Explain the rules that govern the measure of damages in the law of contract

 Compensation: the purpose of a monetary award in the damages is to compensate theplaintiff for the loss suffered.
 Proof: the plaintiff must prove the loss or damage suffered. He must adduce evidence ofthe actual loss suffered.
 Causation: There must be a nexus or link between the plaintiff loss and the defendantsbreach of contract failing which damages are said to be too remote and irrecoverable.

The rule on remoteness of damages was formulated in Hadley V. Baxaendale (1864) where it was held that the profit were irrecoverable since its loss could not be traced to the defendants delay hence it was too remote. This case is authority for the proposition that the plaintiff is only entitled to recover such loss as is reasonably forseable.
 Knowledge
If a party is in possession of special knowledge or more information about the contract, but he fails to act, the other party suffers loss, the party is liable for such loss. It was so held in

Victoria Laundry (Windsor) Ltd V. Newman Industries Ltd. The plaintiff company resolved to extend its business as well as take advantage of certain other lucrative contracts. It required a large boiler. The defendant, an engineering firm agreed to sell and deliver a boiler to the plaintiff on June 5th. However the boiler was damaged and was not delivered until Nov. 8th by which the plaintiff had lost a lot of business. Though the defendants were aware of the plaintiffs business,t hey had ben informed more than once the urgency with which the boiler was required. It was held that since the defendant had a special knowledge about the contract but failed to act on it, they were liable for the loss suffered by the plaintiff company.

A similar holding was made in The Heron II where it was held that the respondent was entitled to the f4,100 as its loss was traceable to the appellants breach of contract.

Mitigation of loss
This principle is to the effect that when a breach of contract occurs, it is the duty of the innocent party to take every reasonable step to reduce the loss it would otherwise have suffered from the breach of contract. The innocent party is bound to act reasonably to mitigate its loss. Whether the party has acted reasonably depend on the facts of the case.

In Musa Hassan V. Hunt and Another the appellant had agreed to purchase all the respondents milk for one year. On one occasion the appellant rejected the milk on the ground that it was unfit for consumption. The respondent proved that it was fit for consumption. The respondent however, converted the milk to ghee and casein which fetched a lower price. The appellant argued that the respondent had not mitigated its loss reasonably. However, it was held that the respondent had acted reasonably. In Harris V.Edmonds it was held that if the charterer of a ship failed to provide cargo in breach of contract, the ship captain was obliged to accept goods from other persons to mitigate the loss. If a party fails to mitigate loss, the amount by which the loss ought to have been reduced is irrecoverable.

Liquidated damages and penalties
Parties to a contract may before hand fix the amount payable to the innocent party in the event of a breach. The amount specified may be liquidated damages or a penalty.

If the amount is a genuine pre-estimate of the loss likely to be suffered by the innocent party it is awarded by the court as such without proof of the actual loss. This is liquidated damages. If the amount has no relation to the loss, it is extravagant and unconscionable, it is said to be a penalty an is unenforceable. A penalty covers but does not assess loss. It is a sum to be forfeited whether the sum is liquidated damages or a penalty is for the court to decide on the basis of certain presumptions enunciated in Dunlop Pneumatic Tyre Co. Ltd.V. New Garage and Motor Co. Ltd.

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