Business Law Principles by Obiwon21

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									BUSINESS LAW 1
Part A: Introduction
1. What is Law?
   Law is a body of rules that governs human behaviour, recorded and enforced by the state State = Government 3 Areas: o The legislature – makes laws – parliament o The executive – enforce laws – president, ministers, civil service (police) o The judiciary – apply and interpret laws – courts judges, magistrates

2. The South African Legal System Court Structure

Constitutional Court

Supreme Court of Appeal
Before 1994, known as Appellate Division

High Court

Local Divisions High Court

Provincial Divisions High Court

Magistrates Court

Regional Magistrates Court

District Magistrates Court

APPEAL: Taking case from inferior to superior court in hope to get a different judgement (Mechanism for a 2nd opinion) JURASDICTION: 1. Powers a court has e.g. criminal – hears criminal matters 2. Geographical area over which court has power e.g. Cape Provincial Division of High Court has jurisdiction over Western Cape

2.1 Constitutional Court (CC)
       Constitution is an act of parliament Divided into various chapters Protects human rights These rights are contained in the chapter the “Bill of Rights” In other chapters, constitution deals with how the country should be governed Hears matters related to protection of human rights, and other constitutional matters CC only has constitutional jurisdiction

E.g. cannot hear a case where a landlord is suing for rent or theft     In most, cases are brought to the CC by appeal, but it can sit as a court of 1st instance Sits in JHB, has jurisdiction over the entire country Has 11 judges, at least 8 must sit to hear a case (8 on the bench) 11 judges is a full bench

2.2 Supreme Court of Appeal (SCA)
      Known as Appellate Division (AD) before 1994 Only an appeal court Final court of appeal in all matters except constitutional matters Has criminal, civil and constitutional jurisdiction Sits in BFN Has 20 judges, cases heard by 3 to 5 judges

2.3 High Court (HC)
2.3.1 Provincial High Court (i) Cape Provincial Division (C)   Sits in Cape Town (Queen Victoria Street) Hears matters in the Western Cape

(ii) Eastern Cape Provincial Division (E)   Sits in Grahamstown Has jurisdiction over the Eastern Cape

(iii) Northern Cape Provincial Division (NC)  Sits in Kimberley  Has jurisdiction over the Northern Cape (iv) Transvaal Provincial Division (T)  Has jurisdiction over old Transvaal area, basically Gauteng (v) Natal Provincial Division (N)  Sits in Pietermaritzburg  Has jurisdiction over KZN (vi) Orange Free State Provincial Division (O)  Sits in Bloemfontein  Has jurisdiction over the Free State (vii) Bophuthatswa High Court (B)  Sits in Mmabatho (viii) Ciskei High Court (Ck)  Sits in Bisho  Transkei jurisdiction (ix) Transkei High Court (Tk)  Sits in Umtata (x) Venda High Court (V)  Sits in Thohoyandou  Jurisdiction over Limpopo 2.3.2 Local Divisions of High Court

(i) Witwatersrand Local Division (W)    Sits in Johannesburg Has jurisdiction over the Witwatersrand Appeal only from magistrate court

E.g. A & B enter into a contract in JHB, where they both live and work, B defaults on the contract. A wants to sue for R5m. W and T have jurisdiction. (ii) Durban & Coast Local Division (D)  Sits in DBN (iii) South Eastern Cape Local Division (SE)  Sits in PE

2.3.3 Powers of Provincial & Local Divisions         Jurisdiction only over its geographical area All types of matters: Criminal, Civil, Constitutional Can be courts of 1st instance In 1st instance 1 judge sits, in criminal case 1 judge and 2 assessors (Assessors are attorneys or advocates that assist in assessing the evidence) All Provincial courts are appeal courts Local divisions cannot be appeal courts except W. In appeal from an inferior court (Magistrate Court) at least two judges must preside Provincial divisions can also hear appeals from a single judge of the same division or local division in its area. In this case 3 judges sit on bench

2.4 Magistrate Court
2.4.1 Types of Magistrate Courts   Divided into various magisterial districts District consists of 5 to 6 suburbs

E.g. Wynberg comprises: Rondebosch, Claremont, Newlands, Wynberg, and Kenilworth   Each district has a magisterial court, but some have regional magistrate court Have jurisdiction over their geographical areas

2.4.2 Power of District Magistrate Courts  In criminal matters; cannot hear cases regarding rape, murder or treason.  In civil matters; cannot hear case where value of claim exceeds R100 000  Do not have Constitutional jurisdiction  No appeal jurisdiction 2.4.3 Power of Regional Magistrate Courts    Example: 1. X enters into a contract with Y to buy his car for R1m. They both live and work in Cape Town. X does not pay and Y wishes to sue. Is this a crime? NO What court will Y sue in? What are his avenues of appeal?  Cannot be heard in magistrate court because of value exceeding R100 000  Heard in CPD with 1 judge. Finds in favour of X  Appeal to CPD with 3 judges. Finds against Y  Appeal to SCA. Y wins Only hears criminal matters except treason Hears no civil matters No appeal jurisdiction

2. X who lives in CPT is charged with murder. Where is the case heard and its avenues of appeal?  One route: o CPT Regional Magistrate Court. Found guilty o Appeals to CPD with 2 judges. Found guilty o Appeals to SCA. Found guilty and given death penalty o Appeals to Constitutional Court to appeal only the death penalty  Another route: o CPD with 1 judge and 2 assessors. Found guilty o Appeal to CPD with 3 judges. Found guilty o Appeal to SCA. Found guilty

3. Sources of South African Law
3.1. Legislation 3.2. Roman-Dutch (Common Law) 3.3. Judicial Precedent (Case Law) 3.4. African Customary Law 3.5. Custom 3.6. Customary International Law

3.1 Legislation & Interpretation of Statutes
3.1.1 What is legislation?  Acts of Parliament or Statutes  Takes precedence over all other sources of law if there is a conflict 3.1.2 Types of legislation: (i) The Constitution (1) Supreme law of RSA (2) Any law or conduct inconsistent with constitution is of no force & effect (ii) Original Legislation (1) Acts of parliament or statutes E.g. Children’s Act of 2005 (2) Laws passed by provincial legislatures (iii) Delegated legislation (1) 2 kinds of bodies that will pass delegated legislation (a) Local authorities, e.g. City Councils  Legislation passed by these bodies referred to as by By-Laws  E.g. Parliament passes act saying that CPT City Council can make laws regarding how residential homes are built. City Council passes by-law saying that residential properties may only have walls that are 2m high. (b) Government departments  Laws known as regulations


E.g. Parliament passes Companies Act (original legislation). The department of Finance or DTI can make regulations regarding South African companies

(iv) Importance of Distinction (1) Courts cannot refuse to apply the constitution (2) Original legislation can be declared invalid if it conflicts with the constitution (3) With delegated legislation courts only have to apply the laws if they fall within the area of delegated power E.g. CTC passes by-law regarding wall height of factories. Courts do not have to apply with regard to residential homes

3.2 Roman-Dutch Law (Common Law)
  Common Law is a combination of Roman, Dutch and English Law Although it dates back hundreds of years it forms the basis of our legal system

3.3 Judicial Precedent (Case Law)
3.3.1 What is judicial precedent? (1) Made by judges in applying the law to the facts of the case before them E.g. A shopkeeper has his shop broken into on a regular basis. He eventually sets a trap that works as follows: if a person tampers with doors or windows, a mechanism is released that is connected to a loaded gun, the trigger is pulled and shoots the thief. A thief attempts and is shot dead. Shopkeeper is accused of murder, the issue before the court was; can a person kill in defence of property (i.e. Is it justifiable to kill in defence of property) Court looked at law on the subject, found in Common law and interpreted to mean that it was justifiable. Court applied it and held that one can kill in defence of property. (2) This decision is known as Ratio Decidendi which becomes law (3) In the same case the judge also discussed that in such situations warning signs must be put up (4) This is called Obiter Dictum which does not become law 3.3.2 Stare Decisis (1) Way judge’s decision (Ratio Decidendi) becomes law is through the principle of Stare Decisis (let decision stand) (2) Means judge or magistrate must follow decision of a higher court where the facts of cases are similar and legal issues are the same E.g. Drunk driver kills pedestrian, shopkeeper case does not apply (3) Magistrates Courts must follow: (1) Decisions of all higher courts (2) When comes to High Courts must follow decisions of all the divisions, but if there is a conflict must follow its own division (4) Provincial & Local Divisions of High Court must follow: (1) SCA and CC

(2) Must follow decisions of own division if a greater or equal number of judges that sat in the previous case (3) Never have to follow another division E.g. Shopkeeper example: Heard by full bench (C), similar case comes to C 2 years later, 1 judge sits, must follow previous case. Similar case comes before N, 1 judge sits, does not need to follow C case (5) SCA must follow CC (6) CC must follow no-one 3.3.3 Law Reports    Most cases heard are reported in the law reports 4 Volumes a year Cases are reported by case notations of citations

E.g. Jones v Brown 2006 (3) SA 123 (C)  Jones: Plaintiff – suing  Brown: Defendant – being sued  2006: The Year the case was heard  (3): The volume of the law report  SA: South Africa  123: The page number  C: The court in which case was heard E.g. Appeal: Jones v Brown 2007 (1) SA 49 (SCA)  Jones: Appellant  Brown: Respondant

3.4 African Customary Law
  These are the unwritten laws that have been followed by black communities for thousands of years Our courts can apply these laws if both parties choose

3.5 Custom
 Rule of conduct, that becomes law, because it is used for hundreds of years

E.g. A group of fisherman had set out lines to catch fish, awhile later a second group placed lines in front of the 1st group’s lines. The 2nd group catches the fish and the 1st group sued the 2nd for the value of the catch. The court found a custom among fisherman that if one group sets out a line another group may not place their lines in front. 1st group won the case.

3.6 Customary International Law
 Discussed under international and national law

4. Legal Rights
 A right is given and protected by law  2 kinds of rights: Personal and Real

4.1 Personal Rights
 A right that is enforceable against 1 or more particular people

E.g. X and Y agree that X will sell Y his car for R10 000. X delivers to Y. X has a personal right for payment of R10 000. X can only sue Y for that money

4.2 Real Rights
 Enforceable against the whole world not just particular people because a real right is a right in a thing itself

E.g. Ownership. X owns a car. A steals the car who then sells it to B in good faith. B then sells to C also in good faith. Against who does X have a right to claim the car? X has a real right to the car. This means that he can claim it wherever he finds it and against anyone who has it.

5. Legal Personality
 Law recognises the following as legal persons: o Natural persons – Humans o Juristic entities/persons – Companies, Universities, CC’s, Sports Clubs, Religious Institutions  Treated as legal persons in their own right, separate from members or management (Own legal rights and obligations and sue and can be sued in their own name)

E.g. SAB Ltd enters into a contract with John to deliver to him 500 crates of beer. John pays for the beer. SAB does not deliver the beer. Who does John sue? (a) Person who took order (b) Manager who forgot to authorise (c) Directors (d) Shareholders (e) SAB Ltd John will sue SAB Ltd Value of claim is R101 000, taking place in JHB John v SAB Ltd 2008 (1) SA 74 (W) If john wins the case SAB will need to pay him (SAB will also pay legal fees and other losses)

6. Branches of the Law
6.1 International & National Law
6.1.1 International Law    Different from foreign law (e.g. English Companies Act) Is the law that governs relations between states Relates to matters such as: o Treatment of Diplomats o Airspace o Territorial Waters o Expedition of Criminals Sources of International law: o Customary international law:  Law observed between states for hundreds of years (unwritten) o Conventions/Treaties:  Law of the sea convention  Inter covenant on civil & political rights


6.1.2 National Law  This is the local law of the country o Legislation, judicial precedent, Roman-Dutch, African customary, Custom, Customary International Law Divided into various areas First main division is between public and private law

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6.2 Public & Private Law

6.2.1 Public Law  Governs the following: o Relations between states and subjects o Relations between various organs of state Reason that criminal law is public law is because a crime is an act prohibited by law & punishable by the state In a criminal case the state will prosecute the accused not the victim Case notation: S v Brown 2007(1)SA56(C)

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6.2.2 Private Law  Deals with subjects of the state and relationships with each other

6.3 Criminal & Civil Law
     Divided between private and public law Another division is criminal and civil law Criminal law deals with criminal matters Civil law deals with everything else There are 4 main differences between civil and criminal law: o Case citation is different:  S v Jones: Criminal  State and Accused  Brown v Jones: Civil  Plaintiff and Defendant E.g. Sue government in a civil matter X v President of RSA Suing nomino officii (office bearer)

o o


In a criminal case, if found he did commit crime, he is found guilty In a civil case, never use term guilty, use in favour of or against In a criminal case if guilty, person is jailed, fined or both. Fine is paid to the state In civil if plaintiff wins, defendant will pay damages or perform the act for the plaintiff In criminal case the burden of proof is beyond a reasonable doubt In a civil case the burden of proof is a balance of probabilities

6.4 Criminal Law, Delict, Contract and Unjustifiable Enrichment
6.4.1 Criminal Law  See notes under private and public law as well as criminal and civil law 6.4.2 Delict     Forms part of civil law, private law and law of obligations A delict is a wrongful act that causes harm to a person or their property In law, every person has duty not to harm others Wrongful = act with intent or negligently

E.g. Crash into someone’s car, u were negligent, hence there is a delict   Parties are plaintiff and defendant Plaintiff will get damages or compensation

6.4.3 Summary of differences between crime and delict  Act Itself o The act itself can be different E.g. All crimes: murder, rape, treason o On the other hand some are always delicts E.g. shopping in PnP, just cleaned floors, slip and break back, hence delict o Sometimes same act can be both crime and delict E.g. X deliberately reverses into Y’s car. It is a crime (malicious damage); S v X. It is also a delict, it costs Y R10 000 to fix car; Y v X.  Legal Remedy o Criminal Remedy: Fine to state, jail o Delict Remedy: Damages as compensation, or perform an act Purpose of the Sanction o Criminal: Purpose is to punish the accused, to protect society and to deter similar behaviour o Delict: Purpose is to compensate the plaintiff Burden of Proof o Criminal: Beyond a reasonable doubt o Delict: Balance of probabilities



6.4.4 Contract      Forms part of civil law, private law and law of obligations Deals with agreements between people Breach of contract occurs if 1 party does not comply with the terms of the agreement Plaintiff & defendant: Plaintiff wins, gets damages or some act Burden of proof is a balance of probabilities

6.4.5 Contract and Delict compared  There are two main differences: (1) Delict – Liability of the wrong-doer arises from wrongful act that causes harm. Act is wrongful by operation of law because it is a duty not to harm others Contract – Liability of wrong-doer arises from agreement between parties that has been breached (2) Delict – Duty not to harm is owed to everyone Contract – Duty not to breach is owed only to the other parties in the agreement  The same act may result in both a delictual and contractual claim E.g. Have a private surgeon, Dr. Phil, who performs and operation on a patient, Oprah. He is meant to take out the appendix. By mistake he took out the kidney; as a result Oprah gets a terrible infection. This increases her hospital bill and loses earnings. There was a contract to remove the appendix for payment. Dr. Phil is in breach of contract and Oprah can sue for damages under the law of contract. There is also a delict (result of negligence) that has caused harm and Oprah can sue for damages under delict. Both claims are civil cases. In law you cannot receive double compensation for the same act. Oprah can therefore sue under either delict or contract, not both (will choose one with higher compensation). If Oprah had to die from the infection (culpable homicide) there can be both a criminal and civil case. 6.4.6 Unjustified Enrichment  Unjustifiable enrichment deals with compensating someone for a benefit which they you without any legal justification

E.g. I believe I owe you R200, but in fact only owe R180. You have been unjustifiably enriched by R20 (must give this back)

Part B: Law of Contract
1. Formation of a Valid Contract
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In order for a valid & binding contract certain requirements have to be met All these requirements have to be met for a valid contract to exist If one or more of these requirements are missing the contract is void The requirements are: o The parties must have contractual capacity o Parties must have serious intention to contract o Parties must communicate their intention to contract to each other o Must be of same mind (i.e. no misunderstanding or mistakes) o Agreement must be lawful o Performance of the contractual obligation must be possible o Agreement must comply with all the formalities required by law for that particular kind of contract o Agreement must be certain in its terms

1.1 Contractual Capacity
  The general rule is that all legal persons have full contractual capacity There are however exceptions. Certain people have limited contractual capacity (Law places restrictions on their ability to contract)  The following have limited contractual capacity: o Minors o Married Persons o Mentally Ill Persons o Insolvency o Intoxicated (alcohol, drugs) Minors  A minor is an unmarried person below the age of 18  This is in terms of the Children’s Act of 2005 which came into effect in June/July 2007  Prior to this age of majority was 21  A major is a person with full contractual capacity (1) Marriage   Minor becomes a major upon marriage regardless of age If marriage is dissolved (death or divorce) before the minor turns 18 they will remain a major


(2) Contractual Capacity of Unmarried Minors (a) Guardianship:   Guardianship means the control over and administration of the estate of the minor, as well as assistance in performance of legal acts such as contracting This is different from custody of a minor

(b) Guardianship and children of parents who are/were married:    Father and mother both have equal guardianship of a child born of their marriage This guardianship means either parent without consent of the other can carry out powers of guardianship The consent of both is needed where: o Marriage of minor o Adoption of a child o Removal of child from RSA o Application for passport of child o Alienation of immovable property (sell, rent, mortgage)

(c) Guardianship of children of parents who were never married:    Illegitimate child, mother is the sole guardian Before the Children’s Act fathers of illegitimate children did not have automatic guardian rights Children’s act givers fathers the same guardianship rights that mothers have provided that: o At the time of birth, the father is living with the mother in a permanent life partnership o The father has in some way acknowledged the child and somehow contributed to its maintenance and upbringing

(3) Infans and Pupillus  Minors are divided into two categories: Infans and Pupillus

(a) Infans:    Child under 7 years of age No capacity whatsoever In order to acquire rights and duties under a contract, contract must be entered into by a guardian on his/her behalf

E.g. Sipho (6) wants to join Virgin Active, parents were married, now divorced and Sipho lives with his mom Lindi. Either parent could sign the contract on Sipho’s behalf without consent of the other.

(b) Pupillus:        Child between the ages of 7 and 18 Has limited capacity Can sign contracts in his own name, provided he is assisted by a guardian Assistance means that the guardian must consent to the contract before or at the time of the contract Guardian need only to consent to the type of the contract not its exact terms Consent can be expressed or implied To see if there has been implied consent, need to look at the conduct of the guardian and ask if he was aware and showed no objection

E.g. Sipho (16). Lindi hears he wants to buy a motorbike, 2 days later Sipho comes home with the motorbike. Lindi tells him to park it in the garage. There has been implied consent.  With a pupillus, guardian can still enter into contract on behalf of the minor but assistance is sufficient

(4) Effect of an assisted contract:  A duly assisted contract is: o In the case of infans, one made on behalf of the minor by the guardian o In case of pupillus, is a contract made by a minor assisted by a guardian or on a minor’s behalf by the guardian The effect of a duly assisted contract is that a minor is bound, not the guardian, minor will be liable on the contract E.g. Marshall v National Wool Industries Ltd 1924OPD238 Marshall Jr was a pupillus (19) bought shares in NWI. Signed the share application in presence of the father with consent of the father. Paid a lumb sum and balance was due at a later stage. Son failed to pay the balance so NWI sued him. He claimed he was a minor and not liable. NWI withdrew the action against him and sued his father instead. The case failed because the court held it is the minor who was liable not the guardian. Cannot charge the son again.


(5) Substantially Prejudicial Contracts:   If contract is to the minors prejudice at the time it was entered into, then he may obtain a court order, set aside Prejudice must be substantial not trivial

E.g. Wood v Davies 1934 CPD 250 The father of Wood bought a house on son’s behalf from Davies. Purchase price was £1750 which was payable in instalments. On reaching majority Wood Jr sued Davies for cancellation of contract and return of money paid. Court held contract was substantially prejudicial: the price exceeded £200, it was unnecessary as Wood did not need a house and there were other onerous clauses. Wood could therefore cancel and each party must restore to each other what they received. This was a legal contract.  Known as cancellation and restitutio in integrum

(6) Effect of an Unassisted Contract         If a minor contracts without assistance, he is not bound under the law of contract He may recover from the other party anything he gave under the contract As far as minor is concerned, there is no legal contract, however it is bounding on the other party (is a valid contract) Known as a limping contract Contract between 2 minors, the contract is void In practice: The minor can choose whether or not to enforce the contract. This choice lies solely with the minor and the adult is bound by the decision Enforcing the contract = ratification Not enforcing the contract = repudiation

(a) Repudiation     Minor will not be bound and neither the other party The effect is as if contract never existed Never use cancelled because the contract never existed Minor is entitled to recover whatever he gave under the contract o Recovers money – condictio o Other things – rei vindication The other party of the contract can claim back under unjustified enrichment


(b) Ratification    If minor chooses to enforce contract, this is called ratification Other party is bound by the contract, but so is the minor While still a minor: o To ratify validly, needs assistance of guardian (expressed or implied) o The effect of ratification is that the contract is deemed to be valid from the date it was originally entered into On majority: o In this case no assistance is required. Court looks at the conduct of the person to see if there is ratification


E.g. Stuttaford v Oberholzer 1921 CPD 855 Oberholzer bought a motorbike a few months before turning 21. Price was payable in instalments. He entered into the contract without assistance (limping). After turning 21 he continued to use the bike but refused to pay the instalments owed. Stuttaford sued for amount owing, arguing he was an unassisted minor & not bound. Court held he ratified the contract as he used the bike after reaching majority and is therefore liable to pay

(7) Cases where minor incurs valid legal obligations without assistance   If minor enters into an unassisted contract that is not later ratified, the minor is not bound under the law of contract May however incur an obligation under some other area of law: a) Unjustified Enrichment b) Law of Delict (Fraudulent Misrepresentation) c) Statutory Exceptions d) Tacit Emancipation

(a) Unjustified Enrichment: E.g. Brian (16) buys a motorbike in instalments, contract is unassisted. Uses the bike for 6 months, without his parents knowledge, he has an accident and the bike is written off. Decides he doesn’t want to pay the remaining R6000. What kind of contract? Limping Has contract been ratified? No, there was no assistance Can he repudiate? Yes, doesn’t need to pay the R6000 and can reclaim the R4000 under condictio. The seller can sue under unjustified enrichment. The amount of enrichment is amount by which Brian has been enriched at time of being sued. The remaining value of the bike is R300. Seller can claim the R300 or the bike as well as any money Brian has saved. E.g. Brian (16) buys a diamond ring worth R500k. Pays R50k deposit and balance is due later, the contract is unassisted. Brian gives the ring to his girlfriend whom the next day breaks up with him and leaves the country never to be seen again. Brian repudiates and claims back the R50k under condictio and does not need to pay the R450k. The seller cannot sue back as Brian has not been enriched. (b) Delict (Fraudulent Misrepresentation)  A minor can fraudulently misrepresent themselves in the following ways: o Pretend to be over 18 o Fake consent o Pretend he has been emancipated


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If minor does this and the other party is reasonably deceived and therefore induced to contract, minor may be liable under delict if the party lost as a result thereof. Wrongful act = Fraudulent Misrepresentation Harm = Financial Loss

(c) Statutory Exceptions:   Limited amount of contracts can be entered by minors unassisted Their capacity derives not from common law but from statutes

E.g. Banks Act 94 of 1990 permits minors over age of 16 to operate deposit accounts without assistance and the Children’s Act 38 of 2005 allows children over the age of 12 can consent to invasive medical treatment without assistance but require parental/guardian assistance to consent to surgical operations (d) Tacit Emancipation:      Is done informally, no application is made to the court Occurs through consent of the guardian A minor of any age may be tacitly emancipated Tacit emancipation occurs where a minor is allowed by his guardians to carry on a business or occupation If a minor is tacitly emancipated, he/she may enter into valid legal contracts and incur contractual obligations without the assistance of a guardian but only in connection with that business or occupation Minor cannot contract outside of his/her business of occupation without assistance Sometimes however, tacit emancipation has been held to reach further than the trade or occupation No matter how far reaching the emancipation, it will never confer authority to marry or sell immovable property To decide if there has been tacit emancipation, court looks at the facts of each case

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E.g. Nadia (17) is in her 1st year at UCT, she started her own business selling sandwiches on campus and her guardian consented. She uses the money to pay her UCT fees and basic living expenses. She lives with her parents but pays rent and contributes to groceries. She has been doing this for a year then enters into a contract with PnP unassisted for delivery of 75 loaves of bread. They deliver the bread but she fails to pay. When PnP claim the money she argues she was an unassisted minor and is repudiating and therefore not bound (PnP cannot sue under delict, etc) so they try for tacit emancipation. PnP take her to court and argue she is tacitly emancipated. Pnp must prove that she is and must show that: the guardian has consented to the release of the minor from his/her power.


To ascertain tacit emancipation, court looks at: o Age of minor o Does the minor have residence away from guardians/home o Do minors operate own business and if so what and how long o The relationship between the minor and guardian o Is the minor financially independent

E.g. On a balance of probabilities Nadia is tacitly emancipated (she is close to majority, pays rent to her guardians, runs own business, is financially independent, etc). The contract is therefore binding on Nadia and therefore has to pay PnP. 1.1.2 Married Persons  3 types of property regimes that can govern a marriage o In Community of Property (ICOP/COP) o Out of Community of Property (OCP) o Out of Community of Property with Accrual (Accrual) To be married OCP or Accrual, must have and Antenuptual Contract (ANC) before you get married ANC must be signed by a notary public in the presence of two witnesses If there is no ANC the marriage is automatically ICOP

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(1) Marriage in Community of Property (a) Effect of a marriage ICOP      Assets belonging to each spouse before marriage are merged into a single joint estate upon marriage and become joint owners of each other’s assets Liabilities of each spouse before the marriage becomes joint liabilities upon marriage Property acquired by spouses during marriage become jointly-owned Liabilities incurred during the marriage become joint liabilities. Upon dissolution by death or divorce, joint estate is divided and each gets half

(b) Contractual Capacity in ICOP of Spouses   Governed by the Matrimonial Property Act of 1984 General Rule: o Both parties have full contractual capacity with regard to the joint estate, consent of the other is not needed Certain acts do however require consent Definitions: o Alienate = to sell, mortgage, lease out, give away o Cede = manner of alienating, usually used for incorporeal assets o Incorporeal = no physical substance o Pledge = to give something as security Different types of consent are needed for different actions

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(i) Formal Consent    In writing, signed in front of two witnesses Given for each act Required for following acts: 1. To alienate or mortgage immovable property 2. Buy residential land in instalments 3. Enter into, as a credit receiver, a credit agreement 4. Bind him/herself as surety

E.g. X owes Z R10 000. Y agrees that if X does not pay Z he will (i.e. Y pledges himself as surety)   In the case of 2 and 3 consent can be given by ratification (may be given afterwards) but must still be in writing and in front of two witnesses For 2, 3 and 4 consent is not required if the act is done in connection with the spouse’s trade or occupation

E.g. H & W are married ICOP. Wife is a doctor in partnership. The partnership buys an x-ray machine from Z, payable in instalments at a cost of R150 000. W stands as surety (H’s consent is not needed). W’s surety is called upon and together with H they will be jointly liable. (ii) Written Consent    In writing without witnesses Can be given as a general consent o 1 consent needed to sell 1000 shares to 10 people Written consent is needed for: o Alienate, cede, pledge any investment assets (shares, stocks, insurance policies, fixed deposits, etc) o Alienate or pledge capital assets (jewellery, coins, paintings, etc) o Withdraw any money held in a bank or building society in other spouse’s name There are 2 exceptions to this general consent: o Consent not needed to sell listed shares (public companies) o Don’t need consent to deal with deposit in your name at a bank or building society For 1-3 consent can be given by ratification but must still be in writing Consent for 1 not needed if done in connection with spouses trade or occupation


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(iii) Informal Consent    Is verbal consent Can be given as a general consent Needed for: o Alienate or pledge household furniture and effects o Receiving money due to other spouse as a result of  Trade, business or occupation  Inheritance, donation, bursary or prize o Large documents from the joint estate Can all be given by ratification


(c) Transaction made without consent    If spouse enters into contract without required consent then contract is void Exception: If the third party does not know or could not reasonably have known that consent was not given then the contract is valid If contracting spouse knew he/she would not get the required consent and the estate has suffered a loss thereof then an adjustment will be made in other spouse’s favour upon dissolution

E.g. John & Jill married ICOP, Jill inherits jewellery from her grandmother (jewellery is jointly owned) and she keeps it as a capital asset. John sells it knowing he would never get the required written consent. He gives the buyer written consent with Jill’s forged signature. It is valid contract because the buyer could not have reasonably known that consent was not given. The jewellery was worth R1000 and John sold it for R700. Upon dissolution Jill would have had R500 but as a result of the sale the estate has suffered a loss and will only get R350. Jill has been prejudiced R150. Upon dissolution John will have to pay Jill R150 from his share of the estate. (2) Marriage OCP and Accrual (a) Effect of a Marriage OCP    Each party retains, as their own separate property, whatever assets they owned before the marriage as well as during the marriage Each party remains liable for their own debts incurred before and during the marriage. They are not liable for each other’s debts Upon dissolution of marriage each party retains their own separate assets, neither has a claim against the other

(b) Effect of a Marriage Accrual    Marriage with accrual is exactly the same as OCP There is no joint ownership There is however 1 difference: o The spouse whose estate has shown the smaller accrual (growth) has the right to half the difference between the two accruals upon dissolution
Example 1 Year 2000 Year 2007 Growth Jill R 500 R 10 500 R 10 000 John R 1 000 R 1 000 R0


John gets R5000 from Jill Example 2 Year 2000 Year 2007 Growth Jill 500 10500 10000 John 1000000 1000000 0

John gets R5000 from Jill

(c) Contractual Capacity of Spouses OCP and Accrual    Spouses have unlimited contractual capacity with their own assets Neither party has power with regard to the other person’s estate Not liable for debts incurred by other spouse with 1 exception: o Jointly liable for debts incurred by either of them in respect of household necessaries (Food, Medical & Dentals, Utilities, Education) o This exception could depend of the standard of living of the family


Insolvents     An insolvent is someone whose estate has been sequestrated by the High Court in terms of the Insolvency Act (i.e. declared bankrupt) If someone has not been sequestrated by the court then they’re not insolvent in technical sense and therefore their contractual capacity is not limited Once someone is sequestrated by the High Court, their estate is placed in the hands of a trustee This is known as an insolvent estate and the person is no longer the owner of his assets, the trustee is the owner and must deal with the assets for the benefit of the creditors General is that an insolvent has full contractual capacity with 2 exceptions: o Insolvent may not enter into any contract in terms of which disposes of any assets in the insolvent estate


o 1.1.4

May not enter into a contract which adversely effects the estate

Mental Incapacity Arising from Mental Illness or Intoxication (1) Mental Illness    All people are presumed to be sane unless declared ill in terms of the Mental Health Act Therefore if not declared ill, all contracts are presumed valid The person wanting to get out of the contract must prove that at the time of contracting, they did not understand what they were doing or were motivated by some insane delusion (mentally ill). If proven the contract is void If someone has been declared mentally ill then the contract is presumed void. The party trying to enforce the contract must prove that at the time of contracting the person was having a lucidem intervallum (lucid/sane moment) This means that they understood the nature of the contract/transaction and was not influenced by some insane delusion



(2) Intoxication    May be due to any mind-altering substance If so intoxicated at the time of contracting, that they do not know they are entering into a contract, or understood its terms then the contract is void However the mere fact that somebody is more easily persuadable or slightly intoxicated does not make the contract void

1.2 Agreement/Consensus
1.2.1 Offer and Acceptance (1) Offer:  An offer s a proposal made to another party, containing the terms & conditions, which if accepted binds the parties contractually  A valid offer and a valid acceptance makes a valid contract  Requirements for a valid offer: a) Must meet all requirements for a valid contract b) Must define all terms on which valid agreement is sought  If both requirements are not met, there is no valid offer, therefore even if accepted it is still not a valid contract (a) Meet all valid contract requirements i) ii) iii) iv) v) Offeror must have contractual capacity Offeror must have a serious intention to contract Must communicate to the other party Must be lawful Must be possible of performance

vi) Must comply with all the formalities vii) Must be certain in its terms (ii) Serious intention to contract    Party must have had the intention to make an offer, which, if accepted will result in a binding contract Courts apply certain rules to determine whether the intention was to make an offer to contract The following are not offers: o An advert o A price-list o A catalogue These are merely invitations to do business If someone responds to one of the above, they are not accepting an offer, therefore there is no contract. The person who responds is making the offer

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E.g. Crawley v Rex 1909 TS 1105 (still a colony, criminal matter) A shopkeeper advertised a certain brand of tobacco at a special price. Crawley went to the shop and offered to buy some. The shopkeeper sold it to him. A while later Crawley returns with friends to buy more but the shopkeeper refuses to sell. Crawley refused to leave the shop and was arrested for trespassing. In the case Crawley argued that the advert was an offer, which he accepted, therefore there was a contract and the shopkeeper had to sell. Court held that the advert is not an offer just an invitation to do business. Crawley had in fact made the offer making the shopkeeper free to accept or reject and chose to reject. E.g. Pharmaceutical Society of Great Britain v Boots Cash Chemist 1952 ALL ER 456 Boots is a chain of pharmacies. According to English law it is unlawful to sell certain medicines, drugs unless a registered pharmacist is in attendance. At boots these medications & drugs were available at the open shelves. The Society said it was unlawful, as no registered pharmacist was walking around. The society argued that the displayed goods were an offer and that acceptance took place when the customer removed it from the shelf. Boots argued that it was an invitation to do business, not an offer. Boots argued that the offer took place when items are brought to the cashier’s desk and it was therefore a lawful sale. Boots won the case.  Some adverts are however offers. To decide this you look at the nature, wording and surrounding circumstances of the advert

E.g. It has been held that an advert to do business with whoever shall perform certain acts is an offer (reward advert)

(iii) Communication  The offer must be communicated to the other person to be valid

E.g. Bloom v American Swiss 1915 AD 100 American Swiss was robbed. The company placed an advert in the newspaper offering a reward to anyone who could provide information about the theft. Mr Bloom went forward with information, but he had not seen the advert yet. When he later found out about the reward he went to claim it but American Swiss refused to pay. The court held that the advert was not a valid offer has it had not been communicated to Bloom therefore Bloom never accepted by going forward and American Swiss did not have to pay the reward to Bloom (b) Define all terms on which agreement is sought   Offer must contain final terms & conditions of the contract, so that an unconditional acceptance will bring about a binding contract. If certain terms are missing and still have to be negotiated then there is no valid offer and can therefore be no acceptance

(2) Revocation, Lapse and Rejection of an Offer (a) Revocation    Withdrawal of the offer by the offeror Can be revoked at any time prior to acceptance (if accepted there is a binding contract) The revocation must be communicated to the offeree to be effective

(b) Lapse of Offer   Means the offer expires (becomes stale) Offer can lapse in the following ways: o Not being accepted within the time period specified o If it has not been accepted within a reasonable time (the length of a reasonable time depends on the facts of the case) o On the death of the offeror or offeree, provided acceptance has not taken place o Where the offer is valid at the time it is made, but before acceptance it fails to meet one of the requirements for a valid offer E.g. X is in Namibia and Y is in RSA on 17 March 2008. Y offers to buy firearms from X. On 18 March parliament passes a law against the movement of firearms across the border. X accepts on the 19 March. There has been a lapse of offer as it is no longer lawful and therefore does not meet all the requirements of a valid offer.

(c) Rejection of offer  Can occur in two ways: o Can be expressed o Or by making a counter-offer

E.g. Watermeyer v Murray 1911 AD 61 Watermeyer offered to sell farm to Murray on certain terms, M did not accept unconditionally, but stipulated a different date for the payment of the deposit. Watermeyer was not prepared to deviate from the original terms and therefore refused to sell to Murray. A while later Murray tried to accept the original offer and Watermeyer refused to sell. The court held that when Murray tried to change the terms he was making a counter-offer which Watermeyer was entitled to accept or reject and decided to reject. The original offer had lapsed as a result of the counteroffer and Watermeyer therefore needn’t sell. (3) Acceptance  In order to have a valid contract, must have valid acceptance  Following is required for valid acceptance: o Must meet all requirements of a valid contract o Must be unequivocal (unconditional) and in terms of the offer o Made in the manner, if any, prescribed by the offeror  Offeror sets the manner for acceptance  Acceptance must take place in prescribed manner to be effective  Becomes important when contracts are made by email, post, fax or phone  Different theories apply to determine when and where the contract is concluded o Must be made before the offer comes to end (i.e. by revocation, lapse or rejection) (a) Expedition Theory  Applies in the following situations: o Offeror makes his offer via the post o Offeror authorises postal acceptance In these situations the offeree may accept by using the post. If he does so the effect is that acceptance occurs. The contract is concluded at the time and place where the letter of acceptance is posted

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E.g. Y is in CPT and makes an offer via the post to X in DBN on March 1. X posts his letter of acceptance on 15 March in DBN. The letter reaches Y on 21 March. The contract is concluded on 15 March in DBN. Even if Y revocates, removes his offer on the 16 March the contract is still valid even if Y does not know that acceptance has taken place  Only applies in the following circumstances: o To commercial contracts (sale, lease, mortgage) o Only applies if postal service is operating normally o Only applies if letter of acceptance was correctly addressed o Valid if the offeror has not stipulated that acceptance will only be valid once he has seen or read the letter o Only applies if the offeror has not stipulated that acceptance must take place in some other manner

(b) Information Theory  Applies in the following two situations: o Contracts made by phone o Contracts where expedition and reception theory do not apply Here acceptance is valid and contract is concluded once it has been communicated to the offeror (see or hear acceptance)


E.g. A is in London, he phones B in JHB and offers to sell him his PC. B accepts. The contract is concluded when and where A hears B’s acceptance (i.e. in London) (If in breach this contract will be governed by English Law) (c) Reception Theory     Governed by the Electronic Communications and Transactions Act of 2002 Theory governs contracts made by email and other electronic communications In terms of this act, the contract is concluded at the time and place where 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 complete data message enters his information system and is capable of being retrieved and processed by him (in terms of section 23 of the act) Contract is concluded at the time and place it enters his inbox In the case of faxes: o Acceptance by fax takes place when it has been printed and transmitted by the offeror’s machine

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Options and Rights of First Refusal (1) 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 (grantee)  During this period of time the offer is irrevocable

E.g. B offers to sell his car to A for R20000 (main offer). A needs time to decide but does not want B to sell to another person. B says he will keep the offer open for 2 weeks (ancillary to the main offer). A says okay and will think about it for 2 weeks. A has accepted the ancillary offer and there is now an option contract. The benefit to A is that B cannot revoke the offer in those 2 weeks  There are now two contracts: o The option contract o The main offer, which may or may not come into being  An option contract must be distinguished from an offer that will expire after a certain period o Where an offer will expire; all it means is that the offer cannot be accepted after expiry, but the offer can be revoked prior to acceptance or expiry (2) Rights of First Refusal  A contract giving a right of 1st 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 the contract with him before anyone else E.g. A says to B that if he should sell his house, he will offer it to B first. B accepts. There is now a right of first refusal. If A never sells his house he wont be in breach of the contract. If A does sell and offers it to C 1st who then buys it, he will be in breach of the contract.


Online Contracting (1) Introduction  Is considered an electronic transaction  Is governed by the Electronic and Communications Act of 2002  Concluded when and where the acceptance is received by the offeror (Email = In Inbox)  Acceptance is considered received when the complete data message enters the information system at the offeror’s usual place of business or residence and is capable of being retrieved  Some definitions:

o Supplier:  Is any person who offers goods or services for sale, hire or exchange on the web o Consumer:  Is any natural person (human, not a company or other juristic entity) who enters into an electronic transaction with a supplier (2) Requirements for Websites and Online Transactions (a) Section 43(1)  Any supplier must make the following information available: o Name and legal status (If is juristic, must make name of office bearers and registration number available) o All suppliers contact details: physical address, phone, email, etc o Details of any self regulatory body to which they belong o Any code of conduct to which the supplier subscribes o Physical address to where the supplier will receive legal documents About the goods: o Description of the good to enable the consumer to make an informed decision about entering into the contract About the contract: o Price of goods and services o Manner of the payment o Any other terms of the contract (guarantee) o Time within goods will be dispatched o How and when consumer can access a full record of the transaction o Return and exchange policy of the supplier o If contract is on-going then the minimum period for which the consumer will be bound must also be stipulated o Security policy and procedures o Section 44 rights



(b) Section 43(2)  In terms of this section the supplier must give the consumer an opportunity to view the entire transaction and correct any mistakes before the order is placed or to withdraw from the transaction entirely If the supplier fails to comply with Section 43(1) or Section 43(2) then the consumer may cancel the transaction within 14-days of receiving the goods or services If consumer cancels, he must return the goods or stop using the service and the supplier must refund any payments made



(3) Consumer Rights in terms of Section 44

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The consumer is entitled to a cooling-off period during which he may cancel without any valid reason In an electronic transaction with the supplier of goods, the consumer can cancel within 7-days of receipt of the goods In case of services he can cancel within 7 days of conclusion of the contract There is no penalty within this time and the consumer must be refunded the purchase price within 30 days This section does not apply to the following transactions: o Transaction for the supply of financial services o Auctions o Transactions for the supply of food, beverages and other consumables for humans o Transaction where the price is dependant on market fluctuations (stocks, shares, etc) o Transaction where the goods are made to the customers specifications o Where audio or video recordings or PC software has been unsealed by the consumer o Transaction for the sale of newspapers, magazines, books and periodicals (including subscriptions) o Transactions for online betting and lottery services o Transactions for provisions of accommodations, transport, catering and leisure services o Transaction for services that have already begun with consumers consent before the end of the cooling off period

(4) Security   Supplier must use payment system that is sufficiently secure If it fails to do this, the supplier is liable for any damage suffered by the consumer as a result

(5) Performance by the Supplier    In terms of Section 46 Supplier must perform the order within 30 days unless parties agree on another time period If supplier fails the consumer can cancel the agreement

(6) Contractual Exclusions Not Allowed  Parties may not agree to exclude any provisions of the act  Any attempt to do so will result in the contract being invalid

(7) Automated Transactions

 An electronic agent as an automated response t data message (the response is not given in person)  Can also be used to initiate the transaction  An automated transaction is an electronic transaction where one or both parties uses an electronic agent 1.2.4  Factors Which Can Taint or Prevent the Conclusion of a Valid Contact The factors are: o Mistake o Misrepresentation o Duress o Undue Influence These can render a contract void or voidable (1) Void Contracts  If contract is void then there is no contract at all  Courts will refuse to enforce a void contract  Normally void if any of the essential requirements of missing o Contractual Capacity o Serious Intention o Communication o Of the same mind o Lawful o Possible of performance o Compliance with all formalities o Certain in its terms  Ratification does not normally make a void contract valid except with married persons (2) Voidable Contracts  Is a valid contract (all the requirements have been complied with) but there is a defect in consent with one of the parties  The defect can be due to misrepresentation, duress or undue influence  The party who has been wronged has an election: o Can cancel (set aside, recind) and claim restitutio in integrum (recession and restitution) o OR abide by the contract  Wronged party has a reasonable time within which to make the election  Once election is made it cannot be changed


(3) Mistake

 Renders a contract void  There are 3 types of mistake: o Common  Both parties share the same mistake o Unilateral  Only one person is mistaken, the other is not o Mutual  Both parties are mistaken but at cross purposes (not the same mistake) (a) Common Mistake E.g. A sells B a sealed container of oats, both parties think the container contains rice. If the contract is void, they must return to each other what was received. If not one can sue under unjustifiable enrichment.  The following must all be met to render the contract void: o Must be a mistake o Must be common to both parties o Mistake must be material o Mistake does not have to be reasonable

(b) Material Errors   These apply to all mistakes Material errors can be: o Mistake as to nature of the transaction o Mistake as to subject matter o Mistake as to the identity of the parties – but only where ID is an essential ingredient of the contract (Employment, Marriage, Engagement) o Mistake as to the attributes or quality of the subject matter – only material if the mistaken party believed it was a term of the contract that the article had those attributes

E.g. You buy a chair, you believe it is a term of the contract that the chair is an antique. This is a material mistake. If however, you don’t think it is an antique but buy it because it might be, then there is no material mistake.  The following are not material errors: o An error in motive

E.g. You think you’ve lost your watch, so you buy another, when you return home you find your old watch. This is an error in motive therefore no material mistake

(c) Unilateral & Mutual Mistake E.g. Maritz v Pratley 1894 SC Lot 1208 – Marble mantle-piece Lot 1209 – Mirror The markings were small and almost illegible. The auctioneer puts lot 1208 up for sale and sells to Pratley. Pratley who believed that he was buying the whole unit (mantle-piece and mirror). The court held the contract was void due to unilateral mistake E.g. A thinks he is selling a sealed container of rice to B, B thinks he is buying a sealed container of corn. The container actually holds oats. This is a mutual mistake



In order for the error to render the contract void all the following requirements must be met: o Must be a mistake o Must be unilateral OR mutual o Must be material o Must be reasonable (i.e. A iustus (justus/ivstvs) error An error will be iustus in the following two situations: o If the other party (not mistaken) knows or ought to have known that the mistaken party had made an error

E.g. Horty Investments v Interior Acoustics 1984 (3) SA 537 (W) Horty rented premises to Interior, verbal negotiations about the lease took place and it was later reduced to writing. Clause 1 of the written contract said that the lease would begin 1 st May 1981 and continue for two years. Clause 2 said that during this time no termination notes may be given. Clause 3 then said that no notice may be given before 1st May 1993. The date was a typing error. Horty claimed that they intended the lease to be for 2 years. Interior genuinely believed that the lease was for 12 years. Horty applied to the court to have the lease set aside. Court found in favour of Horty on the basis that Interior could not have reasonably believed that Horty intended to be bound for 12 years. o OR If the other party had misled the mistaken party

E.g. You have a plastic pen, sell it to someone saying it is a gold pen, the mistaken party cannot be held bound (was misled)

(d) Rectification  Rectification can occur in the following circumstances: o Written agreement o At the time of verbal negotiations, the parties were of the same mind o There is no mistake in their consensus o When the contract is reduced to writing, the written contract contains an error that does not conform to the terms of the verbal agreement Can apply to the court for rectification of the written agreement, so that it conforms with the verbal agreement This can occur at the request of either party The party applying for rectification must prove: o That the written agreement does not accurately reflect what the parties agreed upon or what they both intended o What the terms of the written agreement should be o There will be no prejudice to third parties

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E.g. In the Horty case, Horty argued in alternative for the court to have the lease rectified (1993 to 1983) but it failed the first requirement as Interior believed it was for 12 years   These 3 requirements apply to written agreements that have been reduced to writing but are not required to be in writing by law If the agreement however has to be in writing by law to be valid a 4th requirement must be proved o On the face of it, writing sets out all the material terms of the contract

E.g. Contract for the sale of immovable property must be in writing Material terms: description of the house, names of parties, price of the house. If the price is not contained in the contract then there is not a valid contract of sale because writing does not set out all the material terms of the contract, the contract is therefore void and cannot be rectified. If however the price was incorrectly written then it can be rectified

(e) Mistake examples 1. A goes to buy a lounge suite. It is displayed in the shop with a coffee table. On the coffee table is a sign saying not for sale. A buys the suite thinking it includes the coffee table. When she hears it does not she wants the contract to be set aside. Advise her.  There is a mistake which may render the contract void

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The mistake is unilateral as only she is mistaken as to the subject matter or the attributes of the subject matter Must be a material error, It is because she is mistaken as to the subject matter or its attributes Must be an iustus error. It is not iustus because the shop could not have known that she was mistaken as the sign said not for sale, and they did not misleads her either. The contract cannot be void as the error is not iustus

2. A goes into 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 so she buys it. It turns out it is not an antique but rather a modern replica. Can she have the contract set aside? There is a unilateral mistake, only A is mistaken. It may render the contract void. In order to render the contract void the mistake must be material, it is material as it is a mistake as to the attributes or qualities of the subject matter if the mistaken party believed it was a term of the contract that the chair had those qualities, she thought it was an antique, therefore material. The mistake must also be an iustus error. It is possibly misleading or the shop ought to have known that she can be mistaken as the chair was displayed with all the other antique chairs. Therefore the error is iustus and the contract is void. 3. Imagine that the shop in example 2 was broken into the night before and thieves had stolen all the antique chairs and replaced them with modern replicas. Another customer comes in the following day and buys what she and the owner believes to an antique. Can the buyer get out of the contract when the true state is uncovered? There is a common mistake as both parties believe it is an antique, this can render the contract void. The mistake must be material. The mistake is material because the error is a mistake as to the attributes of the subject matter and both believed it was an antique, therefore the contract is void and the buyer can get out of the contract. (4) Misrepresentation  Renders a contract voidable  A misrepresentation is a false statement of fact by 1 person to another with the intention of inducing the other party to enter into the contract, and actually does induce him to do so (a) Types of Misrepresentation   Fraudulent Misrepresentation o Made without any believe in its truth Negligible Misrepresentation o Here the person believes in the truth of what he is saying o He is being negligent & the information is incorrect


Innocent Misrepresentation o Made without fraud or negligence

E.g. A buys a painting from B, B tells A that it is an original Rembrandt. A believes this and years later sells it to C. A tells C that it is an original Rembrandt. It turns out that it is a fake, but such a good fake that only two people in the world can tell that it is a fake ( 1 person lives secluded in Alaska and the other is C’s wife). A’s misrepresentation was innocent.  There may be overlaps as to the types of misrepresentation

(b) Forms of Misrepresentation   Verbal or written misrepresentation Misrepresentation by conduct

E.g. Trotman v Edwick 1951 (1) SA 443 (AD) Trotman sold Edwick a piece of land upon which two flats are built and the plot is enclosed by a boundary wall. 2/7 of the land enclosed actually belongs to the municipality and they are planning to build a road through there soon. Trotman knew this and during negotiations said to Edwick; look at the extent of this land and paced out the land including the section that belonged to the municipality. This was a fraudulent misrepresentation by conduct.  Misrepresentation by silence o The general rule in South African law is that there is no duty to speak or disclose o There are exceptions:  When a person tells half truths and creates a misleading impression

E.g. Marais v Eldman 1934 CPD 212 Eldman sold a farm to Marais, during negotiations he told Marais he had pumped a bore-hole without its failure (he didn’t mention that this was 14 years ago and that the depth had been reduced from 125 to 104 feet)  Where he has by his conduct prevented the other party from discovering the true state of affairs E.g. Dibley v Furter 1951 (4) SA 73 (C) Furter sold a farm to Dibley, prior to the sale Furter ploughed over a graveyard that was next to the farmhouse and planted roses. He didn’t tell Dibley there was previously a graveyard there

 Where he has by earlier statement or conduct given the other party a certain impression and circumstances have changed E.g. A wants to sell a flat to B. B likes the flat but does not want to buy it because no perimeter security exists. A tells B that the body corporate is putting in a fence with spikes within the next 6 months (this is true). B buys the flat but in the meantime the body corporate decides not to go ahead with the fence, but A failed to disclose this to B.  Common law rule exists that a seller must disclose all latent defects (i.e. defects that are not obvious) (c) Requirements for Misrepresentation to Render a Contract Voidable   Not every misrepresentation renders the contract voidable All of the following requirements must be met (applies to all forms and types of misrepresentation): o Misrepresentation is made with the intention of inducing the other party to enter the contract o Made by the other party to the contract o The misrepresentation did induce the contract (Causal misrepresentation)  Causal misrepresentation does induce the contract therefore contract is voidable  An incidental misrepresentation does not induce a contract therefore not voidable  Sometimes an incidental misrepresentation may cause the person to contract on less favourable terms, but e would have still contracted, therefore not voidable

E.g. Bird v Murphy 1963 (2) PH A42 (D) Bird has long admired Murphy’s car and decided that if he could buy it for R2600 he would make the offer. He approached Murphy and agreed to sell it for R2600. Murphy told him it was a 1957 model but it is actually a 1953 model. When Bird discovered this he wanted to cancel the contract. It was an incidental misrepresentation and therefore not voidable E.g. Let’s say that the value of a 1957 model was R2700 and the 1953 model was R2500. Murphy lied saying it was a 1957 model causing Bird to pay but on more unfavourable terms. There may be a claim under delict for the R200


The misrepresentation must be material  A material misrepresentation is one that is of such a nature that it would be likely to induce a reasonable person to enter into the contract

E.g. Lourens v Genis 1962 (1) SA 431 (T) Lourens told Genis that his son had X-ray vision and could see if there is water underground. On the strength of this information he enters into a contract with Lourens and his son, in terms of which the son will point out a place to sink a borehole. The son pointed out a place and they were paid. Genis sunk the borehole and there was no water. Genis applied to the court to have the contract set aside on the basis of misrepresentation. The court said no because the misrepresentation was not material because a reasonable person would not have believed Lourens. Genis could however sue under delict. o The misrepresentation was a false statement of fact  In order to render the contract voidable misrepresentation must be a statement of fact  Opinions and puffs will not render a contract voidable (i)Opinions  Which is genuinely held ad turns out to be wrong will not render a contract voidable  Where a person gives a dishonest opinion, it is seen as a misrepresentation of fact and will render a contract voidable  Law regards the state of a persons mind as fact (if you give an opinion which you don’t honestly believe you are misrepresenting your state of mind and contract will be voidable) E.g. A wants to sell B his shares, tells A that in his opinion the price is fair and this turns out to be wrong. All he was doing was giving his opinion, there was no fact.


(ii) Puffs  If a party is merely singing the praises of his goods and services it is called puffing  Contract cannot be set aside on the basis of a puff E.g. A wants to sell a house to B, says it is a wonderful family home, you will be very happy here, very cosy & inviting. On the strength of this B buys (all puffs)

(d) Consequences of Misrepresentation (i) Contractual Remedies  Where the 5 requirements have been met, then the contract will be voidable  The wronged party has an election o Can either abide (valid) o OR cancel and claim restitution  If he cancels he must also make restitution, if he cannot make restitution he must pay a monetary equivalent  Where the 5 requirements have not been met, then the contract is valid, the wronged party has no election and must abide by the contract (ii) Delictual Damages  In case of fraudulent and negligent misrepresentation, delictual damages are available  These damages can be claimed in the following circumstances: E.g. A sells a car to B, some misrepresentation renders the contract voidable, B elects to recind and claim restitution. Under delictual damages B can claim interest lost on purchase price and licencing fee. This does not offend the rule of double compensation as it is not the for the same thing o In addition to recision and restitution if contract is voidable o If the contract is voidable and the person chooses to abide o The misrepresentation didn’t render the contract voidable then can claim delictual damages (which may equal to restitution)  Cannot claim delictual damages for an innocent misrepresentation E.g. Refer to the above example. If B elects to abide by the contract. If the misrepresentation caused the price to differ, he can claim under delictual damages the difference in price (and possible interest as well) (e) Relationship between Mistake and Misrepresentation    Mistake renders contract void Misrepresentation renders contract voidable If the misrepresentation resulted in the person entering into the contract while he is materially mistaken, then he can get out of the contract on the basis of a mistake (void) The parties can include a clause in the contract which stipulates that any misrepresentation will not be actionable (cannot rely on misrepresentation to



cancel contract even if all 5 requirements are met or to claim delictual damages) If the misrepresentation resulted in a mistake the contract will be void (therefore the contract does not exist, and the clause does not exist)

E.g. Allen v Sixteen Stirling Investments 1974 (4) SA 164 (D) Allen bought property from SSI, Allen alleged that both parties were mistaken to the identity of the property (mutual, both sell and buy different properties). The mistake was caused as a result of SSI’s agent pointing out the wrong piece of land (Negligent misrepresentation by conduct). A clause in the contract said no misrepresentations would be actionable. SSI argued that despite there was a misrepresentation, Allen had no case because of the clause. Allen argued that there was a mistake (misrepresentation led to the contract), was a material mistake as to the subject matter and it was iustus (misleading) therefore the contract was void and the clause does not apply

(5) Duress & Undue Influence (a) Duress   Here a person is induced into a contract through fear caused by violence or intimidation To render a contract voidable all the following must be met: o Threat of considerable harm to a person, their family or their property o The threat of harm must be immenant or inevitable o The threat must have actually induced the contract or induced the person to contract on less favourable terms o The threat must be unlawful or contra bonos mores (against public policy or good morals) o The fear must be reasonable

(b) Undue Influence  Occurs when 1 party to a contract is able to influence the other party to such a degree that he is unable (incapable) of forming an independent decision/opinion To render a contract voidable all the following must be met: o The one party exercised an influence over the other party (e.g. lawyerclient, doctor-patient, religious leader-congregant) o Influence must have made the other party easily manipulated o Influence must have been exercised in an unscrupulous (no good intention or moral) manner o Influence must have induced a wronged party to enter into the contract that is prejudicial to him and which he wouldn’t have concluded of his own free will


1.3 Legality
   Requirement of a valid contract is that it must be lawful If an agreement is illegal, it is generally void and courts will refuse to enforce it Illegal in two situations: o Prohibited by Statute OR o Prohibited by Common Law (1) Statutory Illegality    An agreement prohibited by statute is an illegal agreement and is generally void but not always To decide whether the contract is illegal and void or illegal and valid, the crucial question is what the legislature intended Often the particular piece of legislature will state that the prohibited agreement is void, however if the legislature does not state anything then the court will look at a range of factors to decide whether the legislature intended that the agreement be illegal and void or illegal and valid

E.g. There is a piece of legislature that prevents trading in ivory. A orders 500 ivory necklaces from B (Illegal, but is it valid or void?) One factor the court will look at is will enforcing the agreement bring about the harm which the legislature is trying to prevent (if enforced it will bring about the culling of elephants for ivory and they have no defence) therefore the contract is void E.g. There used to be legislature that one could not run a general store without a licence. Mr A had a general store but no licence, this meant that all sales he made were illegal. The question was are these contracts of sale valid or void. The court looked at would it be a greater hardship resulting from holding them void rather than enforcing them.

(2) Common Law Illegality     These are contra bonos mores (against good morals or public policy) There is no closed list of contracts that will be contra bonos mores, this is because morality changes with the times There are however a few type of agreements that a court will always hold contra bonos mores These agreements are illegal and always void o An agreement to commit a crime or delict o An agreement that undermines the institution of marriage

E.g. Friedman v Harris 1928 CPD 43 Mr Harris was a married man. Friedman was an unmarried woman. Friedman sued Harris for charges of seduction (delict) and he agreed to pay her £1000 to settle out of court. They later agreed that Friedman would pay him back the remaining portion of the £1000 if he would divorce his wife and marry her. She paid back the remaining £800 that was left but Harris did not divorce his wife. Freidman then sued Harris for breach of contract. The agreement was found to be illegal and void on basis of contra bonos mores.

o o o

An agreement never to marry is illegal and void An agreement in consideration of sexual immorality (prostitution) Unconsionable agreements  Agreements that are grossly unfair  Generally agreements that are unfair are upheld by the courts, because it is not the courts job to assist a bad bargainer  In extreme cases, where agreements are grossly unfair, it will be illegal and void

E.g. Baart v Malan 1990 (2) SA 862 (E) Baart and Malan were married but got divorced. Baart got custody of the children and in terms of the divorce contract, Malan had to pay maintenance for the children. The amount of the maintenance was her gross monthly salary plus her annual bonus. The courts held the agreement was grossly unfair as Malan could not survive and derived no benefit from her employment. (c) Illegality and its Effects on Contracts      Applies to agreements that are illegal void at both common law and statutes If the agreement is void for any reason other than illegality then courts will refuse to enforce it and party can recover what they performed under unjustified enrichment If the contract is void due to illegality, then the situation is different because the “In Pari Delicto” rule applies (meaning in equal guilt or fault) If the parties are of equal guilt (both illegal) then no-one is able to recover what they have performed, this is to discourage people from acting illegally If they are not of equal guilt, then the party who did not perform the illegal act may recover what they performed under unjustified enrichment

E.g. It is an offence to sell gas without a licence, but it is not a offence to buy gas without a licence. A sells a canister of gas to B, B pays the deposit of R300 and before delivery the agreement is declared illegal and void. B can recover the R300 because she is not In Par Delicto

(d) Severing Invalid Terms   Sometimes illegal terms or clauses may be taken out of a contract and the rest of the contract remains perfectly valid This is allowed as long as the rest of the contract still has meaning and substance

(e) Unenforceable Contracts   These are not illegal and so they are valid, but the courts may refuse to enforce them There are two types of unenforceable contracts o Constraints in restraint of trade  Is an agreement which seeks to restrain a person from exercising any trade or profession at his/her own free will

E.g. A is an asset manager working at company B, she signed a constraint of trade agreement which provided that she would not work in the financial services sector anywhere in SA for 5 years should she leave company B. They paid her R2m for the restraint. She is head-hunted by company C, who offer her an attractive package, she accepts the job. Company B sues her for breach of the restraint, the return of the R2m and other damages. E.g. A sells his shop to B. This is the only café in the residential area. They enter into an agreement in terms f which A will not set up a business in competition with B within a 10km radius  These agreements are valid and are generally enforceable, however, the courts will refuse to enforce them to the extent that are unreasonable. The onus of proving that the restraint is unreasonable lies on the restrained person To decide if restraint is unreasonable and therefore unenforceable the courts look at:  Did the restrainer have an interest deserving protection and if so did no more than was necessary to protect this interest

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E.g. An electronics company hires A, who is an engineer, to develop a new cellphone. He signs a restraint saying that he cannot work for their major competitor for the next 5 years. Does the restraint have an interest deserving protection? Yes it protects the design from being copied and it will therefore be enforced  Would the person restrained be unduly prejudiced if it were enforced


 Did the restrainer spend a large sum of money to obtain the restraint  Would the enforcement of the restraint deprive the public of valuable services Gambling Contracts  These are currently being overhauled  Not examinable  Not covered by this course

1.4 Possibility of Performance
 In order for a contract to be valid it must be possible of performance (1) Initial Impossibility  General rule: A contract is void if its impossible of performance at the time it is entered into  In order for the impossibility to render a contract void, the impossibility must be objective (impossible for anyone to perform)  If the impossibility is due to a persons own personal situation or fault then it is not objective impossibility and if the person does not perform then it is breach  There are two types of objective impossibility o Objective Physical Impossibility o Objective Legal Impossibility E.g. Objective physical 1. A agrees to transport B to Jupiter. It is not possible for anyone to perform this, so if A does not perform it is objective physical impossibility and the contract is void 2. A sells a holiday house to B, unknown to both of them is that the house has been completely destroyed by floods (therefore A cannot transfer the house to B) There is objective physical impossibility (no-one can perform the transfer) therefore the contract is void 3. A sells a house to B, unknown to both is that the house has been damaged because the plumbing broke and flooded the house due to A forgetting to have it fixed, not objective, it is A’s fault, someone else could have prevented this therefore the contract is valid and A will be in breach E.g. Objective legal 1. A agrees to sell B the seabed, nobody owns the seabed, therefore no-one can sell it, there is objective legal impossibility and the contract is void 2. A agrees to sell a holiday cottage to B. In law only the owner can transfer immovable property, A does not own the house. It is impossible for A to transfer but not everyone (owner can) therefore it is not objectively legally impossible the contract is not void and A will be in breach

 Floods, etc are vis maior (an act of god) and are always objective  If the contract is objectively impossible, then it will be void, both parties will be excused from performing. If one party has performed can recover what he did under unjustified enrichment, however if one party has guaranteed his performance then he is bound by that guarantee even if the performance is objectively impossible E.g. If a guarantees B that he will transport him to Jupiter, B can sue for breach if he does not

(2) Supervening Impossibility  Contract becomes impossible at some point after it has been entered into  In these situations contract comes to an end as soon as its impossible, can be no breach after that point  To bring a contract to an end the impossibility must be objective  Must either be: o Supervening Objective Legal Impossibility o Supervening Objective Physical Impossibility

E.g. Legal Supervening 1. A and B enter into a contract, in terms of which A sells B 5 tonnes of ivory and B pays R100000. After it is concluded the government passes legislation which bans trading in ivory (this is before delivery). This is supervening objective legal impossibility 2. Benjamin v Meyers 1946 CPD 655 Meyers rented to Ben for purpose of carrying on a garage business. In terms of the lease agreement B undertook to always stock and sell certain brands of petrol and oil. A while later Ben was convicted of contravening the petrol regulations and was now prohibited from selling and stocking. Meyer sued Ben for breach. Ben argued that the contract became legally impossible and at the point the contract came to an end and he was therefore not in breach. The court said he was in breach because it was not objective. E.g. Physical Supervening 1. Here the physical impossibility is judged according to standards of the reasonable person in that community or business 2. A in Cape Town agrees to deliver to B a tonne of bricks in Hermanus. There is a terrible storm, the roads are badly flooded and cannot use the sea because of swells and rough seas. A could deliver the bricks by air, but a reasonable brick seller would not deliver by air. It is therefore supervening objective physical impossibility therefore the contract comes to an end and A is not in breach

3. You have a model that enters into a contract to do a shoot in JHB for R500000 but on her way to the airport in CPT she is in an accident (not of her fault) and she lands up in a coma and cannot do the shoot. They have to use another model and on such short notice it costs them R750000, the magazine sues the model for R250000 plus interest. It was not objective therefore does not come to an end and she is in breach  The effect of supervening objective impossibility (physical & legal) is that the contract comes to an end and both parties are excused from performing and therefore there is no breach after this point  There are however 2 exceptions: o When one party has guaranteed his/her performance o Where one party bears the risk of the other party’s performance in contracts of sale (i.e. if the seller cannot perform due to supervening objective impossibility he is excused from performing, but the buyer will still have to pay the purchase price E.g. A buys a Lamborghini from B for R4m and it is made to A’s specifications. Before delivery and while the Lamborghini is in the showroom it is struck by lightning and is completely destroyed. It is supervening physical objective impossibility as a result of vis maior. B does not have to deliver the car but A still has to pay the R4m.

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 include: o In writing o Signed by both parties o Etc The general rule is that contracts do not need to comply with any formalities in order to be a valid and binding contract A written contract is as valid as a verbal agreement, but being in writing it provides helpful evidence of the actual terms of the contract should a dispute arise but writing is not a prerequisite for validity Parliament has introduced exceptions to the general rule on certain types of contracts: o Contract for sale of immovable property o Ante-nuptial Contracts o Credit agreements These contracts need to comply with specific formalities laid out in their relevant Act of Parliament

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(1) Contract for Sale of Immovable Property  Governed by the Alienation of Land Act 68 of 1981  Must be recorded in writing and signed by both parties  Failure to comply will render the contract void (2) Ante-Nuptial Contracts     Governed by Deeds Registries Act 47 of 1987 Must be recorded in writing and signed by both parties in front of a notary public Must be registered in the deeds office within three months of the marriage Failure to comply allows creditors to treat the couple as though they are married ICP despite the ante-nuptial being valid and binding between the couple

(3) Credit Agreements      Governed by the recently repealed Credit Agreements Act 75 of 1980 Replaced by the National Credit Act 34 of 2005 Agreements had to be in writing and signed by both parties Failure to comply did not render contract void, but was a criminal offence Consequence of such failure depends on Parliament’s intention

2. Contents of a Contract
2.1 Terms of a Contract
  These are the provisions of a contract There are various classifications of terms (1) Material or Essential Terms  Terms which are the essence of a contract  Terms that are not as important are called non-essential terms  Whether a term is essential or non-essential it will either be expressed or implied E.g. In an employment contract the essential terms will include: salary In a sale of immovable property contract the essential terms will include: The price, description of the property and the parties involved in the contract

(2) Expressed Terms  Is a term the parties have expressed either verbally or in writing  We focus on Standard-Form contracts, which contain terms of which one of the parties may not have seen, read or understood

 Standard-Form contracts are pre-printed contracts which are used, for example, taking a car for repairs, in hospital, or purchase of expensive items  Must distinguish between signed & unsigned contracts (a) Signed Contracts  With signed contracts the caveat subscriptor rule applies (he who signs beware). This says if a person signs a contract he is bound by it even if he hasn’t read it

E.g. George v Fairmead Hotel 1958 (2) SA 465 A Mr. G hired a room at the hotel. He was asked to sign the hotel register which contained the terms & conditions which formed the contract between them. Mr. G signed without reading it. 1 clause said the hotel would not be liable for any losses suffered by the guests. George had items stolen from his room and sued the hotel for the loss & argued that the clause did not apply as he had not read it. The courts held the clause did apply because of caveat subscriptor and the hotel was not liable for the loss.

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The courts used to apply caveat subscriptor very strictly, but in recent years (± 20 years) the courts have developed exceptions to caveat subsriptor rule The following are exceptions to caveat subscriptor (where it will not apply) o Where the other party knows or ought to have known that the signatory is mistaken as to the terms or nature of the document o Where the other party knew or ought to have known that the terms of the contract did not reflect the signatory’s true intention

E.g. Dlovo v Bryan Porter Motors Ltd 1994 (2) SA 518 C Mrs. Dlovo took his motor vehicle to be repaired at BPM, he was asked to sign what they called a job card. This was necessary to authorise them to do the repairs. Mrs. Dlovo signed it without reading it. There was a clause on the job card which said that the company would not be liable for any damage or loss to the owner’s vehicle. While it was in for repairs the vehicle was stolen, the car was damaged during the theft and the amount was R8341,99. The car was retrieved and Mrs. Dlovo sued for the damage. BPM argued that she was not liable due to the signed contract (i.e. the job card). The courts applied caveat subscriptor and found in favour of Dlovo on basis of:  The company ought to have known that Mrs. Dlovo was mistaken as to the nature and terms of the contract as she was told to sign to authorise repairs and she could not have reasonably known or think that the document contained contractual terms. Therefore caveat subscriptor did not apply Further the contract was void on the basis of mistake. The mistake was material as to the nature of the document and iustus, the company ought to have known she was mistaken

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Where the other party misleads the signatory as to the terms of the contract  This could result in misrepresentation or mistake

E.g. Spindrifter (Pty) Ltd v Lester Donovan (Pty) Ltd 1986 (1) SA 303 A Spindrifter was a clothing manufacturer owned by Mr. Levinson. Lester Donovan run fashion trade fairs in CPT. Levinson was approached by Mrs. Katz who worked for Lester Donovan. They discussed the participation in the Winter Fashion Trade Fair which would run from 27-29 July 1981. Mrs Katz told him to sign up asap as space was limited and she gave him a form to sign. On the front of the form it stated that the fair would run from the 27-29 July 1981. Levinson signed it without reading it the reverse side. On the back was a clause that stated if the dates were to change they would still be liable for the contract price. The dates did change and Levinson was unable to exhibit, he refused to pay and Lester Donovan sued because he was bound by caveat subscriptor. The court found in favour of Levinson for the following reasons:       All the negotiations were based on the dates for 27-29 July 1981 Mrs Katz knew that Levinson was not aware of the term on the reverse side as well as the clause Therefore it cannot be said that it reflected his true intentions and Mrs Katz ought to have known this She should have drawn his attention to the reverse side Therefore caveat subscriptor did not apply Further the contract was void due to mistake (was material and iustus)

(b) Unsigned Contracts   These deal with tickets and notices They contain clauses which attempt to exclude delictual liability for negligence

E.g. You are wanting to go up Table Mountain in the cable car. There is a queue to purchase a ticket and at regular intervals there are notices which say that the cable car company accepts no responsibility for injury or loss sustained while in the cable car or on the mountain and that visitors enter the cable car at their own risk. You reach the front desk and you have not seen any of the notices. These notices are prominent and easily legible. At the front desk there is another notice which you again don’t notice. You receive your ticket and it is prominently printed on the ticket. You go up in the cable car however, just before reaching the top the cable snaps and it falls. You break your back, leg and arm, have permanent facial scarring and disfigurement. The reason for the collapse was a result of negligence by the maintenance engineers. You want to sue for: Medical expenses, loss of earnings and loss of amenities of life.You will probably not be successful in suing because of the terms on the notices that formed part of the contract which excluded liability.

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These terms on the tickets and notices which bind a customer are called imposed terms They attempt to exclude liability for negligence as well as gross negligence They do not exclude liability for intent The rule is that a customer is bound by the terms, even if it was not seen or read, provided the other party has done everything reasonably necessary to bring this to the customer’s attention. All the following requirement s need to be met in order for it to reasonable: o The term must be imposed before or at the time of contracting  With a ticket: The ticket must be handed over before agreement is concluded

E.g. A man went to park in a parkade. On the outside of the parkade was a notice giving rates and names. He drives up the ramp and there is a red light at the top. When the front wheels touched a magnetic strip along the ground, the light turns green and a ticket was pushed out. The ticket excludes the parkade’s liability for personal injury or loss. He was injured and sued the parkade. The parkade argued he could not sue due to the clause. The court held that the offer to park there was contained in the notice outside and that acceptance took place when his front wheels touched the magnetic strip. The ticket therefore was pushed out after acceptance and was not part of the contract and he could sue the parkade.


With a notice: The notice must be able to be seen before or at the time of contracting

E.g. Durban Water Wonderland v Botha 1999 (1) 982 SCA Mrs Botha and her daughter went on ride at the park. The seat they were on broke loose, they were flung from seat into the air and landed in a flowerbed some distance away. The reason for the accident was that the seat was not properly bolted (negligence) and there were also design flaws. They were both quite badly injured and Mrs Botha sued for damages arising from the injuries. There was a notice at the cashier’s window with a clause excluding liability (exemption clause) so Water Wonderland argued they were not liable. The courts held that Mrs Botha made an offer at the cashier’s desk and it was accepted when the money was taken and the contract was concluded at the desk. Because the notice was also at the desk it was part of the contract and liability was therefore excluded



Must be in a contractual form  This only applies to tickets  Various documents are considered to be tickets but only the following are considered of a contractual form and are binding on the customer  Quotes  Order Forms  Proper Tickets (i.e. for admission purposes)  The following are not of contractual form and are not binding  Receipts  Vouchers  Statements of accounts  Invoices There must be sufficient notice of the term  Writing must be prominent, visible and legible  This applies to both tickets and notices

(3) Implied Terms  A term of a contract which is binding on the parties despite the fact it has not been expressed verbally or in writing  There are 3 types of implied terms: o Tacit Terms  Terms that are implied to give effect to the common intention of the parties  The contract is silent about a term but it is obvious the parties intended it to be in the contract  Parties would not have contracted without that term  To see if there is a tacit term the courts apply the curious bystander test, which works as follows:  If a curious bystander had to ask both parties at the time of contracting; “What about this term not mentioned?” the reply by both parties should be that of course it is included, but they didn’t think about it or it was so obvious they didn’t think to mention it.  If these are the type of answers given the term will be a tacit term and will form part of the contract even-though it has not been expressly mentioned

E.g. West Witswatersrand Areas Ltd v Roos 1936 AD 6 Roos owned a farm. He gave WWA the rights to obtain government rights to mina a portion of his land, if they could prove that there are precious minerals and metals there. In order to determine this one needs to prospect the land. The right to prospect was not an expressed term of the contract and Roos would not allow them to prospect. WWA argued that the right to prospect was a tacit term and the courts applied the curious bystander rule. It is obvious that one would need to prospect and so obvious it need not be mentioned (the contract would be meaningless without it) It is therefore a tacit term.

o Terms Implied By Law  These are terms that have not been expressly mentioned but which are implied by law to certain types of contracts  Most terms implied by law can be varied or excluded by expressed agreement  A clause that excludes warranty is called a “voetstoots” clause E.g. In a contract of sale there is an implied warranty against latent defects. This says that the seller guarantees that the product has no defects and if it does the buyer will have a right of recourse. This is implied in all contracts of sale.

o Terms Implied by Trade Usage  These are implied in business contracts between people of a certain trade E.g. A building and engineering company come together on a joint venture to construct a dam. There may be terms implied from either trade to the contract.

2.2 Common Contractual Terms
(1) Conditions and Times Terms  A condition is a qualification which renders the operation and the consequences of a contract dependent upon an uncertain future event  Times terms are not to be confused with conditions  The distinction is that conditions are uncertain whereas times terms are certain E.g. Will pay you R100 000 when you graduate – condition (may not graduate) Will pay you R100 000 when you turn 21 – condition (may not turn 21) Will pay you R100 000 on 25 December 2009 – time term (the date will inevitably come)

 There are two types of conditions: o Suspensive conditions  The contract only comes into operation when and if the uncertain event happens  Legally it means the contract is valid from the moment it is entered into but only enforceable once the condition is fulfilled  If condition fails, the contract ends  Some conditions will have a time limit and if not met by then the contract comes to an end  When there is no time limit the contract ends after a reasonable time E.g. The contract for the sale of a house is subject to the buyer obtaining mortgage finance (suspensive condition). Until the buyer gets the finance the contract is valid but not enforceable. Once the finance is obtained it is enforceable. If the condition fails the contract will come to an end

o Resolutive Conditions  The contract is valid and enforceable from the moment it is entered into but if the condition is met then the contract comes to an end E.g. X can stay in Y’s flat till he graduates

 Fictional fulfilment of conditions o Sometimes people may not want the condition to be fulfilled and so they deliberately prevent fulfilment o A person has a duty not to prevent the fulfilment o If done deliberately, then the law will deem that the condition has been fulfilled and the person will be bound by the consequences (2) Warranties/Guarantees  A warranty is a contractual undertaking that a certain statement of fact is correct  Misrepresentations occur during negotiations but a guarantee is a term of the contract E.g. Guarantee that an electrical appliance will not break for two years, A car can reach a certain speed within a certain time

(3) Exclusion (Exemption) Clause  These are clauses that exclude one party’s liability that the law would otherwise attach to them (see misrepresentation and imposed terms) (4) Cancellation Clauses  The general rule is that you can only cancel if the breach is material or serious  To get around this parties include a cancellation clause that allows to cancel for any breach, even trivial ones (5) Penalty Clauses  The other party is entitled to claim compensation for the financial losses incurred as a result of the breach  The amount that can be claimed by the innocent party is agreed on in advance  Generally found in building contracts  Advantages: o Can claim pre-agreed amount without proving loss was suffered o The Conventional Penalties Act 15 of 1962 does however have a provision that courts can reduce the amount if it far exceeds the financial loss actually incurred  Disadvantages: o Claim is limited to the pre-agreed amount even when actual loss is far higher o No provision that courts may increase this amount  Clause in a contract may say actual losses may be claimed should they be higher than the pre-agreed amount (6) No-Variation Clauses  These only apply in the context of written contracts  It provides that no variation of any of the terms of the contract will be valid unless in writing and signed by both parties

2.3 Disagreement on Terms of a Contract
(1) Parol Evidence Rule (Oral)  If the parties have a written contract, then that document is all the court can look at as evidence to ascertain the terms of the contract  Generally the court may not admit parol evidence which shows that the terms are different from those that are written

(2) Rectification  Rectification can occur in the following circumstances: o Written agreement o At the time of verbal negotiations, the parties were of the same mind o There is no mistake in their consensus o When the contract is reduced to writing, the written contract contains an error that does not conform to the terms of the verbal agreement  Can apply to the court for rectification of the written agreement, so that it conforms with the verbal agreement  This can occur at the request of either party  The party applying for rectification must prove: o That the written agreement does not accurately reflect what the parties agreed upon or what they both intended o What the terms of the written agreement should be o There will be no prejudice to third parties  These 3 requirements apply to written agreements that have been reduced to writing but are not required to be in writing by law  If the agreement however has to be in writing by law to be valid a 4th requirement must be proved o On the face of it, writing sets out all the material terms of the contract

3. Breach Of Contract
  Occurs where one party fails to observe the terms of the contract Definitions: o Debtor is the performance debtor (person who must perform) o Creditor is the performance creditor (person to whom performance is owed)

E.g. A buys a lounge suite from B. B must deliver within 2 weeks. A must pay the day after delivery. With delivery:   B is the performance debtor A is the performance creditor

With payment:   A is the performance debtor B is the performance creditor


There are different types of breach: o Late performance by debtor (Mora Debitoris) o Late performance by creditor (Mora Creditoris) o Repudiation o Positive malperformance o Prevention of performance

3.1 Mora Debitoris
  Here the debtor fails to make performance on time All the following requirements must be met in order to say the debtor is in breach (in mora) o The debt or obligation must be due and enforceable  Where the time limit has been set in the contract it is obvious when  When no time limit has been set, then is due and enforceable after a reasonable time  When there is a suspensive condition it is only due and enforceable once the condition has been met o The time for performance must have been fixed, either in the contract itself or by subsequent demand and the debtor must have failed to perform on time  Time is fixed in the contract

E.g. A buys a TV from B. B must deliver at 13h00 on 6 th May. 15h00 comes and B has not delivered. Is B in breach? Yes, both met and time is fixed  No time set in the contract

E.g. Same as above except no delivery time is set in the contract. Contract is entered into on the 3rd May but by the 10 Oct B has not delivered. Is B in breach? No, the 1st is met but not the second, no time was fixed and no subsequent demand issued Demand is usually a written letter but can be verbal The time for performance in the demand must be reasonable When deciding what is a reasonable time the courts look at the time that has already passed  If the debtor wants to argue that the time given in the demand is unreasonable the onus is on him to prove so, however, if the demand is coupled with a notice of cancellation the onus shifts to the creditor to prove the time was reasonable Failure to perform must be due to the fault of the debtor  Cannot be due to objective impossibility  Cannot be due to the fault of the creditor   


3.2 Mora Creditoris

E.g. A rents a flat from B. In terms of the lease agreement A must pay the rent into a specified account on the first of each month. When A attempts to make the payment, discovers the account is closed A buys a TV from B. B arrives on time, but A is not home.  Basically failure of co-operation by the creditor


All the following requirement s must be met to place the creditor in mora o The debtor must be under obligation to perform o The co-operation of the creditor must be necessary for the debtor’s performance o The debtor must make all efforts to perform fully o There must be a delay in accepting performance by the creditor o If the debtor is going to perform before the due date, he must notify the creditor in advance so he will be available o The delay must be due to the fault of the creditor

3.3. Positive Malperformance
  This relates to the content of the performance There are two types: o Where the duty to do something is positive  Breach is where the debtor renders an incomplete or defective performance  Can overlap with mora debitoris

E.g. A hires B to build a house for him. B does not finish on time (incomplete performance), therefore positive malperformance A hires B to build a house. B finishes on time but the house is not built to plan (defective performance) o Where the duty to do something is negative  Negative duty is not to do or to refrain from doing something

E.g. There may be a clause in a lease agreement, which says that the tenant may not have animals on the premises (negative duty). If animals are kept then it is positive malperformance of a negative duty

3.4 Repudiation
 This is when one party to the contract indicates by his words or conduct that he no longer intends to be bound by the contract without any justification in law

  

The test is whether he acted in such a way that would lead a reasonable person to believe that he does not intend to be bound This can take place before the time for performance The courts have held that a mere delay in giving or receiving performance will not be repudiation

E.g. A buys a stove from a shop. Before delivery, the shop sells the stove to C. They have no more stock (both are valid contracts). By selling it to C it means they no longer intend to be bound to A A buys a TV from B, but refuses to let B on to the premises to deliver it

3.5. Prevention of Performance
  This is where the performance by 1 party becomes impossible due to their own faults or circumstances or due to the fault of the other party This is breach. Not void because the impossibility is not objective

E.g. A hires a car from B Company for December in CPT. After the 1 st day, A has an accident and the car is written off. B Company has no other cars to hire to A. It is impossible for B to perform but the fault is A’s, therefore A is in breach, not B.

4. Remedies for Breach
 Three kinds of remedies: o Specific Performance o Cancellation o Contractual Damages

4.1. Specific Performance
   Here 1 party gets a court order compelling the defaulting party to perform what he undertook to do in terms of the contract Can be claimed for Mora debitoris Can be claimed for Mora creditoris o Where the debtor has been prevented from performing fully due to the fault of the creditor, then the debtors right to claim specific performance will be reduced to the amount his performance was reduced

E.g. A hires B to do an hour of gardening for him at 10h00 the charge is R500 per hour. B arrives on time but A arrives 45min late. B could not get onto the premises and could only do 15min of gardening. A refuses to pay. The court will order A to pay R125 in terms of specific performance. Balance will be claimed under contractual damages.




  

Can be claimed for positive malperformance of a positive duty o Court will order specific performance in the form of complete or perfect performance Can be claimed for positive malperformance of a negative duty o Claimed in the form of a interdict o If the breach continues, or breach of the interdict it is a criminal offence Repudiation o Been debate that has not been settled o Courts are awarding this more and more Prevention of performance o Performance is impossible and therefore cannot claim If cannot claim specific performance, could try cancellation Contractual damages can be claimed in addition to or instead of specific performance

4.2. Cancellation/Recession
 This is an extreme remedy and the courts will only allow it in two situations o When there is a cancellation clause o When the breach is material (1) Cancellation Clause  The general rule is that you can only cancel if the breach is material or serious  To get around this parties include a cancellation clause that allows to cancel for any breach, even trivial ones (2) Breach is Material (a) Mora Debitoris & Mora Creditoris    If time is of the essence then the breach is material The mere fact that the parties have stipulated a time for performance in the contract does not make time of the essence The following is where the courts held time is of the essence o Where the party who is not in breach gives a notice of cancellation to the other party (this can be coupled with a letter placing the debtor in mora) o Where the time for performance was stipulated in the contract and from the nature of the performance it can be inferred that time was of the essence

E.g. A hires a photographer to take photos of his wedding ceremony. The photographer must arrive at 17h00 (start of ceremony) but he arrives at 21h00. Time was of the essence and A can cancel


Where no time has been stipulated in the contract but from the nature of the contract 1 can infer that time was of the essence

E.g. The sale of listed shares o Time is of the essence in mercantile (business) transactions, particularly where goods are sold to the public

E.g. Mr. X supplies grapes to PnP, in terms of which he must deliver grapes to all the stores at 05h00 on a Monday morning. The grapes are then to be on-sold to the public. Mr. X delivers on Wednesday morning at 08h00. PnP will be able to cancel because it is a material breach

(b) Positive Malperformance  One determines whether the breach is material by looking at the nature of the breach and the circumstances

(c) Prevention of Performance   If the whole contract is rendered impossible (subjective) then cancellation is permitted If the contract is only partially impossible, cannot cancel if the impossibility relates to a minor part of the contract

(d) Repudiation  The breach will be material if it is repudiation of the entire contract or at least a substantial portion of it

(3) Effect of Cancellation  The contract comes to an end, each party must make restitution (not a void contract)  If you cancel you may claim damages in addition to but not specific performance  Can also claim damages instead of cancellation

4.3. Contractual Damages
    These are not delictual damages Contractual damages are aimed at putting a person in a position they would have been in had the contract been properly performed Damages can be claimed in addition to or instead of cancellation or specific performance The requirements in order to claim damages are: o Loss must be financial

E.g. Jackie v Meyer 1945 AD 354 Jackie was a Chinese officer sailing with the British Navy and held quite a high rank. Jackie had booked with the navy to stay in Meyer’s hotel in PE when they docked. On arrival, Jackie was given the key to his room and he went up to his room. 15mins later he was called to the lobby by the manager, who told him there was a mistake and that the hotel was full and there was no place for him. This took place in front of other crew members including his inferiors. An argument insued between the two of them. The real reason for the breach was that he was Chinese. Jackie sued the hot for damages for the following: Money to find other accommodation, money spent on other accommodation as damages for humiliation. Court only granted the first two claims as the loss was financial


Loss must be a result of the breach (i.e. a direct consequence)

E.g. B, a UCT student who lives in JHB, goes home for study week to study for exam. He books a return flight to CPT for the morning of his first exam at 5am. The airline makes an error ad he isn’t on the flight. He misses the exam and fails to graduate. He loses his job (depended on him graduating). B sues the airline for damages for the cost of 1 year tuition and I year’s salary from the job he lost. It turns out he would not have passed anyway. The loss was not a direct result of the breach therefore the damages are not awarded


The loss must have been a natural consequence of the breach  Means the loss must have been reasonably foreseeable by the defaulting party  This limits the damages

E.g. Jackie v Meyer case Say, if Jackie was also the captain for the UK soccer team. He has to leave the hotel. At the other hotel, there is a fire and all he’s luggage is destroyed including his passport and he is hospitalised for smoke inhalation. While recovering and waiting for a new passport, his ship leaves for UK ad he has to catch a flight a few weeks later. The plane crashes, he survives but is injured and cant play soccer. His loss of earnings is ±20m. His wife leaves him and he has to pay her ±10m. He returns to the navy and has missed a promotion as he was absent. His loss of earnings is another ±5m. Jackie becomes suicidal and overdoses. All of these are a direct consequence of the breach but not all of them is a natural consequence. Reasonable losses include the transport to the other hotel and the cost to stay there.


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

E.g. Jackie would choose a similar hotel, not an expensive, 5-star hotel.


Transfer of Contractual Rights and Obligations

5.1. Cession
   This is the process whereby rights are transferred by one party (cedent) to another party (cessionary) Only rights are transferred by cession, not obligations In general no formalities are required by law

E.g. In a lease agreement A is the lessee and B is the landlord B can cede his rights to receive the rent to C. Only the rights are ceded, so B is still responsible for the obligations under the lease agreement, but P has the right to receive the rent.  The general rule is that cession can take place without notifying the debtor, but where the contract is of so personal a nature that the debtor has a substantial interest in making performance to one person only, cession cannot take place without his consent

E.g. In the example above the cession of the rights to receive rent can take place without the consent of A But in an employment contract, it cannot be ceded without the employee’s consent  There are certain statutory prohibitions on cession o Compensation for Occupational Injuries and Diseases Act of 1993, which prohibits the cession of any compensation obtained in terms of the act The effect of the cession is that all the rights that the cedent had become vested in the cessionary (i.e. the cessionary has those rights) Only a cessionary can enforce the rights vested in him

 

E.g. In the rent example only P can sue for the rent, not B   A new contract is not created. The cessionary can sue on original contract (steps into the shoes of the cedent) If the debtor has been notified of the cession and still pays the cedent then that payment will not discharge the debt, However if no notice was given to the debtor and the payment is made to the cedent in good faith it will discharge the rent and will be excused from paying the cessionary


The cessionary obtains exactly the same rights as what the cedent had. The debtor can therefore raise any defence against the cessionary that he may have raised against the cedent

E.g. If the contract is void due to mistake, cancelled due to breach or voidable due to misrepresentation

5.2. Delegation
  Delegation is the opposite of cession Here the debtor delegates his contractual obligations to another person, but he retains the rights

E.g. In the lease example under cession, A could delegate his obligation to pay rent to C. C is then responsible for paying the rent, but A retains the right of occupation   The consent of all three parties is necessary for delegation The effect of delegation is that there is a new contract called a novation. The creditor, original debtor and new debtor are all parties to the new contract

E.g. Again in the lease example, if A delegates his obligation to pay rent to C then there is an new contract of which A, B and C are all parties.

5.3. Assignment
    This is where the creditor or debtor transfers both his contractual rights and obligations to another party Most commonly seen in lease agreements All parties must consent to the assignment The effect of assignment is that there is a new contract, a novation

E.g. Jane rents a flat from Mary. Jane assigns the lease to Thandi. Thandi now has the right to occupy the flat but also has to pay the rent. Mary, Jane and Thandi will need to sign the novation.

 

Termination of Contractual Obligations
These are the ways in which a contract can be terminated apart from cancellation due to breach These are: o Proper Performance o Agreement o Death o Insolvency

o o o o

Merger Prescription Set-off Supervening Impossibility of Performance

6.1 Proper Performance
   Most contracts are terminated by the proper performance of the parties’ obligations Where one party does not perform, or renders a defective service, the contract is not terminated and the normal contractual remedies for breach are available In reciprocal contracts (contract 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

E.g. In cash contract of sale, the seller need not usually deliver the goods until the purchaser has paid the purchase price or tendered payment


The rule of exceptio non adimpleti contractus can be applied in situations

E.g. If the purchaser were to demand delivery before the purchase price was paid or tendered, the seller can apply exceptio non adimpleti contractus and if so it would mean the seller need not perform until such time as the purchaser pays or tenders payment The buyer can also raise this rule if the seller were to demand payment before tendering delivery

6.2 Agreement
        This refers to waiver, novation or compromise The parties are free to agree to terminate their contract A waiver occurs when one or both parties agree to abandon their rights in terms of the contract When done by one party it is only effective if the other party is fully aware of the extent of the right which is being abandoned Novation occurs when the parties agree on a new contract altogether, which will replace the old one and it may involve the substitution of a 3rd party Law will scrutinise the parties to find out if novation was actually intended Compromise is a form of novation and occurs when there is a dispute between the parties regarding their contractual obligations to each other The parties will enter into a settlement agreement in respect of their contractual obligations

6.3 Death
  The death of a party to a contract will not terminate the contract unless the contract is of a personal nature Usually the rights and duties of the deceased in terms of the contracts to which the deceased is a party will pass to the executor of his estate to administer

6.4 Insolvency
  Insolvency does not terminate the contractual rights and duties of the insolvent Firstly these are assigned to the Master of the High Court and then the trustee appointed by the High Court to administer the estate of the insolvent

6.5 Merger
 A merger occurs when the debtor and creditor become one

E.g. When a tenant purchases the property in which he resides or when a company purchases the business of its supplier  Generally a merger will result in the destruction of the contractual obligations which formerly existed between what were once two parties

6.6 Prescription
 The Prescription Act of 1969 says that debts are extinguished after a certain period of time and the Act also sets out how much time is required to pass for debts to prescribe (come to an end, become unenforceable or become extinguished) Once a debt has prescribed, then the creditor can no longer sue for that money owed or performance due The periods of prescription of debts are: o 30 years in respect of:  Debt secured by a mortgage bond  Any judgment debt  Debt in respect of any taxation  Debt owed to the State in respect of rights to mine minerals and other substances o 15 years in respect of 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 o 6 years in respect of a debt arising from a bill of exchange or other negotiable instruments or from a notarial contract unless a longer period applies in respect of the debt in question in the above o 3 years in respect of any other debt In all of the above instances the prescription runs from the date on which the debt became due

 


E.g. Seller sold and delivered a painting on the 12th April 2004 and the buyer was supposed to pay on that date. The debt became due on the 12th April 2004. The debt will prescribe at midnight on the 11th April 2007 after which the seller cannot claim the money or sue the debtor


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

E.g. You are a attorney. The seller of the painting comes to you on the 9 th April 2007 asking you to claim purchase price from the buyer. You must issue summons before midnight of the 11 th April 2007 to interrupt prescription o If the debtor acknowledges the debt, then prescription is interrupted and prescription will start to run again from the time acknowledgement is made

E.g. If the buyer admits to the liability of the purchase of the painting on 9th April 2007 the seller will have till 9th April 2010 to reclaim the money  Prescription can be suspended/delayed in the following circumstances: o If the creditor is a minor, is insane or is under curatorship (someone else takes care of your finances) o If the creditor is outside South Africa o If the creditor and debtor are married to each other o If the creditor and debtor are partners and the debt arose out of the partnership relationship o Creditor is a juristic person and the debtor a member of the governing body of the creditor o If the debt is the object is of an arbitration dispute (hearing held by an important referee) o If the debt is the object of a claim against the deceased or insolvent estate of the debtor o If the debtor or creditor is deceased and 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 (minority, etc) ceased to exist, the period of prescription will not be completed before a year has lapsed since that date


E.g. Lebo, who is 16, sells and delivers a painting to John on 12th April 2004. The contract was duly assisted. The debt became due on the 12th April 2004 as this is when John was supposed to pay. Ordinarily this debt would prescribe at midnight on the 11th April 2007 But because Lebo is a minor, the rule is that prescription will be completed one year after Lebo turns 18 (when he is no longer a minor) Lebo will turn 18 on 15 April 2006 So prescription will be completed at midnight of the 14th April 2007

6.7. Set-off
 When the parties are indebted to each other and the debts are due and liquidated then in terms of the principle of set-off, the amounts are automatically extinguished if they are equal; and if the amounts differ the lesser debt is extinguished and the greater one reduced proportionately

E.g. If X owes Y R1000 and Y owes X R1200, then the one is set-off against the other and Y now owes X R200   When the debts are extinguished and there are no further outstanding obligations the underlying contract will terminate In order for set-off to operate the following requirements must be met: o The parties must be indebted to each other in the same capacities  Both in their personal capacities or both in their representative capacities

E.g. X owes Y R200 in his personal capacity and Y owes X R200 in his capacity as an agent for Z then set-off cannot operate

o o

The debts must be due and payable  If not then set-off cannot operate The debts must be of the same type and must be liquidated (monetary value must be certain)

E.g. If both monetary then set off automatically If X buys 100 t-shirts from Y for R1000, if X is oversupplied inadvertently by Y, she should return the oversupply within 14 days, if not Y may set-off the oversupply on the next order

6.8 Supervening Impossibility Of Performance
 Contract becomes impossible at some point after it has been entered into  In these situations contract comes to an end as soon as it is impossible, can be no breach after that point  To bring a contract to an end the impossibility must be objective  Must either be: o Supervening Objective Legal Impossibility o Supervening Objective Physical Impossibility

E.g. Legal Supervening 1. A and B enter into a contract, in terms of which A sells B 5 tonnes of ivory and B pays R100000. After it is concluded the government passes legislation which bans trading in ivory (this is before delivery). This is supervening objective legal impossibility E.g. Physical Supervening 1. Here the physical impossibility is judged according to standards of the reasonable person in that community or business 2. A in Cape Town agrees to deliver to B a tonne of bricks in Hermanus. There is a terrible storm, the roads are badly flooded and cannot use the sea because of swells and rough seas. A could deliver the bricks by air, but a reasonable brick seller would not deliver by air. It is therefore supervening objective physical impossibility therefore the contract comes to an end and A is not in breach  The effect of supervening objective impossibility (physical & legal) is that the contract comes to an end and both parties are excused from performing and therefore there is no breach after this point  There are however 2 exceptions: o When one party has guaranteed his/her performance o Where one party bears the risk of the other party’s performance in contracts of sale (i.e. if the seller cannot perform due to supervening objective impossibility he is excused from performing, but the buyer will still have to pay the purchase price

E.g. A buys a Lamborghini from B for R4m and it is made to A’s specifications. Before delivery and while the Lamborghini is in the showroom it is struck by lightning and is completely destroyed. It is supervening physical objective impossibility as a result of vis maior. B does not have to deliver the car but A still has to pay the R4m.

Part C: Specific Contracts
1. Contracts Of Sale
 This is where one party undertakes to deliver a thing to another party in return for payment

1.1 Essential Requirements
(1) Intention to Transfer Free & Undisturbed Possession  To sell, the seller must do no more than undertake to transfer free & undisturbed possession, called vacua possessio  For a valid contract of sale, the seller does not have to undertake to transfer ownership  It is possible that someone can validly sell a thing even if they are not the owner of the thing they sell  Before delivery there is a valid contract of sale and the buyer has a personal right against the seller for delivery  Once delivery has taken place then the buyer has a real right in the thing (i.e. possession, which is weaker than ownership) and the seller has personal right for payment (2) Subject Matter of the Sale  Res venditia (thing sold)  Merx (merchandise)  Can be corporeal or incorporeal (3) Price     The price must be in money or at least have a monetary component If it is not monetary it is a barter or trade If it is free it is a gift or donation 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

E.g. Cost Price + 10%, determined by an auditor

1.2 Legal Effect of Contracts of Sale
(1) Passing of Ownership  Sale does not necessarily transfer ownership, simply vacua possession  The best transfer is ownership (stronger real right than possession)  Ownership, like possession, passes on delivery but in addition all the following must be met

o The seller himself must be the owner because in law one cannot transfer more rights than what they actually have o The seller must intend to pass ownership on delivery o The buyer must intend to become the owner upon delivery o If the sale is a cash sale of a movable, then the purchase price must have been paid (includes sale by cheque and credit card) o If the sale is a credit sale of movables, ownership passes on delivery alone o With the sale of immovable property ownership will pass on delivery alone (delivered by registration at the Deans Registrar) (2) The Passing of Risk & Profits (a) Risk  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

(i) Risk of Accidental Loss  Loss means damage or total destruction before delivery, the buyer must still pay the full price and it can also be any other disadvantage in the merx (levies)  Accidental means the loss resulting from unforeseen events beyond the control of the seller (vis maior) or events which are not due to the fault of the seller  Could also be the loss resulting from the conduct of a 3rd person for whom the seller is not responsible  If the loss is due to the seller’s fault or negligence (not accidental) the risk does not pass (ii) Perfecta  In most contracts of sale, the sale will be perfecta at the same time it is concluded  This is however not always the case and the following criteria need to be met for sale to be perfecta: o The price must be fixed, not merely ascertainable E.g. A enters into a contract of sale with B on 1 st June. A is in RSA and B is in London. In terms of the sale A must deliver 500kgs of biltong to B in London on 1 st July. The price is the pound equivalent of R100k as determined by the exchange rate on 28 June. The sale is valid on 1st June but not perfecta until the 28th June, and the risk passes 28th June.

o The subject matter must be ascertained, not merely ascertainable E.g. Poppe, Schuntoff & Guttery v Mosenthal 1879 Buch 91 P sold 200 cases of brandy to M. Before delivery and before P had set aside the particular bottles of brandy meant to be delivered to M the government imposed a duty on the sale of brandy. The issue was who had to pay the duty. The subject matter was not yet ascertained (not set aside), therefore sale was not perfecta and the risk had not passed to M. P therefore had to pay the tax. o Any suspensive condition to which the sale is subject must have been fulfilled (iii) Situations Where Risk Will Not Pass to the Buyer once Sale is Perfecta  Where there has been an expressed or implied agreement varying the rule  Where there is a default/delay on the part of the seller in making delivery o The presumption in law is that any damage or loss caused during the delay period is the seller’s fault (b) Profits  Any profit in the article passes at the same time as the risk

E.g. With shares, the right to a dividend passes to the buyer when sale or declaration is perfecta

1.3. Rights & Duties of the Parties to the Contract of Sale
(1) Duties of the Seller    The duty to take care of the merx until delivery Duty to deliver the merx Implied warranty against eviction o Contracts of sale do not necessarily transfer ownership, instead vacua possession o A buyer who is not the owner is therefore protected by the warranty against eviction o The seller guarantees that the buyer will not be disturbed in his vacua possession due to any defective title of the seller

E.g. X buys a car from P. X then sells the car to Y. Z then comes along and tells Y that he is the true owner and the car was stolen from him, he then gets a court order and reclaims the car using rei vindicato. X had no idea the car was stolen. Y will have a right of recourse against X because of breach of the implied warranty against eviction. If Y buys from X and it is then stolen then it is not breach of the implied warranty as it is not as a result of the defective title of the seller




Where the warranty does apply the buyer has two choices  Choose not to surrender the goods to the 3rd party until dispossessed by a court order  If chosen then in order to have a right of recourse against the seller he must notify the seller of the legal proceedings  The seller must come to the assistance of the buyer and if the seller cannot be found the buyer must defend to the best of his ability otherwise he loses his right of recourse  The buyer can surrender without a court order and without notice to the seller and will only have a right of recourse against the seller if it is proven that the 3rd party was the true owner The buyers right of recourse against the seller is the following:  The seller will be in breach and the buyer can cancel and claim back the purchase price  He can claim damages for the following  Any increase in the value of the article  Costs incurred in defending action by the 3rd party (applies only to option 1 above)  Any further loss subject to the general rules for contractual damages The warranty is not implied where:  If the parties expressly agree  If the buyer is aware that a 3rd party had a claim to the article

E.g. If the seller knew that a 3rd party had a claim to the article, then any clause the parties expressly agreed on to negate the warranty against eviction will be inoperative, also if they do not expressly agree to negate it and the seller knew a 3rd party had a claim the warranty will be inoperative


Any clause that excludes the warranty against eviction will never prevent the buyer from being able to reclaim the purchase price for the article Implied warranty against latent defects o The seller is liable for latent defects, whether or not he is aware of them o The following are requirements for a latent defect


 Must not be obvious to an ordinary person on a reasonable inspection  Must be an abnormal characteristic  Must materially impair the usefulness of the object for the purpose it was built  The defect must have existed at the time of the sale  The purchaser must not have been aware of the defect at the time of the sale o If there is a latent defect the purchaser will have the aedilition remedies available to him (a) Aedilition Remedies  There are two remedies o Actio Rehibitoria o Actio Quanti Minoris

(i) Actio Rehibatoria  Is used where the defect is so serious that a reasonable purchaser would not have bought the object had he known about the defect  The purchaser may cancel the contract and claim o The return of the purchase price o Payment of all necessary expenses incurred by him as a result of the sale o Payment of expenses incurred in examining the object to discover the defect o The costs of returning the object to the seller  Consequential losses may not be claimed E.g. A sells a sewing-machine to B. The machine is latently defective and as a result the material B uses is ruined and the needle goes through his hand. B will not be able to claim the cost of the material or his medical expenses (these are consequential losses)

(ii) Actio Quanti Minoris  The defect is of such a nature that the buyer would have paid less for the article  The buyer is entitled to have the purchase price reduced to the true value of the article in its damaged/defective state at the time the defect was discovered  No consequential losses may be claimed



Exclusion of the aedilition remedies by agreement (voetstoots clause, sold as is with defects) o Is not effective if the seller was aware of the latent defect and failed to disclose it o The buyer can either use the aedilition remedies or misrepresentation by silence The duty of the seller who is a manufacture or dealer is to indemnify the purchaser against latent defects o Where the seller manufactured the article himself then the buyer may claim consequential loss in addition to the aedilition remedies o Dealer is also liable for consequential loss if he professes to have expert knowledge with regard to the goods sold (expressed or implied)


Duties of The Buyer  Their duties are o Payment of the purchase price o Payment of the seller’s necessary expenses o Acceptance of delivery  If the buyer is in breach of any of these duties then the normal remedies for breach apply

2. Lease Agreements
 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 use and occupation of the property to the tenant and in return the tenant pays a specified sum of money

2.1 Essential Requirements
(1) Intention to Give Temporary Use & Enjoyment   Differentiates from contracts of sale where the use and enjoyment is permanent In sale, the seller agrees to part with every right he has, including the right to diminish or destroy the property, whereas in lease agreements, the lessor only parts with the right to use and enjoy the property

(2) The Property Let  The lessor does not need to be the owner of the property to lease it out

(3) The Rent Payable   The tenant must pay a specified sum of money, otherwise it is not a lease (as in agriculture where money need not be paid) The rent must be fixed or ascertainable

2.2 Duration of the Lease
   Parties can agree that the lease will last for a definite period or an indefinite period Short lease is shorter than 10 years Long lease is longer than 10 years

2.3 Formalities and Statutory Regulation
(1) Formalities  No formalities are required for a short lease

(2) Statutory Regulations     Governed by the Rental Housing Act of 2000 This act governs leases regarding residential property The Act sets up rental housing tribunals to hear complaints between lessors and lessees The Act’s most important provisions are: o When marketing a property or negotiating a lease, the lessor may not discriminate on grounds of race, gender, age, religion, or sexual orientation o The lessee may request a written lease and has the right to be provided with one, but it is not a formality required by law o The lessor must provide the lessee with written receipts of payments made o Any deposit paid by the lessee must be invested by the lessor in an interest-bearing account

2.4 Duties of the Lessor
   Delivery of the leased property o Must be in a reasonable condition Maintenance of the property o The landlord must maintain the property in a reasonable condition Guarantee of undisturbed use and enjoyment o Landlord impliedly warrants that the tenant will not be disturbed in his possessions either by himself or a 3rd party with a better title (the owner) Generally to abide by the terms of the lease Remedies of the lessee if lessor is in breach of his duties o If the lessor is in breach of any of his duties, then the tenant will have remedies for breach o Where the landlord does not deliver or maintain the property in a reasonable condition then the tenant may give notice to the landlord, asking to effect the repairs and if he fails to do so the tenant may perform the repairs himself and deduct the cost from the rent payable o The lessee may only claim consequential loss if the lessor knew of the defect and failed to repair it, or if the lessor had implied knowledge by reasons of his trade or occupation

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2.5 Duties of the Lessee
   Payment of rent Care and use of the leased property o Not to abuse the property and use it only the purpose for which it was let Restoration of the property on termination of the lease agreement o At the end of the lease the tenant must return the property in the same condition it was in when it was received o The tenant is not in breach if it is normal wear and tear, or if the property damaged or destroyed by acts of nature (vis maior), or any force beyond the control of the tenant Generally to abide by the terms of the lease Remedies for the lessor if the lessee is in breach o Has the usual remedies for breach o Where the tenant is in breach of duty to pay rent, landlord has an additional remedy namely the tacit hypothec  Under this remedy, when suing for rent, the landlord can attach as security any movable good that is on the premises  If the tenant still does not pay, landlord may sell the goods to cover the outstanding rental payments  The landlord may attach not only goods belonging to the tenant but also goods belonging to third parties if the goods of the tenant are not enough to cover the rent, provided the following requirements are met  The goods must have been brought onto the premises with the intention to remain there indefinitely for the use by the lessee  The goods must be the on the premises with expressed or implied consent of the 3rd party  The 3rd party must have failed to give notice of ownership to the landlord (this must be given before the tacit hypothec is exercised)  The lessor must be unaware that the goods belong to a 3rd party  Goods belonging to a sub-lessee can also be attached but only to the extent of the rental owed by him to the lessee

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E.g. A rents a house from Z. A sub-lets a room to B. A owes Z R1000 and her gods cover R800. B owes A R100 in rental ad her goods are valued at R300. How much can Z attach of B’s goods. Only R100


Property that is subject to an instalment agreement in terms of the National Credit Act cannot be attached

2.6 Legal Position of the Lessor and Lessee
(1) Renewal of Lease    Can be renewed if both parties agree Renewal is not a continuation of the old lease, instead a new lease comes into existence and sometimes on the same terms as the old lease Terms are generally different because the rental increases

(2) Effect of Lessor Selling the Leased Property     If the lessor sells the leased property, the rule is that the buyer is bound by the existing lease in terms of “Huur gaat voor koop”) The law substitutes the buyer as the new landlord and the buyer is bound by th terms of the lease The same rule applies if the landlord dies and the property is inherited The exceptions to rule “Huur gaat voor koop” are (this is where the buyer will not be bound by the existing lease and can evict the tenants): o Where ownership is transferred from the landlord to the buyer by an act of the State (e.g. expropriation) o Where the lease is for longer than 10yrs, it will not be valid against the owner’s successors in title after 10yrs if it has not been registered, unless the successors had actual knowledge of the lease at the time they became owners o In the case o a short lease, the buyer is not bound by the lease unless h had notice of it at the time of the sale (this notice is implied if the tenant is in occupation at the time of the sale

E.g. A lets a house to B in 1990 for 20 years (lease runs from 1990-2010) A sells the house to C in 1993. The long lease was never registered and C has no knowledge, but B was in occupation. Till when is C bound? C will be bound until 2000 (if the property was sold in 2002 the buyer would not be bound as 10 years have already passed) Same facts as above except now the lease had been registered. C still has no actual knowledge. C ill be bound for the full 20yrs (1990-2010) Same facts again, except that the lease is not registered but C has actual knowledge of the lease. C will be bound for 20yrs (1990-2010)

(3) Subletting   This is where a third party enters into agreement in which the 3rd party rents leased premises or a portion thereof from the lessee. Normally lessors consent is not required unless lease agreement requires it.

(4) Improvements Made by the Lessee  Necessary improvements: o These are necessary to preserve the property (without them the property will be damaged or destroyed)

E.g. Fixing a leaking roof or crumbling wall. o o If lessee does necessary improvements then he's entitled to be reimbursed for his full costs (including labour) This overlaps with the duty of the lessor to maintain the property. Here however, you get repaid even if you didn't notify the landlord


Useful Improvements: o These enhance the value of the property but are not necessary or luxurious.

E.g. Building a garage or built-in cupboards. o o The lessee may remove useful improvements during the lease period if it will not damage the property. On termination of the lease, improvements become the property of the landlord and cannot be removed.

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If the lessee cannot remove improvements, he may be entitled to compensation. He will only be entitled to such if the improvements were done with the consent and even then he is only entitled to the bare cost of materials. These rules come to us from Dutch law and there is a great uncertainty regarding the rules for useful improvements. They definitely apply to rural land but there is a debate as to how they are applied to urban land. There is no compensation whatsoever for luxurious improvements.

E.g. swimming pool or tennis court

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