Compensation to a Party Rightfully Rescinding

In one line

Section 75 answers the question a party asks the moment he walks away from a broken contract: having ended it, may he still sue for what the breach cost him? He may.

In the words a student can write in an exam: section 75 of the Indian Contract Act 1872 provides that "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." It is the last section of Module III's printed range, and it is the bridge from the Contract Act's remedies to the Specific Relief Act 1963 taken up in Module IV.

Why the section is needed

Without it there would be a real argument, and it runs like this. Rescission ends the contract. If the contract is at an end, there is nothing left to sue on, so the party who rescinded has chosen his remedy and must live with it.

That argument is wrong, and section 75 says so, but it is wrong for a reason worth understanding. Rescission ends the obligation to perform; it does not undo the breach that had already happened. The innocent party's right to be compensated accrued when the other side broke the contract, and putting an end to future performance does not take that away.

The practical importance is large, because the alternative would force an impossible choice: either stay bound to a contract the other side has repudiated, in order to preserve a claim, or walk away and lose the claim. Section 75 lets the innocent party do the sensible thing, which is to end the contract, go into the market, and sue for the difference.

The provision itself

"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 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 wilfully 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-fulfilment of the contract."

This is the same fact pattern the Act uses three times, and following it across the three sections is the quickest way to see how they fit together.

• Section 39, illustration (a): the singer absents herself on the sixth night, and B is at liberty to put an end to the contract. That is the right to rescind.
• Section 65, illustration (c): B rescinds, and B must pay A for the five nights on which she had sung. That is the restitution he owes.
• Section 75: B rescinds, and B is entitled to compensation for the damage he has sustained. That is the claim he keeps.