Law of contract

Unit 1 - Background

Requirements for a valid contract:-

- Consensus
- Parties must have the capacity to act
- Performance must be possible and lawful
- Formalities must be complied with
- Consequences must be ascertained or readily ascertainable

Forms part of the law of obligations. Obligation is a juristic bond in which one party has a right to
performance and the other has a duty to render performance.

Sources of obligations:-
- Contract – a buyer’s right to delivery of a thing bought, and the corresponding duty of the seller to
deliver. Arises from the conclusion of a valid contract of sale.
- Delict – X commits defamation so Y has a claim for payment of compensation. Obligations are
imposed by law.
- Undue enrichment – No valid legal ground for obtaining a benefit at the expense of another
- Family relationships – child’s claim for maintenance
- Negotorium gestio - an intervenor acts on behalf and for the benefit of a principal without the
latter's prior consent. They have a claim for expenses
- Exercising administrative authority - a municipality’s claim for payment of rates

Definitions:-
Contract: an agreement entered with the intention of creating obligations

Legal facts: facts to which the law attaches consequences. Obligations arise from these

Juristic acts: lawful act of a legal subject that has at least some legal consequences the subject intended

Creditor/debtor: the person who is entitled to claim performance; the person obliged to perform

Real right: can be enforced against any party

Personal right: performance may be claimed only from one particular debtor

Performance: human conduct – doing something or refraining from doing something

Civil obligation: may be enforced directly through recourse to the court

Natural obligation: cannot be enforced through court, but has some legal effect (gambling debt)

Void: a basic requirement was lacking at the outset (eg material mistake)

Voidable: contract can be terminated, due to factors such as misrepresentation or duress

Types of agreement:-
Contract: entered with the intention of creating obligations – accepting an offer to buy sweets
Extinguishing a debt: an obligation is terminated – delivers the sweets
Real agreement: a right is transferred, either real or personal – sweets’ ownership transferred

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Relationship to passing of ownership:
SA follows an abstract system on the passing ownership, so it can pass even if the contract is invalid.
The transfer of ownership depends on the intention of the parties (and delivery/registration etc).
Transfer is done by a real agreement.
A contract is an agreement entered into with the intention of creating obligations, not the transfer
of ownership. The fact the contract is void does not mean it cannot lead to a transfer as intention may
be apparent even from a void contract.

Competing values
Values of fairness and good faith provide a counterbalance to freedom and sanctity of contract
Classical doctrine: contract should be enforced fully if not contrary to public policy. The SCA has said a
contract will not be struck down merely because it is unfair or contrary to good faith.
In Barkhuizen v Napier 2007, the Constitutional Court seems to have made reasonableness and
fairness the focus of an enquiry into what public policy requires.

Constitution
Full impact has not been settled. But for now, it seems to apply indirectly to contractual relations -
whether a contractual term offends public policy as informed by Constitutional values (Barkhuizen v
Napier 2007).
It can render some provisions or the entire contract contrary to public policy on these grounds. Also
possible for a party to be compelled to contract where refusal amounts to unfair discrimination
(Hoffman v SAA 2000).

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Unit 2 - Consensus

A requirement for a valid contract – agreement on the intention of the contracting parties
Generally accepted as a primary basis of contractual liability – Saambou-Nasionale Bouvereniging v
Friedman 1979
There is ostensible consensus where one party has a reasonable reliance a real agreement exists,
even where it does not.

Will theory: Actual consensus is the only basis for contractual liability. If there is no genuine concurrence of
wills, there can be no contract

Reliance theory: the reasonable belief, induced by the conduct of the other party, in the existence of
consensus. This protects a party's reasonable expectation of a contract

Elements:-
- agreement on the consequences: the parties and the performance
- agreement on creation of juristic consequences
o intention to be legally bound
o reason for contract and for obligation
o lawful object in entering contract
- awareness on unanimity: knowledge and acceptance of the offer both sides

Consensus is absent in simulated transactions (Vasco Dry Cleaners v Twycross 1979), or where one party
makes an offer as a joke

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Unit 3 – Formation of contract – the offer

Requirements:-
- Must be definite and complete. It must contain sufficient information to enable the offeree to
whom it is addressed to form a clear idea of exactly what the offeror has in mind

- Must contemplate acceptance and a resultant obligation.

An advertisement is merely an invitation to do business
(Crawley v Rex 1909)
The promise of a reward does constitute an offer
(Bloom v American Swiss Watch Company 1915)

- Must come to the attention of the offeree, so they can react to it

(Bloom v American Swiss Watch Company 1915)
(McKenzie v Farmers' Co-operative Meat Industries Ltd 1922)

- Must as a rule be directed at a definite person, who alone can accept.

(Bird v Summerville 1961)
An offer directed to unascertained persons can be accepted by any one of them (auction)

No obligation unless the offer is accepted

Offer lapses:-
- after the expiry of prescribed or reasonable time
- death of either party
- rejection
- revocation

Unit 4 – Formation of contract – the acceptance

Requirements:-
- Must be unconditional and unequivocal. Where it contains conditions, this is a counter-offer. An
ambiguous acceptance also is not valid

- Must be by the offeree (unless it’s a reward)

- Must be in reaction to an offer. A person cannot accept an offer of which they are not aware
(Bloom v American Swiss Watch Company 1915 - 'if one did not know what the other was
proposing, two minds never came together')

- Must comply with any formalities set by the law or by the offeror
(Brandt v Spies, 1960)

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Contracts concluded by letter/telegram
- Declaration theory – when offeree declares/expresses/writes acceptance
- Reception theory – when offeror receives letter of acceptance
- Information theory – when offeror has been informed of acceptance
- Expedition theory – when offeree has posted letter of acceptance

In Cape Explosives Works Ltd V South African Oil and Fat Industry Ltd 1921, the court held agreement was
concluded at the time and place when the letter of acceptance was mailed (a judgment approved in
Kerguelen Sealing and Whaling Co., Ltd v Commissioner for Inland Revenue 1939)

Some authorities have criticized this theory (expedition) as unconvincing and creating risk liability

But courts have accepted expedition theory:-

- Posting of letter of acceptance determines when the agreement is concluded
- After posting, neither party can revoke without breaching contract
- If letter is lost or delayed, fault determines who bears liability

Contracts concluded by phone/email/fax

Information theory applies, that is when the offeror has been informed of the acceptance. The
agreement is concluded at the place where the last act necessary to constitute the agreement is
performed. For example, the last signature for a written agreement

Breaking off negotiations

Entering negotiations creates a certain relationship between the parties that is governed by good faith and
objective reasonableness. This requires the parties to have due regard for the legitimate expectations and
interests of each other.
The law can impose a duty to inform or to exercise due care, to continue negotiating in good faith,
or an obligation to pay compensation. A party also can be held liable in terms of the reliance theory.

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Unit 5 – Pacta de contrahendo

Both are contracts and so must comply with the normal requirements:
- Consensus
- Parties must have the capacity to act
- Performance must be possible and lawful
- Formalities must be complied with
- Consequences must be ascertained or readily ascertainable

1) Option contracts:
An offer reinforced by an agreement in terms of which the offeror undertakes to keep the offer open for a
specific period

One party grants the other an option, and they agree the offer will not be revoked, either expressly or
implicitly (by offering the same thing to another party). The holder has a personal right that the grantor
keeps the option open, and has a choice of whether to accept the offer by exercising the option

Consequences:-
The offer is made irrevocable by the conclusion of the option contract. If party accepts the first offer by
exercising the option, the contract is created immediately.
Some argue revocation would constitute a breach of the option contract, which should lead to
normal remedies.

Option contract for immoveable property can be oral, provided the substantial contract is in writing.

Option holder may enforce the contract through an interdict and may also claim damages to place
them in position they would have been had the option been exercised

2) Right of preference/pre-emption
One party is granted a right to conclude a contract with the other – for example, pre-emptive right to buy.
The holder has the right to be made an offer first.
- It does not place a duty on the grantor to sell, but does restrict their capacity to alienate (they must
offer it to grantee first should they decide to sell)
- Grantee acquires a right, but the obligation on the grantor is a negative one (the thing may not be
alienated to a third party except under conditions create in the right of preference agreement)
- Pre-emptive right over immoveable property must be in writing (Hirschowitz v Moolman 1985)

Also can be enforced by an interdict and a claim for damages.

But a party cannot be positively enforced by a court order to make an offer

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Unit 6 – mistake
Consensus is the main basis for contractual liability.
Actual agreement is the primary basis of a contract (known as intention, will or consensual theory). The
secondary basis is the reasonable reliance of one party that an agreement does exist.

Factors influencing consensus:-

- Must be legally valid (eg capacity), otherwise contract is void
- Consensus obtained by duress, misrepresentation etc means contract is voidable
- Material mistake means no consensus, so contract is void

Material mistake occurs when one of the elements of consensus is excluded

These are, that the parties:-
- agree on the nature of the obligations they intend to create, on the parties between whom the
obligations are to be created, and the content of the obligations
- agree to be bound by the contract
- are aware of the agreement

Non-material mistake does not affect or exclude an element of consensus

A mistake relating to the obligation or the party will be material only if it affects the mistaken party’s
decision to agree

Traditional approach:-
- error in negotio – nature of the contract – material
- Steyn v LSA Motors Ltd 1994 (1) SA 49 AD

- error in persona - identity of the party – material/non-material

National and Overseas Distributors Corporation (Pty) Ltd v Potato Board 1958

- error in corpore – identity of subject of contract – material

- error in substantia – attribute of subject – material/non-material

George v Fairmead (Pty) Ltd 1958 (2) SA 465 (AD)
Allen v Sixteen Sterling Investments (Pty) Ltd 1974 (4) SA 164
Du Toit v Atkinson’s Motors 11985 (2) SA 889 (AD)

- error in motive – reason for entering contract – non-material

Reliance theory:-
Consistent application of the will theory would mean every material mistake would exclude contractual
liability. This is subjective and can lead to inequitable results.
So a party may be held contractually liable on the basis of a supplementary ground for liability,
namely the reliance theory.

Reliance theory may be applied directly as well as indirectly (iustus error approach).

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Direct:
Contractual liability is based on the reasonable reliance that consensus has been reached which the one
contractant (contract denier) creates in the mind of the other contractant (contract enforcer).
According to Sonap Petroleum (SA) (Pty) Ltd v Pappadogianis this entails a threefold enquiry:

• Was there a misrepresentation regarding one party's intention?

• Who made the misrepresentation?
• Was the other party actually misled and, if so, would a reasonable man also have been misled?

Should it seem the contract denier misled the contract enforcer to reasonably believe the denier's
expressed intention coincided with his actual intention, the denier will incur contractual liability.

Indirect:
Whether a contractual party may be held bound to an apparent contract where there is material mistake on
his part. If the contract denier's mistake is material and reasonable, he will not be held bound.

For this approach, there must be a clear, objective agreement between the parties, such as when
they have signed a contract.

Mistake is usually reasonable where it is caused by the contract enforcer or where the enforcer was aware
or reasonably should have been aware of the denier's mistake but did not point out the latter's mistake.

Common error:-
Here the parties are in actual agreement but they have made a mistake about the existence or correctness
of some underlying fact on which their contract is based. This results in the contract being void.

Rectification:-
Where the parties have committed their agreement to writing, but the document does not correctly reflect
their intention, a party can apply to the court for rectification or correction of the document.

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Unit 7 – improperly obtained consensus
Restitutio in integrum: the remedy of rescission coupled with restitution. Aimed at restoring the parties to
the positions they were in before contracting
It arises only when a contract has been found to exist, but that consensus has been obtained by
improper means
The party of who induced the contract by improper means often commits a delict, and the
innocent party can claim damages whether he sets the contract aside or not

Unit 8 – misrepresentation
Can be accompanied by fault, or completely innocently

Determine whether the misrepresentation causes a material mistake (the problem is mistake) or non-
material (which makes the problem actionable misrepresentation)

a) Culpable:-
- the contractant or their agent must make a misrepresentation, either by commission or omission
- this misrepresentation must be wrongful and cause some harm in an unreasonable manner
For commission, wrongfulness would be apparent if the misrepresentation has induced a party to
conclude a contract they would not otherwise have agreed (Ranger v Wykerd 1977)
For omission, wrongfulness in failure to disclose a material fact or to remove a false impression

An action based on misrepresentation must relate to some fact, rather than an opinion.
Mere puffing is not actionable (merely a negotiating tactic)
Misrepresentation must be such that it would mislead a reasonable person in the same circumstances

Fault:- legal blameworthiness

Intent: legally reprehensible state of mind in directing and attaining a result knowing it was wrong
A representation which the representor knows is false and intended the representee to act upon, and which
induces the representee to act, and causes damage to the representee as a result.

Negligence: lack of necessary degree of care. A reasonable person in the same circumstances would have
foreseen the possibility of harm and taken steps to prevent it

Causation:-
The misrepresentation must have caused the party to have entered into a contract they would otherwise
have refused (dolus dans), or assent to terms they would otherwise have refused (dolus incidens)

Courts apply the conditio sine qua non test: would the contract or the terms have resulted but for the
misrepresentation?

Remedies:-
Rescission and restitution: The victim may terminate with retrospective effect, so parties must restore any
performance
Damages: The victim may claim for loss suffered as a result of misrepresentation.

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Dolus dans:
The victim can cancel if the facts show there would have been no contract but for the misrepresentation

Dolus incidens:
Some argue there is a right to damages only, others that the victim should be able to cancel

These apply only in the context of damages for fraudulent and negligent misrepresentation

In Bayer South Africa v Frost 1991: the court placed negligent misrepresentation on the same footing as
fraudulent misrepresentation, so either will suffice for a claim for delictual damages

Remedies for intentional misrepresentation cannot be excluded by exclusionary clausesb) Non-culpable:-

There must be a pre-contractual false statement of fact made innocently by one party, which induces the
other to enter the contract or agree to terms they otherwise would have rejected

Dictum et promissum: a material statement made by the seller during negotiations bearing on the quality of
the thing sold that goes beyond mere praise. This definition is wide enough to cover fraudulent, negligent
and innocent misrepresentations.

Remedies:-
Recission and restitution: The victim may terminate with retrospective effect, so the parties must restore
any performance
Damages: In Hall v Milner 1959, the court held the purchaser was entitled to claim a reduction in the
purchase price (restitutional damages – actio quanti minoris)

In Phame v Paizes 1973, the court held that a purchaser who entered a contract on the basis of a dictum et
promissum can invoke the aedilitian remedies: cancellation under actio redhibitoria or to abide by the
contract and claim a price cut with actio quanti minoris

The court found both remedies were available if the thing sold (res vendita) suffered from a latent defect at
the time of the sale, or if the seller made a dictum et promissum.
If the representation does not amount to a dictum et promissum, or is made to a party in a contract
that is not a contract of sale, the victim can claim actio redhibitoria but not actio quanti minoris

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Unit 9 – duress
Consensus obtained by duress renders the contract rescindable

By physical force or threats.

Under the former, the victim does not act in the legal sense of the word, as there is no voluntary human
action (vis absoluta) - void

Under the latter, the victim has acted but his will has been attained through improper means (vis
compulsiva) – voidable

Key case is Broodryk v Smuts 1942. But mere entering into a contract as a result of duress constitutes
damage

Remedies: -
Recission and restitution: the mere entering into a contract as a result of duress constitutes damage
Damages: a claim for delictual damages requires a patrimonial loss

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Unit 10 – undue influence
Where a contractant is persuaded by someone who has influence over them to conclude a contract they
otherwise would have refused. It is grounds for rendering the contract voidable, rescission and restoration,
but not for damages.

In Preller v Jordaan 1956, the appellate division accepted the doctrine of undue influence is part of
our law, and that a contract may be rescinded if a contractant has exercised undue influence.
In Patel v Grobbelaar 1974, the appellate division held that the party alleging undue influence must
prove:-
- the other party exercised influence
- this influence weakened their power of resistance
- this influence was wielded in an unscrupulous manner to induce the complainant to accept a
transaction to their detriment and which the complainant otherwise would have avoided
The existence of a relationship of trust can be used in trying to prove these requirements

Gerolomou Constructions v Van Wyk 2011 – does not seem to be undue influence but rather economic
duress

Abuse of circumstances: where a party unconscionably exploits another party’s emergency situation to
secure the latter’s consent to a contract. It appears the contract will be enforceable subject to a reduction
of the victim’s performance to what is reasonable.

Unit 11 – commercial bribery

Where a contractual party bribes the agent or representative of another party (the principal) to facilitate a
contract. The contract is voidable at the instance of the principal, and is grounds for restitution but not
damages.

Requirements formulated in Extel Industrial V Crown Mills 1999, which made clear commercial
bribery is grounds for rescinding a contract.

In Plaaslike Boeredienste v Chemfos 1986, a contractant had bribed the agent of the other
contractant to persuade them to accept the contract. The court held this amounted to obtaining consensus
by improper means, and held that the contract could be set aside.

Unit 12 – Consumer Protection Act 2008

This has several sections dealing with improperly obtained consensus:

S40:- unconscionable conduct

A supplier or agent must not use physical force, coercion, undue influence, pressure or duress in marketing,
supplying, negotiating, demanding payment or recovery of goods. They also cannot take advantage of any
physical or mental disability or factors such as ignorance

S41:- false, misleading or deceptive representation

The supplier must not by words or conduct directly or indirectly express or imply a false, misleading or
deceptive representation concerning a material fact. Also no exaggeration, innuendo or ambiguity as to a
material fact, or failure to disclose a material fact, and no failure to correct a misapprehension.
This covers factors such as status, ingredients, characteristics, quality etc

S51:- agreements that arise under these circumstances are void to the extent they contravene these rules

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Unit 13 – illegal contracts that are void
A void contract has no legal consequences (obligations) from the outset, whereas an unenforceable contract
is valid from the outset but the consequences cannot be enforced when the agreement is against public
policy.

Justa causa – parties must have a lawful object and a serious intention to be bound by the contract.
So if the purpose is unlawful, the contract is void (ex turpi causa non oritur actio – no action arises
from an immoral cause).
Both parties must have an illegal purpose in mind. If one is not aware of the other’s motive, the
contract does not have an illegal purpose

Consumer Protection Act 2008 empowers the court with an equitable jurisdiction over some contracts.
But in all other contracts, unfairness alone will not make the contract illegal. There must also be some
serious infringement of some public interest.

- Severability:-
The courts have allowed the illegal part of the contract to be severed if it’s possible. In others they
have declared the whole contract void, under public policy requirements

- Redress/relief:- pari delicto potior est conditio possidentis

Restitution should be granted. However, in actions based on unjustified enrichment, the rule of pari
delicto potior est conditio possidentis applies. This states that in equal fault, the one in possession is in a
stronger position. Based on public policy requirements, to discourage unlawful contracts
Where the parties are not equally guilty, the innocent party can recover the performance or its
value. In Minister of Justice v Van Heerden 1961, the court held the State can recover the performance
and/or the fruits using the condictio ob turpem causam, the enrichment action.

Since the decision in Jajbhay v Cassim 1939, the courts have exercised a general discretion to relax
the rule if ‘simple justice between a man and a man’ requires it.
The court held that the principle is based on public policy, but that it cannot be in the public interest
to enforce it where this is unjust. This depends entirely on the circumstances of each case.

Unit 14 – illegal contracts that are valid but unenforceable

Unenforceable because they are against public policy.

Wagers: when a party has no financial or legally recognized interest in the outcome of the contract, apart
from a prize he may win. Most are against public policy, as they are seen as harmful to society.

- some are valid and enforceable eg sports bet

- some are unenforceable but not void
- some are prohibited and so void

Restraint of trade:
Restraint of trade clauses are prima facie valid in terms of Magna Alloys & Research (SA) (Pty) Ltd v Ellis
1984. The court held that the test is whether an agreement in restraint of trade is contrary to public policy,
in which case it is not invalid (or void), but only unenforceable. The court thus gives precedence to the
principle of sanctity of contract over freedom of trade.

It is contrary to public policy if the effect of the restraint is unreasonable. The reasonableness is
judged on the basis of the broad interests of the community and the interests of the contracting parties
themselves Basson v Chilwan 1993.

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 The former concerns the principles of the sanctity of contract and of freedom of trade. The latter
involves the interest(s) which the one party is trying to protect, and the interest the other party has in freely
participating in the commercial and professional world.

A restraint which is reasonable as between the parties would probably not be contrary to public
policy and one which is unreasonable as between the parties would probably be contrary to public policy.

In the Basson case the court posed four questions in order to determine the reasonableness:
- Is there an interest of the one party that deserves protection?
- Is such an interest affected by the conduct of the other party?
- If so, does such interest weigh up qualitatively and quantitatively against the interest of the other party) to
the extent that this party cannot be economically active and productive?
- Is there another facet of public policy having nothing to do with the relationship between the parties but
which requires that the restraint should either be maintained or rejected?

If the interest in (3) surpasses the interest in (1), the restraint would as a rule be unreasonable and
accordingly unenforceable. Every case must be considered on its own merits.

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Requirements of a valid contract

Unit 15 – formalities
a) prescribed by law
Parties can make their intentions known in what format they choose. However, sometimes these intentions
need to be expressed in a formal way, and failure to do that renders the contract invalid

These generally must be in writing:-

Land: But where they cancel the parties can by oral agreement choose to revive the contract (Neethling v
Klopper 1967)

Donations: in certain cases. Not every contract where a party promises performance without counter-
performance is a donation (Ex parte Oosthuizen 1964)

Suretyship: General Law Amendment Act 1956

Leases: (Leases of Land Act 1969) – the mere fact that it’s not in writing does not render the lease invalid.
But a lease may not be valid against a successor for more than 10 years unless it was registered in the title
deed and the successor knew about it

b) stipulated by the parties

Parties can agree their agreement must be in writing, and that an oral contract only acquires legal effect
once it is in writing. The document must be signed by both. Parties cannot unilaterally depart from a clause.
However, the parties may have intended to put the contract into writing merely to show the proof
of its terms, not as a requirement for its validity (the presumption the law applies). As such the contract is
binding at the oral stage, and the parties can sue on the oral agreement

Goldblatt v Fremantle 1920

They agreed F would supply G with a product, and that the conditions of the contract of sale would be in
writing. F started supplying and also sent a letter to G for confirmation, setting out the terms.
G failed to confirm so F stopped supplying. G sued for breach of contract, but the Appellate Division
ruled the parties had agreed the contract would be in writing, so there was no valid contract.

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B and S agree orally that B will buy S’s Toyota Hilux truck for R100 000. The parties further agree that the
contract between them will be reduced to writing. Before this can be done, B informs S that he is no longer
interested in buying the truck. The reason is that he has found a similar truck, with fewer kilometres on the
clock, at a lower price. S wants to know whether a valid contract of sale was concluded between the parties.

The courts assume that the parties intended the formalities to facilitate proof, unless it can be proved that
they intended it as a requirement for validity.

The given facts of this problem differ from the facts in the Goldblatt case, where the parties agreed on how
the reduction to writing had to take place. The one party would set out in a letter the terms of the contract,
and sign it. The other party would confirm these terms in a letter.

The court found that this was an indication that the parties intended writing as a requirement for validity.
The court also referred to authority to show that, where the signatures of both parties are required, the
contract only arises when the parties sign the contract.

It is uncertain what the intention of the parties was in our problem, and the assumption will therefore
apply. Thus the parties only intended writing to facilitate proof and a valid contract of sale arose.

Non-variation clause:-
Where the parties include this in the contract, neither a clause nor the contract can be varied or
terminated orally. The non-variation clause itself must be entrenched against oral variation.
A non-variation clause will not be enforced when such enforcement is against public policy or where
the defence of estoppel can be raised.

SA Sentrale Ko-op v Shifren 1964

SA Sentrale Ko-op entered into a contract of lease with Shifren. The terms prohibited SA Sentrale from
subletting or ceding its rights without Shifren’s written consent. There was also a clause stipulating that any
variation of the terms had to be in writing.
SA Sentrale later ceded its rights to a third party without written consent. Shifren cancelled the
contract and sued for SA Sentrale’s ejectment and its cessionary.
SA Sentrale alleged there had been an oral variation of the non-variation clause, but the Appellate
Division held that an oral variation had no effect.

Criticism: Parties should be free to contract as they wish; why should a prior agreement take precedence
over a later one? This decision can only be defended on policy grounds (commercial certainty).

Impala Distributors v Taunus Chemical Manufacturing Co 1975

This followed Shifren reasoning, and held that a contract cannot be dissolved orally where the parties
previously agreed dissolution had to be in writing.

X lends Y R10 000 in a written contract. Y has to pay back R1000 on the first of every month. The contract
contains the following clause: ‘No variation of any of the terms or conditions of this contract shall be of any
force or effect unless it is recorded in writing and signed by the parties thereto’.

The contract furthermore provides that the full amount of the outstanding instalments will immediately
become due if Y fails to comply strictly with her obligations.

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Y becomes ill and asks X to give her an extension of two weeks to pay the next instalment of R1000. X gives
her permission, but then enforces the acceleration clause and claims the whole outstanding amount.

(a) May X do so?

It is clear from the wording of the non-variation clause that the whole contract is protected by the clause.
However, the parties do not attempt to vary their contract orally, as they do not change the obligation to
pay the instalments on the first of every month.
We are thus dealing with a waiver of the right to receive payment of one instalment on the first of the
month.The non-variation clause thus does not apply. The waiver is valid, Y does not breach the contract.

(b) Would your answer be different if their contract also had a non-waiver clause?
The presence of a non-waiver clause will make a difference, as any waiver will have to be in writing to have
effect. Y thus breaches the contract and the acceleration clause will come into operation

Unit 16 – performance must be possible

- Objective: no one could perform, so no obligation arises on either side. Any performance in terms
of a void contract can be reclaimed on the basis of unjustified enrichment.

- Practical: (where the cost of performing is totally disproportionate to the value of the performance)
will also preclude liability.

- Subjective: leaves the debtor liable. De Wet & Van Wyk say the innocent party could claim damages
on the basis of delict (misrepresentation). But there must have been culpable misrepresentation

There are two exceptions to the general rule where obligations arise despite initial impossibility: where
both parties contemplated impossibility of performance, and a warranty of performance.

a) X undertakes to paint Y’s house for R30 000.The house is destroyed by lightning a day after the
conclusion of the contract.
- valid, supervening

(b) X undertakes to paint Y’s house for R30 000.Unknown to both parties, the house was destroyed
by lightning the day before.
- void, objective

(c) X undertakes to paint Y’s house for R30 000.Unknown to both parties, the price of paint tripled
the day before.The paint would now cost X R15 000
- probably valid

(d) X undertakes to paint Y’s house for R30 000. Y deliberately destroys his house a day after the
conclusion of the contract
- valid, prevention of performance

(e) X buys paint from Y to paint his (X’s) house for R10 000. X did not know that his house was
destroyed by lightning the day before the conclusion of the contract
- valid, merely an error of motive

(f) X sells a house to Y for R800 000.The house is registered in the name of X and Z.The contract
complies with the required formalities. Z refuses to allow registration in Y’s name to take place
- valid, subjective

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Unit 17 - Certainty
The obligations must be certain or capable of being made certain through a mechanism in the contract.

Uncertainty can make the contract void, unless the uncertain obligation can be severed. Vague language is
addressed in the rules of interpretation, and gaps are filled by terms implied by law.

Are the following terms certain?

X will pay Y the price of R10 000 when her financial position allows her to.
Yes. The term is not vague, as the financial position of X and her ability to pay are a question of fact.

X has an option to buy Y’s farm for a price to be determined by agreement between X and Y when X
exercises the option.
No. This is an invalid agreement to agree. There is no deadlock-breaking mechanism

X has an option to buy Y’s farm for a price to be determined by agreement between X and Y. X and Y
undertake to negotiate the price in good faith when X exercises the option.
No. This is an invalid agreement to agree. The undertaking to negotiate in good faith is not a deadlock-
breaking mechanism.

X undertakes to pay a substantial amount of the purchase price of R600 000 for a house each month until
the price is paid off.
No. A ‘substantial amount’ is vague

X leases Y’s house for R7000 a month. The parties do not agree on how long the lease will remain in force.
Yes. The parties have agreed on a lease and therefore intend that the contract will not be of an indefinite
duration. The courts will probably interpret this contract to mean that either party may terminate the lease
by giving notice of a month.

X, the seller of a car, will determine the purchase price of his car.
No. One of the parties may not validly determine the price in a contract of sale

Z will determine the purchase price of the car in the contract of sale between X and Y.
Yes. Here, a mechanism is created for the determination of the purchase price: a third party

Y will pay X a reasonable fee for the installation of Y’s stove.

Yes. An agreement to perform a service at a price to be determined by one of the parties, X, is valid, but X
has to exercise his discretion in a reasonable manner

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Unit 18 – parties to an agreement

A contract creates at least one obligation between the parties - at least one claim or right to performance
arises. There rests a duty on the debtor to perform

Third parties (ie all legal subjects not party to the contract) must also refrain from any action which may
amount to culpable interference with the claim.

Simple joint liability: each debtor is liable only for their proportionate share (if the performance is
divisible). Similarly each creditor is entitled only to their proportionate share.

X and Y sell any two horses to Z for R4000.The horses are delivered to Z, but Zdoes not pay. X sends a letter
of demand to Z for payment of R4 000. Advise Z.
The obligation to pay R4 000 is divisible, and the parties have not expressly or by implication agreed
on what the entitlement of X and Y would be. The presumption is thus that this is a case of simple joint
entitlement and that the share of X and Y is equal. X is entitled to payment of R2 000 from Z and not R4 000

Joint and several liability: each of the joint debtors is liable for the full amount due to the creditor. The
creditor can hold one fully liable, or recover a portion from each

Remission: If a creditor releases one of the debtors, this remission only removes their share of the liability,
not the entire debt

Recourse: If one debtor pays the full amount, he can obtain cession of the claim and hold the other debtors
liable. If one creditor claims the full amount, any joint creditors have a right of recourse against them.

Joint liability: the debtors are only jointly liable and creditors may claim performance only jointly

X and Y sell a specific team of two horses to Z for R4 000.The two horses are a team trained to pull a horse
buggy. X and Y are co-owners of the horses. Z pays the purchase price, but the horses are not delivered to Z.
Advise Z
The obligation to deliver the two horses is indivisible, as the intention of the parties is to sell the
horses as a pair. The parties have not expressly agreed on what the liability of X and Y would be, but they
have agreed by implication that it would be a case of collective joint liability. X and Y are also co owners of
the horses. Zwill thus only be able to claim delivery of the horses from both X and Y

It is also possible that, by their contract, A and B may impose specific (positive) duties on third parties and
also stipulate rights for them

Representation
X concludes an agreement with Y, in the name of and on behalf of Z (the principal). The intention is to form
an immediate juristic bond between Y and Z, and once this agreement is formed X falls out of the picture.

Stipulations benefitting a third party

X concludes an agreement with Y, in terms of which X undertakes against Y to perform some benefit for Z.
Here X is acting in his own name.

- Our courts have held Z does not acquire a right merely because of this agreement. The legal bond
between X and Z only comes into existence when Z accepts the benefit, at which point Z obtains the
right to claim the benefit.
- Before Z can claim, it must be clear X and Y intended to stipulate a benefit for him

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 X sells his car to Y for R50 000. In their contract, the parties agree that Y undertakes to first offer the car
for sale to X’s son, Z, if she (Y) wants to sell the car. Y sells and delivers the car to A. Advise Z
If a binding obligation arises between Y and Z, it would be a right of pre-emption. X and Y intend to
create an enforceable obligation in favour of Z. There is thus a stipulation for the benefit of a third party
(Z) in the agreement between X and Y, but Z never accepted the benefit. No obligation between Y and Z
consequently arises, and Z has no remedy. Y has, however, breached her contract with X

In a divorce settlement agreement, a husband undertakes to pay R5 000 in maintenance to his

daughter who has already reached majority and is studying at Unisa. What type of clause is this
undertaking?
It is a stipulation for the benefit of a third party. The divorce settlement agreement is between the
parents, and the daughter is not a party to this contract.

Third parties can include an unborn child or unincorporated company

Divisible obligations
These are determined by the intention of the parties and the nature of the performance (eg a horse is
indivisible, bags of mealie are).
Divisibility plays an important role in the event of initial or supervening impossibility of
performance, breach of contract and its remedies. It also plays a role in partially unlawful contracts

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Unit 19 – contents of an agreement

Obligations:-
a juristic bond in which one party has a right to performance and the other has a duty to render
performance. Only creates a personal right
Alternative: where the debtor is bound to deliver one of several specific things
Faculative: where the debtor can choose to deliver alternative thing
Generic: where the debtor can deliver something with the same characteristics

This distinction is important when drafting and interpreting contracts, as the consequences are not the
same. The distinction is also important in the case of supervening impossibility of performance

Y buys a new Toyota Yaris from XYZ Garage for R150 000. Identify the obligation of XYZ Garage to
deliver a Toyota Yaris to Y.
This is a generic obligation, as the specific Toyota Yaris has not yet been identified from the genus,
Toyota Yaris cars. XYZ Garage may decide which Yaris has to be delivered. As soon as the garage does so, the
obligation becomes a simple obligation, as the performance is exactly specified.

1) Terms:-
determine the content of the contract. It always means a stipulation in the contract. It may be a condition,
warranty, exemption clause or time clause

Essentialia: terms the law regards as essential to place the contract in a certain category, eg sale or lease
Naturalia: positive provisions of the law. Parties can change these unless the law says otherwise
Incidentalia: the parties own special arrangements

Express terms: based on the parties’ intentions, in writing, orally or by conduct

Implied/tacit terms:
- Those implied by law, as one of its naturalia. Eg the law reads into every contract of sale an implied
warranty against latent defects
These terms are not based on the consensus of the parties. Terms implied by law are also called
naturalia and may arise from either the common law or legislation
- Terms implied by facts, or tacit terms. These are implied by the factual circumstances

Hypothetical bystander test:-

To determine whether a tacit term can be implied in a contract.

In Reigate v Union Manufacturing 1918, the court held a term can be implied only if it is necessary
in a business sense to give effect to the contract. If at the time the contract was negotiated, someone said
‘what will happen in this case?’, they both would have said ‘this will happen, we did not trouble to mention
it. It is clear’

The courts will infer the existence of a tacit term from the facts of each case, such as business
efficacy of the contract, what reasonable parties would have agreed, particular circumstances and express
terms of the contract. Tacit terms must comply with the express terms, and are based on the objective
intention of the parties.

Express terms are proved by direct evidence, tacit by circumstantial evidence. In both cases, what
did the parties objectively intend?

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Minister van Landbou-Tegniese Dienste v Scholtz 1971
Scholtz sold a bull to the minister for breeding purposes. It later turned out to be infertile. The
minister claimed cancellation of the contract and a refund of the purchase price. He relied on a ‘tacit
consensual warranty’ that the bull was fertile. The claim was made more than a year after the sale.
Scholtz argued that a purchaser who wants to cancel for a latent defect can only do son the grounds
of actio redhibitoria (restitutional damages), and this prescribes one year from the date of sale.

The Appellate Division rejected this. It held the parties could include a consensual warranty in their
contract (also naturalia), and that they had done so. A breach would mean an ordinary breach of contract,
and an action based on this has a prescription period of three years.

Van den Berg v Tenner 1975

Tenner sold a half share in his farm and 49% of his shares in Jacer Brickwork to Van Den Berg for R50,000.
He paid R10,000 but then wanted to withdraw from the sale.
Tenner then sold the farm to Mobile Earthmoving Services and Jacer to another company. He
cancelled the first contract and made a second one, one that stated Van Den Berg would be refunded when
the sale of the farm went through. But that sale failed.
Van Den Berg claimed immediate payment, claiming this was a tacit term of the second contract
that he would be paid should the sale fall through. Tenner claim the sale was a suspensive condition, so the
failure of the sale meant the debt was extinguished.

The Appellate Division held that it did not constitute a suspensive condition, but that a tacit term
did form part of the contract.

Contracts can be inferred by conduct – eg buying a newspaper with a nod of the head

Ticket cases:-
The terms of a contract sometimes do not appear in the contract itself, but are incorporated into the
contract by reference. This is often done on tickets

Follow a 3-point test from English common law

- Did person receiving the ticket know there was writing or printing on it…
- That this referred to terms of the contract?
If so, then they are bound by the terms
- If not, did the other party take reasonable steps to bring the terms to their notice?
If so, then they are bound by the terms

X slips on the wet floor of her local shopping mall, falls and hurts her back. She incurs R40 000 in medical
expenses. At the entrance to the mall there is a huge notice which one cannot help but see when entering. X,
however, did not see the notice. The notice excludes all liability on the part of the owner of the building for
the injury or death of anyone entering the shopping mall. Her fall has been caused by the negligence of the
owner of the building.
The question is whether X is bound by the notice. The notice contains an exclusion clause
attempting to exclude all liability for injury or death. It cannot exclude liability for the intentional conduct of
the owner of the mall, but it will exclude liability for negligence.
The threefold test of the ticket cases has to be applied. Although X did not know of the notice,
reasonable steps have been taken to bring it to her notice. The owner of the mall is thus not liable, as he
was only negligent.

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Time clauses
Qualifies as an obligation with reference to a certain future event, although it is uncertain when it will occur

Suspensive: obligation postponed until an agreed time

Resolutive: obligation only of effect until the time agreed upon

2) Conditions:
Make the enforceability or consequences of the contract dependent on the occurrence or non-occurrence
of an uncertain future event.
A condition precedent determines where the contract will take full effect. Eg I agree to buy X’s
house if I get married and if he makes certain repairs after the sale.
Marriage is a condition precedent; repairs is a term

Casual – does not depend on the intention of the parties – eg if there’s a train next week
Potestive – does depend on the intention eg – A will pay B R200 if he cycles to Cape Town
Mixed – combination of both

Suspensive: this suspends the full operation of the obligation and makes it dependent on an uncertain
future event. A claim arises but it cannot be enforced until the condition has been fulfilled

Resolutive: this makes the continued existence of the obligation dependent on an uncertain future event

Positive: the condition is fulfilled when the event occurs

Negative: the condition is fulfilled when it is certain the event can no longer occur

Fictitious fulfillment: when a party intentionally prevents the fulfillment of a condition, the
condition is deemed to be fulfilled and the obligation becomes unconditional and binding

3) Exemption clause: a term in which a party can limit liability. One against public policy could be void

4) Guarantee: may relate to past, present or future. A sells a building to B guaranteeing it can be used
as a funeral parlour. A will be liable even if the guarantee is groundless because of bye-laws etc.

5) Supposition: parties arrange their relationship with reference to an uncertain event in the past or
position in the present

On 11 September 2010, Sipho enters into a written contract for articles of clerkship with a law firm. The
contract contains a clause which stipulates that Sipho will be employed from 3 January 2011, but that
he will only continue to be employed if he graduates in March 2011. What type of clause is this?
The clause in the employment contract is a suspensive time clause (employment will commence
on a future date: 3 January 2011) and a resolutive condition (employment will only continue if Sipho
graduates).The contract thus comes into existence on 11 September 2010, but its full operation is
suspended till 3 January 2011.The condition is a negative condition, as it will only be fulfilled if Sipho
does not graduate. It is also a mixed condition, because it depends partially on Sipho and partially on
events beyond the control of both parties.

X gives a cheque to Y which is payable when X becomes 30 years old. X is at present 28 years old.
What type of clause is the cheque subject to? Discuss.

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 This is a suspensive condition, as it is uncertain whether X will become 30 years old, and the cheque
is only payable if X does. The condition is positive because it is dependent on the happening of the
uncertain event. The event is beyond the control of the parties and the condition is thus casual.

Jurgens Eiendomsagente v Share 1990 – suspensive condition

Share sold his house to Smith through Jurgens Eiendomsagente. The deal was to be financed with:-
- R1400 deposit cash to be advanced by Smith’s employer after he had approval for the deal
- R45,600 bank transfer
- R10, 000 guarantee with the money provided after Smith had sold his house
The guarantee had to be furnished before 30 March 1984

The cash deposit and bank transfer were received, but the guarantee wasn’t paid timeously and Share
refused to continue with the transaction. Jurgens Eiendomsagente sued for commission. Share said the
guarantee was a suspensive condition that wasn’t fulfilled, so there was no contract of sale.

The Appellate Division rejected this. It held the guarantee was merely a term with a time clause
attached. It also held the contract had three suspensive conditions: approval of the transaction by Smith’s
employer, obtaining a bank loan, and the sale by Smith of his house. All three had been fulfilled, so there
was an enforceable contract so Jurgens Eiendomsagente could claim commission.

Court distinguished between terms (which refer to the arrangements that create obligations) and
conditions (the arrangements that qualify obligations in such a way that their operation or existence
depend on the occurrence or non-occurrence of an uncertain future event)

Fourie v CDMO Homes 1982 – supposition

CDMO Homes sold a piece of land bordered by a stream to Fourie. The agreement was subject to the
‘condition’ that there were pumping rights, but neither knew whether these rights existed.
Fourie stopped paying installments when he discovered there were no pumping rights. CDMO
Homes sued for payment, and Fourie counter-sued for the installments he already had paid.
The Appellate Division held that the parties had contracted subject to supposition, and since this
supposition was false, the contract was void ab initio and found for Fourie.
A condition relates to the occurrence or non-occurrence of an uncertain future event, so it can
never refer to the past or present state of affairs.

Wells v SA Alumenite Co 1927 – exemption clause

SA Alumenite sued Wells for the price of a lighting plant he had bought from the company. Wells said a
misrepresentation by a company representative had induced him to buy, and claimed rescission of the
contract.
But he had signed an order form exempting the company from liability for any representations
made by its representatives. The court held that in the absence of an allegation that the company had made
a fraudulent misrepresentation, Wells’ defence could not succeed.

Liability for fraudulent misrepresentation cannot be excluded by agreement

Liability for negligent/innocent misrepresentation can be excluded

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X gives her son, Y, R50 000 to buy a car. Indicate what type of clause the donation is subject to.
This is a modal clause. Y receives a performance (R50 000) to do something with in future (to buy a
car).

X leases a flat from Y for R3 000 per month. Who is the debtor and who is the creditor?
It depends on what obligation we are looking at. Besides the two express obligations, there are the
naturalia of a contract of lease. Both the lessor and lessee have duties and rights. For instance, X is
the debtor and Y is the creditor with regard to the payment of the rent, but Y is the debtor and X the
creditor with regard to the delivery and use of the flat.

X,Y and Z take part as a team in a deep-sea angling competition. X,Y and Z sign the entry form for the
competition. They undertake in the entry form to be bound by the set of rules which is available on the
internet at a certain internet address.

According to these rules, all the members of the winning team will be entitled to the prize, but it will be paid
out to the captain of the winning team. X,Y and Z agree that X will be the captain and that he will provide
the boat and equipment and pay the entry fee. Y undertakes to buy the fuel and bait.

Both X and Y have taken part in many competitions before, but Z has never fished in his life and is only going
along for the fun. Z catches a huge blue marlin and hey win the competition. The organiser pays out the
prize to X.

Although X,Y and Z did not agree on how to share the prize if they should win, a trade usage exists among
the angling fraternity that the prize is to be shared equally among the members of the team after deduction
of the costs. X wants to share the prize with Y only after deduction of the costs. Advise Z.
When X,Y and Z enter the competition, they conclude a contract with the organiser and undertake
to comply with the rules. These rules are incorporated by reference into their contract. The organiser
undertakes to pay out a prize to the captain of the team that catches the biggest fish. Here, we have
multiple parties (X,Y and Z) who are entitled to the prize, but the parties have agreed that this duty of the
organiser will be discharged by payment thereof to the captain. Z thus has no remedy against the organiser.

The second question is whether Z has a remedy against X. This depends on the agreement between
X, Y and Z about the sharing of the prize. The parties have not expressly come to an agreement. Although X
and Y most probably knew of the custom regarding the sharing, Z cannot be held bound to the custom,
because he was unaware of it. However, all the parties (including Z) would have most probably answered
that the prize should be divided as it is usually done if the officious bystander had asked them how they
would share the prize if they should win.

Such a term will not be against the express agreement between X,Y and Z on their participation, as
they have only agreed on each party’s contribution to the costs and who the captain would be. Such a term
is also necessary to give business efficacy to their agreement on their participation in the competition. Z is
thus entitled to an equal share after deduction of the costs.

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Unit 20 – interpretation
Interpretation is an objective process and involves determining what the language used in the contract
means. The testimony of the parties as to what they had in mind is thus irrelevant.

Textual: The ordinary or grammatical meaning of the words is first determined. The next step is to consider
the textual context of the contract as a whole.

Contextual: courts jettisoned the distinction between background and surrounding circumstances. The
courts now take a unitary contextual approach to interpretation.

Natal Joint Municipal Pension Fund v Endumeni Municipality 2012: - factual matrix
The parol evidence rule determines that the starting point is the language of the document. But the words
should be read in the context of the document as a whole and in the light of all the relevant circumstances.

Three scenarios:-

- the language of the provision seems clear

- the context makes plain that adhering to the meaning would lead to glaring absurdity. Here the
court will ascribe a meaning that avoids the absurdity
- two or more possible meanings. Here the apparent purpose of the provision and the context will be
important guides.

Each possibility must be weighed against the factual matrix:-

- the apparent purpose of the provision
- the purpose of the contract
- background to the preparation and production of the document
- correspondence leading up to the conclusion of the agreement
- how the parties carried out their agreement

An important consideration is that it must be a commercially sensible meaning.

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Unit 21 – breach of contract
The culpable interference by one contracting party with the rights of the other

Parties may have miscalculated as regards their expectations or arrangements, for example, the debtor is
not able to render performance, or the creditor is not able to accept the performance.
This also can be negative, for example the debtor fails to perform timeously, or positive, for
example, the performance is defective

Mora debitoris, mora creditoris, malperformance, repudiation, prevention of performance

Unit 22 - Mora debitoris

When a debtor fails to perform timeously and performance is possible and due

Requirements:-
- Debt must be due and enforceable
- Time for performance must have arrived
- Obligation must not be subject to an unfulfilled suspensive condition
- Debt must not have become prescribed
- The creditor need not perform something for the debtor to perform

Scoin Trading v Bernstein 2011, court held fault is no requirement

Mora ex re:-
Performance time can be set in contract, explicitly or tacitly.
When debtor fails to perform by this time he is mora ex re

Mora ex persona:-
When no date or time has been set, and the debtor fails to perform with a reasonable time, the creditor
must make a demand interpellatio for the debtor to perform by a time. When debtor fails to perform by this
time he is mora ex persona

Nel v Cloete 1971 – mora debitoris

Cloete sold a house to Nel. Nel paid the deposit and the balance was to be paid against transfer. But Cloete
kept on delaying transfer because he discovered the title deed was missing. Nel sent a demand on 13 June
1969 that the transfer take place by 12 August 1969.
When that deadline passed, Nel informed Cloete that he was cancelling the contract, and claimed a
refund of the deposit. Cloete claimed it was premature and an unreasonably short time for him to perform.

Appellate Division held that the demand was not premature nor was the time period unreasonable

When there is no date, the debtor must perform in reasonable time. If he fails to form he is not yet in mora
He must be placed in mora by means of a demand (interpellatio, which must allow for a reasonable time)
Should he then still fail to perform he is in mora ex persona.
Should there be an agreed time for performance and the debtor fails to pay he is in mora ex re

Goldstein & Wolff v Maison Blanc 1948 – mora ex re

Maison Blanc had ordered dresses from Goldstein & Wolff. They were to be delivered by January/February
1945. They were delivered in April and Maison Blanc refused to take delivery, arguing it was entitled to
cancel as a date was stipulated in the contract and Goldstein & Wolff was mora ex re

27
The court held for Maison Blanc, and that Goldstein & Wolff was mora ex re from 1 March. The court also
deduced that the parties had agreed time would be of the essence and that Maison Blanc had a right to
cancel if performance did not happen timeously.

Remedies for creditor

- Enforce performance
- Cancel agreement
- Creditor can claim damages
- Specific performance, cancellation, damages

A contract can be cancelled for mora debitoris when time is of the essence.
This can include:-
- When contract contains a cancellation clause (lex commmissoria)
- When there is a tacit cancellation clause (clear parties intended time to be off the essence)
- When there is a notice of rescission (the creditor gives the debtor notice of a reasonable period of
time to perform)

Sweet v Ragerguhara 1978 - notice of rescission

Sweet bought immovable property from Ragerguhara. In terms of the contract, vacant occupation was to be
given on 1 January 1977. This did not happen. On 2 January, Sweet notified the sellers that he was
cancelling, but they said he could not.
Sweet then sent a notice of rescission in which he gave them 30 days to provide vacant occupation.
They failed so Sweet asked for a declaratory order that the contract had been validly cancelled.

Court held that notice of rescission was not relevant as this was not a case of mora debitoris, but positive
malperformance. Whether it was defective enough to justify cancellation was postponed for further
evidence.

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Unit 23 - Mora creditoris
Where the creditor needs to co-operate for the debtor to meet their obligation but the creditor fails to
perform timeously and the performance remains possible

Requirements:-
- Debt must be capable of fulfillment
- Debtor is ready to perform and renders proper performance
- Creditor culpably fails to perform an act necessary for the debtor to perform
- Creditor culpably fails to cooperate

Consequences:-
- Debtor who tenders performance incurs no further liability
- Debtor’s duty of care is diminished – responsible only for loss due to intent or gross negligence
- Creditor carries the risk of supervening impossibility of performance
- Sureties are released, debtor is released from obligation to pay interest, creditor’s right of pledge
falls away
- Debtor must be compensated for any loss incurred due to the creditor’s delay
- Debtor can free himself from debt by paying into court, proceeds from the thing promised or the
thing itself
- Debtor can resile (withdraw) from the contract
- Debtor remains entitled to performance and could compel the creditor to deliver

Ranch International Pipelines v LMG Construction 1984 - mora creditoris

RIP was awarded a contract to erect a pipeline. It subcontracted LMG to do part of the work, but then
brought an urgent application against LMG to vacate the site. RIP did not allege any breach of contract but
based its action on an employer’s right to terminate a building contract at any time and to evict the
contractor. LMG brought a counter-application to prevent Ranch from interfering, which the court granted.

The judgment contains an emphatic recognition of the creditor’s duty to enable the debtor to
render performance, and of mora creditoris as a separate form of breach of contract

Mora creditoris: the creditor fails to cooperate in capacity as creditor to enable the debtor to perform
Mora debitoris: the debtor fails to perform in capacity as debtor

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Unit 24 – positive malperformance
When a contracting party does not comply with the terms of the contract…

….by doing something in a manner that does not comply with the terms (defective)
….by doing something that he undertook not to do

Remedies
- Creditor can reject the defective performance and claim proper performance
- Creditor can reject the defective performance and claim damages as compensation
- Creditor can retain the defective performance and claim damages as compensation
- Creditor can resile if the contract contains the right to do so and he cannot be expected to abide by
the contract and be satisfied with damages

Cancellation is an unusual remedy. The malperformance has to be sufficiently serious.

Only in exceptional circumstances should the debtor be given a chance to remedy defective performance
before the contract is cancelled

Unit 25 – repudiation
The demonstration by a party, by words or conduct, and without lawful excuse, of an unequivocal intention
no longer to be bound by the contract or by any obligation forming part of the contract.

Charles orders a steak. He waits one hour for his food and then walks out.
Does Charles or the restaurant owner commit breach of contract?

No time for performance was specified so until Charles issued a demand for his food and allowed a
reasonable period in which the steak could be delivered, the restaurant owner had not committed
mora debitoris.
By leaving the restaurant, Charles commits breach of contract in the form of repudiation.
His walking out would cause a reasonable person to conclude he was not going to pay and was not going to
accept delivery of the steak. There is a bona fide obligation on the client not to repudiate.

30
Unit 26 – prevention of performance
A contracting party makes performance impossible after the contract’s conclusion

Distinguish between initial impossibility, supervening impossibility, and prevention of performance.

Initia: prevents a contract from arising. The impossibility must be so serious that nobody can render the
performance – that is, it must be objectively impossible.

Supervening: If after the conclusion of the contract, performance becomes objectively

impossible without the fault of the debtor, as a result of an unavoidable and unforeseen event. The
obligation to perform is as a general rule extinguished

Prevention: If after the conclusion of the contract, performance on either side becomes impossible owing to
the fault of either the debtor or the creditor, the contract is not terminated, but the party who rendered the
performance impossible is guilty of a breach of contract. Subjective impossibility will suffice.

X sells a Chinese vase to Y for R50. They agree that Y will take delivery as soon as she has arranged for the
transport. Before delivery, X discovers the vase is worth R100 000. He smashes the vase.

The debtor commits prevention of performance. Performance has become absolutely impossible through
the act of X. Y cannot thus claim specific performance.

Y may uphold the contract or cancel (the breach is material). Y may claim damages in both cases. In the first
case, Y may claim the value minus the price she paid. In the second, she can claim the value of the vase.

31
Unit 27 – remedies
Two major groups:-
- aimed at keeping the contract intact while compensating the non-breaching party for any damages
- aimed at terminating the contract, untangling the relationship and compensating

A contract may only be terminated or cancelled for a breach that is serious enough in the circumstances.

Some remedies are mutually exclusive. You can claim either specific performance (a remedy aimed at
keeping the contract intact) or cancellation (a remedy aimed at terminating the contract).

Some remedies are cumulative, because they can be used in conjunction with the other remedies. The most
important of these cumulative remedies is the claim for damages

1. Keeping the contract alive

Exceptio non adimpleti contractus:-

a defence that can be raised in the case of a reciprocal contract. It permits a party to withhold performance,
and to ward off a claim for such performance until such time as the other party has either
performed or tendered proper performance.
The exceptio non adimpleti contractus is available when two requirements are met:
- the two performances must be reciprocal to one another
- the other party must be obliged to perform first, or at least simultaneously
The exceptio may also be raised where a party has performed incompletely.

In BK Toolings v Scope Precision Engineering 1979, the court stated that reciprocal obligations are
obligations that have been created in exchange for each other.
To determine whether an obligation is reciprocal, the (express or tacit) intention of the parties must be
determined by interpreting the agreement. The question to be asked is: did the parties intend to create
obligations in exchange for each other?

Specific performance:-
based on the principle that parties must comply with their contractual obligations. There are exceptions
Courts are reluctant to order specific performance where the obligation or performance consists of personal
services, or where performance has become impossible.

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A has contracted with B to build a garden wall for R20000. In terms of the contract, the wall has to be
completed by 15 February. After B has built the wall to half its height, his workers go on strike. A is
anxious to get the wall finished for security reasons.

1) On 10 February, she employs X to finish the wall at a cost of R14000. The wall is eventually
completed by 25 February. B now sues A for payment of the wall, claiming A prevented him from
finishing the wall by employing X. Advise A on defences and claims.

The contract is a contract of work - a reciprocal contract where B has to complete his performance before A
has to perform. B cannot complete the wall, as it is already complete. A will be able to raise the exceptio.

A court has a discretion to allow a claim for a reduced performance. A is utilising B's partial performance by
her getting a third party to complete the wall. B will be able to claim a reduced performance. The cost to
complete the wall is the amount by which the price will have to be reduced.

A is repudiating the contract as well as preventing performance. A's conduct shows she does not intend to
allow B to complete his performance.

2) On 10 February, she gives notice to B that, if B does not resume building the wall on 11 February,
she will get an urgent interdict against B to finish the wall. Advise B on defences

Is performance impossible or merely inconvenient or costly? It can be argued performance has become
subjectively impossible, but this depends on whether B can get other labour in such a short space of time.

If B fails to complete on time, this will be positive malperformance. A will only be able to cancel the contract
if she tenders restitution of the monetary value of B's performance, as his performance cannot be returned,
and if the breach is material. If A decides not to cancel, she still will have a claim for damages.

2. Cancellation

An extraordinary remedy that may only be employed in cases of a serious breach. If a party is not entitled to
cancel the contract, the purported cancellation may be a breach of contract, namely repudiation.

Where a party becomes entitled to cancel the contract, it must make a decision to cancel or to enforce and
the party is stuck with that choice.

If the party elects to insist on specific performance, it will be deemed to have waived its right to
cancellation. A party may lose the right to cancel the contract.

When the contractual relationship is ended any performance needs to be returned to the other party.

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Unit 28 – Damages
Damages are the remedy most often employed in practice to compensate the non-breaching party for the
losses or damages suffered by that party.
They are a cumulative remedy that may be claimed in conjunction with other remedies, provided
there has been a breach of contract and the non-breaching party has suffered patrimonial damages.

Requirements:-
- proof the non-breaching party suffered actual pecuniary or financial loss

The concrete approach is easier to apply because it focuses on the specific part of a person’s patrimony that
has been diminished rather than his or her patrimony as a whole

- a causal link between the breach and the damages suffered. As in the law of delict, a court will
enquire into factual and legal causation

General and special damages:-

The courts prefer to make a distinction between general and special damages
Thoroughbred Breeders Association v Price Waterhouse 2001

General damages are those that flow naturally and generally from the breach, and the law presumes the
parties contemplated them as a possible result of the breach. The guilty party is summarily held liable.

Special damages do not flow naturally and generally. The courts use two principles to determine liability:
the contemplation principle, and the convention principle.

In terms of the contemplation principle, liability is restricted to damages the parties actually or reasonably
must have contemplated as a probable consequence.

For the convention principle, liability is limited to damages that may be proved on the basis of the contract.
The innocent party has to prove an express or implied provision concerning the payment of damages.

The extent of a party’s liability for damages may be influenced by the mitigation rule. The non-breaching
party is expected to take reasonable steps to mitigate its damages

Parties often include a penalty clause or liquidated damages clause in their contract. This is designed to
bypass uncertainties and difficulties in calculating damages and provide a quick mechanism for the non-
breaching party to claim damages. This is now regulated by the Conventional Penalties Act 1962.

Interdicts: employed to enforce negative obligations such as restraints of trade or threatened breaches
Declaration of rights: used to obtain legal certainty where the parties disagree about the meaning of their
contract or the scope of their obligations

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Unit 29 Cession

Cession is an act of transfer of a claim.

Personal rights or claims can be ceded

X sells her claim of R10 000 against Z to Y for R7000. X cedes the right to Y and Y pays the purchase price.
X discovers that the contract of sale is void. Advise X
The contract of sale is the causa of the cession. A valid causa is not a requirement for a valid
cession. The cession is thus valid, but X will be able to claim re-cession of the claim, as Y has been enriched.
X will have to return the purchase price, because the contract of sale is invalid and X has been enriched.

The following clause appears in a contract of lease:

The lessee may not cede his or her rights under this lease, except with the written permission of the lessor.
Such permission may not be unreasonably withheld by the lessor.
The lessee cedes her rights under the lease to Z without obtaining the lessor’s permission. Z takes
occupation of the leased property. May the lessor evict Z?
The clause is a pactum de non cedendo, which is only valid if the lessor has a legitimate interest in
the restriction. The lessor has such an interest, because the identity of the occupier of the leased property
is important to the lessor. The lessee will not be able to cede her rights under the lease and the lessor will
be able to evict Z.

X cedes R4 000 of her claim against D for the payment of R10 000, to Y. Is the cession valid?
This amounts to a splitting of the claim, which would prejudice D. The cession is thus invalid

X works for Y as a domestic servant. Y cedes her right to X’s labour to her mother, Z, and informs X that she
will be working for Z in future, but that she (Y) will still pay her (X’s) salary. X does not wish to work for Z,
because Z always finds fault with everything X does. Does X have to work for Z?
The obligation to work is of such a personal nature that it would make a reasonable and substantial
difference to X whether Y or her mother enforces the right. Y’s mother is a far more difficult creditor, as she
always finds fault with X’s work. The right to X’s work thus cannot be ceded.

X cedes her claim of R10 000 that she has against Z, to Y. Z is never notified of the cession, but he hears the
claim has been ceded to Y. Z phones X and enquires whether this is so, but X denies it. Z pays X the R10 000
when it becomes due. Y claims payment of R10 000 from Z. Advise Z
The normal rule is that Z has to pay the new creditor, Y. Although Z was not notified of the cession, Z
knew of the cession. It could be argued that payment to X was nevertheless in good faith, because X denied
cession had taken place. X furthermore created the impression that no cession has taken place.

X cedes her claim of R10 000 that she has against Z, to Y. The claim arose from a contract of sale between X
and Z.Y notifies Z of the cession, but, when he enforces the claim against Z, Z raises the defence that she (Z)
concluded the contract under the undue influence of X. Advise Y
X cannot transfer more rights to Ythan those which she (X) has. Z may raise the same defences that
she has against X, against Y

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X cedes her claim which she has against Z to Y as security for a loan from Y. There is no indication in the loan
agreement between X and Y what form their security cession will take. X repays the loan to Y, but Y is
immediately afterwards declared insolvent. Advise X.
The courts will interpret a security cession as a pledge, unless the parties have clearly indicated that
they wish to create a fiduciary security cession.
In a pledge, the ownership of the claim remains with X. Only possession passes to Y. When X paid
back the loan (the principal debt), the claim automatically reverted to X. The claim will thus not fall in the
insolvent estate of Y.

Unit 30 - Termination

1) Performance
Only full and proper performance by the debtor will generally terminate the obligation.
There are exceptions.
A third party may terminate an obligation on behalf of the debtor.

The performance should ordinarily be made to the creditor, but there are instances when it may be made to
a third party.
Sometimes, a third party may be authorised to receive performance, but not authorised to claim it.

In the absence of an agreement as to the, the rules relating to mora debitoris apply:

Mora ex re:-
Performance time can be set in contract, explicitly or tacitly.

Mora ex persona:-
When no date or time has been set, and the debtor fails to perform with a reasonable time, the creditor
must make a demand interpellatio for the debtor to perform by a time. When debtor fails to perform by this
time he is mora ex persona

Tanya enters into a contract with a famous fashion designer, Edgar Ahlers, in which he will design and make
a wedding dress for her. Tanya finds out that the dress was in fact sewn by Ahlers’ friend. Tanya says Ahlers
has breached their contract. He says the friend’s performance is perfectly satisfactory. Discuss.

This deals with performance by a third party. Normally, the creditor cannot refuse the performance
from a third party if the creditor would not be prejudiced and performance is effective.

A creditor may refuse performance by a third party where the performance agreed upon requires
the personal skill and attributes of the debtor.

In this question, it can be argued the designing was personal in nature, as the personal touch of the
debtor was crucial, but the sewing can be performed by any good seamstress. Hence it appears that Tanya
may not refuse the contributing performance of the friend and Ahlers has not breached the contract.

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 2) Agreement
Rules on the termination of obligations apply to all obligations from whatever source.

Release and waiver

Different consequences may apply for a complete release than to a partial release.

Release is normally bilateral - an agreement between the debtor and the creditor. But waiver has been
construed to be enforceable following a unilateral act by one of the parties who abandons a right or remedy
that formed part of the contract for her or his sole benefit.

Novation: must already have been an existing obligation

Compromise: need not be an existing obligation
Effluxion of time, notice

Sarah sends a cheque for R1500 to Naomi, which includes a note: 'This cheque is sent in full and final
settlement of my account in order to avoid litigation and bring finality to our dispute. Once you deposit this
cheque, you will have no further claim against me'
Naomi deposits the cheque and advises Sarah in writing that she rejects the offer and that, instead, she
accepts Sarah’s cheque as partial payment towards the account. Naomi then sues Sarah for R1000.
Advise Sarah if she will be successful in defending Naomi’s claim.

This deals with the issue of an agreement of compromise. For such an agreement, there must be a valid
offer and a valid acceptance.
Here a valid offer of compromise can be inferred, as Sarah clearly put the amount in dispute and
made an offer of R1500 (in full and final settlement) to bring finality to the dispute.
There is also a valid acceptance, even though Naomi advised Sarah that she rejected the offer. Sarah
as offeror can prescribe the mode of acceptance, and Noaomi complied by depositing the cheque.

3) Law
Set off/Merger/Prescription/insolvency/death

Supervening impossibility of performance

Arnold lives in a shack that is prone to flooding. Andile agrees to pay Arnold R2 500 for a painting. The
parties agree he will pay a deposit of R500 and the remainder on delivery. Following heavy rain, the river
sweeps away Arnold’s shack and all his possessions. Briefly discuss the liability, if any, of the parties.

This deals with the issue of supervening impossibility of performance.

Two requirements:-
- performance must be objectively impossible
- impossibility must be unavoidable by a reasonable person.
The painting has been destroyed and no reasonable person could have avoided the damage. Neither
foresaw the occasion for impossibility when the contract was concluded.
So both parties’ obligations become extinct, and Andile can recover his R500 deposit through an
enrichment action.

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