LCN301 Exam Notes PDF

LCN301 EXAMS NOTES 1. REQUIREMENTS FOR A VALID CONTRACT In order to be recognised as a valid and binding contract, the agreement must satisfy the following requirements: consensus – the minds of the parties must meet (or at least appear to meet) on all material aspects of their ag...

LCN301 EXAMS NOTES 1. REQUIREMENTS FOR A VALID CONTRACT In order to be recognised as a valid and binding contract, the agreement must satisfy the following requirements: consensus – the minds of the parties must meet (or at least appear to meet) on all material aspects of their agreement; capacity – the parties must have the necessary capacity to contract; formalities – where the agreement is required, unusually, to be in a certain form (for example, in writing and signed), these formalities must be observed; legality – the agreement must be lawful – that is, not prohibited by statute or common law; possibility – the obligations undertaken must be capable of performance when the agreement is entered into; and certainty – the agreement must have a definite or determinable content, so that the obligations can be ascertained and enforced. 2. CORNERSTONES OF A CONTRACT AND FUNDAMENTAL CONCEPT OF CONTRACT Consensus and reliance are fundamental concepts in the modern law of contract. Other fundamental ideas include the following: freedom of contract – the idea that people are free to decide whether, with whom and on what terms to contract (party autonomy); sanctity of contract – the idea that contracts freely and seriously entered into must be honoured and, if necessary, enforced by the courts (pacta sunt servanda); good faith – the idea that parties to a contract should behave honestly and fairly in their dealings with one another; and privity of contract – the idea that a contract creates rights and duties only for the parties to the agreement, and not for third persons. 3. REQUIREMENTS FOR A VALID OFFER; BLOOM V AMERICAN SWISS WATCH CO Promises of reward It is common for a reward to be offered to any person who performs a certain act (for example, restores a lost article to its owner, or furnishes information that would lead to the arrest of thieves). Following the reasoning of the English case of Carlill v Carbolic Smoke Ball Co, the Appellate Division held in Bloom v American Swiss Watch Co that the advertising of such a reward might be construed as an offer to the public. The first person who, consciously responding to the advertisement, performed the required act (for example, furnished information to the police) would have accepted the offer and thus become contractually entitled to the reward. Of course, for this result to follow, the offer would have to be sufficiently certain; many offers of reward are so vaguely worded as to be quite unenforceable (for example, when the content or amount of the reward is not specified). 4. UNDERSTANDING THE DIFFERENT THEORIES REGARDING OFFER AND ACCEPTANCE The question as to when and where acceptance takes effect is not unique to South Africa and has given rise to various theories in general contract literature The declaration theory states that the contract comes into being when and where the offeree expresses acceptance – that is, when he or she writes or signs the letter of acceptance. The expedition theory states that the contract comes into being when and where the offeree posts his or her letter of acceptance. The reception theory states that the agreement comes into being when the letter of acceptance reaches the address of the offeror. The information theory states that the agreement is concluded when and where the offeror learns or is informed of the acceptance, in other words, when the offeror reads the letter of acceptance. 5. THE MEANING OF THE LATIN PHASE ANIMUS CONTRAHENDI  animus contrahendi intention to contract is a serious intention to create legally enforceable obligations by contract 6. FORMALITIES PRESCRIBED BY LAW REGARDING ALIENATION OF LAND; SECTION 2(1) OF THE ALIENATION OF LAND ACT Section 2(1) of the Alienation of Land Act 14 provides: ‘No alienation of land after the commencement of this section shall … be of any force or effect unless it is contained in a deed of alienation signed by the parties thereto or by their agents acting on their written authority.’ Alienation includes sale, exchange and donation. The purpose of the legislator is to promote legal certainty regarding the authenticity and contents of contracts, thereby limiting litigation and preventing malpractices such as fraud. If someone signs on behalf of a party, he or she must be authorised in writing by that party to do so. This requirement does not apply where a company signs through one of its organs (for example, its managing director) as the organs are not agents of the company. A company can of course act through an agent, in which case the agent must be authorised in writing by the company. The provisions of section 2 do not apply to the sale of land by auction. However, where the purchase price is payable in more than two instalments over a period of more than one year (an instalment sale), the conditions of sale must be read in public immediately before the auction and the seller must provide the purchaser with a copy of the contract of sale immediately after the auction. 7. FORMALITIES PRESCRIBED BY LAW REGARDING ANTENUPTIAL CONTRACTS; SECTION 87(1) OF THE DEEDS REGISTRIES ACT An oral antenuptial contract is valid between the parties, but it has to be notarially executed and registered within three months to have effect against third parties.36 Notarial execution entails the conclusion of the contract in writing in the presence of a notary. The notary then signs the document, seals it and places a copy of it in his or her protocol (the place where he or she keeps all the documents he or she executes). 8. IMPROPER OBTAINED CONSENSUS AND ITS REQUIREMENTS: MISREPRESENTATION, DURESS & UNDUE INFLUENCE; MARESKY V MORKEL Error in corpore. This is a material mistake concerning the subject matter of the contract, or rather, the object of the performance. The most prominent example is where property is purchased and the parties have completely different properties in mind. For instance, in Maresky v Morkel, the respondent was under the impression that he was purchasing property at site A, because of an advertisement in a newspaper to that effect. The appellant’s agent failed to point out to him that the property was in fact situated at site B. The court found that the respondent’s mistake was in corpore, which vitiated his consent to the contract. 9. CONTRACTS AGAINST GOOD MORALS Although the distinction between agreements contrary to good morals and those against public policy is not valid, examples of the former that have enjoyed recognition are referred to briefly below. An exact definition of what is contrary to good morals (contra bonos mores) remains elusive. Nevertheless, good morals apparently refer to good behaviour in the community. In most of the instances where the court held that the performance was contrary to good morals, the conduct involved was immoral or sexually reprehensible, such as an agreement to pay a prostitute for sexual intercourse or the insurance of a brothel. However, conduct against good morals is not limited to instances of sexual immorality. The contract of a divorced father to trade his claim for the custody of his children to their detriment in return for financial reward has been regarded as contrary to good morals, and therefore void. A further example arose in Maseko v Maseko. The plaintiff, in order to protect her house against possible attachment by one of her creditors, agreed to marry the defendant, transfer the house into his name and thereafter get divorced. The defendant undertook to retransfer the house back to her after the threat of attachment was over. Although the plaintiff was never insolvent at any stage, the court held that  the agreement was illegal on three grounds. Firstly, it was morally reprehensible because it was designed to mislead existing or potential creditors as to the plaintiff’s worth, even if it had not yet served that purpose. Secondly, the agreement undermined the institution of marriage, and thirdly, it perpetrated fraud against the court in the divorce proceedings. Interestingly, the court remarked that the first reason was both immoral and against public policy, illustrating the close relationship between these concepts. 10. ILLEGAL CONTRACTS THAT ARE VOID Contracts may be void for illegality for a variety of reasons. While the overarching consideration is whether the contract is against the public interest, the specific illegality of a contract may be recognised at common law or in statute, or simply with reference to certain moral and constitutional values, or even perhaps with reference to the unfair manner in which a contract is enforced Specific examples of illegal contracts that are void (1) Contracts against good morals (2) Statutory illegality A contract that is aimed at circumventing the provisions of a statute prohibiting an act or contract (in fraudem legis) is also illegal and void. (3) Pacta de quota litis, champerty and maintenance A pactum de quota litis is an agreement in terms of which one party will provide funds for litigation by the other party in exchange for a share of the proceeds should the case be successful. Pacta de quota litis were regarded with disfavour in Roman and Roman-Dutch law because they were considered to encourage speculative litigation and thus amounted to an abuse of the legal process. Our law was influenced by English law and has even adopted some of its rules. English law distinguishes between two agreements, champertous and maintenance agreements, both of which are illegal and unenforceable. Champertous agreements in English law are similar to our common law pacta de quota litis and fall into the wider category of maintenance agreements. The latter are agreements in which one party improperly assists another party in litigation because the assisting party has no legitimate interest in the litigation and has no just cause or excuse to become involved in the litigation. There was a need to protect the system of civil justice as it was undeveloped and had no independent judiciary. (4) Unfair contracts The individual interests of the parties also play a role in determining whether a contract or clause is against public policy. The necessity of doing simple justice between parties and the need to address inequality of bargaining power between parties are both recognised as public interests. The unfairness or unreasonableness of a contract (or clause) towards one of the parties, as well as the interest that the other party seeks to protect with the contract (or clause), are taken into account. In Barkhuizen v Napier, the Constitutional Court stated as follows: “Notions of fairness, justice and equity, and reasonableness cannot be separated from public policy. Public policy takes into account the necessity to do simple justice between individuals. It is informed by the concept of Ubuntu” (5) Unfair enforcement of a contract The courts have recently accepted, in principle, that the unfair enforcement of a contract could be contrary to public policy. In Brisley v Drotsky, the Supreme Court of Appeal assumed, without further consideration, that the Sasfin principle138 could be extended to the enforcement of contractual terms. The parties had concluded an oral agreement contrary to a non-variation clause in a lease agreement. The lessee was late in payment of the rent in reliance on the oral agreement, but after accepting late payment for five months, the lessor cancelled the lease. The court found that the lessee’s case fell far short of the requirement of exceptional unfairness. The purpose of a non-variation clause was to avoid disputes over the existence of later oral agreements. The unfairness of the enforcement of the non-variation clause related to the existence of the oral agreement and thus the very purpose of this clause would be  defeated if the defence of unfairness was upheld. Furthermore, the mere fact that a number of late payments had been accepted did not leave the lessee worse off, as the contract could have been cancelled upon the first late payment. Clearly, no specific public interest was infringed. 11. CONSEQUENCES OF CONTRACTS WHICH ARE VOID DUE TO ILLEGALITY, EX TURPI RULE An illegal contract is void or invalid since one of the requirements for a valid contract is absent. An illegal contract creates no obligations and, consequently, it cannot be enforced. Neither party can institute action on the contract or claim performance from the other party because from an illegal cause no action arises (ex turpi causa non oritur actio – known as the ex turpi rule). So, for instance, if a party has suffered damage as a result of such a contract, he or she may not claim contractual damages from the other party. A court does not have the discretion to relax this rule and there are no exceptions to it. Performance by one or even both the parties to the illegal contract does not make the contract legal. 12. ABSENCE OF CONSENSUS – MISTAKE Mistakes in contract can be classified in different ways. Our law has evolved to categorise mistakes using a variety of distinctions and having a variety of consequences for contracting parties. It is important to understand these distinctions and classifications in order to identify the legal consequences correctly. (1) Unilateral, mutual and common mistake Apparently under the influence of English law, the courts tend to categorise mistakes as being unilatera l, mutual or common. It seems that a unilateral mistake occurs where only one party is mistaken, while the other party is aware of his or her mistake.8 Mutual mistake refers to the instance where both parties are mistaken about each other’s intention and are at cross-purposes. In other words, neither is aware of the other’s mistake A common mistake is one that is shared by the parties and differs fundamentally from unilateral or mutual mistake, because it does not lead to dissensus. Nonetheless, it results in a contract being void as it rests on a common underlying supposition that is later revealed to be incorrect. Since common error is not a true case of mistake (or rather dissensus. (2) Irrelevant and relevant mistake It is sometimes stated that a mistake does not negate consensus (and is therefore an irrelevant mistake) if it did not affect the mistaken party’s decision to enter into a contract. If the mistaken party would have entered into the contract despite a mistake that causes dissensus, it seems that the mistake may be regarded as irrelevant in so far as the question of agreement is concerned. In Khan v Naidoo, the appellant signed an agreement as surety for the debt of her son while under the impression (induced by the misrepresentation of her son) that she was consenting to something completely different. Although the appellant’s mistake would normally indicate an absence of consent on her part, the court held that she was bound to the suretyship because she would have signed the document even if she had been aware of its true nature.15 From this, it seems that a mistake must influence a party’s decision to conclude a contract in order to be relevant to the question of possible dissensus. (3) Material and non-material mistake The distinction between a material (operative or essential) mistake and a non-material mistake is crucial to the question of consensus. A material mistake is an error that vitiates or negates actual consensus between the parties. To this end, a material mistake must relate to or exclude an element of consensus. Conversely, a non- material mistake does not exclude actual agreement between the parties because it does not relate to an element of consensus. Consequently, in the case of a non- material mistake, a valid contract will still arise, although it may be voidable (rescindable) if consensus has been obtained in an improper manner by way of misrepresentation, duress, undue influence or commercial bribery (4) Mistake of law and mistake of fact  The distinction between a mistake of law and a mistake of fact crops up sporadically in case law but it has not yet been dealt with decisively by the highest courts. There is therefore uncertainty regarding the possible effect of a mistake of law in a contractual setting. On the one hand, this stems from certain common-law texts (dealing with an issue outside of contract law) that require an error of fact (error facti) before a plaintiff can successfully use an enrichment action (condictio indebiti); that is, if the plaintiff here relies on a mistake of law (error iuris), he or she will be unsuccessful. It seems doubtful that this distinction was applied in Roman or Roman-Dutch law to the issue of dissensus in contractual disputes, but in Kimberley Share Exchange Co v Hampson, the court held that a plea of mistake of law in relation to the entering into of an agreement ‘disclosed no legal ground of defence’. On the other hand, there are older cases in which the view was adopted that a party who was mistaken in law had essentially waived a right, and that such a waiver was invalid if the party was unaware of the right.75 However, more recently in Van Aartsen v Van Aartsen, the court appropriately held that a mistake of law that relates to motive does not exclude consensus ad idem between the parties. 13. IMPOSSIBILITY OF CONTRACTS The following are different types of impossibility 1. Subjective and objective impossibility To render performance impossible, it is not sufficient that a particular party cannot perform – that is, mere relative or subjective impossibility is not enough. The impossibility must be so serious that nobody can render the performance – that is, it must be absolute or objective impossibility. A typical example of mere subjective impossibility is where a party agrees to make a payment, but does not at the time of agreement have the money to do so, or agrees to deliver goods, but does not have them in supply. This ‘impossibility’ should not influence the creation of obligations. 2. Factual and practical impossibility  To state in theory that no obligation arises in the case of objective impossibility is a relatively simple matter. But to apply this test in practice can be difficult. Assume the parties enter into an agreement of sale of some plastic ducks, which they believe to be in a container on a freight ship. Unknown to them, the container fell into the sea the previous day. Unlike the case of the destroyed painting above, the subject matter of sale still exists at the time of the conclusion of the contract. Its performance is therefore not factually impossible. Through a major and costly feat of deep-sea exploration, the seller could still retrieve the ducks. But the cost of doing so would be utterly disproportionate to its value. In these circumstances, the law recognises that performance may be practically or economically impossible, and hence, that no obligation arises. However, the courts will not easily make such a determination. 3. Legal impossibility It is also a requirement for the creation of a valid contract that performance should be lawful or legal. This raises a rather difficult question. If, at the time of the conclusion of the contract, it is legally impossible to render a performance, is the contract void due to non-compliance with the requirement of possibility, or void due to non-compliance with the requirement of legality? Because the impossibility flows from the illegality, it appears preferable to state that the legality requirement has not been met. 14. SHIFREN-PRINCIPLE; SA SENTRALE KO-OPERATIEWE GRAAN MAATSKAPPY V SHIFREN The parties to a contract may also prescribe certain formalities for any variation of their contract. In fact, it has become an extremely common practice to insert a non- variation clause in any written contract, the standard wording being more or less as follows: ‘No variation of this agreement shall be of any force or effect unless reduced to writing and signed by the parties to this agreement.’ There used to be some doubt as to whether parties could restrict their freedom to amend their contract orally in this way, but these doubts were put to rest by the Appellate Division in 1964, in the well- known case of SA Sentrale Ko-operatiewe Graanmaatskappy Bpk v Shifren. The court held that a non-variation clause was not against public policy and that no oral variation  of the contract was effective if the clause entrenched both itself and all the other terms of the contract against oral variation. The purpose of the clause was to prevent disputes and problems of proof that might otherwise arise if oral variations were permitted; and it operated in favour of both parties. Giving effect to the clause was in line with the fundamental principle of pacta sunt servanda: agreements that are freely and seriously entered into must be enforced in the public interest. Although the same might be argued with regard to the subsequent oral variation, the point was that, by inserting the non-variation clause, the parties had themselves limited their power to vary their contract by binding themselves to a formal procedure for any such variation. The clause did not deprive them of their freedom of contract since they could still freely vary their contract, provided that they complied with the formal requirements they themselves had agreed upon. In practice, however, the application of the Shifren principle can produce results that appear to be unjust. For example, a landlord may orally agree that the tenant can pay the rent late, but then later cancel the contract on this ground, relying on the non- variation clause. This has led many courts over the years to attempt to soften or even circumvent the Shifren principle by invoking doctrines relating to waiver, estoppel, a pactum de non petendo and good faith. More recently, the principle was directly challenged, partly on constitutional grounds, in what is now the leading case on the subject: Brisley v Drotsky. However, the Supreme Court of Appeal unanimously reaffirmed its earlier decision in Shifren. The court explained why the courts attach preference to the parties’ original exercise of their freedom of contract by referring to the analogous instance where the legislature or parties prescribe writing as a formal requirement for a contract. A non-variation clause operates for the benefit of both parties, the court said, and does not detract from constitutional considerations of equality. 15. DEFINITIONS OF THE FOLLOWING TERMS OF A CONTRACT: ESSENTIALIA, NATURALIA AND INCIDENTALIA Essentialia are those distinctive terms used to identify or classify a contract as one of the specific contracts recognised by our common law. Consider what makes a  contract a contract of sale: a sale is essentially a contract in terms of which the seller transfers property to the purchaser in exchange for money. The essentialia of a contract of sale are therefore terms stipulating that property must be delivered and that the purchase price must be paid. The essentialia of a contract of lease, on the other hand, are terms that stipulate that one party is allowed to use the property owned by another in exchange for payment of rental. Naturalia are terms automatically included in any contract belonging to one of the classes of specific contracts traditionally recognised by our law. They can therefore be said to be implied by law (ex lege). Incidentalia are the terms other than the naturalia and essentialia. They are the additional terms agreed upon by the parties that supplement or modify the rights and duties incorporated by law into the particular contract in question – namely, the naturalia. For example, in a contract of sale, the parties might agree that the purchaser should pay a fee for delivery, or that the purchaser pay interest on the purchase price if it is not settled in full by a particular date, or that the seller be exempted from liability for latent defects. 16. THE DEFINITIONS OF THE FIVE FORMS OF BREACH OF CONTRACT PLUS LEX COMMISSORIA The specific forms of breach recognised by our law are the following: the debtor culpably fails to make timeous performance of his or her obligations (mora debitoris); the creditor culpably fails to cooperate timeously with the debtor so that the latter may perform his or her obligations (mora creditoris); the debtor does perform, but in a defective or incomplete manner (positive malperformance); either party indicates an unequivocal intention not to honour the agreement (repudiation); and either party renders performance of the contract impossible (prevention of performance).  lex commissoria is the right that entitling a party to cancel the contract on account of the other party’s breach of contract, in accordance with its provisions. 17. THE EXCEPTION NON ADEMPLETI CONTRACTUS; BK TOOLING (EDMS) BPK V SCOPE PRECISION ENGINEERING Requirements for the exceptio non adimpleti contractus Reciprocity of obligations. In the leading case of BK Tooling (Edms) Bpk v Scope Precision Engineering (Edms) Bpk, the Appellate Division stated that reciprocal obligations are obligations that have been created in exchange for each other. A contract that contains reciprocal obligations is also called a reciprocal contract. The distinguishing factor of a reciprocal contract, therefore, is that it is essentially aimed at accomplishing an exchange of performances. The one performance must therefore be given or promised in exchange for the other. Most contracts that create obligations for both parties will be regarded as reciprocal. However, such contracts may have a number of different obligations, not all of which are necessarily reciprocal. The difficulty then is to decide whether a specific obligation within the contract can be regarded as reciprocal to a specific obligation of the other party. In order to determine whether an obligation is reciprocal or not, the (express or tacit) intention of the parties must be determined by interpreting the agreement. Whether obligations are reciprocal or not depends upon the intention of the parties, as reflected in the terms of the contract. The question to be asked is the following: did the parties intend to create the obligations in exchange for each other? Reciprocal contracts are subject to the principle of reciprocity. In terms of this principle, party A is not entitled to claim performance of a reciprocal obligation from party B where party A has to perform his or her obligation first or simultaneously, unless A has already performed or is tendering performance of his or her obligation. This also means that the party B is entitled to withhold his or her performance until the counterparty (A) has performed in full or tenders full performance. This brings us to the second issue to be determined – namely, what the sequence of performance in terms of the contract is. 18. THE CONSUMER PROTECTION ACT: PURPOSE OF THE ACT AND FUNDAMENTAL CONSUMER RIGHTS, CONSTRAINTS PLACED ON MARKETING To achieve these objectives, the Act recognises a number of fundamental consumer rights, including the right to equal treatment in the marketplace (which affords protection against discriminatory marketing, for example); the right to privacy (which affords protection against direct marketing practices); the right to choose (which covers a host of ancillary rights, such as rights to select suppliers, to choose or examine goods and to return them, to a cooling-off period in certain circumstances, and to cancel advance bookings, reservations or orders); the right to disclosure and information (disclosure, for example, of the price of goods and services, and that goods are reconditioned, or are grey-market goods, with no misleading labelling or trade descriptions, and with all information in plain and understandable language); the right to fair and responsible marketing (these provisions set general standards for marketing of goods and services, and regulate (among other things) bait marketing, negative option marketing, direct marketing, customer loyalty programmes and promotional competitions); the right to fair and honest dealing (which affords protection against unconscionable conduct such as fraud, duress, undue influence, misleading representations, pyramid schemes and overselling or over-booking); the right to fair, just and reasonable terms and conditions (which will be considered in more detail below); and the right to fair value, good quality and safety (which extends the common-law protection of consumers significantly by introducing a strict no-fault regime of liability for harm caused by defective products). 19. FORMS OF BREACH OF CONTRACT The specific forms of breach recognised by our law are the following:  the debtor culpably fails to make timeous performance of his or her obligations (mora debitoris); the creditor culpably fails to cooperate timeously with the debtor so that the latter may perform his or her obligations (mora creditoris); the debtor does perform, but in a defective or incomplete manner (positive malperformance); either party indicates an unequivocal intention not to honour the agreement (repudiation); and either party renders performance of the contract impossible (prevention of performance). lex commissoria is the right that entitling a party to cancel the contract on account of the other party’s breach of contract, in accordance with its provisions. 20. DRAFTING OF A CONTRACT WITH SPECIFIC REFERENCE TO THE FOLLOWING CLAUSES: Example (1) Description of parties Memorandum of Agreement Entered into by and between Vintage Movie (Pty) Ltd A public company established and registered in terms of the Companies Act 71 of 2008 with registration number 23097 herein represented by Mr A duly authorised thereto by a resolution (hereinafter referred to as “Managing Director”) Address: 58 Wale Street, Century city, Cape Town And Mr B Identity number 580707589012 unmarried  (hereinafter referred to as the ‘Producer’) Address: 25 Jerry Street, Cape Town (2) essestialia of sale agreement It is recommended that the essentialia of a specific contract (and other material issues) be dealt with in the early clauses of an agreement. For example, in a contract to supply services, the work to be done, the time schedule and the payment provisions should be dealt with as primary issues. They must be described sufficiently so that performance can be determined, or at least be determinable, at the conclusion of the contract, and so as to comply with the requirement of physical possibility of performance. In contracts that contain essential elements requiring detailed specifications and lists, these are often placed in schedules and annexures. They are incorporated into the contract by an express clause or merely by reference. (3) lex commissoria An express right to cancel in the event of breach of contract may be formulated as follows: If any party breaches the Agreement, the other party will be entitled to cancel the Agreement immediately and to claim full restitution. (4) Notices and communication. Notices clauses are regarded by lawyers as among the most important of the general clauses. Even contracts that contain very few general clauses will usually contain a notices clause, and a law and jurisdiction clause. Notice clauses example (i) Each communication or notice that this contract requires shall be communicated only in a form that can be read, copied and recorded, and shall be in the language of this contract. (ii) Notices shall be personally delivered to the domicile address as stated in this contract. (iii) Notices shall be sent by prepaid registered mail to the domicile address as stated in this contract. (iv) A notice required by this contract will be communicated separately from other communications. (v) Notices shall be in the language of the contract. (vi) Day-to-day communications may also be sent by fax or email or other data message. (5) Penalty clause A penalty clause is used to avoid the practical problems relating to a damages claim, such as having to prove the quantum of damages, or to prove that the damages are either general or special damages or that there was an agreement to claim special damages. The Conventional Penalties Act applies to all penalties and its content should be taken into account when drafting penalty clauses For example, Where the Contractor fails to deliver performance in time, and thus fails to comply with the performance milestones as agreed upon, he shall pay the Client R5 000,00 (five thousand rand) per day of delay. The Client may choose/elect to claim the agreed penalty, or to claim common-law damages. The Client may retain any performance already delivered to him by the Contractor, continue with the Agreement and claim the agreed penalty.