Forms of Breach PDF

Faculty of Law CHAPTER 12 FORMS OF BREACH  INTRODUCTION Pacta sunt servanda Failure to honour contractual obligations – breach of contract Types: – Mora debitoris: dt culpably fails to make timeous performance – Mora creditoris: cr culpably fails to coopera...

Faculty of Law CHAPTER 12 FORMS OF BREACH  INTRODUCTION Pacta sunt servanda Failure to honour contractual obligations – breach of contract Types: – Mora debitoris: dt culpably fails to make timeous performance – Mora creditoris: cr culpably fails to cooperate timeously – Positive malperformance: dt’s performance defective/incomplete – Repudiation: either party indicates intention not to honour – Prevention of performance: either party renders performance impossible  Positive malperformance – performance made 2 forms of mora – time of performance –negative malperformance Repudiation and prevention of performance = forms of anticipatory breach – committed prior to stipulated time of performance Type of breach can determine consequences Table p279/291 - NB Remedies are aimed at – Upholding (fulfilment) – specific performance or financial equivalent – Rescission – restitution of performance – + damages in either case  MORA DEBITORIS = culpable/unjustifiable failure to timeously perform positive obligation that is due and enforceable and still capable of being performed Mora –failure to perform on time (positive obligation) [breach of negative obligation = positive malperformance] If dt makes incomplete/defective performance = PM Delay renders performance impossible = prevention of performance Delay accompanied by intention not to honour obligation = mora debitoris / repudiation  REQUIREMENTS 1. Due & enforceable [Time for performance has arrived] Creditor has valid claim to claim performance forthwith and no valid defence General rule: can claim performance when contract is concluded or when reasonable in circumstances, unless agreed otherwise eg book vs house Agreement on time for performance / duty to perform dependant on fulfilment of suspensive condition Reciprocal contracts: general rule – parties must perform at same time – Party can only demand performance if already performed or tendering performance otherwise exceptio non adimpleti contractus 2. Failure to perform timeously Performance on time requires that time is certain Can only be in mora if definite time is fixed and has arrived Time fixed by agreement or unilateral demand Distinction between 2 forms of MD: – Mora ex re Time fixed – expressly or impliedly – failure to perform on time = automatically in mora ex re Time must be certain to arrive and when it will arrive Fulfilment of a SC/TC – debt due but not mora without demand – Mora ex persona No fixed time Place debtor in mora ex persona Demand (Interpellatio)  Interpellatio – Can use letter/oral/summons but costs – Stipulate time for performance - reasonable time to perform – if no performance – in mora ex persona – Reasonable? Time of contract or time of demand? unsure – If not reasonable time – no mora can arise 3. Fault Delay due to fault of debtor Not in mora if: – Reasonable ignorance of the nature of performance due; – Delay caused by creditor; – Vis maior; – Conduct of third party – impossibility of performance is excuse provided temporary and not fault of debtor Permanent supervening impossibility: – discharge contract – if no fault – breach – if fault Express/Implied guarantee of timeous performance = lack of fault will not prevent falling into mora  Consequences of mora debitoris: 1. Remedies Specific performance Rescission Damages 2. Perpetuatio obligationis Normally, supervening impossibility - not fault of either party will terminate contract If debtor in mora when performance becomes impossible then he remains liable (i.e. obligation remains = perpetuatio obligationis), unless object would in any event have been destroyed [Ex: Contract of exchange – if debtor does not deliver on time, then in mora, so if thing is now destroyed he remains liable to perform (“damages” in lieu of performance) – [seller will normally cancel contract because of breach]  In Contract of Sale specifically: Naturalia: Risk passes to Buyer when contract perfecta If merx destroyed prior to delivery, through no fault of Seller, then Buyer must still pay even though seller cannot perform (Buyer’s risk) If Seller was in mora, risk reverts (Seller’s risk) and will not be able to recover price unless…. – Same fate would in any event have befallen merx [CPA s19(2)(c): at risk of supplier until delivery unless agreed otherwise] 1. Rescission Extraordinary remedy Mora does not entitle creditor to rescind If dt in mora, cr can rescind if time is of the essence Nel v Cloete: I. Expressly agreed that cr entitled to rescind (express lex commissoria) II. Tacit agreement (tacit lex commissoria) o Common intention, nature of the contract III. Absence of agreement, cr made time of the essence (notice of rescission) o Making time of the essence o Notice does not cancel but unilaterally imposes a lex commissoria ie right to rescind if no performance by a specified date o Contract is then terminated when decision to rescind communicated  MORA CREDITORIS Role of creditor to contractual obligation is passive But in many cases cooperation is required (for debtor to perform obligation) – eg to receive delivery Culpable failure of creditor to give timeous cooperation where he is obliged to do so = mora creditoris Delay can amount of repudiation if coupled with intention not to honour contract (duty to accept delivery) Delay can also amount to prevention of performance if long enough to render performance impossible MC & MD cannot co-exist iro same obligation except for a reciprocal contract (purchaser delays in taking delivery and payment  REQUIREMENTS 1.Obligation to make performance Debtor must be under obligation to make performance but debt need not be enforceable or due (debtor entitled to discharge debt before due date) Creditor may refuse to accept performance if debt subject to suspensive condition 2.Cooperation Cooperation of creditor required for proper performance Cannot be mora creditoris for negative obligation – Debtor not to do something Or iro positive obligation where cooperation of creditor is not needed 3. Tender performance Debtor must tender performance Dt must take all steps that are possible without creditor’s co-operation + then request creditor’s cooperation Ie agreement to deliver / creditor to collect Performance tendered must be full and perfect, otherwise creditor can refuse and not be in mora 4. Delay For mora creditoris to exist the creditor must delay accepting performance Time must be certain – If time fixed: mora creditoris will arise automatically – If not fixed: debtor must notify creditor and give reasonable time to prepare to receive 5. Fault Mora creditoris must be due to fault of creditor Vis maior etc exclude fault (i.e. No mora creditoris)  Consequences 1. Cancellation Only if time is of essence (as provided by lex commissoria in the contract) Or later made of essence by Notice of Rescission 2. Damages Debtor entitled to damages caused by mora Usually just wasted costs (transport & storage) and loss of profit if cancelled 3. Specific performance Can get order to force creditor to cooperate 4. Counter-performance Creditor’s delay in receiving performance does not absolve him of his performance Dt can sue cr for counter-performance Is dt’s obligation fulfilled? NO – duty remains but delay in his performance cannot constitute mora debitoris 5. Care of goods and supervening impossibility of performance Mora creditoris alleviates debtor of duty of care Not liable for negligent damage to article (only dolus and culpa lata) If performance becomes impossible while creditor in mora, debtor’s obligations discharged, but creditor remains liable (unless impossibility due to debtor’s dolus or culpa lata)  Passing of risk & duty of care: Mora debitoris and mora creditoris compared Mora debitoris Contract of sale Sale perfecta – risk passes to buyer If seller (debtor) in mora (i.e. he does not perform on time) risk reverts to seller (debtor) if performance becomes impossible while seller is in mora, the seller will bear loss even if not negligent, unless merx in any event will be destroyed  Passing of risk & duty of care: Mora debitoris and mora creditoris compared Mora creditoris Performance becomes impossible (supervening impossibility) while creditor is in mora [debtor cannot perform] Creditor remains liable (to pay money) Debtor’s obligation ends (to deliver car)  Passing of risk & duty of care: Mora debitoris and mora creditoris compared E.g: Seller (debtor) wants to deliver but buyer (creditor) does not cooperate – buyer in mora creditoris – Merx destroyed, through no fault of debtor » seller released (unless dolus or culpa lata); buyer still liable – Risk is on buyer (risk passed when sale was perfecta)  Passing of risk & duty of care: Mora debitoris and mora creditoris compared Example: Contract of sale of heavy machine Seller (debtor) sells machine to buyer (creditor) Risk iro machine passes to buyer on sale perfecta Buyer does not cooperate to receive delivery – mora creditoris Supervening impossibility (machine destroyed while in possession of seller but buyer in mora) – Buyer (creditor) is in mora and is at risk (because of passing of risk) – Buyer must still perform – Seller (debtor) absolved, unless dolus or culpa lata  Duty of care Example: – Rental agreement for machinery: Debtor (person renting) returns the goods but creditor (owner) fails to receive – mora creditoris – During rental period person has duty to care for goods + is liable for any damage (negligence, gross negligence or intentional) – After attempted return and owner in mora creditoris the duty to care continues but now only liable for damage caused by gross negligence or intentionally – [This will also be case in contract of sale. Sale perfecta seller has duty of care until delivery]  Passing of risk & duty of care: Mora debitoris and mora creditoris compared Debtor: Creditor: buyer – duty to seller – duty to deliver cooperate Fails to deliver – mora Fails to cooperate = mora debitoris creditoris Risk passed to buyer on Risk passed to buyer on sale being perfecta sale being perfecta Supervening impossibility Supervening impossibility – Seller(debtor) in mora – Buyer(creditor) in mora debitoris credit – Risk reverts to – Risk remains with buyer seller(debtor) – Buyer remains liable to – Seller liable even if not perform negligent for destruction, – Seller(debtor) released unless merx would in any (even if negligent but not event be destroyed dolus or culpa lata) – Buyer released  Positive malperformance Relates to content of performance 2 forms: – Positive duty – incomplete/defective performance – Negative duty – party does act that he/she is bound to refrain from doing  Positive malperformance Fault – is it a requirement? – Strict liability [?] – Arguments yes/no YES: Absence of fault is defence [thus presence of fault seems to be required] NO: Parties agree risk will pass on delivery, ‘faultless’ damage to goods will constitute positive malperformance [i.e. fault not required] Absence of fault no excuse for malperformance if party has guaranteed performance – Party does not have to prove fault to claim but absence of fault is defence  Remedies Rescission/fulfilment of contract Rescission – Lex commissoria: can cancel even if not serious – Notice of intention to rescind – to rectify and if fail, rescind – Otherwise only if breach is sufficiently serious/material – TEST: ‘creditor may rescind only if breach is so serious that one cannot reasonably expect him/her to abide by the contract and be satisfied with damages alone’ – Objective test – court must balance competing interest of parties in a fair & reasonable manner – If contract divisible – only relevant part  Remedies aimed at fulfilment of contract [uphold] – If decide to uphold contract can accept defective performance as partial performance and claim damages as fulfilment of contract Difference between proper & actual performance rendered – Reject defective performance & demand specific performance or damages in place of performance Damage ‘in lieu of’ performance/to complete is surrogate damages to be distinguished from consequential damages To prove that suffered a loss by not receiving proper performance  – Rejection of defective performance is not rescission of contract Rejection: contract remains with duty of creditor to counter-perform (exceptio non adimpleti contractus) Right to reject defective performance does not depend on seriousness of defect(de minimus non curat lex) Creditor consistently fails to reject series of defective performances – may not cancel without prior warning on account of yet another breach in same form  Repudiation Breach of repudiation = when contracting party shows a clear intention (by words/conduct) to no longer be bound by the contract, without lawful excuse Objective test: Will reasonable person have understood other party’s conduct to be repudiation of contract – Fault is not required (although normally present) – Intention or mala fides not required Cancelling contract without reason = repudiation Refusal to perform or receive performance, etc Repudiation can occur before stipulated time of performance – anticipatory breach – Anticipates some other form of breach Can also occur on or after due date of performance – Reinforces one of the other forms of breach  Test for repudiation FLSmidth (Pty) Ltd v Racec Rail (Pty) JOL 32039 (GJ) Test for repudiation is objective: - – [par 48]: Whether party’s conduct exhibited a deliberate and unequivocal intention no longer to be bound by the agreement – [par 53]: Pursuant to a repudiation of an agreement by one party, the declaration by the other party of its intention to cancel an agreement, need not be explicit, but may be implicit, provided such declaration is unambiguous.  Effect… Rescission of contract [acceptance of repudiation] If repudiation is serious Repudiation of entire contract = right to rescind Repudiation of a minor part? Rescission??? Right to rescind depends on nature and seriousness of non- performance or malperformance threatened by repudiation If breach materialises = rescission of contract = rescind EG: If malperformance is threatened – test to rescind is: if such malperformance were to occur, could one reasonably expect innocent to abide by contract + be satisfied with damages alone? Mora debitoris: is time of the essence? If innocent accepts repudiation – contract ends upon communication of decision to other party  Affirmation of contract [rejection of repudiation] Innocent party can elect to not accept repudiation & can hold other party to agreement Innocent party cannot be expected to perform – duty to perform suspended for duration of repudiation but advise other party he is willing to perform Must innocent party be forced accept repudiation? In other words, does repudiation automatically terminate contract – In principle always be choice, but some cases may dictate otherwise – Engagement; board and lodging; employment [?]  Prevention of performance Initial impossibility of performance – contract does not arise Supervening impossibility of performance – no fault – discharges contract – fault – constitutes breach: Prevention of performance Objective (absolute) impossibility or subjective impossibility can establish the breach Subjective prevention of performance & repudiation = very similar – SPOP: can be committed negligently – REP: unequivocal intention to repudiate Can be caused by creditor, not to be confused with mora creditoris [delay cooperation, but performance still possible]  Fault Requirement [supervening impossibility without fault – discharge contract] Standard of fault: the care that could be expected from an ordinary, reasonable person in the circumstances Debtor has onus to prove inability to perform is not his fault Absence of fault not a defence where debtor has guaranteed performance  Remedies… No specific performance Breach to be serious for rescission Creditor, where debtor rendered performance impossible: – Cancel contract, recover performance & damages (wasted costs ; loss of profit); or – Abide by contract, perform and claim damages in lieu of performance (surrogate) Debtor, where creditor rendered performance impossible, – Cancel contract, restore performance already made by cr, claim damages for non-fulfilment of contract – Abide by contract, claim counter-performance subject to reduction saved by debtor because cannot perform Always claim consequential damages  Partial impossibility Performance partially impossible through debtor’s fault – position of creditor depends on: 1. Materiality of breach Impossibility = minor aspect of performance (substantial performance possible): contract as a whole cannot be rescinded Reduction of counter-performance or claim for damages in place of missing part of debtor’s performance Test: same as one for positive malperformance 2. Performance divisible/indivisible Divisible: breach only iro part of contract that has become impossible to perform  Creditor can cancel pro tanto – counter performance reduced proportionately if pro rata reduction not possible – cancel entire contract or accept part performance and recover damages in place of shortfall Indivisible: remedies same as in complete impossibility  Temporary impossibility Temporary impossibility of contract of ongoing nature (e.g. service contract) – Constitutes partial impossibility [see above] Other cases of temporary impossibility – Mora debitoris or mora creditoris – If performance not at all possible or late performance will make performance worthless (i.e. no performance) If performance is impossible then breach is prevention of performance  Forms of breach - Table p279/291 Forms Mora Mora Positive Repudiation Render debitoris creditoris malperfor- performance mance impossible Committed Debtor Creditor Debtor Either Either by Relates to Time of Time of Content of Intention to Possibility of performance performance performance abide by performance contract How Debtor –not Creditor- not Bad Show Makes committed on time on time performance intention not performance to be bound impossible Fault? Yes Yes Sometimes No Yes Anticipatory No No No Yes Yes breach