CONTRACT LAW ā Breach of Contract ā Assessment of Damages ā Where contract contains penalty clause for termination, damages are limited to the contractual provision
Principle Statement
Parties are bound by the contract to which they subscribe. The award in my view overlooks the fact that parties had themselves pre-fixed the limit of damages awardable in the event one of them prematurely terminated the contract which is what ultimately happened.
Ratio Decidendi (Source)
Per Oguntade, JSC, in Osun State Govt v. Dalami Nigeria Limited (2007) NLC-123-277-2002(SC) at p. 26; Paras DāE.
"Parties are bound by the contract to which they subscribe. The award in my view overlooks the fact that parties had themselves pre-fixed the limit of damages awardable in the event one of them prematurely terminated the contract which is what ultimately happened."
Explanation / Scope
This principle establishes that where parties agree on a liquidated damages clause for breach, the court must enforce that contractual provision. The parties’ agreement pre-fixes the limit of damages. The court cannot award damages beyond what the parties contracted for. This reflects the sanctity of contract and party autonomy. The principle applies where termination clauses specify compensation. The court must interpret the clause and enforce it. This prevents unjust enrichment where one party seeks more than the agreed amount. The principle applies in commercial contracts where parties have freely negotiated terms.
