Right of Rescission

Right of Rescission: A Critical Assessment
SUBMITTED BY:
RASHMI TEWANI
NATIONAL LAW UNIVERSSITY ODISHA
EMAIL: [email protected]
Contact No.: 08280030869
CHITRA JHA
NATIONAL LAW UNIVERSITY ODISHA
Email: [email protected]
Contact No.: 08280030802
Contents
Cases..........................................................................................................................................3
List of Abbreviations:.................................................................................................................3
Research questions:....................................................................................................................4
Hypothesis:.................................................................................................................................6
Introduction................................................................................................................................7
Chapter I.....................................................................................................................................8
Modes of Rescission...............................................................................................................8
1) Rescission by Notice:.....................................................................................................8
2) Setting Aside by Court:..................................................................................................9
Who Can Rescind:..................................................................................................................9
Rescission of Part of Contract:.............................................................................................10
Exercising it:.........................................................................................................................11
Chapter II.................................................................................................................................12
Limits on the Right of Rescission:.......................................................................................12
Affirmation:......................................................................................................................12
Delay:................................................................................................................................12
Acquiring Rights By Third Party:.....................................................................................13
Restitution In integrum:....................................................................................................13
Indemnity:.........................................................................................................................13
Refusal By Courts:............................................................................................................14
Executed Contracts:..........................................................................................................15
Conclusion................................................................................................................................16
2 | Page
Cases
Alati v. Kluger (1955) 94 CLR 216............................................................................................3
Armstrong v Jaxkson[1916] All ER Rep 1117............................................................................8
Car v Universal Finance Co Ltd v Caldwell [1961] QB 525....................................................6
Cooper v Phibbs.........................................................................................................................9
Duddell v Simpson (1866) 2 Ch App 102...................................................................................7
Govind Ramji Ganjale v Savitri Rama Thosar AIR 1941 Bom 93.............................................5
Gundappa Chikappa kurbar v Balaji Ramji Dange AIR 1941 Bom 274...................................5
Horsier v Zorro [1975] 1 All ER 584.........................................................................................4
Manbhari v Sri Ram AIR 1936 All 672......................................................................................5
Ningawwa v Byrappa Shiddappa Hirknrabar AIR 1968 SC 956...............................................8
Official Reciever v Jugal Kishore Lachhi Ram. AIR 1963 ALL 459..........................................4
Ohid Bux v Dorshul AIR 1926 Cal 959......................................................................................6
Peyman v Lanjani [1984] 3 All ER 703.....................................................................................8
Prasad v Har Narain Das AIR 1932 PC 89...............................................................................9
Re Dames and Wood (1885) 29 ChD 626 at 630.......................................................................7
Re LG Clarke [1976] Ch 1121...................................................................................................8
Re Northern Bank Finance v Charlton [1979] IR 149..............................................................6
Re Weston and Thomas's Contract [1907] 1 Ch 244 at 248......................................................7
Senenayake v Cheng[1965] 3 All ER 296..................................................................................8
Shriomani Sugar Mills Ltd. v Debi Prasad AIR 1950 All 508...................................................8
Solle v Butcher [1949] 2 All ER 1107........................................................................................9
TBS Bank Plc v Camfield [1995] 1 WLR 430............................................................................2
Vadaz v Pioneer Concrete SA Pvt Ltd (1995) 184 CLR 102......................................................6
West Sussex Properties Ltd v Chichester DC [200] NPC 74.....................................................7
William Charles Binns v W&T Avery Ltd AIR 1934 Cal 778.....................................................5
William Sindall Plc v Cambridgeshire county Council [1994] 3 All ER 932..........................10
3 | Page
Table of Abbreviations
A.C. Appeal Case, Law Reports.

A.C.J. Accidents Claims Journal.
A.I.R.
All India Reporters.
All Cri.R. Allahabad Criminal Report.

All E.R. All England Law Reports.
All
-Indian Law Report, Allahabad Series.
App. Cas - Appeal Cases.

Beng. L.R.- Bengal Law Reports.
Bom.- Indian Law Reports, Bombay Series.
Cal.- Indian Law Report, Calcutta Series.
C.W.N.- Calcutta Weekly Notes.
Cr. L.J.- Criminal Law Journal of India.
Ex. D.- Exchequer Division, Law Reports.
Gau.- Indian Law Reports, Gauhati Series.
I.A.- Law Reports Indian Appeals.
I.L.R.- Indian Law Reports.
L.R.- Law Reports.
Mad.- Indian Law Report, Madras Series.
P.L.R.- Punjab Law Report.
4 | Page
Pat.-Indian Law Report, Patna Series.

Raj.- Indian Law Report, Rajasthan Series.
S.C.A.- Supreme Court Appeals.
S.C.-Same Case.
S.C.C.-Supreme Court Case.
5 | Page
Research questions:
Can Rescission be ordered even if restitutio in integram is not possible?
Is it possible to rescind only a segment of a particular contract or it is necessary to

rescind the whole contract altogether.
6 | Page
Hypothesis:
The author assumes that the Right of Rescission is accurately and universally applicable,
precise, and no confusion over its applicability exists in either English or Indian law.
7 | Page
Introduction
The right of an entity concerned in a contract to return to circumstances identical to that prior
to they entered in4to the contract, due to courts not recognizing the contract as legally
binding. In many cases, rescission may be an option if there is an error in the contract.
When an individual has been prompt to enter into a contract by any description of
misrepresentation, the influence on the contract is not to make it void, but to give the
innocent party a choice either to affirm it or to avoid it. However rescission is not just a
judicial remedy. The innocent party can rescind without pursuing the aid of a court, 1 and any
assets transferred to the respondents under the agreement will be re-established with the
innocent party or the party who has rescinded the contract2.
When Rescission is exercised both the parties came into the position as they were before the
contract, as if nothing happened or we can say that both the parties are completely discharged
from the contractual obligation, everything that has occurred pursuant to the agreement is reestablished and the contract can never be invigorated.
1TBS Bank Plc v Camfield [1995] 1 WLR 430.

2Alati v. Kluger (1955) 94 CLR 216.
8 | Page
Chapter I
Modes of Rescission
1) Rescission by Notice:
The consent to a contract which is caused by undue influence, misrepresentation, fraud or
coercion is voidable at the option of the innocent party whose consent was so caused. Section
19 of the Indian Contract Act, 1872 says:
When consent to an agreement was caused by coercion, fraud or misrepresentation, the
agreement is a contract voidable at the option of the party whose consent was so caused.
A party to a contract, whose consent was caused by fraud or misrepresentation, may, if he
thinks fit, insist that the contract shall be performed, and that he shall be put in the position in
which he would have been if the representations made had been true.3
The provision does not mention to undue influence as this is specially dealt with Section 19
A of The Indian Contract Act, 1872. It says:
A party to a contract, whose consent was caused by fraud or misrepresentation, may if he
thinks fit, insist that the contract shall be performed, and that he shall be put in the position in
which he would have been if misrepresented made had been true. 4
For rescission no form is mandatory by the section 19. It is enough under Section 66 that
communication of rescission is done in the same manner and subject to the same rules as it is
of a proposal. Notice regarding rescission given to an agent is notice given to the principal. 5
Before commencing any proceedings a declaration of rescission is not mandatory as matter of
law, however the wise action is to not accept as soon as possible after knowing the facts and
3 Section 19 of The Indian Contract Act, 1872.

4 Section 19 A of The Indian Contract Act, 1872.
5Official Reciever v Jugal Kishore Lachhi Ram.AIR 1963 ALL 459.
9 | Page
right to rescind.6 Or else, the contract would remain valid, later the innocent can sue such
party for the breach of contract.
2) Setting Aside by Court:

It is essential that the process of rescission is the act of the party rescinding, and not of the
court7. However the court may annul a rescission previously influenced by self-help 8. Section
27-30 of the Specific Relief Act, 1963 gives the power of rescission to the courts. This says:
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
6 Notice of avoidance should be presented within a reasonable time, having regard to the conditions,
after the innocent party knew of the relevant facts.
7Alati v Kruger (1955) 94 CLR 216.
8Horsier v Zorro [1975] 1 All ER 584.
10 | P a g e
(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.9
Who Can Rescind:
The decision of evading a contract acquired in any of the ways declared in section 19 and
section 19A is executable by the partys legal airs if at the date of death, he had lost it by
acquiescence.10 Once it is affirmed by the party entitled to rescind the contract, it cannot be
questioned or revived by any third party.11
If one side acts deceitfully, he cannot be permitted, as defendant or plaintiff, to plea, or offer
evidence in support of his own fraud.12
If one party comes into an agreement erroneously, and the opposite party with the knowledge
of the error, acts deceitfully, the latter would not be permitted to misuse the error and enforce
it13
In a case where both the parties are acting fraudulently, the courts will not allow to enforce
the transaction.14
9Section 27 of the Specific Relief Act 1963.

10Manbhari v Sri Ram AIR 1936 All 672.
11GovindRamjiGanjale v Savitri Rama Thosar AIR 1941 Bom 93.
12GundappaChikappakurbar v BalajiRamjiDange AIR 1941 Bom 274.
13William Charles Binns v W&T Avery Ltd AIR 1934 Cal 778.
14GudappaChikappaKurbar v BalajiRamjiDange AIR 1941 Bom 274.
11 | P a g e
Rescission of Part of Contract:

Only a part of a contract cannot be rescinded by a person entitled to rescission 15. If a party
decides to rescind any contract he must rescind the whole contract altogether.16
Section 27(2) (d) of The Specific Relief Act 1963 says:
from the rest of the contract.17
It empowers the court to deny rescinding the contract if only a part is pursued to be
rescinded, and this part is not separable from the rest of the contract. This is a power with the
court and not a right of the party. However, the High Court of Australia has decided that
Equity permits partial rescission of a contract by the order of the court induced by fraudulent
misrepresentation.18
Exercising it:
Rescission is only accessible against a contracting party19. The implementation of the right to
rescind at common law usuallyneeds a notice to be given to the other contracting party in the
logic that the contract will not generally be considered as having been rescinded until such
notice is given20.
However, it is not necessary for notification of rescission to be given prior to the initiation of
a claim seeking rescission21. A notice to rescind striking 'without prejudice' would appear to
15TSB Bank plc v Camfield [1995] 1 All ER 951.
16OhidBux v Dorshul AIR 1926 Cal 959.
17 Section 27 (2)(d) The Specific Relief Act, 1963.
18Vadaz v Pioneer Concrete SA Pvt Ltd (1995) 184 CLR 102.
19Re Northern Bank Finance v Charlton [1979] IR 149.
20Car v Universal Finance Co Ltd v Caldwell [1961] QB 525.
21West Sussex Properties Ltd v Chichester DC [200] NPC 74.
12 | P a g e
be void22. Where belief is placed on a contractual right to rescind under a particular provision,
any notice of implementation of the right should mention to that provision.
A party needto exercise the right of rescission reasonably and in good faith, and not
haphazardly or capriciously23. It follows that where it arises in defined situations that relate to
the partys attitude, decision or position he may not claim those conditions arise purely to
escape the contract. For e.g. a vendor has the right to rescind if he is incapable or unwilling to
comply with a consumer's objections, it is sufficient (if he acted in good faith) to show
reasonable grounds of difficulty24.
Chapter II
Limits on the Right of Rescission:
Section 26(2) of The Specific Relief Act 1963 confines right of rescission in following ways:
22Re Weston and Thomas's Contract [1907] 1 Ch 244 at 248.

23Re Dames and Wood (1885) 29 ChD 626 at 630.
24Duddell v Simpson (1866) 2 Ch App 102.
13 | P a g e
Affirmation:
If the contract is affirmed by deceived party by express words, his selection is
irrevocable.25 Provided the defrauded party is well aware of all the facts and right to
rescind the contract.26 If the plaintiff comes to know about the fraud later then also he
would be allowed to exercise his right to rescind the contract, even if the plaintiff had
signed a false statement.27
Delay:
The right to rescind a contract remains with the defrauded party until it discovers the
fraud done to him. Right is not affected by mere lapse of time. 28 But, if a suit for
rescission is brought after the limitation period ends prescribed under The Limitation
Act 1963 is liable to be dismissed provided that the innocent party is aware of the
fraud done to him.29 Right of Rescission should be exercised within reasonable time
of his becoming aware of the deceit.30
Acquiring Rights By Third Party:

As a voidable contract is valid unless it is rescinded and if during the interval third
parties acquire rights bonafide without any prior notice and even if the position of
wrongdoer is affected, the right to rescind the contract is lost by the party. If a
25Ningawwa v ByrappaShiddappaHirknrabar AIR 1968 SC 956.
26Peyman v Lanjani [1984] 3 All ER 703.
27Senenayake v Cheng[1965] 3 All ER 296.
28 Armstrong v Jaxkson[1916] All ER Rep 1117.
29 The Limitation Act 1963, Section 2(1).
30Shriomani Sugar Mills Ltd. v Debi Prasad AIR 1950 All 508.
14 | P a g e
contract is entered into through fraud and is not rescinded before a third party
interferes and gets rights in the subject matter, no claim to rescind will lie.31
Restitution In integrum:
Rescission is only possible if the parties can be restored to the original state which
was before entering into the contract.32 And in case the restitution is not possible there
is no right to rescission. In Cooper v Phibbs33, it was said that parties must return what
they had obtained under the contract, on the exercise of right to rescission.
A party using right of rescission is entitled reinstated as far as possible to his original
position34 and mere deterioration would not abolish the right of rescission.35
Indemnity:
When a person seeking right to rescind the contract is in a situation to restore the
benefits, he is enabled to indemnity from the other party against contractual
obligations created by the third party.
Refusal By Courts:
According to Section 27(2) The Specific Relief Act 1963, the court mar decline to rescind the
contract in the following circumstances:
31Re LG Clarke [1976] Ch 1121.
32Solle v Butcher [1949] 2 All ER 1107.
33(1867) 2 HL 149.
34Prasad v HarNarain Das AIR 1932 PC 89.
35Alati v Kruger (1955) 94 CLR 216.
15 | P a g e
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
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.36
Under the section 2(2) of the Misrepresentation Act 1967, the court is empowered to refuse to
grant rescission for misrepresentation37, though it can award damages. Section 2(2) of The
Misrepresentation Act 1967, reads (2)Where a person has entered into a contract after a
misrepresentation has been made to him otherwise than fraudulently, and he would be
entitled, by reason of the misrepresentation, to rescind the contract, then, if it is claimed, in
any proceedings arising out of the contract, that the contract ought to be or has been
rescinded, the court or arbitrator may declare the contract subsisting and award damages in
lieu of rescission, if of opinion that it would be equitable to do so, having regard to the nature
of the misrepresentation and the loss that would be caused by it if the contract were upheld,
as well as to the loss that rescission would cause to the other party. 38 The court therefore
calculates the damages caused to the party and balances the loss suffered. The measure of the
damages is done by calculating the loss caused due to refusal of rescission and not by
calculating the loss caused due to entering into contract39.
36Section 27(2) The Specific Relief act 1963.

37Except in case of Fraud.
38 Section 2(2) The Misrepresentation Act 1967.
16 | P a g e
Executed Contracts:
The Principle lied under the English law that no rescission of a contract is possible if
it has been executed by a transfer of property under it, as referred in Seddon v North
Eastern Salt Co Ltd40, is no longer a limitation to Right of Rescission under section
1(b) of the Misrepresentation Act 1967. Now the question is whether Restitutio in
integrum is substantially possible or not.41
39William SindallPlc v Cambridgeshire county Council [1994] 3 All ER 932.

40[1905] 1 Ch 326.
41Senanayake v Cheng [1965] 3 All ER 296.
17 | P a g e
Conclusion
Rescission includes the closure of a contract in a way that unknots it. It has the effect
of considering a contract which did occur and may have been completed in part or full
as having, with the benefit of hindsight, had no real or substantive existence.
There seems to be a normally held opinion among legal practitioners that restitutio in
integrum is a sine qua non of the remedy of rescission. This is actually not the case.
The law has evolved such that rescission can be granted even though restitutio in
integrum is not achievable, if it is practically just in the circumstances.
18 | P a g e

Right of Rescission

Uploaded by

Copyright:

Available Formats

Right of Rescission

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Right of Rescission

Uploaded by

Copyright:

Available Formats

Right of Rescission: A Critical Assessment