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A cancelled contract can (if you are not careful) revive

You can cancel a contract if the other party does not perform his agreed obligations; but could a subsequent slip-up by yourself have the unintended result that the cancelled contract then revives?

The legal minefield involved in cancelling a contract on the grounds that the other party has failed to fulfil his obligations.

If you are wise, you will insist that all your important contracts (legally binding agreements) are drawn up by your attorney or (if drawn up by the other party or his attorney) that they are checked by your attorney before you sign.

Your attorney will, amongst other things, ensure that the contract says that if the other party commits a breach of his obligations, you will have the right to cancel the contract. In that event, both parties must be restored to the status quo ante, and you can in addition claim damages for any loss that the breach and cancellation have caused you.

Assume that the other party to one of your contracts does indeed commit a serious breach of his obligations and you want to cancel the contract.

What now? You should again leave it to your attorney to decide whether you have the right to cancel the contract and, if you do, to set that process in motion. This is not territory that a lay person should stray into, for it is replete with legal potholes and hidden dangers.

For example, if you were to purport to cancel a contract when you did not in fact have the legal right to do so, the other party could seize on your cancellation, declare that it amounted to an unlawful "repudiation" of the contract by you - and he could then cancel the contract himself and sue you for damages.

If you do indeed have the right to cancel, perhaps the contract says that you have to give the other party a warning before you cancel, in which you say that unless he rectifies his breach of contract by such and such a date, you will cancel. If the contract requires that you must give the other party notice of the breach and the chance to put it right, and you do not do so, you will be in the wrong if you cancel.

A Supreme Court of Appeal decision illustrates pitfalls

The recent decision of the Supreme Court of Appeal in Sewpersadh v Dookie [2009] ZASCA 78 illustrates some of the potential pitfalls in this area of law.

Sewpersadh had sold certain business premises to Dookie for R500 000, and the price was payable by Dookie in defined instalments.

Dookie failed to keep up with the instalments. Sewpersadh gave Dookie notice to rectify his failure to pay, and when Dookie still did not do so, Sewpersadh sent Dookie a letter cancelling the contract.

After receiving the letter of cancellation, Dookie continued paying instalments into Sewpersadh's bank account.

Sewpersadh demanded that Dookie vacate the property that he had bought, but Dookie refused to do so.

When the matter came to court, Dookie raised a welter of technical legal arguments.

He argued that the letter of cancellation that Sewpersadh had sent to him was invalid, because it did not specify with sufficient particularity exactly what his alleged breach was. Dookie also claimed that, by accepting the payment of further instalments after the letter of cancellation, Sewpersadh had impliedly waived the right to cancel the contract.

In the course of the litigation it came to light that, after cancelling the contract, Sewpersadh had - foolishly - asked Dookie for R50 000 to help his daughter buy a house, and Dookie had given him R30 000, saying that it was "in respect of the purchase price" - cunningly laying the groundwork for an argument that the contract was still in force.

The Durban High Court found in favour of Dookie, ruling that although the contract had been validly cancelled by Sewpersadh, the latter's subsequent conduct - inter alia his acceptance of the R30 000 from Dookie - had caused the cancelled contract to revive.

Sewpersadh took the judgement on appeal to the Supreme Court of Appeal which, happily for him, set aside the judgement of the Durban High Court, and gave judgement in his favour.

Reviving a cancelled contract requires a new agreement involving a meeting of the minds

The Supreme Court of Appeal said that an agreement to revive a cancelled contract requires "a fresh meeting and concurrence of the minds" of both parties, in which they agree to restore the status quo ante.

In the present case, said the Supreme Court of Appeal, no evidence had been laid before the court of a consensus between Sewpersadh and Dookie to revive the cancelled agreement.

Moreover, said the court, Dookie should not have been permitted to argue that the contract had been revived, because he had nailed his colours to the mast with his contention that he had not breached the contract at all, and that the contract had never been validly cancelled in the first place.

At the end of the day, Sewpersadh therefore emerged from the litigation victorious, with an affirmation by the Supreme Court of Appeal that the contract had indeed been validly cancelled, and that Dookie must forthwith vacate the property so that Sewpersadh could take occupation.

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