Theme 3 :Remedies for Breach

of Contract

By operation of Law◦ Specific performance

Natural remedy... Leads to fulfilment of the contract.◦ Cancellation

Drastic remedy... Nullifies the original contract.◦ Damages

Combination remedy... Applied in combination with above remedies.

Agreed remedies◦ Remedies by operation of law have to meet certain

requirements and implementation could be problematic.◦ Parties agree on remedies directed at bypassing the

practical problems strict legal requirements of remedies by operation of Law.

◦ Eg. Acceleration clause; lex commissoria (cancellation clause); penalty clause.

◦ Agreed remedies usually exclude common law remedies unless the contract provides for it.

Remedies

Interdict◦ An order of court which restrains the party from

performing the forbidden act.◦ Requirements:

A clear right must exist. Infringement upon right. No other remedy available.

Specific performance◦ Force performance as agreed, unless it appears to be

an impractical solution eg. Impossibility of performance.◦ Debtor can resist an order for specific performance by

raising the exceptio non adempleti contractus. Where parties have to perform simultaneously. Cannot

claim performance is own performance is still due. Eg. Cash sale vs Credit sale. Delivery of partial performance? Divisible performance vs

Indivisible performance.

Claims for fulfilment of contract

◦ Divisible performance Withhold own performance in respect of performance

still outstanding .◦ Indivisible performance

Reject delivered performance and claim specific performance – no counter performance until performance by plaintiff is proper.

Cancel if malperformance is substantial enough. If malperformance is not substantial enough:

Should counter-performance be delivered? BK Tooling v Scope Precision, 1979

Is defendant utilising the incomplete performance. Circumstances exist in favour of plaintiff. Reduced contract price.

Acceleration clause◦ If debtor falls in arrears – full outstanding

becomes due and payable.◦ Whether to invoke is the choice of the creditor.

Lex commissoria◦ Circumstances are set out when a contract may

be cancelled. Often contains specifications and requirements to be met before cancellation can take place.

Mora debitoris◦ Time is of the essence.

In mora ex re and time is of the essence.◦ Creditor acquires the right to cancel.

Time is not of the essence, in mora ex re – performance must be demanded and state than failure to perform will result in cancellation.

Mora creditoris◦ Time is of the essence.◦ Debtor acquires right to cancellation.

Cancellation

Positive Malperformance◦ Malperformance must be substantial – cannot

reasonably be expected to keep the performance.◦ Malperformance not substantial – retain defective

performance and claim damages.◦ A right to cancellation cannot be acquired as above.

Repudiation◦ May be ignored and contract upheld.◦ Acceptance of repudiation cancels the contract.◦ Repudiation must be substantial enough to allow

cancellation eg. No perfromance vs partial performance.

Performance is prevented◦ Specific performance not possible. (Divisible and

indivisible performance)◦ Only option cancellation and damages.

Right to cancel my be kept in reserve and exercised within a reasonable time.

Right to cancelation my be waived by choosing to uphold the contract, claim specific performance, etc.

No formalities are required for cancellation other than communication of cancellation to the other party.

After cancellation restitution has to take place. Debts due and payable are not affected by cancellation.

Time, method and consequences of cancellation

Combination remedy combined with other remedies. Party placed in the position he would have been in had breach of

contract not taken place. Principles in the absence of a penalty clause:

◦ Loss due to breach of contrcat has to be proven by the plaintiff.◦ Only patrimonial loss can be recovered.◦ Extent of damages must be proven.◦ “Once and for all - rule”.◦ Beneficial side effects must be taken into account.◦ Plaintiff must mitigate his losses.◦ Causal link between breach and damages must be proven.◦ Damages calculated depends on the nature of the interest that the

innocent party wishes to recoup: Expectation interest : Compare position due to breach

with position he would have been in. Restitutionary interest: Contract cancelled and

complete restitution claimed. Reliance interest: Position party would have been in had

he not incurred expenses with the view of successfully executing the contract.

Damages

General damages ◦ Damages and losses that flow naturally and

generally from breach of contract. Special damages

◦ Damages and losses that flow naturally and generally from direct damages caused by breach of contract.

◦ Can only be claimed if parties agreed to it. Penalty clauses

◦ Party acting contrary to contractual obligations are liable to pay the penalty.

◦ Contains a trigger, stating when penalty will become due and enforceable.

◦ Penalty must also be described clear and certain. The amount could exceed the real damage and need not be proven.

Performance Contract Set-off Merger Impossibility of performance Rehabilitation after sequestration Prescription

Termination of the Contractual Relationship

Performance◦ Debtor / representative must perform to the creditor,

unless it is required in terms of the contract that the debtor performs personally.

◦ Complete, non-defective performance must be delivered as agreed upon in the contract. Partial performance does not extinguish his obligations.

◦ Place an time of performance can be specified by the parties. Day = until 24h00; During office hours = 17h00; pay within 14 days = first day excluded; etc.

◦ Allocation of payments: Interest before capital Enforceable debts before unenforceable debts Certain debts before uncertain debts More onerous debt before less onerous debt Older debt before newer debt Equal debts = proportionally

Contract - New contract terminates the old contract.◦ Release:

Bilateral act between parties. Creditor offers to release debtor of his contractual duties.

◦ Compromise or settlement Settlement of an existing dispute between the parties. Contract is terminated and substituted by the new

settlement contract. Original contract does not have to be valid.

◦ Novation A second valid contract is concluded with the intention of

terminating and substituting the existing contract. Original contract must be valid.

Set-off◦ Requirements:

Debts of the same nature and equal in size. Debts due and payable. Liquidated (amount certain) debts. Debts between same persons in same capacities.

Merger◦ The same person becomes the debtor and creditor of the

same debt. Impossibility of performance

◦ Impossibility without fault of the parties.◦ Assuming the risk of supervening impossibility will not

relieve contractual duties. Rehabilitation after sequestration

◦ Discharges all debts which has arisen before sequestration, but does not release a surety from his obligations.

Prescription ◦ Extinctive prescriptions – legal obligations are

extinguished through lapse of time.◦ Acquisitive – ownership acquired after 30 years.◦ Weak prescription – debts become unenforceable after

time but can still form the basis of sett-off or suretyship, but cannot be ceded.

◦ Strong prescription – debt is extinguished after lapse of time. Sett-off, novation, cession, etc. becomes impossible.

Periods of prescription:◦ 30 years

Debt secured by a mortage bond. Judgement debt. Tax debt. Debt owed to the state regarding prospecting and

mining of minerals, etc.◦ 15 years

Debt to the state for money loan and sale/lease of land.

◦ 6 years Debt arising from a bill of exchange / negotiable

instrument. Debt arising from notarial contract.

◦ 3 years All other debt, unless otherwise provided.

Prescription commences on the day the debt becomes due or the creditor becomes aware of it.

Liablility acknowlegded◦ If debtor acknowledges his liability towards the creditor, prescription is

interrupted and starts to run anew from the day of acknowledgement. Service of process

◦ Prescription interrupted when creditor serves process upon the debtor. Prescription runs from date of acknowledgement or judgement becomes executable.

Delay of prescription (par. 9.148)

◦ Circumstances or impediments can delay prescription: Minor, etc. Debtor outside the Republic Debtor and creditor are partners and debt arose from partner

relationship Creditor is a juristic person and debtor member of it’s governing body Debt subject to dispute subjected to arbitration Debt claimed from deceased estate Debtor or creditor deceased and executor not appointed.

Commencement,interruption and delay of prescription

END