Contract law

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Transcript of Contract law

ESE FINANCIAL SERVICES (PTY) LTD v CRAMER

For reciprocity of obligations to exist there must be such a relationship between the obligation to be performed by the one party and that due by the other party as to indicate that one was undertaken in exchange for the performance of the other and, in cases where the obligations are not consecutive, vice versa.

Where a plaintiff sues to enforce performance of an obligation which isconditional upon performance by himself of a reciprocal obligation owed to the defendant, then the performance by him of the latter obligation (or, in cases where they are not consecutive, the tender of such performance) is a necessary pre-requisite of his right to sue and should be pleaded by him. Conversely in such a case the defendant may raise as a defence, known as the exceptio non adimpleti contractus, the fact that the plaintiff had failed to perform, or, in the appropriate case, tender performance of, his own reciprocal obligation.

In terms of an agreement the plaintiff was to receive payment of an amount on the capital appreciation of the portfolio of shares administered by it. This payment was in no way dependent upon the performance by it of any duties imposed by the agreement. In an action for the payment of this amount, the defendant pleaded, inter alia, that the plaintiff had failed to exercise skill and judgment in the management of the portfolio and therefore had failed to perform itsobligations under the agreement. In an exception that such a plea did not disclose a defence,

Held, that the defence did not measure up to the requirements of the exceptio non adimpleti contractus and could not be justified.

Held, further, that the contention that the plaintiff was not entitled to remuneration because he had failed to execute his mandate failed for lack of reciprocity of obligations.

BK TOOLING (EDMS) BPK v SCOPE PRECISION ENGINEERING (EDMS) BPK

It must be accepted that, when a creditor in a reciprocal contract is prevented from fully performing his own counter-performance by the failure of the other party's necessary co-operation, he, despite his own incomplete performance, can claim performance by the other party, but, basically as also in other legal systems, subject to reduction of the performance claimed, namely by the costs which the creditor saves in that he does not have to perform fully in his own counter-performance.

It would be useful for a few aspects of the principle of reciprocity and its application by means of the exceptio non adimpleti contractus to be mentioned:

1. In contracts wherein reciprocal obligations are created it is basically a matter of interpretation whether the obligations are so closely linked that the principle of reciprocity applies. If, however, no other intention appears, the principle applies by operation of law to certain well known contracts, such as, eg, the contract of sale and locatio conductio operis.

2. The sequence of performance and counter-performance also depends upon the contractual provisions. If, however, another intention does not appear, the contractor, in locatio conductio operis for example, must first perform.

3. On the ground that the withholding of the thing sold was already regarded in the Corpus Juris as being analogous to the holding of a pledge, one would expect that the exceptio would only apply as a defence until performance was actually made. The right of withholding (the converse of the exceptio) is, therefore, essentially a means of enforcing the counter-performance. It can fulfil a function similar to retention moneys in a building contract. On the other hand it follows that, as long as performance remains possible and the contract is not cancelled, the other party can still perform. Indeed, this possibility should be related to our doctrine of mora and purgatio morae.

4. If the right of withholding is regarded as being analogous to the holding of a pledge, it would entail that a party's own performance could be withheld until the counter-performance is fully made. In the case of locatio conductio operis it is all the more the case that the contractor must fully perform before he is entitled to the contract price.

5. According to Voet 19.1.23 the onus is on the plaintiff, when the exceptio is raised against him, to prove that he has in fact performed his side of the contract. Since then, this has apparently never been doubted as far as our law is concerned.

It is clear from the decisions in Hauman v Nortje 1914 AD 293, Breslin v Hichens 1914 AD 312 and Van Rensburg v Straughan 1914 AD 317 that the Judges proceeded on the common assumption that on the ground of general principles the employer had a right of withholding in regard to his own performance until the contractor had strictly and fully made his counter-performance. There was also agreement that on the ground of considerations of fairness a contractor should sometimes, despite the principle of reciprocity, be permitted still to claim compensation for an incomplete performance. As that could amount to the employer's right to strict compliance being ended, it is extremely important to determine when the employer, by way of exception, is no longer entitled to his right of withholding. In the three cases mentioned there are at least three points of view, which diverge in principle, to be found. The point of view of C G MAASDORP ADD JA, in the Van Rensburg case at 331, belongs more to cases where there has been a resiling whilst those of Lord DE VILLIERS CJ, in the Hauman case at 297, and INNES JA, in the Hauman case at 304, apply to cases where there has been no resiling. The whole basis of the relaxation of the principle of reciprocity and the recognition of the possibility of instituting a claim for a reduced contract price rests on considerations of fair ness. And, clearly, these considerations can in particular circumstances prescribe that the contractor should still be compensated, even if he knows that he has not fully complied with his obligations. As an equitable solution the point of view of Lord DE VILLIERS is too narrow and the point of view of INNES JA, namely that the Court, in the exercise of its discretion, allows a relaxation of the strict principle of reciprocity where the other party has utilised the partial performance, provides a far more supple and more satisfactory solution. As such the latter must henceforth be accepted and applied.

It must be emphasised that according to the point of view of INNES JA the coming into being of the discretionary power of relaxing the principle of reciprocity has no connection whatever with the degree of shortcoming of the incomplete performance. The decisive fact for the coming into being thereof is the utillisation of the incomplete performance by the employer - whether the shortcoming is big or small. The extent of the shortcoming is, at the most, one of the circumstances which can be weighed up in considering the question of fairness which is involved in the exercise of the discretion.

It would be desirable in the future simply to talk of a (contractual) claim for a reduced contract price, and to avoid names such as quantum meruit and the language of enrichment liability. It would lead to less confusion and greater clarity. It would also fit in, in the normal case, with the amount whereby the contract price is reduced being equivalent to "such sum as would enable the employer to complete the work in exact accordance with the contract" (per Lord DE VILLIERS CJ in the Hauman case at 299), or, put differently, "the cost of remedying the defects" (per INNES JA in the Hauman case at 305).

If the contractor does not succeed in convincing the Court that the has fully complied with his side (of the contract), and he wishes then to claim a reduced contract price, he will have to prove:

(i)that the employer is utilising the incomplete performance;

(ii)that circumstances exist making it equitable for the Court to exercise its discretion in his favour;

(iii)what the reduced contract price should be, ie what it will cost to bring his performance in order for the purpose of determining by how much the contract price should be reduced.

In regard to possible consequential damages (caused by the shortcoming) already suffered and possible damages as the result of the mora of the contractor, the onus of proof will, on the grounds of general principles, still have to rest on the employer. The employer will, probably, have to institute a counter-claim.

The decision in the Transvaal Provincial Division in Scope Precision Engineering (Edms) Bpk v BK Tooling (Edms) Bpk varied.

FREDDY HIRSCH GROUP (PTY) LTD v CHICKENLAND (PTY) LTD

The plaintiff was a manufacturer and wholesale supplier of spices and the defendant was one of its customers. The plaintiff manufactured and supplied the defendant with spice packs containing cayenne pepper contaminated with an impermissible colorant, Sudan Red 1, which was unfitfor human consumption and banned under the Foodstuffs, Cosmetic and Disinfectant Act 54 of 1972 and the regulations. The plaintiff sued the defendant out of the High Court for payment for the spice packs sold and delivered. The defendant admitted the claim, but pleaded that it was excused from paying the amount claimed or any other amount because it had four counterclaims that in total exceeded the amount of the plaintiff'sclaim. The defendant had unknowingly used the contaminated spice packs purchased from the plaintiff in the manufacture of certain of its own products, and once the contamination was discovered the defendant and purchasers of the affected products had had to recall and destroy them. The four counterclaims were for the losses allegedly flowing from that recall and destruction. More specifically, the counterclaims w