BUSINESS LAW I
CML1001F
JANE FRANCO (2218)
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PART A: INTRODUCTION SECTION
1. What is Law?
Law is a body of rules governing human behaviour which is recognised and enforced by the
state.
When a law is disobeyed, the state can punish the offender and provide the wronged person
with an enforceable remedy (SERIOUS IMPLICATIONS).
The State = The Government – divide into 3 areas:
1. The legislature – makes law = parliament
2. The executive – enforces law = presidents/ministers/civil service (police)
3. The judiciary – applies and interprets law = courts, i.e. judges & magistrates
Example: The legislature pass a law called “drug trafficking act” and it prohibits
dealing and drugs. The executive in the form of the police arrest a man because they
find 20kg of cocaine in his boot. The man has the right to a fair trial and the judiciary
(judge) will hear his case (listen to the facts and apply the law.
2. The South African Legal System
COURT STRUCTURE
Constitutional Court
Supreme Court of Appeal (pre-1994 Appellate Division)
High Courts
Magistrate’s Courts
(divided into 2 equal parts)
Regional Magistrates’ Courts
District Magistrates’ Courts
Definition of Appeal:
Taking a case from an inferior court to a higher court in the hope of getting a different
judgement.
Used as a mechanism for getting a second opinion on the judgement of an inferior court.
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Example: Mr X is found guilty of murder in the regional magistrate’s court. His story is
that he is innocent. He can appeal to the High Court. If found guilty there, appeal to
the Supreme Court.
Definition of Jurisdiction:
1. The powers that a court has, for example, a court with criminal jurisdiction has the
power to hear criminal matters.
2. The geographical area over which the court has power, e.g. the Western Cape Court
has jurisdiction over the Cape.
2.1. The Constitutional Court (CC)
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SA has a written constitution
Constitution is an act of parliament.
It is divided into chapters.
It protects human rights, e.g. right to privacy, equality, life, shelter, education, freedom of
expression.
Human rights are contained in Chapter 2 of our constitution = BILL OF RIGHTS.
Other chapters set out how the country must be governed, e.g. president, number of
members in parliament, elections every 4 years.
NB – Any matters which relate to the protection of human rights or how the country must
be governed are known as constitutional matters.
The constitutional court only hears constitutional matters, i.e. human rights or political
cases.
Does not deal with ordinary civil and criminal cases, e.g. if a tenant does not pay his rent,
not a breach of human rights and does not affect how the country is governed, therefore
the constitutional court does not deal with it. E.g. someone steals your wallet –
constitutional court does not deal with it.
In most situations, cases will come on appeal to the CC.
Can also be a court of first instance (or a trial court).
Only hears cases of a constitutional nature ALWAYS.
Court sits in Johannesburg and has jurisdiction over the whole country.
It has 11 judges, at least 8 must be on the bench to hear a matter at minimum.
11 judges would be a “full bench”.
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2.2. The Supreme Court of Appeal (SCA)
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Pre-1994 was called the Appellate Division (AD or A)
This court is only an ‘appeal’ court.
It will never be a court of ‘first instance’.
Final court of appeal in all matters except constitutional matters.
It can hear constitutional appeals, but it is not the final court of appeal in constitutional
matters.
It can hear all matters – civil, criminal and constitutional.
There are 20 judges working at the SCA.
Cases are heard by a bench of 3 to 5 judges.
A full bench is 5 judges.
Court sits in Bloemfontein and has jurisdiction over the whole country.
Example: Mr X is found guilty of theft in the Magistrates Court. He then appeals to the
High Court who still finds him guilty. He then appeals to the SCA, they still find him
guilty. He cannot appeal further to The CC.
If the SCA had found X guilty and imposed the death penalty, he will be able to appeal
the sentence to the CC as it deals with human rights i.e. right to life. CC will NOT relook at the guilty verdict.
2.3. The High Courts
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There is a high court for each of the 9 provinces.
Some provinces have more than one simply to accommodate for population size.
Each high court only has jurisdiction over its geographical area
1. Western Cape Division (WCC)
Court is in Cape Town and hears cases that arise in the Western Cape
2.
Eastern Cape Division
Sits in Grahamstown & hears matter arising over Eastern Cape.
3.
Northern Cape Div (NCK)
Sits in Kimberely
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Gauteng Div (GP)
Sits in Pretoria.
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Free State Div (FB)
Sits in Bloemfontein
*Free state has 2 courts – SCA and FB
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KZN Div (KZP)
Sits in Pietermaritizburg
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Limpopo Div (LP)
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Sits in Polokwane
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Mpumalanga Div (open yet- set to open in No 2015)
Sits in Nelspruit
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North West Div (NWM)
Sits in Mahikeng
Some provinces have more than one high court. This means they have a main seat (provincial div) as
mentioned above and then also what we call a ‘local division” (are 6 local divisions seats)
For example there is:
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Gauteng local Divison (GJ)
Sits in Jhb
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KZN local Div (KZD)
Sits in Durban
There are 3 local divs in the Eastern Cape and one in Limpopo province.
Example: Mr X wants to sue Mr P for R2 mil for sale of shares.Mr X lives in Joburg, Mr P
lives in Sandton. The case can be heard in the GSJ and the GNP (choose closer area for
clients).
Power of High Courts
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Each court only has jurisdiction to hear cases in their geographical area.
They can hear all cases – civil, criminal and constitutional.
They have unlimited sentencing power. Can give life sentence (25 years)
The can be courts of first instance (or trial courts). When sitting as a court of first
instance, normally one judge will preside, but there could be two.
In criminal matters, there will be one judge and two assessors. NB – Assessors are not
judges, usually advocates/attorneys who assess the judge in assessing the evidence.
High courts can also hear appeals:
o Will hear appeals from the Magistrates’ Court. In an appeal from the Magistrates’
Court, two judges will be on the bench.
o They can also hear appeals from a single judge of their own division – in those
appeals, 3 judges must be on the bench (not the same judge as the first time).
Example: X is convicted of murder in the GNP by 1 judge sitting with 2 assessors. He
will appeal at the GNP, but this time there will be 3 judges on the bench.
X is convicted of murder in the GNP by 2 judges. Cannot appeal back to GNP (single
judge from same division). Therefore, appeal to SCA.
Example: X is charged with armed robbery in CPT (lives here too). His case starts in
the mag. Court & is found guilty. His most direct route of appeal is to go to WCC with
3 judges. 3 not 1 because its an appeal.
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Example: X is charged with armed robbery & this time his case starts in the WCC.
There’s 1 judge & 2 assesses. He’s found guilty by the single judge. He can appeal
back to WCC with 3 judges. He’s found guilty again and now goes to SCA.
2.4. Magistrates’ Courts
2.4.1. Types of Magistrates’ Courts
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South Africa is divided into various magisterial districts.
A magisterial district encompasses approximately 6 to 12 suburbs
Each mag district has a district magistrates court and some also have a regional
magistrates court
Cape Town and Wynberg have district and regional magistrates courts. But Simon’s
Town only has a district magistrate’s court.
Regional and districts magistrates courts are on the same level
Example: District mag court in wynberg, covers Wynberg, Rondebosch, Claremont,
Newlands and Kenilworth. Also has regional court.
Cape Town Magistrates Court and Regional Court (Cape Town, Greenpoint, Sea Point,
Observatory.)
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Each court only has jurisdiction over their geographical area.
Magistrates sit in mag court, not judges
Nowadays magistrates have to have an LLB degree, but before they did not have to
have an LLB
2.4.2. Powers of the District Magistrates’ Courts
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In criminal cases, they cannot hear murder, rape and treason (Treason is a crime
against the state – e.g. terrorism).
In criminal cases they cannot impose a prison sentence of more than 3 years of a fine in
execess of R120 000.
They can hear armed robbery but not if it looks like it needs a heavier sentence
than 3 years
In cases that are not criminal (i.e. civil), e.g. sue your landlord, they cannot hear cases
where the value of the claim exceeds R200 000.
o Example: You sell your car to someone for R300 000. They fail to pay. This is not
a crime (i.e. theft), it is a breach of contract. The case cannot start at the districts
court because the claim is over R200 000. You would take your case to the High
Court or the Regional Magistrates’ Court.
They have no constitutional jurisdiction. Can’t hear constitutional matters
They have no appeal jurisdiction because there is no-one below them
They also cannot hear divorces, application for sequestration (bankruptcy), declarartion
of mental illness
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2.4.3. Powers of the Regional Magistrates’ Courts
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NB Same level as districts magistrates court
These courts have jurisdiction over their geographical area
They can hear all criminal matters except treason. I.e. can hear murder and rape
In criminal cases, they cannot impose a prison sentence of more than 15 years or a fine
exceeding R600 000.
Except where certain laws provide mandatory maximum sentences – they can impose
the maximum sentence. E.g. for premeditated murder they must impose a life sentence
Treason case must start in high court
With civil matters, they can only hear a case where the value of the claim is between
R200k and R400K
They have no constitutional jurisdiction.
They have no appeal jurisdiction.
These courts also have jurisdiction to hear family law cases (divorce/custody). But
cannot hear sequestration (bankruptcy),and declaration of mental illness.
NOTE: There are certain specialist courts, e.g. tax court, labour court and completion
tribunal
Example :(NB for test/exam):
MUST HAVE NAME OF HIGH COURT IN EXAM, FOR MAGISTRATE’S COURT MUST
SPECIFY DISTRICT OR REGIONAL
X lives in Rondebosch and is charged with murder.
a) Where will this case be heard?
b) What is his most direct routes of appeal?
1. a) Start – Wynberg regional mag court – Guilty / Convicted
b) Appeal to Western Cape High Court (WCC), 3 judges because appeal –
Guilty/ Convicted
Appeal to Supreme Court of Appeal, can’t go back to high court (3 judges)
JAIL
2. a) Start at Western Cape High Court, 1 judge, 2 assessors - Guilty
b) Appeal to WCC, 3 judges – Guilty
Appeal to SCA – Find guilty and impose death penalty
Goes to CC, do not re-look at case, only on death penalty
3. a) Start at WCC, 2 judges – guilty
b) Appeal to SCA
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Example: X sells his car to Y. Y fails to pay the purchase price of R250 000 by the due
date. Both parties live and work in Pretoria where the contract was concluded. X
wanted to sue Y for the amount owed.
Where will the case be heard and what are the most direct avenues of appeal?
Is this a crime? No
What court will Y sue in and what are his avenues of appeal?
1. Start in regional mag court in Pretoria [court finds against X]
(not district court because value of the claim is excess of R200 000)
X can appeal to the Gauteng Division (GP), 3 judges [court finds against X]
X appeals to SCA
(he cannot go to the CC as it is not a constitutional matter or a mattter of
personal interest)
2. Start at the Gauteng Division (GP) or the Gauteng Local Division (GJ), 1 judge
(no assessors because not a criminal case)
[court finds against X]
X appeals to Gauteng Division, 3 judges [court finds against X]
X appeals to SCA
2.5 Specialist Courts and Other Courts
1. Specialist Courts:
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Tax Court
Labour Courts
Equality Court
Land Claims Court
2. Small Claims Court
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Hears matters where the claim in question is R15 000 or less.
No legal representation allowed and no fees.
3. National Consumer Tribunal (Tribunal) and Consumer Courts
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Tribunal sits in Centurion in Gauteng and has jurisdiction over the whole country.
Consumer Courts –are not normal courts i.e. not Magistrates Courts or High Courts
Should be (but isn’t) at least one Consumer Court in each province
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The main function of the Tribunal and Consumer Courts is to judge complaints made
in terms of the National Credit Act (Bus Law 2) and Consumer Protection Act (Bus
Law 1 – law of sale and lease etc.)
Parties can also use normal courts i.e. Magistrates Courts, High Courts instead of
Consumer Courts and Tribunal but the latter two are quicker and cheaper.
Can appeal from Tribunal to High Court and to the SCA
Rental Housing Tribunal:
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Several in all provinces
Purpose is to resolve disputes with landlords and tenants (law of lease)
Parties can use normal courts (i.e. Magistrates Court, High Court) but Rental
Housing Tribunal is cheaper and quicker.
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3. Binding Sources of South African Law
Where does our law come from?
There are 6 sources:
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Legislation (including constitution)
Roman-Dutch Law (Common Law)
Judicial Precedent (Case Law)
African Customary Law (ACL)/Indigenous Law Custom
Custom
Customary International Law
3.1. Legislation and Interpretation of Statutes
3.1.1. What is Legislation?
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Legislation = statutes and acts of parliament
Legislation takes precedence over all other types of law derived from all other sources,
except the Constitution
If there is a conflict between legislation and law from another source, the legislation
takes precedence/wins.
Example: under Roman-Dutch Law (RDL) a husband had marital power over his wife.
Marital power meant that when a woman got married, she was legally reduced to the
status of a child. The legal status of a child means that she cannot enter into any
contracts without her husband’s consent, she couldn’t become a director of a
company etc. In 1984 the Matrimonial Property Act abolished the Marital power.
3.1.2. Types of legislation
i.
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The Constitution (act of Parliament) - became law in 1996.
It is itself a piece of legislation
Constitution of Republic of South Africa Act 108 of 1996
It is the supreme law of South Africa.
Any law or conduct which is inconsistent with the constitution is of no cause or
effect, it is invalid.
Constitution deals with Human Rights and how the country must be governed
(refer to notes under the Constitutional Court)
Example: if parliament passed an act saying that women can’t vote, that would
be invalid because it goes against the constitutional right to equality.
ii.
Original legislation – 3 types:
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a) Acts of parliament i.e. statutes – these are laws made by parliament. [e.g.
Matrimonial Property Act 88 of 1984, Companies Act 71 of 2008, Insolvency Act
24 of 1936]
b) Law passed by the provincial Governments/legislatures. Each province has their
own provincial government and they can make laws with regards to certain
things. Like aspects of education, healthcare, housing and liquor licenses
c) Laws passed by municipal councils – referred to as by-law or ordinaces.
Example: in the municipal of Johannesburg, there is a by-law that every
swimming pool must have a fence around it. In Cape Town, that by-law does
not exist.
NOTE: These 3 bodies that make original legislation get their power to do so directly from
the constitution i.e. in the constitutiion, it says that they can make laws.
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Delegated legislation:
The legislation is made by government departments e.g. department of trade and
finance, department of trade and industry
This kind of legislation is known as REGULATIONS.
Governement departments do not get their law-making power directly from the
constitution. Instead, it is delegated to them by another body
Example: Parliament passes the tobacco products control act. This is original
legislation. In the act, parliament gives the Department of Health the power to pass
certain regulations. Minister of Health will sign off on these regulations, these are
delegated legislations. The act says that one cannot smoke in public places but it
allows Minister of Health to make regulations allowing smoking in certain public
places.
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Importance of distinction:
1. The courts cannot refuse to apply the constitution.
2. Original legislation can be declared invalid by the courts if it conflicts with the
constitution.
3. With delegated legislation, the courts only have to apply it if it doesn’t conflict with
the constitution AND if it fals within the scope of the powers delegated to them. If
they do not fall within that scope, regulations will be struck down as ultra vires =
beyond power.
Example: refer back tobacco act example.
If the minister passed a regulation saying that you cannot smoke in your private
home, would that be valid/would the court have to apply it?
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Those regulations will be invalid because they are ultra vires, because he had
authority regarding public places only.
Acting beyond scope of your power → she acted ULTRA VIRES.
3.2. Roman-Dutch Law (Common Law)
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South African common law is a combination of:
- Roman Law
- Dutch Law
- English Law
It is based primarily in Ancient Roman law. Although the common law dates back hundreds
of years, it forms the basis of our legal system.
Example: our modern law of sale and lease is still based on Roman Dutch law. Our
company law and our banking law have a lot of English common law.
3.3. Judicial Precedent (Case Law)
3.3.1. What is judicial precedent and case law?
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Judicial precedent = case law
It is the law that is made by judges in applying the law to the facts of the case before
them.
They could be applying any law: legislation, common law, case law
Example: A shop keeper has the shop broken into on a regular basis – small general
dealer in rural town; loses income everytime shop gets broken into.. Eventually, he
puts up a trap – if you tamper with the door/break the window, you release a
mechanism which is attached to a loaded gun. The gun then triggers and shoots.
A thief breaks the window, triggers the gun and is shot dead.
The issue before the court was: Is the shop keeper guilty of murder or is it justifiable
to kill in defence of property? In other words, was the shopkeeper guilty of murder or
is it a justifiable defence? The court looked at the existing law on the matter but there
is nothing exaxtly the same. They found similar facts in Roman and Common law.
They then interpreted the law and applied it to the facts and they held that it is a
justifiable defence to kill in defence of property. Therefore, according to the law, the
shop keeper is not guilty of murder.
The court’s decision on the issue before it is called the RATIO DECIDENDI (ratio). This
becomes LAW (case law). Ie. It is now South African law that you can kill in defense of
property.
In the same case, the judges also said that if you’re going to set up such a lethal
mechanism, you must put up warning signs. This part is known as the OBITER
DICTUM – not directly relevant to the issue although it is still part of the decision.
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OBITER DICTUM does not become law – only the RATIO DECIDENDI.
You need to be able to differentiate between Obiter and Ratio.
Example: based on an 1884 case. 4 men were sailing a ship from England to
Australia. There was a storm and the ship was wrecked, and they managed to
get into the basic, wooden lifeboat. For 3 weeks they were without food or
water. They drank their own urine and eventually the youngest one drank the
sea water. He then went into a coma and two of the others stabbed him with a
pocket-knife, then proceeded to eat him and drink his blood. A day or two later
they were rescued and there was a trial. The issue before the court was “were
they guilty of murder or is necessity a defense to a charge of murder?”
The outcome: necessity is not a defence to a charge of murder when acting to
save own life = RATIO
If the judges were to say: necessity may be a defence to a charge of murder
when acting to save an innocent third party’s life = OBITER
3.3.2. Stare Decisis (Let the decision stand)
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This is the way that the judges’s decision or RATIO DECIDENDI becomes law is
through the principle of stare decisis.
This is the principle that a judge/magistrate must always follow a previous
decision (or ratio) of a higher court where the facts of the two cases are similar
and the legal issues are the same.
Example: Shopkeeper case happened in the WCC in 2005. This year, a case comes
before the Cape Town Magistrates’ Court (lower than high court) where the accused
killed someone while driving drunk. Would the mag court have to follow the
shopkeepers case? No. The legal issue was, “Can you kill in defence of property?”
the issue now is drunk and negligent driving.
Let’s see now how stare decisis works in practice:
Overriding principle: judge or magistrate must always follow a previous decision or ratio of a
higher court where the facts of the two cases are similar and the legal issue is the same.
In detail:
→ Magistrates’ court must follow:
a) Decisions of all higher courts (HC, SCA, CC)
b) Decisions of all high, but where there is a conflict, it follows its OWN province.
Example: Shopkeeper case heard in WCC in 2005; that case said that you can kill in
defense of property. There is another case of the GP in 2012 saying you can’t kill in
defence of property. A court comes before CT mag court in 2016 with the same legal
issue. The CT Magistrates’ Court must follow the WCC. If there were no past WCC
decisions, CT Mag court would follow the GP.
When it comes to the High Court, the magistrates must follow the decisions of the courts of
all the provinces, but where there is a conflict, it must dollow its own province.
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→ High Courts must follow:
a) Decisions of all higher courts (SCA & CC).
b) It has to follow decisions/ratio of its own division if a greater or equal number of
judges sat in the previous case.
c) They are not bound by decisions of other divisions/provinces (hence can be
conflicting case law)
Example: The WCC must follow a previous decision of that court if a greater or equal
number of judges were on the bench. But the KZP does not have to follow the WCC
case even if fewer judges are on the KZP bench..
Question: What happens if there is a case before a full bench (3) of the GP. There is a
previous decision of a full bench of GP on the same legal issue and one of the SCA
but they conflict. Who must the GP follow?
The judge must follow SCA as it is a higher court.
If there was a SCA decision which conflicted with the CC, must go with CC
→ The Supreme Court of Appeal must follow:
a) Decisions of the CC
b) Itself, unless the previous decision was wrong in law
→ The Constitutional Court must follow:
a) Itself unless the previous decision was wrong in law
Note: Foreign case law is NOT binding, BUT it is persuasive.
3.3.3. Law Reports
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The way that the judges and lawyers know what the previous cases are, are through the
law reports.
There are 6 volumes of law reports published each year and most cases that were
decided in that year will appear in those volumes
Cases are identified by a case citation/notation.
Jones v Brown 2010 (3) SA 213 (WCC)
Jones – plaintiff (suing)
Brown – defendant (being sued)
2010 – the year that judgement was handed down
(3) – volume
SA – country
123 – page number
WCC – court
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Mr Jones wants to take this case on appeal:
Jones vs. Brown 2011 (1) SA 49 (SCA) or (WCC)
Jones – appellant
Brown – respondent
NOTE ON APPEALS:
→ No new evidence is allowed in an appeal case, i.e. no new facts can be presented.
→ All that happens is that the judges reconsidering the existing facts and apply the law.
NOTE ON REVIEW:
→ Different from appeal.
→ You can take a case on review where you feel that a judge/magistrate behaved
inappropriately.
→ E.g. if magistrate sleeps the entire way through the case, or makes inappropriate
comments – go on REVIEW.
3.4 African Customary Law
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These are the laws that have been followed by the black communities for thousands of
years.
Our courts can apply ACL if both parties choose and if not in conflict with the
Constitution.
ACL is dynamic and ever changing, more so than any other source of law.
It is very complex because it differs from community to community and it changes all the
time to meet the needs of a particular community
For this reason, it is a very difficult source of law to define and understand.
An example of it is the primogeniture rule of succession which says that when someone
dies, the inheritance first goes to the male descendents and then to the male ascedents.
The Reform of Customary Law of Succession and Regulation of Related Matters Act 11
of 2009 – abolished primogeniture rule
The Recognition of Customary Marriages Act 120 of 1998 recognises customary
marriages, not only African customary marriages but also Muslim/Jewish etc customary
marriages.
Example: A man dies. He does not leave a will. He leaves 2 adult children-1 woman, 1
man. They are fighting over the estate.
This can be dealt with in terms of the common law and legislation and they would
both take equally but if both parties choose, the can apply ACL instead.
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If it is an ACL specific issue, such as “lobola”, then obviously you must apply ACL.
3.5. Custom
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A custom is a rule of conduct that has been established through long usage. It becomes
an unwritten law.
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To be a law a custom must be a rule of conduct that:
1. Has been established through very long use and
2. Is generally followed and
3. Is certain and reasonable
Example: (1921) There were some substistance fishermen who had cast out their lines
to catch a shoal of fish. What they caught they sold or ate. A while later, some other
fishermen came along and set their lines in front of the first group. The second group
caught the fish. The first group sues the second group for their financial loss.
They argued that there is a custom amongst fishermen that when one group has set
out their line, another group cannot intercept them – the court found this to be a longestablished custom. The first group won the case and the second group had to pay
them.
3.6. Customary International Law
(See later under international/national law)
4. The Nature of Legal Rights
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A legal right is a right given and protected by law.
There are two kinds of legal rights:
1. Personal Rights
2. Real Rights
4.1. Personal Rights
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A right that is enforceable against one or more specific/particular people.
Example: X and Y agree that X will sell Y his car for R150 000. X delivers the car to Y.
X delivers the car to Y, X now has a personal right against Y for payment of the
R100 000. The right is only against Y (he cannot claim payment from anyone else).
4.2. Real Rights
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A right that is enforceable against anyone, not only particular people.
This is because a real right is a right in a thing itself.
Ownership is the best example of a real right
Example: X owns a car. Mr A steals the car from X. A sells the car to B, who buys it in
good faith (doesn’t know the car is stolen). B then sells it to C, who also buys in good
faith. X is still the owner, X locates the car and wants to reclaim it. X has a real right in
the car which means he can claim the car wherever he finds its. X can reclaim the car
from C. C will then have a personal right against B for the purchase price and then “B
will sue A.
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The point is that X not only has a claim against A, the thief, but a real right against C
even though they have no relation to one another – no direct link.
What if B had had an accident in the car that reduced the value by R50 000? X’s real
right allows him to claim the car from C however he finds. B does not owe him the
R50 000 damage. X can reclaim the R50 000 loss from B because B had the
accident; that would be a personal right. X also has a personal right against A for the
theft.
4.3 Constitutional Rights
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Contained in the Bill of Rights
See notes under “Constitutional Court”
Classify the following rights:
a) Damage to your car caused by friend’s negligent driving: PERSONAL RIGHT
b) X’s medical bills due to assault by Y: PERSONAL RIGHT against Y
c) Child’s claim for maintenance from parents: PERSONAL RIGHT against parent
d) Return of your TV that was sold without your permission by brother to pay his
gambling debts: REAL RIGHT against whoever has the tv.
e) Right to practice religion freely: CONSTITUTIONAL RIGHT
5. Legal Personality
5.1. Who is a legal person?
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A legal person is a natural persons (human beings) from birth until death (i.e. not
foetuses) and Juristic entities or persons – groups/associations of people such as
companies, CCs, universities, sports clubs, churches etc. NB – not partnerships.
Juristic entities are treated as legal person in their own right, completely separate from
their members or management.
This means they have perpetual succession : it means the company exists
independently of its members, shareholders, employees etc. In theory it can exist
forever.
As a partnership is not a juristic entity, the inviduals partners are personally liables for
the actions of the partnership.
Nasciturus fiction – even though the law does not recognise a foetus as a legal person i.e. it
has no rights – if the foetus is later born alive, the child has rights which are back-dated to
when it was a foetus.
Why is this relevent? A pregnant woman is injured in a car accident. The accident is the fault
of the other driver. Her child is later born with cerebral palsy; the child has the right to sue
the driver for the cost of its future medicals and emotional suffering.
17
5.2. What is the relevance of legal personality?
•
•
All legal persons have rights & obligations.
Juristic persons have rights & obligations separate from their members/management,
which means they can sue or be sued in their own name.
Example: SAB Ltd entered into a contract with X to deliver to him 500 crates of beer. X
pays for the delivery, but SAB does ot deliver the beer.
Who will X sue?
a)
b)
c)
d)
e)
The employee who the order
The manager who forgot to authorise the deliver
The directors
The shareholders
SAB Ltd*
In a partnership, they would have sued the partners in their personal capacity.
If the case was heard in the Gauteng High Court in 2015, what would the case citation
read? X v SAB Ltd 2015 (3) SA 567 (GP)
If X wins the case, who must pay the money? SAB Ltd.
NOTE: With natural persons, we don’t all have the same rights & obligations (legal capacity).
Your rights and obligations (legal capacity) are affected by age, marital status, insolvent and
mental health.
We will look at this in more detail in next chapter when we look at contractual capacity.
•
•
•
With children under 7 there is and irrebuttable presumption that they lack criminal
and delictual capacity. You cannot disprove it
From ages 7-14, they are rebuttably presumed to lack criminal and delictual capacity.
E.g. 13 year old shoots her brother dead. Presumed innocent but it can be disproved
Over 14, they are presumed to have delictual and criminal capacity. There are
limitations.
6. Branches of the Law
6.1. International/National Law
6.1.1. International Law (this is different from foreign law ie. Foreign case law)
•
•
This is the law that governs the relations between states.
Therefore it is the states/countries, NOT individuals/people that bear the rights and
obligations/duties under international law.
18
•
•
International law relates to matters such as boundaries of states (ie. Can’t just invade
another independent state)air space, territorial waters, treatment of diplomats and
extradition of criminals/prisoners of war.
There are 2 sources of international laws as follows:
• Customary International Law
Very similar to ‘custom’, but on an international scale. These are rules that have been
observed between countries for long practice (hundreds of years) and which have
become law
For example: you cannot invade another state
Our constitution provides that it must be followed, unless it conflicts with the
constitution or other South African legislation (SA)
• Conventions and treaties
SA is signitory to many international treaties such as the United Nations conventions
on human rights or Law of the Sea Convention various conventions
6.1.2. National Law
•
•
•
This is the domestic/local law of a particular country.
Our national law has various sources for example legislation, ACL (African Customary
Law), RDL (Roman Dutch Law) etc,
National Law is also broken down into various areas/branches, the first main division is
between public and private law.
6.2. Public/Private Law (all national law)
PUBLIC LAW
Constitutional Law
Adminastrative Law Criminal Law
PRIVATE LAW
Persons & family Commercial Law Property Succession Obligations
Company Law Insurance Secured Transactions Banking Insolvency
Enrichment
Delict Contract Unjustified
Business Law I
Business Law II
6.2.1. Public Law
Public law governs:
•
•
•
The relations between the states and its subjects,
The relations and divisions of power between the various organs of the state (executive,
judiciary, legislature e.g. the judiciary is suing the executive or the department of
justice suing the department of health or SARS suing the executive
One of the subcategories of Public Law is constitutional lawe, because it deals with
human rights, and it deals with how a country must be governed.
19
•
•
•
Criminal law forms a part of public law because “a crime is an act that is specifically
prohibited by law and punishable by the state”
So in a criminal case, the state will prosecute the accused (the victim does not
prosecute)
So a citation for a criminal case where Jones stole from Brown would be:
S v Jones 2016 (1) SA 56 (WCC)
NOT Brown v Jones
6.2.2. Private Law
•
•
•
•
Private law deals with the subjects of the state and their relations with each other, as
opposed to their relations with the state.
E.g. the Law of Persons and Family (marriage, divorce, children etc), Law of Succession
(what happens when a person dies and inheritance) etc.
The only area that you need to know in detail is the law of obligations
The law of obligations deals with personal rights and it is divided into:
1. Contract
2. Delict
3. Unjustified Enrichment
6.3.
•
•
•
•
Criminal/Civil Law (another way of dividing the law)
Criminal law is in bold on the diagram, the rest is civil law
Crimal law deals with criminal matters and civil law deals with all matters that are not
criminal. Criminal law is a small area of the law, Commercial/Mercentile law, contract,
delict and unjustified enrichment are all civil law.
Constitutional law is civil, family law is civil.
There are 4 main differences between criminal & civil law:
1. Case citation
➢ Criminal case → S v Jones 2016 (1) SA 798 (GP) – State and Accused
➢ Crime is an act specifically prohibited by law and punishable by the state (not the
victim)
➢ Civil case → Brown v Jones 2016 (1) SA 798 (GP) – Plaintiff and Defendant (or
Appellant or Respondent if appeal case)
NOTE: Suing the government in a civil matter
→ X v President of the Republic of South A
→ X v Minister of Health/Justice etc.
Suing these people NOMINO OFFICII i.e. in their capacity as a leader (not personally)
20
2. In a criminal case, if the court finds that the accused did commit the crime, then he is
guilty.
In a civil case, you never use the word “guilty”. You either find in favour one party and
against the other party.
3. In a criminal case, if the accused is found guilty, he will either go to jail or pay a fine
to the state, [no money paid to the victim]
In a civil case, if the plaintiff wins, the defendant will have to pay damages to the
plaintiff, OR perform an act for the plaintiff.
4. In a criminal case the onus/burden of proof is beyond a reasonable doubt [heavy
burden to prove]. For the state to win a case they need to prove the accused is guilty
beyong a reasonable doubt.
In a civil case the onus/burden of proof is a balance of probabiltiies (which version
sounds more reasonable)
The civil burden is lighter
6.4. Criminal Law, Delict, Contract & Unjustified Enrichment
6.4.1 Criminal Law
(see notes under Public Law and Criminal/Civil Law)
6.a.2
•
•
•
•
•
Delict
Forms part of civil law [private law, law of obligations] as opposed to criminal law
Parties would be the plaintiff and defendant
Defn: A Delict is a wrongful and culpable act that causes harm to a person or their
property.
Elements of delict:
a) Wrongfullness
b) Culpability (fault)
c) Causation
d) Harm (loss)
This is a checklist, each element/requirement must be satisfied for the plaintiff to win
the case.
a) An act is wrongful because:
•
•
Everyperson has a legal duty not to harm others
And the act is considered against good morals – that depends on convictions of
society and can change with the times
b) Culpable means fault i.e. either done with negligence OR intent
•
•
Intent is split into dolus and dolus eventualis
Dolus (intent) includes situations where a person deliberately harms another person
or their property.
21
Example of dolus = I deliberately prang your car, smash your cellphone, hold a gun to
your head and shoot you. Or I defame you (defamation) – injury to reputation or
personality
•
Dolus eventualis: doing something that might cause harm but doing it anyway
Example of dolus eventualis: I shoot a gun in the air at a rock concert, and the bullet
kills someone. I must have actually known that someone might be hit by the bullet
and killed.
Or, I think there is a thief in my bathroom, I shoot my gun 4 times. I ust have known
that the bullet might kill someone.
Same with jumping a red robot – you know that there is a possibility that you might
cause damage to an on-coming car, but you do it anyway.
Negligence:
•
•
•
•
Negligence means that you have failed to act with the standard care of the
reasonable person (RP)
The law doesn’t allow for negligence
Test for negligence works like this (sub-checklist):
o Would a RP in the position of the defendant have forseen the possibility that
their conduct might harm another?
o Would a RP in the position of the defendant have taken steps to guard
against such harm?
o Did the defendant fail to take such steps?
In order for the court to find the defendant negligent all three components must be
satisfied
Example: Mrs X is sending a text in rush hour traffic, she’s not keeping her eyes on
the road and she crashes into the car in front of her. No one dies but damage is done
to the cars. Was she negligent?
Would the reasonable person in rush hour traffic have forseen that sending a text
might cause harm? YES
Would the reasonable person have taken steps to guard against the harm? YES don’t
text
Did Mrs X fail to take such steps? YES because she texted
Therefore Mrs X was negligent and must pay for damages.
22
Example 2: Jane has a brick pathway in her garden. In one place, the bricks are
uneven. An elderly person comes to visit and they trip over uneven bricks and is quite
badly injured. Was Jane negligent?
Would the reasonable person in Jane’s position have forseen that someone might
trip? YES
Would the reasonable person have taken steps to guard against such harm? YES
Did Jane fail to take such steps? YES
Other exapmles of Negligence:
You slip in PnP because they cleaned the floor and had no wet floor signs. The R.P. would
have put up a sign.
A.
Causation
It must be proved that the act actually caused the harm.
A.
Harm
The Act must have caused loss in some way.
•
In Delict , you can sue for emotional loss, and emotional trauma or shock,
pain and suffrage not huge amounts of money though.
•
In SA law we like loss to be quantified.
•
Delict compensates for actual loss
•
You cannot profit from Delict earnings.
•
If the plaintiff wins the case, then they will receive damages to compensate
for actual harm or loss or the defendant will have to perform an act to rectify harm.
6.4.3. Summary of differences between crime & delict:
1. Act itself
- What constitutes a crime is easy to determine as a crime is an act specifically
prohibited by common law or statute and is punishable by the state
- certain acts are always crimes (murder, rape, theft) because common law says
so
- Statatury crimes include DUI, tax evasion, insider trading and possession of
drugs etc, Statatury because legislation makes it a crime
What consitutes a delict is more difficult to determine ebcause a delict is any act that
is wrongful and culpable and causes harm.
-
To see if an act is a delict, you need to go through the delict
checklist/requirements. Refer to examples done under delict
However, sometimes, the same act can be a crime and a delict.
23
E.g. X deliberately crashes into Y’s car
That is a crime (malicious damage to property) and also a delict because it is a
wrongful, culpable act that causes harm
- There will be 2 separate cases. Criminal case = S v X and X will get a fine to be
paid to the State or go to jail.
- The delictual/ civil case will be Y v X. If Y wins, X will have to pay damages in
amount it costs to fix the car or do an act for him.
2. Legal remedy:
- In a criminal case the accused will either go to jail or pay a fine to the state.
- In delict, the defendant will have to pay damages to the plaintiff and perform and
act for the plaintiff. We would NOT say that the judge found the defendant guilty,
3. Purpose of the sanction:
- In criminal law, the purpose of the sanction is to protect society and punish the
accused, that is sometimes whhy they go to jail.
- In delict, the aim is to compensate the party who has been harmed for their
actual loss, not to punish the defendant.
4. Burden of proof:
- In a criminal case, the burden of proof= beyond a reasonable doubt.
- In delict, it is a civil matter so the burden of proof = balance of probabilities.
6.4.4. Contract (most important area in Business Law I)
•
•
•
•
•
Part of Civil law under [private, law of obligations]
The law of contract deals with agreements between people [legal people].
Defn: Contract deals with agreements between people.
“Breach of contract” occurs if one party fails to comply with terms of the agreement.
Not all contracts have to be in writing
Example: Jane agrees to buy Bob’s car for R100 000. It is a verbal contract. Bob
delivers the car to Jane but she does not pay. Bob will sue Jane for breach of
contract.
•
•
•
•
•
•
Parties = Plaintiff v Defendant
Case citation: Bob v Jane
Burden of proof: balance of probabilities
In the law of contract, if the plaintiff wins the case she will be compensated for her actual
loss
In contract no emotional loss i.e. no pain and suffering, just actual financial loss.
You can claim pain and suffering under delict but NOT contract
6.4.5. Contract and delict compared
Two main differences:
24
1. In delict, the liability of the wrongdoer arises from some wrongful and culpable act
that causes harm. The act is wrongful by law because each person has a duty not to
harm others.
In contract, the liability of the wrongdoer arises from the agreement between the
parties which has been breached.
2. In delict, the duty not to cause harm is owed to ALL people.
In contract, the duty not to breach is only owed to the other party involved in the
contract.
BUT the same act could result in delict, contract and crime
Example: Dr B is a private surgeon in a private hospital. He performs an operation and
is supposed to remove Jane’s appendix. Instead, he negligently removes her kidney.
She gets a terrible infection and becomes even more ill. Her hospital bill increases by
half a million rand. She is a partner in an accounting firm – losing R1 million earnings
by being sick. There was a contract to take out her appendix, therefore Jane can sue
Dr B under the law of contract (civil claim), he’s in breach because he didn’t do it
properly. She will be able to claim her financial loss of R1.5million. Under contract she
cannot claim for emotional loss. She could also sue under delict because it was a
wrongful and culpable act that caused harm, wrongful act = negligent, harm =
financial loss (extra medical earnings and loss of earnings) Under delict she could
sue for pain and suffering as well.
Both are civil cases. She cannot claim under BOTH delict and contract because in SA
law you are not allowed double compensation [profit.] She must choose to sue under
delict OR contract. Soemtimes choice is easy because the case might not succeed
under one area of the law.
However where you can succeed in both, you will choose the one that pays more.
Jane dies as a result of the failed operation. Therefore it is now a criminal case
[culpable homicide, negligent killing]. Case Citation: S v Dr B. Culpable homicide
=negligent killing
You can have civil and criminal case running together because there is no risk of
double compensation.
Her estate will continue the case [executor].
Case citation: Estate late v Dr B
6.4.6. Unjustified Enrichment
•
Unjustified enrichment deals with compensating someone for a benefit which they
caused you without any legal justification
.
Example: I believe that I owe you R10 000. I actually only owe you R8000. I pay you the
R10 000. You have been unjustly enriched by R2000 i.e. I had no legal obligation to
pay you the R2000.
25
PART B: THE LAW OF CONTRACT
a) Formation of a valid contract
o
Offer and
acceptance
In order for a contract to be binding and valid in law, all of the following
requirements have to be met. If one or more is not met, there will not be a valid
contract. The contract will be void (it’s as if it never existed) and the courts will
refuse to enforce it (see exceptions later).
REQUIREMENTS:
The parties must have contractual capacity.
The parties must have a serious intention to contract.
The parties must communicate their intention to each other.
The parties must be of the same mind, i.e. no misunderstanding or mistakes.
The agreement must be lawful.
Performance of the contractual obligations must be possible.
The agreement must comply with all the formalities required by law for that particular
kind of contract.
8. The agreement must be certain in its terms.
1.
2.
3.
4.
5.
6.
7.
1.1. Contractual Capacity
•
•
General rule is: every legal person has full contractual capacity.However, there are
certain exceptions, i.e. some people have limited or no contractual capacity. Either to
protect themselves or to protect other people.
People with limited contractual capacity:
1. Minors (under 18)
2. Married people
3. Mentally ill people.
4. Insolvents (people who are broke).
5. Intoxicated people (drunk or drugged)
26
A. MINORS
•
•
•
•
An unmarried person under the age of 18.
In terms of the Childrens’ Act 38 of 2005 which came into effect in June/July 2007.
(NOTE: Prior to this Act a minor was someone under 21.)
A major is a person with full contractual capacity.
There is one way that a minor can become a major before turning 18, through marriage
i.
ii.
Marriage:
A minor becomes a major on marriage, regardless of his/her age.
This means once they are married they have full contractual capacity, except to
the extent that it is limited by marriage.
If a marriage is dissolved by death or divorce, prior to the person turning 18, you
remain a major.
As regards all other minors, they have limited or no contractual capicity. This is to
protect them.
Before we turn to look at their capacity, we need to define guardianship
Contractual Capacity for Minors:
a) Guardianship (parental responsibility)
- Guardianship is the control over and the administration of the estate of a minor,
as well as assistance in performance of legal acts, such as contracting.
- This is different from custody. Custody simply means who the child lives with.
Therefore, even if parents later divorce, they are still equal guardians.
Guardianship and parents of children who are/were married:
- The father and mother both have legal guardianship of a minor child born of their
marriage.
- Both the mother and the father are equal guardians under the Children’s Act.
- This means either parent, without the consent of the other, can perform the duties
of guardianship.
- However, the consent of both parents is required for the following:
▪ Marriage of the minor child.
▪ Giving up the Child for adoption
▪ The removal of the child from the South Africa
▪ Application for a passport for the child.
▪ Alienation (ie. Selling, leasing, mortgaging) of immoval property (land, a
house, a flat) belonging to the child
Guardianship and children of parents who were never married:
- The mother is the sole guardian of the minor child.
- The Children’s Act of 2005 gives fathers the same rights as mothers (ie. They will
also be guardians) provided that:
1. He consents to be identified as the child’s father or pays damages in
terms of African Customary Law AND
2. Contributes to the child’s upbringing for a reasonable period AND
27
-
3. Contributes towards expenses in connection with the maintenance of the
child for a reasonable period
However the father can be an equal guardian, provided that:
1. At the time of the child’s birth, the father is living with the mother in a
permanent life partnership, OR
2. He has in some way acknowledged the child, AND contributed to its
maintenance & upbringing.
b) Infans and Pupillus:
•
•
Minors are divided into two categories – infans & pupillus.
Infans = this is a child under the age of 7. He has no contractual capacity. For him to
acquire rights/duties under a contract, his guardian must enter into it on his behalf.
Example: Rachel is 5, she is an infans, and she needs to learn how to swim.Her
parents are married. Either her mother or her father will sign the contract on her
behalf. The signature clause of a swimming school contract, Jane Franco on behalf of
Rachel Kirsch signed: _________________ (mother). This contract however is with
RACHEL.
•
•
Pupillus = a child between the ages of 7-18.
He has limited contractual capacity
- He can make and sign contracts in his own name, provided he is assisted by
his guardian.
- ASSISTANCE:= guardian must consent to the contract before or at the time
that the contract is entered into.
- CONSENT: Consent can be expressed or implied (guardian was aware of the
contract and showed no objection) i.e. verbal or written
Example: X is 16 and he tells his mother he wants to buy the neighbours motorbike
and she says yes. He then goes to the dealer; sign contract and buys a motorbike by
himself. This is a duly assisted contract.
•
The consent could also be implied (tacit). We look at the conduct of the guardian and
we ask: did they know about the contract and show no objection?
Example: X is 17 and he tells his mother he wants to buy a motorbike and she says
nothing. The next day she buys him a helmet = tacit consent
NOTE: with the pupillus, the guardian can always sign on their behalf, just like infans
b) Effect of an assisted contract:
A duly assisted contract is:
• In the case of an infans, one made on behalf of the minor by the guardian.
• In the case of a pupillus, one made by the minor with the assistance of the
guardian or on the minor’s behalf by the guardian.
28
•
•
•
The effect of a duly assisted contract is that the MINOR is bound and liable in
terms of the contract , NOT the guardian.
So it is a fully valid and enforceable contract against the minor.
So note, the guardian incurs no personal liability at all.
Example: Refer to Rachel example. Rachel is bound to the hip hop teacher, not Jane,
even though it was signed on her behalf.
•
•
The only time the minor will not be bound by a duly assisted contract is if the contract
was inherently prejudicial (inherently bad for them). The prejudice however must be
substantial and not trivial.
Note such a contract is valid (not void) but the contract can be cancelled.
Example: X is 16 and he owns a house in Camps Bay. His parents sell it on his behalf
for R200 000. That is prejudicial and it is substantial because the market value is
much higher.
c) Effect of an unassisted contract (Roman Dutch law):
• If an infans contracts without the assistance of his guardian, the contract is void
and therefore unenforceable.
• If a pupilus contracts without assistance, the contract is said to be a “limping
contract”.
MAJOR
MINOR
Contractual obligations
No contractual
obligations
•
•
•
•
•
In practical terms, what the ‘limping contract’ means is: The minor can choose
(with the assistance of the guardian) whether or not to enforce the contract
(ratification).
The minor can choose to enforce the contract = RATIFICATION : or not to
enforce it = REPUDIATION.
If the minor chooses not to enforce the contract, he will not be bound and neither
will the other party. The effect is if the contract never existed.
The minor is entitled to recover whatever he has given under the contract
The other party to the contract can also claim back what they have performed
Example 1:
X is 16 years old. He buys John’s motorbike for R80 000 unassisted. This is a limping
contract. X and his parents choose to repudiate the contract, but before this, X had an
accident and the bike was a write-off. John must give X the R80 000. X must return the
bike in its damaged condition.
29
RATIFICATION:
The minor chooses to enforce the contract
•
•
•
•
•
The ratification must be done with the assistance of the guardian while he is still a minor.
The other party is bound by the contract and so is the minor
The ratification can be expressed or implied.
The minor can himself ratify the contract on majority.
The effect of ratification is that the contract is deemed to be valid from the time it was
originally entered into
Example (refer to motorbike): X’s parents see him using the bike, they didn’t know
that he had bought it. They ask him and he says he bought it from John. The mother
says that she will buy him a helmet to keep him safe. She implicitly consented and so
the limping contract has been ratified.
Example: X bought the bike from John on the 3rd of March, it is ratifed on the 4th of
April. From what date is the contract valid? From the 3rd of March – back date it.
NOTE: When the contract is ratified, it is valid from the date on which it is entered into.
The Effect of the Unassisted Contract Under the Consumer Protection Act 2008 (CPA)
•
•
previous examples of limping contract was under Common Law
Act only applies to certain types of agreements – mainly sale AND lease where
seller/lessor sells goods and services in the ordinary course of business.
Example: [refer to motobike example] John is a law lecturer at UCT. Does the CPA
apply to his example? NO because he does not sell motorbikes in the ordinary course
of business. Therefore, Common Law applies.
If X had bought a bike from a dealership, the CPA would apply.
•
•
•
•
Effect of a minor’s unassited contract where the Act applies is VOIDABLE.
This means the contract is valid until set aside by the minor
Different legal effect from limping
Some writeers think this was in error and they mean limping.
The Effect of Unassited Contract Under the National Credit Act 2005 (NCA)
•
NCA applies to credit agreements
30
•
•
•
•
Examples: loan from bank or other lending institution, credit card, store card i.e.
Edgar’s Card
The effect of a minor’s unassisted contract where this Act applies is VOID and the
court can make a just and equitable order. Fair to the minor.
This means the contract never existed, so very different from limping I,e, can be no
ratification.
The delict would be the lie
Liability of Minor in Delict
•
•
If a minor enters an unassisted contract, that is not later ratified, he cannot be liable
under the law of contract.
However, he might be liable under the law of delict if he lied about his age or about
having consent
Statutory Exceptions
•
•
•
Some statues allow minors to enter into valid contracts unassissted
For example: Banks act allows a minor 16 and older to open a bank account without
assisstance
The Children’s Act allows a minor 12 and over to consent to medical treatment
without telling their parents, but does not apply to operations
31
B. MARRIED PERSONS
In South Africa, there are 3 ways in which you can be married/types of property regimes:
These affect your contractual capacity and your property rights.
i.
ii.
iii.
Need an ANC
•
•
•
•
•
i.
In community of property (ICP)
Out of community of property (OCOP)
Out of community of property with accrual (Accrual)
In order to be married OCOP or with accrual, you must enter into an ANTENUPTIAL
contract (ANC). Ante = before, i.e. before you get married.
The ANC must be signed before a notary public and 2 witnesses.
If there is no ANC, your marriage is automatically in community of property.
This applies regardless of whether you have a civil marriage or African Customary
Law marriage
The way in which you are married affects your property rights and your contractual
capacity.
MARRIED IN COMMUNITY OF PROPERTY (ICOP)
a) Effect of a marriage ICP
1. The assets belonging to each spouse before the marriage are merged into a
single, joint estate upon marriage. They become joint owners of each other’s’
assets.
Liabilities of each spouse prior to the marriage are merged as joint liabilities.
2. Property acquired during the marriage becomes jointly owned. Liabilities acquired
during the marriage become joint liabilities.
3. Upon dissolution of the marriage, by death or divorce, the joint estate is divided
and each is entitled to half. It could be a negative half due to debt.
4. Upon insolvency, both spouses are declared insolvent by the court. This means
you cannot work as a chartered accountant, you cannot be a director of a company,
you cannot work as lawyer etc.
b) Contractual capacity of spouses
-
Matrimonial Property Act 1984
General Rule: Both spouses have full capacity with regards to the joint estate. i.e. They
can contract without consent of the other. However these are the exceptions:
Definitions:
Alienate: To sell, mortgage, lease out or give away
Cede: Manner of alienating, usually used for incorporeal (intangible) assets i.e shares
Pledge: Give something as a security
Consent is required for the following transactions in terms of MPA:
32
• Formal Consent
This is a written consent. It must be given for each separate act and witnessed by two
witnesses. It is required to do the following:
1. Alienate or mortgage immovable property
2. Enter into as a credit receiver, a credit agreement
3. Bind him/herself as surety
2 – consent can be given by ratification (after the fact) but must still be in writing before two
witnesses.
2/3/- consent is not required if it is done in the course of the spouses trade or business.
Example: Fred is married to Sue ICOP. She is a radiologist. She has a practice with
two other doctors called “Doctors Inc”. The practice wants to buy an x-ray machine
for R500 000. The practice buys it on credit. The creditor asks Sue to stand surety.
This means that if the practice fails to pay instalments, Sue will be held liable for the
full R500 000. Fred would not have to consent as it is done in the course of her
profession.
The practice fails to pay and the creditor calls up the surety. Fred is jointly liable for
the debt.
•
Written Consent
Does not need 2 witnesses and can be given as a general consent (don’t need it for each
separate act.)
1) Alienate, cede or pledge any shares, stocks, insurance policies or any fixed deposits
or any other investment in a financial institution. i.e. investment assets
But:
- don’t need consent to sell shares listed on JSE
- don’t need consent to deal with a deposit held in one’s own name at the bank
Example: You own 1000 share in a private company (pty) [not on JSE]. You want to
sell 100 shares to 10 different people. You can get one general consent from your
spouse, authorising the sale of the whole bundle. You do not need separate consent
for each of the transactions.
2) Alienate or pledge jewellery, coins or paintings etc. i.e. items held as capital assets.
3) Withdraw any money held in the name of the other spouse in a bank, building society
or post office.
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Consent of all of the above can be given by written ratification after the decision has been
made but then it must still be in writing.
Consent for #1 is not required if in ordinary course of that spouse’s rade or business
occupation.
•
Informal Consent: Verbal Consent and can be given as general consent
1) Alienating or pledging household furniture and effects
2) Receiving money from the other spouse as a result of :
o their trade, business or occupation e.g. salary or pension
o an inheritance, donation, bursary or prize
3) Large donations from the joint estate. (large depends on case)
Consent of all of the above can be given by ratification after the decision has been made.
Example: W wants to sell an antique vase. It could be classified as household
furniture and effects or as a capital asset. There is an overlap between informal
consent and written consent so you should go for the stricter, written consent.
NOTE: if a certain act is not listed in the catagories above, you don’t need consent.
Transactions made without Consent
General Rule: If a spouse enters into a contract without the required consent, it is void.
Exception: [to protect third parties]. If the party does not know or could not reasonable have
known that the required consent had not been given then the contract is valid.
If the contracting spouse knew that he or she would not get consent (being delibarately
devious) and the estate suffered a loss then a monetary or financial adjustment will be
made, in favour of the other spouse upon dissolution.
Example:
Jill and John are married ICOP. Jill inherited some jewellery. It is kept as a capital
asset. John sells the jewellery without Jill’s consent as he knew that she would not
consent to it. He provides the third party with a written consent with Jill’s forged
signature. The buyer was acting reasonable and the contract is valid. The jewellery
was worth R10000. John sold it for R250. Jill’s half of the share should be equal to
R5000. Instead she has R125. She has been prejudiced by R4875. Therefore in
addition to her half share (upon dissolution), John will have to pay her and additional
R4875.
If the other spouse unreasonably withholds consent or consent cannot be obtained, then the
party can make an application to the high court requesting that no consent is required.
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2. MARRIAGES OUT OF COMMUNITY OF PROPERTY (OCOP) & MARRIAGES OUT OF
COMMUNITY OF PROPERTY WITH THE ACCRUAL (ACCRUAL)
a) Effect of a marriage OCOP
-
Each party retains as their own separate estate what they acquired before and during the
marriage.
Each party remains liable for debts acquired before or during the marriage. They are not
liable for each other’s debts.
Upon dissolution of the marriage, by death or divorce, each party retains their separate
estate. They each retain their own assets and are liable for their own debts.
When the marriage dissolves neither party has a claim against each other.
b) Effect of the marriage accrual
Exactly the same as out of community of property (first three points above) with one
exception (point four is different):
The spouse whose estate has shown the smaller accrual (growth) during the marriage has
the right to half the difference between the two accruals at dissolution.
Inheritance, legacies and donations excluded from accrual.
Simply a monetary claim. Not join ownership over the estates.
Example:
Jill:
John:
Year: 2000
R500
R1000
John stayed at home
2009
R10 500
R1000
Difference: R10 000
R0
R10 000 - R0 = R10 000 ÷ 2 = R5000. John or his estate will have a (cash) claim
against Jill or her estate for R5000.
c) Contractual capacity of spouses (OCOP and accrual)
1. Each party has unrestricted power/full contractual capacity with regard to their own
estate.
2. Neither party/spouse has any power with regard to the other estate.
3. They are not liable for each other’s debts with one exception, they are jointly liable for
household necessaries.
What a household necessary is will depend on the social and financial standing of the
couple, but food/medicals/dentals are always necessaries (rich or poor).
C. INSOLVENTS
-
Somebody whose estate has been sequestrated by the high court in terms of the
Insolvency Act (been declared bankrupt). Liabilities > Assets.
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-
In other words, liabilities exceed assets and they cannot pay their debts.
If someone has not actually been sequestrated by the high court, then he is not really
insolvent in a legal sense and his contractual capacity is not limited even if his
liabilities are greater than his assets.
Once the court sequestrates someone they are insolvent.
Their estate (assets and liabilities) is placed in the hands of a trustee.
This is known as the insolvent estate.
The insolvent no longer has ownership of these assets.
The trustee must deal sell/liquidate the assets to pay the creditors.
The general rule is that the insolvent has full contractual capacity but there are major
exceptions:
1. He cannot dispose of any assets in the insolvent estate. not his anymore, the
trustee is keeping it to divide it between the creditors he couldn’t pay).
2. He cannot, without the consent of the trustee, enter any contract which may
negatively/adversely affect the estate.
3. He may not, without the consent of the trustee, be involved in the business of
a trader who is a general dealer (e.g. Pick ‘n Pay) or manufacturer (e.g.
builder).
4. He cannot work as a chartered accounting or director of a company
-
If the insolvent contracts in contravention of the above it is VOIDABLE at the instance
of the trustee (not void).
A voidable contract is a valid contract. The trustee can choose either to cancel it (this
means it did exist but they are now cancelling it) or to abide by it.
The trustee makes his decision in the best interest of the creditors.
Where a couple is married in ICOP, you cannot sequestrate just the one spouse
(joint estate), both must be sequestrated.
D. MENTAL INCAPACITY ARISING FROM MENTAL ILLNESS OR INTOXICATION
Mental Illness:
-
All persons are presumed to be sane/of sound mind, unless they have been
declared mentally ill in terms of the Mental Health Care Act by the high court.
Therefore if someone has not been declared mentally ill in terms of the Act their
contracts are presumed to be valid.
The person who wants to get out of the contract must then prove mental illness
(could be the 3rd party or the person himself) at the time of contracting
Then the contract will be VOID.
If someone has been declared mentally ill, the contracts are presumed to be void.
The person wanting to enforce the contract must prove that the mentally ill
person was having a LUCIDUM INTERVALLUM i.e. a sane moment.
Intoxication:
-
Intoxication can be due to drugs/alcohol/any mind-altering substance.
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-
If a person is SO intoxicated at the time of contracting that he did not know what
he was doing OR could not understand it’s terms, than the contract will be VOID.
The mere fact that someone is more easily manipulated when slightly intoxicated
will not make the contract void.
Note: The contract may be void, but the parties may be liable to each other on
the basis of unjustified enrichment.
Example: John is dating Susan and he takes her out for dinner. He doesn’t drink
(sober) but Susan has about 2 bottles of whiskey. She is so intoxicated that she
doesn’t know what she’s doing. John proposes to her and she accepts. He gives her a
ring worth R2 million. The next morning Susan realizes what happened and she wants
out of the contract. The contract is void and they are not engaged. John wants the
ring back. He can claim is back on unjustified enrichment.
1.2. Agreement/consensus
a) Offer and acceptance:
i)
Offer:
An offer is a proposal made by one party to another, containing terms and conditions
which, if accepted by the other person, binds them contractually.
Valid offer + Valid acceptance = Valid contract
The requirements for a valid offer are the following:
1. It must be made with the serious intention of creating a binding and legal
contract.
2. It must be complete and clear.
3. The offer must still be in existence at the time is it accepted.
→ If any one of these requirements are not met, then there is no valid offer, which means
that there can be no valid acceptance and therefore no valid contract.
1) It must be made with the serious intention of creating a binding and legal contract:
-
Whether or not a proposal equals a valid binding offer depends on the facts i.e. look
at the circumstances, the wording and how a reasonable person would
interpret it.
Applying this principle the courts have held that normally, the following are NOT valid
offers:
o Offers made in jest/joking. Example: Jane says the test was so difficult
that she’ll pay anyone who gets 100% a million rand.
o Social arrrangements. Example: we agree to go to the movies on
Saturday night, if I don’t show up, you can’t sue me for breach of
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o
contract. Example 2: Derek who is Jane’s boyfriend asks her to marry
him and she says yes = valid contract called engagement.
Adverts:
1.1 Adverts under Common Law
- the courts have held that normally an advert is not a valid offer
- it is an invitation to do business made to the general public or a group of people
- this is different from an offer which is normally made to a specific person or
persons
- Therefore, if someone responds to an advert, they are not accepting an offer,
instead they are the ones making the offer which can either be accepted or
rejected
Crawley v Rex 1909 TS (Transvaal Supreme Court = now known as Gauteng High
Court) 1105.
LEADING DECISION
-
-
Shop keeper advertised a certain brand of Tobacco at a very low price. Crawley
responded to the advert and bought some Tobacco. He came back a while later
and offered to buy some more. The shop keeper refused to sell to him because
Crawley wanted such a large quantity that the shop keeper thought he might
be selling it to a competitor.
They had a massive fight and Crawley wouldn’t leave the premises.
In court Crawley argued that the advert was an offer and he was accepting the
offer. Therefore it is a valid contract and therefore the shop keeper has to sell it
to him.
The court held that the advert was not an offer, just an invitation to do
business.
Crawley made an offer to buy the Tobacco which the shopkeeper could accept
or reject, and therefore the shop keeper is entitled to reject it.
The English courts apply the law in the same way and we have followed their leading
positions:
Pharmaceutical Society of Great Britain v Boots Cash Chemist Ltd [1953] All ER 182
(CA)
LEADING DECISION
-
Legislation in the UK which says that it is unlawful to sell certain
medication/substances unless the sale is supervised by qualified/registered
chemical pharmacists
Cough mixture, non-prescription pain killers not prescription medication but
medication over the counter that must be restricted
Customers at Boots took medication off the shelves and paid for it at the
cashier’s desk.
At the cashier’s desk there was always a pharmicist but not at the open
shelves.
The pharmaceutical society argued that Boots sales were unlawful because
goods displayed on the shelves were an offer. The customer accepts it when
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-
taken off the shelf. The contract of sale takes place at the open shelf. There is
no pharmacist at the open shelf, so it’s unlawful.
The court held that the goods displayed on the shelf are an invitation to do
business (an advert)
The court also held that the customer makes the offer at the cashiers desk.
If the item is run-up the offer is accepted so that is where the contract
happens.
There is a pharmicist at the cashiers desk therefore the contracts are lawful
and valid.
- These days adverts can take many forms; for example goods displayed on a shelf or an
email sent to a mailing list.
Example: Jane sends an email to the law faculty mailing list saying that she
wants to sell her car for R100 000. That is an advert.
- Sometimes adverts can be an offer=
Example: An advert to do business with whoever performs certain acts is an offer.
Carhill v Carbolic Smoke Ball Co (1892) 2 QBD
“100 pound reward will be paid by the Carbolic Smoke Ball Co. to any person who
contracts… Influenza after having used the small ball according to the printed
directions (3 x a day for 2 weeks). 1000 pounds is deposited in bank showing our
sincerity in the matter.”
Mrs Carhill took the smoke ball as directed and got the flu so she claimed the 100
pounds. The court said that the company did have to pay, because the advert was an
offer. She accepted the offer by taking the medicine and getting flu, therefore they had
to pay her, otherwise it would be a breach of contract.
1.2 Adverts Under the Consumer Protection Act
Reminder: it only applies to certain types of agreements – mainly sale and lease and
where the seller/lessor is someone who sells goods in the ordinary course of
business.
Section 23 (6) Lowest Display Price Binding:
… a supplier must not require a consumer to pay a price for any goods or services –
a) higher than the displayed price or
b) If more than one price is displayed the consumer must pay the lowest
Section 23 (8)…. If a price that was once displayed has been fully covered and obscured by
a second displayed price, that second price must be regarded as the displayed price.
Section 23 (9)… If a price as displayed contains an inadvertant and obvious error, the
supplier is not bound by it after –
a) correcting the error in the displayed price; and
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b) taking reasonable steps in the circumstances to inform consumers to whom the
erraneous price may have been displayed of the error and the correct price
Example explaining section 23 (9): Jane goes to a shoe shop and a pair of leather
boots is displayed for R20. Jane ask the shop assistant for a size 6 and the assistant
tells her that R20 is not the correct price, it is R2000. What price must Jane pay?
R2000. Because they’ve taken steps to inform.
Section 20(1) Bait Marketing
If a supplier advertised goods or services at a certain price, then they must ensure that there
are sufficient goods or services available at that price for consumers who respond to the
advert. Unless the advert is worded “while stocks last”
HAS THE CPA CHANGED THE COMMON LAW RULE THAT GOODS DISPLAYED OR
ADVERTISED ARE NOT OFFERS, JUST INVITATIONS TO DO BUSINESS?
i.e has the Consumer Protection Act overruled the Boots case?
We think not, there is no high court decision yet. We think it simply means that the
customers offer cannot be rejected on the basis of price (the lowest price displayed).
2) It must be complete and clear
-
The offer must contain the essential terms of the contract, so that an unconditional
acceptance can bring about a binding contract.
Unconditional acceptance = saying “yes”
If essential terms are missing from the offer and still need to be negotiated, it is not a
valid offer because then you have to say “yes, but…”
Essential terms are what make a contract what it is eg. In sale the essential terms
are the items and the price or in employment the essential terms are the job
description and the salary.
“Would you like to buy my car for R50 000” is a complete offer. Because essential
terms for sale are the items sold and price. Where you deliver, method of payment are
non-essential.
I.e. the offeree just has to say yes.
“Would you like to buy my car for between R40 000 and R50 000” is not a complete
offer because price still needs to be determined.
Example: Cliff v Electronic Media Network (Pty)Ltd at the GJ
- Cliff was a judge on SA idols
- each year he entered into a new contract with Mnet in this regard.
- on the 4th of January he tweeted “people don’t really understand free speech”
- because of recent social media regarding racist comments, this tweet was
interpreted by many as racist.
- Mnet then announced that Cliff would not be a judge on the 2016 idols because the
statement was not good for their brand.
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- The case didn’t deal with whether the tweet was racist, the issue before the court
was “was there a contract with Cliff and Mnet as at January 2016 that he would be a
2016 idols judge?”
- Mnet said that no contract had been signed, therefore no contract
- Cliff said that there had been an oral contract and the price had been settled and
therefore there was a contract.
- The court agreed with Cliff, the essential terms had been agreed, therefore they
could not just terminate him.
3) Offer must still be in existence at the time that is it accepted:
-
This means the offer must not have terminated
There are 3 ways in which an offer can end or terminate, look at each in turn:
1) Revocation – Means withdrawal of the offer by the offeror. The offer can be
revoked at any time prior to acceptance. Once acceptance has taken place, there
can be no revokation because acceptance brings about a valid contract. If you try
to revoke the contract it will be breach. The revocation must be communicated
to the offeree to be effective.
Example: you make an offer to X. You can see that X is phoning you on
your cell. You think he’s phoning to accept the offer that you want to
revoke. You must answer the phone and immediately say ‘I revoke’ before
he can accept. Because if he says it first, you have a contract and then
you’re in breach.
2) Lapse of offer – This means that the offer expires. An offer will lapse in the
following situations:
a) If it has not been accepted within a reasonable time. What is reasonable depends
on the facts of each case.
Example: An offer to sell listed shares (on the JSE) = will only last hours because the
share price fluctuates quickly.
An offer to sell immovable property will last a week or two
b) If a time for acceptance was specified and it has not been accepted within that
time.
c) The offer will lapse on the death of the offeror or the offeree provided that
acceptance has not taken place. Once acceptance has taken place there is a valid
contract and most contracts are not terminated by death (state or executive will carry
on with the contract). Generally death only terminates employment and marriage.
d) Where the offer was valid at the time that it’s made, but before acceptance, it
becomes invalid because it conflicts with the requirement of a valid contract
(something goes wrong before it’s accepted).
Example: UCT offers to house a company law conference from the 22nd of March in
the law faculty. Before the offer is accepted, the entire building burns down. The offer
is no longer valid because it is not possible of performance.
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3) Rejection
– rejection can either be expressed : “Would you like to buy my car for R150
000?” “No” or with a counter offer: “would you like to buy my car for R150 000”
“Yes, but I’m only prepared to pay R140 000.”
An offer will end if the offeree rejects it. There are two ways in which rejection can
occur:
→ Expressedly – Person just says no.
OR
→ By making a counter offer.
Example: do you want to buy my car for R150 000?
Reply: Yes I accept your offer but you need to replace all 4 tyres.
THIS IS A REJECTION AND COUNTER OFFER REGARDLESS OF WORDING.
→ Acceptance subject to conditions (yes, but), is not acceptance at all. Rather it is a
rejection and a counter offer which causes the original offer to end. The counter offer can
then be accepted or rejected.
ii) Acceptance:
In order to have a valid contract, there must be a valid acceptance.
The following are the requirements for a valid acceptance:
1)
2)
3)
4)
5)
The acceptance must be made by the person(s) to whom the offer was addressed.
The acceptance must be made “knowingly”.
The acceptance must be clear and unconditional.
Acceptance must be communicated to the offeror in the prescribed manner.
It must be made before the offer comes to an end. (revoked, lapsed, rejected).
1) The acceptance must be made by the person to whom the offer was addressed:
- In most cases an offer is made to a particular person, which can include a
company. Sometimes an offer can be made to the general public like offers for
reward.
- If the offer is made to a particular person(s) then only that person can validly accept
it.
Example: You offer to sell your business premises to Mr Green. Mr Green decides to
buy it jointly with Mr Blue. Both Mr Green and Blue sign the acceptance (buying it
jointly). This is not a valid acceptance because only Mr Green could accept (it was
42
offered to him only). There is therefore no contract (clients choice, if he doesn’t want
to sell to both of them).
2) The acceptance must be made knowingly:
-
The offeree must be aware of the offer when he tries to accept it. i.e. It must be
communicated to him.
Example: Bloom v American Swiss Watch co. 1915 AD 100
(Basic principles pg 60)
-
American Swiss was robbed and all the jewellery was taken.
They put an advert in the newspaper offering a reward to anyone with useful
information about the robbery.
This is a valid offer (not invitation to do business because it has a reward)
After the advert was published Mr Bloom went to the police with information
that resulted in the jewellery being recovered.
At this point Mr Bloom had not seen the advert.
When he learned about the advert he claims the reward and American Swiss
refused to pay.
The court held that the advert was a valid offer, but the acceptance was invalid
because he was unaware of the offer (it wasn’t made knowingly, it wasn’t
communicated to him).
Legally, American Swiss didn’t have to pay.
3) The acceptance must be clear and unconditional
-
Conditional acceptance is not acceptance, it is a rejection and a counter offer
Acceptance must be “yes”, not “yes but”
Can silence ever be acceptance?
In terms of Consumer Protection Act 2008 Section 31, negative option marketing is
not allowed and the contract is void
Example of negative option marketing: You are sent some books by a supplier that
you haven’t ordered. There is a note which says: “ if you do not return these books
within 7 days, you’re taking to have accepted the offer to purchase the books and you
will be billed.”
4) Acceptance must be communicated to the offeror in the prescribed manner:
-
If the offeror expressly sets out the manner of acceptance then it must be
accepted that way in order to be valid.
Example: someone makes you an offer and they say you must accept in
writing. If you accept verbally, it’s not a valid acceptance.
-
-
At what point is the acceptance taken to been communicated to the offeror? This
is important because once acceptance has been communicated, it is at that point
that we have a valid contract.
Different theories apply to determine when and where the contract is concluded:
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•
•
4.1) Information Theory:
GENERAL RULE
. In terms of the information theory, acceptance is only valid and the contract concluded
once it has been communicated to the offeror. The contract is therefore concluded at the
time and place where the acceptance comes to the attention of the offeror.
So the offeror must actually receive it, or hear it.
Example: A, in CT, phones B, in Joburg and offers to sell him his car. During the
conversation, B accepts acceptance. A is the offeror. According to the information
theory, the contract is concluded when A hears the acceptance in Cape Town.
•
4.2) Expedition Theory:
This applies where the offeror:
-
makes his offer by post or
authorises acceptance by post.
Then, if the offeree accepts by post, the acceptance takes place and contract concluded at
the time and place where the letter of acceptance is posted.
Example: Y is in London and he makes an offer via the post to X in Durban on 1
March. Mr X posts the letter of acceptance on the 15th of March in Durban. The letter
reaches Y in London on 23 March.
Contract is concluded on 15 th of March in Durban, where the letter of acceptance is
posted → enforced in Durban; jurisdiction takes place in Durban, governed by law.
Up to what point can Y revoke the offer? Only up to the 15th of March, because he can
only revoke before acceptance.
• 4.3) Reception Theory:
Electronic Communications & Transactions Act 2002 (ECTA). Applies to contracts made
by fax/email and other kinds of electronic communications eg. Sms, whatsapp etc.
In terms of this Act, contract is concluded at the time and place where acceptance is
received by the offeror.
An electronic message is regarded as being 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. (Sec 23)
So the important thing here, is that the contract can be concluded at the time and place
where the email or text message is sitting in the offeror’s inbox EVEN IF HE HAS NOT
YET CHECKED IT. So this is the big difference between information and reception
theories.
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Example: Jafta v Ezemvelo KZN Widlife (2008) (LC) Labour Court
-
-
-
J was offered a job by Ezemvelo.
The offer was made via email and he had to accept the offer before the 31st
of December 2006 or it would expire
On the 29th of December, he tried to send an email from an internet café.
The email never reached Ezemvelo and kept bouncing.
The parties didn’t dispute that.
On the same day, 29th of December, he received an sms from the HR
manager reminding him to accept before the 31st of December. He
responded with an SMS on the same day, saying that he was accepting the
offer.
The text message reached Ezemvelo.
However, Ezemvelo hired someone else. And J sued for damages.
Ezemvelo argued that the SMS was not a valid form of acceptance. The
court held that it was a valid form of acceptance AND that an SMS is a data
message AND therefore was valid when on the 29th of December when it
reached Ezemvelo’s text inbox.
Therefore, Ezemvelo was in breach by offering the job to someone else.
** REMEMBER: If the offeror has specified the method and place of acceptance, then that
overrides theories.
** If the offeror does not specify a method and place of acceptance and neither the
reception, nor expedition theories apply, then apply the information theory as it is the general
rule.
Cellphone and landline = information theory
5)
It must be made before offer comes to an end:
-
An offer will be ended through revocation, lapse or rejection (refer back to notes
on offer).
b) Options and Rights of First Refusal
i) OPTION:
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 that period of time, the offer is irrevocable.This is different from a normal offer which
can be revoked at any time before acceptance.
Example: B offers to sell his car to A for R20 000 – main offer. B says to A that he will
keep the offer open for 2 weeks. This offer to keep the offer open is ancillary
(dependent) to the main offer. A says okay, he will think about it for 2 weeks → A has
now accepted the ancillary offer & there is now an option contract.
The option contract is that B will keep his offer open for 2 weeks. So B cannot, during
those 2 weeks, revoke the offer.
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An option contract must be distinguished from an offer that will expire. If an offer will expire
after a certain date it just means that it cannot be accepted after that date. It can be revoked
prior to that date. The difference will depend on the wording.
There are 2 types of contracts:
➢ The option contract
➢ The main contract (which may or may not come into being – sales contract in this
case).
An option must NOT be confused with an offer that expires after a certain period.Where an
offer expires, it means it cannot be accepted after that date, BUT it can be revoked prior to
that date.
ii) RIGHTS OF FIRST REFUSAL:
A contract giving a right of first refusal is a contract whereby one party (the grantor) agrees
that if he should be willing to enter into a particular contract, the other party, grantee, will
have the right to enter into that contract with him before any other person.
Example: A says to B, if I ever sell my house, I will first offer it you man! B accepts.
This is a right of first refusal. If A never sells his house he will not be in breach. Only if
A sells his house and offers it to C first will he be in breach of contract.
c) Online Contracting
Introduction
Online contracting via the internet is considered and electronic transaction (governed by
ECTA)
In terms of ECTA, and electronic is concluded at the time and place when acceptance is
received by the offeror i.e. acceptance is sitting in the information before its read or
acknowledged.
Definitions:
1. Supplier: any person who offers goods or services for sale, hire, exchange on the
web in the ordinary course of business- it is a supplier in a business i.e. online
shop (PNP) or internet banking, it is not a gumtree situation. Not Gumtree
2. Consumer: any natural person (human being), so not a juristic person, who
enters into and electronic transaction with a supplier. ECTA does not apply to
juristic persons.
Consumer’s rights in terms of ECTA section 44
46
•
•
•
•
•
•
•
Normally once an offer has been accepted there is a contract and any attempt to get
out of the contract at that point without a valid reason will be breach.
However, ECTA creates an exception to the Common Law rule above, i.e. you can
cancel for no reason and it won’t be breach.
In terms of section 44, a consumer is entitled to a cooling off period during which he
can cancel the transaction for no valid reason and it won’t be breach and he wont
incur a penalty. The only charge he may have to pay is the cost of returning the
goods.
In an electronic contract for the supply of goods the consumer can cancel within 7
days of receiving the goods (this is the cooling off).
In an electronic contract for the supply services the consumer can cancel within in 7
days after the conclusion of the contract.
If the consumer has already paid he must get a complete refund within in 30 days of
cancellation.
This right to cancel with no valid reason is NOT breach.****
These rights do not apply to the following transactions
1)
2)
3)
4)
5)
6)
7)
8)
9)
Provision of financial services eg. Banking or insurance
Auctions.
Transactions for the supply of food and beverages or other consumables
Transactions where the price of goods or services is heavily dependent on financiial
market fluctuations (shares).
Transactions where goods are personalised OR made to the customers specification.
Where audio or video recordings or computer software have been unsealed by the
consumer.*
Transactions regarding the sale of newspaper, magazines or books.*
Transactions for the provision of accommodation, transport, catering or leisure
services.*
Transactions for the supply of services, which have already begun with the
consumers consent within the 7-day period.
Security:
-
The supplier must use a payment system that is sufficiently secure.
If he fails to comply with this, he is liable for any damage suffered by the consumer.
Performance by the supplier:
-
In terms of section 46, the supplier must perform the consumer’s order within 30
days, unless the parties agree otherwise.
If the supplier doesn’t do this, the consumer can cancel the transaction.
Contractual exclusion is not allowed:
-
Any contractual term in which, the parties agree to exclude the provisions we’ve
discussed (e.g. won’t exercise the cooling off period or security provisions ill be
ignored), is invalid.
47
-
Example: if agreeement says “the consumer agrees not to exercise her section
44 rights.” That will be invalid and the consumer can exercise her rights.
d) Cooling off and Right to Cancel Advance Bookings under CONSUMER PROTECTION
ACT
CPA Cooling-off
-
-
CPA applies in limited situations where selling/leasing is in ordinary couse of
business
normally, once an offer has been accepted, there is a valid contract and any attempt
to get out of the contract after would be breached
However, the CPA creates exceptions to the above rule where you can cancel
without breaching the contract
Under the CPA, a consumer is entitled to a cooling off period during which he can
cancel the transaction without any fee or penalty or any valid reason and it would not
be breach
The cooling-off period in the CPA is contained in section 16 (know section
numbers) and it only applies in the case of direct marketing
“direct marketing” means to approach someone either in person, or by mail or
electronic communication and offering to supply them with goods and services
Example: takealot emails, pamphlets in the mail etc
Section 16 of CPA does not apply to a transaction if section 44 of ECTA applies to
that transaction
Example 1: you order toys/ online. Would ECTA apply to the transaction? Yes,
because it is online and it is not one of the exceptions. Therefore use ECTA
section 44 cooling off period not CPA section 16 cooling off period.
Example 2: you order books online. Section 44 ECTA does not apply because it is
one of the exceptions. So you may use section 16 of the CPA if it was direct
marketing.
-
-
In terms of CPA section 16. The cosumer may cancel the contract within 5 business
days aftera) the agreement was concluded; or
b) the goods were delivered
whichever is later
A supplier must return any payment within 15 business days after cancellation, if no
goods had been delivered
OR
-
If the goods have been delivered then the supplier must refund payment within 15
business days after goods have been returned
-
NOTE: the supplier may charge the consumer:
a) a reasonable amount for use or consumption of the goods and
b) necessary restoration costs to render the goods fit for resale
48
Example: Take-a lot sends an email advertising book specials. you order books online
frome take-a lot. The book arrives on the 4th of April. You now decide that you don’t
like them and want to retun them.
Does this seem like a valid reason to get out of the contract? NO
Does section 44 of ECTA apply? NO because books
Does section 16 of CPA apply? YES because direct marketing
You have 5 working days to return books from the 4th of April.
If Takealot had not emailed you, but you had gone onto their website and ordered
books, would section 16 of CPA apply? NO not direct marketing.
Would section 44 of ECTA apply? NO books. Therefore no cooling off, therefore
cancellation would be breach.
CPA – the Right to cancel advance reservation, booking or order
Section 17:
-
-
A consumer has the right to cancel any advance booking, reservation, or order for
any goods or services. i.e. it won’t be considered a breach.
E.g hotel, car rental etc
The supplier may impose a reasonable cancellation fee
A supplier may not impose any cancellation fee in respect of booking, reservation or
order if the consumer is UNABLE (not unwilling) to honour it because of DEATH or
HOSPITALISATION of the person for whom the booking, reservation or order was
made.
Section 17 does not apply in respect to special order goods – meaning in the case of
special order goods, cancellation will amount to breach.
1.3 Factors which can taint or prevent the conclusion of a valid contract:
(Dealing with requirement number 4 for a valid contract – The parties must be of the same
mind)
1)
2)
3)
4)
-
Mistake.
Misrepresentation.
Duress.
Undue Influence.
These may either render a contract void or voidable.
Void Contracts:
-
A void contract is no contract at all, it never existed, therefore the courts will refuse to
enforce it.
Both parties can claim their performance under unjustified enrichment (ie. Each party
only pays back the amount by which he has been enriched.)
A contract will normally be void if any of the essential requirements are missing:
49
1. Contractual Capacity. – but are exceptions where contract may not be void (see
notes under capacity i.e. may be voidable or limping and can be ratified/enforced)
2. Serious intention to contract.^
3. Communication.^
4. Parties must be of the same mind. i.e. no misunderstandings or mistakes. –
focus of topic 1.3
5. The agreement must be lawful (sometimes renders it void).
6. Performance must be possible.
7. Compliance with all formalities.
8. Certainty.
^offer and acceptance
Do you cancel a void contract?
-
No, because it never existed so you cannot cancel something that doesn’t exist.
Therefore you can/must claim back your performance under the law of unjustified
enrichment (there is no contract).
Voidable Contracts:
-
-
We have already seen voidable contracts such as an insolvent’s contract made
without the required consent is voidable at the instance of trustee.
This means that the contract is valid, all the essentials requirements have been
complied with, but there is a defect in the consent of one of the parties.
The defect can be due to misrepresentative, duress or undue influence.
Therefore, the party who has been wronged has an election:
o Can cancel the contract (set aside/rescind) and claim restitution i.e. each
party restores FULL performance to the other
Or
o Abide by the contract.
But until the party makes his election, there is a valid and binding contract (it
does exist)
Even if the party chooses to cancel,it does not become void – it is cancelled.
I.e. it did exist, it is now dead and there will be consequences.
The person must make his election within a reasonable time
Once he makes the election, he cannot change his mind.
If he elects to rescind (cancel/set aside), then both parties must make full restitution.
Example: A buys a car from B. B has misrepresented the car to A. The contract is
voidable. A elects to cancel the contract , A had an accident in the car and it was
worth R90 000 when he bought it, but now it is worth R40 000. Both parties must make
full restitution. B must pay A back the R90 000 and technically, A should give back the
car valued at R90 000. But because the car has lost value, he has to give back the car
and pay the R50 000 difference.
If it were unjustified enrichment, B should pay A R90 000 (if he still has it in his
account) but A must just give back the car. Unjustified enrichment is used in cases of
VOID contracts.
-
If he cannot make restitution, he has to give the money’s worth (value of the goods).
50
-
Sometimes, the court may wave (dismiss, don’t have to do it) restitution for one party
if it is in the interests of justice. Example: if A’s accident was caused because B
deliberately didn’t tell him that the breaks don’t work.
NOTE: If we have a valid contract then we use the word restitution and not unjustified
enrichment.
i)
MISTAKE
-
Mistake may render a contract void.
There are 2 types of mistakes:
a. Common mistake – Both parties share the same mistake.
b. Unilateral mistake – Only one person is mistaken, the other is not.
Mistake (both common and unilateral) may render a contract VOID.
1. Common mistake
-
Both parties are in agreement, but they’ve both made the same mistake.
This may render a contract void.
Example: A sells B a sealed container of oats. B thinks it contains rice and A also
thinks it contains rice (they want to buy and sell rice).
Therefore, they are both mistaken, In agreement but have made a common mistake as
to subject matter. The contract is VOID and they will have a claim against each based
on unjustified enrichment. Therefore A must return the purchase price to B, and B
must return whatever is left of the oats to A. This is different from full resturation
under voidable contracts.
Example:
Bernstein N.O v Goldex 16 (Pty) Ltd 2015 (GP)
-
N.O. = nomino offici therefore Bernstein is not acting in his own capacity
Berstein was a trustee of the Bernfin Trust
Goldex owned a piece of land at the Vaal Dam and was developing a housing
estate on the land called the Waterford Estate
The trust entered into an agreement of sale in terms of which it bought a piece of
land in the estate from Goldex
Both parties believed that the land included a boathouse
The trust really wanted the boathouse and would not have bought the land if it did
not include the boathouse
It turned out that the land on which the boathouse was situated did not actually
form part of the Waterford Estate land
Neither Goldex or the trust were aware of this when the contract was concluded
It was a common mistake
51
-
In order for a common mistake to render a contract void, the mistake must be
MATERIAL. If the mistake is not material, the contract will be VALID. It does not need
to be IUSTUS.
b) Unilateral mistake:
•
Only one party is mistaken (NB).
Example: A sells a sealed container of oats to B. A knows it contains oats, but A
thinks it contains riice.
Example of precedent: Maritz vs Prately 1894 SC (unilateral error)
Lot No. 1208 was a marble mantelpiece. Labels on the tags were so tiny that you
could hardly read them. On top of the mantelpiece stood a gold-framed mirror and
that was Lot No. 1209. The auctioneer puts the mantelpiece up for auction and sells it
to Mr P. Mr P thought he was buying them as a unit because of how it was displayed.
So – the contract was void due to his unilateral error.
•
In order for a unilateral error to render a contract void, all of the following requirements
must be met:
1. Must be a mistake.
2. Must be unilateral
3. Must be material (see list under common mistake)
4. Must be reasonable, i.e. an IUSTUS error.
If the mistake is not material and iustus, the contract will be valid.
Material Mistakes
-
The general rule is that a mistake is material if the person would not have entered
into the contract if they had known the true state of affairs.
-
Applying this rule, the courts have identified a list of mistakes that will always be
material but this is not a closed this. List comes from Case Law.
-
The following are material errors (these may apply to both common and unilteral
mistakes)
1) Mistake as to the type of contract (ERROR IN NEGOTIO)
Example: A gives B R5000. A thinks that it’s a loan, B thinks it’s a
gift/donation and doesn’t have to pay it back.
2) Mistake as to subject matter (ERROR IN CORPORE)
Oats example.
3) Mistake as to the identity of the parties (ERROR IN PERSONA)– but only
where identity is an essential ingredient of the contract.
Example: Marriage, employment
4) Mistake as to the terms of the contract – NB R5000 v R50 000
52
The following are not material errors:
1. Mistakes as to the attributes or quality of the subject matter (ERROR IN
SUBSTANTIA)
Example: you buy a bracelet thinking its solid gold, but it is actual gold plated. This is
a mistake as to the attribute of the good, therefore not material, therefore valid
contract. UNLESS you can argue that it was a term of the contract that it is a gold
bracelet.
2. An error in motive
Example: you think you’ve lost your watch so you buy another watch to replace it. A
week later you find your old watch. This is not a material mistake, so the contract is
still valid.
An error will be iustus in one of the following two situations:
1. If the other party (in unilateral error, the one who is NOT mistaken) knows or ought to
have known that the mistaken party had made an error.
Example: Horty Investments vs. Interior Acoustics 1984 (3) SA 537 (W) – it rented out
business premises to I. There were verbal negotiations and later, the contract was
reduced to writing. Clause 1 of the contract said, “The lease will begin on May 1981
and will continue for a period of two years. During that period, no notice could be
given.” Clause 2 said “No notice can be given before the 1st of May 1993” → date was
a typing error. H said that they intended the lease to only last for two years. I said that
they genuinely believed that the lease was for 12 years. H applied to court to have the
contract declared void on the basis of mistake.
What kind of mistake is this? Unilateral
Is it material? Yes it a mistake as to the terms
Is it Iustus error on part of H? – Court held it was iustus because the non-mistaken party,
Interior, ought to have known that Horty had made a mistake and only wanted a two year
lease. Court also said that Interior could not reasonably have believed that H intended to be
bound for 12 years especially given the wording of clause one.
OR
2. If the other party misled the mistaken party
c.Iustus Error And Caveat Subscriptor – Written contracts
•
•
•
A situation often arises when a person signs the contract without reading it.
Therefore can be mistaken as to the terms of the contract → they are unaware of them.
Courts have held: where a person signs a contract, he is bound by the contract even if
he has not read it. The roman principle of Caveat Subscriptor applies.
CAVEAT SUBSCRIPTOR – “the one who signs, beware.”
53
Example: George vs Fairmead (Pty) Ltd 1958 (2) SA 465 (A)
Mr George hired a room at the Fairmead Hotel. He was asked to sign the hotel
register. The register contained terms & conditions which formed his contract with
the hotel. Mr George signed and did not read it. One of the clauses was that the
hotel was not liable for any loss suffered by the guest. Mr George went out that
evening and when he returned that something was stolen. Mr George sued the
hotel. Hotel said that they were not liable because they were protected by the
clause in the contract that he had signed. Mr George argued that clause did not
apply to him because he hadn’t read the contract.
BOUND? Yes, he was bound.
• This principle used to be applied very strictly; however over the years the courts
developed certain exceptions to caveat subscriptor. Become more lenient.
• In each case of these exceptions, the court heavily relied on iustus error principle.
• These exceptional cases are not a closed list and they all turn on the facts ie. The
facts are crucial.
In each of these exceptional cases, the court relied heavily on mistake and iustus error
principle:
Example: Dlovo vs Brian Porter Motors 1994 (2) SA 518 (C).
Mrs Dlovo took her car to be repaired at Brain Porter Motors. She was asked to
sign what they call a “job card”. Told she had to sign it to authorise repairs. She
signs without reading. It contained a clause which said: “Company would not be
liable for loss/damages to owner’s vehicles” which is known as an exemption or
exclusion clause. While the car was at Brian Porter’s, the car was stolen. A while
later, it was recovered but sustained further damage. The car would now cost
R8341.99 to repair. Mrs Dlovo sued for the amount. Normally B would be liable for
the damage because it was caused by their negligence under delict. B agreed that
they were negligent but also said they were not liable because of the exclusion
clause in the job card. D said “I didn’t read the clause.” B said that she is bound
by caveat subscriptor. Court found in favour of Mrs Dlovo for the following
reasons:
1) She was mistaken as to the terms/nature of the document, i.e. UNILATERAL, MATERIAL,
REASONABLE MISTAKE.
2) B ought to have known that Mrs D was mistaken as to the nature and terms of the
document because they told her she was signing a job card to authorise repairs and the
reasonable person would not expect to find contractual terms & conditions in the job card,
Also should have drawn her attention to the clause.
3) Therefore her mistake was iustus
4) Therefore the contract is VOID, therefore the exclusion clause does not exist; therefore
they haven’t excluded liability and they are liable under delict
5) Furthermore, in these particular circumstances, the clause should have been pointed out
to her
54
Would the case have been heard differently today under CPA (if applicable):
1) Section 51 of the CPA says that exclusion clauses are invalid if they exclude liability for
gross negligence. Gross negligence is recklessness, normal negligence is carelessness
below the standard of the reasonable person. This case didn’t deal with gross negligence
therefore the CPA would not have helped her.
2) Section 49 of the CPA says that an exclusion clause must be in plain writing, it must be
drawn to the consumer’s attention, and the consumer must have had a chance to read it and
understand it. If not then either the clause will be void or the entire contract would be void.
This would have helped Mrs Dlovo.
3) The CPA does not replace the common law, even where the CPA applies (unless there is
a conflict), therefore today Mrs Dlovo could have argued her case either under the common
law of mistake or under the Section 49 of the CPA. If there is a conflict, CPA trumps.
Examples:
1. School teacher is taking children to the park. One child is crying and she is tending
to that child. While she is dealing with that child, another child falls off a jungle gym
and breaks their arm – can argue NEGLIGENCE.
2. Teacher is sitting under a tree, smoking, when the child falls off the jungle gym
when she’s not watching – this is GROSS NEGLIGENCE.
Example of another exceptional case:
Sprindrifter (Pty) Ltd. vs Lester Donovan (Pty) Ltd. 1986 (1) SA 303 (A)
Spindrifter, the plaintiff, was a clothing company owned by a Mr Levenson. Lester
Donovan, the defendant, ran clothing trade fairs in CT. Mrs Cats works for Lester
Donovan and represented him during negotiations. Mrs Cats and Mr Levenson
discussed his participating in Winter Trade Fair in CT from the 27th to the 29th of July
1981. Cats told Levenson to sign as soon as possible as there were limited stands.
She continuously harassed him to sign, on the day he did sign, he was in a big rush
but she urged to sign it. He signed the front of the document, and did not turn the
document over. On the back of the document was a clause which said that if the dates
of the fairs changed for any reason then the exhibitor had to pay the full contract
price even if he cannot make it and a penalty. She was aware that he did not see it.
The date changed to the 30 th of July – 1st of August. Levenson could not exhibit (in
Hong Kong at a fashion event).
Lester Donovan told him that he is obliged to pay the full contract price and the
penalty (clause). He refused and said that he hadn’t seen the clause or read it. Lester
said that Levenson is bound by caveat subscriptor.
The court found in favour of Spindrifter.
55
The Court said:
1. it was a unilateral mistake as to the terms.
2. That was a material mistake
3. Mrs Cats knew that Levenson was unaware of the terms on the reverse side.
4. Therefore, she ought to have known that Levenson was mistaken as to the terms –
IUSTUS ERROR
5. Therefore the contract is does not exist/VOID because of MISTAKE –
6. Therefore caveat subscriptor cannot apply because the contract does not exist because
you didn’t sign anything. Therefore the clause demanding payment does not apply.
7. Therefore he did not have to pay
8. Mrs Cats ought to have pointed the clause out to him, especially because the negotiations
proceeded on the basis of the dates: 27th – 29th June.
9. Even if she had pointed the clause out to him, it is doubtful that he would have been able
to read it given the print and the pressurised time.
Would the case had been heard differently today under CPA (if applicable):
1) In terms of section 49, the clause must have been in plain writing, it must be drawn to his
attention and he must have had the time to read it. This would have helped Mr Levenson.
2) However, he may still have been charged a reasonable cancellation fee (see section 17 of
CPA, Advanced Bookings and Reservations)
3) CPA does not replace the common law so he argued section 49 of CPA or mistake to win
this case.
***4) The CPA may not have applied in this case because it only applies if the consumer is a
juristic person with a net asset value of under R2million or a natural person with any net
asset value.
NOTE: Caveat Subscriptor is still the general rule. These cases were exceptional
because of their particular facts.
Example: Hartley v Pyramid Freight (Pty) Ltd 2007 (2) SA 599 (SCA)
H and his wife entered into a contract with PF, in terms of which PF would courier
travelers cheques for them to Jersey. They were valued at $16000. At PF’s offices, H
and his wife dealt with Mrs Barnard. They were asked to sign a dispatch note which
was the contract between them. On the front of the form it said the contract is subject
to the standard terms and conditions on the reverse side. On the reverse side it said
that PF will not be liable for any loss of travellers cheques. H did not bother to read it,
and his wife signed for both of them.
56
The travellers cheques got lost due to PF’s negligence and H sued for the value.
Pyramid argued caveat subscriptor – that there was an exclusion clause that H was
bound by. H argued that he was mistaken as to the terms, he didn’t see the exclusion
clause.
Mistake as to the terms is always material. The issue was: is his mistake iustus
(reasonable).
1. The court said his mistake was not iustus because he was a commercial lawyer
with 44 years experience. He should have known their was a possibility of exclusion
clauses; therefore Mr Banyard could not have known he was mistaken.
2. Therefore she had no obligation to point out the clause to him.
3. Therefore he was bound, the clause is binding because of caveat subscriptor.
4. Therefore he cannot sue.
5. There was no mention of small print or anything like Spindrifter.
57
ii) MISREPRESENTATION UNDER COMMON LAW
While mistake renders a contract void, misrepresentation renders it voidable
-
-
A misrepresentation is a false statement of fact made by one person to another, with the
intention of causing the other party to enter into the contract, and which does actually
cause him to enter the contract.
NB: So these are pre-contractual statements made during negotiations.
1. We are dealing with misrep under the common law & the CPA separately.
2. Therefore, we need to set out when the CPA applies and when common law applies.
3. The CPA only applies where the supplier is a person who sells, markets or leases goods
or services in the ordinary course of business.
This term “ordinary course of business” is not defined in the Act.
4. Presumably it means – any corporate that sells/leases products or even an
individual/partnership that sells/leases products as long as it is in the ordinary course of
business.
Example: Corner café owned by Mr X. He sells goods in the ordinary course of
business; therefore the Act applies to him. Also, act applies to Pick and Pay.
Example: Jane is a lecturer at UCT. She sells her car to Bob. Not in the ordinary
course of business, therefore the CPA does not apply – this is common law = private
sale.
Note: These situations will be looked at in this section, e.g. private sales.
Misrep – renders a contract VOIDABLE – i.e. contract is valid but wronged party has a right
to abide or to cancel.
Types of misrepresentation:
1. Fraudulent misrepresentation – This is a misrep made without any belief in its truth (i.e.
it is a LIE).
Example: A tells B that his car is a 2010 model, but it is actually a 2008 model.
2. Negligent misrepresentation – The person believes the truth of what they’re saying, BUT
he has been careless and the information is not correct. The reasonable person
wouldn’t have made such a mistake.
Example: Jane tells the buyer that her car is a 2006 model because she believes it
to be true, but actually it is a 2005 model.
3. Innocent misrepresentation – This made without fraud and negligence (no intent & not
careless).
Example: A inherits a painting from his grandparents, it’s been in his family for 400
years and they believe that it is an original Picasso. A sells a painting to B. He tells B
that it is an original Picasso, and B buys it for R60 million. A few years later, B sells
the painting to C, and he tells C that is it an original Picasso, sells it for R85 million. C
sells it to D a few years later, same facts, R95 million. D sells to E for R110 million. A
58
few years later, E calls Mr X to do an evaluation of the painting and X discovers that it
is a fake and is worth R350. Only X and one other such expert in the whole world
could tell that it’s a forgery. A was not being fraudulent i.e. lying, he was also not
negligent because the reasonable art expert could not have told that it was a fraudary;
therefore A was not careless. D’s misrep to E was therefore an innocent misrep, the
whole chain was innocent.
Forms of misrepresentation:
•
Whether misrep is fraudulent, negligent or innocent, it takes one of the following forms:
1. Verbal/written misrep
2. Misrep by conduct
Example of misrep by conduct: Trotman vs Edwick 1951 (1)
T owned a plot of land. T sold E the land – on the land was 2 flats. The entire property
was enclosed by a wall. Two sevenths of the land is owned by the municipality. The
plan was to put a road through those two sevenths. During negotiations, Trotman
says to Edwick, “Look at the extent of this land” and then paced right to the boundary
of the wall – creating a false impression – fraudulent misrepresentation.
•
•
•
3. Misrep by silence (non-disclosure)
The general rule in SA is not that there’s no duty to speak or disclose information – you
don’t have to disclose anything.
HOWEVER there are a few exceptions, i.e. when you MUST disclose and your silence
would be a misrep.
Exceptions:
a) Where a person has told a half truth and creates a misleading impression.
E.g. Marais v Eldman 1934 CPD 212:
E sold a farm to M. E told M during pre-contractual negotiations that he has
pumped the borehole on the farm for 3 years without it failing and it had always
had water. What he omitted was that this occurred 14 years ago and the depth
of the borehole had since reduced from 125 to 104 feet. This is misrep.
b) 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):
F sold a farm to D. Prior to the sale, there had been a graveyard next to the
farmhouse. Furter knocked down all traces of the graveyard and planted a rose
garden. He then sued Furter when they discovered the true state of affairs for
misrep by his conduct – fraudulent.
If he did this a year before with no intention to sell, and did not disclose, it
would be negligent misrep.
c) Where he has by earlier statements or conducts given the other party a certain impression
and circumstances have changed.
59
E.g. A bought a flat in Cape Town for his daughter, a student. A lift in joburg
and it was important to him that his daughter would be safe. The block of flats
had no security, this put him off buying. The seller assured him that the
owners were going to put up a boundary wall or electric gate (true at the time).
On this basis, A bought the flat (would have not bought otherwise). Between
the time of signing sale in May and deal being completed in June/July, sellors
had a meeting and decided not to put up security. Sellor forgets to tell A and
he had a duty to disclose because circumstances had changed.
4. Common law rule that a seller must disclose latent defects (i.e. defects that are not
obvious)
Example: A goes to look at a house in February in Newlands. It is a sunny day
and she loves the house. She signs the contract. She moves into the house in
June and the rain starts and the roof leaks badly. She didn’t see this when she
saw the house in February. The roof contractor tells her that the roof must
have been leaking for at least two years. The sellor should have disclosed that
latent defect; contract is VOIDABLE.
REQUIREMENTS FOR MISREP TO RENDER A CONTRACT VOIDABLE:
-
Not every misrep renders a contract voidable.
In order to render a contract voidable, ALL of the following requirements must be
met: (If requirements not met, then the contract is valid)
1. The misrep did induce the contract, i.e. a causal misrep.
Example: Jane wants to sell her car to Bob. She tells him it is the 2007
model and he buys the car. Actually it is the 2006 model. Had he known,
Bob would not have bought the car.
NB – CAUSAL = VOIDABLE – this is a misrep that does actually induce the contract,
i.e. the other party would not have contracted AT ALL if it weren’t for the misrep.
NB – INCIDENTAL = NOT VOIDABLE – this did not induce the contract i.e. the
person would have contracted anyway without the misrep. Sometimes, this misrep
may cause the contract on less favourable terms, but the contract won’t be voidable,
at best, they will have a claim for delictual damages.
Example: Bob works with Jane, he has wanted to buy her car for some
time. He has decided that he will pay up to R100 000 for her car. He thinks
it’s a 2007 model, he approaches Jane and she LIES and tells him it’s a
2008 model. He therefore offers to pay her R110 000. Is that contract
voidable? No, the contract is not voidable because he would have bought
the car anyway it is an incidental misrep. However, he may have a claim for
delictual damages for R10 000.
2. The misrep was material – a material misrep is one that would induce a
reasonable person to enter into a contract. [might not be a requirement
anymore]
3. Misrep must be made with the intention of inducing the other party to enter
into the contract.
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4. It must be made by the other party to the contract.
Case Law: Lourens vs Genis 1962 (1) SA 431 (T)
L told G that his son (L’s son) has x-ray eyes, he can see water underground and can
tell him where to sink a borehole. G believed him and on the strength of this, they
entered into a contract in terms of which L’s son was going to choose a place to sink
a borehole, and G would then pay L a large sum of money. The son pointed out a
place, G paid, and there was no water. He then tried to get out of the contract on the
basis of misrep. This is a fraudulent misrep, it was causal but NOT MATERIAL – a
reasonable person would not have believed it, he had his own stupidity to blame.
Contract is NOT voidable – could claim for delict though.
There is debate about this and it is unlikely that it will be upheld today.
5. The misrep was a false statement of fact – in order to render a contract
voidable, the misrep must be a statement of fact.
Opinions & puffs will NOT make a contract voidable.
• An honest OPINION which is genuinely held and which turns out to be wrong will not
make a contract voidable.
Example: A wants to sell shares to B, & tells him he believes it’s a fair price, but
doesn’t show any factual evidence. It turns out the price was excessive. The
contract is not voidable (it’s valid) as it was an opinion, not a statement of fact (no
financial statements shown).
• A dishonest opinion is seen as a fact and DOES make the contract voidable
Example: If A didn’t believe it was a fair price and lied about his opinion, that is
seen as a fact and the contract would be voidable. The law sees the mind as a fact
and if you are misrepresenting the state of your mind (lying) then it is a fact.
• A PUFF is where a party is singing the praises of the goods but it doesn’t relate to a
material fact (Sales talk: family home, best car on the road, picture perfect).
• A puff will not make a contract voidable provided it doesn’t relate to the facts.
• The line between puff and fact is hard to draw
Example: The car is reliable because it has new brake pads. FACT because of the
new brake pads.
• Relevant factors in deciding between puff and fact:
- Was the statement made in answer to a direct question? : probs a fact
- Did the maker of the statement know it was important (context of contract) to the other
party? : then probably a fact
- What would the reasonable person think?
Example: A sells his house to B. He says to B, “this is a wonderful family home,
you will be happy here, it has a nice feel.” This is a PUFF. Contract is not voidable.
Another example: A sells his car to B. Says “this is a fantastic car” = PUFF. If he
says “this is a fantastic car because it has a two litre engine” = FACT.
CONSEQUENCES OF MISREP:
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1.Contractual Remedies
-
Where the requirements have been met, the contract is voidable and the other
party has a choice; either they can abide by the contract or they can cancel
(rescind) and claim restitution.
-
This applies whether it is fraudulent, negligent or innocent misrep.
2. Delictual Damages
-
In the case of fraudulent and negligent misrep, delictual damages are available.
A delict is a wrongful act that causes harm
The wrongful act is the fraudulent or negligent misrep, the harm is the loss
causes.
No delictual damages for innocent misrep because there is no delict/ wrongful
act.
Delictual damages put the person in the position they would have been in if the
delict hadn’t occurred. (delict being the misrep).
NOTE:
1. Delictual damages can be claimed in addition to recission and restitution if the
contract is voidable, and person chooses to rescind/ cancel.
Example: . X buys Y’s house for R900k. The value of the house is actually R600
000. He would not have bought the house at all if it weren’t for a fraudulent misrep
of fact. The contract is voidable (met the requirements) , X chooses to rescind and
claim restitution (contractual remedy (1)). X returns the house and gets
R900k+interest.
In addition, under delict he can claim:
- Transfer duty
- Lawyers fees
Consequential losses (loss as a consquence of the transaction) because of delict.
This doesn’t affect the rule against double compensation
OR
2. Delictual damages can be claimed instead of recession and restitution, if the contract
is voidable but the person chooses to abide.
Example: (refer to example above) The market value of the house is R600 000. The
person chooses to abide by the contract even they they could have rescinded.
They can claim delictual damages for abouut R300 000 + interest.
OR
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3. Delictual damages can be claimed instead of recession and restitution if the contract is
not voidable.
Example: (refer to facts above) If the misrepresentation was not causal, i.e. it was
incidential. Therefore the contract is not voidable, but valid. However, they can
claim delictual damages for R300 000 + interest.
iii) MISREPRESENTATION UNDER THE CONSUMER PROTECTION ACT
•
Act only applies if the supplier sells/leases in the ordinary course of business.
Section 41 of CPA
1. Section 41, Misrepresentation is not allowed, by words, conduct or silence
2. Regarding misrepresentation by silence, in terms of the Act, there seems to be now a
general duty to speak
3. The Act does not set out specific requirements for the misrep to render the contract
voidable. Presumably, the courts will use the established common law requirements
as a framework (causal, material, must be a fact).
4. In terms of the CPA, if there has been a misrep, the court has the discretion to make
any order it thinks just, including but not limited to: rescission and restitution and
delictual damages.
IV) THE RELATIONSHIP BETWEEN MISTAKE AND MISREPRESENTATION
-
Looking act “no representation” clauses
Example:
You go to buy a second hand car at a dealership. The salesman shows you a 1986
Toyota and he tells you that it is in excellent condition. He says the engine has
recently been overhauled and new brake pads have been fitted. He gives you a
contract to sign when purchasing the car. You’re in a hurry and you ask if you can
take the contract to read before you sign. He say it would be better if you do all the
paperwork there and then. You sign it and you don’t read it. After a couple of weeks,
the engine stops and the mechanic you take it to also says that you need new brake
pads. Its costs almost as much as you paid for the car. You approach the dealer and
you want your money back/attempt to cancel or rescind the contract. It turns out that
the salesman was NEGLIGENT (he didn’t check the faults correctly and the engine
and the brake pads were only redone 15 years ago). The dealership accepts that their
salesman was negligent – but they point out the clause that states: - “The buyer
warrants that no representations or warranties have been made outside this contract
by the dealership or its agents” [anything that someone (salesman) said didn’t
happen] OR “The dealership will not be liable for any representation of its agents.”
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These clauses exclude liability for misrep because misrep takes place during
negotiations.
They argued that the clause is binding to you – caveat subscriptor and so you cannot
sue them because you misread.
Common Law: no representation clauses are valid under common law, EXCEPT in the case
of fraudulent misrpresentation. However, if you can argue MISTAKE, the contract will be
VOID which means the contract and the clause don’t exist; therefore, you can sue on the
basis of misrep to render it voidable.
Points:
-
There is a mistake.
Unilateral mistake – only you are mistaken.
Material mistake – mistake to the terms.
Iustus Error – salesman ought to have known that he was in a hurry and didn’t read it, as
with Dlovo & Sprindrifter)
The contract is void for mistake, no caveat subscriptor. No contract exists. George vs
Fairmead doesn’t apply.
Salesman should have pointed out the clause to you and therefore you can return the
car and get your money back.
Consumer Protection Act –
-
Any term in an agreement to the effect that “no representations or warranties were
made…” by the supplier is VOID.
So if the CPA were applicable to the contract, then the no-representation clause
would be VOID i.e. take it out of contract and could sue on basis of mispresentation
i.e. contract VOIDABLE and recission and restitution.
v) DURESS & UNDUE INFLUENCE
•
•
•
•
Duress:
Common law:
Duress may render a contract VOIDABLE.
Here a person is induced to enter into a contract through fear, cause by violence or
intimidation.
However, the contract will only be voidable if ALL the following requirements are met (if
requirements are not met, the contract is valid):
1. It was a threat of considerable evil (harm) to a person (including his
reputation/personality), his family or his property (including money).
A threat to property is called duress of goods. In order to make a contract
voidable for duress of goods, the contract will only be voidable if the person can
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show that he/she protested UNEQUIVOCALLY (in no uncertain terms) at the
time.
Hendricks vs Barnett 1975 (1) SA 765 (N) – Basic Principles pg 73
Mr B owned a stud farm. Mr H was the farm manager. B did not know how to
tell each horse apart, bloodlines etc. B put the farm up for sale excluding the
horses. The horses were to be sold later at an auction. H was to remain
employed until the farm was auctioned because he was the only one who could
identify the horses. A few days before the auction, H says to B that he’s going
to leave if he didn’t pay him R10 000. Without him, auction can’t go ahead, B
will lose millions. This is duress of goods. B gave him two cheques for R5000
each. After the auction, B stopped payment on the one cheque. H sued B on
the cheque. B’s defence was duress of goods/economic duress and that the
contract was voidable. The court did NOT find in favour of B because he did
not protest at the time – must protest unequivocally.
2. The threat must be imminent or inevitable.
Imminent = it will happen there and there.
Inevitable = it will definitely happen.
3. The threat must have actually induced the person to contract, or to contract on
less favourable terms.
4. The threat must be unlawful – or contra bonos mores (against good public
policy or good morals). Against public policy means it’s not unlawing but
society doesn’t like it eg. Cutting someone out of your will
5. A fear must be reasonable
CPA Section 40 (only apply in certain situations)–
“A supplier… must not use physical force against a consumer, coercion…duress,
harassment or any similar conduct…”
In the event of such conduct, the court can decide what to do. Including but not limited to:
ordering a refund, and any further damages.
The net effect is the same as common law: VOIDABLE + DAMAGES.
vi) Undue Influence:
Common law
•
•
•
•
Undue influence may render a contract VOIDABLE.
Undue influence occurs when one party to a contract is able to influence the other party
to such a degree that they cannot form an independent opinion on the matter (subtle,
psychological manipulation).
Similar to duress but no violence or intimidation, instead one party manipulates the other
psychologically.
In order for undue influence to render a contract voidable, all of the following
requirements must be met:
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1) The one party exercised an influence over the wronged party.
e.g. Doctor-patient, nurse-patient, lawyer-client, religious leader-congregant and
financial inequality (usually an unequal relationship).
Example of doctor-patient : Case of a doctor looking after an old man in his
80s. The man was ill and exhausted. The man became dependant on the doctor
and the doctor convinced him to sign over four farms to him.
•
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•
•
•
•
•
•
•
•
•
•
•
Example of financial inequality: Gerolomou Constructions (Pty) Ltd v Van Wyk
2011 (4) SA 500 (GNP)
G was instructed to build a temple, they subcontracted Van Wyk to build the top of
the temple out of wood.
It was a huge structure and required skilled carpentary.
Both the magistrate and judge found on evidence that Van Wyk’s work was
excellent.
V was a simple man with no money and no legal representation.
Throughout the construction process G withheld payment from V under that the
pretext that the work was unsatisfactory.
Eventually it got the point that V could no longer pay his workers.
One day while he workers were waiting to be paid, V was approached by the
Foreman of G and they offered to pay him R19291, 70, this was to be in full and
final settlement.
This was R104280.40 short of what he was owed.
He did not want to except BUT he was desparate to pay his workers.
So after long negotiations he accepted and he signed a settlement contract there
and then.
V later sued for the balance. And G argued that the claim was invalid because he
accepted in full and final settlement.
V said he signed the settlement contract because of undue influence (economic
pressure) and therefore the contract was voidable.
The court agreed with him; therefore the contract was cancelled and he got the full
amount + interest.
2) The influence must have weakened the wronged party’s powers of resistance and
made him easily manipulated.
3) The influence must have been exercised in an unscrupulous/unethical manner.
Unscrupulous → not to the “victim’s” benefit, i.e. a BAD influence.
4) The influence must have induced the wronged party to enter into a transaction which
is prejudicial to him and which he would not have concluded of his own free will.
Undue Influence under CPA
-
Section 40: a supplier must not use physical force against a consumer, coercion….
Duress, harassment, or any other similar conduct.
In the event of such conduct, the court can decide what to do. Including but not
limited to ordering a refund and any further damages.
The net effect is the same as common law: the contract will be voidable.
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1.3. Illegal, unenforceable and impossible contracts
In order for an agreement to be valid, it must be lawful therefore if an agreement is illegal, it
is generally void (but not always) and the courts will refuse to enforce it.
An agreement is illegal if it is:
- Prohibited by statutes
- Prohibited by common law
- Unfair/unconscionable/unreasonable
a) Statutory illegality
Section 4 of the Competition Act – an agreement between competing companies, which
has the effect of substantially preventing a lessening competition in the market is
prohibited.
An agreement prohibited by statutes is illegal and generally void but not always, so
sometimes the courts will enforce it. In other words, you may have a situation where an
agreement is illegal but valid.
You can have a contract that is illegal and void OR illegal and valid.
- Issue is whether legislature intended the agreement to be illegal and void OR illegal
and valid.
- Often the legislature itself will state if the prohibited agreement is void.
- If the legislature does not state thus plainly then the court will look at the certain
factors to determine the intention of the legislature.
Note: these are not requirements (not a check list), rather factors weighed up on a
balance of probabilities.
1. Whether the purpose of the prohibition is simply to raise money for revenue. If so, the
contract will be valid, but the parties may have to pay a prescribed fee.
Example: Certain legislature says that you cannot buy a TV without a licence
(prohibition, therefore illegal). Let’s say Game sells TVs to people without
asking for a licence.
Those contracts are illegal.
Purpose of legislation = raise money for revenue, therefore contract is valid.
For all sales → illegal but valid.
Game would probably have to pay a fine.
2. Whether recognition of the agreement would bring about the harm that legislature is
trying to avoid.
If yes, then illegal and void.
i.e. Purpose of the legislation, in these situations, agreement is void.
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Example: Legislation prohibits trading in ivory, it’s illegal to buy and sell ivory
(unless the jewellery was made before the Act came into place). The whole
point is to protect the elephants. A contracts with B to sell him 3 tonnes of
ivory. A delivers the ivory, and B doesn’t pay.
Can A sue in court for breach of contract?
The agreement is illegal and it will be void because parliament intended for it to
be void, because enforcing the agreement will encourage killing elephants and
that is what the prohibition is trying to avoid.
3. Would it cause a greater inconvenience to void the contract than to allow it to stand?
If yes – probably valid – depending on the other factors; refer to TV example.
If Game has been selling tvs to people without liscenses for 5 years. All of those
contracts are illegal. But it cause more of an inconvenience to void each individual
contract then to leave them as valid.
4. Do the statutes impose a criminal sanction?
If yes, probably void.
Example: the Drug Traficking Act prohibits dealing in drugs. If the person is
caught dealing, they can be liable to a life sentence. A sells B 50kg of cocaine. B
fails to pay. Can A enforce payments through the courts?
The contract is illegal and void. There is a criminal sanction up to life. And
enforcing the contract would bring about the harm that the system is trying to
stop.
b) Common law illegality
These are agreements which are against public policy or good morals. The concept of good
morals changes with the times. And so, the list of these contracts will change.
However, the courts have come up with a few contracts that will “always” be against public
policy or good morals.
These contracts, unlike those that are illegal due to statute, are ALWAYS VOID.
1. Agreement to commit a crime/delict.
Example: A hires B to kill his wife. B kills the wife and A refuses to pay the contract
price. Will the courts enforce that? NO. The contract is illegal and void.
2. Agreement which undermines institution of marriage.
a) Agreement never to marry is illegal and void.
b) Agreement that threatens an existing marriage.
Example: Friedman vs Harris 1928 CPD 43
Mr Harris was a married man and he was having an affair with Ms Friedman. The affair
ended and she sued him in delict for damages for seduction. He agreed to pay £1000
to settle and she agreed. A while later, he approached her again and they entered into
a contract in terms of which she would pay him back what is left of the £1000 if he
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divorced his wife and married her. Friedman paid £800 that she has left. H doesn’t
leave his wife and he doesn’t marry her. She sues him for breach of contract.
Courts said that the contract is illegal & void.
COMPARE WITH
Example 2: Benefeld v West 2011 (2) SA 379 (GSJ)
B was the lady, W was the man. She knew at all times that he was married. Two
children were born from the affair. They started the event in the beginning of 1984 and
at the end of 1984, they got “engaged”. In 2007, the relationship ended and she sued
him in the Magistrates Court under contract for breach for promise to marry her
(because engagement is a contract). They settled out of court. She withdrew the claim
and they entered into a settlement contract in terms of which he would pay her
R1.5million rand in recognition of her devotion. He didn’t pay. So in 2011, she sued
him in the High Court for breach of the settlement contract (not breach of
engagement). Both parties agreed that the engagement contract was void because he
was already married. W argued that the settlement contract was based on the
engagement contract; therefore void and he didn’t have to pay her. The court found
that the settlement contract was not affected by the void engagement – It was a
completely separate contract. The settlement itself did not attempt to break up the
marriage; therefore legal and valid and he must pay.
3. Agreement in consideration of sexual immorality.
e.g. prostitution
4. An agreement which conflicts with the Constitution as that is supreme law and common
law is subject to constitutional values.
These would be the following values:
•
•
•
•
Right to Equality
Right to Freedom
Right to Dignity
Right to Justice and Access to the Courts
Example: Barkhuizen v Napier 2007 (5) SA 323 (C)
Barkhuizen insured his car with Napier. The insurance contract contained a TIME BAR
CLAUSE. It said that if Napier rejected a claim, there will be released of all liability
towards the client, unless the client sued them within 90 days to challenge the
rejection. Barkhuizen had an accident, put in a claim, and it was rejected. Two years
later he sued Napier for rejecting the claim. They argued that they were no longer
liable because the 90 days had passed. He argued that the time bar clause was
unconstitutional because it limited his right to access to the courts. The courts said
that a contract that violated the constitution would be invalid, but time bar clauses are
valid as long as they are not unreasonable. The court said that Napier’s time bar
clause was not unreasonable, so the contract was valid.
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5. Unconscionable/unfair/unreasonable agreements
Generally, agreements that are unfair are upheld by the courts i.e. valid. Because it is not
the function of the court to help a bad bargainer.
Example: A buys a second hand car from B (private seller) = common law, for R50 000 (no
misrep, undue influence etc.). The car is only worth R20 000. Court will not assist A.
•
In extreme cases, the law will regard an agreement that is grossly unfair as ILLEGAL
and VOID.
These contracts are so unfair that they are unconscionable– so unfair that they
offend your conscience: illegal and void.
Example: Baart vs Malan 1990 (2) SA 862 (E)
B & M were married and later get divorced. Malan was the husband and he got custody of
children. Baart, the wife was a school teacher. In terms of the divorce agreement which was
a contract, Baart agreed to pay maintenance for the children in the amount of her gross
monthly salary AND her annual bonus.
The Court held that the agreement was unconscionable, against public policy because she
would get no benefit from her employment. It was a form of economic slavery. The contract
was void.
Consumer Protection Act – only applies during ordinary course of business – in
unconscionable contracts.
•
Introduces a new class of unconscionable.
Section 48
A supplier must not contract with a consumer on terms that are unfair, unreasonable or
unjust or at a price that is unfair, unreasonable or unjust.
In assessing if it is unfair, unreasonable or unjust, court will look at the following factors:
-
Is it excessively one-sided in favour of the supplier
Is it so against the consumer as to be inequitable
Nature of parties i.e. levels of education etc.
Relationship between parties i.e. previous dealings etc
If an agreement is unfair etc. then the court can decide what to do. The judge will probably
make it void.
Note: this does seem to change common law.
c) Illegality and its effect on contracts
•
•
This applies to agreements that are illegal and void, both under common law and statute
If a contract is void for any reason for any reason other than illegality, then it does not
exist and the courts will refuse to enforce it.
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•
•
•
•
•
•
Where a contract is void because of illegality, then it doesn’t exist and the courts will
refuse to enforce it because of the EX TURPI CAUSA rule → from an illegal cause no
action arises i.e this means unenforceable.
Where a contract is void for a reason other than illegality, then each party may recover
their performance under unjustified enrichment.
When the contract is void due to illegality, the IN PARI DELICTO rule applies. If the
parties are in equal guilt, i.e. they both acted illegally, then they cannot recover their
performance under unjustified enrichment. The point is to discourage people from
entering into illegal contracts.
Example of above: in Friedman v Harris Friedman did not get back her 800 pounds
under unjustified enrichment.
HOWEVER – if only one party acted illegally, then the party who was not in guilt can
recover his/her performance under unjustified enrichment.
A strict application of the in pari delicto rule would work as follows:
Example: It is an offence to sell gas without a licence. It is not an offence to buy
gas without a licence. If the seller does not have a licence, the relevant legislation
says that the contract will be void. A buys a canister from B for R1000. B does not
have a licence. A pays the R1000, B delivers the gas. The contract is illegal and
void because of the ex turpi causa rule. A was not in pari delicto. A can claim the
R1000 back under unjustified enrichment. B did act illegally therefore he may not
claim back the gas canister. However, the court will sometimes relax the in pari
delicto rule but they are reluctant to do so. They will only do so in the interest of
justice and public policy.
d) Severing/ cutting out invalid terms
•
If the illegal terms can be cut out from the rest of the contract, then the contract can
still be valid.
•
Only terms that are not essential to give effect to the contract may be severed.
Example: In Friedman v Harris it would have been difficult to sever any of the
illegal terms because they were all essential to give effect to the contract i.e. he
would leave his wife
b) Agreements in restraint of trade
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An contract in restraint of trade is one which that restrains a person’s freedom to
practice his business or profession.
Example: A owns a shop she sells that business to B. they enter into a restraint
contract In terms of which, A undertakes not to open up a similar shop/business
within a 5km radius for the next 10 years.
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OR
Example. X works as an accountant at Y corporation. She has signed a restraint
contract to that if she ever leaves the Y corporation, she will not practice as an
accountant in CT for 10 years. In return, they have paid her R10 million.
-
These agreements are valid and generally enforceable. However, the courts will
refuse to enforce them if they are unreasonable, i.e. against public policy.
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The onus of proving that the contract (restraint) is unreasonable and therefore
unenforceable, lies on the restrained person.
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To decide if the restraint is unreasonable and therefore unenforceable, the courts
take into consideration the following factors (not exhaustive):
1. Did the restrainer (company) have an interest deserving protection? (income, revenue,
confidential information)
Example: Derek is an engineer and he developed a computer software for a
company. The company used the software to develop a product which they sold to
the public. Without his coding, they couldn’t develop the product which gave them
the edge against their competitors. In addition to paying him for the programme
for the copyright, they also paid him to restrain him from doing another similar
program in Africa for 8 years.
2. Whether the restraint is necessary to achieve the protection.
From above example: is it necessary to restrain him from the whole of Africa? Yes,
as company.
3. Whether the restraint is overly broad with regard to the range of activities covered by
it.
Example: X is a qualified CA working in the asset manager at a huge company.
She signed a restraint that states that if she ever leaves the company. She can’t
work in the financial industry for two years in South Africa.
It’s unreasonable: too broad. She should be able to work as a chartered
accountant as it will not harm their interests.
4. The lifespan of the restraint. Is it reasonable depending on the facts?
5. Geographic area over which it will apply. It must be reasonable depending on the
facts.
6. Would the person restrained be unduly prejudiced if it were enforced?
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Refer to accountant/asset manager example: she would have been unduly
prejudiced because she couldn’t work in any field that she’s trained for
7. Has the restrainer spent a large sum of money to obtain it? What is large will depend
on the facts.
8. Whether the enforcement of the restraint would deprive the public of valuable
services?
Example: if UCT has restrained Chris Barnard from sharing his knowledge of heart
transplants. This would have been unreasonable.
9. If the court finds that the restraint is only partially unreasonable, then it can choose to
cut out the unreasonable terms and enforce the rest.
Example: Restrained from working in South Africa for two years. The court could
say that she’s restrained from working in Cape Town and Joburg for two years,
but she can work in other areas.
o
The court will not completely change the contract in order to make it right. NO major
‘cosmetic surgery’.
c. Initial Impossibility of Performance
General rule: A contract is void if it is impossible of performance at the time it is entered into.
Therefore there can be no breach if the parties fail to perform.
In order to render the contract void, the impossibility must be objective. i.e. it must be
attached to the performance and not to the person – impossible for anyone in society (within
reason)
If it attaches to the person, then it is subjective impossibility. It is due to the individual’s own
personal situation and the contract will not be void. Therefore the person who does not
perform will be be in breach.
Initial impossibiliity is when it’s impossible from the start of the contract.
It can be difficult to distinguish between objective and subjective, but the following are
ALWAYS objective:
• Acts of God or acts of nature e.g hurricane, earthquake, flood
• Unforeseen events that happen by chance. These are events that are not acts of
nature, but which the average person can’t control. E.g. crisis in Syria
2 kinds of objective impossibility:
1. Objective physical impossibility
2. Objective legal impossibility
Examples:
o
Objective physical impossibility:
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1. A agrees to transport B to Mars. This is physically impossible for ANYONE in
society to do. So contract is VOID. Will A be in breach? NO.
2. A has a holiday house in the Eastern Cape. She is in Durban and she agrees to
sell it to B. She doesn’t know that the night before the sale, the house was
washed way in a flood. Objective because act of nature. Contract is VOID. And A
will not be in breach.
o
o
o
o
Compare these examples:
1. X agrees to buy a house from Y, for R1 000 000. X is unable to raise the
finance. It is therefore impossible for him to pay the price = SUBJECTIVE.
Therefore, X is in breach as contract is not void.
2. A agrees to sell the moon to B. This is impossible because no one owns the
moon.
Therefore this contract is legally impossible.
→ Legal impossibility because no one owns it.
→ Contract is void.
3. A sells a cottage to B. A doesn’t own the cottage. So it is legally impossible for
him to transfer ownership.
This is subjective impossibility as someone could own it, so A is in breach.
The difference between legal impossibility & illegality is that with illegality, entering into
the contract itself is illegal, e.g. hiring B to kill someone for you. With legal impossibility,
the contract itself is not illegal, but the performance is.
If a contract is objectively impossible (legal/physical), then the contract will be void and
the parties are both excused from performing, and if they have executed the
performance, they will claim back under unjustified enrichment.
HOWEVER where one party has guaranteed performance, then he is not excused from
performing and he may still be sued for breach, therefore the contract stays valid.
Example of subjective legal impossibility: A sells a farm to B. A does not own the
farm. It is legally impossible for A to transfer ownership to B. This is subjective legal
impossibility because it is A’s own problem/fault and someone else/the owner could
transfer ownership. Therefore the contract is valid and A will be in breach. Only
objective impossibility makes a contract void.
Compare to example of objective legal impossibility: A decides to sub-divide his farm
and sell a portion to B. The law prohibits the sub-division of farms. This is objective
legal impossibility . The contract is void. Therefore A won’t be in preach for not
performing.
NOTE: if a contract is objectively impossible, the contract will be void. This means that both
parties are excused from performing and there can be no breach.
However, where one party has guarenteed his performance, then he is bound by that
guaranteee. So even if his performance is objectively impossible, he can still be sued for
breach by the other party.
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Example: if I guarentee to fly you to Mars. Even though it is objectively impossible, I
will still be in breach.
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d) RECKLESS LENDING UNDER THE NATIONAL CREDIT ACT (NCA) 2005
What is a credit agreement?
A credit agreement is one where credit is granted by one party to another usually in return
for payment of interest or a fee or charges (or a combination of these).
A credit agreement may take different forms:
1. One party lending money to another
Example: John borrows R100k from Big Bank. This must be repaid monthly over
two years with interest at 9%.
OR John gets a credit card from Netbank
OR John stands surety for Cindy’s debt to Netbank.
OR John buys a car from MaxMotors for R1.5m. John takes delivery of the car
immediately but he must pay back the purchase price over 5 years with interest at
10%.
OR John opens an account at the local bookstore/Edgars/chemist. And he pays at
the end of the month.
OR John has to have some dental work done. He sees the dentist three times a
month for four months. The dentist bills him at the end of each month. That is a
credit agreement.
-
The party who provides credit is known as the “credit provider” and the person who
receives credit is known as the “consumer”.
The act aims to protect the consumer.
Application of the Act:
-
The act applies to every credit agreement concluded in South Africa with a few
exceptions:
o Where the consumer is the state or an organ of state eg. Department of
Transport that borrows money not protected by state
o Where the consumer is a juristic person who’s monetary asset value/annual
turnover is equal to/greater than R1m
Reckless Lending
-
Before entering into a credit agreement the credit provider must assess the following:
(sec 80 and 81)
a) Consumer’s understanding of the risks and costs of the credit and his rights and
obligations under the agreement AND
b) Consumer’s debt repayment history AND
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c) His existing means, prospects and obligations AND
d) If the credit is intended for commercial or business purposes, the reasonable basis
of success must also be assessed.
-
The consumer must provide full and truthful information. If she doesn’t then the provider
will not be “guilty” of providing reckless credit.
-
A credit assessment is “reckless” if:
a) Credit provider failed to do a proper assessment OR
b) If the credit provider did do a proper assessment but granted credit even though
the assessment showed that:
o The consumer did not really understand the risk, costs and obligations involved;
or
o The consumer over-indebted himself by entering into that agreement.
-
If a court declares a credit agreement reckless, it can set aside all/some of the
consumer’s obligations. Or it can suspend the obligations eg. For three months you don’t
have to pay interest.
If a court declares an agreement reckless, it must also consider whether the consumer is
generally over-indebted. Over indebted means a person cannot satisfy his/her
obligations under ALL their credit agreements, not just the reckless ones, on time due to
financial problems.
If the court declares an agreement reckless AND declares the consumer over-indebted
then the court can order a restructuring of ANY of a consumer’s debts.
-
-
1.5 Formalities
General rule: Most contracts do not have to comply with any formalities to be valid. In other
words, they do NOT have to be in writing or signed by the parties
-
A verbal contract is normally binding
Exceptions:
But there are a few contracts which are required by law to comply with certain formalities, for
example:
▪
▪
▪
▪
Sale of immovable property must be in writing and signed by both parties or their duly
authorised agents
Suretyship must be in writing and signed by or on behalf of the surety
Donation must be signed by or on behalf of the donor.
Antenuptial contract must be in writing and signed by both parties in front of a notary
and 2 witnesses to be valid between the parties.
- The ANC must be registered at the Deeds Registry within 3 months to be
valid in respect of third parties
- Example: A and B decide to get married out of community of property.
They go to a notary and sign a antenuptial contract (ANC) in front of her
and 2 witnesses. They get married two days later. The notary forgets to
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register the ANC. If they were to get divorced, the ANC is valid between
A and B, even though it hasn’t been registered. Between the parties
they’re married out of community of property. However, during the
marriage, the ANC is not valid against third parties. So if B owed C
R10m, A is jointly liable for that debt. Because they are married in
community with respect to third parties.
Note: Sometimes a contract is not required by law to be in writing, but the parties themselves
require that the contract must be in writing and signed by both parties to be valid, and/or any
alterations must be in writing and signed by both parties to be valid.
2. Contents of a contract
2.1. Identifying the terms of a contract
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a) Express terms: Essential and Incidential Terms
•
Essential terms are terms which are the essence of a contract. In other words, without
these terms you could not identify what type of contract one is dealing with e.g is it a sale
or lease or donation etc.
•
Example:
o
in a contract of employment, the essential terms are the contract and the
salary.
o
In a contract of sale, the essential terms are the item being sold and the
price
•
Additional terms that may be included in the contract but which are not essential are
called non-essential/incidental terms
•
Example: in the sale of the car, they might be a term that the car must be washed
before delivered.
•
Whether a term is essential or incidental, it may be expressed or implied.
b) Implied terms
•
An implied term is a term of the contract that is binding on the parties even though they
have not mentioned it expressly in their verbal or written agreement.
•
There are three types of implied terms and we will look at each of them in turn:
1. Tacit terms/terms implied on the facts
-
These are terms that are implied to give effect to the common intention of the parties.
-
Common intention is what they both want.
-
The term is not expressly mentioned, but it is clear that the parties’ intended the term
to be in the contract.
-
In fact, they would not have contracted if it wasn’t included.
-
To decide if there is a tacit term, the courts apply the CURIOUS BYSTANDER TEST:
o
If a curious bystander had asked both parties at the time that the contract was
concluded, “What about this particular term that haven’t mentioned?”
o
Then they would both have said, “Oh, of course that is included, but we didn’t
think about it.” OR
o
“Oh, of course it is included but it was so obvious that we didn’t think to
mention it.”
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o
If these are the answers to the curious bystanders question, the term will be a
tacit term and will form party of the contract, even though it has not been
expressly mentioned.
Example: West Witswatersrand Areas Ltd v Roos 1936 AD 6
Mr R owned a farm and he gave W the rights to get government permission to mine
the land if they could prove that precious metals existed in the land. In order to
determine if there are precious metals, you have to excavate/drill the land i.e.
prospecting. The right to prospect was not an expressed term in their contract and Mr
R said that it was not a term of their contract at all.
The court had to determine if it was an implied, tacit term. They applied the curious
bystander test: if somebody had said to the parties at the time of contracting “can W
prospect the land?” they both would have said (if they were acting reasonably and
honestly) “of course, it is so obvious, we didn’t mention it”. Because if you can’t
prospect the land, you can’t see if there are minerals and if you can’t do that, you
can’t give government permission to mine the land and then the contract is
meaningless.
So there was a tacit term that they could prospect.
-
The courts will not lightly read a tacit term into the contract i.e. the judge will not
make the contract perfect by adding in tacit terms
-
The court will not read a tacit term into a contract if it will conflict with an express term
Example: FNB v Transvaal Rugby Union and Another 1997 (3) SA 851 (W)
FNB agreed to finance the TRU’s acquisition of a 99 year lease of Ellis Park. In return,
the TRU had to advertise the bank’s name at the stadium, on the tickets, on the
programmes etc. It was an express term of the contract that the TRU’s obligation to
promote the bank’s name would last “in perpetuity (forever/foreseeable future) or until
terminated by the bank.” The TRU asked FNB to finance a second project for them,
FNB refused and the close relationship between the bank and TRU ended. TRU
wanted to stop using the bank’s name at the stadium and they argued that there was a
tacit term of the contract that the obligation to promote the bank only lasted as long
as there was a close commercial relationship. The court held that there was no such
tacit term and the contract expressly said that the contract will last in perpetuity.
2. Terms implied by law/residual terms/natural terms
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-
These are terms which the parties have not expressly mentioned but which are
implied by law to certain kinds of contracts.
-
For example, in contracts of sale there is an implied warrenty against latent defects.
-
Warrenty against latent defects are when the seller guarentees to the buyer that the
object has no hidden defects that aren’t obvious/can’t be seen. And if it does, the
buyer will have a claim against the seller.
-
Most residual terms can be varied by express agreement between the parties. i.e. if
you don’t want this to apply to your contract, you must say something
-
For example, it is common for parties to include a VOETSTOOTS CLAUSE which
means the object is sold as is, with defects. So the buyer cannot claim from the seller
if there are defects.
-
In contracts of lease, it is a residual term that the rent is payable in arrears i.e. at the
end of the month. However, most leases expressly change this and make people pay
in advance.
3. Terms implied by trade usage
-
These are terms implied in business contracts between people of a certain trade or
industry
-
For example, if a builder or a civil engineer do a project together, there may be terms
implied by trade usage.
-
For a term to be implied by trade usage, ALL of the following requirements must be
met:
1. It must be certain
2. It must be reasonable
3. It must not conflict with any law
4. It must be generally known AND continually used by all persons in that industry
5. It must not conflict with the express terms of the contract
-
These terms can be varied by express agreement
c) Signed Contracts and the Caveat Subscriptor Rule
-
Dealing with express terms and focussing on exemption/exclusion clauses
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-
EXCLUSION CLAUSES try to limit or exclude one party’s delictual or contractual
liability or place an additional risk on the other party.
Exclusion clauses normally appear in what we call “standard form” contracts. This is
a pre-printed contract i.e. not drawn up on an individual basis by a lawyer.
For example, the contract you sign when you take your car to be serviced or when
you go into hospital or indemnity forms.
Most of us sign these without reading them
General Rule:
-
Caveat subscriptor = a person who signs a contract is bound by the terms of the
contract
Refer to notes under “Mistake – Iustus Error and Caveat Subscriptor”
Know the leading case: George v Fairmead (Pty) Ltd 1958 (2) SA 599 (SCA)
Hartley v Pyramid Freight (Pty) Ltd
Exceptions where the caveat subscriptor will not apply:
1. Where the party can prove mistake and the contract is void
Dlovo vs Brian Porter Motors Ltd. 1994 (2) SA 518 (C)
2. Where the party knew or ought to have known that the terms did not reflect a
signatory’s true intention. This could also lead to a mistake and render a contract
void.
Spindrifter (Pty) Ltd v Lester Donovon (Pty) Ltd 1986 (1) SA 303 (A)
-
CPA SITUATIONS:
For contracts where the CPA applies there are further situations where caveat
subscriptor may not apply (NOTE these are in addition to the above i.e. you can
always rely on mistake under common law if material and iustus.):
3. If the exclusion clause is not drawn to the attention of the consumer. You should put
the clause in bold print, big font or say “take note”.
These clauses are allowed, but they cannot exclude liability for gross negligence, or for
intent.
-
The same would apply when you go to hospital – sign exclusion clauses saying they will
not held liable for the negligence of the doctors/nurses, but NO gross negligence or
intent excluded.
4. If the exclusion clause is not in plain language
“An ordinary consumer of the class of persons for whom the term is intended, with
average literacy skills could be expected to understand without undue effort.”
5. If the consumer is not given adequate time to read and comprehend the clause
6. If the term concerns an activity that is subject to the risk of –
- An unusual nature which an ordinarily alert consumer could not be expected to
contemplate OR
- That could result in serious injury or death,
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Then comply with 3-5 above AND
-
Consumer must show his consent by signing or initialling the (exclusion)
clause or acting in a manner which shows consent
So just signing the contract at the end is not enough. The person must sign or
initial next to the exclusion clause also or act in a manner that shows consent.
So if there is a form with an exclusion clause on one side, and the person has to
sign on the other side. The person can sue because he/she did not sign next to
the exclusion clause.
To note: Under CPA cannot exclude liability for gross negligence = recklessness i.e. more
than normal negligence which is acting below the standard of a reasonable person.
Unsigned contracts – Tickets and Notices
1. There is no written document signed between the parties, BUT these exclusion clauses
are contained in tickets or notices.
2. We call terms on tickets & notices “IMPOSED TERMS”.
E.g. You park your car at Cavendish, you are entering into a contract with the parkade
but nothing is signed. The terms of the contract will be contained in the ticket and
notices. You have to take a ticket, and there are always notices around the parkade.
Notices say: “Parking at owner’s risk – no liability for loss, theft or damage.” Trying to
exclude delictual/contractual liability if your car is stolen/damaged or if you get injured.
There is an unwritten contract with you and the parkade. It is technically a rental
agreement (lease contract).
→Terms on tickets and notices are the terms of the contract.
e.g. You go up Table Mountain and you pay for your ticket, lots of notices everywhere
etc., which say they will not be liable for injury or death –exclusion clause. In cable car
going up, leaning on the rail, rail breaks and you fall over, badly injured, due to
negligence of the engineer. May not be able to sue for injuries because of ‘imposed
terms’ – exclusion clauses contained in the tickets/notices.
The rule is that the customer is bound by these terms even if they did not actually see
them or know about them, provided that the supplier has done everything reasonably
necessary to bring it to the customer’s attention.
THESE REQUIREMENTS IN TERM OF THE CPA: To decide if the supplier has done
everything reasonably necessary we check if the following requirements have been met:
1. “Must be drawn to the attention of the consumer in a way that is likely to attract the
attention of an ordinarily alert consumer…” This means the writing must be big/bold and
the writing must not be covered.
2. Must be in plain language (refer to notes under signed contracts).
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3. Must be in a contractual form in the case of a ticket only (this requirement is from
common law but still applicable).
• The following documents are in contractual form and will bind the consumer:
- A quote
- Order form
- A proper ticket, i.e. gives you access or rite of passage eg. Bus ticket or ticket
into Ratanga Junction
• The following are NOT in contractual form, and will not bind the customer:
- An invoice
- A receipt
- A voucher
Example: A man went to the beach and he hired a deck chair. He paid and was given
what they called a “ticket”. On the “ticket” was a clause excluding liability for injury.
The man sat on the chair, it broke and he was injured.
Could he sue? Is it in contractual form or not?
It was not an actual ticket, it was a receipt. Therefore it is not in contractual form, did
not bind the consumer, therefore the man can sue.
4. It must be seen either:
- Before the time of contracting (offer and acceptance), OR
- Before the person enters into activity, OR
- Gains access to facility, OR
- Pays for the transaction
Whichever occurs earlier (section 49(4)(b)) AND
The consumer must have had a chance to read and comprehend the term on ticket or
notice.
Example: English case → A man parked his car in the parkade. On the outside of the
parkade, there was a notice giving the name of the parkade and hourly rates. The man
drove up a ramp and at the top, was a red light and a boom. When his front wheels
touched a magnetic strip on the ground, the light changes to green, and after that,
you get a ticket and go in. Ticket contained an exclusion clause that excluded liability
for personal injury and loss. The man got injured in a parking lot due to the
negligence of the parkade and he sues. Parkade says they are not liable because of
the exclusion clause. Admit negligence.
Issue: Was the ticket handed out in the correct moment?
Court: Offer is the notice outside. Acceptance takes place when wheel touches
magnetic strip. Ticket was issued after that – after offer and acceptane. Therefore
ticket was seen after the time of contracting, so the clause wasn’t binding on him and
it cannot exclude liability and he can sue them.
5. Where a term concerns an activity that is subject to risk of:
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-
-
An unusual nature which an ordinarily alert consumer could not be expected to
contemplate,
OR
that could result in serious injury or death.
Must comply with 1- 4 above AND
The consumer must consent to the provision, i.e. would have to act in a way that shows
consent (Section 49(2)(c)). We are dealing with unsigned contracts, tickets and notices,
so the person cannot be expected to sign or initial. So how does the consumer show
consent?
-
Requirement number 5 was NOT a requirement under the common law. Requirements 1
– 4 are under the CPA but also exist in the common law.
Most academics think that if the consumer enters the activity, that is enough to show
consent.
Example: Durban’s Water Wonderland vs Botha 1999 (1) 982 (SCA)
(The case predates the CPA)
Mrs Botha and her daughter (age 2 ½) on one of the rides – seat broke, they were
flung into the air. Eventually, it broke away completely and they flew into a flower bed.
They were severely injured. The injuries were caused by the negligence of the
Wonderland. The reason for the accident was that the seat was not secured well to the
ride – negligence, and from the engineering point of view, there were certain design
flaws. Mrs Botha sued for the damages of their injuries. The company admitted that
there was negligence but she couldn’t sue them because there was an exclusion
clause contained at the cashier’s window in the form of the notice excluding liability.
Contract was concluded at the cashier’s window. That is also the point of access. The
notice was 80cm x 60cm, and it was in red and white, i.e. stands out.
Was Mrs Botha able to sue? Did the clause on the notice form an imposed term of her
contract with the company?
Under the CPA:
Main issue/general rule is “did the supplier do everything reasonably necessary to
bring it to the consumer’s attention?”
To decide this/to decide if its an imposed term, we must see if the following
requirements have been met:
1. Must be drawn to the attention of the consumer – Yes, it was 80cm x 60cm,
stands out, red & white, at cashier’s office.
2. Plain language – Decide whether it is in plain language (easy to read) or not (too
long)
3. Must be in a contractual form in the case of a ticket - not applicable
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4. It must be seen - she could have seen it before the time of contracting i.e. before
she paid for the ticket.
5. Subject to the risk of …
On requirements 1-4 she lost the case under the common law.
Today would requirement number five be met i.e. did she consent to the provsion
or acted in a way that showed consent.
Most academics think that just by entering the activity signifies consent otherwise
the whole concept of unsigned contracts becomes meaningless. Under the CPA
you cannot exclude liability for gross negligence (sec 51 (1) (c)(i)
2.2. Common contractual terms
a) Condition & time terms
Definition of condition: “A qualification which renders the operation and the consequences of
the contract dependent upon an uncertain future event.
→ Do not confuse conditions with time terms.
• A time term is a certain event
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•
whereas a condition is an uncertain event.
Example 1: I will pay you R10 000 when you turn 25. This is a condition: you may not
turn 25 – it is uncertain.
Example 2: I will pay you R10 000 when you marry/graduate/divorce: all conditional.
Example 3: I will pay you R10 000 on 25 April 2015 – time term. If either party dies, the
estate will carry on the obligation.
Example 4: I will pay you R20m when you die. This is certain event and therefore a time
term.
1. SUSPENSIVE CONDITIONS
•
•
The contract only comes into operation once the suspensive condition is fulfilled.
The contract is valid from the time that it’s entered into, BUT it only becomes enforceable
once the condition is fulfilled.
Example: You have a contract with a sale of a house. It is subject to (conditional upon) the
buyer obtaining a mortgage of R5 million. Until the buyer gets a loan/mortgage, the contract
is valid, but unenforceable. Once the buyer gets the mortgage, contract becomes
enforceable. If the condition fails, i.e. he does not get the mortgage, the contract comes to
an end, NB – he is not in breach.
•
•
Sometimes the condition will have a time limit, not in breach if you don’t fulfil the
condition.
If no time limit is given, a reasonable time is given to fulfil the condition. Reasonable time
depends on the facts.
2. RESOLUTIVE CONDITIONS
•
The contract is valid and enforceable from the beginning, but it comes to an end once
the condition is fulfilled.
Example: A common clause in divorce contracts is that the one spouse agrees to pay
maintenance to another spouse until the other spouse remarries or can be selfsupporting.
b) Warranties (guarantees)
•
•
•
•
•
Warranties = guarantees, i.e. they are the same thing.
It is a contractual undertaking that a statement of fact is correct.
Example: A sells his car to B. A warrants that he is the owner of the car or that the
car has not been in any accidents.
Example: Buy a dishwasher from Game with a 2 year guarantee. They are
promising it will work for two years, and if it doesn’t, they’ll fix it for free.
Sometimes a guarantee can be difficult to identify.
Normally, if the statement is in a written contract, it is taking as a warranty.
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•
•
•
•
•
If it is a verbal contract, it will normally be a warranty if the statement was made in
answer to a direct question AND the person knew that the other party had no knowledge
about the matter AND that is was important to the other party.
Be careful to distinguish warranties and misrepresentations.
With a MISREP it is a PRE-CONTRACTUAL STATEMENT, the contract is voidable and
you can claim cancellation & restitution and/or DELICTUAL DAMAGES
But with a WARRANTY, it is ACTUALLY A TERM OF THE CONTRACT that the
statement is correct. If it turns out to be wrong, then it will be a breach of contract.
Suing for breach of contract is a contractual remedy which means you can claim
CONTRACTUAL DAMAGES and/or cancellation and restitution, and/or specific
performance
c) Exclusion clauses (exemption clauses)
•
Refer to notes under:
o Caveat Subscriptor and mistake
o Signed contracts and caveat subscriptor
o Unsigned contracts and imposed terms
d) Cancellation clauses
•
•
The general rule is that you can only cancel a contract if the breach is MATERIAL, i.e.
serious.
To get around this, parties insert a cancellation clause which allows you to cancel for any
breach, even if it’s not material.
e) Penalty clauses
•
•
•
•
•
If there has been a breach and one party wants to sue for contractual damages to
recover their economic loss, then they have to prove to the court that they actually
suffered that loss.
Proving that can be expensive and time-consuming i.e. they might need actuarial
calculations
To avoid this process, the parties can agree to include a penalty clause
A penalty clause is when they agree in advance what the non-defaulting party can claim
in the event of breach.
Especially common in building contracts
Example: A contracts a builder to build commercial premises to the value of R80m. A
will rent out the premises and should earn R100k a day. The penalty clause states that
builder must complete by the 6th of May and for every day that he runs overtime, he
will pay damages to A in the amount of R100k + interest.
•
Conventional Penalties Act 1962: If there is a penalty clause, the plaintiff is limited to
amount in clause even if actual loss is much higher, unless the contract expressly states
that the plaintiff can claim either the penalty or the actual loss.
f) No/non-variation clauses
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•
•
•
•
These apply only in the context of written contracts.
This is a clause that states that no variation of the contract will be valid unless it is in
writing AND signed by both parties.
The purpose of these terms is simply to create certainty.
If there is not a no-variation clause, then the parties can change their terms verbally.
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3. Breach of contract
3.1 Types of breach
•
Definitions:
What is a breach ?
Breach occurs when one party fails to perform their obligations as required in the terms
of the contract.
•
Debtor = the performance debtor i.e. the person who must perform
•
Creditor = the performance creditor i.e. the person to whom performance is owed
Example
A sells a TV to B . A must deliver the TV and B must pay. A is the debtor with
regard to the delivery of the TV and the creditor with regards to payment. B is the
debtor regarding payment and the creditor regarding delivery.
A Late performance by the debtor - MORA DEBITORIS
In mora = in breach
Mora ex re
- Here a time for the performance is fixed in the contract.
-
Example: The seller will deliver the car to the buyer on the fifth of may. If
he does not deliver by the due date. He will automaticallly be in breach .
Mora ex Persona
- No time for performance has been fixed in the contract.
-
Example: The builder will build an extra bedroom at 2 apple street or the
seller will deliver the car or the seller will deliver the car as soon as
possible or the seller will deliver the car within a reasoanble amount of
time. With all of these examples.
-
If the debtor has not performed within a reasonable time then the creditor has to
place him in mora by demanding performance.
The time given in the demand must be reasonable (depends on the facts)
The demand can be written or verbal.
-
B Creditor fails to co-operate with the debtor to allow the debtor to perform timeously MORA CREDITORIS.
1
2
Requirements for Mora Creditoris:
The debtor must be under an obligation to make performance.
The co-operation of the creditor must be necessary for the debtor to perform on
time.
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Examples: The car has to be delivered to the buyers home at 5PM , the seller is on
time but the buyer is not there to take delivery.
Roof repair work or building work must start on the Second of May and be
completed by the 20th of May . The builders have arrived for work on the 2nd of
May but after the fourth of may they cannot gain access .
C Positive Malperformance
-
This is incomplete or defective performance.
Examples:
The seller delivers the wrong goods or defective goods.
The builder completes the building on time but not according to the plans
The builder doesn't complete the building at all.
-
OR
-
It is a term of the lease that the tenants may not play loud music after 11 PM , if
they do it is positive malperformance ,it is breach.
D
Repudiation
-
One party to the contract makes it clear by words or conduct that he no longer intends
to be bound by the contract and with no legal justification.
-
Example: The builder says he will not be finishing the building. This could also
overlap with positive malperformance.
The seller of a car sells the car to another person before delivery to the buyer.
E
Prevention of Performance
-
Performance of one party becomes impossible but due to their own fault or the fault
of the other party.
The party at fault is in breach.
Example: Charlie sheen was supposed to do two more Seasons of Two and a
Half Men , he was contracted to do that. But he could not fulfil his obligations
because he was in rehab and was unable to unction because of his drug and
alcohol problem . He was in breach of the contract, his performance was
impossibe but it was his own fault.
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3.2 Remedies for Breach
Three kinds:
1 Specific performance
2 Cancellation
3 Contractual damages
A SPECIFIC PERFORMANCE
The party who is not in breach gets a court order forcing the defaulting party to do what
they undertook to do in terms of the contract. You can only claim SP if you have
performed your obligation or tendered performance.
The court will not order SP in the following situations:
1. Where the breach is prevention of performance
2. Where the effect would be unjust or against public policy
Example: Haynes v King Williamstown Municipality 1951 (2) SA 371 (A)
The municipality entered into a contract with Haynes in 1911 in terms of which
they could use water from a river on his farm and divert it to the municipal dam. In
return they would pump 250000 gallons of water per day back into his property
from the dam. In 1949 there was a drought and they pumped only 20000 gallons
per day , they were in breach . He sued for specific performance , the court would
not order it because if they did the rest of the town would be without water.
3. If the agreement is of a personal nature.
For example engagement.
-
With employment sometimes they do order SP dependent on the facts.
Example: Santos Football Culb v Ingesud 2003 (5) SA 73 (c )
Note: if you cannot claim SP, then you may be able to claim cancellation instead and / or
contractual damages.
B. CANCELLATION / RESCISSION
•
•
•
This is an extreme remedy . Therefore, it is only allowed in two situations:
If the court orders cancellation both parties must make restitution
Because it is an extreme remedy the court will only order cancellaion for breach if:
1) There is a cancellation clause - see notes under "common contractual privisions"
OR
2) Where the breach is material
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When is the breach material ? ( this means that the breach is serious. )
•
•
Mora Creditoris And Mora Debitoris:
when a time for performance was stipulated in the contract or the demand for
performance AND time is of the essence i.e. important.
-
A must deliver the car on the tenth of May , A is late to delivery of the car. Can B
cancel? No , must prove that time was of the essence.
-
Time is normally of the essence in mercantile transactions . That are happening in a
chain.
-
Example: Mr X must deliver the milk to pick n pay by 5am every morning. PnP is
then going to sell the milk to the public. X can only delivery the milk at 4 PM that
day. That is a material breach PnP has already lost hours of revenue on that sale.
-
If time was not of the essence, you can make it so by notifying the defaulting party fo the
intention to cancel if their performance is not made by a specified date, which must be
reasonable.
“I will cancel if you don’t perform by 5pm tomorrow.”
This can be coupled with the demand/notice placing the debtor in mora in the case of
mora ex persona.
-
•
•
Positive Malperfomance
Test: Is the breach so serious that you cannot expect the creditor to abide by the
contract and be satisfied with damages alone?
•
•
Prevention of performance and Repudiation
If the inability to perform or repudiation is of the whole or substantial part of the contract
then you can cancel
But if only related to a minor or unimportant part of the contract, then you can’t.
•
NOTE: If you can’t claim cancellation (i.e. your breach isn’t material or you don’t have a
cancellation clause), you may be able to claim specific performance and/or contractual
damages.
C. CONTRACTUAL DAMAGES:
-
-
Contractual damages are different from delictual damages.
Purpose of contractual damages is to put the person in the (financial) position that
they would have been in had the breach not occurred/if the contract had been
properly performed.
This calculation would include wasted costs and lost of profit and interest
-
However the calculation of damages is limited by the following REQUIREMENTS:
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1) Loss must be financial.
- i.e. no damages to hurt feelings, pain and suffering. Must be actual monetary
loss.
Example: Edouard v Administrator Natal 1989 (2) SA 368 (D)
Mr and Mrs Edouard had two children. She went to hospital to have her third by
a c-section. They contracted with the hospital that she will be sterilised at the
same time as having the caesarian. They could not afford to have more
children. The doctors failed to perform the sterilisation; were negligent. Mr and
Mrs Edouard did not know this; so she fell pregnant with her 4th child. She and
her husband sued for breach of contract and claimed the following contractual
damages:
a) Pain and suffering for Mrs Edouard
b) The cost of maintaining the child until she was 18
c) The cost of a sterilisation operation
The court did not award the damages under (a) because it was not a financial
loss. But they did order (b) and (c) + interest.
2) Loss must have been caused by the other party’s breach
- Refer to above case: because of doctor’s breach, she fell pregnant with 4 th
child.
3) Loss must have been reasonably foreseeable.
- This limits requirement two
- In other worlds, would the parties reasonable have forseened the loss when
they contracted.
Example (refer to facts of Edouard):
She falls pregnant with the 4th child. As a result of having to support an extra
child, Mr Edouard takes on an additional night job. One evening, driving home
from his night job, he has an accident with another car. It is not his fault. He
loses an arm and leg and becomes brain dead so now he can no longer work.
Mrs Edouard now has to support all 4 children on her own and as a result she
develops high blood pressure, has a stroke and dies. The 4 children now have
to pay to keep Mr Edouard on life support and they’ve lost their income from
their mother.
None of this would have happened if the doctor’s had done they job properly.
All of these events were caused by the doctor’s failure to sterilise (therefore
meets requirement 2). However, they are not all reasonably forseeable
(therefore does not meet requirement 3). The only event that is reasonably
forseeable is the birth of a 4th child.
4) Non-defaulting party has to mitigate/minimise his loss
- The party who is not in breach must take reasonable steps to reduce the loss
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Example: Mrs X rents out a flat to Y. It is a 2 year lease but after 18 months, Y
gives notice and moves out. Y is in breach because she left 6 months early. 8
months later, Mrs X had not taken any steps to find a new tenant and she
wanted to claim the full 6 months rent with interest.
The court allowed 3 months rent + interest because if she had taken
reasonable steps, she could have found another tenant within 3 months.
NOTE:
Course outline:
Topic B4 –termination of a contract
- Will be covered if there is time. Otherwise won’t be examinable.
Topic B5 – transfer of contractual rights and dueties
- Will not be covered.
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PART C: SPECIFIC CONTRACTS
1. CONTRACT OF SALE
Definition of sale: Contract of sale when one party undertakes to deliver a thing to another, in
return for payment.
Contracts of sale are governed by the common law AND by the Consumer Protection Act
2008 (In effect Sept/Oct 2010)
The Act applies ONLY to transactions where the supplier sells/supplies “in the ordinary
course of business.”
AND
The Act applies ONLY where the consumer is NOT a juristic person with a gross asset
value/gross annual turnover in excess of R2 million.
1.1 Essential Requirements for Sale
•
•
•
All of the essential requirements below are based on common law principles and
have not been altered by the CPA. So these principles are still applicable even in
CPA transactions.
These are the requirements that make a sale, a sale.
This is on top of the normal contractual requirements like capacity.
a) Intention to transfer free and undisturbed possession
-
In order to validly sell a thing, the person only has to undertake to transfer
free and undisturbed possession
Free and undisturbed possession = VACUA POSSESSIO
Therefore, the sellor does NOT have to undertake to transfer ownership to the
buyer. Although that is normally what happens.
Sale does not necessarily mean ownership
It is therefore possibly for someone who is not the owner to sell an thing
VALIDLY.
Before delivery takes places, there is a valid contract of sale (all requirements
are met), and the buyer has a personal right against the seller for delivery.
Once delivery has taken place, the buyer has a real right of possession, NOT
ownership.
Possession is a very strong real right.
But it is a lesser real right than ownership.
Some buyers may become owners, but not always.
b) Agreement on the subject matter of the sale
-
The parties must agree on the subject matter of the sale otherwise there’s a
material mistake.
Subject matter can be corporeal or incorporeal.
CORPOREAL = tangible
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-
INCORPOREAL = intangible e.g . intellectual property, copyright, patent,
shares, the right to sell your debts.
The Act provides a list of services that fall broadly under sale, e.g. healthcare,
accounting services, legal services, hospitality & tourism, banking, airlines &
casinos, beauty.
c) Agreement on Price
i. The Price must be in money or at least it must have a monetary component.
Example: you buy a car for R500k, you can pay R300k in cash AND trade in
your old car to make up the balance.
ii. 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.
Example: “the share price will be as determined by the auditors”
OR
“ The Price will be cost + 10%”
OR
“The price will be the pound equivilent of R20m according to the exchange rate
on the 1st of June.”
1.2.
Legal effect of a contract of sale:
a) The passing of ownership
- Common law but applies under the Act as well. The act has not changed it
- Sale does NOT transfer ownership, only VACUA POSSESSIO.
- Ownership is a stronger real right than possession.
- An owner has the right to claim his property wherever he finds it using the REI
VINDICATIO. This can be used against a possessor.
Key requirement:
For ownership to be transferred the seller must himself be the owner as you can’t
transfer more right than you have.
AND the following requirements must also be met:
DELIVER + INTENTION TO PASS OWNERSHIP
1. Delivery
- Movables = delivery can be actual (actually hand good over) OR it can
constructive
o In constructive delivery, the item is not moved at all, instead the buyer is
placed in control of the item
o Example: A buys all the stock in a warehouse from B. Instead of
actually delivering the stock, B could give A the key to the
warehouse.
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-
Immovables = delivery takes place when the sale is registered at the Deed’s
Office. This normally happens about 2 months after the contract of sale is signed
by the two parties.
2. Intention to pass ownership:
If it is a cash sale of a moveable then it is presumed that the intention of the parties is
that ownership will pass on delivery AND full purchase price must be paid
OR
If it is a credit sale of a moveable then it is presumed that the intention of the parties is
that ownership will pass on delivery alone i.e. before the full purchase price is paid.
OR
If it is a sale of immovable property ownership will pass on delivery alone (registration at
Deeds Office) and the purchase price need not have been paid.
-
Cash Sale = full payment must be made on delivery or a very short time after
Credit Sale = full payment or a portion of the purchase price is paid some length of
time after deliver
These are the normal/residual rules unless the parties expressly agree otherwise or
there is evidence that they intended otherwise.
For example, in a credit agreement they can expressly state that ownership will only
be transferred when the last installment is paid.
Examples: Are these cash or credit sales?
• Buying clothing on account at Edgars = CREDIT, but owner is YOU
• Paying for goods on credit card = CASH
• Paying a deposit on conclusion of the contract and the balance on delivery =
CASH because everything is paid on delivery
• Paying the purchase price in instalments, at least one of which is due after
delivery = CREDIT, because a portion of purchase price is outstanding
• Post-dated cheque = CREDIT
b) The passing of risk & profits
RISK- COMMON LAW RULE
(This will apply to non-CPA transactions)
Example: on the 10th of May you sign a contract to buy a house fo R2m. The transfer
will be registered at the Deed’s registery on the 12th of July. That is delivery and that’s
when you move in. The house has a thatched roof and on the 15 th of May it is struck
by lightening and the house burns down.
Rule: the risk of accidental loss passes to the buyer as soon as the sale is PERFECTA,
even if the thing has not yet been delivered to him.
- therefore, in above example, the buyer will still have to pay the full R2m for the house.
- This is SUPERVENING IMPOSSIBILITY i.e. the contract becomes objectively impossible
after it is entered into BUT
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- the passing of risk of sale is an exception to the rule that if the contract becomes
objectively impossible, then the other party is also excused from performing i.e. In sale, even
if the seller cannot perform, the buyer must still pay – that is buyer’s risk
Let's have a look at how this rule works:
•
Risk of accidental loss
-
Loss = damage or total destruction of a thing. So if the item or thing is damaged or
destroyed before delivery the buyer must still pay the full purchase price.
-
Loss could be any disadvantage for example if taxes and duties on the sale increase
before delivery the buyer is responsible.
-
Accidental = due to an act of god or nature , or unforeseen events over which the
parties have no control of.
Example: If the government expropriates the item the buyer may still have to pay the
purchase price.
Note: the buyer only bears the risk of accidental loss. Therefore he does not bear the risk of
loss caused by the fault of the seller (fault can be negligence or intent) or anyone for whom
the seller is responsible in these situations the seller bears the risk which means he won't
receive the purchase price.
•
Risk passes as soon as the sale is perfecta
-
In most simple contracts of sale the sale is perfecta as soon as it is concluded but
this may not always be the case. Because the following requirements must be met in
order for the sale to be perfecta:
1. The price must be fixed not merely ascertainable.
Example: A enters into a contract with B on the 1st of June. A is in cape town and
B is in London . A must deliver 500 kg of biltong to B in London on the 1st of July.
The purchase price is the equivalent of 100000 pounds according t the exchange
rate on the 28rd of June. On the first of June there is a valid contract of sale
because the purchase price is ascertainable. The purchase rice becomes
ascertained on the 28th of June. Therefore the sale only becomes perfecta on the
28th of June. If the goods are destroyed at sea on the 26th of June, the seller
bears the risk i.e. will not get the purchase price. If the goods are destoryed on the
29th of june the buyer bears the risk , he has to pay the pruchase price with no
goods on return.
2. The subject matter must be ascertained not merely ascertainable
Example: Poppe, Schunloff and Guttery v Mosenthal 1879 Buch 91 (would be
heard differently today under the CPA)
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P sold 200000 cases of Brandy to M. it is a valid sale they have agreed on the
subject matter. The cases were in a warehouse with many other cases. Before
delivery and before P had set aside the particular cases for M, the government
imposed a tax on the sale of brandy. The issue was who was liable to pay this tax.
For the sale to be perfecta the subject matter needs to be ascertained . In this
case the item was only ascertainable i.e. because the specific cases to M had not
been set aside) sale was not perfecta therefore the risk hadn't passed therefore
the seller had to pay the tax.
3. Any suspensive condition to which the sale is subject must have been fulfilled.
o
Situations where the risk will not pass to the buyer once the sale is perfecta.
a) Where there has been an express or implied agreement varying the rule.
Example: Buying a house you can say the risk can only pass to the buyer on
registration(delivery).
b) Where there is a default/delay=y on the past of the seller in making delivery
o In this case , it is presumed that any damage cause to the article during the delay
is due to the fault of the seller
o
However the seller can rebut or disprove this presumption by showing that the
damage would have occurred even if delivery had been mad on time , and in this
case , then the risk again passed to the buyer.
RISK UNDER THE CPA
In terms of the Act, it is an implied term that the risk remains with the seller until delivery,
unless otherwise expressly agreed.
PASSING OF PROFIT
• Examples of profit are rental income, revenue from sale
• Any benefit in a property is profit
• Profit in the thing passes to the buyer at the same time as the risk
• In terms of common law, profit passes to the buyer when the sale is perfecta
• Under the act , profit passes to the buyer on deliver
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1.3. Duties of the Seller
a) THE DUTY TO TAKE CARE OF THE ITEM UNTIL DELIVER
•
•
This is a common law rule, but it also applies to CPA transactions
If the seller fails in his duty, then the buyer can sue him for breach of contract
B) DUTY TO DELIVER THE MERX.
• Don’t confuse delivery with the actual transportation
• Under the common law, the seller must make delivery BUT the buyer is liable for
the transportation costs including incidental costs eg. If you’re transporting
animals, the buyer is responsible for the feed.
• Under the Act, the seller must make delivery AND pay for the transportation
costs AND incidentals.
• These rules can be varied by express agreeement.
•
C) DUTY TO GIVE VACUA POSSESSIO AND IMPLIED WARRANTY AGAINST EVICTION
Common Law:
- The normal contract of sale does not always transfer ownership, simply VACUA
POSSESSIO
- This is both under the act and under the common law
- Under the common law, the buyer who is not the owner is protected by the warranty
against eviction.
- This is a term implied by law whereby the seller guarantees that the buyer will not be
dispossessed/evicted by any person/third party with a better title I.E. TRUE OWNER
- If the buyer is dispossessed/evicted he has a claim against the seller under the
implied warranty.
- This applies even when the seller genuinely believed he was the owner
Example: X sells a car to Y. A while later, Z comes along, and he tells Y that the
car was stolen from him some time ago, and he is the true owner. The true
owner is allowed to reclaim his car under the REI VINDICATO – Z gets a court
order and takes the car. Y now has a claim against X for breach of the implied
warranty against eviction.
-
When faced with an eviction/dispossession by a third party, they buyer has two
options:
1. Do not give up possessio until dispossesed by an order of court
- In SA law, you do not have to give up possession until there is a court order. Even a
thief.
- If the buyer chooses this route, then he has to inform the seller and ask for his help in
defending the third parties claim
- If the seller assists and they lose, then the buyer can claim from the seller under the
implied warranty.
- If the seller can’t be found or does not assist, the buyer must still defend the claim in
court
- If he doesn’t, then he loses his claim against the seller under the implied warranty
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OR
2. He can give up the goods to the third party without a court order and without notice to the
seller
- The buyer will only have a claim against the seller under the implied warranty IF the
third party had an indisputeable/undefendable title I.E. OWNERSHIP
•
•
What compensation can the buyer claim under the implied warranty against eviction?
It will be a breach of contract by the seller (i.e. breahc of implied warranty), therefore
can:
1. Cancel and Claim purchase price
2. He can also claim damages representing:
a. Any natural increase in the value of the article (if forseeable)
b. Costs incurred in defending the action by the true owner
c. Any further loss as a result of the eviction but subject to general rules
regarding contractual damages (see notes)
Example: If the buyer has made improvements to an item eg. New tyres to a car,
against who will he have a claim for those improvements?
Against the TRUE OWNER under UNJUSTIFIED ENRICHMENT
•
-
-
Situations where the warranty will not apply:
Where the parties expressly agree: the parties can agree that there will be no implied
warranty.
o HOWEVER, even if they expressly agree, the buyer will always be entitled to
reclaim the purchase price.
o If the seller KNEW that he was not the owner then a clause excluding the
warranty will be ineffective.
If the buyer is aware that a third party had a claim to the article
If the cause of evictionis due to the unlawful act of a third party (eg. A thief), or an
accident, or an act of state (eg. Expropriation)
Implied Warranty Against Eviction Under The Act
-
The act also creates an implied warranty against eviction.
-
There are however two important differences between the one under the act and the one
under the common law:
• There is an automatic right to claim against the supplier even if the consumer doesn't
defend the third party's claim or give notice to supplier
• Does not seem that you can expressly exclude the warranty
D. DUTY ASSUME LIABILITY FOR LATENT DEFECTS - IMPLIED WARRANTY AGAINST
LATENT DEFECTS
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Common law
•
•
This warranty is implied by law in all contracts of sale.
The seller is liable for any latent defects which existed at the time of the sale whether
he knew about them or not.
•
•
Latent = It is not obvious to the ordinary person upon a reasonable inspection.
This will depend on the facts.
Examples:
1. If you look at a house in summer in Cape Town , the ordinary person won't
be able to tell on a reasonable inspection that it has a leaking roof.
2. Faulty breaks on a car may be a latent defect on the car
3. If a house is not built according to plan.
4. A dent in a car is NOT a latent defect.
•
•
Defect = an abnormal characteristic which destroys the effectiveness/usefulness of
the thing for the purpose for which it was sold or for which it is commonly used.
All depending on the facts (age of the item, purchase price, type of item & with cars
the mileage)
Examples: You buy a 1981 car for R8000 the breaks are faulty and the radiator is
faulty, it has a lot of mileage on the clock. Those may be latent issues but they are
probably not defects. Because in a car of that age for that price it is probably normal
that the breaks and radiator may be faulty .
Compare with:
You buy a brand new Volvo for R500000 and the breaks are faulty and the radiator
does not work, these are latent defects because of the defects abnormal nature.
NOTE: if you buy second hand goods normal wear and tear is not a latent defect.
-
If there is a latent defect the purchaser has the aedilitian remedies against the seller.
-
There are two types of aedilitian remedies:
1. Actio redhibitoria
This is used where the defect is so serious that the reasonable purchaser would not have
bought the item at all had he known of it i.e. material defects.
Under the actio redhibitoria he can cancel, return the goods and claim:
a) Return of the purchase price if paid.
b) Payment of all foreseeable and necessary sale expenses e.g. delivery costs, import
duty etc.
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c) Payment of expenses incurred in examining the object to discover the defect
d) Expenses incurred in returning the object to the seller e.g. transport and possibly
storage
No consequential loss/ contractual damages are allowed.
Example: A buys a house from B. It has a leaking roof and that is a latent defect.
When the rains come in June the roof leaks so badly that a lot of expensive furniture
is destroyed, computer equipment and a flat screen TV worth R10 000 . The entire loss
is valued at R150 000 . That is consequential / contractual damages and it may not be
claimed.
2. Actio quanti manoris
- Here the defect is such that a reasonable buyer , had he known of it would have paid
less(but he still would have bought it).
- The buyer is entitled to have the price reduced to the market value of the object in its
defective state at the time that the defect was discovered.
- No consequential loss/ contractual damages are allowed.
-
NOTE: under the common law the aedilition remedies can be excluded by express
agreement , this is known as a VOETSTOETS clause.
It means the item is sold with defects and the buyer has no claim against the seller
under the implied warranty.
The clause will not be effected if the seller knew of the defect and did not a advise
the buyer.
NOTE: Other possible remedies for deffective goods
1. Where the seller has warranted that there are no defects then the normal remedies
for breach will be available, this would allow consequential loss i.e. damages in
contract.
2. Where the seller has misrepresented that the item was free of defects then the
remedies for misrep will be available . Note the misrep could be in the form of nondisclosure as seller has a duty to disclose any latent defects that he knew about , this
would allow one to claim consequential loss/damages in delict.
IMPLIED WARRANTY OF QUALITY UNDER THE ACT:
- Under this warranty, the consumer has the right to receive goods that are:
Of good quality and free of latent AND patent defects.
- This is different from the common law because the suppier is also liable for patent
defects
- If not then the consumer has 6 months after delivery to return goods and is entitled
to:
• Have the item repaired or replaced or
• A refund of the full purchase
- NB: this is in addition to any further rights under the implied warranty against
latent defects under the common law
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-
Note: the consumer’s claim above lies against not only the supplier (retailer), but
also the producer, importer or distributor.
You cannot sue all – have to choose one
The warranty will not apply if the consumer is expressly told about the defects AND
expressly agreed to accept specific defects.
This is NOT the same as a VOETSTOOTS CLAUSE. With the clause you just
accept that the item has defects; not specific about what defects.
The warranty also does not apply if the consumer has altered the item after the
purchase.
STRICT LIABILITY FOR DEFECTIVE GOODS UNDER THE ACT: CONSEQUENTIAL
LOSS/DAMAGES
The producer, importer, distributor or supplier/retailer is liable for ANY harm caused by:
1. Supplying unsafe goods; OR
2. Defective goods; OR
3. Inadequate warnings provided to the consumer regarding any possible dangers
-
Even if the harm was not caused by any negligence or fault on their part. This is
known as STRICT LIABILITY (i.e. liability without fault.)
Harm includes consequental loss/damages
Note: this right of the consumer (right to sue for consequential loss) CANNOT be
excluded by express agreement
The only way for the retailer/distributor (ONLY) to avoid liability is if they can prove
that they could not have detected the hazard given their role in the marketing process
Note course outline:
Topic 1.4 Statutory Protection of Consumers (CPA) has been covered throughout the
course and will not be covered separately.
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2. LEASE
Definition of a lease: A lease is a contract between a landlord (lessor) and tenant (lessee) for
the hiring by the tenant of immovable property. The landlord grants use and occupation of
the property to the tenant and in return the tenant pays a specified sum of money.
•
It seems like all leases are governed by the CPA
2.1
Essential requirements/Nature and Duration of Lease
-
These are in addition to the basic requirements for a valid contract
These are what make a lease a lease
a) Intention to give temporary use and enjoyment
• This requirement differentiates lease from sale.
• The parties do not intend that the tenant will have permenant use of the property,
instead it will only be for a period of time.
• The parties may agree that the lease will be for a definate period (i.e. year/month)
OR it can be for an indefinite period.
• Example of indefinite period is when you rent a parking bay at a parkade.
• Indefinite does not mean permenant
• Under CPA, a lease cannot last longer than 24 months or 2 years
b) The property let
• The parties must agree on the property let
• The lessor/landlord does NOT need to be the owner for a valid lease
c) The rent payable
• The tenant must pay a specified sum of MONEY, otherwise it is not a lease.
• Can’t pay you in things other than money
2.2.
Duties of the lessor
a) Delivery of the leased property
• The landlord must deliver FREE and UNDISTURBED possession to the tenant
• There must be no one else in the flat when you move in
b) Duty to deliver and maintain in reasonable condition
• The landlord must deliver the property in a reasonable condition for the purpose
for which it was let
• AND the landlord must maintain the property in a reaonable condition for the
purpose for which it was let
• If the landlord fails in these duties, then the tenant, after NOTIFYING the
landlord, can effect the repairs himself and deduct the amount from the rental
• Key is that you have to notify the landlord
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•
In this situation, the lessee can also claim damages (consequential loss) as long
as the landlord knew of the defect.
c) Guarantee of undisturbed use & enjoyment
• The landlord warrants (implied) that the tenant will not be disturbed in his
possession, either by the landlord himself or by a third party with better title, or if
the true owner comes along and tries to evicts you – you have a claim against the
landlord.
d) Duty to compensate lessee for improvements
• Necessary improvements = necessary for the preservation of the property. For
example: fixing or replacing a roof, or a retaining wall.
• Useful improvements = enhance the value of the property, but are not necessary.
For example: building a garage, a dam, a fence on a farm, a shower in a house
that has a bath
• Luxurious improvements = more decorative than useful. For example: a fountain,
a flowerbed.
• Tenants get no compensation for luxurious improvements unless the parties
agree
• With regards to useful and necessary improvements it depends on whether the
property is urban or rural.
Improvements to Urban Property (i.e. property that is in a town):
-
The tenant is entitled to compensation for necessary AND useful improvements
Even if they were made without consent of the lessor
For necessary improvements, the tenant can get the FULL amount spent
For useful improvements, he can get the FULL amount spent OR the value by which
the property has been enhanced whichever is less.
Example: if you put in a shower for R50 000 and the property value only went
up by R10 000. You, as the tenant, will only receive R10 000.
Improvements to Rural/Agricultural Property (any property in a rural/farming area):
-
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With useful improvements, the lessee can remove these structures during the lease
period if it won’t damage the property
Once the lease period terminates, the tenant cannot remove these structures and
they become the property of the landlord
If the tenant can’t remove these structures, then he is ONLY entitled to compensation
if they were done with the consent of the lessor AND he can only claim the bare
cost of materials EXCLUDING labour
With necessary improvements, it seems that the tenant can recover the FULL
amount
2.3 Duties of the Lessee
a) Payment of Rent
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If the tenant fails to pay rent, then the landlord has the normal remedies for breach
and in addition, he has TACIT HYPOTHEC
Tacit Hypothec: before the landlord sues for outstanding rent, he can attach as
security any moveable goods that are on the premises
Once he has attached the goods, the hypothec is PERFECTED
Attachment means that the landlord will get the sheriff of the court to go to the leased
premises and the sheriff makes an inventory of all the moveable goods on the
property
Once the inventory has been made, the property cannot be removed or given to
anyone else
The landlord can then sell the goods to cover the outstanding rental if the tenant
does not pay when sued
Continuing with the Hypothec, if the tenants goods cannot satisfy the outstanding
rental, the sheriff can attach THIRD PARTIES GOODS that are on the premises
provided the following the requirements are met:
i.
The goods are on the premises with the consent of the third party. Consent
can be expressed or implied.
ii.
The goods are on the premises for the indefinite use of the tenant. Indefinite
does not necessarily mean forever
iii.
The landlord must be unaware that the goods belong to a third party.
Example: X rents a flat and is in arrears with rental. Her friend B lends her a
diamond necklace for as long as she needs it and it is kept in X’s bedroom. The
landlord can sell that under the hypothec if the three requirements are met.
Note: items subject to an installment agreement cannot be attached.
b) Duty to care for the property and use the leased property for the purpose for which it was
let
c) Restoration of property on termination of the lease
- At the end of the lease the tenant must return the property in the same condition that
it was in at the beginning
- The tenant is not in breach of this duty if there is reasonable wear and tear
2.4 Transfer of Ownership of the Leased Property
When the lessor sells the leased property, the general rule is that the new buyer is bound by
the existing lease in accordance with the doctrine of HUUR GAAT VOOR KOOP.
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This means that the new buyer is automatically substituted as the landlord and the
tenant cannot be evicted
The old lease applies and the buyer and the tenant are bound by its terms
The doctrine only applies if the new owner was aware of the lease OR if the tenant
was in occupation at the time of the sale. Even if the tenant is away at the time of the
sale and her stuff is still in the apartment; she is still in occupation.
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When the property changes ownership due to inheritance or donation than the HUUR
GAAT VOOR KOOP doctrine also applies and even if the new owner had no knowledge of
lease or lessee was not in occupation,
NOTE: 2.5 Subletting and 2.6 Statutory Regulation are not covered and not
examinable.
3. CONTRACTS OF AGENCY
3.1
Nature of Contract of Agency
Agency is a contract whereby one person (the agent) is authorised by another (the principal)
to enter into contracts and incur binding legal obligations with a third party on the principal’s
behalf.
- Common examples of agents are lawyers and directors of a company
- An agent is different from a mandatory. A mandatory does not incur legal obligations
on behalf of the principal.
- An example of a mandatory is an estate agent because even though she markets
your house, she doesn’t enter into a sale contract on your behalf.
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Once an agent has performed a juristic act (i.e. entering into the contract), he falls
away and the rights and obligations are between the principal and third party only.
Example: Mr A is an agent for Mrs P. A enters into a contract with X on P’s behalf. The
contract is between P and X. A falls away i.e. can’t be sued etc.
3.2.
Forms of Authority
a) Actual Authority (Expressed or Implied)
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The General Rule: no formalities are required to authorise the agent AND the
authority can be expressed or implied.
Example of implied authority: law faculty manager has implied authority to
order stationery on behalf of the department.
Normally however, the authority is given in a document called a power of attorney.
If an agent is going to sign a contract for the sale of immovable property on behalf of
the principal, the authority MUST BE IN WRITING.
b) Estoppel (Ostensible Authority)u
Here there is no expressed or implied authority, but the principal is prevented from denying
that (i.e. ESTOPPED) somebody who appeared to be his agent had authority.
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Basically, if somebody seems to be your agent, even if they’re not your agent, you
are bound by their authority and cannot deny it.
Example: Quinn & Co Ltd v Witwatersrand Military Institute 1953 (1) SA 135 (T)
Mr Smith was in charge of the sergeant’s dormitary at the military institute. He entered
into a contract with Quinn to provide catering services for their annual dance. Smith
had no authority from the military institute to do this i.e no expressed OR implied
authority.
The issue was whether the military insitute was liable to pay Quinn.
The court held that they were liable because:
• The military institute knew about the dance
• They knew that Smith was organising it
• They therefore should have realised, that third parties like Quinn would be
misled into believing that Smith had authority.
• Thereofore even though he had no authority, the institute was
estopped/prevented from denying that he had authority
• Therefore they are liable under the contract
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