Pacta Sunt Servanda, is a common law principle that literally translated means “agreements must be kept”. In terms of this principle parties are required to perform all obligations imposed on them in terms of the agreement. I In the case of Barkhuizen v Napier the court held that public policy favours the utmost freedom of contract and that parties should respect and honour their contractual obligations. But what happens when such obligations are not honoured?
Most people have at some time in their lives entered into some form of an agreement, be it an employment contract, cell phone contract or lease agreement. However, people are often not aware of the consequences of a breach of contract, whether by themselves or by the other party.
The following are distinct ways in which a breach of contract may occur:
Mora debitoris is a breach whereby the debtor fails to perform, on time, in terms of the agreement.
Mora creditoris, is similar to that mentioned above, however in this instance the creditor fails to perform on time.
Positive malperformance is committed by the debtor. The debtor performs, but not according to the terms of the contract.
Repudiation can be committed by either party; it is also known as “anticipatory breach” and relates to the intention to no longer be bound by the contract.
Rendering performance impossible may also be committed by either party and occurs where one party makes performance impossible for the other party.
Remedies available following a breach of contract:
Breach of contract is a wrongful act that affords an innocent party with certain remedies. These remedies are aimed at either enforcing the contract or cancelling the contract. Cancellation of a contract is usually the last sought remedy as it is regarded as an extraordinary remedy which is only available in certain circumstances. A claim for specific performance is a remedy that aims to enforce the contract. In this instance the innocent party approaches the court for an order whereby the breaching party is forced to perform in terms of the agreement. A further remedy that is available is one of compensation. In terms hereof an innocent party will be compensated for any damages suffered as a result of the breach. While an innocent party is afforded these remedies, it is of utmost importance to remember that enforcement and cancellation of a contract are mutually exclusive and the innocent party may only rely on one of these remedies. Once a decision to enforce has been made, a party can no longer cancel the agreement.
Cancellation of a contract:
As mentioned above cancellation is an extraordinary remedy and only available in certain circumstances. Parties may include a cancellation/termination clause in their contract, which allows a party to cancel a contract by giving written notice to the other party within a specified time. It is important to note, however that where a contract contains a “termination for convenience clause” it will lack legal standing within a court, if the reason for the cancellation is not sufficient and is against public policy.
Where a contract does not make provision for a cancellation clause a party subject to a breach may cancel the contract if the breach is material. In such an instance a breaching party is to be served with a notice setting out the alleged breach, and demanding rectification thereof within a reasonable time. If the breaching party fails to do so, the innocent party may elect to cancel the contract. In doing so, the breaching party is to be provided with notice of the cancellation and once the breaching party has received the notice, the cancellation will take effect. If an innocent party elects to cancel the contract, the decision is final and cannot be reversed. While the effect of cancellation of a contract, cancels obligations, it also gives rise to new obligations, mainly that of restitution which requires both parties to restore any performance that has been received., The aim of restitution is to restore the parties into the position they were respectively in prior to the conclusion of the contract.
Where a party cancels a contract, the innocent party is in addition entitled to claim damages as compensation for any financial loss it t may have suffered as a result of the breach. It is advisable that a party subject to a breach of contract always consult with a legal practitioner before cancelling a contract to ensure that he or she understands the implications of such a cancellation as an untimely cancellation can in itself be grounds for a damages claim by the other party.
Roxanne Paans is a Candidate Attorney in the litigation department at Barnard Incorporated in Centurion.
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