CANCELLATION
"Cancellation is the undoing of a commitment, the release from a promise, and the reset
button on plans."
Cancellation is the process of terminating or revoking an agreement, reservation,
appointment, event, or other commitment. It involves the intentional discontinuation of
something that was previously arranged or scheduled, effectively rendering it null and void.
Cancellation may occur for various reasons, such as a change in circumstances, the need to
reschedule or postpone, a breach of contract, or the exercise of a legal right to terminate an
agreement. It often results in the annulment of obligations, reservations, or responsibilities
associated with the original commitment.
Any instrument by which two or more parties agree to exchange designated performances,
such as a contract, deed, lease, insurance policy, commercial paper, or a mortgage, may be
canceled if the circumstances of the case warrant it.
The judicial remedy of the cancellation of an instrument is granted by a court in its sound
discretion exercising its equity powers to do justice. If it is apparent that no injustice will
result from restoring both parties to the positions they had prior to the execution of the
instrument, an instrument may be set aside.
If the party seeking the cancellation has an adequate remedy at law, for example, and can
recover damages that will give complete relief, cancellation will be denied. It is available,
however, if the defendant is judgment-proof or financially unable to pay damages awarded
against him or her. Statutes, too, may provide this equitable remedy as concurrent relief, in
addition to damages, in particular cases. The uniform commercial code permits merchants in
sales transactions to seek the cancellation of a contract, in addition to an award of damages in
a breach of contract suit.
Grounds for Cancellation of Instruments or under what circumstance instruments can
be cancelled.(U/S 39 of SRA)
Followings are considered grounds for cancellation of instruments or following circumstance
under which instruments can be cancelled.
(a) Void or Voidable Instrument
A ground for cancellation of instruments is that a written instrument should be void or
voidable against any person.
(b) Causing of Injury
Another ground for cancellation of instruments is that if an instrument is left outstanding, it
can cause injury to that person against whom instrument is void or voidable.
(c) Apprehension of serious Injury
Among grounds for cancellation of instruments, a ground is that there should be apprehension
of serious injury due to a written instrument.
Other grounds which also fulfills the criteria of Voidable
1. Mistakes or Errors in Drafting: This ground for cancellation involves errors or
inaccuracies in the drafting or creation of the instrument, which can make it legally invalid.
Mistakes may be in the form of incorrect names, dates, terms, or calculations.
- Example: A contract for the sale of a property may contain a typographical error in the
purchase price, rendering the instrument invalid. The buyer intended to offer $100,000, but
the contract mistakenly states $10,000.
2. Lack of Legal Capacity of the Parties: An instrument may be canceled if one or more
parties lacked the legal capacity to enter into the agreement. This can include cases where a
party is underage, mentally incapacitated, or under the influence of substances.
-Example: A minor enters into a contract to purchase a car. Since the minor lacks legal
capacity, the contract may be canceled at the minor's discretion.
B. Fraud and Misrepresentation:
1. Deliberate Deception Leading to the Instrument's Creation: Cancellation may be sought
if the instrument was created as a result of fraudulent activities or misrepresentations, where
one party intentionally deceives another to induce them into the agreement.
- Example: Party A sells a used car to Party B and falsely claims that the car has only
been driven 50,000 miles when, in reality, it has been driven 150,000 miles. Party B
discovers the deception and seeks to cancel the sales contract due to fraud.
C. Breach of Contract:
1. Failure to Meet the Terms and Conditions of the Instrument: This ground for cancellation
arises when one party fails to fulfill the agreed-upon terms and conditions specified in the
instrument, which can be a breach of the contract.
- Example: In a construction contract, Party A hires Party B to build a house with
specific design features. If Party B fails to construct the house according to the agreed
design, it could be a breach of the contract and may lead to the cancellation of the
construction agreement.
D. Duress and Coercion:
1. Unlawful Pressure that Forced the Creation of the Instrument: Cancellation may be
warranted if the instrument was created under duress or coercion, which involves threats,
intimidation, or other unlawful pressure exerted on one party by another.
Example: Party A threatens to harm Party B's family unless Party B signs a contract
to lend money. Party B, feeling threatened, signs the contract under duress. Party B may
seek to cancel the contract due to the duress involved.
Kinds of Cancellation of Instruments
There are the two kinds
(a) Complete Cancellation of Instruments
Under specific Relief Act, court has discretion to adjudge an instrument, to order it to be
delivered up and cancelled. It reveals that complete cancellation of instruments has been
provided in law.
(b) Partial Cancellation of Instruments(U/S 40 of SRA)
According to specific Relief Act, court can cancel an instrument in part and can allow
performance of its remaining part. It reveals that partial cancellation of instruments has also
been provided in law.
What instruments can be cancelled?
Following instruments can be cancelled:
(a) Written Instrument
When an instrument is written and the same is void or voidable against any person and can
cause serious injury to such person, this written instrument can be cancelled.
(b) Registered Instrument
A registered instrument can be cancelled. However, it is necessary for court to send a copy of
its decree regarding cancellation of registered instrument to that officer, in whose office the
instrument has been registered and such officer should note fact of cancellation on that copy
of the instrument, which is present in his books.
(c) Unregistered Instrument
An unregistered instrument can also be cancelled.
(d) Unconstitutional Instrument
An instrument, which is unconstitutional, can also be cancelled.
Instruments that can be canceled are typically legal documents or financial agreements where
one or more parties wish to void the instrument due to certain legal grounds or reasons. The
ability to cancel an instrument depends on the specific terms and conditions outlined in the
instrument itself, as well as applicable laws and regulations. Here are some types of
instruments that can be canceled, along with examples:
(f) Contracts
Contracts are legal agreements between two or more parties, and they can be canceled under
certain circumstances, such as breaches, misrepresentations, or mutual consent.
- Example: If Party A and Party B enter into a contract for the sale of goods, and Party B
fails to deliver the goods as agreed, Party A may have the right to cancel the contract due to
the breach of contract.
(g) Leases
Lease agreements, which govern the rental of property, can be canceled by either the
landlord or the tenant based on the terms specified in the lease.
- Example: If a tenant fails to pay rent as required in a residential lease, the landlord may
have the right to cancel the lease and request the tenant's eviction.
(h) Wills:
Wills, which dictate the distribution of a person's assets after their death, can be canceled or
revoked if the testator (the person who made the will) chooses to create a new will or
formally revokes the existing one.
- Example: If a testator wishes to change the beneficiaries or terms of their will, they may
revoke the existing will and create a new one, effectively canceling the old will.
(i) Real Estate Contracts:
Real estate contracts for the sale or purchase of property can be canceled for various reasons,
such as disputes over property conditions or titles.
- Example: If a buyer discovers significant structural issues with a property that were not
disclosed by the seller, they may have the grounds to cancel the real estate purchase contract.
(j) Financial Instruments:
Financial instruments, such as loan agreements, promissory notes, and securities, can be
canceled under specific terms and conditions set out in the instrument or by law.
- Example: In a loan agreement, if the borrower repays the loan in full in accordance with
the terms of the agreement, the loan is considered canceled.
Procedures for Cancellation
A. Legal Procedures:
1. Filing a Lawsuit for Cancellation: When parties seek to cancel an instrument through
legal means, they can initiate a lawsuit in a court of law. The court will then evaluate the
grounds for cancellation and make a determination.
- Example: If Party A believes that a contract with Party B is invalid due to fraudulent
misrepresentations, Party A can file a lawsuit to seek the cancellation of the contract and
request a court judgment.
2. Court Orders and Judicial Decisions: In legal proceedings for cancellation, the court
may issue orders and render judicial decisions that either grant or deny the request for
cancellation based on the evidence and arguments presented.
- Example: After a lawsuit is filed to cancel a will on the grounds of undue influence, the
court may issue a judgment either upholding the will's validity or canceling it, depending on
the evidence presented during the legal proceedings.
B. Mutual Agreement:
1. Parties Agree to Cancel the Instrument: In some cases, parties involved in the
instrument can mutually agree to cancel it. This voluntary agreement is a consensual
approach to cancellation.
- Example: If a buyer and seller mutually agree to cancel a real estate purchase contract
due to a change in the buyer's circumstances, they can sign an agreement to cancel the
contract, acknowledging that both parties are in agreement.
2. Documentation of the Agreement: When parties agree to cancel an instrument, it is
essential to document the agreement in writing. This documentation serves as evidence of
their mutual consent to cancel the instrument.
- Example: Parties in a business partnership decide to dissolve the partnership by mutual
agreement. They draft and sign a written partnership dissolution agreement, documenting
their decision to cancel the partnership.
C. Termination Clauses:
1. Examination of Cancellation Provisions in the Instrument: Many instruments, such
as contracts, include termination or cancellation clauses that specify the conditions under
which the instrument can be canceled. Parties should review and follow these provisions.
- Example: A business contract includes a termination clause that allows either party to
cancel the contract with a 30-day written notice. If one party wishes to cancel, they must
provide written notice in accordance with the clause.
2. Compliance with Contractual Requirements: When utilizing termination clauses
within an instrument, parties must adhere to the contractual requirements for cancellation,
which may include providing notice, adhering to specified timeframes, or meeting other
conditions.
-Example: In an employment contract, the termination clause stipulates that the employer
must provide the employee with a 90-day notice before canceling the contract. To cancel the
employment contract, the employer must provide the required notice period.
Legal Implications
A. Effect on Parties:
1. Parties' Obligations, Rights, and Liabilities after Cancellation:
- After the cancellation of an instrument, the legal consequences affect the rights and
responsibilities of the parties involved. Typically, the instrument becomes null and void, and
the parties are no longer bound by its terms.
- Example: If a real estate purchase contract is canceled due to the discovery of structural
issues with the property, both the buyer and seller are released from their respective
obligations under the contract. The buyer is not obligated to purchase the property, and the
seller is not required to sell it.
B. Restitution:
Return of Consideration or Benefits Received under the Instrument:
- Restitution involves the return of any consideration or benefits exchanged between the
parties. This ensures that parties are returned to their pre-contract positions.
- Example: In a loan agreement, if the lender cancels the loan due to a borrower's inability
to repay, the borrower may be required to return the principal amount borrowed to the lender
as part of the restitution process.
C. Third-Party Considerations:
Impact on Third Parties Who May Have Acquired Rights:
- Cancellation may affect third parties who have acquired rights or interests based on the
original instrument. The cancellation may nullify these rights or create obligations for third
parties.
- Example: If a person sells their car and cancels the sale contract, the subsequent buyer
who acquired the car may have to return the vehicle to the original owner, as the contract was
canceled.
Challenges in Canceling Certain Instruments:
- Complex Contractual Provisions: Some instruments, particularly complex contracts,
may contain provisions that make cancellation challenging. These provisions could involve
intricate termination clauses, penalty clauses, or dispute resolution mechanisms.
- Example: A long-term construction contract with intricate penalty clauses for early
termination can pose challenges if one party seeks to cancel the contract. The penalties may
be financially burdensome.
- Third-Party Rights: Canceling an instrument may be complicated when third parties
have acquired rights or interests based on the instrument. Cancellation may affect these third
parties and lead to disputes.
- Example: If a real estate purchase contract is canceled, but a third party has already
acquired a lien on the property, the cancellation may raise disputes over the third party's
rights.
- Emotional or Personal Attachments: In some cases, emotional or personal attachments
to an instrument may make cancellation challenging. This can be particularly relevant in
family or personal relationships.
- Example: A family member may find it emotionally challenging to cancel a will or an
inheritance arrangement that was initially made by a deceased loved one.
Legal Limitations and Constraints on the Cancellation Process:
Statute of Limitations: Legal instruments may be subject to statutes of limitations, which
impose time limits on the right to cancel. Once these time limits expire, cancellation may no
longer be possible.
- Example: In a contract dispute, there may be a statute of limitations that requires a party
to initiate a cancellation lawsuit within a certain period, such as two years from the date of
the alleged breach.
- Contractual Provisions: The terms and conditions of the instrument, including
cancellation clauses, can create legal limitations. Parties must adhere to these provisions, and
failing to do so may hinder the cancellation process.
- Example: A lease agreement may have a specific cancellation clause that requires the
tenant to provide 60 days' notice before canceling the lease. Failure to adhere to this
provision could result in financial penalties.
- Regulatory Restrictions: Certain types of instruments, such as financial instruments or
securities, may be subject to regulatory restrictions and limitations on cancellation to protect
market stability and investor interests.
- Example: Government regulations may restrict the cancellation of financial derivatives
to prevent market disruptions. Such restrictions are designed to ensure the stability of
financial markets.
Best Practices for Avoiding Instrument Cancellation:
- Ensure Clear and Comprehensive Agreements: When drafting or entering into
agreements, ensure that the terms and conditions are clearly defined, and all parties fully
understand their rights and obligations. This can help prevent misunderstandings and disputes
that might lead to cancellation.
- Example: In a commercial lease agreement, clearly outline rent payment schedules,
maintenance responsibilities, and dispute resolution mechanisms to prevent ambiguities that
could lead to cancellation.
- Conduct Due Diligence: Before entering into an instrument, conduct thorough due
diligence. This involves investigating and verifying information to ensure that all parties are
capable of fulfilling their commitments.
- Example: Prior to lending money, a lender should conduct a credit check on the
borrower to assess their creditworthiness and reduce the risk of default.
- Incorporate Dispute Resolution Mechanisms: Include effective dispute resolution
mechanisms, such as arbitration or mediation clauses, to address disputes and conflicts
without the need for cancellation.
- Example: A construction contract might include an arbitration clause that requires parties
to resolve disputes through arbitration, reducing the likelihood of contract cancellation due to
disagreemen
Tips for Drafting Instruments to Minimize the Risk of Cancellation:
- Clearly Define Termination Provisions: When drafting instruments, include clear and
fair termination provisions. Specify the conditions and procedures for cancellation, and
ensure they are reasonable and balanced for all parties.
- Example: In a software development contract, include a termination clause that allows
either party to cancel the contract with 30 days' notice, providing an exit strategy without
undue hardship.
- Include Remedies for Breach: Contracts should outline remedies for breach of contract,
such as the right to cure or specific damages. Clearly define how breaches will be addressed
to avoid hasty cancellations.
- Example: A service agreement may specify that in the event of non-performance, the
party in breach has a defined period to remedy the breach before the contract can be canceled.
- Regularly Review and Update Instruments: Regularly review and update contracts and
agreements to ensure that they remain relevant and effective. This can help adapt to changing
circumstances and prevent unnecessary cancellations.
- Example: Employment contracts may include a provision for periodic performance
reviews and salary adjustments, reducing the risk of employee dissatisfaction and contract
cancellation.
- Seek Legal Counsel: When in doubt or when dealing with complex instruments, consider
seeking legal counsel. Lawyers can provide valuable advice and assist in drafting instruments
that are legally sound and well-structured to minimize cancellation risks.
- Example: In complex mergers and acquisitions, parties often involve legal experts to
draft comprehensive agreements that minimize risks and disputes that might lead to
cancellation.
Case laws
1. Case: Shadab Khan v. Mohammad Ayub (2006 PLD 247 Supreme Court of Pakistan)
- Facts: In this case, Shadab Khan, the appellant, had entered into an agreement to sell his
property to Mohammad Ayub, the respondent. The agreement contained terms for the sale of
land, and Ayub had already paid a substantial amount of the purchase price. However, a
dispute arose over the ownership of the property, as it was later discovered that Shadab Khan
did not have clear title to the land at the time of the agreement.
- Decision: The Supreme Court of Pakistan held that the agreement to sell the property was
void due to the lack of clear title on the part of Shadab Khan. The Court concluded that the
absence of a clear title rendered the agreement unenforceable, and as a result, the respondent
was entitled to the return of the money paid as part of the purchase price. This case
exemplifies the principle that an agreement based on a void title is subject to cancellation,
and the innocent party is entitled to restitution.
2. Case: Muhammad Bashir v. Malik Zafar Iqbal (2011 CLC 666 Lahore High Court)
- Facts: In this case, Muhammad Bashir, the petitioner, had entered into a contract to
purchase a piece of agricultural land from Malik Zafar Iqbal, the respondent. After the
agreement was made, disputes arose over the quality of the land and its boundaries. Bashir
claimed that the land was not as represented by Iqbal, and he sought to cancel the sale
agreement.
- Decision: The Lahore High Court held that the petitioner, Muhammad Bashir, was
entitled to cancel the sale agreement due to the material misrepresentation by Malik Zafar
Iqbal regarding the land's quality and boundaries. The Court ordered the cancellation of the
contract and directed the respondent to refund the money received as part of the purchase
price. This case illustrates that misrepresentation or non-disclosure of material facts can be
grounds for the cancellation of a contract in Pakistan.
