It is commonly known that breaches of contract can occur on or after the date on which performance is due in the form of mora debitoris (a debtor’s failure to perform timeously), mora creditoris (a creditor’s failure perform timeously) or positive malperformance. It is not as commonly known that breach can also occur prior to the performance due date by way of repudiation or prevention of performance, collectively referred to as anticipatory breaches of contract.
The question which arises is, what is the nature and effect of such anticipatory breaches and which remedies are available to parties which have been prejudiced as a result thereof? This article will address this question.
A party is said to have repudiated a contract when that party verbally or by way of its actions and without legal justification, shows a deliberate and unequivocal intention to no longer be bound by the contract or any obligation arising from such contract.
Whether or not a party has the intention to repudiate is an objective consideration, namely whether the words and/or actions of the repudiating party would have led a reasonable person to believe that it does not intend to fulfil in whole its obligations in terms of the contract.
The following are examples of instances in which an action could be considered repudiation –
- a party disputes its obligations in terms of the contract;
- an unjustified attempt to cancel the contract;
- denying the existence of a contract;
- offering malperformance instead of full performance;
- providing insufficient notice of termination; and
- an employer refusing to allow its employee to perform his/her work.
A repudiating party need not have an intention to terminate the contract, act in bad faith or have any fault for its action to be considered repudiation.
Additionally, repudiation is a continuous breach, meaning that should the repudiating party continue to act contrary to its obligations, the innocent counterparty may cancel the contract at any time after the repudiation.
Effect of repudiation:
Repudiation, when of a serious nature, provides the innocent party with two options, namely, to accept the repudiation and cancel the contract or to reject the repudiation and hold the repudiating party to the terms and conditions of the agreement.
Should repudiation be accepted, the contract or part thereof repudiated is cancelled and the parties will no longer be able to rely on the terms of the agreement. In this event, any performance made in terms of the contract must be restituted and the innocent party may recover any damages that may have been suffered due to the repudiation. In such event, a claim for damages will be calculated on the basis of the date on which performance should have occurred and not the date on which the agreement is cancelled.
Should the repudiation be rejected, the repudiation falls away and the contract remains in existence and binding between the parties. It does not however, automatically create a ground for specific performance.
The only effect of the abovementioned rejection which has been accepted by our courts, is that the performance of the innocent party shall be suspended for the duration of the repudiation, provided that to the repudiating party’s knowledge the innocent party remains willing and able to perform. Such suspension shall be effective until such time as the repudiating party terminates the repudiating act, the innocent party changes its mind or the date on which performance is due. Should the repudiation endure until such performance due date, the breach would no longer constitute repudiation, as it will from that point onwards constitute mora.
Prevention of performance:
Prevention of performance occurs when a party to a contract renders performance by another party to that same contract impossible.
The test for whether a party has committed a breach by way of prevention of performance is a subjective one and can be committed negligently. This is unlike repudiation, which requires an intention to repudiate by the repudiating party.
Prevention of performance can be committed both by way of a positive action such as disposing of an item that was to be performed in terms of the agreement, as well as a negative action, such as failing to provide the necessary access to premises for the purpose of allowing another party to deliver an item in terms of the agreement.
Effect of prevention of performance:
Should breach in the form of prevention of performance occur, the innocent party will be able to take action at the time of prevention. The actions available to creditors and debtors are set out below.
Should the breaching party be the debtor, the creditor will be entitled to –
- cancel the contract, claim restitution of any performance already made and claim damages; or
- perform his/her own obligations to the extent possible and claim damages for the debtor’s non-performance.
Should the breaching party be the creditor, the debtor will be entitled to cancel the contract and claim restitution as set out at point (a) above or to perform its own obligations in terms of the contract to the extent possible and claim counter-performance from the creditor, subject to any reductions that may be applicable.
A further consideration to be made is where the prevention of performance is only partial. In such event the questions that must be answered are whether the breach is material to the contract as a whole and whether the performance is indivisible. Should either of the aforementioned questions be answered in the affirmative, the abovementioned remedies shall be available to the prejudiced party. Alternatively, the prejudiced party shall not be entitled to cancel the contract but may still have a claim for damages.
Additionally, if impossibility of performance is only temporary, the importance of timeous performance is the determining factor which determines whether the contract can be cancelled. Should timeous performance be essential to the usefulness of the performance and such impossibility of performance arises prior to the date of performance, the contract may be cancelled prior to the date of performance.
Contracting parties should therefore be aware of the abovementioned anticipatory breaches, the actions that would constitute such breaches and the remedies which our common law places at the disposal of prejudiced parties.
It is worth noting that anticipatory breaches of contract can be avoided in some instances by providing for effective dates in contracts. Alternatively, it is suggested that contracting parties clearly set out the actions which would constitute breaches and the remedies which would be available to prejudiced parties in each such instances to provide greater certainty.
VDMA’s team of experts is at your disposal for any assistance that you may require with the drafting, reviewing and/or the amending of contracts.
Published 28 April 2021