Specific contracts
in court
Fourth edition
Specific contracts
in court
Fourth edition
DJ Lötz
B Iur LLB (Pret) LLM (Wits) LLD (Pret)
Professor of Mercantile Law, University of Pretoria
Attorney and Conveyancer of the High Court
CJ Nagel
BA LLB LLD (Pret)
Professor of Mercantile Law, University of Pretoria
EP Joubert
LLB LLM (Pret)
Lecturer in Mercantile Law, University of Pretoria
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© 2018
ISBN 978 0 409 12911 3
eBook ISBN 978 0 409 12912 0
First edition 1999
Second edition 2002
Reprinted 2009
Third edition 2010
Reprinted 2016
Fourth edition 2018
Copyright subsists in this work. No part of this work may be reproduced in
any form or by any means without the publisher’s written permission. Any
unauthorised reproduction of this work will constitute a copyright
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Editor: Marjorie Guy
Technical Editor: Crystal Naidoo
Preface
As was stated in the preface to the first edition, the purpose of this work is to
help students master the cases and articles in legal journals prescribed as
additional study material in courses on specific (nominate) contracts. It is not
a traditional case-book which consists mainly of quotations from the decided
cases. It provides a concise summary of the facts, of the dispute or question
of law in issue, and of the salient points of the decision, together with
comments, remarks, criticisms or the points of view taken in articles in legal
journals.
New case law was added to the sections dealing with purchase and sale,
lease, agency, credit agreements and insurance.
We wish to thank all our colleagues in the Department of Mercantile Law at
the University of Pretoria who, in one way or another, assisted with the
compilation of this edition.
THE AUTHORS
30 November 2017
v
Contents
Page
Preface ................................................................................................
v
Purchase and sale
1 Formation of the contract ............................................................
3
1 1 Consensus on essentialia ......................................................
3
1 2 Contract subject to suspensive condition .............................
4
2 Essentialia of the contract of sale .................................................
7
2 1 Nature of the contract ..........................................................
7
2
2
The
merx ..............................................................................
10
2 3 Purchase price ..................................................................... 20
3 Formalities ...................................................................................
22
3
1
Writing
.................................................................................
22
3 2 Purchase price ..................................................................... 26
3 3 Signature of the parties ........................................................ 27
3 4 Consequences of non-compliance with formalities .............. 34
3 5 Blank spaces ........................................................................ 38
4 Options and pre-emptive rights .................................................... 41
5 Safe-keeping of thing sold and passing of risk .............................. 53
6 Passing of ownership ................................................................... 56
6 1 Requirements for passing of ownership ............................... 56
6 2 Payment of the purchase price ............................................ 59
6 3 Delivery of the merx ............................................................ 61
7 Warranty against eviction ............................................................ 65
7 1 Forms of eviction ................................................................. 65
7 2 Duties of purchaser when eviction imminent ....................... 66
7 3 Purchaser’s right of recourse ................................................
68
7 4 Exclusion of warranty .......................................................... 70
8 Double sales
.................................................................................
71
vii
Specific contracts in court
Page
9 Warranty against latent defects .................................................... 75
9 1 Meaning of latent defect ..................................................... 75
9 2 Manufacturer and merchant ............................................... 76
9
3
Actio empti and aedilitian actions ........................................ 81
9 4 Duty of seller and purchaser to disclose and investigate ..... 87
9 5 Application of a voetstoots clause to non-physical or
invisible defects .................................................................. 89
9 6 Negligent misrepresentation ............................................... 91
9 7 Consumer Protection Act and the sale of defective
used goods .......................................................................... 94
10 Payment of the purchase price .....................................................
97
10 1 Suspensive conditions ......................................................... 97
10 2 Payment of purchase price in case of trade-in
transactions ........................................................................ 104
Letting and hiring
11 Essentialia of the lease ................................................................. 115
12 Delivery and maintenance of the leased property ........................ 118
13 Huur gaat voor koop ...................................................................... 121
14 Compensation for attachments and improvements ..................... 124
15 Payment of rent ........................................................................... 125
16 Proper use of the property ........................................................... 125
17 Return of property on termination of lease .................................. 126
18 Sublease
.......................................................................................
128
19 Renewal of the lease .................................................................... 132
20 Termination of the lease .............................................................. 137
Agency
21 General
........................................................................................
147
22 Agency distinguished from employment contract ........................ 147
23 Ostensible
authority
.....................................................................
148
24 Undisclosed
principal
...................................................................
152
25 Remuneration payable to agent ................................................... 154
26 Indemnity against losses .............................................................. 157
27 Agent’s knowledge, care and skill ................................................ 157
28 Agent’s good faith ........................................................................ 159
Suretyship
29 Definition and requirements for validity ...................................... 163
30 Liability as surety and co-principal debtor .................................... 167
31 Termination of the contract of suretyship .................................... 168
viii
Contents
Page
Credit agreements
32 Scope of application of the National Credit Act ............................ 173
33 The debt relief measures in the National Credit Act versus
voluntary surrender under the Insolvency Act .............................. 178
34 Over-indebtedness and debt counselling as a defence ................. 180
35 The procedure in terms of section 86 and related matters ........... 188
36 Notice in terms of section 127 ..................................................... 198
37 Notice in terms of section 129 ..................................................... 200
Insurance
38 Nature and characteristics of the law of insurance ....................... 215
39 Requirements for the validity of a contract of insurance .............. 215
40 Insurable
interest
.........................................................................
217
41 Risk
..............................................................................................
221
42 Premium
......................................................................................
222
43 Parties to the contract of insurance .............................................. 223
44 Noting the interests of third parties on a contract of insurance .... 226
45 Misrepresentation and the contract of insurance ......................... 229
46 Insurance
guarantees
...................................................................
247
47 Insurance
intermediaries
.............................................................
252
48 Extent of insured’s claim: Principle of indemnity ......................... 255
49 Occurrence and exception clauses ............................................... 256
50 Subrogation
..................................................................................
257
51 Interpretation of contract of insurance ......................................... 258
Employment contract and letting and hiring of work
52 Employment contract, letting and hiring of work and related
contracts ...................................................................................... 263
53 Vicarious
liability
..........................................................................
267
Examples
1 Agreement to purchase immovable property ............................... 273
2 Lease
............................................................................................
277
3 Special power of attorney ............................................................ 280
4 Simple surety for single obligation ............................................... 280
5 Building contract ..........................................................................
281
6 Contract of employment .............................................................. 286
Table of Cases ................................................................................ 289
Index ................................................................................................. 299
ix
Purchase and sale
Purchase and sale
1 Formation of the contract
1 1 Consensus on essentialia
[1] McWilliams v First Consolidated Holdings (Pty) Ltd
[1982] 1 All SA 245 (A), 1982 (2) SA 1 (AD)
Facts
M bought shares to the value of R55 000 from F. The contract of sale was
concluded orally. F’s attorney confirmed this oral contract by letter to M, by
including the agreed terms by way of a memorandum of agreement in the
letter.
M did not respond to this letter, nor did he dispute the contents thereof,
except that he put the purchase price at R50 000. F’s attorney later passed
away. Notes made by the latter during the negotiations were submitted in
order to prove the terms of the agreement between M and F.
From these notes, it appeared that the parties had agreed on the price, the
method of payment and the merx. Information not contained in these notes
but included in the memorandum of agreement related to, inter alia, the
place of payment, legal costs, the paying of bigger instalments, a voetstoots
clause, the consequences of late payment, the parties’ domicilium addresses
and the fact that the memorandum constituted the whole agreement between
the parties.
Judgment
The court had to decide whether a contract of sale had come into being.
M asserted that not all of the material terms were agreed upon during the
oral negotiations, referring specifically to the additional terms contained in
the memorandum of agreement.
The court a quo decided that ‘a positive agreement was reached on what
may conveniently be referred to as the basic terms of the sale’, the reason
being that consensus was reached on
l the nature of the contract;
l the merx; and
l the price.
The Appellate Division agreed with the decision of the court a quo,
especially in view of the fact that a letter confirming the agreement was
written by F’s attorney to which M did not respond at all. M’s quiescence did
not necessarily amount to acceptance of the contents of the letter, especially
where commercial practice and human expectation would indeed call for a
response. In casu, the circumstances indicated that M had to respond to the
letter if it did not reflect the true position.
3
Specific contracts in court
Consequently, the court held that the agreed terms were indeed proved by
the letter and the memorandum of agreement. Appeal was dismissed.
1 2 Contract subject to suspensive condition
[2] Geue v Van der Lith
[2003] 4 All SA 553 (SCA), 2004 (3) SA 333 (SCA)
Facts
N sold a portion of a piece of agricultural land to G. The Minister of
Agriculture’s permission in terms of section 3(e)(i) of the Subdivision of
Agricultural Land Act 70 of 1970 had not been obtained before conclusion
of the contract.
Section 3(e)(i) provides that ‘no portion of agricultural land, whether
surveyed or not, and whether there is any building thereon or not, shall be
sold or advertised for sale’, unless the Minister of Agriculture has consented
thereto in writing. A definition inserted in the Act in 1981 provides that
‘sale’ includes a sale subject to a suspensive condition and that ‘sold’, when
used as a verb, shall have a corresponding meaning.
The contract of sale between N and G was made subject to the suspensive
condition that the Minister would consent to the subdivision in terms of the
above provisions. G paid a portion of the purchase price, which was held in
trust by the conveyance attorneys pending transfer of the property. G then
brought an application to have the contract of sale declared null and void and
for repayment of the purchase price. The ground for the application was noncompliance with the provisions of section 3(e)(i).
Judgment
The central question is: what is the legal status of a contract of sale of
undivided agricultural land pending fulfilment of the suspensive condition?
In other words, despite the suspensive condition, does the absence of the
Minister’s written consent in terms of section 3(e)(i) result in the contract of
sale being valid, voidable or void? Can the parties to the contract therefore
side-step the prerequisite of ministerial consent by entering into the contract
without such consent, but then making the very contract subject to the
suspensive condition that the required consent be obtained?
The court a quo held that the present agreement did not fall within the ambit
of section 3(e)(i) as the legislature could not have intended to prohibit an
agreement which is subject to a suspensive condition for obtaining the
Minister’s consent, seeing that such a prohibition would have been so
glaringly absurd that it could never have been contemplated by the
legislature. Consequently, the court felt that a contract of sale subject to such
a suspensive condition could never be in conflict with the purposes of the
Act. On the contrary, this suspensive condition in fact 4
Purchase and sale
promotes the purposes of the Act. The court motivated its opinion by
defining the main purpose of the Act as an attempt by the legislature, in the
national interest, to prohibit the fragmenting of agricultural land into small,
uneconomical units. In order to reach this goal, the legislature restricted the
common-law rights of landowners to divide their agricultural land by laying
down the Minister’s consent as a prerequisite for the subdivision – clearly
with the aim that the Minister would reject any proposed subdivision which
would result in unwanted, uneconomical fragmenting.
The Supreme Court of Appeal did not agree with this approach and held:
‘Once it is accepted that an agreement such as this is prohibited by section
3(e)(i), despite the fact that it is subject to a suspensive condition, there is
simply no room for an argument that the agreement is not in conflict with the
legislature’s intention. On the contrary, since it is accepted that an agreement
of this kind is one of those specifically prohibited by section 3(e)(i), its
recognition as valid and enforceable would give legal sanction to the very
situation which that section was designed to avoid.’
Consequently, agreements that do not comply with the requirements of
section 3(e)(i) will be null and void. Brand JA also rejected the argument
that this type of suspensive condition is in fact an attempt to enforce exactly
the same requirement as that of section 3(e)(i) and that it can therefore not be
in conflict with the section.
Comment
Contracts of sale subject to a suspensive condition, such as the one in casu,
will always be revealed during the deeds registration process, and the
Minister’s consent will, of necessity, have to be obtained before any
registration or payment can take place. Therefore, in cases such as these, the
suspensive condition will always have been fulfilled by the time the contract
is executed (real operation and payment). In light of this real operation to
which contracts for the sale of land are subjected in the registration process,
the approach of the court a quo, practically speaking, is the better one.
[3] Mia v DJL Properties (Waltloo) (Pty) Ltd
2000 (4) SA 220 (T)
Facts
The deed of sale provided that the purchaser had to obtain a loan of R1 400
000 or less within 20 days of conclusion of the contract. The contract also
provided that this suspensive condition would be fulfilled ‘as soon as the
purchaser or the agent has received confirmation that the bond/s has been
approved by the mortgagee concerned’.
Before expiry of the said 20 days, the seller’s representative was informed
by a bank official that the loan ‘should not be a problem’. The purchaser
therefore applied for a bank loan for the full purchase price of R1 850 000,
which application was rejected.
5
Specific contracts in court
Since the application for the bank loan was unsuccessful, the purchaser was
unable to provide guarantees for payment of the purchase price within the
prescribed time. The seller cancelled the contract and claimed damages
because of this malperformance.
The original arbitrator rejected the claim because the damages were too
remote from the breach of contract. The arbitrator of appeal, however, held
that the purchaser was in breach of contract by
l applying for a loan in excess of R1 400 000; and
l not furnishing payment guarantees within the prescribed period.
The claim for damages was therefore awarded, hence the application in
terms of section 33(1)(b) of the Arbitration Act 42 of 1965 for the setting
aside of the award because of a gross irregularity in the award of the claim
for damages by the arbitrator of appeal.
Judgment
With reference to Van Jaarsveld v Coetzee [1973] 3 All SA 285 (A), 1973
(3) SA 241 (AD), the court held that the procurement of a loan was for the
exclusive protection of the purchaser. For this reason, the purchaser may
unilaterally decide to perform his duty of delivering payment guarantees
without the financial assistance of a financial institution. The court therefore
held that the purchaser may unilaterally waive the suspensive condition
regarding the procurement of the loan without being guilty of breach of
contract.
The court held on the facts that the purchaser had, by implication, waived
the suspensive condition regarding the procurement of the loan. This
resulted in the deed of sale becoming unconditional because of the waiver.
The court held that breach of contract did occur because the payment
guarantees were not delivered within the prescribed period. The seller was
therefore entitled to cancellation.
Comment
The court’s finding that a purchaser may unilaterally waive a suspensive
condition to obtain a loan because such suspensive condition is for his or her
exclusive benefit, is susceptible to the criticisms that
l there is a presumption against waiver;
l if there is a tacit term in the contract to the effect that the condition is for
the exclusive benefit of the purchaser, the correct test for the existence of
such a term must still be applied, which was not done in casu ( Alfred
McAlpine & Son (Pty) Ltd v Transvaal Provincial Administration
[1974] 3 All SA 497 (A), 1974 (3) SA 506 (AD)); and
l this condition is also for the seller’s benefit.
By applying for a bigger loan (R1 850 000 instead of R1 400 000), it would
appear that the purchaser wanted to expand his rights under the suspensive
condition rather than waive them. The court’s conclusion that 6
Purchase and sale
the purchaser waived the suspensive condition can therefore rightly be
doubted.
The basis for granting cancellation is therefore that a loan was applied for in
conflict with the terms of the contract and not the purchaser’s failure to
provide payment guarantees within the prescribed time.
2 Essentialia of the contract of sale
2 1 Nature of the contract
[4] Vasco Dry Cleaners v Twycross
[1979] 1 All SA 321 (A), 1979 (1) SA 603 (AD)
Facts
During 1967, S sold a dry-cleaning business, including the machinery, to P1.
The contract of sale between S and P1 provided that ownership would
remain with S until the purchase price had been paid in full. Delivery of the
merx took place by way of traditio brevi manu. During 1972, P1
encountered financial difficulties. P1 concluded an agreement with his
brother-in-law, P2, in terms of which P2 would pay to S the outstanding
balance of the purchase price owed by P1 to S. P1 and P2 further agreed that
ownership of the merx would pass to P2 and that P2 would immediately
resell it to P1. The contract between P1 and P2 provided that ownership
would only pass from P2 to P1 once P1 had paid the full purchase price to
P2. In terms of the latter contract of sale, delivery of the merx took place by
way of constitutum possessorium. Towards the end of 1972, P1 sold the
merx to P3. P3 was unaware of the contract of sale between P1 and P2. Since
P1 failed to pay the purchase price to P2, P2
instituted the rei vindicatio against P3.
Judgment
The question was whether ownership of the merx vested in P1 or in P2.
The court confirmed that the mere conclusion of a contract gives rise to a
personal right only. In order to obtain a real right, other requirements must
be met, such as
l delivery of the merx; and/or
l payment of the purchase price.
Since P1 never gave actual delivery of the merx to P2, it was doubtful
whether the above requirement of delivery had been met.
The court held that P1 became the owner of the merx after P2 had paid the
outstanding balance of the price to S because the requirements of delivery
and payment had both been met and a valid contract of sale existed between
S and P1.
7
Specific contracts in court
The contracts under suspicion were the sale of the merx by P1 to P2
and the immediate resale thereof by P2 to P1 for the very same price.
P3 asserted that the contracts of sale between P1 and P2 were not true
contracts of sale, but that they had in mind a money-lending agreement
secured by a pledge agreement.
Referring to Zandberg v Van Zyl 1910 AD 302, the court held that the true
intention of the parties, and not the wording of the contract, is the key to
determining the nature of the contract. The latter is a question of fact to be
determined and investigated in view of the circumstances of each individual
case.
The court further held that a pledge agreement constituted by constitutum
possessorium will not be effective against third parties as creditors may be
deceived and the principle of concursus creditorum can be undermined.
Therefore, the pledgee must be placed in actual possession of the pledge. It
must be borne in mind that a pledge agreement, although constituted by
constitutum possessorium, will still be effective between the creditor and the
debtor.
The court confirmed the rebuttable presumption that someone in possession
of the merx is also the owner thereof. The onus of proof then rests on the
party who disputes ownership.
The following factors were taken into account in establishing the nature of
the contract between P1 and P2:
l P2 made no profit from the transaction.
l In the case of a sale in execution, any surplus would be paid by P2 to P1.
l P1 did not intend to relinquish his ownership to P2.
l P2 did not have the intention of acquiring ownership of the merx.
l P1 wished to obtain financial assistance from P2, and this was achieved by
way of a money lending agreement coupled with a pledge agreement all cast
in the mould of a contract of sale.
l The price agreed on by P1 and P2 was not a serious one.
l The requirement of delivery for the transfer of ownership was not met.
l P1 warranted to P3 that he (P1) was the true owner of the merx.
As a result, the court held the contracts between P1 and P2 not to be true
contracts of sale, but rather a money-lending agreement secured by a pledge
agreement. P2’s rei vindicatio against P3 was refused.
[5] Mountbatten Investments (Pty) Ltd v Mahomed
[1989] 1 All SA 94 (D), 1989 (1) SA 172 (D)
Facts
M (Pty) Ltd sold a 1986 model BMW to M for R58 535. M paid the
purchase price by means of
l R14 535 in cash; and
l the balance of the price by way of trade-in of another vehicle (also a
BMW).
8
Purchase and sale
Through an innocent misrepresentation, M represented to M (Pty) Ltd that
the trade-in vehicle was a 1985 model, while it was in fact a 1983 model.
M (Pty) Ltd relied on the actio quanti minoris to claim a reduction of the
price from M, being the difference in the trade-in values of a 1985 and a
1983 model BMW.
Judgment
In order to decide whether M (Pty) Ltd was entitled to rely on the actio
quanti minoris, the court had to determine the nature of the agreement(s)
between M and M (Pty) Ltd.
The court took into account the following factors to determine whether a
contract of sale or one of exchange (barter) had come into being, namely l
where either party delivers a thing in exchange for another, a contract of
barter comes into being;
l where the purchase price consists partly of money and partly of payment in
kind, the nature of the agreement is determined by the true intention of the
parties and the agreement can be either a sale or a barter, irrespective of the
respective values of the cash and kind; l where there is doubt regarding the
parties’ intentions as to whether a sale or a barter was envisaged, the
respective values of the cash and kind must be compared;
l where the value of the cash payment is the higher, a contract of sale came
into being;
l where the value of the payment in kind is the higher, a contract of barter
came into being; and
l where the money and the thing are of equal value, a contract of sale is
deemed to have come into being since the parties are presumed to have
concluded a contract of sale rather than one of barter.
Voet 18 1 22 and Huber 3 4 3 are quoted as authority for the above factors.
The court held that M (Pty) Ltd and M had concluded a contract of sale in
respect of the 1986 model BMW. In respect of the transaction in which the
1983 model BMW was used as a trade-in, the court held that: ‘[I]t was not
sold, nor was it bartered.’
As a result, the court came to the conclusion that the actio quanti minoris
was not applicable to the trade-in transaction regarding the 1983 model
BMW because the actio quanti minoris applies only to contracts of sale and
barter (and not to trade-in transactions).
The court accepted the arguments advanced by the defendant (M), namely
that
l M (Pty) Ltd’s cause of action was innocent misrepresentation; l the
transaction involving the 1983 model BMW did not create either a contract
of sale or a barter; and
9
Specific contracts in court
l M (Pty) Ltd was not, on the grounds of an innocent misrepresentation,
entitled to a reduction of the purchase price under the actio quanti minoris.
Comment
The nature of the trade-in transaction in question is analogous to that of a
datio in solutionem (substitutive payment). At common law, the aedilitian
actions (being the actio redhibitoria and the actio quanti minoris) also
applied to a datio in solutionem. In view of this analogy, the court therefore
erred in not applying the aedilitian actions (specifically the actio quanti
minoris) to the trade-in transaction.
2 2 The merx
[6] CWA Snyders NO v Louistef (Pty) Ltd
2017 JDR 1264 (CC)
Facts
The Louis Snyders Familietrust is the registered owner of certain immovable
property which Louistef had hired from the trust since 1991.
Louistef operated a filling station at the site. The lease continued until 31
May 2014. With effect from 17 March 2006, the Petroleum Products
Amendment Act 58 of 2003 introduced a new dispensation regarding the
licensing of retail activities concerning petroleum products. On 9 October
2008, Louistef secured a site licence as well as a retail licence in terms of the
Act, authorising it to sell petroleum products at the site. Louistef continued
to operate the filling station until 15 May 2014. On 26 March 2014, Louistef
sold the site licence to the trust for R1 million. However, on 26 June 2014,
the trust’s attorneys addressed a letter to Louistef stating that the agreement
was ‘invalid and unlawful’ and that the trust objected to the payment of the
purchase price which had been deposited into the attorney’s trust account.
The trust then applied to the High Court for a declaratory order to the effect
that the sale was invalid and unenforceable.
High Court judgment: Snyders NO v Louistef (Pty) Ltd 2016 (1) SA 123
(GP)
It appears that the trust’s case was based on common mistake, namely that
both the parties mistakenly believed that the res vendita, the site licence, was
a merchantable merx, while this was not the case. This mistake rendered the
agreement impossible of performance, with the result that it was void ab
initio. Janse van Nieuwenhuizen J upheld the trust’s application and granted
the declaratory order. Louistef appealed against that judgment.
10
Purchase and sale
Supreme Court of Appeal judgment: Louistef (Pty) Ltd v
Snyders NO [2016] JOL 36971 (SCA), 2017 (5) SA 276 (SCA) The trust
submitted that the site licence did not constitute a merchantable merx as it
only created legal rights in favour of a land owner. It therefore submitted that
a site licence is inseparable from the land and as the trust was at all relevant
times the owner of the site, Louistef derived no legal rights from its site
licence. In view of this, so the argument went, the site licence could not have
constituted a valid res vendita for purposes of the sale, and this rendered the
agreement void ab initio.
However, Fourie AJA held that there was no merit in this argument.
Having earlier referred to the importance of and difference between the
newly-created categories of a site licence and a retail licence, he held that it
was clear from the relevant provisions of the Act that a site licence confers a
personal right upon the holder thereof which entitles the latter to enter the
site and to prepare it for the purpose of selling petroleum products at the site,
once a retail licence is obtained. The argument that a site licence confers
rights upon the land owner only and not the holder of the licence holds no
water. On the contrary, the judge explained that the granting of a site licence
constitutes a delectus personae whereby the applicant for the licence is
personally granted the right to exploit the site for the purpose of selling
petroleum products upon obtaining a retail licence.
Fourie AJA held that Louistef, as the licensee, was the person to whom the
privileges attaching to the site licence had been granted. The site licence had
a commercial value, not only to Louistef, but also to the trust.
Therefore, the site licence constituted a merchantable merx and was an asset
of Louistef, which it could sell and transfer with the consent of the
Controller of Petroleum products.
The judge found further support for his view in the remarks of Van Zyl JP in
Solomon v Registrar of Deeds 1944 CPD 319 325, which were approved by
the Appellate Division in Slims (Pty) Ltd v Morris NO [1988] 2
All SA 33 (A), 1988 (1) SA 715 (AD): ‘[A] liquor licence is not merely a
privilege but is a right which has a potential commercial value which may
sometimes be very considerable. And it is a right which is alienable and can
be sold.’ He held that the remarks of Madlanga J in Shoprite Checkers (Pty)
Ltd v MEC for Economic Development, Eastern Cape [2016] JOL 33426
(CC), 2015 (6) SA 125 (CC) regarding a grocer’s wine licence hold true
mutatis mutandis for a site licence issued under the Act:
‘By comparison, the grocer’s wine licence is something in hand: it grants the
holder an entitlement to sell wine under certain specified circumstances . . .
also, a grocer’s wine licence holds objective commercial value: its very
raison d’être is to trade in accordance with its conditions. The licence is
transferable, albeit subject to that being sanctioned by the authorities. As an
item with objective economic value, the transfer may even be for a valuable
consideration . . . All these point to the grocer’s wine licence being property
for purposes of section 25(1) [of the Constitution, 1996].’
The court confirmed the validity of the sale and upheld the appeal. The trust
applied to the Constitutional Court for leave to appeal.
11
Specific contracts in court
Constitutional Court judgment: CWA Snyders NO v Louistef
(Pty) Ltd 2017 JDR 1264 (CC)
The trust argued that a site licence attaches to the land as part of the content
of ownership of the land. Louistef argued to the contrary, namely, that it
formed part of its assets, with value, and was thus capable of being sold.
The court explained that the new dispensation under the Petroleum Products
Act is based on site licences being issued only to owners of property. The
transitional provisions allow lessees holding site licences to transfer these
licences to new lessees and new owners during the currency of the lease in
terms of which the site licence is held. This ‘exceptional entitlement’
accords with the overall eventual scheme that site licences should be issued
only to owners. When the lease of a new lessee expires, the site licence can
be acquired only by an owner.
The court held that a lessee’s entitlement to transfer a site licence is indeed
an asset with commercial value, but that it is subject to two con-straints,
namely, (a) it can be transferred only to new lessees or new owners; and (b)
it cannot survive the termination of the lease period. The court held that
although the Supreme Court of Appeal was correct in holding that a site
licence had a commercial value, it may not have appreciated that it existed
only for a limited time, and then maybe only against new lessees and new
owners.
The court found that the trust’s submission was reasonably arguable.
However, it held that there were a number of factors militating against a
finding that it would be in the interests of justice to grant leave to appeal:
there is no deprivation of property involved in the application of the Act and
the constitutional angle that the trust belatedly sought to attach to the
application was without merit.
The court was not convinced by the trust’s further argument that the site
licence adhered to its property and was transferred to it without any further
application of its own for a site licence in terms of the Act. The court
therefore held that the trust has had the benefit of the transfer to it of the site
licence and was apparently continuing to have a right to operate on the
premises in terms thereof. The court concluded by saying that the trust
wanted to have its cake and eat it. It held that it was not in the interests of
justice, in the particular and exceptional circumstances of this case to grant
leave and dismissed the application for leave to appeal.
[7] Botha v Carapax Shadeports (Pty) Ltd
[1992] 3 All SA 768 (A), 1992 (1) SA 202 (AD)
Facts
B was employed by concern X. The employment contract between B and X
bound B not to market or manufacture shadeports within a certain area 12
Purchase and sale
and for a certain period of time after the termination of his services. X
was later sold to C. B terminated his employment with C and marketed and
manufactured shadeports in conflict with the above restraint.
Judgment
The question was whether C could enforce the restraint provisions embodied
in the employment contract between B and X. In order to determine this, it
had to be established whether the restraint formed part of the goodwill of X
and whether such goodwill formed part of the merx.
The contract between X and C provided that the merx would consist of
‘the business [which] shall mean the whole business . . .’
The purchase price was allocated in three parts, namely
l for the trademarks of X;
l for the net asset value of X; and
l for the goodwill of X.
The court a quo held that the restraint formed part of the goodwill.
Likewise, the court held that the goodwill formed part of the merx and that
both these components, the restraint and the goodwill, were transferred from
the seller (X) to the purchaser (C) as a matter of law.
The appeal was based on the following grounds:
l The benefits of the restraint cannot pass from the seller to the purchaser as
a matter of law.
l There was no cession agreement in terms of which the restraint was ceded
to the purchaser.
l As far as a delegation of duties was concerned, it was invalid since B did
not consent thereto.
The Appellate Division quoted with approval the decision in Coetzee v Eloff
1923 EDL 113, which found a restraint to be part of the goodwill of a
business. In the latter case, reference was also made to Townsend v Farman
[1900] 2 Ch 698 and it was held that: ‘[T]he verbal sale of the goodwill . . .
was quite sufficient . . . to effect such cession.’
The Appellate Division also approved of the decision in Protea Holdings Ltd
v Herzberg [1982] 4 All SA 614 (C), 1982 (4) SA 773 (C), which held that:
‘[T]he benefit of a covenant in restraint of trade can pass to the purchaser of
a business as part of the goodwill of that business.’
Therefore, the court in casu found the restraint to be part of the goodwill of
the business, the reason being that the restraint served to protect such
goodwill. The court quoted Jacoby v Whitmore (1883) 94 LT 335 (CA) as
authority.
Consequently, the court held that a restraint is an inherent benefit of the
goodwill of a business and that the goodwill is one of the components of the
merx. Furthermore, such restraint is for the benefit of the business being
sold, and not for the benefit of an individual.
13
Specific contracts in court
The court also held that the components of the merx had to be determined
from the wording of the relevant contract of sale. The nature and extent of
the goodwill are a question of fact, not law, and could be determined from
the intention of the parties.
As to the manner in which the restraint is transferred from the seller to the
purchaser, the court held that this is done by way of a personal right which is
embodied in the contract of sale. The transfer of this personal right did
satisfy the two requirements of cession, being
l ‘the agreement of transfer’; and
l ‘the obligatory agreement’.
The first requirement was embodied in the contract of sale and the second in
the delivery of the merx. The transfer took place as a matter of law. The
appeal was dismissed.
[8] GrainCo (Pty) Ltd v Van der Merwe
2016 (4) SA 303 (SCA)
Facts
Van der Merwe and Kitshoff were the representatives of trusts (the Trusts)
that held shares in GrainCo (Pty) Ltd (Old GrainCo), a company that
conducted a grain-trading business. Old GrainCo, including its goodwill,
subsequently was sold by the Trusts to BKB as a going concern. The sale
agreement, however, contained restraints of trade applying to Old GrainCo,
Van der Merwe and Kitshoff. Immediately after the sale, BKB
sold the business and its goodwill to a company also called GrainCo (New
GrainCo) and New GrainCo employed Van der Merwe and Kitshoff.
The outcome of the above amalgamation transaction was that BKB did not
procure the shares of Old GrainCo, but only its business and assets,
including the shares of the businesses, controlled by Old GrainCo, from the
Trusts. The bulk of the purchase price was paid to the Trusts controlled by
Kitshoff and Van der Merwe by the allocation of BKB shares to the Trusts.
After the restraint period had lapsed, Van der Merwe and Kitshoff left New
GrainCo and started a grain-trading company called Perdigon (Pty) Ltd of
which they were the sole shareholders. New GrainCo then applied to
interdict Van der Merwe, Kitshoff and Perdigon from canvassing its
customers.
The deadlock to be resolved on appeal was whether a sale of a business as a
going concern, including its goodwill, incorporates an implied prohibition
against the canvassing of customers, which canvassing is not limited to the
seller, but also involves a third party.
Judgment
The trial court found that Van der Merwe and Kitshoff were not the sellers of
the business and not bound by the implied prohibition, dismissing the 14
Purchase and sale
application to interdict them from canvassing customers of New GrainCo.
Rogers J nevertheless granted leave to appeal in the event that the Supreme
Court of Appeal may be required to reconsider the correctness of the
judgment in A Becker & Co (Pty) Ltd v Becker 1981 (3) SA 406 (AD)
dealing with the aforementioned implied prohibition and its relationship with
an express restraint of trade.
The implied prohibition against the canvassing of clients frequently is
referred to as the Trego prohibition in pursuance of the leading English case
of Trego v Hunt [1896] AC 7 (HL) 24–25. The Trego principle, which was
accepted in Becker, provides that the seller of goodwill is prohibited from
retrieving it by canvassing the old business’s customers, even when a
restraint of trade had expired. Therefore, if a seller disposes of the goodwill
of a business he or she is not allowed thereafter to act contrary to the sale.
According to Van Heerden AJA in Becker the juridical basis of the implied
prohibition may either stem from a tacit term (that is to say, an unexpressed
term that arose from the actual or imputed intention of the parties), or it may
have originated from an implied term by law (that is to say, a naturale of the
contract). Nevertheless, Van Heerden AJA concluded that the implied
prohibition was a term implied by law ( naturale) in a contract for the sale of
a business that includes the goodwill.
Plasket AJA in GrainCo confirmed that the Trego principle can only be
activated in relation to a seller of a business. In the present matter and
according to the amalgamation agreement, Van der Merwe and Kitshoff
were not the sellers of Old GrainCo, unlike in the Becker matter in which
Becker was a party to the sale. As a result, Plasket AJA held that Van der
Merwe and Kitshoff could not be bound by an implied term of the
amalgamation agreement and that the appeal must therefore fail.
[9] Phone-A-Copy Worldwide (Pty) Ltd v Orkin
[1986] 2 All SA 12 (A), 1986 (1) SA 729 (AD)
Facts
P sold 12 flats in a block of flats to O. The contract of sale described the
merx thus:
‘Flat Nos (“the section”) in the aforementioned block of flats known as
Unicadia; 402-403-404-405-406-407-202-203-204-205-305-304 .
.
. [and] a[n] undivided share in the
common property, as defined in the Act . . .’
The flats were sold prior to the opening of the sectional register. P refused to
give transfer of the flats to O. In the court a quo, he asserted (1) that the
description in the agreement of the property sold did not comply with the
provisions of Act 71 of 1969; and (2) that the agreement, if valid, had been
validly cancelled by him. The court held that the merx had been sufficiently
described, but that the notice of rescission had been premature, and P
appealed against this decision. (The matter of the cancellation of the
agreement is not pursued here.)
15
Specific contracts in court
Judgment
In order to determine whether or not the merx had been adequately
described, the nature of the merx in the present case must be established.
A merx has been adequately described when it can be identified from the
contract itself without the need for extrinsic evidence.
The court drew an analogy with the fact that a house can be identified by
means of a street number and found the same to apply to flats. In this
manner, flats can be identified with reference to the block and a number
without the need for extrinsic evidence.
As far as the undivided share in the common property is concerned, the court
found that the contract contained a valid formula for its determination, that is
to say, the reference to the relevant Act.
The Appellate Division also found that the agreement had been validly
cancelled and the appeal was upheld.
Comment
The merx in Phone-A-Copy Worldwide (Pty) Ltd v Orkin could have been
described adequately only if the parties intended a generic sale. With this
type of sale, a valid contract of sale comes into being without an adequate
description of the merx because the latter is determined through
individualisation after conclusion of the contract. It is therefore unnecessary
to provide a complete description of the merx where the parties intended this
type of sale.
The intention to conclude a generic sale must be clear from the wording of
the contract. A court cannot draw such an inference without further ado. In
Phone-A-Copy Worldwide (Pty) Ltd v Orkin, there was no indication that the
parties indeed intended to conclude this type of sale. Since the merx came
into being only after the opening of the sectional register, it was not in
existence at the time of conclusion of the contract. Therefore, the flat
numbers did not identify the merx and extrinsic evidence was necessary.
The authorities referred to, did not deal with generic sales. On the contrary,
the mercers in those cases had already existed upon conclusion of the
relevant contracts. Consequently, the cases cited as authority were irrelevant.
It is not clear whether future sectional title units and buildings still to be
erected can be described by means of a (flat) number. The question can be
raised whether the approach taken by the court applies only to a generic sale
where the building has been erected already. (See Pienaar 1986 THRHR
479.)
[10] Exdev (Pty) Ltd v Pekudei Investments (Pty) Ltd
[2011] 2 All SA 371 (SCA), 2011 (2) SA 282 (SCA)
Facts
The gist of the dispute in this case hinges on the purchase of a future office
unit and an option to procure additional office space in the same impending
development.
16
Purchase and sale
The merx, a future office unit, was described along the lines of an existing
merx bought from P and transferred to E, namely: ‘[A]n office unit (at the
same price for which sections 21, 22 and 23 were sold to you) of the same
size and with a similar number of parking bays (8).’ The merx in the option
to purchase, in contrast, was described as: ‘[A] further 140 square meters at
the market price prevailing when the new building is completed.’ The sale of
the future office unit and option were contained in the same document.
P claimed damages, founded on E’s repudiation of the above sale and option.
However, E raised the validity of the contract as a defence. They argued that
the sale and option were both part of a single unitary contract in which the
merx and purchase price were not adequately described.
Reasons put forward why the merx was inadequately described, were the
absence of a draft three-dimensional plan of the proposed development,
leaving the selection of the shape, floor position, precise dimensions and
architecture style of the unit in the sole discretion of P.
As a result, the deed of alienation failed to comply with the requirements set
out in section 2(1) of the Alienation of Land Act 68 of 1981
rendering it void in terms of section 28(1).
P challenged this contention and maintained that the option was separate and
divisible from the sale and both the merx and purchase price were adequately
described.
Judgment
Leach JA explained that there is a distinction between the severance of a
portion of a contract and the possibility that a contract may contain several
distinct and separate agreements divisible from each other.
Relying on Middleton v Carr [1949] 2 All SA 400 (A), 1949 (2) SA 374
(AD) and Nash v Golden Dumps (Pty) Ltd [1985] 2 All SA 161 (A), 1985
(3) SA 1
(AD), the court held that the sale of the future office unit in this case created
reciprocal rights and obligations which were entirely unrelated and separate
from the option to purchase additional office space, which, on its own, also
initiated a different independent set of rights and obligations. It follows that,
although the sale of the future office unit and option to purchase additional
office space were incorporated in the same document, two separate and
independent contracts were concluded. That being so, Leach JA ruled that it
was pointless to consider whether the option to purchase additional office
space was invalid in order to determine the validity of the sale of the future
office unit. Thus, the only problem to solve was whether the sale of the
future office unit was invalid due to the alleged vagueness of the description
of the merx.
Leach JA confirmed that the established test to verify whether the
description of a merx is in compliance with section 2(1) is whether it can be
identified from the contract itself, without resorting to evidence from the
parties about their negotiations and consensus. Moreover, the court 17
Specific contracts in court
yet again endorsed the familiar principle that section 2(1) does not require ‘a
faultless description of the property sold couched in meticulously accurate
terms’. Leach JA furthermore highlighted the well-established notion to
divide the possible property description, such as in the present situation, in
two broad categories: First, those where the document itself sufficiently
describes the merx to cause identification of it per se; second, those where it
appears from the contract that the parties intended that either the buyer or the
seller should choose the merx from a genus or class. Confirmation
underlining the acknowledgement of the latter category can be found in
Clements v Simpson (see [14]) where it was held that the intention of the
parties may be of such a nature that it is not necessary for the merx to be
identified by reference to the exact description thereof in the deed of
alienation, as long as it is identifiable after the seller (or purchaser) decided
on the lay-out and shape of the merx in conform-ance with their agreed
specified requirements. It follows that the parties’
consensus will thus be complete and only the intended physical and
psychological unilateral act of the seller (or purchaser) individualising the
merx is still required for performance.
Leach JA concluded that the above principles effectively dispose of E’s
argument, since the size (260 m2) and location of the future office unit
within the new building that the respondents were constructing, were
determined. All that was left open was the discretional and bona fide
individualisation, in accordance with the parties’ contractual arrangement, of
the merx by the seller. As a result, the consensus of the parties was complete
and the appeal must fail.
[11] Kootbodien v Mitchell’s Plain Electrical Plumbing
and Building CC
2011 (4) SA 624 (WCC)
Facts
In this matter, K purchased a stand from M on 3 August 2006, subject to the
procurement of a bank loan to the amount of R1 800 000. On 24
August 2006 the bank notified K in writing that it had in principle approved
a mortgage loan of R1 440 000. K conveyed this information to M on the
same day and tendered payment of a deposit of R180 000. On 2
September 2006 M cancelled the deed of sale and informed K on 14
September 2006 that it no longer intended to sell the stand to them. The
same stand was then sold and transferred to X. K approached the court for an
order for specific performance of the 3 August 2006 sale and an order
compelling X to transfer the stand to them. The basis of this relief was that
when the stand was sold and transferred to X it was the subject of litigation
(a res litigiosa).
However, the application was opposed by M since K, according to M, failed
to fulfil the suspensive conditions successfully. X also resisted the 18
Purchase and sale
application on the ground that it bought and took transfer of the stand while
it was unaware of the earlier sale to K.
Judgment
The court found that the aforesaid suspensive condition was inserted for the
benefit of K and that K was allowed to waive it before the fulfilment date,
which K did. Therefore M was barred from cancelling the 3 August 2006
sale and K was in principle entitled to the transfer of the stand against
payment of the purchase price.
K submitted that since they had already brought an application to enforce the
3 August 2006 sale, the sale and transfer of the property by M
to X constituted the alienation of a res litigiosa, which rendered it void or
unenforceable.
The court referred to Voet 6 1 20, Matthaeus Paroemiae 76 and Sande
Restraints on Alienation 1 9 2 19 and explained that the res litigiosa doctrine
is to the effect that where a second sale occurs pendente lite, the rights of the
first purchaser must prevail and are consequently enforceable against the
second purchaser, irrespective of whether the second purchaser acted in good
or bad faith.
A core question to be resolved by the court was: when does a merx become a
res litigiosa? Zondi J cited Opera House (Grand Parade) Restaurant (Pty)
Ltd v Cape Town City Council [1986] 4 All SA 120 (C), 1986 (2) SA 656
(C) with approval where it was held that in an action in rem, the merx in
dispute becomes a res litigiosa when summons is served on the possessor
thereof. The court further held, in context of Voet 6 1 20 and McGregor v
Jordaan 1921 CPD 301, that it is immaterial whether the second purchaser
took transfer of a res litigiosa with or without knowledge of the pending
litigation.
Applying the above principles to the present matter, Zondi J concluded that
the stand became a res litigiosa at the close of the pleadings when the
answering affidavit by the M was filed.
It followed that litis contestatio took place before transfer of the property to
X was effected and it is irrelevant whether X acted in good or bad faith, or
had knowledge or was ignorant of the pending litigation. Once the merx was
transferred to the second purchaser after the first purchaser had commenced
with litigation, the first purchaser would have had obtained a personal actio
in factum against the second purchaser.
X argued that since the transfer of real rights (ownership) in our legal system
is founded on an abstract theory of transfer, X’s ownership of the stand
became unassailable after it was transferred into his name, regardless of a
flawed causa. Consequently, K was not allowed to claim transfer of the
stand from X. The court was not convinced by this contention and held that
the abstract theory of transfer offers no foundation for resisting the right of
the first purchaser in circumstances where the second 19
Specific contracts in court
purchaser had bought and taken transfer of immovable property which is a
res litigiosa. As a result, K was entitled to follow the property and vindicate
it.
In conclusion, the court held that although K is, in principle, entitled to an
order for setting aside the sale and transfer of the stand to X and to receive
transfer thereof, such an order would cause substantial injustice to X in the
present situation. For this reason, and in accordance with the guidelines
articulated in Haynes v King Williamstown Municipality [1951] 2
All SA 472 (A), 1951 (2) SA 371 (AD) and Benson v SA Mutual Life
Assurance Society [1986] 2 All SA 30 (A), 1986 (1) SA 776 (AD), the court
held that an order for specific performance in the present matter would be
inappropriate and that an order for damages would suffice.
2 3 Purchase price
[12] Patel v Adam
[1977] 3 All SA 31 (A), 1977 (2) SA 653 (AD)
Facts
A sold an erf to P for R25 000. The contract of sale provided that ‘the
purchase price shall be payable in monthly instalments free of interest’.
After P had paid off R16 000, A contended that the contract of sale between
himself and P was void because of non-compliance with the provisions of
the predecessor to the Alienation of Land Act 68 of 1981, in that the
purchase price had not been adequately described. A claimed restitution.
Judgment
In order for it to be valid, all the essential terms of a contract of sale of
immovable property must be reduced to writing. The purchase price is one
such essential term. Therefore, the price must be described in such a manner
that it is fixed or legally possible to determine according to the maxim
certum est quod certum reddi potest. The purchase price as well as the
method in which payment has to be made must be determined or
determinable.
The wording of the present contract, that the purchase price ‘shall be payable
in monthly instalments free of interest’, is so vague that the number and
amount of the instalments cannot be determined. In so doing, the method of
payment was placed within the sole discretion of the purchaser, which is
unacceptable.
The facts of the case also did not justify an inference that the purchase price
had to be paid within a reasonable time.
The court therefore held the contract to be void because the manner in which
the purchase price had to be paid had not been adequately described.
20
Purchase and sale
[13] Aris Enterprises (Finance) (Pty) Ltd v
Waterberg Koelkamers (Pty) Ltd
1977 (2) SA 425 (AD)
Facts
A leased refrigeration appliances to W. The lease provided that, upon
expiration thereof, the appliances had to be returned in good order to A by
W. After receipt of the appliances, A had to sell them for the best price
obtainable. This amount, less certain deductions, would then be paid by A to
W as repayment of the rentals.
Upon expiry of the leases, W refused to return the appliances to A. W’s
reasons were that
l there was an oral agreement between them that W could purchase the
appliances at a nominal price from A upon expiry of the lease;
l if W did not wish to purchase the appliances, the actual return of the
appliances to A was not necessary. In the event of this occurring, A could
sell them to a third party who would take delivery thereof directly from W.
Still, A had to pay the purchase price over to W as repayment of the rentals;
l A and W had concluded a hire-purchase agreement in terms of which W
would become the owner of the appliances upon expiration of the lease; and
l A was, under the exceptio doli generalis, barred from relying on the written
lease because it had been amended orally.
Judgment
From the evidence, it appeared that A and W had indeed agreed that the
appliances could be bought at a nominal price. This nominal price had to be
determined by way of valuation. Therefore, at the time of conclusion of the
verbal contract, the purchase price was only determinable and not yet fixed.
The court pointed out that, in order to be legally valid, there had to be a link
between the nominal purchase price and the true value of the appliances.
In casu, this nominal amount was never agreed upon by the parties, nor was
it paid over to A. As a result, the oral agreement could not be a defence
against A’s claim for the return of the appliances.
Since A and W had never agreed upon the nominal price, it was possible to
construe the possibility that the parties had in mind an option to purchase.
However, because the purchase price had not been fixed and was not
determinable, the option to purchase was likewise null and void.
For an option to purchase to be valid, the purchase price must be fixed or
determinable, as is the case with a contract of sale.
The court therefore held that W had no defence to A’s claim for the return of
the appliances.
21
Specific contracts in court
3 Formalities
3 1 Writing
[14] Clements v Simpson
[1971] 3 All SA 196 (A), 1971 (3) SA 1 (AD)
Facts
S sold an erf, which was still to be subdivided, to C. Therefore, at the time of
conclusion of the contract, the merx was not yet a separate registrable unit,
but merely a future merx. The merx was described thus:
‘[A] certain leasehold/freehold property together with all buildings and
erections and fixed improvements thereon, being: portion of Portion 1 of
Portion A of Stand 159, Bedfordview, as described in the herewith described
sub-division, being: 40,000 square feet in extent, and adjoining Van Buuren
Road, Bedfordview, situate in the north-westerly extremity of the property
presently described as Portion 1 of Portion A of Stand 159
Bedfordview, having a street frontage of 175 feet at a minimum.’
The validity of the contract of sale was disputed on the grounds that the merx
had not been adequately described and that the statutory requirements as
regards formalities had not been met.
Judgment
The court confirmed that the legislature’s reasons for requiring formalities
are
l to prevent uncertainties;
l to exclude disputes; and
l to avoid malpractices.
In order to determine whether the merx had been adequately described, the
court laid down the following guidelines:
l Meticulous accuracy in the description of the merx is not required, as long
as the merx can be reduced to certainty.
l The foregoing does not mean that the court is to make a contract for the
parties where their intention cannot be ascertained with a reasonable degree
of certainty. As a result, inelegant, clumsy and bad draft-ing will not impair
the validity of a contract, as long as the intention of the parties can be
determined with reasonable certainty from the wording of the contract.
l The test is whether the merx can be identified by reference to the wording
of the contract only. As soon as extrinsic evidence is needed to determine the
merx or the intention of the parties, this test has failed.
22
Purchase and sale
l As a general rule, there are, broadly, two categories of contract as far as the
description of the merx is concerned, namely where the contract of sale
• itself describes the merx adequately; and
• lays down a workable formula for fixing the merx, which is usually the
case where the merx is from a genus or class.
l The category applicable to a specific contract is determined by the intention
of the parties and the wording of the contract itself.
The court held that, despite the clumsy and verbose description of the merx,
the parties’ intention to conclude a generic sale could be gleaned from the
contract, which was declared valid.
[15] Scheepers v Strydom
[1994] 2 All SA 240 (A), 1994 (3) SA 101 (AD)
Facts
HC Strydom and HW Scheepers bought a farm from JJ Strydom. The deed
of sale described the purchaser as HC Strydom and HW Scheepers in their
capacities as directors of a company to be formed (Long Valley (Edms)
Bpk), or in either of their personal capacities.
Since the name Long Valley was not available, the intended company was
formed under the name Stry-per (Edms) Bpk, and it took registration of the
merx against payment of the purchase price.
In breach of a further agreement, HW Scheepers failed to pay his part of the
purchase price and also indicated that he was not in a financial position to do
so.
Eventually the validity of the deed of sale was attacked on the grounds that it
did not adequately describe the purchaser, since the purchaser could not be
identified ex facie the document.
Judgment
The court a quo held the contract of sale to be invalid because the identity of
the purchaser could not be determined ex facie the written contract.
According to the court a quo, the purchaser could have been one of three
persons:
l HC Strydom and HW Scheepers in their capacities as directors of a
company to be formed;
l HC Strydom in his personal capacity; or
l HW Scheepers in his personal capacity.
The Appellate Division held that all the essential terms of a contract for the
sale of land, including the identities and capacities of the parties, have to be
described adequately in the deed of alienation.
23
Specific contracts in court
The intention of the parties is an important factor to be taken into account in
the construction of a contract of sale. In casu, the Appellate Division held
that it was not the parties’ intention that there should be three alternative
purchasers. Such a construction would be unlikely and superficial. The
alternative provision, namely that HC Strydom and/or HW
Scheepers could qualify as purchasers in their personal capacities, is a
standard provision aimed at the situation where the company to be formed
was incorporated, but did not ratify the agreement. In the latter case, the
seller would then be entitled to hold either HC Strydom or HW
Scheepers or both of them liable as purchasers. The contract was therefore
declared valid.
[16] Janse van Rensburg v Koekemoer
2011 (1) SA 118 (GSJ)
Facts
In this matter, J relied on an oral donation granting a habitatio over
immovable property. K submitted that this oral agreement infringed on the
writing provisions of section 2(1) of the Alienation of Land Act 68 of 1981.
Judgment
The court held that a habitatio results in a subtraction from the dominium as
a real right can only be enforced against the grantor once it is registered
against the immovable property’s title deed.
Claassen J concluded that any right resulting in the deprivation of an
owner’s dominium (title), such as a habitatio, usus, usufruct or mineral
rights, construed an ‘interest in land’ as envisaged by the definition of
‘land’ in section 1 of the Alienation of Land Act 68 of 1981. For this reason,
any alienation, including a donation of an ‘interest in land’ (see section 1 for
the definition of ‘alienate’) falls within the scope of section 2(1) and should
comply with the writing and signature requirements of section 2(1).
The court further held that, notwithstanding the fact that the donation of the
habitatio did not comply with section 2(1), it also disregarded section 5 of
the General Law Amendment Act 50 of 1956 which requires that a donation
of future entitlements must be in writing and signed to be of any force and
effect. The donation in the present matter did not meet this prerequisite and
was for this reason also void.
24
Purchase and sale
[17] Scholtz v Scholtz
2012 (1) SA 382 (WCC), [2012] 2 All SA 553 (SCA),
2012 (5) SA 230 (SCA)
Facts
This case deals with the formality requirements set in section 5 of the
General Law Amendment Act 50 of 1956 and section 2(1) of the
Alienation of Land Act 68 of 1981.
The parties, while still married, entered into a written agreement during
November 2007 in terms of which the defendant donated a half undivided
share of his property, known as stand 1809, Bakkershoogte, to the plaintiff.
In an action by the plaintiff for specific performance, the defendant raised
the defence that the donated property was mortgaged in favour of Nedbank
Limited and that the said agreement was void since it made no provision, as
required by section 5, how to deal with the vested rights of the mortgagee.
The legal question which the High Court and Supreme Court of Appeal had
to consider, was whether, in terms of a donation stante matrimonio,
property encumbered by a mortgage bond can be seen as legally donated if
no reference is made to the mortgage bond, as a ‘provision’ of the donation,
in accordance with the requirements of section 5.
Judgment
Section 5 of the General Law Amendment Act provides that no donation
concluded after 22 June 1956 shall be invalid merely because it is not
registered or notarially executed, provided that it is embodied in a written
document, signed by the donor or his or her agent acting in terms of a
written authority in the presence of two witnesses.
This Act only applies to so-called real donation. That is a donation made
from pure generosity and unselfish goodwill ( De Jager v Grunder [1964] 2
All SA 17 (A), 1964 (1) SA 446 (AD)). Thus, it is a one-sided contract
concluded with the intention of impoverishing the donor and enriching the
beneficiary. As soon as a counter performance is required by the beneficiary,
it is not a real donation. Furthermore, the donation still needs to be executed
at the time the agreement was concluded. The aforesaid formalities are only
applicable to donations inter vivos. Donations mortis causa, in contrast, have
to comply with the validity requirements for a will.
In the court below, Le Grange J primarily relied on Savvides v Savvides
[1986] 1 All SA 128 (T), 1986 (2) SA 325 (T) where a similar question was
considered, that is to say, whether land subject to a mortgage can be donated
without reference to such encumbrance in the deed of donation.
In Savvides, Myburgh AJ held that because no reference was made to the
mortgage in the donation agreement, all the ‘terms’ were not in writing, thus
rendering the donation void.
25
Specific contracts in court
Consequently, Le Grange J held that all material terms, including a reference
to the bond, must be included in the written deed of donation, because
limited real rights (such as encumbered land and a usufruct) may also be
donated. Therefore, the requirements of section 5 were not limited to one’s
unencumbered ownership in property. As a result, it was uncertain whether
the defendant intended to donate unencumbered or encumbered land to the
plaintiff, rendering the donation void for non-compliance with section 5(1)
of the General Law Amendment Act.
The Supreme Court of Appeal held that where land is donated, both section
5 of the General Law Amendment Act and section 2(1) of the Alienation of
Land Act apply, but since the General Law Amendment Act prescribes
stricter requirements (namely, the attestation by two witnesses of the donor’s
signature) it will prevail when dealing with a donation of land.
The obvious result of Savvides and Scholtz is that where immovable property
is donated, whether under the General Law Amendment Act or the
Alienation of Land Act, it is a requirement for the validity of the deed of
donation or alienation that a limited real right over the property, such as
mortgage bonds or a usufruct, should be fully disclosed in the deed.
However, since the trial court did not contemplate that the ‘missing term’
concerning the bond could have been supplemented by a proper
interpretation of the express terms, alternatively, regarded as a tacit term, its
finding that this omission resulted in a nullity, was rejected on appeal.
Brand JA concluded:
‘It therefore stands to reason that a subsequent dispute about the terms of the
contract, in itself, cannot render the agreement void ab initio. The court will
simply have to determine the dispute. Once the facts of this case have been
determined on the pleadings or by the court it may emerge that the donation
is indeed invalid because the deed omitted to record a material term.’
Consequently, Brand JA held that the respondent did not disclose a valid
defence and the appeal was upheld.
3 2 Purchase price
[18] Chretien v Bell
[2010] 2 All SA 428 (SCA), 2011 (1) SA 54 (SCA)
Facts
The deed of alienation in this matter provided that no deposit or loan was
required and that the full purchase price, including all other
disbursements for which the purchaser was liable, would be paid in cash
before he was entitled to take transfer of the property. It was further agreed
that the purchase price payment details would be agreed on in writing not
later than 30 April 2005. This never happened.
26
Purchase and sale
Judgment
With reference to Dijkstra v Janowsky [1985] 2 All SA 253 (C), 1985 (3) SA
560 (C), Johnston v Leal (see [25]), Patel v Adam (see [12]), Jammine v
Lowrie [1958] 2 All SA 427 (T), 1958 (2) SA 430 (T), Burroughs Machines
Ltd v Chenille Corporation of SA (Pty) Ltd [1964] 1 All SA 110 (W), 1964
(1) SA 669 (W) and Clements v Simpson (see [14]), the Supreme Court of
Appeal reaffirmed that section 2(1) of the Alienation of Land Act 68 of 1981
requires that all material terms must be in writing and that a material term is
not restricted to the essentialia of a contract.
The court also held that the manner and time of payment is generally a
material term and that there is no valid contract where a material term was
left open for further negations to be agreed thereon. Consequently, the deed
of alienation in this matter did not comply with section 2(1) and was for this
reason void.
In order to decide whether a term is material, the following questions,
according to the test laid down in Herselman v Orpen (see [19]) and Jones v
Wykland Properties 1998 (1) SA 355 (C), have to be answered in the
affirmative:
l Did the parties apply their minds to the term?
l Did they agree, either expressly or impliedly, that the term should form part
of their contract, and be binding on them?
Terms that are naturalia do not have to be in writing ( Botha v Swanepoel
[2002] 1 All SA 85 (T), 2002 (4) SA 577 (T)).
3 3 Signature of the parties
[19] Herselman v Orpen
1989 (4) SA 1000 (SE)
Facts
O sold a house to H. After the negotiations, a document was drawn up which
stated the merx to be Erf 1675 Walmer and that ‘I, Dorrien Arthur Geard
Orpen, hereby axcept [ sic] the offer of R100 000 for the property, that is at
present registered in my name, from Mr PR Herselman’.
This document also contained two signatures, which were apparently those
of O and H.
O’s attorney later informed him that he could get much more for his
property, whereupon O decided not to continue with the transaction with H,
but to sell the house to F. As a result, H applied for an order for specific
performance against O.
27
Specific contracts in court
Judgment
The court had to decide whether the document in question complied with the
provisions of section 2(1) of the Alienation of Land Act 68 of 1981.
O contended that the document merely contained an agreement to
conclude a contract of sale with H in the future (a pactum de contrahendo).
In support of this argument, it was asserted that both the offer and the
acceptance thereof had to be reduced to writing.
The court held that, although the document was very cryptic, it did contain
both the offer and the acceptance. The scenario in casu had to be
distinguished from those instances where the parties had reached an oral
agreement, whereupon a written contract was prepared and one of the parties
then refused to sign it. In the latter instance, no contract came into being
because the written document was not signed by both parties.
O further contended that the signatures were ineffective and invalid because
the parties had failed to indicate next to each signature who had signed as
seller and who as purchaser. The court decided, however, that it was not
necessary to indicate who signed in which capacity, as long as it could be
determined ex facie the document who signed as seller and who signed as
purchaser.
Since the document in question was silent on the method of payment, O
contended that it did not constitute a valid deed of sale. He quoted Patel v
Adam (see [12]) as authority. The court distinguished Patel v Adam from the
situation at hand because that case dealt with an instalment agreement. In
Patel v Adam, the number and amount of the instalments were not described
in the contract. For this reason, namely that the method of payment was not
described adequately, the contract was found to be invalid.
In the present case, the sale is not one on instalments. The court confirmed
the presumption that each sale is for cash, unless otherwise agreed. By
reason of this presumption, the court held that it was therefore unnecessary
to describe the method of payment in the present case. The court also
rejected O’s argument that the above presumption did not apply to sales of
immovable property because it was not based on any authority. As a result,
the court held that there was nothing in the document which indicated that
payment of the purchase price had to be made otherwise than in cash.
The court rejected O’s further argument that the absence of terms usually
found in contracts of this nature, such as the date of occupation, occupational
rent and remedies for non-compliance, indicated that the document did not
constitute a contract.
The court confirmed the principle that all essential terms agreed upon have
to be reduced to writing. Additional terms, even if they do not affect the
nature of the contract, should also be reduced to writing. (Not applicable in
casu.)
28
Purchase and sale
According to the court, the minimum aspects that should be reduced to
writing are
l the parties to the contract;
l the thing sold; and
l the purchase price.
In casu, the document did indeed contain the above particulars. The court
therefore held that a valid contract existed between O and H and granted the
order for specific performance.
[20] Chisnall and Chisnall v Sturgeon and Sturgeon
1993 (2) SA 642 (W)
Facts
C and C, a married couple, sold land to S and S, also husband and wife. In
the preamble of the contract, C and C were described as the sellers and S
and S as the purchasers. Mr C signed the contract at the signature clause, his
signature being described as ‘seller’. Mrs C signed after Mr C, her signature
being described as that of ‘spouse of the seller, [who] hereby consent[s] to
the [contract of sale]’. A similar scenario applied to the purchaser, in which
case Mrs S’s signature was described as ‘Assisted by me – purchaser’s wife’.
S and S alleged that the deed of sale did not comply with the provisions of
section 2(1) of the Alienation of Land Act 68 of 1981 because it was not
signed by all the parties to the contract. The gist of the argument was that
Mrs C, as co-seller, and Mrs S, as co-purchaser, did not sign the contract in
these capacities. Ex facie the contract, they signed as spouses of the seller
and purchaser respectively and merely gave their assent to the transaction.
Therefore, the contract of sale was not signed by all the parties to it.
Judgment
The court held that were it to look only at the contract, the defendant’s
contentions were correct because the respective spouses had not signed the
contract as co-seller and co-purchaser respectively, but merely to assent to
the transaction. Considering the wording of only the contract, it is clear that
the statutory requirements in respect of formalities were not complied with
because all the parties did not sign the contract as seller or purchaser.
The court held that in order to determine whether or not the statutory
requirements had been complied with, the contract as a whole had to be
interpreted. Merely looking at the signatures and their description in that
specific portion of the contract would be a blinkered approach.
29
Specific contracts in court
The signature requirement in section 2(1) of the Alienation of Land Act 68
of 1981 raises two questions, namely
l who the parties to the deed of alienation (contract of sale) are, the answer to
which can be found in the deed of alienation (contract of sale) itself; and
l whether the parties signed the deed of alienation (contract of sale), which is
a factual question.
The court emphasised the fact that the question of compliance with section
2(1) cannot be determined by a priori rules, but only with reference to the
facts of each individual case. Previous decisions on this aspect must
therefore be treated with circumspection and in such a manner that the
factual circumstances of each case are distinguished from the other. The crux
of the matter is whether or not all the parties to the contract did in fact sign
it. In order to determine this, the contract as a whole must be interpreted in
view of the probabilities and surrounding circumstances.
Unless the relevant statute introduces specific requirements, signing is
achieved by a mark or marks intended
l ‘with the function of making the document an act of the writer’; and l to
signify the assent of the signatory to that which is embodied in the relevant
contract of sale.
Such assent to the contents of the contract must not be determined by a
subjective view of the signature itself, but by objectively determining what
the signature signified to the other party.
The capacity in which a person signs a contract need not be denoted.
An incorrect designation added to the signature should not, as a general rule,
detract from the validity of the signature. In order to determine whether or
not an incorrect designation does affect the validity of the signature, it must
be ascertained whether it is an instance of error or
‘whether the designation proves something with deeper significance’.
A single signature may, in appropriate circumstances, indicate assent to one
or more contracts or capacities.
The apparent indication of the capacity in which the signature was made is
not conclusive. The description of the signatory’s capacity is merely
indicative, but does not exclude other indicia about the legal intent of the
signatory. The intention of the signatory evidenced by the deed of alienation
is decisive; the intention can be determined by interpretation of the contract
as a whole.
The court held that both Mrs C and Mrs S signed the contract, not only to
assent to the transaction, but also to create a deed of alienation under which
they were joined as co-seller and co-purchaser.
The court therefore held that the signatures of the two spouses had a double
purpose, namely
l to create a deed of alienation; and
l to assent to the transaction.
30
Purchase and sale
The court held that the description of the signatures expressing consent to
the transaction had to be interpreted in a manner favouring the deed of
alienation’s validity, rather that its invalidity.
The court therefore held that the provisions of the Alienation of Land Act 68
of 1981 had been complied with and that a valid contract of sale had come
into being.
[21] Ten Brink NO v Motala
[2000] JOL 7304 (D), 2001 (1) SA 1011 (D)
Facts
On 7 October 1998, Zane Investments (Pty) Ltd sold a building for R600
000
to X, the first respondent and the 13-year-old daughter of M, the second
respondent. X was cited as purchaser in her capacity as minor daughter of M
in the deed of sale, but M signed the deed of sale. They failed to qualify M’s
signature to the effect that he (M) signed the deed of sale in his capacity as
father and natural guardian on behalf of his minor daughter, X.
Since X was unable to obtain a loan from a financial institution, it was
agreed that the purchase price would be paid in 240 instalments over a
period of 20 years. The underlying idea was that the purchase price would be
paid from the rental income of the building.
Everything went well initially, but in May 1999, the seller, Zane Investments
(Pty) Ltd, was placed under liquidation. The liquidator, Ten Brink (T),
notified M in terms of sections 21 and 22 of the Alienation of Land Act 68
of 1981 to take transfer of the building against payment of the balance of the
purchase price. (This aspect is not discussed further.) T also alleged that the
deed of sale was void because the formalities prescribed by section 2(1) of
the Alienation of Land Act were not complied with.
Judgment
T advanced the following reasons why the deed of sale was void because of
non-compliance with the provisions of section 2(1):
l X, who was cited as purchaser in the deed of sale, did not sign it.
l M’s signature was not qualified ex facie the deed of sale to the effect that
he (M) signed the deed of sale in his capacity as father and natural guardian
on behalf of his minor daughter, X.
l M, as representative of X, did not have written authority to do so.
The court rejected the above reasons for voiding the deed of sale.
Section 2(1) requires that a deed of sale, in order to be valid, must be
reduced to writing and signed by or on behalf of the parties thereto.
Where a representative signs the deed of sale on behalf of a party, the
representative must be authorised in writing by the purchaser or the 31
Specific contracts in court
seller, as the case may be. However, the court held that a parent and natural
guardian acting on behalf of a minor child does not qualify as the
representative of such minor child and therefore does not need any authority,
written or otherwise, to act on behalf of his or her minor child.
The court referred to Cook v Aldred 1909 TS 150 regarding the fact that the
signatory’s capacity could not be determined ex facie the deed of sale.
In this case, it was held that although it may have appeared that an
agreement was entered into in the name of the representative, extrinsic
evidence could be led that the agreement was in fact entered into in the name
of the principal. The reason for this is that such extrinsic evidence does not
alter the agreement. The court therefore held that the same principle applies
where a parent or guardian enters into an agreement on behalf of a minor
child.
For further authority, the court also referred to Van der Merwe v Kenkes
(Edms) Bpk [1983] 4 All SA 524 (T), 1983 (3) SA 909 (T). In this case, a
woman married out of community of property claimed in terms of a deed of
sale of land. The deed of sale was signed by her husband. However, they
failed to qualify the husband’s signature ex facie the deed of sale to the effect
that he signed on behalf of his wife. As in Cook v Aldred, the court held that
extrinsic evidence was admissible to show that the man signed the deed of
sale as representative on his wife’s behalf.
The court therefore held that the deed of sale between Zane Investments
(Pty) Ltd and X did comply with the formality requirements of section 2(1)
and that extrinsic evidence was admissible to qualify M’s signature.
Comment
It should be borne in mind that a minor has limited contractual capacity and
is therefore not legally capable of mandating his or her parent or guardian.
Therefore, a minor’s parent or guardian is ex lege authorised to act on the
minor’s behalf.
From the above, it is also apparent that the positive law, insofar as the
problem is concerned with formality requirements, looks at the broader
picture. If the aims of the legislature are not frustrated and the minimum
formality requirements are complied with, a microscopic juridical dissection
of the prima facie formalities will not affect the validity of a deed of sale.
The positive law follows a holistic approach to contracts in accordance with
the maxim interpretatio chartarum benigne facienda est ut res magis valeat
quam pereat as confirmed in Incorporated General Insurances Ltd v Shooter
t/a Shooter’s Fisheries 1987 (1) SA 842 (AD). In other words, the
interpretation of contracts should be done in a benign manner so that the
parties’ act should rather remain valid than be nullified.
32
Purchase and sale
[22] Thorpe v Trittenwein
[2006] 4 All SA 129 (SCA), 2007 (2) SA 172 (SCA)
Facts
Thorpe, one of three trustees of the Brian Edward Thorpe Trust, signed a
written offer to Trittenwein in respect of the sale of two stands.
Trittenwein (seller) accepted the offer. A clause in the written agreement
entered into between Thorpe and Trittenwein rendered the sale
conditional upon the latter being able to establish a township on the property.
Although the township application eventually received the green light,
Trittenwein ran into financial difficulties and was unable to keep up with the
bond payments in respect of the property. The bondholder subsequently
obtained judgment against Trittenwein and took steps to have the property
sold in execution by public auction. X came to Trittenwein’s rescue and
provided the funds to enable him to liquidate his indebtedness to the
bondholder. Despite his agreement with Thorpe (the trust), Trittenwein
subsequently purported to cancel this agreement and entered into a deed of
sale with X.
The conclusion of the sale with X prompted Thorpe (the trust) to approach
the court a quo for an order declaring the sale between the trust and
Trittenwein to be valid. The application was dismissed and an appeal was
lodged with the Supreme Court of Appeal.
Judgment
Scott JA referred to Cameron JA’s observation in Land and Agricultural
Bank of South Africa v Parker 2005 (2) SA 77 (SCA) 83H that a trust is an
accumulation of assets and liabilities. The judge referred to some wellknown principles of the law relating to trusts, stating that although a trust is
a separate entity, that entity, like a deceased estate, is not a legal persona. An
important statement by the judge is that the trustees are not the agents of the
trust, nor are they the beneficiaries thereof. Scott JA considered it as trite
that unless the trust deed provides otherwise, trustees must act jointly. If the
trust deed does not provide to the contrary, the trustees may jointly authorise
someone to act on their behalf, and this agent may be one of the trustees.
Applying the above principles to the facts at hand, the court considered the
trust deed in question. The deed provided for three trustees and that
decisions of the trustees, bar certain exceptions, were to be taken by majority
vote. It also provided that any of the trustees shall be entitled to delegate any
or all of his or her powers to a person approved by the co-trustees. Most
importantly, however, Scott JA pointed out that the deed contained nothing
to suggest that a trustee may act on behalf of the other trustees without their
authority. On the contrary, the trust deed clearly contemplated that the
trustees would act jointly.
33
Specific contracts in court
The court then pointed out something that, in the end, proved fatal to the
appeal, namely that neither of Thorpe’s co-trustees had signed any of the
documents allegedly constituting a deed of alienation contemplated in
section 2(1) of the Alienation of Land Act 68 of 1981. Moreover, while both
co-trustees had been party to the decision to enter into the deed of sale and
therefore authorised Thorpe to do so, the authority of neither was in writing.
As a result, the deed of sale between Thorpe (the trust) and Trittenwein was,
in terms of section 2(1) of the Alienation of Land Act, null and void.
Comment
To put the quality and effectiveness of a written authority in terms of section
2(1) of the Alienation of Land Act in perspective, the following aspects have
to be considered:
l The authority does not have to be signed by the principal, resulting in the
possible tarnishing of the authenticity thereof. Furthermore, a declaration of
an agent’s authority, written in the presence of his principal, will suffice (
Van der Merwe v DSSM Boerdery BK [1991] 3 All SA 837 (T), 1991 (2) SA
320 (T)).
l The nature of the writing and the document containing the authority is
irrelevant ( Chief Registrar of Deeds v Hamilton-Brown 1969 (2) SA 543
(AD); Hugo v Gross [1989] 1 All SA 145 (C), 1989 (1) SA 154 (C)).
l It is not necessary to identify the agent by name in the authority ( Odendaal
v Maartens [1979] 4 All SA 716 (T), 1979 (4) SA 237 (T)).
l If the agent initially had written authority to enter into the deed of sale,
written authority is not required anew for the amendment thereof ( Menelaou
v Gerber [1988] 3 All SA 460 (T), 1988 (3) SA 342 (T)).
It is difficult to understand how a document of this quality can accord with
the legislature’s intention, being the prevention of uncertainties, exclusion of
disputes and avoidance of malpractices.
3 4 Consequences of non-compliance with
formalities
[23] Brits v Eaton NO
[1984] 4 All SA 664 (T), 1984 (4) SA 728 (T)
Facts
During September 1981, B sold a farm to K. K signed the deed of sale in his
personal capacity and as a trustee of a company still to be incorporated. This
company was never incorporated. During March 1982, B
passed transfer of the farm to another company, Gams Landgoed (Edms)
Bpk 34
Purchase and sale
(G). G was liquidated without having paid the full purchase price to B. As
part of the liquidation process, E, in his capacity as liquidator of G,
advertised the farm for sale and sold it. Since the full purchase price had not
been paid to B, he sought an order prohibiting the confirmation of the
outcome of the sale. He argued that no written contract of sale had been
concluded with G and, in the alternative, that the purchaser could not be
identified ex facie the document. As a result, the deed of sale was invalid
because of non-compliance with the provisions of section 2(1) of the
Alienation of Land Act 68 of 1981.
Judgment
The court held in limine that the farm had been legally transferred in the
name of G in terms of the Deeds Registries Act 47 of 1937. The crux of the
problem was whether B could claim the return of the farm because of the
contract of sale being void.
The court assumed, without deciding, that the contract was void and that it
did not fall within the exceptions contained in section 28(2) of the Alienation
of Land Act 68 of 1981. (Section 28(2) provides that where both parties had
performed in full, the invalid contract of sale is to be deemed as valid ab
initio.)
E’s arguments were as follows:
l Despite the void contract of sale, the purchaser obtained ownership of the
farm upon registration thereof in its name because South African law
recognises an abstract system of passing of ownership of immovable
property. Therefore, the fact that the underlying causa for the transfer of
ownership was invalid did not affect the passing of ownership. In contrast, a
causal system does require a valid causa.
l As a result, the farm became part of the insolvent estate of G.
l The doctrine of concursus creditorum (simultaneity of claims by several
creditors) was applicable.
l If the return of the farm to B were allowed because of the invalidity of the
contract of sale, the doctrine of concursus creditorum would be frustrated
because a ius in personam would be converted into a ius in rem.
l The above doctrine is recognised explicitly in both the Insolvency Act 24
of 1936 and the Companies Act 61 of 1973. In addition, section 28(2) of the
Alienation of Land Act 68 of 1981 does not authorise the return of
immovable property whereby the doctrine of concursus creditorum would be
undermined.
The court found in favour of E in respect of the above arguments and held
that there were no indications that section 28 had altered the principles of the
doctrine of concursus creditorum. As a result, the court deemed itself bound
to this doctrine and held that, under the circumstances, the return of the farm
to B was not legally possible.
35
Specific contracts in court
The application for an order not to confirm the outcome of the sale in
liquidation was therefore refused.
Comment
If section 28(1) of the Alienation of Land Act 68 of 1981 applies to a given
situation, the common-law rules of the law of purchase and sale are
inoperative as the relevant ‘contract of sale’ is invalid and no legal
obligation exists. The ex lege rules regarding latent defects, warranty against
eviction, transfer of ownership and passing of the risk are wholly
inoperative.
In addition, section 28(1) applies to all contracts for the sale of land,
irrespective of the date of conclusion of the contract.
If section 28(2) of the Act applies – because both parties had performed in
full and the invalid contract is then deemed to be valid – the common-law
rules of the law of purchase and sale apply. The reason is that in this case, a
legal obligation had indeed been established in terms of a contract of sale.
[24] Section Three Dolphin Coast Medical Centre CC v
Cowar Investments (Pty) Ltd
2006 (2) SA 15 (D)
Facts
X, a natural person, bought a sectional title unit (consulting rooms) for her
husband, a medical practitioner, for R148 000 from C. Since the purchase
price was under R250 000 and none of the exceptions mentioned in section
29A(5) of the Alienation of Land Act 68 of 1981 applied, X could make use
of the cooling-off right. However, the agreement between the parties made
no mention of section 29A or the purchaser’s rights in terms thereof. X
therefore contended that the agreement was void because of non-compliance
with section 2(2A). This section provides that ‘[t]he deed of alienation shall
contain the right of a purchaser or prospective purchaser to revoke the offer
or terminate the deed of alienation in terms of section 29A’.
Unlike section 2(1), which provides for invalidity in the case of noncompliance with its formality provisions, section 2(2A) is silent as regards
non-compliance therewith.
Judgment
According to the court, it is instructive to note that the legislature did not use
the wording of section 2(1), namely ‘[n]o alienation . . . shall . . . be of any
force or effect’ in section 2(2A) as well, but rather that ‘[t]he deed . . . shall
contain the right’. Non-compliance with section 2(1) results in the invalidity
of the contract. The court therefore held the invalidity 36
Purchase and sale
provision of section 2(1) to be incompatible with the provisions of section
2(2A).
Reference is once again made to the purpose of the formality requirements
as originally laid down in section 2(1), namely to do away with disputes,
uncertainties and malpractices. According to the court, section 2(1) lays
down a statutory requirement for the creation of enforceable rights where
land is alienated, while section 2(2A) deals with rights that have already
been created and are enforceable by section 29A. Therefore, there is no
reason why the legislature would have deemed it necessary for these rights
to be set out in the contract once again in order to become enforceable. The
court concluded:
‘No dispute or uncertainty about the rights enshrined in s 29A can be solved
by a restatement of them in a contract; all that the recordal of them in an
agreement can achieve is a notification or acknowledgement of the existence
of the rights.’
The court’s conclusion was that the intention of the legislature with section
2(2A) was to bring the cooling-off right to the purchaser’s attention.
As embodied in section 29A, this cooling-off right is of a limited duration
which is independent of the purchaser’s knowledge thereof and is not
affected thereby.
According to the judge, a certain class of purchasers (natural persons in the
market for smaller and cheaper properties) was identified for special
protection in terms of section 29A.
According to the judge, it is also conceivable that the legislature, in its
attempt to protect hesitant and uncertain purchasers of smaller properties,
would have been willing to run the risk of causing unfairness to more
decisive purchasers in the same category. The court therefore held that it
would be more logical that the legislature intended that non-compliance with
section 2(2A) would result in the contract being voidable at the instance of
the party for whose benefit it was enacted.
The judge also pointed out that section 29A distinguishes throughout
between a purchaser who only signs an offer and one who signs a deed of
alienation and emphasised that if the purchaser signs an offer, the cooling-off
period may expire even before the offer is accepted, in other words, even
before a contract of sale comes into being. Apart from this, the Alienation of
Land Act nowhere requires an offer to contain a reference to the rights
embodied in section 29A, while this is indeed required from a deed of sale.
The judge held that this clear distinction could not easily be ascribed to an
oversight by the legislature. According to the court, the reason for this
distinction can be found in the purpose of section 2(2A), namely that it does
not create rights, but aims to bring those rights that already exist pursuant to
section 29A to the attention of an ignorant purchaser. Therefore, an offer that
does not comply with section 2(2A) should not be held to be void.
The court further held that the fact that a deed of sale has to contain a
reference to the cooling-off right does not mean that the offer also has to
contain such a reference. If a seller receives an offer that is silent regarding
37
Specific contracts in court
section 29A, the lacking information can be supplemented and the document
which is then signed will comply with section 2(2A). Whether this will at all
be to the benefit of the purchaser will depend on whether such step comes to
the purchaser’s knowledge in time. Where the offer is accepted only after
expiry of the cooling-off period, such a step would be futile.
The court concluded that non-compliance with section 2(2A) merely
provides the purchaser with the right to choose to avoid the agreement and
that the provisions of the section were exclusively for the benefit of
purchasers.
On appeal (see Gowar Investments (Pty) Ltd v Section 3, Dolphin Coast
Medical Centre CC 2007 (3) SA 100 (SCA)), the Supreme Court of Appeal
held that the court a quo gave cogent reasons for its decision. The court
therefore confirmed that a deed of alienation which does not comply with
section 2(2A) is not ipso facto void, but at the instance of the purchaser.
3 5 Blank spaces
[25] Johnston v Leal
[1980] 2 All SA 366 (A), 1980 (3) SA 927 (AD)
Facts
J had bought immovable property from L. The estate agent completed a
standard-form contract in which all the relevant blank spaces were filled in,
except for the particulars regarding the amount of the bond and the period in
which the purchaser was to procure the bond.
L claimed damages from J for breach of contract. J’s defence was that no
valid contract of sale had come into being because not all of the blank spaces
in the standard-form contract had been completed.
Judgment
Counsel for J argued that all essential and material terms of the contract of
sale had to be reduced to writing. Since the particulars regarding the bond
constituted a material term, the prescribed statutory formalities were not
complied with. Therefore, the contract was void. The court agreed with this
approach.
The court further confirmed that it was not necessary for all the terms of the
agreement to be contained in the same document. Where all the documents
read together showed that the formalities (writing and signature) had been
complied with, a valid deed of alienation had come into being.
The material terms of a contract of sale are not limited to the essentialia of
the contract. In order to determine whether a term is material, regard must be
had to the circumstances of each individual contract. If an essential or
material term has not been reduced to writing, the contract of sale 38
Purchase and sale
is void and not susceptible to rectification. In the latter case, the evidential
rule against extrinsic evidence (parol evidence rule) must be kept in mind.
If a material term is left blank, the statutory formalities have not been
complied with. Therefore, the contract of sale is void, notwithstanding the
fact that the parties had reached oral consensus on the relevant term.
Three possible constructions can be placed on the fact that a space in a
standard-form contract had not been filled in:
l The intention of the parties to the contract is that the (blank) clause
concerned should not form part of the contract of sale. This scenario seems
unlikely to arise in the case of an essential term. While taking this proviso
into account, the court held that in such a case, the clause should be regarded
as pro non scripto (unwritten). Provided that the contract otherwise complies
with the requirements for validity, a valid contract of sale comes into being
regardless of the non-completion of the clause.
l The intention of the parties to the contract is that the (blank) clause
concerned should form part of the contract of sale. In this scenario, the
clause was left blank because at the time of conclusion and signing of the
contract, the parties had as yet not reached consensus on its contents. The
clause had been left blank for purposes of future agreement between the
parties. Since, in this instance, the non-completion of the clause indicated
that the parties regarded the term as material, no valid contract of sale comes
into being because not all the material terms had been reduced to writing.
l The parties agree on the contents of the (blank) clause, but for some
inexplicable reason, the clause is never completed. In this case, rectification
might be possible, but until such time as rectification does take place, the
contract will be invalid.
As regards the rule against extrinsic evidence (parol evidence rule) in the
present context, the court held that it consisted of two components, namely
l the integration rule, which defines the limits of the contract; and l rules
which determine when and to what extent extrinsic evidence may be
adduced as an exception to the general rule.
The court held that the contract in casu fell in the third category mentioned
above (that is to say, the parties agree on the contents of the (blank) clause,
but for some inexplicable reason, the clause is never completed) and
extrinsic (oral) evidence regarding the blank space was admissible. Such
evidence is an exception to the parol evidence rule and may be adduced to
determine
l whether or not the blank space forms part of the contract; and l why it was
left blank.
39
Specific contracts in court
[26] Smit v Walles
1985 (2) SA 189 (T)
Facts
S bought a plot from W. The contract of sale between S and W was in a preprinted form upon which certain terms were typed in the blank spaces. The
space dealing with the particulars of occupation provided as follows: ‘[D]ate
to be agreed upon by the seller or his agent and the purchaser.’
S had already been in occupation of the property at the time of the
conclusion of the contract. A dispute regarding the validity of the contract of
sale later arose between S and W.
Judgment
Counsel for W argued that the date of occupation was a material term and
that the non-completion thereof caused the contract to be void because the
statutory formalities had not been complied with. It was further argued that
because the contract was void for the above reason, it was not susceptible to
rectification.
Against this, counsel for S argued that the date of occupation was not a
material term. Therefore, the parties did not intend the blank space to form
part of their contract, which was valid. The reason why the date of
occupation was not a material term was the fact that S had already been in
occupation of the land before the contract was signed. Therefore, any term in
respect of occupation was reduced to a subordinate term of no importance.
The gist of W’s argument was that no further evidence was admissible since
the printed form did not evince a valid contract. S argued for the admission
of extrinsic evidence in so far as it was necessary to determine whether or
not the term was material.
The court held that the first question to be answered was whether it appeared
from the document itself that the term in question was a material term. If it
was clear from the document that the term was indeed material, the contract
of sale was invalid and not susceptible to rectification.
The court pointed out that it may sometimes be impossible to determine ex
facie the document itself whether a term is material. For example, in one
contract of sale it might indeed be material, while not so in the case of
another.
The next question was whether or not the integration rule allowed evidence
to be led which was in conflict with the provisions of the contract of sale. In
order to surmount the latter obstacle, the court followed the following modus
operandi:
l Evidence may be heard in order to determine whether or not the term was
material.
40
Purchase and sale
l Should the term be found to be material, the contract of sale would be void
because of non-compliance with the statutory formalities and rectification
would not be allowed.
l Should the term be found not to be material, the contract of sale would be
valid and susceptible to rectification.
l In the latter instance, the parties did not necessarily intend the term to be
pro non scripto (unwritten) and evidence could be heard on the contents of
the term.
In casu, the court held that the contract of sale complied with the statutory
formalities and that evidence on the circumstances surrounding the noncompletion of the clause was admissible.
4 Options and pre-emptive rights
[27] Hirschowitz v Moolman
[1985] 2 All SA 319 (A), 1985 (3) SA 739 (AD)
Facts
During 1977, M (senior) entered into a prospecting contract with S in respect
of a farm. This contract was later ceded by S to D. Later on in 1977, M
(senior) passed away.
On 15 May 1978, prior to the final settling of the deceased estate of M
(senior), Mrs M concluded a lease with H in respect of the same farm. The
lease contained a right of pre-emption in favour of H. After conclusion of the
lease, Mrs M and M (junior) entered into a redistribution agreement in order
to settle the deceased estate of M (senior). In terms of this agreement, M
(junior) inherited an undivided one-half share in the farm in respect of which
both the prospecting contract and the lease had been concluded.
During February 1980, M (junior) concluded a new prospecting contract
with D. This contract also granted to D the option to buy the farm at R755
per hectare. D exercised this option and on 10 December 1980, concluded a
contract of sale with M (junior). It was H’s case that the option contained in
the prospecting contract between D and M (junior) triggered off the right of
pre-emption granted to him by the lease between H and Mrs M, and he
claimed that the farm be offered to him for sale.
Judgment
The court of first instance (WLD) held that a right of pre-emption did not,
when it came into operation, give rise to a binding contract of sale. A right
of pre-emption only gave rise to a right to an interdict to prevent the transfer
of ownership, as well as a right to claim damages upon breach 41
Specific contracts in court
thereof. In addition, the court held that the right of pre-emption also had to
comply with the statutory formalities in order to be valid.
The court of first appeal (TPD), in contrast, held that an order for specific
performance (and not only an interdict or damages) could be granted against
the grantor of the right of pre-emption should he act in breach thereof. In
addition, the court held that the statutory formalities did not apply to a right
of pre-emption.
The Appellate Division held that the crux of the matter centred around two
issues, namely
l whether the statutory formalities applied to a right of pre-emption; and l
whether H was entitled to specific performance of the right of pre-emption.
In order to address the above issues, it was first necessary to establish the
juridical nature of a right of pre-emption. With reference to the relevant
authorities, the Appellate Division held:
l A right of pre-emption was a personal right.
l Should the grantor of the right of pre-emption conclude a contract of sale
with a third party in breach of such right, the grantee is entitled by a
unilateral declaration of intent to step into the shoes of the third party, and a
contract of sale would then be deemed to have been concluded between the
grantor of the right of pre-emption and the grantee.
l Where delivery had already taken place, the grantee cannot use his personal
right in order to evict the third party, except where the latter had knowledge
of the existence of the right of pre-emption prior to the conclusion of the
contract of sale.
The court held the above to reflect the common-law position in respect of
rights of pre-emption and that it should be followed in the South African
law.
It further decided that when the grantee, by a unilateral declaration of intent,
decides to step into the shoes of the third party, a new contract of sale comes
into being between the grantor of the right of pre-emption and the grantee.
The latter is a new independent contract and not a substitu-tory one for the
contract between the grantor and the third party.
The Appellate Division summarised the positive law position as regards
rights of pre-emption as follows:
l A right of pre-emption does not impose a positive obligation upon the
grantor, but, upon its breach, the grantee is entitled to an interdict or
damages.
l Apart from an interdict and damages, an order for specific performance
may be granted.
42
Purchase and sale
l The holder of the right of pre-emption may enforce his rights before actual
breach by the grantor, provided the right had been put into
operation.
l Once the right of pre-emption has been put into operation, there is a
positive obligation on the grantor to make an offer to the grantee. This offer
must be on the same terms offered to the third party.
l The question regarding the applicability of statutory formalities has not
been finalised.
The court assumed, without deciding, that the granting of the option to D
had brought H’s right of pre-emption into operation. Therefore, H
obtained the right by way of a unilateral declaration of intent to step into D’s
shoes and demand that the farm be sold to him.
It was further decided that both an option and a right of pre-emption are
pacta de contrahendo (agreements to make a contract in the future). At
common law, the pactum de contrahendo has to comply with the same
requirements as those set for the proposed contract. Where an option or a
right of pre-emption is a pactum de contrahendo which proposes a contract
for the sale of land and such contract must comply with certain statutory
formalities, the same formalities apply to options and rights of pre-emption.
Were this not so, a contract for the sale of land could effectively be
constituted by the verbal exercise of the option or right of pre-emption and
that would frustrate the legislature’s intention in respect of formalities.
Since M (junior) did not sign the lease containing the right of pre-emption,
the statutory requirements had not been met. Therefore, the right of preemption was void.
Comment
There are several possibilities as to the manner in which the offer to sell can
be made to the grantee of the right of pre-emption:
l The parties may describe the manner in which the right of pre-emption is
put into operation in the contract of pre-emption.
l The grantor may act in breach of the right of pre-emption, in which case the
grantee may, by unilateral declaration of intent, step into the shoes of the
third party provided that
• an offer has been made by the grantor to the third party and all the
essentialia can be made applicable to the grantee;
• the contract between the grantor and the third party does not lapse upon the
grantee’s intervention, but two contracts of sale come into being; and
• the grantee’s rights take precedence over those of the third party in
accordance with the maxim prior tempore potior iure, unless delivery to the
latter has not yet taken place and the third party was unaware of the
existence of the right of pre-emption.
43
Specific contracts in court
l The grantee may claim that an offer in good faith be made to him by the
grantor.
The question is: how are the above possibilities affected by the statutory
formalities?
The aims of the legislature can be undermined if a contract of pre-emption
does not have to comply with the statutory formalities because an informal
contract of pre-emption may form the basis of a so-called
‘offer’ and the ‘acceptance’ thereof, in order to bring a contract into being. If
the contract of pre-emption does not have to comply with the statutory
formalities, any third party could suddenly come to the fore and, in terms of
some or other informal contract of pre-emption, enforce a contract of sale
against the prospective seller. This point of view is supported by Hirschowitz
v Moolman.
However, the problem with a right of pre-emption is that, at the time it is
granted, all the terms of the proposed contract of sale are often not fixed or
determinable. This makes it practically impossible to comply with the
statutory formalities.
There are two offers in the case of an option to sell, namely
l the substantive offer; and
l the offer to keep the substantive offer open for a certain period for the
exclusive acceptance by the option holder.
Acceptance of the first offer creates a contract of sale; in the case of the
latter, an option contract comes into being.
Hirschowitz v Moolman implies that both the substantive offer and the offer
to keep the substantive offer open for a certain period have to comply with
the statutory formalities.
According to Van Rensburg (‘Formaliteitsvoorskrifte, voorkoopsregte en
opsies’ 1986 THRHR 208), only the substantive offer, but not the offer and
acceptance to constitute the option, has to comply with the statutory
formalities. According to this author, an option contract can therefore be
concluded informally.
Van Rensburg is also of the opinion that Hirschowitz v Moolman did not
alter the position in respect of option contracts and that these contracts can
still be formed informally. His reasons are:
l The remarks made in Hirschowitz v Moolman in respect of pacta de
contrahendo are obiter as far as options are concerned because the case dealt
with a right of pre-emption.
l There is no direct authority for the proposition that an option contract is
subject to statutory formalities.
l Hirschowitz v Moolman emphasises the substantive offer which has to
comply with such formalities.
44
Purchase and sale
l At common law, no formalities are required for option contracts and
legislation which deviates from the common law should be interpreted
restrictively.
l The fact that an option contract can come about informally will not detract
from the legislature’s aims regarding formalities.
l The authorities relied on in Hirschowitz v Moolman are not founded at
common law.
In summary, Van Rensburg’s view is that a right of pre-emption must comply
with the statutory formalities, while an option contract can arise informally,
provided that the substantive offer does comply with these formalities.
[28] Krauze v Van Wyk
[1986] 1 All SA 293 (A), 1986 (1) SA 158 (AD)
Facts
On 29 September 1975, V granted a right of pre-emption in respect of a farm
to K. K exercised this right on 13 July 1983 and on the same day concluded
a contract of sale with V. (This contract was altered on 21 July 1983 and
again on 29 July 1983.) Meanwhile, V had, on 7 April 1982, granted an
option to buy the same farm to X. X exercised this option on 19 September
1983. When K became aware of this, he applied for an interdict preventing
the transfer of the farm from V to X.
Judgment
The court a quo found that X’s claim for transfer enjoyed preference over
K’s right of pre-emption, the reason being that the option had been granted
to him before the sale to K took place. This court further found that the fact
that the right of pre-emption was granted before the option did not assist K,
since the sale to K could not be construed as having followed upon the
exercise of the right of pre-emption. According to the court, the contract of
sale of 13 July 1983 was a completely new agreement which did not come
about through K’s right of pre-emption.
The reason given by the court was that the terms of the right of pre-emption
differed materially from those of the contract of sale concluded on 13 July
1983. According to the court a quo, the option was granted (7
April 1982) before conclusion of the sale (13 July 1983) with K. Therefore,
the option was earlier in time and therefore stronger in law.
The Appellate Division held that the document of 29 September 1975
indeed constituted a right of pre-emption between K and V. The court also
found that K and X had competing claims for the transfer of the farm which
arose from the option and the right of pre-emption respectively.
The crux of the dispute was which of the competing personal rights flowing
from the option and the right of pre-emption enjoyed precedence 45
Specific contracts in court
over the other. The court confirmed the maxim prior tempore potior iure (he
who comes first in time has precedence in law).
The Appellate Division held that, as a general rule, the option holder and the
grantee of a right of pre-emption do not necessarily, from the nature of their
contracts, enjoy preference over one another. Therefore, an option holder
does not necessarily enjoy preference over the grantee of a right of preemption, and vice versa.
The court a quo apparently applied the maxim prior tempore potior iure by
separating the rights flowing from the contract of pre-emption (29
September 1975) from the rights stemming from the contract of sale (13 July
1983). Thereafter, the court weighed the rights flowing from the option (7
April 1982) against the rights stemming from the contract of sale (13 July
1983). Since the option was granted before conclusion of the sale, the court
a quo found that the rights flowing from the option were first in time and
therefore had to take precedence over the rights in terms of the sale.
The Appellate Division, however, held that the right of pre-emption of 29
September 1975 could not be dissociated from the rights established by the
contract of sale of 13 July 1983. To the extent that this was done by the court
a quo, it was held to be unnatural and in conflict with reality.
If the disassociation between the right of pre-emption and the rights
established by the sale were possible, it would mean that K would have been
divested of his right of pre-emption upon conclusion of the sale on 13 July
1983. This would have led to a nonsensical result.
The effect of the conclusion of the contract of sale on 13 July 1983 was that
K’s right was altered from a right to purchase the farm to a right to receive
transfer thereof. Likewise, X obtained the right to purchase the farm from
the option of 7 April 1982. This right to buy the farm was only altered to a
right to receive transfer thereof when the option was exercised on 19
September 1983. Therefore, in both instances, K’s right to buy the farm and
his additional right to receive transfer thereof came first in time and that
brought about a preference in rights. The fact that the sale between K and V
was on terms different from that of the right of pre-emption, made no
difference to K’s legal position.
X’s alternative argument was that the altered contract of sale constituted a
novation of the right of pre-emption. The Appellate Division accepted that a
novation took place, but held that K had not been divested of his right of preemption because such right died a natural death upon conclusion of the sale
on 13 July 1983. K’s right to purchase the farm was not extinguished by the
sale, but altered to a right to claim transfer of the farm.
The court a quo concluded that the requirements for a valid contract of sale
have to be set out in a right of pre-emption. The Appellate Division per
Hefer JA stated that it was not necessary to consider the correctness of that
point of view, but made it clear that the fact that it was not pertinently
rejected, was not an indication that it was also the Appellate Division’s point
of view.
46
Purchase and sale
[29] Mokone v Tassos Properties CC
2017 (10) BCLR 1261 (CC), 2017 (5) SA 456 (CC)
Introduction
The matter concerns two applications for leave to appeal against judgments
of the High Court which raised, inter alia,
l whether, when parties renew a lease without saying more ( simpliciter),
only terms that are ‘incident to the relation of lessor and tenant’ are renewed;
and
l whether a right of pre-emption granted orally or in writing without
signature is invalid.
The first issue is discussed fully in [78].
Facts
On 1 March 2004, M entered into a written lease agreement with T, in terms
of which T leased a certain premises to M at a monthly rental of R4 500. The
lease was for an initial period of one year ending on 28
February 2005, renewable for a further period of a year at a rental to be
agreed on. Since the conclusion of the lease to date, M has been conducting
a business on the leased premises.
Clause 6 of the lease agreement provided for a right of pre-emption:
‘The [tenant] shall have the [right of first refusal] to purchase the leased
premises when the [lessor wishes] to sell the leased premises. The purchase
price shall be negotiated when the [lessor wishes] to sell the leased
premises.’
M and T concluded an oral agreement on the same terms and conditions as
the written lease for the period 1 March 2005 to 3 May 2006. On 3 May
2006 they agreed to an extension of the lease to 31 May 2014. This was done
by means of a manuscript endorsement on the face of the first page of the
original written lease signed by a representative of T only. The endorsement
read: ‘Extend till 31/5/2014 monthly rent R5 500.’
On 15 July 2009, T sold the leased premises to B. Transfer took place on 1
March 2010.
In 2010, after becoming aware of the sale, M brought an application in the
High Court seeking a declarator that
l T was in breach of the right of pre-emption;
l cancellation of the sale and reversal of transfer of the leased premises; and
l an order compelling T to comply with the right of pre-emption contained in
clause 6 of the written lease quoted above.
M later withdrew this application.
On 27 January 2012 M notified T in writing that she was exercising her right
of pre-emption. She tendered payment of R55 886.60, being the price at
which T sold the leased premises to B. T rebuffed M, arguing that 47
Specific contracts in court
the right of pre-emption was no longer part of the lease. On 3 April 2012
M instituted action against T and B in the High Court to set aside the sale
and transfer of the leased premises and compel a sale of the property to her,
asking for damages in the alternative. M contended that the manuscript
endorsement that extended the lease to 31 May 2014 had also extended
clause 6 containing the right of pre-emption. M sought to upset the transfer
to B on the basis that B was aware of her right of pre-emption before it took
transfer.
The court found against M and held:
‘[T]he word “extended” is appropriate to the continuance of the period of the
lease, and not the continuance of the right of pre-emption, especially if one
has regard to the fact that the right of pre-emption is collateral [and not an
incident] to the relation of [lessor]
and tenant and terms that are collateral to and independent of such
relationship are not renewed when a lease is renewed simpliciter, unless the
parties make it clear that they intended this’ ( Mokone v Tassos Properties
CC para 15).
The court held that the manuscript endorsement did not result in the right of
pre-emption being incorporated in the extended new lease. It made a
declarator to that effect.
On 10 December 2014 B gave M written notice to vacate the leased
premises by 31 January 2015 but she refused to do so. On 17 February 2015,
B sought her eviction in the Magistrate’s Court on the basis that it was the
owner of the leased premises; the lease had come to an end through
effluxion of time; and M had been given due notice to vacate the premises.
M resisted the eviction on the following grounds:
l B’s alleged ownership was under challenge in proceedings that were
pending before the High Court.
l As a consequence, B had no right to terminate M’s occupation.
l Since issues relevant to the eviction proceedings were pending before the
High Court, the eviction proceedings were premature and had to be held in
abeyance pending the determination of the action pending before the High
Court.
The Magistrate’s Court dismissed the eviction proceedings. However, B
subsequently succeeded on appeal before the High Court. The Supreme
Court of Appeal refused special leave to appeal and M sought relief from the
Constitutional Court.
Majority judgment
For present purposes, the issue that Madlanga J had to resolve was whether a
pactum de contrahendo (a contract whose aim is to conclude another
contract) that could lead to a sale of land – like the right of pre-emption –
must comply with the formalities contained in section 2(1) of the Alienation
of Land Act 68 of 1981.
48
Purchase and sale
Section 2(1) provides:
‘No alienation of land after the commencement of this section shall . . . be of
any force or effect unless it is contained in a deed of alienation signed by the
parties thereto or by their agents acting on written authority.’
The judge reiterated that the manuscript endorsement extending the lease
was signed only by T’s representative. Relying on Hirschowitz v Moolman (
Moolman: see [27]), B argued that M’s prosecution of the right of preemption would ultimately be fruitless as the endorsement was invalid for
lack of compliance with the provisions of section 2(1) as it was not signed
by M.
Moolman concerned section 1(1) of the Formalities in respect of Contracts
of Sale of Land Act 71 of 1969 (Formalities Act), the predecessor to the
Alienation of Land Act. That section read:
‘No contract of sale of land or any interest in land (other than a lease,
mynpacht or mining claim or stand) shall be of any force or effect if
concluded after the commencement of this Act unless it is reduced to writing
and signed by the parties thereto or by their agents acting on their written
authority.’
In terms of section 2(1) of the Alienation of Land Act, the formality on
signature relates to ‘alienation of land’. In terms of the Alienation of Land
Act ‘“alienate”, in relation to land, means sell, exchange or donate,
irrespective of whether such sale, exchange or donation is subject to a
suspensive or resolutive condition, and “alienation” has a corresponding
meaning’.
Madlanga J held that in the case of a right of pre-emption, an alienation
– as defined – takes place only when that right is exercised and a sale comes
into being. Merely affording someone that right is not an alienation because
that is simply not a sale, exchange or donation. The judge failed to see why
section 2(1) of the Alienation of Land Act should apply to a right of preemption.
He held that, to the extent that it relates to a ‘contract of sale’, section 1(1) of
the Formalities Act is comparable. It applies to a sale of (a) land or (b) any
interest in land, subject to the exceptions specified in the section. Although
the Formalities Act does not define ‘sale’, Madlanga J
saw no basis on which it can be gainsaid that – absent any mishaps – a sale
results in the alienation of land or interest in land. To this extent, its meaning
is similar to that of ‘alienate’ in the Alienation of Land Act.
The judge continued that by parity of reasoning, when section 1(1) of the
Formalities Act was still in operation, it should not have applied to a right of
pre-emption. He said that in Rogers v Phillips 1985 (3) SA 183 (E) this was
the very approach Kannemeyer J adopted on this debate. In that case, the
court had to deal with the question whether writing was a prerequisite for the
validity of a right of pre-emption. It held:
‘[N]either in terms of section 1(1) of [the Formalities Act] nor in terms of
section 2(1) of
[the Alienation of Land Act] does a right of pre-emption in respect of land
have to be in writing in order to be valid’ (188D–E).
49
Specific contracts in court
The court reasoned as follows:
‘[A] right of pre-emption gives the pre-emptor no right to claim transfer of
land; it merely gives him a right to enter into an agreement of sale with the
grantor should the latter wish to sell. When such an agreement is completed
then, and not before, will he have a right to claim transfer of land, so that it
is the agreement which must be in writing’ (188C–D).
Madlanga J therefore stated that according to Rogers there is no need for
compliance with the formalities at the time a right of pre-emption is granted.
He then turned to the contrary view expressed by Corbett JA in Moolman.
According to Corbett JA, section 1(1) of the Formalities Act and section 2(1)
of the Alienation of Land Act require signature by all parties to a right of
pre-emption (757E–F, 766D and 767F–H). He stated:
‘In general a pactum de contrahendo is required to comply with the
requisites for validity, including requirements as to form, applicable to the
second or main contract to which the parties have bound themselves’
(766D).
According to Madlanga J, that view was held despite an apparent and,
indeed, unavoidable acceptance that a right of pre-emption itself is neither a
sale nor an alienation. The judge then asked on what basis must the
formalities stipulated by the two Acts, which apply to sales or alienations,
find application to non-sales or non-alienations. He quoted the following
explanation from Moolman:
‘[I]n order that the holder of a right of pre-emption over land should be
entitled, on his right maturing and on the grantor failing to recognise or
honour his right, to claim specific performance against the grantor (assuming
that he has such right), the right of pre-emption itself should comply with the
Formalities Act. Were this not so, the anomalous situation would arise that
on the strength of a verbal contract the grantee of the right of pre-emption
could, on the happening of the relevant contingencies, become the purchaser
of the land. This would be contrary to the intention and objects of the
Formalities Act’ (767F–H).
Madlanga J asked whether it was open to him to adopt the stance that,
because Moolman concerned section 1(1) of the Formalities Act, what it held
about section 2(1) of the Alienation of Land Act was obiter. He held that it
was not and that it would be disingenuous to do so because of the
comparable nature of the two sections. He held that, that being the case, the
reasoning in Moolman must, indeed, apply to both sections.
The judge then examined the reasoning in Moolman. To him, the foundation
of the reasoning is that inevitably the holder of the right of pre-emption can
become a purchaser in terms of the right only through means that fall foul of
the formalities. It is this that gives rise to the anomaly to which Moolman
referred. However, Madlanga J stated the he did not see why – upon the
occurrence of the contingencies that trigger an entitlement to exercise the
right – the holder cannot exercise it in a manner that complies with the
requisite formalities. He explained that the holder may simply make a signed
written offer to purchase. If the grantor accepts the offer in writing under
signature, a sale that meets the formalities will come into being. If she or he
does not, the holder of the right may seek a declarator that she or he is
entitled to the exercise of the right and a mandamus requiring the grantor to
accept the offer in writing. If the relief is warranted, it must be granted. That
is nothing more than holding the grantor to the parties’ agreement.
50
Purchase and sale
Madlanga J held that in the event that the conduct of the grantor of the right
of pre-emption has culminated in the sale of land to a third party, it was
necessary to understand the import of the so-called Oryx mechanism which
was expressed as follows in Associated South African Bakeries (Pty) Ltd v
Oryx & Vereinigte Bäckereien (Pty) Ltd 1982 (3) SA 893 (AD) 907E–F:
‘In the event that a seller concludes a contract of sale with a third party in
breach of a right of pre-emption, the holder [of the right of pre-emption]
may, through a unilateral declaration of intent, step into the position of the
third party. A contract of sale is then deemed to have been between the seller
and the holder of the right of pre-emption.’
Madlanga J saw no reason in principle why the idea of the holder of the right
‘stepping into the position of the third party’ cannot be achieved in a manner
that does not bypass the requisite formalities. According to him, that may be
achieved either consensually or through coercion by court.
The judge held that court-coerced compliance by the grantor will be doing
nothing more than to require her or him to honour what she or he had
bargained for. In the end, the holder of the right of pre-emption may be able
to purchase on the exact terms on which the third party purchased and thus
‘step into the position of the third party’.
Madlanga J stated that to hold otherwise leads to the difficulty that, indeed, a
sale of land may come about without the formalities having been complied
with. However, according to him it does not have to be that way. He stated
that, effectively, Moolman’s view of the effect of the Oryx mechanism is the
means by which the court itself in Moolman placed hurdles in the path and
then claimed that those hurdles could not be cleared. He asked: ‘Why place
hurdles in the path of travel in the first place?’ Referring to Lubbe ‘Law of
Purchase and Sale’ 1985 Annual Survey 133 140–141 and Lubbe and
Murray Farlam and Hathaway Contract: Cases Materials and Commentary
(1988) 93, Madlanga J stated that, unsurprisingly, Lubbe opines that Oryx
presupposes an offer complying with the requisite formalities.
According to Madlanga J, one must not give on a silver platter and on
formalistic, technical grounds an easy way out to a grantor of a right of preemption who wishes to resile from an agreement concluded with eyes wide
open. He stated that this is not making light of what the Alienation of Land
Act seeks to achieve but about averting abuse and injustice. According to
him, one’s interpretation needs to be restrictive on the reach of the
formalities required by the Act (referring to Van Rensburg
‘Formaliteitsvoorskrifte, Voorkoopregte en Opsies’ 1986 THRHR 208 214
and Moolman 757I–758A quoted above). He concluded that where an
alienation of land must fail for non-compliance with the formalities, so be it.
The Act exists for a reason.
The judge quoted from Lubbe 1985 Annual Survey 140–141 who addressed
the passage in Moolman where the anomaly referred to above was pointed
out:
‘This passage is . . . not free from difficulty. It must, it seems, be read as
referring to the contract granting the right of pre-emption, for a right of preemption as such is not something that can be governed by the formalities
legislation. An action for the specific performance of a grant of pre-emption
seeks an order on the grantor to make a valid offer to the grantee. In the
present context this means an offer complying with the prescribed 51
Specific contracts in court
formalities, which if accepted by the grantee, in accordance with the
statutory requirements, will result in a perfectly valid contract. It is difficult
to see how such a procedure can undermine the legislative object with regard
to alienations of land.’
However, Madlanga J stated that, contrary to what was suggested in
Moolman, he reached two related conclusions. First, regardless of the stage
to which a sale to a third party by the grantor of a right of pre-emption may
have progressed, generally the right is capable of enforcement in a manner
that complies with the formalities. Second, the exercise of the right does not
ineluctably lead to the anomaly referred to in Moolman. He therefore
disagreed with the conclusion in Moolman.
The court made the following orders for present purposes:
l The extension of the lease between M and T on 3 May 2006 resulted in the
extension of the right of pre-emption in favour of M.
l The action for the prosecution of the right of pre-emption is remitted to the
High Court for the determination of outstanding issues.
Minority judgment
Referring to the development of our existing law in the main judgment, that
of bringing down Moolman, Froneman J was not convinced that it was
necessary to be so bold in deciding this case.
He explained that on his reading of Moolman it deals only with ‘stepping
into’ rights of pre-emption, or what the main judgment calls an Oryx
mechanism. According to him, Moolman accepted, on the authority of Oryx,
that the nature of a right of pre-emption allows the grantee to step into the
shoes of the third party ‘purchaser’ unilaterally and a new independent
contract then comes into being between them. Froneman J
explained that the right of pre-emption, as a species of a pactum de
contrahendo, is, in effect, a conditional sale of land and conditional sales of
land must also comply with the statutory formality of being in writing.
Therefore, if there is no written offer to step into, the unilateral stepping in,
even if in writing, cannot transform the resultant sale into a written sale.
According to Froneman J, it is this that underlies the statement:
‘Were this not so, the anomalous situation would arise that on the strength of
a verbal contract the grantee of the right of pre-emption could, on the
happening of the relevant contingencies, become the purchaser of land’ (
Moolman 767H).
The judge stated that it may be that this ‘conception of the preparatory pact
as an inchoate, conditionally suspended version of the substantive contract’
(Lubbe 1985 Annual Survey 140–141) is in conflict with the earlier
Appellate Division case of Venter v Birchholtz [1972] 1 All SA 361
(A), 1972 (1) SA 276 (AD). According to him, both the characterisation of
the nature of this kind of right of pre-emption, as entitling the grantee to step
into the shoes of the third party ‘purchaser’ unilaterally with the result that a
new independent contract then comes into being between the grantee and the
grantor, as well as the requirement that it must be in writing, may be suspect
and need to be re-examined. However, he held that, before doing so, it must
be clear that the pre-emption clause at hand is of the ‘stepping into’ or Oryx
variety. If it is not, dumping Moolman is not yet called for.
52
Purchase and sale
Froneman J explained that a right of pre-emption may take many different
forms. In Bellairs v Hodnett 1978 (1) SA 1109 (A) 1139A–B, the court
distinguished a right of pre-emption binding the grantor to offer at
‘the price which he is willing to accept for such shares’, from other forms:
‘[T]he right of pre-emption . . . differs radically from the usual kind in which
the pre-emptive price is either specified . . . or in which, because of its
wording or effect, it is the same price as the owner is prepared to accept
from the third person . . . or in which the price is otherwise objectively
determinable’ (1139 D–F).
Froneman J stated that the ‘stepping into’ nature of a right to pre-emption
upon which Oryx and Moolman rest may be restricted to those rights where,
because of its wording or effect, it is the same price as the owner is prepared
to accept from the third person (referring to Soteriou v Retco Poyntons (Pty)
Ltd [1985] 2 All SA 208 (A), 1985 (2) SA 922 (AD) 933). In other cases, the
rationale for constructing its nature as one of unilaterally stepping in to
create an independent contract of sale, and hence liable to being in writing,
appears inapposite.
According to Froneman J, the right of pre-emption granted in the present
case was not a ‘stepping into on the same terms’ right. It read:
‘The [t]enant shall have the [right of first refusal] to purchase the leased
premises when the [lessor wishes] to sell the leased premises. The purchase
price shall be negotiated when the [lessor wishes] to sell the leased
premises’ (emphasis added).
To Froneman J this was much closer to the terms of the clause in Soteriou,
which provided for the extension of a lease ‘upon such terms and conditions
and at such rental as may be mutually agreed upon’. With reference to the
Oryx principle that a purchaser can step into the shoes of the third party by a
unilateral declaration of intent, Nicholas JA stated:
‘There would seem to be no reason in principle why the same should not
apply where a lessee of premises has a right of first refusal of a new lease.
But the lease concluded with the third party must be such that the grantee of
the right can step into the third party’s shoes.
It is not clear that he could do so in the present case’ (emphasis added).
Froneman J concluded that before one could enter the realms of whether
Moolman was wrongly decided, one first had to determine whether the preemption clause in the present case was of the ‘stepping into’ kind that
Moolman speaks of. To him it seemed not to be of that kind, which made it
unnecessary to leave Moolman on the ash-heap.
5 Safe-keeping of thing sold and passing of
risk
[30] Frenkel v Ohlsson’s Cape Breweries Ltd
1909 TS 957
Facts
O leased a hotel from F. O was put in control of the hotel for the duration of
the lease and he was responsible for the maintenance and running 53
Specific contracts in court
thereof. Owing to the poor condition of the premises and the fact that the
hotel had not been open for business for some time, the Liquor Board
refused to renew its licence.
The non-renewal was directly linked to O’s duty as lessee to keep good care
of the thing under his control. A dispute arose as to whether F was entitled to
damages caused by the refusal to renew the licence. In the court a quo,
judgment was given against F and he appealed.
Judgment
The court accepted as common cause that if the licence was lost because of
O’s default, O would be liable for damages. However, if the refusal of the
licence took place on grounds for which O was in no way to blame, he
would not be liable in damages to F.
The crux of the matter in casu was
l what O’s duty of safe-keeping entailed;
l under what circumstances non-compliance with this duty would give rise to
liability; and
l upon whom the onus rested to prove that his duty had been performed
properly.
The court therefore had to decide whether the plaintiff had to allege and
prove
l negligence on the part of the defendant (safe-keeper); or otherwise, l the
absence of negligence as a defence.
By way of analogy with the duty of safe-keeping in the law of sale, this
aspect turns on the principles of depositum (deposit).
The custodian is under a duty to exercise due diligence in the performance of
his or her duty of safe-keeping. The degree of diligence varies from case to
case. If the thing were to be damaged or perish without any fault on the
custodian’s part, he or she will not be liable. The custodian bears the onus of
proving that the necessary diligence had been exercised or that the damage
was caused without his or her fault. Therefore, the plaintiff (depositor)
normally does not have to allege and prove fault on the part of the custodian.
Applied to the facts in casu, the court found that O was under the burden of
proving that the refusal of the licence was not due to fault on his part.
The court further held that, in the case of vis maior, a presumption existed
that the damage was not caused by fault. By reason of this presumption, the
onus of proving that, despite vis maior, the damage occurred through fault
rests on the plaintiff. Therefore, the onus of proving the absence of fault still
rested on O. The onus to prove the presence of fault would shift to F only if
the conduct of the Liquor Board were to be considered as vis maior.
54
Purchase and sale
On the facts, O did not satisfy the onus of proof (that is to say, that the
refusal of the licence was not due to his fault) and the appeal succeeded.
[31] Gengan v Pathur
1977 (1) SA 826 (D)
Facts
G had bought immovable property from P. The deed of sale expressly
provided that the risk in respect of the property would pass to the purchaser
(G) upon registration of transfer. Subsequent to the signing of the deed of
sale, but before registration of the transfer of the property in G’s name, the
buildings were partially destroyed by fire.
G had the buildings restored at his own cost. Transfer of the property to G
was subsequently registered. G then instituted an action for damages against
P for the costs of repairing the buildings. P excepted to the claim for
damages because the seller (P) was not under any duty to repair the
buildings.
Judgment
The crux of this case is the passing of the risk. In the absence of an express
agreement to the contrary in the deed of sale, the risk passes to the purchaser
in accordance with the maxim perfecta emptione periculum ad emptorem
respiciet (after completion of the sale the purchaser shall bear the risk). The
purchaser would therefore be under an obligation to pay the full purchase
price, irrespective of the damage caused to the merx.
Where the purchaser does not bear the risk because it was so agreed or
where the contract is not yet perfecta, the maxim res perit domino (the
owner bears the loss of the thing) applies. In the latter case, the owner
(usually the seller) bears the loss and the purchaser is released from his or
her obligation to pay the purchase price.
The court a quo held that the fact that the risk had been placed on the seller,
as was done in the present case, did not necessarily imply that the seller
would be liable in damages to the purchaser in respect of damage to the
merx.
On appeal, the court confirmed that where the ‘risk rule’ had been excluded
by means of an express incidentale, the owner (seller) would bear the loss of
the merx. The remaining question was whether the seller in such a case
would also be liable to the purchaser for damage to, or the loss of, the merx.
In order to determine whether or not the purchaser would be entitled to
damages, it is necessary to distinguish between the following possibilities:
l Where there is total destruction of the merx through no fault of the seller,
the purchaser has no recourse against the seller because the contract comes
to an end because of impossibility or supervening possibility of
performance.
55
Specific contracts in court
l Where the merx is only partially destroyed, the purchaser has a commonlaw remedy against the seller. The fact that such damage occurred through
no fault of the seller will not necessarily frustrate the purchaser’s claim.
After referring to the relevant authorities, the court held that such an
occurrence would constitute a material breach of contract. The purchaser has
the following contractual remedies for such breach of contract: l He can
accept the defective merx and claim damages, which are the difference
between the value of the merx delivered and the value it would have had but
for the damage.
l He can refuse delivery of the merx and claim
• specific performance; or
• damages as surrogate of performance.
As a result, the exception was dismissed because the innocent purchaser in
casu still had the above common-law remedies available to him since the
common-law operation of the ‘risk rule’ had been excluded. Therefore, the
seller in the present case had still been under a duty to deliver the merx in the
same condition as that in which it had been upon conclusion of the contract.
6 Passing of ownership
6 1 Requirements for passing of ownership
[32] Lendalease Finance (Pty) Ltd v
Corporacion de Mercadeo Agricola
[1976] 4 All SA 300 (A), 1976 (4) SA 464 (AD)
Facts
The respondent, C, bought 130 000 tons of maize from the Maize Board.
In terms of their agreement, the maize was to be shipped to C in ten separate
cargoes between March and May 1975. Delivery was to take place on board
a vessel provided by the purchaser. The bills of lading supported by mass
certificates in respect of each cargo would be proof of delivery. Payment of
the purchase price was to be effected by the purchaser (C) delivering, at least
ten days prior to the shipping of a particular cargo to the seller (Maize
Board), a letter of credit covering the value of the maize to be shipped.
Payment was to be made in cash on presentation by the seller of
l a bill of lading; and
l mass certificates.
56
Purchase and sale
The respondent (C) approached X to undertake the conveyance of the maize,
but their shipping contract was never implemented since C wished to
renegotiate the freight rate. The negotiations were unsuccessful and C
concluded a shipping contract with Y.
C was then sued by X on grounds of repudiation of their shipping contract.
X ceded this claim to L, the appellant. L applied to a provincial division for
an order of attachment ad fundandam iurisdictionem (attachment for the
purpose of founding the jurisdiction of a court which would otherwise have
had no jurisdiction) of one of the cargoes of maize. The application was
refused because of sovereign immunity and L appealed. Since there was
nothing left to attach (the vessel had in the meantime left port), the appeal
was an academic one brought rather to settle the issue of costs.
Judgment
L contended that ownership in the maize passed to C once it was loaded on
board the ship. C, on the other hand, argued that ownership would not pass
until the bill of lading and other documents had been handed over to C’s
bank by the seller. Therefore, ownership still vested with the seller, being the
Maize Board.
The Appellate Division laid down the following requirements for the passing
of ownership:
l Ownership does not pass by virtue of the contract of sale alone.
l There must at least be delivery of the merx, subject to the intention of the
parties, and whether or not
• the contract contains conditions affecting the passing of ownership; and
• the sale is for cash or credit.
l In the case of a cash sale, ownership passes upon delivery and payment
made pari passu (simultaneously).
l In the case of a credit sale, ownership passes upon delivery, but the parties
must have intended that credit be granted either expressly or tacitly. Usually
credit is granted where payment has been postponed for a substantial period
after delivery.
l Whether a sale is for cash or credit depends on the intention of the parties.
Their intention must be determined from the terms of the contract and all the
surrounding circumstances.
l Until the contrary is established, every sale is presumed to be for cash.
l A cash sale can become a credit sale through a change to that effect in the
intention of the parties.
Delivery is effected according to the principles of the law of things. In casu,
symbolic delivery takes place by the handing over of a bill of lading by the
seller. Delivery of this document to the purchaser puts him in the same
position as if physical delivery of the merx had been made to him.
57
Specific contracts in court
In casu, the intention was that ownership would pass upon delivery (in the
above symbolic manner) and payment of the purchase price. The loading of
the maize did not constitute delivery; it merely put the carrier in possession
(control) of the merx. Delivery would only take place until the handing over
of the bill of lading to the purchaser. Since a cash sale was intended, the
purchase price also had to be paid before ownership could pass.
‘In fact, the insistence upon cash against the bill of lading . . . and the
provision for [a] . . .
letter of credit evidence a clear intention that there should be no transfer of
ownership . . .
by the seller until it had been paid for the goods.’
In the alternative, L contended that the sale was for credit because a
substantial period would have elapsed between the loading of the maize and
the payment of the purchase price. According to this argument, ownership
had passed to C when the maize was loaded. The Appellate Division rejected
this argument because the loading did not constitute delivery, in the
alternative, that ownership had been reserved in the contract of sale.
A further alternative argument by L was that the letter of credit caused the
transaction to be a tacit credit sale because it provided security for payment
of the purchase price. The court rejected this argument as well and held that
under these circumstances the letter of credit did not provide such security,
but merely assured the seller that the purchaser was willing and able to
implement his obligation to pay. Appeal was dismissed.
[33] Grosvenor Motors (Potchefstroom) Ltd v Douglas
[1956] 3 All SA 399 (A), 1956 (3) SA 420 (AD)
Facts
D sold a car to K. After concluding the sale, K told D that he did not have
his cheque book with him. D gave K the opportunity to travel to Welkom
with the car in question in order to fetch a cheque. Before his departure and
because D had mislaid the car’s registration documents, K asked D to give
him a letter to the effect that D had sold the car to him. K’s cheque in
payment of the purchase price was handed to D the following day. Two days
later, D was informed that the cheque had been dishonoured because no such
account existed. Meanwhile, K had resold the car to G. D
succeeded in a provincial division with a claim based on the rei vindicatio
for the return of the car by G. G appealed against this decision.
Judgment
The crucial question was in whom the ownership of the car vested. If it was
a cash sale, ownership did not pass to K because there was no payment. Had
it been a credit sale, ownership would have passed to K
upon delivery of the car to him.
58
Purchase and sale
After referring to the relevant authorities, the Appellate Division held that
the mere delivery of a merx did not justify the inference that credit had been
granted. On the facts the court could find no indication that a credit sale had
been intended.
G contended that because the cheque had been drawn on a place other than
the place where it was handed over as payment, some time necessarily had to
elapse between delivery and payment which indicated that credit had been
granted. The Appellate Division rejected this argument.
According to the court, the letter given by D to K did not entitle K to sell the
car to G. Nor did the letter prevent D from instituting the rei vindicatio.
The court further held that negligence was a requirement for estoppel.
Since D was found not to have been negligent in giving the letter to K, the
doctrine of estoppel found no application in the circumstances.
As a result, the appeal was dismissed and D could proceed to claim the
return of the car from G with the rei vindicatio.
6 2 Payment of the purchase price
[34] Eriksen Motors (Welkom) Ltd v Protea Motors, Warrenton
[1973] 4 All SA 116 (A), 1973 (3) SA 685 (AD)
Facts
E sold a car to P, which was immediately and with the full knowledge of E
resold by P to X. E, however, did not record full details of X. Both P and X
paid by cheque. P’s cheque was dishonoured, while X’s cheque was met by
his bank. According to E, he remained the owner of the car and brought the
rei vindicatio against X. Having been unsuccessful in the provincial division,
E appealed.
Judgment
The Appellate Division held:
l Payment by cheque is conditional payment, the condition being that the
cheque be honoured on presentation. This rule is unaffected where the
cheque is payable some distance away.
l If the cheque is dishonoured, there has been no payment.
Thus, payment by cheque is neither cash nor credit, but a payment
conditional upon the cheque being honoured.
In respect of the requirements for the transfer of ownership, the court held:
l In a sale for cash, both delivery and payment must take place before
ownership can pass.
l In a sale on credit, ownership passes on delivery.
59
Specific contracts in court
l Whether a cash or credit sale was envisaged depends on the intention of the
parties.
The crux of the problem in casu was whether ownership had passed from E
to P, and thereafter to X.
The intention of the parties is the primary rule by which to establish whether
or not ownership had passed, irrespective of whether the proposed sale was
for cash or for credit. The fact that the sale is either for cash or for credit is
simply a manifestation of the parties’ intention. The question whether
ownership passes upon delivery is one of fact, and not one of law. The fact
that the sale was one for credit or one for cash is relevant to the passing of
ownership, but is not decisive.
The court held that E’s knowledge that P was buying the car for immediate
resale to X justified the inference that the parties intended ownership to pass,
whether a sale for cash or one for credit was envisaged. The premise that a
sale is one for cash is but one of the facts to be considered in order to
determine whether or not ownership had passed.
In the end, the appeal was dismissed because X was held to be the owner of
the car.
Comment
Van Zyl (‘Payment by cheque – cash or credit?’ 1974 SALJ 337) rose the
following points of criticism against Eriksen Motors (Welkom) Ltd v Protea
Motors, Warrenton:
l E and P had been doing business for a period of five years, always on a
cash basis, despite the fact that payment was made by cheque.
l E did not grant credit to P.
l The very fact that X’s particulars were not provided to E indicated that the
sale to P was for cash.
l The fact that X immediately took possession of the car did not justify the
inference that E had relinquished his ownership.
Credit is granted when
l payment has to be made at some fixed or determinable moment after
delivery;
l no date for payment is set; and
l the sale was originally one for cash, but the seller fails to demand payment
within a reasonable time, in which case there is a change of intention
towards the sale being for credit.
E had acted within a reasonable time and for that reason, the sale could not
have changed to a sale on credit.
The fact that P immediately resold the car to X does not, at common law,
justify the inference that E had intended ownership to pass. There is no
common-law authority in support of the notion that where the seller knows
that the purchaser intends the immediate resale of the merx, such 60
Purchase and sale
knowledge causes ownership to pass. The authority referred to by the court
in this respect was wrong and quoted out of context because the relevant
case deals with postponed payment and not a resale.
The intention of the parties is the decisive factor as to the question whether a
cash sale or a credit sale was envisaged. There can be a change of intention
where the seller does not demand payment immediately or within a
reasonable time. However, this change of intention must be established
through agreement – it cannot simply be inferred. In Eriksen Motors
(Welkom) Ltd v Protea Motors, Warrenton, there had been no change of
intention to this effect.
Where payment is made by cheque, there is an implied assumption that
ownership shall only pass upon the cheque being honoured by the bank.
Every sale is also presumed to be for cash. The mere delivery of a merx does
not justify the inference that it was done with the intention that ownership
should pass.
Where the purchaser becomes insolvent shortly after the sale, the transaction
is deemed to have been for cash despite any credit granted. The reason is
that the purchaser has acted fraudulently in the circumstances and that
causes ownership not to pass.
6 3 Delivery of the merx
[35] Eskom v Rollomatic Engineering (Edms) Bpk
[1992] 2 All SA 64 (A), 1992 (2) SA 725 (AD)
Facts
During 1981, R had purchased steel towers, which had previously been part
of an electrical substation, from X, the owner of the farm on which the steel
towers stood. In terms of the deed of sale, R was responsible for the removal
of the steel towers and for restoring the land to its original state. Delivery of
the towers would take place after R had made the necessary arrangements
with X. No such arrangements were made, and R
left the towers on the farm. R’s managing director had, in his personal
capacity, hired the farm for grazing purposes. The fenced-off area on which
the steel towers and substation stood was expressly excluded from the lease.
E later decided to put the substation into operation again and, during January
1986, purchased the portion of the farm on which the substation stood. The
steel towers were again used as part of the new substation. During May
1987, R sent his employees to remove the steel towers. R’s employees were
prevented from doing so as the steel towers formed part of the new
substation. R successfully instituted the rei vindicatio against E, against
which E appealed.
61
Specific contracts in court
Judgment
The court a quo found that the steel towers did not form part of the land.
They were movable, and delivery thereof in the form of traditio longa manu
had taken place.
The Appellate Division held that neither R nor his managing director in his
personal capacity had control of the steel towers or of the land where they
stood.
R’s managing director contended that he had taken delivery of the steel
towers on behalf of R. The court, however, held that there was no evidence
that delivery as expressly provided for in the contract of sale had taken
place.
The Appellate Division further held that one of the requirements for traditio
longa manu had not been met, namely that the transferee, after the pointing
out of the property, should be able to exercise physical control over the
merx. Physical prehension of the merx, however, is not a requirement for this
form of delivery. It will suffice if the merx is placed at the purchaser’s
disposition and he, and he alone, can deal with it at his pleasure. In such a
case, delivery is fictitious, not actual:
‘When the deposit of the subject-matter in the presence and at the disposition
of the new possessor takes the place of physical prehension, the delivery is
said to be made longa manu, and it constitutes one of the forms of fictitious,
as distinguished from actual, delivery.’
As there had been no delivery in casu, R had not proved transfer of
ownership in the steel towers. In the result, he was not entitled to an order
for the delivery thereof. The appeal was allowed.
[36] Bank Windhoek Bpk v Rajie
[1994] 1 All SA 437 (A), 1994 (1) SA 115 (AD)
Facts
H carried on business as a one-man concern under the name of Motorworld.
Through this business (Motorworld), H had bought a car from Roundabout
Motors. Payment and delivery in terms of this contract of sale did indeed
take place and H, trading as Motorworld, had acquired ownership of the car.
H had then approached Bank Windhoek Bpk. According to H, he wished to
acquire the vehicle for his wife, but did not have the money therefor. H
and the bank then agreed that H, trading as Motorworld, would sell the car to
Bank Windhoek Bpk. The latter would in turn resell the car to H in terms of
an instalment sale transaction. H, in his capacities as seller and purchaser in
terms of the instalment sale transaction, would remain in possession of the
car. Thirteen days after conclusion of the latter transaction, H sold the car to
MS Car Agencies, who in turn sold the car to R by way of an instalment-sale
agreement financed by Boland Bank Bpk. H
had, in the meantime, passed away. Bank Windhoek Bpk brought the rei 62
Purchase and sale
vindicatio against R, since no further payments in terms of the original
instalment sale agreement were forthcoming from H.
Majority judgment
R’s defence was that Bank Windhoek Bpk had not become owner of the car
and could not, therefore, succeed with the rei vindicatio.
Joubert JA held that the registration of a vehicle was a valuable aid in
establishing the identity of the owner, but that it was not necessarily
conclusive proof of common-law ownership.
In order to transfer and to acquire ownership in a movable through delivery,
it is required, inter alia, that the owner, as transferor, must evince the
intention to transfer ownership to the transferee. Similarly, the purchaser, as
transferee, must have the intention to acquire ownership. The intention of the
transferor and that of the transferee can be proved in a number of ways, for
example the surrounding circumstances, direct evidence or an obligatory
agreement such as a contract of sale or a barter.
Since our courts adhere to an abstract system of passing of ownership, the
validity of the transfer of ownership is completely divorced from any
obligatory or underlying agreement. Delivery itself can be actual or
fictitious.
Since Bank Windhoek Bpk did not have at their disposal the facilities
necessary to receive actual delivery of the vehicle, they had, in terms of the
instalment sale agreement, ordered Motorworld (which in effect was H) to
deliver the vehicle ‘chargeable to [their] account’ to H in his capacity as
prospective credit receiver. Since H and Motorworld were one and the same
person, H could not physically deliver the vehicle. The question, therefore,
was whether H could implement another form of delivery of the vehicle
whereby ownership would pass to Bank Windhoek Bpk once they had paid
the purchase price into H’s account with them. The Appellate Division held
that in the present case, H could in law make use of the form of delivery
known as constitutum possessorium (delivery through the change of
intention henceforth to possess on behalf of the transferee).
Constitutum possessorium would require an agreement with a clear
manifestation of a change of intention on the part of H, that is to say that he
had ceased to possess the vehicle as owner and continued to possess it as
credit receiver (purchaser). As soon as it was established that the agreed
method of delivery was ineffective and inappropriate, it meant that there was
no agreement as to delivery.
The Appellate Division held that there were, on the evidence, strong indicia
that H qua motor dealer (Motorworld) never had the intention of transferring
ownership of the vehicle to Bank Windhoek Bpk. Furthermore, everything
pointed to H never having changed his intention and that he had throughout
held the vehicle in his possession qua owner or dealer. His poor financial
liquidity was the reason underlying the instalment sale transaction with Bank
Windhoek Bpk.
63
Specific contracts in court
In the result, the court held that Bank Windhoek Bpk could not prove that H
had delivered the vehicle to them and found that they had not become the
owner of the vehicle.
Minority judgment
Justice Nienaber came to the same conclusion as Joubert JA, but followed a
different approach.
The primary question was whether Bank Windhoek Bpk had proved
ownership of the vehicle. The answer to this question lay in the intention of
the parties:
l Did these transactions reflect the true intention of the parties?
l Did H and Bank Windhoek Bpk have the intention respectively to transfer
and to acquire ownership?
l Did H, who had at all times been in possession of the vehicle, have the
intention to possess the vehicle not on his own behalf but, with their
permission, on behalf of Bank Windhoek Bpk (that is to say, did delivery
take the form of constitutum possessorium)?
If the answer to each of the above questions is in the affirmative, it means
that there was compliance with both the obligatory and real requirements for
the transfer of ownership. Only then could Bank Windhoek Bpk succeed
with the rei vindicatio against R.
Once it was proved that Bank Windhoek Bpk did acquire ownership, a
secondary question arose as to whether the bank’s rei vindicatio would be
frustrated by the operation of an estoppel.
The crux of the present case was whether the parties had the real intention
that ownership would pass to Bank Windhoek Bpk. Could it not be said that
the true intention was that H was to receive an advance from the bank and
that the vehicle was to be used as a form of real security (pledge) for the
repayment thereof? Were the vehicle to serve as a pledge, such a
construction would be doomed to failure because the pledgee has to be
placed in actual possession of the pledge, whereas constitutum possessorium
is not an effective method of transfer of possession for purposes of creating a
pledge.
Owing to the abstract system of transfer of ownership, the causa established
by the obligatory agreement is not required to be legally valid. In most cases,
the true intention of the parties can be determined from the obligatory
agreement. Where this agreement is clothed in the form of a contract of sale
while the parties really had a pledge agreement in mind, effect is given to the
true intention of the parties. The true intention of the parties is established
with reference to the coming into being of the real agreement, although the
subsequent conduct of the parties may be indicative of their original
intention.
Good faith is not a separate requirement for constitutum possessorium.
The reference in the present case to good faith between the parties simply
indicates that the circumstances surrounding the causa must be considered
carefully and with circumspection and scepticism.
64
Purchase and sale
The judge pointed out that there had been no need for H to conclude the
instalment sale transaction in order to acquire the car for his wife, since H
had already owned the car. It became abundantly clear from the
documentation, read with the evidence, that H’s true intention was to obtain
a loan from the bank, in respect of which the vehicle would serve as security.
Bank Windhoek Bpk never had the intention to hold, use or sell the vehicle
to a third party.
Bank Windhoek Bpk could therefore not prove delivery and the concomitant
passing of ownership to it. Therefore, it could not rely on the rei vindicatio.
7 Warranty against eviction
7 1 Forms of eviction
[37] Par Excellence Colour Printing (Pty) Ltd v Ronnie Cox
Graphic Supplies (Pty) Ltd
1983 (1) SA 295 (AD)
Facts
P had ordered 185 000 calendar rims from R in pursuance of P’s
agreement with E to supply that number of framed calendars to E. R in turn
ordered the rims from a business associate in England. Subsequent to his
receipt of the rims from R, P handed them to X who undertook the rimming
of some of the calendars. At this point X discovered that certain features of
these rims were covered by a patent held by X. X brought an action based on
the patent against P, demanding, inter alia, delivery of each of the rims with
which some of the calendars had already been rimmed. This matter was
concluded by a written settlement under which P had paid a certain amount
to X as damages for infringement of his patent. R later claimed payment of
the purchase price in respect of the rims from P, and P brought a counterclaim for damages against R.
Judgment
P’s claim was based on eviction because R was in breach of his warranty
against eviction in that he had not provided P with the undisturbed use and
enjoyment of the merx. The most common form of eviction takes place
where the true owner claims the merx from the purchaser, although it is not
limited to such cases. Eviction may also occur where a third party, through
the exercise of a limited real right, disturbs the purchaser in his or her full
possession and enjoyment of the merx.
65
Specific contracts in court
Although the holder of a patent cannot claim to have a title to the merx, he or
she is entitled to prohibit the use of the merx if such use were to infringe
upon his or her immaterial property right. In this respect, the effect of an
immaterial property right is the same as that of a limited real right. Hence
the principles regulating eviction should find analogous application when the
holder of a patent exercises his or her rights and causes the purchaser to be
evicted.
The Appellate Division confirmed that the purchaser retains his claim
against the seller even in the absence of prior notice of the eviction to the
latter. The same applies where the purchaser had failed to conduct a vigorous
defence, provided that the purchaser must prove that the other party’s case
had been unassailable.
7 2 Duties of purchaser when eviction imminent
[38] Lammers and Lammers v Giovannoni
[1955] 4 All SA 59 (A), 1955 (3) SA 385 (AD)
[14.36–14.45 and 14.47]
Facts
City Motors had sold a car to X on a hire-purchase contract. X fell in arrears
with the monthly payments under the hire-purchase contract and sold the car
to L & L, who stripped the car and sold the parts as spares.
The bare shell was sold to G, with the full knowledge that G intended to
rebuild it into a new car. Neither L & L nor G knew that City Motors was the
true owner of the stripped shell. City Motors later brought an action against
X under their hire-purchase contract, as a result of which the messenger of
the court attached the rebuilt car despite vigorous protest by G. G
immediately informed L & L of the attachment, but L & L failed to assist
him in the attachment proceedings. Subsequent to a default judgment in
favour of City Motors against X, the car was sold to S. G
thereafter signed a compromise in terms of which he waived any claim
which he might have had against City Motors. G then brought an action for
damages against L & L based on eviction.
Judgment
The gist of the warranty against eviction is that the seller must protect the
purchaser’s right to possession of the merx. This warranty (according to the
minority judgment) does not mean that the seller has to protect the purchaser
against the unlawful acts of others. If the seller is in breach of this warranty,
he must restore the price already paid and pay the damages suffered by the
purchaser as a result of the eviction. If the value of the merx has appreciated
between the time of purchase and the time of eviction, such appreciation in
value forms part of the purchaser’s damages. Where the appreciation in
value was caused by improvements 66
Purchase and sale
made to the merx, the damages are limited to that amount which the seller
could reasonably have expected. In casu, L & L knew that G was going to
make improvements to the car. Therefore, they could not deny that their
responsibility also extended to such improvements as consisted of making
the empty shell into a complete car again.
As a general rule, the purchaser benefits from a lien which entitles him or
her to retain the merx until the true owner pays him or her the value of the
improvements. According to the minority judgment, this remedy is based on
enrichment. The above general rule can be altered through set-off and the
purchaser’s right to remove the improvements.
L & L’s defences were that G should not have surrendered the car to the true
owner (City Motors); neither should he have entered into the compromise
with the latter. Therefore, because G failed to resist his dispossession and
waived his claims against City Motors, L & L was not liable to G.
At common law, actual eviction had to take place before the seller could
incur liability against the purchaser. However, actual eviction is no longer a
prerequisite for the vesting of the purchaser’s claim based on eviction.
Similarly, the common-law rules which required the purchaser to give notice
of the eviction to the seller and to conduct a vigorous defence are no longer
prerequisites for the seller’s liability to the purchaser. This modification was
aimed at providing more effective help to the purchaser.
All the above instances, however, are subject to a qualification in that the
purchaser must prove that the seller’s title to the merx was defective. The
objects underlying notice to the seller are that the seller
l may be informed of the eviction; and
l may assist the purchaser with the necessary defences.
The minority judgment correctly pointed out that upon receiving such notice,
the seller may
l take cession of rights from the purchaser;
l be joined as a party to the proceedings;
l provide the purchaser with the necessary proof of title; or
l do nothing.
The fact that the seller decides not to react to a notice of imminent eviction
offers him no defence. What steps the seller ought to take towards assisting
the purchaser will depend on the circumstances of each individual case.
Practical and equitable considerations require the seller to assist the
purchaser in the case of eviction in respect of improvements to the merx.
Where eviction is imminent and the seller is called upon to assist the
purchaser, his or her failure to lend assistance must aggravate his or her
liability.
In the result, the Appellate Division held L & L liable to G on grounds of
eviction.
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Specific contracts in court
7 3 Purchaser’s right of recourse
[39] Alpha Trust (Edms) Bpk v Van der Watt
[1975] 4 All SA 61 (A), 1975 (3) SA 734 (AD)
Facts
V had bought a car from A on hire purchase. Both the purchaser (V) and the
seller (A) were unaware that X was the true owner of the car. Twelve months
later, and after V had already paid R2 960 to A, V was evicted by X. The
court had to determine what amount V could claim from A.
Judgment
V contended that the whole amount of R2 960 already paid on the car had to
be returned to him. A, however, contended that V was only entitled to R1
900, which was the market value of the car at the time of eviction. A further
contended that the amount of R1 933 – which was still owing in respect of
the purchase price – should be set-off against the amount of R1 900.
Therefore, V was liable to A in the amount of R33.
The court a quo found in favour of V. Hence, this appeal was brought by
way of stated case.
South African law does not require the seller to be the owner of the merx for
the contract of sale to be valid. Although the purpose of a contract of sale is
the transfer of ownership to the purchaser, the seller is under no obligation to
transfer ownership to the purchaser. The seller only has to put the purchaser
in possession of the merx and give a warranty against eviction.
What are the seller’s obligations towards the purchaser upon breach of this
warranty?
In Hendler Brothers 1967 (4) SA 115 (O), it was held that eviction did not
give rise to cancellation of the contract because the purchaser was
contractually bound to receive damages only.
In classical law, the seller’s liability upon eviction was regulated by
agreement. In terms of the stipulatio duplae, the seller had to compensate the
purchaser in multiples of the purchase price. Uncertainties exist as to
whether, apart from his id quod interest, the evicted purchaser was also
entitled to claim repayment of the purchase price. Pothier took the view that
the seller was under a duty to return the purchase price to the purchaser upon
eviction because he or she was contractually bound to do so.
Under Dutch and Roman-Dutch law, the evicted purchaser was entitled to
claim the purchase price and damages from the seller.
The Appellate Division held that the Hendler Brothers case, which held that
the purchaser was only entitled to the value of the merx at the time of
eviction, was incorrectly decided.
68
Purchase and sale
The Appellate Division held that it would be unfair against the innocent
purchaser if he or she were only entitled to claim the value of the merx at the
time of eviction. This is so because eviction gives rise to contractual (and not
delictual) liability. The Appellate Division therefore rejected the point of
view taken in the Hendler Brothers case. The Appellate Division did not
accept as authority the obiter remark in the Lammers case (see
[38]), according to which the purchaser would be entitled to the value of the
merx only at the time of eviction.
The court rejected the argument that the purchaser would be placed in a
better position after his or her eviction because he or she had the use of the
merx for a certain period at no cost because the cost-free use of the merx is
for the account of the true owner (and not that of the seller). Not compelling
the seller to return the whole of the purchase price would allow him or her to
benefit from his own improper conduct (breach of contract). It must also be
borne in mind that, in the meantime, the seller had had the use of the
purchaser’s money.
Where the merx is of a rapidly wearing or consumable nature, it is possible
that the purchaser, having used it for a reasonable period of time, would not
always be entitled to repayment of the full purchase price upon eviction. In
such a case, the court could modify the amount which the seller should repay
to the purchaser.
In the end, the court held that upon eviction, the innocent purchaser is
entitled to the following remedies:
l Repayment of the purchase price already paid.
l Cancellation of the contract of sale.
l Damages for his or her full id quod interest.
Comment
Three points of view regarding the evicted purchaser’s right of recourse exist
at common law:
l The purchaser is entitled to repayment of the purchase price plus his or her
id quod interest.
l The purchaser is entitled to the value of the merx only at the time of
eviction.
l The purchaser may choose between claiming the value of the merx
• at the time of conclusion of the contract; or
• calculated as the value which the merx would have had for the purchaser
had he or she not been evicted.
Possible arguments against the relief granted to the evicted purchaser in
Alpha Trust (Edms) Bpk v Van der Watt are:
l The purchaser had the benefit of using the merx for free.
l The seller’s benefit of having the use of the purchaser’s money is of a
lesser value than the purchaser’s benefit of using the car.
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Specific contracts in court
l The obiter point of view regarding a reduction of the purchase price in the
case of a merx which is of a rapidly wearing or consumable nature should
have been applied.
l The normal principles of the law of damages for breach of contract were
not applied. By not taking into account the benefit of using the merx, the
purchaser was placed in a better patrimonial position than that in which he
found himself before eviction.
7 4 Exclusion of warranty
[40] Plit v Imperial Bank Ltd
[2006] JOL 18357 (SCA), 2007 (1) SA 315 (SCA)
Facts
Imperial Bank (IB) sued Plit (P) for payment of the amounts outstanding on
two instalment sale agreements concluded between them. The agreements
were not subject to the Credit Agreements Act 75 of 1980. The first
agreement was in respect of the sale by IB to P of a used light aircraft and
the second concerned the sale of two aircraft engines for fitment to the same
aircraft. IB alleged that P was in breach of both agreements because he failed
to make punctual payment of the instalments due. Also, and in further breach
of the agreements, P had allowed the aircraft and engines to be attached
and/or removed from his possession. IB invoked the acceleration clause in
the agreements and claimed the full outstanding balance in respect of both
agreements.
P denied liability for payment of the amounts claimed and raised two
defences. The second defence, which is relevant to the issue of eviction, was
that the aircraft and engines had been attached by the Sheriff pursuant to a
judgment obtained by the true owner thereof. P alleged that IB
had failed to warrant him against eviction. Consequently he was not liable
for any further payment. P counterclaimed for repayment of the instalments
he had paid on the two agreements and sought a declaratory order that the
agreements had been validly cancelled. IB filed a lengthy replication, in
essence denying the material allegations made by P.
The court a quo found that the two instalment sale agreements were not
subject to the implied warranty that the defendant would enjoy full and
undisturbed possession of the aircraft and engines sold in terms thereof. P
appealed to the Supreme Court of Appeal.
Judgment
Referring to Van der Westhuizen v Arnold [2002] 4 All SA 331 (SCA), 2002
6 SA 453 (SCA), Combrinck AJA stated that the warranty against eviction is
imposed ex lege and has nothing to do with the consensus or absence thereof
between the parties to the contract. Because the parties to a sale 70
Purchase and sale
may by agreement exclude the warranty, what fell to be decided was whether
on an interpretation of the two agreements they had done so.
Combrinck AJA held that the court a quo correctly sought to interpret the
agreements against the backdrop of the following facts and circumstances:
‘[The bank’s] business is to advance finance to clients to enable them to buy
goods. The client sources and selects the goods from the supplier. The bank
in most cases never sees the goods as delivery is effected directly from the
supplier to the client. In order to provide security for the financing of the
transaction the bank concludes an instalment sale agreement with the client
where the bank is the seller and the client the purchaser.
Reservation of ownership in the goods by the bank until the full purchase
price and finance charges are paid secures the bank’s “loan”. In this matter
[P] through an agent . . .
identified an aircraft and later two engines for the aircraft, which would be
fit for [P’s]
purpose, namely the hiring out of the aircraft to others for reward. The
aircraft and engines were delivered to [P’s] agent by the supplier . . . The
bank played no part in the sourcing, selection and delivery of the aircraft and
engines. It received invoices from the supplier which it paid.’
Combrinck AJA held that clauses 2.1 and 2.2 in the agreements, read
together against the background facts and surrounding circumstances, made
it clear that the parties intended to exclude the warranty against eviction.
Clause 2.1 recorded that IB in effect had no part in the selection of the
goods. In clause 2.2 the parties acknowledged that IB was not the owner of
the goods sold and an obligation was placed on P to ensure that IB became
the owner. This was repeated in clause 3. As stated by the court a quo, it
makes commercial sense for the parties to place such an obligation on P,
onerous as it may be, to ensure, for the purpose of its security, that IB
becomes the owner of the goods on delivery.
The court held that the latter obligation is inimical to the concept that IB, in
accordance with an implied warranty against eviction, would protect P in his
possession of the aircraft and engines and confirmed the decision of the
court a quo.
8 Double sales
[41] Barnard v Thelander
[1977] 4 All SA 133 (C), 1977 (3) SA 932 (C)
Facts
B had bought a house from T. T cancelled the contract of sale because of
non-payment of the deposit by B. Thereafter, T sold the same house to M.
B brought an application for an order preventing registration of transfer to
M. B’s application was based on the fact that, subsequent to the signing of
the deed of sale, the parties had orally agreed on an extension of time for
payment of the deposit.
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Specific contracts in court
Judgment
The court had to decide which of the personal rights (that of B or of M) to
registration of transfer was to enjoy preference.
The court held that, in the absence of circumstances which affect the balance
of equity, the personal right of the first purchaser (B) ranked in preference to
that of the second purchaser (M).
The remedies of the first purchaser (B) are
l an interdict; and
l a claim for specific performance.
In certain decisions, an interdict sought by the grantee of a right of preemption or the holder of an option in circumstances, such as the present, was
refused. The reason advanced was that an option or a right of pre-emption
was inferior to a personal right in terms of a contract of sale.
The court found that the contract of sale between B and T had been amended
orally. Therefore, T was not entitled to cancel the contract with B. The
contract remained in force and B was granted an interdict to prevent T from
registering transfer in favour of M.
[42] Kazazis v Georghiades
[1979] 4 All SA 511 (T), 1979 (3) SA 886 (T)
Facts
K had bought shares from G. G later sold the same shares to H. As a result,
K brought an urgent application in order to restrain G from transferring the
shares to H. From the papers before the court it appeared that H had notice
of the contract between K and G and that he was aware that K intended to
enforce his rights in terms thereof.
Judgment
Authority exists for the proposition that, in the case of a double sale, the
personal rights of the second purchaser can only be impugned by the first
purchaser if the second purchaser had acted fraudulently or mala fide.
However, the court held that fraud or mala fides was not a prerequisite in the
case at hand. Mere knowledge of the first sale can constitute fraud on the
part of the second purchaser. However, fraud and mala fides do not have to
be alleged and proved before the first purchaser’s rights can be enforced
against the second purchaser.
The court’s approach to a double sale is whether
l an earlier personal right exists;
l the second purchaser is aware of the earlier personal right; and l the second
purchaser infringes upon the first purchaser’s rights.
If the answer to each of these questions is in the affirmative, an inference of
fraud can be drawn and preference be afforded to the rights of the first 72
Purchase and sale
purchaser above the rights of the second purchaser. If the second purchaser
is under the impression that the first sale had come to an end, there is no
fraud on his part and the first purchaser’s rights will not necessarily be
preferred to that of the second purchaser.
[43] Meridian Bay Restaurant (Pty) Ltd v Mitchell
[2011] JOL 26954 (SCA), 2011 (4) SA 1 (SCA)
Facts
A developer fraudulently allocated a large part of the common property in a
sectional title scheme, to be used as a hotel, as sectional title units to two
corporate entities which he controlled. This was done by a deceitful
adjustment of the draft sectional title plan attached to the deeds of sale to
include 120 sectional title units with a total area of 14 420 square metres,
instead of the original 86 sectional title units with a total area of 5 886
square metres. Of the 34 extra sectional title units, 22 were registered in the
name of the above two corporate entities controlled by the developer.
The extra area was achieved, not by enlarging the building, but by the
appropriation of a large part of the common property as sectional title units.
Consequently, certain portions of the common property, without the
knowledge of the purchasers, ceased to exist and they obtained a merx
inconsistent with what they had bought and paid for. In other words, the
fraudulent conduct of the developer by converting a portion of the common
property into units resulted in a double sale of the common property.
The order sought by M was that the disputed sectional title units revert to the
body corporate as common property and that the sectional title plan and title
deeds be rectified accordingly.
Judgment
Ponnan JA reaffirmed the trite principle that a real right generally prevails
over a personal right, even if the personal right is prior in time, when they
come into competition with each other. However, in terms of the doctrine of
notice, someone who acquires a merx with notice of a personal right to it
which his predecessor in title has granted to another, may be held bound to
give effect thereto. Thus a purchaser who knows that the merx has been sold
to another, may, in spite of having obtained transfer or delivery, be forced to
hand it over to the prior purchaser.
Lubbe ‘A doctrine in search of a theory: Reflections on the so-called
doctrine of notice in South African law’ 1997 Acta Juridica 246 pointed out
that the doctrine of notice appears to be inconsistent in so far as it allows the
holder of a personal right to prevail over the holder of a real right to the
extent of compelling the transferee of a merx with notice to give effect to the
contractual undertakings of the predecessor in respect of the merx.
Van der Walt ‘Personal rights and limited real rights: An historical over-view
and analysis of contemporary problems related to the registrability 73
Specific contracts in court
of rights’ 1992 THRHR 170 also pointed out that the distinction between real
and personal rights has acquired a mystical nature and is often presented as a
problem without a solution. As long ago as 1935, however, McKerron
‘Purchaser with notice’ 1935 4 SA Law Times 178 observed that the doctrine
of notice is simply an equitable doctrine running counter to the strict rule
that a real right takes preference over a personal right.
Ponnan JA reminded us that for many years our courts sought to invoke
mala fides or ‘a species of fraud’ as the inherent justification for the doctrine
of notice. However, the mala fide or fraud construction as foundation for the
doctrine of notice was questioned in Associated South African Bakeries (Pty)
Ltd v Oryx & Vereinigte Bäckereien (Pty) Ltd 1982 (3) SA 893
(AD) where the Supreme Court of Appeal held that references to ‘a species
of fraud’ or mala fides on the part of the acquirer with knowledge in the
earlier cases was nothing but a fiction to provide the doctrine of notice with
theoretical support. Van Heerden AJA concluded that the only requirement
for the operation of the doctrine is actual knowledge (or perhaps dolus
eventualis) on the part of the acquirer as to the prior personal right. Once this
prerequisite is met, the holder of the personal right is afforded what is
effectively a limited real right against the acquirer.
Thus, according to Ponnan JA, the acquirer of the real right does not need to
have actual knowledge of a prior right. It suffices that the acquirer of the real
right subjectively foresaw the possibility of the existence of a prior personal
right and nevertheless continued with the acquisition of his real right
regardless of the consequences to the holder of the prior personal right.
Despite the attempts to pinpoint the doctrine of notice within the general
conceptual framework of the law of obligations, property law or law of
delict, Ponnan JA held that one simply has to accept that the doctrine of
notice is a doctrinal anomaly which does not fit precisely into the principles
of either the law of delict or property law.
Ponnan JA held that the present case resembles the classic double sale
scenario where the seller knowingly and deliberately registered a sectional
title plan at odds with the prior sale agreements and appropriated the new
sectional title units to corporate entities under his control. All of this
occurred without the knowledge of the purchasers. The court observed that
the key question is whether the doctrine of notice avails the purchasers’
personal rights in relation to the subsequent real rights of the aforementioned
corporate entities. Ponnan JA accepted that the extension of the doctrine of
notice should incrementally be within the framework of public and legal
policy.
Thus the doctrine of notice must apply in the present case in order that the
fraudulent reconfiguration of the common property into sectional title units
is not placed beyond the reach of the prior purchasers. For this rationale
Ponnan JA referred to Wimbledon Lodge (Pty) Ltd v Gore NO
74
Purchase and sale
[2003] 2 All SA 179 (SCA), 2003 5 SA 315 (SCA), where it was held that
‘no one is allowed to improve his own condition by his own wrongdoing’.
On the authority of Oryx, the Supreme Court of Appeal again confirmed that
the only requirement for the operation of the doctrine of notice is actual
knowledge (or perhaps dolus eventualis) of the prior personal right of the
first purchaser on the part of the second purchaser.
Ponnan JA concluded that the requirement of notice posed no difficulty in
this case and that the conduct of the developer was wrongful.
9 Warranty against latent defects
9 1 Meaning of latent defect
[44] Holmdene Brickworks (Pty) Ltd v Roberts
Construction Co Ltd
[1977] 4 All SA 94 (A), 1977 (3) SA 670 (AD)
Facts
R, a firm of construction engineers, had bought bricks from H who
manufactured and sold bricks, for purposes of erecting a factory. Upon
completion of the factory, it appeared that some of the walls had to be
demolished and rebuilt because the bricks had been defective. R’s claim for
consequential damages against H succeeded in the court a quo. H
appealed.
Judgment
As a general rule, a defect which is not visible or discoverable on a proper
inspection of the merx is a latent defect
l which may be described as an abnormal quality or attribute;
l which destroys or substantially impairs the utility or effectiveness of the
merx;
l for the purpose for which it has been sold or for which it is commonly
used.
The following questions may be asked to determine whether or not a defect
is a latent one:
l Is the defect easily visible?
l Is the defect reasonably discoverable?
l Is the defect reasonably discoverable by an ordinary purchaser?
The Appellate Division, however, refrained from deciding which of these
approaches should be followed.
75
Specific contracts in court
The fact that the purchaser himself has considerable expertise in regard to
the merx would not by itself affect the nature of the defect.
The court held that, in casu, the defect had indeed been a latent one.
The court then had to decide whether or not a seller who was also the
manufacturer of the merx could be held liable for consequential damages
caused by the latent defect. Depending on the facts of each case, the cause of
action can be either contractual or delictual in nature. In casu, the court
found the cause of action to be contractual and held that consequential
damages could be recovered on a contractual basis. Therefore, the sufferer
(purchaser) should be placed in the position he or she would have occupied
had the contract been properly performed, provided that no undue hardship
is imposed on the seller and that the purchaser had performed his or her duty
to mitigate his or her damages.
The fact that the seller had no knowledge of the defect is of no avail to him
or her. If the seller is also the manufacturer of the merx, he or she is liable
for the latent defects without further ado, unless agreed to the contrary. Apart
from consequential damages, the sufferer (purchaser) is also entitled to
restitution.
The Appellate Division confirmed the broad division of damages into l
general damages; and
l special damages.
General damages are limited by the so-called objective test of
foreseeability. Special damages, however, are limited to those damages
which, in the special circumstances attending the conclusion of the specific
contract, the parties had contemplated. The damages in casu were held to be
general damages.
The appeal was dismissed because the defect was a latent one, general
damages had been proved and the buyer had performed his duty to mitigate.
9 2 Manufacturer and merchant
[45] Ciba-Geigy (Pty) Ltd v Lushof Farms (Pty) Ltd
[2002] 2 All SA 525 (A), 2002 (2) SA 447 (SCA)
Facts
The appellant, C, was the manufacturer of Folar 525 SC, a herbicide. L
bought this herbicide from Van Staden, a merchant seller. The herbicide
caused both physical and economical damage to the purchaser’s pear trees,
with young trees dying and mature trees yielding less fruit. L
claimed damages from C and Van Staden. The court a quo held C liable to
both L and Van Staden and C appealed.
76
Purchase and sale
Judgment
The Supreme Court of Appeal held that the herbicide did indeed, because of
a latent defect, cause the above damage through a process of inhibiting
photosynthesis in the leaves. Photosynthesis of this nature depletes the
energy reserves of trees, thereby damaging them.
Van Staden’s liability
The court stated that a merchant seller who publicly professes to have expert
knowledge and skill regarding the product sold by him or her will be liable
to a purchaser for consequential damages in respect of all latent defects in
the merx (the so-called Pothier rule). Van Staden did possess this type of
knowledge which he also professed in public, thereby satisfying the
prerequisites for the liability of an expert merchant seller against the
purchaser of wares tarnished by a latent defect. The court therefore held Van
Staden as merchant seller liable to L because of his breach of a contractual
guarantee. Under the actio empti, the purchaser (L) was entitled to
cancellation of the contract and damages.
Ciba-Geigy’s liability
The court held that a direct contractual relationship existed between Van
Staden and C in terms of which
l C warranted that the herbicide complied with the manufacturer’s
specifications;
l no presentations were made or any guarantees given regarding the
saleability or suitability of the herbicide;
l Van Staden undertook not to give any warranty or make any representation
over and above the warranties and representations that
appeared in C’s printed material; and
l Van Staden was obliged to distribute the herbicide for C’s specified
purposes only.
On the strength of these terms, the court came to the conclusion that C
took responsibility for the accuracy of any printed information regarding the
herbicide, and that C was liable in delict against L because it was negligent
in the manufacture, testing and distribution of a potentially dangerous
herbicide.
The position therefore was that Van Staden and C were both liable to L, the
one in contract because of the breach of a common-law warranty against
latent defects, the other in delict.
Comment
The question is whether the so-called Pothier rule that governs the award of
consequential damages caused by latent defects in the case of a merchant
seller or manufacturer is still juridically relevant and workable in a modern
trade environment. In other words, is the test for liability ( Pothier rule) still
apposite in the present situation where liability is 77
Specific contracts in court
determined not by questions of law, but by questions of fact? The true
implication is that the Pothier rule transformed a general question of fact
into an absolute legal principle.
It is submitted that the existing principles relating to patrimonial damages,
the sum-formula approach, positive interesse and the limiting of liability
should be applied properly in order to solve the problems regarding the
liability of the merchant seller and manufacturer for consequential damages
caused by latent defects. This approach will result in the scrap-ping of the
so-called Pothier rule.
Consequential damages are damages that flow from direct damages
according to the common-sense criterion and are limited by the
foreseeability test. The prejudiced party must show that the party who is in
breach, had knowledge of the specific circumstances and that the contract
was entered into on the basis of that specific knowledge. The fact that the
seller as merchant seller or manufacturer has certain expertise or knowledge,
must be taken into account as a factor in determining the foreseeability of
consequential damages in each individual case. On the contrary, a
manufacturer, because of his intimate knowledge of the thing sold (gained
from the manufacturing process), is in an even better position than a
merchant seller to foresee the specific consequences that may flow from
latent defects. Therefore, it is easier to apply the foreseeability test to a
manufacturer.
[46] Freddy Hirsch Group (Pty) Ltd v Chickenland (Pty) Ltd
[2011] 3 All SA 345 (SCA), 2011 (4) SA 276 (SCA)
Facts
The appellant (F), a manufacturer of spices, sold spices which were
contaminated with the banned artificial colorant Sudan Red 1 to C
(trading as Nando’s), a fast-food retailer. These spices were unfit for human
consumption. F sued C for payment of the purchase price of the spices.
Although C admitted the claim, it raised a defence by way of four
counterclaims based on delictual damages suffered by C as a result of the
defect (the presence of Sudan Red 1) in the merx. F’s defence against the
counterclaims was based on a comprehensive contractual indemnity signed
by C.
Judgment
The trial court ( Freddy Hirsch Group (Pty) Ltd v Chickenland (Pty) Ltd
2010
(1) SA 8 (GSJ)) held that a distinction should be drawn between cases where
the merx was unfit for the purpose for which it had been bought owing to the
absence of certain required attributes, and cases where the merx,
notwithstanding the lack of such required attributes, was still fit for the
purpose for which it had been bought. Thus, the problem in this case was not
that there was a latent defect in the merx, but the merx that was 78
Purchase and sale
delivered was something that was different from that which had been
purchased. Consequently, the trial court concluded that the present case was
not based on defects in the merx, but on F’s failure to perform in terms of the
agreement. For this reason, F was not entitled to rely on the voetstoots
clause.
On appeal, it was reaffirmed that one is not dealing with a defect in the
merx, but rather with the delivery to a purchaser of a merx that is different to
that which had been contracted for. C was entitled to delivery of spices free
of Sudan Red 1. Since the delivered merx was contaminated with Sudan Red
1 and thus different in substance to that purchased, F’s failure to deliver
spices free of this toxin was effectively a failure to perform in terms of the
contract.
To motivate his conclusion, Ponnan JA referred to Marais v Commercial
General Agency Ltd 1922 TPD 440 where it was held that it seems to be an
exploitation of terms to say that to supply one article in lieu of another
article which was ordered, can be brought under the concept of ‘latent
defect’. In the latter case a seed merchant inadvertently supplied a farmer
with seeds of a character different to that purchased.
Ponnan JA consequently held that because one is dealing with nonperformance, as opposed to defective performance, the voetstoots clause
does not offer a defence to F. Furthermore, if such a restriction against
liability, as envisaged by the voetstoots clause in this case, were to be
enforced, it would unavoidably result in an infringement of a statutory
provision which not only prohibits the delivery of foodstuff that contains
Sudan Red 1, but also makes it an offence to do so. To allow the protection
of a voetstoots clause in these circumstances would be so unreasonably harsh
and oppressive that public policy could not tolerate it.
[47] Haviside v Heydricks
[2013] JOL 30968 (KZP), 2014 (1) SA 235 (KZP)
Facts
The appellant in Haviside sold a house to the respondents. After transfer of
the property in their name, the respondents discovered that a garage on the
property was an illegal structure since no proper building plans were
approved for it. The respondents instituted action in the Magistrate’s Court
for payment of a sum equal to the cost of demolishing the garage and
replacing it with a legal structure, alternatively, a claim for the reduced value
of the property.
The appellant relied on a voetstoots clause, explaining that when she bought
the property there was already a carport on it. Furthermore, the property had
at all times thereafter been occupied by the appellant’s mother and her
mother and brother had, without her knowledge or consent, filled in the
walls of the carport to change it into an illegal garage.
Consequently, by the time she visited the house, the illegal structure 79
Specific contracts in court
was a fait accompli. The appellant’s mother took the initiative to sell the
house and the appellant did not communicate with the respondents until they
took transfer of the property.
The magistrate held that the appellant’s failure to inform the respondents that
the garage was an illegal structure constituted a non-disclosure, equal to a
misrepresentation, inducing the sale. The magistrate also found that it was an
implied term of the contract that the garage was a legal structure in
compliance with the applicable building regulations. Thus, the appellant was
prohibited from relying on the voetstoots clause.
It should be noted that the evidence presented at the trial was not that the
garage was not fit for the purpose for which it was intended, that is to say, to
park a vehicle in it, but that the foundation of the garage was inadequate for
purposes of converting it into a double-storey structure, as the respondents
anticipated to do.
Judgment
Stretch AJ, following the methodology in Odendaal v Ferraris (see [54]),
held that the present matter should be distinguished from Ornelas v Andrew’s
Café [1980] 1 All SA 18 (W), 1980 (1) SA 378 (W), since the merx in
Ornelas was unfit for the purpose for which it was bought and the absence of
a licence (that is to say, a statutory compliance) did not qualify as a physical
or visible quality. Thus this ‘defect’ could not qualify as a (latent) defect in
the merx. Stretch AJ concurred that the absence of a licence to operate a
premise as a restaurant, implies that a purchaser could not use the merx for
the purpose it had been bought. Nevertheless, by contrast, the non-existence
of statutory approved building plans, as was the position in Van Nieuwkerk v
McCrae 2007 (5) SA 21 (W), Odendaal and Haviside, does not necessarily
render the property unfit for residential purposes, being the exact purposes
for which it was bought.
Stretch AJ followed Odendaal, differentiated between Freddy Hirsch Group
(Pty) Ltd v Chickenland (Pty) Ltd (see [46]), Ornelas and Van Nieuwkerk
and held that any imperfection in a merx may be described as a defect, but
that the exclusionary scope of a voetstoots clause in any particular case must
be decided on its own facts. Hence, the operational sphere of a voetstoots
sale is wide enough to cover both physical defects and defects in the title or
area of the property. Any material imperfection preventing or hindering the
ordinary or common use of the merx is an aedilitian defect as defined in
Holmdene Brickworks v Roberts Construction Co Ltd (see [44]) and
confirmed in Ciba-Geigy (Pty) Ltd v Lushof Farms (Pty) Ltd (see [45]).
Stretch AJ rejected Van Nieuwkerk. With reference to Uhlmann v GrindleyFerris [1947] 2 All SA 424 (C), 1947 (2) SA 459 (C) and Glaston House
(Pty) Ltd v Inag (Pty) Ltd (see [50]) and in accordance with the ruling in
Odendaal, Stretch AJ held that the nature of a defect which could fall within
the sphere of a voetstoots clause is wide enough to cover, not only any
hidden defects, but also any defect in the title or area of the property, 80
Purchase and sale
including the absence of statutory approved building plans, as was the
dispute in the present matter.
Stretch AJ also reaffirmed the trite principle laid down in Van der Merwe v
Meades (see [49]) that a purchaser who wants to avoid the consequences of a
voetstoots sale must prove that the seller not only knew of the latent defect
and did not disclose it, but also that he or she deliberately ( dolo malo)
concealed it with the intention to defraud. On the facts, the court found that
the respondent did not comply with the requisite onus of proof and that the
magistrate erred in not tackling this issue and making a finding in this
regard.
9 3 Actio empti and aedilitian actions
[48] Truman v Leonard
[1994] 4 All SA 445 (SE), 1994 (4) SA 371 (SE)
Facts
T had bought certain immovable property from L on a voetstoots basis.
Due to a latent defect in the merx, T brought an action for the cancellation of
the contract against L, claiming in the alternative a reduction of the purchase
price based on the actio quanti minoris. L excepted to the alternative claim.
T also averred that L had been aware of the latent defect at the time of the
sale and that L had deliberately (fraudulently) concealed this fact in order to
induce T to enter into the contract.
Judgment
L contended that the actio quanti minoris was excluded where the sale had
been voetstoots and that the deliberate (fraudulent) non-disclosure of a latent
defect could only give rise to delictual damages. In casu, the court held that
a contractual undertaking which came about through fraud would, on
grounds of public policy, not be enforceable at law.
Therefore, where the seller deliberately (fraudulently) concealed the latent
defect, one cannot simply think away the voetstoots clause. The clause
remains, but the seller is entitled to rely thereon only to the extent that he
had acted honestly.
With reference to Voet 21 1 10, the court held that a seller who had
knowledge of the latent defect but failed to disclose it to the purchaser would
still be liable under the aedilitian actions, despite the presence of a voetstoots
clause.
In summary, the court held that where the purchaser has suffered because of
the seller’s deliberate (fraudulent) concealment of a latent defect, the cause
of action, despite the voetstoots clause, can be based l on the aedilitian
actions; or
l in delict, on the grounds of fraudulent misrepresentation.
81
Specific contracts in court
In the result, the exception against the alternative cause of action was
dismissed.
[49] Van der Merwe v Meades
[1991] 4 All SA 42 (A), 1991 (2) SA 1 (AD)
Facts
V had sold a house to M. During 1987, M successfully claimed from V the
amount of R32 000, being the costs of repairs occasioned by a latent defect
in the roof of the house. V appealed against this decision.
Judgment
The question is: what should be proved before a voetstoots clause can be
impugned?
On the one hand, authority exists for the proposition that a purchaser can
only divest a seller from the protection afforded by a voetstoots clause if he
or she is able to prove that
l the seller was aware of the existence of the latent defect at the time of the
making of the contract; and
l the seller dolo malo (with the intention to defraud) concealed its existence
from the purchaser.
On the other hand, there is authority for the view that the mere nondisclosure of the latent defect of which the seller was aware at the time of
the making of the contract will nullify his protection in terms of the
voetstoots clause.
The Appellate Division held that an investigation of the common law was
necessary in order to determine which of the above propositions should be
followed.
Under Roman law, the purchaser had to be unaware of the existence of the
latent defect at the time of the conclusion of the contract. The fact that the
seller, at the time of the making of the contract, had been totally unaware of
the existence of the defect was irrelevant. However, the purchaser did not
have a claim for damages based on the latent defect under the aedilitian
actions. Damages (including consequential damages) could only be claimed
under the actio empti, provided that the purchaser could prove that
l the seller was aware of the existence of the latent defect at the time of the
making of the contract; and
l the seller had dolo malo concealed the latent defect.
Once the purchaser was able to establish the above, the seller would lose his
or her protection in terms of the voetstoots clause. In such a case, the seller
was not allowed to safeguard him- or herself by agreement from liability
under the aedilitian actions.
82
Purchase and sale
The Appellate Division held that this was also the position under RomanDutch law.
In casu, the points in issue were
l whether V was aware of the existence of the latent defect at the time of the
making of the contract; and, if so,
l whether V had dolo malo concealed the existence of the latent defect from
M.
On the evidence, the court held that M could not prove that
l V had been aware of the existence of the latent defect at the time of the
making of the contract; and
l V had dolo malo concealed the existence of the latent defect.
Therefore, the following must be proved before a voetstoots clause can be
impugned:
l The seller was in fact aware of the existence of the latent defect at the time
of the making of the contract.
l The seller had dolo malo (with the intention to defraud) concealed its
existence from the purchaser.
In the result, the court a quo had erred and the appeal succeeded with costs.
[50] Glaston House (Pty) Ltd v Inag (Pty) Ltd
[1977] 3 All SA 88 (A), 1977 (2) SA 846 (AD)
Facts
G had bought a dilapidated building from I. Prior to this, a cornice and a
statue inside the building had been declared a national monument. The
National Monuments Council had informed I of this fact, but failed to have
such encumbrance endorsed against the title deed of the property. I knew
that G intended to demolish and redevelop the building, but failed to inform
him that part thereof had been proclaimed a national monument.
Demolition of the building was put on hold. G later agreed with the National
Monuments Council to the demolition of the building, but on the
understanding that the cornice and statue would form part of the new
building. As a result, G incurred additional costs (which he then claimed
from I) in order to have the cornice and statue removed, stored and restored
in the new building.
Majority judgment
Certain authorities indicate that an undisclosed servitude could either be a
latent defect or amount to a form of eviction. The court found it unnecessary
to decide this point and assumed that, in casu, the undisclosed servitude
constituted a latent defect and not a form of eviction. In contrast with the
minority judgment, the court held that I had been aware of the latent defect
at the time of the making of the contract. Since I had 83
Specific contracts in court
knowledge of the defect, he was duty-bound to disclose it. His failure to
perform the duty to disclose resulted in a misrepresentation through
fraudulent non-disclosure. The Appellate Division held that, in casu, the
cause of action was based in delict and awarded delictual damages. Had the
cause of action been contractual, damages would have been awarded in a
larger amount.
Minority judgment
The minority judgment held that the non-disclosure of a latent defect of
which the seller was aware would give rise to a delictual claim against which
the seller could not indemnify himself by way of a voetstoots clause.
As did the majority judgment, the minority judgment held that the proclamation of a national monument constituted a latent defect rather than a
form of eviction. Had the declaration of the national monument been
endorsed against the title deed of the building, the defect would have been
patent and not latent.
On the facts, it was held that G had failed to establish that I had been aware
of the existence of the latent defect or that he had failed to disclose its
existence to G and the appeal was dismissed.
Comment
The proclaimed national monument affected the use, enjoyment and disposal
of the merx. It therefore affected its title, which is a form of eviction. A
latent defect affects the actual use of the merx.
[51] De Vries v Wholesale Cars
[1986] 1 All SA 158 (O), 1986 (2) SA 22 (O)
Facts
D bought a car from W. He returned the car to W for repairs after
discovering a fault in the steering mechanism. Despite the repair work, the
front wheel of the car caved in, causing an accident. W again undertook to
repair the car. Originally D had accepted W’s undertaking, but later rejected
it. D insisted that W replace the damaged car with another. W
declined and D demanded cancellation of the contract and restitution. A
Magistrate’s Court held that
l the defect had indeed been a latent one;
l the defect had not been of such a serious nature as to justify cancellation
and restitution in terms of the actio redhibitoria; and l a claim for a
reduction of the purchase price under the actio quanti minoris would have
been sustained, but no such action had been instituted.
D appealed against this decision.
84
Purchase and sale
Judgment
W’s arguments were that
l the defect had not been a latent one;
l the defect had not been of such a serious nature as to justify cancellation
and restitution; and that
l D had waived his right to cancellation when he requested W to repair the
car. (This defence was summarily rejected by the court because waiver had
not been proved.)
The finding of the court a quo, namely that the defect was a latent one, was
not disputed.
Therefore, the court in casu had to determine whether the defect was
material. In other words, had the defect been of such a serious nature that the
purchaser would not have bought the merx had he been aware thereof on
conclusion of the contract? The actio redhibitoria could only succeed if this
question was answered in the affirmative.
In determining whether or not the defect had been material, an objective test
should be applied. In determining materiality, the court took into account
l the speed and ease with which the defect could be repaired;
l the cost of repair;
l the cumulative effect which all these factors had on the purchaser’s frame
of mind; and
l whether or not the defect had been caused by normal wear and tear.
In view of the above considerations, the court held that the defect had been a
material one which justified cancellation and restitution. The appeal was
accordingly allowed.
[52] Banda v Van der Spuy
2013 (4) SA 77 (SCA)
Facts
A leaking thatch roof was the bone of contention in this matter. It was
common cause that although V had made repairs to the roof before the sale,
the roof continued to leak after the sale. In order to encourage B to proceed
with the transaction, an addendum was added to the deed of sale specifying:
‘Seller [would] transfer [the] guarantee on the thatch roof to the purchaser
from the contractor.’ However, the problem with the leaking roof persisted.
Judgment
In the trial court, B’s claim for a reduction in the purchase price was based
on the actio quanti minoris, alternatively, a fraudulent misrepresentation
derived from an invalid roof repair guarantee and the actio ex empto. All 85
Specific contracts in court
these claims were dismissed by Boruchowitz J as B could not prove the
existence of the latent defects and V had been aware of these defects and had
fraudulently failed to disclose them to B.
The crux of the matter on appeal was whether B had proved V’s essential
knowledge of the latent defects in the roof, which they had then fraudulently
concealed from B. In determining this, the fact that it was common cause
that V had effected repairs to the roof, also had to be taken into account to
establish whether they had had sufficient knowledge that the repairs had not
properly or adequately rectified the defects so as to prevent the roof from
leaking.
The Supreme Court of Appeal held that an objective evaluation of the facts
is essential in ascertaining whether V knew of the latent defects and had,
with intent to defraud B, concealed these defects from them. Any conclusion
must be drawn exclusively from the facts revealed by the evidence.
Central to this enquiry was first, the evidence of two expert witnesses who
testified that the reasons for the leaks in the roof were an ineffective roof
support structure, of which V was properly aware, and an inadequate roof
pitch of 30 degrees instead of 45 degrees, of which V was unaware.
Secondly, the evidence substantiating that the above addendum to the deed
of sale concerning the contractor’s roof guarantee, which had already
expired when it was furnished, was misleading and fraudulent, and finally,
confirmed that V knew that the repairs to the roof were incomplete.
Swain AJA held that V had avoided obtaining a clear picture of the extent of
the latent defect and the sustainability of the repairs, and his conduct clearly
construed a ‘wilful abstention’ from the truth. Swain AJA referred to R v
Myers 1948 (1) SA 375 (AD) and Hamman v Moolman
[1968] 4 All SA 525 (A), 1968 (4) SA 340 (AD) where it was stated:
‘The fact that a belief is held to be not well-founded may, of course, point to
the absence of an honest belief, but this fact must be weighed with all the
relevant evidence in order to determine the existence or absence of an honest
belief.’
Taking all the above into consideration together with the fraud relating to the
invalid contractor’s roof guarantee, Swain AJA further concluded that V did
not honestly believe in the adequacy of the repairs to the roof and
consequently had a duty to disclose the latent defect to B. The fact that V
was unaware that the roof leaks were caused by an inadequate roof pitch of
30 degrees instead of 45 degrees, did not influence the fact that their conduct
was fraudulent. This resulted in the forfeiture of the protection of the
voetstoots clause entitling B to the difference between the purchase price of
the house and its value with the defective roof. As no evidence was led as to
the market price of the house with the defective roof at the time of the sale,
the court was (as decided in Labuschagne Broers v Spring Farm (Pty) Ltd
[1976] 1 All SA 181 (T), 1976 (2) SA 824 (T)) allowed to take the repair
cost as a gauge to determine the amount to be awarded.
86
Purchase and sale
9 4 Duty of seller and purchaser to disclose and
investigate
[53] Waller v Pienaar
[2004] JOL 13046 (C), 2004 6 SA 303 (C)
Facts
W bought a house on a voetstoots basis from P. Since the foundations had
not been compacted properly, it was alleged that several undisclosed, latent
structural defects were present at the time the contract was entered into. W
alleged that he would not have bought the house had he been aware of the
defects on conclusion of the contract. W further alleged that P had been
aware of these defects and that (despite the voetstoots clause) he was under a
duty to disclose such knowledge. W also alleged that it was an implied term
of the deed of sale that the house had been sold free from latent defects and
that it was fit for residential purposes.
W based his claim for restitution or a reduction in price in terms of the
aedilitian actions on the fraudulent non-disclosure or concealment of a latent
defect and, in the alternative, on fraudulent misrepresentation.
P’s defences were that
l the defects were patent in that they were visible to the naked eye; in the
alternative
l the nature and scope thereof were available for inspection of a public
document in the form of an engineer’s report lying for inspection with the
local authority, and that the defect was therefore patent; or l insofar as the
defects were latent, he as the seller was unaware thereof and was therefore
protected against liability by the voetstoots clause.
Judgment
Referring to Knight v Trollip 1948 (3) SA 1009 (D) 1012ff, the court
confirmed the common-law basis of the aedilitian actions, namely that in the
absence of an express agreement to the contrary, a seller undertakes against a
purchaser that the
‘ res vendita is, at the time of contracting, free from any undisclosed defect
which renders the res unfitted ( sic) in whole or to a substantial extent for the
purposes for which such a thing is normally used, and/or for any special,
even though unusual, purpose which the purchaser has, prior to the making
of the contract, made known to the seller. The seller’s undertaking thus
imported covers all such defects as exist at the time of the sale, regardless of
whether or not the seller knows of them then’.
The court further pointed out that a voetstoots clause indemnifies a seller
against liability for latent defects of which he was unaware. A seller is also
not liable for defects that are ‘clearly visible’ or patent.
The court held that in the circumstances where a seller is aware of a latent
defect and conceals it dolo malo, he has a duty to disclose and will 87
Specific contracts in court
not be indemnified against liability by a voetstoots clause. (See Van der
Merwe v Meades [49].) Intention is a requirement.
A defect is material and latent if, objectively speaking, it destroys or impairs
the utility of the thing sold and is not reasonably capable of perception.
Seeing that the house in casu was viewed at night and the cracks, according
to the court, were not visible to the untrained eye, it was held that the defects
were latent and that this placed the seller under a duty to disclose. Prompted
by this and in view of the honesty requirement laid down in ABSA Bank Ltd
v Fouche [2002] 4 All SA 245 (SCA), 2003 (1) SA 176 (SCA), the court
came to the conclusion that P was definitely aware that W did not know
about the structural defects, that these structural defects were within P’s
exclusive knowledge and that P therefore fraudulently failed his duty of
disclosure to W.
In order to succeed with his claim, the purchaser (W) had to prove that the
seller (P), at the time the contract was entered into,
l knew that the defect was latent;
l was under a legal duty to disclose such latent defect;
l fraudulently concealed the latent defect, or made a fraudulent
misrepresentation that the latent defect did not exist; and
l the non-disclosure induced W into entering into the contract.
The court also held that where a legal duty to disclose a latent defect exists,
the intentional or negligent breach of the duty will immediately attract
delictual liability. (See McCann v Goodall Group Operations (Pty) Ltd
[1995] 3 All SA 276 (C), 1995 (2) SA 718 (C).) This legal duty to disclose
(or not to disclose) is determined by two considerations of public policy,
namely
l where a material fact (defect) falls within the exclusive knowledge of the
seller;
l where a seller is aware of extraordinary circumstances or attributes
regarding the transaction or thing sold; or
l where a previous statement or representation by the seller is vague or
incomplete and the circumstances of the transaction require augmen-tation
thereof.
The court held that W had discharged the above onus and allowed his claim.
Comment
A latent defect, as is generally known, is a defect of a non-negligible nature,
that is to say, present in the merx upon conclusion of the contract, that affects
the utility thereof, that is to say, unknown to the purchaser and could not be
discovered by the reasonable purchaser acting with reasonable care.
88
Purchase and sale
In the present case, the defect could have been observed by taking
reasonable care and was therefore patent. Thus, the court’s finding that P
was under a legal duty to disclose the defect to W is not correct. In fact, the
purchaser (W) did not discharge his own duty to protect himself by failing to
carry out a comprehensive and proper inspection of the thing sold.
What exactly a seller has to disclose has long been a contentious issue in the
case of contracts of sale. On the one hand, business efficacy must be given to
contracts of sale by not placing an unrealistic duty to disclose on sellers. On
the other hand, purchasers should be protected against shrewd sellers.
Unfortunately, it appears that the court ignored the caveat emptor rule and
the legal principle that no general duty to disclose exists in the South African
law of purchase and sale. That no general duty to disclose exists in the South
African law of purchase and sale was confirmed in ABSA Bank Ltd v Fouche
[2002] 4 All SA 245 (SCA), 2003 (1) SA 176 (SCA) 180ff, where the
Supreme Court of Appeal held:
‘The test takes account of the fact that it is not the norm that one contracting
party need tell the other all he knows about anything that may be material . .
. That accords with the general rule that where conduct takes the form of an
omission, such conduct is prima facie lawful . . . A party is expected to
speak when the information he has to impart falls within his exclusive
knowledge . . . and the information . . . is such that that the right to have it
communicated to him would be mutually recognised by honest men in the
circumstances.’
A seller should disclose information to a purchaser where
l such information does not fall within the scope of a purchaser’s knowledge;
l there is no possibility that a purchaser can reasonably obtain such
information on his or her own; and
l the exclusive knowledge of such information causes an unequal bargaining
position in favour of the seller.
In these circumstances, it is impossible for a purchaser to discharge his duty
to investigate and the caveat emptor rule does not apply.
9 5 Application of a voetstoots clause to
non-physical or invisible defects
[54] Odendaal v Ferraris
[2008] 4 All SA 529 (SCA), 2009 (4) SA 313 (SCA)
Facts
F bought a dwelling from O, which dwelling had, inter alia, defects
consisting of a collapsed staircase railing, water-damaged ceilings, a covered
sewer manhole in the middle of the laundry, a faulty jacuzzi, leaking roofs,
wood panelling infested with bore beetle and build-on constructions 89
Specific contracts in court
which did not comply with building regulations. To enable F to address the
aforementioned problems, he instructed his bank to delay transfer of the
dwelling in his name. O then sought to have F evicted, but failed to succeed
in the court a quo.
On appeal, the questions whether the failure to obtain statutory approval for
build-on constructions constitutes a latent defect and, if so, whether a
voetstoots clause would protect a seller from liability if such a predicament
came under the spotlight.
Judgment
In Van Nieuwkerk v McCrae 2007 (5) SA 21 (W), it was held that in a sale of
residential property, a purchaser is entitled to assume that the improvements
were erected in compliance with all statutory requirements and that they
could, as such, be used to their full extent. As this assumption is implied as a
matter of law, it will be regarded as tacitly incorporated in the agreement as
a contractual term. However, relying on Ornelas v Andrew’s Cafe [1980] 1
All SA 18 (W), 1980 (1) SA 378 (W), Goldblatt J
held that a seller could not in these circumstances rely on a voetstoots clause,
since it excludes liability only for latent defects of a physical nature. Hence,
a voetstoots clause does not apply to the lack of certain qualities or
characteristics (such as statutory compliance) which the parties have agreed
the merx should have.
In Ornelas, property was sold as a going concern for purposes of a café and
restaurant. After conclusion of the sale, the purchasers became aware that
the business was operated without a licence and that they were unable to
obtain one. In an action to cancel the agreement, the seller sought refuge in a
voetstoots clause. Nestadt J construed a voetstoots clause to be confined to
physical or visible qualities of the merx. As the absence of a licence (that is
to say, a statutory compliance) does not qualify as a physical or visible
quality, it will also fail to qualify as a (latent) defect in the merx. The
solution to this licence problem, so it was held, fell within the scope of an
implied contractual term and not a voetstoots clause.
Cachalia JA distinguished Ornelas from Van Nieuwkerk and Odendaal (the
present case). In Ornelas, the merx was unfit for the purpose for which it
was purchased owing to the absence of a trading licence. This is in contrast
with the merces in Van Nieuwkerk and Odendaal, which were,
notwithstanding the lack of statutory compliance of the building plans, still
fit for the purpose for which they were bought. In other words, in Ornelas
the purchaser received something different from what was bought, while in
Van Nieuwkerk and Odendaal the purchasers received exactly what they
purchased.
In the broad sense, any imperfection in a merx may be described as a defect,
but the exclusionary scope of a voetstoots clause in any particular case must
be decided on its own facts. Hence, the operational sphere of a 90
Purchase and sale
voetstoots sale is wide enough to cover both physical defects and defects in
the title or area of the property. Any material imperfection preventing or
hindering the ordinary or common use of the merx is an aedilitian defect (the
Holmdene Brickworks test; see [44]).
In conclusion, the court confirmed that the absence of statutory approval for
build-on constructions constitutes a latent defect which interferes with the
ordinary use of the merx, thus satisfying the Holmdene Brickworks test.
Taking into account the supervention of public policy considerations and the
illegalities on constitutional prescripts, the court held that a voetstoots clause
would cover the absence of statutory authorisations. In reaching this
deduction, Cachalia JA effectively overruled Van Nieuwkerk, confirming the
whole purpose of a voetstoots clause, namely to exempt a seller from
liability for defects of which he or she is unaware, including defects
consisting of non-compliance with statutory requirements, as in this case.
A purchaser who hopes to avoid the consequences of a voetstoots sale must
prove that the seller not only knew of the latent defect and did not disclose it,
but also that he or she deliberately concealed it with the intention to defraud
( dolo malo; cf Van der Merwe v Meades [49]; Truman v Leonard [48]).
Instances where a seller recklessly tells a half-truth or knows the facts but
does not reveal them because he has not bothered to consider their
significance, may also amount to fraud. On the other hand, if a purchaser has
the opportunity to inspect the merx and nevertheless buys it without
inspecting it, such purchaser will have no recourse against the seller for any
patent defects.
9 6 Negligent misrepresentation
[55] Bayer South Africa (Pty) Ltd v Frost
[1991] 2 All SA 444 (A), 1991 (4) SA 559 (AD)
Facts
F had bought herbicide from D which was to be sprayed onto F’s vineyards
from a helicopter. Cash crops were grown in the proximate vicinity of the
vineyards. F was therefore concerned that the herbicide might cause damage
to the cash crops. Through a negligent misstatement on their part, B’s
representatives represented to F that the cut-off line of the herbicide was
such that it would not reach the cash crops. This negligent misrepresentation
dispelled F’s concern and he concluded the contract with B. Subsequent to
the application of the herbicide under B’s control and supervision, it
appeared that the herbicide had indeed reached the cash crops and had
destroyed part thereof. F’s damages were quantified, by agreement, in the
sum of R55 000 and awarded by the court a quo. B
appealed.
91
Specific contracts in court
Majority judgment
The chief justice held that, because a claim for damages based on a negligent
misrepresentation outside the contractual sphere had been recognised, there
was no reason why the same should not also apply in the case of a negligent
misrepresentation which had induced a contract.
According to the Appellate Division, there was no reason for recognising a
delictual claim on grounds of negligent misrepresentation outside the
contractual relationship, but not recognising it where the misrepresentation
had been made within the contractual relationship.
The dangers surrounding limitless liability in the case of negligent
misrepresentation within and outside the contractual relationship would be
no more present in the one case than in the other. These dangers referred
mainly to the limitation of liability. According to the court, the limitation of
liability could be achieved more readily in the case of a negligent
misrepresentation made within the contractual relationship, since l the legal
duty, which formed the basis of the element of unlawfulness, could be
determined with greater ease; and
l the parties to the misrepresentation and the legal consequences thereof
could be identified with greater precision.
In order to determine the existence of a legal duty, the court took into
account
l the contractual relationship between the parties;
l the material influence of the misrepresentation on the conclusion of the
contract;
l the circumstances under which the misrepresentation was made; and l the
technical nature of the misrepresentation.
The court held that for a claim for damages based on negligent
misrepresentation within the contractual relationship to be successful, the
following requirements should be met:
l The misrepresentation should be materially false.
l There should be a legal duty to make a correct representation.
l Non-performance of the above legal duty had been due to negligence.
l There should be a causal connection between non-performance of the legal
duty and the damages.
The appeal was accordingly dismissed.
Minority judgment
Kumleben JA agreed with the majority judgment that a claim for damages
based on negligent misrepresentation within the contractual relationship
should be recognised.
The judge held that B had given a tacit guarantee to F that the herbicide
would not reach the cash crops. By reason of his breach of the tacit
guarantee, B’s liability against F was based on breach of contract and not on
92
Purchase and sale
delict. The appeal was dismissed, but for other reasons than that of the
majority judgment.
Comment
The following inferences may be drawn from this decision:
l A delictual claim for damages (pure financial loss) caused by negligent
misrepresentation inducing a contract was expressly recognised.
l In principle no distinction should be made between a misrepresentation
outside the contractual sphere and one inducing a contract, provided that the
misrepresentation did not form part of a contractual term.
l The same factors for the limitation of damages caused by a
misrepresentation outside the contractual sphere are also applicable to a
misrepresentation inducing a contract.
l No greater dangers regarding limitless liability exist in the case of a
misrepresentation outside the contractual sphere than in the case of one
which induces a contract.
l Owing to the contractual relationship between the parties, the limitation of
liability can be achieved more readily in the case of a misrepresentation
which induces a contract than in the case of a misrepresentation outside the
contractual sphere.
l The same legal-political considerations apply to misrepresentations made
both outside and inside the contractual relationship.
l Cancellation and a reduction of the purchase price in the case of a
misrepresentation which induces the contract are inadequate remedies and
only a claim for damages can correct such shortcoming.
l The expression of an opinion may constitute a misrepresentation which
induces a contract which, like a misrepresentation made outside the
contractual sphere, can be actionable.
l The fact that a misrepresentation induces a contract has no bearing on its
actionability.
l The legal duty, causation (as regards entering into the contract and
damages), as well as the factual circumstances and the nature and
interpretation of the misrepresentation are important factors for the
limitation of liability.
l The contractual relationship between the parties, the materiality of the
misrepresentation, the influence of the misrepresentation on the conclusion
of the contract, the circumstances in which the misrepresentation was made
and the technical nature thereof all have a direct bearing on the
determination of the legal duty and of liability.
l The legal duty (which reflects on unlawfulness) is a flexible element and
should be linked directly to the factual circumstances of each case and not be
placed within rigid confines.
l All the elements of a delict (as in the case of a misrepresentation outside
the contractual sphere) must be present for liability to follow. The 93
Specific contracts in court
requirements are therefore the same whether the misrepresentation fall
within or outside the contractual relationship (provided that the
misrepresentation does not form part of a contractual term).
l Failure to carry out the legal duty (which reflects on unlawfulness) is
directly linked to negligence.
l There are no differences between the majority judgment and that of the
minority as regards the legal principles to be applied to a misrepresentation
which induces a contract.
l Questions left unanswered in casu relate to the concurrence of contractual
and delictual claims, the standard of the onus for proving tacit terms and the
calculation of the quantum of damages for a misrepresentation within (and
outside) the contractual relationship.
9 7 Consumer Protection Act and the sale of
defective used goods
[56] Vousvoukis v Queen Ace CC t/a Ace Motors
[2016] JOL 35677 (ECG), 2016 (3) SA 188 (ECG)
Facts
V purchased a BMW M5 motor vehicle from AM on 13 September 2011
for the sum of R470 000. During December 2011 the vehicle broke down
with a critical mechanical defect. Subsequently, AM replaced the defective
engine at its own cost for R70 000. The vehicle was returned to V during
February 2012.
However, during July 2012 the second engine also experienced mechanical
problems which were caused by damage to the oil pump’s drive gear. After
repairing the oil pump, the engine was restored to full working condition.
After extensive evidence was presented by expert witnesses for both V
and AM, the court held that V had discharged the onus of proving that the
damage to the oil pump was caused by an object present in the engine at the
time of installation thereof.
Judgment
The first bone of contention was whether section 56 of the Consumer
Protection Act 68 of 2008 applies to both goods and used goods, seeing that
section 1 of the Act distinguishes between goods and used goods.
‘Goods’ is defined as
‘(a) anything marketed for human consumption; and
(b) any tangible object not otherwise contemplated in paragraph (a)’.
94
Purchase and sale
and ‘used goods’,
‘when used in respect of any goods being marketed, means goods that have
been previously supplied to a consumer, but does not include goods that
have been returned to the supplier in terms of any right of return
contemplated in this Act’.
AM argued that sections 53, 55 and 56, which deal with the protection
offered to consumers for defective goods, refer only to goods and not also to
used goods. Therefore, the vehicle and its engine, being used goods, by
implication were disqualified from the remedies granted by these sections of
the Act.
The court pointed out that although used goods is defined in section 1
of the Act, the term used goods is not again referred to anywhere in the Act,
rendering the reason for the inclusion of such a definition unclear.
Nonetheless, Pickering J rejected this argument in light of section 5(1)(a)
which provides unambiguously that the Act applies to ‘every transaction
occurring within the Republic, unless it is exempted by subsections (2), (3)
and (4)’, which exemptions were not relevant in the context of the present
matter.
In terms of section 1, a ‘transaction’ is defined as meaning, inter alia:
‘(a) in respect of a person acting in the ordinary course of business–
(i) an agreement between or among that person and one or more other
persons for the supply or potential supply of any goods or services in
exchange for consideration; or
(ii) the supply by that person, of any goods to or at the direction of a
consumer for consideration; or
(iii) the performance by, or at the direction of, that person of any services for
or at the direction of a consumer for consideration.’
Consequently, the court held that the provisions of section 5 are allinclusive, qualified by an explicit numerus clauses of exemptions from the
application of the Act in terms of subsections (2), (3) and (4). In addition,
the court pointed out that no distinction is drawn (either in section 5 or in the
definition of transaction) between goods and used goods. Pickering J
held that, for this reason, from a proper interpretation of the Act (as directed
by Wallis JA in Natal Joint Municipal Pension Fund v Endumeni
Municipality [2012] 2 All SA 262 (SCA), 2012 (4) SA 593 (SCA)), the term
goods, as applied throughout the Act, includes used or second-hand goods.
According to Pickering J, the deduction that the term ‘goods’ includes used
or second-hand goods also, is supported by the preamble to the Act, stating
its purpose as, inter alia, to ‘protect the interests of all consumers, ensure
accessible, transparent and efficient redress for consumers who are subjected
to abuse or exploitation in the market place’. The court further held that the
purpose is amplified by section 2(1) which instructs that the Act must be
interpreted in a manner that gives effect to the purposes set out in section 3
read with section 4(2) and (3), substantiating the assessment that the general
purpose of the Act is to promote and advance the social and economic
welfare of consumers. Pickering J also relied on section 4(3) which provides
that in the event of any ambiguity in 95
Specific contracts in court
the provisions of the Act, a court interpreting it must select the meaning in
favour of the consumer, particularly consumers who are vulnerable as a
result of poverty, illiteracy, old age or any other similar disability.
In view of the above, the court resolved that to interpret goods as to exclude
used goods, would eliminate deprived consumers (who are in many
instances financially too destitute to acquire new goods), from the protection
of the Act, boycotting the purpose of the Act. Hence, the Act applies to used
goods.
The next issue to be addressed by the court was whether V was entitled to
the remedies offered in section 56. The court accepted, without deciding,
that the defect in the second engine falls within the terms of the definition of
‘defect’ in section 53(1)(a)(ii).
Section 56 provides that any agreement pertaining to the supply of goods is
subject to an implied warranty that the goods comply with the prescribed
requirements and standards. If the goods do not comply with the
requirements and standards, a consumer may within six months after
delivery, return the goods to the supplier without penalty, at the suppliers
risk and expense. The supplier must then, at the direction of the consumer,
either repair or replace the defective goods or refund the purchase price paid
by the consumer.
If a supplier had repaired the goods or any component thereof and such
repaired goods failed again within three months after that repair, the supplier
must replace the goods or refund the purchase price paid by the consumer
for the goods.
Taking the timeline of the transaction into account from the date V had
purchased the vehicle on 13 September 2011, the installing of the second
engine during February 2012 and the break-down of the oil pump during
July 2012, the court observed that a period of nearly 11 months had lapsed,
debarring V from the implied warranty in terms of section 56, as a period of
more than six months had passed since the vehicle was bought.
V argued that the replacement of the first engine did not constitute a repair
of the vehicle, but was indeed a ‘new supply’ of goods. Therefore, because
the defect in the second engine emerged within six months of its installation,
the provisions of section 56 were actually applicable, entitling V to claim a
repayment of the purchase price.
Pickering J rejected this reasoning as the engine, although a separate
component in itself, was a fundamental part of the vehicle, without which
the vehicle was a mere shell. Accordingly, it was held that the vehicle as
such was defective and that the replacement of the first engine with the
second engine was a repair of the vehicle; besides, a distinction between the
repair of the vehicle and the repair of the engine would be simulated.
The argument that the replacement of the engine constituted a new
transaction, was also rejected by the court on the grounds that AM, as
supplier, and not V, as consumer, paid for the replacement engine, 96
Purchase and sale
excluding the deal from the definition of a transaction as the supply of the
second engine was not ‘in exchange for consideration’. However, Pickering
J also pointed out that if this submission is entertained, in terms of section
56(2), V would in any event only be entitled to either the repair or
replacement of the second engine.
The next question the court had to deal with was whether or not a court may
extend the six-month limitation period specified in section 56(2). (In MFC
(A Division of Nedbank Ltd) v Botha Unreported case no 6981/13
(WCC) the court refused to extend the six-months period due to a want of
clarity of section 56(2) and in the absence of any reported judicial
interpretation thereof.) Pickering J held that the legislature has expressly
decreed a limitation period of six months for the return of any goods in
section 56(2) and there is no question of this section being ambiguous in any
way. As a result Pickering J held that it is not open to a court, under the
guise of making an ‘innovative order’, to extend this period.
However, with reference to Holmdene Brickworks (Pty) Ltd v Roberts
Construction Co Ltd (see [44]) and Odendaal v Ferraris (see [54]),
Pickering J accepted that the damage to the oil pump was a latent defect in
the engine, being a material imperfection preventing the ordinary use of the
vehicle.
The follow-up enquiry was whether this defect was significant enough for a
successful reliance on the actio redhibitoria. Referring to De Vries v
Wholesale Cars (see [51]) and Du Plessis v West [1998] JOL 202 (N),
Pickering J held that the defect in the oil pump was not so severe that a
reasonable purchaser would not have entered into the sale. By purchasing a
second-hand vehicle one may anticipate that mechanical problems may
develop from time to time. As a result, V’s claim based on the actio
redhibitoria, failed as well.
10 Payment of the purchase price
10 1 Suspensive conditions
[57] De Wet v Zeeman
1989 (2) SA 433 (NC)
Facts
D had sold a house to Z. The deed of sale provided that the sale was subject
to the acquisition by the purchaser of a bond. Subsequently, a mortgage-
secured loan was granted to Z by a bank. After the granting of the loan, but
prior to the registration of transfer of the house to Z, the house was damaged
by floods. As a result, the bank withdrew the loan and, on the bank’s request,
Z refused to take transfer of the property until 97
Specific contracts in court
such time as D had repaired the damage caused by the floods. D alleged that
the condition regarding the acquisition of a loan had been fulfilled and that Z
had, through his own conduct, prevented the registration of transfer. D
therefore applied for an order compelling Z to take such transfer. D
contended that Z had acquired the bond and that the condition as intended in
the deed of sale had been fulfilled.
Judgment
The court held that the bank had revoked the loan on its own initiative, as it
was entitled to do in terms of the conditions upon which it had been granted.
The revocation was of the bank’s own accord, and Z had nothing to do with
it.
D contended that as soon as the loan had been granted, it had also been
acquired in terms of the contract. Therefore, the granting and the acquisition
of a loan were synonymous.
The court rejected this argument and held that the mere fact that the loan had
been approved, did not mean that it had actually been acquired.
The court, however, stressed the fact that each contract, as well as the
language used, had to be considered on its own merits in order to establish
the intention of the parties for purposes of determining whether or not the
suspensive condition had been fulfilled. Therefore, it may be possible for the
contract to provide that the mere approval of a loan would cause the
fulfilment of the condition.
The contract did not provide for the passing of the risk. D contended that, at
common law, the risk attached to the immovable property had passed to the
purchaser upon signature of the contract of sale. The court rejected this
contention and held contracts of sale subject to a suspensive condition not to
be perfecta in terms of the common law, with the result that the risk still
rested with the seller.
The court rejected D’s application for an order compelling Z to take
registration of transfer of the house.
[58] Remini v Basson
1993 (3) SA 204 (N)
Facts
B had bought a house from R. The deed of sale provided that the sale shall
be subject to the suspensive condition that B ‘is able to raise a loan’
before 15 December 1990. Should such loan not be procured, the sale
‘shall be . . . cancelled and [be] of no force and effect’. B was notified by the
building society in a letter dated 14 December 1990 that it had approved the
loan on the terms stated in the application form. These terms stated, inter
alia, that the building society could at any time and for whatever reason
revoke the loan. On 9 January 1991, the building society informed B that the
loan had been revoked subsequent to the discovery of 98
Purchase and sale
certain defects in the property. As a result, B contended that the suspensive
condition had failed, causing the contract of sale to lapse.
Accordingly, B succeeded in an action for the restitution of all moneys
already paid by him. R appealed against the decision.
Judgment
The gist of B’s argument was that the revocation of the loan had caused the
condition to fail, whereas R contended that the condition had been fulfilled
when the building society sent the letter of approval to B on 14
December 1990.
The court a quo held that the phrase ‘raise a loan’ meant that a valid loan
agreement had to come into being between B and the building society.
The court of appeal agreed with this approach and held that the mere
approval of the loan in principle did not result in the fulfilment of the
suspensive condition. The mere approval of the loan did not bring about any
legal relationship between B and the building society. Such relationship
would only come into being once a valid loan agreement had come into
being between the parties.
The court of appeal held that there were indications in the contract between
B and R that the parties intended for a valid loan agreement to come into
being for the suspensive condition to be fulfilled.
As regards the building society’s right to revoke the loan unilaterally and
without giving reasons, the court held that such right could only be exercised
arbitrio boni viri (according to the judgment of a prudent man).
In other words, the building society’s decision to revoke the loan had to be
taken in accordance with the judgment of a prudent man and had to be
reasonable.
In order to determine whether the condition had been timeously fulfilled, the
ordinary common-law principles regarding the conclusion of contracts have
to be applied. In other words, the ascertainment theory operates as a general
rule.
The onus to prove that the condition had not been fulfilled rested on B.
On the facts, the court held that B had failed to discharge this onus and
upheld the appeal.
Comment
Contracts of sale under suspensive conditions gave rise to a false doctrine
because the positive law held that in such cases, an innominate contract had
come into being, and not a contract of sale.
In terms of general legal principles, a suspensive condition should have no
bearing on the existence of a contract of sale. A contract of sale comes into
being when the parties reach consensus on conclusion of an agreement to
buy and to sell, in terms of which ownership of the merx is transferred by the
seller to the purchaser against payment of a sum of money: 99
Specific contracts in court
provided that all other requirements have been met. In law, a suspensive
condition should not alter these rules.
The courts have not interpreted Voet 18 1 26 correctly. This passage deals
with the instance where the parties have contracted on the basis that
ownership would never pass to the purchaser, in which case no contract of
sale comes into being. This point of view is correct, since the parties never
had the intention to buy and to sell. In the case of a suspensive condition, the
parties still intend ownership to pass, but only upon the happening of some
uncertain future event. If the uncertain future event does not happen, the
contract lapses with no further liability for either party.
The objections against the positive-law view of suspensive conditions in
contracts of sale are:
l A contract of sale still exists despite the suspensive condition.
l The transfer of ownership (not the coming into being of the contract) is
suspended.
l There is confusion between the obligatory act (making of the contract) and
the real act (transfer of ownership).
l A suspensive condition postpones the claimability of the performance, not
the legal obligation (contract of sale) itself.
l In some cases, the reservation of ownership forms part of the purchaser’s
performance duties.
[59] Equistock Group CC t/a Autocity Motor Holdings v Mentz
[2004] 2 All SA 46 (T)
Facts
In September 2003, E and M entered into a contract in terms of which M
bought a car from E for R315 000. M paid R150 000 immediately, the car
was delivered to him and he undertook to pay the remainder of the purchase
price (R165 000) by cheque on 25 September 2003. Together with the car, M
also received an invoice, the car’s roadworthy certificate and registration
documents. The invoice bore the following clause that reserved ownership
and dealt with the risk in respect of the car:
‘OWNERSHIP: Notwithstanding anything elsewhere provided or implied,
the ownership in the goods sold both before and prior delivery, shall remain
with us pending in full whether on the date or during default, but the risk
shall pass to you.’
M’s cheque was presented for payment on 27 September 2003. On 3
November 2003, E learnt that M had stopped payment of the cheque. E
thereupon told M over the phone that they were willing to cancel the
transaction and return his money if he was not satisfied with the car. E
also found out that M, without its authority and in conflict of the above
saving clause, had already registered the car in his name (as owner).
100
Purchase and sale
In December 2003, E brought an urgent ex parte application as it was feared
that M might sell or conceal the car. The court granted an order nisi in terms
of which, inter alia, M was compelled to divulge the where-abouts of the car
to the sheriff; the sheriff was authorised to take possession of the car; and M
was called upon to advanced reasons on the return day as to why the order
nisi for the return of the car should not be confirmed and the sheriff should
not be authorised to sign all necessary documentation for the registration and
passing of ownership back into E’s name. All the sheriff’s efforts to locate
the car were in vain.
On the return day of the order nisi, M, inter alia, raised the defence that E
had not cancelled the contract with M and that he was therefore not entitled
to restitution.
Judgment
The court held that cancellation of a contract of sale could take place tacitly
or by conduct and found that this might possibly have been the case in casu.
E was therefore entitled to restitution.
The court further held that the payment of the balance of the purchase price
on 25 September 2003 by means of a cheque for R165 000 qualified as a
suspensive condition. The effect thereof is that no contractual rights had
vested pending fulfilment of such suspensive condition. Since M had
countermanded payment of the cheque, the suspensive condition was not
fulfilled. The result was that E was still the owner of the car and could
therefore vindicate it, irrespective of in whose possession it was found.
Despite criticism of the Corondimas principle, the court considered itself
bound thereto because of the precedent system. In accordance with the
decision of the Court in Corondimas, an agreement of sale subject to a
suspensive condition cannot, pending fulfilment of the condition, be
regarded as a sale. It only becomes a sale when the condition is fulfilled, in
which event there is no contravention of the statutory provisions involved.
(See Corondimas v Badat 1946 AD 548.)
The judge emphasised that the registration and licensing of a vehicle in the
name of a purchaser does not cause ownership to transfer. The ordinary
requirements still apply, and in casu, ownership could only have passed
upon payment of the balance of the purchase price in the amount of R165
000 on 25 September 2003.
Comment
The intention of the parties is central to the real agreement regarding the
transfer of ownership, namely that one party intends to transfer ownership
while the other party’s intention is to acquire ownership. In the present case,
the intention quite clearly was that ownership would pass only if the balance
of the purchase price was paid on 25 September 2003.
The result of this decision is therefore correct, namely that M’s failure to 101
Specific contracts in court
pay on that date was fatal to any claim to ownership on his part despite
registration of the car in his name.
The court’s typifying of M’s final payment as a suspensive condition can be
questioned. Apparently the judge meant that the transfer of ownership was
suspended pending the happening of an uncertain future event, namely
whether M would indeed pay on the agreed date. Although payment by
means of a cheque is only a conditional payment (that is to say, depending
on the honouring of the cheque by the drawee bank), it is doubted whether in
this context it can be seen as a true suspensive condition. Furthermore, the
clause reserving ownership can also not be seen as a suspensive condition.
It should be borne in mind that a contract comes to an end by operation of
law upon non-fulfilment of a suspensive condition. In such a case, neither
party has to perform and each party is entitled to claim back everything that
has been performed already. For that reason, E was entitled to restitution
even though the contract had not been cancelled formally – the law had
already done that for the parties.
As for the Corondimas principle, the following explanation by Blieden J
in Melamed v BP Southern Africa (Pty) Ltd [2000] 1 All SA 342 (W), 2000
(2) SA 614 (W) 625 is supported as it is juridically sound regarding the
effect of a suspensive condition in a contract of sale and does sway with the
artificial questions regarding the legal nature of a contract of sale that is
subject to a suspensive condition:
‘The agreement between the parties became effective immediately but its
operation was suspended pending fulfilment of the condition. Whether one
should conclude that the contract of purchase and sale came about on
fulfilment of the condition, as was said in Corondimas . . . is of no
importance to the present case because it is clear that the agreement between
the parties became binding immediately, only its effect was suspended.’
[60] Diggers Development (Pty) Ltd v City of Matlosana
[2012] 1 All SA 428 (SCA)
Facts
The appellant, D, was the registered owner of a shopping centre known as
Flamewood Walk. C, in terms of a public invitation, called on developers to
develop approximately 1 172 hectares of land along the N12 corridor
between Klerksdorp and Stilfontein. Subsequently, a deed of sale was
concluded with Isago @ N12 on 2 October 2007. This sale was, inter alia,
subject to suspensive conditions that it should comply with the Local
Government Ordinance 17 of 1939 and the Local Government: Municipal
Systems Act 32 of 2000.
On 8 September 2009, Isago @ N12 who had applied for shopping mall
rights on certain erven, sold some 22 hectares of land to West Ridge
Shopping Centre, later to become known as Matlosana Mall. It was evident
that the intended shopping malls would compete for business with 102
Purchase and sale
the mall operated by D. This triggered D’s concern and prompted him to take
legal steps.
D’s attorney objected to the sale since the deed of sale had been concluded
prior to compliance with the above statutory provisions. The core of this
objection was that the entire process followed by C was ultra vires.
Notwithstanding this objection, C’s municipal manager issued a certificate
on 30 January 2009, verifying that the sale complied with the relevant
statutory provisions. The effect of this was that all suspensive conditions in
the deed of sale in question were duly fulfilled and implementation of the
sale was initiated by C and Isago @ N12 on 19 May 2009.
Judgment
D launched an application in the court below in which it, inter alia, sought
an order reviewing and setting aside the deed of sale.
Murphy J held that as the sale was subject to suspensive conditions, the
Corondimas principle was applicable. Therefore C had complied with the
relevant legislative provisions before the deed of sale became unconditional,
causing the deed of sale to be enforceable.
The Corondimas principle was formulated by Watermeyer CJ in Corondimas
v Badat 1946 AD 548 551:
‘[W]hen a contract of sale is subject to a true suspensive condition, there
exists no contract of sale unless and until the condition is fulfilled . . . Until
that moment, in the case of a sale subject to a true suspensive condition . . . it
is entirely uncertain whether or not a contract of sale will come into
existence at some future time.’
D submitted at the trial court and on appeal that the procedure employed by
C in complying with the statutory provisions was flawed in so far as it was
obliged to abide by these provisions before concluding the deed of sale on 2
October 2007.
D also submitted that the Corondimas principle be revisited in view of the
new constitutional dispensation, which requires strict compliance by
municipalities with legislation in order to curtail public power when
disposing of public assets. Consequently, the Corondimas principle was
outweighed in a new constitutional dispensation aimed at curtailing abuse of
power and corruption.
However, the appeal was dismissed primarily for two reasons, namely l
compliance with the relevant statutory provisions; and
l upholding of the Corondimas principle.
The Supreme Court of Appeal (again) voiced no objection to the trite
principle that a suspensive condition suspends the operation of all or some of
the obligations flowing from the contract until the occurrence of a future
uncertain event. It held further that a deed of sale subject to a suspensive
condition, pending fulfilment of the condition, cannot be regarded as a sale
in terms of the Corondimas principle.
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Specific contracts in court
The court finally pointed out that the Corondimas principle was recently
endorsed in Paradyskloof Golf Estate v Stellenbosch Municipality [2010] 4
All SA 591 (SCA), 2011 (2) SA 525 (SCA) where it was reiterated that a
deed of sale subject to a suspensive condition does not establish a contract of
sale, but still created a contractual relationship, which on fulfilment of the
condition, transforms into a deed of sale. Thus, stare decisis applies.
10 2 Payment of purchase price in case of trade-in
transactions
[61] Wastie v Security Motors (Pty) Ltd
[1972] 2 All SA 255 (C), 1972 (2) SA 129 (C)
Facts
S had sold a car to W for R1 250, the purchase price being payable as to
R400 in cash. In respect of the balance of R850, another car was traded in. S
had a latent defect in the trade-in car repaired at a cost of R120 and claimed
this amount from W. The Magistrate’s Court had awarded this amount to S
on grounds of the actio quanti minoris. W appealed.
Judgment
W contended that S had not been entitled to a reduction of the purchase price
under the actio quanti minoris because the trade-in car was a portion of the
purchase price (and not of the merx). The actio quanti minoris only applied
to the merx and not to the pretium. The court rejected this argument.
On the facts, the court held that the trade-in car formed part of the pretium
and that the parties’ intention had been
l to purchase and to sell;
l not to conclude an agreement of barter; and
l to conclude only one contract.
The court implemented the following modus operandi for determining the
nature of the contract:
l First, the intention of the parties has to be determined.
l If there is doubt as to the parties’ intention, the respective value of the cash
or that of the trade-in car is decisive.
l If the money and the trade-in car are of equal value, the nature of the
contract is one of purchase and sale because a presumption in favour of a
contract of sale exists in the present case. (See also Mountbatten Investments
(Pty) Ltd v Mahomed [5].)
104
Purchase and sale
The court further held that the remedies in respect of a contract of sale were
also applicable to a contract of exchange. Therefore, the aedilitian actions
were also applicable to a contract of exchange.
The merx is susceptible to latent defects against which the purchaser is
protected by a guarantee. Money, on the other hand, is not susceptible to
latent defects, otherwise it would no longer be money. Where payment is
made in money, the purchaser is under a duty to pass ownership thereof to
the seller. However, such duty does not exist in respect of delivery of the
merx. The seller is only under a duty to guarantee that the purchaser would
not be disturbed in his use and enjoyment of the merx.
The court came to the conclusion that, even if the trade-in car formed part of
the pretium, the warranty against latent defects still applied since the trade-in
transaction was deemed to be a contract of exchange and the remedies in
respect of a contract of sale also applied to a barter. As a result, the appeal
was dismissed.
[62] Bloemfontein Market Garage (Edms) Bpk v Pieterse
[1991] 1 All SA 69 (O), 1991 (2) SA 208 (O)
Facts
P had bought a car from B. Originally, the sale had been for cash but it was
later agreed that P would trade in another car in partial payment of the
purchase price. P had innocently represented to B that the trade-in car was a
1981 model, while it was in fact a 1980 model. B claimed from P
the difference in value between cars of such model (R790) as a reduction of
the purchase price in terms of the actio quanti minoris.
Judgment
In order to determine whether or not B was entitled to a reduction of the
purchase price, the court had to determine the nature of the contract in
respect of the trade-in car.
On the facts, the court held that
l the parties had considered the sale of the new car and the trade-in of the
other car as one transaction; and
l misrepresentation had been made innocently.
The court was of the opinion that B would be entitled to a reduction of the
purchase price in terms of the actio quanti minoris only if the trade-in
transaction had constituted either a contract of sale or a barter.
The court accepted the point of view that the trade-in transaction could have
been a datio in solutionem (substitutive payment). Should the thing traded in
prove to be defective, it causes the datio in solutionem to be ineffective. In
the result, the thing traded in can be rejected and the amount represented
thereby would be payable in cash.
105
Specific contracts in court
In order to determine whether the contract was one of sale or one of
exchange, the court used the same modus operandi as that implemented in
Wastie v Security Motors (Pty) Ltd ([61]) and in Mountbatten Investments
(Pty) Ltd v Mahomed ([5]), namely that
l where either party delivers a thing in exchange for another, a contract of
barter comes into being;
l where the purchase price consists partly of money and partly in kind, the
nature of the agreement is determined by the true intention of the parties and
the agreement can be either a sale or a barter, irrespective of the respective
values of the cash and kind;
l where there is doubt as to the parties’ intentions as to whether a sale or a
barter was envisaged, the respective values of the cash and kind must be
compared;
l where the value of the money is the higher, a contract of sale came into
being;
l where the value of the kind is the higher, a contract of barter came into
being; and
l where the money and the thing are of equal value, a contract of sale is
deemed to have come into being since the parties are presumed to have
concluded a contract of sale rather than one of barter.
The court pointed out that the parties may also have the intention to enter
into two separate contracts of sale. In such a case, payment of the purchase
price could possibly be effected by means of set-off.
The court assumed in favour of B that the transaction in respect of the tradein car had in fact been a contract of sale entitling B to the actio quanti
minoris. Since B had paid less for the trade-in car than its actual value, he
could not prove the amount of the reduction of the purchase price and the
court ordered absolution from the instance.
Comment
Trade-in transactions are widely used in practice. However, an anomaly
exists as regards these transactions since the sufferer does not always have
the aedilitian actions available to him.
The constructions of trade-in transactions that can be gleaned from the
positive law, are
l a reciprocal contract of sale combined with set-off;
l a contract of exchange; and
l a contract of sale.
The constructions of the trade-in transaction that had been offered by
academics, are
l a facultative obligation which binds the debtor to a specific performance,
but gives him the choice to substitute that performance should it prove to be
defective; and
106
Purchase and sale
l a datio in solutionem in terms of which the creditor binds himself to accept
a substitutive payment in place of the original performance.
If a trade-in transaction is deemed to be a datio in solutionem, it must be
kept in mind that such substitutive payment can constitute a novation.
At common law, the principles of the law of sale are also applicable to a
datio in solutionem. (See also Hawthorne ‘Nature of a Trade-in Agreement’
1992 THRHR 143.)
[63] Janse van Rensburg v Grieve Trust CC
[1999] 3 All SA 597 (C), 2000 (1) SA 315 (C)
Facts
J bought a motor vehicle from G for R38 046. In partial payment of the
purchase price, J traded in his interest in a used Isuzu vehicle. The interest
was calculated as the difference between the vehicle’s trade-in value of R44
000 and the amount that J was still owing on it under a credit agreement
concluded between J and a third party. The balance of the purchase price
would be paid in cash. J was under the bona fide but mistaken impression
that the Isuzu vehicle was a 1993 model. In fact, it was a 1989
model and obviously worth less than 1993 model.
J and G agreed that any representation by J regarding the model of the Isuzu
was made innocently and in good faith. They further agreed that, if G were
aware of the true state of affairs, he would not have consented to a trade-in
amount of more than R34 200. G therefore claimed the difference between
this amount and the agreed trade-in value of R44 000, namely R9 800, as a
reduction in the purchase price that he paid for the trade-in vehicle.
The magistrate in the court a quo held that, despite contrary decisions in
Mountbatten Investments (Pty) Ltd v Mahomed (see [5]) and Bloemfontein
Market Garage (Edms) Bpk v Pieterse (see [62]), he was bound by the
decision in Wastie v Security Motors (Pty) Ltd (see [61]) because of the
principle of stare decisis. In Wastie the court held that the action for a
reduction in purchase price ( actio quanti minoris) is applicable to a latent
defect in a vehicle traded in as part of the purchase price. The court a quo
held that the principle of substituted or alternative performance ( in solutum
datio) was applicable inasmuch as the parties had agreed that, should G be
successful in his action against J, judgment should be granted in the amount
of R9 800. G succeeded and J appealed to the Cape Provincial Division (as it
was then known).
Judgment
The following arguments were made on appeal:
l J (appellant) argued that Wastie was distinguishable, alternatively wrong,
and that it should not be followed. Relying on Mountbatten and
Bloemfontein, J submitted that the court in Wastie wrongly extended 107
Specific contracts in court
the applicability of the actio quanti minoris to the price ( pretium) as the aim
of the action is to provide relief only in cases of latent defects in or
misstatements relating to the object of a sale ( merx).
l G (respondent) argued that the court a quo had correctly held that Wastie
was binding on it and that it should not be overruled in favour of the
approaches taken in Mountbatten and Bloemfontein. In the alternative, G
submitted that J had committed a breach of contract by not delivering a
1993-model Isuzu. The court held that it was not necessary to deal with this
issue. A further alternative raised by G was that the principle of in solutum
datio was indeed applicable in casu, as was held by the court a quo. The
court considered this point towards the end of its judgment.
Van Zyl J started his judgment by tracing the origins and development of the
aedilitian actions (the actio redhibitoria and actio quanti minoris) regarding
latent defects in the merx, culminating in the decision by Holmes JA in
Phame (Pty) Ltd v Paizes [1973] 3 All SA 501 (A), 1973 (3) SA 397 (AD)
that these actions are available even where a misrepresentation is made
innocently by way of a dictum or promissum. He defined a dictum et
promissum as ‘a material statement made by the seller to the buyer during
the negotiations, bearing on the quality of the res vendita and going beyond
mere praise and commendation’. Van Zyl J also considered the obiter
observation in Phame that aedilitian relief may under certain circumstances
be extended to the sale of incorporeal things as significant for purposes of
the case before him.
Having considered Mountbatten, Bloemfontein and Wastie, as well as
criticisms levelled against these decisions, Van Zyl J made a number of
observations on whether or not the actio quanti minoris applies to trade-in
agreements:
l The judge started by pointing out that the court in Phame did not consider
the extended application of the aedilitian actions to trade-in agreements,
because this was not an issue before it. However, Van Zyl J was of the view
that, if it had been called upon to do so, the court might well have found in
favour of such extension in accordance with its decision regarding the
extension of the aedilitian actions to the sale of incorporeal things, where it
stated that ‘the current climate of opinion is propitious and receptive to such
extension by the Courts, in appropriate circumstances’.
l It appeared to Van Zyl J that in Wastie, Van Zijl J was pre-empting the
approach by Holmes JA in Phame. According to Van Zyl J, considerations of
fairness and reasonableness prompted Van Zijl J to seek an analogy in the
contract of barter or exchange for his finding that a defect in the vehicle
traded in should be subject to the aedilitian actions. This was done in Wastie
despite the fact that the vehicle in question was part of the purchase price (
pretium) of another vehicle and hence not itself an object of sale or barter (
merx).
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Purchase and sale
Van Zyl J stated that he was bound by Wastie unless the decision was clearly
wrong. The judge was not persuaded that this was the case and gave the
following reasons for his view:
l Our law does not recognise a law of equity as in English law, although
there was a limited reception of the equitable principles of Roman law into
English common law as from the early Middle Ages.
These principles became part of Roman-Dutch and Roman-European
common law, from where they were introduced into the South African
common law. The fundamental equity of our law has prompted our
courts to point out the flexibility and adaptability of the legal principles
which constitute such law. Van Zyl J referred to dicta in various cases,
including the statement in Pearl Assurance Co v Union Government 1934
AD 560 563 that ‘law is a virile, living system of law, ever seeking, as every
such system must, to adapt itself consistently with its inherent basic
principles to deal effectively with the increasing com-plexities of modern
organised society’.
l According to Van Zyl J, such approach is eminently applicable in the case
of trade-in agreements which, though unknown to the aediles cu-rules (who
were responsible for creating the aedilitian actions) and many subsequent
generations of lawyers, have become a commercial reality in the present day
and age. The judge said that the aediles cu-rules, or at least later legal
commentators, would have had no difficulty in extending the application of
the aedilitian actions to such agreements. This is particularly so in view of
the logical extension of their application to agreements of exchange or
barter.
l Even if the barter analogy were unacceptable, and the findings in Phame
were not applicable, the judge nevertheless was of the view that the
aedilitian actions should apply to trade-in agreements. More particularly, the
seller in a trade-in agreement should be protected from the consequences of
latent defects in, or misrepresentations relating to, the vehicle traded in by
the purchaser. Van Zyl J said that such relief is required by the principles of
justice, equity, reasonableness and good faith that are inherent in our
common law and especially evident in the law of contract. Also, public
policy demands that the law be extended and adapted to meet the needs of
modern commercial practice. This arises from the flexibility of our legal system.
l In applying principles of logic and fairness in Wastie, Van Zijl J was doing
just what a number of Appellate Division decisions have been advocating
over a long period of time. That judge’s concept of logic should be
understood to mean the reasonableness required by public policy to achieve
justice and fairness between contracting parties.
l Together with the fundamental principle of good faith underlying the
relationship between contracting parties, public policy requires a fine
balance to be struck between the relative rights, duties and interests of the
parties, as was held in Wastie.
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Specific contracts in court
l In a trade-in agreement, it would be unjust, inequitable and unreasonable to
hold the seller liable for latent defects in, and misrepresentations relating to,
the vehicle sold by him, while the purchaser attracts no such liability as
regards the vehicle traded in by him. The purchaser would in fact be
allowed, while claiming innocence and good faith, to deliver a defective
trade-in vehicle knowing that the seller cannot claim from him with the
aedilitian actions. If the aedilitian actions are available to one party, they
should also be available to the other party. If this were not the position, it
would amount to paying lip-service to the good faith required of parties to a
reciprocal contract. It would also be contrary to the demands of public
policy, namely, balancing the interests of all members of a community,
including those who engage in commercial dealings with one another.
Van Zyl J therefore associated himself with the findings in Wastie and
rejected the decisions in Mountbatten and Bloemfontein. The judge held that
the extension of the application of the aedilitian actions is in line with the
spirit and values contained in the Bill of Rights of the Constitution of the
Republic of South Africa, 1996. In this regard, he referred to sections 8, 9, 3
and 173 regarding the development of the common law and the courts’
inherent power ‘to develop the common law, taking into account the interests
of justice’.
Finally, regarding the point of view that in solutum datio is applicable to
trade-in agreements, Van Zyl J held that such suggestion was devoid of
merit. He explained the legal position as follows:
‘ In solutum datio means that performance of something other than the
agreed or due debt is made to the creditor. It relates to the whole debt
originally agreed upon and not merely to a part thereof. The whole debt is in
fact substituted by an alternative debt. If performance of the substituted or
alternative debt should be accepted by the debtor, the original debt would,
under normal circumstances, be discharged . . . In the case of trade-in
agreements, the vehicle traded-in is not a substituted or alternative debt due
by the purchaser to the seller. It is part and parcel of the original debt agreed
upon by the parties, being a portion of the price that the purchaser is obliged
to pay for the vehicle purchased by him from the seller. Delivery of the
traded-in vehicle by the purchaser constitutes part-performance of his agreed
obligation to pay the price of the purchased vehicle, the remainder of the
performance relating to payment of the balance of the purchase price. Part
performance can never be equated with substituted or alternative
performance.’
Van Zyl J held that the parties in casu entered into a single contract of
purchase and sale and that the traded-in vehicle formed part of the purchase
price of the vehicle that J had purchased from G. In fact, it was not the other
vehicle as such that was traded in, but J’s incorporeal right thereto in terms
of a credit agreement between him and a third party.
J, as purchaser, made an innocent misrepresentation regarding the model of
the traded-in vehicle which persuaded G, as seller, to agree to place a higher
valuation on the vehicle than was justified by its actual model. It is irrelevant
whether the contract of purchase and sale relates to a corporeal or
incorporeal thing, or that the thing traded in does not contain a latent defect
but has merely been misrepresented as being 110
Purchase and sale
something which it is not. The aedilitian actions are available in all these
instances.
Most important for the case at hand, it was held that it is irrelevant whether
the defective or misrepresented thing is not the object of a sale or barter. The
aedilitian actions apply equally to an object forming part of the purchase
price of a thing purchased.
On the grounds set out above, Van Zyl J held that the actio quanti minoris is
available to a seller in a trade-in agreement should the vehicle traded in be
defective or misrepresented and dismissed the appeal.
111
Letting and hiring
Letting and hiring
11 Essentialia of the lease
[64] Ferndale Crossroads Share Block (Pty) Ltd v Johannesburg
Metropolitan Municipality
[2011] 2 All SA 15 (SCA), 2011 (1) SA 24 (SCA)
Facts
Anticipating that this would increase business for their tenants, the
appellants (F), who were the lessors of all the shops inside a plaza, devised a
plan to channel pedestrians from a taxi rank to the plaza through an overhead
bridge across a busy street. To this end, F applied to the respondent (J) to
lease a portion of land belonging to J and from which the bridge could be
accessed. One foot of the pedestrian bridge would rest on the leased land. J
approved the application and concluded the agreement which was the
subject-matter of this case. Clause 5 of the agreement read:
‘[J] agrees to lease the land . . . marked in red between BE and F on the
drawing at an annual nominal rental of R499 . . . to [F]. The land leased in
terms hereof measures approximately 627 square metres and is in
accordance with the draft surveyors’ diagram attached hereto as annexure
A.’
Apart from the typical lease provisions in clause 5, the agreement also
provided that F would extend the existing walls around the taxi rank so that
it would be completely enclosed. Clause 7.1 provided that:
‘F undertakes, as soon as possible after signature of this agreement and the
obtaining of all necessary approvals from all relevant authorities, to attend to
the passing of the plans for the design and construction of the pedestrian
bridge . . . which will link the taxi rank with the plaza.’
Clause 7.2 provided that F would pay a consideration of R1 to J for the
construction of the bridge, while in terms of clause 8.2 the bridge and a
certain barrier, also to be constructed by F at its own cost, would become the
property of, and be controlled and maintained by, J. Clause 9 allowed F,
subject to the support of the local chamber of commerce, to construct and
lease to hawkers 12 kiosks at the foot of the bridge.
Everything proceeded as planned for a while. However, at some stage J’s
property-management forum, the JPC, discovered that J had not published a
notice of its resolution to lease the land concerned, as required by the
provisions of section 79(18) of the Local Government Ordinance 17 of 1939
(Gauteng), calling for objections, if any, to the proposed lease.
After they had been advised of this fact, F requested the JPC to advertise the
lease. Notices calling for objections to a proposed ‘long-term lease of the
pedestrian bridge’ were published in two newspapers, in response to which
three objections were received. Eventually J obtained legal advice to the
effect that the agreement (lease) was void ab initio and applied to court for
an order, inter alia, declaring the lease to be invalid. J relied 115
Specific contracts in court
on its own failure to comply with section 79(18) of the ordinance. It
contended that the agreement constituted a lease and that J was obliged to
publish its resolution to lease the land described in it and to invite objections
to it.
In the court a quo, F contended that, on proper consideration of its contents,
the agreement was not essentially a lease as contemplated in section 79(18),
but rather a composite agreement, the true nature of which was not governed
by the section. However, the court held that the agreement ‘in its own terms
was a lease and was so regarded by the parties’
and that section 79(18) applied to it. It therefore declared the agreement void
ab initio. F appealed to the Supreme Court of Appeal.
Judgment
The main issue on appeal was whether the agreement, properly construed,
constituted a lease, in which event it would have been subject to section
79(18) of the ordinance.
J asserted that the agreement constituted a lease and that it was therefore
obliged to publish its resolution embodying its intention to lease the land and
to call for objections. F conceded that clause 5 of the agreement contained
language typically associated with a lease – it identified a specific piece of
land to be leased at an annual rental of R499 – but argued that the clause was
only part of the agreement of which the lease provisions form an
insignificant part, and was not of itself determinative of its character.
According to F, the real import and essence of the agreement was for a
bridge to be constructed at F’s cost for the safe conveyance of com-muters
between the taxi rank and the plaza.
After considering some of the authorities regarding the essentialia of a lease,
Mpati P stated that it was true, as the court a quo observed, that the
agreement contained other provisions that are not normally part of a lease.
However, to him it was common cause that the agreement contained a lease
element and he did not agree with the contention that the lease provisions
formed an insignificant part of the agreement. Rather, they formed an
integral part of the agreement, without which the parties’
objectives could not have been realised. Indeed, without the lease element,
the agreement would not make any sense and it could not stand without the
lease element.
The judge also pointed out a number of other factors that strongly indicated
that the agreement was a lease and held that F failed to prove that the
agreement was something different from what it appeared to be (namely, a
contract of lease) or that the lease element thereof was so insignificant that
compliance with section 79(18) of the ordinance was not required or
necessary. The court therefore held that the lease element of the agreement
was invalid ab initio because of non-compliance with section 79(18).
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Letting and hiring
[65] Benlou Properties (Pty) Ltd v Vector Graphics (Pty) Ltd
[1993] 1 All SA 207 (A), 1993 (1) SA 179 (AD)
Facts
In terms of clause 8.5 of the lease agreement between B and V, B had been
entitled to recover 74,45% of all increases in expenses relating to the leased
property from V. Two years after the conclusion of the agreement, V sought
an order declaring the provisions of clause 8.5 invalid on the grounds that it
caused the rent to not be determined or determinable, which in turn caused
the agreement to be invalid.
Judgment
The court a quo held that the provisions of clause 8.5 were invalid, since the
amount of the proposed expenses had rested solely in the unfettered
discretion of B. It therefore found against the validity of the agreement as the
rent had not been determined or determinable.
The Appellate Division referred to the common-law provisions which were
to the effect that the lease would be invalid where the rent was not fixed or
determinable. The rent is not fixed or determinable, inter alia, where the
determination of the rent is solely within the unfettered discretion of one of
the parties. The same principle also applies to a contract of sale.
The court made the following obiter remark:
‘I must confess to considerable difficulty in grasping why a price (or rent) to
be fixed by one of the parties should be regarded as less certain than one to
be determined by a third party. As a matter of logic it is also not clear to me
why the requirement that a third party must act arbitrio boni viri . . . should
not also govern the situation where it has been left to one of the parties to
determine the price (or rent). It is therefore not surprising that in such other
legal systems as I have been able to consult, an agreement conferring upon a
party the right to determine a presentation is not regarded with disfavour.’
However, the court found itself bound to the common-law provisions as set
out above.
On the facts, the court held that clause 8.5 did not give the lessor an
unqualified discretion to increase the rent. The court held that the agreement
contained an objective standard according to which the rent was to be
calculated and upheld B’s appeal.
117
Specific contracts in court
12 Delivery and maintenance of the leased
property
[66] Arnold v Viljoen
[1954] 3 All SA 201 (C), 1954 (3) SA 322 (C)
Facts
A let a hotel to V. In terms of their agreement, V also bought certain
movable property from A. The contract provided that upon breach of the
terms of payment, A would be entitled to retake possession of the movables
and claim a certain portion of the purchase price. V fell in arrears with the
rent and A claimed the outstanding balance of the purchase price and arrear
rent. V’s defence was that
l A had not delivered the premises in such a condition that it was suitable for
the purpose for which it was leased;
l A had not kept the premises in a tenantable state because he had failed to
effect certain repairs; and
l in view of the above, V had been excused from payment of rent since he
did not have the use and enjoyment of the premises for a certain period.
Judgment
The court rejected V’s defence for not paying the rent. According to the
court, the test for the tenant’s liability for rent is whether he was in
occupation or possession of the premises ‘and not whether such occupation
or possession was beneficial or not’.
Since V actually did have the possession of the premises for the period in
question, an order for the payment of rent for that period was made against
him. The court held that his remedy would be to bring a counterclaim for
damages in that amount based on A’s breach of contract.
The court reiterated the principle that one party to the contract cannot call on
the other party to perform without himself having performed or being ready
to perform properly. This principle applies only to reciprocal contracts. In
other words, it applies where one party’s performance is dependent on the
other party’s counter-performance. However, this principle does not
necessarily apply to all agreements in which each party undertakes
obligations towards the other.
The court held that in the present case, V, who had possession of the leased
premises and the movables since the inception of the contract, could not
claim that, despite this, he was not obliged to pay the rent because A had
failed to fulfil his part of the contract by not handing over the premises in a
tenantable state of repair. ‘He is obliged to pay the rent but can in turn claim
damages.’
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Letting and hiring
[67] Steynberg v Kruger
1981 (3) SA 473 (O)
Facts
The dispute in this case centred around the fitness of a leased premises for
the purposes for which it was leased, the maintenance of the property in such
a suitable state and the question whether or not the lessee would be entitled
to a reduction of rent where the lessor had been in breach of contract in the
above respects.
Judgment
The court did not approve of the decision in Arnold v Viljoen (see [66]) and
refused to grant summary judgment against K for his failure to pay rent in
the above circumstances. The court held that where K has had defective use
of the leased property to such an extent, he would reasonably be entitled to
resile. However, where he decides to continue with the contract, he is
entitled to claim a considerable reduction of rent and to hold S liable for
damages.
Comment
The correct legal position seems to be that expounded in Ntshiqa v Andreas
Supermarket (Pty) Ltd [1996] 3 All SA 154 (Tk), 1997 (1) SA 184
(Tk). In this case, the court rejected the reasoning in Arnold v Viljoen (see
[66]). The court also referred with approval to the views of Piek and Kleyn
‘’n Huurder se aanspraak op vermindering van huurgeld terwyl hy in besit
van die huursaak is’ 1983 THRHR 367, who in turn refer to Pothier in this
regard.
According to Pothier, the tenant pays rental as a consideration for the use
and enjoyment of the leased premises, and, if the tenant does not have full
enjoyment and use of the premises, he is only liable for such rental as
accords with such enjoyment and use. What is extremely important, is that
Pothier does not say that it is obligatory that the tenant must give up
possession of the premises before he can claim a reduction in rental, nor
does he say that the tenant must pay the full rental and then claim a pro rata
portion by way of an action for damages.
The court also held that the exceptio non adimpleti contractus applied to
contracts of lease. Consequently, the lessor cannot claim payment of the full
rental if he has not performed his part of the bargain, that is to say, giving the
lessee the full and beneficial occupation of the premises. This point of view
was supported by the Supreme Court of Appeal in Thompson v Scholtz
[1998] 4 All SA 526 (A), 1999 (1) SA 232 (SCA).
119
Specific contracts in court
[68] Mpange v Sithole
[2007] JOL 20479 (W), 2007 6 SA 578 (W)
Facts
S (lessor) leased a building for residential purposes to M and others
(lessees). The lessees were living in slum conditions which included a lack
of privacy, sufficient lavatories and running water and an illegal and
dangerous electricity connection. The applicants (lessees) sought an order to
interdict S from collecting rent and to refund rent already paid.
Judgment
It is a well-established principle of South African law that a lessee is entitled
to full use and enjoyment of the property during the full term of the lease. M
had the duty to deliver and maintain the property in a condition reasonably
fit for the purposes for which it was leased. M failed to maintain the
premises in a proper condition of repair while it was occupied.
Where a lessor fails to deliver or maintain the property for the purposes for
which it was being leased, the remedies available to the lessee include
cancellation of the contract, a claim for specific performance, damages and a
reduction in rent.
Traditionally, the courts had, in cases involving lease agreements where the
lessor had failed to deliver and maintain the thing let in a proper condition,
tended to refuse and order for specific performance (in other words, that the
lessor had to effect the necessary repairs). The court rather required the
lessee to effect the repairs himself and then to claim the costs thereof from
the lessor. However, this was not an option in casu because the lessees were
poor and did not have the skill to effect the repairs themselves. The court
held that although precedent established a general tendency not to order
specific performance, that tendency should not be elevated to an absolute
rule (the court cited South African and English courts and academic writers
in support).
In casu, cancellation and a claim for damages was not an option because of
the unique circumstances in which the lessees found themselves. They were
poverty-stricken and had no accommodation elsewhere. Homelessness was
the only alternative. The court was therefore in a position where it had to
develop the common law in terms of section 39(2) of the Constitution and
grant orders for specific performance in cases such as these.
The court further held that an order for the reduction in rent would also be
appropriate in the circumstances. Where the lessee paid rent despite a defect
in the leased property, he or she was entitled to a reduction in rent
proportional to the diminished use and enjoyment of the thing. In casu, the
lessees did not have full use and enjoyment of the leased property, even
though they stayed in occupation.
The court made an order for a reduction in rent until the leased property was
repaired.
120
Letting and hiring
13 Huur gaat voor koop
[69] Mignoel Properties (Pty) Ltd v Kneebone
1989 (4) SA 1042 (AD)
Facts
H had let a certain premises to C. K had bound himself to H as surety and
co-principal debtor in respect of C’s obligations under the lease. H later sold
the premises to M. C failed to pay the rental and M sued K as surety for
payment of the rental. M was successful in the Magistrate’s Court, lost on
appeal to a provincial division and hence appealed to the Appellate Division.
Judgment
The Appellate Division found it necessary to consider the scope and effect of
the maxim huur gaat voor koop.
This maxim had no place in Roman law. In Roman law, the lessee had a
mere personal right against the lessor; he did not have a real right in the
leased property. Neither was the purchaser of the leased property under
Roman law bound to the lessee in terms of the lease unless it was so agreed.
Therefore, under Roman law, the purchaser was under no obligation to
tolerate the lessee’s presence on the property for the remainder of the lease
or to recognise his rights.
The maxim huur gaat voor koop is of Western European origin. As pointed
out by the Appellate Division, it is extremely difficult to establish the
requirements for the application of this maxim and the consequences thereof
in the Western European law.
The court supported the point of view that, in terms of the maxim huur gaat
voor koop, the lessee had acquired a real right in the leased property.
As a result of this real right, the purchaser had to put up with the lessee’s
rights under the lease. In view of the Roman-Dutch law, the court held that
the effect of the maxim huur gaat voor koop is that the purchaser steps into
the shoes of the lessor.
The court further held that once the lessee elects to remain in the leased
premises after the sale thereof, the purchaser ex lege takes the place of the
lessor. No new contract of lease comes into existence. The purchaser is
substituted for the seller as lessor by operation of law without the necessity
of a formal cession of rights or a delegation of obligations. As a result, all
the terms of the lease are then applicable to the purchaser (now the lessor),
except collateral provisions not connected to the lease.
121
Specific contracts in court
The court further held as follows:
‘Professor Van Loggerenberg, in my view, sets out the position correctly in
his doctoral thesis entitled Skuldoorname en kontraksoorname (Leiden
1981), when he states, in regard to the relationship between the lessee and
the new owner of the leased property, at 292–3:
“Met betrekking tot die verhouding tussen die huurder en die nuwe eienaar
van die huursaak het ons Howe hul op die standpunt gestel dat die huur gaat
voor koop-reël meebring dat laasgenoemde in die plek van die oorspronklike
verhuurder te staan kom . . . Dit veroorsaak dat die oorspronklike verhuurder
sy regte ingevolge die huurkontrak verloor en ook van sy verpligtinge bevry
word, terwyl die nuwe eienaar van die saak dienooreenkomstig opvolg in die
regte en verpligtinge van sy voorganger en gevolglik daarna self as
verhuurder optree.
Die resultaat van die toepassing van die huur gaat voor koop-reël by
vervreemding van die huursaak is die vervanging van een van die
oorspronklike partye tot die huurkontrak (die verhuurder) deur ’n nuwe
party, welke vervanging outomaties van regsweë volg nadat eiendomsreg in
die saak formeel aan die verkryger oorgedra is, dit wil sê sonder die
medewerking van die oorblywende party tot die kontrak (die huurder).”’
The court held that the effect of the maxim huur gaat voor koop is that the
purchaser replaces the original lessor. All rights and duties pass to the
purchaser ex lege and without the necessity for a formal cession and
delegation.
Therefore, K was bound to M (the new lessor) as surety and liable for the
payment of the rent.
[70] Spearhead Property Holdings Ltd v
E and D Motors (Pty) Ltd
[2009] 4 All SA 417 (SCA), 2010 (2) SA 1 (SCA)
Facts
Q, the owner of immovable property, entered into a lease in respect of that
property with E & D. The lease contained a provision granting E & D
an option to purchase a portion of the leased premises. Shortly thereafter, Q
sold the premises to Spearhead. The deed of sale referred to the existence of
the option. Shortly after transfer of the property to Spearhead, E & D
exercised the option against Spearhead. Spearhead’s point of view was that it
was not obliged to honour the option. E & D then succeeded in an action for
transfer of the property to it, whereupon Spearhead appealed.
On appeal, Spearhead contended that it was not bound by the option, and
that the obligations in terms of the option were not transferred to Spearhead
when it took transfer of the property. E & D contended that the transfer of
rights and duties pursuant to the huur gaat voor koop rule took place ex lege
and that the substitution of Spearhead for Q was automatic.
Therefore, the option granted and signed by Q must be treated as having
been signed by Spearhead, so that the exercise thereof by E & D brought
about a valid contract of sale between Spearhead and E & D.
122
Letting and hiring
Minority judgment
In a minority judgment, Maya JA held that a valid option agreement existed
which was capable of being exercised and was in fact validly exercised by E
& D.
Majority judgment
The court referred, inter alia, to Mignoel Properties (Pty) Ltd v Kneebone
([69]), which held that the effect of the huur gaat voor koop rule is that all
the terms of the lease are applicable to the purchaser, except collateral
provisions not connected to the lease.
As regards these collateral rights, the court held that it can hardly be
equitable to bind a subsequent purchaser to an option to purchase simply
because it forms an ‘integral part’ of the lease. If approached from an
objective point of view bearing in mind the basic object of huur gaat voor
koop, the question is simply whether the ‘collateral right’ relates to the
lessee’s real right of occupation as lessee. In the court’s opinion, this
question can hardly ever be answered in the affirmative when it relates to the
rights and obligations flowing from an option to purchase.
The court held that the common law, in a situation such as the present (quite
different from the huur gaat voor koop rule), is clear. If the purchaser had
prior knowledge of the option, he must be held to have bought the property
subject to the lessee’s personal right to exercise it. If the purchaser did not
have notice of the option, there is no common-law rule (apart from the
possible application of huur gaat voor koop) which would bind the
purchaser to an obligation of which he was unaware. The question is
whether the development of the huur gaat voor koop principle in our law has
included the ex lege transfer of obligations arising out of an option to
purchase, granted by the original lessor to the purchaser of leased property.
The court examined decisions concerning options to purchase in this context
and found no indication that the development of the huur gaat voor koop
principle has included such ex lege transfer.
The court examined case law on the same topic and came to the conclusion
that there is no reported decision to the effect that the obligations arising out
of an option to purchase are transferred ex lege and without express or tacit
assignment, to the purchaser of leased property. The court also held that
there is no reason to extend the effects of the huur gaat voor koop rule to
include such a transfer.
The court reiterated that such an extension would operate unfairly against a
purchaser who purchases the leased property without knowledge of the terms
of the lease. As to the purchaser with notice, the court held that the doctrine
of notice provides adequate protection to the lessee in respect of his rights in
terms of the option. The court referred to Bowring NO v Vrededorp
Properties CC [2007] JOL 20008 (SCA), 2007 (5) SA 391 (SCA), and held
that there is no equitable need for an ex lege 123
Specific contracts in court
transfer of the obligations arising out of the option to the purchaser in order
to protect the lessee’s option against a purchaser with notice.
The court concluded that the obligations arising from an option to purchase,
granted by the lessor, are not, by the operation of the huur gaat voor koop
rule, transferred ex lege to the purchaser of the property. Therefore, a lessee
who seeks to exercise such an option (assuming that the relevant contracts
do not constitute an assignment of the lessor’s obligations to the purchaser)
must do so as against the grantor and not against the purchaser. Where,
however, the property was transferred to a purchaser with notice of the
option, the lessee, having exercised the option, will be able to claim transfer
of the property from the purchaser. E & D’s submissions to the effect that it
was entitled to exercise the option against Spearhead merely by operation of
the huur gaat voor koop rule therefore failed.
The appeal was allowed and E & D’s claim was dismissed.
14 Compensation for attachments and
improvements
[71] Palabora Mining Co Ltd v Coetzer
[1993] 2 All SA 45 (T), 1993 (3) SA 306 (T)
Facts
C was employed by P. In terms of their employment contract, C became
eligible to occupy a house belonging to P. The lease provided that C had to
vacate the house immediately upon termination of his employment. After P
had terminated the contract of employment, C refused to vacate the house,
claiming that he had effected certain improvements to the house and that he
therefore had a right of retention to the premises until such time as P had
compensated him. In terms of the lease, any such alteration could be made
only with the written consent of P.
Judgment
The court confirmed that the Placcaaten of 1658 and 1659 became part of
the South African law and that they apply to both rural and urban tenements.
The object of these Placcaaten is to compel lessees who have made
improvements to leased immovable property to vacate such property, even
though they had not been compensated for the improvements.
The court held that, the provisions of the Placcaaten notwithstanding, a bona
fide occupier of property (lessee) would be entitled to compensation only if
the improvements
l were necessary or useful; and
l their value monetarily quantified.
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Letting and hiring
Since C was unable to prove that the improvements in casu (a swimming
pool and walls) were necessary or useful and failed to quantify the value
thereof, C’s defence was rejected. In addition, C did not have P’s written
permission to make the improvements.
15 Payment of rent
[72] Sapro v Schlinkman
[1948] 2 All SA 484 (A), 1948 (2) SA 637 (AD)
Facts
S had let certain property to Sc. Their contract came to an end through
effluxion of time, but Sc refused to vacate the leased property.
Judgment
With reference to D 19 2 28, the court held that the lessee was liable for rent
in respect of the whole period of his occupation of the premises.
Having canvassed other old authorities and the case law, the court held:
‘[T]he authorities all show that the date that matters in regard to the
termination of the lessee’s liability to pay rent in terms of the lease is not the
date of the breach, or the date by which the lessee purported to cancel the
lease, but the date on which he actually quitted the premises.’
16 Proper use of the property
[73] Protea Assurance Co Ltd v Presauer
Developments (Pty) Ltd
1985 (1) SA 737 (AD)
Facts
The lessee of a portion of a modern office block had removed existing
demountable partitioning and replaced it with different demountable
partitioning. The lessor contended that this came down to improper use of
the leased premises, that is to say, breach of contract. The lessor then applied
for an ejectment order against the lessee based on the alleged breach of
contract.
Judgment
In order to determine whether the lessee had used the leased premises in a
proper manner, regard should be had to:
l the effect of the lease;
125
Specific contracts in court
l the global scope and purpose of the lease; and
l the intention of the parties.
Clause 11 of the lease agreement provided that ‘the lessee shall not make
any alterations or additions to the premises without the lessor’s written
consent’. The court held that to interpret this provision in isolation would
lead to absurd results. Therefore, the clause should not be interpreted
literally, but in view of the whole of the lease agreement.
Since the alterations were of a temporary nature and did not alter or damage
the structure of the leased property, the court found that the lessee had not
been in breach of the lease agreement. The ejectment order was refused.
17 Return of property on termination of lease
[74] Swart v Van der Vyver
[1970] 1 All SA 486 (A), 1970 (1) SA 633 (AD)
Facts
In this case, a dispute arose regarding the calculation of damages where the
lessee failed to return the leased property to the lessor in a proper condition.
Judgment
The court confirmed that a mere breach of contract does not necessarily
result in a claim for damages. For a claim for damages to succeed, it must be
proved that such damages were actually suffered. The amount of such
damages is normally calculated by comparing the sufferer’s present
patrimonial position with the position in which he would have been if the
breach had not occurred.
The starting point is to determine the patrimonial loss actually suffered.
Where the malperformance consisted of the failure to repair or maintain a
thing, the damages would primarily consist of the difference in the value of
the thing as it is and the value it would have had subsequent to its repair or
maintenance. As a general rule, it can be accepted that the reasonable costs
of repair or maintenance would be an indication of such difference in value.
Applied to a contract of lease, this means that the lessor would necessarily
and without exception be entitled to the reasonable costs of repair or
maintenance in respect of the leased property returned to him in an improper
condition.
However, in some cases, there is no link between the costs of repair or
maintenance and the damages actually suffered. To calculate damages in 126
Letting and hiring
such cases on the basis of the costs of repair or maintenance would amount
to a disregard of the equitable principle that damages should accord with the
amount of damage actually suffered. In some cases, the costs of repair or
maintenance can be used in order to calculate the damages actually suffered.
In view of the above, the court held that the reasonable costs of repair or
maintenance were not an absolute or the only norm for the calculation of
damages where the leased property is returned in an improper condition. In
the present case, the court found the costs of repair or maintenance not to be
a reliable indication of the damages actually suffered.
[75] Mutual Construction Co (Tvl) (Pty) Ltd v
Komati Dam Joint Venture
[2009] 1 All SA 458 (SCA), 2009 (1) SA 464 (SCA)
Facts
The parties entered into an agreement in terms of M, let a truck to K,
together with the services of an operator. As a result of the negligence of the
operator whilst operating the truck at K’s construction site, the truck was
involved in an accident and was extensively damaged. M sued K in the court
a quo for the cost of repairing the truck plus its loss of income while the
truck was being repaired. The evidence showed that the operator of the truck
had negligently fallen asleep as he had failed to rest, despite K offering him
the opportunity to do so. The judge considered this to be a failure which fell
beyond K’s control and that, in these circumstances, policy and fairness
dictated that K not be held liable for the operator’s negligence. The court
therefore dismissed M’s claim and he appealed to the Supreme Court of
Appeal.
Judgment
Leach AJA reiterated the trite principle that a lessee was in general obliged
to return the leased article in the condition it had been in at the outset of the
lease, fair wear and tear excluded. Absent an agreement to the contrary, all
the lessor has to prove is that the article was returned in a damaged state.
This then placed the onus on the lessee to prove that the damage did not
result from his own negligence or that of others under his control for whose
acts he was liable. In the present case the parties had agreed that the operator
had been negligent in driving while so tired that he fell asleep. The lessee’s
liability was thus entirely dependent on the parties’ contract.
Clause 10 of the agreement between M and K obliged the operator to work
on site under K’s ‘sole and absolute control’. The issue was thus whether the
operator’s negligence had to be construed as negligence for which K bound
itself to be liable in terms of clause 21 of the agreement which, inter alia,
provided that the lessee ‘shall be responsible for all 127
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expenses arising from the breakdown, loss or damage to the plant occurring
through the hirer’s negligence, misdirection or misuse’.
The question of K’s liability therefore had to be answered with reference to
the contract and not to the principles of vicarious liability in delict, which
appeared to have been the approach of the court a quo.
The court finally held that the operator’s negligence while on site and under
K’s supervision and control had to be construed as ‘the hirer’s negligence’
mentioned in clause 21, thus rendering K liable to M for the resulting
damages. The appeal was upheld.
18 Sublease
[76] Spies v Lombard
[1950] 3 All SA 355 (A), 1950 (3) SA 469 (AD)
Facts
L had leased two farms from S. L entered into a partiarian agreement with F
in terms of which F cultivated a portion of the land in return for a portion of
the proceeds. S sought an order for the cancellation of the lease as well as an
ejectment order against L on the grounds that L had sublet the property in
breach of their contract and without S’s written permission.
Judgment
The court pointed out that subletting the property could possibly have been
to the lessor’s detriment because the sublessee
l could fail to make proper use of the property; or
l could be in breach of other contractual duties.
The court pointed out that article 9 of the Placcaat of 1658 prohibited the
sublease of immovable property without the prior written consent of the
lessor. The reason for requiring his or her consent was to overcome the
problems mentioned above.
Originally, the lessor could summarily terminate the contract of lease where
the property was subleased in conflict with the Placcaat, in which case the
lessee lost his or her right to compensation for improvements and, in
addition, incurred a fine.
The court held that the following provisions of the Placcaat were received
into South African law:
l The lessee of rural land may not sublet the land without the lessor’s written
consent and, consequently, the sublessee cannot invoke his or her contract as
against the landlord.
128
Letting and hiring
l The lessee is entitled to compensation for certain attachments and
improvements (see Palabora Mining Co Ltd v Coetzer ([71])).
The penal provisions of the Placcaat, however, do not form part of South
African law, that is to say,
l summary forfeiture by the lessee of the remainder of the lease; l forfeiture
of compensation for attachments and improvements; and l paying a fine.
In casu, the court held that the partiarian agreement between L and F did not
fall within the ambit of subletting as prohibited in the contract between S
and L and ordered absolution of the instance.
[77] Mighty Solutions t/a Orlando Service Station v
Engen Petroleum Ltd
2016 (1) BCLR 28 (CC), 2016 (1) SA 621 (CC)
Facts
M was a licensed petroleum retailer in terms of the Petroleum Products Act
120 of 1977. E is a licensed wholesaler and distributor of petroleum
products.
E leased a property from M registered in Soweto and developed it into a
fully operational branded service station. In September 2005 E entered into
an operating lease (sublease) with M pursuant to this lease (the main lease),
which would be valid until the end of March 2008. The sublease could be
cancelled on one month’s notice by either party.
M operated a service station on the site, using E’s equipment, signage and
trademarks. After expiring at the end of March 2008, the operating lease
between E and M continued on a month-to-month basis until it was validly
cancelled in July 2009. However, M continued to occupy the site, using E’s
equipment, signage and trademarks without paying rent to E or the owner of
the property.
In 2013 E applied to the High Court for an order to evict M. The issues to be
determined were
l whether E had locus standi at common law to apply for an eviction order;
and
l whether M could rely on possessory rights arising from its fuel retail
licence as read with the Petroleum Products Act.
It was common cause that M had no common-law right to continue
occupying the premises, as both the operating lease and the subsequent lease
arrangements had been validly terminated.
E argued that the onus was on M to show why E was not entitled to evict it.
E cited several authorities to show that a lessee has no right in law to
challenge the right of a lessor to occupy the property. In the Appellate 129
Specific contracts in court
Division’s decision in Boompret Investments (Pty) Ltd v Paardekraal
Concession Store (Pty) Ltd 1990 (1) SA 347 (A) 351 Van Heerden JA said:
‘It is, of course, true that in general a lessee is bound by the terms of the
lease even if the lessor has no title to the property. It is also clear that when
sued for ejectment at the termination of the lease it does not avail the lessee
to show that the lessor has no right to occupy the property.’
M submitted that the Petroleum Products Act had effectively abolished E’s
common-law rights. It argued that a retail licence-holder in its position
acquired possessory rights under the Act and that these could only be
terminated after the licence was revoked by the Controller of Petroleum
Products.
The High Court held that E had a common-law right to evict M and that this
right had not been superseded by the Act. The court held that, given the rule
in Boompret, M could not question E’s right to occupy the property. The
court found no support for M’s contention that the Act that took away E’s
common-law rights and conferred on M a possessory right that only the
Controller could terminate. According to the court, accepting M’s argument
would create a new sort of super lessee, with rights far in excess of rights of
other lessees.
M’s application for leave to appeal to the Supreme Court of Appeal was
dismissed because it had no reasonable prospects of success. M then applied
to the Constitutional Court for leave to appeal.
Judgment
Did E have standing to evict?
M contended that E lacked legal standing to seek its eviction because E’s
head lease with the site owner had terminated before the commencement of
the eviction proceedings. M argued that the High Court’s finding, based on
the common-law rule stated in Boompret, namely, that a lessee has no right
in law to question the right of a lessor to occupy a property, is correct only
on a ‘superficial reading’ of the common law.
E’s arguments were:
l It is a long standing rule of the law of lease that a lessee cannot raise the
defence that the lessor has no right to occupy the property when being sued
for ejectment upon termination of the lease. This goes to the underlying
logic of the contract of lease. First, one of the naturalia of the contract of
lease is that, upon termination of a lease, the lessee is obliged to restore
vacant possession of the property to the lessor.
Second, the lessor is contractually entitled to demand the eviction of the
lessee at the end of the contract, irrespective of whether the lessor has any
real or personal rights entitling it to occupation.
l The position of a sublessor would be untenable if it was unable to evict the
sublessee upon termination of a lease without first proving its title.
If the head lease and the sublease expired at the same time, the sublessor
would be bound contractually to the lessor under the head lease 130
Letting and hiring
to restore vacant possession of the premises to it. If the sublessor did not do
so because its subtenant remained in occupation it would become liable to
pay damages for holding over to its lessor.
l On M’s argument, the sublessor would have no legal standing to seek an
eviction order against the subtenant, which would be under no obligation to
pay rent in exchange for its occupation of the premises.
This would lead to the untenable situation where the sublessor would be
unable to fulfil its own contractual obligations and will be unable to compel
the subtenant to fulfil its obligations.
Van der Westhuizen J proceeded to explain the common-law position.
Starting with the principle stated in Boompret, the judge reiterated that it is
an established rule that, when being sued for eviction at the termination of a
lease, a lessee cannot raise as a defence that the lessor has no right to occupy
the property. This flows naturally from the principle that a valid lease does
not rest on the lessor having any title. According to the judge, Boompret left
the common law unchanged and did not create a specific Boompret rule or
principle. He held that the High Court applied the common law correctly in
that it was unpersuaded that M was able to raise the defence that E no longer
has a right to occupy the premises. He stated that this would be true even on
the assumption that E no longer had title when it applied to evict M and
concluded:
‘The rule is clear: a lessee or sublessee cannot rely on a defence that its
lessor or sublessor lacks title in order to resist eviction upon termination of
the lease. [M] is a sublessee trying to do exactly that. Under the common law
[E] had standing to evict [M]. Questioning the rationale for the rule takes us
rather to a separate question, namely whether the law ought to be
developed.’
Does the common law have to be developed?
Van der Westhuizen J stated that before a court proceeds to develop the
common law, it must
l determine precisely what the common-law position is;
l then consider the underlying reasons for the legal position; l determine
whether the rule offends the spirit, purport and object of the Bill of Rights
and therefore requires development;
l consider exactly how the common law could be amended; and
l take into account the wider consequences of the proposed change on that
area of law.
The judge stated that in the present case, M took aim at the heart of the
common law of lease. He reiterated that the rule in question was so
entrenched that it is a natural incident of all contracts of lease which is
implied by law unless the parties expressly agree otherwise. Therefore, the
judge held that a development of the common law would in itself not bring
about M’s success because, even if this settled common-law rule were
adjusted, the contract between E and M would still stands. According to the
court, M sought to escape the legal obligations it undertook when it
concluded the operating lease by asking that a basic principle of the law of
131
Specific contracts in court
lease be abolished with retrospective effect. It held that M could succeed
only if the court retrospectively altered the contract. M would have had to
establish that the contractual term was contrary to public policy but failed to
do so.
Finally, Van der Westhuizen J held that there was no apparent reason to
develop the common law in casu as the rule does not offend the spirit,
purport and objects of the Bill of Rights, or the values of our constitutional
democracy. He held that to relax the common-law rule in order to allow M
to remain in occupation until E proved valid title would be unjust and
commercially reckless and might have far-reaching and unnecessary
implications for the law of lease and of contract in general. As M’s
application bore no prospects of success, leave to appeal was refused.
19 Renewal of the lease
[78] Mokone v Tassos Properties CC
2017 (10) BCLR 1261 (CC), 2017 (5) SA 456 (CC)
Facts
See Mokone v Tassos Properties CC [29] for the facts of this case. This
discussion deals only with the issue whether, when parties renew a lease
without saying more ( simpliciter), only terms that are ‘incident to the
relation of lessor and tenant’ are renewed.
Judgment
Madlanga J stated with reference to Levy v Banket Holdings (Private) Ltd
[1956] 3 All SA 68 (FC), 1956 (3) SA 558 (FC) 563B–C that our courts
have proceeded from an assumption that English law on this subject forms
the basis of our common law. According to the judge, the English law is to
the effect that a term that is collateral, and not an incident, to the relation of
lessor and tenant, continues during the period of extension of a lease only if
it is clear that this is what the parties to the lease intended. He stated that the
English authorities he referred to deal with options. However, like an option,
a right of pre-emption is considered to be collateral to, and independent of,
the relation of lessor and lessee (with reference to Doll House Refreshments
(Pty) Ltd v O’Shea [1957] 1 All SA 423 (T), 1957 (1) SA 345 (T) 351E).
The judge quoted from Halsbury’s Laws of England (2012) 2 169–170
where the principle is put thus:
‘[A]n option is collateral to, independent of, and therefore not incident to,
the relation of
[lessor] and tenant. It is not, therefore, one of the terms which will be
incorporated in the terms of a yearly tenancy created by the tenant holding
over after the expiration of the original lease . . . If the parties agree that a
lease is to be extended, unless it is clearly shown that 132
Letting and hiring
it was their intention that the option to purchase should continue throughout
the extended period, it will not be deemed to be one of the terms of the
extended tenancy.’
The judge also quoted Levy stating the English position:
‘The principle of the English law seems to be clear. When a lease is renewed
simpliciter all the terms are renewed that are incident to the relation of
[lessor] and tenant. Terms that are collateral to and independent of such
relationship are not renewed unless the parties make it clear that they
intended this’ (562F–G).
With reference to Webb v Hipkins 1944 AD 95 104, Doll House 351E and
Levy 564E–F, Madlanga stated that this approach has been followed in South
Africa and Zimbabwe and that it appears to coincide with the Roman-Dutch
law position. He quoted at length from Pothier Treatise on the Contract of
Letting and Hiring (translated by GA Mulligan) (1953) 138:
‘Where by the same deed a property has been sold, and has been let by the
purchaser to the seller for a certain period, and after the expiry of that period
a tacit relocation has taken place, a distinction must be made between those
clauses of the deed which pertain to the contract of sale and those which
pertain to the contract of lease. It is only the latter that are deemed to be
repeated in the tacit relocation and not those which pertain to the contract of
sale rather than to the lease . . . [I]f you have let me a property and it is stated
in the lease that, if the property pleases me, you undertake to sell it to me
whenever called upon by me to do so during the period of the lease, you will
be discharged from this obligation at the termination of the lease, if I have
not called upon you to sell me the property, and though there has been this
tacit relocation your promise is not deemed to have been repeated in it. For
though contained in the same deed as the lease, it is not deemed to be part of
the terms of the lease, unless it appears from the circumstances that it was
actually such and that the lessee had accepted the lease only upon this
condition.’
Madlanga J stated that more than being interpretative, the rule applied by
English courts (and followed by ours) sounds more like a categorical
substantive rule. In this regard, he referred to a statement by Lord Atkinson
in Batchelor v Murphy 1926 AC 63 (HL) 68:
‘It is quite true that when there is a collateral agreement, it is not necessarily
transferred by a transfer of the lease, but it is perfectly competent to the
contracting parties if they are so inclined to use language which will carry in
a collateral agreement just as well as any stipulation springing from the
relation of landlord and tenant.’
According to the judge, the Levy rendition of the English rule quoted above
also makes this clear. Likewise, Pothier states that it is not being
‘ deemed’ that an option is ‘part of the terms of [an extended] lease, unless it
appears from the circumstances that it was actually such’. The judge
concluded that this is definitely a categorical substantive rule.
He stated that, on first principles, the issue at hand concerns the
interpretation of the words in terms of which an extension was effected and
that one should be wary of generalisations or positions assumed a priori.
A fundamental problem that Madlanga J had with the present approach is
that it proceeds from what seems to be the understanding of not just lawyers,
but lawyers in the know in so far as this topic is concerned. He considered
the example in Sherwood v Tucker [1924] 2 Ch 440 as instructive. In that
case the judge was of the view that, as lay people who had extended the
lease without the assistance of lawyers, the lessor and lessee must have
intended to extend the contents of the entire document that 133
Specific contracts in court
contained the terms of the lease. However, Pollock MR who sat on appeal
disagreed:
‘I protest against the doctrine that the meaning of words ought to be
construed according as they are used by laymen or by lawyers. I think that
we have to take the words as they stand and construe them, and that we
ought not to speculate upon what was the probable intention of the parties.
Their intention is to be found in the meaning of the words which they have
used, properly construed’ (443).
Pollock MR proceeded to ‘construe’ the words that had been used in that
matter, namely, ‘we agree that this lease be extended’. He stated:
‘[A]re those words apt to cover the option as well as the extension of the
demise? I think they do not cover the option. There is a clear distinction
between the two things. The first is the demise of the premises by the
[lessor] to the tenant, and although it is to be found in an agreement, or in a
lease signed and executed by the parties, still the option is a separate and
independent contract whereby a chance is given to the tenant . . . to purchase
the freehold of the premises which are demised to him’ (443).
According to Madlanga J, that may be the understanding of lawyers. He
asked whether it is likely to be the understanding of ordinary lay people and
whether lay people would not likely regard the contents of a document
setting out the terms of their lease and a related pactum de contrahendo as
their ‘lease’. He answered his own question as follows:
‘I think it is more likely that they would. Indeed, they would most likely
regard the document itself as their lease. Put differently, it is more likely that
to them their lease would be the lease proper and the pactum de
contrahendo. That should mean, when ordinary lay people use the words
“we agree that this lease be extended”, they may well be intending to extend
all the terms of the written agreement, pactum de contrahendo and all. This I
say because I cannot conceive of ordinary lay people being able to draw a
distinction between terms that are “collateral to, and independent of, the
lessor and lessee relation” and to then extend or renew their lease in
accordance with that distinction.’
Referring to Natal Joint Municipal Pension Fund v Endumeni Municipality
[2012] 2 All SA 262 (SCA), 2012 (4) SA 593 (SCA) para 18, Madlanga J
stated that interpreting a contract concerns establishing the meaning of its
wording. According to Wallis JA in this case, the proper approach to
interpretation ‘is from the outset to read the words used in the context of the
document as a whole and in the light of all relevant circumstances’
(para 24). Madlanga J stated that ordinary lay people are capable of
understanding ordinary words and that they are likely to use them in
accordance with that understanding. According to him, the use of language
by non-lawyers who know nothing about the distinction drawn in Sherwood
and other cases must be part of the ‘relevant circumstances’.
‘It escapes me why a lawyer’s understanding – especially on ordinary words
( not legalese) – should effectively become an imposed meaning to nonlawyers.’
The judge conceded that it happens that lay people make extensions of this
nature without involving lawyers, stating that the present extension is an
example and so is the extension in Sherwood.
In Levy Tredgold CJ sought to justify the English approach on the basis that
it is ‘essentially reasonable’:
‘[T]he approach of the English law seems to me to be essentially reasonable.
If there is in existence an agreement containing a lease and matters that are
not incident to the 134
Letting and hiring
relationship of landlord and tenant, and if agreement is reached simply “to
renew the lease” then surely any reasonable person would understand that
the lease and nothing more was to be renewed, and would feel it incumbent
upon him, if he wished to extend any other portion of the agreement to
stipulate expressly that this should happen’ (546F).
Madlanga J disagreed, stating that the above explanation also suffers from
the very problem of imposing the understanding of lawyers on non-lawyers.
Rather than speak of ‘any reasonable person’, the court should have spoken
of ‘any reasonable lawyer’. He stated that it seems more reasonable that
when non-lawyers write the word ‘extended’ across the face of a written
lease, generally they mean to extend not only the lease, but everything
contained in the document, including a pactum de contrahendo.
Madlanga J’s problem with the present common-law rule, which proceeds
from an a priori position, is that it favours lessors. The judge was unable to
think of a convincing reason why that should be the case and held that it was
less about interpretation and more about laying down a categorical
substantive legal rule.
The judge held that, where, in extending their lease, parties – without
stipulating anything more – state that their lease is extended, he generally
read that to mean all the terms of the lease, including terms that are
‘collateral, and not incident, to’ a lease are being extended. However, he
stated that certain terms may be of such a nature that it is clear that the
parties could never have contemplated to extend them either at all or in this
manner. According to him, all this is about meaning, specifically the
ascertainment of the meaning of the words used in extending the lease.
Where there is no readily ascertainable meaning, the ordinary rules of
interpretation must apply without adopting any a priori position. If a term or
terms are not meant to be extended, that must be made clear.
Madlanga J’s preferred approach is that the party against whom the term in
issue may be operating oppressively may always stipulate expressly or
tacitly – at the time of renewal – that that term will not be extended.
The judge found some support for this approach in a statement by Van den
Heever JA in Shenker Bros v Bester [1952] 1 All SA 150 (C), 1952 (3) SA
655 (A) 677B–C that ‘[i]n the absence of express stipulation to the contrary
in the renewal of a lease, its collateral parts are also deemed to have been
renewed’. He found further support in the American case of Tubbs v
Hendrickson 88 Misc 2d 917 (NY Misc 1976) where the court answered the
question whether a right of first refusal to purchase the leased property
endured alongside a tacit relocation in the affirmative.
The endorsement in Mokone read: ‘Extend till 31/5/2014 monthly rental R5
500.’ According to Madlanga J this did not change anything. All it did was
to indicate the duration of the extended lease and the increased rental. But
for that detail, he did not see this to be any different from the example that
says ‘the lease is extended’ without more.
135
Specific contracts in court
Madlanga J stated that the common law on the issue was well-
established dead against the route that he sought to follow. In answering his
question whether it was open to him to follow that route, he referred to
section 39(2) of the Constitution which provides that ‘when developing the
common law or customary law, every court, tribunal or forum must promote
the spirit, purport and objects of the Bill of Rights’. It only becomes
necessary to develop the common law in this manner ‘where the common
law as it stands is deficient in promoting the section 39(2) objectives’
(referring to Carmichele v Minister of Safety and Security 2001
(10) BCLR 995 (CC), 2001 (4) SA 938 (CC) para 39). However, the judge
pointed out that there are instances where the common law may suffer from
a deficiency that is not at odds with the Bill of Rights. If this deficiency is of
a nature that necessitates the development of the common law, that cannot be
done in terms of section 39(2).
Madlanga J explained that the Supreme Court of Appeal and High Court
have ‘always had an inherent jurisdiction to develop the common law to
meet the needs of a changing society’ (referring to Amod v Multilateral
Motor Vehicle Accident Fund 1998 (10) BCLR 1207 (CC), 1998 (4) SA 753
(CC) para 22). If section 39(2) were to be read to have removed the power of
courts to develop the common law where its shortcomings do not implicate
the Constitution, it would be a retrograde step and absurd.
According to him, that would mean, even if it were clamant that the common
law be developed on a non-constitutional basis, courts would not be able to
do anything despite the fact that for centuries – in the era before our
constitutional democracy – courts have always been able to develop the
common law. The judge pointed out that section 173 of the Constitution
provides that the Constitutional Court, the Supreme Court of Appeal and the
High Court have the inherent power to develop the common law, taking into
account the interests of justice. According to him, this language is wide
enough to admit of the development of common law outside the ambit of
section 39(2).
The judge therefore held that the answer to the question whether it was open
to the court to develop the common law in the circumstances of this case was
‘yes’.
He summarised by saying that the lessor’s representative consciously took
the document embodying the original written lease and made the
endorsement on it. If this was not of some significance, the endorsement
could well have been made even on a blank piece of paper. That it was made
on the document embodying the original lease can only mean it is the lease
contained in the document that they were extending. And, based on what he
had said before, he held that that was an extension of all the terms of the
lease, including the right of pre-emption.
(For a full discussion of the validity of the right of pre-emption, see Mokone
v Tassos Properties CC [29].)
136
Letting and hiring
20 Termination of the lease
[79] Molusi v Voges
2016 (7) BCLR 839 (CC), 2016 (3) SA 370 (CC)
Facts
The applicants (M) occupied homes on a farm. The respondents (V) were the
trustees of a trust which owns the farm. M occupied the houses in terms of
leases concluded with the trust. M were occupiers in terms of the Extension
of Security of Tenure Act 62 of 1997 (ESTA). Most of the applicants had
been in occupation since about 2001. On 19 May 2009 the sheriff served the
applicants with notices dated 14 May 2009 terminating their rights of
residence on the farm. The reason for termination was stated as breach of the
terms of the leases by not paying rent despite demand. The applicants were
given two months’ notice to vacate the premises but did not do so.
Land Claims Court
V’s case in the Land Claims Court was that M were in breach of a material
term of their leases in that they failed or refused to pay rental, hence the
cancellation. M denied that they failed to pay monthly rental. They alleged
that they tendered payment of the rental during May 2009 but that V
refused to accept payment because they proposed to demolish the structures
occupied by M. M further denied that they received notices of termination. V
changed tack more than once. They did not pursue the reason for termination
mentioned in the notice of termination. First, V
changed from the original case based on breach for failing to pay rental to an
alleged need to develop the property as the reason for the eviction. V
then changed tack again and relied on ownership and that at common law a
periodic lease can be terminated on reasonable notice.
The court held that, in exercising its discretion whether to grant the eviction,
it was bound to consider whether M’s right of residence had been terminated
in accordance with ESTA and whether the procedural requirements were
met. The court recognised that the granting of eviction would render M
homeless. It accorded V’s right of ownership greater weight than the rights
of M as occupiers. The court held that, although V
did not comply fully with the service directives, M had become aware of the
application, and all the procedural requirements were met.
The court considered whether sections 8 and 9 of ESTA had been complied
with, in particular whether V had shown that it was just and equitable to
terminate the applicants’ rights of residence and to evict them. It accepted
V’s argument that at common law a periodic lease may be terminated on
reasonable notice by either the lessor or the lessee. The court held that
section 9(2) read with section 8 had been complied with, as the principal
reason for termination was that V needed the land for 137
Specific contracts in court
further development. It granted an order evicting M from the premises.
The court granted M leave to appeal to the Supreme Court of Appeal.
Supreme Court of Appeal
The issues for determination were whether section 9 read with section 8
was complied with and whether V, having founded their termination of M’s
rights of residence on a breach of a material term of each of the agreements,
namely, failure to pay the agreed rentals, were entitled at the hearing before
the Land Claims Court to rely on the common-law ground of termination by
reasonable notice.
The court held that reliance on the common-law ground of termination of the
leases was covered in the papers and that M were neither misled nor
ambushed at the trial. The court held that M’s failure to pay rental was an
adequate ground for termination of the leases. It remarked that V did not
abandon the ground of termination as contained in the notice of termination
but simply chose to argue the case on another basis which they were
perfectly entitled to do. The court held that failure by a lessee to pay the
agreed rental on the due date was a lawful ground for the termination of a
right of residence. It held that section 8(1)(d) was not relevant to this matter.
As regards section 8(1)(e), the court held that the procedure followed in
giving written notice of the termination of the right of residence and
affording M two months to vacate the premises was fair. The court agreed
with the Land Claims Court that section 8(1) of ESTA was complied with
and concluded that the termination of the right of residence was just and
equitable.
Constitutional Court
The Constitutional Court granted M leave to appeal. According to Nkabinde
J, the issue for determination was whether the Land Claims Court and
Supreme Court of Appeal were correct in deciding the matter on the
common-law ground that was not pleaded.
V maintained that cancellation of the periodic lease was not dependent on
breach and that the only prerequisite for cancellation was reasonable notice.
The judge stated that the determination of this issue required a consideration
of the notice in terms of section 9(2) of ESTA and the pleadings. The section
requires that the written notice of intention to obtain an order for eviction
shall set out the grounds on which the eviction is based.
The case for eviction that M were confronted with, in accordance with the
notice and the pleadings, was based on the lawful ground for cancellation of
the lease agreements because of non-payment of rentals. The court stated
that the section 9(2) notice makes no mention of the reliance on ownership
or common-law reasonable notice and that these grounds were
impermissibly raised for the first time in argument before the Land Claims
Court. The judge also pointed out that section 9(1) is manifest that
‘[n]otwithstanding the provisions of any other law, an occupier may be
evicted only in terms of an order of court issued under this Act’ and that the
phrase ‘any other law’ includes the common law.
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Letting and hiring
Nkabinde J held that although the Supreme Court of Appeal was correct in
holding that reliance on the common law does not exonerate the owners
from compliance with the provisions of ESTA, it nonetheless stated that no
unfairness was suggested by M and concluded that the procedure followed
by V was fair and that, save for section 8(1)(d), which it held was irrelevant,
section 9(2) was complied with. However, Nkabinde J stated that the
unfairness was palpable. The Land Claims Court noted that the probation
officer’s report set out that there was no alternative accommodation. The
existence of a reasonable expectation of the renewal of the agreement from
which the right of residence arose could not be excluded on the basis of
irrelevance as M asserted that they had not acted in violation of their leases.
Although V initially based the termination on non-payment, they did not
pursue that course. They changed tack and relied instead on the need to
develop the property as the ground for termination.
Nkabinde J held that the volte-face regarding the basis on which the eviction
was sought was unjust to M, as they dealt only with the case that they were
asked to meet. V therefore were not entitled to rely, as they did, on the
common-law principles as bases for eviction when the grounds were not set
out in the notice and properly pleaded. The judge stated that the Supreme
Court of Appeal may be correct that, at common law, the landowner would
have been entitled to the relief sought, but stated that that common-law
claim is now subject to the provisions of ESTA: The provisions of sections
8, 9, 10 and 11 have the result that the common-law action based merely on
ownership and possession no longer applies.
The judge concluded:
‘At the risk of repetition, reliance on the common law does not exonerate
owners from compliance with the provisions of ESTA. The fairness of the
eviction would still have to be considered, having regard to all relevant
factors. All such relevant factors were not considered. It follows that the
reliance on the common-law grounds was, in the circumstances of this case,
unfair to the applicants and impermissible.’
The court explained that ESTA requires that the two opposing interests of
the landowner and the occupier have to be taken into account before an order
for eviction is granted. Courts are obliged to balance these interests and a
court making an eviction order must ensure that justice and equity prevail in
relation to all concerned. This is done by having regard to the provisions of
sections 8, 9, 10 and 11 which make it clear that fairness plays an important
role.
V submitted that the Land Claims Court and Supreme Court of Appeal
considered all the issues and correctly concluded that it would be just and
equitable to evict M and that the Supreme Court of Appeal struck a balance
between V’s rights and those of M. V therefore sought an order dismissing
the appeal on the basis of lack of prospects of success.
However, Nkabinde J pointed out that the requirement of termination of the
right of residence on a lawful ground is but a portion of the requirement of
section 8(1). The section contains a proviso, namely, that the 139
Specific contracts in court
termination must be just and equitable, having regard to certain factors set
out in section 8(1)(a)–(e). These factors include
l the fairness of the ground on which the owner or person in charge relies;
l the conduct of the parties that gave rise to the termination; l the interests of
the parties including comparable hardship to the parties; and
l the fairness of the procedure followed by the owner or person in charge –
including whether the occupiers were given an effective opportunity to make
representations before their failure to pay rental.
In the end, Nkabinde J did not agree with the Supreme Court of Appeal that
section 8(1) was complied with for the purpose of granting an order for
eviction. That court relied on the common-law principle of rei vindicatio –
the action for the protection of ownership – and the reasonableness of the
notice of termination. Its attention was thus diverted from the interests of the
occupiers. In other words, the court did not strike a balance between the
interests of the owner of the land and those of the occupiers so as to infuse
justice and equity or fairness into the enquiry. It did not consider the fairness
of the termination of M’s rights of residence, nor did it attach sufficient
weight to the hardship that would follow from the termination of the rights
of residence and eviction. This decision was made despite the undisputed
evidence that the eviction would render the occupiers homeless, as there was
no suitable alternative accommodation.
Nkabinde J held that evicting M without compliance with ESTA would not
only render them homeless but would also frustrate their security of tenure
and the aims of ESTA. Nkabinde J concluded that the Supreme Court of
Appeal should not have dismissed the appeal and that it erred in doing so.
The appeal was upheld.
[80] Malan v City of Cape Town
2014 (11) BCLR 1265 (CC), 2014 (6) SA 315 (CC)
Facts
M was a 74-year-old woman who received a state pension. She leased a
home from the City of Cape Town at a subsidised rental. Ultimately she
breached the rental agreement by falling into arrears with the rental and by
allowing illegal activities to take place on the leased premises. The City
cancelled the lease and applied successfully to a high court for her eviction.
M appealed to the Constitutional Court. The issues before the court were as
follows:
l Was it permissible for either party to terminate the agreement on one
month’s notice as stipulated in the agreement or was something more
required?
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Letting and hiring
l May a public authority such as the City cancel a lease based on the lessee
falling into arrears alone or was something more required?
l When may a public authority legitimately enforce so-called ‘illegal
activities’ clauses in leases of this kind?
Majority judgment
Cancellation on mere notice
Clause 2 of the lease agreement provided that either party may terminate the
lease on one month’s notice. Eventually the City conceded that it could not
properly terminate on the basis of this power alone. It accepted that to
terminate a lease agreement in public rental housing on one month’s notice
would be oppressive and unconstitutional on the second leg of the test for
contractual validity laid down in Barkhuizen v Napier 2007 (7) BCLR 691
(CC), 2007 (5) SA 323 (CC).
Majiedt AJ regarded the City’s concession as correct, stating that the power
of mere cancellation in clause 2, without further justification, did not pass
constitutional muster because it enables either party to terminate the lease
without any cause, provided only that one month’s written notice is given.
He held that for a public authority to cancel a lease with an indigent tenant
on mere notice, for no further reason, is unreasonable and against public
policy because it would be an abuse of contractual power. Apart from
infringing the tenant’s security of tenure, it would create the possibility of
arbitrariness and abuse. Therefore, the judge held that lessees in public
housing may not be evicted merely on notice and that something more is
required, namely, either further breaches of the lease or the necessity to
secure vacant premises for other pressing public reasons.
While holding that it was unnecessary to decide in this case what those
pressing public reasons may be, he stated that, absent good cause, the
Constitution prohibits a government agency from using a contractual power
of termination against a tenant in need of public housing.
Was the city entitled to cancel the lease agreement on the ground of arrear
rentals?
At the time when the City launched the eviction proceedings,
l M was in arrears on her own version;
l she had been afforded an opportunity to remedy the default, but had failed
to do so;
l the City had given due and proper notice of cancellation based, inter alia,
on these arrears; and
l M had not taken any steps to settle her arrears in the period of just over two
months between the date of notice of cancellation and the cancellation itself.
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Specific contracts in court
Majiedt AJ held that a public authority may properly cancel a lease on the
ground of arrear rentals alone as a contrary conclusion would be untenable.
It would mean that an indigent tenant, once she took occupation of public
housing, could refuse to pay any rent, assured in the knowledge that no
amount of arrear rentals would provide a reason for eviction. The judge
explained that this cannot be: The City, being the custodian of a very scarce
public resource is certainly entitled to ration it according to just principles of
payment. It has important constitutional obligations to fulfil in providing
housing and faces huge challenges to meet them because of historical
deprivations and the continuing stream of people from rural areas flooding
into the city in pursuit of a better life. Not only is the City duty-bound to
make the most of a very scarce resource for which there is huge demand, but
it must fulfil its constitutional obligations to allocate housing to the needy
and deserving on a fair and equitable basis.
However, the judge held that the City first had to give M proper notice to
settle her arrear rentals as it would have contradicted important
constitutional values had it not done so. These values include the duty of
procedural fairness that a public authority owes its indigent housing tenants.
Majiedt AJ held that a fair process was followed in casu. Nevertheless, he
held that it was not necessary for him to decide whether the arrears on their
own would have been a sufficient ground for eviction, taking into account
considerations of constitutionality and fairness. This is because there was a
further strongly compelling ground for cancellation of the lease and M’s
subsequent eviction, namely, the wide-ranging illegal activities that were
being conducted on the leased property.
Illegal activities
Majiedt AJ held that in the absence of a detailed and motivated answer or
countervailing evidence from M, the court was bound to accept the City’s
uncontroverted allegations in this regard which fully justified the
cancellation of the lease. The judge cited various instances of illegal conduct
on the leased property.
The judge then proceeded to answer the question as to when it is legitimate
for a public authority to enforce ‘illegal activities’ clauses in public-housing
rental contracts. He stated that it would be unfair to impose more onerous
burdens on indigent people simply because they are reliant on social
housing. Their unequal bargaining power is a factor that should be taken into
account. He held that such clauses and reliance on them are legitimate as
long as
l they make it clear what conduct is prohibited;
l the tenant has the means to control the prohibited conduct; and l the tenant
has an opportunity to rectify a breach before cancellation.
Majiedt JA held that M had failed to remedy the breach and that the City
thus complied with the requirements of section 26(3) of the Constitution.
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Letting and hiring
In summary: the City lawfully and validly cancelled the lease agreement on
the ground of the illegal activities on the property.
Just and equitable
Finally, Majiedt AJ ruled that M’s eviction from the property must occur
within the requirements of the Prevention of Illegal Eviction from and
Unlawful Occupation of Land Act 19 of 1998 (PIE). PIE, in accordance with
section 26(3) of the Constitution, requires a court to balance the opposing
interests of landowners and occupiers. What is just and equitable therefore
bears consideration in respect of both parties. Factors including fairness,
social values and the implications of the eviction have to be considered.
In casu, the City offered to make alternative accommodation available to M,
namely, to accommodate M in one of the homes for the aged controlled by
the City, all being within a radius of 8 to 10 km from the leased property.
Majiedt AJ considered this to be a very reasonable offer which firmly tilted
the scales in the City’s favour when considering whether it was just and
equitable to evict M. Another good reason was that scarce housing stock
should be put to the best possible use by the city. The judge stated that as M
would be adequately accommodated, there was no good reason why the
property should not be made available to a deserving, needy family. As there
are many thousands of people waiting to be accommodated, the City also has
to bear in mind the rights and needs of these people. Majiedt AJ therefore
was satisfied that the High Court was correct in ordering the eviction.
143
Agency
Agency
21 General
[81] Allen v Sixteen Stirling Investments (Pty) Ltd
[1974] 4 All SA 271 (D), 1974 (4) SA 164 (D)
Facts
A sought an order declaring a contract of sale of immovable property to be
null and void because of a bona fide and reasonable error. A contended that
S’s agent (V) had pointed out the wrong property to him and that he would
not have entered into the sale had V pointed out the property which S wished
to sell. S excepted to the claim.
Judgment
The court held that the pointing out by V of the wrong property amounted to
a misrepresentation. Despite the principle that normally a misrepresentation
made by a representative is not imputable to the principal, the court in casu
held that in the present circumstances, the agent (V) had the implied
authority from the principal (S) to describe or make representations
concerning the property which he had to sell and that these representations
could have an effect on the validity of the contract. The court remarked:
‘Granted that his [V’s] mistake is not imputable to the defendant [S], it
seems nevertheless to be clear that the agent [V] had the implied authority to
describe or make representations concerning the property . . . and that his
[V’s] misrepresentation is accordingly attributable to defendant [S].’
The court held that the true cause of action was a reasonable mutual error in
corpore caused by V’s pointing out of the wrong property. This may cause
the contract of sale to be void ab initio. Exception was dismissed.
22 Agency distinguished from employment
contract
[82] Ongevallekommissaris v Onderlinge
Versekeringsgenootskap AVBOB
[1976] 4 All SA 358 (A), 1976 (4) SA 446 (AD)
Facts
X, who acted as a funeral undertaker for AVBOB, was injured in a car
accident. The question of whether or not X was entitled to compensation by
the Workmen’s Compensation Commissioner depended on whether he was
an agent or an employee of AVBOB.
147
Specific contracts in court
Judgment
The element of control is usually the strongest consideration in determining
whether or not the relationship between the parties amounts to a contract of
employment. However, each case should be considered in view of its own
relevant circumstances. Where the relationship has elements of both an
employment contract and another type of relationship, one must determine
which relationship creates the dominant impression.
The fact that one of the parties supplies the other with the equipment
necessary for him or her to carry out his or her task is often indicative of the
existence of a contract of employment between the parties.
After studying X’s letter of appointment, the court held that in casu, AVBOB
intended their relationship to be one of agency. However, the wording of the
letter of appointment, which had to be interpreted in its entirety, was not the
decisive factor. The great freedom which X enjoyed in the performance of
his duties also indicated that the parties did not have a contract of
employment in mind.
23 Ostensible authority
[83] Nel v South African Railways & Harbours
1924 AD 30
Facts
N had bought a car from X and requested him to rail it to Potchefstroom.
X telegraphed to V, his agents in Port Elizabeth, to dispatch the car to
Potchefstroom (at railway risk). The consignment note in the possession of S
contained the words ‘at railway risk’, but these words did not appear on the
note forwarded to N. Upon taking delivery of the car at
Potchefstroom, N refused to pay the higher railage (caused by the car being
sent at railway risk). The goods clerk then reduced the railage to the proper
charge of owner’s (N’s) risk. S later successfully claimed the amount of the
reduction in the court a quo and N appealed.
Judgment
It was common cause from the outset that S’s case was based on
ostensible or implied authority on the side of X and/or V since N had at no
stage given his express authority for the car to be railed at railway risk.
According to the court, there is no difference between an express and an
implied agency, in so far as the scope and the limitation of the agency are
concerned. Agency can only extend so far as it can be taken to 148
Agency
include all the usual means of executing the particular act of agency with
satisfaction and effect.
The extent of the authority depends directly on the contents of his or her
instructions and the nature of the particular act of agency and is mainly
limited by the purpose for which the agent is appointed.
Where an agent’s conduct goes beyond the limits of his or her authority, it is
no defence for him or her to contend that he or she, as agent, has acted for
the benefit of his principal.
The agent may only perform juristic acts which share a natural and causal
link with the particular act of agency. The test whether an agent has acted
within the limits of his agency is not so much a question of what is
reasonable but rather what is the usual practice under the circumstances.
In casu, the usual practice was that cars be consigned at owner’s risk.
The court held, therefore, that neither X nor V had implied authority to rail
the car at railway risk and allowed the appeal.
[84] Makate v Vodacom Ltd
2016 (4) SA 121 (CC)
Facts
While employed as a trainee accountant by V during November 2000, M
conceived the so-called ‘Please Call Me’ service which V launched in
February 2001. G, who at the time was V’s director of product development,
verbally agreed to remunerate M for his idea. M and G postponed
negotiations on the amount of compensation to a later date. They agreed that
if no agreement was reached, compensation would be determined by V’s
chief executive officer, K. However, no such agreement was ever reached. M
left V’s employ late in 2003.
In 2008 M instituted action in the court a quo to enforce the abovementioned
agreement with G which was to the effect that the parties would enter into
bona fide negotiations over compensation. V denied any such agreement and
contended that G lacked actual or ostensible (apparent) authority to bind the
company.
The court a quo accepted that M had proved the agreement between him and
V but dismissed M’s claim on the ground that G had no ostensible authority
and because the claim had prescribed under section 11(d) of the Prescription
Act 68 of 1969. The court held that the word ‘debt’ had to be widely
interpreted so as to include a claim that the defendant comply with its
obligations under a contract. The court also found that M should have
pleaded ostensible authority in replication instead of raising it in his
particulars of claim. The Supreme Court of Appeal refused leave to appeal
and M applied for leave to appeal to the Constitutional Court.
149
Specific contracts in court
Majority judgment
The court proceeded on the basis that there was indeed a compensation
agreement between M and G.
Jafta J explained that the court a quo’s decision that M had mistakenly raised
estoppel in his particulars of claim, was based on a wrong conflation of
estoppel and ostensible authority, which are distinct concepts. This
conflation had resulted in the elements of estoppel being attributed to
ostensible authority.
The court explained that estoppel was not a form of authority but a rule that
if the principal had conducted himself in a manner that misled a third party
into believing that the agent had authority, he was precluded from denying it.
However, the same misrepresentation could lead to ostensible authority by
creating the appearance that the agent had authority to act on the principal’s
behalf.
Ostensible authority has the sole requirement of the representation and
lacked the other elements of estoppel. Ostensible authority is the authority of
an agent as it appeared to others while estoppel was no authority at all.
These two concepts should not be collapsed into one.
G as director of product development was not only V’s leading man in
dealings with third parties regarding new products, but could make or break
any new product. All in all, G’s membership of V’s board of directors, his
power over new products, the organisational structure within which he
operated, and the process that had to be followed before a new product could
be introduced, gave the appearance that G had authority to negotiate all
issues relating to the introduction of new products at V. The court therefore
held that G had ostensible authority to bind V.
As far as prescription of M’s claim was concerned, the court held that M’s
claim for an order forcing V to enter into compensation negotiations was
beyond the scope of ‘debt’ as contemplated in section 10 of the Prescription
Act and that it had not prescribed.
The order of the court a quo was set aside and replaced with an order which
included the following:
l V is bound by the agreement concluded by M and G.
l V is ordered to commence negotiations in good faith with M for
determining a reasonable compensation payable to him in terms of the
agreement.
l In the event of the parties failing to agree on the reasonable compensation,
the matter must be submitted to V’s chief executive officer for determination
of the amount within a reasonable time.
Minority judgment
Wallis AJ agreed that M was entitled to the relief set out in the majority
judgment on the ground that G had ostensible authority to conclude the
agreement with M.
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Specific contracts in court
However, he held that, contrary to the decision in the majority judgment, it
was settled law that, where there was no actual authority, ostensible
authority was a form of estoppel. While ostensible authority could coincide
with actual authority arising by implication, in the present case there was no
authority at all, which took it into the realm of estoppel.
The view that ostensible authority could be raised only by way of a
replication, was incorrect as it could be pleaded from the outset. Therefore,
the court a quo’s finding that ostensible authority was not pleaded because it
had to be done by way of replication, was wrong.
Because V had represented to the world, including M, that G had authority
to conclude the agreement with M, G had ostensible authority to do so.
The result was that V was estopped from denying G’s authority.
Since V’s obligation to negotiate with M did not involve the payment of
money, the delivery of goods or the rendering of services, but required bona
fide conduct on both sides, M’s right did not constitute a debt for the
purposes of prescription.
Comment
Delport Henochsberg on the Companies Act 71 of 2008 (Service Issue 12
May 2016) 92(2) explains the effect and impact of the two conflicting
decisions of the Constitutional Court in Makate, starting with the majority
decision in terms of which apparent (ostensible) authority does not mean
estoppel.
‘Thus . . . it is apparent that estoppel and ostensible authority are different,
even though there may be some overlap between them, ostensible authority
is the power to act as an agent indicated by the circumstances, even if the
agent may not truly have been given the power. The minority judgment . . .
pointed out that this entails that ostensible authority is now treated as a form
of actual authority, in contrast to estoppel, which is no authority at all . . .
[S]uffice it to say that the minority judgment, respectfully, sets out the legal
position “since the early twentieth” century correctly . . . The effect of the
Constitutional Court judgment is that this hitherto correct position . . . is
unfortunately now amended, although the issues were not argued before the
Court . . . and also the root of the majority judgment to endeavour to
distinguish ostensible authority from estoppel is on an erroneous basis that
ostensible authority could only be raised by way of a replication. It should
also be noted that the basis of the reasons of the majority judgment that
ostensible authority exists . . . indicates an incidence of tacit/implied
authority, which is in actual fact an incidence of actual authority . . . The
effect of the Makate judgment is far-reaching and includes, inter alia, that
the Turquand rule, which operated only in respect of actual authority, can
now be applied also in respect of ostensible authority. It should be noted that
the Makate judgment is, with respect, unfortunate as it erased the legal
precedents
“since the early twentieth” century without a logical basis and, despite an
absence of constitutional imperatives such as informed by section 39(2) of
the Constitution of South Africa, 1996, it nevertheless decided that the case
indicated “a yearning for justice and equity” . . . The minority judgment in
fact expressly stated that it is not suggested that treating ostensible authority
as a form of authority and not estoppel is a constitutionally mandated
development of the common law.’
151
Specific contracts in court
24 Undisclosed principal
[85] Cullinan v Noordkaaplandse Aartappelkernmoerkwekers
Koöperasie Bpk
[1972] 2 All SA 1 (A), 1972 (1) SA 761 (AD)
Facts
N had sold seed potatoes to C. C failed to pay the purchase price and was
sued by N. C’s defence was that, although only one contract had come into
being, he had bought the seed potatoes on behalf of both himself and two
undisclosed principals. In addition, C brought a counterclaim for damages
against N, the amount of which exceeded the amount of N’s claim. C alleged
that he and his two undisclosed principals had suffered damages because of
some sort of blight in the potatoes. According to C, these two men had ceded
their right to claim damages from N for breach of the contract of sale to him
(C). N raised various exceptions to, and a request for, the striking-out of
some of C’s documentation which were upheld in the court a quo. C
appealed to the Appellate Division.
Judgment
The court confirmed that the doctrine of the undisclosed principal never
formed part of the Roman-Dutch law and that it had its origins in English
law.
The main objections against this doctrine are that it is in conflict with the
basic principles of the law of contract because
l only an actual party to a contract can, in law, be bound thereto; l only the
actual parties to a contract can acquire rights and duties in terms thereof; and
l in terms of this doctrine, a party may acquire rights and duties against some
person with whom he or she had in fact never contracted.
However, the court held that despite the above criticism, there were several
reasons why the doctrine of the undisclosed principal had to be accepted as
part of South African law, the reasons being
l the doctrine had been applied in commercial dealings in South Africa for
over 100 years;
l numerous transactions had already been concluded in terms of which the
parties have acquired rights and duties which would be lost retrospectively if
the Appellate Division rejected the doctrine as prevailing law; and
l it had already been incorporated in legislation (section 16 of the Transfer
Duty Act 40 of 1949).
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Specific contracts in court
This doctrine should be limited to one undisclosed principal since a party to
a contract
l may acquire rights and duties against some person with whom he or she
had in fact never contracted; and
l can be exposed to a multiplicity of claims against him or her of which he or
she was unaware.
As soon as the third party finds out that the agent has acted on behalf of an
undisclosed principal, he or she has a choice between holding either the
principal or the agent liable. Once this choice is made, the third party is
bound to it.
Since there was more than one undisclosed principal in casu, the court held
that the principals had acquired no rights from the contract between N and C
and that the cession thereof to C was invalid. The appeal was dismissed.
[86] Botha v Giyose t/a Paragon Fisheries
[2007] JOL 20007 (SCA)
Facts
B sold a business to G. Upon G’s failure to pay the purchase price as agreed,
B obtained an order in a Magistrate’s Court for cancellation of the contract
and damages, against which G appealed. On appeal to the court a quo, it
emerged that the business actually belonged to a close corporation of which
B, his son and his wife were the members. It was therefore a classical case of
an undisclosed principal. G contended that B acted as agent of the close
corporation and that he had no locus standi to sue in his own name on the
contract of sale. The court agreed and set aside the order of the Magistrate’s
Court. B appealed to the Supreme Court of Appeal.
Judgment
The court held that the doctrine of the undisclosed principal was not fully
understood by the court a quo. The judge referred to certain passages in
LAWSA where the legal position in this regard is explained as follows: in an
undisclosed principal situation, the agent and the third party create legal
obligations between themselves by the contract concluded in their own
names, but also between the undisclosed principal and the third party. The
contract is concluded between the third party and the agent acting in his or
her own name. In terms of the contract, the third party is liable to the agent.
He or she cannot avoid liability to the agent on the ground that he or she is
liable to the undisclosed principal, unless and until the undisclosed principal
elects to hold him or her liable.
In casu, the close corporation (undisclosed principal) did not seek to hold G
liable, and B (agent) therefore had locus standi to sue G in his own 153
Specific contracts in court
name. The court held that the appeal on this ground should not have been
allowed by the court a quo.
25 Remuneration payable to agent
[87] Barnabas Plein & Co v Sol Jacobson & Son
1928 AD 25
Facts
B, an estate agent, had, on the instructions of S, found a purchaser for S’s
business. Since the sum which the purchaser was willing to pay was
considerably less than what S had expected, S was not inclined to pay B his
full commission. Subsequent to negotiations between B and S, B’s
commission was reduced by agreement. Thereafter, S further negotiated with
the purchaser and the latter agreed to pay a much higher price.
When B heard of the increase in the purchase price, he insisted that his
commission should be increased in accordance with the increased price.
A dispute then arose between B and S regarding the amount of his
commission.
Judgment
The court held that where there is no express agreement as to the amount of
the remuneration, the amount must be ascertained
l from the custom or usage of the particular business in which the particular
act of representation took place; or
l in the absence of such custom or usage, by establishing what a reasonable
amount of remuneration would be.
The onus of proving such a usage of trade is not as strict as when a custom is
to be proved to have force of law, but it must be proved that all the parties
were aware of the custom or usage of trade.
When assessing a reasonable remuneration, take into account
l the nature and extent of the act of representation;
l the nature and quantity of the particular commerce or affair to be
transacted;
l the quality of the agent;
l the time expended on performing the act of representation; and l the pains
taken by the agent in performing the act of representation.
Despite these guidelines, each case should be considered on its own merits.
154
Agency
Then again, all the surrounding circumstances should be taken into account
in order to establish
l whether the parties had agreed on remuneration; and
l the amount of remuneration.
Where an amount of remuneration had been agreed on, the agreement would
be decisive.
In view of the above guidelines, the court held that the court a quo had
awarded a reasonable amount of remuneration and dismissed B’s appeal.
[88] Gordon v Slotar
[1973] 4 All SA 123 (A), 1973 (3) SA 765 (AD)
Facts
The principal had requested estate agent A1 to find a purchaser for his
house. Through A1, L made an offer to buy the house, but the offer was
rejected. The principal later requested an auctioneer (A2) to sell the house by
public auction. L attended this sale where no bid was accepted. A few days
after the public auction, A2 persuaded L to make an offer, which offer the
principal accepted. Upon learning of the sale, A1 sued the principal for
agent’s commission.
Judgment
For an estate agent to be entitled to agent’s commission, it must be proved
on a preponderance of probabilities that he or she was the effective cause of
the sale. Whether he or she was the effective cause is a question of fact
which has to be answered in view of the particular circumstances of the case.
For a proper evaluation of these circumstances, all relevant factors should be
weighed and considered in order to determine what the effective cause of the
sale was.
Although the court found A1’s original introduction of L to the principal and
the abortive sale in execution to be important factors, it held that A2’s power
of persuasion was the effective cause of the sale.
Comment
An estate agent is entitled to commission if it is proved that
l he or she was the effective cause of the sale;
l more than one factor has contributed to the sale, but his or her factor was
the decisive one;
l a willing and able buyer was introduced to the seller; and
l the event on which his or her right to commission depends, has in fact
occurred.
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Specific contracts in court
[89] Venter Agentskappe (Edms) Bpk v De Sousa
1990 (3) SA 103 (AD)
Facts
V had been mandated by D to sell a farm. V succeeded in bringing about a
sale between D and X. Clause 9 of the deed of sale provided that the agent’s
commission would be payable from the first available cash paid in terms of
the contract. X died shortly after the conclusion of the contract which
resulted in the cancellation of the contract. V claimed his commission from
D. The court a quo granted absolution from the instance and V appealed.
Judgment
The Appellate Division held that V’s conduct had been the effective cause of
the sale.
The question in casu was whether the mere fact that the deed of sale had
been cancelled, caused the obligation to pay commission to lapse.
The Appellate Division held that a distinction should be drawn between
conditions and contractual terms. In the case of a condition, the existence or
continued existence of the contract is subject to the fulfilment of the
condition. Where the condition is
l suspensive, the contract does not come into operation until the condition is
fulfilled; and where it is
l resolutive, the contract expires upon fulfilment of the condition.
However, a contractual term usually amounts to a contractual obligation
which can be enforced immediately upon conclusion of a contract.
Conditions therefore have an effect on the enforceability or continued
existence of a performance obligation, whereas a contractual term has no
suspensive or resolutive effect on a performance obligation and can be
enforced immediately upon conclusion of the contract.
The court held that clause 9 was a term (time clause), and not a condition.
Clause 9 merely laid down the moment upon which the agent would become
entitled to commission.
The court pointed out that the doctrine of fictional fulfilment of a condition
may also be applied where the realisation of a term had been rendered
impossible on purpose.
Therefore, the court held that clause 9 merely provided the time when
commission would be payable. Due to the cancellation of the sale, it had
become impossible that such a time would ever eventuate. Under the
circumstances, the commission had become due and payable immediately
and V was not compelled to rely on the doctrine of fictional fulfilment.
The court therefore held that V’s particulars of claim had constituted a valid
cause of action and the appeal succeeded with costs.
156
Specific contracts in court
26 Indemnity against losses
[90] Blumenthal v Bond
1916 AD 29
Facts
The appellant had instructed the respondent to purchase certain shares on the
Johannesburg Stock Exchange. A contract of sale of these shares was
concluded with X. The appellant later repudiated the sale because delivery of
the shares did not take place within the prescribed time. X insisted that,
under the rules of the Johannesburg Stock Exchange, the respondent was
obliged to take up the shares and pay for them. This demand from X
was allowed by a committee of the Johannesburg Stock Exchange. The
respondent’s claim for amounts paid by him in respect of the shares and for
brokerage was upheld in the court a quo. Hence this appeal.
Judgment
The question was whether the respondent (broker) had to be indemnified by
the appellant in respect of the moneys paid for the shares.
The general rule is that an agent is entitled to be indemnified by his or her
principal for all loss or liability incurred by him or her in the execution of his
or her mandate.
The court held that, by way of analogy with English law, where the agent’s
liability has arisen owing to the operation of the regulation or custom of a
particular market, the agent’s right to be indemnified depends on whether the
regulation or custom is
l reasonable; and
l legal; or, if not,
l whether the principal had notice of it.
Where the agent fails to notify the principal of such regulation or custom, the
principal would not automatically be bound thereto.
In casu, all the above requirements had been met and the appeal was
dismissed.
27 Agent’s knowledge, care and skill
[91] Mouton v Die Mynwerkersunie
[1977] 1 All SA 242 (A), 1977 (1) SA 119 (AD)
Facts
X had approached the respondent for a loan for purposes of a
development scheme. In order to assist X, the secretary of the O
157
Specific contracts in court
Association undertook to underwrite X’s creditworthiness by means of a
deed of suretyship. The respondent then instructed the appellant, an attorney,
to carefully determine whether the loan could be made to X with financial
safety. In this respect, the appellant drafted various documents, among which
was the deed of suretyship by the O Association. X later approached the
respondent for a second loan, which was handled on the same basis as the
first. In both cases, the appellant advised the respondent that the loan could
be made with safety. Upon X’s sequestration and inability to repay the loans,
the O Association was called upon. At this stage, it appeared that O’s articles
of association did not allow it to sign deeds of suretyship. Since nothing
could be recovered from either X or the O Association, the respondent sued
the appellant on the grounds that the respondent had suffered damages
through the negligent execution of his mandate by the appellant.
Judgment
The Appellate Division held that the appellant would be liable for
negligence if he failed to execute his mandate with the necessary degree of
knowledge, care and skill. The degree of knowledge, care and skill required
is that which would be required from the average attorney.
It was contended on behalf of the appellant that an attorney would not be
liable without further ado if he or she had made an error of judgment
regarding
l the appropriate legal principle;
l the validity of a document; or
l the capacity of a party to a contract.
The court, however, found that where the error of judgment was in fact due
to a poor degree of knowledge, care and skill, such conduct laid the very
foundation for the appellant’s liability in the present case.
The question then arose as to what sort of conduct in the execution of his
mandate in the present circumstances could be expected from the average
attorney.
In casu, the appellant should not have attached any weight to the opinions of
the secretary of the O Association. He should have acquired first-hand
knowledge of the Association’s competence from their articles of
association. In this way, he would have been able to establish with
reasonable ease that the Association had no competence to enter into deeds
of suretyship. Since he had not personally perused O’s articles of
association, he did not act with the necessary degree of knowledge, care and
skill.
158
Agency
28 Agent’s good faith
[92] Plaaslike Boeredienste (Edms) Bpk v Chemfos Bpk
[1986] 2 All SA 42 (A), 1986 (1) SA 819 (AD)
Facts
In this case, the appellant had bribed the respondent’s agent in order to
obtain contracts for the spreading of fertiliser. Having discovered the bribe,
the respondent then cancelled the spreading contracts.
Judgment
The position in English law is that where an agent has entered into a contract
on behalf of his principal with a third party and it is proved that the third
party has given a bribe to the agent, the principal may repudiate the contract
without having to prove that the agent had, in fact, been influenced by the
bribe. Such proof is not required since it is irrebuttably presumed that the
agent had been influenced by the bribe. However, there is no such
presumption in South African law.
Bribery usually happens where the agent, unbeknown to his or her principal,
receives some gift or remuneration from the third party who intends to
influence the agent to act in the third party’s interest and not that of his or
her principal.
By way of analogy with English law, the court in casu held that the
respondent had been entitled to repudiate the contract. After an analysis of
the English law, the court held that the real foundation of the right to
repudiate in a case such as this is that the law views bribery as an immoral
and wrongful act. In other words, the method used by the third party
(bribery) to influence the agent to conclude a contract on behalf of the
principal is immoral and unlawful. The law therefore does not allow the
third party to enforce, against the will of the principal, a contract which he or
she has obtained by means of immoral and unlawful conduct (bribery).
Accordingly, the appeal was dismissed.
159
Suretyship
Suretyship
29 Definition and requirements for validity
[93] Sapirstein v Anglo African Shipping Company (SA) Ltd
[1978] 4 All SA 474 (A), 1978 (4) SA 1 (AD)
Facts
S had bound itself as surety in respect of X’s indebtedness towards A. A
sued S as surety, and S excepted to the claim. The exception was dismissed
and S appealed.
Judgment
The basis of the exception was that the deed of suretyship was null and void
because there was uncertainty
l as to the identity of the sureties; and
l regarding an essential term of the contract, namely the identity of the
principal debtor.
The crucial issue in respect of the exception was that, at the time the
guarantee had been given, the principal debt had not yet come into existence
and the identity of the principal debtor and of the sureties had not yet been
ascertained.
S therefore contended that there had been a failure to comply with the
provisions of section 6 of the General Law Amendment Act 50 of 1956.
Section 6 provides that no contract of suretyship shall be valid unless l the
terms thereof are embodied in a written document; and
l such document is signed by or on behalf of the surety.
At common law, a suretyship could be contracted with reference to a
principal debt which had not yet come into existence.
The court quoted with approval the definition of suretyship supplied by
Caney ( The law of suretyship 2nd ed 34):
‘[A]n accessory contract by which a person (the surety) undertakes to the
creditor of another (the principal debtor), primarily that the principal debtor,
who remains bound, will perform his obligation to the creditor and,
secondarily, that if and so far as the principal debtor fails to do so, he, the
surety, will perform it or, failing that, indemnify the creditor.’
The court further confirmed the accessory nature of a contract of suretyship,
that is to say, that it is dependent on the existence of a valid principal
obligation. It is not a requirement that the principal obligation exists at the
time the suretyship is entered into. Suretyship can be contracted in respect of
a principal obligation which is to come into existence in the future. Extrinsic
evidence is admissible to prove that the principal obligation has come into
existence.
163
Specific contracts in court
Therefore, the court held:
‘What s 6 requires is that the “terms” of the contract of suretyship must be
embodied in the written document . . . This meant that the identity of the
creditor, of the surety and the principal debtor, and the nature and amount of
the principal debt, must be capable of ascertainment by reference to the
provisions of the written document, supplemented, if necessary, by extrinsic
evidence or identification other than evidence by the parties . . . as to their
negotiation and consensus.’
The court rejected the argument that, because of the number of potential
creditors, debtors and sureties, it could be difficult to sort out the parties and
determine their respective obligations, as this argument dealt with the
application of the terms of the contract and not with the interpretation
thereof. The appeal was accordingly dismissed.
Remarks
The Appellate Division held that the ‘terms’ of the contract of suretyship
referred to by section 6 of the General Law Amendment Act 50 of 1956
are
l the identity of the creditor;
l the identity of the debtor;
l the identity of the surety;
l the nature of the principal debt; and
l the amount of the principal debt.
Any alteration to the above terms must also comply with the prescribed
statutory formalities (reduced to writing and signed by or on behalf of the
surety).
[94] Fourlamel (Pty) Ltd v Maddison
[1977] 1 All SA 513 (A), 1977 (1) SA 333 (AD)
Facts
F had obtained summary judgment against M on a deed of suretyship in the
court of first instance. The court a quo overruled this order. F then appealed
to the Appellate Division. M’s defence was that the deed of suretyship did
not comply with the provisions of section 6 of the General Law Amendment
Act 50 of 1956 in that
l at the time of the signing of the deed, the name of the co-surety did not
appear on the document;
l the co-surety did not sign it; and
l neither the name of the creditor nor that of the principal debtor appeared on
the document.
M claimed, therefore, that he had in effect signed a ‘blank form’.
Judgment
The court pointed out that in the case of an agreement which is not, by law,
required to be in writing, it would be possible to insert particulars 164
Suretyship
which were left out at the time of the signing of the contract. This possibility
is excluded, however, where an agreement is by statute required to be in
writing and signed by the parties because the legislator’s aims would be
frustrated. These aims are, inter alia,
l to achieve certainty as to the true terms agreed on;
l to avoid fraud;
l to minimise perjury;
l to avoid unnecessary litigation; and
l to protect consumers (especially sureties) against unnecessary liability.
The question in the present case is what the legislature intended by the use of
the word ‘terms’. The court held that it should be understood in its plain,
grammatical meaning and be interpreted as ‘conditions or stipulations
limiting what is proposed to be granted or done’.
In casu, it was submitted that the names of the parties could not be regarded
as a term of the contract. However, the court held that the identification of
the parties was not only a term of the contract (as required by the
legislature), but an essential and material aspect of the contract of suretyship
which must be reduced to writing. In addition, the exact limits of the surety’s
liability must be embodied in the contract.
The court assumed in favour of F that certain other provisions (such as the
contract of lease in casu) could be incorporated into the deed of suretyship
by reference to other documents, provided that certum est quod certum reddi
potest (something is certain if it can in itself be rendered certain). However,
the court held that F could not supplement the blank spaces in the deed of
suretyship by means of incorporation through reference of some contract of
lease which could possibly identify the parties.
In view of the above, the appeal was dismissed.
[95] Jurgens v Volkskas Bank Ltd
[1993] 1 All SA 199 (A), 1993 (1) SA 214 (AD)
Facts
V had, from time to time, supplied J with blank printed deeds of suretyship
for signature. After J had signed them, secretaries of the principal debtor
(Jurgens Landgoed (Edms) Bpk) filled in the blank spaces for and on behalf
of J and returned the forms to V. When J was sued as surety by V, he raised
the defence that the deeds of suretyship did not comply with section 6 of the
General Law Amendment Act 50 of 1956
because they had been incomplete at the time of signature. The court a quo
found in favour of V and J appealed.
165
Specific contracts in court
Judgment
A contract of suretyship, being a bilateral juristic act, arises from an offer
and the unqualified acceptance thereof. The offer is a manifestation of the
offeror’s (surety’s) willingness to contract, made with the intention that a
contract of suretyship shall come into being upon the unqualified acceptance
thereof. The offer can only be accepted once it has been brought to the
attention of the offeree. The court pointed out:
‘It need hardly be said that there is a fundamental difference between, on the
one hand, the situation in which after a surety has signed and delivered a
blank form to the creditor, the latter unilaterally completes the blank form by
filling in some of the contractual terms, and, on the other hand, the situation
in which the surety has signed a blank form which is then filled in, by or for
and on behalf of the surety, before the document so completed is delivered to
the creditor.’
A prerequisite for a contract of suretyship is that the offer must contain all
the terms to which the surety is willing to bind him- or herself.
In the present instance, the offer was signed by the surety, completed on his
behalf and delivered to the creditor for his signature. Although the offer to
enter into a contract of suretyship was signed in blank by the surety, upon
which it was completed by an employee of the principal debtor, the offer
which came to the creditor’s attention contained all the essential and
material terms according to which the surety was willing to be bound, which
were
l the identity of the creditor;
l the identity of the debtor;
l the identity of the surety;
l the nature of the principal debt; and
l the amount of the principal debt.
The court held that section 6 of the General Law Amendment Act 50 of 1956
required
l the terms of the contract to be reduced to writing; and
l signature by the surety.
The function of the signature is:
‘. . . to signify that the writing to which it pertains accords with the intention
of the signatory. It conveys an attestation by the person signing of his
approval and authority for what is contained in the document; and that it
emanates from him.’
Section 6 contains no express provision as to when the surety’s signature
must be affixed to the deed of suretyship. Nothing is prescribed as to the
sequence in which the document must be completed and signed.
The court held that it is immaterial whether the surety signs the document
before or after completion of the material terms on his or her behalf. In
either case, the surety’s signature serves to authenticate the contents of the
document. The appeal was accordingly dismissed.
166
Suretyship
30 Liability as surety and co-principal debtor
[96] Neon and Cold Cathode Illuminations (Pty) Ltd v Ephron
[1978] 2 All SA 1 (A), 1978 (1) SA 463 (AD)
Facts
N had entered into a contract of lease with X company in respect of a neon
sign. E, a director of X company, bound himself in the lease ‘jointly and
severally in my personal capacity as surety and co-principal debtor in
solidum for the due performance by the lessee company of all its obligations
under this agreement’.
Since X had fallen in arrears with its payment of the rent, N sued E in his
capacity as lessee for the amounts outstanding. This claim was refused
because the wrong party had been cited in the summons (E, and not X
company). N later issued summons against E once again, this time in his
capacity as surety and co-principal debtor. Prescription was pleaded in
defence. The Magistrate’s Court nevertheless found in favour of N. E
lodged a successful appeal to a local division, whereupon N appealed to the
Appellate Division.
Judgment
The Appellate Division held that although the contract of suretyship was
accessory to the lease, the suretyship (a separate legal obligation) was
‘separate and distinct’ from the lease. E had bound himself as surety and coprincipal debtor with X, and he was not liable to N in any capacity other than
that of surety and co-principal debtor. The use of the words
‘co-principal debtor’ did not transform the contract of suretyship into some
other type of contract. The present contract remained one of suretyship.
E, by undertaking liability as surety and co-principal debtor, did not become
a party to the lease as co-lessee with X.
The only consequence that flows from a surety also undertaking the liability
of co-principal debtor is that he or she thereby tacitly renounces the ordinary
benefits available to a surety, such as those of excussion, division and
cession of actions.
Despite his tacit renunciation of these benefits, because of which he or she
becomes liable jointly and severally with the principal debtor, the surety
retains the right to obtain a cession of the creditor’s rights (and all securities
relating thereto) against the principal debtor. The surety (co-principal debtor)
can therefore step into the shoes of the creditor and sue the principal debtor.
The court held that the right which N sought to enforce against E was nonexistent, since X, and not E, was the lessee. Moreover, that right had 167
Specific contracts in court
originated from the lease. It was not incorporated in the contract of
suretyship and could not be enforced by suing E as surety and co-principal
debtor. E never became a lessee or co-lessee.
The Appellate Division eventually held that N’s rights against both X
and E had become prescribed. The appeal was accordingly dismissed.
31 Termination of the contract of suretyship
[97] Botha (now Griessel) v Finanscredit (Pty) Ltd
[1989] 2 All SA 401 (A), 1989 (3) SA 773 (AD)
Facts
F had sued B qua surety. The deed of suretyship, inter alia, provided that
‘[t]his deed of suretyship and indemnity shall not be cancelled save with the
written consent of the creditor’.
B argued that the above provisions were contra bonos mores (contrary to
morality). The contract was therefore illegal and did not create a valid legal
obligation.
Judgment
The Appellate Division held that, while public policy generally favours the
utmost freedom of contract, it must also ensure that equity and fairness
between the contracting parties are not undermined. A court’s power to
declare contracts void because they are contrary to public policy, should only
be exercised in exceptional cases where the impropriety of the transaction
and the element of public harm are manifest.
With reference to Sasfin (Pty) Ltd v Beukes [1989] 1 All SA 347 (A), 1989
(1) SA 1 (AD) (where a cession containing inequitable provisions was
declared void on grounds of public policy), the court held that the above
provisions of the deed of suretyship were neither ‘plainly improper and
unconscionable’ nor ‘unduly harsh or oppressive’. These provisions were,
therefore, not against public policy and did not affect the validity of the deed
of suretyship.
[98] Pangbourne Properties Ltd v Nitor Construction (Pty) Ltd
[1993] 3 All SA 770 (W), 1993 (4) SA 206 (W)
Facts
P had successfully sued N qua surety under a deed of suretyship. N
appealed and contended that the deed of suretyship was invalid because a
number of its provisions were against public policy.
168
Suretyship
Judgment
The court referred to Sasfin (Pty) Ltd v Beukes [1989] 1 All SA 347 (A),
1989
(1) SA 1 (AD), in which it was held:
‘Agreements which are clearly inimical to the interest of the community,
whether they are contrary to law or morality, or counter to social or
economic expedience, will accordingly, on the grounds of public policy, not
be enforced.’
In order to determine whether the contract in casu was void because it was
contrary to public policy, the court held to be important
l the circumstances surrounding the conclusion of the contract; and l the
contractual relationships between the creditor, the principal debtor and the
surety.
In view of the above, the court held:
‘[Where] clauses in a suretyship agreement are immoral or unduly and
unfairly burden-some and contrary to public policy, it seems to me that the
relationship between these various parties and the nature of the obligation to
be secured must be of great and often decisive importance’.
On occasion, the principal debtor is a mere shell and the creditor regards the
surety as the de facto ‘principal debtor’. This position must be distinguished
from the case where, for example, a friend of the principal debtor binds
himself as surety.
In certain circumstances, a clause in a deed of suretyship may be so immoral
and contrary to the public interest that it can never be enforced by law. But
other (usually standard) clauses must be judged against the purpose of the
contract, its setting and the relationship between the parties. Examples of the
latter are clauses
l clauses making statements or admissions by the debtor binding on the
surety;
l clauses fixing the term of the suretyship, and, for example, preventing the
surety from terminating the suretyship while the debt is in existence; and
l clauses relating to the provision and holding of security.
The court held that it does not follow that, if certain clauses were held to be
contrary to public policy in earlier decisions, they must always and in all
circumstances be held to be so contrary.
In casu, clause 1.14.1 of the deed of suretyship provided that the surety may
not revoke the suretyship without the prior written consent of the creditor,
and that the creditor shall, in its discretion be entitled to make such consent
subject to any condition. The court decided:
‘Insofar as this clause purports to deprive the surety of the legal right to
avoid the suretyship (on such grounds as fraud, misrepresentation, duress,
etc) it is contrary to public policy and will not be enforced . . . To this extent
the clause is contra bonos mores.’
The court also held that this clause could be interpreted in such a manner
that the suretyship would cover all future debts of the debtor, irrespective
169
Specific contracts in court
of whether they arise from the principal obligation or from any other cause.
The court decided:
‘In this event this clause cannot be countenanced. It keeps the surety bound
to the creditor for so long as the creditor desires and at the whim of the
creditor. The surety does not remain bound only for as long as a clearly
identified debt remains unpaid by the debtor.’
Clause 4.2 of the deed of suretyship extended the suretyship to any future
cause of indebtedness in addition to the indebtedness arising from the
original obligation.
Reading together this clause and clause 1.14.1 discussed above, the court
held:
‘Where a surety has bound himself for any debt of the debtor in the future,
this does not mean that the surety is bound to secure the rights of the creditor
in perpetuity. He may terminate. Any provision to the contrary
unconscionably burdens the surety . . . If the word “revoke” in clause 1.14.1
is held . . . to mean “terminate” . . ., then in my view . . .
this clause with clause 4.2 is contra bonos mores in that it holds the surety
bound to the creditor for so long as the creditor desires and for any
indebtedness whatsoever of the debtor . . . [this] is wholly unnecessary to
protect the rights of the creditor, serves no legitimate purpose and is contra
bonos mores.’
However, the court held that the offending clauses could be struck out,
leaving the remainder of the contract intact and valid. The appeal was
dismissed.
170
Credit agreements
Credit agreements
32 Scope of application of the
National Credit Act
[99] Absa Technology Finance Solutions (Pty) Ltd v
Michael’s Bid a House CC
2013 (3) SA 426 (SCA)
Facts
The second respondent (R) conducted business through the first respondent,
Michael’s Bid a House CC (M). R wished to acquire a certain type of printer
for M. Since M could not afford to buy the printer, R sought advice from one
V, a representative of W Office Equipment (W) regarding financing of the
sale. R decided on an arrangement in terms of which he would pay a
monthly amount of some R2 878 which would, as stated by V, finance the
printer ‘with full maintenance and service and toner supplied for the full 36
month contract’. V also stated in the written quotation that W could arrange
finance through Sapor Rentals (Pty) Ltd (S).
On 3 July 2008 R, on behalf of M, signed a ‘master rental agreement’
with S, in which he undertook to pay R2 878 per month for a period of three
years. R signed as surety for the obligations of M. The printer was delivered
to M and installed.
M paid the first amount of R2 878 to S on 9 July 2008. However, on 8 July
2008 S ceded its rights under the rental agreement to Absa Technology
Finance Solutions (Pty) Ltd (A). On 28 July 2008, R received a copy of the
signed agreement from S. On the same day R wrote to S, stating that he was
dissatisfied with the printer and with the failure to supply toner. According
to R, he had been misled into entering into the rental agreement and he was
cancelling it. He made the last payment on 8 August 2008.
Thereafter A instituted action for payment of arrear and future rentals
against M, and against R as surety, in the court a quo. It claimed return of
the printer, the sum of R111 533, interest a tempore morae and costs.
At the trial, R and M raised a number of defences. However, they did not
plead rectification, that the rental agreement was a simulated transaction, or
that the agreement had been induced by fraud. Although they pleaded that S
was in breach of contract because of W’s failure to deliver toner for the
printer or to maintain it, they did not show that S was W’s agent in this
regard. However, W had been liquidated and any remedy that R or M had
against it was thus of no use.
The court a quo held that any prior discussions between R and W were
inadmissible in view of the written agreement. The rental agreement also
173
Specific contracts in court
included a clause which was to the effect that no representations,
undertakings or warranties not contained in the agreement were binding on
the hirer, S. M acknowledged that it was referred to S by W, the supplier,
which had bought the machine at M’s request.
The court a quo found that the rental agreement was not a true lease, and
that, by implication, despite its written provisions to the contrary, the real
agreement between the parties was a sale on credit and therefore a credit
agreement for the purposes of the National Credit Act 34 of 2005
(NCA). This meant that A, as lessor, was obliged to give notice and to
proceed against M, as lessee, and R, as surety, under sections 129 and 130
before commencing enforcement of the agreement. (See Naidoo v Absa
Bank Ltd [111].) The court a quo therefore made an order that A had to give
notice and proceed in terms of sections 129 and 130, but gave leave to
appeal to the Supreme Court of Appeal.
Judgment
Lewis JA stated that the court a quo, having rejected the defence on the
merits, only had to determine whether the agreement in question was a lease
or any other agreement to which the Act applies as such a finding would
have obliged A, as cessionary of S’s rights, to give notice to M and R in
terms of section 129 and to comply with section 130. The court stated that
there were three bases upon which the agreement could possibly have
amounted to a credit agreement in terms of section 8(4).
This section, inter alia, provides that an agreement, irrespective of its form,
constitutes a credit transaction if it is a lease (section 8(4)(e)).
The main argument on behalf of M and R was that the rental agreement in
issue was indeed a lease. Lewis JA remarked that rental agreements
generally are leases, but that a lease as defined in the Act is the very
antithesis of a (common-law) lease. This is so, because of the definition of a
lease in section 1 of the Act in terms of which, at the end of the term of the
agreement, ownership of the leased property either passes to the consumer
absolutely; or passes to the consumer upon satisfaction of specific conditions
set out in the agreement. Lewis JA therefore explained that a true lease,
where the lessee is obliged to return the thing hired upon expiry of the term
of the lease, does not fall within the ambit of the Act, nor is the relationship
between the parties governed by it.
Next, Lewis JA examined the basis on which the court a quo found that the
agreement was a lease as defined in the Act. It appeared the court relied on
the evidence of R and A’s witnesses as to whether ownership of the printer
would pass to M at the end of the term of the agreement. The court found
such evidence to be relevant to the question whether or not the rental
agreement was a lease and admitted the evidence, despite A’s objection to it
being led. Leave to appeal against his finding was granted
‘because of the many judgments in the high courts dealing with the question,
and its importance in the commercial world’.
174
Credit agreements
According to Lewis JA, the first question was whether the admission of such
parol evidence was admissible in view of the terms of the rental agreement.
It, inter alia, provided that A shall at all times be and remain the owner of
the goods and that M had to return the printer on termination of the
agreement. This plainly meant that the requirement in the Act that ownership
of the leased thing must pass to the lessee was not met.
This prompted Lewis JA to ask on what basis the court a quo allowed parol
evidence that contradicted the clear terms of the agreement.
It appeared that the judge a quo had regard to decisions in which the courts
appeared to be willing to allow extrinsic evidence as to what the lessees had
intended in determining the nature of the transaction in issue.
However, having reviewed the positive law in this regard, Lewis JA held
that a court may not admit evidence as to what the parties intended their
agreement to mean if that has the effect of changing the terms on which they
clearly agreed. She stated that the terms of an agreement determine its nature
and may not be disregarded. Therefore, the court a quo should not have
allowed the evidence as to the parties’ understanding of the rental
agreement, especially as to the passing of ownership of the printer.
Finally, Lewis JA held that the rental agreement in question was a commonlaw lease and not one for the purposes of section 8(4) and upheld the appeal.
The second argument raised by M and R was that payment of the rental was
deferred and that their agreement was therefore a credit agreement in terms
of section 8(4)(f) as payment of an amount owed by one person to another is
deferred, and any charge, fee or interest is payable to the credit provider in
respect of the agreement or the amount that has been deferred. This
argument also failed as there was no deferral or extension of credit.
The third argument raised by M and R was that the agreement was an
incidental credit agreement as defined in the Act. Lewis JA held that the
rental agreement did not meet the test for this type of agreement because no
account was rendered, or required, for services rendered. Rental had to be
paid in terms of the agreement and no account was necessary.
Thus, this argument also failed.
The final decision therefore was that the rental agreement in question was
not governed by the Act and that A was not required to give notice of, or
comply with, the provisions of sections 129 and 130 before instituting
action.
175
Specific contracts in court
[100] Beets v Swanepoel
[2010] JOL 26422 (NC)
Facts
B lent her daughter, S, a sum of money in terms of a credit agreement to
enable S to acquire ownership in a piece of immovable property. S, inter
alia, fell into arrears with repayment of the loan and was sued by B. S
raised an exception against B’s particulars of claim in that it did not disclose
a cause of action. The exception was based on that
l B’s claim for money lent and advanced to S was based on a credit
agreement as defined in the NCA; and
l B did not aver in her summons and particulars of claim that there has been
compliance with the notification provisions of sections 129 and 130 and
therefore no cause of action was disclosed therein.
The court had to decide on two issues, namely
l whether the Act was, in fact, applicable to the transaction; and, if so, l
whether the particulars of claim were rendered excipiable because of noncompliance with the provisions of sections 129 and 130.
Judgment
Applicability of the Act
Majiedt AJP extracted the following aspects from the parties’ written
agreement as facts that were ‘germane’ to determine whether the Act applied
to their credit agreement:
l The parties were in a family relationship – the plaintiff was the defendant’s
mother.
l A very low interest rate of 4% below the prime lending rate on the loan was
agreed on.
l Highly favourable repayment terms were agreed on.
l B would amend her will so that the full loan amount would become a
bequest to S on condition that a gratuitous payment was made to her
granddaughter.
l As security for the loan, S would pass a second mortgage bond over the
property in favour of B.
l The particulars of claim made no reference to the Act, more particularly
compliance with section 129 and section 130 thereof.
Majiedt AJP stated that it was common cause that the loan constituted a
credit agreement as envisaged in section 8(4)(f)(ii), adding that the Act
applies to every credit agreement between parties dealing at ‘arm’s 176
Credit agreements
length’. He referred to section 4(2)(b)(iii) and (iv) where the term ‘arm’s
length’ is circumscribed for purposes of greater certainty:
‘(2) For greater certainty in applying subsection (1)– . . .
(b) in any of the following arrangements, the parties are not dealing at arm’s
length: . . .
(iii) a credit agreement between natural persons who are in a familial
relationship and–
(aa) are co-dependent on each other; or
(bb) one is dependent upon the other; and
(iv) any other arrangement–
(aa) in which each party is not independent of the other and
consequently does not necessarily strive to obtain the utmost
possible advantage out of the transaction; or
(bb) that is of a type that has been held in law to be between parties who are
not dealing at arm’s length.’
B’s counsel submitted that the transaction in question was not at arm’s length
because of the family relationship between the parties and the very
favourable repayment and interest rate terms.
However, it did not appear to the court as if section 4(2)(b)(iii)(aa) or (bb)
was applicable since, as far as the parties were concerned, the pleadings did
not reveal any co-dependence on each other or dependence of the one on the
other. The judge stated that the facts set out in B’s particulars of claim must
be accepted as correct unless they were palpably false.
In his view, no co-dependence or dependence could be inferred from the
transaction itself. It could be inferred from the pleadings that B, who was of
advanced age, preferred to receive a monthly income from the interest
payments and a donation to her granddaughter as quid pro quo for the loan,
instead of the acquisition of seaside property. Another inference was that S,
who was much younger, was out to acquire the property on the very
favourable terms agreed on.
The judge next considered whether section 4(2)(b)(iv)(aa) or (bb) may be
applicable. According to him, one had to accept for purposes of section 4(2)
(b)(iv)(aa) that, although family, the parties were indeed independent of each
other and no other inference emerged from the papers. It also appeared that
the parties intended to gain the ‘utmost possible advantage’ from the
transaction. As stated, B who was almost 80 years old at the time of the
agreement, was satisfied with receiving the interest payments and to arrange
a donation to her granddaughter. S, about half B’s age, was out to acquire
shared ownership of the immovable property on very favourable terms.
According to Majiedt AJP, the wording of section 4(2)(iv)(aa) is a
codification of the dictum of Trollip JA in Hicklin v Secretary for Inland
Revenue
[1980] 1 All SA 301 (A), 1980 (1) SA 481 (AD), a case dealing with section
103(1)(ii) of the Income Tax Act 58 of 1962, where the arm’s length
criterion was described as: ‘It connotes that each party is independent of the
other and, in so dealing, will strive to get the utmost possible advantage out
of the transaction for himself.’
177
Specific contracts in court
The judge then discussed various other areas of the law in which the arm’s
length criterion was discussed, stating that section 4(2)(b)(iv)(bb) also
requires a consideration of the types of arrangements which have been held
to be between parties who are not dealing at arm’s length. He referred to
Scholtz et al Guide to the National Credit Act 4-3 who refer to a number of
decisions where the arm’s length criterion has been considered.
Applying the criteria to be gleaned from these decisions to the case at hand,
the judge came to the following conclusions:
l The parties were in fact and in law independent of each other and the fact
that they are related to each did not detract from this.
l They intended to gain the maximum possible benefit from the transaction
for themselves.
l Regard must be had to the parties’ unique circumstances, namely, that
• interest was to be paid, although at a favourable rate; and
• when S was in breach of the repayment terms, a demand was
made, followed by the issuing of summons.
In view of the above, Majiedt AJP held that this was indeed an arm’s length
transaction to which the Act applied.
Excipiability of the pleadings
The court considered the notice provisions of sections 129(1)(b) and 130
and relevant case law and stated:
‘A plaintiff must . . . aver compliance with these sections in the summons or
particulars of claim to disclose a cause of action where the suit is based on a
credit agreement to which the Act applies. It is a material averment, the
absence whereof would render the pleading excipiable. Without the requisite
notice, a claim cannot be enforced.’
Because of his earlier finding that the credit agreement was an arm’s length
transaction to which the Act applied, Majiedt AJP upheld the exception that
B’s particulars of claim did not disclose a cause of action since it did not
contain averments that there had been compliance with sections 129 and
130.
33 The debt relief measures in the National
Credit Act versus voluntary surrender
under the Insolvency Act
[101] Ex parte Ford and Two Similar Cases
2009 (3) SA 376 (WCC)
Facts
In this case three debtors applied for voluntary surrender of their estates.
It appeared that a substantial portion of their liabilities consisted of credit
agreement debt to which the National Credit Act 34 of 2005 (NCA) 178
Credit agreements
applied. The court found it striking how disproportionately high this debt
was in relation to the relatively modest income of the applicants. The court
held that, on the facts, there were grounds for suspicion of at least some
degree of reckless credit extension in each of the applications. It indicated
that one of the objects of the NCA is to discourage reckless credit. The court
referred to its powers in terms of section 85 and pointed out that an
evaluation by a debt counsellor could lead to one or more of the consumer’s
credit agreements being declared reckless credit, resulting in the setting
aside of the agreements or suspension of the force and effect thereof.
The court therefore called on counsel for the applicants to present argument
as to why their over-indebtedness should not more appropriate-ly be
addressed by the mechanisms of the NCA instead of the ‘blunter’
instrument of voluntary surrender under the Insolvency Act 24 of 1936.
Judgment
The court held that section 85 is cast in very wide terms as is evidenced by
the words ‘in any court proceedings’, and held that the limitation of section
85 to proceedings in which a credit agreement is being considered does not
imply that the proceedings in question are restricted only to those in which
the enforcement of a credit agreement is in issue.
The court pointed out that in terms of the Insolvency Act, a court has to be
fully informed of the applicant’s proprietary situation and that an applicant
for voluntary surrender must also satisfy the court that the surrender of his or
her estate will be to the advantage of creditors. It held that these
considerations, in matters such as the present where overindebtedness is
almost exclusively related to debt arising from credit agreements, require the
court to take the existence and effect of those agreements into account. It
held that, in context, the word ‘consider’ in section 85 denotes that the
proceedings contemplated by it must be proceedings in which a credit
agreement is taken into account as a relevant matter.
The court remarked that the fact that the NCA leaves the provisions of the
Insolvency Act regarding voluntary surrender generally unaffected,
acknowledges that insolvency can arise in a great variety of circumstances,
many of them unrelated to over-indebtedness as defined in the NCA. The
court was therefore of the opinion that insolvents whose misfortune arises
out of credit agreement transactions would be well advised to take into
account the policy and objects of the NCA, and also the special remedies
provided by it, before opting to apply for the surrender of their estates under
the Insolvency Act rather than availing them of the provisions of the NCA.
The applicants confirmed that they had indeed considered debt counselling
but set out in detail how financially impracticable an arrangement of debt
repayment would be. However, the court was dissatisfied as there 179
Specific contracts in court
was no indication on the evidence that consideration was given to anything
beyond an administered debt collection. In particular, there was no
indication that the debt counsellors engaged by the applicants considered
obtaining declarations of reckless credit.
Despite its powers in terms of section 85, the court held that, in view of the
applicants’ resistance to assistance in terms of section 85, it was not going to
refer their credit agreements for investigation and report by a debt
counsellor, and declared that it was nevertheless open to the applicants
themselves to take the necessary steps in this regard.
The court was not prepared to exercise its discretion in favour of granting
the applications for voluntary surrender due to the applicants’ failure to
properly explain why their credit agreement debt was not amenable to
administration under the NCA to their own benefit as well as to that of their
credit granting creditors who acted responsibly, as distinct from recklessly,
in extending credit.
The court considered it as its duty to have proper regard to giving due effect
to the public policy reflected in the NCA, which prefers the rights of
responsible credit grantors to reckless credit grantors and supports full
satisfaction, as far as possible, by consumers of all financial obligations.
Finally, the court indicated that the argument that essentially the applicants
must choose the form of relief that suits their convenience by mechanically
and superficially satisfying the relevant statutory requirements under the
Insolvency Act is misdirected, especially where the granting of a selected
remedy is discretionary. The court emphasised that the primary object of
voluntary surrender is not the relief of harassed debtors. The court held that
there is a consonance between the objects of the relevant provisions of the
NCA and the Insolvency Act, that is to say, not to deprive creditors of their
claims but merely to regulate the manner and extent of their payment.
However, on the incomplete facts disclosed in the applications, the court was
left with the impression that the machinery of the NCA is the more
appropriate mechanism to be used and therefore refused the applications.
34 Over-indebtedness and debt counselling
as a defence
[102] Firstrand Bank Ltd v Olivier
[2008] JOL 22139 (SE), 2009 (3) SA 353 (SE)
Facts
F sought summary judgment in the High Court for O’s arrears on a mortgage
bond. O opposed the application and filed a supporting affidavit in which he
admitted his indebtedness to F, but submitted that he was 180
Credit agreements
over-indebted as defined in section 79(1) of the National Credit Act 34 of
2005 (NCA) in that he was unable to satisfy all his obligations under the
mortgage in a timely manner. In terms of section 85, O requested the court to
refer the matter to a debt counsellor to evaluate his circumstances and make
a recommendation to the court in terms of section 86(7). In the alternative, O
requested the court to declare that he was over-indebted and to make an
order contemplated in section 87 in order to relieve him of his overindebtedness.
Judgment
A court is not obliged to act simply on the defendant’s allegation of
overindebtedness, but may make an appropriate order in terms of section
85(a) or (b). The court will exercise this discretion judicially, taking into
account the objectives of the NCA to assist an over-burdened consumer to
rehabilitate his or her affairs.
F submitted that it was relevant to the exercise of the court’s discretion that
O did not, before summons was issued, apply to a debt counsellor in terms of
section 86(1) to have himself declared over-indebted. F referred to the
principle that a court generally will not entertain a proceeding where there is
another, similar and less expensive, procedure available. F
submitted that O should explain his failure to approach a debt counsellor
prior to the institution of action, and that O’s awaiting debt enforcement by
F, rather than taking steps to have himself declared over-indebted, amounted
to abuse of the court process.
However, the court was not prepared to fault O for not acting timeously in
terms of section 86(1). It held that it was not clear whether O had sufficient
time before receiving the section 129(1) notice to initiate the debtcounselling process provided for in the Act. According to the court, that
procedure was, at the time, still very new and not generally known.
However, O was not without fault in his conduct prior to the issue of
summons. When O received the section 129 notice, he could
l approach a debt counsellor in an attempt to establish the rearrangement of
his payments to F; or
l await the receipt of F’s debt-enforcement process and only then apply to
the court to declare or relieve his over-indebtedness in terms of section 85.
According to the court, O elected – at his peril – to take the latter route.
There are obvious reasons why the Act encourages a consumer to
approach a debt counsellor before the credit provider approaches the court in
terms of sections 129 and 130. It is desirable that parties attempt to bring the
consumer’s payments up to date, and that this be done before the court is
burdened with debt-enforcement proceedings and unnecessary costs are
incurred.
181
Specific contracts in court
It was clear from O’s opposing affidavit that all that he really wanted was
that his repayments to F be rearranged in such a manner that the credit
agreement would be sustained. However, O waited for F to institute court
proceedings before applying to the court for debt relief under the Act. The
court has a duty to discourage such conduct. It was therefore relevant to the
exercise of the court’s discretion in terms of section 85
that O failed to act upon receipt of the section 129(1) notice and that he
failed to explain or ask for condonation of his failure.
Counsel emphasised that, under rule 32(3)(b) of the Uniform Rules of Court,
a respondent who wishes to satisfy the court that he has a bona fide defence
to the action, shall disclose fully the nature and grounds of the defence and
the material facts relied on therefor. However, O did not raise a defence to
F’s action or its application for summary judgment, but met the application
with an application in terms of section 85. The question was, therefore,
whether the court should exercise its discretion in favour of granting the
latter application. Certainly, the application must be bona fide and not
merely a delaying tactic and the defendant must set out sufficient
information to support his allegation of over-indebtedness.
However, the court held that it was inappropriate to superimpose the
provisions of rule 32(3)(b) on an application in terms of section 85.
It seemed to the court that O’s alleged over-indebtedness was due largely to
his maintenance of the credit agreement with F. With the bond obligations
out of the way, it seemed that O would no longer be over-indebted.
Were O indeed over-indebted, he could always apply to a debt counsellor in
terms of section 86.
The court held that O had not explained his failure to respond to the section
129(1) notice; his case for a section 85 order was not persuasive; and he
failed to show good and sufficient reasons for the granting of the orders
sought by him. The court gave judgment in favour of F and an order
declaring executable the property hypothecated by the bond.
[103] Standard Bank of South Africa Ltd v Panayiotts
[2009] JOL 23095 (W), 2009 (3) SA 363 (W)
Facts
The facts were virtually identical to those of Firstrand Bank Ltd v Olivier
([102]).
Judgment
A consumer who raises a defence of over-indebtedness as envisaged in
section 79 of the National Credit Act 34 of 2005 (NCA) must plead and
prove that defence, including details of his or her financial means, prospects
and obligations.
The court’s powers under section 85 arise if it is alleged that the consumer is
over-indebted. However, the mere allegation of over-indebtedness 182
Credit agreements
is not sufficient and such over-indebtedness should be established on a
balance of probabilities.
A court has a discretion, and it may or may not deal with the matter as
provided for in section 85(a) and (b). The question is, when should the court
exercise its discretion in favour of the defendant? If a consumer failed to
approach a debt counsellor prior to litigation, he or she must at least explain
that failure to the court when asking it to exercise its discretion.
Such explanation is important for various reasons: the NCA provides a
simple, inexpensive and effective procedure for debt restructuring in section
86. These provisions were designed to expedite and to simplify the debtrestructuring procedure and are aimed at avoiding the necessity of the parties
of applying to the High Court for relief at great cost. It is also undesirable
that the High Court should deal with applications for debt restructuring
almost like a court sitting in terms of section 65 of the Magistrates’ Courts
Act 32 of 1944.
The High Court generally will not entertain a matter where there is another
simple and effective procedure available. This approach was adopted in
Firstrand Bank Ltd v Olivier ([102]). However, the court held that there
ought to be a difference between a case where a party seeks relief as the
applicant and where a party raises a defence as the defendant. The court held
that in cases such as the present, where a defendant is forced to come to
court to defend himself, different principles ought to apply.
To avoid summary judgment, a defendant wishing to satisfy the court that he
has a bona fide defence shall disclose fully the nature and grounds of the
defence and the material facts relied on therefor (rule 32(3)(b) of the
Uniform Rules of Court). A defendant must not only allege facts which, if
proved at the trial, will disclose a defence to the plaintiff’s claim, but must
also demonstrate that the defence is bona fide. This means that the
defendant’s allegations ought not to be inherently and seriously
unconvincing. S submitted that P had fallen short of what was required of
him.
S submitted that P had set out insufficient facts to show that he was overindebted as envisaged in section 79 and that he was entitled to the relief set
out in section 85. S also argued that P failed to show that his defence was
bona fide. In the alternative, S submitted that P’s defence was set out with
such vagueness that the facts did not amount to a bona fide defence.
The court reiterated that section 85 vests the court hearing the matter with a
discretion to proceed in terms of paragraph (a) or (b) or to grant the relief at
all. S submitted that, in exercising its discretion, the court has to bear in
mind the purpose of the NCA, which was to protect not only the poor, but
also the rich, against their financial folly.
183
Specific contracts in court
The court held that the Act is for the benefit of every consumer who can
prove that he is over-indebted as contemplated in section 79. However, the
court considered it as more important whether the consumer wanting to take
advantage of the Act’s provisions has made proper disclosure to enable a
court to exercise its discretion properly.
In exercising its discretion, the court ought to bear in mind that, although the
relief sought in terms of the Act is sui generis, in a summary judgment
application one cannot completely ignore the requirements of rule 32 of the
Uniform Rules of Court. The court disagreed with the judgment in Firstrand
Bank Ltd v Olivier ([102]) to the effect that it is inappropriate to
superimpose the requirements of rule 32(3) on an application in terms of
section 85. In the court’s view, to completely ignore the rule 32
requirements would be grossly unfair to the plaintiff. After all, the court
held, it is within the context of a summary judgment application that the
defence in terms of the Act was raised.
The application in terms of section 85 must still be bona fide and not raised
solely as a delaying tactic. The court reiterated that the debtor must provide
sufficient information to support his defence of over-indebtedness and that
he or she must plead and prove, on a balance of probabilities, that he is overindebted as envisaged by section 79. In casu, the court held that the
defendant’s allegations regarding his over-indebtedness were inherently and
seriously unconvincing.
According to the court, the Act did not envisage that a consumer could claim
to be over-indebted while he or she retained possession of the goods which
formed the subject matter of the agreement. The goods had to be sold to
reduce the defendant’s indebtedness.
The longer the property remains in the hands of the defendant, the more
likely it is that the plaintiff will suffer prejudice. Considerations of fairness
require that the circumstances of both the defendant and the plaintiff be
given equal consideration. Where it is clear that the credit provider is likely
to be greatly prejudiced if the protection measures provided by the
provisions of the Act were implemented, courts should be reluctant to assist
the defendant.
The court concluded that the defence was merely a blatant stratagem to delay
the plaintiff’s claim and that it was not bona fide. It held that P had failed to
make out a case for the relief sought by him. The court gave judgment in
favour of S and an order declaring executable the property hypothecated by
the bond.
184
Credit agreements
[104] Seyffert v Firstrand Bank Ltd t/a First National Bank 2012 (6) SA 581
(SCA)
Facts
A mortgage bond in favour of F was registered over the appellants’ (S)
property as security for a home loan. S fell into arrears with their payments
and applied for debt review in terms of section 86(1) of the National Credit
Act 34 of 2005 (NCA). F was informed of the application for debt review on
3 August 2009. On 21 April 2010, F terminated the debt review under
section 86(10) and on 10 June 2010 instituted action against S. After S filed
their notice of intention to defend, F applied for summary judgment which
was granted against S by the court a quo on 11
October 2010. S appealed against the order granting summary judgment.
Although they resisted summary judgment, S did not dispute their
indebtedness to F in either of the two sets of affidavits filed in the court a
quo. These affidavits related to the amounts of their current instalments, the
instalments reflected in the debt counsellor’s proposal and the time in which
the debt would be settled. The application for debt review had been referred
to a Magistrate’s Court, but was postponed on 9 December 2009
in order to allow S to supplement their papers and to enable F to file
opposing papers. S failed to supplement their papers and F did not file
opposing papers. Instead, F terminated the debt review on 21 April 2010.
In a supplementary set of affidavits filed on 7 September 2010, S
deposed that he was constantly trying to improve his position. He requested
the court a quo to make a draft order, which was annexed to his affidavit, an
order in terms of section 85 of the NCA. A revised proposal by the debt
counsellor was also attached.
The court a quo granted summary judgment, dealing with both the present
matter and three similar cases ( FirstRand Bank Ltd t/a First National Bank
v Seyffert and Three Similar Cases 2010 (6) SA 429 (GSJ)). On appeal,
Malan JA quoted the following statements by Willis J in the court a quo:
‘The affidavits of the respondents have been cryptic to the extent of coyness.
These affidavits are laconic, if not supine, with regard to the real possibility
of extrication from financial difficulties which the respondents face. Even
where the respondents presented some acceptable evidence as to the fact that
they had referred the matter to a debt counsellor, and in some instances
annexed that person's recommendations, in no such instance does the
proposal make any economic sense at all. Indeed, the proposals are devoid of
economic rationality.
The conundrum that arises from section 86(10) is this: may a debtor, who
has made an application for debt review in terms of section 86(1) of the
NCA, by the simple expedient of making such an application, indefinitely
frustrate the enforcement of a debt to which he or she has no real defence
and where no serious effort is being made to enter into some sensible
arrangement for the rescheduling or rearrangement of his or her debt (as is
provided for in the NCA)?
[W]here a credit provider has given a consumer proper notice in terms of
section 86(10) of the NCA, a court hearing an application for summary
judgment upon a credit agreement, may, depending on the contents of the
affidavit resisting summary judgment –
(i) grant the application; or
(ii) dismiss the application; or
185
Specific contracts in court
(iii) adjourn the application on appropriate terms and conditions.
Active endeavours to exchange serious, sensible and reasonable proposals to
resolve a consumer’s debt problems will be among the factors which will
weigh heavily with a court in deciding which order to make.’
On appeal, S argued that the court a quo should have exercised its discretion
in their favour by acting in terms of either section 85 or section 87 by
referring the matter to a debt counsellor or declaring them overindebted and
rearranging their repayments. S submitted that F had acted in bad faith by
terminating the debt review after requesting a postponement to file opposing
papers. S also submitted that the debt rearrangement would merely have
extended the period of repayment for a short period with no prejudice to the
respondent.
Judgment
Malan JA held that the above contentions could not be accepted and quoted
his explanation in FirstRand Bank Ltd v Collett [2011] JOL 27486
(ECG), 2011 (4) SA 508 (SCA) in terms of which:
‘the right of the credit provider to terminate the review is balanced by
section 86(11), which provides that, if the credit provider has given notice to
terminate and proceeds to enforce the agreement, the Magistrate’s Court . . .
may order that the debt review resume on any conditions the court considers
to be just in the circumstances. It is at this moment that the participation of
the credit provider in the debt review becomes relevant. He is obliged to
comply with the reasonable requests of the debt counsellor (s 86(5)(a)), and
to participate in good faith in the review and any negotiations designed to
result in responsible debt rearrangement (s 86(5)(b)). Should the credit
provider fail or refuse to participate in the review, a resumption of the
process may well be ordered. But where the credit provider on good grounds
concludes that the proposed restructuring will not lead to the satisfaction by
the consumer of all responsible financial obligations (s 3(g) and (i)) or a
rearrangement as contemplated by section 86(7)(c), the court considering the
resumption of the debt review may well refuse to sanction its resumption’.
Malan JA explained that where debtors have applied for debt review, they
and the credit provider have to comply not only with a reasonable request by
the debt counsellor to facilitate an evaluation of the debtor’s indebtedness
and the prospects for responsible debt-restructuring, but they must also
participate in good faith in the review and negotiations. The duty to
negotiate in good faith does not come to an end once the debt
counsellor’s proposal is referred to the Magistrate’s Court, nor when it is
postponed. The right to terminate the debt review in respect of a credit
agreement is balanced by section 86(11) which empowers the ‘enforcing
court’ to order the resumption of the debt review. At this stage the credit
provider’s participation in the debt-review process becomes relevant and the
conduct of both parties are assessed. Malan JA again quoted from Collett:
‘Overindebtedness is not a defence on the merits. However, because of its
extraordinary and stringent nature, a court has an overriding discretion to
refuse an application for summary judgment. It would be proper for a
defendant to raise termination of the debt review by reason of the credit
provider’s failure to participate or its bad faith in participating when
application for summary judgment is made. These issues may be raised, not
as a defence to the claim, but as a request to the court not to grant summary
judgment in 186
Credit agreements
the exercise of its overriding discretion. Of course, sufficient information on
which the request for a resumption of the debt review is based must be
placed before the court.’
Malan JA held that a court considering the enforcement of a credit
agreement may decide whether there would be any benefit in postponing the
application for summary judgment for purposes of determining the
advantages of resuming the debt review. The conduct of both parties will be
relevant in making that decision. In addition, the terms of a proposed
rearrangement will also be relevant to assess whether its implementation is
likely to lead to the satisfaction of all responsible consumer obligations.
This is the stage that a balance must be struck between the interests of both
the consumer and the credit provider.
Malan JA pointed out several mistakes in the debt-rearrangement proposals
and affidavits which showed that no realistic possibility of settling the debt
in question. He also noted that S made no reference to any negotiations
between the parties from 9 December 2009 (when the debt review was
postponed) to 7 September 2010 (the date of the supplementary affidavit),
and stated that because of S’s failure to present any realistic proposal to pay
the debt, there was no basis for alleging that F did not negotiate in good
faith. The judge found that the argument that F had acted in bad faith
because it failed to file opposing papers despite seeking the postponement,
was also without merit. He commented that S intended to amend their debtreview application but never did so. F therefore had no reason to file further
papers and S had not provided any facts on which an inference of bad faith
on the part of F could be drawn.
Finally, Malan JA pointed out that S did not apply for a resumption of the
debt review in terms of section 86(11). S also did not show any grounds
upon which F was precluded form terminating the debt review.
As stated by the court a quo, S’s restructuring proposals were ‘devoid of
economic rationality’ and would have left a substantial part of their debt
unpaid.
S also relied on section 85 which allows a court ‘in any court proceedings in
which a credit agreement is being considered, if it is alleged that the
consumer under a credit agreement is overindebted’, to:
‘(a) refer the matter directly to a debt counsellor with a request that the debt
counsellor evaluate the consumer's circumstances and make a
recommendation to the court in terms of section 86(7); or
(b) declare that the consumer is overindebted, as determined in accordance
with this Part, and make any order contemplated in section 87 to relieve the
consumer’s overindebtedness.’
S argued that the court a quo erred by not declaring S overindebted under
section 85 and by not making their proposal an order of court; alternatively,
not making an order as contemplated in section 87.
Malan JA held that a ‘review’ as envisaged in section 85 is not necessarily
initiated by the consumer as in the case of a debt review in terms of section
86. The credit provider can also not terminate the review in terms 187
Specific contracts in court
of section 85. Malan JA referred to the suggestion that, despite the wide
introductory words of section 85:
‘reference to the broader context of the statute impels the conclusion that the
section was not intended to provide a basis for a repetition of the process
already provided for in terms of s 86, or to draw back within the ambit of
debt review debts already excluded therefrom by the operation of other
provisions of the Act, such as s 86(2), s 86(10) or s 88(3). To construe s 85
otherwise would be conducive to the most unwholesome circu-larity, at odds
with the basic principle – interest rei publicae ut sit finis litium’ (per BinnsWard J in Standard Bank of South Africa Ltd v Kallides Unreported case
1061/2012
(ZAWCHC) para 8).
According to Malan JA, the above conclusion is too absolute and loses sight
of the discretion given a court by the word ‘may’ in section 85 to make
either of the two orders provided for, and the commencing words
‘Despite any provision of law or agreement to the contrary’. The judge held
that before a court can exercise the discretion, the material facts relied upon
must be placed before it, although it may be pointless to do so again in most
cases where the case has already been referred to a debt counsellor. He
warned that a court should be slow to exercise its discretion to make either
of the orders envisaged in section 85 where the case has been dealt with by a
debt counsellor, or a debt review has justifiably been terminated, and where
there was no material change in circumstances.
In dismissing the appeal, Malan JA summarised the position as follows:
‘In any event . . . the appellants’ proposals, if accepted, will not lead to the
discharge of their debt. They may well be overindebted, but this is no reason
why the respondent should have accepted their proposals. The respondent
was entitled in law to terminate the debt review and, on the facts, justifiably
did so. Only scant material was presented by the appellants to the court
below, and their evidence falls short of inspiring confidence that their affairs
would improve so as to enable them to eventually discharge their
obligations.
Neither of the proposals envisages the discharge of the debt within the
agreed period or within any suggested, and feasible, extended time. This is
not a case where a debt review can usefully be employed.’
35 The procedure in terms of section 86 and
related matters
[105] National Credit Regulator v Nedbank Ltd
[2009] 4 All SA 505 (GNP), 2009 (6) SA 295 (GNP)
Facts
The National Credit Regulator sought a number of declaratory orders aimed
at clarifying interpretational difficulties that those who work with the
National Credit Act 34 of 2005 (NCA) experience in practice. The applicant
had joined as respondents the major South African banks as well as other
role-players in the credit industry.
188
Credit agreements
Orders made and refused
1 On a correct interpretation of section 86(8)(b), it applies in the
circumstances contemplated in section 86(7)(c). This means that, by
necessary implication and although section 86(8)(b) makes no explicit
provision to this effect, a debt counsellor who finds that a consumer is
overindebted must refer the matter to the Magistrate’s Court together with
his recommendation.
2 In circumstances where section 86(8)(b) applies, a debt counsellor is
obliged to refer his or her recommendation to a Magistrate’s Court and the
magistrate to whom the matter is allocated is, in terms of section 87, obliged
to conduct a hearing and make an order contemplated in either section 87(1)
(a) or (b).
3 The fact that ‘a hearing’ must take place, means that it is the task of the
court to resolve disputes and generally to make findings based on the
application of law to the facts, which are the essential elements of a judicial
function. The court therefore does not exercise an administrative function,
which is subject to the Promotion of Administrative Justice Act of 2000.
4 The power of a Magistrate’s Court to conduct a hearing in terms of section
87 and to make appropriate orders in consequence thereof is derived from
section 87 read with section 86, and the Magistrates’
Courts Act 32 of 1944 and the Rules of the Magistrates’ Courts govern the
procedure by which it may conduct itself in so doing.
5 A referral by a debt counsellor to a Magistrate’s Court under section 86(8)
(b) (and section 86(7)(c)) of the NCA is an application within the meaning
of the Magistrates’ Courts Act and the Magistrates’ Courts Rules and falls to
be treated as such in terms of rule 55 of the Rules.
6 Rule 33 of the Magistrates’ Courts Rules relating to costs is applicable to
applications under sections 86 and 87. Bearing in mind that the debt
counsellor fulfils a statutory obligation, the court pointed out that adverse
cost orders against such functionaries are ordinarily made only where the
functionary acted improperly or mala fide.
7 Rule 9 of the Magistrates’ Courts’ Rules pertaining to service is applicable
to the service of process, any recommendation and other documents for the
purpose of the referral and hearing contemplated in sections 86(7)(c) and (8)
(b) and 87, but service of any such documents may, with the agreement of
the affected parties, be by way of fax or e-mail.
8 A debt counsellor who refers a matter to the Magistrate’s Court in terms of
section 86(7)(c) and (8)(b) has a duty to assist the court and should be
available and able to render such assistance by way of furnishing evidence or
making submissions as to his or her proposal or to answer any queries raised
by the court.
189
Specific contracts in court
9 In order to give effect to the express purpose of the Act in respect of debt
review procedures, the term ‘the Magistrate’s Court’ where it appears in
sections 86(7)(c) and (8)(b) and 87 must be interpreted to mean ‘the
Magistrate’s Court having jurisdiction in respect of the person of the
consumer’ and not simply ‘any’ Magistrate’s Court.
10 There is no monetary limit on the jurisdiction of the Magistrates’ Courts
to hear a referral under section 87.
11 Where a debt counsellor refers a recommendation to a Magistrate’s Court
or a consumer makes an application to such court in terms of section 86(9),
and the court finds that the credit agreement concerned is reckless on the
grounds that the credit provider has not complied with l
section 80(1)(a) and (b)(i), the court may make the orders contemplated in section 83(2);
l
section 80(1)(b)(ii), and the consumer is found to be over-indebted at the
time of those court proceedings, the court may make the
orders referred to in sections 83(3)(b)(i) and (ii).
12 One of the orders sought was that a Magistrate’s Court making an order
in terms of section 87 may, with the consent of the consumer and pursuant to
a recommendation by the debt counsellor, issue an order of the nature
contemplated in section 65J of the Magistrates’
Courts Act, attaching the emoluments of the consumer and obliging him or
her to make periodic payments to the credit provider. The court refused the
order, holding that the powers of the Magistrate’s Court upon a referral are
to be found in the Act. There is no provision for the making of an order in
terms of section 65J that deals with emolument attachment orders.
13 The court also refused the following application: ‘A failure to conclude
negotiations arising from a proposal or counterproposal made by a credit
provider in response to a recommendation or proposal by a debt counsellor
in terms of section 86(7)(a) or (b) does not preclude such debt counsellor
from exercising his or her powers under section 86(8).’
The court held that it is clear from section 86(8)(b) that the debt counsellor
may only refer the matter to the court if the process of voluntary
rearrangement did not culminate in an agreement by the consumer and each
credit provider. The question as to when it can be said that the consumer and
each credit provider do not agree to the voluntary rearrangement is one of
fact to be decided in each case. In the court’s view, it was clear that the debt
counsellor may only refer a case of attempted voluntary debt rearrangement
to the court if he or she is satisfied that no agreement has been reached,
either because a party has rejected the proposed rearrangement or because
there is no reasonable prospect that an agreement will be reached. Put
differently, the debt counsellor may only refer a case of attempted voluntary
190
Credit agreements
rearrangement to the court if he or she is satisfied that negotiations have
been concluded or are leading nowhere.
The court also considered a counter application providing that:
‘the debt counsellor may not refer a recommendation or a proposal made in
terms of section 86(7)(b) or (c) of the Act to the Magistrate’s Court unless
and until he reasonably concludes that any negotiations being conducted are
not in good faith, have terminated or are unlikely to result in a responsible
debt re-arrangement’.
The court deemed it unwise to issue such an order. It attempted to define
circumstances under which it could be said that no agreement has been
reached. As that will depend on the facts of each case, a definition should
not be attempted.
14 All the parties agreed that the following order should be made:
‘The reference in section 86(2) to the taking of a step in terms of section 129
to enforce a credit agreement is a reference to the commencement of legal
proceedings mentioned in section 129(1)(b) and does not include steps taken
in terms of section 129(1)(a) of the National Credit Act.’
The court held that the purpose of section 86(2) is to ensure that consumers
do not apply in terms of section 86(2) to be declared overindebted only to
frustrate a credit provider who has already started to enforce a credit
agreement under which the consumer is in default.
While section 129(1)(a) envisages alternative dispute resolution and ‘a plan
to bring payments under the agreement up to date’, it does not envisage
general debt restructuring under sections 86 and 87. Moreover, even the
steps set out in section 129(1)(a) are preliminary to debt enforcement. The
court was not satisfied that the parties were correct in their interpretation of
section 86(2). In the absence of full argument, and because there are many
other persons with an interest in this order, the court deemed it unwise to say
more than that and exercised its discretion not to grant the order.
15 On a correct interpretation of section 103(5) read with section 101(1)(b)
to (g),
l
the amounts contemplated in section 101(1)(b) to (g) which accrue while the
consumer is in default may not exceed, in aggregate, the unpaid balance of
the principal debt when the default occurred; l
once the total charges referred to in section 101(1)(b) to (g) equal the
amount of the unpaid balance, no further charges may be levied; and
l
once the total charges referred to in section 101(1)(b) to (g) equal the
amount of the unpaid balance, any payments made by a consumer during a
period of default do not have the effect of permitting the credit provider to
charge further interest while such
default persists.
Some of the respondents argued that section 103(5) operates similarly to the
common-law rule of in duplum, the effect of which ‘is that interest stops
running when the unpaid interest equals the outstanding 191
Specific contracts in court
capital. When the debtor repays a part of the interest the quantum of the
outstanding interest reduces below the amount of the outstanding capital.
Interest again runs until it equals the capital amount’.
The respondents contended that
l
if section 103(5) is interpreted in conformity with the common
law, its effect is only to create a moratorium on the payment of the cost of
credit while the consumer is in default; and
l
the subsection does not affect the underlying obligation to make payment.
Once the consumer purges the default, all the costs of credit may be levied
again.
The court held that the respondents’ contention flew in the face of the clear
wording of section 103(5). First, the subsection makes it plain that it applies
despite ‘any provision of the common law’ which includes the in duplum
rule. Secondly, it is the amounts ‘that accrue’
during the default that ‘may not, in aggregate, exceed the unpaid balance’.
During the period of default, no more than the stated maximum can accrue.
Put differently, the consumer’s indebtedness in respect of the cost of credit
cannot grow by more than the stated maximum.
[106] Nedbank Ltd v National Credit Regulator
[2011] 4 All SA 131 (SCA), 2011 (3) SA 581 (SCA)
Facts
This case deals with a number of appeals against some of the orders made or
refused by Du Plessis J in National Credit Regulator v Nedbank Ltd (see
[105]). The appeals are dealt with below under the headings used in Malan
JA’s judgment.
Sections 86(2) and 129
The first appeal concerned prayer 1.13 of the notice of motion for a
declarator in the following terms: ‘The reference in section 86(2) to the
taking of a step in terms of section 129 to enforce a credit agreement is a
reference to the commencement of legal proceedings mentioned in section
129(1)(b) and does not include steps taken in terms of section 129(1)(a).’
Du Plessis J in the court a quo refused to grant the order applied as he was
not satisfied that the parties were correct in their interpretation of section
86(2) and, in the absence of full argument, declined to make the order.
Section 86(2) provides as follows:
‘An application [for debt review] in terms of this section may not be made in
respect of, and does not apply to, a particular credit agreement if, at the time
of that application, the credit provider under that credit agreement has
proceeded to take the steps contemplated in section 129 to enforce that
agreement.’
192
Credit agreements
Section 129(1) provides:
‘If the consumer is in default under a credit agreement, the credit provider–
(a) may draw the default to the notice of the consumer in writing and
propose that the consumer refer the credit agreement to a debt counsellor,
alternative dispute resolution agent, consumer court or ombud with
jurisdiction, with the intent that the parties resolve any dispute under the
agreement or develop and agree on a plan to bring the payments under the
agreement up to date; and
(b) subject to section 130(2), may not commence any legal proceedings to
enforce the agreement before–
(i) first providing notice to the consumer, as contemplated in paragraph (a),
or in section 86(10), as the case may be; and
(ii) meeting any further requirements set out in section 130.’
Malan JA held that the words ‘has proceeded to take the steps’ in section
86(2) are key to the construction of the section. He held that the words ‘has
proceeded’ and ‘steps’ are indicative of an ongoing process of which the
section 129(1)(a) notice is the first step. It is the only step expressly
mentioned in section 129. Section 129(1)(b)(i) makes it clear that the notice
in terms of section 129(1)(a) is a necessary ‘step’ before legal proceedings
may be commenced. Therefore, by giving the notice contemplated in section
129(1)(a), the credit provider ‘has proceeded to take the steps contemplated
in section 129 to enforce that agreement’. A debt review relating to that
specific agreement is thereafter excluded. It follows that the court a quo was
correct in its finding and the appeal was dismissed.
Sections 86(7) and (8) and 87
The next appeal was against orders 1, 2, 4, 7 and 8 of the court a quo.
They read as follows:
‘1. On a proper interpretation of section 86(8)(b), it applies in the
circumstances contemplated in section 86(7)(c).
2. In circumstances where section 86(8)(b) of the Act applies, a debt
counsellor is obliged to refer his or her recommendation to a magistrate’s
court and the magistrate to whom the matter is allocated is in terms of
section 87 obliged to conduct a hearing and make an order contemplated in
either section 87(1)(a) or section 87(1)(b) of the National Credit Act, 2005.
4. A referral by a debt counsellor to a magistrate’s court under section 86(8)
(b) (and section 86(7)(c)) of the National Credit Act, 2005 is an application
within the meaning of the Magistrates’ Courts Act, 1944 and the rules of the
magistrates’ courts and falls to be treated as such in terms of rule 55 of the
rules.
7. Rule 9 of the magistrates’ courts rules pertaining to service is applicable
to the service of process, any recommendation and other documents for the
purpose of the referral and hearing contemplated in sections 86(7)(c), 86(8)
(b) and 87 of the National Credit Act, 2005, but service of any such
documents may, with the agreement of the affected parties, be by way of fax
or email.
8. A debt counsellor who refers a matter to the magistrates' court in terms of
sections 87(7)(c) and 86(8)(b) of the National Credit Act, 2005, has a duty to
assist the court and should be available and able to render such assistance by
way of furnishing evidence or making submissions as to his or her proposal
or to answer any queries raised by the court.’
193
Specific contracts in court
The appellant contended that the making of orders pursuant to section 86(7)
deals with relief sought following sections 86(7)(a) and (b) only and not
pursuant to section 86(7)(c) as well. He argued that the debt review system
created by section 86(1)–(6) provides for the debt counsellor to determine
whether the consumer is entitled to relief. The counsellor may then in terms
of section 86(7)(c) make a proposal to the Magistrate’s Court recommending
either or both of the orders provided for. No hearing is required, nor is
service necessary because the debt counsellor has determined that the
consumer is over-indebted. The Magistrate’s Court is then called on to
conduct a hearing and may make the orders specified in section 87. It was
submitted that neither a rule 55
application nor service was required before the hearing in terms of section
87 could be held.
As far as order 8 is concerned, the appellant suggested that the words after
‘court’ be deleted and replaced with ‘has a duty to respond to and take all
reasonable steps to assist the Court on request’. The appellant conceded that
an application in terms of rule 55 by the debt counsellor in terms of the
Magistrates’ Courts Rules of Court was required before an order pursuant to
section 86(7)(c) could be made.
In the court a quo, Du Plessis J characterised the dispute arising from the
appellant’s contentions as one relating to the procedure to be followed when
a matter is referred to the Magistrate’s Court in terms of sections 86 and 87.
Section 87(1) requires a court to ‘conduct a hearing’ and make the relevant
orders ‘having regard to the proposal and information before it and the
consumer’s financial means, prospects and obligations’.
The court may do so when dealing with a recommendation in terms of
section 86(7)(b) and an application following the rejection by the debt
counsellor of the consumer’s application in terms of section 86(7)(a).
However, neither section 86(8) nor section 87(1) makes any reference to
section 86(7)(c). Du Plessis J accepted that matters of over-indebtedness
were very urgent but rejected the argument that a hearing before a
Magistrate’s Court was not required in matters falling under section 86(7)(c).
He held that:
‘section 86(7)(c) requires cases of over-indebtedness to be referred to the
magistrate’s court so as to ensure judicial oversight of the entire process. A
magistrate’s court can only provide such oversight if it conducts a hearing
and has regard to at least the matters referred to in section 87(1). It follows
that by necessary implication the procedure set out in section 87(1) applies
also to cases coming before the magistrate’s court under section 86(7)(c)’.
Du Plessis J held that the same urgency also existed in cases falling under
section 86(9) and (7)(b). He also held that in proceeding with a matter falling
under section 86(7)(b) and (c) the Magistrates’ Courts Rules applies.
He held that the referral of a matter to the Magistrate’s Court was an
extraordinary procedure because:
‘it concerns a lis or suit between the consumer and his or her credit
providers, but the initiative to refer it to the court is taken by a third party,
the debt counsellor who acts as pro forma applicant. I say that the procedure
concerns a suit because, by applying to be 194
Credit agreements
declared over-indebted, the consumer is seeking at least a rearrangement of
one or more of his or her obligations . . . The procedure also is out of the
ordinary because the debt counsellor is by law required, in given
circumstances, to refer the matter to the magistrate’s court or, put differently,
to apply to the court’.
Malan JA stated that unless a specific procedure has been prescribed, the
Magistrates’ Courts Rules apply. The consumer’s initial application under
section 86(1) for debt review must be in the form prescribed by regulation.
Where the consumer applies directly to court in terms of section 86(9) it
must do so in the prescribed manner. In cases falling under section 86(8)(b)
the debt counsellor must refer his recommendation to the Magistrate’s Court
but no procedure, as in the case of an application in terms of section 86(1), is
prescribed. Therefore, the court below held that the Magistrates’ Courts Act
and Rules apply. The appropriate rule to follow is rule 55 which deals with
applications in the Magistrates’ Courts.
Malan JA agreed with the reasoning of the court below.
According to Malan J, the risk involved in accepting the appellant’s
contentions is that if no hearing is held following a section 86(7)(c)
recommendation, a Magistrate’s Court may endorse the debt counsellor’s
recommendation and rearrange the debt without the credit providers having
had the opportunity of being heard before the order is made. In terms of
section 87, the court must conduct a hearing and may make any of the orders
provided for in section 87(1)(a) and (b). This is a hearing in open court as
envisaged in section 5 of the Magistrates’ Courts Act 32 of 1944 and the
court is a court of record as contemplated by section 4(1). A hearing is
conducted in accordance with rule 29 in action proceedings and in
accordance with rule 55 in application proceedings.
Malan J held that there is nothing in the NCA that militates against the above
conclusion. The references to the Magistrate’s Court in sections 86(7)(c) and
87(1) were intended as references to a court in the strict sense of the word,
which require a court to adjudicate a matter according to fundamental
principles of justice which includes the holding of a hearing. Rule 55 of the
Magistrates’ Courts Rules contains the machinery to allow the proper
determination of a dispute regarding section 86(7)(c).
There is no basis for the appellant’s submission that a debt counsellor may
approach a Magistrate’s Court ex parte. In each case the court should be
satisfied that this is the proper approach, especially where the consequences
of a rearrangement order or a finding of reckless credit are serious and
potentially detrimental to credit providers. The judge held that there is no
justification for holding that a different procedure applies in cases falling
under section 86(7)(c) and those under section 86(7)(b) and (9).
As regards the omission in section 86(8) to refer to section 86(7)(c), Malan
JA held that by reading in the words ‘and section 86(7)(c)’ in declarator 4 of
the order of the court below, proper effect would be given the intention of
the legislature.
The appeal against orders 1, 2 and 4 of the court a quo was dismissed.
195
Specific contracts in court
Section 103(5)
Several banks appealed against order 11 which concerns section 103(5) of
the NCA and the in duplum rule. Section 103, which Malan JA described as
controversial, is headed ‘Interest’ and section 103(5) provides as follows:
‘Despite any provision of the common-law or a credit agreement to the
contrary, the amounts contemplated in section 101(1)(b) to (g) that accrue
during the time that a consumer is in default under the credit agreement may
not, in aggregate, exceed the unpaid balance of the principal debt under that
credit agreement as at the time that the default occurs.’
The declarator read as follows:
‘11. On a proper interpretation of section 103(5) read with sections 101(1)
(b)–(g) of the National Credit Act, 2005:
(a) the amounts contemplated in sections 101(1)(b)–(g) which accrue while
the consumer is in default may not exceed, in aggregate, the unpaid balance
of the principal debt when the default occurred;
(b) once the total charges referred to in sections 101(1)(b)–(g) equal the
amount of the unpaid balance, no further charges may be levied;
(c) once the total charges referred to in sections 101(1)(b)–(g) equal the
amount of the unpaid balance, payments made by a consumer thereafter
during a period of default do not have the effect of permitting the credit
provider to charge further interest while such default persists.’
In the court a quo, Du Plessis J dealt as follows with the banks’
contentions:
‘First, the subsection makes it plain that it applies despite any provision of
the common-law, which includes the in duplum rule. In the second place it is
the amounts that accrue during the default that may not, in aggregate, exceed
the unpaid balance. During the period of default no more than the stated
maximum can accrue. Put differently, the consumer’s indebtedness in respect
of cost of credit cannot grow by more than the stated maximum.’
The Credit Regulator complained of the fact that banks tended to interpret
section 103(5) as if it were a codification of the in duplum rule that enabled
them to levy interest as soon as the consumer made a further payment,
thereby reducing the outstanding interest. It contended that the effect of
section 103(5) was that once the total charges referred to in section 102 were
equal to the unpaid balance, no further charges could be levied.
In this regard, Malan JA singled out two aspects of the common-law in
duplum rule. First, where the total amount of arrear and unpaid interest has
accrued to an amount equal to the outstanding capital sum, interest ceases to
run, but any payment made by the debtor thereafter will lead to the amount
of interest decreasing after which interest again starts to accrue to an amount
equal to the outstanding capital amount. The purpose of the rule is to ‘ensure
that debtors are not endlessly consumed by charges and also to ensure that
debtors whose affairs are declining should not be entirely drained dry’.
Second, the in duplum rule is suspended pendente lite, and the lis is said to
commence upon service of the initial process, whereafter interest runs again.
The common-law rule therefore effectively limits the interest recoverable by
preventing interest from accruing further once it reaches the unpaid capital
amount.
196
Credit agreements
Dealing with the question whether the legislature by enacting section 103(5)
effectively abolished the common-law in duplum rule in so far as it concerns
credit agreements regulated by the NCA, Malan JA stated that the section is
not a code and embodies no more than a specific rule applicable to specific
circumstances, namely, to credit agreements subject to the NCA. It therefore
is a statutory provision with limited operation which seeks not only to amend
the common-law in duplum rule but also to extend it. It deals with the same
subject-matter as the common-law rule but this does not mean that it
incorporates all or any of the aspects of the common-law rule. It is a selfstanding provision and must be construed as such.
According to Malan JA, section 103(5) was intended to provide some
redress for borrowers of expensive credit. It includes within its scope not
only interest but also the other costs of credit set out in section 101(1)(b)–
(g). He quoted the following explanation by Kelly-Louw ‘Better consumer
protection under the statutory in duplum rule’ 2007 SA Merc LJ 337 344:
‘[I]t is apparent that the vital difference between the common-law and the
statutory in duplum rules lies in the fact that under the common-law rule it is
only interest (contractual and default) that ceases to run if it equals the
outstanding capital amount. By contrast, under the statutory rule, all the
amounts – such as the initiation fees, service fees, interest (contractual and
default), costs of any credit insurance, default administration charges, and
collection costs – cease to run if they combine to exceed the outstanding
principal debt. Clearly the statutory in duplum rule offers better consumer
protection than its common-law counterpart. However, the statutory rule has
worsened the position of credit providers.’
The court a quo granted the declarator sought by the Credit Regulator.
Malan JA dealt with each appellant’s suggested construction of section
103(5), stating that they required words to be read into the section that are
simply not there.
Referring to the objects of the NCA, and specifically the ‘responsible
consumer obligations’ mentioned in section 3(h), Malan JA said that the
question to be asked is what the ‘responsible consumer obligations’ are.
In view of the provisions of section 100(1), he held the interest that may be
charged under a credit agreement must be consistent with the Act, especially
with the provisions of section 103 relating to interest. He held that section
103 thus expressly forms part of a credit agreement and defines the
obligations of the parties. The ‘responsible consumer obligations’ therefore
must be construed with reference to section 103. In accordance with this
approach, section 103(5) specifically provides
‘[d]espite any provision of the common-law or a credit agreement to the
contrary’. According to Malan JA there is thus no contractual entitlement to
interest (or to the other charges) except as allowed for by section 103.
The intention of the legislature could not have been expressed in clearer
terms. Section 103(5) does not merely give rise to a moratorium on
payments while the consumer is in default but indeed determines the latter’s
obligations under the credit agreement.
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Specific contracts in court
Malan JA remarked that much has been said about the word ‘accrue’, which
is often used in the context of the common-law in duplum rule regarding the
accumulation of arrear and unpaid interest. He pointed out that section
103(5), however, does not provide that the fees, costs and charges ‘accrue’,
but that the ‘amounts contemplated in section 101(1)(b) to (g)’, which are
the amounts in respect of the fees, costs and charges, may not ‘accrue’ in
aggregate to more than the stated limit, namely, the amount of the principal
debt at the time of default.
According to Malan JA, this was really the point in issue: these amounts
‘accrue’ whether they are paid or not. Section 103(5) makes no distinction
between paid and unpaid charges. These amounts will only accrue if the
credit provider has a contractual right to them. Once the amounts referred to
in section 101(1)(b)–(g) that accrue during the period of default, whether or
not they are paid, equal in aggregate the unpaid balance of the principal debt
at the time the default occurs, no further charges may be levied. Section
103(5) does not introduce a moratorium against payment, but no amount in
respect of the fees, costs and charges may ‘accrue’ any further. In other
words, no enforceable right to the charges outlined in section 101(1)(b)–(g)
thereafter arises. According to Malan JA, this seemed to be the meaning of
the word used in cases on the common-law rule. The words of section 103(5)
do not allow for a different construction. If the legislature only intended a
restatement of the in duplum rule it would have said so and would not have
included the introductory words to the subsection. It follows that Du Plessis
J was correct to make the declaratory order in respect of section 103(5). The
legislature had in mind the protection of the consumer who may, under the
common-law rule, end up by paying much more that the capital originally
owing. All the appeals were dismissed.
36 Notice in terms of section 127
[107] Edwards v Firstrand Bank Ltd t/a Wesbank
[2016] 4 All SA 691 (SCA), 2017 (1) SA 316 (SCA)
Facts
W had issued summons against E after he fell into arrears with his
instalments in terms of an instalment sale agreement between them. W, inter
alia, claimed cancellation of the agreement and return of the vehicle that was
sold in terms of the agreement. W obtained summary judgment against E,
repossessed the vehicle and sold it at an auction after notices in terms of
sections 127(2) and 125 of the NCA had been sent to E by ordinary post at
the address he had specified in the agreement. In terms of the agreement, E
agreed that the physical address that he provided was 198
Credit agreements
the address he had selected as the address where legal notices must be sent.
The matter eventually ended up in the Supreme Court of Appeal.
Issues before the Supreme Court of Appeal
The issue was whether or not F complied with the section 127(2) and (5)
notices of the Act before selling the vehicle. E contended that he did not
receive the above notices and that the vehicle was not sold for the best price
reasonably obtainable as envisaged in section 127(4)(b).
F argued that if E did not receive the section 127(2) and (5) notices, it was a
direct result of E furnishing a physical address at which, knowingly, there
was no street delivery of the post. This argument was affirmed by the court a
quo which found that E’s conduct in specifying an address in which no street
delivery occurred, was unreasonable.
Majority judgment
Shongwe JA referred to Kubyana v Standard Bank of South Africa Ltd (see
[109]) where Mhlantla AJ said:
‘The Act does not imply, and cannot be interpreted to mean, that a consumer
may unreasonably ignore the consequences of her election to receive notices
by registered mail, when the notifications in question have been sent to the
address which she duly nominated. While it is so that consumers should
receive the full benefit of the protections afforded by the Act, the noble
pursuits of that statute should not be open to abuse by individuals who seek
to exercise those protections unreasonably or in bad faith.’
The court held that, although it may be advisable to send a notice in terms of
section 127(2) by registered mail, it was not required by law. The onus is on
the credit provider to place facts before the court showing that the notice, on
a balance of probabilities, in fact reached the consumer. The court then has
to determine whether such facts constituted adequate proof of delivery. In
casu it was clear that F sent a section 127(5) notice to the address supplied
by E. Since E knew that there was no street delivery of mail, he only had
himself to blame for not having received the notice.
Section 127(1) was not applicable in this case because E did not voluntarily
terminate the agreement; F terminated the agreement and subsequently the
attachment and sale of the vehicle by having recourse to the court.
Cachalia JA, concurring with the majority judgment, held that because W
had cancelled the agreement, E was not entitled to reinstate the agreement
and resume possession of the vehicle, which was what he was invited to
consider in the section 127(2) notice. Before the cancellation, E
was also in default under the agreement. This meant that he could not take
repossession of the goods after having received the estimated value of the
goods in terms of section 127(3) and (4) either, since section 127(2) simply
did not apply.
However, Cachalia JA stated that even if section 127(2) did apply, E’s
allegation that he did not receive the notice was without substance because,
once it was proved that the notice was indeed dispatched to 199
Specific contracts in court
him, he bore the burden of rebutting the inference of delivery. The onus was
on E to explain why it could not reasonably be expected that the notice did
come to his attention.
The court held that if E did not receive the notice because of his own
unreasonable conduct, it was irrelevant whether he actually did receive the
notice as he would not have rebutted the inference of delivery. In the credit
agreement, E agreed that he would be ‘deemed to have received a notice or
letter five business days after [F] have posted it to’ him. He therefore agreed
that he would be regarded as having received the notice, whether or not he
had in fact received it.
E bore the risk that the notice would not be delivered to the address specified
in the agreement. The court held that choosing that address for delivery
while knowing that he would not receive the mail was unreasonable. It was
irrelevant whether the notice was sent by ordinary or registered mail because
E would still not have received it. He was thus
‘deemed’ to have received the section 127(2) notice.
The court held that E’s defence of the section 127(5) notice not having
reached him, had to fail for the same reasons. Even if he did not receive this
notice through the post, it was annexed to the amended particulars of claim
which E received three months before the trial commenced.
37 Notice in terms of section 129
[108] ABSA Bank Ltd v Prochaska t/a Bianca Cara Interiors
2009 (2) SA 512 (D)
Facts
A and P entered into a loan agreement in terms of which A advanced money
to P. In addition to the loan, P also had an overdraft facility with A.
In both agreements, P had chosen specific addresses as domicilia citandi et
executandi. P defaulted on both the agreements and A sought judgment in
the amounts of R168 323,21 and R18 031,88 respectively as well as interest
and costs.
P opposed the matter and argued that A had failed to comply with the
procedural requirements in terms of section 129 of the NCA. P contended
that the notices sent were not forwarded to the addresses chosen as domicilia
citandi et executandi in the agreements and were therefore not compliant
with section 129.
The court considered section 65 and emphasised the words ‘chosen in the
agreement by the proposed recipient’ in the definition of ‘delivered’ in the
Regulations to the NCA.
200
Credit agreements
Judgment
Delivery of a section 129(1)(a) notice is mandatory prior to the enforcement
of a credit agreement.
A credit provider has an obligation to do more than merely dispatch the
notice in the manner prescribed in the National Credit Act 34 of 2005
and its Regulations.
When a consumer chooses an address as domicilium citandi et executandi,
the credit provider who seeks enforcement of a credit agreement must
forward the section 129(1)(a) notice to the precise address as chosen as
domicilium in the credit agreement.
The application was adjourned sine die and the court set out steps with
which the credit provider had to comply before setting the matter down.
[109] Kubyana v Standard Bank of South Africa Ltd
2014 (4) BCLR 400 (CC), 2014 (3) SA 56 (CC)
Facts
In November 2007 K bought a car. S financed the transaction and entered
into an instalment sale agreement with K, regulated by the NCA, in terms of
which K had to pay off the purchase price to S in 60 monthly instalments. In
the agreement, K chose an address as his domicilium citandi et executandi
for purposes of all notices and correspondence sent by S in connection with
the agreement. K fell into arrears with his payments several times. S tried to
bring this to K’s attention in a number of ways. S contacted K by telephone
on numerous occasions, and K
promised to settle the outstanding debt. S also tried to discuss K’s
indebtedness with him at his workplace. However, two attempted visits there
were to no avail and K’s account remained in arrears for a number of
months.
In July 2010 S sent K a notice in terms of section 129(1) of the NCA, which
set out his statutory rights and requested him to pay the outstanding debt.
The notice was sent by registered mail to the address which K
specified in the agreement. According to the track and trace report from the
Post Office, the notice reached the Pretoria North Post Office on 20 July
2010. On the same day the Post Office sent a notification to the address
nominated by K, informing him that an item sent by registered mail was
awaiting his collection. K failed to collect the registered item (the notice in
question). A week later, a second notification was sent to K. He again failed
to respond and the notice remained at the Pretoria North Post Office which
returned the unclaimed section 129 notice to S on 1 September 2010.
On 28 September 2010 S issued summons against K, claiming cancellation
of the agreement, return of the car and damages. K filed a special plea that
the High Court had no jurisdiction to hear the matter as S had 201
Specific contracts in court
failed to comply with its obligations in terms of section 129, as well as the
terms of their agreement, because his account had not been in arrears when
the notice was sent. He also alleged that he did not receive the notice until
the summons was served on him.
The matter was fully ventilated in the High Court. S adduced evidence to
establish that K’s account was and had been in arrears; S had taken steps to
bring this to K’s attention; the section 129 notice had been sent via registered
post to the address specified by K in the agreement; the notice had reached
the correct branch of the Post Office; and the notification from the Post
Office had been sent to K’s address. K did not testify or provide any
explanation for his failure to collect the section 129 notice.
The High Court upheld S’s claim, finding that S had no obligation to use
additional means to ensure that K received the section 129 notice. It held that
K had a duty to explain why the notice did not reach him despite S’s efforts,
and that his failure to do so had to count against him. The Supreme Court of
Appeal dismissed K’s application for leave to appeal against the decision of
the High Court. S then applied for leave to appeal to the Constitutional
Court. K abandoned a number of grounds of appeal originally raised by him
and eventually narrowed them down to two.
K’s grounds of appeal and S’ss response
response
Relying on the Constitutional Court’s judgment in Sebola v Standard Bank
of South Africa Ltd 2012 (8) BCLR 785 (CC), 2012 (5) SA 142 (CC), K’s
first contention was that, if it is shown that a section 129 notice was sent by
registered post but was returned to S unclaimed, this indicated that there had
not been proper delivery as required by the Act as it was clear that the notice
had not come to K’s attention. K averred that in that event, a court hearing
the dispute must adjourn the proceedings in terms of section 130(4)(b) and
cannot grant judgment. K contended that the fact that the section 129 notice
was returned to S uncollected constituted an indication contradicting the
inference of proper delivery and that judgment therefore should not have
been given against him.
K’s second submission dealt with his constitutional right to receive
information and is not pursued here.
As regards K’s first submission, S argued that, once it is proven that the
section 129 notice was sent by registered mail to the correct branch of the
Post Office, the credit provider may credibly aver receipt of the notice by the
consumer. This satisfies the requirements of the NCA. The burden of
rebuttal then shifts to the consumer to allege that the notice did not reach
him and to invite the court to make a finding in this regard. To place
additional requirements on a credit provider would impose too onerous a
burden and would afford consumers the undue advantage of being able to
ignore validly sent notices with impunity.
The Socio-Economic Rights Institute of South Africa (SERI), who acted as
amicus curiae, submitted that, in view of Sebola, the question to determine
202
Credit agreements
in a case such as the present one is whether, as a matter of fact, the section
129 notice did come to the attention of the consumer. Why this may not have
happened is irrelevant, as the Act does not require an enquiry into subjective
factors such as a consumer’s culpability for not receiving notices. SERI
alleged that it was clear that the section 129 notice never reached K. He
never collected it from the Pretoria North Post Office and it was returned to
S unclaimed. Therefore, there was no compliance with section 129. SERI
contended that the High Court ought to have adjourned the trial and directed
S to take further steps to ensure that the section 129 notice reached K.
Issues before the Constitutional Court
Mhlantla AJ stated that the court was required to (a) determine whether
leave to appeal should be granted; (b) interpret section 129 and identify its
requirements; (c) clarify the meaning and implications of Sebola and its
application to this case; and (d) determine an appropriate costs order. For
present purposes, only (b) above is considered.
Having considered the aims of the NCA, the court remarked that the
promotion of equity in the credit market is to be achieved by balancing the
respective rights and responsibilities of credit providers and consumers.
Therefore, the correct interpretation of section 129 is one that strikes a
proper balance between the interests of both parties to a credit agreement.
The court held that the purpose of section 129, which sets out the procedures
that a credit provider must follow before enforcing a debt, is twofold. First, it
aims to ensure that the consumer’s attention is sufficiently drawn to his
default. Second, it informs the consumer of the options that may be used to
remedy his default. As was held in Sebola, the aim of section 129 is to
facilitate the consensual resolution of credit agreement disputes. Mhlantla AJ
held that it is important to emphasise such consensuality as both the credit
provider and the consumer have responsibilities if their dispute is to be
resolved without recourse to the court.
The judge considered section 129(1), entitled ‘Required procedures before
debt enforcement’. He explained that although section 129(1)(a) is framed in
permissive language (‘the credit provider may’), subsection (1)(b) uses
peremptory terms: legal proceedings for the enforcement of a credit
agreement ‘may not commence’ until the section 129 notice has been
provided to the consumer. He therefore held that proper dispatch of the
section 129 notice is essential if a credit provider wishes to enforce his rights
against a defaulting consumer in court.
Following Sebola, which held that section 129(1) must be read in
conjunction with section 130, which is entitled ‘Debt procedures in a Court’,
Mhlantla AJ considered section 130. Again referring to Sebola, the judge
explained the relationship between the two sections as follows.
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Specific contracts in court
Section 129 prescribes what the credit provider must do, namely, to indicate
in writing to the consumer that he is in default and that there are certain
statutory remedies available to him in order to satisfy the outstanding debt
without recourse to litigation. Section 130 sets out how the credit provider
must discharge this duty, namely, to deliver a written notice to the consumer
as required by the NCA. The crucial question therefore formulated by
Mhlantla AJ was: ‘What must a credit provider do in order to meet the
standard prescribed by the Act for the delivery of a section 129 notice?’
Because sections 129 and 130 do not prescribe acceptable modes of delivery,
Mhlantla AJ held that regard must be had to sections 65, 96 and 168 that
deal with the delivery of documentation in terms of the Act. He agreed with
the comprehensive treatment of these provisions in Sebola and held that
three features had to be emphasised:
First, there is no general requirement that the credit provider should bring
the notice to the consumer’s subjective attention, or that personal service on
the consumer is required for valid delivery. Mhlantla AJ agreed with the
High Court that, had the legislator intended either of these aspects to be a
necessary condition for delivery, it would have provided so expressly. Thus,
the section 129 obligation on the credit provider to ‘draw the default to the
notice of the consumer in writing’ is discharged, according to section 65(2),
by ‘[making] the document available to the consumer’.
This is in line with section 130(1)(b)(i), which provides that a credit provider
may seek to enforce its rights if a consumer has not responded to a section
129 notice. While a credit provider must take certain steps to ensure that a
consumer is adequately informed of his rights, he cannot be
‘non-suited or hamstrung’ if the consumer unreasonably fails to act on or
make use of the information provided. Put differently, ‘it is the use of an
acceptable mode of delivery – the taking of certain steps to apprise the
consumer of the notice – which the statute requires of the credit provider, not
the bringing of the contents of the section 129 notice to the consumer’s
subjective attention’.
Secondly, one of the acceptable modes of delivery is by means of the postal
service. With reference to Sebola, Mhlantla AJ held that where a consumer
has chosen to receive notices by way of post, the credit provider’s obligation
to deliver thus ordinarily consists of
l respecting the consumer’s election;
l incurring the additional expense of sending notices by way of registered
rather than ordinary mail; and
l ensuring that any notice is sent to the correct branch of the Post Office for
the consumer’s collection.
Thirdly, the steps that a credit provider must take in order to effect delivery
are those that would bring the section 129 notice to the attention of a
reasonable consumer. This requirement is based on the ‘especial importance’
and ‘pivotal significance’ of the notice in view of the Act’s 204
Credit agreements
objectives regarding consumer protection. To this end, the legislator has
imposed on credit providers duties that would not otherwise arise.
Mhlantla AJ therefore held that if ‘delivery’ is understood to mean that a
reasonable consumer would still not receive the section 129 notice, such
interpretation would undermine the Act’s ‘innovative entrenchment of courtavoidant and settlement-friendly processes’ and would provide protection
only for ‘exceptional’ consumers. As was stated in Sebola, for delivery to
have taken place under the Act, the circumstances must be such that ‘it may
reasonably be assumed . . . that notification of [the]
arrival [of the section 129 notice at the Post Office] reached the consumer
and that a reasonable consumer would have ensured retrieval of the item’.
Mhlantla AJ held that if the credit provider complies with the requirements
set out in the three features explained above and receives no response from
the consumer within the designated period, he failed to see what more could
be expected of the credit provider. The Act imposes no further obstacles and
the credit provider is entitled to enforce its rights. If the consumer has
unreasonably failed to respond to the section 129 notice, he will no longer be
able to rely on the consensual dispute resolution mechanisms under the Act.
He will not be entitled to interrupt enforcement proceedings by alleging that
the credit provider has failed to discharge his notice obligations.
However, even if the section 129 notice has been sent by registered mail and
the Post Office has delivered the notification to the consumer’s chosen
address, valid delivery will not take place if the notice would nevertheless
not have come to the attention of a reasonable consumer.
But if the credit provider has complied with the requirements set out above,
the consumer will have to show that the notice did not come to his attention
and the reasons why it did not. In other words, if a consumer has chosen to
receive notices by way of registered mail, he must respond to notifications
from the Post Office to collect registered items unless, in the circumstances,
a reasonable person would not have responded.
A credit provider will only have discharged its obligation to effect delivery if
the delivery would have resulted in the section 129 notice being drawn to the
attention of a reasonable consumer. However, a consumer will not be entitled
to rely on a credit provider’s alleged non-compliance with section 129 if he
has been unreasonably careless in failing to engage with the notice. The
notion of a ‘reasonable consumer’ implies obligations for both credit
providers and consumers.
Mhlantla AJ summarised the legal position as follows:
‘[T]he Act does not require a credit provider to bring the contents of a
section 129 notice to the subjective attention of a consumer. Rather, delivery
consists of taking certain steps, prescribed by the Act, to apprise a
reasonable consumer of the notice. Thus, a credit provider’s obligation may
be to make the section 129 notice available to the consumer by having it
delivered to a designated address. When the consumer has elected to receive
notices by way of the postal service, the credit provider’s obligation to
deliver generally 205
Specific contracts in court
consists of dispatching the notice by registered mail, ensuring that the notice
reaches the correct branch of the Post Office for collection and ensuring that
the Post Office notifies the consumer (at her designated address) that a
registered item is awaiting her collection.
This is subject to the narrow qualification that, if these steps would not have
drawn a reasonable consumer’s attention to the section 129 notice, delivery
will not have been effected. The ultimate question is whether delivery as
envisaged in the Act has been effected. In each case, this must be determined
by evidence.’
Proof of delivery of a section 129 notice
Mhlantla AJ explained that when delivery occurs through the postal service,
proof that the credit provider’s obligations have been discharged entails
proof that:
‘(a) the section 129 notice was sent via registered mail and was sent to the
correct branch of the Post Office, in accordance with the postal address
nominated by the consumer. This may be deduced from a track and trace
report and the terms of the relevant credit agreement;
(b) the Post Office issued a notification to the consumer that a registered
item was available for her collection;
(c) the Post Office’s notification reached the consumer. This may be inferred
from the fact that the Post Office sent the notification to the consumer’s
correct postal address, which inference may be rebutted by an indication to
the contrary . . . ; and (d) a reasonable consumer would have collected the
section 129 notice and engaged with its contents. This may be inferred if the
credit provider has proven (a)–(c), which inference may, again, be rebutted
by a contrary indication: an explanation of why, in the circumstances, the
notice would not have come to the attention of a reasonable consumer’.
Did S comply with section 129?
Mhlantla AJ held that it is sufficient to bring the section 129 notice to a
consumer’s attention if the latter has agreed to receive the notice by way of
registered mail and then received a notification that a registered item was
awaiting collection. This is so, unless a reasonable consumer would not, in
the circumstances, have taken receipt of the notice.
The fact that K decided neither to testify nor to provide an explanation for
why he did not respond to the notifications from the Post Office weighed
heavily against him. It meant that there was no basis upon which the court
could determine that, despite S’s efforts, it was reasonable for K
not to have taken receipt of the notice. Such defence is a narrow one and
would apply only if K were able to prove that, despite S’s attempts at
delivery, a reasonable consumer in his position would not have collected the
notice or responded to it. The court therefore held that S did all that was
required of it by the Act and that to hold it to a higher standard would be to
impose an excessively onerous standard of performance on S. As S
has complied with the requirements of section 129, it was entitled to
commence legal proceedings and to enforce its rights under the instalment
sale agreement. There was no basis to interfere with the order of the High
Court.
Jafta J delivered a separate, concurring judgment.
206
Credit agreements
[110] Mabondo v Standard Bank
Unreported case (906/2015) [2016] ZAGPPHC 1007
Facts
S granted a home loan to M which was secured by a mortgage bond in
favour of S. In terms of the bond agreement, M assumed responsibility for
payment of the monthly insurance premiums as well as certain assurance
premiums in respect of the property. The loan was repayable in 240
monthly instalments.
M fell into arrears with his monthly instalments and on 26 October 2014, S
sent a notice in terms of section 129 read with section 130 of the NCA to M
for payment of the arrears. The section 129 notice was delivered via courier
to M’s chosen domicilium address, where M still resides.
In terms of the courier’s delivery report, a person by the name of ‘Makhaya’
accepted delivery of the notice.
On 3 January 2015 summons was issued because of M’s breach of the terms
of the loan agreement in not making the monthly repayments.
S claimed, inter alia, payment of the full balance outstanding in the sum of
R50 409.11 and an order declaring the property executable. As at 4
December 2014, the arrears amounted to only R21 899.52.
On 8 January 2015, the summons was served by the Sheriff at the property
by affixing a copy of the combined summons to the principal gate of the
property. According to the Sheriff’s return of service, ‘after diligent search
and enquiry no other manner of service was possible at given address’. M
did not enter an appearance to defend and on 17 March 2015, S obtained
default judgment against M for payment of the outstanding balance, an order
declaring the property executable and further relief.
On 10 April 2015, a writ of execution was issued in respect of the
immovable property. On 20 April 2015, the writ was served on M at the
property, again by affixing it to the principal gate. The Sheriff’s return of
service did not state whether any other manner of service was possible at the
address.
M applied for the rescission of a default judgment granted against him on 17
March 2015.
According to M, he became aware of the judgment on 31 March 2015
when he found an envelope at his gate which contained a letter notifying him
of the judgment against him. M stated that he did not receive the section 129
notice, which was served on Makhaya, M’s nine-year-old son, on Sunday 26
October 2015, as he was away from home on that date.
According to M, Makhaya might have lost the letter or forgotten to bring it
to M’s attention. Had he received this notice, he would have contacted S
to arrange for settlement of the amount due. According to M, he also did not
receive the summons which was served by affixing a copy thereof to his
main gate. However, he stated that his premises are accessible to 207
Specific contracts in court
anyone in that the gate is ‘not locked’. The Sheriff’s return did not state why
the summons was affixed to the gate nor that there was no other method of
serving the summons or that there was no-one at the premises on whom the
summons could be served.
M submitted that it was unclear from the Sheriff’s return how such a
voluminous document was ‘affixed’ to the main gate. The combined
summons together with annexures comprised some 42 pages. According to
M, had the summons been properly affixed to the gate, he would certainly
have seen it. Furthermore, and taking into account that the property is
situated in a busy street frequented by school children, it was possible that
any one of the children might have taken the summons. Had it been dropped
inside the property, ‘chances are one would have found it’. M
emphasised that he did not wilfully ignore the summons and stated that he
could not have reacted to something which he did not receive and of which
he had no knowledge. He would have reacted to the summons if he had
received it.
M admitted to being indebted to S but stated that he fell into arrears with the
bond repayments because he became unemployed. He was to acquire funds
from a retirement annuity which he intended to use towards settling the debt.
Although these funds were not yet available, M
expected them to become available once he had resolved his ‘tax issue’
with SARS. In addition, the assurance policy in respect of the property was
cancelled in October 2011 and therefore the outstanding balance falls to be
reduced by the amount of assurance premiums charged to M’s bond account
after that date.
According to M, the value of the property is approximately R700 000
while the total amount due on the mortgage as at the date of issue of
summons was R56 181.93. The amount in arrear at that date was only R21
899.52. M stated that an order declaring the property especially executable
would cause him great prejudice as he would lose his primary home where
his family, including young children, reside.
In its answering affidavit, S stated that the last payment received from M
was an amount of R1 500.00 on 22 November 2014. However, M
produced payment deposit slips showing further payments of R3 000.00
and R2 000.00 that were made during August and September 2015 which
indicated his intention to settle the debt.
Judgment
An application for rescission under rule 31(2)(b) must be brought within 20
days after a litigant became aware that judgment has been granted against
him. The present application was brought timeously as M stated that he first
became aware of the judgment on 31 March 2015 and the application for
rescission was served on 9 April 2015.
The court referred to the requirements for the grant of rescission in terms of
rule 31(2)(b) set out in Colyn v Tiger Food Industries Ltd v Meadow 208
Credit agreements
Feed Mills (Cape) [2003] 2 All SA 113 (SCA), 2003 (6) SA 1 (SCA) para
11, namely, that ‘an applicant must show cause why the remedy should be
granted. That entails (a) giving a reasonable explanation of the default; (b)
showing that the application is made bona fide; and (c) showing that there is
a bona fide defence to the plaintiff’s claim which prima facie has some
prospectus of success’. In addition, the application must be brought within
20 days after the defendant has obtained knowledge of the judgment.
With reference to Nedbank Ltd v National Credit Regulator (see [106]) and
Sebola v Standard Bank of South Africa Ltd 2012 (8) BCLR 785 (CC), 2012
(5) SA 142 (CC), Maer-Frawley AJ stated that it is trite that a notice in terms
of section 129(1)(a) of the NCA is a mandatory, statutory procedure before
commencing litigation proceedings. He explained that the requirement that a
credit provider must give notice in terms of section 129(1)(a) to the
consumer must be understood in conjunction with section 130, which
requires delivery of the notice. A credit provider seeking to enforce a credit
agreement must aver and prove that the notice was delivered to the
consumer.
The court mentioned that the NCA had been amended in 2014 by the
introduction of section 129(5). The amendment became effective on 13
March 2015 and deals with the manner in which a notice must be delivered
to a consumer, namely, by registered mail or delivery to an adult person at
the location specified by the consumer. As at date of service of summons in
casu, the amendment had not yet come into operation and the Act, in its preamended form, did not deal with the manner in which notice must be
delivered to the consumer. However, the judge found it ‘inconceivable’ that
delivery to a nine-year-old child could ever suffice and stated that even rule
4 of the Uniform Rules of Court requires service of documents upon persons
who are apparently over the age of 16 years.
The court referred to Sebola (paras 74–75) where the Constitutional Court
held that for a section 129(1) notice to be effective, the credit provider
should take reasonable measures to bring the notice to the attention of the
consumer. The credit provider must therefore present proof on a balance of
probability that the notice reached the consumer. Therefore the court held
that since the Sebola judgment there is a heavier burden on a credit provider
to ensure that the notice is sent and delivered to the defaulting debtor. The
credit provider has to prove on a balance of probabilities that the notice was
delivered and came to the attention of the defaulting consumer.
In casu, S asserted that the section 129 notice was delivered to M’s residence
via courier. S also disputed that M did not receive notice thereof without
providing any gainsaying evidence to refute M’s allegation that the notice
was served on a nine-year-old child who either misplaced it or forgot to give
it to him. The court stated that, either way, the notice never came to M’s
attention, as is required for purposes of ‘delivery’ thereof. In 209
Specific contracts in court
view of the authorities referred to above and by virtue of the facts of the
matter, Maer-Frawley AJ was satisfied that S has failed to prove on a
balance of probabilities that the section 129 notice came to M’s attention.
The judge was also persuaded that
l M had given a satisfactory explanation for his default;
l M has also established that S failed to give him proper notice in terms of
the NCA; and
l M therefore had set up a bona fide defence.
The application for rescission succeeded.
[111] Naidoo v Absa Bank Ltd
[2010] 4 SA 496 (SCA), 2010 (4) SA 597 (SCA)
Facts
N failed to meet his payments to A in terms of instalment sale agreements, to
which the National Credit Act 34 of 2005 (NCA) applied, relating to six
motor vehicles and two home loan agreements and was
sequestrated at A’s instance. On appeal, N contended that it was not
competent for the respondent to have instituted proceedings for his
sequestration before complying with the procedure provided for in section
129(1)(a) of the NCA. N’s counsel argued that the procedures before debt
enforcement, provided for in section 129(1)(a) read with section 130(3),
should be interpreted to cover situations relating not only to the enforcement
of a credit agreement, but also to sequestration proceedings, as the unpaid
claims on which the sequestration application was based, arose from credit
agreements to which the NCA applies.
The relevant parts of sections 129 and 130 provide:
‘129 Required procedures before debt enforcement
(1) If the consumer is in default under a credit agreement, the credit
provider–
(a) may draw the default to the notice of the consumer in writing and
propose that the consumer refer the credit agreement to a debt counsellor,
alternative dispute resolution agent, consumer court or ombud with
jurisdiction, with the intent that the parties resolve any dispute under the
agreement or develop and agree on a plan to bring the payments under the
agreement up to date; and . . .
(b) may not commence any legal proceedings to enforce the agreement
before–
(i) first providing notice to the consumer, as contemplated in paragraph (a).’
‘130 Debt procedures in a court . . .
(3) Despite any provision of law or contract to the contrary, in any
proceedings commenced in a court in respect of a credit agreement to which
this Act applies, the court may determine the matter only if the court is
satisfied that–
(a) in the case of proceedings to which sections 127, 129 or 131 apply, the
procedures required by those sections have been complied with.’
210
Credit agreements
Judgment
According to Cachalia JA, N implicitly conceded that sequestration
proceedings are not in and of themselves ‘legal proceedings to enforce the
agreement’ within the meaning of section 129(1)(b). He held that the
concession was correct in view of Trengove AJ’s decision in Investec Bank
Ltd v Mutemeri 2010 (1) SA 265 (GSJ), which was to the effect that an order
for the sequestration of a debtor’s estate is not an order for the enforcement
of the sequestrating creditor’s claim, and that sequestration therefore is not a
legal proceeding to enforce an agreement. That decision was made in line
with previous authorities which were to the effect that
‘sequestration proceedings are instituted by a creditor against a debtor not
for the purpose of claiming something from the latter, but for the purpose of
setting the machinery of the law in motion to have the debtor declared
insolvent’ and that they are not proceedings ‘for the recovery of a debt’.
According to Cachalia JA, Trengove AJ’s reasoning was in line with the
Supreme Court of Appeal’s description of a sequestration order as a:
‘species of execution, affecting not only the rights of the two litigants, but
also of third parties, and involves the distribution of the insolvent’s property
to various creditors, while restricting those creditors’ ordinary remedies and
imposing disabilities on the insolvent –
it is not an ordinary judgment entitling a creditor to execute against a debtor’
( Samsudin v De Villiers Berrange NO [2006] SCA 79 (RSA)).
However, N argued that the effect of section 130(3)(a) read with section
129(1) is that the legislature intended to include all proceedings to which the
NCA applies, and not only proceedings to enforce a credit agreement. This
argument was based on the phrase ‘despite any provision of law or contract
to the contrary, in any proceedings commenced in a court in respect of a
credit agreement to which this Act applies’ in section 130(3), which,
according to N, means that all proceedings of which the underlying causa is
a credit agreement to which the NCA applies, are within its scope.
Cachalia JA held that, read in isolation, the wording of section 130(3) may
convey the meaning suggested by N. He referred to Ex parte Ford and Two
Similar Cases (see [101]) where the court held that section 85 of the NCA,
with very similar wording to section 130(3), applied to proceedings for the
voluntary surrender of an estate. However, Cachalia JA held that Ford was
distinguishable from the present case because section 85 is contained in Part
D of Chapter 4 and deals with over-indebtedness, debt relief and debt
restructuring. However, sections 129–133 regulate debt enforcement and are
contained in Part C of Chapter 6. The court held that section 130(3) therefore
must be interpreted in the context of that part of the Act within which it is to
be found and not in isolation and outside of its context.
Cachalia JA observed that it was clear that the proceedings referred to
section 130(3)(a) do not extend the ambit of section 129 as the section 211
Specific contracts in court
simply provides that where a credit provider decides to institute proceedings
to enforce the agreement, he may do so only after having followed the
procedure in section 129(1)(a). The judge also stated that the reference in
section 130(3)(a) to sections 127 and 131 is to procedures that are applicable
to proceedings involving the surrender and attachment of goods in terms of a
credit agreement, and not to ‘any proceedings’ concerning a credit
agreement. The court therefore held that N’s assertion that A had to comply
with section 129(1)(a) before commencing sequestration proceedings against
him had no merit and dismissed the appeal.
212
Insurance
Insurance
38 Nature and characteristics of the law of
insurance
[112] Lake NO v Reinsurance Corporation Ltd
[1967] 3 All SA 225 (W), 1967 (3) SA 124 (W)
Comment
This case is important for two reasons:
l The court examined the nature of a contract of insurance and held that it is
a reciprocal contract that places duties on both parties to the contract. The
court quoted the definition of a contract of insurance given by Lee and
Honoré in The South African law of obligations 149, paragraph 586:
‘A contract between an insurer (or assurer) and an insured (or assured),
whereby the insurer undertakes in return for the payment of a price or
premium to render to the insured a sum of money, or its equivalent, on the
happening of a specified uncertain event in which the insured has some
interest.’
l The court further held that although a contract of insurance can come into
being completely and validly without the premium being paid, the insured
cannot expect the insurer to perform unless he himself has offered
performance (payment of the premium).
39 Requirements for the validity of a contract
of insurance
[113] Dicks v South African Mutual Fire
and General Insurance Co Ltd
[1963] 4 All SA 303 (N), 1963 (4) SA 501 (N)
Facts
D, assisted by his mother, approached an insurance company representing S
in order to take out a car insurance policy. H was employed by the
representative company and it was agreed between the latter and S
that she could handle matters. After having completed the application form,
D insisted on paying the annual car insurance premium. His mother asked
whether he was covered by the policy and H answered in the affirmative. D
was involved in a car accident the following day and submitted a claim. S
denied liability under the policy because of the fact that D’s application for
insurance was unsuccessful and therefore did not provide him with cover. S
alleged that H did not have any tacit authority to accept an application for
insurance or to grant interim cover.
215
Specific contracts in court
Judgment
The court accepted that interim cover is usually granted by issuing a formal
covering note. H never gave such a note to D. D’s claim to be indemnified
by S failed.
[114] Barkhuizen v Napier
2007 (7) BCLR 691 (CC), 2007 (5) SA 323 (CC)
Introduction
In this case, the court examined the constitutionality of a time-bar clause in a
short-term insurance policy. Such a clause prohibits an insured from
instituting legal proceedings against the insurer if the summons had not been
served on the insurer within the period determined in the clause.
Facts
B appealed against the decision of the court a quo to the Supreme Court of
Appeal. The case eventually went to the Constitutional Court, where B
argued that a time-bar clause in a short-term insurance policy is
unconstitutional and infringes upon a person’s right to approach a court for
legal aid or redress.
Majority judgment
The majority judgment per Ngcobo J was to the effect that, on the facts, the
time-bar clause was not unreasonable and against public policy. The appeal
therefore failed.
Minority judgment
In their minority judgment, Moseneke and Sachs JJ held that the time-bar
clause was unreasonably short and inflexible. In their opinion, it deprived
the insured of a reasonable opportunity to refer the dispute to an independent
tribunal. Moseneke J raised the following points in support of the argument
that the clause was unreasonably short:
l It would afford the insured a short time to find litigation funds and to
appoint an attorney to issue a summons and have it served. The short time
could result in the insurer’s release from liability which could cause
irreparable harm to the insured.
l What legitimate purpose was served by the unseemly haste? Although the
insured has to bring his claim within the time-bar period, the insurer has
unlimited time to investigate the claim. The likely prejudice that it may
cause to the insured is disproportionate to the possible advantages it may
hold for the insurer.
216
Insurance
l The time-bar clause is not reciprocal. The insurer may reject the insured’s
claim when it wants to, and for other claims that the insured has against the
insurer, the normal prescription period of three years applies.
l The time-bar clause leaves no room for extensions that do have merit.
[115] Jacobs NO v Braaff
[2007] 4 All SA 966 (SCA)
Facts
B’s son was involved in an accident while driving B’s car. B’s son was
driving negligently and died in the accident. A passenger injured in the
accident brought an action for damages against J and B. J was the executor
of B’s son’s deceased estate. J applied to the High Court for an order forcing
B to submit a claim to his insurer pursuant to a policy that provided
indemnity to the driver of the vehicle or someone who drove the vehicle
with the insured’s permission. J contended that the son did have B’s
permission to drive the car. The policy provided that only the insured could
enforce the indemnity against the insurer. The High Court rejected the
application.
According to the court, the insured had given his son permission to drive the
car and the indemnity did not confer a right on the authorised driver to
institute an action against the insurer in the event of the insured refusing to
assist him. J contended that it was a tacit term of the loan agreement between
B and his son that if the son was liable to anyone for damages resulting from
the use of the car, B would claim indemnity in terms the policy.
Judgment
The court acknowledged that such a tacit term existed in the agreement
between B and his son in terms of which the latter was allowed to use the
car. The court held that B had to submit J’s claim for indemnity to the
insurer. The appeal succeeded.
40 Insurable interest
[116] Littlejohn v Norwich Union Fire Insurance Society
1905 TH 374
Facts
L had a policy covering goods in a store. Both the store and the goods burnt
down and L brought a claim against N. N raised several defences against the
claim, the most relevant of which was that L did not have an 217
Specific contracts in court
insurable interest in the goods. Mr and Mrs L were married out of
community of property. Mrs L was the owner of the goods in the store.
However, Mr L managed the business and he had sole control over the
goods. After their marriage, Mrs L had very little interest in the business and
she therefore notified merchants that Mr L was authorised to sign
transactions. Mr and Mrs L made a living from the profits of the business.
Judgment
Having referred to several cases from other jurisdictions for purposes of
answering the question regarding Mr L’s insurable interests in the goods,
Wessels J argued:
‘The principle to be deduced from these cases appears to be this: If the
insured can show that he stands to lose something of an appreciable
commercial value by the destruction of the thing insured, then even though
he has neither a jus in re nor a jus ad rem to the thing insured his interest will
be an insurable one.’
The court held that Mr L did indeed have an insurable interest in the goods
which he controlled and managed. The court further held that Mr L
could sue in his own name under the policy because, although the goods
belonged to his wife, he had insured them in his own name.
[117] Phillips v General Accident Insurance Co (SA) Ltd
[1983] 3 All SA 101 (W), 1983 (4) SA 652 (W)
Facts
P had insured his wife’s jewellery under a household policy. P submitted a
claim for R10 000 to G after a diamond ring went missing. G denied his
liability to indemnify P on the basis that P did not have an insurable interest
in the ring. It was contended on behalf of G that a spouse only has an
insurable interest in an item if
l he has the use of the item; or
l he is under a legal duty to replace the item if it is destroyed or lost.
Judgment
The court said that P had insured the ring against loss and that his intention
was that the ring should be replaced if it was lost. Although P
was under no legal duty to replace the ring, he felt a moral duty to do so.
The court further said that in the event of the couple falling into financial
difficulties, the wife could sell the ring in order to provide household
necessities. Thereby P clearly did have an insurable interest in his wife’s
estate. According to the court, there were two points in dispute which had to
be resolved:
l Did P have an insurable interest in his wife’s jewellery?
l Had P taken all reasonable precautions to prevent loss of or damage to the
items?
218
Insurance
As regards the first point, the court referred to the definition of insurable
interest provided by Halsbury’s Laws of England Vol 25 329. Insurable
interest is defined as follows in paragraph 636:
‘A husband has an insurable interest in his wife’s property, so long as they
are living together and sharing its use. Even in the case of property which in
its nature cannot be shared, for example articles of clothing or jewellery, the
husband presumably has an interest if he is financially responsible for
replacement. It is supposed that a wife has a similar insurable interest in the
property of her husband which she shares and, if she is the money partner, in
his personal belongings.’
The court also referred to the definition of insurable interest given by
Wessels J in Littlejohn v Norwich Union Fire Insurance Society (see [116]).
The court further held that G accepted the premiums that P paid for the
insurance and therefore accepted that P had an insurable interest in his wife’s
jewellery. G was aware of the fact that P had insured his wife’s jewellery. P
also felt a moral duty to replace the ring if it was lost and that is why he had
it valued and insured.
As regards the second point, the court held that P had taken all reasonable
precautionary steps to prevent loss and damage.
The court awarded P’s claim.
[118] Refrigerated Trucking (Pty) Ltd v Zive NO
(Aegis Insurance Co Ltd, Third Party)
1996 (2) SA 361 (T)
Introduction
This case is relevant in two aspects, namely:
l the meaning of insurable interest; and
l the effect of extension clauses.
These aspects are discussed separately after the summary of the facts.
Facts
R was the owner of a truck that was involved in an accident with another
vehicle of which Z (the deceased) was the driver. The defendant (the
executor of the deceased estate) admitted, with the permission of A Ltd, a
third party (Z) 90% negligent in the accident. R’s damages amounted to
R441 000 plus costs. A Ltd, an insurance company, was joined as a third
party to the matter by the defendant on the assumption that if the defendant
was liable to compensate the plaintiff for his damages, A Ltd had to
indemnify him in terms of a policy (A policy) that A had issued in favour of
the deceased. At the time of the accident, the car driven by Z
was insured by I Ltd in terms of a car insurance policy (I policy) in favour of
G (Pty) Ltd. Z had G’s permission to drive the car. I Ltd paid the claim for
damages that G made under the I policy against I Ltd. G did not file the
claim on behalf of either the deceased or the deceased estate. The A 219
Specific contracts in court
policy was a personal insurance packet that included several risks. These
risks included, inter alia, the driving of a vehicle which was not owned by
the insured or was not leased to him ‘in so far as the vehicle (was) not
otherwise insured’. Clause 11 of the policy provided that if other insurance
covered the same liability or loss, they would not be liable to pay more than
their share of any claim.
The I policy contained an extension clause which provided that the insured
would be indemnified, inter alia, where damage was caused to property
other than property owned by the insured. The clause further provided that
the insurer would indemnify any person who uses or drives a car with the
insured’s permission, provided that such person was not entitled to be
indemnified under any other policy. Clause 5 provided that the extension
clause did not confer any right on anyone other than the insured. The
intention was that the insured would institute action on behalf of such
person. The effect of clause 8 was that both A and I had to pay 50% of the
claim to the defendant.
Judgment
The court held as follows in respect of the definition of insurable interest: l
The owner of a car has an insurable interest in the liability of drivers who
drive the car on his instruction or with his permission.
l Insurable interest was described as follows:
‘It seems then that in our law of indemnity insurance an insurable interest is
an economic interest which relates to the risk which a person runs in respect
of a thing which, if damaged or destroyed, will cause him to suffer an
economic loss or, in respect of an event, which if it happens will likewise
cause him to suffer an economic loss. It does not matter whether he
personally has rights in respect of that article, or whether the event happens
to him personally, or whether the rights are those of someone to whom he
stands in such a relationship that, despite the fact that he has no personal
right in respect of the article, or that the event does not affect him personally,
he will nevertheless be worse off if the object is damaged or destroyed, or
the event happens.’
The court held as follows in respect of the extension clause:
l Only the owner can enforce the right to be indemnified on behalf of the
driver.
l The driver acquires the rights, but has no locus standi to enforce them.
l Until such time as the insured intercedes on behalf of the driver, the latter
has no enforceable rights against the insurer.
220
Insurance
41 Risk
[119] Young v Liberty Life Association
[1991] 3 All SA 606 (W), 1991 (2) SA 246 (W)
Facts
The insured took out a life insurance policy with L. The contract contained
an exemption clause which provided that the contract would be void if the
insured died ‘by his own act’ within two years of the issue of the policy.
The insured did die within two years of the issue of the policy, when he held
a pistol to his head and pulled the trigger while under the impression that the
pistol was empty. In an application for the proceeds of the policy by the
beneficiary, Y, L denied liability. In terms of the exemption clause in the
contract, L was not liable. L contended that if the court were to decide
otherwise, the result would be that the words ‘by accident, intentionally or
negligently’ would have to be read into the clause. Y
contended that the policy clearly intended to provide cover against the risk
of accidental death and that the exemption clause was therefore not wide
enough to cover accidental death.
Judgment
The court held in favour of Y that accidental death did not fall under the
exemption clause.
[120] Napier v Collett
[1995] 2 All SA 457 (A), 1995 (3) SA 140 (AD)
Facts
C was the owner of a racehorse, Shooting Party (SP). C insured SP under a
bloodstock insurance policy which would indemnify him if SP’s death was
caused by an accident. SP was injured during a race and underwent surgery.
A few months later, the veterinarians responsible for the well-being of SP
came to the conclusion that he suffered from degenerative joint disease as a
result of the accident and the subsequent surgery. The policy provided that C
would not be indemnified if the horse was killed intentionally, unless the
underwriter’s permission had been obtained. The veterinarians were not ad
idem as to whether SP’s condition justified euthanasia. They decided to
determine the extent of the disease by examining SP under general
anaesthetic. SP died during the procedure.
The cause of death was described as either heart failure or lung collapse or a
combination of the two conditions precipitated by the anaesthetic.
221
Specific contracts in court
C sued successfully in the local division. On appeal, the only point in issue
was whether SP’s death could be ascribed to the injuries that he sustained
during the race.
Judgment
The court first looked at factual causation and held that SP’s death was
indeed a direct result of the injuries sustained during the race. The court then
considered juridical causation and held that the direct physical cause of SP’s
death was heart failure or lung collapse or a combination of the two
conditions precipitated by the anaesthetic. The court held that the accident
during the race was not fatal in itself. The court therefore had to determine
whether the injuries that SP sustained during the race were serious enough to
justify euthanasia. The court held that the causal relationship between the
accident and the death was an indirect and fortuitous one and that the
effective cause of death was the administering of the anaesthetic. The court
held that SP did not die within the meaning of the policy. The appeal
succeeded.
Comments
To determine causation in the context of insurance is basically the same as in
the case of any other contract. Factual causation must be considered first and
then juridical causation. In the context of a contract of insurance, it is also
important to pay special attention to the policy, which may contain
provisions relating to exclusions or limitations.
The following factors may assist in determining whether the factual cause
was also the juridical cause, namely
l the type of policy;
l the nature of the risk against which insurance was taken out; and l the
conditions in the policy.
42 Premium
[121] Chemical Specialities (Pty) Ltd v South African
Eagle Insurance Company Ltd
[2006] 2 All SA 138 (D)
Facts
C manufactured paint products in Durban and had them transported to
various outlets. An independent contractor transported the products. In 1995,
the transporter had taken out insurance to cover its common-law liability as a
carrier of goods. In terms of the contract, it was insured for a maximum of
R250 000 in respect of each load transported. C later 222
Insurance
decided to insure its own goods in transit and used the second defendant as
insurer. The original contract remained in existence. The only difference was
that C had taken over payment of the premiums. The issue in dispute before
the court was whether C or the transporter was the insured in this case.
Judgment
The court held that C and the transporter could not be regarded as joint
insureds since they were two persons having different interests in one policy.
The transporter’s interest which it insured was its common-law liability as a
carrier of goods, while C wished to insure its products. The second
defendant was entitled to repudiate the claims lodged by the transporter
because of a material non-disclosure.
Comments
The court acknowledged that only persons with exactly the same interests
can be co-insureds. In this case, the interests differed. C’s interest was in its
capacity as owner in respect of damage to or loss of the paint products.
The transporter’s interest was its common-law liability as a carrier of goods,
against, for example, the owner of the products. The transporter therefore
took out a type of liability insurance. The payment of the premium by
someone other than the insured does not have the effect that such person
becomes the insured in terms of the contract.
43 Parties to the contract of insurance
[122] Unitrans Freight (Pty) Ltd v Santam Ltd
[2004] 4 All SA 292 (SCA), 2004 (6) SA 21 (SCA)
Facts
S entered into a comprehensive car insurance policy with the insured in
terms of which S undertook to indemnify the insured against any liability
incurred by the insured against third parties for damages resulting from an
accident which was caused by or in connection with the insured car.
An extension clause in the contract extended that indemnity to any person
driving the car on the insured’s order or with its permission at the time of the
accident. The insured car was involved in a collision in which U had an
interest. The insured car had been driven and the collision caused by the
negligence of T. T was employed by D, a close corporation, and he had been
driving the car in the performance of his duties. D was therefore vicariously
liable to U for the loss. At the time of the collision, D
was using the car with the insured’s permission. After the accident, D was
placed under a winding-up order. Since D was insolvent, U attempted to 223
Specific contracts in court
recover the loss directly from S. U relied on section 156 of the Insolvency
Act 24 of 1936, which provides:
‘Whenever any person (hereinafter called the insurer) is obliged to
indemnify another person (hereinafter called the insured) in respect of any
liability incurred by the insured towards a third party, the latter shall, on the
sequestration of the estate of the insured, be entitled to recover from the
insurer the amount of the insured’s liability towards the third party but not
exceeding the maximum amount for which the insurer has bound himself to
indemnify the insured.’
In terms of the contract of insurance, the insurer had to indemnify D. U
relied on the extension clause in the contract. U contended that the extension
clause constituted a stipulation for the benefit of a third party which included
an authorised driver such as D and that it therefore conferred on D the right
to enforce the provision. S took exception to the claim on the grounds that
l no cause of action was proved;
l there were no allegations that a contractual relationship existed between U
and the insured pursuant to which U was entitled to rely on the contract of
insurance; and
l D had never accepted the benefit. This was a prerequisite for the insurer to
incur contractual liability against D.
The court a quo held that the extension clause did not apply to someone in
U’s position and upheld the exception. U appealed.
Judgment
The court first considered the effect of section 156 of the Insolvency Act and
held that it did not add to the contractual liability of the insurer.
However, it allows a person who is not a party to the contract of insurance to
recover directly from the insurer in particular circumstances.
In terms of section 156, the person who wishes to recover from the insurer
bears the onus of proving that the claim is against an insolvent person and
that the insurer is, in law, obliged to indemnify the insolvent against the
claim. According to the court, section 156 does not require there to be a
contractual relationship between U and S. The section only requires that S is
contractually bound to indemnify the person (D) who is liable to make good
the loss.
The court considered
l whether the insurer had any liability towards the authorised driver; l
whether the extension clause constituted a stipulation in favour of a third
party; and
l the insurer’s argument that D had not accepted the benefit.
The court held that the mere fact that there was such a clause was not
sufficient. The intention with such a clause is that the third party (D) must
accept the benefit and that the rights come into being upon acceptance
thereof. According to the court, this intention forms the essence of a
stipulation in favour of a third party. In reaction to the argument, this was
224
Insurance
exactly what the extension clause constituted. The court held that the
intention of the parties could be determined only by having regard to the
contract of insurance as a whole. The court referred to one of the clauses in
the contract which directly contradicted any intention on the part of the
insurer to confer enforceable rights on D:
‘[U]nless otherwise provided, nothing in this policy shall give any rights to
any person other than the insured. Any extension providing indemnity to any
person other than the insured shall not give any rights of claim to such
person, the intention being that the insured shall claim on behalf of such
person.’
The court pointed out that this clause clearly provided that the extension
clause was enforceable, the only proviso being that the insured itself enforce
the right.
In conclusion, the court held that S was obliged to indemnify D or the
authorised driver against liability for loss as envisaged in section 156.
Therefore, U could enforce the claim directly against S because D was in
liquidation.
The appeal was allowed.
Comments
It is important to understand the threefold nature of the relationship in each
situation. Section 156 of the Insolvency Act provides that l the contract of
insurance comes into being between the insurer and the insured;
l in the event where the insured is liable to a third party but the insured is
insolvent, the third party may claim directly from the insurer.
The extension clause provides that
l the contract of insurance comes into being between the insurer and the
insured; and
l the insurer will also be liable to indemnify third parties.
The extension clause constitutes a stipulation in favour of a third party and if
the insured accepts it, he or she may enforce it against the insurer.
Note
See also Refrigerated Trucking (Pty) Ltd v Zive NO (Aegis Insurance Co Ltd,
Third Party) [118].
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Specific contracts in court
44 Noting the interests of third parties on a
contract of insurance
[123] Barloworld Capital (Pty) Ltd t/a Barloworld Equipment Finance v
Napier NO
[2004] 2 All SA 517 (W)
Facts
B sold an excavator to C in terms of an instalment sale agreement. The
agreement provided that B would remain the owner of the excavator for as
long as C remained indebted to B. C had to insure the excavator and have
B’s interest in the excavator noted on the insurance policy. C insured the
excavator with the defendant (L), but never requested L to note B’s interest
in the excavator and failed to inform L that the excavator belonged to B.
Later on, the excavator was irreparably damaged by a rock fall. C lodged a
claim with L in respect of the loss. L appointed E as an assessor in the
matter. Once B became aware of the fact that C had failed to have B’s
interest in the excavator noted on the insurance policy, B’s representative
wrote to E, requesting them ‘to ensure that the insurance company notes our
interest in this equipment’. However, B’s interest in the excavator was never
noted on the insurance policy by L or any of its representatives.
Eventually, L paid C the full amount of the agreed value of the excavator.
Apparently B was unable to recover from C the balance owing by C to B in
terms of the sale. B, despite their interests in the excavator not being noted
on the insurance policy, instituted action against L for such balance.
B’s cause of action was twofold:
l First, B contended that it had concluded an agreement with L to note its
interest in and ownership of the excavator and that L had done so.
l In the alternative, B contended that ‘a trade and/or industry practice and/or
custom and/or usage’ existed, in terms of which L was under a duty to first
pay to B the amount owed to it by C and to pay the balance to C ‘in the
event of the total destruction of the excavator, if at any time prior to payment
it was requested to note plaintiff’s interest in the excavator or if the
defendant learnt of such interest’.
According to B, L paid C the full amount of the agreed value of the
excavator despite the agreement concluded, alternatively with knowledge of
B’s interest in the excavator. L denied both the alleged agreement with B and
the existence of the alleged trade usage.
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Judgment
As regards the existence of an agreement between B and L that the latter
would note B’s interest, B contended that all the proved facts indicated that
L knew that B had an interest in the proceeds of the policy and wished to
have its interest noted and that by not informing B of its refusal to note B’s
interest, it agreed to note the interest.
Goldblatt J did not agree with this submission. He stated that the only parties
who could conclude such agreement with B were the underwriters or
representatives of L. Surely not E, whom B had originally approached,
because E clearly was neither the defendant’s nor B’s agent. None of these
parties was authorised to conclude any agreement on behalf of B.
The underwriters and representatives of L denied having concluded any
agreement. They were uncertain of their obligations, if any, towards B and
even took legal advice on this matter. Goldblatt J therefore held that,
contrary to B’s contention, the defendant’s delay in declaring their refusal to
note its interest was not intended to indicate an agreement to note the
interest, but was due to a lack of certainty. The judge could find nothing in
the evidence that indicated or proved that the defendant accepted the request
(or direction) to note B’s interest in the proceeds of the insurance policy. ‘All
the evidence established was a request by the plaintiff that defendant note its
interest and no corresponding undertaking so to do.’
Next, Goldblatt J turned to the question of whether B proved a trade practice
in terms of which the defendant had to make payment to B of the money
owing to him by C. Having considered authority in this regard, the judge
was satisfied that B proved the trade practice relied on the ordinary course of
business. However, he found that under the circumstances, it did not serve
B’s cause at all. On the contrary, this was terra nova as Goldblatt J held that
such practice:
‘does not deal with the situation where the insurer has already agreed to pay
the insured before it learns of the third party’s interest as happened in this
case. It also does not deal with the situation where the insured insists upon
payment being made to him in terms of the policy where no interest had
been noted on the policy at the time of the claim and also after the policy had
been cancelled as happened in this case’.
As far as privity of contract between B and the defendant was concerned,
Goldblatt J found B’s cause of action to be without precedent ‘because this
was the first time that a plaintiff had sought to fix an obligation on a
defendant arising out of a trade practice in circumstances where there is no
contract between the parties’.
The diversity of opinions and uncertainties expressed by the expert witnesses
eventually led Goldblatt J to conclude that ‘it is clear that no trade practice
exists to deal with the situation which existed in this matter’.
B’s claim was therefore dismissed.
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Specific contracts in court
[124] Barloworld Capital (Pty) Ltd t/a Barloworld Equipment Finance v
Napier NO
[2007] 1 All SA 301 (SCA)
Facts
See Barloworld Capital (Pty) Ltd t/a Barloworld Equipment Finance v
Napier NO [123] for the facts. This is an appeal from the court a quo where
B was unsuccessful.
Judgment
The appeal was dismissed with costs. The Supreme Court of Appeal held
that a seller or third party can ensure in many ways that his interest is noted
in a policy and suggested that
l steps should be taken to ensure that the buyer complies with his obligation
to have the seller’s interest noted on the policy;
l session of the policy can be taken;
l the situation can be construed within the ambit of the Marine and Trade
Insurance Company Ltd v Gerber Finance (Pty) Ltd 1981 (4) SA 958
(AD); and
l it can stipulated that the buyer incurs an obligation in terms of the
insurance contract to the effect that the insurer will first pay the third party.
There was nothing in the evidence that as a matter of trade usage an insurer
by mere acquisition of knowledge of the seller’s interest, becomes bound as
if by a contract to pay the seller before the buyer.
Comments
The area of noting the interests of third parties in insurance contracts is very
important in insurance law. Other cases and journal articles that will assist in
the understanding of the subject matter include, inter alia, Nagel
‘Noting the interests of a third party on an insurance policy, trade usage and
privity of contract. Barloworld Capital (Pty) Ltd t/a Barloworld Equipment
Finance v Napier NO [2004] 2 All SA 517 (W)’ 2005 THRHR 160 and
Marine and Trade Insurance Company Ltd v Gerber Finance (Pty) Ltd 1981
(4) SA 958 (AD).
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45 Misrepresentation and the contract of
insurance
[125] Mutual and Federal Insurance Co Ltd v
Oudtshoorn Municipality
[1985] 1 All SA 324 (A), 1985 (1) SA 419 (AD)
Facts
O was the owner of the aerodrome at Oudtshoorn in October 1971 when a
light aircraft crashed to the ground as a result of colliding with the top of a
pole carrying electric power lines. The pole had been erected by O in 1964
in a street immediately outside the boundary of the aerodrome. The owner of
the aircraft instituted action against O and was awarded damages in the Cape
Provincial Division, having established causal negligence on the part of O.
O was the holder of a public liability policy issued in June 1970 by M’s
predecessor in title and accordingly claimed in the Witwatersrand Local
Division the for which it was liable to the owner of the aircraft, as well as an
damages order declaring that the said policy was valid and in force at the
time of the aircraft collision. This action was successful and the orders
sought were granted.
On appeal, it was contended on behalf of M that O’s claim should have
failed because of the fatal non-disclosure of certain material facts, that is to
say, that the close proximity of the high tension overhead line to the
aerodrome constituted a hazard to aircraft. Furthermore, there had been
allegations of danger and the proposed investigation of such allegations had
not yet been finally concluded. O contended that, although there had been
fears of danger relating to the existence of the pole in the past, those fears
had long since been allayed.
Majority judgment
The court reiterated that there is a duty on both insured and insurer to
disclose to each other, prior to conclusion of the contract of insurance, every
fact relative and material to the risk or the assessment of the premium. This
duty relates to material facts of which the parties had either actual or
constructive knowledge, prior to conclusion of the contract. Breach of this
duty amounts to mala fides or fraud, entitling the aggrieved party to avoid
the contract of insurance. The duty of disclosure is the correlative of a right
of disclosure which is a legal principle of the law of insurance.
Most importantly, the court held that the duty of disclosure is imposed ex
lege. It is not based on an implied term of the contract of insurance and does
not flow from the requirement of bona fides.
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Specific contracts in court
As regards bona fides in the law of contract, the court held that by our law,
all contracts are bonae fidei. Yet the duty of disclosure is not common to all
types of contract. It is restricted to contracts such as those of insurance,
where it is required ex lege.
It has often been said that insurance contracts were contracts of the utmost
good faith. However, the court held that there is no magic in the expression
uberrima fides. There are no degrees of good faith. It is entirely
inconceivable that there could be a little, more or most (utmost) good faith.
The distinction is between good or bad faith. The court held that there is no
room for uberrima fides as a third category of faith in our law.
Uberrima fides is not a juristic term with a precise connotation. It cannot be
used as a yardstick with a precise legal meaning. In the court’s opinion,
uberrima fides is an alien, vague, useless expression without any particular
meaning in law. It cannot be used in our law for the purpose of explaining
the juristic basis of the duty to disclose a material fact before the conclusion
of a contract of insurance. The court opined that our law of insurance had no
need for uberrima fides and that the time had come to jettison it.
The court then considered the various tests for materiality of information.
The court was unable to find any support in the Roman-Dutch law for either
the prudent or reasonable insurer test or the prudent or reasonable insured
test used in English law. The court held that it is implicit in the RomanDutch authorities and also in accordance with the general principles of our
law that the court applies the reasonable man test by deciding upon a
consideration of the relevant facts of the particular case whether or not the
undisclosed information or facts are reasonably relative to the risk or the
assessment of the premiums. If the answer is in the affirmative, the
undisclosed information or facts are material. The court personifies the
hypothetical diligens paterfamilias, that is to say, the reasonable man or the
average prudent person.
The court does not, in applying this test, judge the issue of materiality from
either the point of view of a reasonable insurer or the point of view of a
reasonable insured. The court judges it objectively from the point of view of
the average prudent person or reasonable man. The court held that the
reasonable man test is fair and just to both insurer and insured inasmuch as it
does not give preference to one of them over the other.
Both of them are treated on a par.
Turning to the facts of the case, the court held that material facts were indeed
withheld from M and the appeal succeeded.
Minority judgment
The judge held a slightly different opinion as regards the contract of
insurance being one of the utmost good faith. He held that the need for
honest disclosure of known facts relative and material to the risk, in the
interest of fairness to the insurer, has been recognised for many years. He
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Insurance
held that the words uberrimae fidei must not be taken too literally and
remarked that ‘[o]ne may be less than honest but one cannot be more honest
than honest’. According to him, after the many years in which the term has
been used in this context, it was not potentially misleading.
The judge then considered the problems regarding the proper test of
materiality and the various tests used in the case law. He held that the object
of devising a means or criterion for determination of the materiality of
undisclosed facts must surely be to ensure, as far as is possible, that justice is
done to both parties. The insurer is to be protected against non-disclosure
which could gravely prejudice him but, at the same time, the insured ought
not to be unfairly required to forfeit his rights under a policy which he
entered into in good faith in accordance with his (objectively regarded)
reasonable belief that all that was material, had been disclosed.
The judge said that the reason for the rule which obliges parties to disclose is
to prevent fraud and to encourage good faith.
The judge also laid down a slightly different test for materiality. According
to the judge, when in a case of this kind the question before the court is
whether undisclosed facts were material in the sense indicated above, the
court’s function is objectively to decide in the light of all the relevant
circumstances whether ‘the reasonable insured’ (that is to say, a reasonable
man in the same situation and with knowledge of the same facts and
circumstances) would have regarded the facts as material. Such an approach
was, according to the judge, in full accordance with the general principles of
our law.
Considering the facts of the case, the judge came to the conclusion that the
facts specified ought to have been disclosed to M and that the failure to do
so afforded M the right to avoid O’s claims and he allowed the appeal with
costs.
[126] President Versekeringsmaatskappy Bpk v
Trust Bank van Afrika Bpk
[1989] 1 All SA 241 (A), 1989 (1) SA 208 (AD)
Facts
During June 1984, the appellant (President Insurance Co) and second
respondent, Pandora, concluded an agreement of insurance, the
provisions of which were contained in a multi-risk policy in terms of which
Pandora was insured against damage to property on his business premises.
In September 1984 a fire broke out on Pandora’s premises and caused
damage to the property. Appellant paid an advance of R50 000 to Pandora
and it was later agreed that the damage resulting from the fire ran to R161
148. Pandora ceded his claims to the first respondent (Trust Bank).
Appellant took the view that it had incurred no liability as a result of the 231
Specific contracts in court
fire and demanded repayment of the R50 000 advance. As a result, first
respondent instituted action against appellant in which the balance of R111
148 was claimed. Appellant defended the action and joined Pandora as a
third party to the proceedings, in order to achieve the repayment of the
advance payment. Appellant relied in the main on a provision in the policy
which entitled it to repudiate the agreement in the event of
misrepresentation, misdescription and non-disclosure of material
information regarding the policy as a whole, or a section or item therein. The
court a quo found in favour of the first respondent – hence the appeal.
Judgment
The court considered the reasonable man test formulated in the
Oudtshoorn case (see Mutual and Federal Insurance Co Ltd v Oudtshoorn
Municipality [125]). According to the court, when determining whether
undisclosed information was material, the test was not whether the
information would have an influence on the risk in the judgement of a
reasonable man, but whether it might reasonably influence a prospective
insurer’s decision to accept the risk or to demand a higher than normal
premium. Put differently, the test whether a reasonable man would have
considered that the information should be disclosed was whether the
reasonable man (not the reasonable insurer or insured) would consider that it
should be conveyed to the prospective insurer so that it could reach a
decision on its own. Such a consideration would be reached if, in the opinion
of the reasonable man, the information could reasonably have influenced the
insurer. The court held that Pandora’s failure to inform appellant that, due to
a lack of funds shortly before June 1984, it had not paid its previous
insurer’s premiums on time, seen in combination with other continuous
liquidity problems that led to the bank dishonouring cheques issued by
Pandora and the cancellation of the floor plan scheme by the supplier, was
material information that should have been disclosed to the appellant.
The court held further, with regard to the alleged waiver of its right to
disclosure of information related to claims submitted by Pandora to its
previous insurers, that waiver required at least an act on the part of the
waiving party from which an intention to waive the right was evident and
which was communicated to the other party. The court found that there was
nothing in the evidence to indicate such an act and, in any event, such a
waiver was never communicated to the second respondent. The appeal was
allowed.
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Insurance
[127] Pillay v South African National Life Assurance Co Ltd 1991 (1) SA
363 (D)
Facts
S insured the life of P’s husband. Since the latter was relatively young and
the insured amount relatively low, S did not require a medical
examination. Five months later, P’s husband died from a cerebral
haemorrhage. P claimed the sum which S had undertaken in the policy to
pay her on his death. However, S repudiated liability under the policy
because of false answers given by P’s husband in respect of questions
concerning his health in the proposal form. Some of these questions were:
‘(1) Are you troubled, or have you ever been troubled, with any ailment,
disease . . . or abnormality? (2) Do you suffer from ill-health in any respect
whatsoever? (3) Have you during the past five years consulted any doctor?
(4) Is there anything regarding your health . . . which may affect the risk of
the assurance proposed?’
P’s husband had answered each of these questions in the negative and then
signed the proposal form. The truth was that he had, over the past five years,
visited his doctor repeatedly for various ailments, the most important being
mild to moderate hypertension which was being kept under control by
medicine prescribed by his doctor.
The policy included the following clause:
‘I hereby . . . guarantee that the information provided in this form . . . which
in [S’s]
opinion are [ sic] relevant to the assurance risk, and which have [ sic] been
signed by . . .
[P’s husband], is true and complete, and I accept that it shall constitute the
basis of the proposed assurance. I agree that, if this guarantee is not
complied with, [S] can [ sic]
repudiate all liability and that all moneys paid shall be forfeited.’
The policy in addition provided that ‘the proposal for the policy . . . shall be
the basis of the agreement embodied in the policy’.
S’s case was that the above excerpts from the proposal form and the policy
entitled it to reject P’s claim and to retain the monthly premiums which had
been paid under it.
Judgment
The court held that S had discharged the onus it bore of proving the falsity of
the answers through the evidence of the insured’s doctor. Having established
the falsity of the answers, the court turned to their materiality which it
considered of equal importance.
The court referred to the above provisions of the proposal form in terms of
which S had the right to repudiate liability under the policy once false
information had been furnished which, in its sole opinion, was ‘relevant to
the assurance risk’. The court then held that provision of the insurance
contract was trumped by section 63(3) of the Insurance Act 27 of 1943,
which governed the policy because it was a ‘domestic’ one for the purposes
of the Act. The relevant part of section 63(3) provided:
‘Notwithstanding anything to the contrary contained in any domestic policy .
. . any such policy . . . hall not be invalidated and the obligation of an insurer
thereunder shall not be 233
Specific contracts in court
excluded or limited . . . on account of any representation made to the insurer
which is not true, whether or not such representation has been warranted to
be true, unless the incorrectness of such representation is of such a nature as
to be likely to have materially affected the assessment of the risk under the
said policy at the time of issue . . . thereof.’
According to the court, the false answers amounted, in terms of section
63(3), to representations made to the insurer which were warranted to be true
but indeed were not. The court held that S’s right to repudiate liability on
account of the false answers depended not on the opinion of their relevance
to the risk S underwrote which it formed when their falsity was detected and
it purported to exercise the right, but on the likelihood of their having
‘materially affected the assessment of the risk’ at the time when the policy
was issued.
In this respect, the onus of proof rested on S. S had to prove materiality
– not from the viewpoint of either partisan side, but a materiality that would
have been regarded as such in the disinterested estimation of the reasonable
man. In this regard, the court referred to Mutual and Federal Insurance Co
Ltd v Oudtshoorn Municipality (see [125]) and President
Versekeringsmaatskappy Bpk v Trust Bank van Afrika Bpk (see [126]), in
which the tests of the prudent insurer and of the prudent insured were
rejected.
The court did point out that neither of these cases dealt with section 63(3).
Each concerned the non-disclosure to an insurer of facts said to have been
material, but a non-disclosure not tantamount to a representation. That legal
position was governed by the common law of insurance and did not fall
within the ambit of section 63(3).
The court explained that section 63(3) altered the common law by
precluding insurers from avoiding liability on the grounds of untrue or
incorrect statements made to them that were immaterial. However, the court
held that materiality for purposes of this section did not differ in essence
from the concept of materiality familiar to the common law.
As regards S’s onus to prove materiality, the court disregarded the minor
ailments, such as sinusitis, gastritis, fibrositis and influenza, from which the
deceased had occasionally suffered, but regarded the hypertension as a horse
of a different colour. Its seriousness, or potential seriousness, was common
knowledge and was confirmed by the doctor’s evidence. An expert witness,
who was a seasoned underwriter, also told the court that, had P’s husband
disclosed his hypertension to any insurer who was approached for life
insurance, it would definitely have required him to undergo a medical
examination and furnish it with a report on it, before even considering the
request for insurance. S, in particular, the court learnt from the evidence,
would have insisted on the completion by the doctor examining him of a
form specially designed for cases of hypertension. The court concluded that
the non-disclosure cost S the opportunity it would otherwise have taken to
investigate, measure and assess the true scope of the risk assumed by it.
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Insurance
However, the court held that the loss of that opportunity was not the end of
the matter and it posed the following question: what would have happened
if, as the result of a full disclosure, the opportunity had been taken? The
court accepted the evidence of the expert witness, according to whom, had S
known of the false answers all along, the likely effect would have been not
its outright refusal to insure the life of P’s husband, but a readiness to do so
in return for a higher monthly premium. The court came to the conclusion
that the reasonable person, aware of all this and considering it at the relevant
time, would have thought information about the hypertension a factor
unlikely to influence S’s decision whether or not to insure, but likely to
affect its determination of the premium in the event of its doing so. To that
limited degree, the court found the onus on S to have been discharged.
The court suggested a settlement of the action. However, the parties did not
reach an agreement and the matter was set down for argument.
A single point was argued, which had to do with the interpretation of section
63(3). The court reiterated that the concealment of the hypertension entitled
S to repudiate liability only if it was ‘likely to have materially affected the
assessment of the risk’. Therefore, the point was this: what did ‘the
assessment of the risk’ encompass? The court offered two interpretations.
First, was the assessment that Parliament had in mind confined solely to the
intrinsic acceptability of the particular risk assumed by the insurer? Or,
secondly, did it extend further, including such but covering in addition the
amount of the premium in return for which the insurer undertook the risk?
Counsel agreed that, if the wider interpretation was the right one, the defence
had on the facts of the matter to succeed. The narrower construction would
mean the end of the defence.
The court remarked that the broader sense was in accordance with the
ordinary law of insurance. The court examined foreign case law and
academic writing on this aspect. Turning to South African law, the court held
that in our positive law, it has always been taken for granted that the enquiry
into materiality normally covers both the innate acceptability of the risk and
its bearing on the calculation of the premium.
The court considered whether or not Parliament intended that the enquiry
under section 63(3) should have a scope distinctly more limited than the
usual and well-understood one. According to the court, the wording used in
the section gave no indication of any such intention. The court finally
explained that it is artificial to distinguish between the two questions,
namely (a) would the insurer have been prepared to accept the risk; and (b)
would it have influenced the amount of the premium had he known the true
facts? According to the court, they boil down to a single question that has to
be considered as a whole, namely whether a particular risk will be assumed
in return for the payment of a particular premium. The consideration of that
question, the determination of the premium at which the risk will be
assumed, finally depends on ‘the assessment of the risk’, a process
fundamental and essential to the final answer.
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Specific contracts in court
The court pointed out that a proper interpretation of section 63(3) left the
insurer with no other remedy but an outright escape from liability. It
therefore upheld S’s repudiation of liability, although it felt that the harshness of the decision was not in all circumstances equitable.
The court made certain recommendations as regards the amendment of
section 63(3). First, the introduction of a proviso covering a state of affairs
like the present one, in terms of which the insurer has the right and is
confined to the remedy of deducting from the proved claim the additional
premiums that it would have charged throughout the duration of the policy if
the true facts had been known to it at the outset. Secondly, the adoption of
the French ‘proportionality rule’ in terms of which the insurer has to pay the
proportion of the proved claim which the actual premium bears to the one it
would then have levied.
Finally, the court held that it was unnecessary to consider whether section 4
of the Conventional Penalties Act 15 of 1962 applied to the provision
contained in the proposal form for the forfeiture of all premiums paid.
[128] Qilingele v South African Mutual Life Assurance Society 1993 (1) SA
69 (AD)
Facts
Q was the nominated beneficiary under a life insurance policy issued by S
on the life of the insured. The policy provided for basic life cover and a
supplementary benefit. The insured died some five weeks after inception of
the policy. S met Q’s claim for payment of the supplementary benefit but
subsequently refused her claim for payment of the basic life cover. Q
instituted action in the court a quo for payment of the latter benefit. S
repudiated liability on a variety of grounds. These issues were, by
agreement, narrowed to the single question whether a particular
misrepresentation, contained in the proposal form on the strength of which
the policy was issued, grounded repudiation of liability thereunder. The court
a quo determined that issue in favour of S and Q appealed. The appeal
turned on the same point.
The policy concerned, was issued pursuant to and on the basis of a
completed application form signed by the insured. The form bore a note at
its commencement which reads: ‘As the statements in this application
constitute warranties, complete and accurate information must be given.’
It also contained, inter alia, the following provisions:
‘1. I warrant that all the information given in this application, and in all
documents which have been or will be signed by me in connection with the
proposed assurance, whether in my handwriting or not, is true and complete.
2. I agree that the statements in this application and the documents
mentioned above shall be the basis of the proposed contract, that any
misstatement or omission therein may lead to any contract made being
declared void by Old Mutual, and that in such event all monies paid in
respect thereof shall be forfeited.’
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Insurance
Question 5.2 contained in the form read: ‘Is any other application for
insurance on your life now pending or contemplated?’
To this, the insured answered ‘No’. That was not true. The insured not only
contemplated other applications for life assurance but, on the very occasion,
completed applications for such insurance with two other insurers. He
apparently wished to obtain life insurance in the region of R300 000, but
insurers generally require a medical examination where life cover above a
certain limit is proposed. In order to avoid the examination, the insured
planned to spread the risk over three insurers, in each case applying for an
amount of cover below that which would necessitate a medical examination.
For the scheme to succeed, it was, of course, important that the insurers were
not to know about one another. The three applications submitted to the
respective insurers at the same time resulted in total cover in excess of R250
000 being obtained against monthly premiums adding up to approximately a
third of the insured’s income.
Q acknowledged that the answer to question 5.2 was false, but contended
that S failed to establish that its repudiation of liability was lawful.
Judgment
The crux of Q’s contention was that, in order to justify the repudiation, S had
to prove that the misstatement was material in the eyes of the reasonable
man. Q argued that S had failed to do so because expert evidence adduced
on its behalf had been misdirected and irrelevant.
Three experienced actuaries testified that the truth of the answer to question
5.2 was material to a life insurance underwriter assessing the risk. But what
has to be established, so the argument continued, was not whether, in the
eyes of an insurer, the untruth was material but whether the reasonable man
would regard it as such. Hence, S had failed to discharge the onus to justify
its repudiation of liability under the policy.
Q’s argument, both on appeal and in the court a quo, was founded on the
conclusion of Joubert JA in Mutual and Federal Insurance Co Ltd v
Oudtshoorn Municipality (see [125]), namely that the court judges the
materiality of a non-disclosure objectively ‘from the point of view of the
average prudent person or reasonable man’. (The court henceforth referred
to that conclusion as the ‘ Oudtshoorn Municipality test’.) The court a quo
adopted the argument, but held that on that test, as explained by Van
Heerden JA in President Versekeringsmaatskappy Bpk v Trust Bank van
Afrika Bpk (see [126]), the false answer had been material. The judge stated
that in the court a quo, and initially on appeal, S accepted that the
Oudtshoorn Municipality test was applicable to a defence based on
misrepresentation and that, in doing so, it enjoyed the support of the
judgment in Pillay v South African National Life Assurance Co Ltd (see
[127]).
However, the judge of appeal set out to make it clear that the Oudtshoorn
Municipality test applied only to cases where the repudiation is based on a
failure of the common-law duty to disclose material facts. He pointed out
237
Specific contracts in court
that in that case, as also in the President Versekeringsmaatskappy case, the
point at issue was such a non-disclosure. In contrast, the judge said that in
casu that was not pertinent; the issue at hand was a straightforward case of
misrepresentation, where the insured expressly warranted the truth of his
representations founding the contract of insurance. The court held that the
legal effect of such warranted representations in insurance transactions was
well known and that strict observance thereof was a precondi-tion to liability
under a contract of insurance founded thereon. In casu, the insured
warranted the correctness of the statements in the application form and
agreed that they would be the basis of the insurance contract, and that any
misstatement therein could found a repudiation of liability by S.
Contractually, therefore, the court held that the materiality of the false
answer to question 5.2 was irrelevant.
The court pointed out that if the matter had ended there, S’s repudiation of
liability would clearly have been unassailable. In addition, it had to take into
account the fact that the legislature had deemed it necessary to intervene in
the relationship between insurers and insureds, by insert-ing section 63(3)
into the Insurance Act 27 of 1943 to cut down any contractual right which an
insurer may have to repudiate liability on the basis of misrepresentation.
(For the text of section 63(3), see Pillay v South African National Life
Assurance Co Ltd [127].)
The court explained that the object of section 63(3) was to protect claimants
under insurance contracts against repudiations based on inconsequential
inaccuracies or trivial misstatements in insurance proposals. An insurer’s
right to repudiate liability because of the untruth of a representation made to
it, whether couched in the form of a warranty or not, was curtailed. First, the
legislature provided generally that liability could not be avoided on account
of any misrepresentation, warranted or not, and then it added a qualification.
In so doing, it placed the onus to prove the requisite elements of the
qualification – and hence of the right to avoid liability
– on the insurer.
The judge proceeded to break up the requirements of the qualification into
its component parts:
l In order to bring itself within the protection of the qualification, the insurer
first has to establish a probability. That is apparent from the use of the word
‘likely’ and manifest from its Afrikaans equivalent,
‘waarskynlik’. The court held that whether or not something is probable is a
factual question, pure and simple, and that it has to be answered by applying
common sense and experience to all the available data. Concepts of the
reasonable insurer, the reasonable insured or the reasonable man, which
connote a value judgment, do not enter the picture. From this, it followed
that the Oudtshoorn Municipality test had no bearing on a case under section
63(3).
238
Insurance
l Secondly, what has to be established as a probability in terms of section
63(3) is whether a misrepresentation was ‘of such nature’ as to have had a
particular result.
l Thirdly, according to the court, what had to be ascertained was whether the
result likely to have been caused by the misrepresentation was material. The
court held that materiality was not a relative concept and that something was
either material or it was not. The court explained that the adverb
‘materially’, used in conjunction with the verb it qualified (‘affect’), meant
that only risks undertaken on the strength of significant misrepresentations
may be repudiated under the qualification.
The court said that it was clear that such significance related to a risk. Also
clear, but not so obvious from the wording of section 63(3), was that the
materiality related to the assessment of the particular risk against which the
insurance obligation was afforded. The section provided quite plainly that it
was ‘the assessment of the risk under the said policy’ which had to be
materially affected. According to the court, the enquiry as to the materiality
of the misrepresentation was therefore not conducted in abstracto, but was
focused on the particular assessment of the risk. The evidence of the
underwriter who attended to that assessment was therefore not only relevant
but might prove crucial. So, too, evidence that the insurer had a particular
approach to risks of the kind in question would be relevant and could be
cogent.
The judge said that it was obvious that general considerations affecting the
assessment of the kind of risk in issue would bear on the probabilities and
would be taken into account. However, he emphasised that the enquiry was
aimed at determining whether the specific assessment was probably
materially affected by the specific misrepresentation in question. He held
that although the evidence of the particular underwriter and of other such
experts would carry considerable weight, the court would not be bound by
their ipse dixit. That was so, not only because of its function as trier of fact
weighing the probable effect of the particular misrepresentation, but also
because of the retrospectivity inherent in the exercise. In terms of section
63(3), that effect is to be ascertained as ‘at the time of issue, or any
reinstatement or renewal’ of the policy, that is to say, when the risk was
assumed. What the court has to determine is whether the falsehood of the
misrepresentation was such as probably to have affected the assessment of
the risk undertaken by the particular insurer when he extended the insurance
cover under which the claim is being brought.
The court held that this was essentially a simple comparison between two
assessments of the risk undertaken. The first is done on the basis of the facts
as distorted by the misrepresentation. The other ascertains what the
assessment would have been on the true facts. A significant disparity
between the two meets the requirement of materiality contained in section
63(3). A disparity will be significant if the insurer, had he known the truth,
would probably have declined outright to undertake the particular risk, or
would probably only have undertaken it on different terms.
239
Specific contracts in court
The judge then applied the test, as formulated above, to the facts. He
emphasised the evidence of three actuaries to the effect that the items of
information called for in the application form are weighed in conjunction
with one another in assessing the risk. In particular, the amount of life
insurance cover applied for is viewed against the proposer’s income. A
disparity between the two, when measured against a standard criterion, was
regarded by S as an indication that the risk proposed was abnormal; and it
would have resulted in either a declinature or, at least, further enquiries.
According to the judge, that added up to materiality. Whether such criterion
was objectively reasonable was beside the point as the enquiry was being
directed at respondent’s assessment of the risk.
Viewing the evidence as a whole, the court held that it was established not
only that S would have viewed the risk with a jaundiced eye if the truth had
been told in response to question 5.2 in the application form but that life
insurers generally would have held such view. In short, the court found that
S had discharged the onus to prove the elements which brought its
repudiation of Q’s claim within the qualification to section 63(3).
The appeal was dismissed.
[129] Clifford v Commercial Union Insurance Co of SA Ltd
[1998] JOL 2374 (A), 1998 (4) SA 150 (SCA)
Facts
CU had repudiated an indemnity policy taken out by Clifford on the ground
of incorrect statements made in the proposal form. Clifford claimed that a
car covered by the policy had been stolen on 30 January 1994.
The car had been manufactured prior to July 1991, when it was imported
into South Africa as a new car. Clifford purchased the car for R530 000. She
had received it in November 1993 together with the bill of entry, the transfer
form (which had not been signed by the transferee) and trade plates.
The car had had three previous owners who had all acquired it for
investment purposes. None of them had registered the car in their names, the
reason being to obtain as late a registration date and as late a number plate as
possible, matters which were considered to dictate the value of the car.
Clifford had not been made aware of the full history of the car but knew that
the car had been imported in July 1991. On 13 January 1994 the car was
registered as a new car in Clifford’s name. Already in November 1993, CU’s
proposal form had been signed by someone acting on
Clifford’s authority, who had stated, inter alia, that the year of manufacture
of the car was 1993. The proposal form included the usual type of warranty
to the effect that all statements and particulars were true, correct and
complete, and contained all information known to the proposer affecting 240
Insurance
the risk to be insured, and that the proposal form would be the basis of the
contract and would be incorporated in it. The court a quo had found in
favour of CU. On appeal, the issue was whether the admitted flaws in the
proposal form, in particular the misstatement as to the car’s year of
manufacture, justified repudiation.
Judgment
Schutz JA devoted the bulk of the judgment to the correct test for materiality
for purposes of section 63(3) of the Insurance Act 27 of 1943.
(For the wording of section 63(3), see Pillay v South African National Life
Assurance Co Ltd [127].)
He criticised Qilingele v South African Mutual Life Assurance Society (see
[128]) and its successor, Theron v AA Life Assurance Association Ltd [1995]
2 All SA 581 (A), 1995 (4) SA 361 (AD), for imposing a subjective test for
materiality. The judge emphasised that this subjective test stood in stark
contrast to the objective test of the reasonable man laid down in Mutual and
Federal Insurance Co Ltd v Oudtshoorn Municipality (see [125]) as
applying to the weighing of the materiality of a non-disclosure. He pointed
out that this contrast was recognised in Qilingele but that the distinction
between the tests was justified on the basis that Oudtshoorn was concerned
with common-law non-disclosure, whereas Qilingele dealt with positive
misstatement. The decision in Qilingele was said to flow from a statute
worded in a certain way, whereas the Oudtshoorn decision, in a situation
unaffected by the statute, was based on the common law. Schutz JA held that
however the distinction had arisen, it was an extraordinary one in a system
of law which does not draw artificial distinctions between falsity by silence
and falsity by express statement ( suppressio veri and expressio falsi).
On the other hand, he considered the decision of Didcott J in the Pillay case,
conferring the common-law meaning on the materiality referred to in section
63(3) to be correct.
Unfortunately, the judge had to leave the question of law there without
deciding it because it had not been fully argued before the court, and neither
counsel regarded its determination as possibly decisive in this case.
In casu, Clifford argued that the incorrect statement of the year of
manufacture of the car as 1993, instead of 1991 or earlier, was not a material
misstatement. In this regard, Schutz JA referred to a special ‘new for old’
clause in the insurance contract which he regarded as decisive. This clause
provided that if within one year of its first registration and before it had been
driven for more than 30 000 kilometres, the insured vehicle was (a) stolen
and not recovered; or (b) damaged to the extent that the cost of repairs
exceeded 70% of its list price when new, the basis of indemnity would be the
current cost of a new motor car of the same or similar model subject to a
limit of 120% of the maximum indemnity. Clifford’s 241
Specific contracts in court
claim was based on this clause and she alleged and proved the facts which
would bring it into operation, namely a theft and a mileage of less than the
equivalent of 30 000 kilometres at the date of the theft, which took place less
than a year after the first registration. The maximum indemnity was R530
000, so that she claimed R636 000, which was 120% thereof.
Late in the hearing in the court a quo, an alternative claim, which had not
been pleaded, was put forward. It was based on the ‘new for old’
clause not bearing on the issue of materiality at all because, so it was argued,
it applied to new cars, whereas the car in issue was not ‘new’.
When the appeal commenced, Clifford abandoned the pleaded claim for
R636 000 and abandoned reliance on the ‘new for old’ clause entirely.
The alternative claim was now the only claim. It was based on the general
indemnity provision, which allows for an indemnity based on the market
value of the car up to a maximum of R530 000, which was the amount now
claimed.
According to Schutz JA, the reasons for Clifford’s abandonment of the
‘new for old’ clause were clear: she accepted that the underwriter believed
he was insuring a new car in the sense of one manufactured in the year in
which cover was granted, 1993. That year was reflected in the schedule to
the policy, so that the cost of the new car which CU had to pay in
replacement of the car in the event of its being stolen was that of a 1993
model, subject to the maximum of R636 000. The whole attractive-ness of
the ‘new for old’ clause was that it was not concerned with the value of the
insured car, a value likely to take a sharp drop immediately after it ceases to
be brand new, but with the cost of a new car of the same model.
On the evidence, the value of a new 1993 model was greater than that of a
new 1991 model. The judge held that it did not avail Clifford to argue that
R530 000 was not an overstatement of the value of the 1991 car in question.
That was not the value in issue, even if it were accepted that the correct
figure was R530 000. Nor did it avail her to argue that she would not have
claimed more than the value of a 1991 model. He also held that a reasonable
underwriter would not have left such a matter to the insured’s propriety
while committing his employer to compensate on the basis of a 1993 model.
Whichever test of materiality one adopts, objective or subjective, it was clear
to the judge that had the underwriter known the true facts, he would not have
issued a policy reflecting the car as a 1993
model. He held that the ‘new for old’ clause was decisive of materiality.
The incorrect statement of the year of manufacture was therefore fatal to
Clifford’s claim.
The judge further held that even had there been no ‘new for old’ clause, the
misstatement as to the year of manufacture may have barred
Clifford’s claim because in the years following the first year, when the car
itself may, for example after its theft, have disappeared without trace, the
ordinary indemnity based on its current market value would likely have been
increased by such misstatement. The judge held that a reasonable 242
Insurance
underwriter would not have exposed his employer to a later model in the
policy, leaving it to the good faith of the insured to claim on the actual model
of earlier date. The appeal was dismissed with costs.
Nienaber JA said that the correctness of the approach in Qilingele as to the
proper interpretation of section 63(3) was never an issue in the appeal and
was not debated at all. He was therefore disinclined to either endorse or
express disagreement with the points made by Schutz JA in this regard.
However, he agreed with the latter that the appeal should be dismissed,
broadly for the reasons stated by him, but added a supplementary reason.
According to Clifford, the ‘new for old’ clause was a standard clause in the
policy. Nienaber JA explained that it was also a conditional one and if the
conditions were fulfilled, the clause would apply. The one condition, that the
car should not have been driven for more than 30 000 kilometres when
stolen, had been fulfilled. The other condition was that the car should have
been stolen and not recovered within one year of its first registration. The car
was registered for the first time with the registration authorities on 13
January 1994. On 30 January 1994, it was stolen, after which it was not
recovered. If ‘first registration’ is taken at face value to mean its first
registration with the appropriate licensing authorities, the clause would
accordingly apply. In that event, CU would be liable in terms of the policy
for the payment of the R636 000. That was the argument advanced in the
court a quo and developed in Clifford’s heads of argument on appeal. On
that basis, however, Nienaber JA held that the appeal was doomed to failure.
The reason for this was that the sum of R636 000, which would have been
payable had the ‘new for old’ clause been applicable, was well in excess of
the market value of the vehicle. It was manufactured in 1991 and the
evidence was that the 1993 model was significantly more valuable than the
1991 model. In respect of a car manufactured in 1993
and which had been registered before the date of the proposal form, the risk
assumed by CU in terms of that clause would have been of the kind the
clause was designed to cover. In respect of a car manufactured in 1991
which was yet to be registered, it was not. The judge held that the
misstatements contained in the proposal form, both as to the year of
manufacture and as to the registration of the car, affected the basis of CU’s
indemnity and its exposure to the risk that it might be liable in terms of the
‘new for old’ clause for an increased sum (compared to market value) and
for a longer period (compared to an earlier registration). And if the exposure
to the risk was increased, it obviously would have affected the assessment
thereof for the purpose of section 63(3). According to Nienaber JA, had the
truth been told in the proposal form, CU would not have assumed the risk
that the ‘new for old’ clause could be enforced against it. It would have
recast the risk by deleting or revising the clause or, at best for Clifford, by
insisting that the vehicle be registered before indemnification would be
considered.
For that reason, counsel for Clifford adjusted his point of view and argued
that the words ‘first registration’ did not mean what they said 243
Specific contracts in court
but meant ‘when it should first have been registered’. On that reading, the
‘new for old’ clause would not have been applicable and CU would have
been liable only for the reasonable market value of the car as at the time of
the theft. Nienaber JA agreed with Schutz JA that this interpretation was so
forced as to be untenable and held that on that ground alone, the appeal had
to fail. Van Heerden DCJ concurred in the judgment of Nienaber JA.
Marais JA agreed with the judgment of Schutz JA, but for one reservation:
he was reluctant to concur in the view that the ‘new for old’ clause was
applicable to the car in question. However, the judge held that, even if it was
not, the very fact that controversy could arise as to whether or not it was
applicable, made it necessary for the insurer to be given reasonably accurate
information regarding the year of manufacture of the car. He pointed out that
the first registration of the car had taken place almost three years after the
date of manufacture and only after it had passed through the hands of three
previous owners. The judge regarded this as a most unusual situation which,
if known to an insurer invited to go on risk, would at least have prompted
further enquiries. The incorrectness of the information given to the insurer
was, in the judge’s view, of such a nature as to be likely to have materially
affected the assessment of the risk under the policy. Correct information
might well have resulted in a reluctance to insure the vehicle at all, but
assuming that a decision to do so was not entirely out of the question, the
likelihood is that further enquiries would have been made and that, after the
garnering of further information, the policy would not have been issued
without deleting the
‘new for old’ clause, and without correcting the year of manufacture. The
judge held that to have left the clause in the policy would have exposed the
insurer to a potential claim under the clause in circumstances in which the
insurer would not have been prepared to confer the enhanced cover it
provided. Indeed, that was precisely the claim with which it was later faced.
The judge held that whatever test of materiality be applied, he considered
that it was satisfied. Howie JA concurred in the judgment of Marais JA.
Comment
The cases dealing with section 63(3) of the now repealed Insurance Act
remain relevant. Both section 59(1) of the Long-term Insurance Act 52 of
1998 and section 53(1) of the Short-term Insurance Act 53 of 1998
contain almost identical provisions to that of the repealed section 63(3).
244
Insurance
[130] Mahadeo v Dial Direct Insurance Ltd
[2008] 2 All SA 352 (W), 2008 (4) SA 80 (W)
Facts
M sued D under an insurance policy for damages to a car. The car was
damaged in an accident that took place during the currency of the policy.
D based his rejection of M’s claim on material misrepresentation or nondisclosure by M. The issue in dispute between the parties involved the
materiality of two answers that M gave to questions posed to him by D’s
consultant during a telephonic conversation in 2005. In 2003, M damaged
his car when he drove through a pothole. He lodged a claim with his
erstwhile insurers who compensated him. One of the questions posed by the
consultant to M during the telephonic conversation was whether he had
lodged any claims for accidents or for stolen cars, to which he replied in the
negative. The consultant thereafter again asked M whether he had lodged
any claims during the preceding two years and M again said ‘No’.
M testified in respect of the first question that he did not at all consider the
episode with the pothole an accident. The car sustained minor damage. For
this reason, he also answered the second question in issue in the negative. He
did not see the damages that he recovered after the car was damaged in the
pothole as flowing from an accident. He contended that during the
conversation, he was never asked whether he had previously lodged claims.
Judgment
The court referred to various cases that also dealt with material
misrepresentation and non-disclosure. The court held that the case was a
clear instance where a reasonable man’s decision whether a fact was material
or not would be influenced by the specific questions asked by the insurer
during the telephonic conversation. Early in the conversation, the consultant
said: ‘Okay, before we continue I’m gonna confirm all this information
relevant to your cover alright.’ In so doing, the consultant created the
impression with the insured that all material information would be gathered
by means of the questions that he was going to ask.
The court held that M’s interpretation of the word ‘accident’ was reasonable
and that his negative answer was therefore justified. He was of the opinion
that one cannot collide with a pothole. The court further held that there was
no reason to reject M’s evidence that he interpreted the second question in
the context of claims caused by accidents or theft. The court’s conclusion
was that a reasonable person in M’s position would not have disclosed the
pothole incident and the subsequent claim to D.
M’s claim against D was successful.
245
Specific contracts in court
[131] Jerrier v Outsurance Insurance Company Ltd
[2015] 3 All SA 701 (KZP)
Facts
J insured his high performance sports car with O and took out
comprehensive motor vehicle insurance. On 8 January 2010 J travelled in his
car after he had dinner and drinks with friends. It was overcast and J lost
control of the vehicle due to a puddle of water and collided with another
vehicle.
J informed O of the incident and complied with all formalities with regard to
the lodging of the claim. The quote to repair the vehicle was R608 772.29. J
had a valid insurance contract, his premiums were paid up to date and the
claim was duly submitted within the 30-day time-period.
O rejected the claim due to J ‘driving under the influence’. This could not be
proved and the insurer then relied on J’s failure to disclose two previous
incidents to O. In 2008 the vehicle was damaged after it hit a pothole and in
2009 it was involved in a minor accident. In both instances, J
undertook the repairs of the vehicle himself, as he would have lost his noclaim incentive as offered by O.
This is an appeal from the court a quo that rejected J’s claim due to failure of
J to report the two previous incidents. According to the court a quo that
resulted in a material non-disclosure or breach of the insurance policy.
Judgment
The court found that the obligation to report a claim or incident only arises
when an insured wants to enforce his indemnification right in terms of the
insurance contract. Due to the fact that J decided to be liable for the loss
himself and not claim it from O, no duty arose to inform O of the incidents.
The duty to disclose true and correct information was adhered to and the
policy did not provide for an on-going duty to report after commencement of
the policy. J’s failure to disclose the two earlier unrelated incidents could not
be regarded as a material non-disclosure.
O was therefore liable for the loss incurred by J on 8 January 2010. O
had to indemnify J in respect of the collision.
246
Insurance
46 Insurance guarantees
[132] Jordan v New Zealand Insurance Co Ltd
[1968] 1 All SA 11 (E), 1968 (2) SA 238 (E)
Facts
J entered into a written policy of insurance with N in respect of his motor
car. In terms of the policy, N undertook to indemnify J, inter alia, against
loss of or damage to the insured vehicle.
The car was involved in a collision and damaged beyond repair, while the
passengers were injured. A dispute then arose between J and N. N
acknowledged the existence of the policy but disputed liability for J’s claims
in respect of the damage to the car, claims made against him by his
passengers and the medical expenses provided for in the policy. N’s main
reason for disputing liability was the fact that in his written proposals for
insurance, J had incorrectly stated his age at his next birthday to be 22
instead of 23. J admitted that his age had been incorrectly stated, but denied
that the incorrectness thereof was material to the contract of insurance and
that it constituted a breach of any of the conditions of the policy on which
defendant could rely to repudiate liability.
Judgment
The basis of N’s argument was that, having regard to the wording in the
proposal form and the policy, J’s statement as to his age at his next birthday
constituted a warranty and, once he admitted that his answer was false, it
was irrelevant whether or not the answer was material, nor could he allege
that such false answer did not constitute a breach of warranty upon which N
is entitled to rely to repudiate the contract.
The court found it necessary to have recourse to the original proposal form
and policy. At the foot of the proposal form, the following declaration
appeared:
‘I hereby declare that the above particulars in the statement are true, correct
and complete and contain all the information known to me affecting the risk
to be insured and that this and any other written agreement made by me or
on my behalf for the purpose of the proposed insurance shall be the basis of
the contract by me and [N] and shall be promissory.’
It also provided that: ‘I further agree to accept the insurance and the terms
and conditions set forth in [N’s] policy.’ The preamble to the policy itself
recited that the proposal and declaration ‘shall be the basis of this contract
and it is deemed to be incorporated herein’. Condition 9 of the policy
provided, inter alia, that the truth of the statements and the answers in the
said proposals will be conditions precedent to any liability of N to make any
payment under this policy.
247
Specific contracts in court
Although N had not specifically pleaded the proviso to condition 9, the court
held that it was entitled to look at this condition in conjunction with the
declaration at the foot of the proposal form and the preamble to the policy in
coming to the conclusion that J had, in regard to the answers in the proposal
form, given a warranty.
N’s contention was that once a warranty is given, the materiality of the
answer warranted is irrelevant. J argued that the materiality of the answer
could be determined only after evidence had been heard. The court rejected
J’s contention, having referred to the following dictum by Lord Dunedin in
Glicksman v Lancashire and General Assurance Co 1927 AC 143
(quoted with approval by Davis J in Beyers’ Estate v Southern Life
Association 1938 CPD 8):
‘It is possible for persons to stipulate that answers to certain questions shall
be the basis of the insurance and if that is done then there is no question as to
materiality left because the persons have contracted that there should be
materiality in those questions’, to which Davis J added ‘that is to say they
are warranties’.
J’s second argument was that the answer was substantially true as it was so
close to being correct. The court held that there was no room for the
application of the doctrine of substantial performance in considering the
truthfulness or otherwise of the answer to the insurance proposal form:
‘There can be no relative degrees of truth. An answer is either true or untrue
. . . In this case the applicant’s admission that the age given is untrue is to my
mind the end of the matter.’
Two of J’s further arguments (not discussed here) were also rejected by the
court. In conclusion, he pointed out the hardship which will be suffered by
an insured who made careless, and in this case probably irrelevant, mistakes,
if N’s contentions were upheld. The judge stated that although he had a great
deal of sympathy with J, he could not allow hard cases to make bad law. He
referred to Preston and Colinvaux ( Law of Insurance 2nd ed at 105) who
explain certain advantages attaching to warranties:
‘The great advantage of warranties to insurers is that their breach entitles
them to repudiate quite irrespective of their materiality. Misrepresentation in
order to entitle the insurer to avoid must not only be untrue but must be
material. Breach of warranty entitles them to repudiate whether it is material
or not.’
The judge held this exposition to be our law.
The court finally held that considerations of hardship were entirely irrelevant
to the present enquiry, as people are presumed to enter into agreements with
open eyes; they sign agreements and they are presumed to read them before
they sign them. There was no trick question in the present case which would
evoke any further enquiry, nor was anything else but a straightforward
answer called for and that answer was certainly within the knowledge of the
applicant. If it was not within his knowledge, he should have taken steps to
obtain his birth certificate before answering the question.
J advised the court that he was unable to continue with his action in these
circumstances and was given leave to withdraw his action.
248
Insurance
[133] South African Eagle Insurance Co Ltd v
Norman Welthagen Investments (Pty) Ltd
1994 (2) SA 122 (AD)
Facts
S insured N against, inter alia, loss arising from the theft of any of N’s
vehicles ‘left in the open’ on its premises. One such vehicle was stolen and
N claimed its value. S repudiated liability because of a breach of
‘Memo 2’ in the policy. In terms of this memo, N ‘warranted that all vehicles
left in the open must be locked at all times out of business hours and all keys
must be removed and kept in a locked safe’. It appeared that the keys to the
stolen vehicle were not kept in a safe, but in a cupboard in N’s (locked)
premises. Although the provisions of the memo were clearly not complied
with, the court a quo granted judgment against S, the judge having applied
section 63(3) of the Insurance Act 27 of 1943 to the matter. The issue on
appeal was whether he was correct in doing so.
(For the wording of section 63, see Pillay v South African National Life
Assurance Co Ltd [127].)
Judgment
The court explained that the enactment of section 63(3) had to be seen
against the background of the common-law rule that a warranty, being an
essential or material term of the insurance contract, must be strictly complied
with. If it is breached, the insurer is entitled to repudiate liability, whether or
not the undertaking was material to the risk and even if non-compliance has
no bearing on the actual loss. Since this principle often resulted in hardship
to insureds (see, for example, Jordan v New Zealand Insurance Co Ltd
[123]), section 63(3) was enacted to protect insureds against repudiations
based ‘on inconsequential inaccuracies or trivial misstatements in insurance
proposals’ (see Qilingele v South African Mutual Life Assurance Society
[128]). As a result, the insurer’s right to avoid liability was limited to the
case where the breach of warranty probably would have ‘materially affected
the assessment of the risk’. The court emphasised that the warranty must
relate to an underlying representation made to the insured and held that this
requirement was central to the operation of section 63(3). Conversely, where
the warranty was not founded on a representation, the court held that it
would retain its full common-law effect.
The court then turned to the question whether or not section 63(3) applied in
casu. Various other considerations aside, the crux of the matter was whether
the memo, though warranted, was a representation within the meaning of
section 63(3). The court held that, if so, the section would save N from the
consequences of breach of warranty, that in such event its claim was rightly
allowed and that the appeal had to fail. Conversely, if, 249
Specific contracts in court
as S contended, the memo was simply a term of the policy, section 63(3) would not apply. N should therefore have been non-suited and the
appeal had to succeed. Since there was no dispute that the memo was a
material part of the policy, its breach would, in the ordinary course, have
entitled S to repudiate liability.
According to the court, it was necessary in the first place to ascertain the
meaning of ‘representation’ as used in section 63(3). The court said that, in
the present context, representation was a well-established and basic juristic
concept, being a statement made to induce another to enter into a contract.
The court held that for purposes of this section, a representation is a precontractual statement that, unlike a term, does not become part of the
contract. The court held further that this was the ordinary meaning of a
representation and that this was the sense in which it was unambiguously
used in section 63(3).
The court then turned to the question whether, in casu, a representation had
been made to S relating to where the keys of the vehicles would be kept. The
court answered this question in the negative. According to the court, the
memo contained neither a statement of fact nor a representation as to future
conduct. Rather, its language (‘all keys must be . . . kept in a locked safe’)
was unequivocally that of a contractual undertaking.
In addition, the court held that there was a more basic reason for concluding
that N made no representation, as a result of which section 63(3) was not
applicable. The court said that it had to consider how the memo was
introduced into the policy. According to the agreed statement of facts, there
was no proposal form. Details of the insurance required by N were set out in
a written application for insurance submitted to S. The latter was prepared to
insure N, but it wanted certain terms, including the memo, to be part of the
contract. Therefore, the policy which was subsequently issued (and accepted
by N) included the memo in question.
Clearly, the provisions of the memo emanated from S who, in advance,
stipulated terms on which it was prepared to insure N. All N did, was to
accept what amounted to an offer by S. N itself made no prior statement
(representation) which induced S to contract.
N submitted that by agreeing to the policy, he impliedly represented that it
would comply with the memo. The court rejected this argument. It had
difficulty in seeing how the acceptance of an offer can be construed as a
representation that the offeree will perform his contractual obligations. The
court held that by the time the policy was issued to N, S had already assessed
the risk and fixed the premium. Therefore, N’s acceptance could not be said
to have induced S to contract. The court reversed the decision of the court a
quo and held that section 63(3) was not applicable. It held that N’s claim was
bound to fail because of the breach of the provisions of the memo. The
appeal succeeded with costs.
250
Insurance
[134] Kliptown Clothing Industries (Pty) Ltd v Marine and
Trade Insurance Co of SA Ltd
[1961] 1 All SA 385 (A), 1961 (1) SA 103 (AD)
Facts
K commenced business as a general dealer and, in January 1958, M
issued K with a burglary policy. In April and May 1958, goods were stolen
from the business. K instituted action against M, holding M liable for the
losses occasioned by the theft. M resisted the claim and pleaded that K
was in breach of a warranty contained in the contract. The warranty on
which M relied provided that during the currency of the policy, the insured
shall keep a complete set of books showing an accurate record of the
business transactions and stock in hand. These books had to be kept in a fireproof safe or removed to another building at night and at all times when the
premises were not open for business. M made the following allegations:
l There was no or alternatively no complete or accurate set of records of the
items sold by K or the costs thereof.
l K failed to keep stock records showing a true record of stock in hand.
l K failed to keep a true or accurate record of all business transactions.
The court a quo dismissed the claim and K appealed.
Judgment
The court ordered M to indemnify K in respect of the damages suffered by
him. The court held that M failed to prove either a general breach of the
warranty by K or a specific breach of the warranty by K in respect of the
records that had to be kept in the safe. Keeping such a complete set of
records would only have been possible after the business had been operated
for a specific period. The burglaries occurred four to five months after the
policy was taken out. Although K kept a record of transactions and stock, it
was not yet possible to compile a complete set of accounting records.
Comments
In the interpretation of a contract of insurance and especially a warranty in a
policy, a court has to apply the contra proferentem rule. In terms of this
canon of interpretation, advantage is given to the person who did not draft
the contract, in this case K.
251
Specific contracts in court
47 Insurance intermediaries
[135] Stander v Raubenheimer
1996 (2) SA 670 (O)
Facts
R was S’s broker and E Ltd insured the contents of S’s house. When S
took out the insurance, his home complied with the description in the policy,
namely ‘standard construction’ without a thatched roof. S later had a new
house built which had a thatched roof.
S instructed R telephonically to inform E Ltd of his change of address. S
did not inform R that the new house had a thatched roof, nor did R make any
enquiries regarding the construction of the house. The house and its contents
burnt down two years later. S lodged a claim with E Ltd. E Ltd rejected the
claim because of the non-disclosure of the fact that the house had a thatched
roof. E Ltd made an ex gratia payment of R30 000 to S. S
claimed the balance of his damages from R based on the fact that R was in
breach of his contractual duty as a broker because he failed to procure details
of the roof construction and to disclose same to E Ltd. R contended that it
was S’s duty to disclose that the house had a thatched roof. R
admitted that he was aware that the contents of the house would not be
covered if it were to be damaged in a house with a thatched roof.
S failed in the court a quo and appealed to a full bench.
Judgment
The court of appeal held that R had a contractual duty to ensure that S
was, at all relevant times, properly covered and insured against damage to
the contents of the insured’s home, wherever situated and irrespective of the
construction of such home. The court further held that R could, in law, be
expected to act with reasonable and proper care and skill in the performance
of his duties as broker. With reference to R’s admission that he was aware
that the contents would not be covered if they were damaged in a house with
a thatched roof, the court held that R could not keep up his express
undertaking to S without asking him whether the new house did not perhaps
have a thatched roof.
The appeal was upheld.
252
Insurance
[136] Autopack Distributors CC v Compendium Insurance
Group (Pty) Ltd
[2015] JOL 33580 (KZD), Unreported case no 9935/2014
(KZDHC)
Facts
The defendant (C) was an insurance broker acting for the plaintiff (A). C
had to procure insurance cover for A from the H Insurance Company.
A fire broke out in A’s premises and caused damages of more than R33m. H
repudiated the claim and A sued H. H’s defence was that the installation of a
machine insured by A did not comply with the relevant national standards
and regulations. Therefore, H argued that A had not complied with the
warranty agreement in the insurance policy which resulted in A’s claim
being compromised at R1.8m.
A then sued C on the basis that C owed A a duty of care in that C ought to
have seen to it that A was adequately insured. A contended that C
failed to inform him of the obligations imposed by H, including the
warranties in the policy regarding the installation of A’s equipment and
machinery, and that the policy required A to have made sure that the
equipment and machinery in question were covered by a certificate of
compliance issued by a master installation electrician. C notified A to cure
the defect but A never conceded that the particulars of claim were
excipiable. C noted an exception to A’s particulars of claim as being vague
and embarrassing, or alternatively, as failing to disclose a cause of action.
C’s exception and A’s response
C excepted on the following grounds:
l The claim appeared to be based on a duty of care owed by C to A.
l A breach of his mandate would require A to plead the terms of the
mandate.
l The mandate would be a contract of agency and C’s liability would be
governed by the terms of the mandate.
l There were no allegations in the particulars of claim of the existence of
such a mandate.
l A had failed to plead the basis for the existence of the abovementioned
duty of care.
l A breach of a contractual duty does not necessarily constitute a wrongful
act for purposes of Aquilian liability.
l It was not C’s duty as broker to make sure that A complied with his
obligations in terms of the policy.
l A never alleged that he would only have been required to comply with the
national standards and regulations if C had informed him that such
compliance was required in the policy.
253
Specific contracts in court
C therefore sought an order that would grant A leave to amend its particulars
of claim to address C’s complaints, besides upholding the exception.
In response, A submitted the following:
l C as broker was an agent and the laws of agency applied in this situation.
l C had the relevant information within his knowledge.
l A mandatary must perform the mandate faithfully, honestly and with due
care and diligence.
l The above is implied in A’s allegation that C was acting as a broker for
purposes of securing insurance.
l An agreement existed between A and C for the above purpose.
l C was obliged to inform C of the terms of the policy.
l A has disclosed a cause of action and C’s failure to inform A of the terms
of the policy is the basis of A’s claim.
Judgment
The court considered case law and other authority regarding an exception
that a pleading is vague and embarrassing. The court held that it has to be
persuaded by C that the pleadings were excipiable on every interpretation
that reasonably could be attached to them.
C submitted that it was not clear whether A’s claim was based in delict or in
contract, which made it excipiable as being vague and embarrassing.
C also submitted that the causal relationship between conduct and result was
not set out in the particulars of claim and that there was no allegation
explaining the mandate, which mandate should be found in the contract.
The court did not agree with this submission as it held that it was clear from
the particulars of claim that there was a contract between the parties.
The judge understood the basis of A’s claim as being C’s failure to inform
him of the material provisions of the contract which caused the claim being
compromised. The judge was unable to find any embarrassment or
vagueness that would cause A’s pleadings to be excipiable.
The court stated that the ultimate test regarding the exception was prejudice
to C. Having considered the entire particulars of claim the judge could not
find vagueness or embarrassment that would lead to any prejudice to C. He
held that the particulars of claim disclosed a cause of action with sufficient
clarity to enable C to plead thereto.
Finally, the court held that on all the grounds raised by C, it was not satisfied
that C had discharged the required onus of proof for the court to uphold the
exception and dismissed it with costs.
254
Insurance
48 Extent of insured’s claim: Principle of
indemnity
[137] Nafte v Atlas Assurance Co Ltd
1924 WLD 239
Facts
N sued A for damages to his furniture, household goods and personal
belongings that were caused by a fire. A resisted N’s claim and raised fraud
as a defence. A relied on clause 13 of the policy which, inter alia, provided
that fraud or fraudulent claims would result in forfeiture of all benefits under
the policy. A contended that N’s fraud was threefold in nature and explained
it as that
l certain items were over-valued;
l items listed as destroyed were in fact undamaged; and
l items listed as destroyed were not on the premises at the time of the fire.
Judgment
The court held that A had to prove the following in order to succeed with
fraud as defence:
l N’s claim was incorrect.
l N was aware that he had lodged a false claim.
If A’s defence of fraud failed, the onus would be on N to prove the actual
value of the destroyed goods. The court held that N was entitled to be
indemnified only within the limitations of the policy and the loss suffered.
The court further held that, when determining the true and actual loss, l the
value of the destroyed goods is determined at the time the loss occurred;
l the value of the destroyed goods is determined at the place where the loss
occurred;
l sentimental damages are not taken into account; and
l consequential damages are not taken into account.
The court awarded a reduced amount to N.
255
Specific contracts in court
49 Occurrence and exception clauses
[138] Mutual & Federal Insurance Co Ltd v SMD
Telecommunications CC
[2011] 2 All SA 34 (SCA), 2011 (1) SA 94 (SCA)
Facts
M & F and SMD entered into a contract of insurance which contained socalled occurrence and exception clauses. The occurrence clause provided
that M & F undertook to compensate SMD in the event of the disability or
death of one of its managerial staff, occurring as a result of
‘bodily injury caused solely by violent, accidental, external and visible
means which injury shall independently of any other cause be the sole cause
of any of the results’. The exception clause excluded cover for ‘any
occurrence consequent upon any pre-existing physical defect or infirmity’.
Mr C-J, the chief executive officer of SMD, sustained orthopaedic injuries in
a motor vehicle accident. Before the collision he had a history of coronary
problems including having suffered a heart attack earlier. After the collision
Mr C-J had undergone several operations and treatments, with his health
deteriorating all the time. His death seven months after the accident was
precipitated by a plaque rupture which caused a heart attack.
During Mr C-J’s lifetime, M & F paid an amount to SMD in respect of
temporary disablement. After his death SMD lodged a claim in terms of the
contract of insurance. M & F repudiated the claim, denying that the death
was covered by the contract of insurance. The court a quo upheld SMD’s
claim and M & F appealed to the Supreme Court of Appeal.
Judgment
With regard to the occurrence clause quoted above, Tshiqi JA summarised
the dispute between the parties as follows:
‘[M & F] contends that the deceased was at high risk before the collision;
that he had already suffered a heart attack in the past and had maintained a
lifestyle that was not conducive to good health; and that the plaque rupture
had occurred naturally because of these factors, and cannot be said to be due
to the collision, as required by the occurrence clause. This, they submitted,
was especially so, given the lapse of approximately seven months from the
time of the collision to the time of his death. [SMD], on the other hand,
contends that the serious injuries that were directly due to the collision were
such that they developed complications, including infection, and that this led
to a marked deterior-ation in his health and ultimately caused his death
within the terms of the occurrence clause.’
Having traversed the expert evidence of two medical professionals at length,
the court stated that if the intention of the parties is to exclude pre-existing
infirmities, this should be unequivocally stated in the insurance contract.
256
Insurance
However, M & F was precluded from relying on the exception clause as they
failed to plead it before or during the trial. M & F could not do so or seek an
amendment on appeal. The reason is that, if the clause had been pleaded, M
& F would have had the onus, during the trial, to prove that SMD’s
occurrence fell within the scope of the exception, and SMD would not have
been prejudiced as it would have had an opportunity of rebutting such
evidence. The court emphasised that during Mr C-J’s lifetime, M & F
paid out a sum in respect of disability without any reliance on the nondisclosure of his previous heart attack.
Tshiqi JA explained that the enquiry in the matter was twofold. First, SMD
would have to prove on a balance of probabilities that the injuries that Mr CJ sustained in the accident were the proximate cause of his death and that his
pre-existing medical condition was not a contributory cause. Once the causal
nexus between the accident and Mr C-J’s death has been established, the
onus would shift to M & F to show on a balance of probabilities that the
proximate cause of the death was excluded by the exception clause.
However, the court found it not necessary to engage in the second enquiry
since M & F failed to rely on the exception clause.
Having traversed further expert evidence, Tshiqi JA held that SMD had
proved that the accident was the proximate cause of Mr C-J’s death. As M &
F was not allowed to raise the exception clause, the appeal failed.
50 Subrogation
[139] Ackerman v Loubser
1918 OPD 31
Facts
A sued L in the Magistrate’s Court for damages caused to his car by L’s dog.
The court allowed the claim and L appealed.
Judgment
Since the insurance company had already compensated A for the damage to
his car, there was no claim against L. If A had been compensated by the
insurance company and had received money from L as well, he would have
had to hand over the money to the insurance company because of the
principle of subrogation. In the alternative, a plaintiff who had been fully
compensated for his damages by the insurer may cede his action against the
defendant to the insurer. The insurer may then take action against the
wrongdoer in the name of the plaintiff (insured).
257
Specific contracts in court
[140] Rand Mutual Assurance Co Ltd v Road Accident Fund
[2009] 1 All SA 265 (SCA), 2008 (6) SA 511 (SCA)
Facts
R compensated the insured’s employee for injuries which he sustained in a
work-related car accident caused by the negligence of the other driver.
Since the RAF was liable for these costs, R brought an action in the High
Court against the RAF for the recovery of the compensation it had paid to
the insured’s employee. The RAF resisted the claim and argued that l under
the doctrine of subrogation, the insurer (R) was not entitled to sue in his own
name; and
l R did not take cession of actions from the insured.
The court a quo upheld the RAF’s arguments and rejected R’s claim. R
appealed.
Judgment
The court referred to the English common-law doctrine of subrogation,
which requires the insurer to institute action in the name of the insured.
According to the court, the doctrine is not consonant with South African
constitutional values, the Roman-Dutch law or with the principles of civil
procedure. The court further held that settled legal principles should not
lightly be interfered with. The court confirmed the possibility that the insurer
may litigate in its own name. Unless the wrongdoer is prejudiced in a
procedural sense, the insurer may proceed in its own name.
The appeal was upheld.
51 Interpretation of contract of insurance
[141] Privest Employee Solutions (Pty) Ltd v Vital
Distribution Solutions (Pty) Ltd
[2006] 1 All SA 111 (SCA), 2005 (5) SA 276 (SCA)
Facts
In this case, the issue in dispute was the interpretation of an agreement.
More specifically, it was a provision in an addendum to the agreement that
required time schedules to be approved.
Judgment
The court held that when one considers an agreement that consists of more
than one document, regard is to be had to all the terms used by the parties in
order to determine the meaning of those terms. The court 258
Insurance
further held and confirmed that the provisions of a subsequent document
could prescribe how the provisions of the main document have to be
interpreted.
[142] Farr v Mutual and Federal Insurance Company Ltd
2000 (3) SA 684 (C)
Facts
F had taken out a car insurance policy with M. In terms of the policy, F
would be indemnified for damage to or loss of the car as well as liability to
third parties. Clause 2.1.1 of the policy provided that M would not be liable
for the death of or bodily injuries to a member of the policyholder’s family
who normally lived by or with him.
In 1996, F was involved in a vehicle accident. J was a passenger in the car
and sustained injuries. J instituted a claim for damages against M. M
based its repudiation of J’s claim on the fact that F and J had had an
uninterrupted, intimate relationship for the preceding ten years and had been
living together in F’s house. M contended that their liability for J’s damages
was excluded by clause 2.1.1.
Judgment
The court held that J was indeed part of F’s family. M’s liability was
therefore excluded by clause 2.1.1.
259
Employment contract and
letting and hiring
of work
Employment contract and letting and hiring of work
52 Employment contract, letting and hiring
of work and related contracts
[143] Smit v Workmen’s Compensation Commissioner
[1979] 1 All SA 152 (A), 1979 (1) SA 51 (AD)
Facts
S was employed as an ‘agent’ by an insurance company. As an agent, he had
to obtain proposals for insurance. He suffered severe bodily injuries in a car
accident arising out of and in the course of his employment. He submitted a
claim for compensation and payment of medical aid
expenses under the provisions of the Workmen’s Compensation Act 30 of
1941. His claim was rejected by the Workmen’s Compensation
Commissioner on the ground that he was not a workman as contemplated by
the Act. The court a quo confirmed this decision and S then appealed to the
Appellate Division.
Judgment
The court reviewed both the Roman and Roman-Dutch law on the
employment contract (contract of service; locatio conductio operarum) and
the contract for the letting and hiring of work (contract for work; locatio
conductio operis).
The court pointed out that one of the important legal characteristics of the
employment contract is the duty of the employee to obey the lawful
commands, orders and instructions of his employer in respect of the
performance of his services. The employer has a concomitant right to
supervise and control the manner in which the employee performs his
services. The court held that control is a wide concept. It includes, inter alia,
the right of an employer to decide what work is to be done by the employee,
the manner in which it is to be done, the means to be employed in doing it
and the time when and the place where it is to be done. Supervision implies
the right of the employer to inspect and direct the work being done by the
employee.
The court then listed some of the important legal characteristics of and
differences between the contract of service and the contract of work: l The
object of the contract of service is the rendering of personal services by the
employee to the employer. The services or the labour as such is the object of
the contract. The object of the contract of work is the performance of a
certain specified work or the production of a certain specified result. The
product or the result of the labour is the object of the contract.
l Under a contract of service, the employee is at the beck and call of the
employer to render his personal services at the behest of the latter.
263
Specific contracts in court
The lessee of work, however, stands in a more independent position vis-à-vis
the lessor. Unless otherwise agreed on, the former is not obliged to perform
the work himself nor to produce the result himself.
He may therefore make use of the labour or services of other workmen as
assistants or employees to perform the work or to assist him in the
performance thereof.
l Services to be rendered in terms of a contract of service, are at the disposal
of the employer who may in his own discretion decide whether he wishes to
have them rendered. The lessee of work is bound to perform a certain
specified work or produce a certain specified result within the time fixed by
the contract of work or within a reasonable time where no time has been
specified.
l An employee is, in terms of a contract of service, subordinate to the will of
the employer. He is obliged to obey the lawful commands, orders and
instructions of the employer who has the right of supervis-ing and
controlling him by prescribing to him what work he has to do, as well as the
manner in which it has to be done. However, the lessee of work is on an
equal footing with the lessor. The former is bound by his contract of work,
not by the orders of the latter. He is not under the supervision or control of
the lessor. Nor is he under any obligation to obey any orders of the lessor in
regard to the manner in which the work is to be performed. The lessee of
work is his own master and is in a position of independence vis-à-vis the
lessor. The work normally has to be completed subject to the approval of a
third party or the lessor.
l A contract of service is terminated by the death of the employee whereas
the death of the parties to a contract of work does not necessarily terminate
it.
l A contract of service also terminates on expiration of the period of service
entered into while a contract of work terminates on completion of the
specified work or on production of the specified result.
The court criticised Colonial Mutual Life Assurance Society Ltd v Mac
Donald 1931 AD 412, where the court adopted the so-called ‘supervision
and control test’ of English law in determining whether an insurance agent
was the employee of a life insurance society or an independent contractor
(lessee of work) because the supervision and control test is firmly rooted in
Roman-Dutch law. The court also held that a dictum in that case, to the
effect that the presence of the employer’s right of supervision and control
over the employee was an indispensable requirement for the existence of a
contract of service as distinct from a contract of work, had to be qualified.
The court held that the presence of such a right of supervision and control is
indeed one of the most important indicia that a particular contract is a
contract of service. The greater the degree of supervision and control
exercised by the employer over the employee, the stronger the probability
will be that it is a contract of service. On the other hand, the 264
Employment contract and letting and hiring of work
greater the degree of independence from such supervision and control, the
stronger the probability will be that it is a contract of work. Notwithstanding
its importance, the presence of such a right of supervision and control is not
the sole indicium but merely one of the indicia, although an important one.
There may also be other important indicia to be considered, depending on
the provisions of the contract in question as a whole.
The court held that in many cases, it is comparatively easy to determine
whether a contract is a contract of service or one of work. However, the
court said that where these two extremes converge, it is more difficult to
draw a line between them. It is in these marginal cases where the so-called
dominant-impression test laid down in Ongevallekommissaris v Onderlinge
Versekeringsgenootskap AVBOB (see [82]) should be applied.
S submitted that the court should employ the supervision-and-control test in
conjunction with the so-called ‘organisation test’ formulated in the English
case of Stevenson, Jordan and Harrison Ltd v Mac Donald and Evans
(1952) 1 TLR 100. However, the court rejected the latter test and held that it
is juristically speaking of such a vague and nebulous nature that, more often
than not, no useful assistance can be derived from it in distinguish-ing
between an employee and an independent contractor.
The court adopted the approach followed in the AVBOB case and held that in
order to determine whether the appellant was at the time of the accident a
‘workman’ within the meaning of the Act, it was necessary to determine the
nature of the legal relationship between him and the company. This legal
relationship must be gathered from the true construction of the contract
between them as a whole.
The court examined the contract at length and decided that the present
contract was not an employment contract, but that S was an independent
contractor. Some of the indicia which the court took into account, were l the
object of the contract was not the rendering of personal services by an agent
but the result of the agent’s activities in effecting new insurance business for
the company: the agent would receive no
remuneration unless he obtained proposals which were accepted;
l the lack of supervision and control by the company over S;
l the non-requirement of personal performance of his duties by S; l the fact
that S was remunerated by way of commission; and
l S’s position of independence in the performance of his contractual duties.
The court agreed with the finding of the court a quo that the use of a
company car and the use of an office and typing and telephone facilities are
neutral factors in determining the nature of the legal relationship between S
and the company.
265
Specific contracts in court
[144] Tulloch v Marsh
1910 TPD 453
Facts
In this case the court had to determine, for purposes of prescription under an
old Placcaet, the legal nature of a contract in terms of which a dentist had
used his own material to manufacture a plate of false teeth for his patient.
The question before the court was whether the contract for the supply of the
article in question was one for the sale of the finished teeth, manufactured by
the skill of the dentist, or whether it was a hiring by the client of the skilled
labour of the dentist.
Judgment
The court referred to the Digest, Pothier and English law in this regard. It
applied the following principle or test already laid down in the Digest: l If
the client supplies the materials and the other person the work, the contract is
one for the letting and hiring of work.
l If the workman produces an article manufactured by himself from his own
materials, and delivers it to the client against payment, the contract is one of
sale.
The court therefore held that the contract in casu was one for the sale of the
teeth and not one for the letting and hiring of work.
Comment
This decision was followed in Polpark Dispensary (Pty) Ltd v SA Pharmacy
Board [1978] 3 All SA 457 (A), 1978 (2) SA 816 (AD) when the Appellate
Division held that where a pharmacist uses his own chemical substances in
compounding a prescribed medicine and supplies the finished product for a
price to the customer, the contract is one of sale.
[145] Sifris v Vermeulen Broers
[1974] 1 All SA 414 (T), 1974 (2) SA 218 (T)
Facts
In this case, the court had to determine, inter alia, the legal nature of a
contract in terms of which a contractor used his own materials to install a
roof on another’s house.
Judgment
The court reviewed both the Roman and Roman-Dutch authorities in this
regard. It reiterated the principle that if the workman uses his own materials
to manufacture something, the contract is usually one of sale, but stated that
building contracts have always been regarded as an 266
Employment contract and letting and hiring of work
exception to this rule. Building contracts have always been regarded as
contracts for the letting and hiring of work, probably because the building
site was part of the finished product so that the contractor only provided part
of the material, or because the result of his work merged with the land and
had no independent existence.
53 Vicarious liability
[146] Gibbins v Williams, Muller, Wright and Mostert Ingelyf
[1987] 1 All SA 417 (T), 1987 (2) SA 82 (T)
Facts
G instituted an action for damages against W, a firm of attorneys, on the
grounds that W had negligently allowed G’s action for damages against the
Potchefstroom University for Christian Higher Education to become
prescribed. W admitted that it was due to his negligence that the action had
not been instituted timeously but disputed that G’s action, if timeously
instituted, would have succeeded.
G’s action for damages originated from an incident during an orientation
programme for new students of the University, during which he had to dive
into a mud bath and as a result of which he injured his back to such a degree
that he was paralysed. The mud bath was organised by the house committee
for the area in which G resided, with permission of the house father
concerned.
It emerged from the evidence that a certain student, A, who was a member of
the house committee concerned, had exercised control over the mud-bath
ceremony. It appeared that A had given an instruction to the new students to
dive into the mud bath and that this constituted negligence on his part as the
bath was not deep enough to dive into it safely.
The court rejected the submissions on behalf of the defendants that it was a
case of voluntary acceptance of risk and that G was contributorily negligent,
and considered whether the University could be held vicariously liable for
G’s damages due to the acts and omissions of the organisers and supervisors
of the mud-bath ceremony, that is to say, the house committee and A in
particular. The court therefore analysed the nature of the relationship
between the University and the house committee in order to determine
whether a contract of employment existed between them.
Judgment
The court said that one usually has to do with an employer-employee
relationship when, by agreement, one party, against remuneration, makes
267
Specific contracts in court
available to the other his services or ability to work, in such a manner that
the other party exercises control over the former.
In addition, the court referred to the often-quoted Short v Henderson Ltd
1946 Sc Lt 231 (also referred to in R v AMCA Services Ltd [1959] 4 All SA
205 (A), 1959 (4) SA 207 (AD)) which held that a contract of employment
usually contained four indicia, namely
l the employer’s right to appoint the employee;
l the payment of salaries or other forms of remuneration;
l the employer’s right to supervise and control the method in which services
are rendered; and
l the employer’s right to terminate the employee’s services.
The court pointed out that the most important indicium was that of
supervision and control. (However, the court also pointed out that if one or
more of these indicia were absent, or present only in an unusual form, that
would not mean that no contract of employment was at hand.) The court
proceeded to analyse the appointment of students in various capacities by the
University and the regulations in terms of which this was done:
l It held that members of the house committee were appointed by the
registrar after election and that a relationship of a contractual nature, on the
basis of the contents of the regulations of the University, was created
between the University and members of the house committee.
l The court held that the element of control over house-committee members
by the University was clearly apparent from numerous provisions of the
regulations and was emphasised in respect of the orientation program.
l The court held that both the element of payment of house-committee
members for their services and the right to terminate their services by the
University could be found in the University’s regulations.
The court’s conclusion was that the members of the house committee, after
appointment by the registrar of the University, became officials of the
University and were vested with certain specific functions which they had to
exercise on behalf of the University. Technically speaking, they were, for
purposes of the exercise of those functions, employees of the University, and
the University was vicariously liable for their acts and omissions in the
course of and in connection with their functions.
The court further held that it also flowed from the regulations, which
required, inter alia, that members of the house committee had to deal with
the interests of the students and had to act as representatives of the house
father, that it was the duty of the house committee to see that this specific
part of the orientation was organised in a safe manner.
Finally, the court held that the University was vicariously liable for the
negligent conduct of A during the mud-bath ceremony and that G had to
succeed in his action for damages.
268
Employment contract and letting and hiring of work
[147] Viljoen v Smit
1979 ILJ 61 (A)
Facts
V and S farmed on adjoining farms. V supplied toilet facilities to his
labourers only at their homes. If during the course of the normal working
day a labourer developed a need, he could perform the necessary in the veld,
or if need be, in the vineyard. Climbing through fences and trespass-ing on
neighbour’s properties for that, or any other purpose, were strictly forbidden
by V.
Despite this prohibition, one of V’s labourers climbed through the fence onto
S’s farm and walked for another 70 meters to a place in the bushes where he
relieved himself and attempted to start a cigarette. However, the head of the
match broke off and started a fire. That point was approximately 300 metres
from the place where he had been working.
S claimed the resultant damages from V, alleging that he was vicariously
liable for the wrongful acts of his servant. S succeeded in the court a quo.
On appeal, the crux of the matter was whether or not the labourer was acting
within the course and scope of his employment when he committed the
wrongful act of starting the fire.
Judgment
V relied on the general principle mentioned in Mkize v Martens 1914 AD
383 that an act done by a servant solely for his own interests and purposes,
and outside his authority, is not done in the course of his employment, even
though it may have been done during his employment.
V argued that the labourer had gone to the neighbouring farm for a personal
purpose – to relieve himself – and that he was therefore not acting within the
scope of his employment when he started the fire. The court disagreed and
held that the application of the general principle did not entail that every act
of an employee committed during the time of employment, in the
advancement of his personal interests or the achievement of his own goals,
necessarily fell outside the course and scope of his employment.
The court reviewed the positive law in this regard and came to the
conclusion that whether an employee had abandoned his employment in
pursuit of his own goals was a factual question which had in any particular
case to be decided on the degree of digression. The court therefore refused to
accept V’s contention that the fact that the labourer started the fire
approximately 300 metres from the place where he had been working
constituted such a material digression that it could rightly be said that he had
temporarily abandoned his employment, or put differently, that he had not
acted in the course and scope of his employment during his excursion.
The court held that a subjective evaluation of the labourer’s conduct revealed
nothing more than that he intended to relieve himself.
269
Specific contracts in court
An objective evaluation of the labourer’s actions showed that his digression
amounted to a detour of approximately 200 metres which amounted to only a
few minutes’ walk. In addition, he had done nothing on the neighbouring
farm which he was not allowed to do on V’s farm. The court held that the
digression had not been material and dismissed the appeal.
270
Examples
Examples
1 Agreement to purchase immovable property
MEMORANDUM OF AGREEMENT ENTERED INTO BY AND
BETWEEN
CHRISTA LÖTZ
(hereafter referred to as the ‘Seller’)
and
JOHN NAGEL
(hereafter referred to as the ‘Purchaser’)
IN TERMS OF WHICH THE PARTIES AGREE AS FOLLOWS
1
Purchase and sale
The Seller hereby sells to the Purchaser, who purchases:
Stand 1234, Waverley Extension 6, Registration Division JR Gauteng
Measuring: 1 200 square metres
Held in terms of Deed of Transfer
(hereafter referred to as the ‘Property’)
subject to all the terms of this agreement.
2 Purchase
price
2.1 The purchase price of the Property amounts to R250 000 (two hundred
and fifty thousand rand) which amount must be paid to the Seller
simultaneously with transfer of the Property in the name of the Purchaser.
2.2 As security for the payment of the aforementioned amount, the Purchaser
shall, within 14 (fourteen) days after approval of the loan as determined in
clause 6, be obliged to render approved bank guarantees to the Seller or his
or her representative, which guarantees: 2.2.1 must be payable in Pretoria
upon registration of transfer, free of bank commission; and
2.2.2 must be payable in favour of the Seller or the person nominated by him
or her.
3
Transfer and legal costs
3.1 Transfer of the Property shall be executed by the conveyancers of the
Seller, messrs Bagel & Klötz Inc, 48 Church Square, 9th Floor, Reserve
Bank Building, Pretoria, after the Purchaser has complied with the terms of
this contract, more specifically paragraph 2 hereof, and has paid transfer
duties, all transfer fees and the costs hereof to the aforesaid conveyancers.
The Purchaser undertakes to pay such monies immediately upon demand.
273
Specific contracts in court
3.2 The parties shall also be obliged, upon request, to sign all necessary
documents in order to effect transfer of the Property into the name of the
Purchaser.
4
Occupation, risks and taxes
4.1 Occupation of the Property shall be given to the Purchaser upon
registration of transfer in the name of the Purchaser.
4.2 Risk of profit or loss related to the Property shall pass over to the
Purchaser upon registration of transfer.
4.3 From date of transfer, the Purchaser shall be liable for payment of all
taxes, levies and other costs related to the Property.
5 Occupational
rental
5.1 The Seller and Purchaser herewith furthermore agree that in the event of
occupation taking place before date of registration, the Purchaser shall be
responsible for the payment of occupational rental in the amount of R2 500
(two thousand five hundred rand) per month, payable up to and including
date of registration of the Property.
5.2 In the event of registration taking place before date of occupation, the
Seller shall pay to the Purchaser rent in the amount of R2 500 (two thousand
five hundred rand) per month, up to and including date of occupation by the
Purchaser.
5.3 The aforesaid occupational rental shall be payable monthly in advance.
6 Suspensive
conditions
6.1 This agreement is subject to the following suspensive conditions: 6.1.1
That a bank loan for the amount of R300 000 (three hundred thousand rand)
be granted to the Purchaser within 30 (thirty)
days from the date of signature of this contract.
6.1.2 The Purchaser agrees to apply for the aforesaid loan, within 7
(seven) days from the date of signature of this contract.
7
Voetstoots
7.1 The Property is sold voetstoots. The Seller does not assume any
responsibility for any obvious or hidden faults that may exist in the Property,
and the Purchaser acknowledges that he buys the Property voetstoots. The
Seller does not furnish any express or tacit guarantees in regard to the
Property. The Purchaser acknowledges that he was not persuaded into
entering this agreement by any presentations made to him by the Seller or
any representative of the Seller.
7.2 The Property is sold together with all improvements thereon and subject
to all conditions or servitudes mentioned or referred to in the existing deed
of transfer of the Property.
274
Examples
7.3 Notwithstanding the voetstoots clause, the Seller will, at her own costs,
be obliged to supply her conveyancer with an electricity certificate, issued
by an electrical contractor, who is registered at the Electrical Board of South
Africa, who specifies that the electricity in the building or buildings
complies with the relevant legislation.
If the said electrical contractor traces and reports a fault, the Seller hereby
undertakes to, within 20 (twenty) days after receipt of the report and
suggestion, appoint a qualified electrician at her own cost, to attend to the
necessary repair.
8 Beacons
8.1 The Seller shall not be responsible for the identification of any
surveyor’s beacons, pegs or boundaries, and shall also not be responsible for
any related costs, nor for surveying the Property.
8.2 In the event of there being a difference between the size of the Property
as described herein and as defined in the title deed, the description in the title
deed shall be preferred, and neither of the parties shall be entitled to any
claim against the other.
9
Right to terminate
9.1 In terms of sections 2A and 29A of the Alienation of Land Act 68 of
1981, the Purchaser may within 5 (five) days (any Saturday, Sunday or
public holiday excluded) after signature by her unconditionally terminate
this contract by written and signed notice to the Seller at her domicilium
citandi et executandi, provided that:
9.1.1 the purchase price does not exceed R250 000 (two hundred and fifty
thousand rand);
9.1.2 the Purchaser is not a trust or a person other than a natural person;
9.1.3 the Purchaser has not purchased the Property at a publicly advertised
auction;
9.1.4 the Seller and the Purchaser have not previously entered into a deed of
alienation of the same Property on substantially the
same terms;
9.1.5 the Purchaser has not reserved the right to nominate or appoint another
person to take over her rights and obligations as stipulated in this agreement;
9.1.6 the Purchaser has not purchased the Property by the exercise of an
option which was open for exercise for at least 5 (five)
days (any Saturday, Sunday or public holiday excluded); and
9.1.7 the Property is used or intended to be used mainly for residential
purposes.
9.2 Where the agreement is terminated as contemplated in clause 9.1, every
person who received any amount from the Purchaser shall
refund the full amount of such payment within 10 (ten) days of the date on
which the notice referred to in clause 9.1 was delivered to the Seller.
275
Specific contracts in court
10 Cancellation
If any of the parties in this agreement should fail to comply with the
conditions of this agreement, the other party shall be entitled to give notice
in writing of such failure, and to demand that the party concerned should
remedy such breach of contract within 10 (ten) days of the date of dispatch
of such notice in writing. Aforesaid notice in writing shall be sent by
registered post or delivered by hand to the domicilium citandi et executandi
of the party concerned, as indicated below. If the party concerned neglects to
remedy the breach of contract after expiry of the period of 10 (ten) days as
mentioned, the other party shall be entitled to: 10.1 demand specific
performance by the other party of the terms of this agreement; or
10.2 cancel this agreement and institute proceedings against the party
concerned for damages.
11 Condonation
Any condonation by any party in this agreement or any failure by the other
party to fulfil her obligations in terms of this agreement shall not be regarded
as being renouncement by such party of her rights in terms of this
agreement, nor as novation thereof.
12 Domicilium
12.1 As domicilium citandi et executandi the parties choose the following
addresses respectively:
The Seller: 123 Church Street, Pretoria, 0002.
The Purchaser: 456 Narrow Lane, Durban, 4001.
12.2 Aforesaid domicilia may only be changed by means of notice in writing
by registered post to the domicilium citandi et executandi of the other party.
13
Agent’s commission shall be paid by the Purchaser. It is hereby recorded that
the agent’s introduction of the Seller to the Buyer was the effective cause of
the agreement.
Thus done and signed at Pretoria this the 10th day of December 2002, in the
presence of the undersigned witnesses.
AS WITNESSES:
1 (Signed) Witness 1
(Signed) Seller
2 (Signed) Witness 2
(Signed) Purchaser
276
Examples
2 Lease
AGREEMENT MADE AND ENTERED INTO BY AND BETWEEN
VERONICA NGIDI
(hereafter called the ‘Lessor’)
and
PHILEMON MAHLANGU
(hereafter called the ‘Lessee’)
IN TERMS OF WHICH THE PARTIES AGREE AS FOLLOWS
1 The Lessor lets to the Lessee who leases the following property: Fully
furnished dwelling situated at 123 Church Street, Pretoria, including a lockup garage on the premises.
2 The lease is for a fixed period of 12 (twelve) months reckoned from the 1st
day of January 2002 and terminating on the 31st day of
December 2002, on which date the Lessee undertakes to vacate the property.
3 The rent for the fixed period is R1 000 (one thousand rand) per month
payable monthly in advance on the first day of each month, without any
reduction whatever, to be paid to the Lessor at 567 Long Street, Pretoria, or
to such other place as the Lessor in writing from time to time directs.
4 The Lessee shall:
(a) pay all charges for electricity and water supplied to the property; (b) pay
all amounts due in terms of this lease free of banking commission;
(c) not cede or assign the lease;
(d) not sublet the whole or any part of the property to anyone other than his
immediate family in occupation thereof without the written consent of the
Lessor, which consent shall not be unreasonably withheld;
(e) use the leased property only for residential purposes unless the Lessor’s
written consent to the use for other purposes is obtained; (f) keep the
property clean, habitable and tidy and care for and maintain the garden and
swimming pool;
(g) not make structural or other alterations, additions to or improvements in
the property without the written consent of the Lessor; 277
Specific contracts in court
(h) permit the Lessor or her duly authorised agent to inspect the property at
all reasonable times;
(i) not do or allow to be done either by commission or omission anything
which would increase the premiums of or vitiate the
insurance policies on the property;
(j) be liable for any damage done to the premises or any part thereof by
reason of any of its employees causing such damage by moving any
furniture or other things to or from the premises;
(k) not cause any noise or nuisance which would in any way disturb the quiet
and peaceful occupation of his neighbours.
5 The Lessor shall:
(a) be responsible for the maintenance and upkeep of the exterior of the
property, including the roof;
(b) not be responsible for any damage caused to the Lessee by leak-age, rain,
hail, snow, fire or interruption of water or electricity supplies or any cause
whatever;
(c) be responsible for payment of rates and/or taxes and/or service charges
presently assessed on the property, as at the date of signature hereof;
(d) be entitled, at any time during the currency of the lease, to require the
Lessee to reinstate the property at the Lessee’s expense to the same condition
as it was at date hereof; and
(e) forthwith repair any structural defects which appear in the property.
6 In the event of the total or partial destruction of the property or any portion
thereof by any cause, the Lessor shall be entitled to terminate the lease
failing which it shall continue, but the Lessee shall during the period during
which the property or part thereof is unfit for occupation be entitled to a
proportionate abatement of rent. The Lessee shall have no claim for
compensation against the Lessor, but should the destruction be due to the
default or negligence of the Lessee, his family, servants or persons
occupying the property under him, the Lessor shall under these
circumstances be entitled to claim payment of such damages as the Lessor
may have suffered.
7 Should the Lessee fail to pay the rent or any portion thereof on its due
date, or breach any other condition of this Lease, and remain in default for 7
(seven) days after receipt of notice to the Lessee requiring payment of the
rent or the remedy of the breach, as the case may be, or if the Lessee shall
become insolvent, the Lessor shall have the right forthwith to cancel this
lease and to re-enter upon and take possession of the leased property,
without prejudice to any claim which the Lessor may have against the
Lessee for the rent already due or damages for breach of contract or
otherwise. If the Lessor cancels this 278
Examples
Lease and the Lessee disputes the right to cancel and remains in occupation
of the property, the Lessee shall, pending settlement or resolution of any
dispute either by negotiation or litigation, continue to pay an amount
equivalent to the monthly rental provided in the lease monthly in advance on
the first day of each month and the Lessor shall be entitled to accept and
recover such payment, the acceptance of which shall be without prejudice to
and shall not in any way affect the Lessor’s claim to cancellation then in
dispute. If the dispute is resolved in favour of the Lessor, the payments made
and received in terms of this clause shall be deemed to be amounts paid by
the Lessee on account of damages suffered by the Lessor by reason of the
cancellation of this lease and/or the unlawful holding over by the Lessee.
8 Any relaxation, indulgence or waiver which the Lessor or her agents may
grant to the Lessee or any condonation by the Lessor of any breach of the
terms of this lease shall not become binding on the Lessor who shall at all
times be entitled to claim due and prompt performance by the Lessee of all
obligations.
9 Any notice which the Lessor requires to give to the Lessee shall be deemed
to have been validly given if sent by prepaid registered letter to the Lessee at
the property or left by the Lessor or her agent at such address, which notice
shall be deemed to have been received 3 (three) days after posting by
registered post, or on the day the notice was delivered by hand.
10 The Lessee chooses the property as his domicilium citandi et executandi
and consents to the jurisdiction of the Magistrate’s Court in respect of any
legal proceedings arising out of this lease.
11 No variation of the terms of this lease shall be of any effect unless
reduced to writing and signed by the Lessor and Lessee or their duly
appointed agent or agents.
12 The costs of this lease together with the Stamp Duty thereon shall be paid
by the Lessee.
Thus done and signed at Pretoria this the 10th day of December 2001, in the
presence of the undersigned witnesses.
AS WITNESSES:
1 (Signed) Witness 1
(Signed) Lessor
2 (Signed) Witness 2
(Signed) Lessee
279
Specific contracts in court
3 Special power of attorney
I, the undersigned,
JOSEPH
PRETORIUS
do hereby nominate, constitute and appoint
PIET
DELPORT
with power of substitution, to be my lawful Attorney and Agent in my name,
place and stead, for purposes of purchasing a dwelling situated at 10 Strand
Road, Kommetjie, and generally for effecting the purposes aforesaid, to do
or cause to be done whatsoever shall be requisite, as fully and effectually, for
all intents and purposes, as I might or could do if personally present and
acting herein – hereby ratifying, allowing and confirming and promising and
agreeing to ratify, allow and confirm all and whatsoever my said Attorney
and Agent shall lawfully do, or cause to be done.
Signed at Pretoria this 23rd day of September 2002, in the presence of the
undersigned witnesses.
AS WITNESSES:
1 (Signed) Witness 1
(Signed) Principal
2 (Signed) Witness 2
4 Simple surety for single obligation
I, John Dube, residing at 123 Church Street, Pretoria, (‘the Surety’) bind
myself as surety for Jacob Rabada (‘the Debtor’) to Joe Jonas (‘the
Creditor’) for the due performance by the Debtor of his obligation to repay
the Creditor R10 000 (ten thousand rand) lent and advanced.
Signed at Pretoria on this 23rd day of September 2002.
AS WITNESSES:
1 (Signed) Witness 1
(Signed) Surety
2 (Signed) Witness 2
280
Examples
5 Building contract
MEMORANDUM OF AGREEMENT ENTERED INTO BY AND
BETWEEN
KAMPEPE DEVELOPMENTS (PTY) LTD
(hereafter referred to as the ‘Employer’)
and
BANDA CONTRACTORS CC
(hereafter referred to as the ‘Contractor’)
IN TERMS OF WHICH THE PARTIES AGREE AS FOLLOWS
1 Definitions
The following terms shall have the meanings assigned to them hereunder
and cognate expressions shall have corresponding meanings, namely: 1.1
‘Agreement documents’ means this contract document, preliminar-ies,
drawings, specifications, bills of quantities or schedule of materials, and any
documents annexed to the contract documents by
agreement between the parties.
1.2 ‘Contractor’ means the natural or juristic person that agrees to build the
works.
1.3 ‘Contract sum’ means the amount specified in Schedule 1.
1.4 ‘Days’ means calendar days (including Saturdays, Sundays, public
holidays and contractors’ holidays).
1.5 ‘Employer’ means the person, partnership, company, close corporation
or other juristic person who wants to have the works constructed.
1.6 ‘Final account’ means the amount to be paid to the Contractor in terms
of clause 8.
1.7 ‘Final completion’ means the completion of all work in this contract,
including rectification of all defective and incomplete work to the reasonable
satisfaction of the Employer.
1.8 ‘Notice in writing’ means a written notice by either party to the other,
together with reasonable proof of the date of delivery.
1.9 ‘Payment’ means payment by the Employer to the Contractor of the
amount(s) as agreed within 10 (ten) days of the completion of certain parts
of the work to the satisfaction of the Employer.
281
Specific contracts in court
1.10 ‘Penalty’ means the amount to be paid by the Contractor to the
Employer for each day the works are finished late due to the Contractor’s
default calculated at R100 (one hundred rand) per day.
1.11 ‘Period of liability for defects’ means the period commencing on the
date when the works have been completed and ending on the 10th
day thereafter.
1.12 ‘Practical completion’ means that stage of completion when the works
are sufficiently completed for them to be properly used for the purpose for
which they were constructed.
1.13 ‘Site’ means the place where the works are to be constructed. The
Contractor is to construct the works only on the land so defined and
indicated in Schedule 1.
1.14 ‘Specialist contractors’ means those other contractors who are paid
directly by the Employer to do work on the site which does not form part of
this agreement.
1.15 ‘Variations’ means changes to the works that the Employer issues to the
Contractor as instructions in writing. Should the Contractor do extra work
not described in a written instruction from the Employer, such work will not
be paid for by the Employer.
1.16 ‘Works’ means the construction which is to be done by the Contractor
in terms of this contract.
2 Contractor’s
obligations
The Contractor shall:
2.1 before starting work on site, arrange for a guarantee to be provided from
a person or organisation acceptable to the Employer;
2.2 commence to build the works on the agreed date and carry out the works
in accordance with the agreement, to the reasonable satisfaction and in
accordance with the written instructions of the Employer; 2.3 provide all of
the necessary materials, labour, plant and equipment to erect the works,
including water and electricity for the works, and complete the works;
2.4 comply with all applicable statutory provisions and local authority
requirements;
2.5 insure its employees against death or injury arising out of the execution
of the works;
2.6 in the event of a loss leading to a claim against the insurance policies,
pay the excess to the Employer. Such amounts may be
deducted from any payment due by the Employer to the Contractor; 2.7
comply with all written instructions of the Employer to make variations to
the works;
282
Examples
2.8 complete and hand over the works by the date for practical completion
stated in the schedule, or any extensions thereof in terms of clause 4.1;
2.9 make good, at his own expense, all incomplete and defective work
within the period of liability for defects; and
2.10 pay to the Employer any penalty for delay as due to the Employer.
Such amounts may be deducted from any payment due by the
Employer to the Contractor, including the retention fund.
3 Employer’s
obligations
The Employer shall:
3.1 insure the works and materials on site against loss by fire, explosion,
earthquakes and for public liability and riot with a registered insurer; 3.2
hand over the site to the Contractor and point out boundary pegs on the date
agreed upon by the parties;
3.3 make payment to the Contractor for the work as set out herein; and 3.4
take possession of the works when the works have been completed by the
Contractor.
4
Delay and extension of time: Penalty
4.1 If the carrying out of the works is delayed by bad weather, public
disorder or any other reason decided by the Employer at his sole discretion
to be reasonable, then the date for practical completion of the works is to be
extended by the period so decided by the Employer.
4.2 If the delay is due to causes that are the fault of the Contractor, then the
Employer may certify this fact in writing to the Contractor and the Employer
may then withhold penalties from the Contractor as set out in clause 9.
5
Default by Contractor
If the Contractor:
5.1 stops work on site for more than 14 (fourteen) days; and/or 5.2 fails, in
the opinion of the Employer, to carry out the works with reasonable
diligence; and/or
5.3 refuses to comply with an instruction issued by the Employer, then the
Employer shall, by notice in writing, inform the Contractor of such default
and, if such default shall continue for a further period of 7 (seven) days,
cancel this contract and employ others to complete the works. The cost of
such work by others shall be a debt due by the Contractor to the Employer.
5.4 No further payment will be due to the Contractor by the Employer until
the works are completed by the replacement contractor(s) and 283
Specific contracts in court
the Contractor’s final account and that of the replacement contractor(s) have
been ascertained and any loss to the Employer arising from the cancellation
has been identified. Such loss shall be deducted from any payment due by
the Employer to the Contractor, including payments from the retention fund.
6
Default by the Employer
If the Employer fails to make payment for work properly done by the
Contractor as provided for in this contract and the Contractor issues a notice
in writing to the Employer and the Employer does not pay within 7
(seven) days of such notice in waiting, then the Contractor may, without
prejudice to any other rights he may have, cancel the contract, stop work and
clear the site. The Contractor shall thereupon be entitled to payment in full
for the work done and materials supplied, up to the date of cancellation.
7 Retention
fund
7.1 The Employer shall withhold from the Contractor 10% (ten per cent) of
all payments made before the practical completion as a retention fund. No
interest is to be paid to the Contractor on the retention fund.
The retention fund shall be held by the Employer as a guarantee to the
Employer for the completion of the contract.
7.2 Half of the retention fund shall be paid to the Contractor on the practical
completion and the remainder on final completion of the works.
8 Final
account
The final value of the works shall be determined by the calculation of
omissions and additions to the contract sum as caused by the effect of
variations. The valuation of such omissions and additions shall be based on
the rates in the bills of quantities or schedule of rate as the case may be. A
draft final account shall be prepared by the Employer for approval by the
Contractor. The Contractor shall review the draft final account and shall
make any adjustments as may be necessary and shall return it to the
Employer within 30 (thirty) days. Thereupon, the Employer shall issue a
final payment to the Contractor.
9 Penalty
The Contractor shall be liable to pay a penalty to the Employer for the
number of days the works remain incomplete beyond the date for practical
completion as stated in the schedule, taking into account the Contractor’s
entitlement to an extension of time. Such penalty may be deducted from any
moneys due or to become due to the Contractor from the Employer,
including from the retention fund.
10 Payment
Payment shall be due by the Employer to the Contractor. Should any
payment be made later than provided for herein, then the Employer shall pay
to the Contractor interest at 3% (three per cent) above the prime rate charged
by commercial banks to their clients at that time.
284
Examples
11 Specialist
work
The Employer may directly employ specialist contractors to do work such as
electrical installation on site whilst the works are in progress. The Contractor
shall allow such specialist contractors to do their work as and when needed
and shall make available all facilities to enable such work to be properly
done to the satisfaction of the Employer.
12 Disputes
12.1 A dispute between the parties relating to any matter arising out of this
agreement or the interpretation thereof shall be referred to arbitration, by
either of the parties, by way of a notice to the other party, in which notice
particulars of the dispute are set out.
12.2 Such arbitration proceedings shall waive the usual formalities of
procedure with a view to their being completed within 7 (seven) days of
being demanded.
13
Entire agreement and variations
13.1 This agreement constitutes the whole agreement between the parties
and supersedes all prior verbal or written agreements or understandings or
representations by or between the parties regarding the subject matter of this
agreement, and the parties will not be entitled to rely, in any dispute
regarding this agreement, on any terms, conditions or representations not
expressly contained in this agreement.
13.2 No variation of or addition to this agreement will be of any force or
effect unless reduced to writing and signed by or on behalf of the parties.
Thus done and signed at Pretoria this the 10th day of December 2002, in the
presence of the undersigned witnesses.
AS WITNESSES:
1 (Signed) Witness 1
(Signed) Employer
2 (Signed) Witness 2
(Signed) Contractor
285
Specific contracts in court
6 Contract of employment
MEMORANDUM OF AGREEMENT MADE AND ENTERED INTO
BY AND BETWEEN
LOTZNAGEL (PTY) LTD
(hereafter referred to as the ‘Employer’)
and
MORNAY BOTHA
(hereafter referred to as the ‘Employee’)
WHEREBY THE PARTIES AGREE AS FOLLOWS
1 Appointment
The Employee, who hereby accepts the appointment, is appointed as a
chauffeur for the Employer.
2 Duration
2.1 This agreement commences on the date of signature hereof by both
parties, and it continues for an indefinite period until it has been cancelled in
terms hereof.
2.2 The Employee’s appointment is subject to a 2- (two-) month
probationary period during which period the Employer may terminate the
services of the Employee for any substantial and fair reason and by giving 2
(two) weeks’ written notice of termination of service to the Employee, prior
to the end of the probationary period.
2.3 It will not be necessary to hold disciplinary hearings during the
probationary period, although the Employee will be entitled to know the
reason for the Employer’s decision and be given the opportunity to answer
thereto.
2.4 Should the Employee’s service not be terminated during the probationary
period, this agreement will as aforesaid continue for an indefinite period.
3 Employee’s
duties
3.1 The core of the Employee’s duties towards the Employer is a duty of
obedience to the Employer’s lawful instructions; a duty of good faith; a duty
of care; and a duty of reasonable efficiency or competence.
3.2 Without limiting the aforesaid duties, the Employee is obliged to strictly
comply with the provisions of this agreement, may not mis-appropriate the
Employer’s property, may not divulge confidential information obtained in
the course of employment, and must at all times be neat and tidy, friendly
and helpful to clients and other persons.
286
Examples
4 Service
hours
4.1 The Employee’s hours of work will be from 08:00 to 17:00 on weekdays and from 08:00 to 13:00 on Saturdays.
4.2 The Employee is obliged to work overtime and in cases of emergency
(other than the normal working hours) provided that such overtime and
emergency period of work will not exceed 20 (twenty) hours per week.
4.3 No official lunchtime will be given to the Employee but she is entitled to
sufficient time off, as arranged with the Employer, to enjoy lunch.
4.4 A tea-break of 10 (ten) minutes will be allowed and be given in the
morning and a tea-break of 10 (ten) minutes will be allowed and be given in
the afternoon. Coffee or tea will be supplied to the Employee free of charge.
5 Remuneration
5.1 The Employee will be entitled to a basic monthly salary of R2 500
(two thousand five hundred rand), payable on or before the last day of the
month.
5.2 Overtime will be remunerated at R5 (five rand) per hour.
6 Bonus
A yearly bonus equalling 1 (one) month’s salary will be paid to the
Employee at the end of November of each year.
7 Medical
scheme
7.1 The Employee may join or remain a member of the medical aid scheme
of her choice.
7.2 The Employer is obliged to contribute R100 (one hundred rand) per
month to the payment of the Employee’s medical aid premiums.
8 Provident
fund
8.1 If the Employee joins the Employer’s provident fund, the Employer is
obliged to contribute R20 (twenty rand) per month on behalf of the
Employee to such fund.
8.2 If the Employee joins any other provident and/or pension fund, the
Employer will not be obliged to contribute R20 (twenty rand) per month on
behalf of the Employee to such fund.
9 Leave
9.1 Annual leave
9.1.1 The Employee is entitled to 4 (four) weeks’ leave on full pay for each
and every 12 (twelve) months of completed service.
9.1.2 The said leave shall be granted by the Employer as from a date
determined by the Employer at any time during the 12(twelve-) month cycle, but not later than 4 (four) months after the
completion of a 12- (twelve-) month period.
287
Specific contracts in court
9.1.3 Upon termination of the Employee’s employment, the Employer shall pay to the Employee her full remuneration in respect of any leave which accrued, but was not granted to her
before the date of termination of the employment.
9.2 Sick leave
The Employee is entitled to sick leave as is provided for in the Basic
Conditions of Employment Act 75 of 1997.
9.3 Maternity leave
The Employee is entitled to paid maternity leave for a period of 4 (four)
weeks before date of birth and a period of 8 (eight) weeks thereafter.
10 Public
holidays
The Employee is entitled to such public holidays as are determined by law.
11 Medical
examination
11.1 The Employee agrees to submit herself to a medical examination and
blood tests as specified by the Employer, in order for the Employer to
establish the suitability of the Employee to perform or continue her duties.
11.2 The Employee is entitled to appoint her own medical practitioner for
such purposes and the Employer will pay for the costs thereof.
11.3 The medical records or result of such an examination may be inspected
by the Employer.
12 Termination
12.1 This agreement may be terminated by either party by giving of 1 (one)
month’s written notice of termination of service, the one to the other.
12.2 Such a notice can only be given on the 1st or the 15th day of that
particular month.
12.3 Notwithstanding the above, the Employer shall be entitled to terminate
this agreement summarily if the Employee is guilty of such a misconduct
that may legally justify such summary dismissal.
12.4 A termination of service for whatever reason must be done in
accordance with all relevant and applicable labour law and labour law
principles.
Thus done and signed at Pretoria this the 10th day of December 2002, in the
presence of the undersigned witnesses.
AS WITNESSES:
1 (Signed) Witness 1
(Signed) Employer
2 (Signed) Witness 2
(Signed) Employee
288
Table of cases
Page numbers in bold refer to cases that are discussed.
Page
A
A Becker & Co (Pty) Ltd v Becker 1981 (3) SA 406 (AD)
....................................... 15
ABSA Bank Ltd v Fouche [2002] 4 All SA 245 (SCA),
2003 (1) SA 176 (SCA) ................................................................................
88, 89
ABSA Bank Ltd v Prochaska t/a Bianca Cara Interiors 2009 (2) SA 512 (D)
......... 200
Absa Technology Finance Solutions (Pty) Ltd v Michael’s Bid a
House CC 2013 (3) SA 426 (SCA)
.................................................................... 173
Ackerman v Loubser 1918 OPD 31
.................................................................... 257
Alfred McAlpine & Son (Pty) Ltd v Transvaal Provincial Administration
[1974] 3 All SA 497 (A), 1974 (3) SA 506 (AD)
.................................................... 6
Allen v Sixteen Stirling Investments (Pty) Ltd [1974] 4 All SA 271 (D),
1974 (4) SA 164 (D) ........................................................................................
147
Alpha Trust (Edms) Bpk v Van der Watt [1975] 4 All SA 61 (A),
1975 (3) SA 734 (AD) ..................................................................................
68, 69
Amod v Multilateral Motor Vehicle Accident Fund
1998 (10) BCLR 1207 (CC), 1998 (4) SA 753 (CC)
........................................... 136
Aris Enterprises (Finance) (Pty) Ltd v Waterberg Koelkamers (Pty) Ltd 1977
(2) SA 425 (AD) ........................................................................................ 21
Arnold v Viljoen [1954] 3 All SA 201 (C), 1954 (3) SA 322 (C) ....................
118, 119
Associated South African Bakeries (Pty) Ltd v Oryx & Vereinigte
Bäckereien (Pty) Ltd 1982 (3) SA 893 (AD) ............................... 51, 52, 53,
74, 75
Autopack Distributors CC v Compendium Insurance Group (Pty) Ltd
[2015] JOL 33580 (KZD) .................................................................................
253
B
Banda v Van der Spuy 2013 (4) SA 77 (SCA)
......................................................... 85
Bank Windhoek Bpk v Rajie [1994] 1 All SA 437 (A), 1994 (1) SA 115
(AD) ......... 62
Barkhuizen v Napier 2007 (7) BCLR 691 (CC), 2007 (5) SA 323 (CC)
.......... 141, 216
Barloworld Capital (Pty) Ltd t/a Barloworld Equipment Finance v Napier
NO
[2004] 2 All SA 517 (W) ..................................................................................
226
Barloworld Capital (Pty) Ltd t/a Barloworld Equipment Finance v Napier
NO
[2007] 1 All SA 301 (SCA)
............................................................................... 228
289
Specific contracts in court
Page
Barnabas Plein & Co v Sol Jacobson & Son 1928 AD 25
..................................... 154
Barnard v Thelander [1977] 4 All SA 133 (C), 1977 (3) SA 932 (C)
....................... 71
Batchelor v Murphy 1926 AC 63 (HL)
................................................................. 133
Bayer South Africa (Pty) Ltd v Frost [1991] 2 All SA 444 (A),
1991 (4) SA 559 (AD)
........................................................................................ 91
Beets v Swanepoel [2010] JOL 26422 (NC)
......................................................... 176
Bellairs v Hodnett 1978 (1) SA 1109 (A)
............................................................... 53
Benlou Properties (Pty) Ltd v Vector Graphics (Pty) Ltd
[1993] 1 All SA 207 (A), 1993 (1) SA 179 (AD)
................................................ 117
Benson v SA Mutual Life Assurance Society [1986] 2 All SA 30 (A), 1986
(1) SA 776 (AD) ........................................................................................ 20
Beyers’ Estate v Southern Life Association 1938 CPD 8
...................................... 248
Bloemfontein Market Garage (Edms) Bpk v Pieterse [1991] 1 All SA 69
(O), 1991 (2) SA 208 (O) ................................................................ 105, 107,
108, 110
Blumenthal v Bond 1916 AD 29
......................................................................... 157
Boompret Investments (Pty) Ltd v Paardekraal Concession Store (Pty) Ltd
1990 (1) SA 347 (A) ................................................................................ 130,
131
Botha v Carapax Shadeports (Pty) Ltd [1992] 3 All SA 768 (A),
1992 (1) SA 202 (AD)
........................................................................................ 12
Botha v Giyose t/a Paragon Fisheries [2007] JOL 20007 (SCA)
............................ 153
Botha v Swanepoel [2002] 1 All SA 85 (T), 2002 (4) SA 577 (T)
............................ 27
Botha (now Griessel) v Finanscredit (Pty) Ltd [1989] 2 All SA 401 (A),
1989 (3) SA 773 (AD) ......................................................................................
168
Bowring NO v Vrededorp Properties CC [2007] JOL 20008 (SCA),
2007 (5) SA 391 (SCA) ....................................................................................
123
Brits v Eaton NO [1984] 4 All SA 664 (T), 1984 (4) SA 728 (T)
.............................. 34
Burroughs Machines Ltd v Chenille Corporation of SA (Pty) Ltd
[1964] 1 All SA 110 (W), 1964 (1) SA 669 (W)
.................................................. 27
C
Carmichele v Minister of Safety and Security 2001 (10) BCLR 995 (CC),
2001 (4) SA 938 (CC) ......................................................................................
136
Chemical Specialities (Pty) Ltd v South African Eagle Insurance Company
Ltd [2006] 2 All SA 138 (D)
............................................................................. 222
Chief Registrar of Deeds v Hamilton-Brown 1969 (2) SA 543 (AD)
....................... 34
Chisnall and Chisnall v Sturgeon and Sturgeon 1993 (2) SA 642 (W)
.................... 29
Chretien v Bell [2010] 2 All SA 428 (SCA), 2011 (1) SA 54 (SCA)
.......................... 26
Ciba-Geigy (Pty) Ltd v Lushof Farms (Pty) Ltd [2002] 2 All SA 525 (A),
2002 (2) SA 447 (SCA) .......................................................................... 76,
77, 80
Clements v Simpson [1971] 3 All SA 196 (A), 1971 (3) SA 1 (AD) .............
18, 22, 27
Clifford v Commercial Union Insurance Co of SA Ltd [1998] JOL 2374 (A),
1998 (4) SA 150 (SCA) ....................................................................................
240
Coetzee v Eloff 1923 EDL 113
.............................................................................. 13
Colonial Mutual Life Assurance Society Ltd v Mac Donald 1931 AD 412
............. 264
Colyn v Tiger Food Industries Ltd v Meadow Feed Mills (Cape)
[2003] 2 All SA 113 (SCA), 2003 (6) SA 1 (SCA)
.............................................. 209
Cook v Aldred 1909 TS 150
.................................................................................. 32
Corondimas v Badat 1946 AD 548 .............................................101, 102,
103, 104
290
Table of cases
Page
Cullinan v Noordkaaplandse Aartappelkernmoerkwekers Koöperasie Bpk
[1972] 2 All SA 1 (A), 1972 (1) SA 761 (AD)
.................................................... 152
CWA Snyders NO v Louistef (Pty) Ltd 2017 JDR 1264 (CC)
............................. 10, 12
D
De Jager v Grunder [1964] 2 All SA 17 (A), 1964 (1) SA 446 (AD)
......................... 25
De Vries v Wholesale Cars [1986] 1 All SA 158 (O), 1986 (2) SA 22 (O)
......... 84, 97
De Wet v Zeeman 1989 (2) SA 433 (NC)
............................................................... 97
Dicks v South African Mutual Fire and General Insurance Co Ltd
[1963] 4 All SA 303 (N), 1963 (4) SA 501 (N)
.................................................. 215
Diggers Development (Pty) Ltd v City of Matlosana
[2012] 1 All SA 428 (SCA)
............................................................................... 102
Dijkstra v Janowsky [1985] 2 All SA 253 (C), 1985 (3) SA 560 (C)
......................... 27
Doll House Refreshments (Pty) Ltd v O’Shea [1957] 1 All SA 423 (T),
1957 (1) SA 345 (T)................................................................................. 132,
133
Du Plessis v West [1998] JOL 202 (N)
................................................................... 97
E
Edwards v Firstrand Bank Ltd t/a Wesbank [2016] 4 All SA 691 (SCA),
2017 (1) SA 316 (SCA) ....................................................................................
198
Equistock Group CC t/a Autocity Motor Holdings v Mentz
[2004] 2 All SA 46 (T) .....................................................................................
100
Eriksen Motors (Welkom) Ltd v Protea Motors, Warrenton
[1973] 4 All SA 116 (A), 1973 (3) SA 685 (AD) ...................................... 59,
60, 61
Eskom v Rollomatic Engineering (Edms) Bpk [1992] 2 All SA 64 (A), 1992
(2) SA 725 (AD) ........................................................................................ 61
Exdev (Pty) Ltd v Pekudei Investments (Pty) Ltd [2011] 2 All SA 371
(SCA), 2011 (2) SA 282 (SCA)
...................................................................................... 16
F
Farr v Mutual and Federal Insurance Company Ltd 2000 (3) SA 684 (C)
............. 259
Ferndale Crossroads Share Block (Pty) Ltd v Johannesburg Metropolitan
Municipality [2011] 2 All SA 15 (SCA), 2011 (1) SA 24 (SCA)
.......................... 115
FirstRand Bank Ltd v Collett [2011] JOL 27486 (ECG), 2011 (4) SA 508
(SCA) .... 186
Firstrand Bank Ltd v Olivier [2008] JOL 22139 (SE),
2009 (3) SA 353 (SE) ............................................................... 180, 182, 183,
184
FirstRand Bank Ltd t/a First National Bank v Seyffert and Three Similar
Cases 2010 (6) SA 429 (GSJ) ...........................................................................
185
Ford, Ex parte, and Two Similar Cases 2009 (3) SA 376 (WCC) ..................
178, 211
Fourlamel (Pty) Ltd v Maddison [1977] 1 All SA 513 (A),
1977 (1) SA 333 (AD) ......................................................................................
164
Freddy Hirsch Group (Pty) Ltd v Chickenland (Pty) Ltd 2010 (1) SA 8
(GSJ) .......... 78
Freddy Hirsch Group (Pty) Ltd v Chickenland (Pty) Ltd
[2011] 3 All SA 345 (SCA), 2011 (4) SA 276 (SCA) ......................................
78, 80
Frenkel v Ohlsson’s Cape Breweries Ltd 1909 TS 957
.......................................... 53
G
Gengan v Pathur 1977 (1) SA 826 (D)
................................................................... 55
Geue v Van der Lith [2003] 4 All SA 553 (SCA), 2004 (3) SA 333 (SCA)
.................. 4
Gibbins v Williams, Muller, Wright and Mostert Ingelyf
[1987] 1 All SA 417 (T), 1987 (2) SA 82 (T)
..................................................... 267
291
Specific contracts in court
Page
Glaston House (Pty) Ltd v Inag (Pty) Ltd [1977] 3 All SA 88 (A), 1977 (2)
SA 846 (AD) .................................................................................. 80, 83
Glicksman v Lancashire and General Assurance Co 1927 AC 143
....................... 248
Gordon v Slotar [1973] 4 All SA 123 (A), 1973 (3) SA 765 (AD)
.......................... 155
Gowar Investments (Pty) Ltd v Section 3, Dolphin Coast Medical Centre CC
2007 (3) SA 100 (SCA)
...................................................................................... 38
GrainCo (Pty) Ltd v Van der Merwe 2016 (4) SA 303 (SCA)
............................. 14, 15
Grosvenor Motors (Potchefstroom) Ltd v Douglas [1956] 3 All SA 399 (A),
1956 (3) SA 420 (AD)
........................................................................................ 58
H
Hamman v Moolman [1968] 4 All SA 525 (A), 1968 (4) SA 340 (AD)
................... 86
Haviside v Heydricks [2013] JOL 30968 (KZP), 2014 (1) SA 235 (KZP)
................. 79
Haynes v King Williamstown Municipality [1951] 2 All SA 472 (A), 1951
(2) SA 371 (AD) ........................................................................................ 20
Hendler Brothers 1967 (4) SA 115 (O) ............................................................
68, 69
Herselman v Orpen 1989 (4) SA 1000 (SE)
........................................................... 27
Hicklin v Secretary for Inland Revenue [1980] 1 All SA 301 (A), 1980 (1)
SA 481 (AD) ...................................................................................... 177
Hirschowitz v Moolman [1985] 2 All SA 319 (A),
1985 (3) SA 739 (AD) ............................................. 41, 44, 45, 49, 50, 51,
52, 53
Holmdene Brickworks (Pty) Ltd v Roberts Construction Co Ltd
[1977] 4 All SA 94 (A), 1977 (3) SA 670 (AD) .................................. 75, 80,
91, 97
Hugo v Gross [1989] 1 All SA 145 (C), 1989 (1) SA 154 (C)
................................... 34
I
Incorporated General Insurances Ltd v Shooter t/a Shooter’s Fisheries 1987
(1) SA 842 (AD) ........................................................................................ 32
Investec Bank Ltd v Mutemeri 2010 (1) SA 265 (GSJ)
.......................................... 211
J
Jacobs NO v Braaff [2007] 4 All SA 966 (SCA)
..................................................... 217
Jacoby v Whitmore (1883) 94 LT 335 (CA)
........................................................... 13
Jammine v Lowrie [1958] 2 All SA 427 (T), 1958 (2) SA 430 (T)
........................... 27
Janse van Rensburg v Grieve Trust CC [1999] 3 All SA 597 (C),
2000 (1) SA 315 (C) ........................................................................................
107
Janse van Rensburg v Koekemoer 2011 (1) SA 118 (GSJ)
...................................... 24
Jerrier v Outsurance Insurance Company Ltd [2015] 3 All SA 701 (KZP)
............ 246
Johnston v Leal [1980] 2 All SA 366 (A), 1980 (3) SA 927 (AD)
....................... 27, 38
Jones v Wykland Properties 1998 (1) SA 355 (C)
.................................................. 27
Jordan v New Zealand Insurance Co Ltd [1968] 1 All SA 11 (E),
1968 (2) SA 238 (E) ................................................................................ 247,
249
Jurgens v Volkskas Bank Ltd [1993] 1 All SA 199 (A), 1993 (1) SA 214
(AD) ....... 165
K
Kazazis v Georghiades [1979] 4 All SA 511 (T), 1979 (3) SA 886 (T)
..................... 72
Kliptown Clothing Industries (Pty) Ltd v Marine and Trade Insurance Co of
SA Ltd [1961] 1 All SA 385 (A), 1961 (1) SA 103 (AD) ...........................
251
292
Table of cases
Page
Knight v Trollip 1948 (3) SA 1009 (D)
................................................................... 87
Kootbodien v Mitchell’s Plain Electrical Plumbing and Building CC
2011 (4) SA 624 (WCC)
..................................................................................... 18
Krauze v Van Wyk [1986] 1 All SA 293 (A), 1986 (1) SA 158 (AD)
........................ 45
Kubyana v Standard Bank of South Africa Ltd 2014 (4) BCLR 400 (CC),
2014 (3) SA 56 (CC) ................................................................................ 199,
201
L
Labuschagne Broers v Spring Farm (Pty) Ltd [1976] 1 All SA 181 (T),
1976 (2) SA 824
(T)........................................................................................... 86
Lake NO v Reinsurance Corporation Ltd [1967] 3 All SA 225 (W),
1967 (3) SA 124 (W) .......................................................................................
215
Lammers and Lammers v Giovannoni [1955] 4 All SA 59 (A),
1955 (3) SA 385 (AD) ..................................................................................
66, 69
Land and Agricultural Bank of South Africa v Parker 2005 (2) SA 77 (SCA)
........... 33
Lendalease Finance (Pty) Ltd v Corporacion de Mercadeo Agricola
[1976] 4 All SA 300 (A), 1976 (4) SA 464 (AD)
.................................................. 56
Levy v Banket Holdings (Private) Ltd [1956] 3 All SA 68 (FC),
1956 (3) SA 558 (FC) ...................................................................... 132, 133,
134
Littlejohn v Norwich Union Fire Insurance Society 1905 TH 374 ................
217, 219
Louistef (Pty) Ltd v Snyders NO [2016] JOL 36971 (SCA),
2017 (5) SA 276 (SCA)
...................................................................................... 11
M
Mabondo v Standard Bank [2016] ZAGPPHC 1007
............................................. 207
McCann v Goodall Group Operations (Pty) Ltd [1995] 3 All SA 276 (C),
1995 (2) SA 718 (C)
.......................................................................................... 88
McGregor v Jordaan 1921 CPD 301
...................................................................... 19
McWilliams v First Consolidated Holdings (Pty) Ltd [1982] 1 All SA 245
(A), 1982 (2) SA 1 (AD)
.............................................................................................. 3
Mahadeo v Dial Direct Insurance Ltd [2008] 2 All SA 352 (W),
2008 (4) SA 80 (W) .........................................................................................
245
Makate v Vodacom Ltd 2016 (4) SA 121 (CC) .............................................
149, 151
Malan v City of Cape Town 2014 (11) BCLR 1265 (CC),
2014 (6) SA 315 (CC) ......................................................................................
140
Marais v Commercial General Agency Ltd 1922 TPD 440
..................................... 79
Marine and Trade Insurance Company Ltd v Gerber Finance (Pty) Ltd 1981
(4) SA 958 (AD) ...................................................................................... 228
Melamed v BP Southern Africa (Pty) Ltd [2000] 1 All SA 342 (W), 2000 (2)
SA 614 (W) ....................................................................................... 102
Menelaou v Gerber [1988] 3 All SA 460 (T), 1988 (3) SA 342 (T)
.......................... 34
Meridian Bay Restaurant (Pty) Ltd v Mitchell [2011] JOL 26954 (SCA),
2011 (4) SA 1 (SCA)
.......................................................................................... 73
MFC (A Division of Nedbank Ltd) v Botha unreported case no 6981/13
(WCC) ..... 97
Mia v DJL Properties (Waltloo) (Pty) Ltd 2000 (4) SA 220 (T)
.................................. 5
Middleton v Carr [1949] 2 All SA 400 (A), 1949 (2) SA 374 (AD)
.......................... 17
Mighty Solutions t/a Orlando Service Station v Engen Petroleum Ltd 2016
(1) BCLR 28 (CC), 2016 (1) SA 621 (CC) .................................................
129
Mignoel Properties (Pty) Ltd v Kneebone 1989 (4) SA 1042 (AD) ................
121, 123
293
Specific contracts in court
Page
Mkize v Martens 1914 AD 383
........................................................................... 269
Mokone v Tassos Properties CC 2017 (10) BCLR 1261 (CC),
2017 (5) SA 456 (CC) ......................................................... 47, 48, 132, 135,
136
Molusi v Voges 2016 (7) BCLR 839 (CC), 2016 (3) SA 370 (CC)
........................... 137
Mountbatten Investments (Pty) Ltd v Mahomed [1989] 1 All SA 94 (D),
1989 (1) SA 172 (D) ................................................... 8, 104, 106, 107, 108,
110
Mouton v Die Mynwerkersunie [1977] 1 All SA 242 (A),
1977 (1) SA 119 (AD) ......................................................................................
157
Mpange v Sithole [2007] JOL 20479 (W), 2007 (6) SA 578 (W)
........................... 120
Mutual and Federal Insurance Co Ltd v Oudtshoorn Municipality
[1985] 1 All SA 324 (A), 1985 (1) SA 419 (AD) ....... 229, 232, 234, 237,
238, 241
Mutual & Federal Insurance Co Ltd v SMD Telecommunications CC
[2011] 2 All SA 34 (SCA), 2011 (1) SA 94 (SCA)
.............................................. 256
Mutual Construction Co (Tvl) (Pty) Ltd v Komati Dam Joint Venture
[2009] 1 All SA 458 (SCA), 2009 (1) SA 464 (SCA)
.......................................... 127
N
Nafte v Atlas Assurance Co Ltd 1924 WLD 239
.................................................. 255
Naidoo v Absa Bank Ltd [2010] 4 All SA 496 (SCA),
2010 (4) SA 597 (SCA) ............................................................................ 174,
210
Napier v Collett [1995] 2 All SA 457 (A), 1995 (3) SA 140 (AD)
.......................... 221
Nash v Golden Dumps (Pty) Ltd [1985] 2 All SA 161 (A),
1985 (3) SA 1 (AD)
............................................................................................ 17
Natal Joint Municipal Pension Fund v Endumeni Municipality
[2012] 2 All SA 262 (SCA), 2012 (4) SA 593 (SCA) ....................................
95, 134
National Credit Regulator v Nedbank Ltd [2009] 4 All SA 505 (GNP), 2009
(6) SA 295 (GNP) ............................................................................ 188, 192
Nedbank Ltd v National Credit Regulator [2011] 4 All SA 131 (SCA), 2011
(3) SA 581 (SCA) ............................................................................ 192, 209
Nel v South African Railways & Harbours 1924 AD 30
....................................... 148
Neon and Cold Cathode Illuminations (Pty) Ltd v Ephron
[1978] 2 All SA 1 (A), 1978 (1) SA 463 (AD)
.................................................... 167
Ntshiqa v Andreas Supermarket (Pty) Ltd [1996] 3 All SA 154 (Tk), 1997
(1) SA 184 (Tk) ....................................................................................... 119
O
Odendaal v Ferraris [2008] 4 All SA 529 (SCA),
2009 (4) SA 313 (SCA) .................................................................... 80, 89,
90, 97
Odendaal v Maartens [1979] 4 All SA 716 (T), 1979 (4) SA 237 (T)
...................... 34
Ongevallekommissaris v Onderlinge Versekeringsgenootskap AVBOB
[1976] 4 All SA 358 (A), 1976 (4) SA 446 (AD) ........................................
147, 265
Opera House (Grand Parade) Restaurant (Pty) Ltd v Cape Town City
Council
[1986] 4 All SA 120 (C), 1986 (2) SA 656 (C)
.................................................... 19
Ornelas v Andrew’s Cafe [1980] 1 All SA 18 (W), 1980 (1) SA 378 (W)
.......... 80, 90
P
Palabora Mining Co Ltd v Coetzer [1993] 2 All SA 45 (T),
1993 (3) SA 306 (T)................................................................................. 124,
129
Pangbourne Properties Ltd v Nitor Construction (Pty) Ltd
[1993] 3 All SA 770 (W), 1993 (4) SA 206 (W)
................................................ 168
294
Table of cases
Page
Par Excellence Colour Printing (Pty) Ltd v Ronnie Cox Graphic Supplies
(Pty) Ltd 1983 (1) SA 295 (AD)
.......................................................................... 65
Paradyskloof Golf Estate v Stellenbosch Municipality
[2010] 4 All SA 591 (SCA), 2011 (2) SA 525 (SCA)
.......................................... 104
Patel v Adam [1977] 3 All SA 31 (A), 1977 (2) SA 653 (AD) ......................
20, 27, 28
Pearl Assurance Co v Union Government 1934 AD 560
..................................... 109
Phame (Pty) Ltd v Paizes 1 [1973] 3 All SA 501 (A),
973 (3) SA 397 (AD) ................................................................................ 108,
109
Phillips v General Accident Insurance Co (SA) Ltd
[1983] 3 All SA 101 (W), 1983 (4) SA 652 (W)
................................................ 218
Phone-A-Copy Worldwide (Pty) Ltd v Orkin [1986] 2 All SA 12 (A), 1986
(1) SA 729 (AD) .................................................................................. 15, 16
Pillay v South African National Life Assurance Co Ltd
1991 (1) SA 363 (D) ....................................................... 233, 237, 238, 241,
249
Plaaslike Boeredienste (Edms) Bpk v Chemfos Bpk
[1986] 2 All SA 42 (A), 1986 (1) SA 819 (AD)
.................................................. 159
Plit v Imperial Bank Ltd [2006] JOL 18357 (SCA), 2007 (1) SA 315 (SCA)
............. 70
Polpark Dispensary (Pty) Ltd v SA Pharmacy Board [1978] 3 All SA 457
(A), 1978 (2) SA 816 (AD)
...................................................................................... 266
President Versekeringsmaatskappy Bpk v Trust Bank van Afrika Bpk
[1989] 1 All SA 241 (A), 1989 (1) SA 208 (AD) ........................ 231, 234,
237, 238
Privest Employee Solutions (Pty) Ltd v Vital Distribution Solutions (Pty)
Ltd
[2006] 1 All SA 111 (SCA), 2005 (5) SA 276 (SCA)
.......................................... 258
Protea Assurance Co Ltd v Presauer Developments (Pty) Ltd
1985 (1) SA 737 (AD) ......................................................................................
125
Protea Holdings Ltd v Herzberg [1982] 4 All SA 614 (C), 1982 (4) SA 773
(C) ...... 13
Q
Qilingele v South African Mutual Life Assurance Society
1993 (1) SA 69 (AD) ................................................................ 236, 241, 243,
249
R
R v AMCA Services Ltd [1959] 4 All SA 205 (A), 1959 (4) SA 207 (AD)
............... 268
R v Myers 1948 (1) SA 375 (AD)
........................................................................... 86
Rand Mutual Assurance Co Ltd v Road Accident Fund [2009] 1 All SA 265
(SCA), 2008 (6) SA 511 (SCA)
.................................................................................... 258
Refrigerated Trucking (Pty) Ltd v Zive NO (Aegis Insurance Co Ltd, Third
Party) 1996 (2) SA 361 (T) ............................................................. 219, 225
Remini v Basson 1993 (3) SA 204 (N)
................................................................... 98
Rogers v Phillips 1985 (3) SA 183 (E)
.............................................................. 49, 50
S
Samsudin v De Villiers Berrange NO [2006] SCA 79 (RSA)
................................. 211
Sapirstein v Anglo African Shipping Company (SA) Ltd
[1978] 4 All SA 474 (A), 1978 (4) SA 1 (AD)
.................................................... 163
Sapro v Schlinkman [1948] 2 All SA 484 (A), 1948 (2) SA 637 (AD)
................... 125
Sasfin (Pty) Ltd v Beukes [1989] 1 All SA 347 (A), 1989 (1) SA 1 (AD)
........ 168, 169
Savvides v Savvides [1986] 1 All SA 128 (T), 1986 (2) SA 325 (T)
................... 25, 26
Scheepers v Strydom [1994] 2 All SA 240 (A), 1994 (3) SA 101 (AD)
.................... 23
Scholtz v Scholtz 2012 (1) SA 382 (WCC), [2012] 2 All SA 553 (SCA),
2012 (5) SA 230 (SCA) ................................................................................
25, 26
295
Specific contracts in court
Page
Sebola v Standard Bank of South Africa Ltd 2012 (8) BCLR 785 (CC), 2012
(5) SA 142 (CC) ..................................................... 202, 203, 204, 205, 209
Section Three Dolphin Coast Medical Centre CC v Cowar Investments (Pty)
Ltd 2006 (2) SA 15 (D) .............................................................................. 36
Seyffert v Firstrand Bank Ltd t/a First National Bank 2012 (6) SA 581
(SCA) ....... 185
Shenker Bros v Bester [1952] 1 All SA 150 (C), 1952 (3) SA 655 (A)
................... 135
Sherwood v Tucker [1924] 2 Ch 440 ..........................................................
133, 134
Shoprite Checkers (Pty) Ltd v MEC for Economic Development, Eastern
Cape [2016] JOL 33426 (CC), 2015 (6) SA 125 (CC)
.......................................... 11
Short v Henderson Ltd 1946 Sc Lt 231
............................................................... 268
Sifris v Vermeulen Broers [1974] 1 All SA 414 (T), 1974 (2) SA 218 (T)
.............. 266
Slims (Pty) Ltd v Morris NO [1988] 2 All SA 33 (A), 1988 (1) SA 715 (AD)
............ 11
Smit v Walles 1985 (2) SA 189 (T)
........................................................................ 40
Smit v Workmen’s Compensation Commissioner [1979] 1 All SA 152 (A),
1979 (1) SA 51 (AD) ........................................................................................
263
Snyders NO v Louistef (Pty) Ltd 2016 (1) SA 123 (GP)
.......................................... 10
Solomon v Registrar of Deeds 1944 CPD 319
....................................................... 11
Soteriou v Retco Poyntons (Pty) Ltd [1985] 2 All SA 208 (A),
1985 (2) SA 922 (AD)
........................................................................................ 53
South African Eagle Insurance Co Ltd v Norman Welthagen Investments
(Pty) Ltd 1994 (2) SA 122 (AD)
........................................................................ 249
Spearhead Property Holdings Ltd v E and D Motors (Pty) Ltd
[2009] 4 All SA 417 (SCA), 2010 (2) SA 1 (SCA)
.............................................. 122
Spies v Lombard [1950] 3 All SA 355 (A), 1950 (3) SA 469 (AD)
......................... 128
Standard Bank of South Africa Ltd v Kallides unreported case 1061/2012
(ZAWCHC) ......................................................................................................
188
Standard Bank of South Africa Ltd v Panayiotts [2009] JOL 23095 (W),
2009 (3) SA 363 (W) .......................................................................................
182
Stander v Raubenheimer 1996 (2) SA 670 (O)
.................................................... 252
Stevenson, Jordan and Harrison Ltd v Mac Donald and Evans
(1952) 1 TLR 100 ............................................................................................
265
Steynberg v Kruger 1981 (3) SA 473 (O)
............................................................. 119
Swart v Van der Vyver [1970] 1 All SA 486 (A), 1970 (1) SA 633 (AD)
................ 126
T
Ten Brink NO v Motala [2000] JOL 7304 (D), 2001 (1) SA 1011 (D)
...................... 31
Theron v AA Life Assurance Association Ltd [1995] 2 All SA 581 (A), 1995
(4) SA 361 (AD) ...................................................................................... 241
Thompson v Scholtz [1998] 4 All SA 526 (A), 1999 (1) SA 232 (SCA)
................. 119
Thorpe v Trittenwein [2006] 4 All SA 129 (SCA), 2007 (2) SA 172 (SCA)
.............. 33
Townsend v Farman [1900] 2 Ch 698
.................................................................. 13
Trego v Hunt [1896] AC 7 (HL)
............................................................................. 15
Truman v Leonard [1994] 4 All SA 445 (SE), 1994 (4) SA 371 (SE)
................. 81, 91
Tubbs v Hendrickson 88 Misc 2d 917 (NY Misc 1976)
........................................ 135
Tulloch v Marsh 1910 TPD 453
........................................................................... 266
U
Uhlmann v Grindley-Ferris [1947] 2 All SA 424 (C), 1947 (2) SA 459 (C)
.............. 80
Unitrans Freight (Pty) Ltd v Santam Ltd [2004] 4 All SA 292 (SCA), 2004
(6) SA 21 (SCA) ...................................................................................... 223
296
Table of cases
Page
V
Van der Merwe v DSSM Boerdery BK [1991] 3 All SA 837 (T),
1991 (2) SA 320
(T)........................................................................................... 34
Van der Merwe v Kenkes (Edms) Bpk [1983] 4 All SA 524 (T),
1983 (3) SA 909
(T)........................................................................................... 32
Van der Merwe v Meades [1991] 4 All SA 42 (A),
1991 (2) SA 1 (AD) .......................................................................... 81, 82,
88, 91
Van der Westhuizen v Arnold [2002] 4 All SA 331 (SCA),
2002 (6) SA 453 (SCA)
...................................................................................... 70
Van Jaarsveld v Coetzee [1973] 3 All SA 285 (A), 1973 (3) SA 241 (AD)
................. 6
Van Nieuwkerk v McCrae 2007 (5) SA 21 (W) ...........................................
80, 90, 91
Vasco Dry Cleaners v Twycross [1979] 1 All SA 321 (A),
1979 (1) SA 603 (AD)
.......................................................................................... 7
Venter v Birchholtz [1972] 1 All SA 361 (A), 1972 (1) SA 276 (AD)
....................... 52
Venter Agentskappe (Edms) Bpk v De Sousa 1990 (3) SA 103 (AD)
.................... 156
Viljoen v Smit 1979 ILJ 61 (A)
............................................................................. 269
Vousvoukis v Queen Ace CC t/a Ace Motors [2016] JOL 35677 (ECG),
2016 (3) SA 188 (ECG)
...................................................................................... 94
W
Waller v Pienaar [2004] JOL 13046 (C), 2004 (6) SA 303 (C)
................................ 87
Wastie v Security Motors (Pty) Ltd [1972] 2 All SA 255 (C),
1972 (2) SA 129 (C) ............................................... 104, 106, 107, 108, 109,
110
Webb v Hipkins 1944 AD 95
.............................................................................. 133
Wimbledon Lodge (Pty) Ltd v Gore NO
................................................................. 74
Y
Young v Liberty Life Association [1991] 3 All SA 606 (W),
1991 (2) SA 246 (W) .......................................................................................
221
Z
Zandberg v Van Zyl 1910 AD 302
........................................................................... 8
297
Index
Page
Page
A
blank spaces
abstract system
deed of alienation ................... 38–41
of transfer ........................ 19–20, 35
suretyship ........................... 164–166
actio empti ........................... 77, 81–86
bribery ........................................... 159
actio quanti minoris ... 8–10, 81, 84, 85,
building contract
104, 105, 107–111
example ............................. 281–285
actio redhibitoria .... 10, 84–85, 97, 108
nature of ............................. 266–267
aedilitian actions ........... 10, 81–86, 87,
C
105, 106, 108–111
canvassing of customers ............. 14–15
agency
cash sale ..................................... 57–61
employment contract
distinguished ................. 147–148
caveat emptor .................................... 89
good faith .................................. 159
concursus creditorum .................... 8, 35
implied authority to make
constitutum possessorium .... 7–8, 62–65
representations ...................... 147
Consumer Protection Act ............ 94–97
indemnity against losses ............ 157
cooling-off right .......................... 36–38
knowledge, care and skill .. 157–159
ostensible authority ........... 148–151
Corondimas principle ............. 101–102,
remuneration payable
103–104
to agent ......................... 154–156
credit agreement
undisclosed principal ......... 152–154
arm’s-length transaction ..... 176–178
agricultural land
debt relief versus
consent to sale ........................... 4–5
voluntary surrender ........ 178–180
delivery of notices .............. 198–210
alienation of land see purchase
emolument attachment order ..... 190
and sale
family relationship .............. 176–178
arm’s-length transaction ........ 176–178
in duplum rule .....191–192, 196–198
National Credit Act, scope of
B
application of .................. 173–178
bank loan see mortgage bond
over-indebtedness and debt
barter see exchange
counselling as defence .... 180–188
bill of lading ............................... 56–58
reckless credit .................... 178–180
299
Specific contracts in court
Page
Page
credit agreement— continued
F
rental agreement ............... 173–175
fitness for purpose ...................... 78–79
s 86 debt review procedure
future merx ........................... 16–18, 22
and related matters ....... 188–198
s 127 notice ....................... 198–200
G
s 129 notice ....... 192–193, 200–212
generic sale ...................................... 16
sequestration
proceedings ................... 210–212
goodwill ...................................... 12–15
credit sale .................................. 57–61
H
D
habitatio ........................................... 24
date of occupation ..................... 40–41
huur gaat voor koop ................. 121–124
datio in solutionem .......... 10, 105, 107,
I
107–108, 110
illegal building structure ............. 79–81
delivery of merx
improvements,
constitutum
compensation for ............... 124–125
possessorium .............. 7–8, 62–65
symbolic delivery ................... 57–58
in duplum rule .........191–192, 196–198
traditio longa manu ................ 61–62
independent contractor see letting and
delivery of notices ................. 198–210
hiring of work
description of merx ........ 15–18, 22–23
insurance
breach of warranty ............. 247–251
dishonoured cheque .................. 58–61
broker’s duty of care .......... 252–254
divisible contract ............................. 17
careless error in proposal ... 247–248
doctrine of notice .............. 73–75, 123
causation ............................ 221–222
donation
contra proferentem rule ............... 251
habitatio ....................................... 24
extension clause ................. 219–220
mortgaged property ............... 25–26
extent of insured’s claim ............ 255
real donation ............................... 25
fraudulent claim ......................... 255
double sales ............................... 71–75
health questions answered
incorrectly ...................... 233–236
E
insurable interest ................ 217–220
employment contract
interim cover ...................... 215–216
course and scope of
intermediaries .................... 252–254
employment .................. 269–270
interpretation of contract .... 258–259
dominant impression test .......... 265
joint insureds ...................... 222–223
example ............................. 286–288
keys to be kept in
letting and hiring of work
locked safe ..................... 249–250
distinguished ................. 263–267
material misrepresentation/
organisation test ........................ 265
non-disclosure ................ 229–246
supervision and
nature of contract ....................... 215
control test ............ 264–265, 268
new for old clause .............. 240–244
vicarious liability ................ 267–270
noting interests of
third parties .................... 226–228
estate agent’s commission ..... 154–156
occurrence and
estoppel
exception clauses ........... 256–257
and ostensible authority .... 150–151
other life cover
exceptio non adimpleti contractus ... 119
not disclosed .................. 236–240
exchange ........................... 9, 105, 106
parties to contract .............. 223–225
300
Index
Page
Page
insurance— continued
latent defects— continued
payment of
purchaser’s duty to
premium ................ 215, 222–223
investigate .......................... 87–89
previous incidents
seller’s duty to disclose ........... 87–89
not disclosed .................. 245, 246
undisclosed servitude ............. 83–84
principle of indemnity ............... 255
lease see letting and hiring
requirements for
letters of credit ........................... 56–58
valid contract ................. 215–217
letting and hiring
risk insured ........................ 221–222
compensation for attachments
subrogation ........................ 257–258
and improvements ......... 124–125
tacit term of car loan
delivery and maintenance of
agreement ............................. 217
leased property ............... 118–120
time-bar clause in short-term
essentialia of lease .............. 115–117
insurance policy ............. 216–217
example of lease ................ 277–279
uberrima fides .................... 230–231
fixed or determinable rent .......... 117
waiver of right to disclosure ....... 232
huur gaat voor koop ............. 121–124
illegal activities clause ......... 140–143
L
payment of rent ......................... 125
latent defects
proper use of property ........ 125–126
meaning ................................. 75–76
renewal of lease ................. 132–136
actio empti and
return of property on
aedilitian actions ................ 81–86
termination of lease ........ 126–128
business licence ........................... 90
slum conditions .......................... 120
car steering ............................ 84–85
sublease.............................. 128–132
consequential damages ......... 75–78
termination of lease ............ 137–143
Consumer Protection Act
letting and hiring of work
applied to used goods ........ 94–97
building contract ................ 266–267
declaration as
employment contract
national monument ........... 83–84
distinguished .................. 263–265
fitness for purpose ................. 78–79
sale distinguished ....................... 266
fraudulent concealment or
M
misrepresentation ............. 81–84,
85–86, 87–89
manufacturer’s liability ............... 76–79
illegal structure ...................... 79–81
material terms of sale ........... 27, 38–41
lack of statutory approval for
merx
build-on construction ......... 89–91
description ................. 15–18, 22–23
leaking thatch roof ................. 85–86
future merx ....................... 16–18, 22
manufacturer’s and
goodwill .................................. 12–15
merchant’s liability ............ 76–79
merchantable nature .............. 10–12
materiality ....................... 84–85, 88
res litigiosa ............................. 18–20
matters to be proved ............. 82–83
misrepresentation
negligent misrepresentation .. 91–94
see also latent defects
non-performance or
insurance contract .............. 229–249
defective performance ....... 78–79
money-lending agreement
non-physical or
secured by pledge ....................... 7–8
invisible defects ................. 89–91
mortgage bond
oil pump ................................ 94–97
donation of mortgaged
Pothier rule ............................ 77–78
property ............................. 25–26
301
Specific contracts in court
Page
Page
mortgage bond— continued
purchase and sale— continued
particulars omitted from
immovable property
contract of sale .................. 38–39
(example) ....................... 273–276
suspensive condition .... 5–7, 18–19,
material terms .................. 27, 38–41
97–104
non-compliance with
formalities .......................... 34–38
N
options and pre-emptive
National Credit Act see credit
rights .................................. 41–53
agreement
passing of ownership .............. 56–59
national monument ................... 83–84
passing of risk ........................ 55–56
safe-keeping of thing sold ....... 53–55
nominal price .................................. 21
signature of parties ................. 27–34
O
special power of attorney
(example) ............................... 280
option contract .............. 16–18, 41–46
true nature of transaction ......... 7–10
ostensible authority ............... 148–151
warranty against eviction ....... 65–71
ownership, passing of
written contract see written deed
cash or credit sale .................. 57–61
of alienation
delivery of merx ..................... 61–65
pure financial loss............................. 93
payment of purchase price .... 59–61
requirements ......................... 56–59
R
rent see letting and hiring
P
res litigiosa ................................. 18–20
pactum de contrahendo .............. 28, 43,
res perit domino ................................ 55
48–53, 134–135
restraint of trade ......................... 12–15
payment of purchase price
fixed or determinable price ... 20–21
risk, passing of ........................... 55–56
manner and time ................... 26–27
S
passing of ownership ............. 59–61
suspensive condition ........... 97–104
safe-keeping of thing sold ........... 53–55
trade-in transaction ........... 104–111
sale see purchase and sale
perfecta emptione periculum
signature of contract of sale
ad emptorem respiciet ................... 55
agreement to contract,
or enforceable contract ....... 27–29
Pothier rule ................................ 77–78
co-seller and co-purchaser ...... 29–31
pre-emption right
minor’s guardian .................... 31–32
competing option contract ..... 45–46
trustee .................................... 33–34
compliance with statutory
site licence .................................. 10–12
formalities ............. 41–45, 47–53
nature and effect of ............... 41–43
special power of attorney
(example) ................................... 280
purchase and sale see also latent
defects; merx; payment of purchase
sublease ................................. 128–132
price; suspensive condition
subrogation ............................ 257–258
consensus on essentialia ............ 3–4
suretyship
cooling-off right ..................... 36–38
definition .................................... 163
delivery of merx ..................... 61–65
blank form .......................... 164–166
double sales ........................... 71–75
example ..................................... 280
formalities ................................... 22
liability as surety and
identification of purchaser ..... 23–24
co-principal debtor ......... 167–168
302
Index
Page
Page
suretyship— continued
U
principal debt not yet in
undisclosed principal .............. 152–154
existence ............................... 163
used goods
requirements for
Consumer Protection Act,
valid contract ................. 163–166
application of ...................... 94–97
termination of contract ...... 168–170
suspensive condition
V
compliance with statutory
vicarious liability ..................... 267–270
provisions ...................... 102–104
vis maior ........................................... 54
consent to sale of
voetstoots clause see latent defects
agricultural land ..................... 4–5
Corondimas
W
principle ........ 101–102, 103–104
warranty against eviction
effect on contract of sale .... 99–100,
duties of purchaser when
101–102, 103–104
eviction imminent .............. 66–67
loan approval and
exclusion ................................ 70–71
revocation .......................... 97–99
forms of eviction .................... 65–66
transfer of ownership ........ 100–102
purchaser’s right of
waiver ............................ 5–7, 18–19
recourse ............................. 68–70
T
warranty against latent defects
see latent defects
trade-in transaction
innocent misrepresentation .... 9–10,
written deed of alienation
105, 107–111
blank spaces ........................... 38–41
nature of .................. 8–10, 104–107
description of merx ................. 22–23
reduction in purchase
donation of mortgaged
price .................... 8–10, 104–111
property ............................. 25–26
whether car part of
example ............................. 273–276
pretium or merx ............. 104–105
identification of purchaser ...... 23–24
non-compliance with
traditio longa manu .................... 61–62
formalities .......................... 34–38
Trego principle ................................. 15
oral donation of habitatio .............. 24
trustee
terms required to be in
signature of contract .............. 33–34
writing ................................ 28–29
303
Document Outline
Cover
Half Title
Title Page
Copyright Page
Preface
Contents
Purchase and sale
1 Formation of the contract
1 1 Consensus on essentialia
1 2 Contract subject to suspensive condition
2 Essentialia of the contract of sale
2 1 Nature of the contract
2 2 The merx
2 3 Purchase price
3 Formalities
3 1 Writing
3 2 Purchase price
3 3 Signature of the parties
3 4 Consequences of non-compliance with formalities
3 5 Blank spaces
4 Options and pre-emptive rights
5 Safe-keeping of thing sold and passing of risk
6 Passing of ownership
6 1 Requirements for passing of ownership
6 2 Payment of the purchase price
6 3 Delivery of the merx
7 Warranty against eviction
7 1 Forms of eviction
7 2 Duties of purchaser when eviction imminent
7 3 Purchaser’s right of recourse
7 4 Exclusion of warranty
8 Double sales
9 Warranty against latent defects
9 1 Meaning of latent defect
9 2 Manufacturer and merchant
9 3 Actio empti and aedilitian actions
9 4 Duty of seller and purchaser to disclose and investigate
9 5 Application of a voetstoots clause to non-physical or
invisible defects
9 6 Negligent misrepresentation
9 7 Consumer Protection Act and the sale of defective used
goods
10 Payment of the purchase price
10 1 Suspensive conditions
10 2 Payment of purchase price in case of trade-in
transactions
Letting and hiring
11 Essentialia of the lease
12 Delivery and maintenance of the leased property
13 Huur gaat voor koop
14 Compensation for attachments and improvements
15 Payment of rent
16 Proper use of the property
17 Return of property on termination of lease
18 Sublease
19 Renewal of the lease
20 Termination of the lease
Agency
21 General
22 Agency distinguished from employment contract
23 Ostensible authority
24 Undisclosed principal
25 Remuneration payable to agent
26 Indemnity against losses
27 Agent’s knowledge, care and skill
28 Agent’s good faith
Suretyship
29 Definition and requirements for validity
30 Liability as surety and co-principal debtor
31 Termination of the contract of suretyship
Credit agreements
32 Scope of application of the National Credit Act
33 The debt relief measures in the National Credit Act versus
voluntary surrender under the Insolvency Act
34 Over-indebtedness and debt counselling as a defence
35 The procedure in terms of section 86 and related matters
36 Notice in terms of section 127
37 Notice in terms of section 129
K’s grounds of appeal and S’s response
Issues before the Constitutional Court
Proof of delivery of a section 129 notice
Did S comply with section 129?
Insurance
38 Nature and characteristics of the law of insurance
39 Requirements for the validity of a contract of insurance
40 Insurable interest
41 Risk
42 Premium
43 Parties to the contract of insurance
44 Noting the interests of third parties on a contract of insurance
45 Misrepresentation and the contract of insurance
46 Insurance guarantees
47 Insurance intermediaries
48 Extent of insured’s claim: Principle of indemnity
49 Occurrence and exception clauses
50 Subrogation
51 Interpretation of contract of insurance
Employment contract and letting and hiring of work
52 Employment contract, letting and hiring of work and related
contracts
53 Vicarious liability
Examples
1 Agreement to purchase immovable property
MEMORANDUM OF AGREEMENT ENTERED INTO BY
AND BETWEEN
IN TERMS OF WHICH THE PARTIES AGREE AS
FOLLOWS
1 Purchase and sale
2 Purchase price
3 Transfer and legal costs
4 Occupation, risks and taxes
5 Occupational rental
6 Suspensive conditions
7 Voetstoots
8 Beacons
9 Right to terminate
10 Cancellation
11 Condonation
12 Domicilium
2 Lease
AGREEMENT MADE AND ENTERED INTO BY AND
BETWEEN
IN TERMS OF WHICH THE PARTIES AGREE AS
FOLLOWS
3 Special power of attorney
4 Simple surety for single obligation
5 Building contract
MEMORANDUM OF AGREEMENT ENTERED INTO BY
AND BETWEEN
IN TERMS OF WHICH THE PARTIES AGREE AS
FOLLOWS
1 Definitions
2 Contractor’s obligations
3 Employer’s obligations
4 Delay and extension of time: Penalty
5 Default by Contractor
6 Default by the Employer
7 Retention fund
8 Final account
9 Penalty
10 Payment
11 Specialist work
12 Disputes
13 Entire agreement and variations
6 Contract of employment
MEMORANDUM OF AGREEMENT MADE AND
ENTERED INTO BY AND BETWEEN
WHEREBY THE PARTIES AGREE AS FOLLOWS
1 Appointment
2 Duration
3 Employee’s duties
4 Service hours
5 Remuneration
6 Bonus
7 Medical scheme
8 Provident fund
9 Leave
10 Public holidays
11 Medical examination
12 Termination
Table of cases
Index