Cancellation

Cancellation is an extraordinary remedy that is only available to the innocent party in

exceptional cases

This is because the cancellation is a drastic step that brings the transaction to an abrupt
and premature end, contrary to the original intentions of the parties

A party is only entitled to cancel if the breach is sufficiently serious or material

Materially of the breach
The materially of a breach with depend upon the particular circumstances and type of breach
in question
Cancellation clause (Lex commissoria)
A clause in the contract regulating the right of either party to cancel the agreement on account
of a breach by the other party
The clause allows the innocent party a right to cancel for any breach irrespective of its
materiality in terms of common-law rules, provided that it falls within the scope of the clause

The agreement between the parties takes precedence over the common-law rules except
where such agreement or clause is unlawful

The act of cancellation

Once a breach that justifies cancellation has occurred, the innocent party is faced with an
election to either affirm or cancel the contract

The election is final and irrevocable unless the other party consents to its reversal or
breaches the agreement again

If the innocent party elects to cancel the contract, they must notify the other of their decision
and the notice of cancellation must be clear and unequivocal
The cancellation takes effect only when it has been communicated to the party in breach and
it cannot be worded so as to take effect only from a future date
When the contract stipulates steps that have to be taken to cancel the contract, the innocent
party must follow those steps to effect a valid cancellation
The notice of cancellation will usually state the grounds on which the contract is being
cancelled

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 Provided that a good reason for cancellation does in fact exist, the cancellation will be
effective despite the fact that the innocent party has relied upon the wrong reason
A premature cancellation is of no immediate force or effect (it might constitute the party
repudiating) but if a good ground for cancellation were to arise subsequently and it is clear
that the innocent party persists in their original attitude, there is no need for a fresh notice of
cancellation
Loss of the right to cancel: elections and waiver
An election to affirm the contract entails the loss of the right to cancel
If the innocent party expressly or tacitly manifests an intention to abide by the contract
despite the breach, they waive the right to cancel on the account of that particular breach

A tacit election not to cancel the contract may be inferred from the conduct of the
innocent party

Even if the innocent party has no actual intention of waiving the right to cancel, if by
words or conduct they create in the mind of the other party the reasonable impression
that they have elected to affirm the contract, the innocent party may be estopped from
asserting the right to cancel

An unreasonable delay in exercising the right to cancel will not itself automatically result in
the loss of that right but it may justify an inference that they have tacitly elected not to cancel

Relevant circumstances to take into account:

The duration of the delay

Letters written

Legal remedies employed by the innocent party

Acceptance or use of the performance by the innocent party, after they have become
aware of the breach is often an indication of waiver

The legal effects of cancellation

When the contract is cancelled, the primary obligations of the parties are extinguished

If the obligation to perform is indivisible, it is extinguished in its entirety

If the obligation is divisible, only those parts of the obligation that still need to be performed
are terminated and the rest of the contract remains intact

In this case, a right to a performance that accused prior to the cancellation can still be
enforced, provided that it is independent of the executory part of the contract

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 Certain ancillary obligations arising from the contract remain in force despite the termination
of the agreement

For instance

Penalty clauses

Arbitration clauses

Exclusion clauses

The obligation to pay damages

Restitution
Cancellation extinguishes obligations but also creates new ones - namely, the duty on both
parties to restore whatever performance has been received by that party

This is a remedy in its own right and not an enrichment claim

The purpose is to place the other party in the position that it occupied before the conclusion of
the contract

Interest on money paid runs from the date of payment

The party claiming termination and restitution must tender restitution of the performance they
received in its pleadings
Restitution is not required where it has become impossible due to a reason not attributable to
the party exercising the right to terminate

For instance, if restitution has become impossible due to the inherent defect of the thing
itself, or due to vis maior or due to the acts of an independent third party, the innocent
party is still entitled to terminate the agreement and is excused from the duty to make
restitution

Restitution is also excused where the goods have been destroyed or rendered valueless
through use in the manner contemplated by the parties

The innocent party may also be able to terminate the agreement where restitution has become
partly impossible due to their fault but where restitution is still substantially possible and
where the shortfall can be effectively made good by the payment of money as a substitute

Does cancellation create new obligations or are old obligations transformed?

De Wet and Van Wyk take the traditional approach and argue that a breach does not create
new debt but it is the same original debt that has been transformed in appropriate
circumstances
Lubbe and Murray take a nuanced stance

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 They argue that apart from the primary obligations flowing from the contract, there are
secondary obligations that arise through the operation of law

The secondary obligations provide the basis for obligations and remedies that follow
from a breach of contract

Other authors take the view that a breach constitutes the basis for a new obligation

The breach is a wrongful act and if it causes damage to the other party, it gives rise to
new obligations

The consequence of this approach is that prescription only begins to run at the time of the
breach

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