Term rescission derives from Latin word rescindere which means to revoke or to cancel, and rescind implies express and unequivocal cancellation of the contract by one party. In the law of contract, rescission can be termed as unwinding of agreement. This is done so that the party who has suffered some loss due to a contract can be restored to the position as he was before the contract. The option to rescind an agreement appears to assume not that the agreement has existed distinctly in appearance but it makes the contract as it never existed due to the deformities it had and after the rescission has been granted by the court, there will no liability or responsibility on parties to perform any condition of the contract. Section 27 to section 30 of The Specific Relief Act 1963 deals with rescission laws, the right of rescission is also available under Section 19 of the Indian Contract Act.
When can rescission be granted:
Section 27 of The Specific Relief Act 1963 says that any party can ask for rescission in the court of law and may be adjudged by the court in the following cases where the contract is voidable or terminable by the plaintiff- The court can grant rescission if the contract is voidable and the formation of the contract was not according to law. Section 19 A of The Indian Contract Act says that the person can demand Rescission in the following case-
- If the facts presented by the other part was false or there has been misrepresentation whilst the execution of the contract.
- A party has made some mistake while making the contract and the other party knew it and was well aware of the fact that if the contract will take place the opposite party would be at loss.
- A party was unduly influenced by another to enter into the contract (which is considered under Section 19A of the Act).
- Non-disclosure with respect to insurance contracts.
- Apart from these, a party to a contract is entitled to rescind the contract in the circumstances given in ss. 39, 53, 55, 64 & 65 of The Indian Contract Act.
- Where the contract is unlawful for one party and the other knew about it but then too it did not respond, then the party at lose can demand rescission.
When rescission cannot be granted:
In certain situation, the court may refuse to rescind the contract and the party has to perform the contract, these situations are-
- where the plaintiff has expressly or impliedly ratified the contract by doing any kind of work which is essential for the contract. A person can impliedly rescind the contract if he doesn’t act, after knowing the nature of the contract, and the other party keep on working on the contract. So, for example, if A knew that the contract is harmful to him, but then too if she doesn’t act and let the other party take advantage from the contract, then he cannot rescind the contract in the court of law.
- If due to some condition the parties cannot be substantially restored to the position in which they stood when the contract was made.
- The court will not rescind the contract, if the party asking for rescission has committed some mistake in relation to the contract, and came to the court with unclean hand.
- The requesting party has unnecessarily delayed the request for rescission, resulting in some prejudice to the other party.
- Where the party has asked to rescind only a part of a contract, and that part is inseparable from the contract, then the court can refuse the request of the party to rescind it. But it depends completely on the court’s discretion.
What is the effect of rescission on the Contract:
If both parties want rescission and if they fulfil conditions to be satisfied for rescission then it will relieve both the parties from any obligation under the contract and allows both parties to make future agreements on the grounds that the deal has been broken for once and for all has come to an end. The parties are free from the primary obligation i.e to perform the work but not from a secondary obligation that is Compensation, the party who has suffered a loss due to rescission can ask for compensation, and the party who asked for rescission has obligation to pay compensation to the other party.
Section 75 Of The Indian Contract Act:
Section 75 of the Act prescribes compensation in case of rightfully rescinded contract. The section reads as follows:
“Section 75- Party rightfully rescinding the contract, entitled to compensation-A person who rightfully rescinds a contract is entitled to compensation for any damage which he has sustained through the non-fulfilment of the contract.”
This section says that the party who has suffered a loss due to rescission of a contract, that party is entitled to compensation so that he can recover his loss and can work on the other contract. The claim for compensation under S. 75 is maintainable when the right of repudiation of the contract has been exercised under either of the ss. 39, 53, 54 or 55 of then The Indian Contract Act. This section tends reasonably to protect a buyer’s right to recover a deposit on sale if the seller makes a default where there is a need for clearer jurisdiction than his remedy for contract violation under the general provisions of section 73.
How to rescind a Contract:
The first step to rescind the contract is to determine whether it can be rescinded or not, this can be done by reviewing the contract and its clauses to see if it contains rescission instructions. If it does not contain any such term, then the party can go for negotiation with the other party. If condition required for rescission is fulfilled then the party must identify what are the legal grounds for rescission. Finally, a written notice must be given to the other party, then the party would have 2 choices either to negotiate the terms of a contract with the other party or to rescind it directly.
Rescission by mutual agreement:
If both parties are unsatisfied with the contract, then they can rescind it by mutual agreement which will releases both parties from its obligations, freeing them both up to continue business as usual without the broken contract hanging over their them.
Conclusion:
Rescission act as an important part of contract termination and provides an opportunity to terminate the unlawful contract. if there is a loss to one party in the contract then the other party is legally entitled to have the contract terminated. Certain sections of the Specific Relief Act deal with rescission and provides a way to rescind it. Basically, rescission is a tool which helps in undoing the injustice to the party.
This article is authored by Manas Shrivastava, First-Year, B.A. LL.B, student at National Law University Odisha.
Also Read – Introduction of the Partnership Act, 1932
