Failed Expectations
Failed Expectations – No Contract Occurs
The principle of failed expectations applies both to payments received and to works done by the persons whose expectation have failed. Failed expectations may occur in a contractual or non-contractual context. There may or may not have been an expectation of a contract. A gift given on the occasion of an intended wedding is recoverable on a broadly similar basis, provided for by statute.
In the case of payments made, monies are recoverable by way of monies had and received on a restitutionary basis. In the case of works done or services rendered, a fair value or reasonable payment is due on the basis of quantum merit or quantum valebat. Where assets have been disposed of, and there is nothing to be returned, an order for repayment of monies may be made.
If a person gives pays money to another for a particular purpose which turns out to be false or incorrect, the monies is usually recoverable. Where a deposit is paid in the context of an intended transaction, such as to a stakeholder pending contract, the monies are returnable if the contract proceeds. Moreover, they may be held on trust for the payer, so as to survive the insolvency of the stakeholder.
Quantum Meruit
Where works are done in preparation for a contract, for example, when a work of literature is commissioned, recovery may be allowed on a quantum meruit basis, even if no tangible benefit is confirmed on the defendant. This is notwithstanding that a claim for damages would not yield an equivalent measure of compensation for wasted expenses.
In quantum meruit, the claim may not be necessarily limited by an underlying contract. If a person made a contract for less than the value of goods, he may be entitled to the value of goods on a market value basis rather than a contractual price basis. However, the courts may limit this principal where it leads to absurd results.A claimant may be estopped from claiming more than the amount at which he valued the services or goods.
Quantum Meruit and Part Performance
A person may not claim quantum meruit for a partial performance of his own obligation. Where a contract is severable and impliedly provides for proration, there may be an apportionment of the amount due. It will generally be presumed, however, that the other party did not contract for half a job, The delivery of half a job is no different than the forced delivery of goods and services which he does not want.
If however a person knowing that there will be a breach of contract, accepts the partial performance, he is obliged to pay for that part. He has the option to reject entirely, but by accepting a partial performance, the other party is entitled to quantum meruit for the proportionate amount performed.
Failure of Contract
The principle of failure of expectations most commonly arises in a contractual setting where there is a no contract, due to a fundamental breach or a factor which negates the apparent contact (mistake etc) and where there is a total failure of consideration.
A person, who pays in full for something he does not get, may reclaim it on the basis of a total failure of consideration. In contrast, where one party who performs a service, he is generally limited to a claim for the contract price. The case laws appear to treat the payment of money and provision of services differently.
However, there need be no link between the assumption and a contract. The principle may apply in a non-contractual setting. The assumption or consideration given need not relate to anything supplied to him by the recipient. Where monies are given to the respondent, in the expectation that he will incur a liability to a third party and that does not occur, then there is likely to be sufficient failure of expectation.
Counter Restitution and Rescission
The right to have restitution is subject to the condition that the claimant renders counter restitution. He must return or give credit for that which he has received himself in the transaction. Where there is a contract, then that if the claimant has received any benefit at all, then, no the right to restitution may exist and his sole remedy may be for breach of contract.
Where benefits arise under a voidable contract, the principles of rescission requires restoration of the parties to their pre-existing position. If this cannot be done, then this remedy may be lost, because it is no longer possible to put the parties back in their original position. Other remedies may be available for breach of contract. The principle is the equivalent of counter restitution.
Total Failure of Consideration
If a person pays in advance and there is ultimately a contract, his rights will derive from the contract, if there is a breach of contract. He cannot claim in restitution unless there is a complete failure of the consideration.
A total failure of consideration requires that no part of what is bargained in return is received. There may be a failure of consideration where a promise is given, but not fulfilled. In this context, consideration refers to the actual obligation to be performed.
In the context of a total failure of consideration, the consideration is the return which the claimant is promised under the contract. The fact that the promise in itself continues to subsist, is not of itself enough. There is a total failure of consideration, where the claimant receives no part of what was promised in return. If he receives any part, then restitution is not available. If a contract is performed in part, the remedy is in damages only.
What is or is not “consideration” for the purpose of “total failure” is dependent on the circumstances. It depends on the interpretation of the contract in the circumstance. It is to some extent, a device used by the courts to prevent circumvention of contract law and bargains made.
Total Failure Issues
In order that there is no total failure of consideration, something that is actually promised must be received. The promise by is not enough. The fact that some incidental or collateral benefits are derived, for example, the use of the goods for a temporary period, without title, is insufficient. A failed title, due to theft of wrongful sale is unlikely to confer sufficient benefit.
In the case of money lent on a mortgage, where the mortgage documents were invalidated, the claimant was allowed restitution of monies lent on the basis of a failure of consideration. The court was willing to allow restitution, even if some payments had been made on foot of the mortgage.
Where a person fails to get what he expects under a contract, he may not be able to obtain restitution or full restitution for what has been paid. There may be exclusionary clauses which apply and govern the position.
The contract may have been a bad bargain, so that the compensation may be less than what was paid. The principle does not apply to contracts, other than for money.
Exceptions to Total Failure Requirement
There are exceptions to the requirement for a total failure of consideration. Where some collateral benefits are obtained under the contract, but there has been a substantial failure of performance, the court may allow restitution, notwithstanding the receipt of collateral benefits.
The principle may not apply, where one party is prevented from completing the performance. Accordingly, where a builder is wrongfully prevented from completing works, he may recover on a quantum meruit basis, even if he has received part of the price.
The effect of the principle can be harsh and anomalous. If the buyer has paid in advance, there is no contract, but no complete failure of consideration, the common law position is that because he has received some benefit, he is not entitled to recover in restitution. There is some support in modern case law for the proposition that in this case, he may recover a proportionate part of the price paid, where he has receiver some part of proportionate benefit only.
Restitution and Contract
Some cases suggest that restitution may not occur while the contract still subsists. Other cases take a contrary view.
It appears however that at the least, recovery is barred in restitution as long as there are monies or obligations and due under a contract. If it ceases to be due or is no longer payable, it may be recovered, regardless of whether the contract subsists for other purposes.
The mere failure to pay in itself does not cause termination of a contract. A person who has provided sold goods or provided services is left to his remedies in breach of contract. He cannot bypass this by claiming the reasonable value. To do otherwise would upset the bargain made in relation to the price.
Termination Option I
The claimant may have an alternative claim for breach of contract in some cases. He may elect in these cases between restitution and damages. Where a contract is rescinded/terminated for misrepresentation or fundamental breach, the rescission re-vests title and may thereby allow a claim for total failure of consideration. This will be the case, notwithstanding, that the temporary use of goods conferred a benefit. This is deemed a collateral benefit only.
The effect of exercising the option is that any profit made on a deal which is not performed is not retained. Its effect is that profit made on a bargain which is unperformed is not retained.
An innocent party to a contract may be able to terminate the contract and seek restitution as an alternative to a claim for damages. If a person seeks restitution under a contract, he must be willing to offer counter restitution of benefits he has received. Alternatively, he may give credit for them. Loan monies appear to be recoverable, notwithstanding that there may have been some loan repayments, in circumstances where the loan agreement has been avoided.
Termination Option II
Where a buyer pays for goods in advance and receives a part only, he will usually have a claim for breach of contract. He may be entitled to elect to terminate the contract, but this will be his option, provided that he is not the party in default. In circumstances where the buyer has paid in advance and there has been a complete failure of contract, he may recover.
Where a purchaser refuses to accept goods, the remedy is by way of damages for non-acceptance rather than for the price.
It appears that a person may rely on his own breach of contract to seek restitution, in some cases. Where a person pays in advance and then repudiates a contract, which is accepted, he would be entitled to return of payment, with a set off against damages which may arise to the innocent party for breach of contract. The principle will operate when there are sums and obligations outstanding under the contract.
THere are limits to the avialabiltiy of recission An executed or completed contract may not be rescinded and set aside for innocent or negligent misrepresentation. Once the contract is completed, it is too late to rescind. The principle is subject to a statutory exception in the case of sale of goods.
Proprietary Claim
A restitutionary claim based on a total failure of consideration does not by itself allow for a proprietary remedy. This would entail the availability of a constructive trust as a general discretionary remedy, which is far from the current position. The asset is not earmarked as the claimant’s property in the hand of the respondent. The obligation to repay is personal and may abate in insolvency proceedings.
Where a person pays in advance in the context of a failed contract, he does not necessarily retain a proprietary interest in them. He may not be unable to return of monies in the event of the holder’s insolvency, unless the money is specially agreed to be held as stakeholder or trustee.
By trusting the other party’ credit in the context of a contract, the courts have tended to the view that a person should not be in any better position than other creditors, than if the contract had proceeded. Where however, the parties specifically provide that monies are to be held for a particular purpose, they may be recoverable by a property remedy.
Proprietary Claim in Some Cases
There may be circumstances in which proprietary rights arise in a claim based on restitution in accordance with ordinary principles. The absence of a proprietary element means that the restitutionary right is a personal right.
A person has no greater right to security in this situation than he would have if he transferred money to the respondent under a contract. He relies on the respondent’s credit and if he is insolvent, he risks loss.
If is specifically agreed stated that money is to be held in a particular way, pending its application for a particular purpose, there may be sufficient basis to constitute a trust or right of recourse to the monies. A proprietary right more is readily established, where monies are transferred under a void or voidable contract.