Remedies For Breach Of Contract

Remedies For Breach Of Contract

A contract can be defined as an agreement entered into between two or more Parties with the serious intention of creating a legal obligation and provides a legal framework which regulates same.  This provides peace of mind in that the law will uphold their agreement and enforce it should it become necessary.

When entering into a contract, obligations are created between the Parties i.e. a right to performance, coupled with a corresponding duty to perform.

These obligations are acknowledged when the Parties conclude the contract and may be legally enforced.  If a Party fails to honour these obligations, such a party would have committed a breach of contract, which will lead to the other Party suffering some form of damage.

These damages thus beg the question: 

What Remedies does the law provide a Party whose rights have not been upheld? In other words, what remedies are available when a contract is breached?

Several remedies are available to the “injured party” when the other Party has breached their obligations in terms of the contract.  The choice of remedy will be determined by factors such as the type of contract as well as the type of performance, actual damages suffered as well as whether performance is still possible, and these can be broadly divided into three large groups:

1      Remedies aimed at keeping the contract alive:

1 1          Exceptio non adimpleti contractus:

This remedy is in essence a self-help remedy for cases where performances of the Parties are reciprocal.  The innocent Party is entitled to simply refuse to perform until such time as the other Party has performed in full. However, proper performance cannot be refused where it is tendered late because the remedy is specifically aimed at forcing the other Party to perform.

This remedy is available to Parties when two requirements are met:

  • The two performances are reciprocal to one another;
  • The Party must be obliged to perform first, or at least simultaneously with the Party raising the exception.

This remedy thus aims at ensuring full performance by the innocent Party (keeping the contract intact).  Also note that if the innocent Party has received part-performance or defective performance and has started using the performance, even though he is aware of the defective performance, it is a strong indication that the Party has elected to keep the contract alive.

Such a Party who has elected to keep the contract intact cannot thereafter cancel the contract unless there is a further material breach of contract.  The Party is thus restricted to relying on the remedies aimed at fulfilment and damages. 

1 2          A claim for specific performance:

The general principle of a contract is that the Parties are obliged to fulfil their contractual undertakings.  In other words, each Party is, in principle, entitled to insist upon full and proper performance by the other Party subject to demonstrating a willingness to perform his or her own reciprocal obligations.  The primary remedy for breach of contract is thus specific performance – a claim requesting the Court to make an Order forcing the other Party to comply with his or her contractual obligation.

This remedy may be enforced as soon as the obligation to make the performance is due and enforceable; it is not necessary that the Debtor falls into mora (default).

A claim for specific performance may take any one of the following three forms:

  • A claim for the payment of a sum of money (ad pecuniam solvendam);
  • A claim for the performance of some positive act other than the payment of money (ad factum praestandum) or
  • A claim to enforce a negative obligation (that the other Party should refrain from doing something).

1 3          Interdict:

The innocent Party may apply for a Court Order interdicting imminent and anticipated breach.

2      Remedies aimed at cancelling the agreement:

Cancellation of the contract is an extraordinary remedy that is available to the innocent Party only in exceptional circumstances.  This is because it entails the drastic step of bringing the transaction to an abrupt and premature end, contrary to the original intentions of the Parties.  In the absence of a lex commissoria (provision in the contract regulating the cancellation) a Party will be entitled to cancel the contract for breach only if the breach is sufficiently serious or material.

Whether a particular breach is a material breach or sufficiently serious to justify cancellation will depend upon the particular circumstances and the type of breach in question.

Once a breach that justifies cancellation has occurred, the innocent Party is faced with an election; either to affirm, or to cancel the contract.    An election, once made, is final and irrevocable unless the other Party consents to its reversal.  Thus, if the innocent Party elects to uphold the contract, he or she cannot thereafter change their minds and cancel the contract unless the other Party commits a new breach justifying cancellation. 

3      Remedies aimed at compensating the innocent Party for any loss or damages suffered as a result of the breach of contract:

Whether the innocent Party elects to cancel or to claim specific performance of the contract, he or she is entitled to claim damages as compensation for any financial loss that might have been suffered as a result of the breach.

This claim is probably the single most important remedy for breach of contract and is based on the fundamental rule that the innocent Party should be placed in the position he or she would have been had the contract been properly performed.

In other words, the aim is thus to place the innocent Party in his or her fulfilment position – that is, the position he or she would have occupied had there been no breach.

The application of the fundamental rule to a given set of facts entails a comparison between two financial positions of the Plaintiff namely:  the actual position in which the Plaintiff now finds him or herself subsequent to the breach, and the hypothetical position he or she would have occupied had there been no breach.

A Plaintiff who wishes to claim damages for breach of contract must prove the following:

  • A breach of contract has been committed by the Defendant;
  • The Plaintiff has suffered financial or patrimonial loss;
  • There is a factual causal link between the breach and the loss, and
  • As a matter of legal causation, the loss is not too remote to consequence the breach.

To conclude, full performance is the natural cause of termination of an agreement.  Breach of contract thus interferes with proper fulfilment and the primary remedy for breach is therefore aimed at fulfilment.  The innocent Party thus has several remedies to counteract a breach of contract.

 

Roüa Pienaar

Candidate Attorney