THE NATIONAL LAW INSTITUTE UNIVERSITY,

BHOPAL

Equity, Trust and Specific Relief Project

‘Recession of Contract

Academic Year 2015-16

SUBMITTED TO: SUBMITTED BY:

Mr. Sanjay Yadav Manasvi Tewari

2014BALLB75
ACKNOWLEDGEMENT

I take this opportunity to express a deep sense of gratitude to The National Law Institute
University (NLIU) for providing me with the opportunity to make this project.
I extend my sincere thanks to everybody who helped with the completion of this project. I am
greatly obliged to our teacher Sanjay Yadav for her guidance, monitoring and approval
throughout the course of this project.
CONTENTS

1. Introduction
INTRODUCTION

The Specific Relief Act, 1963 was came into force on 1 st March 1964. The Parliament
enacted the Act by repealing the Specific Relief Act, 1877. The Act is based on the principle
of equity and is used for granting specific relief for enforcing civil rights. It has no
application in enforcing penal laws. The Specific Relief Act, 1877 contained the principles of
equity, justice and good conscience. The need for a new statute suited for the new
requirements lead to the enactment of the Act of 1963. The Bill of the new Act was drafted
on the basis of the 9th Report of the Law Commission of India. From the preamble of the Act,
it is clear that the Act was not an exhaustive one. It only deals with certain kinds of specific
reliefs and there are other reliefs about which the Act was silent and are used by the courts.
The Act is a procedural law and provides a network of reliefs. The plaintiff, under the Act
gets his relief in specific. The reliefs contained in the Act include,

1. Recovery of Possession of Property,

2. Specific Performance of Contracts,

3. Rectification of Instruments,

4. Rescission of Contracts,

5. Cancellation of Instruments,

6. Declarative Relief, and

7. Preventive Reliefs ( Injunctions).

(a) RESCISSION OF CONTRACTS

Rescission is a form of specific relief by which the plaintiff claims for the avoidance of a contract as
distinguished from specific enforcement. The contract should be voidable or terminable at his option. The
object of the action is is to annul the contract and restore the parties to their original positions in which they
were before they entered into a contract. (the status quo ante)

Rescission is an abrogation or revocation, particularly of a contract. In a sale of land there is usually an

express condition of a sale under which, in case the purchaser makes and persists in any objection or
requisition which the vendor is unable or unwilling to comply with, the vendor may by notice in writing
rescind the sale, and return the deposit to the purchaser and so escape liability to pay damages for breach
of contract. If a party is entitled to rescind a contract owing to a misrepresentation having been made, he
must notify the other party of his intention by pleading invalidity as a defence to proceedings to enforce the
contract, or by bringing a suit for having the contract judicially set aside.

Rescission is only allowed where the restitution is possible. A contract may be rescinded on the ground of
innocent misrepresentation. When the vendor of immovable property desires to enforce a contract for sale
with a condition that the title adduced should be to the satisfaction of the purchaser's solicitors, he must
prove either that the solicitors did approve of the title or that there was such a title tendered as made it
unreasonable not to approve it. Where the plaintiff succeeds in proving above facts to the satisfaction of the
Court, he is entitled to a decree for specific performance of the contract, and the defendant cannot rescind
it. The remedy by way of rescission is open not only to the parties to the contract but also to any other
person, who though not a party to the contract is interested in it. Thus, a joint Hindu family of proprietors
defrauded by a contract between the manager and third party has a right to have the contract rescinded. A
person seeking to set aside a contract on the ground of fraud must set it aside as a whole and not a part
thereof. For rescission, it is not sufficient that the contract is unlawful, but the other condition that the
plaintiff should be shown to have been less to blame in the transaction than the defendant must exist; and if
the plaintiff and the defendant are in pari delicto the contract should not be set aside.

Where a person has entered into a contract after a misrepresentation has been made to him, and the
misrepresentation has become a term of the contract, he may be entitled to the equitable remedy of
rescission as an alternative to his remedy for breach of contract.1 Mere non-payment for goods delivered
or delay in fulfilling the obligation to pay would not generally go to the root or essence of the contract
entitling the other party to rescind, because such non-payment or delay in payment might be with or without
good cause.

Where a decree for specific performance of a contract of sale or lease has been made in favor of the
purchaser or the lessee, on condition of his paying the purchase-money or other sums within a certain
period and he makes default in making payment of what he was directed to pay the Court, instead of
driving the parties to a separate suit may in the same suit direct the rescission of the original contract for
non compliance with the order and may also direct the purchaser or lessee, if he is found to be in wrongful
possession of the property, to pay to the vendor or lessor the mesne profits for the period during which he
was in wrongful possession of the property.2

After a decree for specific performance, a party may by motion in the action get a rescission on the ground
that the other party has refused to complete the contract within the time fixed by Court. A party is entitled to
rescind a contract when the other party refuses to perform part of the contract and is disabled from
performing that part.

Where a contract stipulates for a right of rescission in respect of separate breaches, the waiver of one will
not waive another; so that where there was a contract for the payment of money by installments, and that
time should be of the essence, and further a power to rescind on breach of the contract, each default of
payment of an installment at the stipulated time was a fresh breach of the contract, on which the right to
rescind arose. According to the terms of a contract if from any cause whatever the purchase was not
completed by the time specified, the vendor was at liberty to annul the contract. On the day appointed the
parties met and the vendor offered and the purchaser accepted the vendor's undertaking to satisfy certain
unsatisfied requisitions. Nevertheless the purchaser refused to pay the purchase money, whereupon the
vendor said that he would annul the contract if the money was not paid; the purchaser refused to pay till the
requisitions were satisfied; the vendor on the same day annulled the contract by notice and successfully
maintained an action for injunction to restrain any proceedings at law on the contract. Mere delay in making
his election after knowledge of his right does not, however, itself amount to confirmation of the contract
There is no rule of law that he must rescind immediately or within a reasonable time. He is entitled to
suspend his judgment and election, and to consult his own interest in the matter by reference to the event.
But if he does so, delay entails certain risks and may in the result lose his right of rescission.

(b) DISCRETIONARY RELIEF

Rescission is an equitable remedy and is discretionary. A court may decline to rescind a contract if one
party has affirmed the contract by his action or a third party has acquired some rights or there has been
substantial performance in implementing the contract.Where the plaintiff has expressly or impliedly ratified
the contract, rescission is not permissible. Rescission will not be granted where owing to the change of
circumstances which has taken place since the making of contract not being due to any act of the
defendant himself, the parties cannot be substantially restored to the position in which they stood when the
contract was made. Rescission will be refused when only a part of the contract is sought to be rescinded
and such part is not severable from the rest of the contract rescission will be refused. The general rule is
that as the condition of rescission there must be restitutio integrum but at the same time the court has full
power to make all just allowances. The use of the word may in the section 35 of Specific Relief Act, 1877
shows that the Court is not bound to grant the relief of rescission even if the grounds set out in the section
have been proved. This relief of rescission is discretionary and may be refused if not conducive to justice.

When a purchaser of immovable property has entered into a contract of sale and paid a deposit and, when
the time for completion comes, the vendor fails to complete, the purchaser has two alternatives open to
him, He can treat the contract as rescinded and sue either in equity to be placed in the position he would
have been, had it never been made, or at law for any money that he has parted with as money received by
the other side for a consideration that he has wholly failed. Or in the alternative he can treat the contract as
on foot and (a) either ask for damages for its breach or (b) seek the remedy of specific performance.

The statutory power under section 35 of Specific relief Act, 1877 is expressed to be exercised within the
discretion of the Court and as the justice of the case may require and in the case of transfer of property
consideration of profit or loss resulting there from cannot govern the delicate question whether in equity,
which forms an essential element in the dispensation of justice, the transfer should be enforced. The
element of discretion in equity is to be applied judicially, that is, in accordance with settled principles, and in
relation to relevant factors. The Specific Relief Act, 1877 represents a codification of a number of principles
derived from a long series of precedents, and the established practice of the English Courts of equity for
several centuries. These principles are to be treated as of the essence of the Act, in its application to cases
arising thereunder. As the relief of rescission is discretionary, so where third parties have acquired rights
under a contract for value, the contract cannot be rescinded.

_______________________________________________

1 W T Major, Christine Taylor, LAW OF CONTRACT, Ninth ed., p..268.

2 Specific Relief Act, 1877, S. 35.

3 Specific Relief Act, 1877, s. 37.

4 Specific Relief Act, 1877, s.38.

Sections 27 to 30 of specific relief act deals with rescission of contract.

Specific relief is a form of judicial redress belongs to the law of procedure and is a body of written
law arranged according to the natural affinities of the subject matter. In India the Specific relief act
of 1963 was enacted by the parliament in the 14th year of republic.
According to section 27 of Specific Relief Act - When rescission may be adjudged or refused.

When rescission may be adjudged or refused.-

(1) Any person interested in a contract may sue to have it rescinded, and such rescission may be
adjudged by the court in any of the following cases, namely:-

(a) where the contract is voidable or terminable by the plaintiff;

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

(2) Notwithstanding anything contained in sub-section (1), the court may refuse to rescind the
contract-

(a) where the plaintiff has expressly or impliedly ratified the contract; or

(b) where, owing to the change of circumstances which has taken place since the making of the
contract (not being due to any act of the defendant himself), the parties cannot be substantially
restored to the position in which they stood when the contract was made; or

(c) where third parties have, during the subsistence of the contract, acquired rights in good faith
without notice and for value; or

(d) where only a part of the contract is sought to be rescinded and such part is not severable from
the rest of the contract.

In this section "contract", in relation to the territories to which the Transfer of Property Act, 1882 (4
of 1882), does not extend, means a contract in writing.

any per son interested in a contract – the remedy by way of rescission is not confined to persons
named as parties to a contract, it is open to any person who though not named as a party to a
contract, is interested in the contract. Thus any member of a joint Hindu family is entitled to rescind
a contract entered into by the manager where by the former would be defrauded.

There is a rule of equity that where a conveyance has been excecuted it will be set aside only on the
ground of actual fraud, and not for mere innocent misrepresentation. (wilde v. Gibson)5
Section 28 - Rescission in certain circumstances of contracts for the sale or lease of immovable
property, the specific performance of which has been decreed.

Rescission in certain circumstances of contracts for the sale or lease of immovable property, the
specific performance of which has been decreed.- (1) Where in any suit a decree for specific
performance of a contract for the sale or lease of immovable property has been made and the
purchaser or lessee does not, within the period allowed by the decree or such further period as the
court may allow, pay the purchase money or other sum which the court has ordered him to pay, the
vendor or lessor may apply in the same suit in which the decree is made, to have the contract
rescinded and on such application the court may, by order, rescind the contract either so far as
regards the party in default or altogether, as the justice of the case may require.

(2) Where a contract is rescinded under sub-section (1), the court-

(a) shall direct the purchaser or the lessee, if he has obtained possession of the property under the
contract, to restore such possession to the vendor or lessor, and

(b) may direct payment to the vendor or lessor of all the rents and profits which have accrued in
respect of the property from the date on which possession was so obtained by the purchaser or
lessee until restoration of possession to the vendor or lessor, and, if the justice of the case so
requires, the refund of any sum paid by the vendee or lessee as earnest money or deposit in
connection with the contract.

(3) If the purchaser or lessee pays the purchase money or other sum which he is ordered to pay
under the decree within the period referred to in sub-section (1), the court may, on application
made in the same suit, award the purchaser or lessee such further relief as he may be entitled to,
including in appropriate cases all or any of the following reliefs, namely:-

(a) the execution of a proper conveyance or lease by the vendor or lessor;

(b) the delivery of possession, or partition and separate possession, of the property on the execution
of such conveyance or lease.
(4) No separate suit in respect of any relief which may be claimed under this section shall lie at the
instance of a vendor, purchaser, lessor or lessee, as the case may be.

(5) The costs of any proceedings under this section shall be in the discretion of the court.

Section 29 -Alternative prayer for rescission in suit for specific performance

Alternative prayer for rescission in suit for specific performance.- A plaintiff instituting a suit for the
specific performance of a contract in writing may pray in the alternative that, if the contract cannot
be specifically enforced, it may be rescinded and delivered up to be cancelled; and the court, if it
refuses to enforce the contract specifically, may direct it to be rescinded and delivered up
accordingly.

A party suing for specific performance may in the alternative sue for rescission of the contract but
the converse is not true and a person suing for rescission cannot in the alternative sue for specific
performance. Prem Raj v. D L F H Co. Ltd 6

Section 30. Court may require parties rescinding to do equity

Court may require parties rescinding to do equity.- 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 other party and to make any compensation to him which
justice may require.

Benefit and compensation – This section is in accord with English equitable rules, whereby if
rescission is to be granted both parties must be restored to the status quo ante. If a purchaser seeks
rescission, a court of equity can take account of any profit he has made and make allowances for any
deterioration in the property.

Onus – A party claiming restoration of benefit received must prove the value of that benefit.
Govindram v. Edward Radbone 7

BARS TO RESCISSION

Rescission is an equitable remedy and is awarded at the discretion of the court. The injured party
may lose the right to rescind in the following four circumstances:

(i) AFFIRMATION OF THE CONTRACT

The injured party will affirm the contract if, with full knowledge of the misrepresentation and of
their right to rescind, they expressly state that they intend to continue with the contract, or if they
do an act from which the intention may be implied. (Long v Lloyd)8

In Peyman v Lanjani, the Court of Appeal held that the plaintiff had not lost his right to rescind
because, knowing of the facts which afforded this right, he proceeded with the contract, unless he
also knew of the right to rescind. The plaintiff here did not know he had such right. As he did not
know he had such right, he could not be said to have elected to affirm the contract.

(ii) LAPSE OF TIME

If the injured party does not take action to rescind within a reasonable time, the right will be lost.

Where the misrepresentation is fraudulent, time runs from the time when the fraud was, or with
reasonable diligence could have been discovered. In the case of non-fraudulent misrepresentation,
time runs from the date of the contract, not the date of discovery of the misrepresentation.

(iii) RESTITUTION IN INTEGRUM IMPOSSIBLE

The injured party will lose the right to rescind if substantial restoration is impossible, ie if the parties
cannot be restored to their original position. Vigers v Pike11

Precise restoration is not required and the remedy is still available if substantial restoration is
possible. Thus, deterioration in the value or condition of property is not a bar to rescission.
Armstrong v Jackson 12

(iv) THIRD PARTY ACQUIRES RIGHTS

If a third party acquires rights in property, in good faith and for value, the misrepresentee will lose
their right to rescind (Phillips v Brooks)13 under Mistake.

Thus, if A obtains goods from B by misrepresentation and sells them to C, who takes in good faith, B
cannot later rescind when he discovers the misrepresentation in order to recover the goods from C.
Note:

The right to rescind the contract will also be lost if the court exercises its discretion to award
damages in lieu of rescission under s2(2) of the Misrepresentation Act 1967.

For innocent misrepresentation two previous bars to rescission were removed by s1 of the
Misrepresentation Act 1967: the misrepresentee can rescind despite the misrepresentation
becoming a term of the contract (s1(a)), and the misrepresentee can rescind even if the contract has
been executed (s1(b)). Generally, this will be relevant to contracts for the sale of land and to
tenancies.

INDEMNITY

An order of rescission may be accompanied by the court ordering an indemnity. This is a money
payment by the misrepresentor in respect of expenses necessarily created in complying with the
terms of the contract and is different from damages as held in Whittington v Seale-Hayne.
CONCLUSION

Where consent to an agreement is caused by coercion, fraud or mistake or misrepresentation, the

agreement is a contract voidable at the option of the party whose consent was so caused. On the other
hand where both the parties to an agreement are under a mistake of fact essential to the agreement, the
agreement is void.

A person who fails to obtain specific performance of a contract, may get it rescinded and delivered up to be
cancelled.

 If the defrauded party chooses to sue, three remedies are open to him, namely –
He may rescind the contract absolutely and sue to recover the consideration parted with upon the
fraudulent contract; or
He may bring an action to rescind the contract and in that action have full relief; or
He may retain what he has received and bring an action to recover the damages sustained.

An examination of this section shows that the relief of rescission may be asked for in respect of contracts,
whether in writing or not, wherever transfer of property Act is in force; and in respect of written contracts
only on other places, and it may be asked for in the following classes of cases:
Voidable contracts;
Terminable contracts;
Unlawful contracts;
Void contracts.

It is a maxim of law that he who seeks equity must do equity in the transaction in respect of which relief is
sought. So where a contract is rescinded, the Court may, in its discretion, require the party to whom such
relief is granted to make any compensation to the other party which justice may require; that is, in cases
where rescission is adjudged against a party who is perfectly innocent and the Court considers that in order
to restore the parties to their original position, compensation should be given to the defendant, the Court
should award him such compensation as the justice of the case may require.
BIBLIOGRAPHY

Books

1. Contracts and Specific Relief Act – By Avtar Singh

Websites

1. http://commonlaw-sandeep.blogspot.com/2012/01/specific-relief-act-1963-quick-
summary.html
2. http://lawyerslaw.org/the-specific-relief-act-1963/
3. http://lawcommissionofindia.nic.in/101-169/report147.pdf
4. http://www.legalservicesindia.com/article/article/rescission-of-contract-1696-1.html
5. http://indiankanoon.org/doc/1671917/