SAMPLE QUESTION:
Damages are the only sure way of remedying a party who has been aggrieved by breach of contract” per LLB1 student.
Discuss the veracity of the above statement in relation to remedies available for breach of contract.
According to the black’s law dictionary, remedies in contract law can be defined as to the compensation given to the plaintiff (aggrieved party) in course due after breach of contract. The Merriam-Webster dictionary defines Damages, a type of remedy, to as what is given to a party that has been exposed to loss after breach of contract. According to Treitel, 2003, p.927, the general rule states that damages are based on loss to the claimant and not on gain to the defendant, in other words its purpose is to return the aggrieved to the position they would have been in had the breach never occurred. More to this, the concept of damages is not aimed at punishing but rather aims at compensating the aggrieved party to that original position they held before the contract for this matter. Furthermore as seen in Guenter Treitel’s book, The Law of Contract, the general rule on damages can be well illustrated in the Scottish case of Teacher v Calder where a financier entered into a contract to invest £15,000 in the business of a timber merchant but instead invested the same sum in a distillery. It was held that the timber merchant's damages were based on the loss to his business and not on the much larger profits which the financier had derived from the distillery. Treitel elucidates more on this principle with a hypothetical example where a person who has agreed to sell goods for future delivery for 20,000/= fails to deliver because he has disposed elsewhere of the goods for 20,000/= + 10,000/=. If the buyer can in fact get goods of the same description for 20,000/= or less at the time fixed for delivery, he will have suffered no loss and will get no (substantial) damages and in this case it is irrelevant to say that the seller has, in a sense, made a profit of 10,000/= out of breach. The extent to which a plaintiff is entitled to damages for breach of contract was never fully considered by the courts of law until the case of Hadley v Baxendley in 1854 and the principle laid down in this case has since been repeatedly affirmed in cases till present day as noted by Furmston, 2007, p.751. The principle in this case was that damages are only recoverable if they are caused by a proximate cause but not by an event that is too remote. The case of Victoria Laundry v. Newman industries also identifies this principle. Similarly, in the event of breach, the plaintiff is entitled to be compensated for the loss of his bargain based on the principle, “Restituo in integrum” which literally means restoration/ restitution to one’s original position .This principle was adopted by courts in many cases and it clearly means that if the plaintiff has suffered damage that is not too remote, he or she must be restored to the position he would have been in had that particular damage not occurred. Despite being the most immediate, essential and major type of remedy in contract law, damages are not the only sure way of remedying a party who has been aggrieved by breach of contract as there are other types of remedies which may include; injunctions, Quantum Meruit and specific performance, these three are classified as equitable remedies. This essay is therefore divided into two parts, the first part will analyze the principle of Damages as a remedy in contract law and the second part will examine the other types of remedies as was listed earlier on.
According to Bakibinga, 2013, p.261, the burden of proof in proving the loss suffered is on the plaintiff and this is justified in the East African case of Mukisa Biscuit Manufacturing Co. Ltd v. West end Distribution Ltd. In this case, the appellant, a company manufacturing biscuits entered into a contract with the respondent whereby it was to be the sole distributor for the appellant’s biscuits for a period of three years. The respondent was not to take part in actual selling but was to be responsible for sales promotion and was to receive a commission. On the termination of the agreement by the appellant the respondent sued for damages and an account. So basically, Court directed the burden of proof to West end distribution to prove the damages and losses they incurred after the termination of the contract. Court further held that if a party fails to take all reasonable steps to prove the damages it has suffered, it cannot complain if the award is less than it might have been. According to Furmston, 2007, p.754, in Damages, the principles of Expectation loss and reliance loss should be differentiated when deciding what the plaintiff could have lost for this matter, Expectation loss is the loss of what which the plaintiff would have received if the contract had been properly performed in a sense the plaintiff has not lost and the most obvious expectation loss is the profit the plaintiff would have made on the contract but the contract maybe so speculative that it is unclear what, if any profit it would have made. As case in point on this principle is one of Robinson v. Harman. Michael Furmston furthermore states that this does not mean that the plaintiff has suffered no loss since he may have relied upon the defendant honoring his contract and incurred expenditure which was wasted as a resulted, a case here is one of Anglia Television Ltd v. Reed where the plaintiffs engaged the defendant, an actor to appear in a film which they were making for television. At the last moment, the actor repudiated the contract, and as the plaintiffs could not find a replacement, they abandoned the project . The plaintiffs, no doubt, wisely didn’t claim the profit they would have made on the film. It is impossible to tell to tell in advance whether an unmade will be a success or failure. Instead the plaintiffs claimed and were awarded the money they had spent in preparation such as hiring other actors, engaging a script writer, looking for suitable locations and so on. Furmston therefore stated that in principle, the plaintiff has a free choice whether to quantify his loss on an expectation or a reliance basis.
Damages in contract law are divided into two that is to say, Nominal damages and Substantial damages.
Nominal damages can be defined as a small or token sum awarded as damages where a legal right has been infringed but no real or substantial loss been proven to have occurred. A case in point on this as seen in Bakibinga, 2013, p.261 is one of Nalumba v. Uganda Wildlife Development Ltd. In this case, the plaintiff had been employed as an apprentice hunter under the contract that provided for medical treatment and personal accident insurance equal to five times the plaintiff the plaintiff’s annual salary. In fact the defendants never took out this insurance and when the plaintiff injured his knee he sued to recover from the employers Two thousand, Seven hundred and fifty pounds representing five times his salary. The court dismissed the claim for that claim for that amount and awarded nominal damages of Shs.40/=. Faud J explained that the clause couldn’t be construed in such a way as to make payment of Two thousand, Seven hundred and fifty pounds automatic upon the occurrence of any type of injury. The plaintiff couldn’t expect payment up to that figure and no evidence was led to show the extent of the injury in those circumstances only Nominal damages were available.
On the other hand, Substantial damages are defined as damages which bring about actual economic loss or for which compensation in a substantial amount is award. In other words they relate much to the financial loss suffered by the aggrieved party. There are various principles that arise to the award of substantial damages as seen below;
Liquidated Damages/ascertained damages; Fafinski, finch, 2009 p. 69 defines these as those whose amount the parties designate during the formation of a contract of a contract for the injured party to collect as compensation upon a specific breach e.g. late performance. A hypothetical example to this is where parties may agree before a contract what sum shall be payable as damages in the event of breach that is to say where a builder agrees that he will pay at certain specific amount for everyday that the building remains unfinished after the contractual date for completion. Liquidated damages should be distinguished from penalties as justified in the case of Law v. Redith Local Board where Lopes J noted that their distinction depends on the intention of the partied to be gathered from the whole contract. He furthermore noted that if the intention is to secure performance of the contract by the imposition of affine or penalty, then the sum specified is a penalty; but if on the other hand, the intention is to assess the damages for breach of contract, it is liquidated damages.
Mitigation of loss; This principle can be constructed through the case of British Electric & Manufacturing Co. v. Underground Railway where Lord Haldane stated that “the fundamental basis is compensation for pecuniary loss naturally flowing from breach; but this first principle is qualified by a second, which imposes on the plaintiff the duty of taking all reasonable steps to mitigate the loss consequent on the breach and debars him from claiming any part of the damage which is due to his neglect to take such steps”. In other words the above holding meant that when there is breach of a contract, the onus is on the aggrieved party to minimize the damages as a duty. Bakibinga, 2013, p.266 states that the main purpose for this principle is that the injured party shouldn’t recover more than what he would have suffered if he had acted reasonably because any further damages do not reasonably follow from the defendants breach. A case in point on this principle is one of Mussa Hassan v Hunt and another where the appellant rejected to buy milk claiming it was not fit for human consumption despite the contract he made earlier he (appellant) made with the respondent to always buy it for one year. It should be noted that their contracted had special provisions in the event of breach of contract. The appellants claimed that even if they were in breach, the respondents should have attempted to sell the remaining milk on the market rather than converting it to ghee. The EACA rejected this interpretation of mitigation that it was up to the appellants to show that had acted unreasonably in their efforts in trying to mitigate their losses. Another case in point to this principle is one of Brace v. Calder
Remoteness of Damages; This principle can basically be interpreted in a fact that damage must be foreseeable in other words the aggrieved party must demonstrate that damage was not too remote if the accused owes them a duty to care but is in breach of that care which has caused damage. A case in point on this is one of Hadley v. Baxendley which justifies the principle.
However, as already stated earlier, Damages aren’t the only sure way of remedying a party that has been aggrieved by breach of contract, there are other ways as well and these are discussed below;
Quantum Meruit; This basically means that the aggrieved person may only claim payment for what he has done under the contract in case of breach and the right to payment on this matter does not arise out of the original contract but is based on the assurance and implied promise made by the other party arising from the acceptance of an executed consideration in other words a person may claim payment basing on the ratio of the work done or completed. The principle of Quantum meirut can be seen in two occurrences that is to say;
Where the aggrieved party is barred from finishing his part or duty assigned under the contract, he or she may claim Quantum meirut in courts of law and this is basically identified in the leading case of Planche v. Colburn where the plaintiff entered into a contract where he agreed to write a book to be published by installments in a weekly magazine for 100 pounds. However the defendants repudiated the contract before he finished. Court held that he could only recover the work he has done under the ontract under Quantum Meirut.
David J. Bakibinga in his book, The Law of Contract in Uganda notes that a claim based on Quantum Meirut is possible in a situation where a party has attained benefits under a void contract. This is seen in the case of Craven-Ellis v. Canons Ltd where the plaintiff was appointed by a group of unqualified directors as Managing director of company through a written contract. However the contract was not binding on the company due to the status of the directors who were “unqualified”. Court held on this matter that since services had been rendered by the plaintiff, the immediate claim was Quantum Meirut as compensation for this matter.
The second type of remedy is Injunction. An injunction is either prohibitory or mandatory. The term ‘injunction’ can generally be defined as an order to a person to do a particular act or it can as well be an order restraining or refraining a person from doing or engaging in a particular act. Injunctions are considered by court in scenarios where damages are not an adequate remedy to the aggrieved party for this matter. A prohibitory injunction is granted or given only in a case of a negative promise and a hypothetical example on this is where defendant breaks an agreement (breaches contract) not to wake up late, the court will order him to refrain or restrain from doing what he has expressly promised not to do. A Mandatory injunction on the other hand orders the defendant to take positive steps to undo what he has already done in breach of contract, in other words it is restorative and not merely preventive, thus the defendant may be compelled to demolish or modify a building he has already built as seen in the case of Lord Manners v. Johnson. The defendant can as well be compelled to remove a road he has already constructed. All this is done if what the defendant is not in accordance with the contract. Injunctions can well be identified as Interlocutory/interim injunctions which are granted for a specific time in a middle of a suit and Perpetual injunctions which basically have no time.
The third type of remedy is specific performance. According to Furmston, 2007, p.797,a decree of specific performance is a decree issued by the court which constrains a contracting party to do that which he has promised to do and it is a form of relief that is purely equitable in origin and is one of the examples of the maxim that equity acts in personam. Specific performance is an equitable remedy awarded at the discretion of courts and its purpose is to ensure that justice is done and in this regard, Lord Chelmsford in the case of Lamare v. Dixon noted that the exercise of the equitable jurisdiction to grant specific performance is not a matter of right in the person seeking relief, but of discretion in court. Furthermore, Lord Selborne in the case of Wilson v Northampton and Banbury junction Rly Co stated that the court gives specific performance instead of damages only when it can by that means do more perfect and complete justice. Jessel MR in the case of Rigby v. Connol noted that there are two particular types of contract of which specific performance will not be granted; these are contracts for personal service and those in which performance cannot be ensured without the constant superintendence of the court. This basically meant that contracts requiring personal service would mean forcing someone into working for another without their will hence amounting to forced labour.
In conclusion, despite the existence of the above equitable remedies, damages take a strong lead as a major known way of compensating an aggrieved party in the event of breach for this matter.
Bibliography:
Michael Furmston, Law of Contract, Bristol: Oxford University press, 2007
David J. Bakibinga, Law of Contract, Kampala: The Written word publications, 2013
Sir Guenter Treitel, The Law of Contract, London: Thomson Sweet & Maxwell Limited, 2003
Fafinski Stephan, Finch Emily, Contract Law, Edinburgh gate: Pearson Longman, 2009
By:
Abdallah Sekibembe
sabdallahkhan.ak@gmail.com
The writer is a student of Law at Uganda Christian University School of Law.
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