Rescission of Contract – Law Notes – The Specific Relief Act, 1963

Introduction

The rescission of contract establish a bar to its performance by either of the party to it. Section 62 of The Indian Contract Act, 1872 states “If the parties to a contract agree to substitute a new contract for it, or to rescind or alter it, the original contract need not be performed. The grounds for bringing a suit for rescission have been given in sections 27 & 28 of the Specific Relief Act, 1963.

Section 27 is divided in two parts i.e. firstly, when rescission may be adjudged and secondly when rescission may be refused.

The relief of rescission comes to a person who has become victim because of contract. This burden of contract may be because of fraud or illegality or for some other reasons making the contract either void or voidable. The victim may ask the court to declare it as not binding on him.This may be called as rescission means, getting rid of contract.

Section 27(1) provides that the court may allow the relief of rescission in following cases

           (i) Where the contract is voidable or terminable by the plaintiff.

           (ii) Where the contract is unlawful for causes not apparent on its face and the defendant is more to blame than plaintiff.

Illustrations :

(i) A sells a field to B. There is a right of way over the field of which A has direct personal knowledge, but which he conceals from B. B is entitled to have the contract rescinded.

(ii) A, an attorney induces his client B a Hindu widow to transfer property to him to defraud B, ‘s creditors. here the blame lies on A. B can get rescission of the contract.

The relief of rescission is subject to some very important limits because all voidable contracts are valid till they are not avoided. If the relief is not quickly obtained,  then it would not be desirable to put an end to the contract. Sub-section (2) provides that the right of rescission is not available in the following cases.

(i) On affirmation : The plaintiff loses the right of rescission when, in spite of knowing the voidability, he chooses to ratify the contract. Once the contract is affirmed, it cannot be avoided afterwards. This affirmation may be express or implied.

(ii) In cases where restitution is not possible : When the position of the parties has been altered to such an extent that they cannot be put back to their original status. For example where one party has already resold the goods or consumed it, restoration becomes impossible.

(iii) Intervention of third parties : Where the rights of third parties have intervened, rescission cannot be allowed to the prejudice of such rights.

(iv) Separation (Severance) : Rescission is not allowed where the plaintiff is seeking of only a part of the contract and that part is not severable from the rest of the contract.

Section 28 provides for ‘Rescission in certain circumstances of contracts for the sale or lease of immovable property, the specific performance of which has been decreed

Section 28 enables the court to put an inbuilt remedy of rescission in a decree of specific performance.

Where a decree of specific performance has been passed in respect of a contract for the sale or lease of immovable property, but the party to whom such relief has been granted does not pay the price within the time, the sellar may ask the court for rescission. The court will direct the purchaser or lesee, if he has already taken possession, to restore it to the seller and also to pay him rent for the period during which he enjoyed the benefits of possession.

As provided by Section 29 of the Specific Relief Act, 1963, the plaintiff may in a suit for specific performance make a prayer that if such relief cannot be granted, the contract may be rescinded. He has to make delivery of the instrument for being cancelled. But an alternative prayer for specific performance is not maintainable or permissible in a suit for rescission of the contract.

Section 30 provides that, court may require parties rescinding to do equity. This section is based on a maxim of law that, “he who seeks equity must do equity”. It means that, the party who gets the contract rescinded is bound to return the benefits he has taken from the other party.