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Breach of Contract and

Remedies

Basic Principles:

pp107 - 119

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Breach of contract

• Breach of contract may take 5 forms:

– Mora debitoris

– Mora creditoris

– Repudiation

– Positive malperformance

– Prevention of performance

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Mora debitoris

• Occurs when performance is possible but debtor, who is aware that performance is required, fails to perform on time.

• Requirements for a debtor to be in mora:

1. Performance due and possible

– Date for performance stipulated in contract (gives rise to mora ex re)

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Mora debitoris contd…

– No date stipulated: demand made by creditor (interpellatio) – gives rise to mora ex persona

• Demand made by creditor must give debtor a reasonable time to perform.

2. Obligation must be enforceable

– Creditor must have valid right to performance and debtor must have no defence for non-performance.

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Mora creditoris

• Occurs when creditor delays in giving assistance to debtor where this is required for him to perform.

• A creditor who obstructs performance is in mora if:

1. Performance is due

– If no time for performance has been agreed upon, the creditor must be given reasonable notice to accept performance.

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Mora creditoris contd…

2. The debtor tenders proper performance

– Debtor must tender performance in terms of contract to creditor, who must be given opportunity to accept it.

• The creditor’s mora does not excuse the debtor from performing

• When the creditor is in mora, she cannot argue that debtor’s failure to perform was breach of contract.

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Positive malperformance

• Occurs when debtor performs, but performance is defective or contrary to terms of the contract.

• 2 forms of positive malperformance exist:

– Debtor’s performance is incomplete or defective. (Positive obligation)

– Debtor does something which contract prohibits him from doing. (Negative obligation)

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Repudiation

• Occurs when a party, who has no lawful excuse not to perform, indicates an intention not to perform some/ all duties under a contract.

• Under certain circs, a party may lawfully repudiate.

– Eg. misrepresentation, duress, material breach by other party.

• Repudiation which occurs before due date for performance = “anticipatory breach”

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Repudiation contd…

• For repudiation the debtor must notify the creditor that he will not be performing under the contract.

– The debtor’s intention may be inferred from the facts.

• Where repudiation is anticipatory, the creditor may seek remedies for breach immediately, or wait for performance date.

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Prevention of performance

• Occurs when there is an inability to perform as a result of the actions of one of the parties.

• May result from the actions of the creditor or the debtor.

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Remedies for breach of contract

• The major remedies for breach of contract are:

– Specific performance

– Cancellation

– Damages

• In addition a party may ask for a “declaration of rights”.

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Declaration of rights

• Where there is confusion about a right or obligation in a contract, either party may apply to the High Court for an interpretation of that right or obligation.

• A party who seeks an interdict or specific performance will often seek a declaration of rights in addition.

– Santos Professional Football Club (Pty) Ltd v Igesund 2003 (5) SA 73 (C)

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Specific performance

• An order of specific performance compels the defaulting party to perform as promised under the contract.

• May be obtained via an interdict, which prevents a breach/ threatened breach of contract.

• Interdict may be:

– Mandatory: requires a party to perform a particular act

– Prohibitory: prevents a party from performing a particular act.

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Specific performance contd…

• Interdicts:

– Eg. Situation of successive sales.

• Court has discretion whether or not to grant an interdict. Applicant must show:

– A clear right

– An injury, well founded fear of injury

– No other remedy exists

• For our purposes an interdict will be regarded as a form of specific performance.

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General principles of specific performance

• Generally there is a right to specific performance.

• The court has a discretion whether to award S.P., however, and may refuse. Particularly where:

– Performance is inappropriate (debtor is insolvent)

– Performance is contrary to public good

– It would be unduly harsh to expect the debtor to perform

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General principles contd…

• S.P. may also be refused where cost of compliance to defendant is out of proportion to benefit to plaintiff.

• Cases where S.P. was refused:

– Haynes v King William’s Town Municipality 1951 (2) SA 371 (A)

– York Timbers v Minister of Water Affairs and Forestry 2003 (4) SA 477 (T)

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General principles contd…

• In South Africa courts may enforce S.P. on a contract of personal service.

– Santos Professional Football Club v Igesund

• If a court refuses to award S.P., the aggrieved party may still seek damages.

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Specific performance and reciprocal obligations

• In a reciprocal contract, a plaintiff may only claim S.P. where he is prepared to perform his own obligation.

• Where a plaintiff has not performed his reciprocal obligation and tries to claim S.P., the defendant may raise the defence of the exceptio non adimpleti contractus.

– Motor Racing Enterprises (Pty) Ltd v NPS (Electronics) Ltd 1996 (4) SA 950 (A)

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The exceptio non adimpleti contractus

• If plaintiff claiming S.P. has performed his reciprocal obligation, but the performance is defective and the defendant raises the exceptio defence, the courts may grant the plaintiff a reduced S.P.

– BK Tooling (Edms) Bpk v Scope Precision Engineering (Edms) Bpk 1979 (1) SA 391 (A)

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Cancellation

• Parties may at any time agree to cancel a contract.

• Here we deal with unilateral cancellation. This may only be done:

– For material breach

– In terms of a cancellation clause

• Aggrieved party has election whether to cancel contract or uphold it (and claim S.P.).

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Cancellation contd…

• If a party elects to cancel the contract, he must notify the defaulting party.

– In some circumstances conduct may be sufficient notification of cancellation.

• Effect of cancellation:

– Contract ceases to exist

– Restitution must occur (to extent possible)

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Cancellation contd…

• Cancellation may occur where:

– There has been a material breach

– There is a cancellation clause

• If on breach, the aggrieved party does not cancel within a reasonable period of time, in the circumstances of the contract it may be argued that he has waived the right to cancel.

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Damages

• Object of contractual damages is to put the aggrieved party in the (financial) position he would have been in had the contract been properly performed.

• Contractual v delictual damages:

– Contract damages aim at making the contractual bargain available (positive)

– Delictual damages aim to compensate for loss suffered as a result of the wrongful conduct of another (negative)

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Contractual v delictual damages

• A contractual claim is limited to financial loss.

• A delictual claim extends beyond this to non-financial loss, such as injured feelings or pain and suffering.

• Under certain circumstances a party may have a claim under contract or delict.

– Van Wyk v Lewis 1924 AD 438

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Quantifying damages for breach of contract

• Court must determine what the financial position of the plaintiff would have been had there been no breach.

• Court will take into account loss which was foreseen by the parties:

– Gains not made

– Loss actually suffered

• Eg. Sale of a painting guaranteed to be a Picasso

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Quantifying damages contd…

• In a claim for breach of contract one may not claim non-patrimonial (eg. emotional) loss.

– Jockie v Meyer 1945 AD 354

– Administrator, Natal v Edouard 1990 (3) SA 581 (A)

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Quantifying damages contd…

• Two important principles limit the amount recoverable by a plaintiff for breach of contract:

– Damages must be reasonably foreseeable as likely to flow from the type of breach in question. (General damages)

– Damages which are usually regarded as too remote may be claimable if parties (in the circumstances of the contract) actually contemplated that type of harm occurring. (Special damages)

• The relevant time for determining whether a party foresaw or contemplated loss is the time of conclusion of the contract.

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Quantifying damages contd…

• Example cited by Kerr (Basic Principles, p 117)

• Victoria Laundry (Windsor) Ltd v Newman Industries Ltd [1949] 1 All ER 997

– English case illustrating the contemplation principle

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Quantifying damages contd…

• The innocent party must attempt to mitigate the loss.

– She must take reasonable steps to minimise her loss.

• Onus is on defaulting party to prove innocent party failed to mitigate her loss.

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Damages and penalty clauses

• Parties may agree on a penalty to be paid in the event of a breach of contract.

• Governed by Conventional Penalties Act 15 of 1962.

• However, in terms of the Act, damages may not be claimed in addition to the stipulated amount.

– Parties may agree to vary this rule by contract

• A court may reduce a penalty which is out of proportion to loss suffered.