Consequences of Rescission, and Restoration of Benefit

In one line

When a contract is unwound, somebody is usually holding something they were given under it, and these two sections say who must give it back and on what footing.

In the words a student can write in an exam: section 64 of the Indian Contract Act 1872 provides that when a person at whose option a contract is voidable rescinds it, the other party need not perform, and the party rescinding must restore any benefit received under it, so far as may be, to the person from whom it was received. Section 65 provides that when an agreement is discovered to be void, or when a contract becomes void, any person who has received any advantage under it is bound to restore it, or to make compensation for it, to the person from whom he received it.

Why two sections and not one

The two sections deal with two different situations, and mixing them is the commonest error on this topic.

Section 64 is about a VOIDABLE contract that somebody chooses to rescind. There was a valid contract, one party had the option to escape it, and he has exercised it. The obligation to restore falls on the party rescinding, because he is the one asking to be let out.

Section 65 is about an agreement that is VOID, or a contract that BECOMES void. Nobody chose anything. The obligation falls on any person who has received an advantage, whichever of them that is, because neither party is asking for a favour and both must simply be put back.

The difference in wording follows from that. Section 64 speaks of the party rescinding restoring a benefit; section 65 speaks of any person restoring an advantage or making compensation for it.

The provisions

Section 64:

"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."

Section 65:

"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."

Section 65's 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."