is a contract.”

A contract is an agreement having with specific terms and conditions between two or more person in which there is a promise to do something in written for a valuable benefit called as consideration. The contract law is a heart of commercial or business dealing because it covers the most significant areas of law and involve significant variations in situations and complexities.

There is some element of contract –

1. An offer,
2. An acceptance of that offer,
3. A promise to perform,
4. A consideration,
5. Event when performance must be made,
6. Terms and conditions for performance,

A contract may be ended by several ways.

1. By agreement – Parties to the end the contract before completion of work.
2. By Due to Force Majeure – It is which that either of the parties has the right to cancel the contract.
3. By Due to Breach – Where one party has not completed their term and condition of contract, entitle the other party to terminate the contract.
4. By Rescission – It is which there is misrepresentation by a party, the other party gets entitled to terminate the contract.
5. By Frustration – Section 56 of Indian Contract Act, 1872, Where the contract cannot continue due to some unforeseen circumstances. The frustration of contract arises when a contract become impossible for performance, on account of situation beyond the control of parties.

• Specific Relief Act, 1963

• Introduction

Specific Relief Act was enacted in 1877. The act was originally drafted upon the lines of the draft, New York Civil Code, 1962 and its main provision embodies the doctrine evolved by the English Equity Court.

Specific Relief Act, 1963, it’s the result of the acceptance by the central government on recommendation made by the Law Commission of India. A bill to repeal the act of 1877 was introduced in Lok Sabha and was gone by the both the homes of parliament and on 13th December,1963 the president assented to an equivalent.

• Meaning

Specific Relief Act provides for specific relief, specific relief means relief of certain species i.e., exact, or particular a named, fixed or determined relief. The term is usually understood and providing relief of a selected kind instead of a general relief or damages or compensation.

• Definition

Specific Relief in specie, it’s a remedy by which a celebration to a contract is compelled to try to do or omit the very acts which he has undertaken to do or omit.

• Object of Specific Relief Act

The main object of Specific Relief is to discourage people from taking law into their own hands. It provides summary and speedy remedy through a medium of a civil court.

• Feature of Specific Relief Act

1. Specific Relief is granted under the principle of equity.
2. Its basic purpose is to give a very thing to person who is entitled for it.
3. The defaulting party is compelled to do or to omit the very act which he has undertaken to do or to omit.

• Nature of Specific Relief Act

In 1877 Specific Relief Act is not an exhaustive code. It deals with those specific relief which fall within the domain of court of equity. The relief is ordinary available in a civil court. The defaulting party is compelled to do or to omit every act which he has undertaken to do or to omit. The precise relief is adjective law.

• Kinds of Specific Relief Act –

1. Recovering possession of property (S. 5-8)
2. Specific performance of contracts (S. 9-25)
3. Rectification of instruments (S. 26)
4. Rescission of contracts (S. 27-30)
5. Cancellation of instruments (S. 31-33)
6. Declaration degree (S. 34-35)
7. Preventive relief (S. 36-44)

• Rescission of contract – (Section – 27 to 30)

Rescission means, the termination or annulment of a contract. The word Rescission springs from the Latin term ‘Rescindere’. The Right of Rescission is out there under Section 19 of Indian Contract Act, 1872.

• Steps of Rescission of Contract –

Section 27-30 Specific Relief Act, 1963 deal with the rescission of a contract it is a type of legal redressal.

1. Section 27 – when rescission may be adjudged or refused.
2. Section 28 – Rescission in certain circumstances of contracts for a sale or lease of Immovable property the specific performance of which has been decreed.
3. Section 29 – Alternative prayer for rescission in suit for specific performance.
4. Section 30 – Court may require parties rescinding to do equity.

Section 27-30 of Specific Relief Act, provide the remedy of rescission i.e., revocations or abrogation of contract is the mode by which a contract may be discharge, and as such relief of rescission is opposite of relief of specific performance, according to Section 27, a contract may be rescinded on the following ground –

1. Any person interest in a contract, may sue to rescind contract and court may grant such rescission if –
   a. Where the contract is voidable or terminable by the plaintiff.
   A contract is voidable, when it falls under the ambit of Section 19, 19a, 39, 53, 55, 64, and 65 of Indian Contract Act, 1872, Says that –

• Section 19 – Voidable of agreement without free consent.
• Section 19a – Power to set aside contract induce by undue influence.
• Section 39 – Effect of refusal of party to perform promise wholly.
• Section 53 – Liability of party preventing event on which contract is to take effect.
• Section 55 – Effect of failure to perform a fixed time, in contract in which time is essential.
• Section 64 – Consequences of rescission of voidable contract.
• Section 65 – Obligation of person who has received advantage under void agreement, or contract that become void.
  b. Where the contract is unlawful for causes not apparent on its face and defendant is more to blame than the plaintiff.

1. But court may refuse to rescind the contract –
   a. Where the plaintiff has expressly or impliedly rectified the contract, or
   b. Where owing to change of circumstances the parties cannot be substantially restored to the position in which they stood when the contract was made, or
   c. Where third parties have acquired rights in good faith without notice and for value; faith without notice and for value.

Case – In car and universal finance co. ltd Vs Caldwell , it was held that through the seller could not communicate, the rescission to the purchases himself, information to the police and the automobile association had resulted in the rescission of the contract and therefore, ‘A’ did not get a good title of the car.

• Consequences of rescission of voidable contract

Section 64 of Indian Contract Act, 1872, also contains a similar provision. It requires a party rescinding a voidable contract restore such benefit which he had received under to contract from the other party to such other party.
Section 64 says that, “when a person at whose option a contract is voidable rescinds it, the other party thereto need not perform any promise therein contained in which he is promisor. The party rescinding a voidable contract shall, if he had received any benefit there under from another party to such contract, restore such benefit, so far as may be, to the person from whom it was received”.

• Limitation to the Right if Rescission

The Right of Rescission is subject to the subsequent limitations, in such situations the law might not permit the exercise of the Right of Rescission.

a. The contract has been expressly or impliedly ratified by the plaintiff.
Lapse of Time – An individual having right to avoid the contract must do so within an inexpensive time. If the person transfers his property to another person while under a spiritual influence, but does not take steps to take back the property for 6 yrs. After such influence has ceased, the right to retrieve the property involves an end.
b. The parties cannot be substantially restored to the position in which they stood when the contract was made where due to the change of circumstance which has taken place since the making of the contract (however not due to any act of the defendant himself).
c. Third parties have acquired rights in good faith without notice and for value.
d. Only a part of the contract is sought to be rescinded and such part is not severable for the rest of the contract.

Case – Sajja Chimpiraiah Vs Gaddam venkata Subbaiah

It was held that agreement could not be rescinded as execution was neither filed beyond limitation nor there was failure to pay balance within limitation.

• Rescission of Contract after decree –

Where a suit for specific performance of contract is deemed and purchaser does not pay the purchase money which the court has ordered him to pay, the vendor may apply in same suit to possess contract rescinded and court may rescind the contract and should direct –
• Restoration of possession.
• Refund of earnest money and other profits.
• Restore any benefits received.
• To give compensation.

Principle of Unjust Enrichment – On adjudging the rescission of a contract, the court may require the party to whom such relief is granted to restore, so far as may be, any benefit which he may have received from the opposite party and to form any compensation to him which justice may require.

Case – Dakshina Mohun Roy Vs. Saroda Mohun Roy Chowdhry

It was held that cash paid by an individual while in possession of an estate under the decree of the court for preventing the sale of the estate for recovering.

• Rescission of Contract not allowed in decree –

Held that no case of rescission of contract was mode out moreover, plaintiff was ready to deposit balance even during pending of suit.

• Suits for Rescission of Contracts

• The term Rescission refers to the cancellation of contract.
• In such cases, if one party has broken his contractual relations, the other party may treat the breach as discharge and refuse to perform his part of performance.
• Thus, in cases of Rescission of Contract, the aggrieved or injured party I discharged from all obligations of the contract.

• Application of rescission of contract not allowed
Where there was deposit of balance consideration money by purchaser as ordered by the court. In M. Mohammad Aslam Vs C.N.A. Gowthaman it was held that vendor could not be held to have not complied with terms of decree and as such application for rescission pf contract could not be allowed.

• Suits with Alteration Pleas
Smt. Krishnabhai Vs Wellworth Developers It was held that situation of alternative relief was Maintable.

• Compensation

Section 75 of Indian Contract Act, 1872 provide compensation in case of rescission in a contract. It prescribes compensation just in case of rightfully rescinded contract. “Party rightfully rescinding contract entitled to compensation”.

Section 75 says that “A one that rightfully rescinds a contract is entitled to consideration for any damage which he has sustained through the no fulfilment of the contract”.

• CONCLUSION

In valid contract between two or more person, when there’s misrepresentation by a celebration, the other party is legally entitled to possess it terminated. A contract could also be rescinded either by release or by agreement. Certain provision of Specific Relief Act, 1963 provide a mode of judicial redressal for the aggrieved party against the other party. Rescission is fundamentally a way of undoing the injustice done by the celebration.