Exploring breach of contract
A contract in terms of the law creates rights and obligations as between the parties. It is a fundamental premise of every contract that both parties will duly carry out their respective obligations. (Green v Lutz 1966 RLR 633; ESE Financial Services (Pty) Ltd v Cramer 1975 (2) SA 805 (C) at 808-809). Further, a contract allows the parties to enforce their respective rights one as against the other.
When does breach of contract arise?
The settled position in terms of the law is that breach of contract occurs whenever a party who entered a contract fails to perform their promised obligations. A breach of contract can happen in both a written contract and an oral contract. A verbal contract still carries the same weight as a written one.
The breach can take various forms, such as a failure to pay on time, incomplete performance, or a failure to perform at all. Breach could also be anything from a late payment of rentals or purchase price to a more serious violation, such as the failure to deliver a promised asset. The parties to the contract may resolve the breach among themselves or in a court of law.
When a breach of contract occurs, the party who suffered harm as a result of the breach is entitled to seek remedy for the damages.
The majority of the cases that are brought before the Courts or Arbitration in contract usually revolve around breach of contract.
Majority of the debt collection cases have their roots in breach of contract. This means, you need to be aware of what breach entails, the types of breaches that exist, and the legal remedies in terms of the law.
When entering into contracts, you need to be proactive and protect your rights in the of a breach.
Types of breaches
Breach of contract takes many forms. Dr. Innocent Maja in his book Law of Contract in Zimbabwe categorises the breach into three;
- Breach of Contract according to when performance was due (anticipatory breach and malperformance. In other jurisdictions they talk in terms of anticipatory breach and actual breach)
- Breach of Contract according to which party has failed to honour the contractual obligations (mora debitoris and mora creditoris — I will simplify the Latin in the next article)
- Breach of contract according to impact on the essential terms of the contract (minor or serious breach)
We are going to look at the types of breaches in a bit so that you may also gain clarity as to how each of these entail.
Anticipatory Breach
The doctrine of anticipatory breach of contract allows a party to treat a contract as breached and discharged in circumstances where the other party demonstrates by its words or actions that it will not perform its contractual obligations. It occurs before the performance is due.
There are two further classifications of anticipatory breach; repudiation and malperformance. This week we are looking at repudiation of contract.
Repudiation occurs when one party to the contract demonstrates that it is unwilling or unable to fulfil its obligations under that contract.
Repudiation of a contract is serious and as such requires a clear intention to no longer be bound by the terms of the contract.
There are several examples of anticipatory breach. The list below is just a few of them;
One party to the contract might tell the other that they do not intend to follow through on their end of the agreement. This is an express repudiation. The repudiation must be clear and unconditional.
One party may take actions that make it impossible to honour the contract. For example, a business owner may undertake through an agreement to repay a loan, but then take on burdensome additional debts that make it impossible to do so. This situation could also be an anticipatory breach.
Finally, the property which the contract concerns might be transferred to a third party, rendering the former owner of the property unable to fulfil the agreement.
Repudiation is a species of anticipatory breach and that the innocent party has an election either to resist and sue for specific performance or alternatively accept the repudiation which then brings the contract to an end (See Chinyerere v Fraser No 1994 (2) ZLR 234 (H)). Repudiation may manifest itself in a variety of ways. As stated by R.H Christie, the Law of Contract in South Africa, 3rd ed, at p 572-3,
“If it takes place before performance is due it is sometimes described as anticipatory breach and may take the form of a statement that the party concerned is not going to carry out the contract, or an unequivocal tender to perform less than is due, or an unwarranted but unequivocal refusal by a buyer to pay the full purchase price, irrespective of his true intention and the amount of any reduction that may be claimed, or the taking of some action inconsistent with the intention to perform, or by his own conduct putting it out of his power to perform . . . ”
At common law, an anticipatory breach ordinarily entitles the innocent contractant to cancel the contract.
As is observed by Kerr: The Principles of Contract Law (6th ed.) at p. 592: “ . . . repudiation before the due date for performance by a party prospectively in default constitutes anticipatory breach of contract on which the aggrieved party may take action if he so elects.”
The position is now settled that a party in the innocent party’s position has an election to make. They can refuse or resist such repudiation and insist on specific performance.
In determining whether a party has repudiated a contract, the test to be applied is whether the party has acted in such a way as to lead a reasonable person to the conclusion that he did not intend to fulfil his part of the contract.
The test for determining the repudiation of a contract by way of anticipatory breach was expounded by Nienebar JA in Datacolor International (Pty) Ltd v Intamarket (Pty) Ltd 2001 (1) SA 581 (A) at 591, as follows:
“ . . . the emphasis is not on the repudiating party’s state of mind, on what he subjectively intended, but on what someone in the position of the innocent party would think he intended to do; repudiation is accordingly not a matter of intention, it is a matter of perception.
The perception is that of a reasonable person placed in the position of the aggrieved party.
The test is whether such a notional reasonable person would conclude that proper performance (in accordance with a true interpretation of the agreement) will not be forthcoming. The inferred intention accordingly serves as the criterion for determining the nature of the threatened actual breach.
. . . due to the co-contractant’s repudiation, the innocent contractant is excused from any steps that he must take in preparation for his own performance . . . In these circumstances the purchaser will not fall into mora by failing to tender performance . . . as long as he signifies his willingness to perform.”
Similarly, Lord Wright, cited with approval in Chinyerere v Fraser N.O. 1994 (2) ZLR 234 (H) at 250, observed as follows in Ross T. Smyth & Co. Ltd v T.D. Bailey, Son & Co. (1940) 3 All ER 60 (HL) at 73: “I do not say that it is necessary to show that the party alleged to have repudiated should have an actual intention not to fulfil the contract. He may intend in fact to fulfil it, but may be determined to do so only in a manner substantially inconsistent with his obligations, and in no other way.”
Requirements for repudiation
When you are pleading repudiation the following issues must come out:
a) There must be conduct indicating refusal to perform (We have cited several judgments earlier that interpret the meaning of this.)
b) There must not be any justification for refusal to perform (Zimbabwe Sun Hotels (Pvt) Limited v Lawn 1988 (1) ZLR 143)
c) The innocent party should accept the repudiation. (Econet Wireless (Private) Limited v Trustco Mobile (Proprietary) Ltd and Anor SC43/13)
Repudiation is a complex area of law, always ensure that you get legal advice at every stage of your contracts in order to safeguard your legal interests.
LEGAL DISCLAIMER: The material contained in this post is set out in good faith for general guidance in the spirit of raising legal awareness on topical interests that affect most people on a daily basis. They are not meant to create an attorney-client relationship or constitute solicitation. No liability can be accepted for loss or expense incurred as a result of relying in particular circumstances on statements made in the post. Laws and regulations are complex and liable to change, and readers should check the current position with the relevant authorities before making personal arrangements.
Arthur Marara
Arthur Marara is a corporate law attorney practicing law in Harare, Zimbabwe. He is also a notary public and conveyancer. He is also passionate about labour law, commercial law, family law and promoting legal awareness and access to justice. He writes in his personal capacity. You can follow him on social media (Facebook Attorney Arthur Marara), or WhatsApp him on +263780055152 or email attorneyarthurmarara@gmail.com-ebusinessweekly
