Failed Expectations
Overview
The principle of failed expectations applies both to payments received and to works done by the persons whose expectations 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.
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 unjust enrichment by way of quantum meruit or quantum valebat.
If a person pays money to another for a particular purpose which turns out to be false or incorrect, the money is usually recoverable, if there is no contract. 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 does not proceed. 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 may not yield an equivalent measure of compensation for wasted expenses.
With quantum meruit, the claim may not be necessarily limited by the intended or terminated contract. If a person made a contract for sale for less than the value of goods, he may be entitled to the value of goods on a market value basis rather than on the basis of the failed contract price.
However, the courts may limit this principle 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 in some circumstances.
Quantum Meruit and Part Performance
A person may not generally claim quantum meruit for the partial performance of his own obligations. It is presumed, that the other party did not contract for half a job, The delivery of half a job is no different to the forced delivery of goods and services which the recipient does not want.
Where a contract is severable and impliedly provides for proration, there may be an apportionment of the amount due. There may be full performance of hte part for which there is a contractual right to payment.
If 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) or 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 performance (traditionally called a total failure of consideration). In contrast, where there is breach of contract only, but not such that terminates the contract, the innocent party is limited to a claim for his loss relative to what the contract required.
Non-Contractual Setting
There need be no link between and expectation or assumption and a contract. The principle may apply in a non-contractual setting, where there is no contract or even expectation of a contract, between the provider and the recipient.
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. The person giving the monies may recover on the basis of restitution.
A gift given on the occasion of an intended wedding is recoverable on a broadly similar basis, provided for by statute. The gift is intended to be a wedding gift. If the wedding is called off, the gift is presumptively repayable.
Counter Restitution and Rescission
The right to 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, if any, is 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.
Total Failure of Performance (Consideration)
If there is a contract, the parties’ rights derive from the contract, if there is a breach of its terms. The innocent party may claim in restitution if there is a complete failure of the performance by the other party, and he elects to treat the contract as thereby terminated.
A total failure of performance requires that no part of what is bargained in return is received. The principle is usually referred to as a total failure of consideration, which is the promise is given, In this context, consideration refers to the actual obligation to be performed so that total failure of performance is the better description of what is involved.
“Consideration” in the legal sense, is the return which the claimant is promised under the contract. The fact that the promise in itself continues to subsist, does not prevent there being a total failure of consideration. There is a total failure of consideration in this context, 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.
Total Failure Issues
What is or is not a “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.
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 or 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.
Exceptions to Total Failure Requirement
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. There is some support in modern case law for the proposition that in some cases, a party may recover a proportionate part of the price paid, where he has received some part or proportionate benefit only.
Some cases suggest that restitution may not occur at all 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 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.
Termination Option I
The claimant may have an alternative claim for restitution or breach of contract, where he is the innocent party and he has the option to treat the contract as terminated or affirm it and sue for breach. He may, in effect, 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 restitution based on a total failure of consideration. This may be the case, notwithstanding, that there was a temporary benefit. This may be deemed a collateral benefit only.
The person who seeks restitution must be willing to offer counter restitution of benefits he has received. Alternatively, he may give credit for them. The effect of exercising the option is that any profit made on a contract which is not performed is not retained.
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. In circumstances where the buyer has paid in advance and there has been a complete failure of performance, he may recover. 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.
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 availability 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 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 for an asset in the context of a failed contract, he does not usually obtain a proprietary interest in it. He may be unable to secure the 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. He relies on the respondent’s credit and if he is insolvent, he risks loss.
Where however, the parties specifically provide that monies are to be held for a particular purpose, they may be recoverable by a property remedy. 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.
Where a proprietary right more is transferred under a void or voidable contract, the property may be reclaimed by the transferor, if the contract is avoided. This is subject to limitations where the property has been transferred on to a third party before the contracts is avoided.