Lecture 7

Remedies for Breach of Contract

 Lecturer: Dr. R.S.Mlinga

 E-mail: ramadhan.mlinga@ppra.go.tz

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Consequences of breach
 Parties to a contract are expected to carry out
their respective promises under the contract.
 When one of the parties to a contract refuses to
carry out his part of the promise, he is said to
have breached the contract.

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Consequences of breach
 Thus a breach of contract occurs when a party
thereto renounces his liability under it, or
 by his own act makes it impossible that he should
perform his obligations under it or totally or
 partially fails to perform such obligations.

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Different reliefs

 When a breach of contract occurs, the injured or

aggrieved party becomes entitled to the following
reliefs:
 Rescission of the contract
 Suit for damages

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Rescission
 Rescission means termination and cancellation of the
terms of the contract.
 It may take place in any one of the following
manners:
 If the parties to a contract agrees to rescind the contract,
the original contract need not be performed;
 When a contract is broken by one party, the other party
may sue him and treat the contract as rescinded and refuse
further performance; and

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Rescission
 When a person at whose option a contract is
voidable rescinds it, the other party thereto
need not perform any promise therein
contained in which he is a promisor.

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Rescission
 Consequences of rescission
 In case of rescission without prejudice to the injured
party’s right to receive compensation for its breach, he
is absolved from all his obligations under the contract,
and need not perform any promise.
 When a contract is rescinded, any person who has
received any advantage under such agreement or
contract is bound to restore it or to make compensation
for it, to the party from whom he received it.

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Rescission
 Example:
A pays to B $ 1,000 in consideration of marrying B’s
daughter. The daughter is dead at the time of promise.
The agreement is void but B must repay A $ 1,000.

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Rescission
 The party rescinding a voidable contract, if he has
received any benefit there under from another party
to such contract restore such benefit, so far as may
be, to the person from whom it was received.
 Example:
 A contracts to sing for B for $ 1,000 which is paid in
advance. A is too ill to sing. A is not bound to make
compensation to B for the loss of profits which B would have
made if A had been able to sing but must refund to B the $
1,000 paid in advance.

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Rescission
 If a person rightfully rescinds his contract he is entitled
to compensation for any damages which he has
sustained through the non-fulfilment of the contract by
the other party.

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Rescission
 Example:
 A, a singer contracts with B, the manager of a theatre to
sing at his theatre for two nights every week during the next
two months and B engages to pay her $ 100 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 damages
which he has sustained through the non-fulfilment of the
contract.

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 Damages
 Nature
 The party who is injured by the breach of contract
may bring an action for damages. According to
Asquith J:
 “It is well settled that governing purpose of damages is to
put the party whose rights has been violated in the same
position, so far as money can do, as if his rights has been
observed”

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Damages
 From above, the aim principle for paying damages for a
breach of a contract is to place the plaintiff in the same
position he would be in if the contract had been fulfilled, or
to place the plaintiff in the position he would have occupied
had the breach of the contract not occurred.
 Thus, damages are given by way of compensation for the
loss suffered by the injured person and not for the purpose
of punishing the wrongdoer for the breach.

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Damages

 Types of damages
 Ordinary or Compensatory Damages
 Special Damages
 Exemplary or Vindictive Damages
 Nominal or Token Damages

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Damages
 Ordinary Damages
 Damages which arise in the ordinary course of
events from the breach of contract are called
“Ordinary or Compensatory Damages”.
 They are calculated in such a way as to compensate
or make up the loss suffered by the parties.

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Damages
 Ordinary Damages
 Ordinary damages are restricted to the proximate
consequences of the breach of contract and the
remote consequences are not generally regarded.
 The damage must be something immediately flowing
out of the breach of contract complained of, and not
merely connected with the breach by means of an
intervening cause.

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Damages
 Special Damages
 Ordinarily, the Court shall award such damages that
arise in the ordinary course of events from the breach.
 But under special circumstances, the Court may allow
damages not arising entirely from the breach provided
such damages may reasonably be supposed to have
been in contemplation of the parties at the time they
made the contract.

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Damages
 Special Damages
 Thus, special damages are those resulting from a breach
of contract under some special circumstances known to the
parties at the time of making the contract.

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Damages
 Example:
 P sends some specimen of his goods for exhibition at an
agricultural show.
 After the show, he entrusts some of his samples to an
agent of Railway Company for carriage to another show
ground at place N.
 On the consignment he writes, “must be at place N
Monday certain”
 Owing to the fault of the Railway Company, the samples
arrived late for the show.
 P can claim damages for the loss of profit of the show.

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Damages
 Vindictive or exemplary Damages
 Generally speaking, exemplary or vindictive damages
are not awarded in ordinary cases of breach of contract.
 Where a contract is broken, the injured feelings of
disappointment which a person entirely suffers, are not
taken into account in assessing damages.
 Similarly, where a contract is broken under circumstances
which may reflect upon the character of the plaintiff, he
will not be allowed vindictive damages.

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Damages
 If the circumstances show cause of action in libel or
slander, he should frame his action in tort and not
as a breach of contract. But to this general
principle, there are two exemptions:
 Firstly, in cases of breach of promise to marry, the Courts
awards special damages taking into consideration the
injured feeling of the party.
 Secondly, where a Banker refuses to honour the cheque
of a customer while having his money in his hands, and
the customer thereby suffers in his business reputation,
exemplary damages are awarded.

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Damages
 Nominal or token damages
 Where the Courts find that the party has suffered no
pecuniary loss or when the Court is of the opinion
that the breach complained of is too insignificant, the
Court may award nominal amount or token amount
as damages.
 These are normally granted in view of the right of
the aggrieved party to claim damages for the
breach of contract.

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Damages
 By nominal damages is means as a sum of money
that may be spoken of, but has no existence in point
of quantity.
 This is awarded in cases where the plaintiff is able to
prove a breach of contract but has not suffered any
real damage.

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Damages
 Rules regarding amount of damage
 The foundation of modern law of damages in English Law
is to be found in the celebrated judgment in the case of
Hadley V. Baxendale: the facts of that important case are
as under:
 “X, a carrier, was entrusted with the delivery of machine part to
Y, a manufacturer. The delivery was delayed. Y claimed from X
 compensation for the wages of workers and
 depreciation charges which were incurred during the period the
factory was idle, for the delayed delivery and
 for loss of profits which might have been made if the factory was
working.
 The first two items were allowed because they were natural
consequences of the breach. The last item, loss of profit, was
disallowed because it was a remote consequence.

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Damages
 Anderson B observed in this case:
 “ Where two parties have made a contract which one of
them has broken, the damages which the other party
ought to have received in respect of such breach of
contract should be as may be fairly and reasonably be
considered either arising naturally i.e. according to the
usual course of things, from such breach of contract itself,
or such as 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 of it”.

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Damages
 HOWEVER
 Any estimated loss or damage arising from breach of
contract, the means of which it existed of remedying the
inconvenience caused by non-performance of the
contract must be taken into account

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Damages
 Actual loss: Ordinary Damages
 Ordinarily, the injured party is entitled to recover by way
of damages only the actual loss suffered by the party.
 The principle underlying the award of damages is that
where a party sustains a loss by reason of breach of
contract, he is, so far as money can do, to be placed in
the same situation with respect to the dames, as if the
contract had been performed.

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Damages
 Under Section 73 a party suffering by a breach is
entitled to compensation for loss or damage:
 which naturally arose in the usual course of things from
such breach;
 which the parties knew to be likely to result from the breach
 In both cases, however, the damage must not be remote or
indirect. Moreover, in estimating the loss or damage, the means
existed of remedying the inconvenience caused by non-
performance must be taken into account

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Damages
 The amount of damages to be awarded can
never exceed the loss actually suffered by the
claimant or which he is likely to suffer.
 If the government commits a breach by
improperly rescinding the contract, the contractor
is held to be entitled to damages for loss of
expected profits on the remaining work.

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Damages
 Example:
 A contracts to sell and deliver 100 tons of rise to B
at $ 50 per ton, the price to be paid at the time of
delivery. The price rises to $ 75 per ton. A refuses to
sell rice. B can claim damages at $ 15 per ton

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Damages
 For estimating the amount of damages, the Court
should make broad evaluation instead of going
into minute details.
 In calculating actual loss the Court will take into
account such losses:
 as may be fairly and reasonably considered;
 as arising naturally, and
 in the usual course of things from breach

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Damages
 Example
 A contracts to buy from B, as stated, 50 tons of rice,
no time being fixed for delivery.
 A afterwards informs B that he will not accept the
rice tendered to him.
 B is entitled to receive from A, the amount, if any, by
which the contract price exceeds that which B can
obtain for rice at the time when A informs B that he
will not accept it

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Damages
 Also compensation is not to be given for any
remote or indirect loss or damage:
 Examples
 A contracts to pay a sum of money to B on a day
specified. A does not pay the money on that day;
 B, in consequence of not receiving money on that
day, is unable to pay his debt and is totally ruined.
 A is not liable to make good to B anything except
the principal sum he contracted to pay, together with
interest up to the date of payment.

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Damages
 The plaintiff were manufacturing bricks on a plot of
land were restrained from continuing the work by a
STOP ORDER made at the instance of the
defendants. While the proceedings were pending
the bricks and fuel stored on the spot were
damaged by heavy fall of rain. In an action for
damages on this account it was held that the damage
due to the rain was too remote.

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Damages
 Special Loss: Special Damages
 In order to claim special damages as previously
described, it is important to bring to the notice of the
other party, any special circumstances which would
result in a special loss in case of a breach of
contract.

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Damages
 Examples
 A delivers to B, a common carrier, a machine to be
conveyed without delay to A’s mill informing B that his
mill is stopped for want of the machine. B unreasonably
delays the delivery of the machine, and A,
inconsequence, loses a profitable contract with the
Government. A is entitled to receive from B, by way of
compensation, the average amount of profits which would
have been made by the working of the mill during the
time that the delivery of it was delayed, but not the loss
sustained through the loss of the Government contract.

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Damages
 Examples
 A, a builder, contracts to erect and finish a house by the
1st January in order that B may give possession of it at
that time to C to whom B was contracted to let it. A is
informed of the contract between B and C. A builds the
house so badly, that, before the 1st of January it falls
down and has to be rebuilt by B, who, in consequence,
loses the rent which he would have received from C and
is obliged to make compensation to B for the breach of
contract. A must make compensation to B for the cost of
rebuilding the house, for the rent lost and for the
compensation made to C.

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Damages
 Restitution
 Courts will normally give damages for breach of
contract only by way of compensation for loss
suffered and not by way of punishment.
 Thus the amount, of damages that shall be awarded
is no case to exceed the loss actually suffered by the
aggrieved party.

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Damages
 While affecting, restitution, the Court follows the
following guidelines:
 In case of sale and purchase, the measure of damage
would be assessed on the difference between the
contract rate and the market rate on the date of breach.
 The market rate prevailing on the date of delivery fixed
in the contract should afford the basis of ascertaining
damages.
 Where the extent of actual loss or damages is not
proved discretion is given to the Court to fix the amount

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Damages
 Other rules
 Duty to mitigate damages suffered
 A party to a contract is bound to use all reasonable
means of mitigating the damages consequent upon the
breach of the other party.
 He cannot recover any part of damage, traceable to his
own neglect to mitigate to the person to whim it is made,
so as to be out of the power of the person who makes it.

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Damages
 Example:
 A took a shop on lease and gave an advance to B. B,
thereafter, could not give A the possession of the shop. A
chose to do no business for eight months though there
were other shops available in the vicinity. Held, A
entitled only to a refund of his advance as his duty was
to minimise damages and he could have done so by
taking another shop.
 Thus, in a case of sale of goods, if the vendee refuses to
take delivery, the vendor should wait a reasonable time
and then resell the goods. If he makes as unreasonable
delay, and loses much because of a falling market, he
can yet recover only difference between the contract
rate and the rate on the date of breach.

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Damages
 Difficulty of assessment
 The fact that damages are difficult to asses does not
prevent the injured party from recovering them.

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Damages
 Example:
 In a beauty competition held by H, 50 ladies were to
be selected by voters of readers of certain
newspapers. Out of 50, H would select 12 and
procure theatrical jobs for them. C was on of the 50.
At the time of final selection C could was not present
owing to the breach of contract by H. Held; C was
entitled to damages even though the calculation of
damages was difficult to fix the amount

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Damages
 Damages for loss of reputation
 Loss of reputation is normally not accepted as a valid
ground for claiming damages.
 But to this rule one exception has been recognised in case
of customer – a tradesman whose cheque has been
dishonoured wrongfully by a banker.
 In that case, the trader-customer can claim losses of his
trade reputation by such a breach by the banker.
 In awarding damages, the rule that is normally applied is
“the smaller the amount of cheque dishonoured, the
larger the amount of damages awarded”.
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Damages
 Damages for mental pain, inconveniences and
discomfort
 In ordinary cases, damages for mental pain suffered
or discomfort caused by the breach are not allowed.
But they may be allowed in special cases. One such
illustrative case, where Lord Atkinson explained the
principle, thus:

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Damages
 The facts were: “The plaintiff was employed by
the defendant company at a certain salary and
commission on trade done. He could be dismissed
by six month’s notice. He was given six month’s
notice and at the same time another person was
appointed to his place, thus preventing him from
acting as Manager even for the notice period and
earning his commission.

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Damages
 Held, the damages the plaintiff sustained by his
illegal dismissal were
 the wages for the period of six months
 the profits on commission which would in all
probability been earned by him and possibly
 damages in respect of time which may have
reasonably elapsed before he could obtain other
employment.

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Damages
 Damages for personal inconvenience
 Damages are also awarded for the personal
inconvenience suffered by a party by reason of a
breach of contract

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Damages
 Example
 When a train pulled its passengers to a wrong direction
and consequently the plaintiff and his wife, finding
neither other conveyance, nor a place to stay, had to
walk home at midnight. The Jury allowed $ 8 as the
damages for the inconvenience suffered by the plaintiff
in being obliged to walk home and $ 20 in respect of
wife’s illness caused by catching cold.
 On appeal, the appeal Court held that $ 8 was properly
awarded, but not $20. Arguing the Court said” The
inconvenience of walking must be taken to have been
within reasonable contemplation of the parties. But the
wife’s cold was not necessary or even the probable
consequence of the breach”.

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Damages
 Liquidated Damages and Penalty
 The contracting parties may stipulate in the contract
a sum of money to be paid in case either party
breaks the contract.
 In such cases, the important question is whether the
Court of Law will accept the figure as a true
measure of damages.
 According to English Law, the sum so stipulated in the
contract amounts to either liquidated damages or
penalty.

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Damages
 Liquidated Damages are sums agreed on by the
parties to the contract as an assessment of the
damage or loss which will result from a breach of
contract.
 Thus, it is a fair and genuine pre-estimation of
the loss likely to because by the breach of a
contract.

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Damages
 Penalty on the other hand, is a sum which has no
relation to the probable loss which may arise and
which has been stipulated by the parties for the
purpose of penalising the party for not
performing the contract.
 A penalty is a sum, therefore, which is
disproportionate to the damages likely to accrue
as a result of the breach.

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Damages
 The English Law gives effect to “liquidated
damages”, but relieves a party against penalty.
 In England, “liquidated damages” specified in the
contract can be recovered irrespective of whether
the sum so specified is greater or less than the
actual damage suffered.
 Penalty clauses, however, are treated as invalid.
The Court in such cases allow only a reasonable
compensation by way of damages.

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Damages
 The distinction between liquidated damages and
penalties depends on the intention of the parties to
be gathered from the whole of contract.
 If the intention is to secure performance of the
contract by the imposition of a fine or penalty, then
the sum specified is a penalty, but if on the other
hand, the intention is assess the damages for breach
of the contract, it is liquidated damages.

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Quantum Meruit
 The expression “Quantum meruit” means “as much
as merited” or “as much as earned”.
 The expression is often used where the plaintiff
claims reasonable remuneration for the services
rendered by him when there is no enforceable
contract or expressed promise as to the amount of
remuneration.

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Quantum Meruit
 Where a party has in the performance of his
contract done some work or rendered some service
and further performance has been made useless by
the other party, he may recover reasonable
compensation for the work or service. This is known
as the “doctrine of quantum meruit”.

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Quantum Meruit
 A quantum meruit claim arises where work is done
or services performed by one person for another in
circumstances which entitled the person doing the
work or performing the services to receive a
reasonable remuneration therefor.
 The right to claim quantum meruit does not arise out
of a contract as the right to damages does. It is a
claim which is quasi-contractual obligation which the
law implies in the circumstances.

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Quantum Meruit
 Where the price of work is not fixed, reasonable
compensation therefor (quantum meruit) can be
awarded. If a term in the contract fixes the price of
the work, quantum meruit is excluded

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Quantum Meruit
 Rules
 About five rules govern the quantum meruit doctrine:
 In case of breach of contract, the aggrieved party is entitled to
claim reasonable compensation for what has done so far under the
contract
 Example:
 P agreed to erect certain buildings but failed to complete
the contract. D completed the building himself, using the
material left on the site by P. Held P could not recover for
the work done but was entitled to recover the value of the
materials used.

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Quantum Meruit
 When a contract is discovered to be void, any
person who has received any advantage under
such agreement or contract is bound to restore it or
to make compensation for it, to the person from
whom he received it

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Quantum Meruit
 Example
 P was appointed Managing Director of a Company.
The appointment was made by the other Directors who
were disqualified by reason of having not taken their
qualification shares. P also did not take his
qualification shares. But he continued to act as
Managing Director and sued the Company for his
agreed remuneration and for a reasonable
remuneration on the basis of quantum meruit. Held, P
was entitled to recover on the basis of quantum meruit.

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Quantum Meruit
 When a work is lawfully done or goods are
supplied by a person without any intention to do so
gratuitoisly to another person and such other
person enjoys the benefit thereof, he is bound to
make compensation to the former in respect of, or
to restore thing so done or delivered.

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Quantum Meruit
 Example
 A, a trader leaves certain goods with B by mistake not
intending to do so gratuitously. B uses the goods. He
must pay for them.

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Quantum Meruit
 If the contract is divisible, part performance will
also entittle the defaulting party to claim
compensation on the basis of quantum meruit, if the
other party has taken the advantage of what he
has already done.
 Example
 P agreed to supply 100 tons of rice at the rate of $
30 per ton to B, deliveries to be made in two equal
instalments. P supplies 50 tons but fails to supply the
second instalment. B must pay for 50 tons.

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Quantum Meruit
 If a lumpsum is to be paid for the completion of the
entire work and the work has been completed in full,
though badly, the person who has performed the
contract can claim the lumpsum; but the other party
can also claim a deduction for bad work.
 Example
 A agreed to decorate B’s flat and fit a wardrobe for a
lump sum of $ 600. The work was done but B complained
of defective and faulty workmanship. It was held that this
could have been rectified by spending $ 300. Held, that A
could recover $ 300 from B.

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Quantum Meruit
 Limitations to the doctrine
 In a contract which is not divisible into parts and a
lumpsum of money is promised to be paid for the
complete work, part performance will not entitle the
party to claim any payment
 Example
 A sailor was appointed on a ship for a voyage from
one part on a lumpsum payment of $ 30. He died
when only two-thirds of the voyage was
completed. His legal representaive could not
recover anything.

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