Theme 3 : Remedies for Breach of Contract

1. Theme 3 : Remedies for Breach of Contract

2. Remedies • 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; lexcommissoria (cancellation clause); penalty clause. • Agreed remedies usually exclude common law remedies unless the contract provides for it.

3. Claims for fulfilment of contract • 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 adempleticontractus. • 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.

4. 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.

5. Cancellation • Lexcommissoria • 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.

6. 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 perfromancevs partial performance. • Performance is prevented • Specific performance not possible. (Divisible and indivisible performance) • Only option cancellation and damages.

7. Time, method and consequences of cancellation • 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.

8. Damages • 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.

9. 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.

10. Termination of the Contractual Relationship • Performance • Contract • Set-off • Merger • Impossibility of performance • Rehabilitation after sequestration • Prescription

11. 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

12. 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.

13. 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.

14. 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.

15. Commencement,interruption and delay of prescription • Prescription commences on the day the debt becomes due or the creditor becomes aware of it. • Liablilityacknowlegded • 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.

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