F J Smith v T W Van den Heever NO and Others

The respondents were joint liquidators of Agrichicks (Pty) Ltd (in liquidation). The appellant, Mr F J Smith, was a contract farmer who entered into an agreement with Agrichicks in February 1999, commencing 15 June 1999. The agreement was an innominate contract regulating the relationship between Agrichicks as supplier of day-old chickens and feedstuff, and Mr Smith as contract farmer-grower. Ownership of chickens and feed remained with Agrichicks. The contract operated in cycles of approximately 56 days, with each cycle accounted for individually. Shortly after commencement, on 2 July 1999, the company was placed under judicial management and was liquidated on 14 August 2002. The dispute concerned the last two cycles: the May 2002 cycle resulted in a loss of R87,154.49 debited to Mr Smith's account. The August 2002 cycle began on 12 July. On about 9 August, before cycle completion, the company became unable to deliver required feed and medication and abandoned the chickens. Mr Smith purchased feed to limit losses and disposed of the chickens to third parties between 25-30 August. The liquidators claimed R469,604.96 for goods supplied. Mr Smith raised the exceptio non adimpleti contractus and counterclaimed for damages.

• Whether the liquidators were entitled to payment for goods supplied when the company failed to perform all its contractual obligations during the relevant cycles
• Whether the exceptio non adimpleti contractus applied to defeat the claim
• Whether the contract was divisible or had to be performed as an indivisible whole within each cycle
• Whether Mr Smith was entitled to damages for breach of contract arising from supply of sub-standard chickens and feed
• Whether Mr Smith lawfully acquired ownership of abandoned chickens
• How damages should be calculated in circumstances where the defendant benefited from selling the abandoned chickens

The appeal was upheld with costs. The Full Court's order was set aside. The trial court's order was amended to read: 'Claim and counterclaim are both dismissed with costs.' The liquidators' appeal was upheld with costs and the defendant's cross-appeal was upheld with costs.

In reciprocal contracts operating in indivisible cycles, where parties intend performance to occur reciprocally within each cycle, the exceptio non adimpleti contractus prevents a claim for payment when the claimant has failed to perform its obligations within that cycle. The principle of reciprocity means that one party is not entitled to demand counter-performance unless it has itself performed or is prepared to perform. Where a contract operates in cycles and is not divisible within a cycle, claims must be based on completed cycles where all obligations were fulfilled. In assessing damages for breach of contract, all benefits received by the claimant, including profits from mitigation measures, must be deducted from projected losses. A party who abandons property causes it to become res derelictae, which can be appropriated by another through occupatio, conferring ownership.

The court criticized the practice of cross-examining witnesses on legal issues, stating it is not permissible and should not be permitted by courts or chairpersons conducting inquiries, particularly when the cross-examiner's knowledge of law is deficient. The court noted that liquidators cannot claim disability in conducting their case based on lack of direct knowledge of pre-liquidation events when the company was under judicial management and the judicial manager or employees could supply necessary evidence. The court also observed that although it preferred Landman J's interpretation of the Fertilizers, Farm Feeds, Agricultural Remedies and Stock Remedies Act 36 of 1947 regarding illegal supply of sub-standard feed, it was unnecessary to decide the point given the findings on quantum.

This case is significant for clarifying the application of the exceptio non adimpleti contractus in the context of cyclical commercial contracts. It establishes that where a contract operates in indivisible cycles with reciprocal obligations, a party cannot claim payment for partial performance within an incomplete cycle where they have failed to fulfill their obligations. The judgment reinforces the principle that in reciprocal contracts, one party cannot demand counter-performance unless they have performed or are prepared to perform their own obligations. It also demonstrates that in calculating damages, all benefits received must be offset against losses, and that actual profit can negate a claim for damages based on projected loss. The case clarifies the law on abandonment of property and acquisition of ownership through occupatio of res derelictae.