Damages
Whenever there is a breach of contract by one party, the other is entitled to claim damages provided the damage is caused by the breach and not too remote. If, in fact, the innocent party has suffered no loss for the breach, he will only be entitled to recover nominal damages since his legal right has been infringed. In most cases, however, he is entitled to substantial damages, which are awarded to him as compensation for the loss he has actually suffered.
11.3.1 Types of Loss for which Damages may be Awarded
There are various types of loss for which the innocent party can be compensated. They are as follows:
11.3.1.1 Expectation Loss
The basic rule of contractual damages is to put the innocent party in the position, financially, that he would have been in , had the contract been performed as agreed.
This general measure of loss is often referred to as expectation loss. Expectation loss may cover loss of profit which the innocent party would have received had the contract been properly performed, so also damages for the cost of substitute performance. As a general principle damages for lost expectation may always be recovered, subject to various limitations as to remotness and qualification of damage, which we shall be discussing later in this lecture. Take Note
| The term “damages” is not the plural of “damage”. They are two distinct terms. Damage means any loss or harm suffered by the innocent party. Whereas damages means monetary compensation which the innocent party is entitled to recover on a breach of contract. |
Take Note
| The basic principle to award damages for breach of contract is to put plaintiff in the position, financially, that he would have been in had the contract been performed. |
11.3.1.2 Reliance Loss
An alternative to claiming expectation loss the innocent party may claim reliance loss. Reliance losses relate to expenses or other costs incurred in reliance on entering into contract. The purpose of reliance damages is to place the innocent party in the position as if the contract has never been entered into. Reliance damages will be claimed and/or awarded when the innocent party is unable to show his expectation loss. But such a claim must not result in the compensation of a loss which is not the result if the defendant’s breach.
Thus, if the innocent party has not suffered any loss of profits, or who is unable to establish what profit he would have derived from the contract, he can still claim as an alternative the expenditure wasted as a result of breach. In McRae v Commonwealth Disposal Commission (1951) the Commission invited tender “for the purchase of an oil tanker lying on Jaourmaund
Reef”. P submitted tender to buy the tanker for £285 which was accepted. In fact, neither the Reef nor the tanker existed. P claimed (i) £285, the purchase price of the tanker, (ii) £3,000 the cost of salvage expenditure, and (iii) £300,000 the loss of profits if the tanker and oil existed. Held, (i) P could not claim expectation loss of £300,000 as he could not prove it , but (ii) he could recover his reliance loss of £3285 (£285 purchase price plus £3,000 salvage expenditure), that is the expenditure thrown away as a result of Commission’s breach. Here P, the innocent party was placed in the same position as if the contract had not been entered into.
Similarly, in Angelia Television Ltd v Reed (1971) D was in breach of his contract with P, a television company to act as the lead actor in a film. His breach forced the company to abandon its project to make the film. Held, the company could recover wasted expenditure, including expenditure incurred before the contract with D has been made. In this case the company could not claim expectation loss, that is, loss of profits because it was difficult to prove what the profit would have been.
Wasted expenditure is recoverable provided it is such as may reasonably be in contemplation of both parties as likely be wasted if there is breach of contract.
11.3.1.3 Non-Pecuniary Loss
The general principle is that non-pecuniary losses such as injury to feelings or mental disress cannot be recovered by way of damages for a breach of contract. But where the contract specifically intended to confer other than pecuniary gain such as comfort, pleasure or peace of mind such damages are recoverable. In Jarvis v Swan Tours Ltd (1973) P booked a winter holiday with a travel agency. The travel agency’s brochure promised that clients would form a house party, skiing facilities, special evening entertainment and so on; P was disappointed in every respect. Held, P was entitled not only to the cost of the holiday, but also substantial damages for disappointment and loss of entertainment.
In contrast, in Hayes v Dodds (1990) the court refused to allow damages for anguish and vexation in commercial contract. The reason for disallowing non-pecuniary loss in commercial contracts was not merely a question of remoteness of damage but also of policy.
Non-pecuniary loss is subject to the rule of remoteness of damage, that is, whether this consequence of the breach was in contemplation of the parties at the time the contract was made.
11.3.1.4 Incidental and Consequential Loss
Damages may be recovered by the innocent party for incidental or consequential loss resulting from a breach of contract.
Incidental and consequential loss is sometimes not regarded as strictly belonging to either expectation or reliance categories. Incidental loss indicates expenditure suffered by the innocent party after the breach has come to his knowledge. For example cost of hiring substitute goods and expenditure for sending back faulty goods are incidental losses. Consequential loss, on the other hand, does not result directly from the breach of contract but is inevitable consequence of the breach and would include damage caused to the person or property by defective products.
Activity 11.1
| 1. Explain various types of loss for which damages may be awarded. |
11.3.2 Remoteness of Damage
A plaintiff will not necessarily be compensated for all the losses which may flow from a breach of contract. The law imposes a limit upon the damage for which the party in breach can be held responsible. Damages will not be awarded to compensate loss or damage which was not caused by the breach. In C & P Haulage v. Middleton (1983) P entered into a contract with D under which he was entitled to the use of garage owned by D. He spent some money on equipping the garage for his needs but under the terms of contract, once P’s use of garage ceased, the installed equipment would become the property of D. D wrongfully terminated P’s contract to use the garage. P brought an action claiming his wasted expenditure in equipping the garage. Held, the loss by wasted expenditure was not caused by the breach of the the contract, because ten weeks later D could have rightfully terminated the contract, whereupon the equipment would in any case had become the property of D. The loss did not, therefore, result from the breach, but from the nature of the contract itself and so could not be compensated. It should be noted that in this case P did not suffer any loss of profits. On the contrary, his profits were greater than if the contract had not been breached since the local planning authority allowed P to use his own garage more than ten weeks without weekly rental on garage.
Even where the damage was caused by the breach, damages will not be awarded in respect of loss which is said to be “too remote”. This is known as the doctrine of ‘remoteness of damage“. The purpose of this doctrine is to limit the amount of profit or expectation loss the innocent party can claim.
Hedley v Baxendale (1854) drew a dividing line between damage which should be compensated for and damage which is too remote to be compensated. In this case, P, the mill owners engaged D, who were carriers to take a broken mill shaft to a manufacturer to copy it and make a new one. DP claimed damages for the profits which they had lost due to this delay. P did not make known to D that the delay would cause loss of profits. Held, D were not liable for the lost profits due to their delay as the damage was too remote. promised to deliver next day. The delivery was delayed in transit causing several days of loss of production at the mill.
The test of remoteness of damage established in Hadley v Baxendale is frequently described as consisting of two rules or a single rule with two limbs: Damage is not too remote if it is:
- Such as may fairly and reasonably be considered as arising naturally, i.e., according to the usual course of things from the breach itself; or ii. Such as may reasonably be supposed to have been in the contemplation of both parties at the time they made the contract, as the probable result of the breach.
It was obvious from the facts of the Hadley v Baxendale that the failure of the carrier to bring back the shaft within the reasonable time was the cause of the stoppage of the mill for an unnecessarily long time, but the Court considered the loss as too remote. First, the loss did not arise naturally, that is, “according to the usual course of things” as there was reasonable possibility that the mill owners might have a spare shaft in reserve. Secondly, the special circumstances that there would be stoppage of production until the shaft came back was not made known to the carrier and so could not be “reasonably be supposed to have been in contemplation of both parties”.
Take Note
| The rule in Hadley v Baxendale represents the law on remoteness of damage. In this case a distinction was drawn between usual and non-usual losses: In the former loss the arising according to the usual course of things from breach where as in the latter loss resulting from special circumstances in contemplation of both parties as the probable result of the breach. |
The rule Hedley v Baxendale has been considered by the courts in many cases. For example in Victoria Laundry (Windsor) Ltd v Newman Industries (1949). P, launderers and dyers contracted with D, an engineering firm to buy a large boiler for the purpose of expanding their business and also to use the boiler to fulfill some highly lucarative government dying contracts. Dth, but this was not done until November 5th; P claimed: damages for the loss of profit through the expansion of their business, and damages for the loss of profits they could have earned from lucarative dying contracts. Held, (1) P were entitled to recover damages for the loss of profit arising from the failure to extend their business because D must have contemplated that P would loose such business if delivery of the boiler was delayed, but (2) P could not recover damages for the loss of profit obtainable from lucarative dying contracts because they had no knowledge of such contracts. agreed to install the boiler on June 5
The rule was further examined and approved by the House of Lords in Heron II (Koufos v (Zarnikow) (1969). D, a ship owner agreed to carry a cargo of sugar from Constanza to Basrah. DP were sugar merchants. But they did not know that P intended to sell the cargo immediately on arrival. Because of unauthorized deviation from its agreed route the ship arrived nine days late. During the nine days the market price of sugar had fallen heavily and P suffered loss. Held, D were liable for the consequential loss of profit since the loss was one which the parties could reasonably have contemplated at the time of making the contract as “not unlikely” to result from such breach. knew that there was a market for sugar at Basrah and that
In this case the House of Lords approved the rule in Hedley v Baxendale, but saying that the loss must be contemplated as, a ‘real danger’ or a serious possibility rather than as the probable result of the breach’.
Activity 11.2
| What is the purpose of the remoteness of damage rule? What is the guiding principle adopted by the courts in this regard? |
11.3.3 Quantification of Damages
Once the court has decided that a particular kind of damage is recoverable under the rule in Hedley v Baxendale, the next step is to decide on what principle the damages must be evaluated or quantified in terms of money. This may be called the question of the measure of damages or quantification of damages. The basic principle is that the innocent party must, so far as money can do it, be restored to the position he would have been in had the contract been performed properly. There are, however, many situations in which some principles have been established to decide the measure of damages.
11.3.3.1 The Market Value
In the contract of sale of goods prima facie, the loss is measured by reference to the market. If the seller is in breach, for example if he fails to deliver the goods, and the goods are finally available in the market, the buyer can buy similar goods at the market price and can claim the difference between the market price at the date of the breach and the contract price. If the market price is equal to or below the contract price, the buyer will only be entitled to nominal damages since he will be in the same financial position as if the contract had been performed.
Conversely, if it is a buyer who breaks the contract, for example by refusing to take the delivery, the seller will be entitled to compensation for the difference between the contract price and any lesser amount which he gets for the goods by selling them elsewhere.
Where there is no available market the loss must be calculated in other way. If it is the seller who
is in breach of contract and the buyer purchased the goods for resale and the seller knew of this, the measure of damages will be the difference between the contract price and the resale price. In Patrick v Russo-British Grain Export Co (1927) P contracted to buy Russsian wheat from D: The delivery was to be made on an agreed date: Before the date. P contracted to resell the wheat to TD knew that P was buying the wheat for resale. D failed to deliver on the due date. Held, P was entitled to recover damages amounting to the difference between the contract price and the resale price. at a profit.
If, on the other hand, it is the buyer who is in default and there is no available market and the supply exceeds the demand the measure of damages is the loss resulting from the buyer’s breach.
In Thompson Ltd v Robinson (Gunmakers) Ltd (1955) D agreed to buy a vanguard car from PD refused to accept the delivery. There was no shortage of such car as the supply exceeded the demand. D argued that they were liable only for nominal damages since P could have sold the car to another customer or returned it to their supplier, which they in fact did. who were car dealers.
Held, P were entitled to recover damages for the lost profit on that particular bargain, namely the profit they would have made by selling that particular car as they sold one car less than they otherwise would have sold.
In contrast,in Chater v Sullivan (1957) D contracted to buy a Hillman car from P and then refused to accept it. The demand of this car exceeded the supply. Held, P was entitled only to nominal damages since he could sell all the cars he could get from the manufacturers, so he had suffered no loss.
11.3.3.2 Factual Damages
The general principle is to put the innocent party in the position as if the contract had been performed. In appropriate cases, damages can also be assessed by reference to the cost of rectification where either thing has not been done or they have been done badly. Neverthess if the cost of rectification would be disproportionate to the breach of contract, the courts would refuse to award damages on that basis. In Ruxley Electronics and Constructions Ltd v Forsyth (1995) PD. The pool they constructed was not quite as deep as D specified, otherwise its construction was excellent one. D refused to pay on the ground that he was disappointed. The cost of making good the defect was enormous, amounting to £21,650. Held, damages of that order would not be appropriate and that D was required to pay for the pool subject to a deduction of £2,500 for the disappointment or loss of amenity. were hired to construct a swimming pool for
11.3.3.3 Expectation Loss Uncertain
In some cases measurement of expectation loss may be an uncertain, difficult or speculative process, but that does not prevent the injured party from recovering. In Chaplin v Hicks (1911) D, an actor and theatrical manager agreed with P that if she would attend an interview with other 49 actresses from whom he would himself select 12 and would give each of them theatrical engagements. P was denied opportunity to attend the interview by D‘s breach of contract. When sued, D contended that P was only entitled to nominal damages since the loss depended upon the chances of her winning. Held, she could recover damages for the lost opportunity, although there was no certainty that she would have won the contest. It is clear that the courts will not avoid the task of assessing damages on the ground of uncertainty or difficulty.
11.3.3.4 Tax Liability
In some cases while calculating damages, the tax liability of the innocent party may have to be taken into account. In British Transport Commission v Gourley (1956) P, an engineer was injured in a railway accident. He brought an action against D, the British Transport Commission under the tort of negligence, claiming damages, including loss of earnings. It was not in dispute that if P had not been injured his earnings over the rest of his working life would have come to £37,720, but if the tax liability of P’ earnings was taken into account, his earnings would have been only £6,695. Held, D were liable only for £6,695 since the damages for loss of earnings are not taxable while income is.
This case was decided in tort, but the same principle applies in contract. It is interesting to notice that the Supreme Court of Canada in Ontario v Jennings (1966) has rejected the reasoning of this decision.
11.3.3.5 Mitigation
The innocent party may not recover damages for losses which could have been avoided. The law imposes upon the plaintiff a duty to take all reasonable steps to reduce (mitigate) his loss consequent upon the breach. The mitigation principle embraces three separate means of avoiding loss:
- Loss will not be recovered if it could be avoided by taking reasonable steps. What is reasonable will largely depend upon the facts of each case.
- The plaintiff must not by unreasonable action on his part increase the loss resulting from the
breach. In Brace v Calder (1895) P was employed as branch manager by D, a partnership firm for a period of two years. After six months the partnership was dissolved through the retirement of two partners and the business was transferred to two other partners. The continuing partners offered to employ P on the same terms but P declined. He sought to recover the salary that he would have received for the remainder of two years period. Held, P was entitled only to nominal damages since it was unreasonable to have rejected the offer of continued employment. Thus he has not taken any reasonable step to mitigate his loss. This burden lies on the party in default of proving that the innocent party has failed in his duty to mitigate. If the innocent party takes an action which in fact reduces his loss the damages paid will be reduced accordingly. If, for example, S the seller is able to sell his goods at a higher price, following B’s failure to take delivery, and covered all losses and expenses thereby, he would be entitled only to nominal damages since his right had been infringed.
Take Note
| It is worth noting that the mitigation principle applies not only to ordinary breach, but also to breach by anticipatory repudiation but it does not apply to a claim for an agreed sum. |
11.3.4 Liquidated Damages
The parties may incorporate into the contract a clause providing that in case of breach the damages shall be a fixed sum or be calculated in a special manner. Such damages are known as liquidated damages. In the event of breach, the innocent party will be able to claim damages only to the amount as agreed between the parties, no more and no less, without being required to prove actual damage. Unliquidated damages, on the other hand, are damages that are not fixed by agreement of the parties but are determined by the court as the proper measure of damages.
The essence of liquidated damages is that it should be a genuine pre-estimate of the loss which will be suffered by the innocent party. Sometimes, however, the amount of agreed damages may be very high so as to compel the other party not to breach the contract. Such amount is referred to as penalty and will be struck down by the courts.
11.3.4.1 Liquidated Damages and Penalty
When a contract provides for a fixed sum of damages to be paid upon breach, it is a question of construction whether this sum is liquidated damages or a penalty. Express use of the words “penalty” or “liquidated damages” by the parties is relevant but not conclusive ,and the court must still decide whether the sum is a genuine pre-estimate of the probable loss. In Cellulose Acetate Silk Co Ltd v Widness Foundry Ltd (1933) D agreed to erect a plant by a certain date.
The contract contained a term whereby D would pay £20 per week by way of penalty for late performance. P claimed £5,850, their loss resulting from the delay of 30 weeks. Held, D were only liable to pay £20 per week for delay as agreed between the parties and the sum was not a penalty although designated as a penalty.
Certain rules to distinguish a penalty from liquidated damages are set out in Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd (1915).
They are as follows:
- It is a penalty if the sum payable is extravagant and unconsciable in amount compared with
the greatest loss, which might be caused by breach. In Kemble v Farren (1829) P an actor entered into a contract with the theatre management to act at the theatre and to conform to all the regulations of the theatre. A term in the contract provided the party in breach must pay £1,000 as liquidated damages to the other. Held, this was a penalty clause because (i) even if P did not conform to the smallest regulations of the theatre he was liable to pay £1,000, and (2) the sum was disproportionate to the P’s daily fee.
- Where a contract provides for the payment of a certain sum of money and in case of the
breach the sum stipulated is greater than the sum which ought to have been paid, this greater sum is penalty. For example, a debtor is required to pay Shs.10,000, if he does not pay a debt of Shs.1,000 by the agreed date.
- Where a single lump sum is payable on the occurrence of certain events, some of which are
serious and others mere trifling damage, there is a presumption (but no more) that the lump sum is a penalty. But where it is practically impossible to prove the exact monetary loss due to a breach of the various stipulations, the court may regard the lump sum as a genuine pre-estimate. In Ariston v Charly (1990) D entered into a contract with P under which the latter agreed to manufacture records and print sleeves. D entrusted P all items necessary for the work, including art work, label information and negatives. A clause in the contract provided that if P did not return the items within 10days of D‘s request they would pay a penalty of £600 per day for late delivery. On D‘s request P returned most but not all items within the required time. Certain amount was due to P for the work done which they claimed from D, D counter-claimed £600 per day for failure to return one item. Held, the clause requiring payment of £600 per day even if one item was not returned was a penalty and not a genuine pre-estimate of loss.
- The fact that the loss is difficult or impossible to pre-estimate does not of itself turn every
liquidated damages into a penalty. In Dunlop Pneumatic Tyre Co Ltd v New Garage and Motors Co Ltd (1915) P, Dunlop Pneumatic Tyre Co Ltd supplied tyres, tubes and other goods to D on terms that D would not tamper with the marks on the goods, not to sell below certain list prices, not supply certain named persons and not to exhibit or export without consent, and to pay £5 by way of liquidated damages for every tyre, tube or cover sold or offered in breach of the agreement, Held, the sum of £5 was liquidated damages as the resultant damage from a series of different breaches might have been very difficult to forecast. It was reasonable to quantify damages at a fixed but not extravagant figure.
- Agreed Sum
The common law action for agreed sum is an action for payment by one party of an agreed sum for contractual obligations which have already been performed by the other. Thus a seller can bring an action to recover the contract price of goods sold and a provider of service may by an action recover the remuneration under the contract for work done. Provided the duty to pay has arisen the innocent party can sue the party breaching the contract for the agreed sum. An action for agreed sum is an action for a debt rather than an action for damages, since the innocent party recovers the agreed sum, no more and no less. These are many advantages of such an action, since questions of remoteness of damage, quantification and mitigation do not arise. In White and Carter (Council) Ltd v McGregor (1962), discussed in the previous lecture, D argued that P should have mitigated their loss by letting the advertising space to some other person. Held, P were under no duty to mitigate but they were bound not to aggravate the damage. Thus mitigation is not relevant to a claim for agreed sum, it is relevant only to claim for damages. Activity
| Discuss the common law remedy of agreed sum for a breach of contract |
- Quantum Meruit
Where a party has provided a benefit to the other and cannot obtain payment for some reasons under the common law, the equity provides a remedy of quantum meruit, that is, “as much he deserved”. This remedy operates in two situations:
(a) Where there is a contract
The fundamental rule is that where there is a contract between two parties the payment is to be determined according to the terms of the contract. The common example is where a contract for sale of goods fail to fix a price, the buyer must pay a reasonable price (see the Sale of Goods Act). In certain circumstance, however, this general rule is not applicable and the court will allow a quantum meruit remedy despite the existence of the contract. Also, where these is a contract in existence, the plaintiff can claim quantum meruit if he can show that the contract was void or that it has been discharged in some way. In Creven- Ellis v Canons Ltd (1936) P was employed as a managing director of a company under a written contract which provided for his remuneration. The contract was void because the directors did not obtain the required qualification shares. P rendered services for the company and claimed remuneration specified in the contract or alternatively reasonable remuneration on a quantum meruit. Held, P could recover reasonable value on quantum meruit but his claim under the contract failed since the contract was void.
Furthermore, as we have explained in the previous lecture that in an entire contract partial performance generally does not entitle the party in breach to any payment. Where, however, the innocent party voluntarily accepts a benefit conferred by partial performance, the party in breach may claim quantum meruit. Conversely, a quantum meruit action may also be brought by innocent party in cases where he conferred some benefit on the other party before the latter’s breach. So also a quantum meruit claim can be made where a party to the contract is prevented by the other from completely performing the contract.
(For details on rules on performance recall the previous lecture).
(b) Where there is no contract
Where there is no contract as such but one party confers a benefit on the other with the intention on both side that benefit will be paid, then, the former can recover value of that benefit under a quantum meruit. In British Steel Corperation v Cleveland Bridge & Engeneering Co Ltd (1984) P began a work on major construction before all terms of the contract had been agreed. The parties expected that there would be no difficulties in reaching the final agreement. The final agreement was never reached. P abandoned the work and claimed quantum meruit for the work he had done. Held, P was entitled to recover reasonable payment for the work done.
11.6 Injunction
An injunction is a court order prohibiting the defendant from doing some specified act, such as a breach of contract or commanding the defendant to do some positive act.
Injunction is an equitable remedy and therefore it cannot be claimed as a right. It is a directionary remedy which the court may grant or refuse to grant. But the discretion must be exercised on correct principles; Injunction would not generally be granted where damages would be an adequate remedy.In Ibrahim Habib Makii v Sherkh Bros Investment Ltd (1972) P was employed by D to collect rent on behalf of D from their tenants for a commission. D started to collect rent by themselves thereby terminating the contract. P sought an injunction restraining D from doing so. Held, the High Court of Kenya was wrong in granting injunction in this case since damages was an adequate remedy.
An injunction can be either prohibitory or mandatory. A prohibitory injunction is an order/decree of the court which directs the defendant not to do a certain thing. It will be granted to enforce a negative stipulations in a contract where damages would not be adequate remedy, thus it could be granted to prevent the breach of reasonable restraint of trade clause. In Warner Bros v NelsonD, a film actress agreed to act for P for a fixed period and undertook not to act for any one else, nor to engage in any other occupation, without P’s written consent. Held, D could be restrained by an injuction to act for a third party but she cannot be compelled to act for P.
(1937)
Thus an injunction will not be granted if its effect would be to compel the defendant to do something which he/she could have been ordered to do by a decree for a specific performance.
A mandatory injunction is an order/decree of the court commanding the defendant to do some positive act or particular thing. Thus it directs the defendant to take positive steps to undo what he has already done in breach of the contract. For example to demolish or modify a building which he has erected which he has not done according to the terms of contract.
As regard time, injunctions are either interlocutary or perpetual. An interlocutaryinjunction is one which is issued at any time during the pendency of the suit for the short term purpose of preventing irreparable injury to the petitioner prior to the time that the court will be in a position to either grant or deny permanent relief. A perpetual injunction is an injunction which finally disposes of the suit and is indefinite in point of time.
11.7 Specific Performance
Like injunction, specific performance is an equitable remedy and it is in the discretion of the court to grant it or refuse to grant it. It cannot be claimed as a matter of right. A decree of specific performance is an order of the court compelling the defendant to carry out his specific obligations under the contract. The availability of specific performance is a subject to a number of conditions. It is not available in any of the following cases:
- Where damages would be an adequate remedy.
- Where the contract is for personal services.
- Where the contract requires extensive supervision, for example building contracts.
- Where a party to the contract is a minor and the contract is not enforceable against him.
- Where the contract is to lend money.
(f ) Where the plaintiff has acted unfairly or dishonestly, since it is a remedy provided by equity.
(g) In the contracts for the sale of goods, where the plaintiff is able to obtain satisfactory substitute.
A decree of specific performance is generally available in the following cases:
- Contracts connected with land, houses, or to take debentures in a company.
- Contracts of sale goods only where goods are specific and are unique and cannot be easily purchased in the market, for example a rare antique.
- Where there is a mutuality of remedy between the parties. That means that the remedy of specific performance must be available to either party, i.e., if the parties’ roles to be reversed the same order could be made against the plaintiff.
It must be noted that it is possible to claim damages and specific performance at the same time.
11.8 Restitution
The remedy of restitution seeks to restore money paid or the value of a benefit conferred in circumstances in which there is no longer any obligation to perform under a contract or in which no contract exists. In the context of contract, the remedy of restitution is available in two circumstances.
- A party may recover money paid under a contract where there is a total failure of
consideration in the sense that there is a total failure of performance of whatever was promised in the agreement.
- A party may generally recover money paid under a void contract.
- Extinction of Remedies
The right action for breach of contract does not remain alive for ever. The Limitation of Actions Act, 1968, lays down that actions founded on a contract, and actions claiming equitable relief for which no period of limitation is provided by the Act or by any other written law may not be brought after the end of six years. The period begins to run from the time the cause of action arose, that is, from the time of the breach of contract. If on the date when the right of action accrued the plaintiff is under disability such as insanity or minority, the limitation period does not begin to run until disability ceases or the plaintiff dies. In case of a person claiming specific performance or injunction must do so without unreasonable delay or laches.
Activity
| 1. When a contract is broken the injured party generally has a remedy to claim damages. In the light of this statement explain the rules governing a claim for damages for breach of contract
2. What is an injunction? Discuss various types of injunction and explain in what circumstances an injunction can be granted for breach of contract. 3. Discuss the circumstances in which the courts may grant or refuse the remedy of specific performance. 4. Explain the following: a) Quantum meruit b) Action for agreed sum 5. Kuria, a taxi owner gave his taxi for some repair to Ken Repairs Ltd. The repairs were to be completed within a week. However, Ken Repairs took six weeks to repair the taxi. Kuria, sued Ken Repairs for breach of contract and claimed (1) loss of income from the tour of Masai Mara of which he had informed the Ken Repairs, and (2) Loss of income from other journey he would have made. Advise Ken Repair Ltd 6. Wambugu was employed by Sanford Kenya Ltd as a production manager at their plant in Thika manufacturing leather goods which they export to all developed countries. A term of the employment contract provided that Wambugu will not take any job with a rival firm or start a competitive business for 20 years throughout the world after leaving the job with Sanford Kenya Ltd. Wambugu left the job after two years and joined another firm, Leather Products Ltd in Kisumu. Sanford Kenya Ltd sued Wambugu for breach of contract and applied an injunction to restrain him from working with Leather Products Ltd. Discuss the legal position. |
- Summary
Summary
| In this lecture we have learned that there are two types of remedy provided for breach of contract. The common law remedies of damages, and action for agreed sum, and the equitable remedies of injunction, specific performance, restitution and quantum meruit, in addition to the remedies of rescission and rectification which we have discussed in an earlier lecture.
The remedy of damages or monetary compensation is available where the plaintiff suffers expectation loss, reliance loss, non-pecuniary loss or incidental and consequential loss. The normal aim of expectation damages or contractual damages is to put the parties in a position financially they would have been in had the contract been performed. Where the innocent party cannot establish expectation loss, he may claim reliance loss, i.e., expenses or costs incurred in reliance on entering into the contract. Non-pecunary damages can be recovered only for loss of comfort, pleasure and peace of mind. Such damages are not allowed in commercial contracts. Damages may also be recovered for incidental and consequential losses. However, a plaintiff will not necessarily entitled to damages for the losses which may flow from the breach of contract. Damages will not be awarded to compensate loss which was not caused by the breach and in respect of loss which is too remote. Damage is too remote, if it is i. such as arising naturally, that is according to the usual course of things from the breach, or ii. such as was in contemplation of both parties at the time of making the contract. The remedy agreed sum is also a common law remedy. The other importance remedies for breach of contract are injunction and specific performance. These remedies are equitable remedies and therefore cannot be claimed as a right. They are discretionary remedies which the court may or may |
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| not grant. If damages are adequate these remedies will not be granted.
We have also explained other remedies such as, quantum meruit and restitution in this lecture. They are also equitable remedies. |
