TOPIC 4

Objectives:

At the end of this topic students should be able to:

1. Appreciate sanctity of contracts and freedom of contract

2. Understand discharge of contracts
3. Outline remedies for breach of contracts

Performance of contract

For a contract to be of any meaning or benefit to the parties, it should be

performed. When both parties to the contract have performed their
respective obligations in terms of the contract, the contract may then be
discharged.

Sanctity of contracts

 This principle says that a valid contract is binding upon the parties. It
can only be modified or terminated by consent of the parties or if
provided for by the law. The parties to a contract must, unless legally
excused from performance, perform their respective duties under the
contract.

 A valid unilateral promise or undertaking is binding on the party giving

it if that promise or undertaking is intended to be legally binding
without acceptance.

 The Principle is an expression of the general principle of good faith

which above all signifies the keeping of faith. Without such a rule
contract law would be a mere mockery.

 The respect for this principle requires parties to execute their

contractual undertakings.

 In spite of its pivotal importance, the principle of sanctity of contracts

is not without exceptions. One such exception is the principle of
hardship. However, since the principle of sanctity of contracts is the
rule, the hardship defence is available only in exceptional cases.

 The Principle applies only between the parties to the contract. It does
not prejudice any effect which the contract may have vis-à-vis third
parties.
Freedom of contract

 The doctrine which states that people have the right to legally bind
them is known as freedom of contract. Freedom of contract is a judicial
concept which holds that contracts are based on mutual agreement
and free choice.

 Therefore, contracts are not be hampered by external control such as

governmental interference. This is the principle which supports that
people are able to fashion their relations by private agreements, when
opposed to the assigned roles of the feudal system.

 Freedom of contract embraces two closely connected, but two different

concepts. Firstly, it indicates that contracts were based on mutual
agreement. Secondly, it emphasizes that the creation of a contract was
the result of a free choice unhampered by external control including
the government or the legislature.

Who should perform?

Unless the contract states that performance may be made by a third party,
the parties to the contract themselves should perform.

See Aronowitz v Atkinson 1936 SR 45

The performance must be exact, unless the parties have agreed otherwise.
Equivalent or even better performance will not suffice. An example will be:-

A agrees to sell B an old car. A instead delivers a brand new car.

In this case, the performance is not in terms of the contract because it is not
exact performance.

Payment by cheque

The parties may agree in their contract that payment will strictly be by cash.
In that case, if the other party purports to pay by cheque, that will not be
sufficient payment. Generally, payment will only be deemed to have been
made if the cheque is honoured. If the cheque is dishonoured, it goes without
saying that no payment would have been made.

Failure to perform

This will render the contract unworkable and may terminate the contract. A
party who fails to perform his obligations in terms of the contract lays
himself open to a lawsuit by the other party. Failure to perform is breach of
the contract to which the remedies are available will be dealt with in the
ensuing pages.

Discharge of contracts

There comes a time in the life of a contract when all is said and done. That
time is the end of the contract and the release of the parties from their
obligations in terms of the contract.

1) Performance

The commonest way for the discharge of contract is through performance.

When the parties have duly performed their respective obligations, they will
be released and the contract accordingly discharged.

2) Agreement

The parties enter into contract by agreement; they can also by agreement
discharge their contract. The parties will be freed from their obligations upon
their agreement to discharge the contract.

Waiver of rights takes place when one or both parties indicate that they will
not enforce their rights in terms of the contract. When all rights have been
waived, the contract terminates.

3) Novation

When the existing contract is replaced by a new one, this called novation.
The original contract will accordingly be discharged.

4) Compromise

This is a form of novation. The parties, may after a disagreement have

reached a settlement and replace the disputed obligation with one reached
by compromise.

5) Delegation

This is a form of novation. In this case, the original debtor is substituted by a

third party who steps into the shoes of the original debtor. As far as the
original contract is concerned, it will be discharged and he will be freed from
all the obligations in terms of the contract.
 6) Cession

This is yet another form of novation where the original creditor is replaced by
a third party who steps into the shoes of the original creditor. The consent of
the debtor is not required.

7) Supervening impossibility

Performance may become impossible owing to a multitude of factors. It could

be that the performance becomes illegal. The subject matter of the contract
may be destroyed. It could be that the other party has become insane, or is
suffering from some disability, physical or legal.

It could be vis major or an act of god such as a storm, flood or an

earthquake. The parties to the contract should not have foreseen that
performance will become impossible. It will not be impossible if the parties
had seen or anticipated the impossibility. It could be an act of the state such
as legislation or declaration of war. This is referred to as casus fortuitous.
The principle of frustration or supervening impossibility of performance is
applicable to a great variety of contracts. It is not possible to lay down an
exhaustive list of situations in which the doctrine is going to be applied. Yet
the following grounds of frustration have become well-established.

1. Destruction of subject matter: A contract is discharged if a specific thing

which is essential to the performance of the contract is destroyed. The
doctrine of impossibility applies with full force 'where the actual and specific
subject-matter of the contract has ceased to exist.
Taylor Vs. Cladwell is the best example of this class. There, A music hall
was let for a series of contracts on certain days. The hall was burnt down
before the date of the first concert. The contract becomes void.

2. Change of law: A contract is discharged when its performance becomes

impossible on account of a change in the existing law. Persons generally
contract on the basis of the law existing at the time of the contract. If this
law is subsequently changed, they are not expected to honour their
obligations by committing a violation of the law.

3. Death or Incapacity of party: Where the nature or terms of a contract

require personal performance by the promisor, his death or incapacity puts
an end to the contract.
In case of Robinson Vs. Davison, 'There was a contract between the
plaintiff and the defendant's wife, who was an eminent pianist, that she
should play the piano at a concert to be given by the plaintiff on a specified
day. On the morning of the day she informed the plaintiff that she was too ill
to attend the concert. The concert had to be postponed and the plaintiff lost
a sum of money. The court said that, the contract is discharged because the
player could have insisted on performing when she was unfit to do so.
4. Intervention of war: Intervention of war or warlike conditions in the
performance of a contract has often created difficult questions. The closure
of Suez Canal, the Covid 19 pandemic interrupted the performance of many
contracts.
A contract entered into during war with an alien enemy is void ab initio.
A contract entered into before the war commenced between citizens of
countries subsequently at war, remains suspended during the pendency of
the war. After the termination of the war, the contract revives and may be
enforced.
5. Non-Occurrence of contemplated event: If a state of things on the basis of
which a contract was made, does not exist or occur, the contract is
discharged. Sometimes the performance of a contract remains entirely
possible, but owing to the non-occurrence of an event contemplated by both
parties as the reason for the contract, the value of the performance is
destroyed. Krell Vs. Henry is an apt illustration. There, H hired a room from
K for two days with the object of using the room to view the coronation
procession of Edward vii. Owing to the king's illness the procession was
abandoned. Held, that the contract was discharged and H was excused from
paying rent for the room as the existence of the procession was the basis of
the contract.

8) Set-off (compensation)

This occurs when the parties to the contract are reciprocally indebted to
each other and there will be no need to exchange what they owe each other.
They are automatically released from their respective rights and duties in
terms of the contract.

9) Prescription

Debts prescribe, or put in the simplest form possible, they expire after a
certain period of time. The following are the prescription periods for various
kinds of debt

If prescription is interrupted, it starts to run afresh.

 10) Insolvency

Liquidation will discharge a contract in terms of the insolvency act. However,

the trustee or liquidator may elect whether to abide by or terminate the
contract.

11) Death

Generally, death will terminate the contract for the simple reason that one of
the parties is not there, so performance is impossible. However, the parties
may agree that in the event of death, the executor will take over and
continue with the obligations in terms of the contract. a contract may
expressly state that it will be discharged upon the death of one of the
parties.

Breach of contract

A contract is meant to be enforced and the parties to perform their

respective duties. If one party breaches the contract, then he has not acted
in accordance with what the parties agreed. The innocent party will therefore
be entitled to remedies for the breach of contract. The wrong party may not
automatically cancel the contract because he will not be allowed to profit
from his own wrong. See, Associated Mines v Claasens 1954 (3) SA 768.

Mora

A debtor who fails to perform or performs out of time is said to be in mora. If

a debtor fails to pay in time, the mora arises exRE. If he fails to perform on
demand for payment, this will be regarded as mora ex persona

See Laws v Rutherford 1924 AD 173

Smart v Rhodesian Machine Tools 1949 SR 226

In the presence of a forfeiture clause, the creditor will cancel the contract. If
the creditor refuses to accept payment when it is tendered, he places himself
in mora creditoris and the debtor will be relieved of the duty to pay. A debtor
who fails to perform is in mora debitoris.

Requirements for mora debtors:

1. The debtor fails to perform on time

 2. The debt must be due

3. The delay must be deliberate

Requirements for mora creditoris:

1. Creditor fails to accept performance

2. Debt must be due

3. Performance must be proper

4. Failure to accept must be deliberate

Remedies for breach of contract

1) Specific performance (informa specifica)

Specific performance is an order of a court which requires a party to perform

a specific act, usually what is stated in a contract. The injured party may
elect to sue or demand for specific performance. The court’s decision
whether or not to order specific performance will be guided by judicious
principles. Where performance is impossible or where it could cause hardship
on the wrong party, the court would not readily grant it. An order of specific
performance is generally not granted if any of the following is true:

 Specific performance would cause severe hardship to the defendant.

 Common law damages are readily available or the detriment suffered

by the claimant is easy to substitute, then damages are adequate.

 The plaintiff has misbehaved (unclean hands).

 Specific performance is impossible.

 Performance consists of a personal service.

 The contract is too vague to be enforced.

 The contract was terminable at will (meaning either party can renege
without notice).

2) Interdict

An interdict is an order of Court prohibiting certain things from being done. A

person who threatens to breach the contract may be stopped or interdicted
from doing so. An interdict may also be granted to maintain the status quo,
that is, for the parties to remain in their positions until the court has made a
determination.

See Gideon v Ngumo 1975 (2) RLR 197

Flame Lily Investment Co. v Zimbabwe 1980 ZLR 378.

A peremptory interdict orders a person to behave in a certain way. A

prohibitive interdict prohibits a person behaving in a certain way. An interdict
is granted only as a last remedy when all others have been exhausted. The
requirements for a final interdict can be summarised as follows:

1. A clear right which must be established on a balance of

probabilities.

2. Irreparable injury actually committed or reasonably apprehended

3. The absence of a similar protection by any other remedy

3) Cancellation

The innocent party need not cancel the contract, but he must elect what he
wishes to do within a reasonable period of time. He must elect whether to
cancel or enforce the contract. If the breach is so fundamental and so
material that it goes to the root of the contract, then the contract will have to
be cancelled.

See United Dominions v Van Eyssen

Cancellation is available where:-

1) An essential term is breached i.e. breach goes to the root of the

contract.

2) Where there is positive malperfomance

3) Where the repudiation has been accepted by the creditor

4) Where time is of essence to the contract

5) Where there is the Lex commisioria or right to resile in the event

of a breach.

4) Declaration of rights
In our jurisdiction, the High Court has powers to declare the parties rights in
terms of their contract. It is important that the parties know exactly where
they stand instead of wandering in the dark.

5) Damages

The purpose of damages is to try and place the innocent party in the position
he would have enjoyed had the contract been duly performed. The court will
try not to cause undue hardship on the wrong party. The damages are only
for actual and not sentimental loss.

Damages also provide solace to the wronged party. He will get the feeling
that at least, even though he did not get anything out of the contract, he has
somehow received some form of redress.

Duty to mitigate losses

The innocent party has a duty to try and curb his losses. He should not just
sit and watch while his losses multiply and increase. He has a duty to
mitigate or lessen his losses.

Further, the plaintiff must not be overcompensated by choosing several

remedies at the same time. Some remedies do not go hand in hand. The
innocent party cannot choose specific performance, damages and
cancellation at the same time because the remedies are inconsistent and
mutually exclusive.

Conclusion

It is of utmost importance that one follows the systematic flow of events-

from formation of contract, performance and discharge. Once the basic
principles have been mastered, everything else will fit into place like a jigsaw
puzzle. When one has understood everything about the law of contract, it will
then be safe to deal with other forms of special contracts like the law of sale,
hire- purchase, agency, lease, and banking.