Contract Law

Murlidhar Chatterjee v. International Film Co. Ltd.

AIR 1943 PC 34

Facts

Murlidhar Chatterjee, a film distributor, entered into an agreement with International Film Company concerning distribution of cinema films.
He paid ₹4,000 under the arrangement.
Before the contractual relationship was completed, Murlidhar repudiated or refused to perform his obligations.
The company did not immediately accept the repudiation.
It later communicated that it was treating the contract as terminated under Section 39.
The company retained the ₹4,000.
Murlidhar sued for return of the money.
The company argued that because Murlidhar was the party in breach, he could not demand restitution.
It also reserved its claim for damages arising from his wrongful repudiation.

Whether a party who wrongfully repudiates a contract can recover a benefit already transferred after the innocent party accepts the repudiation and rescinds the contract.
Whether Section 64 applies to rescission following repudiation under Section 39.

Under Section 39, where one party refuses to perform the promise wholly, the promisee may put an end to the contract unless it has acquiesced in continuance.
Acceptance of repudiation terminates future performance obligations.
Section 64 requires a party rescinding a voidable contract to restore benefits received under it.
Restoration of benefits is separate from a claim for damages.
The innocent party may:
restore the benefit received; and
claim compensation for breach under Section 75.
Rescission does not automatically permit unjustified retention of every payment already received.

Murlidhar’s repudiation did not automatically end the contract.
The company had an election:
affirm the contract; or
accept the repudiation and terminate it.
When the company later accepted the repudiation, it exercised the power under Section 39.
Once the contract was rescinded, Section 64 required restoration of the ₹4,000 benefit.
The fact that Murlidhar was the defaulting party did not allow the company to retain the money without accounting.
However, repayment did not erase the breach.
The company remained entitled to pursue damages caused by Murlidhar’s repudiation.
The Court therefore separated:
restitution of benefits received under the terminated contract; and
compensation for loss caused by breach.
These remedies address different legal questions and must not be confused.

The Privy Council held that the company had to restore the ₹4,000 after rescinding the contract.
It remained free to claim damages for Murlidhar’s breach.
Use this case for: when repudiation is accepted and the contract is rescinded, benefits must be restored, although damages for breach remain claimable.