Remedies for Breach of Contract

It is well known in law that where there has been a wrong, there should be a remedy. The same goes for a breach of contract, as there is usually a remedy at law for the breach of the contract by one party. The most common of all remedies is damages, although the court will also occasionally grant an order of specific performance and injunctions.

Damages

Damages refers to monetary compensation which is obtainable in a civil suit, including but not limited to the breach of a contract. The innocent party in a contract that has been breached is prima facie entitled to damages, except the contract expressly or by implication provides otherwise. The purpose of damages was stated by Parke B in Robinson v Harman as follows.

The rule of the common law is that where a party sustains a loss by reason of a breach of contract, he is, so far as money can do it, to be placed in the same situation with respect to damages, as if the contract has been performed.

While the aim of damages is to put the innocent party in the position the party would have been if the breach had not occurred, it is also important that the party that has breached the contract is only liable for damage which was reasonably foreseeable. The general rule of remoteness of damages was formulated by Anderson B in Hadley v Baxendale. In the case, the plaintiffs were millers who contracted with the fending carriers to take a broken mill shaft as a pattern for a new shaft. The defendant ended up holding up the delivery for a week, instead of a day as originally agreed, and so the plaintiff sued for loss of profits.

The decision in the case divided financial loss into normal and abnormal losses. The normal losses are automatically recoverable, while the abnormal losses are only recoverable if the defendant had been made aware of the special circumstances which gave rise to the possibility of such loss at the time the contract was made.

The rule was reformulated in Victoria Laundry (Windsor) Ltd. v Newman Industries Ltd. In the case, the plaintiffs were launderers and dryers. For the purpose of expanding their business, they required a larger boiler which the defendant contracted to sell and supply to the plaintiff. The plaintiffs informed the defendant before the conclusion of the contract that they were most anxious to put the boiler into use in the shortest possible space of time. The defendant went ahead to deliver the boiler five months after it was due to be delivered under the contract. The plaintiffs successfully sued for loss of profits arising from the breach, as the loss of profits was reasonably foreseeable in the surrounding circumstances.

Remoteness of damages

After it has been decided by the court that a party is obligated to pay damages, it must then be decided by the court the extent of the damages. This is known in law as the remoteness of damages.

The question of remoteness of damages was given detailed consideration in Koufos v C. Czarnikow Ltd, known as The Heron II. In the case, a chartered ship deviated, in breach of contract, with the result that it reached its destination nine days later than would otherwise have been the case. The market value of the sugar it carried had fallen. The court held the defendant liable, with Lord Reid establishing that while it is not every loss which is reasonably foreseeable which the party in breach shall be liable for, the party in breach shall be liable for every loss which is sufficiently likely to occur as a result of the breach. Once the damage is a reasonably likely result of the breach, it is immaterial how extensive the damage is and the party is breach shall be liable.

In Olagunji v Raji, the appellant who has gotten a construction contract, approached the respondent to help him finance it. To the appellant’s knowledge, the respondent raised a bank loan for that purpose, which he then handed over to the appellant. The appellant only used part of the money to execute the contract, and he also only refunded part of the loan to the respondent and did not give the respondent his share of the profit. The Court of Appeal held that in addition to paying the respondent his share of the profits and the unpaid part of the loan, the appellant was to pay the interest that has accrued on the loan because it was a reasonably foreseeable result of delaying the payment.

Measurement of damages

The general rule as regards the time of assessment of dames is that it should be assessed at the time the breach occurred. However, as was stated in Johnson v Agnew, it is not an absolute rule, and the court will fix any other appropriate day if the date of the breach will work injustice. Two situations where the court will not apply the date of the breach is where the innocent party refuses to treat the breach as terminating the contract and where the innocent party did not know until later that the breach had occurred.

In Solomon v Pickering & Co Ltd, the defendant sold some cases of palm oil at Liverpool, in breach of the contract which provided that they should have been sold at New York. The court held that the proper measurement of damages in that case would be how much would have been gotten if it had been sold on the day it was supposed to be sold in New York, and not the day of shipment or even the day it was sold at Liverpool.

In Mobile Oil (Nig) Ltd v Abraham Akinfosile, the plaintiff was appointed as the dealer and later in charge of a filling station. The agreement provided that the contract was to be terminated by a thirty-day notice in writing. The defendant terminated the agreement six months after the agreement without notice on the ground that the plaintiff had been buying petroleum products from other oil companies. The plaintiff sued for damages for the breach of contract by wrongful dismissal. The court held that the plaintiff was only entitled to his salary for a month as damages, as that was the loss foreseeable.

Mitigation of damages

It is often said that the plaintiff is under a duty to mitigate his losses, and he cannot recover for a loss which he ought to have avoided. Whatever loss which flows from the unreasonable actions or inactions of the normally innocent party in a breach shall not be recoverable, and damages shall not be awarded in respect of such. The principle on mitigation of losses was clearly stated in Omongwu v NNPC, where the court held that the plaintiff must take reasonable steps to mitigate the loss to him and cannot recover damages for any such loss which he could have avoided but he has failed through unreasonable action or inaction to avoid.

The duty to mitigate does not imply that a plaintiff whose contractual right has been breached is automatically relegated to a position inferior to that of the defendant’s, where he is obliged to cross oceans to fix the defendant’s fault. The duty to mitigate loss only states that the plaintiff must not take any step which unreasonably increases the loss and that the plaintiff must take reasonable positive steps as are necessary to minimize the loss he suffers. If A contracts with B to buy food, and A breaches the contract, it will be unreasonable of B to not sell to C to mitigate his losses by preventing the food from spoiling if C is willing to buy. In the event that C buys it at a lesser price than A contracted to, B may then sue A for the balance.

Classification of damages

1. General and specific damages

The tendency is that where the losses claimed for as a result of the breach of a contract are specific items with a clear or known monetary value, it shall be referred to as special damages. If A contracts with B to sell a car to him to be used as a cab, and the car turns out to be a broken down piece of junk, B may sue A for both loss of earnings and whatever amount would be required to fix the car as special damages. Where the court itself has to estimate or assess the damages, the resultant figure is general damages.

However, the Supreme Court has stated its distaste of this classification. It was stated by the Supreme Court in Ghandi v Pfizer that damages in the law of contract should not be classified into special and general damages as it is done in many cases. Rather, there should be reference to damages simpliciter covering both forms.

2. Nominal damages

Where one party has committed a breach, but such a breach has not resulted in any loss or the innocent party as failed to prove a loss resulting from the breach, the court has the discretionary power to award nominal damages. In Nigeria Advertising and Publicity Ltd v Nigerian Airways, the defendant admitted the breach of the contract but the plaintiff was unable to establish any loss suffered. The court, nevertheless, held that since no special damages had been proved, it awarded nominal damages in the sum of 100 pounds.

3. Exemplary damages

Exemplary damages are awarded more as punishment and less as compensation. Exemplary damages are usually only awarded in the following situations.

• In cases of provocative arbitrary and unconstitutional acts by government servants.
• Where the defendant’s conduct has been calculated by him to make a profit for himself which might well exceed the compensation payable to the plaintiff.
• Where expressly authorised by statute.

Specific performance

Specific performance is a decree through which the court directs the defendant to perform the contract which he has made in accordance with its terms. It is an equitable relief. The decree of specific performance is a discretionary remedy used cautiously by the courts only when it appears as though damages shall not be adequate compensation.

In Taylor v H.B. Russel, the West African Court of Appeal refused to grant specific performance with regard to a contract for the sale of a piece of land because by the time the action was brought, the defendant had sold the land to someone else, who had in turn sold it to a fourth person. In resuming the application for specific performance, the court gave the following reasons.

1. The titles to the property had passed from the respondent and it would, therefore be impossible for him to carry out the order of the court.
2. To grant specific performance in these circumstances could only have the result of fostering two or more further actions, whereas the law provides a remedy in damages.
3. The doctrine of specific performance is an equitable relief which will never be granted where it will cause hardships to third parties unless it can be shown that such third parties were aware of the existence of the contract of which the plaintiff was claiming specific performance.

Also, the party requesting specific performance must have performed his contractual obligations, or must show that he is willing to perform his contractual obligation. In Coker v Ajewole, the court held that the plaintiff could not be granted the remedy of specific performance because she did not perform her contractual obligations.

The courts will more readily grant the decree of specific performance in cases like the sale of land, where a land which has been sold is not conveyed, as simply granting damages will do injustice. The courts will also grant specific performance where damages shall not be adequate compensation. However, contracts which require personal service will usually not be granted specific performance, such as a contract of employment.

Injunction

An injunction is an equitable remedy and is applicable under discretionary ground. An injunction may either be prohibitive, when it asks a party not to do something, or it may be mandatory, where it compels a party to undo something which has been done. The granting of an injunction is subject to the balance of convenience test and may be refused is the prejudice which will be suffered heavily outweighs the advantage which will be gotten from such restoration.

An injunction will not be granted where it will compel the defendant, either directly or indirectly, to do an act which he could not have been ordered to do by specific performance. For instance, in a contract of service, an employee cannot be restrained from committing a breach of his positive obligation to work, for this would amount to enforcing specific performance of a contract of service. Contracts commonly enforced by an injunction are contracts in restraint of trade.

One case where an injunction was granted was in Warner Bros Pictures Inc v Nelson, where a film actress signed an undertaking with the plaintiffs, her employees, to not act for any other organizations. She was restrained by an injunction from breaking her undertaking.