Thomas Construction (Pty) Ltd. (in Liquidation) v Grafton Furniture Manufacturers (Pty) Ltd [1988] ZASCA 2; [1988] 2 All SA 228 (A); 1988 (2) SA 546 (AD) (18 February 1988)

The case involves a dispute between Thomas Construction (Proprietary) Limited (in liquidation) as the appellant and Grafton Furniture Manufacturers (Proprietary) Limited as the respondent. The appellant, a company in liquidation, was engaged in construction and building work for the respondent under two separate contracts. The contracts were administered by a consulting engineer and an architect respectively. The appellant was issued interim certificates by the engineer and architect, certifying amounts due to the appellant for work completed. However, following the appellant's liquidation, the respondent purportedly canceled both contracts due to the appellant's failure to remedy breaches as per the contract terms.

The liquidators of the appellant initiated legal proceedings against the respondent to enforce payment based on the interim certificates issued before liquidation. The respondent opposed the claim, arguing that the contracts had been validly canceled due to the appellant's breaches. The main issue was whether the appellant could enforce payment based on the interim certificates despite the contract cancellation by the respondent.

The legal dispute centered around the interpretation of the relevant clauses in the contracts, particularly clause 22.3.4, which stated that no payment shall be made to the contractor under the contract until after completion of the works. The appellant argued that the respondent's cancellation was invalid, while the respondent contended that the cancellation was justified based on the appellant's breaches.

The court analysed the contractual provisions, the principle of accrued rights, and the impact of the appellant's liquidation on the legal position between the parties. The judgment emphasised that the respondent's defense based on the contract cancellation was valid and that the liquidation did not affect the respondent's right to cancel the contract or the appellant's claim for payment under the certificates. Ultimately, the court dismissed the appeal, upholding the respondent's defense and ordering costs against the appellant.

The core legal principle underlying the decision is that when a contract is canceled by one party, the other party cannot enforce payment based on interim certificates issued before the cancellation, even if the certificates were validly issued. The cancellation of the contract supersedes any rights to payment under the certificates, as per the specific provisions of the contract. In this case, the main provision of clause 22.3.4, which stated that no payment shall be made to the contractor under the contract until after completion of the works, prevailed over the appellant's claim for payment based on the interim certificates. The court held that the respondent's defense based on the contract cancellation was valid, and the liquidation of the appellant did not alter the legal position in this regard.

The court relied on the case of Walker v Syfret NO 1911 AD 141, which was referenced in the case of Administrator, Natal v Magill, Grant & Nell (Pty) Ltd (In Liquidation 1969 (1) SA 660 (A).