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Contracts of Sale

Basic Principles;

pp137 - 154

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Contracts of sale

• Definition– A reciprocal agreement: seller

transfers a thing and all his rights in that thing to purchaser, who pays money in return.

• All rights in the merx?

– Not a requirement that seller be the owner of the merx, need only transfer undisturbed possession.

– Seller must intend to transfer all his rights in the merx to the buyer.

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Essentialia

• Essentialia distinguish a particular type of contract.

• Essentialia of a contract of sale:

– Price

– Subject matter

• The other requirements for a valid contract must also be present.

• Certain contracts of sale may be subject to formalities, eg. sale of immovable property.

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Essentialia contd…

• The object (merx)– Merx must be determined/

determinable at time when sale concluded

– If merx destroyed before contract entered into: no sale possible

– If merx destroyed after contract entered into but before delivery: party bearing risk loses

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Merx contd…

• Merx must be merchantable: must belong to someone and be capable of being sold commercially.

• Merx may be movable, immovable, incorporeal.

• The sale of a non-existent merx is void.

– One may, however, sell a non-existent thing which may come into existence. Eg. sale of a fishing boat’s catch before it goes to sea.

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Price

• Price must be determined or determinable.

– Either a specific price or a method by which price can be determined without reference to parties.

• Payment must be at least partly in money, otherwise not a contract of sale:

– May be a contract of exchange instead.

• Mountbatten Investments (Pty) Ltd v Mohamed 1989 (1) SA 172 (D)

– Test: which is of greater value – goods or money. If same, presumption of sale.

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Passing of ownership

• Only the owner of a merx may transfer ownership

– Nemo plus iuris rule

• Therefore a mala fide seller misrepresents a material aspect of the contract and the contract is voidable.

• If seller is bona fide the contract can’t be set aside.

– The buyer is protected in these circumstances by the implied warranty against eviction.

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When is ownership transferred?

• Passing of ownership requires more than just conclusion of contract.

• Different requirements for movable and immovable property.

• Requirements for passing of ownership in a sale of immovable property:

– Seller must be owner of the property

– Seller must have intention of transferring ownership and buyer must have intention of receiving ownership

– Property must be registered in name of buyer in the Deeds Office

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Ownership in movable property

• Requirements for passing ownership in a sale of movable property:

– Seller must be owner of the merx

– Seller must have intention to transfer ownership and buyer intention to receive ownership

– Effect of delivery depends on whether sale is for cash or credit:

• Cash sale: payment and delivery expected at same time. Ownership passes upon payment and delivery.

• Credit sale: Delivery now, pay later. Ownership passes on delivery.

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Cash sales v credit sales

• It may be difficult to distinguish cash and credit sales:

– This is a question of fact: depends on surrounding circumstances whether parties intended cash or credit sale.

– In the absence of agreement: rebuttable presumption that every sale is for cash.

• Eriksen Motors (Welkom) v Protea Motors, Warrenton 1973 (3) SA 685 (A)

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The passing of risk

• General rule in contracts of sale: risk of destruction of merx passes to buyer once contract is perfecta.

• Any benefit which accrues to the merx passes when the risk passes.

• Parties may vary this common law position by agreement.

• Damage to merx must not be caused due to fault of either party, but due to “acts of god”.

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Passing of risk contd…

• Remember risk and benefit pass to buyer only once contract is perfecta. Contract is perfecta when 3 requirements met:

– Merx must be determined, not merely determinable

– Price must be determined, not merely determinable

– Contract not subject to a suspensive condition

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Rights and duties of parties to a contract of sale

• There are duties placed on the buyer and seller by operation of law in a contract of sale. The parties are free to vary or exclude these by agreement.

Duties of the seller

• Duty of seller to deliver merx

– Delivery may be actual or constructive

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Duties of seller contd…

• Duty of safe-keeping

– In period between conclusion of contract and delivery, seller has a duty to look after the goods.

– Seller liable for harm caused to goods in this period as a result of fault on his part.

• ie. negligence or intentional harm

– If buyer is in mora, seller only liable for gross negligence, intentional harm.

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Duty of safe-keeping contd…

• Risk of accidental damage to goods (not caused by fault of seller) lies with buyer once contract is perfecta.

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The implied warranty against eviction

• Seller of the merx not required to be its owner.

• Seller merely undertakes to transfer undisturbed use of the merx to the buyer.

• Therefore: seller warrants that buyer will not be evicted by a 3rd party with stronger title to the merx.

• This warranty is a naturale of a contract of sale (residual term). It may, however, be excluded by agreement.

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Requirements for the implied warranty against eviction

(a) Notice to the seller

• Buyer must notify seller of threatened eviction. Seller can then assist buyer in his defence against 3rd party.

(b) Buyer must conduct a proper defence

• Referred to as a “virilis defensio”

• Even if seller does not assist buyer, he must put up a proper defence to 3rd party.

– Otherwise may lose right of recourse against seller.

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Requirements contd…

• Reason for this requirement: claim of 3rd party may be refutable and could be resisted.

– If buyer proves claim is irrefutable, he may have recourse against seller without having made a proper defence.

• In the event of eviction:

– Seller must restore price and pay any damages suffered by buyer.

– If value of merx has increased between time of sale and time of eviction, buyer must be paid the difference.

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Requirements contd…

• In the event of eviction contd…

– If buyer has made improvements, may resist claim of 3rd party until 3rd party has compensated him for these.

– But: enrichment may be hard to prove, thus buyer may claim value of improvements from seller if he fails to assist in the defence.

• Lammers & Lammers v Giovannoni 1955 (3) SA 385 (A)

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Warranty against latent defects

• A latent defect in the merx is a hidden flaw which renders merx unfit for the purpose for which it was bought.

• Seller must disclose all latent defects to the buyer, otherwise he must compensate the buyer under the aedilitian remedies.

• Seller is liable for latent defects even if he acted bona fide, hence sellers often include a voetstoots clause in a contract of sale

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Warranty against latent defects contd…

• Voetstoots clauses

– A voetstoots clause excludes liability for latent defects.

– A voetstoots clause will not protect the seller if he acted fraudulently.

• If the buyer knew of the defect at the time of sale, he will have no action against the seller.

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Requirements for warranty against latent defects

(a) The defect must be latent

• Distinguish a latent and an obvious (patent) defect:

– Latent defect not discoverable by a reasonable person upon proper inspection.

– Lakier v Hager 1958 (4) SA 180 (T)

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Requirements contd…

(b) The defect must impair the utility of the merx

• A defect is an abnormal quality which impairs the effectiveness of the merx for the purpose for which it has been sold.

• Sarembock v Medical Leasing Services (Pty) Ltd 1991 (1) SA 344 (A)

• Defect must be “abnormal”

– ie. One would not expect to find such a defect in a merx of that type, age and price.

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Requirements contd…

• If the problem is not abnormal in this sense, then it’s not a defect, even though it impairs functionality of merx.

• Curtaincrafts (Pty) Ltd v Wilson 1969 (4) SA 221 (E)

(c) The defect must exist at time of conclusion of the contract

• Onus on buyer to prove this

• Seboko v Soll 1949 (3) SA 338 (T)

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Remedies for latent defects

• The aedilitian remedies are available for breach of implied warranty against latent defects.

• Action is for purchase price (actio redhibitoria) or price reduction (actio quanti minoris). Usually one can’t claim consequential losses.

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1. Actio redhibitoria

• Available where defect is so material that buyer would not have purchased had she known about it.

• Remedy aims to put parties in position they were before contract was concluded:

– Buyer may claim purchase price, seller may claim merx.

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2. Actio quanti minoris

• Where defect is not material, buyer can only claim price reduction.

– Price reduction = purchase price - true value in defective state.

• Cf. Sarembock v Medical Leasing Services

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Consequential losses?

• Usually there is no claim available for consequential losses under the aedilitian remedies, but in certain circumstances it does exist:

– Seller is aware of defect in goods and fraudulently fails to disclose it.

– Seller is the manufacturer of the goods

– Seller professes expert knowledge of the goods

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

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Duties of the buyer

• Payment of the purchase price

• Accepting delivery