Business law


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Business law

  1. 1. FRAUD FRAUD 1 Mode of communicating or revoking rescission of voidable contract: 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. Restitution Rescission is always subject to the condition that the party seeking rescission must be in a position to restore the benefits he may have obtained under the contract. Section 64 requires him to do so. Consequences of rescission of voidable contract: 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 there under from another party to such contract, restore such benefit, so far as may be‟ to the person from whom it received. Thus a person avoiding a loan bond on the ground of undue influence has to pay back the loan, the court only reduces the interest to what may seem to be reasonable in the circumstances. A corporation supplied, after taking payment in advance, a quantity of rapseed oil which turned out to be mixed with water, the corporation had to refund the money with interest. Even when the party seeking rescission is not in a position to restore to the defendant his status quo ante, the court may allow rescission by doing what is practically just in circumstances. Thus, where a wife wanted to set aside on the
  2. 2. FRAUD FRAUD 2 ground of misrepresentation the separation deed made with her husband, under which she had already received some maintenance, but 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. SWINFEN EADY LJ said: “The general rule is that as a condition of rescission there must be restitution in integrum, but at the same time the court has the full power to make all just allowances. It was said by Lord BLACKBURN in Erlanger v New Sombrero Phosphate Co, that the practice had always been for a court of equity to give relief by way of rescission whenever by the exercise of it power it can do what is practically just, though it cannot restore the parties precisely in the state that they were in before the contract. On the other hand, where both parties had spent money on the property in terms of the contract in such manner that restitution was not possible, rescission was not allowed even though there was innocent misrepresentation on the part of the seller of the property. The position is thus summarized by Treital. “As in cases of misrepresentation, the party seeking rescission must restore benefits that he has obtained under the contract, but he is not required to make precise restitution: the principle of allowing rescission for misrepresentation so long as equity can achieve a result that is „practically just‟ applies also where rescission is sought on the ground of undue influence” Following this position of law in a case, it was held that where a party received nothing under the mortgage which was set aside on the ground of undue influence, there was nothing for him to make restitution. Damages for innocent misrepresentation
  3. 3. FRAUD FRAUD 3 A person who is the victim of a fraud is entitled to sue for damages, fraud being a tort also. But the victim of an innocent misrepresentation was not allowed to recover any compensation, Liability in tort for negligent or innocent misrepresentation is still groaning for recognition. However, much of the sufferings of the victims of innocent misrepresentations have now been relieved by the (English) Misrepresentation Act, 1967. The Act contains the following main provisions: (1)A person who has entered into a contract on account of a misrepresentation will have the same right to recover compensation for loss, if any, caused to him as if the misrepresentation had been made to the time of the contract believe that the facts represented were true. (2)When it is alleged in any proceedings that the contract ought to be or has been rescinded, the court may, instead, declare the contract to be subsisting and award damages in place of rescission, if it is equitable to do so. (3)Provisions in the contract which exclude or restrict liability would be of no effect, unless they are fair and reasonable in the circumstances of the case. The vendor of a property relied on her husband to deal with her business affairs. The husband stated to the purchaser that to the vendor‟s knowledge there was no dispute with any neighbor over boundary. In fact there was a dispute of this kind, though the husband did not know it. His statement amounted to an innocent misrepresentation. The purchaser was allowed rescission and refund of deposit. He was further entitled under Section 2(1) to an inquiry into damages suffered arising out of the loss of interest for the period between the date of deposit and its placement in an interest-earning account.
  4. 4. FRAUD FRAUD 4 Under the Indian Contract Act this type of relief is provided under Section 75. Party rightfully rescinding contract entitled to compensation: A person who rightfully rescinds a contract is entitled to compensation for any damage which he has sustained through the non-fulfillment of the contract. Illustration 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 100 rupees for each night‟s performance. On the sixth night, A willfully absents herself from the theatre, and B, in consequence, rescinds the contract. B is entitled to claim compensation for the damage which he has sustained through the non- fulfillment of the contract. CASE STUDIES (1)Official Receiver v Jugal Kishore
  5. 5. FRAUD FRAUD 5 Under an agreement of certain sale of goods, the plaintiff received through a bank the railway receipts supposed to represent the goods and obtained them from the bank after paying Rs 15,000. The amount was sent to the seller‟s account at his place of business. Meanwhile the plaintiff discovered that the railway receipts were bogus and immediately informed the bank not to part with the amount which was accordingly withheld. But before the plaintiff could inform either the fraudulent seller or file a suit for rescission an insolvency judge ordered the bank not to pay the amount on either party. The plaintiff then filed a suit for declaration that he was entitled to his money. The full bench was of the view that the plaintiff had parted with the money under a fraud. Thus the money came into the insolvent‟s account under a defeasible title and the plaintiff had defeated it when he directed the banker to stop payment which was done before the insolvency judge‟s order. Even if he had rescinded by filing the suit, he was entitled to the money, because he had nothing to affirm the contract. Section 66lays down the way in which the communication of rescission is to be made effective.
  6. 6. FRAUD FRAUD 6 It was held that by informing the police and the Association the plaintiff had done an overt act clearly showing his intention to rescind and the sale of the car after rescission could not convey to the defendant a good title. To hold otherwise, said SELLERS LJ “would involve the defrauding party, if skilful enough to keep out of the way, would deprive the other party to the contract of his right to rescind. That another innocent party or parties may suffer does not justify imposing on a defrauded seller an impossible task. H e had to establish clearly and unequivocally that he terminates the contract and is no longer to be bound by it. If he cannot communicate his decision he may still satisfy a judge that he had made a final and irrevocable decision and ended the contract.