When two or more parties enter into a contractual agreement knowingly and free from duress, the terms of the agreement must be upheld by each signatory. However, it must be noted when the contract is entered into under pacta sunt servanda, which means “agreements must be kept”, principles of fairness, good faith and reasonableness don’t play a part when circumstances leading to contract breach arise.
With regards to property law, for example, if a lease agreement states a date on which rental is due, then the party responsible for making this payment should meet this obligation. Failing to do so could enable the lessor to cancel the signed lease without notice and retake the property. Genuinely, because the lessee had agreed to the clause by signing the contract, that would then mean that they agree on the grounds of cancellation.
But if the late payment was due to circumstances beyond the lessee’s control, does the cancellation clause still stand?
If the lessee does not oblige with the lease cancellation, the lessor may approach a court to deliver judgement on the agreement and serve a notice of eviction. The lessee may argue that they acted in good faith and that the matter was beyond their control. The lessee may also argue that the implementation of the pacta sunt servanda principle varies from case to case and should be determined by the circumstances surrounding breach of the lease.
If the court chooses to hand down judgement based on the lessee’s argument, it is incorrect due to the freedom each party had when entering into a contractual agreement. Each party has bargaining power and should have, before signing, ensured that any possible errors were taken into account. Good faith and fairness don’t play a part when it comes to an agreement and a court cannot base that as the reason why the lessor should not have cancelled the lease.
This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. (E&OE)