Compensation to a Party Rightfully Rescinding a Contract under Section 75 of the Indian Contract Act, 1872: Damages Compared with Compensation, Penalty, Restitution and Specific Performance, and When Quantum Meruit May Be Claimed

Section 75 answers a question that would otherwise be awkward. A party faced with a repudiation elects to put an end to the contract. Having done so, can he still sue on it? If rescission meant that the contract had never existed, the answer would be no, and a party would be forced to choose between escaping the contract and being compensated for its breach. Section 75 makes clear that he need not choose: a person who rightfully rescinds is entitled to compensation for the damage he has sustained through the non-fulfilment of the contract. The rest of this topic sets out how that remedy relates to the others available for breach.

1. The Provision

Sections 75 and 39, Indian Contract Act, 1872

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-fulfilment 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 one 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 is entitled to claim compensation for the damage which he has sustained through the non-fulfilment of the contract.

39. When a party to a contract has refused to perform, or disabled himself from performing, his promise in its entirety, the promisee may put an end to the contract, unless he has signified, by words or conduct, his acquiescence in its continuance.

1.1 The requirement of rightful rescission

There must be a ground to rescind. The commonest is a repudiatory breach under Section 39, and the others are a failure to perform at a time made essential under Section 55, prevention by the other party under Section 53, and the vitiating factors making a contract voidable under Sections 19 and 19A.
The rescission must be rightful. A party who rescinds without a sufficient ground has himself repudiated, and Section 75 gives him nothing; he becomes the party in breach.
Rescission must be communicated. Section 66 applies the rules on proposals, so it takes effect when it comes to the knowledge of the other party.
Rescission does not annihilate the contract. It discharges the primary obligations of future performance and leaves a secondary obligation to pay damages, and terms designed to operate on breach survive.
Section 64 applies alongside. Where the contract was voidable and is rescinded, the party rescinding must restore any benefit he received so far as may be.

2. Damages and Compensation

The Act uses compensation throughout Chapter VI and does not use the word damages at all. The choice was deliberate. Compensation looks to making good the loss actually sustained, whereas the English term damages had by 1872 acquired associations with punitive and exemplary awards that the drafters did not intend to import.

	Compensation under the Act	Damages at common law
Purpose	To make good the loss actually sustained	Historically the same, but the term covers punitive and exemplary awards as well
Punitive element	None. The Act contains no provision for exemplary damages for breach	Available in limited categories, and not for breach of contract
Measure	Loss naturally arising, or within the parties' knowledge, under Section 73	The same rule, derived from Hadley v. Baxendale
Remote loss	Expressly excluded by the second paragraph of Section 73	Excluded by the remoteness rules
Mitigation	Required by the closing paragraph of Section 73	Required as a matter of general principle

3. Damages and Penalty

A penalty is a sum fixed in terrorem, to compel performance by threatening a consequence out of proportion to the loss. Damages are compensation for loss actually suffered. English law enforced the second and struck down the first. Section 74 abolishes the distinction: whether the sum named is a genuine pre-estimate or a penalty, the claimant receives reasonable compensation not exceeding it. The Indian question is therefore never whether a clause is a penalty, but what reasonable compensation is and whether any loss was caused at all.

What each remedy protects, and how each is measured

4. Damages and Restitution

	Damages	Restitution
What is protected	The expectation: the position had the contract been performed	The benefit the defendant received
Measured by	The claimant's loss	The defendant's gain
Requires a contract?	Yes, and a breach of it	No. It operates where the contract is void, has become void, or never existed
Effect of a losing bargain	The claimant recovers only the profit he would have made, which may be nothing	He recovers the value of what he conferred, uncapped by the contract price
Statutory basis	Sections 73 to 75	Sections 64, 65 and 68 to 72
Typical claim	Loss of profit on a broken sale	Return of an advance where the consideration wholly failed

5. Damages and Specific Performance

Damages are a substitute for performance; specific performance is performance itself, ordered by the court.
The governing statute is the Specific Relief Act, 1963. The 2018 amendment altered the position fundamentally: specific performance is now the general rule rather than a discretionary exception, and the court is required to enforce it subject to the limited exceptions the Act states.
Contracts that cannot be specifically enforced include those where compensation is an adequate relief in the statutory sense, contracts of a personal or determinable nature, and contracts involving continuous supervision by the court.
Readiness and willingness must be pleaded and proved, a requirement whose origin lies in Section 51 of the Contract Act on reciprocal promises.
Delay is relevant even where time is not of the essence, as K. S. Vidyanadam v. Vairavan, (1997) 3 SCC 1 shows, particularly where values have escalated.
Compensation may be awarded in addition to or in substitution for specific performance, under Section 21 of the Specific Relief Act, 1963.

6. Quantum Meruit as a Remedy for Breach

Where a contract is discharged by the defendant's breach before the claimant has completed performance, the claimant has a choice. He may sue for damages on the contract, recovering the profit he would have made; or he may treat the contract as at an end and sue on a quantum meruit for a reasonable sum for the work he actually did. The election matters most where the contract was a losing bargain, since damages would then yield little or nothing while the quantum meruit is not capped by the contract price.

6.1 When quantum meruit is available

Where the contract is discharged by the other party's breach before completion, as in Planché v. Colburn, (1831) 8 Bing 14.
Where the contract is void or was never validly concluded, the Indian route being Section 70, as in State of West Bengal v. B. K. Mondal & Sons, AIR 1962 SC 779.
Where the contract is silent as to price, and work is done at a request.
Where work is done outside the scope of the contract at the other party's request.
Where the contract has been frustrated, though in India the adjustment is made under Section 65, which reaches an advantage received rather than expenditure incurred.

6.2 The limit: the defendant must have had a choice

📖 Sumpter v. Hedges, [1898] 1 QB 673 (CA)

Facts: A builder contracted to erect two houses and stables on the defendant's land for a lump sum. He did part of the work and then abandoned it, being unable to complete for want of funds. The defendant himself completed the buildings, using materials the builder had left on the site. The builder sued for the value of the work he had done.

Held: He recovered for the materials the defendant had used, but not for the work done on the buildings. A quantum meruit claim requires circumstances from which a fresh contract to pay for the work can be inferred, and that requires the other party to have had an option to accept or reject the benefit. The defendant had no such option as to the half-built structures on his own land; he could not refuse them, and finishing the buildings was not an acceptance from which a promise to pay could be inferred. As to the loose materials he could have declined to use them, and having used them he had to pay.

Ratio: A party who abandons an entire contract cannot recover on a quantum meruit for work done unless the other party had a real option to accept or reject the benefit. A benefit that cannot be refused gives rise to no obligation to pay.

⚠ Sumpter v. Hedges is the reason Section 70 requires 'enjoyment' of the benefit

The reasoning in Sumpter is the same reasoning that the third condition of Section 70 embodies. The section requires that the other person enjoyed the benefit, which the Supreme Court in B. K. Mondal treats as a distinct requirement, and it is satisfied only where he had a real choice and took what was offered. This is why a contractor who has done work on the defendant's own land in circumstances where the defendant could not have declined it generally recovers nothing, while a supplier whose goods were accepted and used recovers their reasonable value. The question is always whether the defendant could have said no.

7. Quantum Meruit and Damages Compared

	Damages under Sections 73 to 75	Quantum meruit
Basis	The contract is affirmed and sued upon	The contract is abandoned, void, or silent as to price
What is recovered	The expectation, that is the profit that would have been made	A reasonable sum for work actually done
Cap	None, save the ceiling in Section 74 where a sum is named	Not capped by the contract price
Effect of a losing bargain	The claimant recovers little or nothing	He recovers the reasonable value of his work
What must be proved	Breach, loss, causation and remoteness	The work done and its reasonable value
Requirement as to the defendant	That he broke the contract	That he had the option to accept or reject the benefit and took it, per Sumpter and Section 70

8. The Position Stated Shortly

Section 75 entitles a party who rightfully rescinds to compensation for the damage sustained through the non-fulfilment of the contract.
Rescission must be rightful; a party who rescinds without a ground becomes the party in breach.
Rescission discharges future performance but leaves a secondary obligation to pay damages, and Section 64 requires restoration of benefits received.
The Act speaks of compensation rather than damages, and contains no provision for exemplary damages for breach.
Section 74 abolishes the penalty and liquidated damages distinction, so the Indian question is what reasonable compensation is, not how the clause is classified.
Damages protect the expectation and are measured by loss; restitution reverses a benefit and is measured by gain.
Specific performance is now the general rule under the Specific Relief Act, 1963 as amended in 2018, subject to the statutory exceptions.
A party whose contract is discharged by the other's breach may elect between damages and a quantum meruit, and the latter is not capped by the contract price.
Sumpter v. Hedges: a quantum meruit fails where the defendant had no option to reject the benefit, which is the reasoning behind the enjoyment requirement in Section 70.

9. Related Topics and Provisions

Topic or provision	Connection
Breach of Contract under Sections 73 to 75	The chapter and the remedies map
Remedies for Breach: Damages under Section 73	Remoteness, mitigation and measure
Penalty and Liquidated Damages under Section 74	Stipulated sums and earnest money
Unjust Enrichment vs Quantum Meruit	The principle and the remedy in full
Anticipatory Breach under Section 39	The election that precedes rescission
Section 75, Indian Contract Act	Compensation on rightful rescission
Sections 64 and 66, Indian Contract Act	Restoration and communication of rescission
Section 70, Indian Contract Act	Non-gratuitous acts and enjoyment of the benefit
Specific Relief Act, 1963	Specific performance as the general rule after the 2018 amendment