RESCISSION OF CONTRACTS AND RIGHTS OF RESCISSION

INTRODUCTION

Before knowing about rescission of contract first of all it must be known that what a contract is. A contract is nothing but an agreement consisting particular terms amidst two or more persons or entities where there is a promise to do something in exchange for a profitable benefit that is known as consideration. The law of contract is at the kernel of most commercial or business tradings. Hence, it is one of the most noteworthy areas of law and can include remarkable contrast in state of affairs and complication. For a valid contract to take place there has to be seven accurate elements mentioned below:- 1) An offer and acceptance 2) Performance of a promise; 3) Consideration (a sort of a payment); 4) Intention to create a legal relationship 5) Competency of the parties to make a contract 6) Free consent 7) Lawful object


In India the law of Contract is governed by The Indian Contract Act, 1872 and this act provides the laws applicable to the contracts in India. The Act was passed by British. The act is mainly built on the principles of English Common Law. The Indian Contract Act, 1872 is applicable to all the states of India except the state of Jammu and Kashmir. It decides the situations that when promises put together by the parties to a contract shall be legally binding and the implementation of the rights and duties arising out of the contract. The Act comprises of total 266 Sections and has an extensive range.


A contract may be brought to an end by several ways:- • Through agreement – It is when parties assent to end the contract before accomplishment of work (acquit by agreement). • Result of Force Majeure – If the contract permits for cessation in the event of force majeure or for such reason as an act of God. Force Majeure is a contractual expression by which any of the two parties has the right to cancel the contract or can reject the performance of the contract. • For the breach – Where one party did not act in accordance with the terms or conditions of the contract, permitting the other party to cease the contract. • By the process of rescission – If there is any misrepresentation by a party amongst the two, the other party gets authorization to cancel the contract. Rescission can be legally explained as- The repudiation of a contract, effectual from its institution, thus replacing the parties to the original positions that they would have been if there was no contract formed.


By frustration – It means where it is not possible for the continuation of the contract due to some unexpected situation. The frustration of Contract takes place when the performance of contract becomes impossible, because of some situations which is far off the control of parties. In India, Section 56 of the Indian Contract Act, 1872 deals with the doctrine of Frustration. An incident, such as an alteration in a particular law, which lead the way to illegality or failure of performance of a contract, is a state of affairs that explains in the contract getting frustrated. Section 56, however, has a proviso for payment of compensation for the loss caused because of non-performance. If a promisor of a contract had the knowledge or could have known with reasonable rigour that the act promised was not possible & the same was not in the knowledge of the promisee, in such a case the promisor shall be held responsible to compensate for the loss caused to the promisee for the promisor’s non-performance of the Act.[1]


RESCISSION OF A CONTRACT & RIGHT TO RESCIND THE CONTRACT

If a contract is not showing to be fruitful based on the circumstances, a party has the option to rescind the contract. The word “rescission” is acquired from the Latin expression rescindere, which depicts to cut or tear open. The right of rescission can be found under Section 19 of the Indian Contract Act. In law of Contract, rescission is explained as the dismissal of a contract amidst parties. Rescission is the uncoil of an affair. This is done to lead the parties, to the extent possible, to come back to the actual position in which they were before they entered into a contract as parties (the status quo ante).[2]

Rescission is a decent remedy and is optional. A court can reject to rescind a contract if one party has proclaimed the contract by his action or a third party has obtained some rights or there has been considerable performance in executing the contract. Moreover, as rescission is supposed to be foist unanimously upon both sides to a contract, the party looking for rescission generally must put forward to return all benefits he or she has received under the contract. In Car & Universal Finance vs. Caldwell[3] it was held that the injured party can rescind the contract by providing due notice to the representator. Nevertheless, all the time this is not essential as any act specifying denial, for example informing the authorities, may serve the purpose. Generally, a contract cannot be rescinded by one party until both parties can be put in the same situation, and can agree to the same terms as existed when the contract was made.


The choice of Rescission is made accessible to a party as a remedy whose consent, while entering into the contract, has been refute due to following: • Misrepresentation / false declaration of fact build up by the other party while executing the contract • When a party is mistaken in terms of the contract and the other party had the knowledge of such mistake. • When there was undue influence of one party upon the other just to enter into the contract (which is considered under Section 19A of the Act). • Non-disclosure of facts with regard to insurance contracts

The above mentioned points can be considered to be the main grounds for rescission of the contract. A party to a contract is permitted to rescind the contract in the situations given in Sections 39, 53, 55, 64 & 65 of the Indian Contracts Act. • Section 39: It applies to the Contracts where the performance period or time has not yet taken place. • Section 53: It applies to the responsibility of party stopping an event, thus influencing the performance or completion of the contract. • Section 55: This section appertains where the promising party made sure to do a particular thing at a specified time, but fails to do it on or before time. • Section 64: This section is applicable for a voidable contract. • Section 65: Section 65 of the Indian Contract Act, 1872 deals with the principle of restitution in integrum. Its meaning is restoration to original condition i.e. in circumstances where the profit is received and the contract was found to be void later.

In Ram Nagina Singh v. Governor General in Council[4] it was held that it is ‘compensatory in principle’ and prevents ‘unjust enrichment’



COMPENSATION

Section 75 of the Act provides for compensation in case of rescission of a contract.

This section permits a party to claim compensation for the damage caused to him or her because the contract was not satisfied. The claim for compensation under Section 75 is implementable when the right of rejection of the contract has been worked out under Sections 39, 53, 54 or 55 of the Act.



STEPS FOR RESCISSION

Generally, a notice is served by the aggrieved party, which is addressed to the other party describing the reasons for recession. The notice consist of the declaration of the party, regarding its intention to rescind the contract and also query regarding that money to be returned or compensation to be paid. The notice results in unilateral rescission.


Sections 27 to 30 of the Specific Relief Act 1963 deals with rescission of contract. According to the provisions of the Specific Relief Act, 1963:-

Section 27 discusses as when rescission can be adjudged or refused:

1. Any person who is interested in a contract has the power to sue to have it rescinded, and such rescission can be adjudged by the court in any of the below mentioned cases:-

a) where the contract is voidable on the option of plaintiff or can be terminated by the plaintiff;

b) In case the contract is unlawful for those causes that are not clear on its face and the defendant has more chance to blame as compared to the plaintiff.



2. Nonetheless anything contained in sub-section (1), the court may deny to rescind the contract-

a) In case the plaintiff has ratified the contract in an expressed or implied manner, or

b) where, due to the change of situations that has taken place since the preparation of the contract (but not owing to any act done by the defendant himself),none of the parties can be considerably brought back to the original place in which they stood at the time of making the contract, or

c) In case the third parties, in course of the upkeep of the contract, obtained rights in good faith with no notice and for value, or

d) And where in the contract only a part of it is desired to be rescinded and that part cannot be severed from the other part of the contract.

Section 28 of the Act provides for rescission in particular situation of contracts and i.e, for the sale or lease of an immovable property, the specific performance of which has been laid down:


1. Where in any case a decree is made for specific performance of a contract for the lease or sale of immovable property and the buyer or lessee, within the time period allotted by the decree or such extended period as the court may permit, does not pay the total purchase amount of money or other sum that has been ordered to him by the Court to pay, the lessee or vendor can apply in the same case in which the decree is provided, to rescind the contract and on such application the court can rescind the contract by order either to the limit the party in default or together, to provide justice to the case.


2. In case a rescission of contract is done under sub-section (1) the court-

a) Shall order the lessee or the buyer, to restore that possession to the lessor or vendor if he has acquired possession of the property under the contract, and also

b) may order for payment to the lessor or vendor of all the profits and rents which have accumulated as regards the property from the date on which possession was acquired by the lesee or the buyer till the restoration of possession to the lessor or vendee and, if the justice of the case so needs, the refund of any sum paid by the lessee or vendee as sober money or deposit in relation with the contract.



3. If in case the buyer or lessee pays the purchase amount of money or any other required sum which he was directed to pay by the decree within the specific period as referred to in subsection (1), the court can, on application provided in the same case, give an award to the buyer or lessee such extended relief as he is entitled to, the following reliefs, mentioned below:- a) Execution of a genuine transference or lease by the lessor or vendee,

b) The delivery of possession, or separate possession and partition, of the property on the execution of such transference or lease.


4. No different suit in regard to any relief that can be claimed under this section shall lie at the occasion of a vendor, buyer, lessor or lessee, as the situation may be.



5. The costs of any proceedings in this section will be under the Court’s discretion.

Section 29 discusses about alternative prayer regarding rescission in case for specific performance. A plaintiff filing a case for the specific performance of a contract in an express manner can pray in the alternative way that, if the contract is not in a state to be specifically enforced, the contract can be rescinded and delivered up to be terminated, and the court, if it denies to enforce the contract specifically, can order it to be rescinded and delivered up in accordance.

In Prem Raj v. DLFH Co. Ltd[5] it was held that a party suing for specific performance may in the alternative sue for rescission of the contract but the counter is false and a person cannot in the alternative sue for specific performance for rescission.

Section 30 of the Act provides that court may need parties rescinding to do equity. On pronouncing the rescission of a contract, the court may need the party to whom such relief is granted to restore it, as far as, any interest which he may have sustained from the other party and also to make any compensation to him for justice that is required.



CONCLUSION

In a valid contract amidst two or more persons, when there is misrepresentation caused by a party, the other party is legally permitted to have the contract ceased. A contract may be rescinded in two ways that is either by release or by making an agreement. Certain provisions of Specific Relief Act, 1963 provide the procedure for rescinding a contract for the aggrieved party against the other party. Rescission is a means of preventing any injustice that is been done to a party. Rescission of a contract is remedy offered for a contract if entered in by misrepresentation, and mutual rescission is possible only if and when both the parties can be brought back to the actual position before their entry into the contract.

[1] Rescission of Contract, available at: https://blog.ipleaders.in (visited on May 5, 2022) [2] Rescission of Contract, available at: http://www.legalserviceindia.com (visited on May 5, 2022)

[3] [1965] 1 QB 525

[4] AIR 1952 Cal 306

[5] (1968) A.SC 1355



This article is written by Srinjana Mitra of Assam University, Silchar.

Recent Posts

See All

Introduction Digital assets are asset classes that are entirely digital and have no physical component. Digital assets were maintained in a digital wallet in the early days of the industry. These solu

Introduction Defamation is defined as any maliciously false statement issued in written form or verbally that damages a person's reputation, undermines public perception of them, causes them to lose f