Contract Law - Part Two

In our previous article we discussed what a contract is, where the concept of a contract originates from and what requirements need to be met in order to have a valid and enforceable contract. We even discussed what a boilerplate clause is. 

And that’s all well and good.

But it turns out, there are other aspects we need to discuss. For instance, what are suspensive conditions? What happens if there is a breach of contract? Are there any remedies available to an aggrieved party? What about defences? Is there ever a reason to not perform?

Part Two of this Contract Law series deals with these pertinent aspects of contract law. Aspects that every person entering into a contract must be aware of.

Let’s dive in, shall we?

What is a suspensive condition?

A suspensive condition essentially holds a contract in abeyance until such time as a specific condition has been met. 

Put differently – a contract will not come into being (and will therefore not be binding on the parties) until such time as a specified condition has been fulfilled. Of course, the condition suspending the contract must be possible and must be legal. 

A party to a contract can challenge contractual claims by alleging that the suspensive condition was never met. 

If the suspensive condition is waived by the party for whom the condition was included – and the requirements of a valid contract have been satisfied – the contract will come into existence as if the suspensive condition had never been included in the first place. 

What happens if there is breach of contract?

It really is as straight forward as this – all the parties to a contract undertake to perform in good faith and to the best of their abilities to ensure their obligations arising from the contract are fulfilled. This includes ensuring that all the formalities for a valid contract are adhered to and that suspensive conditions (if applicable) are satisfied.

Each party to a contract therefore acknowledges that certain responsibilities or commitments (towards the other party) arise from entering into the contract. If one of the parties fails to honour their commitment, they will be in breach of the contract. As a result of the breach, the aggrieved/innocent party will, most likely, have suffered damages resulting in certain remedies becoming available to them. 

These remedies can arise either due to certain terms being inserted into the contract which regulates the remedies, or alternatively, will naturally arise due to operation of the law (ex lege). In this instance, the parties don’t have to specifically agree on the remedies as they will immediately apply. For example, a warranty against latent defects. The warranty will determine the remedies available to the aggrieved/innocent party. 

The aggrieved/innocent party has an election of remedies – they have choice. They can either enforce the contract by way of a claim for specific performance, cancel the contract or claim contractual damages if the requirements of damages are satisfied (University of Pretoria).

Types of breach

Let’s remember that a breach of contract refers to instances where a party to a contract fails to, (without any lawful reason) perform timeously in respect of the terms of the contract to which he/she is a party. And this breach may arise because of the failure to do something (omission) or doing something unsatisfactorily (commission).

The omission and commission (as described above) may be classified in one of 3 ways – 

1. Negative malperformance (mora debitoris) – is concerned with the time of the performance. In other words, one of the parties failed to perform (as set out in the contract) at the specified time. Alternatively, they did perform, but the aggrieved/innocent party rejected the performance because they had a valid and lawful reason for doing so. 
2. ‍Positive malperformance – is concerned with inadequate or impaired performance. In other words, it deals with performance that did not meet the obligations as set out in the contract. ‍
3. Anticipatory breach - entails both:‍
4. Repudiation where a party demonstrates, without lawful reasoning an unequivocal intention to no longer be bound by the contract.‍
5. Prevention of performance where the fault of one of the parties renders it impossible for the other party to perform.

It’s important to note that various forms of breach may essentially overlap. An example of this would be where there is delayed performance by one party (which is mora debitoris) along with the refusal to effect performance (which is repudiation). In such circumstances, the aggrieved/innocent party can institute an action related to either repudiation or mora debitoris on the basis that such constitutes a form of breach of contract (studuco).

‍Remedies available when there is a breach

Where breach of contract occurs, the aggrieved/innocent party will be entitled to certain contractual remedies available either by operation of law (ex lege) or because of remedies arising from the terms and conditions as set out in the contract.  

The remedies available for breach are designed to either fulfil a contract, to terminate the contractual relationship or to compensate the innocent/aggrieved party for any damages or loss suffered. They include -

1. Claim for specific performance - this is a natural remedy available to the aggrieved/innocent party, with the main objective being the fulfilment of the contract. This remedy is used by an innocent/aggrieved party who is trying to bring about the anticipated results which were agreed to. The claim for specific performance is therefore aimed at forcing the guilty party, by a court order to deliver performance as agreed upon by the contractual parties in their original agreement. The performance may be claimed once the duty to perform is due and enforceable. The innocent party doesn’t have to wait until the debtor has fallen into default (or mora) before claiming specific performance.‍
2. Acceleration clause - here any outstanding performance will immediately become due (and payable if a debt is involved). The main aim or purpose of this clause is to bring about immediate and specific performance. The party in whose favour this clause applies has the discretion to decide whether or not to use such clause.‍
3. Interdict – if a breach has not yet occurred, but the innocent/aggrieved party believes it may be imminent, they may apply to court to prevent the would-be defaulting/guilty party from breaching the contract. ‍
4. Cancellation - is an extraordinary remedy that may only be used where a material (serious) breach has been committed. One party may gain the right to cancellation by delivering a notice of rescission to the guilty party providing them with an opportunity to render performance within a reasonable time i.e. “make good” of the situation. Such notice must specify that the innocent/aggrieved party intends to terminate the agreement if the guilty/defaulting party doesn’t perform within the allotted time. The innocent/aggrieved party may carry out the cancellation without the help or cooperation of the court. If the contract is cancelled, the obligations of the contract are also cancelled and the parties to the contract no longer have to deliver performance. This also means that the contractual parties must restore performance received by them i.e. everyone is placed back in the position they were in before contracting. ‍
5. Claim for damages - damages may be defined as the amount of money paid by the guilty/defaulting party for financial loss suffered by the innocent/aggrieved party because of the breach of contract. The claim for damages is aimed at placing the innocent/aggrieved party in the position they would have been in had the breach of contract not occurred. The innocent/aggrieved party may only claim damages if he/she can prove that he/she has suffered a financial loss as a result of the breach caused by the guilty/defaulting party (University of Pretoria).

Remember - to know which remedies to pursue, you need to establish what type of breach has occurred. The choice of remedy will often be determined by factors such as the contract type, performance involved, whether performance is still possible and if damages or loss has occurred, and in this instance - what the factual amount of the loss or damage is.  

Are there any defences to a breach of contract? 

Sure, there may be some instances where non-performance of an obligation is not due to the fault of any of the parties. It happens. Not often. But it happens. 

In other instances, a guilty/defaulting party may rely on the absence of one of the requirements of a valid contract to avoid enforcement of the terms of the contract (or the remedies arising from the breach thereof). 

One of the most common is to argue that there is, in fact, no valid contract. This could be based on the fact that the contract is not enforceable, that one of the contracting parties lacks contractual capacity i.e. they were intoxicated at the time, they have been officially declared to lack mental capacity or it has been discovered that one of the contracting parties was/is a minor at the time of entering into the contract and therefore lacks maturity to understand the seriousness of the consequences of entering into a contract.

One could also argue that the contract is illegal. Now this may be a little nuanced because illegality does not have to refer to the act or purpose of the contract being illegal. Illegality could also refer to the contract contravening a statute.

One could also argue that while the contract was valid i.e. all the formal requirements have been met, one of the parties to the contract acted improperly to get the other party to enter into the contract.  Examples of this type of scenario include misrepresentation, duress and even fraud.

There are two further nuances to take note of here – 

1. Exceptio non adimpleti contractus – here the one withholding performance would actually be the innocent party. It seems a little odd but essentially the innocent/aggrieved party would be entitled to withhold performance in order to force the guilty/defaulting party to perform. Properly and according to what is reasonably expected from that party arising out of the contract.
2. Prescription – South African law recognises a time limitation placed on when you can enforce a claim over a debt. The prescription period here is 3 years from the day the debt arose. As an example, a claim for damages, cannot be enforced 3 years after the date the damage was suffered.

Contract Law is complicated. It’s often the intention of the parties to the contract that becomes paramount when attending to the interpretation of a particular clause (especially when litigation is on the cards).

We have therefore tried, our outmost, to set out some of the intricacies of what contract law entails. But there is so much more.

We therefore advise you – before negotiating any terms of a contract – to seek the guidance and support of suitably qualified attorneys, like ourselves at NVDB attorneys, who would be more than happy to guide you on the best possible course of action. 

Whether you require advice related to the initial drafting of a contract, the review of a contract to ensure it is legal, enforceable and “right for you”, or advice relating to what to do if you have suffered loss due to a breach of a contract by a contracting party.

Please don’t hesitate in contacting us. We will be sure to advise you the best way forward. Remember, we are a law firm that considers honesty to be core to our business. We are a law firm that will provide you with clear advice and smart strategies - always keeping your best interests at heart.