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Elements in a Contact XXIV - Restitution

Updated on July 12, 2017

Restitution occurs when a party to a contract has not performed his or her part and instead of claiming damages the other party may want to just claim the money they’ve paid. For example, let’s say that a dancer was contracted to perform at an event and the organizers had paid her an advance in order to secure her performance.

She was not the main act but rather the supporting act and on the day of the event, for some reason or other, the dancer did not turn up. Despite the fact that the dancer has breached her contractual duties or obligations, the organizers may simply want to claim the advance that they’d paid back. Restitution simply means returning to the owner what is rightfully theirs.

Restitution is awarded when there has been a total failure of consideration. In Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour (1943) a company in England entered into a contract with a company in Poland to supply machines. The buyer agreed to make partial payment prior to delivery on the understanding that the full amount would be settled once the machines were delivered. Subsequently Germany invaded Poland and the machines could not be delivered. It was held that the contract had come to an end because it was no longer possible to fulfill the terms in the contract and the purchasers were able to claim the advance that they had paid because the contract could not be fulfilled.

In Kleinwort Benson Ltd v Lincoln City Council (1999) a bank had paid a local council for certain financial transactions which at the time of making the payments, the bank was under the impression that such payments were legal. It later turned out that the payments were illegal and the court ruled that the payments should be returned to the bank. The bank had made a mistake and therefore was entitled to claim what was rightfully theirs.

When there is a partial failure of consideration however, the plaintiff is not entitled to recover the monies he or she has paid unless it falls within the ambit of the Law Reform (Frustrated Contracts) Act 1943. S1 - Where a contract governed by English law has become impossible of performance or been otherwise frustrated, and the parties thereto have for that reason been discharged from the further performance of the contract, the following provisions of this section shall, subject to the provisions of section two of this Act, have effect in relation thereto.

S2 - All sums paid or payable to any party in pursuance of the contract before the time when the parties were so discharged (in this Act referred to as “the time of discharge”) shall, in the case of sums so paid, be recoverable from him as money received by him for the use of the party by whom the sums were paid, and, in the case of sums so payable, cease to be so payable:

Provided that, if the party to whom the sums were so paid or payable incurred expenses before the time of discharge in, or for the purpose of, the performance of the contract, the court may, if it considers it just to do so having regard to all the circumstances of the case, allow him to retain or, as the case may be, recover the whole or any part of the sums so paid or payable, not being an amount in excess of the expenses so incurred.

In Hunt v Silk (1804) a tenant and a landlord contracted for a lease to be executed within 10 days with the condition that the landlord was to make necessary repairs to the premises. The tenant was allowed to take possession immediately after he’d paid £10. The landlord failed to make the stipulated repairs or execute the lease, as agreed, within 10 days and after waiting a few more days the tenant left the premises. The tenant brought an action to claim the £10 he’d paid but his claim was unsuccessful. It was held that if the party had received any benefit from the contract i.e. in this case he’d lived on the premises for slightly more than 10 days then failure (consideration) was not total.

In Ferguson Associates v M. Sohl (1992) builders were contracted to make certain renovations to the defendants’ premises. Midway during the renovations there was a dispute between the parties and the builders walked off. The defendants then employed another company to complete the work and it also came to light that the builders had overcharged the defendants. The builders brought an action for the rest of the contractual price and the defendants counter claimed for the sum they’d overpaid. The Court of Appeal held that the contract was no longer enforceable and the builders were entitled to a nominal sum (£1) and that the defendants were entitled to the sum they’d overpaid.

© 2017 Kathiresan Ramachanderam and Dyarne Jessica Ward


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