LU5 THEME 2 LO7 – Lecture Notes

LO7: Apply the different remedies available to the innocent party commenting
on the effectiveness of each of the remedies and their implications for both the
breaching party and the innocent party
You must be able answer the following important questions.
What is the normal way for a contact to come to an end?
Does a contract always come to an end naturally?
Name the different type of Breach of Contract.
Remedies can be divided into 2 main categories. Name them.
Name the different types of remedies for breach of contract?
What type of remedy is exceptio non adimpleti contractus?
What is the purpose of the remedy exceptio non adimpleti contractus?
What is the scope of the remedy exceptio non adimpleti contractus?
Does the exceptio non adimpleti contractus remedy apply to every type of contract?
How do we determine if we have contact with reciprocal, obligations?
What is the general rule when dealing with performances of contracts with reciprocal
obligations?
When will this general rule not apply? / When do we use the Exceptio non adimpleti
contractus?
When else will the general rule above not apply?
Are the parties free to change the sequence of performances of reciprocal
obligations dictated by naturalia?
Can you use the Exceptio if the performances are not yet due and enforceable?
Can you use the Exceptio if the performances relate to a credit sale?
Can I still use the exceptio non adimpleti contractus remedy in cases where there is
breach due to Incomplete performance?
When can the exceptio non adimpleti contractus not be used?
What is the remedy of specific performance?
What forms can the remedy of specific performance take?
What are the requirements for the remedy of specific performance?
Does the innocent party to a contract have an absolute right to the performance
through this remedy?
How do you enforce a court order granting the innocent party the specific
performance?
What is the remedy of cancellation?
When can the innocent party cancel the contract?
How do you cancel a contract?
What are the legal effects of cancellation?
What is the remedy of restitution?
What is damages?
What is the nature and purpose of payment of damages?
What are the requirements for a damages claim?

ANSWERS
Chp. 13
Par: 13.3 to 13.5
Pg:327-352

What is the normal way for a contact to come to an end?

- Every contract is aimed at full performance by the parties.
- When full performance has been rendered by both parties.
- This brings the contract to its natural end.
- The natural way for a contract to terminate is therefore by full performance on
both sides or in accordance with the provisions regulating the life of the
agreement.

Does a contract always come to an end naturally?

- No.
- Breach of the contract by one of the parties may interfere with its natural life
and result in its early termination.

Name the different type of Breach of Contract.

1. More Debitoris
2. More Creditoris
3. Positive Mal-performance
4. Repudiation
5. Prevention of performance
Remedies can be divide into 2 main categories. Name them.
1. Remedies aimed at keeping the contract alive
2. Remedies aimed at bringing to contract to an end

Name the different types of remedies for breach of contract?

There are three types of remedy available to an innocent party after a breach of
contract has taken place.
1. Remedies aimed at keeping the contract alive. These remedies include:

a. The exceptio non adimpleti contractus

b. A claim for specific performance,
c. An interdict

2. Remedies aiming at cancelling the agreement. In certain circumstances, the

innocent party is entitled to the remedy of cancellation, in terms of which the
agreement is summarily terminated

3. Remedies aimed at compensating the innocent party for loss or harm caused
by the breach. These remedies can be claimed in addition to any of the
remedies mentioned above and include:

a. A claim for contractual damages or delictual damages

b. A claim for interest on amounts Contract or delict

EXCEPTIO NON ADIMPLETI COMTRACTUS

What type of remedy is exceptio non adimpleti contractus?
- The exceptio non adimpleti contractus is a defence

- that can be raised in the case of a reciprocal contract,

- where the performances due on either side

- are promised in exchange for one another.

What is the purpose of the remedy exceptio non adimpleti contractus?

It is a remedy that permits a party to:
- withhold his or her own performance, and

- to ward off a claim for such performance,

- until such time as the other party has performed

In a sense, therefore, the exceptio is aimed at securing performance from the other
party in certain circumstances
What is the scope of the remedy exceptio non adimpleti contractus?
- The right to withhold performance in terms of the principle of reciprocity is a
temporary defense

- It is aimed at obtaining full and proper performance before being obliged to

render counter-performance.

- The party relying on this right must therefore allow the party in breach an
opportunity to remedy the defect and perform.

Does the exceptio non adimpleti contractus remedy apply to every type of contract?
No.
1. The type contract must create reciprocity of obligations aimed at
accomplishing an exchange of performances.

How do we determine if we have contact with reciprocal, obligations?

- Whether obligations are reciprocal or not depends upon the express or tacit
intention of the parties, as reflected in the terms of the contract.

What is the general rule when dealing with performances of contracts with reciprocal
obligations?
- The general rule is that parties must perform SIMULTANEOUSLY unless

a. the parties have agreed otherwise, or

b. the naturalia of the contract in question dictate otherwise.

When will this general rule not apply? / When do we use the Exceptio non adimpleti
contractus?

1. When the other party has a duty to perform first by agreement or by naturalia

When else will the general rule above not apply?

When the naturalia of that type of contract dictates the sequence of performance
who must perform fist
Examples of these type of contracts:

1. Employment: The employee must perform first. The

employer is only obliged to pay the salary or wages at the end
 of the period.

2. Building contracts: the building contractor must perform first.

Are the parties free to change the sequence of performances of reciprocal

obligations dictated by naturalia?
Yes.
- The parties are however free to change the sequence of performance as
determined by the naturalia in their agreement.

Can you use the Exceptio if the performances are not yet due and enforceable?
No.
- If, at the time of action, the plaintiff’s duty to perform is not yet due and
enforceable, the defendant cannot raise the exceptio non adimpleti contractus
against the plaintiff

Can you use the Exceptio if the performances relate to a credit sale?
No.
- In the case of a credit sale where payment by the buyer has been deferred to
some future date, the exceptio cannot be raised against the buyer’s claim for
delivery of the thing which he or she has bought, since payment is not yet
due.

Can I still use the exceptio non adimpleti contractus remedy in cases where there is
breach due to Incomplete performance?
- A defendant can rely on the exceptio non adimpleti contractus not only where:
-
a. the other party has failed to perform all (mora debitoris),

b. but also in cases where the other party has failed to perform properly, or in
full (positive malperformance).

When can the exceptio non adimpleti contractus not be used?

1. If failure to perform excused by the law
2. Where the risk of defective performance lies with the person wishing to raise
the exception
3. It cannot be used if the party who chooses to cancel the contract

SPECIFIC PERFORMANCE:
What is the remedy of specific performance?
 - An order of specific performance is an order of court compelling a contracting
party to make the very performance that the party agreed to make, in terms of
the contract.
- It is the primary remedy aimed at completion of the contract

What forms can the remedy of specific performance take?

A claim for specific performance may take any one of the following three forms:
a. A claim for the payment of a sum of money (ad pecuniam solvendam);
b. A claim for performance of some positive act other than the payment of
money;
c. A claim to enforce negative obligation (that the other party should refrain from
doing something).

What are the requirements for the remedy of specific performance?

The following two requirements for a claim of specific performance are
1. The plaintiff must have performed or be ready to carry out his or her own
obligations – that is, must tender performance in terms of the principle of
reciprocity; and

2. The defendant must be in a position to perform – that is, performance must be

objectively and subjectively possible.

3. A third must be added that the order of specific performance must not be
against public policy.

Does the innocent party to a contract have a absolute right to the performance
through this remedy?
- No.
- The courts have a general equitable discretion to refuse specific performance
in appropriate cases.
- Exmaple:

a. Where it would cause undue hardship

b. Where the performance is very personal such as delivering personal services
(sports contracts)

How do you enforce a court order grant the innocent party the specific performance?
- If a debtor fails to comply with an order of specific performance, there are
various ways of enforcing the order.
- Where the order is to pay a sum of money, it can be enforced by:

a. through the issue of writ of execution,

b. followed by the attachment and sale of property of the debtor.
 - Where the order is to perform some act, or refrain from performing some act:
THEN:

a. a deliberate failure to comply with the order constitutes the offence of

contempt of court,
b. for which the debtor can be committed to prison.

- The court may directly enforce the order by instructing a third party (usually an
official) to make performance to the creditor

CANCELLATION
What is the remedy of cancellation?
- Is an extraordinary remedy that is available to the innocent party only in
exceptional circumstances.
- Is aimed at bringing the contract to an end
- The innocent part is not forced to cancel. He can elect same.

When can the innocent party cancel the contract?

- When the parties have provided so in the contract by a provision called a
cancellation clause
- If no Cancellation clause then can only cancel if the breach is sufficiently
serious, or material.

How do you cancel a contract?

1. The innocent party must make an election to cancel within a reasonable
period of time
2. An election, once made, is final and irrevocable, unless the other party
consents to its reversal.
3. The cancellation takes effect only when it has been communicated to the
party in breach by notice
4. There are no formalities required unless the contract itself or a specific statute
stipulates otherwise.
5. The notice of cancellation will usually state the grounds on which the contract
is being cancelled.

What are the legal effects of cancellation?

- The primary obligations of the parties are extinguished.
- If the obligation is invisible, it is extinguished in its entirety.
- If the obligation is divisible, only those parts of the obligation that still need to
be performed are terminated; the rest of the contract remains intact.

RESTITUTION
What is the remedy of restitution?
- Stems from a decision to cancel the contract
- Cancellation not only extinguishes obligations; it creates new obligations to
restore performances
- The duty on both parties to restore whatever performance has been received
by that party is called restitution.

DAMAGES
What is damages?
- This is the payment of a monetary amount to compensate the innocent party
for the breach of contract

What is the nature and purpose of payment of damages?

- The aim is to place the innocent party in his or her fulfilment position – that is,
position he or she would have occupied had there been no breach.

How do we determine the amount of damages?

- Damages are measured according to the plaintiffs positive or expectation
interest.
- This entails a comparison between two financial positions or the plaintiff or
(innocent party)

a. the actual position in which the plaintiff now finds him or herself
subsequent to the breach, and
b. hypothetical position he or she would have occupied had there been no
breach (difference theory).

- Positive interest, aims to place the plaintiff in the position he or she would
have occupied had the contract been properly and timeously fulfilled;

What are the requirements for a damages claim?

A plaintiff who wishes to claim damages for breach of contract must prove the
following:
1.A breach of contract has been committed by the defendant;
2.The plaintiff has suffered financial or patrimonial loss;
3.There is a factual casual link between the breach and the loss; and
4.As a matter of legal causation, the loss is not too remote a consequence of
the breach.
LU5 THEME 2 LO11 – Lecture Notes
LO10: Discuss penalty clauses as a remedy for breach of contract;
You must be able answer the following important questions.
What is the normal understanding of what a penalty clause is?
Why do some contracts contain Penalty clauses?
Name the most commons forms of Penalty clauses
What is Pre-estimate of damages clause?
What is the purpose of the Pre-estimate of damages clause?
What is the traditional Penalty clause?
What is the purpose Penalty clause?
What is Forfeiture clauses?
Are Penalty type clauses governed by statute?
Are penalty clauses enforceable in South Africa as per the Conventional Penalties
Act?
What is a penalty clause in terms of the Act?
What are the requirements for the Act to apply?
What are the requirements for a clause to amount to a penalty stipulation?
Can the amount of the penalty be reduced by the court? If so when?
What is the meaning of prejudice and what facts are taken into account to determine
this?
Are there any limitations provided by the Act?

ANSWERS
CHP 13 Par 13.5.3 Pg 353 to 356
What is the normal understanding of what a penalty clause is?
- It is a clause in a stating that if one party to a contract breaches it, that party
will give something to the other party.

- This giving something is compensation for the breach committed by the other
party

- The compensation is normally money

- The amount is normally determined or determinable within the clause itself.

Why do some contracts contain Penalty clauses?

The reason why some contracts contain Penalty clauses are:
1. It alleviates the practical difficulties associated with a claim for damages

2. It induces strict compliance with the terms of the contract

3. It aims to provide quick and easily provable relief in the event of breach of
contract.

Name the most commons forms of Penalty type clauses

Such clauses usually take one of the following forms:
1. Pre-estimate of damages.

2. Penalty clauses.

3. Forfeiture clauses.

What is Pre-estimate of damages clause?

- A contractual clause were the parties stipulate that in the event of breach the
guilty party will pay a pre-determined sum of money to the innocent party (or a sum
that is easily determinable).

What is the purpose of the Pre-estimate of damages clause?

- To overcome the difficulty of establishing the quantum of loss that results from
a breach.

- To provide a rough estimate of the damages that the innocent party is likely to
suffer in consequence of the breach.

What is the traditional Penalty clause?

- This is a contractual clause that provides for the payment of a penalty in the
event of breach.

What is the purpose of the Penalty clause?

- To deter breaches of contract
- To encourage due performance
- To provide a strong incentive to ensure that the parties comply with their
contractual obligations.

What is a Forfeiture clause?

- A contractual clauses providing that in the event of cancellation for breach the
party in breach forfeits the right to restitution of any performance already made

- The breaching party forfeits the right to the return of benefits already
conferred on the innocent party under the contract (for example, a deposit paid
under a lease agreement).

Are Penalty type clauses governed by statute?

- Yes.
- The Conventional Penalties Act
Are penalty clauses enforceable in South Africa as per the Conventional Penalties
Act?
- Yes

- The Conventional Penalties Act of 1962 permits these clauses

- They are enforceable in a court

- BUT: The court is in fact obliged to investigate the relationship between the
penalty and the prejudice you suffer and see whether the penalty is out of proportion
to the damages you suffer (which has to be proved by the person hit by the penalty).

What is a penalty clause in terms of the Act?

The act refers to it a penalty clause as:
- a stipulation, hereinafter referred to as a penalty stipulation,
- whereby it is provided that any person shall,
- in respect of an act or omission in conflict with a contractual obligation,
- be liable to pay a sum of money or to deliver or perform anything for the
benefit of any other person,
- hereinafter referred to as a creditor,
- either by way of a penalty or as liquidated damages,

What are the requirements for the Act to apply?

- The clause must amount to a penalty stipulation

What are the requirements for a clause to amount to a penalty stipulation?

1. The clause must operate in respect of a breach of contract

2. The clause must either impose an obligation on the defaulting party to 'pay a
sum of money or to deliver or perform anything for the benefit of any other person',
or must provide for a forfeiture of the type contemplated by s 4
3. The clause must have been intended to operate 'either by way of penalty or
as liquidated damages'

Can the amount of the penalty be reduced by the court? If so when?

- Yes.
- The court can reduce the amount of the penalty if it appears to the court that
the penalty is out of proportion to the prejudice suffered by the innocent party. (The
creditor)
- If so the court will only reduce 'to such extent as it may consider equitable in
the circumstances'
- The Onus is on the debtor to prove that the penalty is out of proportion to the
prejudice suffered by the creditor.

What is the meaning of ‘prejudice’ and what factors are taken into account to
determine the level of prejudice?
- Prejudice means the patrimonial damage caused by the breach of contract to
the creditor
- Factors to consider to determine the level of prejudice suffered by the creditor:

Van Staden v Central South African Lands and Mines

1. everything that can reasonably be considered to harm or hurt, or be
calculated to harm or hurt a creditor in his
a. property,
b. his person,
c. his reputation,
d. his work,
e. his activities,
f. his convenience,
g. his mind, or
h. in any way whatever interferes with his rightful interests as a result of the act
or omission of the debtor.
Are there any limitations provided by the Act?
- Yes.

1. You cannot claim specific performance and the penalty

2. You cannot claim to penalty and damages
3. In the case of positive mal-performance you cannot accept performance and
claim penalty for the rest unless contract allows this.

LO11: Apply the exceptio non adimpleti contractus to a set of facts.

You must be able answer the following important questions.
What type of remedy is this?
What is the purpose of the remedy?
What is the scope of the remedy?
Does this remedy apply to every type of contract?
How do we determine if we have contact with reciprocal, obligations?
What is the general rule when dealing with performances of contracts with reciprocal
obligations?
When will this general rule not apply? / When do we use the Exceptio non adimpleti
contractus?
When else will the general rule not apply?
Are the parties free to change the sequence of performances of reciprocal
obligations dictated by naturalia?
Can you use the Exceptio if the performances are not yet due and enforceable?
Can you use the Exceptio if the performances relate to a credit sale?
Can I still use the remedy in cases where there is breach due to Incomplete
performance?
When can the Exceptio not be used?
Factual Scenario:
ANSWERS
CHP 13, PAR 13.3.1, PG 328 - 333

What type of remedy is this?

- The exceptio non adimpleti contractus is a defence

- that can be raised in the case of a reciprocal contract,

- where the performances due on either side

- are promised in exchange for one another.

What is the purpose of the remedy?

It is a remedy that permits a party to:
- withhold his or her own performance, and

- to ward off a claim for such performance,

- until such time as the other party has performed

In a sense, therefore, the exceptio is aimed at securing performance from the other
party in certain circumstances
What is the scope of the remedy?
- The right to withhold performance in terms of the principle of reciprocity is a
temporary defense

- It is aimed at obtaining full and proper performance before being obliged to

render counter-performance.

- The party relying on this right must therefore allow the party in breach an
opportunity to remedy the defect and perform.
Does this remedy apply to every type of contract?
No.
1. The type contract must create reciprocity of obligations aimed at
accomplishing an exchange of performances.

How do we determine if we have contact with reciprocal, obligations?

- Whether obligations are reciprocal or not depends upon the express or tacit
intention of the parties, as reflected in the terms of the contract.

What is the general rule when dealing with performances of contracts with reciprocal
obligations?
- The general rule is that parties must perform SIMULTANEOUSLY unless

a. the parties have agreed otherwise, or

b. the naturalia of the contract in question dictate otherwise.

When will this general rule not apply? / When do we use the Exceptio non adimpleti
contractus?

1. When the other party has a duty to perform first by agreement or by naturalia

When else will the general rule not apply?

When the naturalia of that type of contract dictates the sequence of performance
who must perform fist
Examples of these type of contracts:

1. Employment: The employee must perform first. The employer is only obliged
to pay the salary or wages at the end of the period.

2. Building contracts: the building contractor must perform first.

Are the parties free to change the sequence of performances of reciprocal
obligations dictated by naturalia?
Yes.
- The parties are however free to change the sequence of performance as
determined by the naturalia in their agreement.

Can you use the Exceptio if the performances are not yet due and enforceable?
No.
- If, at the time of action, the plaintiff’s duty to perform is not yet due and
enforceable, the defendant cannot raise the exceptio non adimpleti contractus
against the plaintiff

Can you use the Exceptio if the performances relate to a credit sale?
No.
- In the case of a credit sale where payment by the buyer has been deferred to
some future date, the exceptio cannot be raised against the buyer’s claim for delivery
of the thing which he or she has bought, since payment is not yet due.

Can I still use the remedy in cases where there is breach due to Incomplete
performance?
- A defendant can rely on the exceptio non adimpleti contractus not only where:
-
a. the other party has failed to perform all (mora debitoris),

b. but also in cases where the other party has failed to perform properly, or in full
(positive malperformance).

When can the Exceptio not be used?

1. If failure to perform excused by the law
2. Where the risk of defective performance lies with the person wishing to raise
the exception
3. It cannot be used if the party who chooses to cancel the contract