Law and You > Business Laws > Indian Contract Act, 1872 > Rescission of Voidable Contract (Ss. 64 to 67 ICA, 1872)
The concept of rescission of voidable contract is a significant aspect of the Indian Contract Act, 1872, which governs the formation and enforcement of contracts in India. A voidable contract is one that, while initially valid, can be legally voided at the option of one of the parties due to specific circumstances that undermine genuine consent. These circumstances may include factors such as misrepresentation, fraud, undue influence, or coercion. The rescission of voidable contracts is a critical safeguard within the Indian legal framework that reinforces the importance of consent and equitable treatment in contractual arrangements. Understanding this concept is vital for navigating the complexities of contract law and ensuring that justice is served in cases of compromised agreements.
Consequences of Rescission of Voidable Contract (S.64 ICA):
When a person at whose option a contract is voidable rescinds it, the other party thereto need not perform any promise therein contained in which he is promisor. The party rescinding a voidable contract shall, if he have received any benefit thereunder from another party to such contract, restore such benefit, so far as may be, to the person from whom it was received.
A voidable contract may be considered valid if the aggrieved party does not cancel it within a reasonable time.
Rescission takes place when the parties in the contract agree to dissolve the contract. In this case, the old contract stands discharged and no new contract is formed. Section 64 of ICA states consequences of rescission of voidable contract as
- When a person at whose option a contract is voidable rescinds it, the other party thereto need not perform any promise therein contained in which he is promisor.
- The party rescinding a voidable contract shall, if he have received any benefit thereunder from another party to such contract, restore such benefit, so far as may be, to the person from whom it was received.
In Hulton v Hulton case, where a wife wanted to set aside on the ground of misrepresentation the separation deed made with her husband, under which she had already received some maintenance, but she was not able to restore the money, the court allowed her relief holding that the money may be set off against costs to which she was otherwise entitled.
Obligation of person who has received advantage under void agreement, or contract that becomes void (S.65 ICA):
When an agreement is discovered to be void, or when a contract becomes void, any person who has received any advantage under such agreement or contract is bound to restore it, or to make compensation for it to the person from whom he received it.
Illustrations:
(a) A pays B 1,000 rupees in consideration of B’s promising to marry C, A’s daughter. C is dead at the time of the promise. The agreement is void, but B must repay A the 1,000 rupees.
(b) A contracts with B to deliver to him 250 maunds of rice before the first of May. A delivers 130 maunds only before that day, and none after. B retains the 130 maunds after the first of May. He is bound to pay A for them.
(c) A, a singer, contracts with B, the manager of a theatre, to sing at his theatre for two nights in every week during the next two months, and B engages to pay her a hundred rupees for each night’s performance. On the sixth night, A wilfully absents herself from the theatre, and B, in consequence, rescinds the contract. B must pay A for the five nights on which she had sung.
(d) A contracts to sing for B at a concert for 1,000 rupees, which are paid in advance. A is too ill to sing. A is not bound to make compensation to B for the loss of the profits which B would have made if A had been able to sing, but must refund to B the 1,000 rupees paid in advance.
Section 65 states when an agreement is discovered to be void, or when a contract becomes void, any person who has received any advantage under such agreement or contract is bound to restore it, or to make compensation for it to the person from whom he received it.
When the parties have entered into an apparently valid contract and some benefits have been passed under it, and subsequently the contract is either discovered to be void or becomes void, the party who has received the benefits must restore them to the other. The section does not apply to a contract which the party knew at the time of making it to be void. The section also may not apply to a case where the benefits are being passed at a time when the contract has, though unknown to the parties, already ceased to be enforceable. Thus, no restitution of the benefit received is allowed in the case of expressly declared void agreements (Ss. 26-30, 36, 56). Sec. 65 also does not apply to a case where the benefits are received after the contract has become void.
There is a phrase ‘when a contract becomes void’. This will cover cases where the contract was valid initially, but due to the happening of some event the performance of it becomes impossible or unlawful (frustration of contract).
In Faqir Chand Seth v Dambarudhar Bania (AIR 1987 Ori 50) case, where the plaintiff advanced money to the defendant for supply of paddy, without knowing that the said agreement was in violation of the Orissa Rice and Paddy Control Order, 1965. It was held to be a case, where the agreement was discovered to be void, and the plaintiff was held entitled to receive the refund of the advance paid by him. Thus, Sec. 65 will apply whether the agreement is void by reason of law or by reason of facts. Therefore, Sec. 65 will apply in cases where a contract is void by reason of “unlawful object”, but the parties were not aware of it.
Mode of communicating or revoking rescission of voidable contract (S. 66 ICA)
The rescission of a voidable contract may be communicated or revoked in the same manner, and subject to the same rules, as apply to the communication or revocation of a proposal.
According to Section 66 the rescission of a voidable contract may be communicated or revoked in the same manner, and subject to the same rules, as apply to the communication or revocation of a proposal
Effect of neglect of promisee to afford promisor reasonable facilities for performance (s. 67 ICA)
If any promisee neglects or refuses to afford the promisor reasonable facilities for the performance of his promise, the promisor is excused by such neglect or refusal as to any non-performance caused thereby.
Illustration
A contracts with B to repair B’s house. B neglects or refuses to point out to A the places in which his house requires repair. A is excused for the non-performance of the contract if it is caused by such neglect or refusal.
According to Section 67 if any promisee neglects or refuses to afford the promisor reasonable facilities for the performance of his promise, the promisor is excused by such neglect or refusal as to any non-performance caused thereby.
Party rightfully rescinding contract, entitled to compensation (S.75)
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.
Section 75 states that the party that rescinds the contract rightfully is entitled to receive damages and/or compensation for such a recession
Conclusion:
The rescission of voidable contracts under the Indian Contract Act, 1872, is a crucial mechanism that upholds the principles of fairness and justice in contractual relationships. A voidable contract is one that is valid until one party chooses to affirm or rescind it, typically due to factors such as misrepresentation, fraud, undue influence, or coercion. The process of rescission allows the aggrieved party to annul the contract, effectively restoring both parties to their original positions before the agreement was made. This provision serves to protect individuals from being bound by agreements that were entered into under improper circumstances, thus reinforcing the importance of consent and genuine agreement in contracts. Moreover, rescission provides a remedy that promotes equitable treatment and serves as a deterrent against unethical practices in contractual negotiations. It underscores the legal system’s commitment to ensuring that parties are not unfairly disadvantaged due to exploitative behavior.
In conclusion, the rescission of voidable contracts under the Indian Contract Act is a vital tool for promoting fairness and integrity in contractual dealings. It empowers individuals to reclaim their rights and protect their interests, ensuring that contracts are entered into voluntarily and with full knowledge of their implications. By allowing for the annulment of contracts that lack genuine consent, the Act fosters trust and confidence in commercial transactions, ultimately contributing to a more equitable legal landscape.