Legal professionals have been reminded that all law, including the law of contract, derives its power from the Constitution and is subject to constitutional control. When drafting cancellation clauses and other contractual provisions, due consideration must now be given to any disproportionate burden that a cancellation remedy may have on an opposing party.
Contracting parties could previously assume (in situations involving breach of contract) that an aggrieved party would be protected by the law of contract and entitled to invoke a cancellation clause and enforce the contracted/specified and/or common law remedies flowing therefrom. After all, the Constitutional Court itself held - "public policy requires that parties should comply with contractual obligations that have been freely and voluntarily undertaken."
However, the Constitutional Court recently came to the aid of a party who was more than seven years in arrears on instalments in terms of an instalment sale agreement for immovable property and had, in terms of a cancellation clause, forfeited instalments paid previously to the seller.
In Botha & Another v Rich N.O. & Others  ZACC 11, Ms Botha (purchaser) on 19 November 2003, entered into an instalment sale agreement for immovable property owned by the respondent, JJW Hendriks Trust (seller). The purchaser owned and operated a laundry service on the immovable property in question.
The purchaser duly paid instalments from November 2003 until November 2007, where after she failed to pay instalments despite demand from the seller.
On 3 April 2008, the seller successfully prosecuted a claim in the magistrates' court for eviction and in terms of a cancellation clause, forfeiture of the instalments paid by the purchaser.
The purchaser sent a letter to the seller on 21 May 2008, demanding transfer of the property in terms of s27(1) of the Alienation of Land Act, No 68 of 1981 which provides that a purchaser in an instalment sale agreement for immovable property may demand transfer of a property if they had paid at least half of the purchase price (provided a mortgage bond is registered in the name of the seller as security for the remainder of the purchase price). It is worth noting that the purchaser made no mention of her failure to pay instalments for over six months at that stage, nor did she tender payment thereof.
The purchaser obtained an interdict which suspended the eviction. However, on application to the Northern Cape High Court by the seller, the court held that the enforcement of the cancellation clause was not in bad faith, unreasonable, unfair, nor contrary to public policy. The Full Bench agreed and an application for leave to appeal to the Supreme Court of Appeal was dismissed with costs.
The purchaser argued before the Constitutional Court that the Northern Cape High Court and the Full Bench over emphasised the right to freedom of contract and had not sufficiently emphasised the injustice caused by the enforcement of the cancellation clause.
The Constitutional Court agreed and held that in instances where the rigid application of contractual principles would lead to an injustice - the contractual principle of good faith was flexible enough to ensure fairness between the parties.
The Constitutional Court held that where a contract has been lawfully cancelled, mutual obligations arise to restore respective performances. Relying on the forfeiture clause in the agreement, the seller made no tender of repayment of what it had received from the purchaser (despite this not being a contractual requirement). Enforcement of the forfeiture clause was found to be unfair, unconstitutional and a disproportionate penalty in circumstances where half of the purchase price had been paid by the purchaser (this was found despite the fact that the agreement had been lawfully cancelled by virtue of the purchaser's default).
The Constitutional Court upheld the appeal and ordered transfer of the property subject to the purchaser paying the outstanding rental owed to the seller.
The case is a sobering reminder to legal professionals to take cognisance of the fact that contracting parties will not necessarily be bound by contractual provisions to which they have agreed if those provisions are found to be unfair or, when enforced, place a disproportionate burden on one of them.