Compensation to a Party Rightfully Rescinding

Broken down

"Rightfully rescinds"

The word rightfully is the condition, and it is where a claim under this section fails.

The rescission must be lawful, that is the party must have had a right to rescind and must have exercised it properly. The recognised sources of that right are:

• section 39, where the other party refused to perform or disabled himself in its entirety;
• section 53, where the other party prevented him from performing;
• section 55, where time was of the essence and was not kept;
• sections 19 and 19A, where his consent was caused by coercion, fraud, misrepresentation or undue influence.

A party who rescinds without such a right has not rightfully rescinded. He is himself in breach, and section 75 gives him nothing.

"Compensation for any damage sustained through the non-fulfilment"

The measure is the ordinary measure of damages, and section 75 does not create a separate scale. Section 73 supplies the principles: loss arising naturally in the usual course of things, or known to the parties at the time of contracting to be likely, excluding remote and indirect loss, and with the means of remedying the inconvenience taken into account.

So the claim under section 75 is a claim for the loss of the bargain, assessed as it would have been had the innocent party sued without rescinding.

How sections 39, 64, 65, 73 and 75 fit together

This is the sequence a good answer sets out, because it shows the whole aftermath of a repudiation.

The point to write: rescission and damages are not alternatives in Indian law. Section 75 gives compensation precisely to the party who has rescinded.

A worked example

Lakshmi contracts to supply Manoj with four hundred tonnes of cement at seven thousand rupees a tonne, delivery on 1 August. On 1 June she writes that she will not supply.

• Manoj accepts the repudiation on 3 June and rescinds. He may do so under section 39, the refusal being of the whole promise, so his rescission is rightful.
• He had paid an advance of five lakh rupees. Under section 65 Lakshmi must restore it, having received an advantage under a contract that is now at an end. Under section 64 Manoj must restore anything he received, which on these facts is nothing.
• He buys four hundred tonnes elsewhere on 5 June at seven thousand eight hundred rupees. Under section 75 he is entitled to compensation for the damage sustained through the non fulfilment, measured under section 73 as the difference of eight hundred rupees a tonne, that is three lakh twenty thousand rupees.
• He also claims for a resale contract at a very high price, of which Lakshmi knew nothing. Section 75 gives compensation, but the measure is section 73's, so this fails the two limb test and is remote and indirect.
• He does nothing for two months and buys in August at nine thousand. The Explanation to section 73 applies through section 75, and his damages are limited to what he would have lost had he bought a substitute within a reasonable time.
• Change the facts: Lakshmi merely said in June that delivery might be a week late, and Manoj rescinded. That is not a refusal in its entirety, so he had no right to rescind. His rescission is not rightful, section 75 gives him nothing, and he is himself in breach.

What it does NOT mean

"Rescission and damages are alternatives, and a party must choose." They are not, and section 75 exists to say so.

"Any party who rescinds may claim under section 75." Only one who rescinds rightfully, that is with a legal right to do so.

"Section 75 provides its own measure of damages." It does not. Section 73 supplies the principles, including remoteness and mitigation.

"Having rescinded, the party keeps everything he received." Section 64 requires him to restore benefits, and section 65 requires advantages to be restored or paid for.

"Section 75 applies only to anticipatory breach." It applies to any rightful rescission, whatever the source of the right.

Quick revision

• s.75: a person who rightfully rescinds a contract is entitled to compensation for any damage sustained through the non fulfilment of the contract.
• "Rightfully" is the condition. The right comes from s.39 (refusal or disablement in its entirety), s.53 (prevention), s.55 (time of the essence), and ss.19 and 19A (vitiated consent). Rescind without a right and the section gives nothing.
• The measure is s.73's: the two limbs, no remote or indirect loss, and mitigation under the Explanation.
• Rescission and damages are NOT alternatives.
• The singer's case runs through three sections: s.39 illustration (a), B may end the contract; s.65 illustration (c), B must pay for the five nights sung; s.75, B may claim his damage.
• The sequence after a repudiation: s.39 elect, s.66 communicate, s.64 restore, s.65 account for advantages, s.75 claim, s.73 measure.

Test yourself

1. State section 75 and explain its purpose. 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. Its purpose is to make clear that ending the contract does not destroy the claim: rescission puts an end to future performance, while the right to be compensated accrued when the other party broke the contract.

2. What does "rightfully" require? That the party had a legal right to rescind and exercised it properly. The right may arise under section 39 where the other party refused to perform or disabled himself in its entirety, under section 53 where he was prevented from performing, under section 55 where time was of the essence, or under sections 19 and 19A where his consent was vitiated. A party who rescinds without such a right is himself in breach and gets nothing under section 75.

3. How is compensation under section 75 measured? By the ordinary principles in section 73. The claimant recovers loss which naturally arose in the usual course of things from the breach, or which the parties knew at the time of contracting to be likely to result, but not remote or indirect loss, and the means which existed of remedying the inconvenience must be taken into account.

4. Trace the singer's case through the Act. Under illustration (a) to section 39 the manager is at liberty to put an end to the contract when the singer wilfully absents herself on the sixth night. Under illustration (c) to section 65, having rescinded, he must pay her for the five nights on which she had sung. Under the illustration to section 75 he is entitled to claim compensation for the damage he has sustained through the non fulfilment of the contract.

5. Must a party choose between rescinding and claiming damages? No. Section 75 gives compensation precisely to a party who has rightfully rescinded, so the two are cumulative rather than alternative. What he must do is restore any benefit he received under section 64 and account for any advantage under section 65, and his damages are then measured under section 73.