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Think carefully before acting if someone breaches a contract

Most business people accept that the drafting of a contract should be left to experts and are content to leave the task to their attorneys. Less widely appreciated, however, is the importance of taking expert advice if (and as soon as) the other party to a contract breaches that contract.

Clearly, such a breach places you in a strong position in terms of the law of contract. You will usually have a number of courses of action open to you and you should take professional advice before deciding which course of action to take. For, once you have communicated to the party in default which course of action you are taking, you cannot later change your mind.

Where one party to a contract commits a breach, the innocent party has the following options:

• he can elect to keep the contract alive and sue to enforce performance by the other party of the latter’s obligations;
• he is entitled, in certain circumstances, to cancel the contract, thereby rendering it void from the outset;
• he can use the other party’s breach of contract as a reason to absolve himself from having to perform his side of the bargain; and
• he can accept the other party’s breach of contract and sue for damages in lieu of demanding that the other party carry out his side of the bargain.

The innocent party needs to decide which of these courses of action is most advantageous to him.

Generally, if the innocent party elects to cancel the contract, he is required to restore that which he has received. For example, if he cancels a contract in which he has purchased an item, then he must return the item to the seller if he cancels the contract. The innocent party should therefore think carefully about whether it suits him – and indeed whether he is able – to do so. For, if not, he should opt for another of the remedies open to him.

Moreover, an important question arises as to what kind of “tender” (if any) needs to be made. For example, if the innocent party adopts the first course of action and chooses to demand that the other party perform, he is obliged to “tender” (offer) to perform his side of the bargain. Unless and until he is willing and able to carry out his side of the bargain, he has no legal right to demand that the other party perform his side.

Rights which have accrued to the innocent party prior to the cancellation of the contract

If the innocent party decides to cancel the contract on the grounds of the breach, he can claim the payment of moneys that have already accrued to him before he exercised his right to cancel. (See the judgment in Crest Enterprises (Pty) Ltd v Rycklof Beleggings (Edms) Bpk 1972 (2) SA 863 (A)). It may therefore be to his advantage to delay exercising his right to cancel in order to allow those rights to accrue to him. For example, in the Crest Enterprises case, the innocent party would have obtained a right to demand that the party in breach transfer certain immovable property to him, if that right had accrued to the innocent party before he exercised his right to cancel the contract. However, because the innocent party cancelled the contract before those rights had accrued to him, he lost the right to demand that the property be transferred to him.

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