Recession and Rectification, Cancellation of Instrument | Law of Contracts - CLAT PG PDF Download

Defenses Available in a Suit for Specific Performance 

•  A defendant in a suit for specific performance of a contract may raise several defenses, including: 
•  Proving that  compensation in money could be adequate relief to the plaintiff  . This is outlined in Section 14(a) of the relevant legal framework. This defense suggests that monetary compensation could sufficiently address the plaintiff's concerns, making specific performance unnecessary. 
•  Arguing that the  contract involves minute details or is dependent on the personal qualifications of the parties  . Section 14(b) states that if the contract's material terms are so intricate or reliant on the unique qualifications of the parties involved, the court may find it challenging to enforce specific performance. 
•  Highlighting that the  performance of the contract involves a continuous duty  that the court cannot supervise. Section 14(d) indicates that if fulfilling the contract requires ongoing obligations that are difficult for the court to oversee, specific performance may not be feasible. 
•  Demonstrating that the  contract is of a determinable nature  . If the contract is inherently determinable, meaning it can be terminated under certain conditions, specific performance may not be applicable. 
•  Showing that the contract was entered into by the plaintiffs in  breach of trust or beyond their powers  . Section 11(2) suggests that if the plaintiffs exceeded their authority or acted in bad faith, they may not be entitled to specific performance. 
•  Arguing that the contract, while not voidable at the time of inception, gave the  plaintiff an unfair advantage over the defendant  . Section 20 implies that if the contract's terms disproportionately favored the plaintiff, specific performance may be contested. 
•  Contending that fulfilling the contract would impose  hardship on the defendant  that was unforeseen, while non-performance would not cause similar hardship to the plaintiff. This is also governed by Section 20. 
•  Asserting that the  defendant's conduct disqualifies them from relief  . Section 16 indicates that if the defendant's actions render them unworthy of receiving relief, specific performance may not be granted. 
•  Proving that the  plaintiff cannot provide a title free from reasonable doubt  . Section 17 suggests that if the plaintiff's title is questionable, specific performance may be denied. 
•  Indicating that the defendant is entitled to enforce the contract with  variations  that they may propose. Section 18 allows for such variations in specific performance cases. 
•  In the case of  T.M. Balakrishna Mudaliar v. M. Satyanarayana Rao  , the term "representative-in-interest" encompasses the assignee of the right to purchase the property, granting them the title to claim specific performance. 

 Who Cannot Claim Specific Performance of a Contract 

•  According to Section 16 of the law, specific performance of a contract cannot be enforced by or in favor of a person who: 
•  Has obtained substituted performance of the contract under Section 2. 
•  Has become incapable of performing the contract. 
•  Has violated any essential term of the contract that remains to be performed on their part. 
•  Has acted fraudulently in relation to the contract or willfully acts in a way that undermines the relationship intended by the contract. 
•  Has failed to prove readiness and willingness to perform the essential terms of the contract, except for terms whose performance has been prevented or waived by the other party. 

 I.T.C Ltd. v. George Joseph Fernandes 

•  In this case, the court ruled that a person involved in an illegal contract cannot enforce their rights under this section. 

 Rakha Singh v. Babu Singh 

•  In this case, the court determined that the plaintiff's readiness and willingness to pay the purchase price was sufficient, and the lack of evidence regarding having money in the bank was not crucial. 

 Rescission (Section 27-30) 

•  Definition of Rescission:  Rescission is the act of unmaking a contract between parties in contract law. 
•  Purpose of Rescission:  The purpose of rescission is to unwind a transaction and restore the parties involved to their original positions before entering into the contract, as closely as possible. This is known as returning to the "status quo ante." 

 When is Rescission Available? 

•  Rescission of contract is available under Sections 27 to 30 of the Specific Relief Act when a party has been a victim of fraud, illegality, or similar circumstances that render the contract void or voidable. 
•  Section 27(1) outlines situations where a party may rescind a contract: 
•  When the contract is voidable or terminable by the plaintiff. 
•  When the contract is unlawful due to causes not evident on its face and the defendant is more at fault. 

 Loss of Right of Rescission

 Inbuilt Remedy of Rescission in Decree of Specific Performance (Section 28) 

•  A decree of specific performance is a legal order to fulfill the terms of a contract, often related to the sale or lease of immovable property. 
•  If the party granted this relief fails to pay the price within the court's specified time, the seller has the right to request rescission. 
•  In such cases, the court may instruct the purchaser or lessee to return possession to the seller and compensate them with rent for the duration they occupied the property. 

 Limitation 

•  An application for rescission must be submitted within 3 years from the date of the decree for specific performance. 

 Rescission as an Alternate Prayer (Section 29) 

•  A plaintiff filing a suit for specific performance of a contract may request that if the contract cannot be specifically enforced, it should be rescinded and the related documents be delivered up for cancellation. 

 Rescission and Equity (Section 30) 

•  If the court issues a decree of rescission, it may require the decree holder to restore any benefits received under the contract to the extent deemed just and equitable. 

 RECTIFICATION OF INSTRUMENT (Section 26) 

 The rectification of a contract or instrument can occur in the following circumstances:

 When Rectification is Possible:

•  If a contract or instrument does not reflect the true intention of the parties due to  fraud  or a  mutual mistake  , rectification is possible. 
•  Either party or their representative can file a suit for rectification. 
•  In any suit related to rights under the instrument, a party can claim rectification in their pleadings. 
•  A defendant in such a suit can also request rectification in addition to other defenses. 

 Court's Role in Rectification:

•  If the court finds that the instrument does not express the real intention of the parties due to fraud or mistake, it can order rectification. 
•  Rectification should not prejudice the rights of third parties acting in good faith and for value. 
•  A written contract may be rectified and, if requested, specifically enforced. 

 Specificity in Claims:

•  Relief for rectification will only be granted if specifically claimed by a party. 
•  If a party fails to include such a claim, the court can allow amendment of pleadings at any stage. 

 Essentials of Rectification 

•  A genuine agreement that differs from the expressed terms in the contract. The parties must have mutually agreed on certain terms that are different from those stated in the contract. 
•  Fraud by one party or a mutual mistake by both parties. A unilateral mistake can lead to the contract being rescinded but not to its rectification. The mistake can be about a fact or a law, although relief against a mistake of law is rarely granted unless it leads to an inequitable outcome. 
•  Fraud or mistake in the expression of the contract, not in its formation. The contract must be entered into with the free consent of both parties, and only the terms expressed in the contract should have been included by mistake or fraud. 
•  Rectification does not impact the rights of bona fide purchasers for value who are unaware of the mistake or fraud. 
•  For example, if A intends to sell his house and one of the three adjacent go-downs to B, but B fraudulently includes all three go-downs in the conveyance deed, the deed can be rectified to exclude the two go-downs that were not agreed upon. 

 Cancellation of Instruments (Section 31-33)

•  Section 31 to 33 of the Specific Relief Act, 1963 deal with the cancellation of instruments. 
•  A document that is valid cannot be canceled. If a document is void from the beginning (void ab initio), it does not need to be set aside by a decree because it is considered non-existent in the eyes of the law. 
•  Section 31 describes the remedy for cancellation as follows: "Any person against whom a written instrument is void or voidable, and who has a reasonable fear of serious injury if the instrument is left outstanding, may sue to have it declared void or voidable. The court has the discretion to make this determination and order the instrument to be delivered up and canceled." 
•  The provision allows for discretionary relief and includes three essential conditions: 
•  The instrument must be void or voidable. 
•  The plaintiff must have a reasonable fear of serious injury if the instrument is not canceled. 
•  The court, based on the circumstances of the case, exercises its discretion to order the instrument to be delivered up and canceled. 

 Who can seek cancellation?

• Any individual against whom a written instrument is either void or voidable, and who has a reasonable fear that the instrument, if left in effect, might cause serious harm, has the right to sue for it to be deemed void or voidable. 
•  Not only the parties involved in the instrument but also those affected by it can file a lawsuit under this section. For instance, under Section 53 of the Transfer of Property Act, in cases of fraudulent transfer, a creditor can sue on behalf of other creditors to cancel a sale deed made by a debtor with the intention to delay, defraud, or undermine the creditors' rights. 
•  In the case of Chajulal v. Gokul, a neighbor of a property owner falsely claimed in a mortgage deed that a wall adjoining the properties belonged to him and that he had the right of way over the owner's land. The court ruled that the property owner was entitled to have these misleading terms in the deed canceled as they directly impacted his title and interests. 

 Partial Cancellation (Section 32) 

•  According to Section 32, the court has the  discretion  to cancel only a part of an instrument. This means that the instrument can still be valid in cases where there is evidence of different rights or obligations that are distinct and separable. 
•  In the case of  Ram Chander v. Ganga Saran  , the court ruled on a plaintiff's claim that an endorsement on a document was forged and therefore false, warranting cancellation. The court agreed and  partially cancelled  the endorsement while keeping the rest of the document intact, as the endorsement was considered a separate and distinct part of the document.