CHANAKYA NATIONAL LAW UNIVERSITY,NYAYA

NAGAR, MITHAPUR, PATNA – 800001

PROJECT SUBMITTED IN THE FULFILMENT OF THE COURSE

TITLED –
“RESCISSION OF CONTRACT”

LAW OF CONTRACT- I

SUBMITTED TO:
Mrs. SUSHMITA SINGH
FACULTY OF CONTRACTS

SUBMITTED BY:
NAME: TRIPTI
COURSE: B.A., LL.B (Hons.)
ROLL NO: 1980
SEMESTER: 2nd
 ACKNOWLEDGEMENT
It is my privilege to record my deep sense to perform gratitude to those who helped me in
completion of this project.
In making of this project many people helped me immensely directly or indirectly. I
sincerely acknowledge the help rendered to by our faculty Mrs. Sushmita Singh who had
given me an idea and encouragement in making this project. I also acknowledge the help of
library staff and my friends for being cordial in order to make conductive environment of
the CNLU Hostel.

TRIPTI
2nd SEMESTER
 DECLARATION BY THE CANDIDATE

I hereby declare that the work report in the B.A L.L.B(Hons.) Project report entitled
submitted at CHANAKYA NATIONAL LAW UNIVERSITY is an authentic record of my
work carried out under supervision of Mrs. Sushmita Singh I have not submitted this work
elsewhere for any other degree or diploma. I am fully responsible for my project report.

SIGNATURE OF THE CANDIDATE

NAME OF THE CANDIDATE: TRIPTI

Contents
AIMS AND OBJECTIVE:........................................................................................................5
HYPOTHEIS:............................................................................................................................5
RESEARCH METHODOLGY USED:...................................................................................5
RESEARCH QUESTION:........................................................................................................5
1) INTRODUCTION....................................................................................................................6
2) VOIDABLE CONTRACT.......................................................................................................8
 Ratification of Voidable Contracts....................................................................................9
3) The Specific relief Act – 1963...............................................................................................11
4) SECTION 30: COURT MAY REQUIRE PARITES RESCENDING DO THE EQUITY...14
5) CONCLUSION......................................................................................................................17
Waiver of Rights....................................................................................................................17
Contract Breach.....................................................................................................................18
BIBLOGRAPHY...........................................................................................................................19
AIMS AND OBJECTIVE:

The researcher has formed following Aims and Objectives:

 To do a detailed study about conditions where rescission of contracts can take place.
 To do a detailed study about bars to rescission.

HYPOTHEIS:

The researcher has formulated the following hypothesis the validity of which will be checked in
the course of this research work.

 The voidable contracts can be rescinded on the wishes of the party whose consent was
free.
 The right to rescind a contract seems to suppose not that the contract has existed only in
appearance

RESEARCH METHODOLGY USED:

The method used by the researcher is partially doctrinal and partially non doctrinal.

RESEARCH QUESTION:

The researcher has formulated following research questions:

1) What are the various reasons for which a contract can be rescinded?
2) When a rescission can be refused?
3) What are the reliefs provided in case rescission?
 1) INTRODUCTION

In contract law, rescission has been defined as the unmaking of a contract between parties.
Rescission is the unwinding of a transaction. This is done to bring the parties, as far as possible,
back to the position in which they were before they entered into a contract (the status quo ante.

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 1 or a third party has acquired some rights or
there has been substantial performance in implementing the contract. Furthermore, because
rescission is supposed to be imposed mutually upon both sides to a contract, the party seeking
rescission normally must offer to give back all benefits he or she has received under the contract
(an "offer of tender")

The injured party may rescind the contract by giving notice to the representor. However, this is
not always necessary as any act indicating repudiation, eg notifying the authorities, may suffice.
(Car & Universal Finance v Caldwell) 1

Alternate terms
Virginia uses the term "cancellation" for equitable rescission. Furthermore, a minority of
common law jurisdictions, like South Africa, use the term "rescission" for what other
jurisdictions call "reversing", "overturning" or "overruling" a court judgment. In this sense, the
term means to be set aside or made void, on application to the court that granted the judgment or
a higher court. Applications to rescind a judgment are usually made on the basis of error or for
good cause.

Most common law jurisdictions avoid all this confusion by holding that one rescinds a contract
and cancels a deed (i.e. of real property), and treat rescission as a contractual remedy rather than
a type of procedural remedy against a court judgment.

1
Car & Universal Finance v Caldwell [1965] 1 QB 525
The right to rescind a contract seems to suppose not that the contract has existed only in
appearance; but that it has never had a real existence on account of the defects which
accompanied it; or which prevented its actual execution.

A contract cannot, in general, be rescinded by one party unless both parties can be placed in the
same situation, and can stand upon the same terms as existed when the contract was made. The
most obvious instance of this rule is, where one party by taking possession, etc., has received a
partial benefit from the contract.

A contract cannot be rescinded in part. It would be unjust to destroy a contract in toto, 2 when
one of the parties has derived a partial benefit, by a performance of the agreement. In such case it
seems to have been the practice formerly to allow the vendor to recover the stipulated price, and
the vendee to recover, by a cross-action, damages for the breach of the contract. But according to
the later and more convenient practice, the vendee, in such case, is allowed in an action for the
price, to give evidence of the inferiority of the goods in reduction of damages, and the plaintiff
who has broken his contract is not entitled to recover more than the value of the benefit the
defendant has actually derived from the goods or labor; and when the latter has derived no
benefit, the plaintiff cannot recover at all. A sale of land, by making a deed for the same, and
receiving security for the purchase money, may be rescinded before the deed has been recorded,
by the purchaser surrendering the property and, the deed to the buyer, and receiving from him the
securities he had given; in Pennsylvania, these acts revest the title in the original owner. But this
appears contrary to the current of decisions in other states and in England.

2
 Sheffield Nickel co V. Unwin 2 QBD 214 – 223
 2) VOIDABLE CONTRACT

A voidable contract is a formal agreement between two parties that may be rendered
unenforceable for a number of legal reasons. Reasons that can make a contract voidable
include failure by one or both parties to disclose a material fact; a mistake,
misrepresentation or fraud; undue influence or duress; one party's legal incapacity to enter
a contract; one or more terms that are unconscionable; or a breach of contract.

There are a variety of reasons the court might deem a contract unenforceable, including:

 Misrepresentation or fraud.
 Duress of undue influence.
 Legal incapacity to enter into contract.
 Breach of contract.
 Unconscionable terms.
 Failure to disclose a material fact.

A contract can be canceled due to a mutual factual mistake. However, failure to read a
contract does not make it voidable. Lack of capacity might include intoxication at the time
the contract was signed or mental impairment that keeps someone from understanding the
contract terms. 

Minors lack legal capacity to enter into a contract, as well. If a minor did not get a parent or
guardian's consent, the contract can be voided. However, if the minor reaches the age of
consent, which is 18 in most states, and doesn't request to cancel the contract within a
reasonable amount of time, a judge might determine the contract to be binding.

Contracts can be deemed voidable due to coercion, fraud, misrepresentation, and undue
influence. Victims of coercion and these other scenarios have the right to ask for the contract to
be voided.
Essentially, a voidable contract was at one time legal and enforceable. If one party discovers the
contract has one or more defects, they can request it be deemed a voidable contract. The contract
will remain enforceable and valid if the party with the power to have it declared voidable
chooses not to reject it despite the defect. Unfortunately, the person who could have the contract
deemed voidable is often unaware of the fraud or misrepresentation.

You can save a contract if only one or two parts are voidable. This is called severance.

 Ratification of Voidable Contracts

If you have a voidable contract, you can have it ratified to correct the issues. To go through the
ratification process, the contract parties must agree to new terms. These terms will have removed
the problem with the initial contract. 

For example, if a person lacked capacity at the time he or she entered into the original contract,
that individual can opt to ratify the original contract once he or she has legal capacity. Another
example is if one party was under the influence of a mind-altering substance at the time the
contract was executed. This would render the original signature invalid. If that party wants to
move forward with the contract, he or she can ratify it when in a mindset that provides legal
capacity.

 Notice for Rescission Of Contract

It has been noted above that under certain situations a party to the contract may avoid the
contract. The party entitled to avoid to a certain rescind a voidable contract may do so by a
notice to the other party, or taking such steps as may be necessary under the circumstances of by
the case. A voidable contract will be avoided only if the party having a right to do so avoids it. If
instead, he affirms the contract then, the contract will be binding on both the parties. In Car and
Universal Finance Co. Ltd. V. Caldwell3, the purchaser of a car committed a fraud against the
seller by making the payment through cheque which was dishonoured. The seller wanted to
avoid the contract and regain the possession from the buyer, but the buyer was not traceable.
Meanwhile the purchaser sold it further to another person “B”. It was now a question that
whether the contract between B and the purchaser was valid since it was made after the
rescission of the original contract.

3
(1961) 1 Q.B. 525
A person entitled to avoid a contract may sue the other party to have the contract rescinded by a
contract rescinded by a court, under the Specific Relief Act, 1963.4

4
Section 27 of the Special Relief Act, 1963.
 3) The Specific relief Act – 1963

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.

Explanation.-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.
 4) SECTION 30: COURT MAY REQUIRE PARITES RESCENDING DO THE
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 5

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)6

Note that in Peyman v Lanjani7, 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

5
Govindram v. Edward Radbone (1947) 74 IA 295
6
Long v Lloyd [1958] 1 WLR 753.
7
Peyman v Lanjani [1985] Ch 457
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.

Leaf v International Galleries8

(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 Pike9

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 Jackson10

(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)11 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.

8
Leaf v International Galleries [1950] 2 KB 86.
9
Vigers v Pike (1842) 8 CI&F 562.
10
Armstrong v Jackson [1917] 2 KB 822
11
Phillips v Brooks [1919] 2 KB 243
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. ( Whittington v Seale-Hayne)12

12
Whittington v. Seale-Hayne (1900) 82 LT 49.
 5) CONCLUSION

Most contracts end when the validity period of the contract has expired, and in many cases, the
contracts are renegotiated and renewed. However, there are three distinct termination scenarios
that may be specified in a contract. These are cancellation for default, cancellation by mutual
consent and cancellation for convenience.

 Cancellation For Default - This is used by a customer when the vendor has failed to
abide by the terms of the contract. Depending on how the contract is worded, the
termination can be triggered by failure to adhere to delivery dates, or a failure to provide
items with the level of quality required. Whatever the cause the customer should be able
to provide evidence to substantiate the cancellation notice. Depending on the contract the
vendor may have a period in which to address the issues, or if they disagree with the
reasons provided by the customer, they can take their case to a mediator.

 Cancellation By Mutual Consent - In many cases the contract is terminated by mutual

consent without any instances that trigger a cause. Sometimes the vendor stops
production of a part used by the customer and therefore the contract can no longer be
fulfilled. In other cases, the customer may no longer produce finished goods that require
parts fulfilled by the contract.
 Cancellation For Convenience - Vendors have found that customers have canceled
contracts for convenience due to the fact that they are in financial difficulties and do not
want to be tied to a contract. If this termination occurs the vendor should not suffer any
financial loss because of the actions of the customer.

Waiver of Rights

When a customer decides to terminate a contract for reason, for example if the quality of the
items is not up to specification or the deliveries are never on time, the customer has to be wary
that they have may have waived their rights. If a vendor sends their deliveries to the customer so
that they are always late, and the customer has not complained about it, the customer could have
waived their rights to terminate the contract. This is due to the fact that the customer has
effectively accepted that the deliveries are always late and that at a later time they cannot then
cancel the contract based on late deliveries.

Contract Breach

A customer can terminate the contract with a supplier if the supplier breaches the contract in one
of a number of ways; late delivery, incorrect quality or specifications of items supplied, incorrect
items supplied, or if the vendor says that they cannot deliver the items.

If the vendor says that they cannot supply the items indicated in the contract the customer can
find the same items from another supplier. If those items from the other supplier are more
expensive then the customer can get reimbursement from the supplier who breached the contract.
For example, if the contract price for an item is $10 and the alternative supplier charges $18 per
item, then the customer can then recover the $8 per item extra they had to pay from the vendor
they have the contract with. This is called remedy of cover.
 BIBLOGRAPHY
BOOKS
1) Pollock and Mulla on Indian contract and Specific Relief acts 10 th edn – 1044-4
2) Avtar Singh – Principles of Mercantile law
3) R.K. Bangia- 7TH EDITION, 2017
 
CASES
1) Long v Lloyd [1958] 1 WLR 753
2) Car & Universal Finance v Caldwell [1965] 1 QB 525
3) ibi
4) Pollock and Mulla on Indian contract and Specific Relief acts 10 th edn – 1044-48
5) Wilde v. Gibson (1848) 1 HLC – 605 approved in Gramani v. Ramachandran 1953 A.M 769
6) Prem Raj v. D L F H Co Ltd (1968) A.SC 1355
7) Govindram v. Edward Radbone (1947) 74 IA 295
8) Long v Lloyd [1958] 1 WLR 753
9) Peyman v Lanjani [1985] Ch 457
10) Leaf v International Galleries [1950] 2 KB 86.
11) Vigers v Pike (1842) 8 CI&F 562
12) Armstrong v Jackson [1917] 2 KB 822
13) Phillips v Brooks [1919] 2 KB 243
14) Whittington v. Seale-Hayne (1900) 82 LT 49