Material errors:

1. Mistake as to the nature of the transaction (one thinks it’s a loan and the other a donation)

2. Mistake as to the subject matter

3. Mistake as to the identity of the parties – but only if identity is an essential ingredient of the

contract (eg marriage, employment)

4. Mistake as to the attributes or the qualities of the subject matter – only material if mistaken

party believed it was a term of the contract that the article had those attributes.

Ex A buys a chair from an antique shop and she believes that it is a term of the

contract that this chair is an antique. It turns out not to be an antique, it’s just a

normal wooden chair.

• Material error

• Contract is void

Ex A goes to a flea market and she sees some wooden chairs selling for R20 each. She

buys one and thinks it may be an antique worth R2000 and she is getting a great

deal. Turns out to be an old wooden chair.

• There is a mistake as to the quality

• Contract is valid – not material, not terms of the agreement

The following is not a material error:

• An error in motive

Ex you think that you have lost your watch, so you go and buy a watch to replace it .

You come home and you find your watch.

• Reason you bought first watch because of error in motive

• Contract of buying the watch is valid

(Pg 64 of text book- they say a mistake as to the attributes is not material)

Unilateral mistake:

Only one party is mistaken and the other one not.

Ex Maritz vs Prately 1894 SC (unilateral error)

There was an auction, lot number 1208 was a marble mantle piece. The label was

very small and put in a hidden place. On top of the mantel piece there was a mirror

and that was lot 1209, again printed small, obscurely labelled. The auctioneer put

the marble mantel piece up for sale and sold it to Prately. Prately was mistaken and

thought he was buying both pieces (were displayed on top of each other)

• Court held: Unilateral mistake

• Contract is void

• Material error: Subject Matter

Mutual mistake:

Ex There is a tin of oats. A sells it to B, thinking it contains rice. B buys it but

thinking it contains corn.

• Mutual mistake

In order for a unilateral or mutual matter to render a contract void, all of the following requirements

must be met:

1. Must be a mistake

2. Must identify whether it is unilateral or mutual

3. Must be material

4. Must be reasonable (i.e iustus error)

An error will only be iustus in the following 2 instances:

I. If the other party (one not mistaken) knows or ought to have known that the mistaken party

had made an error.

Ex Horty Investments vs interior Acoustics 1984 (3) SA

Horty rented out business premises to Interior. There were verbal negotiations, they

reached agreement and the contract was reduced to writing.

• Clause 1 of the contract said: the lease would begin on 1 st May 1981 and will

continue for a period of 2 years. During that period, no notice of termination

will be given.

• Clause 2 of the contract says: Notice may not be given before the 1 st of May

1993 (date was a typing error meant to say 1983)

Horty thought it was a 2 year lease and Interior thought it was a 12 year lease.

Horty applies to have the contract appear void because of the mistake .

• Horty was arguing that they themselves were mistaken although the contract said 1993; it

was a mistake and meant to say 1983.

• Ask the Question: Should Interior ought to have known that Horty had made the mistake.

• Court held: Contract is void

II. If the other party misled the mistaken party

Rectification

Can occur in the following circumstances:

• Written agreement

• At the time of contracting verbally (i.e during negotiations) the parties were of the same

mind

• There was no mistake in their consensus, whether common, unilateral or mutual.

• However when the contract is later reduced to writing the written document contains an

error and does not conform to the terms of the verbal agreement

In such a case the parties may apply to the court for rectification of the written agreement so that it

conforms to the terms of the verbal agreement. Rectification can occur at the request of either

party.

Party applying for rectification must prove:

1. That the written agreement does not accurately reflect what the parties agreed upon or

what they both intended.

2. What the terms of the written agreement should be

3. There will be no prejudice to third person

Ex Horty Investments vs Interior Acoustics 1994 (3) SA 537 (W)

Before setting aside the contract on the basis of mistake, Horty applied for

rectification. They failed on the rectification argument because they could not prove,

that it was what both parties intended.

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

only kicks in, if a requirement that the contract is in writing.

Contract for the sale of land must be in writing, material terms = price, description of land and the

parties (whos selling and whos buying). If the price is omitted, you can’t have it rectified because

requirement number 4 is not met. Contract is void if price is left out, but if price is entered but

wrong figure, can rectify.

Misrepresentation:

Renders a contract voidable.

Definition of misrepresentation: is a false statement or fact made by one person to the other with

the intention of inducing the other party to enter into the contract and which does actually induce

him to do so.

Types of misrepresentation:

• Fraudulent misrepresentation

This is a misrep made without any belief in its truth.

• Negligent misrepresentation

The person believes in the truth of what he is saying, but he’s being careless and the information is

incorrect.

• Innocent misrepresentation (Completely innocent, neither fraudulent nor negligent.)

Ex In 1880, A sells a painting to B. A tells B that it is an original monet, in 1935, B

sells it to C and they both believe that it is an original monet. In 1990 C sells it to D

for 20 million dollars. C tells D that it is a genuine monet and he believes it. It turns

out that this painting is a fake, but it is a brill iant forgery and only one scientist in

Eastern Russia can tell that this is a forgery.

Forms of Misrepresentation:

All applies to all three types: fraudulent, negligence and innocent.

• Verbal/written misrep

• Misrep by conduct

Ex Trotman vs Edwick 1951 (1) SA 443 (A)

Trotman sold a piece of land to Edwick. The land was surrounded by a boundary

wall. 2 sevenths of the land enclosed by the wall actually belonged to the

municipality (misleading). Trotman knew that that land in the future was going to

be used to build a road. During negotiations, Trotman said to Edwick: “look at the

extent of this land” he then paced right up to the end of the wall. His conduct by

pacing up to the wall was given by the impression that those 2 sevenths was part of

the land for him.

• Misrep by silence

General rule in SA: no duty to speak or disclose information.

Are exceptions. In these exceptions there is a duty to speak and if you don’t it is a misrep by silence.

Exceptions:

1. Person has told a half truth and creates a misleading impression.

Ex Marais vs Eldman 1974 CPD 212

Eldman sold a farm to Marais. He told him he had pumped a bore hole on the farm

for 3 years and it never failed. That was the truth but Eldman didn’t mention that

this was 14 years ago and he depth of the bore hole had changed from 124 to 104

feet.

2. Where he has by his conduct prevented the other party from discovering the true state of

affairs.

Ex Dibley vs Furter 1951 (4) SA 73 (C)

Furter sold a farm to Dibley, next to the farmhouse there used to be a graveyard. A

while before the sale, he had taken down the tombstones and he ploughed over the

graveyard. No longer any visible traces of the graveyard. He failed to mention that

he had ploughed over the graveyard. By his conduct he made it not possible for

Dibley to discover this Graveyard.

3. Where the person has by earlier statement of conduct given the other party a certain

impression and circumstances have changed.

4. Common law rule that a seller must disclose latent defects (i.e defects that are not obvious)

Requirements for misrep to render a contract voidable:

This applies to all kinds of misrep:

I. The misrep must have been made with the intention of inducing the other party to enter

into the contract.

II. Must be made by the other party to the contract

III. The misrep did actually induce the contract (i.e a causal misrep)

A causal misrep: It will render a contract voidable if the other requirements are met. This is one that

actually does induce the contract.

Incidental misrep: this one did not induce the person to enter into the contract. They would have

contracted anyway. Sometimes an incidental misrep may cause the person to contract on less

favourable terms. An incidental misrep does not make contract voidable.

Eg May pay a higher price for the misrep but they still would have contracted. The

contract is still not voidable, but the person may be able to claim damages in delict.

Ex Bird vs Murphy 1963 (2) PH A 42 (D)

Mr Bird had long admired Mr Murphy’s car. Bird decided that if he could get the car

for R2600, he would buy it. He then approaches Murphy and he agrees to sell it for

R2600. Murphy told him that the car was a 1957 model, but in fact it was a 1953

model. When Bird discovered the truth, he tried to set the contract aside on the basis

on misrep.

• Incidental misrep

• Going to buy the car anyway

• Not voidable

Misrepresentation with material:

(Material for misrep has a very different meaning to material under mistake)

It Must be one of such a nature that it would be likely to induce a reasonable person to enter into

the contract.

Ex Lourens vs Genis 1962 (1) SA 431 (T)

Lourens to Genis that his son had special X-ray eyes. He said that the son could see

through the ground and see whether there was water underneath. On the strength of

this information, Genis entered into a contract with Lourens and his son, in terms of

which his son will use the X-ray vision to point out where to sink a bore hole and in

return get paid a large sum of money. The son pointed out a spot and Genis paid him,

but there was no water. He tried to set it aside under misrep.

• A reasonable person would not have believed it – not voidable.

• Fraudulent misrep, causal

• Could have got money back from delict

The misrepresentation was a false statement of fact:

To render the contract voidable, the misrep must be a statement of fact and not an opinion or a

puff.

Opinions:

An honest opinion which later turns out to be wrong, will not render a contract voidable.

Ex A wants to sell shares to B and thinks he is offering a good price, his opinion, if it

turns out the shares were sold way above market value then contract is not voidable

When the person gives a dishonest opinion: this is seen as a misrep by fact and it may render a

contract voidable if other requirements are met. Why? The law regards the state of a person’s mind

as a fact. When you give a dishonest opinion, you misrepresenting the state of your mind, therefore

you are misrepresenting a fact. Therefore contract could be voidable.

Puffs:

This is when someone is simply singing the praises of a particular product. Eg a car salesman saying

this is a wonderful car, its elegant and it can go very fast and is good on the road. A puff will not

render a contract voidable.

Consequences of misrep:

Contractual remedies:

If all 5 requirements have been met then the contract is voidable. This means that the wrong person

has an election. They can rescind and claim restitution or they can abide by the contract.

If the contracts did not meet the 5 requirement then it is valid.

Delictual damages:

In the case of fraudulent and negligent misrep, delictual damages can be claimed in the following

circumstances:

I. In addition to rescission and restitution the contract is voidable

II. If the contract is voidable and the person abides

III. If the contract is not voidable

Relationship between misrep and mistake:

1. Mistake renders the contract void.

2. Misrep renders a contract voidable.

3. If the misrep led to a mistake then the person could get out of the contract based on

mistake provided the requirements are met and it will be void.

4. It is very common for contracts to contain clauses to the effect that any misrepresentations

will not be actionable.

5. If the misrep resulted in a mistake and the requirements for mistake are met, then the

contract would be void, then the clause does not apply and the person will be able to avoid

the contract on the basis of mistake.

Ex Allen vs Sixteen Sterling Investments 1974 (4) SA 164 (D)

Allen bought a piece of land on the Natal Coast from this company Sixteen Sterling

Investments. It was part of a development and he bought it part of the plan. When he

went to the building site, the estate agent pointed the wrong piece of land that was

allocated to him. The pointing out by the agent was a misrep. When Allen discovered

the misrep, he wanted to get out of the contract. But there was a clause in the

contract that states any misrep will not be actionable. Allen argued that the misrep

led to a mistake, that the mistake was material (subject matter) and iustus and

therefore was void and could get out of it. The seller said that the clause prevented

Allen from relying on the misrep.

• Court held: Allen could get out of the contract due to mistake.

Duress and Undue Influence

Duress:

Person id induced into a contract due to violence and intimidation.

Contract will be voidable only if following requirements are met:

• Must have been a threat of considerable harm to a person, his family or his property

• The threat or harm must have been imminent or inevitable. (Threat some1 to kill wife in 20

years time if doesn’t pay-doesn’t apply.)

• The threat must have induced the person in entering into the contract or to contract on less

favourable terms. The threat must have been unlawful or Contra Bonos mores – against

public policy or good morals.

• The fear must be reasonable

Undue influence:

This is where one party in the contract is able to influence the other party to such a degree, that

they can’t anymore form an independent decision. In order for the undue influence to render a

contract voidable the following requirements must be met:

• One party exercised an influenced over the other party

• The influence must have weakened the other parties powers of resistance and made them

easily manipulated.

• The influence must have been exercised in an unscrupulous manner.

• The influence must have induced the wrong party to enter into a contract which is

prejudicial to him and which he would not have done on his own free will.

Legality

It’s a requirement for a valid contract that it must be lawful.

Statutory illegality:

An agreement prohibited by statute is unlawful and will generally be void but not always. So you

may have a contract that is illegal but valid and the courts will enforce it. The issue is whether the

legislature intended for that agreement to be illegal as well as void.

To determine this the courts look at several factors.

Ex it’s an offence to sell liquor without a licence and if one does so then there will be

a fine or the establishment will be closed or both. Let’s say that B owns a bottle store

and has no liquor licence. Over a period of 4 months before he was found out, he sold

alcohol to 50,000 customers.

• Contract is valid because it’s impossible to track down all customers

• B will be fined and close down the shop

Ex There is a statutory prohibition against trafficking in ivory and endangered

animals. A sells B 5 tons of ivory. The purpose of that legislation is to protect that

species.

• Contract will be void because to make it valid will defeat the purpose of the legislation.

Common Law Illegality:

• All contracts that are illegal in common law are void

These are agreements which are Contra bonos mores (against good morals or public policy). There is

no definite list of contracts that are against public policy because the concept of what is against good

morals changes with the times.

There are however certain contracts that will always be against good morals:

I. An agreement to commit a crime or a delict

II. Ana agreement which undermines the constitution of marriage

Ex Friedman vs Harris 1928 CPD 43

Mr Harris was a married man, Friedman was an unmarried woman, they had an

affair and Ms Friedman wanted to sue Harris for damages for seduction. Harris

agreed to settle with her which came to £1,000 he later approaches Friedman and

said if you give me what’s left of the £1,000 which was £800 I will leave my wife and

marry you. Ms Friedman agreed and payed back the £800 and Mr Harris did not

leave his wife. Ms Friedman now decides to sue him and asked the court that he

honours the agreement to leave his wife.

• Court held: it’s an illegal agreement, it goes against good morals, its void and they not

enforcing it.

III. Unconscionable agreement

General rule is: Agreements that are unfair are uphold by our courts. It is not the courts job to assist

a bad bargainers. However in extreme cases where the contract is grossly unfair the courts will

declare it illegal and void.

Ex Baart vs Malan 1990 (2) SA 862 (E)

Mr Baart and Ms Milan were once married and they got divorced. In terms of the

divorce agreement, Mr Baart got custody of the children, Ms Malan had to pay

maintenance to Mr Baart for the children which was her gross monthly salary, plus

her annual bonus for 20 years. She applied to the court later to have to agreement

void.

• The court held: the agreement was illegal and void and was against public policy. The reason

why it was declared void because she derived no benefit and couldn’t support herself.

Illegality and its effect on contracts:

This applies to contracts that are void in statutory and common law illegality. If the contract is void

for any reason other than illegality the parties can recover what they gave under unjustified

enrichment. Where a contract is void due to illegality it’s different because the in pari delicto rule

applies. This means that if the parties are in equal guilt, they may not recover what they performed,

supposed to be a punishment. If the parties are not in equal guilt then the party who did not act

illegally may recover his performance.

Ex it’s an offence to sell gas without a licence, it is not an offence however to buy gas

without a licence. The legislation says that if you sell without a licence then the

contract is void. B sells a gas canister to C for R1,000, B does not have a licence.

• Contract is therefore illegal and void.

• Parties are not in pari delicto.

• C can claim back the R1,000 and she does not have to give back the gas canister.

Severing invalid terms:

If illegal terms can be taken out of the contract, then the contract can still be valid as long as the

contract still has meaning and substance once these terms have been removed.

Unenforceable contracts:

These contracts are not illegal, they are valid but the courts may refuse to enforce them.

Note in the textbook pg 80-81 they speak about these contracts being void but this is incorrect, they

are valid but may not be enforceable.

1) Contracts in restraint of trade: these are agreements where the employee agrees with his

employer that he will not work for a competitor after he has left their service. An agreement

between the seller of the business and the buyer that the seller will not compete with him. These

agreements are valid and are generally enforceable but the court will refuse to enforce them if they

are unreasonable. The onus of proving that it is unreasonable and unenforceable lies on the

restrained person. The courts take the following factors into consideration whether it is reasonable

or unreasonable:

• Did the restrainer have an interest deserving protection and did he do no more to protect

that interest.

Ex an electronic company hires a scientist called A. His job is to develop a new cell

phone to do amazing things for you. He has a restraint that says if he leaves he can’t

work for their major competitor for the next 5 years. (Reasonable)

• With the restrained person be unduely prejudiced if it were enforced.

Ex let’s say the restraint says that he can’t work as a scientist anywhere in the world

for the next 30 years. (Unreasonable)

• Did the restrainer pay large sum of money for the restraint.

Ex he can’t work as a scientist for 30 years but he pays him $50 million for this.

(Reasonable)

• Whether enforcing the restraint would deprive the public of valuable services.

Ex Groote Schuur hospital said to christiaan barnard he cant do the open heart transplant anywhere

else. (Unreasonable)

Possibility of performance

Initial impossibility:

Impossible from beginning time it is entered into.

General rule is that a contract is void if it is impossible of performance from the moment that it is

entered into. In order to render the contract void, the impossibility must be objective. Objectively

impossible: It’s impossible for anyone in society to perform. If its impossible due to the persons own

personal situation or fault, it is not objectively impossible, will not = void and if person can’t perform

he will be in breach. There are 2 types of objective impossibilities: objective physical impossibility

and objective legal impossibility.

Examples of Objective physical impossibility:

a. A agrees to transport B to mars. No-one in society can do that. It is objectively physically

impossible =void.

b. A sells his holiday cottage to B, unknown to both of them the cottage has been swept away

by the flood. It is objectively physically impossible to do it = void

Vis maior = acts of god, these are always objectively physically impossible.

X buys a house from Y for 500,000. he is unable to raise the finances, it is therefore impossible for

him to Pay the purchase price. Not objectively impossible, someone else can pay. Contract will not

be vois and X will be in breach if he does not pay.

Examples of objectively legal impossibility:

a. A agrees to sell B the sea bed, this is impossible because nobody ownts the sea bed,

therefore somebody can’t sell it. It is therefore objectively legally impossible = void.

b. A sells his holiday cottage to B, there was some error and A does not actually own the

cottage, so its impossible for him to sell cottage. This is not objectively impossible because

someone else in society can sell like the owner. The contract is valid and the person will be

in breach.

If the contract is objectively impossible, it will be void and both parties are excused from performing.

Therefore there can be no breach. However if one party has guaranteed his performance then he is

bound by that guarantee and if it is objectively impossible, he can be sued for breach.

Ex I guarantee you, I will fly you to mars, if he doesn’t can be sued for breach.

Supervening impossibility:

Here the contract becomes impossible after it has been entered into. The contract will come to an

end as soon as it becomes impossible and there can be no breach after that point, again it must be

objective physical or legal impossibility.

Ex A sells half of his farm to B, between the time that the contract is concluded and

the time the land is actually transferred, the government passes a new law. The law

prohibits the sub-division of agricultural land.

• A cannot transfer half his land to B0

• Objective Legal impossibility (no1 else can do it

Ex Benjamin vs Meyers 1946 CPD 655

Meyers rented out a petrol station to Benjamin, in terms of the lease contract,

Benjamin had top stock and sell certain brands of petrol. Sometime later Benjamin

was convicted of contravening petrol regulations. The court prohibited him from

stocking or selling any petrol at all. Meyers sued him for breach. Benjamin argued

that it was objectively legally impossible for him to stock petrol and therefore he is

not in breach.

• He is in breach

• Was not objectively impossible

Supervening physical impossibility:

It is judged according to the standards of the reasonable person in that business community.

Ex A agrees to deliver 100 tons of bricks to B, A is in CT and B in JHB. Just before the

delivery the roads between CT and JHB are flooded and can’t be used. (vis maior)

• It is possible to airlift the bricks from CT to JHB.

• But the reasonable person would not airlift them.

Ex model agency hires a model called Pam, they going to pay her R200,000. On her

way to the event, she has a very bad car accident and its not her fault. She went into

a coma and had very bad burned wounds all over her body. She cant do the show. The

agency has to find another model at the last minute. They hire Thandi but have to

pay her R500,000, when Pam wakes up from the coma they will sue her for R300,000.

She argues that she is not in breach and that the contract came to an end because of

supervening objective physical impossibility.

• It’s not objective – another model can do it.

• So will get sued for R300,000

The effect of supervening impossibility:

Contract comes to an end. Both parties are excused from performing and there can be no breach.

There are 2 exceptions: When a person is guaranteed performance and in contracts of sale, where

the buyer bears the risk of performance.

Ex A orders and buys a Lamborgini from B’s dealership. Its a special car and he pays R3 million. Its

sitting in the showroom and the night before it is delivered to him there is an earthquake and it is

destroyed. It is objectively physically impossible for the dealership to deliver the car. Normally the

contract will come to an end and A won’t have to pay. The contract of sale is an exception and A will

have to pay the R3 million even though he is not getting the car.

Formalities:

Self study – Basic Principles Pg 84-85

Contents of a Contract

What are the terms of a contract?

There are various classifications of the terms.

Material essential terms: Material and essential mean the same thing. These are the terms which

are the essence of the contract (payments and job descriptions). For transfer of land = (name of

parties, price and description of the land). Terms that are not material are called non-essential

terms. Whether a term is material or non-essential, it may be expressed or implied.

Expressed terms:

It is a term that the parties have expressed in words and in writing.

Standard form contracts:

These are the types of contracts that you sign when you take your car to be serviced, go into the

hospital for an operation. We have to distinguish between signed and non-signed contracts.

Signed Contracts:

Caveat subscriptor = he who signs beware. If a person signs a contract then they are bound by that

contract even if they haven’t read it or understood it.

Ex George vs Fairmead (Pty) Ltd 1958 (2) SA 465 (A)

Mr George hired a room at the Fairmead hotel. He was asked to sign the hotel

register which contained terms and conditions which was the contract. He did sign it

but didn’t read it. One of the clauses said that the hotel would not be liable for any

losses suffered by the guests. Mr George had some things stolen from his room. So he

sued the hotel. He said that the rules don’t apply to him because. he never read the

contract.

• Judge said he was bound because of the Caveat Subscriptor

• Can’t claim for loss

Caveat Subscriptor used to be very strictly applied, over the recent years the court developed certain

exceptions. Situations where the Caveat Subscriptor will not apply:

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

the terms of the document or the nature of the document.

Ex Dlovo vs Brian Porter Motors Ltd 1994 (2)

Dlovo took her car to be repaired at Brian Porter Motors. She was asked to

sign as what they called a job card. The job card authorised them to do the

repairs they said. She signed the card without reading it. There was a clause

on the card which said that the company would not be liable for any loss or

damage to the vehicles. The car was stolen from the premises and while its

stolen there is further damage of R8,000. The car was later retrieved. Dlovo

then sued the company for R8,000. The company said they not liable because of

that clause, Caveat Subscriptor applies.

Court found in favour of Mrs Dlovo for the following reasons:

a) The company ought to have known that she was mistaken as to the nature and terms of the

document. She was told she was signing a job card to authorise repairs. Therefore she did not

reasonably think that it was a document that contained contractual terms.

b) The contract was void due to mistake. She was mistaken as to the terms and the nature of the

document. And her error was iustus. (Refer back to notes on mistake)

2. Where the other party knew or ought to have known where the terms did not reflect the

signatory’s true intention.

Ex Sprindrifter (Pty) Ltd vs Lester Donovan (Pty) Ltd 1986 (1) SA 303 (A)

Sprindrifter was a clothing manufacturer. It was run and owned by Mr Levesan.

Lester Donovan ran fashion trade fairs in CT. Mrs Kats who worked for Lester

Donovan approached Mr Levesan. They discussed his participation in the winter

trade fair which she told would run from the 27 th-29 t h July 1981. Mrs Kats said to

Levesan he must sign as soon as possible because there were limited stands available.

She gave him a form to sign and on the front of the form it clearly said the fair would

run from the 27 th-19t h July. On the reverse side of the form there was a clause which

said that if the dates of the fair would change for any reason at all, then the

exhibitor would still be bound and would have to pay the contract price. Mr Levesan

signed it without reading the reverse side. Dates were then changed from the 30 th

July-1 st August 1981. Levesan was unable to exhibit on these dates. He called Lester

Donovan to cancel and they said he must still pay the contract price. When he failed

to pay them he sued them for the amount owed. He went all the way to the Supreme

court of Appeal, who held that he was not bound by the contract for the following

reasons:

a) All the negotiations were based on the dates from the 27th

-29th

July.

b) Mrs Katz knew that Mr Levesan was unaware of the terms on the reverse side and that he had not

read them.

c) It coulkd not be said that the contract reflected his true intention.

d) Mrs Katz knew this and thus Caveat did not apply.

e) Mrs katz should ahve pointed out the terms on the reverse side.

f) The contract was void due to mistake. Levisan was mistaken as to the terms and it was a iustus

error.

3. This is the third situation where the Caveat does not apply. The other parties must leave the

signatory as to the terms of the contract. This could also lead to mistake this is iustus error.

Unsigned Contracts:

Ex You and some friends decide to go shark diving. There is a queue and while you are queuing, you

are chatting to your friends and you do not see several notices on the board. These notices say that

the shark diving company will not be liable for any loss or injury sustained. Eventually you get to the

ticket office and buy a ticket. The same term is contained on the ticket. You all get in the cage and

get into the water and the sharks and swimming around you. The next minute one of the sides of the

cage falls off and the shark get in. You lose an arm and a leg. The reason why the side collapsed was

because the maintenance engineer was drunk while doing his inspection.

• You will probably not be able to sue the company for your loss or injuries.

• These types of clauses are known as exclusion clauses (exclude liability)

• Our courts held that they can exclude liability for gross negligence.

Terms contain in tickets, notices, signs are called imposed terms. They form part of an unsigned

contract between a customer and a provider.

The rule is: the customer is bound by these terms as long as the other party has done everything

that is reasonably necessary to draw it to the customer’s attention.

These are the requirements to bring it to customers attention:

1. The term must be imposed before or at the time of contracting. Tickets: the ticket must be

handed over before the contract is concluded.

Ex A man went to park his car at a parkade, on the outside of the parkade was a

notice. It had the parkade’s name and the hourly rates. The man entered the parkade

and drove up the ramp. On the top of the ramp was a red light. When the front

wheels of the car touched the magnetic strip on the ground, the light changed from

red to green. Once the light turns to green the ticket comes out. The ticket excluded

the parkade’s liability for injury or loss. This man got injured. He sued the parkade

for his damages. The court had to decide whether this term on the ticket form part of

this unsigned contract.

• Court decided that acceptance took place at the wheels at the time the lights changed from

red to green. The ticket was thrusted out afterward and thus the ticket did not form part of

the unsigned contract so they were liable for the damages. The notice must be seen before

or at the time the contract is concluded.

Ex Durbans Water Wonderland vs Botha 1999 (1) 982 (SCA)

Mrs Botha and her daughter went on one of the rides. The seat they were sitting on

broke loose from the ride and they were flung into the air and they landed in a

flowerbed some distance away. They were both severely injured. The reason for the

accident was that the seat had not been properly built into the ride and there were

also certain design flaws. Mrs Botha sued Durbans Water Wonderland for her and

her daughters injuries. At the cashiers window, there was a notice painted on it . That

notice contained an exemption clause excluding liability. Mrs Botha makes the offer

at the cashier’s desk when she wants to buy a ticket and acceptance takes place when

the cashier hands her the ticket.

• The contract is concluded at the cashier’s desk.

• Notice was at the cashiers desk and was at time of acceptance

• The notice contained an imposed term, excluding liability.

• Therefore they were not liable to pay for injuries.

2. It must be in a contractual form. This requirement only applies to tickets.

The following documents are considered to be in a contractual form and will bound the customer:

� An order form.

� A proper ticket

The following documents are not contractual forms and will not bound the customer:

� Receipts

� Vouchers

� Statements of Account

� Invoices

3. There must be sufficient notice of the term. All this means is that the writing on the ticket or

notice must be prominent and easily legible. The customer’s attention must be drawn to it.

In the Water Wonderland case the notice was 80x60 and the letters were about 2.5 cm, it

had a white border which drew attention and it was positioned at eye level. Met the

requirement.

Implied Terms:

The term of the contract that is binding on the parties despite the fact that they have not expressly

mentioned it.

3 different types of implied terms:

1) Tacit terms: these terms are implied to give effect to the common intention of the parties. The

contract is silent about this term but it is clear that the parties did intend it to be part of the

agreement.

Curious bystander test:

If a curious bystander had asked both parties at the time that the contract was concluded: “what

about this particular term you have not mentioned?” then they would have both said of course it is

included but we never thought about it or they might have said of course but it’s so obvious that’s

why we never mentioned it.

If these are the answers to the curious bystanders question then the term will be tacit terms and will

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

Ex West Witwaterstrand Area Ltd vs Roos 1936 AD 6

Roos owned a farm and he gave W the rights to obtain government permission to

mine the land. You could only get that permission from he government if you can

prove that there are precious metals on the land. In order to see if there were metals,

they had to drill and check the land. The right to prospect (drilling) was not an

expressed term of the contract and Roos refused to allow them to do it . W argued

that it was an implied term of the contract that they could drill in that land.

• The court applied the curious bystander test: they said if some1 had asked can this company

actually prospect this land? The answer would have been it was so obvious we didn’t

mention it because if you can’t prospect the land, one can’t see if there are actually precious

metals in the land. Which means you can’t get permission to mine.

• Contract will be meaningless and the company can prospect the land.

2) Terms implied by law: The terms which the parties haven’t expressly mentioned but they implied

by Law to certain kinds of agreements. All contracts of sale there is an implied warranty against

latent defects. Latent defects are ones that are not obvious to the buyer. The implied warranty says

that the seller guarantees, the seller guarantees that the product has no latent defects and that if it

does, then the buyer will have a right of recourse against him. Most terms implied by law can be

varied or excluded by expressed agreement.

Voetstoots clause: if you buy some1 voetstoots it means that if there are latent defects you cant sue.

3) Terms implied by trade usage: These are implied in business contracts between persons of a

certain trade. These can be varied and excluded by express agreements.

Common Contractual Terms

Conditions and time terms:

Condition: a qualification which renders the operation and the consequences of the contract

dependent upon an uncertain future event.

Do not confuse condition and time terms: conditions are uncertain and a time term is certain.

Ex I will pay you R2 million rand when you graduate: Condition

Ex i will pay you R2 million when you die: Time term

Ex I will pay you R2 million when you marry: Condition

Ex I will pay you R2 million on the 1st

January 2008: Time Term

Two types of conditions:

Suspensive Condition: it suspends the contract, it hangs in the air can’t do anything, can’t go

anywhere. The contract only comes into operation when and if that uncertain event happens. The

contract is valid when it is entered into but it is not enforceable until the condition is fulfilled. If the

condition fails, then the contract comes to an end. Sometimes the condition will have a time limit

and if it is not met in that time it will end. If there is no time limit it will fail after a reasonable time.

What is reasonable depends on the facts.

Resolutive Conditions: the contract is valid and enforceable from the beginning. But if the condition

id fulfilled the contract comes to an end.

Ex A and B get divorced and enter into a settlement agreement and A must pay B

maintenance until she remarries. When she remarries then the obligation comes to

an end.

Fictional fulfilment of conditions:

People may want to present a condition from being fulfilled. There is a duty not to deliberately

prevent the fulfilment of the condition. If one does so even though the condition has not yet been

fulfilled, the law will deem that it has been.

Warranties:

A warranty and a guarantee is the same thing. A warranty is a contractual undertaking that a certain

statement of fact is correct.

Exclusion Clauses (Exemption Clauses):

These are clauses that exclude one party’s liabilities – delictual or contractual – that the law will

otherwise attach to him (refer to notes on unsigned contracts and imposed terms, mistake and

misrep).

Cancellation Clauses:

The general rule is that you can only cancel a contract if the breach is material or is it serious. To get

around that rule, party’s can include a cancellation clause. That allows them to cancel for any

breach.

Penalty Clauses:

Self Study – Basic Principles pg 101-102

No-variation Clauses:

This applies to written contracts only. it is a term in the contract to the effect that no variation of the

contractual terms will be of any force and effect unless it is reduced to writing and signed by both

parties.

Ex Written lease agreement and the rent must be paid on the first of each month. The

agreement contains no variation clause. The parties want to change the date of the

payment from the first to the 7 th .

• They have to do it in writing. This creates certainty and avoids evidentiary problems.

Disagreement on the terms of the contract:

Parol (oral) evidence rule: this applies to written contracts.

The rule is this: if the parties have a written contract then that document is all that the court can

look at to ascertain the terms and obligations under the contract. Generally the court may not admit

oral evidence to show that the true terms are different from those in the written document.

Rectification:

Refer back to previous notes on “mistake.”

Breach of contract:

Breach occurs where one of the parties fails to observe the terms and fulfil his obligations under the

contract.

Debtor = the performance debtor, the person who must perform.

Creditor = the performance creditor ie. The person to whom performance is owed.

A sells a lounge suit to B. A must deliver the suit and B must pay R1,000. As far as delivery is

concerned, A is the performance debtor and B is the performance creditor. As regard to payment B

is the performance debtor and A is the performance creditor.

Different types of breach:

1. Late performance by the debtor = Mora Debitoris

2. Late performance by the creditor = Mora Creditoris

3. Positive malperformance

4. Prevention of performance

1. Late performance by the debtor = Mora Debitoris

The debtor fails to make performance on time. All of the following requirements must be met in

order for the person to be In Mora = in breach.

Requirements:

I. The debt or obligation must be due or enforceable. No fixed time or date in the contract, it

becomes enforceable after a reasonable amount of time (depends on facts)

II. The time for the performance must have been fixed either in the contract or in a subsequent

demand and the debtor must have failed to then perform timously.

• Where the time has been fixed in the contract: Y must deliver the lounge suit to X on

the 7th

May. On the 8th

he has not delivered. Requirement no.1 has been met. No.2

has also been met because time was fixed in the contract.

• Where no time has been fixed in contract: X buys a lounge suit from Y. He pays Y

upfront on the 30th

April and Y must deliver. By the 30th

November Y has still not

delivered. Requirement no.1 has been met. Requirement no.2 has not been met –

time hasn’t been fixed and there has been no demand. Can’t sue for breach at this

stage. What you need to do is place the person In Mora. That is done by issuing a

demand. It normally takes the form of a written letter but can be verbal. The time

set out in that demand must be reasonable. In deciding whether it is reasonable, the

courts will take into account the time that has already passed. If the debtor wants to

argue that the time given in the demand was unreasonable then the onus lies on the

debtor. If the demand is coupled with a notice of cancellation then the onus shifts

on the creditor – the creditor must prove that the time given in the demand was

reasonable.

III. Failure to perform must have been due to the fault of the debtor. If it is the creditors fault, if

X was not home when it was delivered. It is Mora Creditoris. If the failure to perform is due

to objective impossibility, the contract is void.

2. Late performance by the Creditor – Mora Creditoris

When we say performance we actually say the cooperation of the creditor. If the tenant tries to pay

the landlord but he closed his account or landlord was not there.

Requirements for Mora Creditoris:

I. The debtor must be under an obligation to make performance.

II. The cooperation of the creditor must be necessary for the proper performance of the

debtor’s obligation.

III. The debtor must make all reasonably possible efforts to perform fully.

IV. There must be a delay in accepting performance by the creditor.

V. If the debtor is going to perform before the due date, he must notify the creditor in advance

so that the creditor can make himself available.

VI. Delay must be due to the fault of the creditor. Objectively impossible = void.

3. Positive malperformance.

Mora creditoris and Mora debtoris dealt with time for performance – there is a delay.

This deals with the content of the performance.

2 types of positive malperformance:

I. Where the duty to do something is positive. A positive duty is when you actually do

something e.g build the house, deliver the suit, pay the rent. There is a positive

malperformance of a positive duty when the person renders either defective or incomplete

performance.

Ex 1 a builder must build a house by the 7th of May. He completes the building by the

7th May. But it is structurally unsound. It hasn’t been build to the architects plan.

Malperformance.

Ex 2 a builder must build a house by the 7th May. The first floor is perfect and looks

great and the 2nd floor hasn’t been built yet. Incomplete performance.

This is not mora Debitoris because he has done some performance. Mora Debitoris there is no

performance.

II. Where the duty to do something is negative. This kind of breach is a positive performance of

a negative duty. A negative duty is a duty not to do something.

I.e. A lease agreement which says that a tenant is not allowed to have pets on the premises. If a

tenant brings a cat onto the premises then he is in breach and it is positive malperformance of a

negative duty.

Repudiation:

This occurs where one party to a contract by his words or conduct makes it clear that he no longer

intends to be bound by the contract and without any justification in law.

Ex A sells his car to B, before he delivers it to B, he sells it AND delivers it to C. By his

conduct it is repudiation.

• A mere delay in receiving the performance or making the performance is not repudiation.

When a person acts in such a way as to leave a reasonable person that he doesn’t intend to be

bound.

A must deliver 2 tons of bricks to B, but before delivery he phones B and only delivers 1 ton. This is

not repudiation.

Prevention of performance:

Performance of one party becomes impossible due to their own fault or due to the other fault from

a party. Whoever made the performance impossible will be in breach. Unless they can improve that

it was objective impossibility.

Ex X hires a BMW from Avis while he is in Cape Town on Holiday. X has an accident in

the car and it is written off. Avis then supplied him with another car. X gets drunk

and then writes off this car. Avis has no more cars available and neither do any of

the other car hire agencies. X wants to sue Avis for breach because they undertook to

rent him a car for a month and he only had 2 cars for 2 days. They could only supply

him for a car for 2 days.

• Impossible for Avis to perform as they don’t have a vehicle. It is X’s fault. So X is in breach

because it prevented Avis from performing. Avis could sue under contract, delict or sue him

for damages for the remaining period or the use of the other vehicle.

REMEDIES FOR BREACH:

Three kinds:

• Specific Performance

• Cancellation

• Contractual damages

Specific performance:

One party gets a court order compelling the person who is in breach to perform what he undertook

to do in terms of the contract. Before the court will order a specific performance the person who is

not in breach must do one of the following:

� Either he must perform his own obligation.

� At least tender performance.

1. Mora debitoris – Can claim specific performance.

2. Mora creditoris – Again specific performance can be claimed, however where the debtor

has been prevented from performing fully due to the delay of the creditor, then the

debtor’s right to claim specific performance will be reduced to the amount to which his

performance was reduced.

Ex A hires B to do an hour of gardening for him. The cost is R1200 an hour, B arrives

at A’s house on time. A is 45 minutes late. He lets B in and B can only do 15 minutes

of gardening. A then refuses to pay. B wants to sue for breach.

• This is mora creditoris. B wants specific performance, A’s performance in this contract is

payment. B is only entitled to R300 for his performance. The balance of R900 he could sue

for contractual damages.

3. Positive malperformance of a positive duty.

The creditor could reject the incomplete or defective performance and ask the court to order a

complete or perfect performance.

4. Positive malperformance of a negative duty

Asking you not to do something. This court order will take the form of an interdict.

5. Repudiation

Has been some debate if you can claim specific performance here. In some cases it has been

rewarded. It seems that you can.

6. Prevention of performance

The nature of the breach is the impossibility of performance. You cannot claim specific performance

due to the nature of the breach.

These are the general rules and the court always has a digression.

The court may not grant specific performance in the following situations no matter what type of

breach it is:

I. Where the contract is of a personal measure.

II. Where there may be undue prejudice to the defaulting party or the public at large. If the

court does not offer specific performance you may be allowed to claim for contractual

damages or both.

Cancellation/rescission:

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

1. Where there is a Cancellation clause.

CANCELLATION CLAUSE – REFER TO NOTES.

2. Where the breach is material.

� Mora creditoris and Mora debitoris

� The nature of these breaches is time.

� The breach will be material when time is of the essence.

� The mere fact that the parties have stipulated a time for performance in the contract does

not make time of the essence.

Y must deliver the lounge suite by the 5th

May. By the 5th

August he has not delivered. He is in mora

debitoris and time is not of the essence.

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

• Where the party who is not in breach who gives a notice of rescission to the other party.

I.e. if you do not perform by XXXX date I will cancel. Made time of the essence.

A notice of rescission can be coupled with the demand which places the debtor in mora in case of

mora debitoris.

• Where the type of performance was stipulated in the contract AND it can be inferred from

the facts that time was of the essence.

Ex A is getting married and she hires a photographer to take pictures of the

ceremony. The contract says that the photographer will be there on the 5t h December

at 6pm. The photographer arrives at 8pm.

• TIME IS OF THE ESSENCE! Can be inferred that time of the essence.

Time is of the essence usually during mercantile transactions where goods aren’t sold.

Ex X must supply and deliver grapes to pick ‘n pay because they are going to sell

them to their customers.

• When no time for performance is stipulated in the contract but one can infer that time is of

the essence.

I.e Selling shares is when time is of the essence or when you go to hospital to get your inflamed

appendix out.

Positive Malperformance

Look at the circumstances or the facts of the particular case.

Ex A builds a mansion with everything done correctly but does only one thing wrong.

Except a window that is 2 inches bigger than it is supposed to be.

• It is small problem in context of everything. The bigger picture.

Prevention of performance

If the whole contract becomes impossible then the breach is material and can cancel. If it is only

partial the breach will only be material if the impossibility relates to a major part of the contract.

Repudiate

Breach is only material if there is a repudiation of the entire contract or a substantial part of the

contract.

A phones and says 4.99 tons of bricks. Can’t cancel.

Effect of Cancellation:

The contract comes to an end and each party must make restitution. If you cancel you may not ask

for specific performance. You can claim damages either in addition to cancellation or instead of

cancellation.

Damages:

Contractual damages are aimed at putting the person in the position that they would have been in

had the contract been properly performed. Can claim damages either in addition or

In order to claim damages all of the following requirements must be met:

I. The loss must be financial

Ex Jockie vs Meyer 1945 AD 354

Mr Jockie was a Chinese naval officer, but was working with the British navy. He was

a very high ranking officer in the navy. The British navy had docked in port

Elizabeth, the navy had booked rooms in Meyer’s Hotel for the entire crew. They

arrived at the hotel and they were all given the keys to their rooms. So Jockie went

up to his room and a short while later he was called down to reception. There were

several people at the reception area including other members of the crew. He was

asked to return his key and he was told that there was a mistake and they had no

room for him because they were full. There was an argument and was then asked to

leave the hotel. He was in breach because he didn’t give him a room but the real

reason why he didn’t give him the room was because he was Chinese. Jockie sued

Meyer for the following damages:

1. Money spent on other accommodation.

2. Money spent due to the inconvenience eg taxi, move luggage

3. Humiliation suffered from the situation

The last claim was dismissed because it wasn’t a financial loss.

II. The loss must be as a result of the breach.

The loss must be a direct consequence of the breach.

Ex John is a student of UCT but lives in JHB, he goes home for study week to learn for

his final exam. He books his flight back to CT on the morning of one of his exams. The

Airline made an error and they forgot to book him on the flight. As a result he missed

his first exam. He doesn’t graduate, he loses the job lined up because he didn’t

graduate and he has to come back to UCT for another semester. He sues the Airline

for breach and he claims the first year salary for the job he would have got if he

graduated, as well as the first semester UCT fee’s.

• It comes out in evidence that he had no DP for the exam and year mark of -12. He wasn’t

going to graduate anyway and so his loss was not a direct loss of the airlines breach.

III. Must be a natural consequence of the breach

The loss must have been reasonably foreseeable for the person who was in breach. This limits no.2

requirement.

Ex the facts are the same as Jockie vs Myer in the modern day. Mr Jockie is not only a

naval officer but he is also a captain of the English Cricket side. He gets into the taxi

and he gets hijacked and his passport is stolen. He arrives at the only hotel available

in the area and it costs R2,000 more per night. He was supposed to return to England

on the 1st May to play a cricket match and for playing the match he was going to get

payed 10,000 pounds. Because his passport was stolen he misses that match which

means he loses that money and he can only get back to England on the 8th May.

Meanwhile while he is waiting for his passport, there is a fire in his hotel. His right

arm is burnt so badly and becomes useless and he’s blinded. He cant continue to play

Cricket and his financial loss a year is 200,000 pounds a year and he also take an

inferior position in the navy and his loss of income there is 100,000 pounds a year.

• All of this is a domino effect of his rejection from the hotel. Only reasonable foreseeable

damages are the taxi fare and the hotel fare.

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

This means they have a duty to minimise their loss within reason.

Specific Contracts

1. Contracts of sale:

A contract of sale is one where one party undertakes to deliver a thing to another, in return for

payment.

• The contract is concluded when acceptance takes place and the normal rules for a valid

contract apply.

Essential requirements for a sale:

a. Intention to transfer free and undisturbed possession

To sell a thing a person must do no more than undertake to transfer free and undisturbed

possession to the other party.

- Vacua possesio = free and undisturbed possession.

- Genuinely speaking the seller does not have to undertake to transfer ownership, so the

point is this.

- Contrary to belief sale does not necessary transfer ownership.

- It is possible therefore for someone who is the owner of the thing can sell it.

Before delivery takes place there is a valid contract of sale. At this stage the buyer has a personal

right against the seller for the delivery. One the delivery takes place the buyer now has a real right of

possession. Possession is 9 tenths of the law, but ownership is a stronger right than possession.

b. Subject matter of the sale

Res vendeita or merx = thing sold

• The parties must agree on the subject matter of the sale.

c. Price

i. The price must be in money or at least it must have a monetary component.

Ex Buy a boat for half a million. You can agree that the purchase price will be made

up as follows. R250 000 in money and the balance will be made up by trading in your

old boat to the seller which is worth the R250 000.

ii. The price must be fixed or the parties must have agreed upon some external method or

standard by reference to which the price can be ascertained.

Legal effect of a contract of sale:

a. The passing of ownership

Ownership is a strong real right than possession. Sale does not necessarily transfer ownership. An

owner can reclaim his property wherever he finds it using the rei vindicatio. Can be exercised against

a possessor.

To become owner we need to see how ownership is transferred.

� It is transferred by delivery.

But it in addition all of the following requirement must be met:

� The seller must be himself the owner.

� Rule in our law can’t transfer more rights than you have.

� The owner must intend to transfer ownership.

� The buyer must intend to acquire ownership.

� If the sale is a cash sale of a movable, then the purchase price must be paid.

� Cash sale � payment made on delivery.

� If it is a credit sale of a movable ownership passes on delivery alone before the purchase

price is paid.

� With the sale of immovable properties ownership passes on delivery before the purchase

price is paid.

� It is delivered on transfer by registering at the deeds office.

b. The passing of risk and profits

Risk:

The rule = the risk of accidental loss passes to the buyer as soon as the sale is perfecta even if the

thing has not yet been delivered to him.

i. Risk of accidental loss:

Loss= is either damage or the total destruction of a thing.

If the article is damaged or destroyed before delivery the buyer must still pay the full purchase price.

Loss can also mean any other disadvantage. E.g if a tax is imposed or increased, the buyer bears the

risk. Accidental loss is a loss resulting from an act of god or an act of nature or an act of the third

party from whom the seller is not responsible.

Ex A sells a farm to B before delivery, the farm is expropriated by the government. B

still has to pay the purchase price.

The buyer does not bear the risk if the loss is caused by the fault of the seller or by a third party from

whom the seller is responsible.

Seller bears risk=doesn’t get paid

Buyer bears risk=pay full purchase price.

ii. Risk passes as soon as sale is perfecta:

With most contracts of sale the sale is perfecta once the transaction os concluded.

All of the following requirements must be met in order for contract to be perfecta:

1) Purchase price must be fixed not merely ascertainable

Ex A and B enter into a contract of sale on the 1 st June, A is in SA and B in England. A

must deliver 5kg of biltong to B on the 1 st July. The purchase price is the equivalent

of a R100,000 in pounds as determined by the exchange rate by the 28 th June.

• 1st June there is a valid contract of sale because the purchase is ascertainable.

• Sale only becomes perfecta only once the price is worked out on the 28th

June, its fixed.

• Buyer bears the risk from the 28th

June only.

2) The subject matter must be ascertained not merely ascertainable

Ex Poppe Schunhoff and Guttery vs Mosenthal 1879 Buch 91

P sold 200 caskets of brandy to M. Valid sale = agreed on subject matter. Before

delivery and before P had set aside the particular bottles that would go to M, the

government imposed a duty on the sale of Brandy.

• Because the subject matter had not been ascertained (specifically set aside for M), the sale

is not perfecta and thus the seller bore the risk and he has to pay the duty.

Ex Taylor & Company vs Mackie, Dunn and Co 1879 Buch 166

Exactly the same facts, Taylor sold brandy to M and the government imposed the

duty. Before the government imposed the duty, the brandy had been set aside in the

warehouse and been marked with M.

• This time the sale is perfecta, this time the buyer bears the loss and in practical terms he has

to pay the duty.

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

iii. Situations where the risk will not pass to the buyer once the sale is perfecta:

• Where there has been as express or implied agreement varying the rule.

• Where there is a default/delay on the part of the seller in making the delivery.

If the seller is late in making the delivery it is presumed that any damage or loss caused during the

delay period is due to the fault of the seller. The seller can only disprove this presumption, by

showing that the loss would have occurred even of the delivery would have been made on time.

Ex A must deliver a fridge to B on the 5th July, A is late in delivering and on the 6th

July while in the warehouse, the fridge is struck by lightning.

• There is no way he can prove that this would have happened without the delay, so he bears

the risk = seller.

Risk passes on delivery, must be on every contract of sale.

Profits:

Any profits in the article pass as soon as the risk passes.

Ex a Farm that produces fruit. Then any fruit that then grows on the farm and then

any income on the sale of that fruit since the sale is perfecta will pass to the buyer.

Rights and duties of parties to the contract of sale:

a) Duties of the seller

1. The duty to take care of the merx until delivery

2. Duty to deliver the merx

3. Implied warranty against eviction

b) The contract of sale does not necessary transfer ownership but it is just vacua possesio.

c) The buyer who is not the owner, is protected by the implied warranty against eviction.

d) Warranty: the seller undertakes that the buyer will not be disturbed in his vacua possesio

either by the seller himself or by any third party due to the sellers defective title. If the buyer

is disturbed he has a right of recourse against the seller. This is implied in all contracts of

sale. Even if the seller genuinely believed he had good title, if he was the owner.

Ex X buys a car form P, a few years later X sells the car to Y, Z then comes along and

tells Y that P stole the car from him and that he is the true owner. Court action: Z

brings the rei vindicatio and gets a court order to reposes a car. Y has a right of

recourse against X under the implied warranty against eviction. This is so even if X

genuinely believed that he was the right owner of the car.

Ex X sells a car to Y, Q steals the car from X. Does y have a right of recourse from X.

The fact that Q stole car had nothing to do with X, so NO. Y doesn’t have right of

recourse against X because he was not dispossessed due to any defect in X title .

When the warranty does apply the buyer has 2 choices:

1) He can choose not to surrender the goods until dispossessed by a court order. If you choose

this option the in order to have a right of recourse against the seller, you must give him

notice of the proceedings.

The seller must come to the buyer’s assistance in the courts proceedings. If the seller cant be

found the buyer must still defend the action to the best of his ability to have a right of

recourse.

2) The buyer can give up the goods without a court order and without defending their action.

� If you choose option 2 in order to have a right of recourse against the seller, you must prove

that the person to whom you surrender your goods had an incontestable title such as

ownership

The buyers right of recourse against the seller is the following:

1) He can cancel and reclaim the purchase price

2) He can also claim damages representing the following:

a) Any increase in the value of the article

b) Any costs incurred by defending the action by the true owner (option 1)

c) Any further losses incurred as a result of the eviction but subject to the general rules of

contractual damages.

Instances where the warranty is not implied:

a) Where the parties expressly agree. If the seller knew that the third party had claimed the

article but kept silent, then that clause would not exclude liability.

b) If the buyer is aware that the third party had acclaimed the article.

The implied warranty against latent defects

The seller is liable for any latent defects which existed at the time of sale whether he knew about

them or not.

Requirements for a latent defect:

a) It is not obvious to an ordinary person upon a reasonably inspection

b) It must be an abnormal characteristic

c) It must materially impair the usefulness of the article for the purpose of which things of that

type are normally used.

d) The defect must have existed at the time of the sale

e) The purchaser must not have been aware of the defect at the time of which the contract is

concluded.

If the 5 requirements are met and there is a latent defect, then the purchaser will have the aedilitian

remedies against the seller. These are special remedies and normally in the case of latent defect,

you cant sue under the usual contractual remedies.

Remedies:

1) Actio redhibitoria - this applies when the defect is so serious that the reasonable purchaser

would not have bought the item if he would have known about it. Under this action the

person may cancel the contract, return the goods and claim the following:

a) Repayment of the purchase price

b) Payment of all foreseeable and necessary expenses incurred as a result of the sale.

(i.e delivery costs)

c) Payment of expenses incurred in examining the object to discover the defect.

d) Expenses incurred in returning the object to the seller.

This is all the buyer can claim, cannot claim consequential loss.

Ex A buys a car from B, the car has faulty brakes, he pays R3000 for the car, pays R400 for the

mechanic to inspect the brakes. The way he discovers that he had faulty brakes was that he had an

accident, crashed into another car, which will cost him R5000 to repair and he suffered injuries and

medical bills of R25000.

• Has to claim under Actio redhibitoria, latent defect- can’t sue under normal remedies for

breach has to use aedilitian remedies.

• Can claim the mechanic loss R400, gets the purchase price back R3000

• Cannot claim the repairs to the other car and medicals totalling to R30000 = consequential

loss

2) Actio Quanti Minoris – this is a remedy for the reduction in purchase price. Here the defect

is such that the reasonable buyer had he known of it, would have paid less. Under this the

buyer is entitled to have to purchase price reduced to the market value of the object in its

damaged or defective state at the time at which the defect was discovered.

Exclusion of the aedilitian remedies by agreement – voetstoots clause. This clause will not exclude

liability if the seller knew about the defect and did not tell the buyer.

Other possible remedies for defective goods:

1. Where the seller has guaranteed or warranted that there are no defects. Sue under the

usual remedies for breach if there are defects. If no guarantee you cut down to aedilitian

remedies thats why people like to have guarantees because you can sue under normal

remedies for breach

2. If the seller misrepresented that the article was free of defects, then you can sue under

misrep by silence. Even if the seller does not say anything but he knew there was defects

because he has a duty to speak, even if it’s not expressed misrep.

The buyer may have more than one ground on which to sue. He cant sue under all of them, and

make sure he doesn’t fall foul on the law of double compensation. Will sue on the ground which

pays the most.

Latent defects

It’s the Duty of seller who is a manufacturer or dealer to indemnify the purchaser against latent

defects. If the seller manufactured the article himself then the buyer can claim consequential loss in

addition to the aeditlitian remedies.

Ex Hoimdene Brickworks v Roberts Construction 1977 (3) SA 670 (A)

(Basic principles pg 153)

Hoimdene Brickworks was a brick manufacturer. They sold latently bricks to Roberts.

Because of the latent defect R had to demolish walls that they already built with

these bricks.

The court awarded Roberts consequential damages representing the following:

• Cost of demolishing the walls.

• Cost of rebuilding the walls with ne bricks.

• Because he was a manufacturer, they awarded Roberts consequential loss.

With a dealer, he will only be liable for consequential loss if he expressly or impliedly publicly

professed to have expert knowledge or skill in regards to the article.

b) Duties of the buyer:

1. Has to pay the purchase price.

2. Payment of all the sellers necessary expenses. Delivery costs and costs incurred

for looking after the article prior to buying.

3. Buyer must accept delivery. If the buyer is in breach of any of the duties then the

normal rules and remedies for breach apply.

Credit Agreements

What is a credit agreement?

A credit agreement is one where credit is granted by one party to another usually in return for

payment of interest or a fee.

Ex John buys a car from Max Motors for half a million and takes delivery of the car

immediately and he must pay the purchase price over 5 years in monthly instalments

at an interest rate of 8% compounded monthly.

Ex John borrows R100 000 from Big Bank, the amount must be repaid in monthly

instalments over 2 years at a interest rate of 11% and fees are also charged.

� Party who grants the credit is the credit provider.

� The person who receives the credit is the consumer.

CREDIT AGREEMENTS ACT 1980 AND USURY ACT 1968

These are use to govern certain types of credit agreements. They were intended to protect

consumers and to regulate the interest charged on credit. However certain credit agreements did

not fall under these 2 acts. People found loopholes.

I.e.: A loan of less than R10 000 which had to be repaid less than 36 months was not covered by

either of the acts. This meant that there was no protection for the consumer. Credit providers could

charge any interest even up to 150% or 300%. Credit providers were becoming reckless and granting

credit to people who couldn’t afford it.

There was a need to put in tighter controls and review the situation and this lead to the national

credit act of 2005.

New Legislation���� NATIONAL CREDIT ACT 2005

• This replaces the credit act and the usury act. The new nation credit act becomes fully

operational on the 1st

June 2007 although some provisions are already in place.

National Credit Register (NCR) and National Consumer Tribunal (Tribunal):

• The act establishes a new body known as the NCR. All credit providers must register with the

NCR. I.e.: Banks, department stores, Loan Sharks, companies.

• Credit bureau’s have to register with the NCR. They keep records of consumers and their

payment history. They supply credit providers with the information about the consumer.

• They also tell the credit provider that you are blacklisted.

• The NCR must investigate complaints and must ensure that the provisions of the act are

enforced and adhered to.

• Main function of the tribunal is to judge complaints made in terms of the act. Amongst other

things the tribunal can impose fines, or suspend the persons registration.

a) Applicable entities and transactions:

The act applies to every credit agreement between parties dealing at arms length with the exception

of the following:

- A credit agreement in which the consumer is the state or an organ of state

- A credit agreement in which a juristic person whose asset value or annual turnover exceeds

R1 million

- A “large agreement” where the consumer is a juristic person. A large agreement is a credit

agreement secured by a mortgage bond or any other credit agreement with a debt of

R250 000 other than a pawn transaction or credit facility.

- A credit agreement in which the credit provider is the reserve bank.

- A credit agreement where the credit provider is located outside the republic.

This act does not apply to transactions where parties are not at arm’s length.

Parties are not to be considered at arms length (not protected by the act) in the following situations:

1. If one party is a juristic person, in which the other has a controlling interest

Ex Frank owns 75% of the shares in ABC Pty, he lends the company R1 million. They

are not at arm’s length so that credit agreement does not apply to them.

2. Where the parties are family or they dependant on each other

3. One party is not independent of the other and will not seek the maximum advantage of the

agreement

The three is not a finite list, the act also allows the court to declare any other situation to not be at

arms length.

Ex John is 100% shareholder and also director, ABC lends john brother R100 000.

Court could declare it as not at arm’s length.

b) Classification of credit agreements

This act covers 3 different types of agreements and very often they overlap. The importance of the

distinctions is that certain provisions of the act only apply to certain kinds of credit agreements.

1. Credit facility

This is an agreement when the credit provider supplies goods or services or advances money to the

consumer and when requested by the consumer.

The consumer does not have to pay immediately for the good or services or make repayment

immediately for the money loaned. In return for the credit facility, the credit provider charges a fee

or interest. I.e Credit card arrangement or loan with bank.

2. Credit Transaction

A credit transaction can be any one of the following types of transaction:

• Pawn transaction – the credit provider gives money to the consumer and at the same

time takes goods as security.

• Discount transactions – Goods or services are provided over a period of time. A

discounted price is offered if the account is paid before a certain date.

• Incidental credit agreement – Here an account is rendered for goods or services

provided and if the account is not paid before a certain date, then some charge or

interest becomes payable and/or two prices are quoted, the lower price applies if the

account is settled before a certain date and the higher price if it is not.

• Instalment agreement – this involves the sale of moveable property in terms of which

the item of which the item is delivered to the consumer and the purchase price is

payable in instalments. Interest or fees are payable to the credit provider. Ownership

remains vested in the credit provider and is only transferred to the consumer once the

full purchase price has been paid. Alternatively, ownership is transferred immediately to

the consumer, but it reverts to the credit provider should the consumer default.

• Mortgage Agreement - This is a credit agreement secured by bond over immovable

property.

• Secured Loan - This is an agreement in terms of which a person advances money or

grants credit to another and receives security for the loan, in the form of a pledge,

cession or lien over movable security.

Pledge – Is a type of security where the item held as security is delivered to the creditor.

Cession – Is similar to pledge but the difference is that it is used for incorporeal movable. (Intangible

property)

Lease: Movable goods are let to a consumer. The rent is payable in instalments or at some later

stage. Interest or a fee is payable by the lessee. At the end of the agreement ownership passes to

the consumer.

• This is not a normal definition of LEASE.

• This overlaps with instalment agreements and it is hard to distinguish between the 2.

Any other credit agreement: This means any credit agreement which would fall outside the above

mentioned transactions.

Credit Guarantee:

Here a person undertakes to pay another consumer’s debt incurred in terms of a credit facility or

credit transaction.

The national credit act does not apply to the following types of agreements:

1. Insurance policies

2. Leases of immovable property.

Rights and Duties of parties to a credit agreement:

Right of Consumers:

- Right to apply for credit and non-discrimination.

- A credit provider can refuse credit on reasonable commercial grounds

- But not on grounds such as race, religion, marital status, gender, pregnancy, disability,

language or sexual orientation.

Right to understandable language

- A consumer has a right to receive any document in an official language that he understands

as far as is reasonably possible.

Rights regarding information held by credit bureaus

- A credit provider must advise a consumer before any adverse information is given to a credit

bureau and the consumer can challenge it.

Protection against marketing practices

i. Adverts for credit may not be misleading.

ii. Adverts must set out the nature of the credit agreement, the interest rate and all chargers.

iii. A credit provider may not go to the home or work place of the consumer to market a

product unless it has been prearranged.

iv. The act also prohibits negative option marketing, this includes receiving an email or a sms

saying if you don’t respond in a certain time then it is considered that you have

accepted.

v. With a credit facility such as a credit card, the credit provider cannot increase the credit limit

without the consent of the consumer.

Indemnity against lost cards

This applies to credit facilities that are operated by cards. If the consumer reports that the card

is lost or stolen, then the credit provider can’t held the consumer liable for the use of the card

after that date/point unless they can prove that you have authorised the use. I.e.: Fraudulent

use of the credit card.

Right to apply for debt review and rearrangement (restructuring) of obligations

• Doesn’t apply to juristic persons.

A debt review to ascertain whether a consumer is over indebted can be initiated in 1 of 2 ways:

a) In any court proceedings the court may refer the matter to a debt counsellor for a

recommendation or the court itself can declare the consumer over-indebted. Over-

indebted means that a person is unable to satisfy all his obligations under all his credit

agreements in a timely manner due to his financial means and obligations.

b) The consumer may himself apply to a debt counsellor to be declared over-indebted. Debt

counsellors must register with the NCR.

If the consumer is declare over-indebted, the magistrates court can make one or more off the

following orders:

a) That one or more of the consumers debts he declared reckless.

b) That one or more of the debtors obligations be rearranged. Re-arrangement could be for

example, extending the period of time over which a consumer must pay and making each

instalment smaller or postponing the dates of payment.

While a debt review is pending the following applies:

i. Litigation (court action) by the credit provider is suspended.

ii. The consumer may not use his credit facility or enter into a further credit agreement.

Right to cooling off

In the case of the instalment agreement and a lease which was entered into at some place other

than the credit providers business, the consumer has a cooling off period of 5 working days.

Right to settle full debt early

The consumer may determinate the agreement at any time and without notice to the credit

provider by paying the following:

a) Balance of the principal debt.

b) Unpaid interest and fees owing to that date.

c) A termination fee if it is a large agreement.

Right to make payment early

Can’t penalise you anymore.

Right to dispute an entry under credit agreement

You can dispute your account. Account at Woolworths you can dispute if you don’t agree with it.

Right to terminate agreement by surrendering the goods

This applies to instalment agreements, secured loans and lease. The consumer can terminate the

agreement by returning the goods, then the credit provider has to then sell them to the amount

realised must be credited to the customer’s account less any expenses incurred in the sale and

the consumer pays the balance that is owed.

Statements of account

Credit providers must provide the consumer with regular statements of account.

All these rights are obligations for the credit provider.

Duties of the Consumer

In the case of instalment agreements and leases where the credit providers retain ownership

until full payment and in those situations the consumer must inform the credit provider of the

following or of any change in the following:

1. The consumers business or residential address.

2. The premises where the goods are ordinarily kept.

3. The name and address of any person to whom the goods have been transferred.

Duties of the credit provider

- Must provide the consumer with a copy of the credit agreement and any amendment

thereto.

- Must give notice of change in variable interest rate and related details.

- Maximum rates of interest that can be charged.

- May not unilaterally change the interest rate or service fees, period of repayment or manner

of calculating the fees or minimum payment due.

- Assessment of credit-worthiness and reckless credit.

- The act prohibits the credit provider from entering into a reckless agreement.

Before providing credit, the credit provider must assess the following:

• The consumers understanding of the costs, the risks and the obligations under the credit

agreement.

• Consumer’s debt repayment history � Credit bureau.

• Consumers existing needs and obligations and prospects.

• If the credit is intended for business purposes then they must assess the reasonable basis of

success.

• The consumer has to provide full and truthful information and if he does not do so it will be

a complete defence for the credit provider against an allegation of reckless credit.

Assessment of credit-worthiness and reckless credit

A credit agreement is RECKLESS under any of the following circumstances:

i) If the credit provider failed to do a proper assessment.

ii) If the credit provider did do a proper assessment but concluded the credit agreement

anyways despite fact the assessment showed that:

� The consumer did not really understand the risks, costs and obligations involved or...

� The consumer over-indebted himself by entering into the agreement.

iii) If an agreement is reckless it can be set aside completely or in part and the consumer has no

obligations or it can get suspended and no interest or fee can be charged.

If an agreement is reckless, a court can also declare the consumer over-indebted! And ordering

a restructuring of all or any of his credit agreements.

Reckless credit provisions do not apply to the following :

i) A school loan.

ii) A student loan.

iii) An emergency loan.

iv) A pawn transaction.

v) An incidental credit agreement.

vi) Where the consumer is a juristic person.

Rights of the credit provider:

- Enforce the contract and to receive payment of the credit extended with the interest

agreed, or cancel the contract and claim the return of the goods, in the case of breach.

- Right to compensate in certain circumstances

- Right to suspend or terminate credit facility. If the consumer is in default.

Lease:

A lease is a contract between a landlord (lessor) and tenant (lessee) for the hiring by the tenant of

immovable property, in terms of which the landlord grants use and occupation of the property to

the tenant and in return the tenant pays a specified sum of money.

Essential Requirements:

a) Intention to give temporary use and enjoyment

Difference from sale and lease: the parties do not intend that the lessee should have use and

enjoyment of the property permanently over a specific period.

In sale the seller agrees to part with every right that he has in the object. Including the right to

destroy or diminish the thing. The lessor only undertakes to give the right of use and enjoyment.

b) The property let

The lessor does not have to be the owner, because no ownership is transferred.

c) The rent payable

The tenant must pay a specified sum of money otherwise its not a lease. The rent must be fixed or

the parties must have agreed on some external standard by which it can be ascertained.

Duration of the lease:

The parties may agree that the lease may last for a definite period or it can last until the happening

of a future event. Also for as long as the lessor or the lessee are pleased, this is known as a tenancy

at will. A tenancy at will of the lessor continues for as long as the lessor pleases. The lease can last

for an indefinite period, indefinite is not the same as permanent. Indefinite is like for a perios one

does not know of: month to month, week to week, hour to hour, depending on the interval of

payments.

Formalities and statutory regulation:

No formalities are required for ordinary leases, so they don’t have to be in writing to be valid, so can

rent out house verbally for ten years and it will be fine.

Rental housing act 2000

� It governs leasing of residential property

� It governs relations between lessor’s and lessee’s and it lays down requirements for leases.

� It sets up rental housing tribunals to hear comlplaints.

There are many provisions, the most important are the following:

- When marketing a property and negotiating a lease, the lessor may not discriminate against

a potential lessee on the grounds of race, religion, gender, age.

- The lessee may request a written lease and has the right to be provided with 1.

- The lessor must provide the lessee written receipts for the rent each month

- Any deposit paid by the lessee must be invested by the lessor in an interest baring account.

Duties of the lessor:

a) Delivery of the leased property

The landlord must deliver the property in the reasonable condition for the purpose of which it was

let. He must deliver free and undisturbed possession.

b) Maintanence the property let

The landlord must maintain the property in a reasonable condition for the purpose of which it was

let.

c) Guarentee of undisturbed use and enjoyment

The landlord impliedly warrants that the tenant will not be disturbed in his use or enjoyment either

by the landlord himself or by a third party with a better title(probably be the true owner). The

landlord does not warrant that the tenant will not be disturbed by a third party with no legal right.

d) Generally to abide by the terms of the lease

e) The remedies for the lessee if the lessor is in breach of any of his duties

If the landlord is in breach of any of is duties, then the tenant will have the usual remedies for

breach. Take special note of the following: where the landlord does not deliver the property in a

reasonable condition or he fails to maintain it in a reasonable condition then the tenant, after giving

notice to the landlord, asking him to affect the repairs, can do the repairs himself if the landlord fails

to do so and he can deduct the cost from the rental. The lessee can also claim for consequential loss,

but only if the lessor actually knew about the defect or has implied knowledge of the defect by

reason of his trade or occupation.

Duties of the Lessee:

1. Payment of rent

2. Care and use of the leased property

The tenant must not abuse the property and he must only use it for the purpose for which it was let.

3. Restoration of property on termination of the lease

At the end of the lease the tenant must return the property in the same condition it was in at the

beginning. The tenant is not in breach of this duty if there is normal wear and tear or damage has

occurred due to an act of nature.

4. Generally to abide by the terms of the lease

5. Remedies for the lessor if the lessee is in breach

Where the lessee is in breach, the lessor has the usual remedies. Take special note of the following:

Where the tenant is in breach of his duty to pay rent there is an additional remedy available to the

landlord. This additional remedy is known as the tacit hypothec.

When the landlord sues for outstanding rental he can attach as security for payment any movable

goods that are on the leased premises. He can then sell the goods to cover the rent if the tenant

does not pay. He can attach not only the goods of the tenant, but also those of third parties. He can

only do this if the tenant’s goods are not enough to cover the rental and if all of the following

requirements are met:

1) The goods are on the premises with the express or implied consent of the third party.

2) The goods must have been brought onto the premises with the intention that they would

remain there indefinitely for the use of the tenant.

3) The third party must have failed to give notice of his ownership to the landlord.

4) The lessor must be unaware that the goods belonged to the third party.

5) Goods belonging to a sub-lessee can also be attached but only to the extent that the sub

lessee owes rent to the lessee and only if the lessee’s goods are inadequate to settle the

claim.

Ex A rents a house from B. The rent is R5 000 a month. It has two bedrooms. A then rents out one of

the bedrooms to C. c must pay A R2 000 a month. B is the landlord, A is the tenant and C is the sub

lessee. A owes B R5 000 rent. C owes A R1 000. B exercises the hypothec. A has goods valued at

R4 500. C has goods valued at R2 000 on the premises. B will take R4 500 from A and R500 from C. If

A had goods valued at R6 000 then B would take R5 000 from her to settle the debt.

Legal position of the Lessor and Lessee

Renewal of a lease:

A lease is renewed when on termination of the existing lease the parties agree that it will continue.

The renewal is not a continuation of the old lease, rather a new lease comes into existence over the

same property and it may even be on the same terms, but the terms can change.

The effect of lessor selling the leased property (NB):

Where the lessor sells the leased property, the general rule is that the buyer is bound by the existing

lease – it’s in terms of the doctrine “Huur gaan voor koop” - what this means is that lease takes

precedence over sale. The law substitutes the buyer for the seller as the landlord and the new buyer

is bound by the terms of the existing lease, so the effect of this the buyer cannot evict the tenant, he

also has to stick to the terms of the existing lease (cant increase rent etc), the same applies if the

landlord dies and the estate takes over the lease.

There are exceptions to” Huur gaan voor koop” with these exceptions the new owner will not be

bound by the existing lease and can evict the tenant. The following are the exceptions:

1) When ownership is transferred from the landlord by an act of state ( expropriation)

2) When the lease is for longer than 10 years (long lease) it will not be valid against the owners

successors in title (new buyer or heirs if landlord dies) after 10 years, if it has not been

registered unless the successors had actual knowledge of the lease at the time they became

owners.

Ex 1 A lets a house to B in 1990 for 20 years. So the lease is from 1990 – 2010. A sells the house to C

in 1993. The long lease was never registered and C has no knowledge of the lease, but B was in

occupation at the time of the sale.

• C will be bound until 2000 (10 years because it was not registered, had no knowledge) but

after that time he will not be bound and can evict B.

Ex 2 Same as previous example. The lease was registered but he had no knowledge.

• C is bound by it till 2010, 20 years from date of lease.

Ex 3 facts are same as in Example 1. The lease is not registered but C has actual knowledge of the

lease.

• C Will be bound by the full 20 years because he had knowledge

3) In the case of the ordinary lease (less than 10 years) the buyers and/or the heirs not bound

by the lease unless he had notice of it at the time of the sale. Notice is implied if the tenant

is in occupation (person must be living there, not physically present) at the time of the sale.

Ex 4 A rents a property to for 3 years, after 1 year, A sells the property to C, C has no actual

knowledge of the lease, B was living there at the time of the sale but went away for the weekend

• C is bound by a further 2 years – the full term of the lease. Implied knowledge.

Subletting:

Here the lessee enters into an agreement with a 3rd

party in terms of which the 3rd

party leases the

property from the lessee. The 3rd

party is called the sublessee.

Ex A rents a house from B, the rent = R6000 p/m. A sublets two of the rooms to D and E, she charges

them each R2000 p/m.

• If D and E do not pay their rent to A, is A obliged to pay the R6000 to B.

Normally the lessor consent is not required for subletting unless the lease specifically provides for it.

The relationjship between the lessee and the sublessee is that of landlord and tenant and the same

rights and duties apply. The original landlord has no relationship with and no obligations to the

sublessee/subtenants.

Improvements made by the lessee:

Necessary improvements:

• These are improvements that are necessary for the preservation of the property (supporting

wall is going to collapse, roof is leaking). If the lessee attends to necessary improvements he

is entitled to full compensation of the lessor, including the cost of labour.

Useful improvements:

• These are improvements are made to enhance the value of the property but not necessary

to preserve the property (build garage, swimming pool, tennis court, built in bar with chairs).

The lessee can remove useful improvements during the period of the lease, if the removal

will not damage the property. Once the lease terminates, improvements cannot be removed

because they become the property of the landlord. If the tenant cannot remove the

improvements – damage property or its too late - then he may be entitled to compensation.

He is only entitled to compensation if the improvements were done with the consent of the

landlord and even then he can only recover the cost of the bare materials.

Contracts of Agency

What is an agency contract? Agency is a contract whereby one person (the agent) is authorised by

another (the principal) to conclude juristic acts with a third party on the principals behalf.

Juristic act: incur binding legal obligations e.g enter into contract on principals behalf

Most common example of an agent is a lawyer.

Agent and Mandatory (totally different from each other)

A mandatory does not perform juristic acts on behalf of the principal. Ex of a mandatory is an estate

agent, you give the estate agent a mandatory to find a buyer for your house, she does not sign the

contract of sale on your behalf, not entering into a juristic act. A mandatory does not incur legal,

binding obligations on behalf of the principal. The agent however does incur binding legal obligations

on behalf of the principal. Once the agent has performed a juristic act, then the agent falls away and

the principal becomes liable to the third party.

Authorisation of the agent:

a) Express authority

The general rule is that no formalities are required and the principal can give the agent authority

verbally or in writing. Usually in practice the agent is granted authority by the principal in the

document called the power of attorney. Fort the agent to buy or sell immoveable property on

behalf of the principal, the authority must be in writing.

b) Implied authority

If there is no express authority, implied authority may be inferred by the facts by looking at the

conduct of the principal and the surrounding circumstances. Where an agent had been given express

authority to perform certain things, he may have implied authority to do additional things that are

necessary to perform the original acts.

Ex A principal expressly authorises an agent to arrange the importation of the

consignment of DVD players from Japan, the agent had implied authority to organise

and pay for customs clearance.

On the other hand where an agent has been given implied authority it can been expressly limited by

the principal.

Ex A farm manager generally has implied authority to buy supplies for the farm, the

principal may limit this implied authority by expressly restricting the amount he may

spend.

c) Ratification

Where no authority exists an act performed by a person professing to be an agent can be later

ratified by the principal. The effect of ratification is the same as if authority had been given at the

time of which the contract was entered into.

The requirements for ratification:

1. The agent must profess to be acting on behalf of the principal

2. The principal must be named or ascertainable

3. The act must not have been illegal

4. The principal must have been in existence at the time of the contract

Cannot enter into a contract on behalf of a trust still to be formed or a partnership still to be

formed!

One exception to this no.4 point: in terms of the companies act, an agent may enter into contracts

on behalf of a company still to be formed, after incorporation, the company will ratify the contract

by passing a resolution at a general meeting.

5. Ratification must be implied or expressed

6. The principal must ratify with full knowledge of all the facts

7. The principal must ratify within a reasonable time (reasonable time = depend on facts)

8. The principal cannot ratify only part of the agreement

- Where the agent reports or professes to acts on behalf of a principal but had no authority

and ratification does not take place, the principal will not be liable to the 3rd

party under the

law of contract. The principal may be liable to the 3rd

party on the basis of unjustified

enrichment.

- Where the agent reports or professes to acts on his own behalf and has not been given any

authority, the 3rd

party has the right of recourse against the agent. If the principal has

benefited from the goods or services supplied, the 3rd

party may have a claim of unjustified

enrichment. If it benefited negatively, then the principal can sue the agent.

d) Estoppel (ostensible authority) - appears as if there is authority but there is not.

Here there is no express or implied authority but the principal is prevented from denying that

somebody who ostensibly appeared to be his agent had authority. A person who intends to hold a

principal bound on the basis if Estoppel must prove the following:

1. That there was a misrepresentation by the principal

2. The misrepresentation was of such a nature that it could reasonably be expected to mislead

a 3rd

party into believing that someone was acting as agent for a principal.

3. The 3rd

party acted on the faith of the misrepresentation

4. The 3rd

party was prejudiced into doing so

Ex Quim & Co Ltd vs Witwaterstrand military institute 1953 (1) SA 135 (T)

Mr smith was in charge of the sergeants dormitory in the Wits military institute.

Quim and Co was a catering business, Smith hired Quim to provide catering services

for the dormitory’s annual dance. Smith had no authority from the military institute

to organise the dance or to hire Quim in fact he was acting on the authority of the

sergeants. The issue before the court was whether the military institute was liable to

pay Quim for the services on the basis of Estoppel. All agreed that Smith had no

authority from the institute and there was no ratification, so only other option is

Estoppel.

The court held that the military institute was liable to pay Quim for the following reasons:

• Smith’s job was management of the dormitory and this job included entering into catering

agreements on behalf of the military

• Quim knew that the dormitory was part of the military institute, they also knew that Smith

was in charge of the dormitory, Smith had arranged previous dances where Quim had done

the catering and they were paid by the institute.

• The institute knew about the dance that Smith was organising

• The institute should therefore have realised that caterers such as Quim would be misled into

thinking that Smith was acting as an agent on behalf of the institute

Legal Consequences of the agency relationship:

a) Between the principal and the agent:

• Agent must perform his duties with care and skill and in accordance with the principal

instructions.

• The agent must perform his duties honestly: the agent may not keep secret profits, he

may not act in conflict with the principals best interests and he may not delegate his

authority

• The principal must pay the agent if so agreed, the principal must reimburse the agent for

all reasonable and necessary expenses incurred in undertaking the mandate.

b) Between the principal and the 3rd

party:

• the principal is contractually bound to the 3rd

party in the following situations:

1. If there is express or implied authority and if the agent has acted within the

scope of the authority.

2. When the principal has ratified an act of the agent

3. Where Estoppel applies

• No contractual relationship exists between the agent and the third party, the agent falls

away.

c) The relationship between the agent and the 3rd

party

• The general rule is that when an agent acts on behalf of a principal, the agent incurs no

contractual liability.

• There are exceptions where the agent may still be personally liable:

1. Where the agent acts without authority or exceeds his authority – where the

agent professes to act on behalf of the principal, but he has no authority or he

exceeds his authority, the agent impliedly warrants to the 3rd

party that he does

have authority. If the principal still refuses to ratify the agreement or if Estoppel

does not apply, then the 3rd

party can hold the agent liable on the basis of

warranty. The damages under the warranty are aimed at putting the 3rd

party in

the position that he would have been in had the principal been bound. These

damages are neither contractual nor delictual. Alternatively the 3rd

party can sue

the agent on the basis of misrep.

2. The agent acts within his authority but he does not disclose his principal – here

the 3rd

party has the right of recourse against the agent or the principal.

d) Termination of the agency relationship – it can be terminated in the following ways:

1. Mutual consent

2. Proper performance by the agent and the principal of their obligations

3. Where the time period was fixed, then the end of that time

4. On either the death of the principal or the agent

5. Revocation of authority by the principal

Pg 20 Contract of Lease Tut:

Duty of the lessor to maintain the premises in a condition reasonably fit for the purpose for which it

was let. Would seem that the landlady is in breach of this duty – floor space is unusable and the leak

is causing damage to stock.

Hugh therefore has certain remedies:

Cancellation – is it material – debatable but probably not as only 20% of floor space unusable.

Specific performance – courts have determined that this will be difficult to enforce and therefore

will not make such an order.

However after giving notice to Mrs. Brown, Hugh can do the repairs regarding the leak himself and

then deduct the cost from rental.

As regard to the claim for the damages to his stock, can only claim consequential loss if Mrs Brown

had implied or actual knowledge of the defect.

She had actual knowledge after he advised her, so perhaps, he can claim for the additional stock of

R500 and the loss of profit due to the leak but before this she had no actual knowledge so would not

be able to claim for the initial damage to stock in the amount of R500.

Implied knowledge – we are not told that she expert knowledge in matters relating to building

Claim for necessary improvements – possibly, but would amount to the same as if claimed under the

breach of the landlord’s duty to maintain.

Question 2

Landlord will want to use the tacit hypothec to take control of the assets on the premises and sell

them to recover the outstanding rental.

Beach Buggy – cannot attach it, as only goods that are on the property may be attached . Hypothec

is lost over this item

Goods belonging to legal sub-lease can only attach his property to the extent that he owes the

tenant rent e.g if he owed the tenant R200 rental, then can only attach R200 worth of his goods.

Goods belonging to illegal sub-lease – not considered to be a sub-lessee in terms of the law and so

will be treated as a third party. In the circumstances, the landlord will have the right to attach his

goods provided that certain requirements are met:.......................

Pg 21 Agency

Q1

The contract for the purchase of the boat is divisible from the contracts regarding the trailer and the

fishing equipment, so deal with them separately.

Boat:

A acted within his authority

As a result, P is liable on the contract with X

Trailer and fishing equipment:

A had no express authority from P to purchase these items.

It would be difficult to argue that implied authority to buy the boat was authority to purchase fishing

equipment and the trailer (these are not necessary to effect the purchase of the boat)

So there was strong arguments that there was no implied authority.

Estoppel: the requirements for estoppel have not been met.

The principal made no representation to X i.e did not create the impression that A was authorised to

buy anything other than the boat.

Ratification: n we are not given any facts to indicate that the contract was impliedly or expressly

ratified by the principal.

So it would seem that as regards to the trailer and the fishing equipment, P will not be contractually

bound to X.

Enrichment – perhaps if he had used the trailer or fishing equipment but in any event that would

also indicate ratification.

Q3

So it would seem that the agent may be personally liable:

• On the basis of implied warranty, if had been purporting to act on behalf of P when he

purchased items.

Damages = position X would have been in had P been bound, so here the purchase price.

• Possibly misrep – depending on facts.

Q2

Boat:

As regards to the purchase of the boat. A acted within the scope of his authority.

However he was in breach of the implied duty of honesty in that he has without the consent of the

principal – kept secret profits. He will therefore have to pay back R1000 to P

He may also be liable to the principal for breach which would include a claim for damages if

applicable. The principal could also cancel the agency contract and the agent would then forfeit his

commission.

Trailer and fishing equipment:

Agent is in breach of his duty to act strictly in accordance with his principal’s instructions and so he

will be liable to the principal for breach of contract.

In other words, the principal will probably claim cancellation, the agent will forfeit his commission

and pay any damages that may have been suffered by the principal

Business Law Tut Pg 17 Imposed terms: unsigned contracts.

In order for a term contained in a ticket or a notice to qualify as an imposed term, the following

requirements must be met, these requirements tell us that was everything done reasonably to draw

it to the customers attention:

� It must be imposed before or at the time of contracting.

In the case of a notice you know that this requirement will be met provided that the notice is seen

either before or at the time of the contract was entered into. According to the facts provided, the

notice was clearly visible at the time of contracting, if not before.

He makes the offer, they give him a ticket, and there are terms so they reject the offer with a

counter offer, with terms and conditions. He accepts the terms of the ticket when he enters into the

grounds.

Meets first requirement.

As regards to the programme this fails on the first requirement as the programme was made

available.

However one could argue that the terms of the programme were incorporated by reference on the

ticket and notice as both mentioned that “entry is subject to the terms and conditions on the

programme of events.

� It must be in a contractual form

As regards to the notice, the requirement does not normally require much consideration, however

in this case it is important, as all the notice did was refer to one of the terms contained in the

programme does this constitute form/term? Probably...

As the regards to the ticket, this is certainly a ticket per se and one can except to find terms and

conditions on a ticket. However again does the referral to the terms and conditions contained in the

programme amount to a contractual form/term- probably..

As regard to the programme, it would seem that one is not expected to find contractual terms on a

programme, especially gives that in this case, the programme had to be bought, which would mean

that the terms were not really available and presupposes that one has a choice. In the

circumstances, I would argue that the programme does not constitute a valid contractual form.

� There must be sufficient notice of the terms

As regard to the notice, we are not given details of the appearance, but would seem that it was

sufficiently prominent as Shakes did notice it.

As regard to the ticket again we are not told how the writing was set out. Difficult to assess this 1.

Assuming that ticket and notice met these requirements, there was sufficient notice that the terms

were contained in the programme on the notice as the gate, the ticket and the programme cover.

Conclusion:

It would appear that the term was not an imposed term. This is because ultimately the exclusion

clause was contained in the programme and the programme failed to meet the requirements for an

imposed term as it is not a document on which one is expected to find terms and conditions. Failed

in the first requirement because the programme was given too late and failed on the second

requirement because you had a choice to buy it or not. So he can sue for medical expenses.

Business Law Tut Pg 14 Exercise 1

• Mrs Tyebi makes a valid offer to Bob on 1st

of June

• Nothing tells us that its not a valid offer i.e it appears that:

a) It is consistent with all the essentials of a contract

b) It defines all the terms on which agreement is sought

• Bob then accepts the offer on the 5th

of June by posting his letter of acceptance.

• It is a valid acceptance because:

a) It was made before the offer came to an end (within the week)

c) It was consistent with all the essentials of a contract (nothing on the facts to indicate

differently)

• It was unequivicol and in terms of the offer i.e it was not conditional, therefore it did not

amount to a rejection and a counter offer.

• It was made in the manner prescribed by the offeror : mrs Tyebi expressly authorised

acceptance by post.

• Expedition Theory applies because:

a) Postal acceptance was authorised

b) From the facts there is nothing to indicate that the postal system was not operating

normally.

c) It’s a commercial contract.

d) Tyebi did not stipulate that acceptance would only be valid once she had received or

read the letter.

• This means that the contract was concluded at the time and the place where the letter of

acceptance was posted i.e valid binding contract on 5th

of june at Gauteng.

• Therefore , Mrs Tyebi is bound by the contract with Bob and the fact that she has bought

another car, will not enable her to avoid the contract with Bob

• But: Bob wants to withdraw his acceptance before Mrs Tyebi receives the letter of

acceptance.

• No case law on the point.

• It seems that he cannot, as the letter of acceptance created a valid binding contract the

moment it was posted. Therefore to try and get out of the contract after that would amount

to breach as there is already a binding contract in existence.

Mr Mzala:

• Bob’s advertisement was not an offer, merely an invitation to do business (eg Crawley vs Rex

or boots case), so Mzala was actually the party making the offer.

• Bob is entitled to reject the offer, which is essentially what he did and so there was no

contract.

Pat Smith:

• Makes an offer to Bob. It appears from the facts that the offer is valid, nothing to indicate

that the requirements are not complied with.

• Bob accepts the offer.

• Again it appeasr that the acceptance is valid, nothing in the facts to indicate that it does not

comply with the essential requirements.

• So there is a valid binding contract.

• If he and Tyebi agree not to honour their contract. Bob has no problem.

• However if for some reason Tyebi insists on him honouring their contract then Bob has a

problem.

• He cannot deliver the car to both Tyebi and Smith.

• He will thus be liable for damages of breach for one of the contracts i.e the one to whom he

does not deliver the car.