Contract Act, Section 64

Contract Act, Section 64: Consequences of Rescission of a Voidable Contract

Section 64 of the Indian Contract Act, 1872 governs the legal consequences of rescinding a voidable contract by the party entitled to avoid it, ensuring that future obligations of the parties come to an end.

The section also requires restoration of benefits received under the contract, preventing unfair advantage and restoring the parties to their original positions as far as possible.

1. Purpose of Section 64

The primary objective of Section 64 is to regulate the legal consequences of rescinding a voidable contract by ensuring that valid avoidance releases the parties from future obligations.

The provision also prevents unjust enrichment by requiring the restoration of any benefits received under the contract after it has been rescinded.

2. Meaning of a Voidable Contract

A voidable contract is a valid and enforceable agreement unless and until it is rescinded by the party legally entitled to avoid it.

The right to rescind generally arises where consent is affected by coercion, undue influence, fraud, or misrepresentation, and the contract remains effective until such option is exercised.

3. Right to Rescind

Section 64 applies only where the person having the legal right to avoid the contract actually chooses to rescind it, as the contract is not automatically terminated merely because it is voidable.

The rescission must be exercised by the party whose consent was affected or who is otherwise legally entitled to avoid the contract under the law.

4. Effect of Rescission

Once a voidable contract is validly rescinded, the contractual relationship comes to an end and the parties are discharged from their future obligations.

The rights arising from the contract cease to operate, except to the extent required for restoring the benefits already received by the parties.

5. Other Party Need Not Perform

Section 64 expressly provides that after rescission, the other party is no longer bound to perform the promises contained in the contract.

Since the contract itself has been brought to an end, the law does not compel either party to continue performing obligations that no longer have a legal foundation.

6. Duty to Restore Benefits

An important feature of Section 64 is that the party rescinding the contract must restore any benefit received under it, including money, property, services, or other advantages.

This obligation ensures that the rescinding party does not retain benefits while rejecting the contract, thereby maintaining fairness between the parties.

7. Principle of Restitution

The requirement of restoring benefits under Section 64 is based on the equitable principle of restitution, aiming to restore the parties as nearly as possible to their original positions and prevent unjust enrichment after rescission.

8. Restoration So Far as May Be

Section 64 requires restoration of benefits "so far as may be," recognizing that while complete restoration may not always be possible, the parties must restore benefits to the maximum extent reasonably achievable under the circumstances.

9. Mutual Fairness

The section reflects the principle of mutual fairness by allowing the aggrieved party to rescind the contract while requiring restoration of benefits received, and preventing the other party from demanding further performance after valid avoidance.