business law notes uct

BUSINESS LAW 1 (CML1001F)

PART A: INTRODUCTION

1) What is law?

Law is a body of rules governing human behavior which is recognised and enforced by the state.

When a law is disobeyed, the state can punish the offender or the state can provide the person who has been wronged with a remedy.

The state is equal to the government. It is divided into three areas.

i) The legislature – makes law = parliamentii) The executive – enforces law = president, ministers, civil service (e.g. police)iii) The judiciary – applies and interprets law = courts (e.g. judges and magistrates)

2) The South African Legal System

Court Structure

Definition of an Appeal

An appeal involves taking a case from an inferior court to a superior court in the hope of getting a different judgment.

It is used as a mechanism for getting a second opinion on the judgment of the inferior court.

Definition of Jurisdiction

Can have two meanings:i. The powers which a court has. e.g. A court with criminal jurisdiction has the power to hear criminal matters.

ii. The geographical area over which the court has power. e.g. The Cape Provincial Division of High Court has jurisdiction over the Western Cape. This means it has the power to hear matters in the Western Cape.

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Constitutional Court

Supreme Court of AppealBefore 1994 known as

Appellate Division

High Court

Magistrates Court

Local Divisions of High Court Provincial Divisions of High Court

Regional Magistrates Court District Magistrates Court

2.1) Constitutional Court (CC) - There is a written constitution, which is an act of parliament- It protects human rights- Human rights are contained in the Bill of Rights- The other chapters deal with how the country is governed. - Matters which relate to the protection of human rights and how country must be governed are known as constitutional matters or cases. - In terms of the constitution, there must be a constitutional court. - In most situations, cases are only brought on appeal to the constitutional court.- The CC can however sit as a court of first instance (trial court). - The CC only hears cases and appeals of a constitutional nature. - The court sits in Johannesburg.- It has jurisdiction over the whole country.- It has eleven judges. At least eight judges must be on the bench to hear a case.

2.2) Supreme Court of Appeal (SCA) – previously known as Appellate Division- This is strictly an appeal court.- Final court of appeal in all matters except constitutional matters.- It can hear constitutional appeals but it is not the final court of appeal for these matters.- Can hear civil, criminal and constitutional matters.

Example 1:A man is found guilty of theft in the magistrates court and then appeals in the High Court. He is found guilty again and appeals to the SCA. If he is found guilty once again he cannot apply for a further appeal unless it is based on a constitutional infringement. For instance, if he were given the death penalty at the SCA, he could appeal to the constitutional court (based on his right to life) to challenge the death penalty verdict, but not for the charge of theft.

Example 2:A student starts a publication at UCT which is subsequently banned by the UCT senate. The case goes to the Cape High Court, who find in favour of the UCT senate. The student appeals to the SCA who also find in favour of the senate. The student can still appeal at the CC since it is a constitutional matter (freedom of expression).

- The SCA sits in Bloemfontein and has jurisdiction over the whole country. - There are 20 judges, with 3 to 5 judges required to sit per case.

2.3) High Court

2.3.1) Provincial Division- Each provincial division only has jurisdiction over their geographical area.

i) Cape Provincial Division (C)Western Cape

ii) Eastern Cape Provincial Division (E)Sits in Grahamstown

iii) Northern Cape Provincial Division (NC)Sits in Kimberley

iv) Transvaal Provincial Division (T)Gauteng mainly, most cases; court sits in Pretoria and covers Johannesburg, Pretoria, Limpopo, Mpumalanga

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v) Natal Provincial Division (N)Court sits in Pietermartizburg

vi) Orange Free State Provincial Division (O)Court sits in Bloemfontein

vii) Bophuthatswana High Court (B)Court sits in Mmabatho

viii) Ciskei High Court (Ck)Court sits in Bisho

ix) Transkei High CourtsSits in Umtata

x) Venda High Court (V)Sits in Thohogandou

2.3.2) Local Divisions- Same status as Provincial Divisions, but with smaller geographical area. Made for convenience.

i) Witwaterstrand Local Division (W)

Example:You are involved in a car accident in Johannesburg. Both you and the other car victim live in the surrounding areas. You are seriously injured and want to sue the other driver for damages. You can go to the Witwaterstrand Local Division or Transvaal Provincial Division.

ii) Durban and Coast Local Division (D)iii) South Eastern Cape Local Division (SE)

2.3.3) Powers of Provincial and Local Divisions- Each court only has jurisdiction over its geographical area.- Can hear all cases (civil, criminal, constitutional)- Provincial and local divisions can sit as court of first instance.- One judge sits with two assessors in a criminal case.- Assessors are not judges (usually advocates or lawyers) who sit with the judge to assist.- Provincial Divisions can be appeal courts. - Local Divisions cannot be appeal courts, except for the W.- When they hear appeals from the magistrates court at least two judges must sit.- Provincial Divisions (not W) can also hear appeals from a single judge of the same division, or a local division in its area. In these cases, at least three (3) judges must sit (=full bench).

Example:You are tried in the Cape Provincial Division (C) by one judge. You want to appeal. You can appeal again in the Cape Provincial Division with three judges on the bench. After that, you can appeal to the SCA.

Example:Case heard by Durban and Coast Local Division (D). You can appeal to Natal Provincial Division (N) with three judges. Then you can appeal to the SCA.

2.4) Magistrates Court

2.4.1) Types of Magistrates Courts- South Africa is divided into various magisterial districts (every four to six suburbs).- Each magisterial district has a district magistrates court.

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- Wynberg has a district magistrates court which encompasses Rondebosch, Newlands, Claremont and Harfield.- Some areas also have a regional magistrates court. (i.e. Wynberg)- Each magistrates court has jurisdiction over its geographical area.- Magistrates courts have magistrates not judges.

2.4.2) Powers of Districts Magistrates Court- In criminal cases they cannot hear murder, rape or treason (big 3). - They cannot hear a non-criminal case where the value of the claim is more than R100000.- No constitutional or appeal jurisdiction.

2.4.3) Powers of Regional Magistrates Court- Only hear criminal cases except treason.- No appeal jurisdiction, no constitutional or civil jurisdiction.

Example:X, who lives in Cape Town, is charged with murder.

a) Where will his case be heard?b) What are his avenues for appeal?

Option 1a) Cape Town Regional Magistrates Courtb) Cape Provincial Division of High Court (2 judges), Supreme Court of Appeal, Constitutional Court (only if

given death penalty at SCA and cannot appeal guilty verdict)

Option 2a) Cape Provincial Division of High Court (1 judge + 2 assessors)b) Cape Provincial Division of High Court (3 judges), Supreme Court of Appeal, Constitutional Court (only if

given death penalty at SCA and cannot appeal guilty verdict)

Example:X enters into contract with Y to buy Y’s car got R1 000 000. They both live and work in Cape Town. X does not pay on the due date and Y wants to sue him for the money. This is not a crime.

a) What court will Y sue in and b) what are his avenues of appeal?

Cape Provincial Division (one judge)Finds in favour of XCape Provincial Division (three judges)Finds against YSupreme Court of Appeal Y wins the case.

3) Sources of South African Law

1. Legislation2. Roman-Dutch Law (common law)3. Judicial Precedent (case law)4. African Customary Law5. Custom6. Customary International Law

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3.1) Legislation

3.1.1) Legislation and Interpretation of Statutes- Legislation = acts of parliament = statutes- Legislation takes precedence over all other sources of law except constitutional law.

3.1.2) Types of Legislation

i) The Constitution

ii) Original Legislationa) Acts of Parliament (e.g. Children’s Act of 2005)b) Legislation passed by the provincial governments. Each province has its own provincial government – they can make laws on certain matters. e.g. education, health

iii) Delegated Legislationa) Local authorities like city councils. Laws legally passed by these bodies always known as by-laws.

Example:Parliament will pass an act saying that the Cape City Council is able to make laws regarding the building of residential homes. The City Council then passes a by-law (delegated) which says one may only build walls 2m high.

b) Government departments. Legislation passed by these bodies is known as regulation.

Example:Parliament pass company’s act (original legislation). In terms of that act, the Minister of Finance can pass regulations regarding South African companies.

Importance of Distinction

1. The courts cannot refuse to apply the constitution.2. The courts will not apply original legislation if it conflicts with the constitution.3. With delegated legislation, the courts only have to apply it if it falls within the area of power delegated.

Example: [Refer back to City Council example.]This time the City Council passes by-law regarding how office buildings should be built. The court will not apply that law since it is outside the region of power.

3.2) Roman-Dutch Law (Common Law)- Common Law is a combination of Roman, Dutch and English Law.- It dates back centuries ago, but it still forms the basis of our legal system.

3.3) Judicial Precedent (Case Law)

3.3.1) What is judicial precedent and case law?This is law the law made by judges when they apply the law to the facts of the case before them.

Note: When they apply the law this can mean any law.

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Example:A shop-keeper in 1967 had a shop which was regularly broken into. Eventually the owner put up a trap. It used a mechanism which shot off a gun if the doors or windows were tampered with after hours. One day, the gun gets set off by a robber who is consequently killed.

The case goes to court. Can one kill in the defense of property? Is the owner guilty of murder or is it a justifiable defense? Judge researched Roman Law and found a similar case. He applied it to modern facts and decided that it was a justifiable defense. This decision became law.- Ratio Decidendi (becomes law)

The judge also said that it is advised that one puts up warning signs if similar mechanisms are used.- Obiter Dictum (does not become law)

3.3.2) Stare Decisis (Let the decision stand)The way that the judge’s decision (ratio) becomes law is through the principle of stare decisis. This means that a judge or magistrate must always follow the ratio of a higher court where the facts of the two cases are similar and/or the legal issues are the same.

Example:A few years after the shop-keeper case, another case comes before a lower court. This time a person is killed by drunk driver. Because the case is dissimilar, the court wouldn’t have to follow the ratio of the shop-keeper case.

Magistrates courts must follow: Decisions by all higher courts. When it comes to following decisions of a higher court, the magistrates courts are bound by all local and

provincial divisions, but where there is conflict they follow the high court in their own province.

Example:Say for instance the shop-keeper case was heard in the N [Natal Provincial Division]. There is a case in the C [Cape Provincial Division] which concludes that one cannot kill in the defense of property. A few years later a case comes before the Wynberg Magistrates Court where a thief is shot and killed whilst attempting to steal by the owner of the home. The court must follow the C’s decision and therefore the owner is guilty of murder.

Provincial and Local Divisions of High Court must follow: High courts (SCA, CC) They must follow decisions of their own divisions if a greater or equal number of judges sat on a

previous case.

ExampleA case is heard in 1983 by a full bench (3 judges). This year a similar [factual] case comes before N, with only one judge sitting. He is therefore bound by the previous decision.

Supreme Court of Appeal must follow Constitutional Court

3.3.3) Law Reports- Most cases heard every year are reported in law reports.- Four volumes are published annually.- Cases are identified by case citations or notations.

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Example:Jones v Brown 2006 (3) SA 123 (C)

Jones = plaintiff, Brown = defendant, 2006 = year, (3) = Volume, SA = South Africa, 123 = page number, (C) = court, in this instance, Cape Provincial Division of High Court

Jones loses case and appeals to SCA. New case heading:

Jones v Brown 2007 (1) SA 49 (SCA)

Jones = appellant, Brown = respondentNote: Foreign judgments are not binding on our courts but are persuasive.

3.4) African Customary Law (ACL)- Laws followed by black communities for centuries. Our courts can apply ACL if both parties agree to use it as law.

3.5) Custom- A custom is a rule of conduct which has been established through prolonged practice or usage. (an unwritten law)

Example:A group of fishermen cast out lines to fish every morning. A while later, a second group of fishermen began to stand in front of the first group of fishermen and cast their lines out further. The second group, naturally, caught more fish. The first group then sued the second group for damages via lost income. They argue that there is a custom among fishermen that when one casts out his line, a later fishermen cannot push in front. The first group wins the case.

3.6) Customary International Law- Will be discussed when we cover national/international law.

4) Legal Rights

Definition of a legal right

A legal right is a right given and protected by law. There are two types of legal rights: real and personal rights

4.1) Personal Rights- A personal right is a right which is enforceable against one or more particular people.

Example:X sells his car to Y for R20 000. X delivers the car to Y, but Y fails to pay. X has a personal right against Y for payment.

4.2) Real Rights- Real rights are enforceable against the entire world; not just particular people. This is because a real right is a right in a thing itself. - The most common real right is ownership.

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Example:X owns a car. A steals the car. A sells the car to B in good faith. B sells the car to C, also in good faith. X will have the right to claim the car from C since he can claim from wherever he finds what he owns.

5) Legal Personality

The law recognizes as legal persons in the following: Natural persons (humans) Juristic entities / persons. These are groups or associates such as:

1. Companies2. Trusts3. Universities4. Religious Organizations5. Sports Clubs

Juristic entities are treated as legal persons with their own set of rights. They have legal rights and obligations and can sue and be sued in their own name.

In other words, they exist separately from their members or management.

Example:SAB ltd. enter into a contract with John to deliver to him 500 crates of beer. John pays for the beer, but SAB does not deliver the beer. Who will John sue? He will sue SAB ltd.

6) Branches of Law

6.1) International / National Law

6.1.1) International Law- This is the law that governs relations between independent states.- It is states, not individuals, which have rights and obligations under international law.

Examples of this include air space, territorial waters, treatment of diplomats and extradition of criminals.

Sources of International Law Customary International Law

This is a rule of conduct that countries observe between each other which becomes law. Conventions / Treaties

This is the United Nations Conventions, various conventions on human rights and treatment of prisoners of war. [Geneva Convention]

6.1.2) National Law- This is the local / domestic law of a country- In South Africa our law is derived from a number of sources.- National law is divided into different areas.- The first main division is public and private law.

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6.2) Public / Private Law

6.2.1) Public Law- The relations between the state and its subjects.- The relations between the various organs of state. (executive, judiciary, legislature)- There are various sub-categories of public law (refer to diagram above)- The reason that criminal law falls under public law is because crime is an act prohibited by law and punishable by the state.- In a criminal case, it is the state that prosecutes the accused (not victim).

Example:S v Jones 2007 (1) SA 56 (C) where S = state

6.2.2) Private Law- Private law deals with the subjects of the state and their relationships with each other. - The law of obligations falls under private law. It deals with personal rights. - It is sub-divided into delict, contract and unjustified enrichment.

6.3) Criminal / Civil Law- Criminal Law deals with criminal matters.- Civil law deals with everything else.

There are four main differences between criminal and civil law.

1) Case citation is different.Referred to as state and accused in criminal case whereas plaintiff and defendant in civil case.

Note:If you wanted to sue the executive government the case citation would read:John Farley v President of the Republic of South Africa - nomino officiiIf John Farley won the case, the state would have to pay.

If the doctor of a government hospital breaches contract, John Farley would sue the Minister of Health etc.

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Public Law

Constitutional Law Administrative Law Criminal Law Labour Law Taxation

Private Law

PropertyMercantile (comm.) Law Successions ObligationsPersons & Family

Negotiable Instruments Banking

Company Law Insolvency ContractDelict Unjustified Enrichment

2) In a criminal case, if the court finds that the accused did commit the crime we say they found him guilty. In a civil case you never use the term guilty. Instead one would say that the court found in favour of X or against Y.

3) In a criminal case, if the accused is found guilty, in most cases he is either sent to jail, charged a fine or both. The fine would be paid to the state. In a civil case, if the plaintiff wins, then the defendant will pay damages to the plaintiff or perform some act.

4) In a criminal case the burden or onus of proof is “beyond a reasonable doubt.” In a civil case, the burden or onus of proof is a balance of probabilities.

6.4) Criminal Law, Delict, Contract and Unjustified Enrichment

6.4.1) Criminal Law- See notes under Public Law and Criminal / Civil Law

6.4.2) Delict (civil, private law and obligations)A delict is a wrongful act that causes harm to a person or their property.

- Every person over the age of 7 has an obligation not to harm others.- Wrongful means either done with intent or negligence.- The most common form of delict is car accidents.

6.4.3) Summary of Differences between Crime and Delict

1) The Act Itself- The act itself can be different. For example, murder, rape and theft are always a crime. On the other

hand, certain acts are always delicts.- Sometimes an act can be a crime and delict.

Example:X deliberately crashes into Y’s car. This is delict since there is intent to cause damage. Case citation would be Y v X and it would be a civil case. If the judge finds in favour of Y, X would have to pay for the reparation of Y’s car. The burden of proof in this instance is a balance of probabilities. It is also a criminal case since there was malicious intent. Both cases would run simultaneously, with different judges and in different courts. The case citation would be S v X, and the burden of proof would be “beyond a reasonable doubt.” A fine or jail sentence would be imposed if X were found guilty.

2) Legal Remedy- In a criminal case, the guilty party would be forced to pay a fine to the state, be imprisoned or both.- In a delict, the person against whom the case is found would have to pay damages.

3) Purpose of the sanction- In a criminal case, the aim is to protect society and to punish. - In a delict, the aim is to compensate the plaintiff.

4) Burden of Proof- “Beyond a reasonable doubt” for a criminal case.- A balance of probabilities for a delict.

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6.4.4) Contract- Part of civil law. - Falls under category of private law and the sub-category law of obligations. - Law of contract deals with contracts or agreements between people.- A breach of contract occurs when one party does not honour the terms of the agreement.

Note: Not all contracts are in writing!

Example:Kyle Dos Santos sells his car to Oliver Cole for R20 000. Dos Santos delivers the car but Cole does not pay. This is a breach of contract. The case citation would be: Dos Santos v Cole, it is a civil case, the burden of proof would be a balance of probabilities and if found against Y, he would have to pay R20 000 (+ perhaps interest)

- In contract, no damages are awarded for hurt feelings or emotional trauma. (damages for emotional loss etc. may be awarded under delict but on a small scale.)

6.4.5) Contract and Delict Compared- Two main differences

1) In delict, the liability of the defendant arises from a wrongful act which causes harm. This act is wrongful by operation of the law, because one has a duty not to harm others. In contract, the liability arises from the breach of the agreement.

2) In delict, the duty not to harm others is owed to all people over the age of seven.In contract, the duty not to breach is only owed to the other party in the agreement.

Example:A surgeon, Dr. Phil, owns a private practice. He performs surgery on Mrs. Bean to take out her appendix. By mistake he takes out her kidney’s and leaves her appendix. As a result, Mrs. Bean becomes even more ill. This means she suffers increased financial losses (due to higher medical fees and a loss of income from being sick). She can sue Dr. Phil for breach of contract. This would be a civil case. If the case is found against him, he would have to pay all of Mrs. Bean’s financial losses. She could also sue for delict on the grounds of negligence. This would also be a civil case. The harm he has caused is her financial losses. If this case was found in favour of Mrs. Bean, Dr. Phil would have to pay for damages and possibly a small amount for the emotional trauma. Mrs. Bean could not, however, sue for both breach of contract and delict as this would amount to double compensation. She must choose.

If Mrs. Bean were to die, this would be a criminal case (culpable homicide). S v Dr. Phil. This can run con-currently with another case.

6.4.6) Unjustified Enrichment- Deals with the compensation of someone for a benefit which they accrued from you without any legal justification.

Example:You believe you owe Roger Federer R2000 and consequently pay him this amount. However, you only owe him R1500. Roger Federer owes you the R500 extra you paid under unjustified enrichment.

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PART B: LAW OF CONTRACT

1) Formation of a Valid Contract

- In order for there to be a valid and binding contract, certain requirements need to be met. If any one or more of the requirements is not met, there will not be a valid and binding contract. The contract will be void. All of the following requirements must be met:

The parties must have contractual capacity. The parties must have serious intention to contract. The parties must communicate their intention to each other. The parties must be of the same mind. i.e. no misunderstandings or mistakes The agreement must be lawful. Performance of the contractual obligations must be possible. The agreement must comply with all the formalities required by law for that particular type of

contract. The agreement must be certain in its terms.

1.1) Contractual Capacity

All legal persons have full contractual capacity. However, there are exceptions. Certain people have limited capacity. The law places restrictions on their capacity to enter into valid contracts. The following people have limited capacity.

Minors Married Persons Mentally Ill Persons Insolvents Intoxicated Persons

a) MinorsA minor is an unmarried person below the age of 18. The Children’s Act 38 of 2005 which came into effect in June/July 2007 adjusted the age of majority from 21 to 18. A major is a person with full contractual capacity.

i) Marriage- A minor becomes a major on marriage regardless of his or her age.- Once they are married they have full contractual capacity.- If the marriage terminates (death or divorce) before person turns 18, they will still be a major.

ii) Contractual Capacity of Minors who have not been Married.- Minors who have not been married require guardianship (parental responsibility).- This means the control over and administration of the estate of the minor, as well as assistance in performing of legal acts, such as contracting.

Note: Guardianship is different from custody. Custody simply means who the child lives with. The custodial parent decides on small daily issues, whilst the guardian signs on big decisions.

iii) Guardianship and children of parents who are/married- The father and the mother are equal guardians of a child born of their marriage.

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- Prior to 1993 the father was the sole guardian.- This means either parent, without the consent of the other, can carry out the duties and powers of guardianship.- However, there are certain terms for which the consent of both guardians is required:

* Marriage of a minor child.* Adoption* Removal of child from South Africa.* Application for a passport.* Alienation (sell/mortgage) of immovable property belonging to the child.

iv) Guardianship and children of parents who were never married.

a) The mother is the sole guardian. However, the children’s act will allow the father to be co-guardian, provided that:

1) At the time of the child’s birth he is living in a permanent life-partnership with the mother or

2) He has in some way acknowledged the child and contributed to the child’s maintenance and upbringing.

b) Infans and PupillusThere are two categories of minors.

Infans- Infans are under the age of seven.- They have no contractual capacity.- In order for the child to acquire rights and duties under contract, it must be entered into by the guardians on his/her behalf.

Example:Sipho (5) wants to take out a gym membership. His mother is Lindi and she is married. Lindi will have to sign the contract on behalf of Sipho. The signature or execution of clause will read:

“Lindi Madisa (with signature above), on behalf of Sipho Madisa, ….”

Only Sipho would have rights to the gym membership, but technically speaking, he should also be paying the monthly payments.

Pupillus- Pupillus are between the age of 7 and 18.- They have limited contractual capacity. This means he/she can enter into contracts and sign them in his/her own name, provided he/she is assisted by a guardian.- Assistance means that the guardian must consent to the contract before or at the time that it is entered into.- The guardian must consent to the type of contract (does not need to consent to exact terms and conditions).- The consent can be expressed or implied.

Implied consent:To see if there has been implied consent one has to look at the conduct of the guardian and ask: Was he/she aware of the contract and did he/she show objection? If the answers are yes and no, then there has been implied consent.

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Example:Sipho (15) has non-married parents. His mom is therefore his sole guardian. Sipho wants a motorbike, and tells his mother he is going to buy one. Although the mom says nothing at the time, later that day she buys Sipho and motorbike helmet. This is implied consent.

- With pupillus, the guardian can still enter into contract entirely on behalf of the child.

c) Effect of an assisted contractA duly assisted contract is:- In the case of an infans, one made on behalf of the minor by the guardian.- In the case of a pupillus, it is a contract made by the minor with the assistance of the guardian or on the minor’s behalf by the guardian.

The effect of a duly assisted contract is that the minor is bound (not guardian). In other words, it is valid and enforceable against the minor.

Marshall v National Wool Industries Ltd 1924 OPD 238

Marshall Jnr. (19) bought shares in National Wool. He signed a share application form with the assistance of his father. He then failed to pay purchase price. National Wool then sued Marshall Jnr. He argued that they should instead sue his father since he (Jnr.) is not liable. National Wool withdraw their case against Jnr. And decide to sue the father. This goes to court. The court decides that Jnr. is liable.

i) Substantially Prejudicial ContractsMinors are generally bound; however if the contract is not in the minor’s interest at the time it was entered into, then it can be set aside by court.

Note: Prejudice must be substantial not trivial.

Wood v Davies 1934 CPD 250

Wood’s father bought a house on Wood’s behalf from Davies. The purchase price was 1750. Upon turning 21, Wood Jnr. sued Davies for cancellation of the sale of the house and a return of installments paid. He argued that it was substantially prejudicial when it was entered into. The court agreed it was substantially prejudicial for the following reasons:

1) Selling price was 200 more than market value.2) It was an unnecessary investment since Wood didn’t need the house.3) The contract contained onerous (unfair) clauses.

The court held that Wood was entitled to cancellation and restitutio in integrum (each party gives back what they had received and restored into their pre-contract condition). Thus, Davies gives back money and interest; whilst Wood gives back the house (otherwise it would be unjustified enrichment.)

v) Effect of an unassisted contract

- If the minor contracts without proper assistance, he is not bound by the law of contract.- The minor may recover the other party any money or property which he handed over because as far

as the minor is concerned there is no valid contract. This is the case even if the contract is to the minor’s benefit.

- However, the contract is binding on the adult.

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- As far as the adult is concerned, there is a valid contract.- Therefore, an unassisted contract is known as a limping contract.

Minor: No contractual obligations, lightAdult: Full contractual obligations, heavy

In practical terms, the limping contract works as follows: - The minor has the sole choice whether to enforce the contract or not.- The adult is bound by the minor’s decision.- This means the minor can enforce the contract (ratification) or not enforce the contract

(repudiation).

RepudiationIf the minor chooses this option, neither party will be bound by the contract. The effect is that the contract never existed at all.

Note: Never use the term “cancel” for a limping contract.

The minor is entitled to recover all he gained. He recovers money through convictio. All other things are recovered through rei vindicatio.

This is not in restitutio in integrum. That is only for valid contracts that have been cancelled. This contract never existed, so we use condictio and rei vindicatio.

The other party to the contract can claim back what they have performed under unjustified enrichment.

RatificationIf the minor chooses to enforce the contract, this is called ratification.

The other party is bound by the contract and has no choice but to perform and so is the minor. (he/she must be assisted though.)

Ratification in PracticeRatification while still a minor requires the assistance of a guardian. The assistance or consent can be expressed or implied.

Example 1:A 12 year old enters into an unassisted contract to buy a cell phone. He comes home one day and tells his mom that he had bought a cell phone, who replies “That’s great.” This is expressed ratification and therefore the contract is valid. Both parties are bound.

Example 2:A 16 year old boy takes out a gym contract without assistance. He never discusses this with his guardian. The guardian becomes aware of the contract and begins to drive him to the gym. This is implied ratification and is also a valid contract.

The effect of ratification is that the contract is deemed to be valid from the date the contract is originally entered into, not the date of ratification.

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Example 3:An unassisted contract took place on 3 March 2008, but the ratification of that contract only occurred on 15 August 2008. The contract is valid and binding from 3 March.

Ratification on majorityIn this situation, no assistance is required.

Stuttaford v Oberholzer 1921 CPD 855

A few months before Oberholzer turned 21, he entered into an unassisted contract to buy a motorbike. The purchase price is paid in monthly installments. After he turned 21, he continued to use the motorbike. However, he failed to pay installments thereafter. Stuttaford sued him for the value he owed. Oberholzer argued that he was an unassisted minor at the time of the contract therefore he is choosing to repudiate the limping contract. The court held that he had, by implication, ratified the contract by using the motorbike after he turned 21 and was thus a valid contract from the beginning.

vi) Cases where the minor incurs valid legal obligations without the guardian’s assistance.

- Where a minor enters into an unassisted contract which is not later ratified, he/she incurs no obligations under the law of contract.

- However, he may incur a legal obligation under some other area of the law or for some other reason.

These situations are the following:a) The law of Unjustified Enrichmentb) The law of Delict (fraudulent misrepresentation)c) Statutory Exceptionsd) Tacit Emancipation

Unjustified Enrichment

- If the minor enters into an unassisted contract that is not later ratified, he is not liable under the law of contract but he may be bound or liable under the law of unjustified enrichment.

Example 1:Brian is 16 years old. He buys a motorbike unassisted. The purchase price is payable in installments of R1000 each month. He uses the bike for 6 months without his parents knowing. He fails to pay the installments. He then decides he doesn’t want the bike anymore. Therefore he owes all R6000.

This is a limping contract, with no ratification which he can therefore repudiate. He is not liable to pay or return the motorbike under the law of contract but he should do so under the law of unjustified enrichment.

Example 2:Saliem (17) enters into an unassisted contract with a jewelry shop to buy a diamond ring for R500 000. He pays a deposit of R50 000 and should pay the balance in monthly installments. He gives the ring to his beloved girlfriend as a gift, who promptly repays his generosity by dumping him and immigrating to the Bahamas. He fails to pay the remaining balance on the ring.

This is a limping contract which is not ratified. Saliem is not liable to pay under the law of contract. He can claim back the R50 000 deposit on condictio. The jewelry shop can’t claim under unjustified enrichment because he doesn’t have the ring.

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Delict (Fraudulent Misrepresenation)

- A minor can fraudulently misrepresent themselves in three ways. Fake ID Fake Marriage Claim they have parent’s consent

If the minor does fraudulently misrepresent themselves and the other party is reasonably deceived and enters into a contract with the minor, the minor is liable under the law of delict.

The wrongful act in this circumstance is the fraudulent misrepresentation and the harm is the financial loss.

Statutory Exceptions

- Some contracts can be entered into unassisted. - For instance, statutes such as the Banks Act 94 allow minors over the age of 16 to open and operate deposit accounts without assistance.

Tacit Emancipation

- Tacit emancipation (TE) occurs through the consent of a guardian and a minor of any age can be tacitly emancipated (in theory).- It normally occurs where a minor is allowed by his/her guardian to carry on his/her own business or occupation.- If a minor is TE, he/she can enter into a valid contract and incur contractual obligations without the assistance of the guardians in respect of that business or occupation. - He/she cannot contract outside of those areas without assistance. - However, sometimes the courts have held that TE may reach further than the business or occupation. - Having said that, no matter how far reaching the TE, the courts have agreed that it will never allow the minor to marry or to sell immovable property without consent. - To see if there is TE, the courts look at the facts of each case.

Example:Nadia (16) lives with her parents and is already in 1st year varsity. She has started her own business selling sandwiches on campus. This is done with the consent of her guardian(s). The business thrives and she uses the business profits to pay for her own university fees, textbooks, pocket money and rental to her parents. One day she enters into an unassisted contract with Pick ‘n Pay for 200 loaves of bread [to be delivered]. She fails to pay. Pick ‘n Pay sue her for the money owed. Nadia argues that she entered into unassisted contract and since she is a minor, she is allowed to repudiate. Pick ‘n Pay argue that she is TE.

The rule of law is that: “He who alleges must prove.”

Therefore, Pick ‘n Pay would be required to prove that the guardian(s) has/have consented to the release of the minor from his/her/their power.

To ascertain this, courts look at the following based on a balance of probabilities (it is a civil matter): Age of the minor Does minor live away from home? Does he/she manage his/her own business, pursue an occupation/trade, what type, how long etc.? Relationship between minor and guardian Is minor financially independent?

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b) Married PersonsIn South Africa there are three types of matrimonial property regime which can govern one’s marriage.

1. In Community of Property (ICP)2. Out of Community of Property (OCP)3. Out of Community of Property with accrual (Accrual)

- In order to be married OCP or Accrual, the parties must enter into an antenuptial contract (ANC).- It needs to be done by notary public.- If one does not have an ANC, the marriage is automatically ICP.- The way that one is married affects one’s property rights and one’s contractual obligations.

i) Marriage in Community of Property

a) Effect of a marriage ICP- Assets belonging to each spouse before the marriage and acquired during marriage are merged into a single joint estate and each spouse becomes the joint owner of each other’s assets.- Similarly, liabilities incurred by each spouse before and during the marriage become joint liabilities. - Upon dissolution (by death or divorce) of the marriage, the joint estate is split in half.

b) Contractual Capacity of Spouses- The Matrimonial Property Act 1984 states that both parties have full capacity to contract with regard to the joint estate without the consent of the other. However, there are exceptions.

Quick Definitions:Alienate: To sell, mortgage, lease out or give awayCede: Manner of alienating, usually used for incorporeal (intangible) assetsPledge: Give something as a security

In certain situations consent is required and different consents are required for different things.

Formal ConsentThis is a written consent. It must be given for each separate act and witnessed by two witnesses. It is required to do the following:

1. Alienate immovable property2. Buy residential land in installments3. Enter into as a credit receiver, a credit agreement4. Bind him/herself as surety

Example:Lil Wayne owes Rihanna R50 000. Chris Brown stands surety for the debt. If Lil Wayne fails to pay the money then Chris Brown will have to pay Rihanna.

In the case of numbers 2 and 3, consent can be given via ratification (i.e. after the contract is signed) but still then requires written consent and two witnesses.

In the case of numbers 2, 3 and 4, consent is not required if the contract is made in connection with the specific spouses’ trade or occupation.

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Example 2:Dr Smith is married to Mrs. Smith ICP. Dr Smith works in a private practice (partnership) with 2 other doctors. The partnership buys an X-ray machine and Dr Smith stands surety for the payment of the purchase. Even though Dr Smith would not need Mrs. Smith’s consent, they would be jointly liable to pay for the X-ray machine should the partnership not be able to afford the X-ray.

Written consent - This is consent in writing but does not necessarily have to be.- This can be given as a general consent and it is not required for each separate act.

1. One needs written consent for the following:Alienate, cede or pledge any shares, stocks, insurance policies or any fixed deposits or any other investment at a financial institution. i.e. investment assets.

Example:Windpomp van der Merwe owns 1000 shares in Sasol. He wants to sell 100 each to 10 different people. He will only require one general consent from his wife, rather than consent for each separate transaction.

You do not need consent for the following exceptions:- To sell Listed Securities on the JSE.- To deal with a deposit held in your own name at a financial institution. - If you are trading in these assets in the ordinary course of your business.

2. Alienate or pledge jewelry, coins or paintings etc. i.e. items held as capital assets.

3. Withdraw any money held in the name of the other spouse in a bank, building society or post office.

Consent of all of the above can be given by written ratification after the decision has been made.

Informal Consent- Informal consent is a verbal consent.- Again it can be a general consent

Consent can be given for the following by ratification:1) Alienating or pledging household furniture and effects2) Receiving money from the other spouse as a result of a) their trade, business or occupation or b) an

inheritance, donation, bursary or prize3) Large donations from the joint estate.

Transactions made without Consent- If a spouse enters into a contract without the proper consent, it will be null and void. - However, there is an exception.- If the third party did not know or could not reasonably have known that the proper consent was not given, then the contract will be valid.- This is to protect third parties.- If the contracting spouse knew that he or she would not get consent and the estate suffers a loss, an adjustment will be made in favour of the other spouse upon dissolution (of the marriage).

Example:Jack and Jill are married ICoP. Jill inherited some valuable jewelry. Jack knows she would never agree to sell it. Since he is having financial problems, Jack resolves to sell the jewelry without her consent. He provides the

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buyer with Jill’s forged signature. The true value of the jewelry is R100 000 but Jack sells it for a paltry R30 000. Normally on dissolution Jill would have been entitled to R50 000. But due to the lower cost of the sale, she is only entitled to R15 000. Jack would therefore have to pay Jill R35 000 upon dissolution of the marriage.

ii) Marriages out of community of property (OCOP) and Marriages out of community of property with accrual (accrual)

a) Effect of a Marriage OCOP- Each partner retains as their own separate property what they acquired before and during the marriage.- Each party is liable for their own debt acquired before and during the marriage. They are not jointly liable. - Upon dissolution of the marriage each party retains their separate property.- Neither is liable for the other’s debts and neither has a claim against the other (for money.)

b) Effect of a Marriage Accrual- Exactly the same as OCOP except for one difference:- The spouse whose estate has shown the smaller accrual (growth) has the right to half the difference between the two accruals at dissolution.

Example 1:Simone has R20 000 and Nick has R50 000 when they get married accrual in 1998. In 2009, when they get divorced, Simone has R420 000 and Nick still has R50 000. Nick would therefore be entitled to half of the accrual (half of 420 000 – 20 000 = 200 000). Thus, Nick gets R200 000.

Example 2:Adriana has R1000 000 and Raphael has R2000 when they get married accrual in 2003. In 2006, when they get divorced, Adriana still has R1000 000, but Raphael has worked hard during the three years and now has gained R200 000. Raphael would still owe Adriana half the accrual, which is R100 000!

c) Contractual Capacity of Spouses OCOP and accrual.

1. Each party has unrestricted power with regard to their own estate.2. Neither party has any power with regard to the other’s estate.3. They are not liable for debts incurred by the other spouse, with one exception, this being that they are jointly liable for household necessaries.

Example:Sophia buys a fridge. She fails to pay the installments. Her husband is jointly liable for the debt.

4. The courts will determine what a household necessary is on a case by case basis. However, the following are always household necessaries:

Food Medicals and Dentals Education

c) InsolventsAn insolvent is someone whose estate has been sequestrated by the high court in terms of the Insolvency Act.

This means he/she has been declared bankrupt. i.e. his/her liabilities exceed his/her assets.

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NB: If someone has not actually been sequestrated by the court, then he is not an insolvent in a legal sense and his capacity is not limited even if his liabilities exceed his assets.

- If someone is sequestrated by the court, his estate is placed in the hands of trustee. This is known as the insolvent estate. The insolvent no longer has ownership of these assets. The trustee must then realize the assets for the benefits of the creditors. - The general rule is that the insolvent has full contractual capacity, but there are two exceptions:

1. The insolvent may not enter into a contract in terms of which he disposes of assets in the insolvency estate.

2. He cannot enter into a contract which adversely impacts on the insolvent estate.

d) Mental Incapacity Arising for Mental Illness or Intoxication

Mental IllnessAll people are presumed to be sane unless they have been declared mentally ill in terms of the Mental Healthcare Act.

- If someone has not been declared mentally ill, their contracts are presumed to be valid.- The person who wants to get out of the contract on the basis of mental illness must prove it.- He must prove that at the time of contracting, the person could not understand the transaction or that he was motivated by an insane devotion. - On the other hand, if someone has been declared mentally ill, then their contracts are presumed to be void. - The onus lies on the person wanting to enforce the contract to prove that the mentally ill person was having a lucidum intervallum (lucid interval).- If one cannot prove lucidum intervallum then one can enforce a liability under unjustified enrichment.

IntoxicationThis is due to any mind-altering substance.

- If a person is so intoxicated at that the time of contracting that he doesn’t know that he is entering into a contract or cannot appreciate the terms, then the contract will be void. - However, if a person is merely more willing or more persuadable when intoxicated, then the contract does not become void.

1.2) Agreement / Consensus

a) Offer and Acceptance

i) OfferAn offer is a proposal made by one party to another, containing terms and conditions which, if accepted by the other person, would bind them contractually.

Valid Offer + Valid Acceptance = Valid Contract

The requirements for a valid offer:1. It must meet all the requirements for a valid contract and2. It must define all the terms on which the agreement is sought

If these requirements are not met, there is no valid offer and therefore no valid contract even if there has been acceptance.

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1. Must meet all the requirements for a valid contract: Offeror must have contractual capacity Offeror must have a serious intention to contract Must be communicated to the other party Parties must be of the same mind Must be lawful Must be possible on performance Must comply with all the formalities Must be certain in its terms

If one or more of the requirements are missing, then it is not a valid contract.

a) Serious Intention- The party must have a serious intention to make an offer which, if accepted, would result in a binding contract. - The courts apply certain rules to determine intention. For instance, the courts have held that an advert, price list or catalogue is not an offer. These are simply invitations to do business. - If somebody responds to the advert, price list or catalogue, they are not accepting the offer. They are responding to the invitation to do business and they are making an offer.

Crawley v Rex 1909 TS 1105

A shop-keeper advertised tobacco at a certain price. Crawley responded to the advert, went to the shop and bought some tobacco. A while later he returned to the shop with the aim of buying the entire remaining stock. The shop-keeper became suspicious and refused to sell the remaining stock. An argument broke out and the shop-keeper asked Crawley to leave. Crawley refused to leave; his argument being that the advert was an offer and that when he arrived at the shop to purchase the tobacco he was accepting the offer, thus making it a valid contract where the shop-keeper must sell the tobacco to him. The shop-keeper argues that the advert was merely an invitation to do business. Thus, Crawley made the offer when he came to the shop, meaning that the shop-keeper was entitled to refuse the offer.

Pharmaceutical Society of Great Britain v Boots Cash Chemist Ltd. [1952] 2 All ER 456

Detailed in Basic Principles of Business Law, pg 53-54

There is certain legislation in the UK which says it is unlawful / illegal to sell certain medicines or drugs without a registered pharmacist being present at point of sale. Boots had such medicines stored on their open shelves. Obviously, they did not have a registered pharmacist walking around the shelves but there was a registered pharmacist at cashier’s desk. The Pharmaceutical Society argue that Boots made offer when goods were displayed on the open shelves. Therefore, the customer effectively accepts the offer when they put the item in their basket and thus the contract is concluded at the open shelf. Since there were no registered pharmacists supervising the ‘sale’ it becomes an illegal sale. Boots then argue that the displays on the open shelves are invitations to do business. Therefore, the customer(s) make the offer at the cashier’s desk and it is accepted when the cashier rings up the sale. Since there were registered pharmacist’s at the cashier’s desk it was therefore a legal sale.

- Some adverts can, however, be offers. To decide if an advert is an invitation or an offer, one looks at the nature of the advert, its wording and the associated facts. E.g. An advert to do business with whoever shall perform certain act(s), is an offer. The most common of these is an advert for a reward.

b) Communication- The offer must be communicated to the other person. If not, it is not a valid offer.

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Bloom v American Switch Watch Co. 1915 AD 100

Detailed in Basic Principles of Business Law, pg 58

American Switch Watch Co. was robbed and jewelry was taken. Consequently, AS put an advert in the newspaper offering a reward for anyone with information about the robbery. Mr. Bloom gave information to the police which resulted in a conviction and the return of some of the jewelry. Bloom did not ask for reward since he was unaware of the offer (of reward). He later discovered the advert and goes back to claim the reward. Bloom argues that the advert was an offer; when he gave information he was accepting the offer and therefore AS must pay the reward. AS argue that it is not a valid offer since it had not been communicated to him, therefore it was not a valid contract and they did not have to pay Bloom. The court found in favour of AS.

2. It must define all the terms on which the agreement is sought.- The offer must contain all the final terms and conditions of the contract so that an unconditional acceptance will bring about a binding contract.- If certain terms are still missing and have to be negotiated, then it is not a valid offer.

ii) Revocation, lapse and rejection of offerThese are all ways in which the offer can come to an end

Revocation- This is the withdrawal of the offer by the offeror.- The offer can be revoked at any time prior to acceptance.- Once acceptance has taken place, the offer cannot be revoked (this would be a breach of contract).- The revocation must be communicated to the offeree to be effective.

Lapse of Offer- The offer expires or goes stale- An offer will lapse in the following circumstances: If it is not accepted within a reasonable time. What is reasonable depends on the facts of the case. The offer will lapse if it is not accepted within the time specificed. The offer will lapse on the death of the offeror or offeree provided that acceptance has not yet taken place.

Note: Once acceptance has taken place there is a valid contract, the death of either party will not normally terminate it.

The offer will lapse where it is valid at the time is made, but prior to acceptance it conflicts with one of the essential requirements.

Rejection- The offer will come to an end if it is rejected by the offeree. - Rejection can come in two ways:

Either it can come as an expressed rejection or, By making a counter offer

Watermeyer v Murray 1911 AD 61

W offered to sell farm to M on certain terms and conditions. One of the terms was that a deposit was to be paid on a certain date. M did not accept unconditionally, instead he stipulated a different date for payment of the deposit. W was not prepared to deviate from the original offer. A while later M tried to accept the original offer

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but W did not want to sell to M anymore. The court held that the original offer was rejected by the counter-offer (conditional acceptance) therefore M could not accept since the offer had expired / finished.

iii) AcceptanceIn order for there to a valid contract there must be valid acceptance.

1. It must meet all the requirements for a valid contract.2. It must be unequivocal and in terms of the offer. (unconditional)3. It must be made in the manner, if any, prescribed by the offeror.

NB: If the offeror sets out the manner of acceptance, then acceptance must take place in that manner to be valid.

This becomes particularly relevant when we are dealing with contracts that are concluded via the telephone, fax, email or post. Different theories apply in these situations when and where the contract is concluded.

Expedition TheoryThis applies in the following situations:

a) Where the offeror makes his offer via the post. b) Where the offeror authorises acceptance via the post.

In these situations, the offeree may accept via post. If he does this, the effect is that acceptance takes place and the contract concluded at the time and place where the letter of acceptance is posted.

Example:X in CT sends an offer via post to Y in Durban on 1 March 2009. Y posts letter of acceptance on 15 March 2009 in Durban. This letter reaches X in CT on 21 March 2009. The contract is “concluded” in Durban on 15 March.

The expedition theory will only apply in certain circumstances:1. Only applies to commercial contracts. (e.g. sale, lease etc.)2. Only applies if postal service is working normally3. Only applies if letter of acceptance is properly addressed.4. Only applies if offeror has not stipulated that acceptance will only be valid once he/she receives it.5. Only applies if offeror has not stipulated that acceptance must take place in some other manner (e.g.

phone, fax etc.)

Information Theory This applies to contracts made by the telephone and made by the default theory.

This theory says that the acceptance is only valid and therefore the contract concluded once it has been communicated to the offeror.

Example:A in CT phones B in Jhb, offering to sell car. B accepts. Contract concluded in CT when A hears the acceptance.

Reception TheoryElectronic Communications and Transactions Act of 2002 applies to contracts made by email or types of electronic communication.

“The contract is concluded at the time and place where the acceptance is received by the offeror. An electronic message is regarded as having been received by the offeror at his usual place of business or residence when the

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complete data message enters his/her information system and is capable of being retrieved and processed by him. (Sec. 23)”

The important point is this: The contract is concluded at the time and place where the email is sitting in the offeror’s inbox even if he/she has not read it yet.

Fax falls under the reception theory. Acceptance takes place when it is transmitted and printed by the offeror’s fax machine.

4. It must be made before the offer comes to an end

There are three ways to end an offer: revocation, rejection and lapse.

b) Options and Rights of First Refusal

i) Options

“An option is a contract whereby one party (the grantor) undertakes to keep open for a certain period an offer (main offer) he has made to the other party (the grantee). “

During that period of time, the offer is irrevocable.

Example: B offers to sell his car to A for R40 000. That is the main offer. B says to A that he will keep his offer open for two weeks. The offer to the keep the offer open is ancillary to the main offer. A says that he will think about it for two weeks. He has now accepted the ancillary offer and there is now an option contract. The option contract is that B will keep his offer open for two weeks, so B cannot, during those two weeks, revoke his/her offer.

There are two contracts: the option contract and the main contract, which may or may not come into being.

An option must be distinguished from an offer which expires.

Example:B says to A: “Do you want to buy my car? The offer will expire after two weeks.” This is not an option contract. B can revoke during these two weeks, but he cannot accept offers after these two weeks.

ii) Rights of First Refusal

“A contract giving a right of first refusal is a contract whereby one party (the grantor) agrees that, if he should be willing to enter into a particular contract, the other party (the grantee) will have the right to enter into that contract with him before any other person.”

Example:A says to B, if I ever sell my house, I will first offer it you man! B accepts. This is a right of first refusal. If A never sells his house he will not be in breach. Only if A sells his house and offers it to C first will he be in breach of contract.

c) Online Contracting

- The Electronic Communications and Transactions (ECT) Act 25 of 2002 served to clarify legal uncertainty regarding the use of modern technology.

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- This Act has legally validated contract concluded over the Internet.- The signature (if required) must be represented by an advanced electronic signature which results from an

authentication product or service that has been accredited by the Accreditation Authority. - An electronic agent serves to automate transactions. This can only be valid if the electronic agent allows the

natural person the opportunity to correct a material error when creating the data message. - The reception theory of acceptance applies in online contracting unless agreed otherwise.- Click-wrap agreements are concluded online by clicking on words or an image stating something to the

effect of “I agree to be bound by the terms and conditions.”- Browse-wrap agreements include the terms and conditions at the top or bottom of the website page (often

not very clearly). The statute says that this would make an agreement valid provided that the reasonable person would have noticed the terms and conditions (similar to imposed terms on tickets and notices).

- Onerous conditions are imposed on online suppliers. These suppliers must disclose 18 kinds of information (see The Basic Principles of Business Law, pg 427, but not necessary to know in detail).

- In addition, a business must allow the consumer the opportunity to review the contract, to correct any errors and to withdraw prior to finalizing the contract.

- If a supplier fails to comply with any of the above, the consumer may cancel the transaction within days of receiving the goods or service.

- The supplier must execute the order placed within 30 days of receiving the order, failure of which will entitle the consumer to cancel the contract within 7 days of written notice.

- The consumer also has an automatic right to cancel referred to as the cooling-off period. The consumer can cancel for no apparent reason provided it is within 7 days of receipt of the goods or with services within 7 days of agreement conclusion.

- However, the cooling-off period will not apply to the following. Financial services Auctions Foodstuffs and beverages for everyday use Customised goods Good or services where the price is dependent on financial market fluctuations Newspapers, books and periodicals Audio, video or software products which have been unsealed Gambling Accommodation, transport, catering and leisure services for a specified date or time period

- The Act also provides that anyone who sends unsolicited commercial communications (spam) to consumers must allow the consumer to unsubscribe from these services and to find out how the consumer’s contact details were obtained.

d) Factors which can taint or prevent the conclusion of a valid contract

1. Mistake2. Misrepresentation3. Duress4. Undue Influence

These may either make the contract void or voidable.

Void Contracts- A void contract is no contract at all. It does not exist. - Therefore the courts will not enforce it.- A contract will be void if any of the essential requirements are not met. (refer back to notes)- Normally ratification will not make these void contracts valid.

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- The only situation that can be ratified is in the case of married people where the required consent was not given, sometimes it can be ratified.

Voidable ContractsThis means that the contract is valid; all the essential requirements have been complied with, but there is a defect in the consent of one of the parties.

Defect can be due to misrepresentation, duress or undue influence.

The party who has been wronged has an election.- Cancel the contract (set it aside) and claim restitutio in intergrum = recision and restitution.- Abide by the contract

However, until the party makes their election the contract is valid.- The party must make their election within a reasonable time.- Once they have made their election they can’t change their mind.- If they elect to cancel and claim restitution, they must also give back what they had gained otherwise they would be liable under unjustified enrichment.

i) Mistake- Renders a contract void.- There are three types:

Common mistake – both parties share some mistake. Unilateral mistake – only one party makes the mistake, other does not Mutual mistake – both parties are mistaken but they are at cross-purposes. i.e. do not share the same

mistake.

Common Mistake- Both parties are in agreement, but they have made a common mistake. Therefore it will render the contract void.

Example:A sells B a sealed container of oats. They both believe it contains rice since rice is what they want to buy and sell. If the contract is void, they must both give back what they are given and received.

- In order for a common mistake to render a contract void, the following requirements must ALL be met.a) Must be a mistakeb) Must be common to both partiesc) Must be materiald) Does not have to be reasonable

Material Errors: These apply to common, unilateral and mutual mistakes.

- Mistake as to the nature of the transaction (e.g. sale or donation?)- Mistake as to the subject matter- Mistake as to the identity of the parties – but only where identity is an essential ingredient of the contract.- Mistake as to attributes or quality of the subject matter – only material if mistaken party believed it was a term of the contract that the article had the particular attributes/qualities.

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Example:You go to an expensive antique shop and you buy a golden picture frame and the price is a plausible R20 000. A term of the agreement is that it is a genuine golden frame. If it is not, then you can claim on material mistake.

Conversely, had you gone to a flea market and bought a golden picture frame for R40, it would be highly unlikely that it would be genuine gold and thus one would not be entitled to claim on material mistake.

The following is not a material error.

An error in motive – see watch example below.

Example:You believe you have lost your watch. You got out and buy another watch, only to later find your first watch. You cannot then return the second watch.

Unilateral and Mutual Mistake

UnilateralThis is where only one party is mistaken.

Martiz v Pratley 1894 SC

There was an auction. Lot 1208 was a mantelpiece. On top of that was a bronze mirror labeled Lot 1209. The auctioneer put up the mantelpiece for sale. Pratley bid and won. However, Pratley believed he was buying both the mantelpiece and the bronze mirror (as one unit). Unfortunately he was mistaken, therefore the court held that the contract was void due to unilateral error.

Mutual MistakeBoth parties are mistaken but they are at cross-purposes.

Example:A thinks he is buying rice. B believes he is selling nuts. But the container holds oats.

In order for a unilateral or mutual error to render a contract void, all of the following requirements must be met:a) Must be a mistake (or at least identified as such)b) Must be unilateral (mutual)c) Must be material (see list under common mistake)d) Must be reasonable. i.e. iustus error

An error will be iustus in the following situations:1. If the other party (the one who is not mistaken) knows or ought to have known that the mistaken party

had made an error.

Horty Investments v Interior Acoustics 1984 (3) SA 537 (W)

HI rented out business premises to IA. There were verbal negotiations about the lease. The contract was later reduced to writing. Clause 1 of this written contract of lease said that the lease will begin on 1 May 1981 and will continue for a period of two years. (During lease-period no one can terminate or adjust conditions of contract). Clause 2 read as follows: No notice of termination may be given before 1 May 1993. This should clearly have read 1983. IA argued that it was not a typing mistake and that they genuinely believed it was a 12 year release.

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HI applied to have contract set aside on basis of mistake. Court held in favour of HI. The court found that IA ought to have known that HI had made an error.

2. If the other party misled the mistaken party.

Example:A sells car to B. A tells B that it is a 2006 model. A lies, since the car is actually a 2003 model. This is a unilateral mistake, material error due to subject matter or attributes and B can claim iustus error.

RectificationCan occur in the following circumstances:

1. Written agreement2. At the time of contracting verbally (i.e. during negotiations) the parties were of the same mind.3. There was no mistake in their consensus whether common mistake or unilateral. 4. However, when the contract is later reduced to writing, the written document contains an error and

does not conform to the terms of the verbal agreement.

In such a case the parties may apply to court for rectification of the written agreement, so that it conforms to the terms of the verbal agreement.

Rectification can occur at the request of either party. The party applying for rectification must prove:1. That the written agreement does not accurately reflect what the parties agreed upon or what they both

had intended.2. What the terms of the agreement should be.3. There will be no prejudice to third parties.

Refer back to Horty Investments v Interior Acoustics case.In this case, one of the arguments was rectification. The court did not rule in favour of HI on rectification because they could not prove the first requirement. IA adamantly argued there was a 12 year lease.

The aforementioned 3 requirements apply to agreements which have been reduced to writing, but which are not required by law to be in writing.

Where the contract must by law be in writing, the party must prove the 3 requirements and a fourth requirement.

4. On the face of it, writing sets out all the material terms of the contract.

A contract for the sale of immovable property must be in writing to be valid, therefore the writing must set out the material terms (such as).

1) Price2) Description3) Names of Parties

If you have a sale of land the written agreement does not reflect the purchase price at all, it cannot be rectified because of the fourth requirement. If the contract does have the purchase price but is lacking a zero, it can then be rectified.

Examples of Mistakes

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Example 1:Tara goes to buy a lounge suite. It is displayed in the shop with a coffee table. On the coffee table is a sign which reads: “NOT FOR SALE!” Tara buys the lounge suite believing that it includes the coffee table. When she discovers that this is not the case, she wants to have the contract set aside. Advise her.

- Mistake- It is unilateral since only Tara is mistaken- It is a material error in subject matter. She thought she was buying a lounge suite and coffee table,

but she only got the suite.- Must prove to judge that it is not a iustus error – the shop could not have reasonably known that

Tara was mistaken. (big sign saying “NOT FOR SALE”)- Also prove that the shop did not mislead her.- The contract is not void, it is a valid contract and therefore Tara cannot have it set aside.

Example 2:Danielle goes to an antique shop to buy a chair, which is displayed with all the other antique chairs. She believes that the chair is being sold as an antique and so she buys it. She later discovers that it is not the genuine thing, but a modern replica. Can she set the contract aside?

- Mistake- It is unilateral since Danielle is the mistaken party.- It is a material error in subject matter (antique v replica) or qualities and attributes (terms of

contract).- Iustus error since the antique shop should have known she was mistaken as the chair was placed

among antique chairs.- The contract is void, thus Danielle can set aside the contract and receive restitution in integrum.

Example 3:Imagine that the shop in the example above had been broken into the previous night and thieves had stole all the antique chairs and replaced them with modern replicas. Danielle comes in the next day and purchases what she and the store owner both believe to be an antique chair. Can Danielle get out of the contract when she discovers the true state of affairs?

- Mistake - It is common since they share the same mistake. i.e. both believe it is an antique chair.- Therefore the contract is void.

ii) Misrepresentation- This renders the contract voidable. - A misrepresentation is a false statement of fact made by one person to another with the intention of inducing the other party to enter into a contract, and which does actually induce him/her to do so.

Types of Misrepresentation

a) Fraudulent misrepresentationA statement which is made without any belief in its truth (lie).

b) Negligent misrepresentationHere the person believes in the truth of what she/she is saying, but the information is incorrect.

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Zc) Innocent misrepresentation

This is made without fraud or negligence.

Example:A sells a painting to B in 1981. He tells B it is an original Mone painting. B pays R40 million. B sells it to C with the genuine belief it is an original Mone and receives R90 million. C sells to D, who sells to E, who sells to F in a time period spanning 25 years, all based on the belief it is an original Mone. In 2006, F sells to X for R300 million. The painting is a fraud, but it is such a good fraud that only one person in the entire universe can tell it’s a fraud, but he lived in Antarctica for the previous 30 years. He is X’s cousin and goes to stay with X in 2008. He informs X it is a fraud. X wants to claim back money from F on basis of fraud. B, C, D, E and F are all liable because of negligent misrepresentation, whilst A is probably liable because of fraudulent misrepresentation.

Forms of Misrepresentation

Whether a misrep is fraudulent, negligent or innocent, it can take different forms.

1) Verbal/written misrep.2) Misrep by conduct

Trotman v Edwick 1951 (1) SA 443 (A) Trotman sold Edwick a plot of land. On the plot were two flats. The whole plot was enclosed by a wall. 2/7 of the land enclosed by the wall actually belonged to the municipality. The municipality planned to build a road on the land in the near future and Trotman knew this. During the sale, Trotman said to Edwick: “Look how big this land is.” He paced right up to the end of the wall, creating the impression that the 2/7 which belonged to municipality was also part of the land being sold. This was a fraudulent misrep by conduct.

3) Misrep by silenceThe general rule in South Africa is that there is no duty to speak; you don’t have to disclose information. There are, however, exceptions:

a) Where the person has told a half truth and creates a misleading impression.

Marais v Eldman 1934 CPD 212

On the farm being sold there was a borehole. Eldman told Marais he had used the borehole for three years and it had never failed. He didn’t tell him that this was 14 years ago.

b) Where, by his/her conduct, he/she has prevented the other party from discovering the true state of affairs.

Dibley v Furter 1951 (4) SA 73 (C)

Furter sold a farm to Dibley. Prior to the sale there was a family graveyard right next to the farmhouse. F, prior to the sale, took down all the tombstones, ploughed over and made it look like a garden. Dibley buys the farm and only later discovers the existence of the graveyard. Understandably, he wants the contract set aside. The court held F had a duty to tell D about the graveyard.

c) Where he/she has by an earlier statement or conduct, given the other party a certain impression and circumstances have changed.

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Example:Alice sells a flat to Emily. During negotiations, Emily mentions to Alice that she likes the flat but that she doesn’t want to buy it unless something is done about the security. Alice tells her that the body corporate has resolved to put up a perimeter fencing with spikes and an electric gate and that this will be done soon (within following six months). A while later, but before the transaction is complete, the body corporate revokes its decision (to put up security). Alice did not disclose this to Emily. Court held that the contract was voidable since circumstances had changed.

d) Common law rule that a seller must disclose latent defects

Requirements for misrep to render a contract voidable

Not every misrep renders a contract voidable. In order for misrep to render a contract voidable all of the following requirements must be met.

1. The misrep was made with the intention of inducing the other party to enter into the contract.2. Made by the other party to the contract.

Example:Susan and Fatima are friends. Susan wants to buy Fatima’s brother’s car. S and F discuss the negotiations. F tells S it is a ’98 model, since S does not want to buy a car older than ’96 model. On strength of this information, S approaches F’s brother. All she says to him is: “I want to buy your car for R50 000.” After she buys the car she discovers it is a ’95 model. She cannot get out of the contract since misrep was made by Fatima.

3. Misrep did induce the contract. i.e. causal misrepA causal misrep is one that does actually induce the contract. If it had not been for misrep, the other party to the contract would never have entered into the contract at all.

Causal = voidableIncidental = not voidable

Incidental misrep does not induce the contract. The other party to the contract would have entered into contract regardless.

Bird v Murphy 1963 (2) PH A42 (D)

B had long-admired M’s car. He decided that if he could get the car for R2600, he would buy it. He approaches M one day, who accepts B’s offer of R2600. M also mentions that the car was a 1957 model, but actually it was a 1953 model. B discovers this, and then wants to get out of the contract on misrep. This is incidental misrep, since B had planned to buy car regardless.

Example:Same facts as aforementioned case. B approaches M prepared to pay R2600, but M tells B it is a 1957 model instead of 1953 model, which impresses B sufficiently to make him offer R3000. B discovers this and wants to have contract void. Still incidental contract since B wanted the car anyway. However, B can claim back the R400 on delict.

4. The misrep was materialThe meaning of material (subject matter) here is different in meaning to that under mistake.

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A material misrep is one that is of such a nature that it would induce the reasonable person to enter into the contract.

Lourens v Genis 1962 (1) SA 431 (T)

Genis was a farmer. He entered into a contract with Lourens and Lourens’ son. In terms of the contract, L told G that his son had X-ray vision and that he could see underground. The contract stipulated that L’s son was meant to look for a place where there was water underground and he would tell G where to sink a borehole. G had to pay a huge sum for this. The son pointed out a place; G paid the money, he sunk the borehole and found no water. G tried to get out the contract on the basis of misrep. However, since a reasonable person would not believe that L’s son had X-ray vision, the court held this was not a material misrep.

Note: There is another line of thought that says that where there has been a fraudulent misrep, even if the person’s belief is unreasonable, they should be able to avoid the contract. Otherwise, the other party benefits from fraud.

5. Misrep was a false statement of factIn order to render the contract voidable, the misrep must be a statement of fact, not an opinion of a puff.

Opinions- An opinion which is genuinely held and which turns out to be wrong will not render a contract voidable.

Example:A wants to sell B his shares. He tells B that he thinks it is a fair price. This is an opinion.

- An opinion which is not genuinely held, i.e. dishonest opinion which is discovered later to be false, is considered a misrep of fact and it will render the contract voidable.- The reason for this is because the law regards the state of a person’s mind as a fact, so if you give a dishonest opinion, you are misrepresenting the state of your mind.

Puffs- This occurs when a party is merely singing the praises of his goods. - One cannot set aside a contract on the basis of a puff unless it relates to the facts.

Example 1:A wants to sell B her house. She says that it is a lovely family home and that B would be very happy living there. B buys the house, only for the floorboards collapse and roof to cave in. She cannot set aside the contract.

Example 2:A sells a car to B. He says to B it is a great deal for such a reliable car. Again this is a puff and B cannot thereafter set aside the contract if the car were to break down. However, had A said that it is a reliable car because it has power steering and a 1.6 litre engine, and then B were to find out that it did not have power steering and actually had a 1.4 litre engine, then B would be allowed to set aside the contract as the puff is related to facts.

Consequences of Misrep

I. Contractual RemediesThe contract is voidable which means that contractual remedies may be claimed. These are known as recision and restitution and they amount to cancelling the contract. (The party could still abide by contract however)

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II. Delictual DamagesFraudulent or Negligent misrep will be a delict. The harm usually arises from a financial loss. For a fraudulent or negligent misrep, delictual damages can be claimed in the following situations:

a) Where the contract is voidable and the person chooses recision and restitution

Example:Abdul buys a house from Imran due to some form of fraudulent misrep on the part of Imran. Abdul chooses the contractual remedy of recision and restitution (cancel the contract). Although he gets back the money he spent on the house, he must also return the house as well as pay for legal fees. Under delict, he could claim back further losses (primarily on legal fees).

b) Where the contract is voidable and the person chooses to abide, then he/she can claim delictual damages over and above the contract agreement.

c) Where the contract is not voidable based on some technicality but the person has still incurred financial losses due to the misrep, then delictual damages may be awarded.

Relationship between mistake and misrep

- Mistake renders a contract void, whereas misrep renders a contract voidable.- Sometimes a misrep can result in a person entering into a contract while he is materially mistaken. In these situations one could argue that the contract is void under mistake if the requirements (for a mistake) are met or voidable under misrep if the requirements (for a misrep) are met.- Sometimes parties include a clause in their contract which provides that any misrep’s made will not be actionable (can’t get out of contract and no suing).- However, if the misrep resulted in a material error (iustus error), the contract would be void (it doesn’t exist) so the clause cannot exist, thus the person would be able to get out the contract as it is void due to mistake.

Allen v Sixteen Stirling Investments 1974 (4) SA 164 (D)

Allen bought property in a development from Sixteen Stirling Investments even though the development had not been built yet. Allen accompanied his estate agent to confirm which plot he would purchase. The agent mistakenly indicated he plot with the sea view as the purchasable plot. It later turned out that A had bought the plot behind the plot pointed out to him by his agent. This plot had no view. The contract had a clause which stated that no misrep’s would be actionable. A tried to set the contract aside on the basis of misrep (negligent misrep of conduct). Court found against A since the clause did not allow him to do so.

A’s alternative argument was that the agent had made a material mistake as to the subject matter and it was therefore a iustus error. Therefore the contract became void on the basis of mistake. SS tried argue that because of clause he could not rely on mistake either, but the court found that the contract was void due to mistake, therefore the clause did not exist. They found in favour of A.

iii) Duress and Undue Influence

DuressHere a person is induced to enter into a contract through fear violence or intimidation. In order for duress to render a contract voidable the following requirements must be met.

a) There must have been a threat of considerable harm to a person, his/her family, his/her property or his/her reputation.

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A threat to property is known as duress of goods. Where there is duress of goods, in order to be successful in terms of meeting requirements, the person must show that they protested unequivocally at the time.

Hendricks v Barnett 1975 (1) SA 765 (A)

Basic Principles of Business Law, pg 72.

Barnett owned a farm. Hendricks was the farm manager. B didn’t know anything about the status of the horses on the farm. For instance, he didn’t know their bloodline and could not identify them. B sold the farm excluding the horses. The horses were to be sold at a later stage where they could be auctioned. H was instructed to stay on until after the auction. A few days before the auction, H says to B that he is going to leave unless he is paid R10 000. Without H, B cannot auction the horses and he would suffer a massive financial loss (harm).

B gives H two cheques for R5000 each. After the auction, B stops payment on the cheques and then H sues him. B argues duress of goods, but court found in favour of H because B did not protest.

b) Threat of harm must be imminent or inevitable. Must be a current situation.

c) Threat must have induced the person to enter into the contract or to contract on less favourable terms.

d) The threat must be unlawful or “contro bonis moreis” (CBM), which means to be against public law or good morals.

e) The fear must be reasonable

Undue Influence- This occurs where one party to a contract is able to influence the other party to such a degree that they are incapable of forming an independent opinion. - There is no threat here, rather it is manipulation to the extent that the other party will do whatever the manipulating party wills. - In order for undue influence to render a contract voidable, all the following requirements must be met:

a) One party established an influence over the other party. Common examples:i. Doctor and Patient

ii. Nurse and Patientiii. Lawyer and Clientiv. Clergyman and congregantv. Teacher and Pupil

b) Influence must have made the other party easily manipulated.

c) The influence must have been exercised in an unscrupulous manner.

d) The influence must have induced the wronged party to enter into a contract which is prejudiced to him/her and he/she would not have entered into it of his/her own free will.

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1.3) Legality

It is a requirement for a valid contract that it must be lawful. An agreement is illegal or unlawful in the following situations:

1. If it is prohibited by a statute

2. If it is illegal at common law

Statutory Illegality- An agreement prohibited by a statute is illegal and it is generally void but not always. Sometimes the courts may still enforce it. You have a contract that is illegal but valid. - The issue is whether the legislature intended the contract to be illegal as well as void or simply illegal but still valid. - Sometimes the act itself will state whether the agreement is valid or void.

However, in some situation the act doesn’t say anything. In these situations, the courts will look at a range of factors to determine if the intention is to be illegal and void or illegal and valid.

Example:There is a piece of legislation that prohibits trading in ivory and endangered species to protect and preserve animals. X enters into a contract with Y where X will sell Y 500kg’s of ivory. This is illegal.

The court will ask itself this:Will recognition of the agreement bring about the harm that parliament is trying to avoid?If yes then contract is void. If no then contract is valid.

Enforcing this agreement will result in the harm of animals therefore the contract is void.

- The purpose of the prohibition is sometimes simply to raise revenue

Example:Most leases require stamp duty. If the lease doesn’t have stamp duty, it is illegal. If the lease is not stamped and you want to take action on this lease, you will be punished with a fine. The purpose of this sanction is to raise cash as revenue for the government.

It is illegal BUT remains valid; there is no reason for the contract to be void.

Common Law Illegality - These are agreements which are contra bonis moreis (against good morals or public policy).- There is no closed list of such agreements because the concept of good morals changes with time. - However, there are a few contracts that will always be against good morals.- These contracts are illegal and will always be void.

1. An agreement to commit a crime or a delict.2. An agreement which undermines the institution of marriage.

An agreement never to marry is illegal and void. An agreement that threatens existing marriages.

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Friedman v Harris 1928 CPD 43

Mr. Harris was a married man and Friedman was an unmarried woman. These two had an affair. H then broke up with her. She threatened to sue him for damages in delict for seduction. He says he will pay her to keep quiet about the affair. She accepts. A while later, they enter into an agreement in terms of which she will pay him back the remainder of what he had paid her (800 of 1000 pounds) if he leaves his wife to marry her. She pays him, but he doesn’t leave his wife. She takes him to court and sues him for breach of contract. Judge rules that the contract is void.

3. An agreement in consideration or sexual immorality e.g. prostitution4. Unconscionable agreements

The general rule is that the law will uphold unfair agreements because it is not the courts job to assist a bad bargainer. However, in extreme situations where the contract is so grossly unfair as to be unconscionable, then it will be illegal and void.

Baart v Malan 1990 (2) SA 862 (E)

The Basic Principles of Business Law, pg. 78

Baart was the husband and M was the wife. They got divorced and B got custody of the children. They entered into a divorce settlement. In terms of this settlement, M agrees to pay as maintenance her gross monthly salary and her annual bonus. She wanted to have this agreement set aside. It is unconscionable because she can’t even support herself after paying maintenance and thus derives no benefit from her employment. Therefore the contract was illegal and void.

Illegality and its effect on Contracts- This applies to contracts that are illegal and void both at common law and at statute. - If a contract is void for any reason, the courts will not enforce it. - If a contract is void for some reason other than illegality, the parties recover what they performed under unjustified enrichment. - When contracts are void due to illegality, it is different, the in pari delicto (in equal guilt) rule applies. - Where there is in pare delicto (i.e. both parties acted illegality), neither party can recover what they have performed in terms of the contract. This is to discourage people from entering into illegal agreements.

* Refer back to Friedman v Harris; she would not get back her 800 pounds under unjustified enrichment.

If only one party acted illegally, the party who is not in guilt may recover their performance.

Example: There is a statute that provides that it is an offense to sell gas without a license. For convenience it will be illegal and void to do so. However, it is not illegal to buy gas without a license. If A sells a canister of gas to B for R1000 but has no license, the contract is both illegal and void. Although A has delivered the gas and B has paid, A will not be able to recover the gas, but B will be able to recover her R1000.

Severing Invalid Terms - If the illegal terms can be taken out of the contract, then the contract will still be valid, provided that the contract will still have substance and meaning.

Unenforceable Contracts- These contracts are not illegal but the courts may refuse to enforce them.

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* Contracts in restraint of tradeA contract in restraint of trade is one which seeks to restrain a person from exercising any lawful business or profession of his/her choice.

Example:X owns the corner café. He sells it to Y. They enter into a restraint in terms of which X can’t open a café in the near proximity. This is a valid and enforceable contract.

- These agreements are enforceable; however, the courts will not enforce them if they go against public policy and they are unreasonable. - To decide if it is against public policy and unreasonable, the courts look at the following factors:

1. Did the restrainer have an interest deserving protection and did he do no more than serve this purpose?

Example:X is an engineer and he has been hired by a cell phone company to develop a cell phone that can do everything that a standard PC can do. He has a restraint of trade with them that should he leave the company he cannot work for another cell phone company for 10 years after. Their interest is their intellectual property. This is therefore a reasonable request.

2. Would the person be unduly prejudiced if they enforce this restraint?

Considering the aforementioned example, it would be unduly prejudiced had they stipulated that X could not work anywhere for 20 years after leaving the company.

3. Did the restrainer spend a large sum of money to obtain restraint?

If yes, then most likely it is reasonable, if not, then it is probably not reasonable.

4. Would enforcing the restraint deprive the public of valuable services or information?

If yes, then it is unreasonable, if not, then it is reasonable.

The onus is on the restrained person to prove that the restraint was against public policy or unreasonable.

* Gambling ContractsNot covered because it mostly governed by legislation

1.4) Possibility of Performance

A requirement for a valid contract is that it must be possible for performance.

1) Initial Impossibility- The general rule is that a contract is void if it is impossible of performance the moment it is entered into. - In order to render the contract void, the impossibility must be objective (i.e. it must be impossible for anyone in society to perform within reason).- If the impossibility is due to the party’s own personal situation or fault, then it is not objectively impossible; therefore the contract will not be void. - Thus, if the contract is not performed it will be considered a breach of contract.

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There are two types of objective impossibility.a) Objective physical impossibilityb) Objective legal impossibility

Example 1:A agrees to fly B to Mars in an aeroplane. This is physically impossible, therefore the contract is void.

Example 2:A sells his holiday cottage to B. However, neither party is aware that the house has been destroyed by a mud slide. Could anyone in society transfer the cottage B? No, it was not A’s fault, therefore the contract is void due to objective impossibility.

Note: Floods, hurricanes, earthquakes, tsunamis, certain fires, storms etc. are vis major (Act of God)

Example 3:X buys a house from Y for R500 000. X is unable to raise the money. This is not objective, since other people in society may have been able to raise the money. He is in breach of contract since it is not void.

Example 4:A agrees to sell B a sea bed. Nobody owns the sea bed, not even countries. No one can transfer the sea bed to B. This is therefore legally impossible. When A doesn’t transfer the contract is rendered void.

Example 5:A sells a holiday cottage to B. A does not own the cottage. (NB: For immoveable property one must be the owner to transfer it). Therefore it is impossible for A to transfer the cottage to B. However, it is not objectively impossible; any real owner of the cottage could transfer it to B. Thus the contract is not void. B can sue for damages due to breach of contract.

The Effect of Initial Impossibility- If it is objective the contract will be void and both parties will be excused from performing. - Any performance can be recovered under unjustified enrichment; however, there is one exception. - If a party has guaranteed his/her performance, he/she is bound by that guarantee even if performance is objectively impossible. The contract will be valid and the other party would be able to sue for breach of contract due to the guarantee.

2) Supervening Impossibility- Here the contract becomes impossible after it has been entered into.- In these situations, provided that the impossibility is objective, the contract will come to an end and there can be no breach. (does not matter if the impossibility is legal or physical).

Example:A agrees to sell B 500 tons of ivory. At the time that the contract is entered into there no ban on the supply of ivory. Before the delivery date, legislation is passed which prohibits selling or trading in ivory. A is unable to deliver the ivory since this is a legal objective impossibility (nobody could deliver the ivory). Although it is supervening, the contract will also come to an end and A will not be in breach thus will be excused from performing.

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Benjamin v Meyers 1946 CPD 655


Meyers rented out premises to Benjamin. In terms of the lease, B was to run it as a petrol station/garage. Also in terms of the lease, B had to keep sufficient supplies of oil and petrol on site and sell a certain brand of petrol. A while into the lease, B was convicted of contravening certain petrol regulations, therefore he was prohibited from selling petrol. So it became impossible for him to fulfill obligations under the lease. M then sued B for breach. B argued legal impossibility prohibited him from selling the petrol. However, the court found that it was not an objective impossibility therefore B was in fact in breach. There was negligence on the part of B.

Physical Impossibility- This is judged according to the standards of the reasonable person in that business community.

Example 1:X is in Cape Town and agrees to sell and transfer 600 tons of bricks to Y in Hermanus. When the time comes to deliver the roads are flooded. This is objectively physically impossible because the reasonable person in that industry will only deliver by road.

Example 2:X is a model who lives in Cape Town. She is hired to participate in a fashion show in Johannesburg. The show is to run for two days. She is to be paid 800 000 per day. She needs to report to the venue at 6pm on the opening night. At 8am on same day as the opening night of the show, she is involved in a car accident driving from the airport. The crash is not at all her fault. She is very badly injured and there is no way she can take part in the fashion show. The accident is a hit-and-run and the police never find the man responsible for the accident.

When she recovers from the accident, she reads a summons from the people who hired her for the fashion show claiming R6 million from her based on breach of contract. This is calculated as follows: R2 million to find a replacement and R4 million for loss of earnings for designers because she was not part of the show.

The model’s argument is that it is a supervening impossibility. It is objective physical impossibility. The designers argue that it is not objective (another model replaced her) and that the accident was a personal situation, therefore it was breach.

- Ruling must be based on reason and judicial precedent. NB: Requires the human element!

Effect of Supervening Impossibility- Contract comes to an end and both parties are excused from performing; however, there are two exceptions:- Where one party guarantees performance, he/she will be liable for breach based on guarantee.- In contracts of sale, the buyer will be liable for the full purchase price if the goods are damaged or destroyed before delivery because the buyer bears the risk.Example:X gets a bonus of R20 million. He orders a Lamborghini worth R3.5 million. It is to be delivered in a week. Two days after the contract has been entered into the Lamborghini gets struck by lightning and all that remains is a charred car. X would still have to pay R3.5 million.

1.5) Formalities

A formality is simply a formal or technical requirement with which a contract must comply in order for the contract to be valid and binding. Typical examples of formalities are that the contract must be:

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In writing Signed by both parties Signed by witnesses Signed in front of an attorney or notary public (an attorney with special qualifications) Registered in the deeds office within a given period

- As a general rule, contracts do not have to comply with any formalities in order to be valid and binding contracts.

- Most contracts do not, in other words, have to be recorded in writing or signed by both parties and by witnesses in order for them to be valid. Verbal contracts are therefore just as valid as written contracts

- Naturally, the fact that a contract is in writing, provides helpful evidence of the actual terms of the contract should a dispute arise between the parties, but, it is not a prerequisite for validity

- This is the general rule under common law, but Parliament has introduced exceptions to the common law rule in respect of certain types of contracts.

- For example, in relation to contracts for the sale of immovable property, ante-nuptial contracts and credit agreements, Parliament requires that the contract comply with specific formalities. The formalities, and the consequences should the parties fail to comply with those formalities, are set ou in the relevant Act of Parliament in each case.

- The Alienation of Land Act 68 of 1981 states that contracts for the sale of immovable property must be:o Recorded in writingo Signed by both parties.

- If these formalities are not complied with, then the contract of sale is void- The Deeds Registries Act 47 of 1937 says that ante-nuptial contracts must be:

o Recorded in writingo Signed by both parties in front of a notary publico Registered in the deeds office within three months of marriage

- If these formalities are not complied with, creditors may treat the couple as though they are married ICOP, although the ante-nuptial contract will be valid and binding as between the married couple themselves

- The recently repealed Credit Agreements Act 75 of 1980 contained numerous formalities with which contracts subjected to the Act had to comply, including that the contract had to be:

o Recorded in writingo Signed by both parties

- The Act expressly states that failure to comply with the formalities did not render the contract void, but did constitute a criminal offence. As with contracts prohibited by statute, whether a particular contract must comply with any formalities, and what the consequences of non-compliance will be, depends on Parliament’s intention. The court must infer Parliament’s intention in this regard in the same way and on the same basis that it infers Parliament’s intention in relation to instances of statutory illegality.

2) Contents of a Contract

2.1) What are the terms of a contract?

- The terms are the provisions or the clauses of the contract.- There are various classifications of terms.

1) Material or Essential Terms- These are terms which are the essence of a contract (they are essential). - For instance, in the sale of land, the essential terms will be the price, description of the land and the description of the parties.- Terms which are not essential are called non-essential terms.

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- Whether a term is material or non-essential can be expressed or implied.

2) Expressed terms- An expressed term is a term which the parties have expressed in words or in writing. - In this section we are going to focus on standard form contracts which contain terms that one of the parties may not have read or understood.

We must now distinguish between signed and non-signed contracts.

Signed contracts Here the caveat subscriptor rules applies. “He who signs beware.” What this means is that if a person signs a contract, they are bound by the terms even if they haven’t read

or understood those terms.

George v Fairmead (Pty) Ltd 1958 (2) SA 465 (A) [Appellate Division now SCA]

Mr. George was a tourist and he hired a room at the Fairmead hotel. He was asked to sign the hotel register which contained the terms and conditions. One of the terms was that the hotel will not be liable for any losses suffered by the guests. This is known as an exclusion clause. George signed the register without reading it. He goes up to his room, unpacks his bags and leaves for a drink. He returns, only to find that his belongings had been stolen. He then decides to sue the hotel for losses. Hotel said that they are not liable as George had signed the exclusion clause with caveat subscriptor. He said he hadn’t read it, but Fairmead confirmed that he was bound regardless.

Caveat subscriptor used to be applied very strictly; however, in recent years the courts have developed certain exceptions to caveat subscriptor. In other words there are situations where caveat subscriptor will not apply.

1. Where the other party knows or ought to have known that the signatory is mistaken as to the terms or the nature of the document.

Dlovo v Brian Porter Motors Limited 1994 (2) SA 518 (C)


Mrs. Dlovo took her car to be repaired at Brian Porter Motors Limited. She was asked to sign a job card. They tell her it is necessary to authorize them to do the repairs. She signed it without reading it. There was, however, a clause on the job card which said that BP would not be liable for any loss or damage to the owner’s vehicle. This is also an exclusion clause. While the car was in for repairs it was stolen. The car was later recovered but it sustained damage in the amount of R8000. Mrs. D sues BP for the R8000. They argue that they aren’t liable since there was an exclusion clause and she signed it (caveat subscriptor). The court found against BP though for the following reasons.

BP ought to have known that Mrs. D was mistaken as to the nature and terms of the document because they told her she was signing a job card to authorize repairs, therefore she could not have reasonably known she was signing a contract with specific terms and conditions.

Caveat subcriptor rule therefore did not apply

Finally the contract is void due to mistake. It is an iustus error because BP ought to have known she was mistaken as to the terms. It’s material as to the terms of the contract.

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2. Where the other party knew or ought to have known that the terms did not reflect the signatory’s true intention.

Sprindrifter (Pty) Ltd v Lester Donovan (Pty) Ltd 1986 (1) SA 303 (A) [Appellate Division now SCA]

Sprindrifter was a clothing manufacturer, owned by Mr. Levinson. Lester Donovan organized clothing trade fairs. Mrs. Kats was an agent for Lester Donovan. She approached Mr. Levinson and discussed his participation in the winter trade fair in Cape Town and said it would run from 27-29 July 1981. She said he must sign up as soon as possible as there were limited stands. She gave him a form to sign. On the front of the form it also said the fair would run from 27-29 July. He was in a hurry and signed it.

He didn’t see the writing on the reverse side which said that if the dates were to change, the exhibitor would still be liable for the contract price even if he can’t make the revised dates. The date of fair changed from 30 July – 1 August. Mr. Levinson couldn’t make these dates and refused to pay the contract price. Lester Donovan argued breach of contract since they believed he was bound due to caveat subscriptor.

The court held he was not bound due to the following:

All the negotiations were based on the dates 27-29 July. Mrs. Katz was aware of the fact that Mr. Levinson had not seen the reverse side of the form. Therefore it could not be said that the document reflected Mr. Levinson’s true intention and Mrs. Katz

ought to have known that. She should have drawn his attention to the reverse side. The contract was void due to mistake. The error is material as to the terms of the contract. Iustus error.

3. Where the other party misleads the signatory as to the terms of the contract

Unsigned Contracts We are dealing with tickets and notices.

Example:X is about to go up Table Mountain in a cable car and is in a long queue. There are various signs on the walls stating that visitors use the cable car at their own risk and that the Cable Car Company will not be liable for any loss, injury or death arising from using the cable car. These notices are prominently placed all along where one queues. However, X does not read these notices. The same notice is on the ticket but X still doesn’t read it. X enters the cable car with his girlfriend and half way up the cable car line snaps due to negligence on the part of the maintenance engineer. X survives but he is severely injured. X sues for damages. X won’t succeed since the Cable Car Company would be able to use exclusion clause on notices and tickets.

Terms on tickets and notices are called imposed terms. The exclusion clauses allow companies to avoid liabilities for negligence and even gross negligence. The rule is that the customer is bound by these terms, even if they didn’t read or see them, provided that

the other party had done everything reasonably necessary to bring it to their attention.

To determine what is reasonable, the following requirements must be met.

1) Terms must be imposed before or at the time of contracting.2) With the ticket, it must be handed over before the contract is concluded.

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Example:X parked her car in parkade on the outside of the parkade. There was a notice which gave the name of the parkade and the hourly rate. X drove up the ramp and at the top of the ramp was a red light. When the car’s front wheels touch a magnetic strip on the ground, the lights turn from red to green. Just after that, a ticket gets pushed and one can gain entrance. On the ticket there was an exclusion clause for liability or loss. X was injured in the parkade and sued them for damages as a result of her injuries. Parkade argues that the exclusion clause on their ticket was a term of their contract. Court held that the notice outside the parkade was an offer and when the wheels touched the magnetic strip acceptance took place. The ticket came after acceptance, therefore it is not part of the contract. Therefore the parkade was liable.

3) The notice must be viewable at the time that the contract is concluded.

Durban’s Water Wonderland v Botha 1999 (1) 1982 (SCA)


Mrs. Botha and her daughter went on one of the rides in the Water Wonderland. They were sitting on the ride and the seat that they were sitting on broke loose from the ride and they were sent flying into the air and landed in a flowerbed some distance away. They were both severely injured. The reason for the accident was that the seat had not been properly bolted to the ride, and there were also certain design flaws (human negligence). Mrs Botha sued Water Wonderland for her and her daughter’s injuries.

At the cashier’s window, there was a notice that contained an exemption clause excluding liability for any loss or damage incurred. Mrs Botha makes the offer at the cashier’s desk when she wants to buy the tickets. Acceptance takes place when the cashier hands her the tickets (like in the Boots Pharmaceutical case). Thus, the contract is concluded at the cashier’s desk and the Notice was at the cashier’s desk. Therefore, it was an imposed term in the notice, excluding liability, and so Water Wonderland was not liable.

Add note: If there had been a death, they could sue for damages – but can’t put the company in jail (most people don’t sue for money in this case, they want some sort of justice to be served, so it doesn’t happen often)

Requirements for imposed terms1. It must be in a contractual form

This requirement only applies to tickets, not to notices The following documents are considered to be in a contractual form, and will bind the

customer:1) An order form2) A ticket (bus, train, taxi, movie ticket [still debate about whether it is a ticket or a

receipt – but take it as a ticket]) The following documents are not in a contractual form and will not bind the customer:

1) Receipts (e.g. dry cleaner – terms on receipts are not legal – and therefore, if any loss is suffered, the company is liable)

2) Vouchers3) Statements of account4) Invoices

2. There must be sufficient notice of the term All this means that the writing on the ticket and the notice must be prominent and

reasonably legible

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The customers attention must be drawn to the writing / must be prominent and easily legible

E.g. in Water Wonderland case – notice was 80cm x 60cm (2x3 rulers) – big notice and the letters were about 2.5cm in length. It had a white border, which drew attention, and it was positioned at eye level

Obviously in tickets the writing is small – therefore, text must be bold and legible.

Implied terms An implied term is a term of the contract that is binding on the parties, despite the fact that they have not

expressly mentioned it. There are 3 different kinds or types of implied terms:

a) Tacit terms - These terms are implied to give effect to the common intention of the parties- The contract is silent about this term (nothing is mentioned), but it is clear that the parties intended it to be part of the agreement- When dealing with tacit terms, the court apply the “curious bystander test”- It works like this:

If a curious bystander had asked both parties at the time that the contract was conducted, “what about this particular term that you haven’t mentioned?”

Then they would have both said: “Oh, of course that is included, but we didn’t think about it” or “Oh, of course it is included, but it was so obvious that we didn’t think to mention it” If these are the answers to the curious bystander’s question, then the term will be a tacit term

and will form part of the contract, even though it has not been expressly mentioned.

West Witwaterstrand Areas Ltd v Roos 1936 AD 6

The Basic Principles of Business Law, pg 94

Mr Roos owned a farm. He gave W the rights to obtain government permission to mine the land. You could only get permission from the government to mine if you could prove that there were precious metals in the land. In order to do this (i.e. to determine whether there were precious metals), they had to prospect the land (drill holes and take samples). The right to prospect was not an expressed terms of the contract and Mr Roos refused to allow them to do it (was just being difficult – wanted easy money without affecting the land!). W argued that it was an implied tacit term of the contract, and that they could prospect the land.

So the court applied the “curious bystander test”. They said, that if someone had asked the parties at the time of contracting, “can the company actually prospect the land?” The answer would have been: “Oh, of course, it is so obvious, we didn’t even mention it”. Because, if you can’t prospect the land, take out samples and make investigations, then you also can’t prove that there were precious metals; which means that you can’t get permission to mine and so the contract will actually be meaningless. Therefore, the company could actually prospect the land. The curious bystander test, is based on what the reasonable person would have accepted, and is independent of Roos’s intention.

b) Terms implied by law- Again, these are terms which the parties haven’t expressly mentioned, but they are implied by law to certain kinds of agreements (tacit terms – implied because agreed, but these are implied because the law says so)- In all contracts of sale (looked at in much more detail in the sale section), there is this implied warranty against latent defects- Latent defects are ones that are not obvious to the buyer (hidden and can’t be seen with a naked eye)

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- The implied warranty says that if the seller guarantees that the product has no latent defects, then if it does, the buyer will have a right of recourse against him (not the same as restitution for damages – this is also a remedy, but more specific here)- Most terms implied by law can be varied or excluded by express agreement- So, a seller can exclude liability of latent defects and is protected by a “voetstoets” clause (also used overseas – if there is no clause like this, then the seller is liable!)

c) Terms implied by trade usage - These terms are implied in business contracts between persons of a certain trade, but can be varied through expressed agreement. - For instance, a joint business venture between engineering and building company to build a bridge.

2.2) Common Contractual terms

a) Conditions and time terms

Definition of a condition: This is a qualification which renders the operation and the consequences of a contract dependent upon an uncertain future event.

- Be wary not to confuse conditions and time terms.- A condition is uncertain, a time term is certain

Example 1: I will pay you R2 million when you graduate (condition, not a certainty, can fail or die)Example 2: I will pay you R2 million when you die (time term, you are going to die eventually, certainty)Example 3: I will pay you R2 million when you marry (condition, uncertainty)Example 4: I will pay you R2 million on the 1st January 2008 (time term, certain) – if you die, estate will be paid

- There are 2 different types of conditions:

Suspensive Conditions- It suspends the contract.- The contract only comes into operation when and if that uncertain event happens- The contract is valid from the moment it is entered into, but it is not enforceable (suspended) until the conditions are fulfilled.- If the conditions fail, then the contract comes to an end.- Sometimes, the conditions will have a time limit, and if it’s not met within that time, the contract will end.- If there is no time limit, it will fail after a reasonable time (what is reasonable depends on the facts)

Resolutive conditions- Here the contract comes into operation and is enforceable from the beginning.- But if the condition is fulfilled, then the contract comes to an end.

Example: A and B get divorced and they enter into a settlement agreement. A must pay B maintenance until she remarries. That contract is valid and enforceable from the start (must pay maintenance from the date of signature. If she does remarry – obligation comes to an end.

Fictional fulfilment of conditions- People may want to prevent a condition from being fulfilled (for some reason)

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Example 1: You have done some travelling (22 years old) – father says go to university and get a degree- I will pay you R50000 until you graduate – while at university you discover that you won’t even earn this much when working one day – and decide to fail on purpose – but this is a resolutive condition (father will have to keep paying you until you get the degree)

Example 2: You lie about your salary so that you don’t get a house loan if you made an offer on a house by mistake!

- The law says that there is a duty not to deliberately prevent the fulfilment of a condition- But let’s say that a bank does not grant a loan for the house – not deliberate…- If one does so, then even though the condition hasn’t been fulfilled (i.e. if you deliberately prevent it), the law will deem that it has been fulfilled (pretend that it is fulfilled – fictional fulfilment of conditions)

b) Warranties (guarantees)

A warranty and a guarantee are the same thing A warranty is a contractual undertaking, that a certain statement of fact is correct.

Example: If you buy a 2nd hand car, and the seller says that he guarantees that the car has only done 50 000 km’s – if the car has done 80 000 km’s - you can sue him for breach

Example 2: If you buy a microwave with a 2-year guarantee and it breaks down after 3 months, instead of having you sue them for breach, they will generally replace it for free.

c) Exclusion clauses (exemption clauses)

These are clauses which exclude one party’s liability, delictual or contractual, that the law would otherwise attach to him (normally would be liable)

We have seen this twice before – in Durban’s Water Wonderland and parkade example - unsigned contracts and imposed terms; as well as in mistake and misrepresentation (e.g. the guy bought a house on the Durban coast – but gave him the wrong plot – excluded liability for misrepresentation)

Note that one cannot exclude liability for a criminal offense.

d) Cancellation clauses

The general rule is that you can only cancel a contract if the breach is material and if it is severe. To get around the restrictions on contract cancellation, parties can include a cancellation clause. This allows them to cancel for any breach (even the most tiny and trivial breach), whereas normally one can

only cancel if there is severe breach.

Example:In a lease agreement, if the tenant doesn’t pay the rent on time, this is not considered a serious material breach (therefore the lessor cannot cancel the contract). However, if the lessor included a cancellation clause, then he/she can cancel the contract

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e) Penalty clauses

In order to avoid the necessity of calculating and proving the actual value of the losses sustained when there is a breach of contract (which is often both a time-consuming and difficult process), the parties can include a penalty clause in their contract in which they agree, in advance, precisely what it is that the innocent party will be able to claim in the event that the contract is breached.

Penalty clauses are commonly found in building contracts, in which the builder agrees to pay a fixed sum for every day the builder is late in completing the work. A clause of this type might read as follows: “The contractor (builder) shall be liable to pay a penalty of R500 per day to the client for the number of days the work remains incomplete beyond 1 December 2006.

The advantage of penalty clauses for the client is that she is entitled to claim the pre-agreed sum without proving that she has actually suffered a financial loss in that amount. The Conventional Penalties Act 15 of 1962 contains a provision permitting a court to reduce the agreed penalty if it far exceeds the actually financial loss suffered.

The disadvantage for the client is that she is limited to recovering the re-agreed sum, even if her actual damages are considerably higher, for there is no provision in the Conventional Penalties Act permitting a court to increase the pre-agreed sum. However, the parties are free to include a further clause in the contract, in which they agree that the client will be entitled to claim her actual damages, should they be higher than the pre-agreed penalty.

f) No-variation clauses

This applies to written contracts only It is a term in the contract, to the effect, that no variation of the contractual terms will be of any force and

effect, unless it is reduced to writing, and signed by both parties

Example: There is a written lease agreement that the rent must be payable on the first day of every month, but the agreement contains a no-variation clause. The parties want to change the date of payment from the first day to the seventh. They have to do that in writing. This is “an amendment to lease agreement etc”

The reason you do this is that it creates certainty and avoids evidentiary problems

Continue example above:The written agreement says that the tenant must pay on the 1st – tenant phones and says that he wants to pay on the 7th and landlord says that it is ok – but the next month the landlord sues tenant for not paying on the first. Since the amendment has to be in writing, the landlord can do so.

2.3) Disagreement on the Terms of a Contract

Parol (oral) evidence rule - Again, this applies to written contracts.- The rule is this: If the parties have a written contract, then that document is all that the court

can look at to ascertain the terms and the obligations under the contract. Generally, the court may not admit oral evidence, to show that the true terms are different from those in the written document.

- There are many exceptions to this rule.

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- E.g. – there is a lease agreement reduced to writing - this is the only document that the court can look at – the lease agreement says that the tenant needs to pay the landlord on the 1st of every month – may have contradicting oral evidence – court will only apply the written document

- Exceptions – e.g. rectification in the Horty case

b) Rectification - Refer back to previous notes on mistake. See Horty Investments case!!

3) Breach Of Contract

- Breach occurs, where one of the parties fails to observe the terms and fulfil his obligation under the contract- Debtor = the performance debtor, i.e. the person who must perform (doesn’t necessarily mean payment)- Creditor = the performance creditor i.e. the person to whom performance is owed (doesn’t necessarily

mean money – can be good health performance – e.g. contract with a doctor)

Example:Raul sells a lounge suite to Zinedine. Raul must deliver the lounge suite & Zinedine must pay R1000. As far as delivery of the lounge suite is concerned, Raul is the performance debtor (he is the one who has to do something) & Zinedine is the performance creditor (he is the one to whom the performance is owed). However, with regards to payment, Zinedine is the performance debtor and the performance creditor is Raul! In most contracts, one person will be a debtor and the other a creditor.

There are different types of breach:

1. Late performance by the debtor = mora debitoris 2. Late performance by the creditor = mora creditoris 3. Positive malperformance (incomplete or defective performance) 4. Repudiation5. Prevention of performance – breach due to impossibility

3.1) Late performance by the debtor (mora debitoris)

Here the debtor fails to make performance by the due date. All of the following requirements must be met, before a person is in mora (meaning that they’re in breach of

contract for mora debitoris):

1. Debt or obligation (not always money) must be due and enforceable.- If a time limit has been set in a contract, then it is obvious when the debt is due. - If no time limit has been set in the contract, then the contract is due and enforceable after a

reasonable time (look at the facts to determine what a reasonable time is).- If there is a suspensive condition in the contract, then it becomes due and enforceable after the

conditions are fulfilled.

2. The time for performance must have been (i) fixed, either in the contract or in a (ii) subsequent demand, and the debtor must have failed to then perform timeously. - Two situations here: - (i) Where a time limit has been fixed in the contract:

For example, you say you will deliver a lounge suite on 4 May 2009 On 5 May 2009, the lounge suite has not been delivered The first requirement has been met here, it became due and enforceable on 4 May 2009

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The second requirement has been met, i.e. the time in the contract has been fixed- (ii) Where no time limit has been fixed in the contract:

E.g. X orders and pays for a lounge suite on 13 November 2008. Y must deliver the lounge suite to X.

No time limit is set out in the contract. By 13 May 2009, Y has still not delivered the lounge suite. In this case, the first requirement is met, as the obligation is due and enforceable since a

reasonable time has passed (6 months). The time of performance has not been fixed in the contract; the performance has not been

fixed in a subsequent demand. In order to meet the second requirement, he has to send a demand (i.e. “You must deliver the lounge suite in one week”) or issue a demand in order to place the debtor in mora (person does not need to receive it!)

The demand usually takes the form of a written letter, but it can also be verbal (i.e. you can phone him etc.) – if still not delivered (breach of contract)

The time for performance, given in the demand, must be reasonable in the circumstances. In considering what is reasonable, the courts will take into account the amount of time that

the debtor already had to perform. If the debtor wants to argue that the time given in the demand is unreasonable, then the

onus rests on him to prove it. However, if the demand is couple with a notice of cancellation, then the onus shifts (the

creditor has to prove that the time given was reasonable).

3. Failure to perform must have been due to the fault of the debtor.- If the failure to perform was due to the fault of the creditor, then this requirement is not met. (mora

creditoris)- The delay must also not be due to an objective impossibility. - If it is, then the contract will be void due to impossibility. Remember, if it not an objective

impossibility, then the contract will be breached or else void.

3.2) Late performance by the creditor (mora creditoris)

- When we speak about performance here, we refer to the “co-operation of the creditor” – doesn’t have to perform anything; just needs to co-operate.

- For instance, in a lease agreement, if the landlord is not available to pay the rent or the bank account is closed, then the debtor cannot pay it.

- Requirements for mora creditoris is (all must be met):1. The debtor must be under an obligation to make performance.2. The co-operation of the creditor must be necessary for the proper performance of the debtor’s

obligations (sometimes the co-operation of the creditor is not needed – e.g. the transfer of money into the creditor’s account – co-operation is not needed!)

3. The debtor must make all reasonably possible efforts to perform fully4. There must be a delay in accepting performance by the creditor.5. If the debtor is going to perform before the due date, he must notify the creditor in advance so that the

creditor can make himself available.6. The delay must be due to the fault of the creditor (it must not be objective impossibility – or else the

contract is void, not in breach!)

3.3) Positive malperformance:

- Mora debitoris and mora creditoris are related to the time of performance where the delay is the issue.- Positive malperformance is different, as it relates to the actual content of the performance

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- There are two types of malperformance:

1. Where there is a duty to do something positive (positive malperformance of a positive duty) Positive – a duty to do something. Positive malperformance occurs if there is an incomplete or defective performance or duty.

Example: A builder must finish building a house by 12 May 2009. By that date, he has completed the house, but it is structurally defective and not according to plan. This means that there is positive malperformance

Example 2: A builder must finish building a house by 12 May 2009. However, on the due date he has only completed the 1st floor of the house (which is perfect and has no problems), BUT not the second floor. This is not mora – as mora is where there is no performance at all by the debtor. Here, there was performance, but it was incomplete, and is therefore positive malperformance.

2. Where there is a duty to do something negative This kind of breach will be positive malperformance of a negative duty A negative duty is a duty not to do something (opposite to a duty)

Example: There is a lease agreement between a landlord and a tenant. Landlord stipulates that the tenant cannot have animals on the premises (negative duty). If the tenant keeps his cat on the premises, then he is in breach, and it is positive malperformance (brought a cat onto premises) of a negative duty (not supposed to keep animals)

3.4) Repudiation

- This type of breach can be made by either party (the creditor or the debtor)- It occurs when one party, by his conduct, and without any justification in law, indicates that he no longer

intends to be bound by the contract. - A mere delay in giving or receiving performance will not be repudiation (will be one of the mora’s)- The test for repudiation is whether the debtor or the creditor acts in such a way as to lead a reasonable

person to believe that he doesn’t intend to be bound by the contract

Example:You buy a TV from a shop. Before delivery, they sell it to somebody else. They cannot deliver the TV to you. This is repudiation.

Example 2:A and B enter into an agreement. A must deliver two tons of bricks to B. Before the delivery, A phones B and says that he is only going to deliver one ton. This is repudiation by conduct or words (does not want to be bound by the agreement). Can also be positive malperformance (incomplete performance)

3.5) Prevention of performance:

- Performance by one party becomes impossible due to their own fault or due to the fault of the other party.- The party who made the performance impossible will be in breach, unless of course, they can prove that the

impossibility is objective, in which case the contract will be void and there is no breach.

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Example:Megan hires a BMW from AVIS. She has an accident and the car is written off (it was her fault). AVIS gives her a 2nd BMW – she is driving drunk and has an accident, and that one is also written off. They have no more BMW’s left to give her (Christmas time is very busy in Cape Town!). So, Megan wants to sue AVIS for breach of contract. In this case above, AVIS’s performance is impossible (can’t provide car). It is not objectively impossible (HERTZ can still provide it, for instance) and it is Megan’s fault that they cannot provide her with a BMW. Therefore, breach is by Megan – prevention of performance (prevented AVIS from providing). AVIS will sue her for the cost of the cars and the money for daily rates for the month for the time that she should have had the car (under the law of delict) – whether AVIS actually claims from insurance or not is irrelevant, i.e. they will benefit.

4) Remedies for Breach

There are 3 kinds of remedies for breach.

1. Specific performance (SP)2. Cancellation3. Contractual damages

4.1) Specific Performance

- One party gets a court order compelling the other party who is in breach, to perform what he has undertaken to do in terms of the contract

- Before the court will actually order specific performance the person who is not in breach, must do one of the following:

Perform their own obligation or Tender/offer performance

1. Mora debitoris- Here, it can be claimed (must deliver in specific number of days).

2. Mora creditoris- Specific performance can be claimed, however, where the debtor has been prevented from performing

fully, due to the delay of the creditor, then the debtor’s right to claim specific performance will be reduced by an amount equivalent to the income lost.

Example: Marissa hires Santiago to do an hour of gardening for her. The cost for that hour is R120. Santiago arrives at Marissa’s house with his gardening equipment on time. But Marissa is not there and there is no one to let Santiago in. Marissa arrives 45 minutes late (mora creditoris); lets Santiago in, but he can only do 15 minutes of gardening (as scheduled), as he had another appointment. Hence Marissa didn’t pay Santiago anything and thus the case went to court. Santiago wants to claim specific performance from Marissa (45 minutes late – mora creditoris). The court will only reward him R30 according to specific performance (only performed for 15 minutes). He can claim the remaining R90 under contractual damages

3. Positive malperformance- For positive malperformance of a positive duty, the creditor can reject the incomplete or defective

performance and demand complete and perfect performance.- You can claim specific performance on positive malperformance of a negative duty as well.- Here the claim for specific performance is by an interdict (restraining order in America) – it is a court

order that stops someone from doing something.

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4. Repudiation- There has been some debate as to whether you can claim specific performance here.- In some cases it has been awarded, so it does seem that you can (sometimes), however, this is a grey

area, courts are awarding it more and more

5. Prevention of performance- Due to the nature of the breach, one can’t claim specific performance (impossible).

Note: All of the above are general rules – the court always has discretion.

The court may not grant specific performance, in the following situations; no matter what type of breach it is:

1) Where the contract is of a personal nature (e.g. contract of engagement – can under contractual damages)

2) Where there may be undue prejudice to the defaulting party, or the public at large If the court doesn’t order specific performance, you may be able to claim contractual damages

instead. You can also claim contractual damages in addition to specific performance.

Example: A municipality is under contract to provide a fixed amount of water to a farmer. However, due to a water shortage, the municipality couldn’t provide amount of water in contract as the public at large would be prejudiced. The farmer wanted to sue for specific performance, but as just stated, the public at large would be prejudiced, and therefore specific performance cannot be ordered.

4.2) Cancellation / Recision

- Cancellation is considered an extreme remedy.- For this reason, it is only permitted in 2 situations:

1. Where there is a cancellation clause for minimal breach. 2. Where the breach is material

a) Mora creditoris and mora debitoris- The nature of these two is that it is got to do with time and it is late. - This breach will be material only when time is of the essence.- The mere fact that the parties have stipulated a time for performance in the contract, does not make time

of the essence.

Example: Raphael Nadal orders a lounge suite from Novak Djokovic. Djokovic must deliver suite by 5 January 2009. By 5 April 2009, Djokovic has not delivered. Djokovic is in mora debitoris, and he is therefore in breach. However, time is not of the essence.

- These are four situations where the courts have held that time is of the essence:

1. Where the party who is not in breach (do not refer to innocent party since it not a crime), gives notice of recision to the other party (i.e. if X does not perform by a certain date, Y will cancel)

If one wants time to be of the essence – one must send a notice of recision. The notice of recision can be coupled with the demand placing the debtor in mora in the case of

mora debitoris.

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Thus, if there is no date set, after a reasonable time one can send a notice of demand coupled with notice of recision (place debtor in mora and can cancel the contract due to breach)

2. Where the time for performance is stipulated in the contract and it can be inferred from the facts that time was of the essence.

Example:Jade is getting married. She hires a photographer to take picture of the wedding ceremony. The contract says that the photographer will be there at the service on the 5th December @ 6pm. The photographer arrives at 8pm. It can be inferred from the facts that time is of the essence

3. Time is normally of the essence in MERCANTILE transactions

Example: Zarah must supply grapes to Pick ‘n Pay because Pick ‘n Pay are going to sell them to their customers. Time is of the essence as Pick ‘n Pay will lose sales.

4. When no time of performance is stipulated in the contract, but one can infer that time was of the essence.

- For instance, shares normally used as an example here: if a person phones their stock broker to sell their shares, the broker cannot take two weeks to do so.

- Also, a medical operation usually requires immediate attention and thus time is of the essence.

b) Positive malperformance - You determine if the breach is material by looking at the circumstances and the facts of each particular

case. Judges discretion.

Example: A construction company is hired to build a mansion. They do everything correctly except for one thing – one of the windows is 5cm narrower than it should have been. This is not a material breach.

c) Prevention of performance- If the whole contract becomes impossible, breach is material, and one can cancel.- If the impossibility is only partial, the breach will only be material if the impossibility relates to a major part

of the contract.

Example: JP Duminy hires Leonardo da Vinci to paint his huge house. While Leonardo is busy with the job, JP knocks down one of the interior walls, therefore Leonardo cannot paint it. However, he can still paint the rest of the house. Only a minor part of the contract, therefore impossibility is only partial.

d) Repudiation- Breach is only material if there is repudiation of the entire contract or a substantial part of the contract.

Example:50 cent orders 200kgs of weed from DJ Tiesto in Amsterdam. If Tiesto delivers 199kgs, this would not be a material breach.

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The Effect of Cancellation

- Once cancellation has occurred, the contract comes to an end, and each party must claim restitution (restitutio in integrum)

- The contract is NOT VOID and if cancelled, can’t ask for specific performance.- You can claim damages either in addition to, or instead of cancellation.

4.3) Damages

- Contractual damages are aimed at putting the person in the position that they would have been in, had the contract been properly performed.

- You can claim damages in addition to or instead of specific performance or cancellation.- In order to claim damages, ALL of the following requirements must be met (same requirements as for any

type of breach!):

1) The loss must be financial (monetary loss)

Jockie v Meyer 1945 AD 354

The Basic Principles of Business Law, pg 117

Mr Jockie was a Chinese Naval Officer, working for the British Navy. He was a very high ranking officer (important later in the case). The British Navy had docked in Port Elizabeth. The Navy had booked rooms at Meyer’s Hotel for the entire crew. They arrived at Meyer’s Hotel and they were all given the keys to their rooms (every one). So, Jockie went up to his room; and a short while later, he was called down to reception. There were several people in the reception area, including other members of the crew. He was asked to return his key and was told that there was actually a mistake and that the hotel was full. There was a bit of an argument (in front of everyone) and he was asked to leave the hotel. The real reason why they asked him to leave was because he was Chinese (1945 in SA!) – didn’t expect this from the British Navy. Jockie sued Meyer for the following damages:

a) Money spent on alternative accommodationb) Money spent due to the inconvenience (taking a taxi elsewhere etc)c) Humiliation that he had suffered at the hotel. He was a high ranking officer, can normally claim this

under delict BUT NOT IN 1945 (racist!)

The last claim failed since it is not a financial loss, therefore, can’t quantify.

2) The loss must be as a (direct) result of the breach

Example: Jonno is a student at UCT, but he lives in Johannesburg. He goes home for study week before the final exams. He books his flight back to Cape Town on the morning of the first exam. The airline made an error and forgot to book him on the flight. As a result, he misses the first exam (can’t write it); doesn’t graduate because of this, loses the job that he had lined up (because he didn’t graduate) and he has to come back to varsity for another semester. He sues the airline for breach and he claims the 1st year’s salary for the job that he would have had if he had graduated, as well as the 1st semester’s fees at UCT. It comes out in evidence that he had no DP for this course and a year mark of 12%. He wasn’t going to graduate anyway and therefore his loss was not a direct result of the airline’s breach, and so he doesn’t get the damages.

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3) The loss must be a NATURAL consequence of the breach

What this means is that the loss must have been reasonably foreseeable by the person who was in breach

This requirement limits requirement number two (cannot claim an unlimited number of losses)

Example: The facts are the same as Jockie v Meyer, but now it is modern day. Mr Jockie is not only a Naval Officer, but he is also the captain of the English Cricket side (professional cricket). The same thing happens to him at Meyer’s Hotel. But on his way to the next hotel in a taxi; he gets hijacked and his passport is stolen. He arrives at the only other hotel available and it costs R2000 more per night. He was supposed to return to England on the 1st May to play a cricket match, and for the playing the match, he was going to get £10 000. Because his passport was stolen, he can only get to England on the 8th May and therefore will lose £10 000.

In the meantime, while he is waiting for his passport, there is a fire at his hotel. He gets caught in the fire and his right arm is so burnt, that it becomes singed, and he can’t move his arm at all. He is also now blind due to the fire and so he can no longer play cricket.

His loss of income for not playing cricket is £200 000 per year. He also has to take an inferior position in the Navy and the loss of income there is £100 000 per year. All of these losses are a DIRECT result of Meyer’s breach (domino effect). All meets requirement two. But are all of these reasonably foreseeable? No!!! Only the costs for the taxi and the other hotel fees can be classified as reasonably foreseeable (can’t even claim for the passport fees – not reasonably foreseeable)

4) The wronged party must have done everything in their power to mitigate their loss

This means, they have a duty to minimise their loss (within reason) For instance, Jockie can’t go to a 5-star hotel, if equivalent is available, he must do everything in his

power to mitigate loss (reasonably). If Jonno at UCT had DP and everything that happened was the airline’s fault, he can’t sit at home and

sulk for the rest of the year, can apply for a job etc. and minimise that loss in income to mitigate the amount payable by the airline company.

Thus, one can’t wallow in misery, must aim to minimise loss suffered.

5) Transfer of Contractual Rights and Obligations

5.1) Cession

1. This is the process whereby contractual rights are transferred by one party, the cedent, to another party, the cessionary. Only rights are transferred, not obligations. Generally, no formalities are required

Example:In a lease agreement, Fran Michel is the lessee and Shaun Barns is the landlord. Shaun can cede his right to receive the rent to Marc Whitelaw. Only rights can be ceded, so Shaun is still responsible for all his obligations under the lease agreement, for example, maintaining the property, but Marc has the right to receive the rent.

2. As a general rule, cession can take place without notifying the debtor. So in the example above, the

cession of rental could take place without notifying the tenant, Fran.

3. However, where the contract is of so personal a nature that the debtor has substantial performance to one person only, cession cannot take place without her consent.

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So for example, contracts of employment cannot be ceded without the employee’s consent.

4. There are also statutory prohibitions on cession, for example, the Compensation of Occupational Injuries and Diseases Act 1993 prohibits the cession of any compensation obtained in terms of the Act.

5. The effect of cession is that all rights which the cedent had, become vested in the cessionary. i.e. the cessionary now has all those rights

This does not create a new contract, the new cessionary is able to sue on the existing contract, he “steps into the shoes of the cedent.” Only the cessionary can enforce those rights. So in the rental example above, only the cessionary, Marc, may sue for rental, not Shaun, the cedent. If Fran, the debtor, had been notified of the cession, and she still pays Shaun, then that payment will not discharge the debt.

But, if not notice had been given to Fran, payment to Shaun in good faith by Fran will discharge the debt. In other words, she will be excused from paying Marc.

6. The cessionay obtains exactly the same rights as the cedent. This means that the debtor can raise any defense against the cessionary that he/she may have raised against the cedent, for example, that the contract is void due to mistake or cancelled due to breach, or voidable due to misrepresentation.

5.2) Delegation

1. Delegation is the opposite of cession. Here, the debtor delegates his/her contractual obligations to another person, but he/she retains the rights.

So, again using the rental example, Fran could delegate her obligation to pay rent to Amy Winehouse. This means Amy will have to pay the rent, but Fran still has the right of occupation.

2. The consent of all three parties is necessary for delegation.

3. The effect of delegation is that there is a new contract, a novation. The creditor, the original debtor and the new debtor are all parties to the new contract.

In the lease example, if Fran delegates her obligation to pay rent to Amy, then there is a new contract. This contract will be between Shaun (landlord, creditor), Fran (lessee, old debtor) and Amy (new creditor).

5.3) Assignment

1. This is where the creditor or the debtor transfers his/her contractual rights and obligations to another party.

2. This is seen most commonly in lease agreements.

Example:Nico Loizides rents a flat from Jo Cockburn. Nico assigns the lease to Marc van Heerden. This means that Marc now has the right to occupy the flat, but he also has the obligation to pay the rent. All three parties must consent to the assignment.

3. The effect of assignment is that there is a new contract, a novation.

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6) Termination of Contractual Obligations

What we are concerned with here are the ways in which a contract can be terminated apart from cancellation due to breach.

6.1) Proper Performance- Most contracts are terminated by the proper performance of the parties’ obligations- However, where one party does not conform, or renders defective performance, then the contract is not

terminated and the normal contractual remedies for breach are available. - In the case of reciprocal contracts (contracts where one party has to perform an obligation and in return

receives performance from the other party), the creditor will normally be excused from performing until the debtor has performed or tendered performance.

- So for example in contracts of sale, as opposed to credit, the seller need not usually deliver the goods until the purchaser has paid the purchase price or tendered payment.

- If the purchaser were to demand delivery before the purchase price was paid or tendered, then the seller could raise the exceptio non adimpleti contractus.

- In other words, the defense of exceptio non adimpleti contractus means that the seller need not perform until such time as the buyer pays the purchase price or tenders payment.

- The buyer could also raise the exceptio if the seller demanded payment without tendering delivery.

6.2) Agreement (waiver, novation and compromise)- The parties are free to terminate their contract.- A waiver occurs when one or both parties agree to abandon their rights (a waiver of rights) in terms of

the contract. This is only effective if both parties are fully aware of the extent of the abandoned right.- Novation is the replacing of an old contract with an entirely new one. This may involve a third party.- A compromise is essentially a novation which can occur only when there is a dispute between the

parties regarding the contractual obligations. A new settlement agreement is entered into.

6.3) Death- This does not normally terminate the contract unless it is of a personal nature. - The rights and duties of the deceased in terms of contracts to which the deceased is a party will usually

pass to the executor of his estate to administer.

6.4) Insolvency- This does not terminate the contractual rights and duties of the insolvent. - These are assigned by law, first to the Master of the High Court and then to the trustee appointed by the

High Court to administer the estate of the insolvent.

6.5) Merger- Occurs when the debtor and creditor become one, for instance, when a tenant purchases the property

he/she resides in. - The creditor and debtor become the same entity, thereby destroying the contractual obligations which

formerly existed between what were once two parties.

6.6) Prescription- The Prescription Act 1969 says that debts or claims for performance are extinguished after a certain

period of time.- The Act sets out how long it takes for a debt or claim for performance to prescribe, in other words, come

to an end, or become unenforceable. - Once a debt has prescribed, then the creditor can longer sue for that money owed or performance due. - The Act sets out the different periods of prescription that apply to different kinds of debts.

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i. 30 years in respect of :1) Any debts secured by mortgage bond2) Any judgment debt3) Any debt in respect of taxation4) Any debt owed to the state in respect of ... the right to mine minerals and other

substancesii. 15 years in respect of any debt owed to the State and arising out of an advance or loan of

money or a sale or lease of land by the State to the debtor...;iii. 6 years in respect of a debt arising from a bill of exchange or other negotiable instrument or

from a notarial contract, unless a longer period applies in respect of the debt in question in terms of i) or ii)

iv. 3 years in respect of any other debt- Most average contractual debts prescribe after 3 years (for example, contracts sale of movable goods or

for services rendered).- In all instances of prescription (30,15,6,3), prescription runs from the date on which the debt became

due. If the seller wants to claim back the money, he must do so before midnight the day before the debt prescribes.

- Prescription can be interrupted in the following circumstances If summons is issued claiming back the money

Example:You are an attorney. The seller of a painting comes to you on 12 April 2009, 5 days before a debt prescribes, asking you to claim the purchase price from the buyer. You must issue summons before midnight on the day before prescription (16 April 2009) to interrupt prescription.

- If the debtor acknowledges the debt, the prescription is interrupted, and prescription will start to run again from the time that the acknowledgement is made.

- Using the aforementioned example, if the debtor had admitted liability for the purchase on 13 April 2009, the seller now has until 12 April 2012 to reclaim the money.

- Prescription can be suspended/delayed in the following circumstances: If the creditor is a minor, is insane or is under curatorship If the debtor is outside SA If the debtor and creditor are married to each other If the debtor and creditors are business partners and the debt arose out of the partnership

relationship If the creditor is a juristic person and the debtor is a member of the governing body of the

creditor If the debt is the object of an arbitration dispute. If the debt is the object of a claim against the deceased or insolvent (or liquidated) estate of the

debtor. If the debtor or creditor is deceased an executor of the estate has not yet been appointed.

- The rule is that if the period of prescription would in the ordinary course of events have been completed before or within one year after the date on which the impediment (for example, minority) ceased to exist, the period of prescription will not be completed before a year has lapsed since that date.

Example:Lebo (13) sells and delivers a painting to Sachin on 12 April 2009. The contract was duly assisted. The debt became due on 12 April 2009, as that is the date when Sachin was supposed to pay. Ordinarily, the debt would prescribe on 11 April 2012. However, because Lebo is a minor, the rule says that prescription will only be completed one year after Lebo turns 18, in other words, one year after the impediment ceases to exist. Lebo will turn 18 on 5 January 2014. So prescription will only be complete on 4 January 2015.

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6.7) Set-Off

Example:Jake owes Jess R1000, and Jess owes Jake R1200. The one debt is set-off against the other, thus Jess owes Jake only R200.

- In order for set-off to operate, the following requirement must be met: The parties must be indebted to each other in the same capacities.

Example:If Dirk Nannes owes AB de Villiers R200 in his personal capacity and de Villiers owes Nannes R200 in de Villiers’ capacity as agent for Virender Sehwag, then set-off cannot operate.

The debt must be due and payable. If the debts or one of the debts are not yet payable, set-off cannot operate.

The debts must be of the same type and liquidated. The monetary value must be certain, and set-off debts must be same type (usually money, but can be fixed supply of T-shirts for instance).

6.8) Supervening Impossibility of Performance- Refer back to prior notes

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PART C: SPECIFIC CONTRACTS

1) Contracts of Sale

Definition:- A contract of sale is one where one party delivers a thing to another, in return for payment.- The contract is concluded when acceptance takes place (just like any other contract) and the normal rules

for a valid contract apply.- Special qualities to this particular contract are explained below.

1.1) Essential requirements (for a sale)

a) Intention to transfer free and undisturbed possession- To sell a thing, a person must do no more than undertake to transfer free and undisturbed possession to

the other party.- Vacua possession is the legal term for “free and undisturbed possession”.- What this means, is that generally speaking, the seller does not have to be the owner to transfer

ownership, only vacua possessio (possessor).- Therefore, it is possible for somebody who is not the owner to sell a thing- For instance, even if someone stole a DVD player and sold it, then it is still a valid contract of sale. The

thief would be the new possessor, not the person from whom the DVD player was stolen (original owner).

- Before delivery takes place, there is a valid contract of sale, provided the requirements for a valid contract have been met.

- At this stage (before delivery), the buyer has a personal right against the seller for delivery,- Once delivery takes place, the buyer now has a real right of possession (not necessarily ownership).- Ownership is stronger than possession, but possession is still strong (need a court order to obtain

something in the possession of another person)

b) Subject matter of the sale:- Legal term for subject matter of the sale: res vendetia (subject matter) or merx (merchandise) = things

sold- The parties must both agree on the subject matter of the sale (or else void due to mistake)

c) Price- The price must be in money or at least it must have a monetary component.

Example: You buy a boat for R500 000. You agree that the purchase price (R500 000) will be made up as follows – R250 000 in money (cash, cheque, post-dated cheque or credit card); the balance will be made up by trading in your old boat to the seller, which is worth R250 000 (if you swop your boat, this is called a barter or swop and is not a sale, similarly, if given a boat, this is a donation, not a sale)

- The price must be fixed or the parties must have agreed upon some external method or standard by reference to which the price can be ascertained (price can be a fixed value, or price less 10%, or, as in the case of shares, the share price will be determined by the shareholders)

1.2) Legal effect of a contract of sale

a) The passing of ownership:

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- Sale does not necessarily transfer ownership, simply vacua possession (undisturbed possession)- Ownership is a stronger real right than possession.- An owner can reclaim his property wherever he finds it. This is called rei vindicatio.- The rei vindicatio law can be exercised even against the possessor.- For instance, if you bought a 2nd hand laptop and the owner has rei vindicatio, then he can claim it back.- To become an owner, we need to look at how the ownership is transferred.- Ownership, like possession, is transferred by delivery.- But in addition, all of the following requirements must be met:

1. The seller must himself be the owner. There is a rule in our law that you can’t transfer more than you have, thus, a thief can’t transfer ownership.

Add note: An agent can sell on behalf of the seller (via a sole mandate), but this must be in written form for immovable property.

2. The owner must intend to transfer ownership.

3. The buyer must intend to acquire ownership.

4. If the sale is a cash sale of a movable (anything other than land), then the purchase price must be paid.

5. If it is a credit sale of a movable, ownership is passed on or passes on delivery alone – before the purchase price is paid.

Example: You buy clothes on Woolworths credit – ownership transfers at the time that the clothes passes through the till and the account is debited.

6. For the sale of immovable property (land, house or farm), ownership passes on delivery before the purchase price is paid. Delivery of immovable property is done by registering the transfer at the deeds office

b) The passing of risk and profits:

Risk- See example under impossibility about risk. A Lamborghini was destroyed before the buyer received but the

buyer still had to pay the full purchase price.- The rule is that the risk of accidental loss passes to the buyer as soon as the sale is perfecta even if the thing

has not yet been delivered to him

(i) Risk of accidental loss- Loss is either damage or total destruction of a thing- If the article is damaged or destroyed before delivery, the buyer must still pay the full purchase price

(if he already paid the purchase price – can’t get it back)- A loss could also mean any other disadvantage (e.g. if the government imposes tax, or existing tax

on an article increases, then the buyer bears the risk and is liable to pay it)- Accidental loss is loss resulting from vis major (hurricances, earthquake, tornado etc) or an act of a

third party for whom the seller is not responsible.

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Example: A sells a farm to B. Before delivery, the farm is expropriated (taken over) by the government. This is considered accidental loss, and B has to pay the full purchase price (this is supervening impossibility – but this is the exception to the rule).

- The buyer does not bear the risk if the loss is caused by the fault of the seller, or by a 3rd party for whom the seller is responsible.

- When we say that the buyer bears the risk this means he/she must pay full purchase price; if the seller bears the risk, then this means that he will not receive the purchase price or he will have to return the full purchase price back to the buyer if it had already been paid by him.

(ii) The risk passes as soon as the sale is perfecta- In most simple contracts of sale, the sale is perfecta as soon as it is concluded- But this is not always the case (therefore need to look at the following three points)- All of the following requirements must be met, in order for a sale to be perfecta:

1) The purchase price must be fixed, not merely ascertainable

Example:Kirstie and Lucy enter into a contract of sale on 1 June 2009. Kirstie is in South Africa and Lucy is in England. Kirstie must deliver 100 pairs of shoes to Lucy on 1 July. The purchase price is the equivalent of R100 000 in pounds, as determined by the exchange rate on 28 June. On 1 June, there is a valid contract of sale, because the price is ascertainable by some external method. The sale only becomes perfecta on 28 June. Therefore, it is a valid contract of sale from 1 June, but perfecta once exchange rates have been used to calculate final price. The risk only passes to the buyer on 28 June.

2) Subject matter must be ascertained, not merely ascertainable

Poppe, Schunhoff and Guttery v Mosenthal 1879 Buch 91

P, S & G sold 200 caskets of brandy to M. It was a valid sale as they had agreed on the subject matter – 200 caskets of brandy. Before delivery, and before P, S & G had set aside particular bottles that were going to be delivered to M; the government imposed a duty on the sale of brandy. Because the subject matter had not yet been ascertained (specifically set aside for M), the sale was not perfecta and therefore the seller bore the risk and he has to pay the duty.

Taylor & Company v Mackies, Dunn and Co. 1879 Buch 166

T & C sold brandy to M, D and the government imposed a duty. But this time before the government imposed the duty, the brandy had been set aside in the warehouse and was marked with the buyer’s name. The sale is perfecta this time, as the subject matter is attained. The buyer bears the loss, and in practical terms has to pay the tax.

3) Any suspensive condition to which the sale is subject, must have been fulfilled

Example: The sale is only perfecta when a house mortgage bond is granted (suspensive condition). The sale being perfecta here is a common rule.

(iii) Situation where the risk will not pass to the buyer once the sale is perfecta

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a. Where there has been express or implied agreement varying the rule- To vary this, you will have a clause that says “risk passes on delivery” (put in every contract of sale)

b. Where there is a default / delay on the part of the seller in making delivery- If the seller is late in making the delivery, it is presumed that any damage or loss caused during the

delay period, is due to the fault of the seller.- The seller can only disprove this presumption by showing that the loss would have occurred even if

the delivery had been made on time.

Example:A must deliver a fridge to B on 5 July. A is late in delivering, and on the 6th July, while in the warehouse, the fridge is struck by lightning. The seller bears the loss in this case, as there is no way that the damage could have been incurred if delivered on time!

Profits- Any profits in the article pass on as soon as the risk passes / at the same time as the risk- For e.g. If you had to buy a farm that produces fruit, then any fruit that grows on that farm and any income

on that sale of that fruit, since the sale is perfecta, will pass to the buyer.- What normally happens (buyer says risk only passes on delivery and seller says profits will only pass on

delivery!)

1.3) Rights and duties of parties to the contract of sale

a) Duties of the seller1. The duty to take care of the merx (merchandise) until delivery (logical – follows with the fact

that the seller bears the risk initially)

2. Duty to deliver the merx (if seller does not deliver – personal right against him)

b) Implied warranty against eviction- A contract of sale does not necessarily transfer ownership (as we have discussed before), simply

vacuo possession.- Therefore, the buyer who is not the owner, is protected by this warranty against eviction.- It is a term implied by law, where the seller undertakes that the buyer will not be disturbed in

his vacuo possession by either the seller himself or by any third party due to defective title of the seller.

- If a buyer is disturbed, then he has a right of recourse against the seller.- This warranty applies in all contracts of sale, even if the seller genuinely believed that he was

the owner.

Example 1:X sells a car to Y. A while later Z comes along and tells Y that the car was stolen from him and that he is the true owner. The true owner can recover his possessions with the rei vindicatio. Z will use this action to get a court order to repossess the car. Y has a right of recourse against X, as he has been disturbed in his vacuo possession, in terms of his warranty against eviction. This applies even if X believes that he is genuinely the owner (didn’t know that the car was stolen from Z. X could also have a right of recourse under the law of delict, if bought from person who originally stole it from Z.

Example 2:

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X sells a car to Y. The car is stolen from Y by Q. X is not in breach under implied warranty against eviction, as it is not taken from Y due to defective title of the seller (X).

Where the warranty applies, the buyer has 2 choices:1) He can choose not to surrender the goods until dispossessed by a court order.

In South Africa, you don’t have to give back to the owner without a court order. In order to have a right of recourse against the seller, the buyer must notify him as to the

proceedings. The seller has a duty to come to the assistance of the buyer in the court proceedings. If the seller can’t be found, the buyer must defend his action to the best of his ability, or else, he

loses the right of recourse against the seller.

2) He gives up the article without a court order If you choose this option, in order to have a right of recourse against the seller, you must be able to

prove that the person has an incontestable title (something you can’t defeat) such as ownership.

The buyer’s right of recourse against the seller is the following:1) It is a breach of contract and he can cancel and claim the return of the purchase price (can’t claim for

specific performance).2) He can also claim damages representing the following:

i. Any increase in the value of the article.ii. The costs in defending the action against the owner (Add note: any small / quick [6-12

months] court case is between R50 000 and R100 000)iii. Any further loss as a result of the eviction, are subject to the general rules concerning

contractual damages.

Instances where the warranty will not be implied1) Where the parties expressly agree (or an exclusion clause).

i. If the seller knew that his title was defective, and remained silent, then this clause will not apply.

ii. Any clause which excludes the liability for eviction, will not exclude the buyer’s claim for the return of the purchase price (will always have to return the purchase price)

2) If the buyer is aware that a 3rd party had a claim to the article (e.g. London – sell expensive jewellery – not protected by express agreement!)

c. Implied warranty against latent defects- The seller is liable for latent defects, which existed at the time of the sale, whether he knew about

them or not.- These are the requirements for a latent defect:

1) It is not obvious to an ordinary person doing a reasonable inspection- For instance, faulty brakes in cars. Even in test drive might not be able to detect, but a

professional / mechanic can!

2) It must be an abnormal characteristic- For instance, if you buy a suade coat and it gets damaged in the rain, not abnormal; but if it

is a leather jacket, and the leather falls off in pieces in the rain, then it is obviously abnormal- It is not abnormal if there is wear and tear in car that is second hand.

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3) It must materially impair the usefulness of the object for the purpose for which things of that type are normally used.

4) The defect must have existed at the time of the sale- If it can be proven that there was no defect on the day of sale, but one day later there is a

problem, then the requirement is not met.

5) The purchaser must not have been aware of the defect, at the time that the contract was concluded.

If there is a latent defect (i.e. all 5 requirements are met), then the purchaser has what is known as the aedilition remedies, which are laws made to protect the seller.

(i) Actio Redhibitoria (Return of the full purchase price)- This one you use, when the defect is so serious that the “reasonable purchaser” would not have

bought the article, had he known about it.- Under the Actio redhibitoria, the purchaser can cancel the contract and claim the following:

a. The return of the full purchase priceb. All foreseeable and necessary expenses incurred by him as a result of the sale (including, for

example, delivery costs!)c. Expenses incurred in examining the object to discover the defect (mechanic or expert)d. Expenses incurred in returning the object to the seller (transport costs again) or storage etc.

Note: The buyer may NOT claim consequential loss.

Example:You buy a car and it has faulty brakes. You have a car accident with another car (as you can’t stop it due to the faulty brakes). Damage to the other car is R5000 (which you have to pay) and you are quite badly injured, with your medicals totalling R20 000. The cost of the damage to the other car and medicals, are called consequential loss due to the faulty brakes. In a normal / regular contract, costs can be claimed under damages, BUT not for breach of latent defects under the aedilition remedies. So the purchaser is in a worse position than any other kind of contract. Note that you can’t claim under breach of contract as sale is specific, but, you can try and claim under delict – however, must prove that it is delict!

(ii) Actio Quanti Minoris- This is a remedy for the reduction in the purchase price.- Here the defect is such that the reasonable person or buyer, had he known of it, would have paid

less.- For instance, if there was dampness in a house, the reasonable buyer would have still purchased the

house, but paid less for it.- The buyer is entitled to have the purchase price reduced to the market value of the object, in its

damaged or defective state, at the time that the defect was discovered.- Again, no consequential loss is allowed to be claimed.- Looking again at the example of a damp house, if you put books in a spare bedroom and it is

consequently damaged, that would be your own problem.- Note that interest is not a consequential loss. Therefore, if you need to claim back the reduction in

the purchase price in the case of a house, then the interest is part of the calculation

Exclusion of the aedilition remedies by agreement- Include a voetstoots clause.

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- You agree that the article will be sold as is, even if defects are present (shares can be sold this way, in order to remove any liability from the seller for the sale of the shares).

- The voetstoots clause will not be effective if the seller knew there was a defect and he didn’t tell the buyer.

Other possible remedies for defective goods:1. If the seller has guaranteed that there are no defects, one can sue under normal breach of contract

(therefore entitled to claim consequential loss) and one would not be subject to the aedilition remedies.

2. If the seller misrepresented the defects, then one can sue under misrepresentation and can thus also get delictual damages. Here, even if he didn’t make an express statement, latent defects is one of the situations where there is a duty to disclose (normally don’t have to speak in the SA law)

3. Where the buyer has more than one remedy available (aedilition, warranty, misrepresentation) you can only choose one because of the rule against double compensation.

Duty of the seller who is a manufacturer or dealer to warn the purchaser against latent defects- Aedilition remedies don’t allow the claim of consequential loss; however, if the seller manufactured the

thing himself, then you can claim consequential loss in addition to the aedilition remedies

Holmdene Brickworks v Roberts Construction 1977 (3) SA 670 (A)

The Basic Principles of Business Law, p.g. 153

H was a brick manufacturer and they sold latently defective bricks to R. Because of the defects, R had to demolish a wall that they had built with those bricks. R was entitled to claim the following consequential loss, in addition to the aedilition remedies:

1) The cost of demolishing the walls2) The cost of building new walls with new bricks (rebuilding)

- When dealing with a dealer, he will only be liable for consequential loss if he has expressly or impliedly professed to have expert knowledge or skill with regard to the item sold.

b) Duties of the Buyer

1. Payment of the purchase price

2. Payment of the seller’s necessary expenses- Example of this would be delivery costs (seller has a duty to deliver, but the buyer must pay for it) or

expenses incurred for caring for the object prior to delivery (if buying a horse = food)

3. Acceptance of delivery - If the buyer does not accept, this is mora creditoris or repudiation.

Note: If the buyer is in breach for any of the above duties, then the NORMAL rules and remedies for breach apply (unlike the seller).

2) Credit Agreements

2.1) What is a credit agreement?

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- A credit agreement is one where credit is granted by one party to another usually in return for payment of interest or a fee.

- A credit agreement can take different forms

Example 1: Desmond buys a car from Max Motors for R500 000. He takes delivery of the car immediately, but he only has to pay the purchase price in monthly instalments over 10 years at 8% interest.

Example 2: Tamar borrows R100 000 from Big Bank (like a student loan). It must be repaid in monthly instalments over 2 years with fees and interest charged.

- The party who grants the credit = credit provider- The party who receives the credit = consumer

2.2) Credit Agreements Act 1980 and Usury Act 1968

- These acts are used to govern certain types of credit agreements and they were intended to protect consumers and to regulate the interest charged.

- However, certain agreements didn’t fall under these 2 acts (“slipped through the cracks”) and there were many loopholes.

- An example of an agreement that didn’t fall under these two acts: A loan of less than R100 000 that was to be repaid in less than 36 months, was not covered by either

of these acts. This means that there was no protection for the consumer, and the credit provider could charge as

much as 150% interest! (interest compounding) [There are a lot of loan sharks out there – microlending]

- In addition, credit providers were becoming reckless and offering credit to people who couldn’t afford it or were already over-indebted.

- In the past, anyone and everyone could obtain credit.- Therefore, there was a need to put in place tighter controls and to review the existing legislation and this

resulted in the National Credit Act of 2005.

2.3) National Credit Act of 2005

- This replaced the Credit Agreements Act 1980 and the Usury Act 1968.- This became fully operational on 1 June 2007

(a) National Credit Register (NCR) and National Consumer Tribunal (Tribunal)- The act establishes a body known as the National Credit Register (NCR)- All credit providers must register with the NCR (even loan sharks as well as people who loan money to

their own staff if interest is charged on that amount; as well as local department stores who offer credit such as Edgars, Woolworths etc.) – [The purpose of this, is to bring everyone under one net]

- All credit bureaux also have to register with the NCR.- A credit bureau is a place that keeps track or a list of all debtors.- One of the services they often provide is to give credit providers or creditors information on the

consumers debt repayment history (blacklisting).- The NCR can investigate complaints and is generally meant to ensure that the provisions of the act are

enforced and adhered to.- There was no such body under the old legislation.

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- The act also established a National Consumer Tribunal (Tribunal).- The main function of the tribunal is to judge complaints in terms of the act.- The Tribunal has jurisdiction, amongst other things, to impose fines or suspend a person’s registration.

(b) Applicable Entities and TransactionsThe Act applies to every credit agreement between parties dealing at arm’s length with the exception of the following:

1. A credit agreement in which the consumer is the state or an organ of the state.2. A credit agreement in which the consumer is a juristic person whose asset value or annual

turnover exceeds R1 million (this asset value will probably change over time)3. A large agreement where the consumer is a juristic person. A large agreement is a credit

agreement secured by a mortgage bond or any other credit agreement with a debt of R250 000; other than a pawn transaction or credit facility

4. A credit agreement in which the credit provider is the Reserve Bank (the Bank is treated as part of the state here).

5. A credit agreement where the credit provider is located outside the Republic.

The Act does not apply to transactions where the parties are not at an “arm’s length”

Parties are not at an arm’s length if:

1. One is a juristic person in which the other (a natural person) has a controlling interest.

Example: You have Pratish Soni, and he owns 75% of the shares in ABC (Pty) Ltd. Soni lends R1 million to ABC, to be repaid over a period of time with interest. Soni has a controlling interest in ABC (Pty) Ltd, therefore the transaction is not an arm’s length one and the Act does not apply to the transaction. Also the act does not apply if the company’s asset value is greater than R1 million.

2. If they are family or dependant on one another (Both dependant – two brothers dependant on each other)

3. Where one party (the dependant) is not independent of the owner (e.g. employee dependant on the company) and will not seek the maximum advantage out of the transaction.

This is not a closed list, the act does allow flexibility or the courts can declare any transaction to be declared one where the parties are not at arm’s length.

(c) Classification of Credit Agreements- The Act applies to three different types or kinds of agreements, but there’s also a lot of overlap (which is

fine, as long as it is covered by the ACT)- The importance of the distinctions is this – certain provisions of the Act only apply to certain types of

credit agreements

1. Credit Facility (very technical) This is an agreement where the credit provider supplies goods or services or advances money to the consumer as and when requested by the consumer. The consumer does not have to pay immediately for the goods or services or make the repayments immediately (in the case of money / or the case of money loaned). In return for the credit facility, the credit provider charges a fee or interest.

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An example would be if you buy on credit at a shop or on account at a clothing store and pay the purchase price at a later date.

2. Credit transaction - A credit transaction can be any one of the following types of transactions: (this is more general, so that

the courts have a little leeway / flexibility to work with)- Pawn transactions – The credit provider gives money to the consumer and at the same time takes goods

as security.- Discount transactions – Goods or services are provided over a period of time. A discounted price is

offered if the account is paid before a certain date (i.e. get a discount before a certain date – e.g. Jane’s mother – get’s a discount on the physiotherapy if paid before a certain date)

- Incidental credit agreement – Here an account is rendered for goods or services provided and if the account is not paid before a certain date, then some charge or interest becomes payable and /or two prices are quoted, the lower price is applied or applies if the account is settled before a certain date and the higher price if it is not (major overlap here – better than allowing people to slip through the cracks)

- Instalment agreement – This involves the sale of movable property in terms of which the item is delivered to the consumer, and the purchase price is payable in instalments. Interest or fees are payable to the credit provider. Ownership remains vested in the credit provider and is only transferred to the consumer once the full purchase price has been paid (it is like this to protect the creditor against consumer insolvency; as falls in consumer’s insolvent estate and get R1 instead of R100!)

- If you are the consumer and the company goes insolvent (true owner), then you lose your car. Alternatively, ownership can be transferred immediately to the consumer, but reverts to the credit provider should the consumer default (clause)

- Mortgage agreement – this is a credit agreement secured by a bond over immovable property- A common example is where a buyer of a house takes a loan to finance the transaction and the house is

mortgaged as security by the bank.- Note: One of the provisions in the NCR is that the consumer must get statements periodically.- Secured loan – This is an agreement in terms of which a persona advances money or grants credit to

another and receives security for the loan, in the form of a pledge, cession or lien over movable property.

- Lease - Movable goods are let to a consumer. The rent is payable in instalments or at some later stage. Interest or fee is payable by the lessee. At the end of the agreement, ownership passes to the consumer. This seems to overlap with instalment agreement and hence it is very difficult to distinguish between these two.

Quick Definitions- Pledge – when goods are pledged as security, the credit provider will be in possession of these goods

and he can sell the goods if you default- Cession – is similar to pledge but it is used for incorporeal assets (can’t touch = e.g. intellectual property

or shares)

- Any other credit agreement: (prevents any loopholes). This means that any credit transactions which would fall outside the above mentioned transactions.

3. Credit Guarantee Here a person undertakes to pay another consumer’s debt incurred in terms of a credit facility or credit transactions.

Example:

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If a father signs as surety for his son who has a credit card and is a student. Therefore, the father will be protected by the Act.

The following types of agreements do not fall under the Act: 1. Insurance Policies2. Leases of immovable property (not a credit agreement, therefore not protected by the Act) – e.g. rent a flat

etc3. A transaction between a stockvel and the member of that stockvel according to its rules.

(d) Rights and Duties of Parties to a Credit Agreement

Rights of consumers

- Right to apply for credit and non-discrimination: Be careful here, every person has the right to apply for credit, but not everyone has the right to receive

credit. The credit provider can refuse credit on reasonable commercial grounds; BUT They cannot discriminate on the grounds of race, religion, marital status, pregnancy, age, gender etc.

- The Right to understandable language (aligning act to the constitution): As far as is reasonably possible, the consumer has the right to receive any documents in an official

language that he understands (must be SA official language = obviously not foreign like Spanish)

- Right regarding information held by the credit bureaux: A credit provider must advise a consumer before any adverse information is given to a credit bureau and

the consumer can challenge it.

Example:You have an MTN cellphone contract; and the reason that you haven’t paid last month, is because they have charged you for calls that you haven’t made – therefore, there is a dispute.

Add note: Black listing – no minimum set amount needs not to be paid in order to be black listed

- Protection against marketing practices: Adverts for credit may not be misleading and must state who the credit provider is. They must set out the nature of the credit agreement, the interest rate and any other costs. A credit provider cannot go to the home or workplace of the consumer to market the product,

unless it has been pre-arranged. This obviously does not apply to postal adverts. The Act also prohibits “negative option marketing” (not allowed even under common law) – what

this means is that an offer is made to you via the post, sms or e-mail (for credit); and they say that if you don’t respond within a certain time; we take it that you have accepted.

With a credit facility (e.g. credit card), the credit provider cannot increase the limit without the consent of the consumer.

- Indemnity against lost cards: This applies to credit facilities that are operated by a card (e.g. credit card – can’t use the facility

without a card) – or an overdraft on a current account also applies If the consumer reports that the card is lost or stolen; then they cannot hold you liable for the use of

that facility; unless they have proved that you have authorised it (if the account was in credit at the time that the card was stolen, and the money was withdrawn by the thief; then you are not protected by the act)

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- Right to apply for debt review and rearrangement (restructuring) of obligations: This does not apply to juristic person (only natural persons; i.e. consumers) A debt review to ascertain whether a consumer is over-indebted can be initiated in the following

ways:a) In any court proceedings, the court may refer the matter to a debt councillor for

recommendation or the court itself can declare the consumer over-indebted. Over-indebtedness means that a person is unable to satisfy all his obligations in a timely manner due to his financial means and obligations.

b) The consumers may himself apply to a debt counsellor to be declared over-indebted. Debt counsellors must register with the NCR.

If the consumer has been declared over-indebted (in one of the aforementioned two ways); then the magistrates court can make one or more of the following orders:a. That one or more of the consumer’s debts be declared “reckless” (we will deal with this later =

can be a reckless transaction – i.e. give credit to an already over-indebted person)b. That one or more of the debtor’s obligations be rearranged. Rearrangement could be, for

example, extending the period of time over which the consumer must pay and making each instalment smaller or postponing the dates of payment. (e.g. courts can extend the period of the loan)

Note: If the debt is postponed, no additional interest or fee can be charged.

While a debt review is pending (deciding if the person is actually over-indebted), the following applies:a) Litigation against the consumer is suspended (can’t sue the debtor for not paying) – can be open

to abuse.b) The consumer may not use the credit facility to enter into a further credit agreement (can’t use

existing cards and facilities)

If there has been a rearrangement, a consumer cannot use his credit facility or enter into a further credit agreement until he has paid all his debts under the rearrangement

Note: Debt counsellors will not be paid by the NCR, but charge low lawyer fees (R500 to R1000 per hour)

- Right to cooling-off: A consumer is entitled to a cooling-off period in the case of an instalment agreement and a lease

(only 2 types); which is concluded at any place other than the office of the credit provider. The consumer has 5 business days to terminate the agreement.

- Right to settle full debt early: A consumer may terminate a credit agreement at any time; without advance notice, by paying the

following:a. The unpaid balance of the principle debt.b. The unpaid fees and interest owing to that date.c. An early termination fee in the case of a large agreement (i.e. > R250 000)

- Right to make part payment early: You have a mortgage bond of R260 000, and pay R50 000 to reduce the amount owed.

Note: You cannot make exclusion clauses for any of these.

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- Right to dispute entry under a credit agreement: A consumer can dispute amount owed and credit availability

- Right to terminate agreement by surrendering goods: (ODD one!) This applies to instalment agreements, secured loans and lease (3 types this time!). The consumer can terminate the agreement by giving the goods to the credit provider to sell. The amount realised, must be credited to the consumer’s account, less any expenses of the sale and

the consumer must pay any “balance” owing.

- Statements of account: The credit providers must provide the consumers with periodic statements (i.e. monthly…)

Duties of Consumers

- In the case of instalment agreements and leases (look very similar anyway), where the credit provider retains ownership until full payment is received; the consumer must inform the credit provider of the following or any change thereof:a. The consumer’s business or residential addressb. The premises where the goods are ordinarily kept (can have two houses)c. The name and address of any person to whom the goods have been transferred

(They want this information to keep track of the goods – because they are the official owners)

Duties of the credit provider (in addition to the previous duties)

- He must provide the consumer with a copy of the credit agreement and any amendment thereto.- Must give notice of change in variable interest rate and related details (e.g. Mortgage bond – 2 options – can

fix the interest rate (10 years for e.g.) or state the interest rate in relation to the prime interest rate (e.g. prime plus 2 etc - fluctuates))

- The Act sets out the maximum interest rates that can be charged (no 150% anymore)- May not unilaterally change the interest rate, service fees, period of repayment or manner of calculating the

fees for minimum payment due.

Assessment of credit-worthiness and reckless credit:- The Act prohibits a credit provider from entering a reckless agreement (lending money to someone who

can’t afford it)- Before entering into a credit agreement, the credit provider must assess the following:

a. The customer’s understanding of the costs, the risks and his obligations under the credit agreement.b. The consumer’s debt repayment history (at the credit bureaux).c. Their existing means (i.e. what he/she earns etc), his/her prospects (e.g. student will become an

accountant) and his/her obligations (wife, child etc.)d. If the credit is intended for business purposes, they must assess the reasonable basis of success.

- The consumer must provide full and truthful information. Failure to do so by the consumer, will be a complete defence with the credit provider against the allegation of reckless credit.

- A credit agreement will be reckless under the following circumstances:a. If the credit provider failed to do a proper assessmentb. If they did do a proper assessment, but still enter into a credit agreement, despite the fact that the

consumer did not understand the risk and obligations or that the consumer was over-indebted.

If a court declares an agreement reckless, it can:

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1. Set aside all or part of the consumer’s obligations under the agreement.

Example:Company A provides credit to X without doing a proper assessment. X can’t repay the debt. He applies to court to have the agreement declared reckless. Court grants application; could leave it at that and terminate agreement, but leave other debts incurred by X. However, in the same proceedings the judge looks at X’s other debts and obligations. He has a Woolworths card, Edgars card and a loan with Standard Bank, all with proper assessments, so Company A’s credit agreement was the one that pushed him over the edge. Because X is now struggling, the judge decided to suspend the other credit agreements.

2. Suspend the agreement and the debtor has to pay at a later date without any additional interest charged.

- If an agreement is reckless the court can also declare the consumer over-indebted and order a restructuring of any other credit agreement (NB – just because once agreement is reckless, DOES NOT automatically mean that the debtor is over-indebted!!)

- The reckless credit provision do not apply to the following transactions (don’t have to assess):1. School loan (a child obviously has to go to school)2. Student Loan3. Emergency loan (can’t eat, need money etc)4. A pawn transaction5. An incidental credit agreement – this is where an account for goods is provided and a discount

offered for early payment6. An agreement where the consumer is a juristic person

Rights of the credit provider

- Can enforce the contract and to receive payment of the credit extended with the interest agreed, or cancel the contract and claim for the return of the goods, in the case of breach (rights are actually very limited)

- Right to compensation in certain circumstances:The court may grant the costs of enforcing the agreement and repossession (legal fees etc)

- Right to suspend or terminate the credit facility if the consumer is in default

3) Contracts of Lease

Definition of Lease

A lease is a contract between a landlord (lessor) and tenant (lessee) for the hiring by the tenant of immovable property, in terms of which the landlord grants the use and occupation of the property to the tenant and in return the tenant pays a specified sum of money.

3.1) Essential Requirements

a) Intention to give temporary use and enjoyment:- This is the requirement that differentiates lease from sale.- The parties do not intend that the lessee has use and enjoyment permanently, but only for a specified

period.- Another difference is that in sale, the seller agrees to part with every right that he has in the property,

including a right to diminish or destroy it.- With a lease, the lessor undertakes to give the rights of use and enjoyment.

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b) The property let- The lessor does not have to be the owner, because ownership is not being transferred, only the use and

enjoyment.- The property that is being let has to be identified or at least identifiable.

c) The rent payable- The tenant must pay a specified sum of money, otherwise it is not a lease (e.g. you live at home with

your parents and do not pay a specific sum of money, therefore there is not lease; or a domestic worker that lives with you and pays nothing to stay with you, there is also NO lease here)

- The rent must be fixed; or, the parties must have agreed upon some external standard by which the rent can be ascertained (e.g. in shopping centres the rent charged is fixed amount plus a % of turnover. Generally charge per square meter)

3.2) Duration of the Lease

- The parties must agree that the lease be for a definite period (1 year, or 99 years etc); or,- The lease can expire upon the happening of some event (e.g. upon graduation)- Note: if a house is destroyed due to vis major = objective impossibility = termination of lease and lessee not

liable and failure to pay is not a breach until a letter of cancellation is sent (then it is material).- Duration of the lease can be as long as the lessee or the lessor pleases.- These are called tenancies at will- A tenancy at will of the lessor will last for as long as the lessor pleases and vice versa (e.g. at shopping

centres = lessor)- Another option is you can have an indefinite lease. These can run from month to month or week to week or

day to day or hour to hour; depending on the interval of payment (e.g. hour to hour = parkade; and daily = holiday apartment)

3.3) Formalities and Statutory Regulation

- No formalities are required for ordinary leases and they will be valid between the parties even if they are not in writing.

- There are some requirements for long leases (written and signed by both parties).

- Rental Housing Act of 2000:1. This governs leases of residential (not commercial) property.2. It governs relations between lessees and lessors and lays down certain requirements for leases.3. It sets up rental housing tribunals to hear debates.

- The most important provisions of the Rental Housing Act are:1. When marketing a property or negotiating a lease, a lessor cannot discriminate against a potential

lessee on the ground of race, religion, gender, age or sexual orientation etc. (this applies when looking for flatmate or subletting – cannot specify these things even though it is often done in adverts on campus)

2. The lessee may request a written lease and has the right to be provided with one (isn’t a formality, but can be requested)

3. The lessor must provide the lessee with written receipts for payments received (must get receipts)4. Any deposit paid by the lessee must be invested by the lessor in an interest bearing account. Deposit

– in the case that the tenants do not pay the rent, then the deposit can be used to cover the rent; if it is not used at all in the rental period, then the lessee is entitled to a full refund of the deposit

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inclusive of the interest earned on that amount; the lessee can also demand a receipt or proof of investment.

5. Prevention of Illegal Eviction from and Unlawful Occupation of Land Act (PIE) 1998

3.4) Duties of the Lessor

(a) Delivery of the Leased property- The landlord must deliver the property in a reasonable condition for the purpose for which it was let.- He must deliver free and undisturbed possession (nobody must still be living there at the start of the lease

etc).

(b) Maintenance of the property let- The landlord must maintain the property in a reasonable condition for the purpose for which it was let (e.g.

if a window breaks, however, if is the fault of the lessee, it is the responsibility of the lessee and not the responsibility of the lessor)

(c) Guarantee of undisturbed use and enjoyment- This is similar to the warranty against eviction in contracts of sale (vacuo possession) – see notes on this

section- The landlord impliedly warrants that the tenant will not be disturbed in his possession; either by the

landlord himself or by a 3rd party with a better title (i.e. the true owner)- The landlord does not warrant that the tenant will not be disturbed by a 3rd party with no legal right (like if a

car gets stolen, can’t sue the seller or if a trespasser is on the property – can’t sue the owner!)

(d) Generally abide by the terms of the lease- Payments of taxes levied on the property.- Creates certain procedural steps for evicting a tenant who hasn’t paid the rent. Tenant can be evicted but

the steps can be more expensive than keeping the tenant.

(e) Remedies for the lessee if lessor is in breach- If the landlord is in breach of contract for any of his duties, then the tenant will have the usual remedies for

breach of contract (in this case, it will probably be possibility of performance) - But take special note of the following:

Where the landlord does not deliver the property in a reasonable condition (in breach of (a)) Or he fails to maintain it in a reasonable condition (b) Then the tenant, after giving a notice to the lessor, calling upon him to effect the repairs, can do the

repairs himself if the landlord fails to do so and he can deduct the amount spent from the rent (legally) – but must first give notice to the landlord.

The lessee can also claim for consequential loss, but only if the landlord knew about the defect (i.e. he knew that the roof was leaking) or he has implied knowledge of the defect

Knowledge is implied if the landlord is an expert in matters relating to building (very strange – i.e. if landlord is a builder or possibly an architect then he is liable for consequential loss!)

3.5) Duties of the lessee

(a) Payment of the rent

(b) Care and use of the leased property

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- The tenant must not misuse the property (must not abuse it) and he can only use it for the purpose for which it was let (for example, can’t rent out a Cavendish shop and live there!)

(c) Restoration of property on termination of the lease- At the end of the lease, the lessee or tenant must return the property in the same condition that it was at

the beginning- The tenant is not in breach of this duty if there is a normal wear and tear or if the property is damaged or

destroyed due to an act of Nature (window broken due to wind etc)

(d) Generally to abide by the terms of the lease

(e) Remedies for the lessor if the lessee is in breach:- Where the lessee is in breach, the lessor has the usual remedies for a breach of contract.- Where the tenant or lessee is in breach of the duty to pay the rent, there is an additional remedy

available to the landlord, and it is known as the Tacit hypothec.- Tacit hypothec: When the landlord sues for the outstanding rental; he can attach as security for

payment any movable goods that are on the property (can take the car in the garage, but if on the road can’t take it etc) – or on “hot pursuit” – meaning that the landlord can intercept the goods of the tenant on transportation to destination (in transit).

- The landlord can attach, not only the goods of the tenant; but also the goods of the third parties that are on the premises, if the tenant’s goods aren’t adequate enough to cover the rent; provided that ALL OF THE FOLLOWING REQUIREMENTS ARE MET:1) The goods must be on the property, with the express or implied consent of the third party (e.g. if

someone lends you a DVD player – then this requirement is met)2) The goods must have been brought onto the property with the intention that they would remain

there indefinitely for the use of the lessee (if parents lend you their lounge suite then this requirement is met, but if you’re girlfriend leaves her clothes there for months, then this requirement is not met as it is not meant for the lessee’s use)

3) The third party must have failed to give notice of his ownership to the lessor (e.g. receipt or proof of ownership) – Add note: usually it’s wise to give the letter of ownership to the lessor before the goods are attached, but it can also be given to him during the attachment process/

4) The lessor must be unaware that the goods belong to a third party (very similar to 3)5) The goods belonging to a sublessee can also be attached (if sublet and you live there – e.g. digs) but

only to the extent of the rent that he owes to the lessee (e.g. renting a house in Rondebosch and it is 2 bedroom, so you sublet the house to a friend (2 bed) and if the rent is not paid to the lessor, then the amount that can be claimed from the sublessee – is not the full amount of the rent, BUT THE PORTION OF THE RENT THAT THE SUBLESSEE PAYS THE LESSEE!!)

Add note: Goods of lessee are always taken first – if not enough to cover rent, then goods of 3rd parties are considered.

3.6) Legal Position of the Lessor and Lessee

(a) Renewal of lease- A lease is renewed when the existing lease terminates, and the parties agree that it will continue for a

further period (carry on renting)- A renewal is not a continuation of the old lease (very technical point), but rather a new lease that comes

into being- Even though it’s over the same property and on the same terms (rental amount or rental period can or may

change)

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(b) The effect of the lessor selling the leased property - When the lessor sells the leased property, the general rule is that the buyer is bound by the existing lease

under the doctrine of Huur Gaat Voor Koop.

Huur Gaat Voor Koop- This means the law substitutes the new owner as the landlord and the tenant can’t be evicted .- The old lease applies; the new owner and tenant(s) are bound by the existing terms of the lease.- However, there are exceptions.

i. If the leased property is expropriated (transferred ownership from landlord to state), the lease comes to an end and the lessee will have to vacate the property.

ii. Where the lease is for longer than 10 years (long lease), it will be valid for the full period of the lease if the new owner knew about the lease or if the lease had been registered or if the new owner is a gratuitous successor (granted through will). However, if none of these are true then the lease is only valid for the first ten years of the lease (from original date the lease begun).

Example:A lets a house to B in 1992 for 20 years. Lease is from 1992-2012. A sells it to C in 1997. The long lease was never registered and C has no knowledge of the lease but B was in occupation of the land in 1997. C will be bound by lease till 2002 (10 years), thereafter C can evict B.

iii. Likewise, where the lease is a normal short lease (less than 10 years), it will be valid for the duration of the short lease if the new owner knew about the lease or if the lessee is in control of the leased land (either him/herself or through an agent or sublessee) or if the new owner is a gratuitous successor.

(c) Subletting- Lessee enters into an agreement with a third party in terms of which the third party leases the whole or a

part of the property from the lessee. Consent of lessor is not required to sublet, however, most lease agreements these days vary this rule.

(d) Improvements made by the lessee

Necessary Improvements- These are improvements which are necessary to preserve the property. - Without these the property will be damaged / destroyed. (e.g. fixing or replacing a roof or wall)- If the lessee attends to these improvements, she is entitled to be compensated for the full amount spent, as

long as the lessor has notice. - In the case of an urban lease, a lessee would have a lien over these improvements. This means that on

termination of the lease, the lessee can remain in occupation until he has been fully compensated. - In the case of an agricultural / rural lease, on termination of the lease the tenant does not have a lien, he

cannot remain on the property until he has been compensated. However, if he is evicted he can sue for the compensation.

Useful Improvements- These are improvements which enhance the value of the property but they are not necessary; e.g. building a

garage adds value but not a necessity. - In the case of an urban lease, the lessee can remove the improvements during the lease period provided

that it does not damage the property.- Once the lease terminates, the improvements can’t be removed and they become the property of the

landlord. - If the tenant can’t remove the improvements then he/she is entitled to compensation provided the lessor

was informed.

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- The tenant has a lien over the land and is entitled to remain on the property until full compensation, which includes the full cost of the improvements or the value by which the property has been enhanced (whichever gives a lesser compensation).

- In the case of an agricultural lease, the lessee can remove the improvements during the lease period provided that it does not damage the property.

- Once the lease terminates, the improvements can’t be removed and they become the property of the landlord.

- If the tenant can’t remove the improvements then he/she is entitled to compensation provided the lessor was informed.

- The compensation is as follows: the bare cost of materials excluding lime, sand and excluding materials used from the land.

- Again, the lessee is not entitled to remain on the land until he/she is compensated.

4) Contracts of Agency

4.1) What is an agency contract?

- Agency is a contract whereby one person, known as the agent, is authorised by another person, known as the principal, to conclude juristic acts with a third part, on the principal’s behalf.

- Juristic Acts are acts which incur binding legal obligations (for e.g. contract) – agent enters into contract on behalf of the principal

- Most common e.g. of an agent = lawyer!- An Agent is different from a Mandatory- A mandatory does not perform juristic acts on behalf of the principal- Most common e.g. of a mandatory is an estate agent- You give the estate agent a mandate to find a buyer for your home- But he or she doesn’t sign the contract of sale on your behalf; all he or she does is show people your

house. Therefore, she is not an agent and she cannot incur legal obligations on your behalf or the principal’s behalf

- Once the agent (lawyer) has signed the contract, or entered into the contract; he falls away (out of the picture) and the right and obligations are between the principal and the third party only

4.2) Authorisation of the agent

(a) Express Authority- The General rule is that no formalities are required, and the principal can give the agent authority in writing

or even verbally.- However, normally what happens in practice, is that the principal gives the agent authority in a document

called A Power of Attorney.- For an agent to buy or sell immovable property on behalf of the principal, the authority must be in writing.

(b) Implied authority- If there is no express authority, implied authority may be inferred from the facts by the conduct of the

principal and the surrounding circumstances (e.g. remember implied ratification of the minor in a limping contract? – similar type of authority – implied)

- Even where the agent has been given express authority to do certain things, he may have implied authority to do additional things which are necessary to performing the original acts

- E.g. if a principal expressly authorises an agent to organise the importation of goods from overseas, then it is likely that he has implied authority to pay customs duty on behalf of the principal.

- Implied authority may be expressly limited by the principal (flip side of the coin)

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Example:A farm manager may have the implied authority to buy supplies on credit from the local store, by the owner of the farm. This implied authority may be expressly limited to a maximum amount of R10 000 per month (express limitation). In this a case, the principal (farm owner), is bound to the third party (store owner), to the extent of the implied authority; unless the third party knew about the express restriction (if the store owner didn’t know about the R10 000, then the principal is liable for the unlimited amount – but the principal can claim the additional amount from the agent under the law of unjustified enrichment)

(c) Ratification- When no authority exists, an act performed by a person on behalf of the principal can later be ratified by the

principal. - The effect of this is the same as if the authority had been given from the start.- This is often used when a company has not yet been formed but the shareholders or directors need to enter

into a contract urgently on its behalf.

(d) Estoppel (Ostensible Authority)- Here there is no express or implied authority, but the principal is prevented from denying somebody who

ostensibly appeared to be his agent had authority. - This person does not have proper authority, but the impression is created by the principle that the person

does have authority. - Therefore, the principal can’t then deny the person had authority.

Quinn & Co Ltd. v Witwaterstrand Military Institute 1953 (1) SA 135 (T)

The Basic Principles of Business Law, p.g. 202-203

Mr. Smith was in charge of managing the sergeant’s dormitory at the Witwaterstrand Military Institute (WMI). He entered into a contract with Quinn to provide catering services for the dormitory’s annual dance. Smith did not have authority from the WMI to do this (expressed or implied). He was acting on behalf of the sergeants. Quinn sent the account to the WMI. But the WMI say they are not liable as Smith acted without their authority. Quinn says he accepts that Smith had no express or implied authority, but instead argues on the basis of estoppel. Court found in favour of Quinn on the following grounds:

Quinn knew the sergeants dorm was part of the WMI, that Smith was in charge of the dorm and had catered previously for dances organized by Smith and the WMI had paid.

The WMI knew about the dance. They should have realized that Quinn would be misled into thinking that Smith was acting as agent for

the dance on behalf the WMI. Therefore they should have advised Quinn that Smith was not the agent/ Therefore they are estopped from denying authority and therefore liable to pay.

(e) Authorisation by Operation of Law- The law sometimes gives one person the authority to act on behalf of another.

Example:Gareth and Ziyaad are partners in a custom T-shirt business. Either one of the two can act on behalf of the other.

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business law notes uct

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