Download - 7 Breach of Contract and Remedies
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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.