Breach of Contract and Remedies

Breach of Contract and Remedies Basic Principles: pp107 - 119

Breach of contract • Breach of contract may take 5 forms: • Mora debitoris • Mora creditoris • Repudiation • Positive malperformance • Prevention of performance

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: • Performance due and possible • Date for performance stipulated in contract (gives rise to mora ex re)

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. • Obligation must be enforceable • Creditor must have valid right to performance and debtor must have no defence for non-performance.

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: • Performance is due • If no time for performance has been agreed upon, the creditor must be given reasonable notice to accept performance.

Mora creditoris contd… • 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.

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)

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”

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.

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.

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”.

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)

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.

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.

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

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)

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.

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)

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)

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.).

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)

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.

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)

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

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

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)

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.

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

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.

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.

Breach of Contract and Remedies