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Commercial Law Fresh Perspectives 230222 182109
Commercial Law Fresh Perspectives 230222 182109
Commercial Law Fresh Perspectives 230222 182109
FreshPerspectives
3rd Edition
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Acknowledgements:
The publishers wish to thank the following copyright holders for permission to use the following material:
Text: Page 3: Quote from Brisley v Drotsky 2002 ZASCA 35 (28 March 2002), para. 4 - Supreme Court of Appeal of
South Africa. Page 10: Quote from Van Breda and Others v Jacobs and Others 1921 AD 334 — Supreme Court of Appeal
of South Africa. Page 35: Quote from Hleka v Johannesburg City Council 1949 (1) SA 842 (A) at 852-3, retrieved from
the South African Law Reports — Jura and Company (Pty) Limited. Page 40: Case R v Chitsa 1966 (2) SA 34 (R), retrieved
from the South African Law Reports — Juta and Company (Pty) Limited. Page 44: Prohibition of Disguises Act 16 of 1969
reproduced with permission from LexisNexis SA. Page 105: Quote from Brisley v Drotsky 2002 (4) SA 1 (SCA) -
Supreme Court of Appeal of South Africa. Page 279: Screenshot by permission of Oxford University Press — Blog. OUP,
hetps://blog.oup.com/2013/12/wrap-contracts-priva cy-control-consumers/, Page 391: Article ‘Saccawu: Strike
is impacting on Shoprite’ — African News Agency, retrieved from www.mg.co.za/article/2006-08-1 5-saccawu-strike-is-
impacting-on-shoprite. Page 445: Article ‘Steinhoff catastrophe biggest yet in SA and ranks among notorious global
collapses’ by Stuart Theobald — Business Day, retrieved from https://www.businesslive.co.za/bd/opinion/
columnists/2017-12-1 1 -stuart-theobald-steinhoff-catastrophe-biggest-yet-in-sa-and-ranks-among-notorious-global-
collapses/ Page 470: Article “Two eagles on their last flight’ - Netwerk24-05/09/2017Seugnet van Zyl and Andrea Kiisel.
Page 471: ““Free beer” as Capetonians loot SAB truck’ — Timeslive. Page 471: Adaptation from World Bank website -
World Bank. Page 491; Logo — Proudly South African. Page 497: ‘Hippo Roller’, based on Javan, M “Water, dignity and
the Hippo Roller Project’ (17 October 2017), retrieved from hetps://www.brandsouthafrica.com/play-your-part-category/
water-dignity-and-the-hippo-roller-project — Brand SA. Pages 510, 511, 515 and 517: Quoted material — The
Competition Act 89
of 1998. Page 515: Quoted material — The Competition Tribunal section 8(c) and 8(d). Page 516: Quoted material —
The Competition Act section 9(1). Page 15, 37,43, 111, 182, 207, 270, 278, 280, 282, 330, 445, 446, 508 and 509:
Extracts from legislation — This legislation was prepared by the University of Pretoria. Please note that legislation is always
changing, therefore it is advisable to go to the University of Pretoria’s website: http://www.lawsofsouthafrica.up.ac.za/ to
check for the latest versions of Acts and Regulations.
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Contents
Part 3:
Types of contract
Chapter 14
The law of sale (Avinash Govindjee) ..........ccccceccceees
Chapter 15
The law of lease (Dave Holness) ...0..00000000c0ccceeeeeeeeeeeee
Chapter 16
Credit agreements (Dave Holness) ..............2..00:.200eeee
About the authors
Avinash Govindjee is Professor of Law and Executive Dean of the Faculty of Law, Nelson Mandela University,
a consulting attorney to Cliffe Dekker Hofmeyr and a part-time senior commissioner of the Commission
for Conciliation, Mediation and Arbitration. He is the editor of all three editions of Commercial Law —
Fresh Perspectives.
Karmini Pillay is an academic in the School of Law, University of the Witwatersrand, and a facilitator in the Labour
Dispute Resolution Programme for the Commission for Conciliation, Mediation and Arbitration at the Mandela
Institute. She is the editor of the third edition of Commercial Law — Fresh Perspectives.
Joanna Botha is the Head of Department of Public Law, in the Faculty of Law, Nelson Mandela University. She is
also an attorney of the High Court of South Africa.
Sarah Driver is a senior lecturer in the Faculty of Law, Rhodes University, where she has taught for the last
18 years. Her fields of interest are succession and intellectual property.
Verine Etsebeth is a senior lecturer in the University of the Witwatersrand’s School of Law. Verine, who is an
admitted attomey, has presented papers nationally and internationally, particularly on IT Law.
Dave Holness is Director of the University of KwaZulu-Natal’s Law Clinic and a senior lecturer in UKZN's Law
School. He is a practising attorney of the High Court of South Africa. He has published in the fields of commercial
law, socio-economic rights and legal aid.
Judith Katzew |s a lecturer in the University of the Witwatersrand’s School of Law. She has a particular interest in
company and insurance law and has taught and published in these fields.
Stephen Newman lectures in the Department of Mercantile Law at Nelson Mandela University. His fields of interest
are consumer protection and international trade law.
Heidi Schoeman is a senior lecturer in the Law Department at the University of Zululand. She is also an advocate
of the High Court of South Africa.
Abigail Shirk is an attorney, conveyancer and notary in practice. Previously, she lectured in law at the University of
Cape Town.
Priya P. Singh is an admitted attorney and notary and is a lecturer in the School of Law at the University of
KwaZulu-Natal, where she teaches the law of delict, the law of succession, maritime law and cyber law. Her
doctoral research deals with the development needed by the South African law to cope with privacy infringements
on social media networking sites.
Mark Tait is an associate professor and the Head of Department of Mercantile Law at Nelson Mandela University.
Tanya Wagenaar lectures in the Faculty of Law at Nelson Mandela University. Her fields of interest include
intellectual property law, environmental law and law of the sea.
Chapter
Part 1 gives you a basic introduction to the study of law. In Chapter 1, we begin by defining the law
because it’s a good idea to understand what something means before you examine its components.
Next, we outline the history of South African law, and explain where you can find it recorded. Finally,
we discuss the functions and powers of the various courts in South Africa and distinguish between some
of the main roles of the people who work there. In Chapters 2 and 3, we look at the branches of the law
and the interpretation of the law.
You will also come across the term legal subject. This means any person to whom the law The parties are the people
applies. This is dealt with in more detail in Chapter 2. involved in an agreement
Laws are often based on legal principles. A legal principle is a generally accepted or disagreement, in other
standard of conduct or behaviour that has the backing (or support) of the law to make words, the two sides.
it legally binding. If something is legally binding, you have to obey it because you can
be held responsible for it in a court of law. For example, there is a legal principle that if something is ‘valid’ it is
people should be honest when they make an agreement. Usually, when two parties Ber ertane Ort Bases OF
decide to work together, they sign a contract (a legally binding ‘agreement) that states truth. So if an agreement
ace Ba
what each party agrees to do. When one party to a contract or agreement fails to tell the acceptable or binding; it
other party all the facts that might affect the agreement, the law may determine that the has no legal force.
contract is invalid.
Legal rules, as you saw above, are rules that everyone in a society has to obey. If you break a law (legal
rule), the state can take you to court and may punish you with a fine or a prison sentence. In Chapter 2,
criminal law, as a branch of law, will be dealt with in more detail.
Moral rules, by contrast, are subjective. They are personal standards of behaviour as to what is right
or wrong based on people's belief systems, which are usually shaped by their religion. These belief
systems can be different for different people or groups in the same society, and behaviour considered
morally or evenly legally right or wrong may change over time. In relation to the previous sentence, for
example, adultery was considered illegal and generally immoral in South Africa at one point, but this is
no longer unlawful. Another example of a moral rule is that some people believe it is wrong to have sex
with someone you are not married to. They have a moral rule that prevents them from behaving in that
way. But, this (moral) rule is not a law in South Africa, and the state will not punish you just because
you are not married to someone you had sex with. Of course, there are many laws that do govern who
you can and cannot have sex with. For example, both people must consent, they must be over a certain
age and they may not be too closely related (like brother and sister).
There is a lot of overlap between moral and legal rules. For example, most of us would agree that
murder and theft are not only illegal (against the law), but also immoral (against our belief systems or
standards of behaviour).
Sometimes, laws can even be immoral, as we experienced in South Africa under apartheid, not too
long ago. The law forced people to treat one another unfairly, based on their skin colour. For example, in
terms of the apartheid era legislation, called the Immorality Act 23 of 1957, white people and non-white
people were not allowed to have sexual relations with one another. Religious leaders and organisations,
such as human rights organisations like the Black Sash, protested on moral grounds, because various
apartheid laws did not respect the human rights that every person should have.
The Cabinet, which is the Executive, consists of the president and all the ministers of the
various state departments, and makes policies that put the legislation into practice or result
in new laws. The Cabinet can be considered the second arm of government. The third arm
of government is the judiciary, being the courts, which must decide whether laws have
indeed been followed or not and then make findings flowing from that determination.
Various other organs of state enforce the laws passed by Parliament. In other words, Organs of state are parts
they give force or power to the law by holding people responsible when they break the law. of government that have
For example, if I steal some digital cameras from a shop and someone catches me at it, the particular functions like
the police station, courts,
police will arrest me. I will then have to appear in court. If the court finds me guilty, I will
and correctional services.
have to pay a fine or go to prison. By enforcing the law in this way, the state makes sure that The Cabinet is also an
people obey the laws. The courts of law, judges and magistrates, also called the judiciary, organ of the state.
form the main part of the law enforcement process.
Here is another example of law enforcement. During severe droughts in the Western Cape,
local government made (and continues to make) new laws to restrict the use of water (because of
water shortages). People living in Cape Town could no longer water their gardens, unless they had a
borehole or used their bath water for their plants. A group of people known as the ‘water police’ went
around the neighbourhoods to check that everyone obeyed these rules. Those who used water illegally
had (as of 2017) to pay fines and those who exceeded their daily water usage quota faced very high
charges for their water usage.
Activity 1.1
1. The law is not easy to define. Everyone you speak to may have a different idea of what it is and
what its most important aspects are. Discuss with a partner how you would define the law.
2. Write down your own definition of the law and its most important components in no more
than 100 words.
3. Why are you studying commercial law? What benefits do you expect from doing this course?
if you have never really thought about it, think about it now. Write down every benefit you
could gain, both as a student and in your later career, from a good knowledge of commercial
law. A good list of benefits can be a great help when you are struggling to stay motivated.
4. Imagine a society without any laws. With a partner, discuss what such a society would be
like and why this would not be able to operate.
Activity 1.2
This is a good time, if you have not already done so, to look at the headings in this chapter and
use them to draw a ‘tree structure’. Start with the main headings, which are listed under ‘The
main ideas’ on the first page of the chapter. Then, let the next level of headings branch out from
those, and so on. This does not take long, but will give you a very useful road map of where the
chapter is going. Do this with each new chapter you study, and you will find that things make
sense much more quickly. These tree structures are also useful in exam preparation.
The main sources of law can be divided into primary and secondary sources. Primary sources include
legislation, the Constitution of the Republic of South Africa, 1996, common law, customary law, judicial
precedent, foreign law, international law and trade practices and customs, whilst academic textbooks and
journals are secondary sources. Primary sources refer to original sources of law, where you find the law,
whereas secondary sources refer to what has been written about those primary sources of law. Clearly,
therefore, the primary sources of law are of greater importance for lawyers and are legally binding as a
source of law.
Now let us look at each of the abovementioned sources of law in turn.
1.5.1 Legislation
Legislation consists mainly of Acts (also called statutes), which are laws passed (or made) by the national
Parliament. Provincial and local levels of government also have the power to create legislation, which is
in the form of provincial statutes, by-laws and regulations.
By-laws are laws that are specific to a particular town or local area. For example, there may be a
by-law stating that dogs may be in public parks only when being walked on a leash. Regulations give
detail as to certain legal rules. For example, in a drought situation when there are restrictions on the
amount of water allowable per person, a regulation may set what the number of litres per day is at a
particular point in time.
Because South Africa is a democracy, you as a citizen have a say in electing the people who will
represent you in the various legislatures. These elected members should pass laws that have a positive
effect on the lives of the people they represent.
Legislation is the most important source of law, because it overrides any other source of law, except
the Constitution of the Republic of South Africa, 1996, which must be understood as a special form of
supreme legislation, and therefore stands as a separate source of law on its own. The supremacy of the
Constitution of the Republic of South Africa, 1996, is set out in section 2 of this Constitution.
Assuming that there is no constitutional issue at play, if two sources of law conflict with each other,
you have to follow legislation. If any source of law conflicts with the Constitution (which, as stated,
is supreme), then the Constitution’s provisions must be followed. For example, the death penalty
used to be allowed as a form of criminal punishment for certain serious crimes, but in the light of the
Constitution’s protection of the rights to life and dignity, this form of punishment has been outlawed.
Legislation also has the advantage of being more flexible than other sources of law. By this we mean that
legislation is fairly easy to change when new needs arise in society. For example, if the government needs
extra money to fund the building of more schools, it can pass a new tax law to raise the necessary funds.
Levels of legislation
You have seen that several different levels of government have authority to create legislation. Generally,
the laws created by higher levels of government have more authority than the laws created by lower
levels. For example, the national Parliament passes sovereign legislation, or primary legislation, which
is the highest source of legislation. Lower legislatures generally pass subordinate (lower) legislation,
but they may pass sovereign legislation on certain matters. A law-making body may have
the right to give someone else the power to make a law. This is known as delegation of To delegate means ‘to
legislative power. When the national or provincial government gives a municipality the give someone else the
right to pass laws on matters concerning that particular municipality, that is an example BEATTY ANE I ESDOS IORI
of delegation of legislative power. todo 9 particular task’.
Sovereign legislation
(e.g. an Act of Parliament
passed by the
National Assembly)
|
Lower legislation
(e.g. a Provincial Act passed by a
provincial legislation, such as the
Kwa-Zulu Natal Provincial Legislature)
|
Lower legislation
(e.g. municipal ordinance
or by-laws)
In this textbook, we do not discuss many specific cases decided by South African courts. Instead,
we give more general examples to explain the concepts and principles. But we do include a
few real cases that have come up in the South African courts, either because they illustrate a
particular point or because they are important cases in South African law.
e Legal cases are always named, or cited, in a certain way, and each part of the name Is
important as it assists in finding the case.
e The case name starts with the names of the litigants, for example Smith v Jones. The
‘v’ stands for versus, which is Latin for ‘against’. You will also find case names beginning
with ‘S v ...". The letter ‘S’ is an abbreviation for ‘the State’, and this is the standard way of
citing criminal cases in law reports.
- Always italicise case names, such as Smith v Jones when typing them. The exception to
this is when the rest of the text is in italics. Then you may use Roman font. When writing a
case name by hand, such as in an exam or test, you must underline the case name.
e Next comes the year of the case, for example, 1995. The year may be in brackets,
depending on the referencing format for a specific publication series.
e Then (sometimes in brackets) you get the volume number of the law reports where the
case appears.
e The next abbreviation (SA or All SA) tells you which series of law reports to look in. ‘SA’
means the South African Law Reports published by Juta; ‘All SA’ refers to the Ail South
African Law Reports by Butterworths.
e This is followed by the page number where you can find the case.
© Finally, an abbreviation in brackets that tells you which superior court gave the judgment.
For example, (CC) means the Constitutional Court, (C) is the Cape High Court, (N) is the
KwaZulu-Natal High Court, and (A) or (SCA) refers to the Supreme Court of Appeal.
e Here's an example: Pillans v Jooste 1999 (1) All SA 367 (SCA) at 370 would refer to the case
between litigants called Pillans and Jooste reported in Volume 1 of the Ail South African
Law Reports of 1999, heard in the Supreme Court of Appeal and beginning on page 367.
The final bit, ‘at 370’, means that the writer is referring particularly to something on that
page. Now it’s your turn. Can you work out what the following two case citations mean?
-— Haynes v Queenstown Municipality 2001 (2) SA 371 (SCA) at 375
-— Worman v Jones 1968 (4) SA 762 (C).
Activity 1.3
1. By way of a flow diagram, list the different sources of South African law in what you consider
their order of importance; thereafter explaining why certain sources take precedence over others.
2. Debate with a friend whether courts can be said to be makers of law, just interpreters of the
law or a combination of both.
3. You may have come across several new words in this chapter, and will learn many more
as you continue your studies. This is a good time to record the new words that you learn,
along with their meanings in a notebook. Start with the words in bold or italics in this
chapter, and add any others that you're not sure of.
Write down three common law crimes that apply in South Africa.
be
Find out (by asking class mates or members of your community who might know) about
Sa
certain customary law rules that apply in the area of South Africa that you live in and the
key aspects thereof. Then provide a written summary of these.
Table 1.1 Differences between the terms used in criminal and civil cases
Magistrates’ Courts
There are two levels of Magistrates’ Courts:
@ = District Magistrates’ Courts
= Regional Magistrates’ Courts. (A region is larger than a district.)
Regional Magistrates’ Courts hear criminal and some civil cases within their region (which
is larger than the region of a District Magistrates’ Court). They are the highest in the Treason Wie cine oF
: se : : > ER ae betraying your count
hierarchy of the inferior courts. Regional Magistrates’ Courts have jurisdiction over all tri 2 oe Reon ae
criminal cases except treason. They can sentence convicted persons to a maximum of life government.
imprisonment or a fine per crime. A fairly recent development is that Regional Magistrates’
Courts may now, along with High Courts, hear divorce cases. Magistrates’ Courts do not
Decisions of Magistrates’ Courts, whether district or regional, do not create judicial set precedent because of
precedent. In other words, if a Magistrates’ Court decides a case a certain way today, another _ their status as lower courts
court can decide a similar case differently tomorrow if that second magistrate interprets the 2% because the decisions
law differently. However, where a higher court has decided a similar case a certain way before, ee cae se
the Magistrates’ Court has to follow the precedent set by the higher court in its jurisdiction. Sea
High Courts
Instead of a magistrate, the High Courts have judges, with a judge president at the head of
if you appeal against a
each High Court. A High Court’s jurisdiction extends only over the province in which it is court's decision, you ask
located. High Courts used to be called Supreme Courts, and you'll still find that reference a higher court to consider
in the literature. High Courts hear both criminal and civil matters, and they review cases the matter again and see
and hear appeals from the inferior courts. They can also hear some constitutional matters, where the lower court
but some of these decisions need to be confirmed by the Constitutional Court. made a wrong finding. If
you believe that you lost a
The High Courts, having inherent jurisdiction, may hear any criminal case and also civil
case because the presiding
claims over any amount of money. In criminal matters, they have jurisdiction to sentence a officer was unfair, you
convicted criminal to various punishments, right up to life imprisonment. may ask a higher court to
The High Court has provincial and local divisions. Although provincial divisions are review the decision of the
higher up the court hierarchy than local divisions, their powers and functions are the first court.
same, except that local divisions cannot generally hear appeals. An example of a provincial
division is the KwaZulu-Natal Provincial Division, based in Pietermaritzburg. The Durban and Coast
Local Division is a local division of the High Court and sits in Durban.
High Courts are bound by their own earlier decisions in the same province, but one High Court is
not bound by the judgments of a High Court in another province. This is because the various provincial
divisions are at the same level. However, a High Court may consider the decisions of other divisions to
have persuasive authority. Persuasive decisions act as guidelines, which a court may choose to follow or
not, Sometimes, two provincial divisions hold different views on a particular point of law, in which case
only the Supreme Court of Appeal can resolve the matter. The size of the High Court, determined by
the number of judges that presided over a matter, is also a factor that determines its weight as judicial
precedence — the larger the court, the more weight it carries when setting judicial precedent.
Where two High Courts disagree on a point, the Magistrates’ Courts in each province are bound by
the viewpoint of their own High Court.
Special courts
Special courts are at the same level of the court hierarchy as the High Courts, and create judicial
precedent for themselves. ‘Their purpose is to hear specialised types of cases. The Labour Court, the
Income Tax Special Court and the Water Court are some examples of special courts. Appeals from
the Labour Court go to the Labour Appeal Court, which is at the same level as the Supreme Court
of Appeal, but deals only with labour matters.
Prosecutors
To prosecute someone means to charge that person with a crime and to put them on trial so that a
judge or magistrate can decide whether or not they are guilty of that crime. Prosecutors, who are state
employees, are lawyers who represent the state in criminal cases, and they try to convince the court to
convict guilty persons. In this way, they protect the interests of the community, victims and witnesses. At
the same time, they also have to make sure that justice is done, and that the accused are treated fairly in
court. Prosecutors base their prosecution on the case docket, which is a file of all the evidence the police
collected during their investigation. By evidence, we mean proof in the form of information or facts that
support (or, on the other hand, conflict with) what a person is saying.
Prosecutors are part of the National Prosecuting Authority (NPA), which is headed by the National
Director of Public Prosecutions (NDPP) and several Directors of Public Prosecutions (DPP). The
prosecuting authority has powers to decide on things like which charges to lay against an accused and
whether to continue with a prosecution or withdraw charges. For example, the NPA decided to withdraw
charges of theft and fraud against the former Finance Minister, Pravin Gordhan, in October 2016.
Other important positions in the court hierarchy are those of the registrar of the court, the clerk of
the court and the sheriff.
Magistrates
A magistrate presides over (is in charge of) a Magistrates’ Court, Magistrates are employed by the
Department of Justice. It is common for experienced prosecutors to be appointed as magistrates.
Judges
Judges preside in the High Courts, special courts, Supreme Court of Appeal and Constitutional Court.
So the presiding officers in all the superior courts are judges. They are appointed from the ranks of
practising advocates, attorneys, magistrates and legal academics.
Judges enjoy security of tenure, which means nobody can dismiss them from their positions except
Parliament, and then only by following a special procedure. The purpose of this principle is to keep judges
independent, and to protect them from influence by the legislature (law makers) and the executive (the cabinet).
Activity 1.4
1. Ina table, compare the superior and inferior courts. Remember, to compare means to
highlight the differences as well as the similarities.
2. Then draw a mind map of the basic structure of the court system, focusing on the
jurisdiction of each court. This will become a very useful reference and revision tool.
3. Draw another mind map or diagram to summarise:
a) the roles of different legal positions in civil matters/cases
b) the roles of different legal positions in criminal matters/cases.
To solve legal problems, we have to apply the correct legal rule or principle. Suppose you have to
solve the following problem: Your client has leased a house for one year, starting on 1 January of
this year. Two weeks later the roof caves in. She can no longer live in the house, so she wants to
cancel the lease. Can she do so?
The first step is to classify the problem. To do that, you need to determine what area of the
law is involved. When you have identified the area of the law that applies, you will need to find
the applicable rule. Then you have to apply the rule to the facts and ask whether the facts justify
the application of the rule.
We cannot answer this example in detail at this stage, because we have not yet discussed the rules
of the law of contract and the law of lease. But it’s important that you note the logical problem-solving
technique we use in legal matters. The process of legal reasoning follows four preliminary steps:
1. Identify the legal issue and the relevant branch of law.
2. Find the applicable legal principles.
3. Apply the law to the facts so as to give advice to your client.
4. Obtain the necessary remedy, if any, or apply the law to the facts to reach a legally sound
conclusion. In the legal context, a remedy is a way of solving a problem via a legal route.
This is the approach to use when you deal with any legal problem or when you answer problem-
type questions you may come across in your commercial law studies.
Being able to use the right words in the right way in your discussions or in writing will boost
your confidence as you study law. Always keep your language as simple as possible.
e Make sure you understand the meaning of any Latin term you use. If you're not sure of the
Latin, rather use the English term. Also, consider whether using the Latin term actually adds
to what you have written; if the Latin term does not add to what you have written, it is
better to stick to the English term.
e Do not use long or complex words just because they sound impressive — people just are not
impressed by that anymore. Even the government is now making a real effort to use plain
language in its publications. Simpler is better!
Chapter summary
In this chapter, you learned the following about the traditional law of indigenous people, which developed
background to South African law: parallel to common law.
Law controls relationships in society and consists of ‘The main sources of South African law are as follows:
legal rules and principles made and enforced by the = ‘The most powerful source of law is
state. Legal and moral rules often overlap, but are not legislation, which is passed by legislatures
the same, since the state makes and enforces legal rules and recorded in statute books. The Constitution of
but not moral rules. the Republic of South Africa, 1996, is the supreme
The South African legal system originated from law (legislation) of the country.
Roman-Dutch law, English law and customary law, the
™ Regional Magistrates’ Courts decide criminal 4. Conclude by advising or doing whatever else
cases and divorces in their region. They cannot is required.
hear treason cases and can impose a maximum jail
sentence of life imprisonment or a fine per offence.
Further reading
Barratt, A. and Snyman, P., ‘Researching South African Law’, Education & Training Unit (ETU), ‘Paralegal advice website’
March 2005 updated by Kapindu, R.E., GlobaLex website of February 2002, updated 2011, ETU and the Black Sash
the Hauser Global Law School Program, New York University (accessed on 3 October 2011) http://www. paralegaladvice.org.za/
School of Law (accessed on 3 October 2011) http://www. (This is a very useful and easy-to-read website based on a
nyulawglobal. org/ globalex/South_Africa.htm paralegal manual produced by the Black Sash and the ETU.
(This is a very useful reference site, created by two law librarians The home page has a simple but helpful dictionary, which you
and senior law students at the University of Cape Town and can download. The Documents section, Chapter 3, “Courts
updated by R.E. Kapindu, Deputy Director of the South and Court Cases’, discusses some of the areas we covered
African Institute for Advanced Constitutional, Public, Human in this chapter, such as the sources of law and the court
Rights and International Law (SAIFAC). Apart from giving hierarchy. Note that you can download a page at a time or
much more detail on certain topics in this chapter, they also the whole chapter.)
offer very useful references. Have a look at this site now so you National Prosecuting Authority of South Africa, Home page, July
know where to find things you may need in future.) 2005, National Prosecuting Authority website (accessed on
Buzan, Tony, with Barry Buzan. 1995. The Mind Map Book— 3 October 2011) http://www.npa.goy.za/
Radiant Thinking: The Major Evolution in Human Thought. (This site offers interesting information on the role
(revised edn) London: BBC Books of prosecutors.)
(If you cannot find this one, look for any other book by Tony
Buzan on mind mapping. You can also explore the website
www.mind-map.com/)
This chapter begins with an overview of the various branches of law and then focuses on the difference
between criminal law and the law of delict. Next, we examine the South African civil procedure, which
is important for legal practice because it’s the only way to sort out claims for money in court. Finally, we
distinguish between natural and juristic persons and between real rights and personal rights.
Let us define each of these divisions briefly, and look at their subdivisions.
Public law
Public law is the law that governs the relationships between the government (the state) and its citizens.
We can further divide public law into other branches of law, including:
® constitutional law
= administrative law
® criminal law.
Constitutional law deals with the Constitution, which provides for (or looks after):
=~ people’s fundamental rights
m the distribution of legal power in the state
@ = the functions of the various parts of the government.
Administrative law regulates the power of the state over private individuals and tries to make sure that
state officials and departments do not use their influence or authority in ways that are unfair (in other
words, abuse their powers).
Criminal law determines what actions are unlawful and what punishment the state should impose for
each crime.
Mercantile law is the law relating to companies and other areas in the business or commercial field such
as labour law and the law of insolvency. Commercial law is a subject area that tries to summarise the
main provisions of mercantile law.
The law of obligations deals with peoples’ personal rights when these rights have a monetary value for
the people concerned. (In other words, you can describe those rights in terms of an amount of money.)
Obligations come mainly from the law of contract and the law of delict, which we explain below. Note
that obligations can also come from unjustified enrichment.
The law of property, also called the law of things, generally contains rules about the ownership of
objects or land.
The law of persons explains the rules about being a legal subject of the country, meaning a person
who has rights and obligations under the national law. It defines who is or is not a legal subject,
distinguishes between the different types of legal subject and clarifies their legal positions.
Family law deals with the requirements for marriage and the relationships between parents and children.
Finally, the law of succession deals with the way a person’s estate is divided up after she dies. A
person’s estate includes everything that she owns once everything she owes to other people is deducted.
Procedural law
A tule or law is not much use if it cannot be enforced, or put into effect in everyday life. Procedural law
has to do with the way legal rules are enforced. It describes the steps you can take to get help when you
have suffered harm or loss. Procedural law has three aspects, namely:
1. the law of evidence
2. the law of criminal procedure
3. the law of civil procedure.
The law of evidence guides a court in deciding what the parties before it have to prove to succeed in a
legal case. It also explains how the parties should prove certain facts. The rules of evidence apply both to
criminal and civil cases.
The law of criminal procedure describes the steps the state has to take when it prosecutes a person
who has committed a crime.
The law of civil procedure sets out the process for enforcing non-criminal law, usually when one
person sues another.
Clearly, law isa broad and varied field, and fortunately we do not need to cover all of it here. For your study
of commercial law, the most relevant aspects of procedural law are civil procedure and the law of evidence.
Activity 2.1
Draw a diagram — or even better, a mind map — to show the different branches and sub-branches
of South African law. Add as much detail as you like, preferably using different colours. This
activity will help you understand and remember how the different divisions fit together. it will
also create a useful summary for reference and revision.
Does your family have a relationship with a firm of attorneys, or have members perhaps consulted
with the local Legal Aid Clinic or Legal Resources Centre? Find out from a senior member of your
family. A sound relationship with a legal practitioner (lawyer) could be very helpful in the years
to come. Whether you are buying a house, getting married, inheriting money or starting a new
business, a good attorney can be an excellent person to discuss new ideas and developments with.
Attorneys can be general advisors to individuals, couples or families. Your attorneys will know a
number of specialists from other fields, so if they cannot help you themselves, they will probably
be able to refer you to people who can sort out your particular problem.
Naziem pulls up at a red traffic light in his brand new car, and sees his former girlfriend in the
car next to him. He is so busy trying to attract her attention that he does not notice immediately
when the traffic light changes to green. Sasha, driving another car, is watching the storm at sea
as she cruises down the road. She glances at the traffic light and sees that it’s green — but she
does not notice Naziem’s car until she smashes into the back of it. Sasha thinks that the accident
was caused because of the poor visibility and because Naziem’s car is grey in colour, Naziem
suffers R30 000 damage to his car, while Sasha's car will cost R20 000 to repair. The evidence
shows that Sasha was under the influence of alcoho! at the time of the accident.
Naziem approaches his attorney, who sends Sasha a letter of demand to claim the R30 000.
Sasha's attorney writes back, saying that the accident was partly Naziem’s fault, since he did not
drive away promptly when the traffic light turned green. Therefore the accident was out of
Sasha’s control, and she does not intend to pay.
It is clear from the facts in the case study that Sasha has committed a crime. She can be
charged with driving under the influence of alcoho! or with reckless and negligent driving. If the
court finds her guilty, she will probably have to pay a fine or could end up in prison. However,
this does not help Naziem pay for the damage to his car.
Fortunately for Naziem, there is not only criminal law but also civil law, which is the law
concerning private rights. Sasha's action of driving into the back of Naziem’s car is a delict as
well as a crime. A delict is a civil wrong that allows the wronged party to claim money. We can
define a delict as a wrongful act that causes monetary harm to a person and which can be
blamed on another person. The law of delict, which forms part of civil law, allows Naziem to
claim payment from Sasha for the loss he has suffered. This is called a claim in delict.
Activity 2.2
Discuss and summarise the key differences between civil and criminal cases.
‘The trial procedure is used when the parties are in dispute about the ‘wrongdoing’ of a person, since they
need the opportunity to question each other in court.
The application procedure is a simpler process, because there is no dispute of fact. The case before the
court is now more about applying the law to the facts.
The pleadings
A civil case is about one person taking legal action against another. The person who makes the first claim
is known as the plaintiff (Naziem, in the case study). To start the claim, the plaintiff's attorney issues a
summons. The summons is a document that contains the plaintiff's claim against the defendant (Sasha,
in the case study). It is the duty of the sheriff of the court to deliver the summons to the defendant — we
call that ‘serving a summons’. The sheriff will personally go to the business or residential address of the
defendant. After making sure that it is the correct address, the sheriff will serve the summons on a person
at that address or leave it under the door or attached to the door.
If the defendant wants to defend the case, she must notify the plaintiff by sending a notice of
intention to defend, which is a document, stating in writing that she is going to dispute the plaintiff's
claims and defend the case. The defendant must then deliver a plea that sets out the grounds for defence.
A plea is a formal reply to a summons. It is a written document in which the defendant responds to each
claim or allegation in the plaintiff's summons in one of three ways, namely by admitting, denying, or
claiming no knowledge of the allegation.
The trial
‘The purpose of the trial is for the court to decide whether or not the allegations made in the pleadings
are correct. After some opening statements, the plaintiff's advocate or attorney calls all the witnesses who
can testify in support of the plaintiff's case. All this evidence is given under oath. Evidence under oath
is a statement given after the deponent, the person making the statement, has sworn to tell the truth.
The court generally only accepts verbal evidence, known as viva voce evidence, by the Viva voce is alatin term
parties in support of their cases. The best way for a court to assess whether or not witnesses meaning ‘living voice’.
are telling the truth is to put them under cross-examination, which means the attorney Viva voce evidence
or advocate of the other party questions them. The judge or magistrate is then in a better refers to oral evidence of
position to make a judgment on the matter. In other words, the plaintiff's lawyer questions _@ Witness as opposed to
each witness and then the defendant's lawyer has the chance to cross-examine these witnesses. written sas evidence,
a such as
‘The plaintiff's lawyer — the term ‘lawyer’ covers both attorneys and advocate — then gets an affidavit.
an opportunity to re-examine each witness, to clear up any confusion caused by the other
advocate’s cross-examination. Once this procedure has been completed for the plaintiff's witnesses, the
process is repeated with the defendant’s witnesses. The lawyers then make closing statements in which they
summarise the points in favour of their cases and remind the court of the ruling they want.
Chapter 1 makes clear that in a criminal case, the state has to prove the guilt of the accused “beyond
reasonable doubt’. In civil cases, the test that the courts use to judge whether or not the plaintiff's case
has been proved sufficiently is called the balance of probabilities. This is a lower test. The test is whether
or not the plaintiff's story is probably true. So the onus of proof, or burden of proof, is on the plaintiff,
meaning that it is up to the plaintiff to prove that his case is probably true. This is why the plaintiff's
witnesses will testify first. If the court judges the plaintiff's version of events to be true on a balance of
probabilities, it will award judgment in his favour, usually together with most of the legal costs he has
paid. If the plaintiff has not proved his claim, the court will usually dismiss the plaintiff's claim and make
the plaintiff pay most of the defendant's costs.
To picture the court's methods in coming to a decision, think of the well known image of the
scales of justice. Imagine the judge listening to all the witnesses and weighing the evidence on a
set of balancing scales. In this way, the judge tries to see which side of the evidence carries more
weight and is more believable: the plaintiff's or the defendant’s.
The Appeal Court does not hear any new evidence. It only tests whether the previous court's judgment
was correct in the light of the evidence given in that court.
If you believe that you lost a case because the presiding officer was biased or unfair, you may ask a
higher court to review the decision of the first court. You can also ask for a review if you believe that the
procedure followed in court previously was incorrect. For example, if the court failed to give your lawyer
a chance to cross-examine a witness, you can apply to a higher court to review the case. So, a review tests:
=~ whether the previous court followed the correct procedure
= whether the attitude of the magistrate or judge was fair.
Activity 2.3
Explain what the South African civil procedure is and what cases it applies to. Then summarise
the trial procedure from the pleadings stage onwards. Draw a flow diagram or mind map as part
of your summary.
Principle
Children can sometimes be caught up in a legal dispute involving their parents. While they
would generally be able to go to court only with the assistance of a parent or guardian, a
curator ad litem — a independent person such as an attorney or an advocate — should be
appointed to assist them in cases where they have a conflict with their parents’ intentions.
Facts
A divorced couple secured joint custody of their four children — three children under the age of
11 and one child aged 14. At first the parents lived in the same city and enjoyed a harmonious
arrangement in terms of which there was mutual access to the children. Sometime later, the
mother wanted to relocate to another country and to take the children with her, but their father
objected. The children found themselves being caught up in the dispute between their parents
and approached a Justice Centre for assistance.
The court's finding
The Justice Centre should have asked the court to appoint one of its own employees
(an attorney or advocate) as a curator in the exercise of its ordinary discretion. Instead it
unnecessarily chose a more complex route. The appointment of an employee of the Legal
Aid Board as curator would have met everything that was required. The case was presented
instead as an application for the appointment of a legal practitioner, under section 28(1)(h) of
the Constitution.
TTB act
le ht Joel's car
Joel owns a car and decides to sell it to Nomalizo. Joel agrees to deliver the car to Nomalizo in
return for payment of the amount of R100 000. This is an example of an agreement of sale. The
agreement between Joel and Nomalizo creates personal rights for both Nomalizo and Joel. While
Nomalizo has the personal right to claim delivery of the car from Joel, Joel has a personal right
to claim R100 000 from Nomalizo.
¢ Nomalizo will have a real right against the whole world to possession of the car only after
ownership of the car has been transferred to her, in other words, after the car has been
delivered to her and she has paid the amount of money that makes her the owner of the car.
Activity 2.4
Explain your understanding of legal subjects and the nature of legal rights to a partner.
In this chapter, you learned the following about We distinguished between a crime and a delict.
branches of the law: = = Ina criminal case, the state prosecutes, and has to prove
There are three branches of law that affect us in the guilt of the accused beyond reasonable doubt.
South Africa: ® In civil cases, the plaintiff has to prove her claim on
® international law — from international conventions a balance of probabilities.
or treaties
® foreign law — from other countries A delict is a wrongful act that causes monetary harm to
= South African national law. a person and which can be blamed on another person,
A civil procedure can be either a trial procedure
We can divide our national law into: or an application procedure. In a trial procedure we
= public law — about the relationship between identified the following four phases:
government and the public ® the pleadings
= private law — dealing with relationships between ws the trial
private individuals ® appeals and reviews
™ procedural law— about ways of enforcing legal rules. = = the enforcement of court judgments.
Where the facts are not in serious dispute, the matter
We further divided procedural law into:
m the law of evidence — dealing with what the parties can be brought by way of application.
Legal subjects include natural persons (humans) and
must prove to succeed in their cases
® criminal procedure — about how the state has to juristic persons (legal entities that have no actual physical
prosecute the accused in a criminal case existence). Registered companies are legal persons, while
® civil procedure — about the formal process for sole proprietorships and partnerships are not.
enforcing non-criminal law. Legal rights can be real rights (rights over things) or
personal rights (rights against persons).
1. Which of the following describes private law situations? a traffic light and collided with a police vehicle.
a) The Constitutional Court decides that The damage to the police vehicle is R50 000.
abortion is legal. d) a), b) andc)
b) Awoman kills her husband. e) None of the above.
c) The Minister of Police sues a driver for damages 2. Using examples where possible, explain in your
because the driver negligently failed to stop at own words when a litigant would use:
a) atrial procedure
b) an application procedure.
Further reading
Although the language of the law attempts to be as specific as possible, life does not always fit neatly into
the law's definitions. Therefore, as lawyers, we need to determine the purpose and aims of a statute, or
piece of legislation, and apply our understanding of the law to real-life situations.
In this chapter, we will look at what it means to interpret a statute. Statutory law consists of
governmental Acts and Regulations. ‘Acts’ are also known as ‘statutes’ or ‘legislation’, and they are passed
by Parliament. We will study the two traditional approaches to statutory interpretation and consider what
impact the Constitution of the Republic of South Africa, 1996, has on the interpretation of statutes.
We will also look at some of the most widely used internal and external aids that courts use to assist
them in interpreting a statute.
‘The above examples show instances where the court is required to ‘interpret’ a statute.
There has been much debate about the use of the various theories. Each of these approaches contains or
uses various techniques in the interpretation of statutes.
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SA 570 (SCA)
Principle
The words of a provision must first be given their ordinary, grammatical meaning to establish the
intention of the legislature, and if this meaning is clear, then it prevails.
Facts
Frozen mutton was imported from New Zealand, and it was declared at customs as ‘prepared’
mutton by the importer, which would attract a lower tariff than other forms of imported mutton.
The Commissioner rejected this description and declared that the imported meat was mutton
portions, which were subject to a higher tariff than prepared mutton.
The court's finding
The court used the ordinary dictionary meaning of the word ‘prepared’, which is to ‘make ready
for eating’, to determine that the mutton was not prepared. The mutton portions were sprinkled
with breadcrumbs, but the portions were too large for consumption.
Prior to the Constitution of the Republic of South Africa, 1996, statutes in South Africa were drafted in
both English and Afrikaans and either could be signed by the State President. In the case of a difference
in meaning between the English and Afrikaans texts, the signed text would prevail.
Our Constitution makes provision for 11 official languages and states that national and provincial
governments may make use of any of the official languages for the purpose of government. The
Constitution of the Republic of South Africa, 1996, does stipulate that national and provincial
governments must use at least two official languages.
The Official Languages Act 12 of 2012 stipulates that three official languages must be used for
government purposes by both national and provincial government, and these uses must be identified
by the relevant government in its language policy. Thus, statutes may be promulgated in two official
languages if a particular government has identified this use in its language policy.
It is unclear whether the old interpretation rule regarding the signed text will apply if national or
provincial legislatures sign a version other than the English text. Currently, the English text is signed.
What may guide us on this is section 240 of the Constitution of the Republic of South Africa, 1996,
which states that if there is an inconsistency between different texts of the Constitution, the English
text prevails. This constitutional directive may be applied to other statutes as well which will ensure
consistency in interpretation.
However, words may mean something other than what they appear to say in a particular context,
and words can sometimes be vague or ambiguous. In these cases, if a court uses the literal approach
to interpret a statute, the result may lead to an absurdity. When it is unclear what the intention of the
legislature was from the ordinary, grammatical meaning of the words, the court could make use of other
approaches to determine the intention of the legislature.
Principle
If a provision is interpreted literally, and this leads to an absurdity, then the court must look
further than the mere literal meaning of the words to ascertain the intention of the legislature.
Facts
and objects of the Bill of Rights. This duty arises even where the parties have not raised the _ the terms of your will.
issue of interpretation, because the obligation imposed by section 39(2) is mandatory.
This means that when interpreting a statute, a court must consider, respect and protect _ Estate refers to all
fundamental human rights, such as equality, freedom and dignity as contained in the Bill of — the money, property
Rights. To illustrate how this affects the interpretation of statutes, we will look at a case that 4d possessions that a
concerned a section of the Insolvency Act 24 of 1936, person owns.
Principle
All legislation must be interpreted in the light of the Constitution, promote the spirit, purport
and objects of the Bill of Rights and give effect to those rights.
Facts
Mr Brink died on 9 April 1994. During his lifetime, he had taken out a life insurance policy and
ceded it to his wife, Mrs Brink, the applicant in the case. On 23 May 1994, the executor of
Mr Brink's estate, Mr Kitshoff, who was the respondent in the case, acted in terms of section 34(1)
of the Administration of Estates Act 66 of 1965. Mr Kitshoff sent a notice to creditors of Brink's
estate informing them that the late Mr Brink did not have enough assets to cover his debts and
that the estate was insolvent.
In terms of section 44 of the Insolvency Act 24 of 1936, Mr Kitshoff demanded that the
insurance company pay the proceeds of the policy into the estate. This section directed that
the proceeds of insurance in a married man’s insolvent estate in excess of R30 000, which were
payable to his surviving wife, revert to the insolvent estate. No such provision existed where the
proceeds in a married woman's insolvent estate were payable to her surviving husband.
The court's finding
Section 9 of the Bill of Rights holds that the State may not unfairly discriminate against anyone
of the grounds of their gender, sex or marital status. The Constitutional Court thus held that
section 44 of the Insolvency Act 24 of 1936 was unfairly discriminatory on the basis of sex and
marital status, and it was thus unconstitutional and invalid.
However, section 36 of the Constitution does provide for the limitation of rights contained in the Bill
of Rights by way of laws of general application in reasonable and justifiable circumstances. Laws of
general application are laws that apply to everyone. These may limit the Bill of Rights in reasonable and
justifiable circumstances.
Here is a case study example of how the limitation clause may work when interpreting a statute.
Jan Trap has a large piece of land that he is not using. He decides to use the plot to grow dagga
to sell and make a lot of money. Shortly after he starts selling the dagga, the police raid his plot
and arrest him for contravening section 5(b) of the Drugs and Drug Trafficking Act 140 of 1992,
which provides that:
“... no person shall ‘deal in’ - (a) any dependence-producing substance; or (b) any dangerous
dependence-producing substance or any undesirable dependence-producing substance’.
Jan Trap alleges that, in terms of section 22 of the Constitution, he is merely exercising his right
to a trade or occupation. The prosecutor is of the opinion that the Act is quite clear and that Jan
Trap is guilty of the offence of dealing in dagga.
The Constitution is clear that, in any interpretation of a statute, effect must be given to promote
the spirit, purport and objects of the Bill of Rights. If this was the only factor the court had to
consider then Trap would be correct in his view that he is merely exercising his right to a trade or
occupation. However, section 36 of the Constitution allows for a limitation of these rights, but only
by a law of general application, which is a law that applies to everyone in the Republic.
The statute that criminalises dealing in drugs, including dagga, is a law of general
application. This is allowed in terms of section 36 and can limit a person's rights. Trap would be
guilty of the offence. A further argument could be raised that this law unfairly infringes on a
person’s right to practise a trade or occupation. This would result in an inquiry into whether the
legislation, banning dagga, is constitutional.
A judgment in the Western Cape High Court in 2017 found that the possession, use and
cultivation of dagga for private use was allowed, The court found that sections of the Drugs
Act and Medicines Act, which prohibit the private possession and use of dagga by an adult for
personal use in private, contravened the Constitution. In particular, a person’s right to privacy.
The government lodged an appeal against this judgment with the Constitutional court.
The Constitutional Court handed down judgment in September 2018 on this appeal. The
Constitutional Court found that the relevant sections of the two Acts were unconstitutional,
only insofar as they infringe on the private use and consumption of dagga for personal use
of a quantity, which the legislative considers does not cause undue harm. The court did not
decide on the quantity of dagga that may be kept as this would infringe on the doctrine of
the separation of powers. The court has given the legislative 24 months to rectify the relevant
provisions of the two Acts.
Activity 3.1
Find the Wills Act 7 of 1953, and identify the internal aids of that statute.
Rules
We have seen that the starting point of the interpretation of a statute is to consider the literal meaning of
the words and phrases. We have also identified the kinds of problems that the literal approach can create.
When faced with a problem of this kind, the courts make use of two rules in order to arrive at a just and
fair result. These are known as the golden rule and the mischief rule. These rules were mentioned earlier
when we dealt with the theories of interpretation. The development of these rules stemmed from the
need to overcome the difficulties or problems in strictly applying the literal theory of interpretation and
the need to discover the ‘true intention’ of the legislature.
Another rule, the eiusdem generis rule, is used to interpret lists.
Principle
A court must apply the ordinary, grammatical meaning of the words in a statute unless the result
would lead to an absurdity or an outcome that the legislature could not have intended.
Facts
The accused, De Abreu, was charged and convicted with contravening a statutory provision contained
in the Arms and Ammunition Act 75 of 1969. The provision required a licence for the possession of a
firearm in South Africa. De Abreu was travelling from Botswana to Portugal, and he had to spend a
few hours at the Johannesburg airport in the transit lounge before catching his connecting flight. In his
luggage, he had two firearms. He was not a South African citizen, and he had no intention of staying
in South Africa except for a few hours while waiting for his next flight. On a literal interpretation of the
Act, it was absurd that a foreign person in transit needed a licence to possess a firearm in South Africa.
In the following case, the court made use of the mischief rule:
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Principle
If, on a literal interpretation of the words of the Act, it is unclear what the legislature intended
by the provision, then the court must consider the purpose of the provision in the Act. In other
words, what mischief did the legislature intend to regulate?
Facts
The accused, Chitsa, smashed some hostel windows using a club. He was convicted of:
‘throwing or propelling, or preparing to throw or propel, any article or thing likely to cause
damage or injury at any building or structure’.
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Principle
The general words must be interpreted with reference to the specific examples given in the list
to establish the limits of the group.
Facts
Kohler was convicted of keeping a peacock within the Heidelberg municipal area. The municipal
regulation did not allow the keeping of ‘any fowl, duck, goose, turkey, guinea fowl, partridge,
pheasant, pigeon or any other bird’ in that area without a permit.
The court's finding
The court consulted a dictionary, which defined a peacock as a ‘chicken-like decorative bird’.
The court held that a peacock was a species of the group ‘any other bird’ and dismissed
Kohler's appeal.
Activity 3.2
If Kohler had been keeping an ostrich and not a peacock, what do you think the court would
have decided?
Presumptions
These are guides that courts use to interpret unexpressed or implied meaning in a statute. If your law
lecturer tells you to hand in your assignment by four o'clock on 31 May to the secretary, what the
lecturer implies, but does not say, is that:
® = the deadline for handing in your assignment is four p.m. and not four a.m. in the morning
Some of the most widely used presumptions that the courts use are the following: A share-block company
m = The legislature does not intend ridiculous or out-of-the-ordinary results. Soros & ie) prope,
= The levis! 4 : A ans ag hen | . such as a block of flats.
he legislature does not intend to backdate laws. Pack Garenciioe kus
® = The state is not bound by statutes. shares that entitle him or
wr ces : her to occupy particular
Avoiding ridiculous or out-of-the-ordinary outcomes parts of the property.
The legislature does not intend absurd or anomalous results. In other words, the legislature
does not intend the results of court cases to be nonsensical or out of the ordinary. The registered office
Sometimes, the wording of a provision may have two meanings, so the court will apply this _ of the company is
presumption where one of the possible meanings makes no sense, given the purpose of the —_—‘fegarded by the law as the
statute and, therefore, the other meaning will be used. company’s home,
Villiers v Kinsale Properties Share Block Ltd 1986 (2) SA 592 (D)
Principle
A provision in a statute must be given the meaning that is practically sensible and not ridiculous.
Facts
The relevant statute provided that the operator of a share-block company had to keep a
register at the property in respect of which the company operates the scheme.
The court's finding
The court found this absurd, and read the provision to include the registered office of the
company, which would be the more logical place to keep the register.
Principle
It is against the interests of justice and fairness to hand down a punishment to a criminal that
was not applicable at the time of the crime.
Facts
The accused appealed against a death sentence for robbery. After Mazibuko committed the
crime, but before sentence was handed down, the Criminal Procedure Act 56 of 1955 was
changed to allow for the death sentence. In other words, at the time that Mazibuko committed
the offence, the death sentence was not a possible punishment. The court had nevertheless
handed down a death sentence for the crime.
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Principle
Sometimes, in the case of necessity, state officials may need to disobey a law in order to carry
out their job.
Facts
The accused, Labuschagne, was a fire-fighter. He drove through a red traffic lights while driving
a fire engine on his way to fight a fire, and was involved in an accident with a motor car.
Labuschagne was charged with negligent driving. At the time of the accident, the fire engine's
sirens were on and its red lights were flashing.
The court's finding
The fire-fighter was found not guilty. The court recognised that there are times when a
state official has to disobey the law to carry out a public function, The court held that it was
reasonable for the driver of the fire engine to assume that the driver of the motor car would
have reacted to avoid colliding with the fire engine. The same principle would apply to a
policeman who exceeds the speed limit when chasing a suspect.
In this chapter, you learned the following about The Constitution places a mandatory obligation on
interpreting statutes: the courts to interpret a statute by promoting the
= = ‘The interpretation of statutes is necessary because spirit, purport and objects contained in the Bill of
words used in statutes can be open to more than Rights. Promoting values such as equality, freedom
one interpretation. and human dignity are therefore important when
@ = Statutes may be problematic in a number of ways, interpreting a statute.
for example, they may be unclear or ambiguous, or Interpreting a statute may be a simple matter,
a new set of facts may arise that the legislature did requiring only the internal aids supplied in the
not foresee and the current law does not cover. statute itself. When the words of the statute are
= = There are four theories that are used to explain not so clear, the court will use external aids to
a court's approach to statutory interpretation. determine the intention of the legislature.
These are the literal, purposive, functional and
historical approaches.
ACT
An inference js a
To prescribe penalties for being in disguise in conclusion reached about
suspicious circumstances. @ particular issue based on
reasoning from evidence.
Further reading
Botha, C, 2012. Statutory Interpretation: An Introduction for Hoexter, C. (ed), 2005. “The Interpretation of Legislation’.
Students, 5th edn. Cape Town: Juta and Co, (Pey) Led Introduction to Law Course Pack. South Africa: University of
(This is a comprehensive introduction to statutory law in the Wiewatersrand
South Africa.) Constitution of the Republic of South Africa 200 of 1993
Du Plessis, LM. 2011. ‘Statute Law and Interpretation’. Constitution of the Republic of South Africa, 1996
LAWSA, 2nd edn, Volume 25, Part 1. Durban: LexisNexis Interpretation Act 33 of 1957
South Africa Official Languages Act 12 of 2012
Part 1 of this book introduced you to the South African legal system. Part 2 focuses on the principles
that apply to contracts. This chapter begins Part 2 by looking at who can enter into a contract — and
who cannot. Some people are not legally able to enter into contracts at all, and some can do so only
with assistance, but most people can enter into contracts on their own. The law recognises that people's
capacity to enter into contracts changes at different stages in their lives.
5. possibility of performance — the performance expected from each party must be possible (dealt with
in Chapter 7)
6. legality — you cannot hold someone to a contract that requires her to do something illegal (dealt with
in Chapter 7).
The rest of this chapter considers issues of contractual capacity relating to each of these categories
in turn.
Let us look at a case as an example of a minor being tacitly emancipated by his guardian.
ofa <a ae o1 a d yD
Principle
A minor living independently and conducting his life as a major is tacitly emancipated by his guardian.
Facts
Daley was a minor who lived with his mother and stepfather; not his guardian (his father—
Dickens). He had been working as a clerk and was financially independent. While he was living
with his mother, he was contributing towards his accommodation costs. Daley's guardian did
not exercise any control over him and allowed him to live as a major. Daley opened a bank
account unassisted by his guardian and later drew a cheque in favour of Dickens, which
was dishonoured.
The court's finding
Daley's guardian had tacitly emancipated him.
In this case, if the guardian had simply abandoned the minor — for example, did not have any interaction
with the minor for years of the minor's life — then that would not have necessarily meant that the minor
was tacitly emancipated. The guardian’s behaviour of allowing the minor to be emancipated must have
been as a result ofa conscious thought process, not merely neglect.
Many questions in exams refer to a minor without indicating the minor’s precise age. When
you answer a question like that, you should start your answer by showing that you know the
difference between the contractual capacity of minors younger than seven years and that of
minors older than seven years. If the question gives the minor's age, you only need to deal with
the law that relates to a person of that age.
Van Dyk v South African Railways and Harbours 1956 (4) SA 410 (W)
Principle
Where a guardian assists a minor in entering into a contract, the guardian does not know the
specific terms of the contract. The guardian need only know and consent to the general nature
and type of the contract.
Facts
In this case, the minor, Van Dyk, concluded an employment contract with South African Railways
and Harbours for the position of a railway officer. in terms of the contract, the minor undertook
not to terminate the agreement within three years of the date of the contract. Upon majority,
the minor sought to declare the contract as void. The minor asserted that his guardian was not
present at the time of the conclusion of the contract and was unaware of the specific terms of
the contract.
Principle
Where a guardian assists a minor in entering into a contract, the guardian does not incur
personal liability in terms of the contract.
Facts
In this case, the minor, Marshall, purchased shares from National Wool Industries with the
assistance of his guardian (father). When the minor did not pay the balance of the purchase
price, National Wool Industries sued the guardian for the outstanding balance.
The court's finding
The court held that the minor was personally liable to perform on the contract and not the
guardian. As such, National Wool Industries ought to have litigated against the minor for the
oustanding balance and not the guardian.
Itis also possible for an unassisted contract to become an assisted contract through ratification. >, Peach mmority ato
To ratify a contract means that consent is given to the contract after the minor has entered —_pecome a major, usually
into it. An unassisted contract can be ratified by either the minor or the major. In respect of _ when you turn 18.
the minor ratifying his own unassisted contract, when he reaches majority, he can decide
to continue with any of his unassisted contracts that he concluded while he was a minor. The length of a
When a minor becomes a major, he has a reasonable time within which to decide whether _ reasonable time in a
to reject or ratify any unassisted contracts that he entered into as a minor. If the unassisted _!@9a! context depends on
contracts are ratified, they become legally binding contracts. The guardian can ratify the SE ats OF ease:
minor's unassisted contract before the minor becomes a major.
Consent can be either express or implied. It is express when the guardian actually states his consent —
verbally or in writing. Consent is implied when the general circumstances, and specifically the guardian's
behaviour, show that the guardian consents to the minor entering the contract. For example, if a minor
buys a car and the guardian signs the contract on behalf of the minor, or both the minor and the guardian
sign it, that is express consent. By contrast, suppose a minor buys a car without informing his parents
(guardians). When he returns home, his parents do not say specifically that they agree with the purchase,
but they are happy and they do not demand that he returns the car. In this case, although the guardians
did not give their consent in so many words, their behaviour implies consent. The same applies to a minor
ratifying his contract, either expressly or tacitly. Once the minor becomes a major, he may ratify the
unassisted contract verbally or by his actions of, for example, continuing to use the item that he purchased.
Principle
Aminor who enters into an unassisted contract can become bound by the contract if he or his
guardian ratifies the contract expressly or tacitly upon attaining majority.
Facts
This case provides an illustration of where a minor impliedly ratifies a contract himself. A minor,
Oberholzer, purchased a motorcycle on instalments without the assistance of his guardian. The
minor, upon majority, continued to use the motorcycle without paying the instalments. The other
party, Stuttaford and Co., sued the minor for the oustanding payment. The minor contended
that he was not bound to the contract because it was an unassisted contract. An important fact
here is that the minor continued to use the motorcycle after attaining majority and even after
the other party instituted legal proceedings against him, and in so doing, exercised ownership
rights over the motorcycle.
The court's finding
The court held that the minor was bound by the contract. The minor had impliedly ratified the
contract by continuing to use the motorcycle after attaining majority and thereby giving his own
consent to the contract.
Instead of assisting a minor, a guardian can enter into a contract on behalf ofa minor without the
minor's knowledge or consent. An obvious example is a parent takinga child, who is under 12, toa
doctor to get her medical care. The guardian must always act in the best interests of the minor. However,
it can happen that the guardian consents to a contract for the minor and it turns out tobe pecsitutio in intregrum
prejudicial to, or burdensome, to the minor. In this instance, it is possible for the contract —_ means ‘restitution’.
to be set aside by a court through an application called restitutio in intregrum. This
application can be brought to the court in the following ways:
= = If the minor is close to reaching majority, he can wait until he is a major and bring the _4 court-appointed
application on his own. representative is known
= = The minor can bring the application with the assistance of his guardian. as a curator ad litem and
@ = The minor can bring the application with the assistance of a court-appointed is appointed by a court to
represent the best interests
representative.
of a person who lacks the
— ; ; . ; mental capacity to make
Once the courts grant restitution to the minor, each contracting party, that is, the minor decisions for themselves.
and the other contracting party, must give back what he has received under the contract.
This means that each party's position must be restored to what it would have been if the
contract had not been concluded.
Principle
Where the court grants restitutio in integrum for an assisted contract that is or has become
prejudicial to the best interests of the minor, the minor must restore what he has received from
the other party, as well as recover what he has performed in terms of the contract.
Facts
The minor's guardian purchased a house from Davies on behalf of the minor, Woods. On attaining
majority, the minor sought to terminate the contract of sale, The purchase price was excessive
and there were a number of onerous clauses contained in the contract. The payments would
have eaten into a substantial portion of an inheritance benefit, which the minor held, and the
purchase was regarded as altogether unnecessary as the minor did not need a house to live in.
Principle
Where a minor enters into a contract without the assistance of a guardian, the minor is not
bound to the contract and is therefore not liable to perform in terms of the contract.
Facts
The minor, Foggit, entered into a contract with Tanne, the owner of a college, for typing lessons.
The contract was concluded without the assistance of the minor's guardian. In terms of the
contract, payment for the lessons was due in advance and the minor was required to give one
month's notice if he wanted to terminate the contract. After paying for and attending lessons
for one month, the minor stopped attending the lessons in the next month without notice and
without payment. Tanne then sued the minor for payment of the outstanding fees for one month.
The court's finding
The court held that the minor was not liable on the contract for the simple reason that the
minor had entered into the contract without the assistance of his guardian. The minor therefore
was not contractually liable and did not have to pay the outstanding fees.
Such a contract is called a limping contract, because it can be enforced against only one of jf you are liable for
the two parties. In this instance, the contract can only be enforced against the major who something, you are legally
has full contractual capacity. To understand the legal effect of an unassisted contract, we responsible or accountable
have to consider the rights and duties of both the minor and the other contracting party. for it. Tobe contractually
liable means ‘to be bound
Furthermore, we have to consider two situations: by the law of contract to
@ where the contract continues do what the contents of
@ ~=where the contract is set aside. the contract states’.
The contract continues if the unassisted minor's contract is ratified, either by his guardian, _A limping contract is only
or by the minor himself when he becomes a major. The contract then becomes an enforceable against one of
assisted contract and the legal position is the same as that in an assisted minor's contract. the parties.
As discussed above, this means that the contract is valid, so the minor acquires the rights
and duties specified in the contract and he is personally liable to the other contracting party. Both the
minor and the other contracting party have to perform in terms of the contract. In other words, they
need to do what they agreed to do.
and not the other (major) contracting party. The major cannot use the fact that the minor
was not assisted to avoid liability under the contract.
Xolani, a sports science student aged 17 years, finds that he is spending about R50 per week on
-buses to get to his lectures and the sports fields, and back to his residence. He buys a bicycle
for R800 from Lindiwe, aged 19 years, and he is delighted with his newly found freedom. A month
later, he mentions this purchase to his parents back home. They feel that bicycles are too dangerous,
and they are very worried about his safety on the busy city streets. They tell him to return the bicycle
immediately, get his money back and use the bus. Does the law allow him to do that?
This is obviously an unassisted minor's contract, as Xolani is under 18 years of age and his parents
were not aware of the contract. The parents have the right to declare the contract (the purchase of
the bicycle) void. Xolani can demand the return of the money he paid, but he must also return the
bicycle (which is now a bit more scratched and worn). However, he is liable to Lindiwe for the amount
by which he has been unjustifiably enriched: he has saved R200 on bus fares by using the bicycle.
Therefore, Lindiwe has to pay back only R600 to Xolani. In return, Lindiwe will get back the bicycle.
If Xolani’s parents had approved of the purchase of the bicycle, none of this would be
necessary as the contract would be valid and legally binding on Xolani.
Tacit emancipation
A minor living independently and conducting his life as a major is tacitly emancipated by his guardian.
When you answer questions, show that you know the legal basis or reason for someone's
liability. In other words, if the person is liable in terms of the law of delict and not the law of
contract, you must explain that. Remember that the same set of facts can have different legal
consequences in different areas of law. For example, we saw in Chapter 2 that Sasha could be
charged for the crime of driving under the influence of alcohol. If she is found guilty, she would
be fined or even sent to prison. But, Naziem could also sue her in a civil claim for damages. So,
the consequences are different depending, in this example, on whether she is charged under
criminal law or sued in terms of the law of delict.
Activity 4.1
Thandi is a 15-year-old learner, who loves jewellery. On the way back from school one day, she
sees a watch that she really likes in the window of Mr Watch and Jewellery. She withdraws
money at a nearby ATM, and buys the watch for R2 000 from the store. Three months later,
her parents notice the watch and they are not happy about her purchase, as they think she has
enough watches already. They insist that she return the watch, and ask for her money back. The
shop refuses to accept the watch back, as it is scratched and now worth only R1 500.
1. Discuss the legal rights and obligation of both Thandi and the owner of Mr Watch and Jewellery.
2. Would your answer be different if Thandi bought the watch two months before she turned
18 years old?
One spouse signs the contract and the other spouse signs consent to that contract, which is then also
signed by two witnesses.
Witnesses are people who observe the signature being made and can guarantee that it was made by
the person whose name appears on the document by signing their own signatures alongside or below.
Simpiwe and Thandeka are married in community of property. Simpiwe meets a friend at work
who has been admiring Thandeka’s engagement ring and is interested in buying it. The friend
verbally offers Simpiwe a good price for the ring and Simpiwe accepts, thinking he will use the
money to take his wife to Mauritius on holiday. When Simpiwe gets home and tells Thandeka
the good news, she refuses to let him sell the ring. Can Thandeka keep the ring or must she give
it to Simpiwe?
Principle
Necessities are considered to be things that are required for the household of the spouses in
accordance with their status, their mode of living based on how a married couple were living up
to the time of their separation.
Facts
Dr Ramsay left his wife, to whom he was married out of community of property, and his two
children for a year. He left a monthly allowance of £30 for household expenses, and forbade his
wife to buy anything on credit. When he returned, Dr Ramsay discovered that she had bought
£13.85 worth of silk material from Reloomel to make clothes for herself and their children. He
refused to pay for this debt, saying that the items were not household necessities and that his
wife may not incur debt on his behalf.
The court held that necessities are considered to be things that are required for the household of
the spouses in accordance with their status, their mode of living in the past, the usual customs of
the place where they live and the means of the husband. What may be regarded by the court as a
necessity in the case of spouses who move in the best society of the place in which they live, will not
be regarded as a necessity in the case of a couple of humble origin, and of narrow means. Based
on how Dr Ramsay and his wife had been living up to the time of his absence, the dresses could be
regarded as a necessity. Therefore, Dr Ramsay had to pay the outstanding amount.
If the insolvent enters into any of these kinds of contract without the consent of his trustee, the contract
is voidable at the instance of the trustee. By this we mean it is valid until the trustee decides to set it
aside. We look at voidable contracts in more detail in Chapter 6,
Marius, who had been sequestrated by the High Court, was meeting friends for drinks at a bar.
He walked past a computer store on the way there and saw a really fantastic computer game
in the window. While getting quite drunk at the bar, he kept thinking about the game. The
next day, he woke up and saw that he had spent R2 000 on computer games, but he could not
remember buying them. What is the legal position with regard to the games that he bought?
Chapter summary
In this chapter, you learned the following about A marriage may be in or out of community of property:
contractual capacity: In a marriage in community of property, both
Most persons have full contractual capacity, but parties have full contractual capacity with regard
there are factors that can limit a person's capacity to to the joint estate, unless the law requires the
enter into contracts: other spouse’s consent in that type of contract.
= = Minors have limited contractual capacity and their Both spouses in a marriage out of community of
guardians must consent to their contracts. property have full contractual capacity with regard
= = If a minor enters into a contract, his guardian may to their separate property.
decide whether to continue with the contract or
not. If the contract continues, both parties are A person who is so drunk that he does not know what
contractually liable. If the contract is repudiated, it he is doing has no contractual capacity.
is declared void and both parties must return what An insolvent has full contractual capacity, except in
they received in terms of the contract (in the case a few specified contracts,
of the minor, what he has left of the performance).
1. Felix and Susan get married. They buy a flat If Felix and Susan were married out of community
together and live there for five years. Felix decides of property and the flat belonged to him, which
to sell the flat and buy a house. He signs a contract statement below applies?
of sale with Mandy. When Susan finds out, she a) ‘There is nothing Susan can do, as Felix has
is very upset and does not want to sell the flat. already signed the contract.
If Felix and Susan were married in community b) As only Felix signed the contract, the contract
of property, which option below describes the is not valid.
legal position? c) Felix can only sell half the flat as the other half
a) ‘There is nothing Susan can do, as Felix has belongs to Susan.
already signed a valid contract of sale. d) The contract is a limping contract.
b) As only Felix signed the contract, the contract Jerry is 16 years old. Her mom and dad decide she
is not valid. needs a new laptop for school so they buy her one
c) Felix can sell only half the flat as the other half from a shop called Computers, etc. When they
belongs to Susan. bring it home, Jerry decides that it is too slow and
d) ‘The contract is a limping contract. unsuitable for school. Which statement is correct?
Further reading
Schulze, H. et al. 2015. General Principles of Hutchison, D. et al. 2012, The Law of Contract, 2nd
Commercial Law, 8th edn. Cape Town: edn, Cape Town: Oxford University Press Southern
Juta and Co. (Pry) Led Africa (Pry) Led
Reaching agreement
.
The main ideas
What makes a legal agreement?
Requirements for a valid offer
Requirements for a valid acceptance
Requirements for concluding contracts
What is an option?
What is a right of first refusal?
Now that we know who can legally enter into a contract, we look at the next requirement for a valid
contract, which is agreement. This chapter explains how the two parties reach agreement or consensus.
First, we examine the contract formation process, consisting of an offer and an acceptance. Then we look
briefly at different ways of concluding a contract. Chapter 6 will look at what happens when problems
arise with the conclusion of contracts.
two friends agree to meet for coffee, that does not create a contract between them, since they do not
intend it to be a legally binding agreement.
There are several approaches to the rationale for holding individuals bound by their contracts. These are:
s the wills theory
m = the declaration theory
@ the reliance theory.
Principle
A contracting party is entitled to rely on the reasonable or objective appearance of agreement by
the other contracting party.
Facts
The Potato Board intended to accept a tender from another company, but mistakenly sent a
letter of acceptance to National and Overseas Distributors Corporation (Pty) Limited, which
had submitted a tender application. Once National and Overseas Distributors Corporation (Pty)
Limited received the letter of acceptance, they immediately acted on it by ordering the necessary
material and contracting with a sub-contractor and engineer.
The court's finding
The court held that the Potato Board led National and Overseas Distributors Corporation
(Pty) Limited to reasonably believe that its tender had been accepted. The Potato Board could
therefore not withdraw its acceptance, even though it had no subjective intention to be
contractually bound.
If we look at the communication between two people who want to enter into a co a :
. ‘ peop ee An offer is a proposal or
we can always identify two parts: request to enter into a
= an offer contract on specific terms.
@ an acceptance,
One party has to make a valid offer and the other party has to accept the offer in a valid way. Gonduding elas to ie
Both the offer and the acceptance must meet certain requirements to be valid. Asa general rule, 46 ang place thet the
acontract only comes into existence once all these requirements are satisfied. Once a contract is contract was concluded.
concluding, both parties are legally bound by that contract and have to perform in terms of the _ It is not usually a separate
contract. As long as the contract does not exist yet, the parties can still change their minds and not _ step in the process.
enter into the contract. So, it is important to determine exactly when a contract is concluded.
Therefore, there are three aspects to a valid contract, namely:
= ~=making an offer
® accepting an offer
® concluding a contract.
Each aspect is examined briefly and then the requirements for each one are specified in detail.
5.2.1 Completion
The offer must be complete. It must contain all the terms that the offeror wants to have in the contract.
In other words, the offeror must explain fully what she wants the contract to say, so that if the offeree
agrees to these provisions, the contract will be created. Suppose, for example, I tell you that I want to sell
my guitar. I describe it to you in great detail, but I do not tell you the price I want to sell it for. Then the
offer is not valid because it is incomplete.
Suppose, for example, you ask a senior student if you can borrow her legal dictionary. She shows you
several, then picks one and says you ‘can have’ this one. But now you do not know whether she means
you can borrow it or whether she is giving it to you, or whether she means you can buy it from her if
you like. Maybe she even means you can have it (as a gift) at the end of the year when she finishes her
studies. This is not a valid offer, because it is not clear.
Advertisements
Advertising and the display of goods is an area of business where intentions are often unclear or misleading.
Our common law states that, as a general rule, an advertisement or a display of goods is not an offer as
the person placing the advertisement does not intend it to be an offer. The advertisement or the display
of goods is merely an invitation to do business. In other words, it is a way of telling people that the
advertiser wants to sell her product and she is asking people to make offers. The advertiser will then
decide to accept or reject the offer. The term ‘advertisement’ includes the price tag or marking on an item
in a shop and the price mentioned in a printed brochure or media display.
Let us look at the following two cases with regard to advertising and the display of goods. The second
case is in relation to the self-service system.
Principle
A display of goods for sale in a shop window, inside a shop or in print, online or on broadcast
media as an advertisement does not amount to an offer to sell. This is simply an invitation to the
public to do business.
Facts
This principle is illustrated in the case where the shopkeeper advertised tobacco on sale, using a
placard outside the store. The customer, seeing the advertisement, went into the shop, purchased
an amount of tobacco on sale, left the shop and returned a short while later wanting to purchase
more tobacco.
The shopkeeper refused to sell more tobacco to the customer, and when the customer refused to
leave the shop, the shopkeeper called a policeman, who charged the customer with the offence of
refusing to leave the premises on the request of the shopkeeper. The customer contended that the
advertisement was an offer to sell by the shopkeeper and that he (the shopkeeper) had accepted
this offer when the customer walked into the shop to take delivery of the goods.
The court's finding
The court held that the advertisement was an invitation to the public to do business; it was not
an offer to sell. Therefore, the shopkeeper was not bound to sell to every customer who walked
into the shop to purchase the goods. It is the customer who makes an offer to the shopkeeper
to purchase the advertised goods and it is up to the shopkeeper whether or not to accept that
offer. The customer in this case was therefore guilty of the offence of refusing to leave the
shopkeeper’s premises upon request.
Principle
The principle in Crawley v Rex has been extended to self-service shops. The self-service system is
an invitation to the public to come forward and make an offer to buy. A customer makes an offer
to purchase when he or she tenders the purchase price to the cashier (who may either accept or
reject the offer at that point) and not when he or she removes the goods from the shelves.
Facts
Boots Cash Chemist was a self-service shop that sold certain medical drugs, which were
controlled by legislation. In terms of this legislation, the sale of these drugs could only be
effected by or under the supervision of a registered pharmacist. The customer took the items in
question off the shelf, placed them in the baskets provided by the store and paid the purchase
price to the cashier. The Pharmaceutical Society of Great Britain asserted that the pharmacy
was in contravention of the law as the sale took place without supervision when the customer
removed the items from the shelf and placed the items in the basket.
The court's finding
The court held that the pharmacy was not in contravention of the law as the self-service system was
an invitation to buy, that the customer made an offer to buy only when payment was tendered to
the cashier. The transaction therefore took place under the supervision of a registered pharmacist.
If you see an advert for a guitar in a newspaper, but when you phone, the seller tells you that she has
already sold it, you cannot claim that there was a contract. The advertisement was the seller's way of
telling the public that she wanted to sell her guitar. It was merely an invitation to do business. Your
phonecall to the seller was an offer, but because the seller did not accept your offer, there was no
contract. Here is another example. If you see a television in a shop window with a price tag of only
R10, you cannot force the shop to sell it to you at that price by arguing that the price tag is an offer and
that you are accepting the offer. In terms of the common law, the price tag is not an offer; it is merely
an invitation to do business. However, if it is clear from the type of advertisement and the surrounding
circumstances that the advertisement is intended to be an offer, the law will regard it as an offer.
Rewards
If an advertisement offers a reward, the advertiser's intention is that she will pay a reward to anybody
who meets the conditions of the reward. Therefore, the law regards the advertisement for a reward as
an offer to the public. If a person fulfils the requirements for the reward, the offeror is
contractually liable to pay the reward. For example, if you place an advertisement in the When a party is
newspaper stating that you will pay R500 to anyone who safely returns your lost dog, contractually liable, it
then that is an offer, not an invitation, to do business. If someone sees the advertisement means that party is bound
and returns your dog, then there is a contract between the two of you and you are obliged —_By the law of contract,
(bound) to pay the reward. and she is obliged to
Carlill v Carbolic Smoke Ball Co. 1893 1 QB 256 (CA) is a famous example of an ee eee ie
advertiser being held contractually liable to pay a reward.
Principle
In certain instances, an advertisement can constitute an offer depending on the nature of the
advertisement, the wording and all the surrounding circumstances.
Facts
An exception to the principle that an advertisement does not constitute an offer is illustrated
in this well known English case. Here, the Carbolic Smoke Ball Co. advertised in the press
that it would pay an amount of money to anyone who contracted influenza after using its
product, the carbolic smoke ball, in accordance with the prescribed method. Carlill, having
read the advertisement, used the product and contracted influenza nonetheless. She then
sued the company for the reward. However, the company refused to pay the reward on
the basis that it was merely inviting the public to use the product and it was not an offer to
the public.
The court's finding
The court ruled that, in this case, the advertisement was not merely an invitation to the public to
do business. The extract ‘£1000 is deposited with the Alliance Bank, Regent Street, showing our
sincerity in the matter’ was a clear indication to the public that the terms of the advertisement
were to be understood as a firm offer. The company was therefore liable to pay the reward to
the customer.
In an auction without reserve, the auctioneer calls for bids and sells the item to the highest bidder. In
other words, she is making an offer to sell the items to the person who makes the highest bid. That
person, by bidding, accepts this offer, and so creates a contract.
In an auction with reserve, by contrast, the seller specifies a minimum price at which the auctioneer
can sell the item. Therefore, when the auctioneer asks for offers, she is inviting people to do business.
When people make bids, they are making offers, which the auctioneer can decide to accept or reject.
5.2.4 Communication
‘The offer must be communicated to the offeree, because she cannot accept an offer if she does not know
about it. This can occur in any way, such as verbally, in writing or electronically.
5.2.5 Current
The offer must be a current offer — it must not have:
= = lapsed = been rejected = been revoked.
If the offer has lapsed, if the offeree has rejected it or the offeror has revoked it, then the offer has come
to an end. This means that the offer is no longer in existence, and the offeror may no longer accept it.
Let us look at each situation in turn.
A lapsed offer
Usually, an offer only stays open for a specified period of time. When that time has passed, the offer
lapses, expires or falls away. It is no longer valid and the offeror may not accept it. If the offer does not
have a set time limit, it remains valid for a reasonable period of time. (What is reasonable will depend on
the circumstances of the offer.) An offer also lapses if either the offeror or offeree dies before the offer is
accepted, if either party no longer has contractual capacity, such as due to insanity, or if the performance
becomes legally or factually impossible.
A rejected offer
If I make you an offer and you do not accept it, the offer comes to an end. By not accepting the offer,
you have declined or rejected the offer. When you make a counter offer, you are rejecting the first offer
(bringing it to an end), and you are then making a brand new offer. In the case of a counter offer, the
parties swap roles — the original offeror now becomes the offeree, and the original offeree then becomes
the offeror. As the parties go back and forth in negotiations, it often happens when contracting, the
parties continue to swap roles. At the conclusion of the contract, it is important to identify at that final
stage which of the parties were the offeror and offeree respectively.
Suppose, for example, I offer to sell you a textbook for R100, and you reply that you are interested
in buying the textbook, but only for R90. Your counter offer of R90 is a way of rejecting my original
offer, which therefore comes to an end. Instead, you have offered me R90 for my book, and now it's my
turn to decide whether to accept or reject your offer. If I reject your offer of R90, you cannot go back
and accept the original offer of R100, because it no longer stands, or applies. (Of course, I can repeat my
original offer if 1 want to, and this time perhaps you will choose to accept it.)
Principle
Revocation of an offer is effective only if it is communicated to the offeree before acceptance.
Facts
In this case, the offeror, Norbert, made an offer to purchase a farm from Odendaal, the
offeree. An estate agent, who was instructed by the offeree to source a buyer for the farm,
communicated the offer to the offeree who in turn accepted the offer. In the interim, the
offeror decided to revoke the offer. However, when the estate agent contacted the offeror to
communicate that the offer had been accepted by the offeree, the agent spoke first.
The court's finding
The court held that the acceptance of the offer was communicated before the offer was
revoked. Therefore, there was a binding contract between the offeror and the offeree.
Here is a tip for answering multiple-choice questions. Often it helps to cover up the different
options given and to see if you know the answer to the question before you look at the answers
offered. This way, you are less likely to get confused by answers that are fairly similar to one
another before you have considered the likely answer in your own mind.
Activity 5.1
John tells Andrew that his watch is not working perfectly. He says that Andrew can take it off his
hands. Andrew says, ‘Sure’. Is John’s statement a valid offer? Choose the correct answer.
a) Yes, as it was communicated to John.
b) No, as it is not clear if John is donating or selling his watch.
©) Yes, as it was made with the intention of creating a contract.
d) Yes, as John does not want his watch any more.
Jabu sees a sign in a shop window saying that all items are for sale at only R75. He walks into
the shop and has a look around. He finds a beautiful pen hidden at the back of the store, and he
takes it to the cashier. The cashier says that the pen is the last of a batch that they thought was
sold out, and it costs R150. Jabu demands that he be allowed to buy the pen for R75. He hands
the cashier the R75, and he waits for the pen.
Is there a contract between Jabu and the shop?
Does the shop have to sell Jabu the pen at R75?
The offeree must have known about the offer before acceptance.
PON
5.3.1 Source
The acceptance must come from the intended offeree, because only the person who received the offer
can accept that offer. The one exception to this is an offer made to the general public, like an offer ofa
reward for something that is lost. In a public offer, the offeror’s intention is that anyone can accept the
offer — the offer is open to the general public to accept.
Principle
Only a party that the offeror intended to accept the offer may do so. This principle also applies in
instances where it would make no difference overall to the offeror who accepts the offer.
Facts
An estate agent communicated to Bird, the offeror, that Summerville was willing to purchase
a certain piece of his property. However, when the offeror signed the offer to sell and sent it
through to Summerville for signing, both Summerville and another party signed as the offeree.
The court's finding
The court held that even though it made no material difference to the offeror, who purchased
the property, the offeror was not bound to the contract as he had only intended that
Summerville would accept the offer.
5.3.2 Awareness
The offeree must know about the offer. An offeror cannot accept an offer if she does not know about it.
‘This is not as obvious as it sounds, so let us use an example to illustrate what can happen.
Principle
An offeror cannot accept an offer if she does not know about the offer before accepting.
Facts
After a robbery, a notice was published in a newspaper by the American Swiss Watch Company,
offering a reward of $500 for information that resulted in the thief being arrested and the
jewellery being returned. Bloom gave this information to the police without having read the
notice in the newspaper, and then he claimed the reward after reading the notice later.
The court's finding
The court held that, as Bloom did not know about the offer, he could not accept it. Therefore,
there was no contract.
5.3.3 Clarity
There must be an unequivocal expression of the offeree’s acceptance. Acceptance may be made in
writing, orally or by non-verbal conduct. The offeree’s response must make it plain and simple that she is
accepting the offer.
If there is uncertainty as to whether or not the offeree has accepted the offer, we consider whether a
reasonable person in the position of the offeror would have understood the offeree’s communication to
be an acceptance.
As a general rule, silence on the part of the offeree does not constitute an acceptance, as there may be
a range of reasons for why the offeree did not expressly respond, such as the offeree may not have wanted
to waste her time responding to an offer that she was not interested in, or she may still be deciding
whether or not to accept the offer. The offeror may not impose a condition on the offeree to the effect
that silence from the offeree will amount to an acceptance.
Silence on the part of the offeree will only constitute an acceptance if both parties agreed that the
offeree's silence will amount to an acceptance, or if there is a duty to speak on the part of the offeree.
This will be determined from all surrounding circumstances, the relationship between the parties and
previous dealings, if any.
5.3.4 Compliance
‘The acceptance must comply with the terms set out in the offer. The offeree must accept all the terms of
the offer. If the offeree changes a term of the offer, she is rejecting the offer and making a counter offer.
Then it is the original offeror's turn to either accept or reject the counter offer. You saw this above in the
example about the textbook.
5.3.5 Timelines
The offeree must accept the offer within the given time. If the offer has a deadline (or time limit) for
acceptance, the offeree has to make a decision within that time, before the offer lapses. If the offer sets no
time limit, the offeree has to accept it within a reasonable time for the acceptance to be valid.
5.3.6 Form
The offeror may prescribe a specific manner in which the acceptance should be communicated to
her, such as in writing. The offeror may also specify a certain place for the offeree to communicate
the acceptance to her, such as the offeror’s office. In this instance, the offeree must adhere to these
specifications when making the acceptance. The acceptance will only be valid if the offeree meets these
conditions. If the offeree does not follow these conditions, the offer will lapse.
5.3.7 Communication
An acceptance is completed and a contract is created only when the offeror knows about the acceptance.
Until then, there is no contract and the offeror can revoke the offer at any time. However, once the
offeror has heard about the offeree’s acceptance, there is a contract between them and it is no longer
possible to withdraw the offer.
Before you continue, see whether you can remember the seven requirements that an acceptance
has to meet. We can summarise these requirements as: source, awareness, clarity, compliance,
timeliness, form and communication. Make up your own mnemonic for this list. A mnemonic is
a sentence or word that helps you remember a list of things. For example, you may have been
taught to use Richard Of York Goes Battling In Vain to remember the colours of the rainbow in
their correct order, or perhaps simply ROY G BIV.
Selina finds a lost cat in the street. The cat is wearing a collar with its name and the owner's
telephone number printed on a tag. Selina phones the owner and returns the cat to its very
happy owner. When she gets home, she sees in the newspaper that the owner had placed an
advertisement offering a R1 000 reward for the safe return of his cat. Can Selina claim the reward?
Tumi wants to paint her house. She looks in the phone book and finds an advertisement for
‘Sobukwe's Painters — the cheapest in town’. She phones Mr Sobukwe and asks him to give her a
quote for painting her house. He looks at the house and sends a fax to her quoting R25 000 to paint
the house. Tumi phones Mr Sobukwe back and tells him that she thinks R22 000 is more reasonable.
Mr Sobukwe replies, ‘How about R23 500?’ Is there a contract between Tumi and Mr Sobukwe?
Therefore, in our example, the contract was formed on 10 May, in Port Elizabeth.
The courts have decided that the expedition theory applies to contracts concluded by post, when the
following requirements are met:
= ‘The offeror must have authorised (or permitted) the offerce to send the acceptance by post.
If these conditions are met, the expedition theory will apply, so the contract is concluded when and
where the acceptance letter is posted (in our example, 10 May, Port Elizabeth). If one or more of the
requirements are missing, the information theory will apply, and the contract is formed at the time and
place that the offeror reads the acceptance (in our example, 15 May, Cape Town).
It is interesting to note that if I (the offeror) want to revoke my offer, I have to do so before you (the
offeree) post your letter, because the contract is concluded from that moment. In our example, I would
have to contact you before 10 May.
The law about postal contracts is part of a general principle that if there is a delay between the time
that an acceptance is sent and the time that it is received, then the information theory will usually apply.
Acceptance occurs when the recipient reads the letter, email or fax. However, if the offeror authorises
the way of communicating, the expedition theory applies. In that case, the contract is concluded at the
moment the offeree sends the letter, email or fax.
Principle
As per the information theory, if the offeror and offeree enter into a contract telephonically or
via electronic communication, the contract is formed at the time and place that the offeror hears
the acceptance.
Facts
It was important to determine when a contract of sale was concluded. The buyer had made
an offer over the telephone from Namibia. The seller had accepted telephonically from
Johannesburg. The buyer (offeror) heard about the acceptance in Namibia.
The court's finding
The court held that the contract was concluded in Namibia as the offeror heard about the
acceptance in Namibia.
An exam question may ask you to decide whether a valid contract exists or not. Questions
like these are asking if there is a valid offer and a valid acceptance. To answer this, you have
to look at the given facts and compare them to the requirements for a valid offer and a valid
acceptance. If one or more of the requirements is missing, you need to explain what the problem
is and conclude that there is no valid contract.
5.5.1 Options
An option is a contract where an offeror agrees to keep her offer open for a specific period of time.
In terms of the general principles of contract, an offeror can revoke her offer at any time before
the offeree accepts it. However, if the two parties enter into a contract of option, the offeror agrees to
make her offer irrevocable for a specific period of time, for example, you offer to sell your guitar to me
for R1 500,
I tell you that I am interested, but I cannot buy it right now, You agree to give me a six-month option
on it, in other words, you will keep your offer to me open for six months. | may accept the offer at any
time before the six-month period ends. You may not withdraw that offer during that six-month period as
this would be a breach of the contract of option.
There will be two contracts — the main contract to be entered into, and the contract of option.
Chapter summary
In this chapter, you learned the following about = the wills theory
reaching agreement: m = the declaration theory
A contract is valid if both parties reach an agreement = the reliance theory.
and intend to be bound by the terms of the agreement.
‘The approaches to the rationale for holding An offer is a declaration by an offeror of her intention
individuals bound by their contracts are: to conclude a contract.
1. Thabo sees an advert on Facebook that says, ‘Come 4. Jenny goes to an auction where the auctioneer
to Johannesburg Station wearing blue on 1 April, says, ‘No reserve. New model Mercedes car must
and get paid R50’. He arrives wearing blue on the go today’, She is the only one who bids and offers
given day only to be told that too many people R250, Is the contract valid?
arrived and therefore he will not be paid. Can 5. Jenny goes to an auction where the auctioneer says,
Thabo insist on getting paid? ‘Reserve price R200 000. New model Mercedes
2. Jerry tells Anne, “When I sell my car, I will offer it must go’. She bids the highest amount of R10 000.
to you first’. This is (choose the correct answer): Is the contract valid?
a) aright of first refusal 6. Can you think of a situation where a contract
b) an offer option can be very valuable?
c) an option 7. Sally says to Jim, “Would you like to buy my phone
d) nota valid agreement. for R1 000?’ Jim answers, “R950?
3. Jenny sees an advert in a local newspaper that says, Is there a valid contract?
“New model Mercedes Benz car for sale for R250 8. On Monday, Nancy decides to sell her dog and
at Al Auto Dealer’. She phones the car dealer, who she offers to sell him to Cedric for R50. Cedric
tells her that the advertisement was incorrect, Can says he must think about it. That night, Nancy
Jenny insist that she buys the car for that price? calls Cedric, and says she has changed her mind.
Further reading
Hutchison, D. et al. 2012. The Law of Contract, 2nd edn. Cape Sharrock, R. 2016. Business Transactions Law, 9th edn.
Town: Oxford University Press Southern Africa (Pty) Led Cape Town: Juta and Co. (Pty) Ltd
Schulze, H. et al. 2015. General Principles of Commercial Law,
8th edn. Cape Town: Juta and Co. (Pry) Ltd
In this chapter, we begin by explaining the difference between void and voidable contracts, and the
consequences in each case. After that, we examine each of the reasons for contracts becoming void or voidable.
The cause
A contract is voidable if all the requirements for a contract are satisfied, but the way in which the parties
reached agreement is a problem because one of them was guilty of misrepresentation, duress or undue
influence, A voidable contract is a valid contract, and will remain in force until the innocent party decides
The result
The effect, or result, of a voidable contract is that the innocent party has a choice. One option is that he
can choose to set aside, or rescind, the contract and claim restitution. Restitution is payment for damage
or loss so that both parties are returned to the position they were in before the contract. The Latin term
for this is restitutio in integrum. The other option is for the innocent party not to rescind the contract but
to abide by it, in other words, to stay with the contract or keep it going.
So you can see that a voidable contract is valid until the innocent party rescinds it. If the innocent
party decides not to rescind the contract, it continues being valid, and is therefore binding on the parties
in the sense that each must perform the terms of the contract.
Usually, what happens is that the innocent party has a reasonable time to decide whether to keep the
contract going or to rescind it. If he does nothing, he loses his right to set the contract aside, because it
is assumed that he has chosen to keep the contract going, But if the innocent party chooses to rescind
the contract, the contract comes to an end and both parties have to give back what they have received in
terms of the contract (restitution). If, because of the fault of one of the parties, it is impossible to return
what was received, that person can give the other person money equal to the value of what he should
return. Alternatively, the innocent party can choose to abide by the contract, and then it remains valid.
For example, you and I enter into a simple contract. I give you a book in exchange for a CD. But
then you find out that the book is not the latest edition, as I said it was. It is a few years old and perhaps
a bit out of date. This means the contract is voidable because I misrepresented facts to you. You have
a choice: either abide by the contract or rescind it. If you decide to abide by the contract, it is valid.
However, if you set it aside, | must give you back the CD and you must give me back the book. If I have
lost or broken the CD, I have to pay you for it instead.
The effect of a contract being void is very different to its being voidable:
e Avoid contract can never be valid, unless a voidable contract is valid, or unless it is
rescinded. Make sure you know the difference and take care to use the right term.
Activity 6.1
In light of the difference between void and voidable contracts, it is possible that a voidable
contract is actually for your benefit so that you decide to keep the contract going. This is not
possible with a void contract. Can you think of an example where you would keep a contract
going even though you were ‘tricked’ —- where someone misrepresented the truth?
Material mistakes
Fora contract to be void because of mistake, the mistake must be material. This means the mistake must
have influenced the mistaken party's decision to enter the contract. In other words, if he had known
the truth, he would not have entered into that contract. This test is subjective, because it depends on
how we understand the thinking of the particular (mistaken) person involved. This is in line with the
wills theory.
You need to understand the difference between subjective and objective tests.
With a subjective test, we try to determine the person’s thoughts and ask whether this particular
person would have acted differently if he had not been mistaken, for example, would he have
decided not to enter into the contract?
With an objective test, we compare the person's behaviour to the behaviour of a
reasonable person.
The ‘reasonable person’ is an imaginary person you will come across often in legal discussions
and represents the average, normal, careful person. The reasonable person's behaviour is a
standard against which we measure the actual behaviour of particular real people. Where a real
person fails to meet the standard of the reasonable person, we consider that individual to be
negligent, careless or reckless. If the individual falls far short of the standard (in other words, his
behaviour is much worse than that of the reasonable person), then we consider him to be very
negligent. So the extent of the shortcoming indicates the extent of the person’s negligence.
To decide whether a mistake is material, we consider the facts of each case. Here, it is helpful that the law
has categorised certain types of mistakes as material and others as immaterial. If the particular type of
mistake fits into one of the categories that is considered material, then it usually meets the requirements
of materiality.
The following are mistakes that we consider to be material:
= = Error in negotio is a mistake about the type of contract being entered into. If] think I am selling you
my watch, but you think that I am giving (donating) it to you, that is an example of error in negotio.
= = Error in corpore is a mistake about the subject matter of the contract. Suppose you have two cars and
we enter into a contract for the sale of one of the cars. If] think that lam buying your Toyota, but
you think I am buying your Ford, then that is an example of error in corpore.
@ = Error in persona is a mistake about the identity of the person with whom the contract is being
concluded, This mistake is material only if it is important for one party to know who the other
contracting party is. For example, if I want to sell my house, it makes no difference to me who
the buyer is —a mistake about the other contracting party's identity is therefore not material.
But, if I want to enter into a contract of employment and hire someone to work for me, the
identity of the other contracting party is important. This is because the employer-employee
contractual relationship is a personal one where the employee's qualities, such as competence and
trustworthiness, are important.
By contrast, an error in substantia, which is a mistake about the attributes or qualities of the object of
the contract, is not material. Suppose, for example, I buy a car from you. If I think it is ten years old,
but you know that it is 11 years old, the contract is still valid. The mistake is not material, as we did
reach agreement.
While the above categories of mistake help us to determine whether a mistake is material, it
is still possible that a mistake that is usually not material is found to be material in a specific
case, because of particular circumstances. This could happen, for example, if both parties know
that a particular fact is important to one of the parties, which means a mistake about that fact
is material.
Terence is buying a jacket for a hike in the Drakensberg Mountains and he tells the shop
assistant that the jacket must be waterproof and very warm for his hike. The shop assistant
assures him that the ones they sell are ‘the warmest and most practical for hiking, by far.’
He really believes this. Terence later discovers that the jacket is not very warm and that it is
definitely not waterproof.
e Is the contract valid?
e Would it make a difference if Terence was buying the jacket merely as a fashion item?
e Return to this question after we have covered misrepresentation and see if you think this is
misrepresentation,
Reasonable mistakes
‘The third requirement for a mistake is that it must be reasonable. The mistake must be one that a
reasonable person would make.
A mistake is not reasonable if the person who was mistaken was negligent. In other words, the law
thinks that there is a way that all of us should act in particular circumstances. If we do not live up to this
standard of behaviour, then we are negligent, and a mistake that we make is not reasonable.
‘The test for reasonableness is an objective test: we compare the behaviour of the person who was
mistaken with that of the reasonable person. If the reasonable person would not have made the same
mistake, then the mistake was not reasonable, and the contract is still valid.
Say, for example, I want to buy a car from a car dealer, and he takes me into the showroom and
points out the car he wants to sell me. I am too busy talking on my cellphone and do not concentrate
properly, so that I think I am buying a different car. My mistake is material (error in corpore), but it is
not reasonable. A reasonable person would have paid attention when the dealer was pointing out the car.
The contract is still valid, as the requirements for a mistake have not all been met. I am bound by the
contract to buy the car that the dealer pointed out.
The law looks at each situation to decide how a reasonable person would have behaved. When it
comes to reading written contracts, the general rule is that a party signing a contract is bound by its
terms even if that party did not read the terms. This principle is called caveat subscriptor. These Latin
words mean ‘let the person signing beware’, Similarly, caveat emptor means ‘let the buyer beware’.
The rule of caveat subscriptor assumes that a reasonable person reads and understands a contract
before signing it. Therefore, you are bound by the terms of a written contract, even if you have not read
the contract. If you sign the contract without reading it, you are negligent, and any mistake that you
make in respect of the terms of the contract is not considered reasonable. This means that a contract can
be legally binding on the parties even though there was no true consensus or agreement between them.
This is because the signing party gave the other contracting party the reasonable impression that she
wishes to be bound by the terms of the contract when she signed it.
The following case describes the common law position.
Principle
As a general rule, where a party signs a document, his actions of signing the contract create the
reasonable impression that he intends to be bound by the terms contained in the document (the
caveat subscriptor principle).
Facts
In this case, George checked into a hotel and signed the register without reading the terms
and conditions contained in it. By signing the document, George indicated that he agreed to
the conditions of occupation, which included an exemption of a liability clause. After taking
occupation in the hotel, certain belongings were stolen from his room. George sued the hotel
for damages claiming that he was not bound by the terms in the documents as he had not
read them.
Like the caveat subscriptor rule, the reliance theory is another principle that allows a contract
to come into effect even though the parties did not have true consensus at the time of
the formation of the contract. The reliance theory states that enforceability of a contract
depends not on the subjective meeting of the minds, but rather on the reasonable impression
that is communicated to the mind of one party by the words or conduct of the other party as
evidenced by the facts of the case. The principle seeks to promote legal certainty and to protect
the reasonable expectations of parties to a contract.
Principle
The law may uphold a contract with dissensus, if it is necessary to protect a party's reasonable
reliance on the appearance of assent.
Facts
In this case, National and Overseas Distributors Corporation (Pty) Ltd submitted a tender
to the Potato Board (in answer to a call for tenders), and the former party subsequently
received a letter of acceptance from the Board. National and Overseas Distributors (Pty) Ltd,
relying on the appearance of assent, started making the necessary arrangements to render
performance on the contract. However, a short period thereafter, the Board communicated to
National and Overseas Distributors Corporation (Pty) Ltd that the letter of acceptance had been
sent as a result of an administrative error and that the Board intended to accept the tender
from another company.
The court's finding
The court held that, based on fairness and practicality, there was a binding contract between
the Potato Board and National and Overseas Distributors Corporation (Pty) Ltd as the actions of
the former party led the National and Overseas Distributors Corporation (Pty) Ltd to reasonably
believe that there was a valid contract in place.
If one contracting party is aware that the other contracting party is mistaken, she cannot rely on the
appearance of consent.
Clearly, caveat subscriptor also does not apply if the mistaken party is blind or cannot read. If the above
three requirements are met, the contract is void because of unilateral mistake. Both parties must then be
returned to the position in which they were before the conclusion of the contract, by using the law of
unjustified enrichment and the rei vindicatio.
In terms of the Consumer Protection Act 68 of 2008, which only applies to contracts where the
supplier sells goods or services in the ordinary course of business, there is an additional situation where a
clause in the contract limits:
= the supplier's liability
makes the consumer assume more risk
imposes an obligation on the consumer
relates to an activity that is unusually risky, and it would not normally be expected by the consumer
could result in serious injury or death.
If a common mistake occurs, the contract is void. Both parties must be returned to the situation
they were in before entering into the contract, using the law of unjustified enrichment and the
vei vindicatio,
Rectification
What happens if the contracting parties agree verbally to a contract, but they make an error later,
when they write down the terms of the contract? This is not a mistake that would render the
contract void, since there is agreement between the parties. The only problem is that the piece of
paper does not reflect this agreement accurately. In this situation, the parties can apply to court for
an order for rectification to correct the error in the written document. The party that asks for the
rectification must show that the content of the written document differs from their verbal agreement,
and must prove what the terms of the verbal agreement are. The court will then order the written
document to be changed so that it is a correct reflection of their agreement. For example, suppose
you and I agree verbally that I can hire your car for two months, but when we draw up the written
contract, it says ‘12 months’ by mistake. You or I can apply to court to rectify the written agreement
by changing the ‘12’ toa ‘2’.
Activity 6.2
Jacob wants to open a karate school where he will teach 30 children per class. He needs to
rent premises. He looks at a hall and is told by the lessor, Jonny, that the hall is very sturdy, well-
built and that there is no problem having even 40 people doing karate in the hall. At the time
that Jacob enters into an agreement of lease and starts his school, he discovers that the hall floor
is old, and that it will not support 30 students doing karate simultaneously. When he checks his
contract, Jacob sees that Jonny has added the clause: ‘The hall is not designed to support more
than 20 people at any one given time.’ When Jacob tries to cancel the lease, he is told that
the contract is valid as the reason why he entered into the contract is not material. What is the
legal position?
The facts in the first situation could also be interpreted as a misrepresentation, which we discuss
in the next section. We can often argue the same facts in different ways.
We have to look at the circumstances for mistake to see if the facts qualify as a mistake.
Similarly, we have to look at the circumstances for misrepresentation to see if the facts qualify
as a misrepresentation, Sometimes, it is unclear whether there was no agreement (mistake) or
whether there was a flawed or defective agreement (misrepresentation), as the same facts can
be argued both ways.
Principle
Where a party makes a positive statement that is only a half-truth, there is duty for that party to
disclose the other part of the truth.
Facts
In this case, the seller of a farm informed the buyer that he had successfully pumped water from
the borehole for three years. However, the seller omitted the crucial facts that this had occurred
fourteen years ago and that the depth of the borehole had since been shortened.
The court's finding
The court held that the seller misled the buyer by disclosing a half-truth. He was therefore under
a duty to disclose the rest of the facts known to him.
Where a true statement is made by a contracting party but circumstances change, there is a duty
to disclose the new state of affairs. For example, if I tell you that my neighbour has no objection
to my building near our boundary wall but before the contract to sell my house to you is signed,
I have learned that my neighbour has changed his mind and will object to the building of the
boundary wall.
Where a seller knows of latent defects in the property being sold, there is a duty on A latent defect is an
the selling party to disclose this information. unusual quality of the object
Where one party takes active steps to hide certain facts or characteristics about the being sold that makes it
: e 3 ‘ : . les useful or useless.
thing that is being sold, there is duty on that party to disclose this to the other party. See teetu es
Principle
Where a contracting party intentionally hides certain facts about the subject matter of a sale,
there is a duty to disclose this to the other party.
Facts
The plaintiff bought a farm from the defendant. One quarter of the farm was a graveyard,
recently ploughed over to hide this from the plaintiff.
The court's finding
This constituted misrepresentation as there was a duty on the defendant to disclose this fact.
Principle
You can misrepresent facts orally and/or by your actions.
Facts
Mr and Mrs Trotman, the sellers, owned two flats next to a piece of land that belonged to the
city council. The sellers rented this piece of land for a small fee from the council, and had built
a wall around their flats incorporating the council land. Furthermore, the Trotmans knew that
the council was going to reclaim their land for the purpose of building a road. However, during
negotiations with Edwick to sell the property, the Trotmans verbally misrepresented the size of
the property. Further, they paced out the boundary of the property, which gave the buyer the
impression that the council land was a part of the sale.
The court's finding
The court held that based on what the Trotmans had expressly stated and their conduct of
physically pacing out the boundary of the property under sale, they had misrepresented the size
of the property and fraudulently created the impression that the council land was theirs to sell.
Principle
A misrepresentation must be one that would mislead a reasonable person.
Facts
Lourens represented to Genis, an experienced farmer, that his (Louren’s) son had X-ray eyes and
could see water underground. Acting on this representation, Genis contracted with Lourens,
only to discover thereafter that this was not the case at all.
The court's finding
This does not constitute misrepresentation as a reasonable person would not have been misled
by such a claim. The contract in this case was therefore not voidable as all the requirements for
misrepresentation had not been satisfied, (This decision has been criticised by later judgments,
which clarify that fraudulent misrepresentation would be actionable even if misrepresentation
would not induce a reasonable person to enter into the contract.)
Activity 6.4
1. Write down the definition of a representation in the form of a list.
2. Next to that, write down the six requirements that a misrepresentation has to meet to make
a contract voidable.
Can you see the connections?
= Ww
Draw lines or create a mind map, or a diagram, to help you remember these two lists and
how they are related. That is much easier — and less confusing — than trying to learn the two
lists separately. Feel free to add further detail to each requirement on your mind map and
you will have a really useful revision tool.
As you might have seen, one set of facts can lead to different consequences in different
areas of law. It may be possible that the same set of facts makes the contract voidable in
terms of contract law, on the one hand, and allows the innocent party to claim damages in
terms of the law of delict on the other. We have to look at the facts and then compare them
to the requirements set out by contract law and the law of delict. We evaluate each legal
perspective independently.
What we are doing here is seeing when a misrepresentation fulfils the requirements for
an action to recover damages in delict. Our question is: Under what conditions can you sue
someone for damages because of their misrepresentation?
These are distinctions in terms of the common law, which we explain below.
Jeremy sells you jewellery. He tells you that the ring he has is 18-carat gold, and that it is worth
R10 000. You buy it for R8 000. Later, you discover that he knew all along that the ring was not
18-carat gold and that it was worth only R4 000. This is fraudulent misrepresentation as Jeremy
knew the truth, but was lying to induce you to buy the ring. If Jeremy was not sure what type
of gold was in the ring but did not care and said it was 18-carat, then that is also fraudulent
misrepresentation because of his recklessness.
Hendrina is a dog breeder, who is selling puppies. She believes that these dogs are generally bred
as watchdogs, so she tells the buyers that these pups will make great watchdogs. Actually, dogs
of that particular breed happen to be particularly timid, so they do not make good watchdogs.
Hendrina’s statement to the buyers is a negligent misrepresentation, because a reasonable
person who breeds dogs would have checked and found out the true nature of the breed,
knowing that potential buyers consider this an important factor in their choice of dog.
The difference between a negligent and a fraudulent misrepresentation is that in the case of a
negligent misrepresentation, the person making the representation believes it to be true, but in
the case of a fraudulent misrepresentation, the person making the representation knows that it’s
false, or does not care whether it is true or false.
Solly is selling his house to Joelene, and he tells her that the roof is in good condition. He
believes that this statement is true because he recently had the roof fixed by a builder who told
him, after finishing the repairs, that the roof was now in a good condition. However, it turns
out that the roof is actually in a very poor state. Solly’s untrue statement is not a fraudulent
misrepresentation, because he thought he was speaking the truth. The statement is also not
negligent, because a reasonable person would also have trusted the opinion of the builder and
believed that the roof was fine if the builder had said so.
Do not get confused between the laws of contract and delict. As long as the requirements of
misrepresentation set out by the law of contract are met, the contract is voidable. It makes
no difference to the law of contract whether the misrepresentation is fraudulent, negligent or
innocent — they can all render the contract voidable. However, in terms of the law of delict, you
can claim damages only if the misrepresentation was fraudulent or negligent.
When you buy a house, flat or land (immovable property), there are certain expenses that you
have to pay to transfer ownership of the property into your name. These include transfer duty
and the legal fees charged by the conveyancer. There are also other fees and expenses that have
to be paid, so the costs of transferring the house can be quite high.
Thandi recently bought a house from Thabo, but the contract is voidable because he misrepresented
the facts fraudulently. She decides not to rescind the contract. However, because he misled her
about the value of the house, she paid R300 000 fora house that was worth only R250 000.
The law of delict allows Thandi to recover the extra R50 000 from Thabo. She can also
recover the additional money that she spent on the estate agent's fees. (Estate agents calculate
their fees as a percentage of the purchase price of the house, so Thandi paid too much because
the house was over-valued.)
Joe goes to Old Crox Car Lot looking for a car in the R22 000 to R28 000 price range. He finds
one that he likes, and he buys it for R25 000 after the salesman assures him that itis in perfect
working order. It turns out later that the salesman did not know much about that car, and that
the car actually needs R2 000 worth of repairs.
In terms of the law of contract, the contract is not voidable. Although the salesman’s claim
was a negligent misrepresentation, it did not induce Joe into the contract, since he would still
have bought that car even if he had known of the problems. What are Joe’s rights in the law of
delict? In terms of the law of delict, Joe will be able to recover the R2 000 in damages from Old
Crox, because he would have paid R2 000 less if he had known the truth.
As you can see, we have to evaluate each case of misrepresentation in terms of the law of delict
and the law of contract separately to see what the rights of the innocent party are. The legal
position that we have explained thus far is the position in terms of the common law. As mentioned
above, the Consumer Protection Act 68 of 2008 applies to certain transactions, generally,
where the transaction between the supplier and consumer is in the ordinary course of business.
Activity 6.6
Sam is hoping to sell his farm to Lisa. In talking about the farm, he tells her that it is the most
beautiful farm in the whole area, and that he and his wife have always been very happy there.
He also informs her that the size of the farm is 20 hectares. Sam does not tell Lisa that the
government has notified him that it is considering taking over a corner of the farm on which
to build a public clinic there. One of Sam's workers tells Lisa that this farm produces the most
apples in the whole area. Lisa buys the farm because she believes it to be a good investment
and, as she told Sam, she specifically needs a farm that is over 17 hectares in size and has good
fruit trees. However, when she moves onto the farm, she discovers the following:
a) The farm is only 15 hectares.
b) The farmhouse is quite ugly.
c) The farm does not produce the most apples in the area.
d) Sam has never been happily married.
e) The government is planning to use a piece of the farm for a clinic.
For each of the above statements, state what type of misrepresentation it is and whether it
would allow Lisa to rescind the contract. Explain your answer in each case.
Activity 6.7
Mpho’s swimming pool is green and dirty. She goes to Bob’s Pool Shop and asks to buy
chemicals to clean her pool. Bob gives her a large bag of chemicals and tells her that they are
completely safe to use in her kind of pool. Mpho takes the chemicals home and adds them to
her pool as directed. The next day she checks her pool and notices that the walls and floor of
the pool have been badly damaged by the chemicals. She wants to claim delictual damages from
Bob for the harm caused to the pool.
1. Name the type of misrepresentation in each of the following situations:
a) Bob thought there was a possibility that the chemicals could damage Mpho’s pool but
decided to sell them to her anyway.
b) Bob did not know that the chemicals could damage the pool because he generally
did not pay too much attention to the chemicals that he sold. He assumed that all pool
chemicals were safe.
c) Bob was shocked to find out that the chemicals had harmed the pool because he
had often sold them and they had seemed perfectly safe. He later discovered that
the bag of chemicals that he had sold to Mpho had been incorrectly labelled by the
supplier and that it actually contained a completely different chemical to what it said
on the bag.
2. Discuss whether Mpho would have a claim in delict in each case and, if so, what damages
she could claim for.
‘The fear that the innocent party felt because of the threat must be reasonable. If it is inevitable, it will
The threat must have been unlawful or against public policy. Sere ieee eos
: - : s cannot prevent or escape it.
The threat must have induced the innocent party into entering the contract.
6.4.1 There must have been a threat of harm to the contracting party, his
family or property
The innocent party must have been threatened that something bad would happen to him, his family or
property if he refused to enter into the contract. For example, if someone threatens to burn down your
house unless you sign a contract, then there is a threat of harm to your property. The contract is voidable
because of the duress.
6.4.3 The fear that the innocent party felt because of the threat must
be reasonable
The fear that the contracting party felt is reasonable if a reasonable person would have been afraid when
faced with the same threat. Suppose, for example, you are a very nervous person, and you sign a contract
out of fear because the other party is breathing heavily. This would not qualify as duress, because a
reasonable person would not have felt afraid in that situation.
6.4.4 The threat must have been unlawful or against public policy
A threat is unlawful if the conduct threatened is unlawful — for example, if I threaten to assault or
murder you. A threat is also unlawful or against public policy if the threat is made using something
lawful in an unlawful manner. Suppose, for example, I find out that you are not paying your taxes
properly, and [ tell you that I will report you to the South African Revenue Service (SARS) if you do
not give me R5 000. Although it is lawful to report someone who is cheating on tax, my purpose in
threatening to report you unless you pay me is unlawful and against public policy.
6.4.5 The threat must have induced the innocent party into entering
the contract
The innocent party must have entered into the contract because of the threat. If the party would have
entered into the same contract anyway, even without being threatened, the contract is not voidable.
Principle
The innocent party must prove that the threat induced the contract.
Facts
Hendricks, an expert on the breeding of horses, managed a farm for Barnett. Barnett put the
farm up for sale, but he had an agreement with Hendricks that he (Hendricks) would stay on
until certain animals were prepared for auction, and that Barnett would pay him a termination of
employment bonus. Shortly before the auction, Hendricks threatened to leave his employment
unless Barnett paid him a bonus of R10 000. This meant that the sale of the farm would have
been jeopardised as Hendricks was the only person who could identify the horses for prospective
buyers. This would have resulted in Barnett sustaining financial loss. Barnett therefore gave
Hendricks one cheque for the immediate payment of R5 000, and another cheque for R5 000
that was postdated. After the auction had taken place, Barnett put a stop on the second cheque.
When Barnett was sued for the payment of the second cheque, he contended that he was
induced into issuing the cheque under duress.
The court's finding
In this particular case, there was insufficient evidence to show that Barnett unequivocally
protested against making the payments to Hendricks. Therefore, he was not induced into the
contract with Hendricks.
Principle
Where all the requirements for a voidable contract on the basis of undue influence are met, the
innocent party can decide to set aside the contract.
Facts
Preller, a doctor, took transfer of four farms that belonged to his patient, Jordan. Jordan sought
to rescind on the donation and transfer of the properties on the basis that he had been unduly
influenced into making the transaction and that he had been mentally and physically exhausted
from his illness at the time. Jordan further asserted that, had it not been for Preller’s behaviour,
he would not have otherwise made the transfers.
Aman enters Stephanie's house and threatens to destroy the beautiful flowers in her garden
unless she signs a contract donating her coastal holiday cottage to him. Stephanie signs the
contract but later she obviously wants to set it aside. Can she rescind the contract?
In this chapter, you learned the following about problems Misrepresentation is a false statement of a material
with the formation of contracts and why they could be fact, made with the intention of inducing a person to
void or voidable: enter into a contract. It makes the contract void and is:
A contract is void if any one or more of the ® about a fact that is material to the contract
six requirements for a valid contract have not @ made with the intention and has the effect of
been satisfied. If a contract is void, both parties inducing the other party to contract.
have to return what they received in terms of
the contract. Misrepresentation can also be a delict, which allows the
Agreement, one of the requirements, is missing innocent party to claim damages. Misrepresentation is a
if there was mistake. Mistake can be either unilateral delict when it is fraudulent or negligent, but not when
or common. it is innocent.
With a unilateral mistake, the two parties have Duress is present if a person uses fear to force
different understandings of the situation, so there another person into a contract. Duress makes the
is no agreement. The contract is made void if the contract voidable if:
mistake was: @ there was an unlawful or immoral threat
m about a fact concerning the contract m the threat was of both imminent and inevitable harm
= material m the threat persuaded the innocent party to contract
® reasonable, m the fear that the innocent party felt was reasonable.
Common mistake happens if both parties share Duress may also be a delict, which allows the innocent
a mistaken belief. The contract is void if the party to claim damages,
mistake was:
Undue influence means that one contracting party
= common
has such an influence over the other that the second
=~ material. (It does not need to be reasonable.) party is unable to think for himself and is influenced to
enter into a contract he would not normally have agreed
When the parties reach a verbal agreement, but then to. Undue influence makes the contract voidable if:
make an error in the written document, the error can m the stronger party had influence over the weaker
be rectified according to the verbal agreement. ® the influence was such that the weaker party would
A contract is voidable if all the essential requirements do what the stronger party said
of the contract are present, including agreement, but one = the stronger party used his influence in an
party used misrepresentation, duress or undue influence unscrupulous way
to induce the other party's consent. If a contract is @ the influence caused the weaker party to enter into
voidable, the innocent party has the choice of rescinding a contract
the contract or abiding by it. m the contract was not in the weaker party's
best interests.
Sandy runs a florist business. She needs a small Nina is a very lonely woman who lives alone and
van to transport her Hower arrangements. She tells has no family or friends. The highlight of her week
ABC Car Dealers what she is looking for and why is going to her hairdresser, Charl, with whom she
and they tell her that they have a ‘newish van that gets along very well. Charl convinces her that meat
drives like a dream’ for R150 000. Sandy buys is bad for her and she then decides to become a
the van and thereafter discovers that the van's vegetarian. Charl also convinces her that cars are
engine is in poor condition. It constantly stops bad for the environment and that she must donate
and starts, causing her flower arrangements to her car to him. Nina, accordingly, gives up meat in
fly around in the back of the vehicle. She takes her diet and gives her car to Charl. Is the contract
the car to a mechanic, who tells her that in its of donation valid, void or voidable?
present condition the car is worth only R100 000. Mandy has a watch that she inherited from her
Answer the following questions: mother. She always believed that the watch was
Assuming that ABC did not know that the engine gold. Mandy tells Lynn that it is a gold watch. She
was in a bad condition: sells the watch to Lynn for R10 000. When Lynn
a) Is the contract void due to mistake? has the watch valued for insurance purposes, she
b) Is this a case of misrepresentation and, if so, discovers that it is actually not a gold watch.
what type? a) What type of misrepresentation is this?
c) What are Sandy’s remedies? b) What are Lynn’s remedies?
Jimmy finds a coin at the beach. It looks like Cindy owns a beautiful dog. Her neighbour, John,
gold and he sells the ‘gold coin’ for a large sum to constantly asks Cindy to sell the dog to him, but
Mpho, who thinks that it is beautiful. It later turns Cindy refuses. One day he arrives at her house and
out that they are both mistaken and that the coin is says, If you do not sell this dog to me, I am going
actually brass. Answer the following questions: to burn this house down!’ Cindy sells him the dog
a) What type of mistake is this? for R1 000. Can Cindy claim her dog back?
b) Is the contract valid?
Further reading
Christie, RH. 1996. The Law of Contract in South Africa, Hutchison, D, et al. 2012. The Law of Contract, 2nd edn. Cape
3rd edn. Durban: LexisNexis South Africa Town: Oxford University Press Southern Africa (Pry) Led
lawfulness of contracts y
The main ideas
Formalities — the starting point
Types of formalities
When are formalities required?
Certainty of performance in contracts
Possibility of performance in contracts
Legality of performance in contracts
So far we have dealt with the first two of the six requirements for a valid contract, namely contractual
capacity and agreement. ‘This chapter deals with the remaining four requirements. Some contracts have
to be concluded in a particular way, in other words, they have to comply with certain formalities. A
contract also has to be clear, and the action it describes must be both possible and legal. Failure on any
one of these grounds would make the contract void.
It is a common mistake for people to think that contracts are valid only if they are in writing.
Be careful of what you agree to in discussions, because most verbal contracts are valid!
Activity 7.1
1. Are you keeping up with making notes and drawing mind maps as you work through this
material? We have not done much on formalities so far, but this is a good time to draw up
a simple mind map of the three most common formalities. Include important details, like
the distinction between a notary public and a conveyancer.
2. This is also a good time, if you have not already done so, to look at the headings in this
chapter and draw up your tree structure. If you have forgotten how to, refer back to the
activities in Chapter 1.
Antenuptial contracts
An antenuptial contract is a contract entered into by a couple before they marry. It details
their rights of ownership of items and money while they are married and in case they if a contract is notarially
separate. We discussed these contracts in Chapter 4, An antenuptial contract has two executed, it means the
formalities, both of which must be satisfied according to section 87 of the Deeds Registry parties signed it before
Act 47 of 1937: a notary public and it
= = It must be notarially executed before the parties marry. Meas fegeeren ey ie
= = It must be registered within three months of the date of the execution. :
If the contract does not meet these formalities, it is binding on the husband and wife, or parties to same
sex marriage (civil union), but not on any third parties. For example, it is common for the husband to
give the wife a present in terms of the antenuptial contract. The agreement may say that the present
is R100 000. If the formalities regarding the antenuptial contract are met, everyone must accept that
the present given to the wife then belongs to her. The husband’s creditors cannot claim that money.
However, if the formalities are not met, the antenuptial contract is only binding on the husband and
wife. As far as the husband's creditors are concerned, the money still belongs to the husband and can be
used to settle his debts.
Contracts of suretyship
A contract of suretyship is a contract in terms of which a third party (the surety) guarantees that if a
debtor does not honour an obligation to a creditor, the surety will be liable to the creditor. Because
these contracts place a heavy burden on the surety, the law imposes the formality that the contract of
suretyship must be in writing and signed by the surety. The creditor does not have to sign, but the surety
must. If this formality is not met, the contract of suretyship is void and can be ignored.
For example, when a bank lends money to a student, it usually requires the student's guardian to
stand surety for the student loan. This means that if the student does not pay back the loan, the bank
can sue the guardian for repayment of the loan. However, if the contract of suretyship is not in writing
and signed by the guardian, the contract is void, which means that the bank cannot sue the guardian if
the student fails to repay the loan.
You should generally be careful of signing as a surety, as these contracts place a great financial burden
on the surety.
Activity 7.2
Before you continue, make sure you know the six requirements for valid contracts. Go back and
revise this from Chapter 5, which explained the requirements. We are halfway through the list
and the rest of this chapter looks at the last three requirements.
If the performance is not certain, but is ascertainable, it means that it can be made certain, with more
information. In terms of ascertainable performances, the legal principle that applies is “That is certain
which can be made certain’. In other words, we consider something to be certain when we can read
something certain from it.
In Levenstein v Levenstein 1955 3 SA 615 (SR), the court classified the three main causes of uncertainty:
*,.. (a) There is uncertainty whether the one party will ever acknowledge the existence of an obligation.
This can occur when a contract gives a party an unlimited option whether or not to perform.
(b) Where the vague and uncertain language creates the impression that the parties never reached
agreement. In deciding whether a contract is in fact vague, a court will consider all surrounding
circumstances, the relationship of the parties, the conduct of the parties and the facts around the
conclusion of the contract.
(c) Where there is uncertainty as to the subject matter which has still to be agreed, in that they have
failed to agree on the material contractual terms. In deciding whether all the contractual terms have
been included in a contract, the courts will consider all the terms including express terms, tacit terms,
any trade practices relevant statutory or common law principles’.
Secondly, if Lester agrees to buy any one of two or three horses that Gary owns, fora fixed price,
and allows Gary to choose which one of the horses he would like to sell, the performance is again
determinable. This is known as an alternative obligation. In this case, it is necessary for Lester to state
how many horses he wants to buy, and for the parties to reach agreement as to which horses Gary is
going to choose from. So the alternative obligation is more specific than the generic obligation, because
it refers to a choice between particular individuals, not just one of an unspecified group.
If the performance required by the contract is neither certain nor ascertainable, the contract will be
void, in other words, it is neither determined nor is it determinable. If the obligation under the contract
is severable, in other words, it can be removed from the contract, then only that part is invalid and the
rest remains in force. If it is not possible to sever that obligation, the whole contract will be invalid.
If the parties have agreed on what performances are to be made, but one still cannot clearly
understand what each of them is meant to do, we say the contract is ‘void for vagueness’,
In the case below, the court ruled that the agreement was void for vagueness.
Principle
The terms of a contract must be certain. Where the language used is vague, indefinite or lacking
in detail, the agreement is void for vagueness.
Facts
One of the clauses in the contract stated that the debtor would make payment ‘by instalments
on a regular basis —- the amount of the instalments to vary in accordance with the liquidity
position’ of the debtor.
The court’s finding
The court ruled that the phrase was void for vagueness, as it omitted important details, such as
the intervals, date and amount of the instalments.
Activity 7.3
Read a copy of a contract that you (or your parents) have signed, such as a lease agreement or
a contract of sale. Are your rights in terms of the contract completely clear? Is there anything
that is not certain to you even after you have looked up difficult words in a dictionary? If there
is no contract at home, go to a CNA or similar shop and look at one there, such as an ‘Offer to
Purchase’. Based on your understanding of this chapter so far, consider whether you think any
uncertainty in that contract is enough to make a clause, or the entire contract, void.
Diners Club SA (Pty) Ltd v Singh and Another 2004 (3) SA 630 (D)
Principle
Clauses designed to protect a credit card issuer by placing the risk of wrongful use on a
customer are not necessarily against good morals, even where the card was used by someone
without authorisation.
Facts
Diners Club had issued credit cards to the defendants, in terms of written contracts. A clause
in each contract provided that the cardholder was liable for amounts due, even if somebody
else had used the personal identification number (PIN) of the credit card. Singh refused to pay
amounts due on the credit card because somebody else had used them without his permission.
He raised the defence that this clause was contra bonos mores.
The court's finding
The court found that the clause was intended to protect Diners Club by placing the risk of
wrongful use on its customer, the cardholder. When the cardholders accepted the credit cards,
they knew that they were bound by the contractual terms and conditions they had signed. They
had not been forced to accept the cards, and should have found out for themselves which of
the terms applied to all cardholders. There was therefore no basis for holding the clause against
good morals. The contract was valid.
Gambling contracts
There has also been a change of social attitude towards gambling, which is now allowed in certain
circumstances and governed by law. Gambling involves various ways of placing bets, usually with
money. A bet or wager is a contract that is based on luck, and usually results in the payment of money,
depending on the outcome of a contest, such as a horse race.
The National Gambling Act 7 of 2004 deals with betting and gambling, while the Lotteries Act 57
of 1997 deals with lotteries and sport pools. Any gambling or debts coming from gambling allowed
by these Acts (such as a bet or wager placed in a casino or the playing of an amusement game, which
is regulated by the National Gambling Act) are enforceable in a court. Any other forms of gambling
are not enforceable, and are still against public policy, even though the contract may be valid at
common law.
So although nothing prevents a person who has placed a wager from performing in terms of the
contract and paying the debt, the courts will not enforce these contracts, because they are against public
policy. This means that if you lose a bet and refuse to pay, the other party will not be able to sue you in
court. The contract is not enforceable. Although there is nothing wrong with the contract itself, a court
will not hear a case that has to do with unregulated gambling.
Unfair contracts
Sometimes people enter into a contract that turns out to be completely unfair and to only one party's
advantage. Fairness is not a requirement for a valid contract. It is a reality that people often conduct
business with maximum profit in mind, and those who are in a stronger position will use their strength
to gain an advantage. The courts accept that this is allowed as a general rule, and that contracts have to
be enforced, whether or not their terms are reasonable or fair.
But the courts do recognise that this principle may be relaxed in exceptional circumstances, so that
a contract or a term in a contract may be void because it is very unfair. The courts can do this only if
they consider the contract so unfair that it goes against the interests of the general public. It's not easy
for a party to succeed in having a contract declared void on the grounds of unfairness, because public
policy generally favours complete freedom of contract without any restrictions, when contracts are freely
entered into,
In terms of the Consumer Protection Act 68 of 2005, suppliers are not allowed to offer goods or
services at an unreasonable price or on terms that are ‘unfair, unjust and unreasonable’. If a court finds
this has happened then the court may order that the money or goods be restored to the buyer or that the
buyer be compensated.
Erle aE ee Oe ey, iP
Principle
A contract that deprives a person of obtaining any benefit whatsoever will be against
public policy.
Facts
The parties divorced and entered into an agreement regarding the maintenance of their
children. Malan, who was a teacher, agreed to pay an amount equal to the amount she
received as a salary every month, plus her annual bonus, to her husband for a period of
20 years.
The court's finding
This agreement was against public policy because it deprived Malan of any benefit coming
from her employment as a teacher.
means that the courts may refuse to enforce a claim that arises from the claimant's illegal action, so you cannot take
or immoral conduct. So when there is an illegal contract, the law will not allow any action a dispute to court if it is
to recover performance in terms of such a contract. Neither party can force the other about something illegal
to perform in terms of the contract. Thus, to use an extreme example, if] contract for or immoral.
someone to commit murder, | obviously cannot go to court to enforce this.
Suppose, for example, Freddy enters into a contract with a criminal to steal a car for him in return
for R1 000 and Freddy pays the thief the money. If the thief “breaches the contract’ by not stealing a car,
then in terms of the in pari delicto rule, Freddy cannot sue the thief to force him to steal a car and, in
terms of ex turpi causa, Freddy cannot sue to get his R1 000 back.
Principle
A strict principle in South African law is that a contract that is void for illegality cannot
be endorsed.
Facts
According to the law, anyone who wanted to sell or purchase poplar wood needed a permit
from the Government. Wessels sold and delivered a certain quantity of poplar to Lion Match Co.
in ignorance of the legal requirement.
The court's finding
If a contract is only partially illegal, a court can sever the illegal part while the rest of the contract
will remain in force. However, where society's morals require the whole contract to be declared
void, then the courts will not grant an order to remove the illegal terms.
The court held that Wessels could not claim for the purchase price as the agreement was void
for illegality, and it was therefore unenforceable.
For example, if Best Bank employs and trains Bongani, a computer programmer, it may be concerned
that he could take his expertise to another competing bank, which would then have the benefit of his
training and knowledge of inside information (i.e. trade secrets). So, his employment contract could
include an agreement that he will not work for a competing bank within two years of leaving his job
with Best Bank.
In principle, a restraint of trade agreement is valid and enforceable. The only time it is not
enforceable is if the specific agreement goes too far and is considered to be in conflict with the public
interest. The person who does not want to be bound by the restraint clause needs to prove that the clause
in a specific contract is against the public interest. The court will look at the circumstances at the time
of the hearing to decide whether the restraint is against public interest or not. To be in line with public
policy, the clause must be reasonable.
The court considers the following factors in deciding whether a restraint is reasonable or not:
@ = the nature of the act that is not allowed (such as being employed by a similar business, or owning a
similar business)
the nature of the interest that is protected (for example, goodwill or trade secrets) and how far this
protection goes
the time period of the restraint
the geographical area of the restraint
the type of business or employment concerned
the relationship between the parties.
X-Co specialises in the manufacturing of welding guns for the automotive industry. The company
has trained one of its staff members, Mr James, for five years, so that he is now an expert when
it comes to building the welding guns. X-Co gets large contracts from the Volkswagen factory
and is hoping to get more contracts from Delta Motor Corporation. A competitor of X-Co,
QL Welding, offers Mr James double his current salary if he will agree to work at QL. QL Welding
is hoping that with Mr James on its staff, it will get the business from Delta. Mr James has a wife
and four children and needs the extra money desperately. He has also been having problems
with X-Co, which refuses to give him a fair increase even though he has done good work. He
knows that X-Co depends on him, and he also knows all the faults in X-Co’s manufacturing of
the welding guns. With his knowledge, QL Welding could produce better welding guns than
X-Co is doing, which should allow QL to get the Delta business. Mr James is very pleased to get
the offer of double pay from QL Welding and resigns from X-Co.
His contract with X-Co contained the following clause:
Restraint of trade
In order to avoid the possibility of unfair competition and/or prejudice to X-Co, and to
secure reasonable protection for the business of X-Co for a reasonable period of time,
over a reasonable area, | understand that certain restraints are necessary. | therefore agree
not to be engaged in and not to have any interest in any concern or business that carries
on business similar to that of X-Co, for a period of 12 (twelve) months after termination of
the contract, within X-Co's primary area of business, the Eastern Cape.
Do you think this clause is valid, and can X-Co prevent Mr James from working for QL Welding?
The second kind of contract in restraint of trade relates to the sale ofa business, as the case study
below shows.
Mario owns and manages a successful restaurant, The Windy Wave, on the Port Elizabeth
beachfront. After five years in business, he decides to complete the B.Com degree that he
started before taking over the management of the restaurant from his father. In order to finance
his studies and to pay for his upcoming wedding, Mario decides to sell The Windy Wave. The
buyer, Nino, agrees to pay R800 000 for the restaurant, but is worried about the good personal
reputation that Mario has in the restaurant business. Mario agrees to sign a restraint of trade
clause that will prevent him from operating a restaurant in Port Elizabeth for a period of two years,
so that all his old customers will hopefully continue to have their meals at The Windy Wave once
Nino has taken over.
As the above examples show, restraint of trade agreements cause a conflict between a person's freedom
to work in a trade and occupation of their choice on the one hand and the binding nature of contracts
freely entered into on the other hand.
Generally, a restraint of trade clause will be reasonable for a long period of time if the area of
the restraint is very limited. In the same way, the restraint of trade clause is more likely to be
reasonable for a large area if it is only for a short period. For example, when the buyer of a store
had a restraint clause preventing the previous owner from opening a store within a radius of
eight kilometres of the original store, the court held that to be reasonable. The court does not
have to choose between enforcing the restraint clause completely or rejecting it. If the facts
require this, it may choose to enforce only part of the restraint. For example, it can decide that a
five-year restraint clause is valid for only one year.
Principle
A doctor can have a protectable interest (an interest important enough to be protected by the
court) in the form of his relationship with the patients of the practice. Such interest is worthy of
protection from the date of termination of the agreement and it is not necessary to prove that
patients had been lost to another doctor — all that has to be proved is that a practice has been
set up in breach of the restraint.
Facts
The parties were two doctors sharing a practice in the town of Giyani in Limpopo Province. They
had entered into a partnership agreement that contained the following restraint of trade clause:
Restraint of trade
Should this partnership be terminated at any time, due to any reason whatsoever, the
second partner shall, for a period of 3 (three) years from the date of termination, not be
entitled to practise as a medical practitioner or in any related field in Giyani, or within a
radius of 50 (fifty) kilometres from the practice.
After he terminated the partnership, Dr Mbombi (the second partner), set up a rival practice
in Giyani. Dr Ntsanwisi then brought an application for the court to enforce the restraint of
trade clause.
patients from moving from the original practice to the new rival practice for such a time as was
needed for Ntsanwisi to take the necessary steps to retain and nurture the loyalty of his patients.
He needed time to rearrange his practice and employ another doctor to fill the gap left by
Mbombi. Once he had done that, and his patients had got used to the substitute, there was no
reason to prolong the restraint.
The court could not accept that the period had to be long enough for Ntsanwisi’s patients to
forget Mbombi and for their desire to be treated by him to vanish. The purpose of restraint was not
to punish. In the circumstances, there was no justification for a restraint of more than twelve months.
Activity 7.4
1 Think about some of the actions of fellow students that you have experienced at your
institution. Can you identify which actions are legal and which ones are illegal?
2. Make lists of actions or behaviours that you consider to be acceptable and unacceptable.
Now try to work out where the law would come into effect in each case. For example, is
it possible to buy a case of beers from a shopkeeper who knows that you intend to drink
them all in one day? Will it make a difference if you promise the shopkeeper that you will
not drive after you start drinking?
3. Consider the relationship between South African customary law and the term ‘public policy’.
Do you see a conflict between, for example, Xhosa initiation rituals and ‘the morals of society’?
Chapter summary
In this chapter, you learned the following about formalities, is valid between the contracting parties, but not
certainty, possibility and lawfulness of contracts: enforceable against third parties.
Generally, contracts require no formalities, but the Examples of contracts that have formalities are:
law or the parties themselves may impose formalities on = antenuptial contracts
particular contracts. ® contracts for the transfer of immovable property
The effect of not completing with a formality = suretyship.
is usually that the contract is void. Sometimes, the
consequence of ignoring a formality is that the contract Performance in contract law refers to what each party to
the contract has to do in terms of that contract.
1. Bobby and Johnny often do business together. agreement to the effect that he would not work in
They always conclude their contracts ‘on a the same field anywhere in Southern Africa for ten
handshake’ — they agree verbally and do not write years after leaving the company. Which one of the
anything down. One day, they enter into the following is true?
following contracts: a) Stephen is not bound by the agreement, because
a) Bobby sells his car to Johnny for R50 000. restraint of trade agreements are not enforceable,
b) Johnny sells his house to Bobby for R550 000. b) Stephen is bound by the agreement unless he
Are these contracts valid? can prove that the restraint is unreasonable.
2. Choose the correct answer below. The formality of c) Poor Co. cannot hold Stephen to the
notarial execution means that the contract must be: agreement unless they can prove that the
a) signed and registered at the Deeds Office restraint is reasonable.
b) signed in front of an attorney, notary or d) Restraint of trade agreements are invalid, and
conveyancer Stephen is not bound to the contract.
c) signed in front of an attorney or notary and 4. Tobile is a partner at one of the ‘big four’
registered at the Deeds Office accounting companies of South Africa. The
d) the contract must be signed in front of a company, based in Cape Town, is extremely
notary public. concerned about its ‘scorecard’ when it comes to
3. Stephen is an asset manager at Poor Co. He is the number of black partners on its books. When
head-hunted by Wise Co. to work for them in the Tobile is due for an increase, the managing partner
same field, at double the salary. Both companies asks him to sign a contract preventing him from
are based in the same city. Stephen would love working for any of the other ‘big four’ accounting
to accept the offer from Wise Co., but when he companies in Cape Town for a period of three
started with Poor Co., he signed a restraint of trade years if he resigns from the company.
Further reading
Hutchison, D. et al. 2009. The Law of Contract. Schulze, H. etal. 2015. General Principles of Commercial
Cape Town: Oxford University Press Southern Law, 8th edn. Cape Town: Juta and Co. (Pry) Led
Africa (Pty) Led
Hutchison, D. et al. 2012. The Law of Contract,
2nd edn. Cape Town: Oxford University Press
Southern Africa (Pty) Led
Contents of a contract 8
The last few chapters focused on the six requirements for a valid contract. Now it is time to look at the
contents of the contract; in other words, the terms that specify the rights and duties of each party. Some
of the terms of a contract are clearly stated while others are implied. Some are required by law and others
can be changed to suit the contracting parties. We also look at how the law interprets a contract that is
not clear.
We will look at each type in turn. The next section will look at a different way of classifying the terms.
Those terms of a contract that identify it as one of the specific contracts are called the essentialia, or
essential terms, of that contract. So the essentialia are the terms that have to be present in a contract in
order for it to be classified as a specific type of contract.
‘The parties to the contract must agree on these essential terms for the contract to be considered a
specific contract. For example, for a contract to be a valid contract of lease, there must be agreement
about the following essentialia:
@ the object being leased
@ the length of the lease
= =the amount of rental payable.
The law uses essential terms to classify contracts in specific groups, just as a zoologist will use
essential features to classify animals in groups or species. For example, if an animal has a spine,
feathers and warm blood, then it belongs to the bird group. If it does not have those features,
it is not a bird, even if it can fly or has a beak. But, once you know it is a bird, you also know a
lot of other things about it. For example, you can assume that the female of that species will lay
eggs. In the same way, once you have identified a contract as belonging to a particular group,
you can assume a lot of other things about it, as you will see when we look at naturalia in the
next section.
8.1.2 Naturalia
The importance of classifying contracts in different specific contracts is that once you
have identified a contract to be a P particular specific
Pe contract, , there are terms that the en it meansoe
text, you are
law automatically reads into the contract. These terms are the naturalia of the contract. seeing, understanding or
These clauses are implied by law. assuming things from the
For example, if a contract is classified as a lease, the law automatically reads in the text that are not actually
common law duties of the lessor and the lessee. Chapter 15 on the law of lease will deal Stated there.
with more on these common law duties. The naturalia apply automatically to a contract
even if the parties have not specifically agreed to them. However, it is possible for the a ays es
; : eee : who owns the property
contracting parties to change most of the naturalia by agreeing to other terms instead. ae nie tt Cut
We discuss this below under “Terms implied by law’.
8.1.3 Incidentalia
‘The incidentalia are the terms in a contract that the parties have agreed to, but which are neither
the essentialia nor the naturalia of the contract. These are terms that meet the specific needs of the
contracting parties. For example, when a house is sold, it may be agreed that certain furniture is
sold with the house.
Principle
The law will treat a trade usage term or custom as being implied in a contract if that term meets
certain requirements.
Facts
A local custom amongst fishermen is that once the fishermen set their fishing lines on a beach,
where no boats are permanently stationed, for the purpose of catching a shoal of fish, no
further fishermen are entitled to set lines within any reasonable distance in front of the lines that
have been already set.
As with terms implied by law, it is possible for the contracting parties to prevent the trade usage from being
implied in their contract by expressly agreeing to other terms. For example, in the fishing industry there are
trade usages about how certain catches of fish are priced. These will apply to every catch of that particular fish
unless the parties expressly agree otherwise. Suppose, for example, there is a trade usage that all catches of hake
are valued at R30 per kilogram. Then this price will apply unless the parties agree otherwise.
The type of term that is most often imposed is an exclusion clause. This is also Known as an
exemption of liability clause, which limits one party's liability for any loss, damage or harm
that is caused negligently in terms of the law of delict. We will look at these clauses in more
detail in Chapter 9, but meanwhile, it is useful to understand why a party wants to include a
term like this. An exclusion term can, in certain cases, prevent the customer from suing the
other contracting party for damages where the owner has negligently caused loss, damage
or harm to the customer. This is obviously an advantage to the person who imposes the
exclusion clause.
When does a term on a ticket or notice form part of the contract? Clearly, if the other contracting
party (the customer) has seen the term and agreed to it, there is no question that the term is part of the
contract. The issue is more complicated when the customer claims not to have seen the term on the
ticket or notice. The general rule is that a customer who did not see the term will still be bound by it, as
long as the party imposing the term did what is reasonably necessary to bring the term to the customer's
attention. So what exactly does a party have to do to make an imposed term valid? That depends on
whether we are dealing with a ticket or a notice, so let us look at cach one separately.
= ‘The customer must receive the ticket before the contract is concluded. If one party intends to
impose a term on the other contracting party, that second party must know about it before entering
into the contract. For example, if a laundry wants a term on a ticket to be part of a contract, it
cannot give you the ticket only when you collect the clothes. That will be too late. The reason
for this is that a party cannot unilaterally change or impose the terms of an existing agreement.
This would be unfair to the other contracting party.
Principle
Where a supplier of goods and services seeks to incorporate contractual terms and conditions
in a ticket, the customer will be bound by the terms and conditions if the supplier did what
was reasonably necessary to bring the provisions to the attention of the customer (even if the
customer was not aware of the provisions). The ticket must be issued to the customer before the
conclusion of the contract.
Facts
Thornton parked his car at Shoe Lane Parking. There was a notice outside exempting Shoe
Lane Parking from liability for damage or loss to all cars. After the traffic light at the entrance
turned from red to green, a ticket was issued to Thornton. The ticket contained an exemption
of liability clause for personal injuries to a customer. On his way to collect his car, Thornton
sustained personal injuries caused in part by Shoe Lane Parking. Shoe Lane Parking, relying on
the exemption clause contained in the ticket, denied liability for Thornton’‘s personal injuries.
The court's finding
The court held that Thornton was not bound by the terms of the ticket as they were introduced
after the conclusion of the contract between Thornton and Shoe Lane Parking. The changing
of the traffic light from red to green was an indication that the contract was already formed
between the parties, and Thornton was then allowed to enter the premises. This means that
any term that was introduced after the light turned green would not be legally binding on the
parties. Thornton was therefore successful in his claim for damages for personal injuries. Only
the terms on the notice at the entrance, exempting the owner from liability for damage or loss
to cars, were legally binding on Thornton as these were included in the agreement before the
contract was concluded, which was before Thornton was allowed to enter the premises.
B The ticket must be the type of ticket in which a reasonable person would expect to find terms of a
contract. Examples of documents in which a reasonable person would expect to find terms include
a quotation form, an order form and train tickets. Examples of documents in which a reasonable
person would not expect to find terms include a receipt, a statement of account, an invoice and a
movie ticket.
Principle
Where a supplier of goods or services seeks to incorporate contractual terms into a ticket, the
document must be one in which a reasonable person would expect to find terms and conditions.
Facts
Chapelton hired two beach chairs from the Council, and was issued with two tickets after he
made payment. The attendant requested that he keep the tickets issued for proof of payment
at a later stage. The tickets contained an exemption of liability clause stating: ‘The Council will
not be held liable for any accident or damage arising from hire of chair’. Thereafter, Chapelton
set up the chair firmly and sat on the chair, only to be injured when it broke. The Council denied
liability, claiming that Chapelton was bound by the exemption of liability clause on the ticket.
The court's finding
The court ruled that the purpose of the ticket was to serve as proof of payment (a receipt), and
that a reasonable person would not have expected to find terms and conditions on it. Chapelton
was successful in his claim for damages.
= = ‘The term must be clearly printed on the ticket. The customer must have had an opportunity to examine
the document and the customer's attention must have been drawn to the writing on the document.
Here are the court's finding regarding the term on the railway ticket.
eee ue tie) ee a se ea
Principle
Where a supplier of goods or services seeks to incorporate contractual terms into a ticket, the
document must be one in which a reasonable person would expect to find terms, the writing
must be prominent and legible, and the customer's attention must be drawn to the terms.
Facts
McLaren deposited a parcel at a railway station's cloakroom, and he was given a ticket by the
attendant. There were terms on the ticket: ‘The department is not responsible for any article
exceeding the value of £5’. However, the words were partly obscured by the attendant’s written
description of the parcel. The parcel was thereafter lost, and McLaren sued the railway for its
value, which was more than £5. The railway denied liability on the basis that the term of the
ticket indicated that it would not be liable for any items that exceeded the value of £5.
Notices
In the case of terms that are contained in a notice, the law will look at the following factors to see
whether the party imposing the term took reasonable steps to bring the term to the customer’s attention:
m = ‘The notice must be clearly displayed at the entrance to the premise or at a place where the customer
is able to see it before the conclusion of the contract.
Principle
Where a supplier of goods or services seeks to incorporate contractual terms into a notice,
notification of the terms must be contemporaneous with the conclusion of the contract.
Facts
Olley checked into a hotel, and thereafter had certain personal belongings stolen from the
hotel room. The hotel denied liability on the basis that there was an exemption of liability clause
contained in a notice that was clearly displayed in the hotel room.
The court's finding
The court held that the terms contained in the notice did not form part of the contract between
Olley and the hotel as they were introduced after the formation of the contract. Olley was
therefore successful in his claim for damages.
Durban‘s Water Wonderland Pty Ltd v Botha and Another 1999 (1) SA 982 (SCA)
Principle
Where a supplier of goods or services seeks to incorporate contractual terms into a notice, the
customer will be bound by them if the supplier did what was reasonably necessary to bring the
notice to the customer's attention, even if the customer was not aware of the notice.
Facts
Botha and her daughter were injured on a ride at an amusement park. The accident was as a
result of mechanical failure and Botha sued the amusement park for damages. The park denied
liability on the basis that there was a notice that contained an exemption of liability clause
above the window of the ticket office in the park. The notice was prominently displayed and the
writing was legible.
The court's finding
The court held that the park had done what was reasonably necessary to bring the terms to the
attention of the customer. The notice was displayed at a place where a reasonable person would
expect to find it and where a reasonable person approaching the ticket office would have seen
it. The writing was clearly visible from about six paces away and the notice had a bold white
border around it and was placed on either side of the cashier's window. In short, the inclusion
of the terms on the notice was contemporaneous with the conclusion of the contract between
the parties and the terms were also capable of being easily read by the customer. Botha was
therefore unsuccessful in her claim for damages.
If the law considers these factors for tickets and notices, and decides that the party trying to impose the
terms did everything reasonably necessary to bring the terms to the other party’s attention, the terms will
be part of the contract even if the customer did not see or read the terms.
What we have discussed thus far is the common law position in respect of tickets and notices.
The Consumer Protection Act 68 of 2008 now confirms and supplements this common law position.
See Chapter 17 for more detail.
It was a bright sunny day and Sipho decided to take his two children to Sun City’s Valley of
Waves for the day. At the entrance to the premises, there was a large white notice before the
boom gate, which stated the following in bold black writing:
‘Management of the Valley of Waves will not accept liability or responsibility for any loss or
damage of any nature caused negligently to a person's property whilst on the premises’.
In his hurry to make the most of the good weather and to keep an eye on the excited kids at
the same time, Sipho did not see the sign. He then realised that he forgot to carry their picnic
chairs. He was relieved to see a sign at the customer services office stating: Valley of Waves Chair
Hire —R100 per day. After he had paid for the chairs, the attendant handed over the chairs and
a ticket, and requested that he keep the ticket for inspection later on. On the back of the ticket
were the following words in blue writing:
‘Management of the Valley of Waves is unable to accept liability or responsibility for any loss,
damage or injury caused to a person and/or to his/her property whilst on the premises’.
Sipho shoved the ticket into his shirt pocket and set up the chairs. Thereafter, his chair broke and
he tumbled to the ground, dropping and shattering the screen on his new iPhone and hurting
his wrist as he fell.
What are Sipho’s chances of success in suing the management of the Valley of Waves for the
physical injuries that he sustained and medical expenses, as well as the cost of repairing his
phone? Here, the owner of the premises took reasonable steps to bring the term of the notice
to his attention by having it displayed at the entrance (that is, before the conclusion of the
contract) and having it written in bold black writing. Thus, Sipho will have a slim chance of
success in suing for the cost of repairing his cellphone. However, the owner of the premises
did not take reasonable steps in bringing the term on the ticket to the customer's attention,
as it was written on a document (a receipt) in which a reasonable person would not expect to
find terms and it was handed over to the customer after the conclusion of the contract. So in
this regard, Sipho has a good chance of success in suing for the cost of physical injuries and
medical expenses.
The owner in this scenario could have avoided liability altogether by simply having a widely
worded exclusion clause — one that exempted him from liability in respect of both personal
injuries and damage or loss to property — on the notice at the entrance.
If, after all the above rules are applied, the law still cannot interpret a term ofa contract, it will interpret
the words in favour of the person who did not draft (or write) the contract.
Chapter summary
In this chapter, you learned the following about the The terms, classified as the following types, depending
contents of a contract: on the way they were included in the contract, are:
‘The terms of a contract contain the details of each ® express terms (terms that the parties have agreed to
party's rights and obligations. in writing, verbally or by their conduct)
‘The terms of a contract are classified in two ways: = implied terms (terms that the law automatically
= according to their role and importance applies to a contract because they are the naturalia
= according to types, depending on the way they of the contract or a trade usage)
were included in the contract. ™ tacit terms (terms the parties would have
included in the contract if they had considered a
‘The terms classified in the following groups according particular situation
to their role and importance are: m imposed terms (terms that the law requires to
= = essentialia (terms that identify a contract as a be present in a particular type of contract, or
specific contract) terms that one of the parties insists on as part of a
® naturalia (terms that are implied in a specific contract and that are specified on a ticket or notice).
contract by law)
= incidentalia (other terms that the parties have The court follows certain rules when interpreting
agreed to). contractual terms. It tries to find out the intention of
the parties by looking at the ordinary meaning of the
words, the surrounding circumstances of the contract
and, if needed, further rules of interpretation.
1. Anna wants to buy Fred's car, so she goes to Fred's a) What is Jerry's legal position?
house where there are three cars in his driveway. Fred b) Would your answer be different if the term
does not say which car is for sale, but he points to one was also displayed on a big sign as you walked
of the cars and takes Anna for a test drive in it. After into the shop?
the test drive, Anna asks Fred how much he wants for Simon and Cleo agree that Cleo can lease Simon's
the car. Fred says “R25 000’ and Anna replies, “That flat from | June. In terms of the lease agreement,
seems reasonable. I will fetch the car on Sunday.’ Cleo will pay a lower than normal rental as Cleo
a) Foracontract to be classified as a contract of sale, is going to renovate the flat by painting and tiling
there must be agreement about the object that is it. Cleo wants to include a contractual term to the
being sold. Did the parties reach this agreement? effect that she can renovate the flat during May so
b) What are the express terms of the contract? that it will be ready by June. Simon replies, ‘It is
c) Do you think there is an implied term about not necessary to put that into the agreement, as it
when Anna will pay for the car? is a tacit term’. Is he correct?
2. In an agreement of sale, between Minnie (the In an agreement of sale, ownership generally
seller) and John (the buyer), which clauses are passes from the seller to the purchaser. When the
essentialia and which clauses are incidentalia? seller delivers the object to the purchaser with
a) ‘The purchase price is R10 000. the intention of passing ownership, is this a tacit,
b) ‘The car is a Honda 2017 model. express or implied term?
c) ‘The purchase price is payable on 1 May. Anne and Linda have entered into a contract of
d) John has ten days to return the car and cancel lease. The contract was written down by Anne, the
the contract if is he is unhappy with the car. lessor. The following term appears in the contract,
3. Jerry takes his cellphone to Alan’s Cellphone Repair “The contract of lease will terminate when the
Shop for repairs. After leaving his cellphone there, parties meet as usual’. There is no explanation in
he is given a receipt that states, ‘Cellphones left the contract to explain the phrase ‘meet as usual’.
here at your own risk’. When Jerry goes to collect However, it seems that Anne and Linda live in
the phone, he is told that the cellphone was stolen separate cities, but have a long-standing practice
and that Alan’s Cellphone Repair Shop is not liable of meeting once a year in Durban. In light of this,
because of the term on the receipt. how will the law interpret this term?
Further reading
Hutchison, D, et al. 2009. The Law of Contract, 2nd edn. Cape Sharrock, R. 2016. Business Transactions Law, 9th edn.
Town: Oxford University Press Southern Africa (Pry) Led Cape Town: Juta and Co, (Pry) Ltd
Schulze, H. et al. 2015. General Principles of Commercial Law,
8th edn. Cape Town: Juta and Co. (Pry) Ltd
It often happens that contracting parties disagree on whether each party has done what the contract
requires. For this reason, there are certain terms that are commonly included in contracts. These
common contractual terms affect the way in which the contract operates, and they indicate what
happens if there is a dispute or if someone fails to perform according to the contract.
This chapter includes many short extracts from contracts, similar to those that you will come across in
the commercial world, so that you can see examples of the clauses in operation. These examples will
enable you to identify such clauses in practice and to understand how they operate.
9.2 Clauses about whether or when a contract will take effect or end
The terms in this first group are the ones that determine whether and when a contract will come into
effect, continue to operate, or end, These clauses can be:
® conditions
= time clauses
™ suppositions
= cancellation clauses.
9.2.1 Conditions
A condition is a contractual term that indicates whether a contract will start or continue to operate.
‘The condition describes an event that may or may not happen in the future. For example, if | agree to buy
Fred's farm on condition that I can sell my own house this month, then that contract of sale comes into
operation only if I do sell my house. We say the sale is subject to a condition. However, if Sipho offers to
buy Balindwa’s house ‘if Balindwa dies’, that is not a condition, as death is certain to occur at some time.
Note that a condition relates to a future uncertain event, rather than something that may or may not
exist at the time.
This is what makes conditions different from suppositions, which we discuss later in this section.
‘There are two main types of condition:
™@ — suspensive conditions
® = resolutive conditions.
Suspensive conditions
A suspensive condition suspends or delays the operation of a contract until the condition is met, or the
future event occurs. The extract below is from a contract of sale.
This sale of land is conditional upon the buyer obtaining a loan for R500 000 from a registered
bank or building society in South Africa. If this condition is not fulfilled within 21 (twenty one) days
after signature of this contract, this agreement will fall away and the seller will refund the buyer
any money paid to the seller by the buyer within 7 (seven) days of the agreement falling away.
In the above example, there is no sale unless the buyer manages to get the R500 000 loan A valid contact &
from a financial institution. It could be that the buyer is unable to get the loan, in which one that meets the six
case the agreement will fall away when the 21 days are up. Note, however, that a valid requirements: contractual
contract is created on agreement. It is only the operation of the contract, which requires capacity, agreement,
performance by both sides, that requires the condition to be met. So the seller in the legality, possibility of —
example cannot decide, before the 21 days are up, that she will no longer sell the land to the Sines fearless
buyer, unless there is another clause in the contract that specifically allows her to do this.
In the above example, it may be that the lessee does not get married or have any children during the
course of the lease, in which case the lease will continue, unaffected by the condition. However, if she
does get married or have a child, the lease will end.
In some types of contract, when a resolutive condition happens, the parties have to A resolutive condition js
return whatever they received from each other up to the time the condition occurred. the event that is specified
For example, suppose Dave sells his boat to Steve for R50 000, the sale being subject to in the clause or term,
but the term itself in the
Dave not receiving an offer of R55 000 or more within 14 days of his agreement with coeiiae i aien coed
Steve. If Steve pays Dave the R50 000, but Dave does receive an offer of R55 000 within resolutive condition. Be
the 14-day period, then Dave will have to refund Steve the money paid to him. aware of the two slightly
However, this is not always the case with contracts that include resolutive conditions. In the _ different meanings of
lease example above, if the lessee were to get married six months into the lease, the lessor ‘condition’, so you do not
would not have to refund her the rental she paid for the six months she occupied the home. 9®" Sonfused.
Contract of donation
|, John Smith, undertake to give my son, James Smith, R100 000 on 31 December 2017.
Contract of donation
|, John Smith, undertake to give my son, James Smith, R100 000 on the death of my father,
David Smith.
In the first example above, the suspensive time clause states directly on which date John will pay his
son the money. In the second example, the clause will have effect on a specific date, albeit what that date
will be cannot be specified by referring to the future date of death of David Smith. In both examples,
James can enforce his father’s agreement to pay him the money only once the agreed moment arrives —
that is, on the last day of 2017 in the first example and on the death of his grandfather David in the
second example. The exact date when David will die is obviously unknown.
The employer agrees to employ the employee to pick beans on the employer's farm, Monte Vista,
at the rate of R250 per day until 30 September 2017.
The employer agrees to employ the employee to pick beans on the employer's farm, Monte Vista,
at the rate of R250 per day, for nine calendar months from the date of signing of this contract by
the employer.
The first example mentions a specific date for the employment to end. In the second example, although
no specific end date is given, the parties can work out the date on which the employment relationship
will end by simply adding nine months to the date on which the employer signed the contract.
Both extracts are examples of resolutive time clauses, because the employment contract will be in
operation and bind both parties until the specified time is reached.
9.2.3 Suppositions
A supposition is a contractual term that states that the contract will only become operative if a given
situation exists or a given event has occurred. Unlike a condition, a supposition relates to a possible
present state of affairs, rather than a future one. For example, | may agree to buy your ring, provided that
it is 18-carat gold.
On the other hand, a supposition is similar to a condition in that a contracting party wants to be
bound by the contract only if the circumstances meet their requirements (as outlined in the condition
or supposition).
Contract of sale
|, Vuyo Ndube, agree to buy Wandisile Bangeni’s cellular phone for R3 000 on condition that it is
an iPhone 6s model.
Wandisile offers to sell Vuyo his phone, which Wandisile thinks is an iPhone 6s. Vuyo is happy with the
offer, but wants to buy it only if Wandisile is right about the make and model. ‘The clause in the contract
of sale above is a supposition, because the sale is subject to the phone being the make and model
described, Even though the contract says ‘on condition ...’, the clause is not a condition, because the
brand and model of the phone are not a future uncertain event (which would make it a condition), but
an existing fact, which the parties can check by looking at the phone. If the phone turns out to be any
other make or model (for example an iPhone 5), there will be no contract. However, if the phone is an
iPhone 6s, both parties will be bound by the agreement.
Cancellation
Should either party breach any of their obligations in terms of this agreement, then the harmed
party may cancel this agreement on giving the other party five days’ written notice of their
intention to cancel.
Alternatively, the cancellation clause could allow for immediate cancellation without the need for any
notice period.
Activity 9.1
1. Discuss with a partner two different business situations in which you might want to make a
contract dependent on a supposition.
2. Discuss with a partner a business situation in which you might need to make your
contracting as a buyer dependent on a suspensive condition.
|, John Ngambi, guarantee that the tools sold to Jake Vosloo will not rust for five years from the
date of purchase.
If, in the above example, the tools do rust during the five-year period, John will be in breach of contract.
We discuss breach of contract in detail in Chapter 10.
In addition to warranties expressly agreed to by contracting parties, the law also Warranties expressly
imposes warranties in certain contexts. These imposed warranties, called tacit warranties, agreed to are those
will bind the parties unless they expressly state that they will not be bound. We discuss that are directly stated
examples of this type of warranty at various points in this book. In Chapter 14, for in the contract, like the
guarantee against the
example, where we discuss contracts of sale, the warranty against latent defects is a tools rusting.
tacit warranty,
This laptop is bought subject to the buyer acknowledging that the sellers’ ordinary warranty
against latent defects is specifically excluded from this sale.
Latent defects are hidden faults in an item or property, and we discuss them in Chapter 14 under the
law of sale. The seller's warranty against latent defects is the normal guarantee to the buyer that the
item being sold has no significant hidden faults at the time of sale. In the above example, the exclusion
clause, also sometimes called an exemption clause, says that the laptop is being sold without that normal
warranty against latent defects. This puts the seller in a safer (less vulnerable) position. However, to
prevent abuse of buyers in such circumstances, our courts have often limited the defects
that the seller will able to get away with. The legal term for buying
Note that in certain circumstances, a seller may exclude liability for any defects. In other Something ‘as is’ is
words, the buyer purchases the item ‘as is’. poeiog
Exemption clauses
An exemption clause states that a contracting party is limited or excluded from liability in stated
circumstances. This clause protects one of the contracting parties against liability for certain types of legal
claims by the other party and reduces the range of their contractual duties.
Therefore, exemption clauses have the common characteristics with exclusion clauses
of limiting one party's liability under a contract, and operating in an opposite manner to If a contract or part of a
contract is against public
a warranty. But, the nature of exemption clauses means that it is possible for them to be policy, it may be held bya
considered (unduly) unfair against one of the contracting parties where their inclusion crankto He Uinentorcoabie:
would be against public policy and in such circumstances might be found by a court to not jp basic terms, the
be binding. requirement of public
The case of Naidoo v Birchwood Hotel below illustrates how a court may consider policy is that an element
whether or not a contract should be found to be binding or whether a term is such that it is of law shouldurenot be likely
to lead to injustice.
against public policy and therefore unenforceable.
Principle
A contractual clause, or the whole contract, will not be binding against an affected party where
it would unfairly prejudice them on the basis of the clause, or contract as a whole, being against
public policy.
Facts
Naidoo sued Birchwood Hotel for severe bodily injuries that were caused when an entrance
gate to the hotel fell on top of Naidoo. The hotel's main argument was that disclaimers,
which excluded liability for such claims, were prominently displayed. Naidoo had noted these
disclaimers. Naidoo asked the court to award him legal damages flowing from his injuries, whilst
the hotel sought to escape liability due to the contractual term that aimed to exclude liability for
such claims.
Modi
A modus is an extra condition as to how something must be done or used. It places a duty on a
contracting party to perform some future action related to the original contract. However, the creation of
the contract is not dependent on the modus being performed. Note that a modus differs from a condition
in that if a condition is not met, the contract does not go into operation.
Contract of donation
|, Olusanda Mbeki, donate my Toyota Camry motor vehicle, registration number CA 14680, to my
son, Siya Mbeki. Siya is to use the vehicle to visit me at least once per month as long as | live.
In the above example, Siya can demand immediate delivery of the car, since the operation —_ Remedies are the options
of the contract does not depend on him performing the modus. If Siya fails to visit his that you have in law to
father regularly with the car, he will be in breach of contract, and Olusanda can seek legal correct a situation where
remedies for breach of contract. another party has wrongfully
The case study below illustrates the use of a modus. caused you harm.
Penalty clauses
A penalty clause allows contracting parties to agree in advance about what will happen
if they fail to fulfil their duties in terms of the agreed contract. A penalty is generally Pn centsive (5 0/809
that encourages you
related to punishment. In the context of a contract, a penalty is the compensation that to do something, like
one party has to pay for not doing what was agreed in a contract. The person who fails in when a friend promises
her obligations, and is penalised, is called the defaulter. The penalty clause acts asa further _ to treat you to a meal as
incentive to the parties to meet their agreed obligations. The penalty normally takes the soon as you finish your
form of the defaulter having to pay an amount of money to the other contracting party. assignment.
The builder agrees to complete work on the property by 1 December 2017. The builder will pay
the owner R600 for every day after 1 December 2017 that work has not been finished.
The reasoning behind a penalty clause is that one party is likely to suffer a financial disadvantage if
something fails to happen by the time agreed to in the contract. In the above example, the owner will
suffer financial loss if her house is not ready on time. She may be staying in rented accommodation until
she can move into her house, so the delays will cost her money.
In addition to its deterrent effect, the penalty clause can also provide for payment of the estimated
damages that one party will suffer if the other party's performance is late or not up to standard. In the
above example, the damages could be the extra money the owner would have to pay to extend her lease
or move to a hotel or bed and breakfast if her home is not ready in time.
Parliament passed a law called the Conventional Penalties Act 15 of 1962 to ensure that such penalty
clauses do not penalise the debtor, or defaulter, unfairly. For example, section 3 of that Act gives a court
the power to reduce a penalty that is out of proportion to the loss suffered by the creditor, or harmed
party. In the above example, it would be fair for the builder to pay the estimated rent that the owner has
to pay for alternative accommodation until the work on her house is finished.
Read the instructions carefully when you answer multiple-choice questions (MCQs). Often, you
will get negative marks for wrong answers. If your examiner uses negative marking, you should
consider not giving answers if you are unsure. If you guess, you risk losing the marks you have
earned. However, if negative marking is not used, you should always give an answer to each
question — do not leave any answer spaces blank.
No variation of this agreement will be of any force or effect unless it is recorded in writing and
signed by both parties or their authorised agents.
It is common for contracting parties to change their minds about the exact contractual
obligations that they expect someone to perform for them. Suppose, for example, Joseph is
renting a house from Naledi. After the lease has been running for a few months, they agree
that from now on, Naledi (the lessor) will pay for garden services to maintain the garden. In
return, Joseph (the lessee) will pay an extra R400 in rent, since he no longer has responsibility for
looking after the garden. When people make changes like this, it is easy for disagreements to
arise over the new rights and duties of each party.
For this reason, it is a good idea to include entrenchment clauses in any business contracts jease is the agreement
you may enter into in your future career. It is much better to avoid disagreement over you sign when you rent
interpreting contracts than to have to go to court to have the disagreement decided for a vehicle, equipment, or
you — which is expensive and often takes a long time. fixed property.
Jurisdiction
Such consent is allowed
The parties consent to the jurisdiction of the Grahamstown Magistrates’ Court, in by section 45 of the
respect of any legal proceedings arising out of this agreement. Magistrates’ Courts Act 52
of 1944.
When we discussed the hierarchy of the South African courts in Chapter 1, we noted
that a court's civil jurisdiction in a matter depends on the area, the size of the claim and pee vena
; ; ; . , . go to court concerning a
the type of case. Contracting parties often agree to a particular Magistrates’ Court havi ng dispute between them,
jurisdiction, even if the amount of the claim is more than the normal limit of R200 000 for that is a civil matter.
civil matters in a District Magistrates’ Court. The reason for an agreement like this is that
cases in a Magistrates’ Court are usually cheaper and faster to finalise than in the High Court.
Arbitration
The parties agree that any dispute arising out of this agreement will be referred to an arbitrator
whose decisions will be binding upon both parties. The arbitrator will be appointed by the
Arbitration Foundation of South Africa (AFSA) and the arbitration will be conducted in terms of
the rules and regulations of AFSA.
Costs
1. The costs of this agreement will be paid in equal shares by both parties.
2. In the event of any legal action arising out of this agreement, the party who is more
successful in court is entitled to the legal costs incurred on an attorney-and-client scale.
Legal costs
There are various scales, or levels, of legal costs. Party-and-party costs are the legal costs that are
reasonably incurred in a court case. These are the costs that are usually ordered, unless the parties have
agreed otherwise.
Attorney-and-client costs are higher than certain other levels of costs, and refer to the amount the
winning party gets from the losing party to cover most of her legal costs.
Activity 9.2
Have you been drawing mind maps to keep track of the various kinds of clauses? If not, this is the
time to do it. Otherwise, you will struggle to remember all the different kinds of contractual terms, as
there are more than a dozen. Begin by drawing the four categories we listed on the first page of this
chapter and then split them up. The headings in the chapter will help you. Add as much detail as
you like, and use drawings where possible. Drawings tend to stick in the mind better than words.
A precedent is an example of a similar type of document to the one you are drawing up — in
other words, it is like a template. It can be a useful starting point when it comes to drafting
of legal documents. However, you should be careful that the precedent you use is appropriate
to your needs and well-drafted. If this is not the case, any mistakes in the precedent will be
repeated or even made worse, or you might be drafting the wrong type of contract for your
needs. If you are in doubt, consult an attorney who is trained to help you in such matters.
Interestingly, in 2008, the chief magistrate in Durban made a decision to run a case in isiZulu where
the accused person, the lawyers and he were isiZulu speaking. This was despite the fact that court
cases in South Africa are usually conducted in English.
South Africa has eleven official languages, and yet contracts in this country are usually written in
English. Do you think that contracting parties should be able to demand that contracts be written in
their official language of choice, so that they could have a better understanding of the meaning and
consequences of the contracts?
Chapter summary
In this chapter, you learned the following about common Cancellation clause: One party can cancel the contract
contractual terms; immediately if the other party breaches the contract.
The aim of common contractual terms is to simplify ‘These are clauses about contractual obligations.
the operation and consequences of contracts. Warranty clause: One contracting party gives an agreed
‘These are clauses about whether or when a contract extra promise regarding the amount or quality of work
will take effect or end: she will do or of the product she will provide.
Condition clause: A future uncertain event must Exclusion and exemption clauses: These similar types
occur to start or end the operation of the contract. of clause remove or limit the liability of a contracting
‘There are two types: party with regard to specified actions.
® With a suspensive condition, the contract will Modus clause: One contracting party is limited in
not be operational unless and until the condition what she may do with the subject matter of the contract.
is met. Penalty clause: The parties agree in advance on a
@ With a resolutive condition, the contract will penalty (normally money) for breach of contract.
operate until the condition is met. Entrenchment clauses make the contract more
difficult to change.: This clause provides that any
Time clause: The rights or duties imposed by a contract change to the contract must be in writing.
start or end at a stated time or when a particular future These are clauses about how to resolve disputes.
event occurs, There are two types: Jurisdiction clause: ‘The contracting parties specify the
= With asuspensive time clause, performance in terms court that will have authority to judge any dispute
of the contract will be suspended until the future concerning the contract.
uncertain event has occurred or the time has come. Arbitration clause: The contracting parties agree
@ With a resolutive time clause, the contract will to be bound by an arbitrator's finding, rather than a
operate until the future uncertain event has court's, normally because arbitration is cheaper, faster
occurred or the time has come. and more private.
Costs clause: This clause specifies who will pay the
Suppositions: The contract will become operative only if costs of drawing up the agreement and the legal costs if
a given situation exists or an event has already occurred. a dispute arises.
1. Read about the proposed building contract in the 4. Identify the type of contractual clause (below) and
‘Before you start’ section of this chapter again, and explain your answer:
identify the types of common contractual term that “You may use my car from the end of 2017.’
you would need to include to meet the given aims. 5. Discuss the similarities and differences between
2. Outline the main aims of the following types of conditions and time clauses.
contractual clause. Then, in each case below, give both 6. Outline the main aims of the types of contractual
an example ofa situation in which it would be useful clauses below, and give examples of situations in
to include a clause like that in a contract fora start-up which it would be useful to include each type of
business in which you are a supplier of computer clause in a contract:
chips, and why its inclusion would be useful: a) supposition
a) awarranty b) a resolutive condition
b) an exclusion clause c) cancellation clause.
c) amodus 7. Why would contracting parties agree to go to
d) a penalty clause. arbitration rather than have a dispute go to court?
3. Identify the type of contractual clause below and
explain your answer:
‘You may use my car until you graduate from
university with a BCom, obtain employment and
receive your first salary.’
Further reading
When parties conclude a contract, the primary purpose is the fulfillment of each party's duties and
obligations through proper performance. However, sometimes a party to a contract breaks the agreement
for a reason that is not allowed in law. This is known as a breach of contract. The law distinguishes
between various forms of breach of contract. In this chapter, we discuss five of these forms. Chapter 11
will look at remedies for breach of contract.
Before anyone can breach a contract, the contracting parties must have formed that contract, as we
explained in the previous chapters. When one party breaches a contract, the party that suffers because of
the breach can seek remedies for the breach. First, however, you have to identify the type of breach that
has occurred. The five most common types of breach of contract are as follows:
breach due to impossibility — when one of the parties makes performance of the contract impossible
we wNo
breach due to repudiation — when one party indicates that he will not honour a contract
breach due to malperformance — when performance goes against the terms of the contract
breach due to a delay in performance by the debtor
breach due to a delay in performance by the creditor.
The consequence of one party breaching the contract in each instance (above) is that the other party
becomes entitled to the legal remedies for the breach, This chapter looks at each of these forms of breach
in turn.
For both these types of impossibility, the performance does not have to be objectively impossible for
the defaulting party to perform. This means that there will be a breach even if the performance is
subjectively impossible to perform.
A third possibility is that a duty becomes impossible to perform due to something beyond the control
of either party, such as a natural disaster or a change in legislation.
Let us consider the two options below.
10.1.1 The debtor makes his own performance impossible. When we talk eboutine
Sometimes, the debtor, by her own blameworthy behaviour, makes it impossible to blameworthiness of a
perform according to the contract. If the debtor's behaviour is to blame for her own party, we are talking about
inability to perform as agreed, then she can be held to be in breach of contract. 2 party being at fault or in
the wrong.
Let us look at the case study below to illustrate this.
Scorpion Helicopter Manufacturing Company (Scorpion) has signed a contract to deliver ten
custom-built helicopters to the South African Police Services (SAPS). However, Scorpion is unable
to make good on their undertaking to deliver the helicopters because the only company that
makes the propellers for these helicopters refuses to do business with Scorpion. The reason for
their refusal to do business with Scorpion is that Scorpion did not pay its account on time and
still has a large sum of money outstanding on the account. For this reason, Scorpion cannot fulfil
its contract with SAPS and it can therefore be held liable for breach of contract for making its
own performance to SAPS impossible to perform.
Consider whether Scorpion’s impossibility to perform is objectively or subjectively impossible?
What are the reasons for your answer?
Halona contracts with Selen today to have her laptop computer repaired and the software
upgraded the following week at a set date, time and place. The parties also agree on the
amount that Halona is required to pay Selen. However, that very night after Halona contracted
with Selen, Halona flings the laptop computer against the wall in a fit of rage after discovering
that all of her saved documents have been corrupted by a software virus. In this instance,
Halona, the creditor, has made it impossible for Selen, the debtor, to perform in terms of their
contract. Selen is therefore under no obligation to render performance to Halona. However,
Halona is still required to pay Selen since it was through no fault of Selen’s that her performance
is now impossible and Selen had already booked out her time for the appointment. If Halona
refuses to pay Selen, she (Halona) will be in breach of contract.
Activity 10.1
There are significant legal differences in cases where, on the one hand, the debtor makes her
own performance impossible (resulting in the debtor breaching the contract) and where, on the
other hand, the creditor makes it impossible for the debtor to perform (which constitutes a valid
reason for the debtor's non-performance).
1. Draw a table with two columns. On the one side, write down three examples to illustrate
instances where the debtor has made her own performance impossible and, on the other
side, write down three examples to illustrate instances where the creditor has made it
impossible for the debtor to perform.
2. Share your answers with a partner and discuss your examples to test your understanding.
The chapters that follow often refer to debtors and creditors, and it is important that you
understand what we mean by those words. A debtor is someone who owes the creditor
something (money or some other type of performance), and a creditor is someone to whom the
debtor owes something (money or some other type of performance). Suppose, for example, you
bought clothes on credit from Sedgars Clothing Store (Pty) Ltd (Sedgars), and you agreed to pay
the full purchase price off in monthly instalments. You are Sedgars’s debtor since you owe the
company money for the clothes that you purchased, and Sedgars is your creditor since you owe
your performance (payment of money) to the company.
But note that in the context of contracts, we define ‘creditor’ and ‘debtor’ in relation to
a particular duty or right. If you employ me to re-cover your lounge suite, then you are my
debtor (and | am your creditor) in that you have a duty to pay me for the work. But | am also
your debtor (and you are my creditor) because | owe you a duty to do the work of covering the
furniture. So each party to a contract is usually both a creditor and a debtor, as each one usually
owes at least one duty to the other.
Activity 10.2
Notification can either be expressed or implied. In other words, the debtor can notify the creditor
either by his words or conduct.
1. Think of two examples to illustrate how a debtor may repudiate a contract by express
notification, and two examples to illustrate how a debtor may repudiate a contract by
his actions.
2. Compare your answers with a friend's to test your understanding.
Fault is not a requirement for this type of breach of contract. This means that, even if the debtor
believes that she cannot lawfully perform in terms of the contract, but her belief is wrong,
then her conduct is in breach of contract through repudiation. So, even if the debtor genuinely
believes that her conduct is justified, she will still be in breach of contract by repudiation.
How do the courts decide whether or not a communication between parties is repudiation?
The test is whether a reasonable person placed in the position of the innocent party would
have understood the communication to mean that the debtor did not intend to honour the
agreement. If so, the innocent party can choose whether he wants to accept the repudiation
and cancel the contract, or to allow the contract to remain in force. If he chooses to keep the
contract in force, he can go to court to get an order that the other party should perform his
obligations in terms of the contract.
Tuckers Land and Development Corporation (Pty) Ltd v Hovis 1980 (1) SA 645 (A)
Principle
The legal test to determine whether or not a communication between the contracting parties
amounts to a repudiation is whether a reasonable person placed in the position of the creditor
would have understood the debtor’s communication to unequivocally mean that she (the debtor)
did not intend to honour the agreement.
Facts
Tuckers Land and Development Corporation (Pty) Ltd sold two plots of land in a proposed
township to Hovis. Even though the contract was subject to the township being proclaimed as
such, Hovis was obliged to make certain payments in the interim. Hovis made payment in terms
of the contract. However, Hovis soon became aware that the township developer was facing
difficulty in having the township proclaimed and that he had drafted a new plan of the township
for submission to the authorities — one which did not include Hovis’s plots of land.
The court's finding
The Appellate Division held that the township developer's actions amounted to a breach of
contract in the form of repudiation. A reasonable person in the position of Hovis would have
understood the township developer's actions to unambiguously mean that, in his attempt to
obtain proclamation of the township, he was sacrificing Hovis’s rights to transfer in respect of
the plots of land.
Leonard is a mechanic working for A-Class Motors. In terms of his contract with the company,
he has agreed, among other things, not to do any private mechanical work after hours without
permission from the company. He has also agreed that he will only use new, genuine parts to fix
the vehicles at work.
If Leonard decides to make extra money by repairing cars in his neighbourhood without the
company’s permission, this is an example of the first category of malperformance since he has
done something that is not allowed in terms of the contract.
On the other hand, if Leonard repairs vehicles using second-hand or inferior parts while
at work, this would be an example of the second category of malperformance since his
performance is defective.
The debtor will be in breach of contract for a delay in performance only if performance is
actually possible at the time of the delay. This means that, if the debtor’s performance has
become impossible without any fault on her part, the debtor cannot be liable for breach of
contract. However, if the debtor is already in default by the time her performance becomes
impossible, then the debtor will still have a duty to the creditor. For example, the impossibility of
performance by the debtor could be as a result of a natural disaster, such as a tsunami.
Activity 10.3
Consider the following facts. Tom undertakes to transport a ton of bricks from Jack's
construction site in Lenasia to Lindani’s site in Pretoria by midday on 15 August. When Tom
arrives to pick up the bricks from Jack’s yard, he discovers that the bricks have not arrived from
the manufacturing site. This delay, which is beyond Tom’s control, causes him to deliver the ton
of bricks to Lindani's site in Pretoria five hours later than agreed upon. Discuss your answers to
the following questions in a group of three.
1. Is Tomin breach of contract?
2. Would your answer be different if the reason for Tom’s delay was that he stopped on the
way at his girlfriend’s house for lunch?
fer
T Toe abehv] In mora
Nokuthula contracts with William to paint the inside of her house at a specified date and time.
On the day, William arrives at Nokuthula’s home only to discover that it is locked.
She is out of town for the day and she did not leave a key for William to access the house.
William's performance is therefore delayed by Nokuthula — she is in mora (in default) and guilty
of breach of contract.
A delay in performance by the creditor does not cancel the duties of the parties. In other
words, the debtor is still entitled to performance by the creditor, and he must still perform in
terms of the agreement, even though the creditor is in breach of contract.
This means that William is still entitled to payment for that day that he made himself
available to paint Nokuthula’s house. He is also still required to paint Nokuthula’s house once
they arrange another date and time and she needs to pay him for that performance.
Similar to mora debitoris, this type of breach will apply only if it is still possible for the defaulting
party to perform. Provided that the debtor does not cause any loss intentionally or by way of
gross negligence, if the performance becomes impossible while the creditor is in default, the
creditor will still owe a duty to the debtor, even though the debtor owes no duty to the creditor.
Let us consider the example above again. We already stated that Nokuthula’s delay does not cancel her
duties to William nor does it cancel his duties towards Nokuthula. He still has to paint the house once
they arrange another suitable time, and she still has to pay for the work done. However, what would
happen if Nokuthula’s house burned down before he returned to paint it? In this instance, it would
be impossible for William to perform in terms of the contract. Since William did not cause (either
intentionally or negligently) the fire that burned down Nokuthula’s house, Nokuthula still owes a duty
to him, even though he owes no duty to her. This means that he cannot paint the house, but she still has
to pay him for his time, as initially agreed upon.
Activity 10.4
For each type of breach of contract that we discussed, draw a list of requirements that must be
satisfied. You can draw mind maps or simply use bullet points. You could even create flowcharts
with a series of yes/no decisions. These exercises will help you to easily engage with the material
and remember your legal principles.
Chapter summary
In this chapter, you learned the following about the ® Repudiation — one contracting party notifies the
breach of a contract: other contracting party, through words or conduct,
When a party to a contract fails to comply with its that she will not honour the contract. Fault is nota
terms in an instance, where the law does not allow for requirement here.
non-compliance, that party is in breach of contract. = = Malperformance — performance that is rendered is
There are five different types of breach of contract: either against the terms of the contract, or defective
= Performance made impossible — the debtor is held or incomplete.
liable for making his own performance impossible = Delay in performance by the debtor — the debtor
through blameworthy conduct. is at fault for not meeting the time requirements of
the contract.
1. Sally buys a car trailer from Sizwe for Mora debitoris is (Choose the correct answer.):
R10 000 and agrees to pay for iton 1 August. a) the failure of the debtor to perform on time
However, instead of paying him on that date, b) the giving of notice by the debtor that he does
she informs him that she will be able to pay not intend to comply with his obligations
him only on | September. Sizwe refuses to c) the failure of the creditor to accept proper
accept payment on | September. Has there been performance when tendered by the debtor
a breach of contract? Explain fully. d) none of the above.
2. Thandeka contracts with Bill to fix the Milo, a building contractor, undertakes to build
software virus on her laptop at a specified date and a house for Anne. They agree that Milo will
time. Bill arrives at Thandeka’s office at the agreed complete the house by 31 May. Milo’s delay in
time, only to find that Thandeka has gone toa ordering certain building materials results in the
yoga class and has not left her log-in details for Bill house being completed only on 31 July. From
to carry out the necessary repairs. Thandeka arrives the options below, select which type of breach of
at her office only two hours later. However, Bill has contract applies in this scenario.
already left for his next appointment. Advise Bill a) malperformance
whether he can still claim payment from Thandeka b) mora debitoris
for his time. Give reasons for your answer. c) mora creditoris
3. Tumelo has contracted to do flower arrangements d) prevention of performance by the creditor.
for Tumi’s upcoming wedding. Tumi, in her Which statement below is incorrect?
wedding mania, accidentally gives Tumelo the a) Breach due to repudiation requires that the debtor
address for the wedding. Tumelo arrives at the indicates her refusal to honour her obligations.
venue that he was given the address of by Tumi b) Breach of contract due to impossibility relates
on the correct date, only to find that the venue to both subjective and objective impossibility.
is locked and no one is there. Has there been a c) ‘The test to determine whether or not the debtor
breach of contract? Explain. Can Tumelo still claim has repudiated the contract is an objective one.
for payment from Tumi? d) Breach due to malperformance is, generally,
where the debtor tenders incomplete or
defective performance.
Further reading
Schulze, H. et al. 2015. General Principles of Commercial Law, Sharrock, R. 2016. Business Transactions Law, 9th edn.
8th edn. Cape Town: Juta and Co. (Pry) Ltd Cape Town: Juta and Co. (Pty) Ltd
Chapter 10 showed you how to identify the common types of breach of contract. Now we are ready to
look at the remedies, or legal options, available to one contracting party if the other party breaches the
contract. We begin with an overview of the various categories of remedies and then consider briefly how
to choose an appropriate remedy,
This chapter builds on your knowledge of breach of contract from Chapter 10. That chapter is a
fairly simple one, but you need to know it well before you continue. Revise the summaries and
activities of Chapter 10 to make sure that you understand those concepts. Once you are confident
in your understanding of breach of contract, you are ready to consider what remedies are available
to one contracting party when the other party has broken the contractual agreement.
A court will not allow a party to enforce a contract in certain instances. Examples of these are when a
contract is illegal, impossible or against public policy. An example of an illegal contract would be where
a drug dealer does not deliver drugs that he agreed to deliver to the person wanting to buy those illegal
drugs. An example of a contract being against public policy is a gambling debt, for example, when two
friends bet as to who will win the Premier Soccer League. An example of an impossibility of performance
is where someone has agreed to sell and deliver a motorcycle when that motorcycle has already been
totally destroyed by a fire.
Specific performance
An order for specific performance is an enforcement order to do what was promised. If you, as one
contracting party, have met or are willing to meet your responsibilities under a contract, then you can
apply for an order of specific performance to force the other person to also perform as promised.
In the context of the ‘fees must fall’ protest, a group of concerned parents (and others)
urgently took the Nelson Mandela (Metropolitan) University to court seeking an order
(amongst other things) of specific performance that academic activities, which had been
suspended, should be ordered to swiftly resume on campus. This was the case of Concerned
Association of Parents and Others for Tertiary Education at Universities v Nelson Mandela
Metropolitan University and Another 2016 ZAECGHC 136. The application for an order of
specific performance was denied by the court because of the undue hardship that this would
have placed on the University had the order been made. For example, were the court to
have ordered resumption of classes, the University would not have been able to assure, at
that point in time, the safety of students and staff or property on campus. This case is well
discussed in a journal article — Glover, G. "University protests, specific performance, and the
public/private-law divide’ (2017) 134.3 SAL/ 466.
Another factor that the courts consider in situations like this is whether the cost of
If something is
the order for the defendant would be disproportionately high in relation to what the disproportionate,
plaintiff would gain from the order. In the ‘fees must fall’ case example above, the cost of it means that it is
the private security required to maintain the necessary protection of people and property out of proportion, or
on campus was prohibitively high in the context of available funds to the university, out of balance. For
which could result in other core functions of the university being unable to run due to example, someone
who kills a cockroach
insufficient funds. with a shotgun is using
A court will also not grant specific performance if the debtor is insolvent. When disproportionate force.
a debtor has too little money to cover all her debts, her creditors do not get repaid
the whole debt she owes them. If the court grants one creditor an order of specific An insolvent person's
performance against an insolvent person, it is unfair to her other creditors, to whom she debts exceed her assets.
also owes money. In other words, the court order could cause too much hardship to the In other words, the
other creditors. Further, the trustee has discretion under the Insolvency Act 24 of 1936 amount that she owes is
on whether to perform in a contract based on what would be in the best interests of more than the value of
everything she owns.
the creditors.
Interdict
An interdict is a court order that orders someone not to do something. In the context of contracts, you
can seek an interdict to stop the other contracting party from doing what she has contracted not to do.
So if one contracting party breaches a part of the contract, then the other party can apply to court for
an interdict to prevent or stop the breach. Because such an order aims to prevent certain conduct, it
is known as a prohibitory interdict. (The opposite of a prohibitory interdict is a mandatory interdict,
which orders some kind of action to occur.)
Activity 11.1
Thandi, a small-scale farmer, contracts with Stephen to supply him with five bags of beans every
month. After a locust plague, Thandi produces only enough vegetables to feed her family and
therefore does not supply Stephen with the beans for three months.
Discuss with a classmate the factors a court will consider in deciding whether to grant an
order for specific performance against Thandi in these circumstances.
Malperformance
If the contracting party's actions are substandard or defective; in other words, there is action __In law, this is sometimes
based on the contract, but it is not done well enough, then the same rules apply as if the called positive
breach took the form of malperformance, and cancellation is only possible: malperformance. The
1. in terms of a cancellation clause pee ee
there is some performance,
2. if the breach is: although the performance
= material (central to the contract) is not what is agreed to.
= = major.
For example, if a security company agrees to provide appropriate security for an international rugby
game and then it provides only two guards (maintaining security at a sporting event requires far more
than two security guards), that performance is inadequate and relates to a major part of the contract.
‘The rugby association that hired the security company can cancel the contract on the basis of major and
material malperformance. (It can also sue for damages, which is a separate issue.)
If the term that is breached is not central to the operation of the contract, or the breach is not too serious,
then the harmed party will not be able to cancel the contract and will only be able to claim damages.
Suppose, for example, you sign a lease to rent my house, which is still being built. However, the
builders take longer than expected, and by the time you want to move in, the house still does not have a
roof. My failure to provide the home that I promised in the contract is a major breach. You are allowed
to cancel the lease, because the provision of shelter is central to a home lease. However, if | rent you a
furnished house and one of the chairs has a broken leg, you will not be able to cancel the lease because of
that. The chair leg is not central to the contract. (You can just require the landlord to have it fixed.)
Principle
An election whether to cancel a contract rests with the harmed contracting party when the
other party indicates they will not be meeting their agreed obligations.
Facts
A travel agency, Sandown Travel, sought damages from Cricket South Africa for R1 640 000.
Sandown Travel alleged that Cricket South Africa had repudiated the latter's agreement to pay
the travel agency for the provision of its services.
The court's finding
Where an agreement is repudiated by one party (in this case, Cricket South Africa), it allows/
allowed the other party (Sandown Travel) to elect whether to cancel the contract or not. If the
one side does decide to continue with the contract, it may claim damages from the repudiating
party. In this case, the plaintiff was successful in claiming the damages it had suffered due to the
defendant's repudiation of their contract.
Mora debitoris
If the debtor's actions prevent the creditor from acting in terms of a contract, then the creditor may
cancel the contract. Suppose, for example, Londiwe pays a jeweller R200 in advance to repair her watch,
and the jeweller agrees to complete the repair by 1 November. On 7 November, Londiwe discovers that
he still has not fixed the watch — or even looked at it. On the basis of mora debitoris, Londiwe may cancel
the contract and get both the money and the watch back from the jeweller.
Mora creditoris
If the creditor prevents the debtor from fulfilling the contract, the debtor may choose to cancel the
contract or to seek specific performance. Refer to the example of mora creditoris in Question 2 of
Chapter 10's Review your understanding, where Thandeka contracts with Bill to repair a virus on her
computer, but then makes it impossible for him to do the repair.
Results of cancellation
When a contract is cancelled or rescinded, the contract ceases to exist. For most types of contract, this
means that everything has to be returned to what it was before the parties entered into the contract.
Suppose a computer dealer brings a computer to the home of a buyer. If, for whatever reason, either
side then cancels the contract, the buyer must return the computer to the dealer. In such circumstances,
one of the parties may have to pay damages, but this does not change the general principle that on
cancellation of a contract, each party must give back anything that was received from the other party.
11.3.3 Damages
By ‘damages’, in this context, we mean the money that a defaulting party has to pay the other contracting
party (the harmed or innocent party) to compensate for the loss it suffered as a result of the breach
of contract. It is fair that the contracting party who has met her obligations in terms of the contract
should not lose money due to the other party's breach of contract. The payment of damages should put the
harmed party in the financial position she would have been in if the defaulting party had met his duties
in terms of the contract. In other words, the harmed person gets the benefits she lost out on.
‘The harmed party can claim damages whether or not the contract is cancelled. The issue is whether
she has suffered loss due to the other contracting party's breach of contract. For example, she may have
applied for an order of specific performance rather than cancellation.
A key issue in court battles is providing proof or evidence of what you are claiming or alleging.
The general principle in our law is that the person who makes allegations must provide proof. In
other words, if you make an allegation in court, you must prove what you are claiming.
If you cannot prove your allegation, the court will not make the order you request. If you
claim to have suffered loss due to a breach of contract, and are seeking remedies for that
breach, you have to prove three things, namely:
1. that there has been a breach of contract
2. that you have lost money as a result of the breach
3. that you have suffered the specified amount of loss.
PNe
fe [Te BEIT Delictual damages versus contractual damages
Note this important difference between delictual damages and contractual damages:
e An award of delictual damages aims to put the harmed party in the position she would
have been in if the delict had not been committed. For example, Vikash is walking
along a pavement and steps into a manhole that has been left open, and is injured.
He would be able to claim for the losses he suffered as a result of the injuries from
the municipality that had a duty to maintain the pavement. For example, he may be a
consultant who loses money when he is unable to work while recovering, and for medical
expenses he incurs. Then, in addition to these damages, the court could also award him
what are termed damages for ‘pain and suffering’ because of the unpleasantness, pain
and suffering from his injuries, which have negatively affected his quality of life during his
recovery period.
e An award of contractual damages as per the chicken sale example above, aims to put
the harmed party in the position she would have been in if the contract had been
properly completed.
lf a debtor has no money (unemployed and with debt) and no goods to sell like a car or house
to raise the money, suing her for damages is a waste of your time and money. Therefore, when
you are considering what remedy to seek for breach of contract, it is important to try to find
out the debtor's ability to compensate you in terms of a penalties clause or damages. If the
debtor is insolvent or broke, a claim for executing the contract through a court order for specific
performance (if performance is possible) or cancelling the contract, is likely to be a better choice
of remedy.
Chapter summary
In this chapter, you learned the following about clause or because of a major breach.
remedies for breach of contract: In addition, the harmed party may be able to sue for
You can seek remedies for breach of contract only damages or claim in terms of a penalty clause.
once the breach has occurred. (But you can apply for an Damages are compensation for loss naturally
interdict when breach is threatened.) suffered or contemplated by the parties.
Remedies may involve either enforcement or Penalty clauses pre-determine the amount payable
cancellation of the contract. on breach, so the harmed party does not need to prove
Remedies relating to enforcement of the contract the loss suffered.
order the contracting parties to meet their obligations as A claimant usually has a choice of which of the above
agreed in the contract. There are two types of order: remedies to use, and may sometimes seck more than
A specific performance order demands performance one remedy at the same time. However, the law does
as agreed, not allow a claimant to be awarded more money than
An interdict prevents non-performance. their total loss caused by the breach of contract. Also,
Alternatively, the harmed party may decide to when the remedies have conflicting aims, the law will
rescind or cancel the contract in terms of a cancellation not grant both remedies.
1. Write down an imagined scenario for a business Set out a practical example from a business that
Ne
that you own when someone has been in breach of you have started where you are sued for specific
contract with your business for a particular contract. performance but, were that order to be granted by
In these circumstances, list all the factors that you, the court, it would create undue hardship for both
as the harmed party, have to consider when you you and suppliers to your business.
are choosing a remedy or perhaps remedies for the 3. List the reasons that may allow one party to cancel
breach of contract that has occurred. a contract and its elements. Then draw up a table
Further reading
Kerr, J.A. 2002 The Principles of the Law of Contract, 6th edn.
Cape Town: Butterworths
Contracts are mainly about creating rights and duties and you have seen that the parties can agree to put
almost anything into a contract. Similarly, they can agree to vary the contents ofa contract. This chapter
explains different ways of changing the terms ofa contract and therefore also changing the rights and
duties of the parties involved.
We have mentioned rights in Chapter 2 and several other places. What exactly do we mean by a right
in the legal context? We can define a legal right as a privilege, given and protected by law, which gives
one person a claim against another person or persons. The claim can take the form of a reward (such as
money or goods) or a service or duty, or it can prevent the other person from doing something.
This chapter begins by briefly explaining what is involved when you make a contract, before =
dealing with how you can pass, or transfer, personal rights or claims from one person to another by Iesece Sean iste
. “give it up or hand it over. So
a process known as cession. This is an important subject and takes up the first half of the chapter. Gession is the act or process
There are various other ways in which contracting parties can agree to vary (change or of ceding a right that one
alter) the contents of a contract and thereby change the rights or duties that it gives the party has against another.
parties. The chapter also discusses some ways in which rights and duties can be brought to
an end (terminated by agreement) by the actions of one of the parties or because of the law.
158 Chapter 12 | The passing, varying and ending of rights and duties by agreement
Who owes what to whom in terms of the debt will depend on a number of factors:
@ = what the intentions of the parties were
m the nature of the contract entered into
® the nature of the performance which must be made.
It is important to consider the divisibility of the performance in determining what the parties owe each
other. Where we talk about a divisible performance, we mean one which can be separated between the
co-debtors or co-creditors. A simple example would be where a seller sells 200 sheep to two buyers. In
this case, the number of sheep can be divided between the two of them. An indivisible performance
would be one that cannot be separated. If a seller sells one car to two people, then that performance
clearly cannot be split between the two buyers. The car will be given to the buyers together.
Chapter 12 | The passing, varying and ending of rights and duties by agreement 159
Let us consider this example. Andrew decides to enter into a life insurance agreement with Best
Insurance Co, so that his life partner, Sephiri, will be financially secure in case he dies unexpectedly.
Best Insurance agrees to pay Sephiri R2 million in the event that Andrew dies accidentally. Andrew
undertakes to pay the insurance company R1 000 per month under the contract.
In this example, Andrew is the stipudans and Best Insurance Co. is the promittens. Sephiri is the
beneficiary under the agreement. He is not a party to the contract, but will be entitled to receive
compensation from the insurance company if Andrew dies.
160 Chapter 12| The passing, varying and ending of rights and duties by agreement
12.4.3 Requirements for cession
Cession involves the following six requirements:
The cedent must be entitled to cede the right.
2. The right must be capable of being ceded.
3. The parties (the cedent and the cessionary) must intend for cession to take place.
4. Any formalities agreed upon by the parties must be complied with.
5. The cession must not be unlawful.
6. The cession must not prejudice the debtor.
Some laws or statutes prevent people from ceding certain rights. Cession that takes place in these
instances is illegal. The purpose of these laws is usually to protect people who are poor, from giving away
what little they have. For example, two rights that cannot be ceded are:
@ the right to a pension
= an employee's right to compensation for injuries that happen in the workplace.
Some rights are so closely related or connected to the creditor that it would make the duty more difficult
or unpleasant for the debtor if a different person were to exercise that right. In such a case, the creditor
cannot cede the right. Suppose, for example, Tao has a personal training contract that gives him the right
to be physically trained by Dwayne. Because of the personal nature of this right, Tao would probably
not be able to cede this right to someone else. The personal element of supervision and control in the
contract of service also prevents an employer from ceding its employment rights to another person or
company without the agreement of the worker. For example, your municipality cannot simply decide
to cede its employment rights by seconding its labourers to Eskom for a week or two to dig up cables,
without the agreement of the labourers.
Another example of a personal right that cannot be ceded is that of a football player who has a contract
with a football club, such as Kaizer Chiefs. A club cannot generally cede its rights (that the player plays
soccer for them) to another club without the consent of the player. The contract between the club and
the player may allow the club to sell the player to another club, but this is not the same as cession.
We said earlier that the debtor should not be put in a worse position because of the cession. For
this reason, you are not allowed to cede part of a debt without the debtor's consent. Although it makes
no difference to a debtor who he actually pays the debt to, it will cost him more if he has to make two
separate payments. This rule does not apply where the debtor agrees to make two payments.
Chapter 12 | The passing, varying and ending of rights and duties by agreement 161
Since I can no longer benefit from the contract, I cede my rights to your service to a neighbour
whose garden is similar to mine. (We are assuming that the contract is transferable.) However, to
protect your company from further change and possible difficulty, we include a clause that prevents
my neighbour from ceding the right to anyone else.
For such an agreement to be valid there should be some need to protect the debtor's interests. In other
words, there must be a good reason from stopping somebody from ceding a right that he has. For
example, lease agreements often have a clause preventing the lessee (the person renting the property),
from ceding any of her rights to the property to someone else, or subletting. If] let my
flat to you, I'll try to make sure that you are a responsible tenant who will look after the if alessee sublets a
property. If you go away for a few months and sublet the flat (in other words, you cede property, he enters into a
your right to live there to someone else), that person may damage my property or cause second lease agreement in
problems with the neighbours. To protect myself from this type of problem, I would make which he lets the property
to another person.
sure that the lease agreement does not allow you to sublet without my approval.
The wording of the paragraph to prevent cession is usually very simple and reads something like:
‘All rights created in this contract cannot be ceded’.
in anticipando — in other words, before the subject matter of the cession comes about.
‘The transfer agreement relates to the future right, and is meant to operate only if and when the cedent
obtains the right against the debtor. When that happens, the right is immediately transferred to the
cessionary, without the need for a further act, because of the previous agreement of cession,
Let us look at a case study to clarify this concept of cession in anticipando.
Raj, who lives in Cape Town, wants to sell his Karmann Ghia for R100 000. His wife remembers that
her former colleague, Vanessa, has always dreamed of owning this type of car. Vanessa now works
in Johannesburg and seems very keen to buy the car. Raj and Vanessa start discussing the sale of
the car in May. Vanessa insists on seeing and test-driving the vehicle before buying it and arranges
to travel to Cape Town in September to do that. Meanwhile, in June, Raj decides to buy another
business and urgently needs R150 000. He signs a loan agreement with Saleem, who lends him
the R150 000 that he needs. Raj promises to pay R15 000 per month until the loan is paid off. At
the same time, Saleem and Raj agree that if Raj sells the Karmann Ghia to Vanessa in September,
Raj will cede his right to payment (from Vanessa) to Saleem, as part of the money owed.
162 Chapter 12 | The passing, varying and ending of rights and duties by agreement
Case study (continued) An extended car sale
This is a valid cession of a future claim. Of course, if Vanessa decides not to buy the car, the
cession cannot take effect. In that case, Raj will still owe Saleem R150 000 in terms of their
loan agreement.
Northern Estate and Trust Administrators (Pty) Ltd v Agricultural and Rural
eT lolol eae els elle a ee |
Principle
Protection is afforded to a debtor who deals with a cedent without notice of a cession. The debt
is discharged if the debtor pays the cedent in ignorance of the cession.
Facts
An agreement of sale was concluded, in terms of which the Agricultural and Rural Development
Corporation (ARDC) sold shares it held in a company to Boyes. Boyes paid the purchase price
but the shares were not transferred to him. The parties subsequently agreed to cancel the sale
but before making this agreement, Boyes ceded his right to the transfer of the shares to the
appellant (Northern Estate and Trust Administrators (Pty) Ltd).
The appellant instituted action against the ARDC (the respondent) alleging, that Boyes
had ceded his rights in a claim against ARDC for transfer of the shares, and claiming an order
directing the respondent to transfer such shares to it.
The court's finding
Because ARDC was unaware of the cession when concluding the cancellation agreement, the
agreement had the effect of discharging ARDC from its obligation to transfer the shares.
Chapter 12 | The passing, varying and ending of rights and duties by agreement 163
A cession of a personal right is effective even if the transfer of the right is not made public and the
debtor is unaware of the cession. However, the law protects the debtor in this case, because a debtor
who was not aware of the cession may have paid the wrong person. Either the cessionary or the
cedent can give the debtor notice of the cession. So the cessionary has nobody to blame if the debtor
does not know about the cession and therefore discharges the debt by paying the cedent (in place of
the cessionary).
Where cession agreements involve a transfer of the cedent's existing and future book debts, the
cedent usually has to supply the cessionary with updated lists of debtors every now and again. This
means that, in the event of the cedent (trader) defaulting on his payments to the cessionary (bank),
the cessionary would be in a position to give notice of the cession to debtors and collect payment of
debts from them.
A cession normally takes effect as soon as the parties conclude the transfer agreement. However, they
may include a condition in the agreement to state when it will occur.
We have already mentioned them briefly, but let us take a closer look and distinguish between them
more clearly.
Complete cession
With a complete cession, the subject matter of the cession forms part of the estate of the
: ‘ ‘s estate |
cessionary, who becomes the person entitled to the performance of the debtor. eRe dake
; . 5 . oe assessed only on death,
The result is that the cessionary is substituted as creditor in place of the cedent. The when all the money
cessionary is then entitled to enforce the claims and to retain any proceeds of them for due to that person and
his own benefit. The cessionary is now also entitled to accept any amount he pleases in everything that he has
settlement of the claim. For example, he can give the debtor a ‘discount’ if he so chooses, acquired with a monetary
and can even abandon the claim altogether. But remember that a cessionary cannot demand Value 's calculated, after
: all debts are deducted and
more from the debtor than the debtor owed to the cedent. paid Gut. A persons has
The cessionary only stands in for the cedent, and therefore cannot have a stronger inherit what is left in his
claim against the debtor than the cedent had. The simple act of cession also cannot fix any _ estate after this process.
problems that the cedent may have with the right, for example, if the debtor has a good
defence against the cedent’s claim. Remember, the debtor can use any defence against the cessionary
that she could have used against the cedent. Suppose, for example, Cedric (the cedent) has sold
Doris (the debtor) defective goods. The fact that the goods are defective is a good defence for a debtor
who refuses to pay. So, Cedric is not actually entitled to be paid any money for those goods, If Cedric
now cedes his ‘right’ to payment to Cecil (the cessionary), Doris can raise the defence (that the goods
are defective) against any claim from Cecil for payment of the money owing for the goods. In other
words, if the cedent could not have enforced his right to payment, the cessionary cannot either.
An out-and-out cession prevents a cedent from dealing with the right as a creditor after the cession
agreement. In other words, if I sell you something and then cede my right to payment to Mhlomi, you
owe Mhlomi the money, and I cannot claim anything from you anymore.
A cession agreement that intends a right to be given away to somebody else results in a complete
transfer of the right to the cessionary. This type of cession also extends to any advantages that go with the
right in question, unless there is some agreement or indication to the contrary in the agreement.
164 Chapter 12| The passing, varying and ending of rights and duties by agreement
Case study A gap in the retirement plan
Brijlal has a savings policy. For the past forty-eight years, he has made payments to Big Bank
every month so that he can retire in two years’ time. The policy is due to pay an amount of
R2 million in two years’ time. Unfortunately, Brijlal has not taken out a hospital plan. His wife
suddenly needs an operation, for which he does not have enough money. Brijlal manages to
cede his savings policy to Vikash for R1,5 million. Vikash is happy to wait for two years to collect
the full R2 million on the policy. Vikash steps into the shoes of the cedent and acquires full rights
against the bank when the policy is to be paid out. So, Vikash pays Brijlal R1,5 million so that
Brijlal can pay for his wife's operation. In exchange, Brijlal cedes his retirement savings to Vikash,
who will get back his R1,5 million, plus an extra R500 000, when the retirement policy pays out.
Note that Big Bank will pay the R2 million straight to Vikash.
There is no way that Brijlal can try to claim a share of the extra R500 000 when the policy
pays out. He has lost that right by ceding the policy.
Cession as security
Sometimes a person needs to borrow more money from a bank than the bank is willing to give. In order to
get a bigger loan, the borrower may cede a personal right he has to the bank as security, or as a promise
that the bank will be repaid the money due to it from the loan.
Whent the reason for a cession is that the cedent. wants to i use a personal osright that he | In securitatem debiti
has against someone to secure a debt towards a third party (like a bank), this is known as enn Gy coca de
a cession as security, or én securitatem debiti. \n terms of an agreement of transfer for in Latin.
security, the cessionary becomes the creditor and is then the only person entitled to enforce
the right that is the subject of the cession, The cedent retains no right against the debtor, but has a
personal right against the cessionary coming from their personal arrangement for the re-cession (back to
the original cedent) of the right once the main duty to the cessionary has been met.
All this may sound very complicated, so let us use a simple example to help clarify the situation.
Joshua sells Debbie a lounge suite, and agrees that she can pay for it in a lump sum of R4 000 in six
months’ time when one of her policies matures. But Joshua needs a bit of extra capital to buy more
furniture in the meanwhile, so he approaches his friend Stan for a loan of R3 000. Joshua cedes Debbie's
debt to Stan as security for the loan. What happens now is that Stan becomes Debbie's creditor. As soon
as Joshua has paid back his loan debt to Stan, you can consider Stan’s right as Debbie's creditor as being
ceded back to Joshua. The agreement protects the cessionary (Stan) if the cedent (Joshua) becomes
insolvent (and cannot repay his loan debt to Stan). The cession agreement makes sure that Joshua
cannot dispose of the right in a way that has a negative impact on Stan. For example, Joshua cannot tell
Debbie that she can give him her old Beetle as payment for the furniture.
As before, any defence that Debbie, the debtor could have raised against Joshua, her original creditor,
is equally valid against Stan, the cessionary, because Stan has taken the place of Joshua. Stan cannot have
greater rights against her than Joshua had.
Each case is unique and will involve different factors. In the case where a trader cedes all his book
debts in securitatem debiti, for example, the arrangement between the cedent and cessionary normally
allows the cedent to continue receiving and collecting payment from the debtors. But continuing to
collect after the power to do so has been brought to an end by the cessionary will constitute a breach.
Despite the cession, the right remains an asset in the estate of the cedent. However, the cedent cannot
exercise any of the capacities (rights) of a creditor.
A cession in securitatem debiti serves to secure the main obligation, and its operation depends on the
continued existence of that main debt. In our above example, the main obligation, or main debt, is the
loan that Joshua took from Stan. Debbie's debt is just the security for that loan. Once the debt has been
paid, the cession falls away and the right is back with the cedent.
Chapter 12 | The passing, varying and ending of rights and duties by agreement 165
Case study Ceding book debts as security
Sibusiso needs to borrow money from Big Bank to expand his business, but the amount he
needs is more than the bank is willing to give him.
It is willing to give him the amount he wants if he cedes, as security, his right to all the book
debts that his business has at the date of the agreement. Sibusiso and the bank agree that he
will cede these book debts to the bank. It’s a condition of the loan that Sibusiso must repay the
bank R10 000 every month for five years. Sibusiso will run his business as before, with the help
of the loan he has received from the bank. He believes that the loan will enable him to make
enough profit to be able to repay the bank.
As long as Sibusiso makes the payment of R10 000 every month, there will be no problem.
But if he fails to repay the amount due, the bank will exercise the rights it has in the cession
agreement. If Sibusiso makes the R10 000 payments every month for five years as agreed, his
right to the book debts of his business will revert (come back) to him.
Activity 12.1
Consider the following set of facts and then answer the questions that follow:
Sunil rents property from Morné. Although his rental is due on the first day of every month,
Sunil often makes his payment only sometime after the fifteenth of the month when he gets
his salary. So he is unhappy to hear that Morné has ceded his right to receive rental to his bank.
Sunil has experienced bad service from that bank before, so he is concerned that the bank will
not record his payments properly and will charge him interest for late payments.
1. Can Morné cede his right to receive rental to his bank? Why would he do this?
2. Do you have any suggestions for Sunil that would help him to solve the problem?
166 Chapter 12| The passing, varying and ending of rights and duties by agreement
12.5.2 Release: Relieving parties of their duties
‘The persons who enter into a contract may, after some time, both agree that they should if you relieve someone of
be relieved of their initial duties. A creditor may decide to release a person who has an a duty, or ‘release’ them
outstanding debt from paying that debt. In this case, the claimant (or creditor) waives from it, that person no
(gives up) his right to claim payment. No formalities are required. We then treat the longer has to perform
situation as if the contract is cancelled, without anybody having a claim. We ey.
of contracts when a duty that exists between parties to a contract comes to an end and is concept of novation
replaced by a new duty. Novation is valid only if both the contracting parties agree to it. is renovation — making
The court will not be easily convinced that the parties have novated a duty, and it will be something new again.
a question of fact whether a novation has actually occurred. (When we say something is
a question of fact, we are contrasting it with a question of law. Here, the task of the court would be to
determine whether the parties had novated the duty or not.)
Novation, the replacing of an old duty with a new one, is often very similar to the variation of a duty.
To illustrate novation, let us suppose Soni and Son Attorneys have a contract with Telkom, in terms
of which they give their legal services in exchange for payment of R20 000 every month. Telkom then
decides to give Soni and Son more business, and the parties change the original agreement so that
Telkom pays R30 000 every month. The original agreement has been novated.
Chapter 12 | The passing, varying and ending of rights and duties by agreement 167
12.5.6 Compromise: Acceptance of new terms
Compromise involves the settling of a legal dispute or fight between people by making a new agreement.
Like any agreement, compromise happens by one party making an offer and the other accepting it.
Suppose, for example, Hezekiel believes that Hestrie owes him R100 000 in terms of a verbal
contract they entered into last year. Hestrie has a different understanding of that contract, and believes
that she only owes Hezekiel R50 000. Because they do not want to fight about the matter in court,
Hestrie and Hezekiel may agree that Hestrie will pay R75 000 in settlement of Hezekiel’s claim. This
would be a compromise.
Once the parties have reached a compromise, their rights are decided by the compromise agreement
and not by the initial contract. Compromise occurs frequently in legal practice because it gives the
parties a friendlier and cheaper way of settling legal disputes, rather than fighting in court.
Sometimes one person will make an offer to pay less than the amount claimed from him, and will
then add the words ‘in full and final settlement to the letter containing the offer, or a cheque.
It will be a question of fact in this case whether that person was making an offer of compromise.
If the claimant banks the cheque or keeps the money that came with such an offer, it would seem to
indicate that the offer of compromise has been accepted. The court will consider other facts that show
that the compromise was not accepted, as it is a question of fact as to whether or not there actually was
a proper compromise. However, if the debtor is clearly making an offer of compromise, and the creditor
rejects that offer, the creditor should return the payment that came with the offer of compromise.
Activity 12.2
Think about times when you have compromised your position during an argument, or times
when you have agreed to accept less than what you believe you were entitled to, just because
it was easier for you to do so. Now make sure that you understand, in a legal context, the
different ways in which agreements can be changed and even brought to an end by agreement,
in order to suit the needs of the parties.
1. Draft your own example of a compromise agreement.
2. Share your example in asmall group so that you obtain a variety of perspectives.
168 Chapter 12 | The passing, varying and ending of rights and duties by agreement
Chapter summary
In this chapter, you learned the following about the The effect of an out-and-out cession is to take a
ways in which contracting parties can pass, vary or claim or right away from the cedent and to place it
terminate the rights due to them and/or the duties with the cessionary. The cessionary steps into the
required of them in terms of a contract: shoes of the cedent and becomes the only person
@ Cession is an act of transfer that causes personal able to enforce the claim.
rights or claims to be transferred from the cedent Contracting parties often cede certain rights as
to the cessionary in such a way that the cessionary security for a debt (in securitatem debiti).
becomes the creditor of the debtor. By waiving the right to claim payment of the debt,
® Cession occurs by way of a transfer agreement a creditor may release a debtor from paying a debt.
between the cedent and the cessionary. Delegation is the transfer of duties from one
= Cession does not usually require any formalities. person to another by way of a tripartite agreement
= A future claim may also be ceded, as long as it is between the creditor, the original debtor and the
described properly. new debtor.
= A cession usually comes about because of a contract Assignment is the substitution of a third party for
or legal act that forces the cedent to cede. This legal one of the parties to a contract.
act forms the reason or causa for the cession. Novation occurs when a duty that exists between
® Although it is not necessary to give notice of a parties to a contract comes to an end and is
cession to the debtor in the case of a claim that has replaced by agreement by a new duty.
been ceded, it’s advisable to do so. Compromise involves the settling of a dispute by
= A person's power to cede his rights is sometimes means of a new agreement.
restricted or limited by law or agreement.
Chapter 12 dealt with the termination of contracts by agreement between the parties. In the absence of
any such agreement, contracts also come to an end because of certain reasons in law. Once a contract
has been terminated by law, the parties will generally not be subject to any legal remedies for breach of
contract. In this chapter, we look at the various ways in which contracts can be terminated by law.
We will consider the following ways in which legal rules may terminate a contract:
® proper performance last willand
@ prescription testament is a signed
® impossibility of performance document, often called
wu merge simply a will, in which a
@ set-off person, called the testator,
records her wishes about
@ death
. what should happen to
= insolvency. her estate in the event
of her death. It usually
Before you start specifies things like
Consider the following scenario: Buhle Zulu, a millionairess, owes Alex Johnson R100 000 who should inherit the
in terms of their contract, but she dies before she gets around to paying him. In her last testator's belongings or
will and testament, Buhle leaves everything to her only daughter. Should Johnson still take care of any minor
children. See Chapter 22
get paid the R100 000, or does Buhle’s death excuse her from performing in terms of their
on the law of succession.
contract? Would your answer be different if Buhle was declared insolvent by a court?
Generally, prescription begins to run from the day on which the debt is due. A debt becomes due once
the creditor has knowledge of the identity of the debtor and the facts that gave rise to the debt. The
creditor is regarded as having this knowledge if he could have obtained it through reasonable care.
This provision can be relaxed in the interests of justice — for example, if a debtor has deliberately
prevented the creditor from knowing about a claim, the period of prescription will start running only
once the creditor knows the facts about the claim and who the debtor is.
There are several instances in which prescription may be interrupted. In these cases, the timer
is reset to zero and the period of prescription starts over again. Suppose, for example, that Ighsaan
had sent a reminder two years after doing the repairs to the computer, and I sent an email saying,
‘Sorry, I owe you the money, but I cannot pay it right now. I will pay you as soon as I can.’ In this
instance, my acknowledgement that I owe Ighsaan the money would have the effect of restarting the
period of prescription for the debt. Then, Ighsaan’s demand another two years later would have been
enforceable (based on my acknowledgment of debt) even though the demand was made four years after
the initial invoice. This is just one of the ways in which prescription may be interrupted.
We call this example, acknowledgment of liability. The other way is by servingasummons _4 gummonsis the first
on the debtor. legal document in the
In cases where a claimant is insane or is a minor, the Act provides for the completion litigation process. It is an
of the period of prescription to be suspended until one year after the person becomes sane _— Ofer of court that is issued
or becomes a major (section 13(1)(a)). This process if called an impediment or delay in for various purposes. In
Ss z - e . : , gs . this instance, it would
prescription (section 13(1)). It is different from an interruption, which was discussed in the hose: bien iecued forthe
example above. Here, prescription does not start to run from the beginning, but it stops for non-payment of a debt.
a period of time and then continues to run again.
Suppose, for example, that Jan owes Lisa (a minor) R1 000, which becomes enforceable on
1 April 2019. On that particular date, Lisa will be 16 years old. If Lisa was not a minor, then prescription
would end at 00:00 on 1 April 2022. Lisa turns 18 years old on 1 March 2021. That date is one year and
one month before prescription is meant to end. Since Lisa has more than a year to claim her money after
Activity 13.1
With a colleague in your class, look up section 13(1) of the Prescription Act 68 of 1969. Discuss
the various other ways in which the period of prescription can be delayed, giving examples for
each instance.
Note that ifa debtor pays his ‘debt’ after it has been extinguished by the prescription, that payment is
regarded as being valid and it cannot be recovered by the debtor even if he did not know that the debt
had prescribed.
Activity 13.2
Draw a mind map to set out the requirements of the Prescription Act 68 of 1969, as they have
been discussed in this chapter.
Added value A plaintiff must make a claim ‘once and for all’
An attorney often only institutes a claim in the law of delict on behalf of her client as close as
possible to the three-year deadline for an ordinary contractual debt. This is usually not because
the attorney is too busy to attend to the claim. The delay has the practical benefit of making
sure that the claim has been properly calculated and that any medical, or other, complications
have been given enough time to develop and be identified. In this way, the client can make a
single comprehensive claim. Suppose, for example, that you had a series of medical operations
on your leg as a result of a car accident that was caused by another driver's negligent driving.
You would want to ensure that all your medical costs were covered until your leg was completely
healed, and that all your costs of any possible future medical care were included in your claim.
This is important because the law does not generally permit one party to sue another party more
than once for a single event that resulted in the claim. The plaintiff's claim should be ‘once and
for all’ to give finality to the matter.
Principle
A supervening impossibility of performance automatically terminates the rights and obligations
arising from a contract.
Facts
Peters, Flamman and Co., a German company, had a contract with the Kokstad Municipality to
provide street lighting for the town. However, after the Union of South Africa became involved
in World War I, on the side of the allies, the South African government passed a law forbidding
German companies to do business here.
The court's finding
The court found that this law made it legally impossible for the company to meet its obligations
under the contract. The company was excused from performing in terms of the contract as a
result of the supervening impossibility.
Activity 13.3
The legal consequences of impossibility of performance depend on when the performance became
impossible and whether or not the impossibility can be blamed on a party to the contract.
1. Compare and contrast the following:
a) supervening impossibility of performance
b) initial impossibility of performance
c) prevention of performance due to the fault of one of the parties.
2. Discuss your answers with a partner in the class.
13.4 Merger
Merger refers to the coming together or joining of two or more things. In the law of contract, merger
is when one person becomes the debtor and also the creditor in respect of the same debt. For example,
if Bradley, who was renting an apartment from Nokuthula, decides to buy that apartment from
Nokuthula, then he will not have to pay rent to himself once the sale goes through. It would then be
nonsense for the debtor to pay the creditor (who is himself).
13.5 Set-off
Suppose you have borrowed R200 from Sithandekile on the understanding that you will pay it back
at the end of the week. On Saturday, you go to the movies together, and she borrows R100 from you
for her ticket because her debit card is not working. Now you have a choice: either she can pay you the
R100 back when she goes to an ATM (automatic teller machine) and you can pay her back the R200
that you owe her, or you can agree to set off the R100 against the R200 that you owe her. In that case,
you will simply pay her back the difference of R100.
Commercial law makes provision for this kind of trade-off in business contracts too. The debts that
two people owe each other may be set off against each other if they meet the following requirements:
1. The debts must be between two persons who are acting in the same capacity — that is, in their
personal capacities. Debts cannot be set off if one party is acting in a representative capacity (for
example, as a guardian or trustee) and the other party is acting in a personal capacity.
2. ‘The debts must be of the same kind or nature. A debt for money cannot be set off against a car,
for example.
Set-off happens automatically once these requirements are met. No formalities between the parties are
necessary and the law does not require the parties to first agree to set-off before it takes place.
Nosimo owes Frikkie R200 for a pair of shoes, but Frikkie owes Nosimo R300 for a meal that he
enjoyed at her restaurant. The law may excuse Frikkie from paying Nosimo R300 and likewise
excuse Nosimo from paying Frikkie R200. Frikkie must simply pay Nosimo R100, because of the
principle of set-off.
Set-off may not happen in certain instances. One such instance is where parties include a clause
in a contract stating that debts are to be paid ‘without set-off or deduction’. Here, generally, set-
off will not be an option.
Another instance when set-off will be disallowed is where one party, the debtor, has been
sequestrated (declared insolvent by a court) in terms of the Insolvency Act 24 of 1936 before the
date for performance of her debt arrives.
Where the debtor has been sequestrated, set-off will be disallowed even if the parties have
included a clause in their contract to the effect that, if one of them fails to perform her side
of the contract then the other party may set off his resultant claim for damages against any
debt which he owes to the defaulting party. This clause cannot be invoked, as it allows the
other contracting party, through set-off, to get paid earlier than other concurrent creditors. This
gives that party an unfair advantage or preference over other creditors. This goes against the
Insolvency Act, which sets out a predetermined order for the payment of creditors.
Set-off can also be prohibited by statute, such as the Consumer Protection Regulations,
which protects the rights of the consumer against the supplier.
13.6 Death
The death of a party to a contract will usually not automatically bring that contract to an Thin uxocuune Otae
end. It depends on whether the performance that was due by that party was such that it Geransad's extate ic
was specific to her. If the contract was of such a personal nature that the rights and duties appointed to administer
of the deceased person cannot be transferred to the deceased estate, then the contract will the estate under the law
automatically terminate. For example, in an employment contract, if the employee dies, of succession. If there is
the contract between the employee and employer will come to an end. The executor of the # Be PRINS Cuty OU
: the instructions in the will.
deceased’s estate cannot simply step into the shoes of the deceased and render services to i there ke ng WH aon the
the employer on behalf of the deceased. So, if the performance arising from the contract is gyecutor must administer
such that it could have been performed only by the debtor (or only to the creditor, as the the estate in terms of the
case may be), then the death of that debtor (or creditor) will result in that performance law of intestate succession.
being impossible, and therefore the contract will come to an end.
If, however, the contract was such that the rights and duties were not personal in nature and therefore
could be transferred to the estate, then it must be enforced by the executor of the deceased estate. For example,
if the performance that a party owes is the payment of money for goods that were purchased and already
delivered and that party dies, then death will not extinguish the deceased's obligation to pay the debt.
13.7 Insolvency
When a debtor has more liabilities than assets, she may be sequestrated under the law of insolvency.
When a person is sequestrated, she is declared insolvent bya court. At this point, the court appoints a
trustee to take custody of the insolvent estate with the aim of gathering assets and paying creditors in
terms of the Insolvency Act.
Prior to insolvency, it may have happened that the insolvent (or debtor, as she was at that time) was a
party to contracts that gave rise to rights and duties. As part of the trustee's statutory functions, she has
to decide whether to uphold these contracts or terminate them. Once the trustee makes this decision,
she cannot change her mind.
If the trustee decides to abide by any of the contracts that the insolvent (or debtor, as she was at that
time) entered into with other contracting parties, then she steps into the shoes of the insolvent and takes
over the contract in all respects. This means that the trustee is obliged to perform to the other contracting
parties as if she were the insolvent. The question of whether or not the trustee has elected to abide by a
contract is one of fact, not law. This is determined by inference with reference to all relevant facts.
However, if the trustee does not decide whether or not to abide by or repudiate a contract within
a reasonable time, then the other party can safely assume that the trustee does not intend to abide by
the contract. The Insolvency Act does, however, provide for certain statutory controls on the exercise of
the trustee's election — that is, the Act stipulates when and how the trustee should exercise his election
in respect of certain contracts. Examples of these contracts are the purchase of immovable property
(section 35) and the lease of property (section 37).
This means that, like with death, insolvency does not automatically terminate a contract between the
insolvent and the other contracting parties.
Chapter summary
In this chapter, you learned the following about m The Prescription Act 68 of 1969 provides for
termination of contracts by law: obligations to come to an end when a specified
Although contracts can be terminated by agreement period of time (the period of prescription)
between the contracting parties, they can also be has passed.
terminated by the operation of the law in various ways: = = If performance by a party to a contract becomes
= If both parties perform fully and properly as per impossible because of a natural disaster, both
the terms of the agreement, then that contract will parties are excused by law from performing in
automatically come to an end. terms of the contract.
Briefly explain the difference between set-off e) The insolvency of a party is an automatic
and merger. excuse for performance.
Which of the following statements are incorrect? Which of the following statements are correct in
a) Prescription begins to run as soon as the debt respect of set-off?
is due. a) Tilly, the guardian of Tommy, owes Timmy
b) Ifa debtor pays his debt after it has prescribed, he R10 000 for Tommy's education costs. Timmy
cannot recover that payment from the creditor. owes Tilly R10 000 for the cost of repairs that
c) Aparty can interrupt prescription by leaving Tilly did on Timmy’s new car. Set-off may
the country. apply to simplify the business transactions.
d) An ordinary contractual debt prescribes after a b) The debts need not be of equal amounts.
period of three years has lapsed from the time c) The parties must sign a written contract
the cause of action arose. agreeing to set-off their respective debts.
e) Any debt owed to the state which arises out of d) The debts must be liquidated at the time
a sale or lease of land by the state to the debtor of set-off.
prescribes after 30 years. e) The debts must be of the same kind.
Which one of the following statements about MrT enters into a contract with Mr F to buy
excuses for non-performance is correct? Mr F’s holiday house for R1 million. Unbeknown
a) Asa general rule, the death of a party is not an to the parties, the house burns down two months
excuse for non-performance since the rights before Mr T moves in but after the contract is
and obligations of the deceased arising under a concluded. Identify the correct statement:
contract are transmitted to his estate, which is a) ‘The contract is void as a result of initial
administered by an executor. impossibility of performance.
b) Under certain circumstances, a debtor is b) ‘The contract is valid and Mr F will have to
still legally bound to perform in terms of an rebuild the house in order to deliver it to Mr T.
obligation which has prescribed. c) The contract is voidable and Mr T can choose
c) The performance of the debtor is not affected by whether to enforce the contract or set it aside.
the fact that it has become physically or legally d) The contract is voidable as a result of
impossible for him to render his performance supervening impossibility of performance.
once the contract has been entered into. e) None of the above is correct.
d) Inorder fora debtor to be excused from Which statements are correct?
performance, it makes no difference that a) Any debt that arises froma bill of exchange or
the impossibility is absolute and not merely negotiable instrument prescribes after a period
relative or personal to the debtor. of three years.
Further reading
The last ten chapters looked at principles of contracts. This chapter is the first of Part 3, which focuses
on different types of specific contract, namely sales (in this chapter), leases (Chapter 15) and credit
agreements (Chapter 16). Sales contracts are probably the most common type of contract you will come
across in your day-to-day life.
We discussed specific contracts in Chapter 8. If you do not remember what the essentialia,
naturalia and incidentalia of specific contracts are, now is the time to go back and revise that
chapter, because a contract of sale is a specific type of contract.
Although the risk of damage lies with the buyer when the sale is perfecta, the seller has The silier at aun if
a duty to care for the goods until they are handed over. If the goods are damaged before he acted intentionally
or
delivery, due to the seller's fault, then the seller will have to pay for the damage. However, negligently.
when damage occurs by accident and not due to the fault of the seller, the risk has passed to
the buyer.
Consider the following case study.
Freddy's Florist grows roses, and sells them to the public from a large garden. Emma places an
order with Freddy for the purchase of 100 roses for her wedding. The day before the wedding,
she visits the rose garden, picks out 100 roses that she likes and pays for them (at R10 per rose).
Freddy marks that part of the garden clearly, so that the roses may be picked and delivered to
Emma the next day. However, that night, wild dogs jump over the fence surrounding the garden
and damage all the roses. Who has suffered the loss?
In this case, the contract of sale has been perfected, because all of the requirements have
been met:
e Emma placed her order with Freddy.
e The price was fixed at R1 000.
e The goods were specified (100 roses).
e There were no further conditions.
If the contract between Freddy's florist and Emma stated that she would buy the roses only if
the morning of the wedding was sunny, then the contract would not be perfected until this
condition was met.
The general rule is that the risk passes from the seller to the buyer once the sale is perfecta. The passing of
risk is important because there is sometimes a delay between the time when the parties sign or agree to
the contract and the time when the buyer receives the goods.
In our case study, Freddy, the seller, has a duty to take care of the flowers during this time period,
but the buyer bears the risk. In other words, if the item is damaged or destroyed through an accident
after the sale is perfected, the buyer suffers the loss. Because the contract between Emma and Freddy
was ‘perfect’, Emma will not be able to get her moncy back, even though the roses she bought have
been damaged.
However, Freddy would be held liable if the damage had occurred because of his fault. For example,
if Freddy left a gate to the garden open, the risk remains with him as the owner. Any fraud or default
(such as late delivery) would also mean that the risk stays with him. Even though the buyer bears the risk
of damage or destruction of the item as soon as the contract is perfecta, the seller must take reasonable
care to look after the item until delivery,
If the contract was not perfecta, the loss would remain the risk of the seller, because it's generally the
owner of a thing who suffers loss when that thing is damaged.
Just as the risk in an item passes to the buyer once the sale is perfecta, any improvements or benefits
in the item being sold (such as fruit that ripens) also pass at that time.
Principle
Where the normal rules about passing of risk have been excluded by a specific clause, the seller
should bear the loss.
Facts
Gengan bought some buildings from Pathur. The contract (a deed of sale) stated that the risk
in respect of the property would pass to Gengan (the buyer) on registration of transfer in the
deeds office. However, before registration of the transfer, but after the signing of the deed of
sale, the buildings were partially destroyed by a fire. Gengan used his own money to restore the
buildings. After the transfer of the property was registered, Gengan instituted an action (sued)
for damages against Pathur for the costs of repairing the buildings. Pathur’s defence was that he
was not under any duty to repair the buildings.
The court's finding
In order to decide whether the buyer would be entitled to damages for loss of the buildings, the
court stated the following:
"Where there is total destruction of the goods through no fault of the seller, the buyer has
no claim against the seller because the contract comes to an end because of impossibility of
performance. Where the goods are only partially destroyed, the buyer does have a common
law remedy against the seller. It does not matter that such damage occurred through no fault
of the seller. This still amounts to a material breach of contract. The innocent buyer still has
common law remedies of claiming damages and accepting the defective goods or refusing
delivery of the goods and claiming proper delivery (of fixed goods) or damages in place of this’.
Therefore, the seller in this case was still under a duty to deliver the buildings in the same
condition they had been in when the two parties concluded the contract.
Types of delivery
Delivery of an item is not the same as changing ownership of that item. It refers to the handing over of
an item from one person to another. There are different ways of delivering things, depending on the type
of item being delivered. This contract does not, by itself, cause the buyer to become the owner of the
goods. The contract simply gives the buyer the right to claim delivery of the item she has bought from
the seller. Delivery of the item is necessary for the transfer of the rights of possession or ownership.
‘There are six different types of delivery, namely:
actual delivery
=
symbolic delivery
hWN
attornment.
Actual delivery
Actual delivery is the most common form of delivery. For example, a seller may physically bring a piano
to the seller's home and hand it over.
Symbolic delivery
In symbolic delivery, the handing over of the item is symbolised or represented by some other action.
For example, when someone sells you a car, he will hand over the keys to you to symbolise that he is
handing over the car.
Attornment
With delivery by attornment, there is an agreement between the seller, the buyer and a third party that
from the date of the sale, the third party will look after the item on behalf of the buyer. For example,
Pam's adult son Joe is an excellent pianist. When he moved out of her home, she let him take her grand
piano along so that he could keep practising every day. But now Pam needs some money. She arranges to
sell the piano to Urmila, who agrees that Joe can continue to look after and use the piano for some time,
and pay her a specified sum of money every month for its use. So the piano that has been sold is actually
in Joe’s possession before and after the sale. The seller (Pam), the buyer (Urmila) and a third party to the
contract (Joe) agree that from the date of the sale, the third party will hold the piano on behalf of the
buyer and not the seller.
Activity 14.2
Before you continue, draw a quick mind map of the types of delivery, to consolidate what you
have learned.
Transfer of ownership
The owner of an item is the person who has the legal right to be in possession of that thing. Ownership
of an item can change, and this process of change is guided by the law of sale.
When one person wants to buy an item, such as a house, from another person, they both sign a
contract of sale after they have agreed on the price. However, this does not transfer ownership; other
requirements still have to be met for ownership to change. Exactly what these requirements are depends
on the nature of the item being sold.
The ownership of movable property is normally transferred when the price is paid is paid in full. If
the sale is on credit, then ownership will pass when the goods are delivered.
The following are the formal requirements for the passing of ownership:
® = Both parties must have the intention that ownership should pass.
m = The seller must be in a position to transfer ownership. In other words, he must be the owner of the
property, or have the owner's permission to transfer ownership.
‘The first three requirements are the same for transfer of movable objects, like cars, furniture and books,
as for fixed (immovable) property. The only difference is that the movable property must be delivered to
the buyer, while immovable property is ‘delivered’ by registration of transfer as described above.
Only the seller and the buyer can agree on transfer of ownership — and only if the seller is the real owner
of the item being sold. If the seller does not really own the item, he does not have the right to transfer
ownership to the buyer. In that case, the buyer will generally enjoy legal protection only to the extent of the
seller's rights in the item sold. In other words, the law will not give the buyer any rights — like ownership —
that the seller did not have. Suppose you buy an item and pay the seller for it in good faith, but it turns out
that the item is stolen, and the seller was not the real owner. Then the rightful owner can claim the item
back from you, and you may have difficulty getting your money back from the seller.
Purchase price
‘The law usually presumes that every sale is for cash. This presumption can be countered To presume means
(argued against) or challenged by evidence showing that the parties did not intend the sale ¢oughly the same as to
to be for cash. We call this a rebuttable presumption, which means that if there is evidence assume. A presumption
to show that the normal position does not apply to a particular case, then the presumption _ |S like an educated guess,
will be rebutted (defeated), By contrast, irrebuttable presumptions cannot be challenged in ased on the fact that the
same thing happens in
this way. :
Iti a hat eased iecdieE ich most cases. A presumption
tis important to note that cas oes NOt Mean Nnecessari Vy that the uyer pays wit becomes a legal rule
notes and coins. ‘Cash’ will include payment by credit/debit card or by EFT. If the buyer unless there is evidence
pays by cheque, the sale is regarded as a cash sale as long as: that it should not apply.
m = the cheque is dated on the day on which the item was delivered
@ =the bank honours the cheque.
If the seller agrees to accept payment on a day after the date of delivery, the law will assume that the
seller gave the buyer credit. Whether or not delivery has taken place, the general rule is that the buyer
will become the owner of whatever she is buying only when she has paid the purchase price or received
credit from the seller.
In this age of electronic banking, it may be that you are not really familiar with cheques and the
way they work, so here’s a quick summary.
A cheque is a written order from one person to a bank, asking the bank to pay a specified
sum of money either to the person named on the cheque or to any person (the bearer) who
presents the cheque to the bank. When we say that the bank honours the cheque, we mean
that it pays out the amount written on the cheque to the person whose name is on the cheque
(or to the bearer, if it is written out as ‘cash’),
A post-dated cheque is a cheque that has a future date on it. If you want to deposit a post-
dated cheque, or cash it (exchange it for money at the bank), you can do that only on or after
the date that is stated on the cheque.
With a sale of movable property, the law adopts the rebuttable presumption that if the sale was for cash,
the seller intended to pass ownership on receiving payment. If the sale was on credit, it is presumed that
the seller intended to pass ownership on delivery of the property.
The case of Lendalease Finance (Pty) Ltd v Corporacion De Mercadeo Agricola and Others 1976
(4) SA 464 (A) involved the sale of maize to a purchaser in Venezuela. The issue to be decided
was when the ownership of the maize passed to the buyer. While the actual decision of the
Court is not relevant, the following list, drawn from the Supreme Court of Appeal, is a useful
summary of the requirements for the passing of ownership:
e Ownership does not pass by virtue of the contract of sale alone.
e There must at least be delivery of the item being sold.
e In the case ofa cash sale, ownership passes when there is delivery and payment at the same time.
e In the case of a credit sale, ownership passes on mere delivery, but the parties must
have intended that credit be granted. Credit is usually granted where payment has been
postponed for a long period after delivery.
e Whether a sale is for cash or credit depends on the intention of the parties. Their intention
must be determined from the terms of the contract and all the surrounding circumstances.
e Until the opposite is proved, every sale is presumed to be for cash.
e Acash sale can become a credit sale through a change in the intention of the parties.
Holmdene Brickworks (Pty) Ltd v Roberts Construction Co Ltd 1977 (3) SA 670 (A)
Principle
The manufacturer of a defective product is responsible for rectifying this.
Facts
Bricks that contained a large amount of magnesium sulphate were supplied to a builder.
This caused the bricks to crumble. Obviously this made them unsuitable for building with.
The court's finding
The court held that the bricks were defective. The manufacturer was held liable to pay for
breaking down the walls built with the defective bricks and to pay to have them rebuilt.
i) le eel ae tC) ee
Principle
The buyer has a duty to inspect and examine the item being purchased.
Facts
The buyer bought a 19-year-old Morris car, unaware that there was a crack in the chassis of the
vehicle. The car was not in a good condition anyway.
The court's finding
The court held that the buyer should have given the car a proper inspection, which should have
included examining the entire external part of the car— both top and bottom. If he had done this,
he would have discovered the defect immediately. The court therefore held that the cracked chassis
did not amount to a latent defect. This meant that the buyer’s claim against the seller was defeated.
The term woekstoots, meaning ‘to push with the foot’, apparently comes from the carlydays geese
of stock sales in farming areas. Once the deal had been done and the money paid, the ‘farm animals like cattle
seller would prod the animal towards the buyer with his foot, thereby completing the sale. _ and sheep’.
Here is an example of an advertisement using the term voetstoots.
The inclusion of a voetstoots clause in the contract normally means that there is no duty on the
seller to promise that there is no hidden defect.
By signing a contract with a voetstoots clause, the buyer agrees that he is buying the item
with all its faults, and will not hold the seller liable for any hidden defects.
What, then, is the point of the seller's duty regarding latent defects, if a clause in a contract
can simply wipe away the duty? Well, the voetstoots clause in the contract will not help a seller
where the buyer can prove that the seller knew about a defect and deliberately hid it from the
buyer at the time of the contract. In this case the seller could also be guilty of fraud.
Where there is both a voetstoots clause and a clause containing a warranty (or promise) in a
contract, the court will decide which paragraph reflects the intention of the parties better. This
means that only one of these paragraphs will really apply.
Remedies
In contract law, a remedy is relief that is given to the harmed party when the court finds that there has
been a breach of contract. The common law remedies available to a buyer who has purchased latently
defective goods are collectively called the aedilitian remedies — the actio redhibitoria and actio quanti
minoris. They are named after the Roman magistrates (aediles) who introduced them.
These are different from the usual contractual remedies for breach of contract. The buyer must
institute either the:
® actio redhibitoria
@ actio quanti minoris.
If the defect is so serious that the buyer cannot use the item for its intended purpose, or if the buyer
would never have bought the item if he had known about the defect, then the buyer can cancel the
contract and get his money back (assuming that he has already paid), in addition to interest and
expenses. Expenses could include transportation costs in taking delivery, the cost of taking care of the
item (storage costs), payment of expenses in examining the item to discover the defect, and the cost of
returning the item to the seller. The defective item has to be returned to the seller.
‘This remedy for the buyer is known as the actio redhibitoria — an action for redhibition,
Redhibition is the cancellation of a contract and the repayment of whatever has been paid plus interest and
expenses, so as to put the innocent party back in the position he was in before he entered into the contract.
Damages
Damages usually take the form of an award of money by the court. The aedilitian remedies do not
generally include a claim for damages. There are, however, three categories of damage that the buyer will
be able to claim in particular situations:
1. When the seller has specifically promised either that the item is free of defects or that it has certain
good features, and these promises prove to be false, the court will allow contractual damages.
2. If the seller knew about the defect (or should have known), and deliberately kept quiet about it, the
court may award delictual damages.
3. Finally, suppose a manufacturer or merchant seller tells the public that his product has some special
quality or ability, but it turns out that this is not the case, and a customer suffers additional loss
because of the latent defect. The manufacturer or dealer will then be responsible for damages.
‘This is known as the manufacturer's or dealer's liability for consequential loss. As an example of
consequential loss, suppose a dealer in electrical appliances advertises a certain model of fridge as
being frost-free. A few weeks after you buy the fridge, the freezer section frosts up and then starts
leaking water, which damages other electrical equipment that is standing next to the fridge. The
damage to the other equipment is a consequence of the latent defect in the fridge, which is not
frost-free as advertised. The dealer or manufacturer is therefore liable for the damage to the equipment.
The Roman name for the court action to claim damages is actio empti.
Principle
If a seller makes a dictum et promissum that causes the seller to enter into the contract, or to
agree to the price in question, and it is shown later that the statement was false, then the buyer
may, by law, rely on the aedilitian remedies (including claiming a reduction in purchase price).
The case held further that it is a question of fact in each case as to whether a statement by
the seller goes further than normal praise or sales talk.
Facts
In the case of Phame (Pty) Ltd v Paizes 1973 (3) SA 397 (A), Paizes (the plaintiff) negotiated with
the defendant (Phame (Pty) Ltd) for the purchase of the Phame’s shareholding in a company.
The main asset of the company was a rent-producing immovable property. Phame was aware
that Paizes was interested in the purchase of this property because of the income derived from
the property. A relevant factor to be considered in deciding the true value of the shareholding
was the expense it incurred in connection with the property. The defendant's agent showed the
plaintiff that the annual municipal assessment rates and other charges were about R4 600. As a
result, the plaintiff agreed to buy the entire shareholding from the defendant for R846 000.
However, this was a false representation, because the company’s annual liability for rates
and other charges was in fact R14 700, which made the true value of the shareholdings only
R815 000.
The court's finding
The plaintiff successfully claimed a reduction of the purchase price by an amount of R31 000 on
the grounds that the defendant had made a false dictum et promissum. A dictum et promissum
is astatement, made by the seller to the buyer during the negotiations, that describes the quality
of the item being sold and goes further than just normal praise of the quality of that item.
In legal terms, we say the person is ‘disturbed of possession of the item bought’.
When a seller sells something that he does not own, he cannot transfer ownership to the buyer. If the
true owner finds out that her property is in the possession of the buyer, she may reclaim the property
from the buyer. The buyer is then threatened with eviction in the sense that the true owner would
deprive the buyer of the property that he bought from the seller. The buyer therefore has a claim against
the seller for breach of the warranty against eviction. The duty of the seller to ‘warrant against eviction’
is intended to prevent the buyer from being disturbed of possession of the item bought. The warranty
against eviction is automatically part of a contract of sale, to protect the buyer. The warranty means that
the seller promises that no third party who has greater rights in the thing sold than the buyer will stop
the buyer from enjoying or selling the thing sold.
Suppose, for example, I bought a watch from a hawker on the street and then sold it to you. As
far as I was aware, | owned that watch, and we both now think the right of ownership has passed to
you. Your cousin, who is the true owner, sees you with the watch and claims it back. You have no right
of ownership to that watch, even though you bought it from me, because I also did not have right
of ownership.
A warranty against eviction is applied by operation of law; it exists unless the parties agree
otherwise. In other words, it goes together with a contract of sale and will apply unless the parties
make another agreement.
If the seller sells a thing that he does not own (but believes he owns it), then the buyer who acts in
good faith will be able to hold the seller liable under the warranty against eviction. If the buyer buys
something from a person who knows he is not the owner, then he may sue the seller under delict for
fraudulent misrepresentation.
fer
T Ya drei] The Thomas Crown Affair
Thomas Crown sells a priceless Monet painting to the Prado Art Gallery in Madrid. The gallery
pays him a fortune for this masterpiece. A few months later, Monet's great-granddaughter
produces a document proving without doubt that she is the rightful owner of the artwork, and
that it was stolen from her. She claims back the painting from the Prado Gallery.
The Thomas Crown Affair is the name of a movie about a theft of a Monet painting. Both the
movie and this case study are fictional.
In the above case study, it appears that the great-granddaughter’s claim to the painting cannot be
defeated. What remedy can the Prado Gallery seek if it gives up possession of the painting to the true
owner? In terms of the duty of the seller, the gallery should be entitled to a remedy from the seller
(Thomas Crown) by showing that the great-granddaughter’s claim could not be defeated in law. This
means that the gallery is entitled to repayment of the purchase price (or the part that it has already paid)
plus interest. It should also have a claim for any additional damage it has suffered. This could include
legal costs and any increase in the value of the painting from the time it was purchased to the date of
eviction. In cases where there has been a lot of wear and tear in an item, the courts may decrease the sum
that the seller has to repay.
However, as a general rule, the buyer must not simply give up the property to a person who threatens
to take it away. In the above case study, the gallery has to investigate the great-granddaughter’s claim and,
if there’s any doubt about it, put up a proper defence in court. If the gallery hands over the painting in
response to a false claim, it loses all its rights against the seller. The buyer must notify the seller of the
claim of the ‘true owner’, so that the seller has time to prepare a defence and help the buyer to prove the
buyer's right or claim to the goods.
‘The seller is only liable in terms of the warranty if he bona fide believes himself to be the owner.
Activity 14.3
Draw up your own study summary for this section on warranty against eviction. It’s now time to
go further back in this chapter and summarise the various duties of the seller in your own words.
Make a new, more detailed mind map (or other diagram, like a table) to show and summarise
the duties of the seller. Use your illustration to explain these duties to a partner.
Principle
The fact that the sale was either for cash or for credit is a factor to be considered, but not the
only factor, in determining whether ownership has passed.
Facts
Eriksen Motors sold a car to Protea Motors, knowing that Protea Motors was immediately going
to resell the car to their customer X. Both Protea Motors and X paid by cheque. Protea Motors’s
cheque was dishonoured, while X's cheque was honoured by his bank. Eriksen Motors claimed
that they remained the owner of the car, and tried to claim the car back from X.
The court's finding
The Appellate Division held as follows:
e Payment by cheque is a conditional payment. The condition is that the cheque be honoured on
presentation, and this rule is not affected where the cheque is payable some distance away.
e If the cheque is dishonoured, there has been no payment.
e Payment by cheque is neither cash nor credit but a payment that is conditional on the
cheque being honoured.
Regarding the requirements for the transfer of ownership, the court held that:
e in asale for cash, both delivery and payment must take place before ownership can pass
e inasale on credit, ownership passes on delivery
e the parties’ intention will decide whether they wanted a cash sale or a credit sale.
The court concluded that the parties intended ownership to pass— whether the sale was for cash
or credit. (This intention was identified by the fact that Eriksen Motors knew that Protea Motors
was buying the car for immediate re-sale to X.) The court held that X was the owner of the car.
Note that the price will not always be paid completely with money. For example, when a dealership sells
a new car, it often accepts the old car as part of the purchase price. But at least part of the price must be
paid with money, because that is one of the essential aspects of a contract of sale. Otherwise the contract
could be a contract of barter, or exchange.
The price must either be a fixed amount or the parties must have agreed on some way of calculating
it. A sale at a price of ‘whatever the buyer feels is reasonable’, or ‘to be agreed upon by the parties’, is
invalid. The following case also deals with the duty of the buyer to pay the purchase price.
Principle
The price must be described in such a way that it is fixed or legally possible to determine.
Facts
Adam sold an erf to Patel for R25 000. The relevant term of the contract stated that the purchase
price ‘shall be payable in monthly instalments, free of interest’. Adam believed that the contract of
sale between himself and Patel was void, because the purchase price had not been properly described.
After Patel had paid off R16 000 of the purchase price, Adam claimed for the return of the erf.
The court's finding
The court held that the price must be described in such a way that it is fixed or legally possible to
determine. The method in which payment has to be made must also be determined, or capable
of being determined. The wording in this contract was held to be so vague that the number and
amount of instalments could not be determined. As a result, the contract placed the method of
payment within the sole discretion of the buyer. This was not acceptable, and the court held that
it made the contract void. In other words, Adam succeeded in reclaiming the erf that he had
sold to Patel, because the contract of sale was found to be void.
The manner in which the buyer must pay the purchase price is influenced by considerations), erg jc an urban building
of time and place and by whether the sale is for cash or credit. lot — a piece of land in a
@ = Inacash sale, the buyer must pay the price at the time when the seller delivers the town or city.
item purchased. Ownership will normally only pass when the price is paid.
m In acredit sale, the parties agree that the buyer will pay the price on or by a specific future date.
Normally, such an agreement includes payment of interest on the purchase price. If the buyer is late
in making any payment, then he must pay interest.
= = When the parties have not agreed a time period, then the buyer must pay within a reasonable time,
considering all the circumstances. If a date for payment is specified, but this date happens to be on
a Sunday or public holiday, then payment should be made on the next business day. It is usually
implied between the parties that payment should be made within business hours.
= =Payment must be made at the place that the parties agreed to.
@ In acash sale where the parties have not agreed to a specific place for payment, the buyer has to pay
at the place where the goods are delivered. In the case of a credit sale, the buyer should
tender payment to the seller to avoid being in breach of contract. He can pay at any To tender here means ‘to
place, although it usually happens at the place where the contract was signed. give or offer’.
If the buyer fails to pay the purchase price, he is in breach of contract and, more specifically, in breach of
a duty he owes to the seller. The seller's remedy is to claim the amount agreed on, plus interest from the
date when payment became due. To protect the buyer, the law does not allow the amount of interest to
exceed that of the purchase price.
Buyers often order goods from a trader or dealer without any mention of the price. There is no
problem with this, because the court will assume that the parties intended that the price usually charged
by the seller will apply. If there is no ‘usual price’, then the market price of that type of item will be
deemed (assumed) to be the price. The agreement is still a valid contract of sale.
Activity 14.4
If a buyer pays in instalments, the payments will usually include interest. Find out the rate of
interest you would have to pay your bank if you borrowed money from it (say R10 000). Also ask
the bank what interest you would get on your money if you deposited money there (again, say,
R10 000) for various periods of time.
Finally, consider the following situation: You buy a car for R100 000. The bank gives you a
loan for the full amount and pays the car dealer. You repay the bank R 5 000 every month, and
it charges you interest at the current rate. Work out how long it will take you to pay for the car
and how much you will actually have paid, once you have included the interest.
On termination of the deed of sale, the buyer is allowed a refund of any amounts he has already paid.
This money must be refunded within ten days of the date on which the notice terminating the deed was
delivered to the seller or the seller's agent.
If a buyer signs an offer to buy land within five days after having signed a deed of sale to buy other
land, and this buyer does not really (in good faith) intend buying both pieces of land, the law sees
this buyer as having exercised the right to terminate the earlier sale. The buyer must immediately send
written notice to the seller of the first piece of land. Failure to do so is a criminal offence in terms of the
Act. In other words, you cannot sign two deeds of sale and then take your time to decide which property
you want.
Plaintiff
and
Defendant
In execution of a judgment of the Magistrates’ Court for the district of Pretoria, in the above matter, a
sale will be held at XY Vehicles c/o HOPE'S AUCTIONEERS, 55 Arcadia Street, Arcadia on Tuesday,
the 7th day of January 2001 at 10:00, of the under-mentioned goods of the Defendant:
ANDTO: — Attorneys
Activity 14.5
Have a look in your local newspaper and find a house for sale that you would love to be able to
buy. (Some daily newspapers have special property supplements on Saturdays.) Try to visit the
house and talk to the estate agent who is selling it. The estate agent should tell you what the
selling price of the house is. Your task is to get a breakdown of all the extra costs you would
have to pay if you wanted to buy the property. The estate agent should be able to help you with
this. Extra costs may include attorneys’ fees, costs of registering a bond, transfer costs and so on.
Chapter summary
In this chapter, you learned the following about the = the price is paid (or credit is given)
duties that the law of sale imposes on sellers and buyers: ® in the case of immovable property, the property is
When a contract of sale is concluded, the risk of registered in the name of the buyer
accidental harm passes to the buyer as soon as the sale is ® in the case of movable property, delivery has
perfecta, or perfected. The sale is perfected when: taken place.
® the item to be sold is determined
® the purchase price is decided Delivery of movable property may take any one of a
= the contract is not subject to any conditions. number of forms, such as actual delivery, symbolic
delivery, traditio longa manu, traditio brevi manu,
The seller has the following duties to the buyer: constitutum possessorium and attornment,
= a duty of care until the goods are delivered ‘The intention of the parties determines the way in
®™ a duty to make the goods available which the purchase price is paid (cash, cheque, or credit
® a duty to warrant against latent defects granted). The manner of payment determines when
= aduty not to make untrue statements ownership passes.
™ a duty to warrant against eviction. Generally speaking, unless the contract of sale excludes
this duty (normally by way of a voetstoots clause), the seller
There are certain situations where the risk may not
is responsible to the buyer to disclose hidden defects in
pass to the buyer because the sale is not perfected. One
the property, even if the seller was unaware of them.
example is where the goods still have to be measured,
The remedies available to an innocent buyer for
weighed or counted.
Signature of a contract of sale is not enough to hidden defects are known as the aedilitian remedies.
‘The duties of the buyer are:
transfer ownership of property from the buyer to the
= to pay the purchase price
seller. Ownership passes when:
= to accept delivery of the item
@ the seller is allowed to sell the item
® to reimburse the seller for any necessary
= both parties have the intention that ownership will
expenses incurred.
be transferred
1. Siphiso buys a 15-year-old Citi Golf from c) Siphiso is not entitled to any relief, as there
Mymoena for R20 000. He does not inspect the is no defect, for purposes of the law, in
car at the time, and signs no contract. Shortly after the vehicle.
delivery of the car, Siphiso finds a crack in the d) Siphiso is not entitled to any relief from
chassis (the underside) of the vehicle. Which one of Mymoena, as the cracked chassis does not
the following statements is most correct? qualify as a latent defect.
a) Siphiso will be entitled to relief in terms of e) Siphiso is not entitled to any relief, as he
the actio redbibitoria, as the seller is liable for should have employed an expert to inspect the
latent defects in the res vendita that existed at res vendita.
the time of the sale. 2. Suppose you had enough money to buy the car
b) Siphiso will be entitled to relief in terms of the of your dreams, and you paid for it in cash, What
actio quanti minoris, as the defect is such that would the legal position be if it turned out that
a reasonable buyer, ifhe had known about it, the dealership you bought it from had sold you a
would have bought the car for a lesser price. stolen vehicle?
Further reading
This chapter outlines the basic rules regarding the leasing or hiring of property, and distinguishes
between the different types of lease. It covers the rights and duties of each party to a lease, together with
the remedies available to each party if the other one breaches the contract.
AGREEMENT OF LEASE
ENTERED INTO BY AND BETWEEN:
Gordon Ted Miller
(hereafter referred to as the lessor)
And
Simphiwe Vuyelwa Futuse
(hereafter referred to as the lessee)
1. PREMISES
The lessor lets to the lessee the premises situated at:
1 Hibiscus Road, Uvongo (hereafter referred to as the leased premises).
2. DURATION
The lease shall be for 12 months commencing on 1 January 2018 and ending on
31 December 2018.
3. RENTAL
The monthly rental shall be R7 000, which is payable on or before the first working day of the
month into the bank account of the lessor.
4. PAYMENT OF ACCOUNTS
4.1 The lessor shall pay the rates payable on the leased premises to the local authority.
4.2 Allother accounts for the property, including but not limited to lights and water and
telephone accounts, shall be paid by the lessee.
5. MAINTENANCE OF THE LEASED PREMISES
5.1 The lessor shall keep and maintain in good order and condition at his cost the exterior of
the premises.
5.2 The lessee shall keep and maintain in good order and condition the interior of the premises.
6. ACCESS
The lessor may inspect the leased premises for the purposes of repairing the premises by
making an appointment with the lessee.
7. NO VARIATION
This lease may only be varied by written variation signed by both parties.
DATED AT UVONGO THIS 26TH DAY OF DECEMBER 2017.
LESSOR: LESSEE:
Signature Signature
AS WITNESSES: 1. 2.
Signature Signature
A ‘long term’ lease lasts for between ten years and 99 years. As usual with ownership of property, a long
term lease (with all its requirements and implications for the lessor and lessee) must be registered in the
Deeds Registry against the title deed of the property. A lease cannot last longer than 99 years. Thereafter,
the rights of property ownership can be lost to the owner/lessor. It is therefore not an uncommon
practice for leases to be for a 99-year period. For example, if a municipality wanted a school to be able
to use land for sports fields, but for the municipality to remain the owner of that land, the municipality
might lease that land to the school for a period of 99 years, even at a nominal rental such as R1 per year.
Bracketed rental
When rental is bracketed, the lease agreement states that the rental is payable as a range rather than an
exact figure. For example, you may agree with your landlady that you will pay rent of between R2 000
and R2 500 per month, as a tenant in her granny flat.
Generally, our law does not accept bracketed rental amounts, because it is impossible from most of
these agreements (like in the example) to know what the rent would be at a particular time.
The main difference between these two lease types is the different result upon the death of either the
lessor or lessee in a tenancy at will as opposed to in a periodic lease.
While most leases do not have to be in writing, it is far better for all concerned if a lease
is in writing and sufficiently detailed, so that the rights and duties of both the lessor and
lessee are clear. This makes it easy to refer to the lease at a later date if there is any dispute
about the lease. For example, if a burglar breaks a window in an attempt to break into your
rented house, the window has to be replaced. Your discussions with the landlord may not
have made it clear who would have to pay for replacement of the window in a case like this.
But the matter can be solved quickly and easily if you have a written lease that deals with
the issue,
When you type foreign (non-English) words in assignments or other typed work, these words
must be in italics, like huur gaat voor koop, in the text above. The same applies to case names,
like Davy v W Walker& Sons 1902 TH 114. When you are writing by hand, like in an exam, you
must underline these foreign words or case names.
‘The duties of the lessor and lessee are those that normally exist as part of the common law. They can be
changed if both parties agree.
Let us look at each of the above-mentioned duties in turn, and also consider the remedies available to
a lessee if the lessor fails to perform as required.
Principle
The lessor must deliver the leased property in a condition that is fit for the lessee’s use.
Facts
The lessor of a hotel delivered the building with faulty plumbing, which made it unfit for use
as a hotel. The lessor refused to carry out the necessary repairs. The lessee then repaired the
plumbing, and the lessor had to reimburse him (pay him back) for the costs of the repairs. As
indicated above, it is a duty of the lessor to ensure that the leased premises are in a reasonable
condition so that they are fit for the purpose for which they are intended. The lessor further has
the duty to maintain the premises in such a condition.
The court's finding
The court considered the common law duties of the lessor and held:
‘It is well established ... that it is the duty of a lessor to place the leased premises in a
condition reasonably fit for the purpose for which they are let, and also to maintain them
in that condition during the currency of the lease. This duty relates to the condition of the
premises both externally and internally, and includes the duty to remedy all defects or flaws in
the premises which unreasonably interfere with their use for that purpose (at page 150[G))’.
The judge found that the defects complained of by the Los Angeles Hotel were serious enough
to affect the business of the hotel. Accordingly, it was the lessor’s responsibility to fix them. The
court held further that one of the lessee’s remedies was to pay for the repairs itself and to then
deduct the amount from the rent it paid the lessor (at page 151[E)).
Refuse delivery
Where the lessor delivers the property in an unfit condition, the lessee can refuse to accept delivery until
the lessor fixes the problems.
Where a defect totally prevents the use of the leased property, the lessee may cancel the contract and/or
claim damages if the lessor knew, or ought to have known, of the defect.
Claim damages
Alternatively, or in addition to another remedy, the lessee may claim damages for any predictable loss
caused by the breach.
15.7.2 The lessor’s duty to maintain the property during the lease
So far we have looked at only the first of five duties of the lessor, namely the duty to deliver. The lessor’s
second duty is to look after or maintain the leased property adequately for the whole period of the lease,
‘The parties may, by agreement, move part or all of this duty onto the lessee. Most leases provide that, in
rented accommodation, the lessor must maintain the outside of the building and the lessee the inside.
‘There is also a duty on the lessee or those for whom the lessee is responsible not to damage the leased
property through his actions, be they intentional or negligent.
‘The lessor is responsible for keeping the property in such a condition that it can be properly used for
the purpose for which it is being leased. For example, the lessor must ensure that a leased house does not
have a leaky roof, because the main purpose of a home is to give proper shelter. The lessor does not have
to repair damage caused by the lessee.
Therefore, before the lessee may cancel the lease, she must give the lessor a chance to repair the property,
unless repairs are impossible or not possible within a reasonable time. A similar rule applies to the
granting of damages. Before a court will grant damages, the lessor must have been told of the need to
repair the leased property, and he must have failed to do so.
15.7.3 The lessor’s duty not to disturb the lessee’s use and enjoyment
The lessor must not unlawfully interfere with the lessee’s use and enjoyment of the leased property. There
are three points to note here.
® Firstly, the lessor may enter the leased property only when he is allowed to do so in terms of the
lease agreement. If the agreement does not mention the lessor having access to the property, he
has access only at a reasonable time and for a proper reason. A reasonable time could be a time
convenient to the lessee, when she is at the property. A proper reason may be that the lessor is
planning to sell the property, and she needs to show it to possible buyers. The lessor may again have
access to the property without notice to the lessee in the event of an emergency, for example, if the
geyser has burst, the lessor has spare keys and the lessee cannot be reached.
= Secondly, the lessor can only take away the lessee’s use and enjoyment of the property lawfully.
This part of the duty includes the fact that the lessor may not unlawfully interfere in the supply of
services, such as water or electricity, to the leased premises.
= = Thirdly, the lessor cannot evict the lessee when repairing or improving the leased premises, unless
the following instances apply:
m the lessor has given the lessee reasonable notice, the main test of which would be the urgency of
the need for repair
m the repairs are urgently necessary, and the repairs cannot be properly done while the lessee stays
in the leased premises. Repairs are necessary if the lessee’s use and enjoyment cannot carry on
without them.
An interdict
An interdict, in these circumstances, is a court order that orders a party to stop any unlawful interference.
Cancellation
The lessee may cancel the lease if the lessor’s interference prevents him from properly using and enjoying
the leased property.
Cancellation
‘The lessee can cancel the lease if the disturbance has a major negative effect on his use and enjoyment of
the property.
Damages
The lessee can claim damages for the loss suffered due to the disturbance.
Rental reduction
‘The lessee can claim a reduction in rent according to how much the interference has lessened his use and
enjoyment of the property.
A lessee who wants to use any of these remedies must tell the lessor of any threatened disturbance, so that
the lessor can show that the third party does not have a valid claim to the leased property. If the lessor is not
available, or refuses to get involved when the lessee’s possession is threatened by a third party, the lessee must
take legal action herself to defend her occupation. If the lessee loses the case, she may leave the leased property,
and sue the lessor for damages. When the lessee can prove that the third party's claim to the property is certain,
she (the lessee) can immediately sue for damages without having to defend her possession legally.
The lessee is bound by all the duties — these duties are called residual duties — that she agreed to in the
lease contract as well as any other duties that apply by operation of the law, such as the duties discussed
below, unless the lease agreement says differendy.
Claim damages
There are two parts to the damages that a lessor can claim from a lessee who has defaulted.
1 If the paymentis late, the lessor can claim for interest from the date on which the rent ty. interest per yaar
should have been paid. The lease may indicate what percentage of interest is payable. 10,25% of R1 000, or
Otherwise, the lessor may charge the standard legal rate of 10,25% interest per year, which —R102,50. So, for half a
is the rate as of 2017 until the government changes it. For example, if 10,25% interest _ year, it is half of that,
is payable, and the lessee should have paid a rental of R1 000 six months ago, then the aie Ae 8
interest owing on that one month’s unpaid rent from six months ago is R51,25.
2 Ifa lessee breaks a lease without giving the required notice, the lessor can claim for lost rental until a
new lessee starts paying.
15.8.3 The lessee’s duty not to make major changes to the leased
property without the lessor’s permission
‘The owner of the property, who is normally the lessor, has the right to make structural changes to the leased
property. The lessee may not make any such changes unless the lessor has agreed to this beforehand. For example,
a lessee who rents a beach cottage from a lessor cannot add on an extra room without the lessor’s permission.
15.8.4 The lessee’s duty to return the property in the same condition
‘The lessee must return the leased property to the lessor at the end of the lease in the
condition in which he received it, with the exception of fair wear and tear or damage Fair wear and tear
caused d by by natural disasters, A such as foodin g. oe ensacthe normath aS
Another way the lessee can be in breach of this duty is by failing to vacate the property —_yce and age, such as
by the required date. In law, failing to vacate in such circumstances is described as holding —_ rusting of metal fittings
over. To meet her duty of vacating the property, the lessee must also remove everything she _and peeling of paint.
brought onto the leased property, or allowed others to bring there.
The lessee must remove all changes she made to the leased property without the lessor's permission.
If anyone else for whom the lessee is responsible caused any damage, either intentionally or negligently,
or made any changes to the leased property, the lessee is also responsible for fixing those damages before
returning the property to the lessor.
Ndlovu v Ngcobo; Bekker and Another v Jika 2003 (1) SA 113 (SCA)
Principle
Occupiers who hold over cannot be summarily evicted.
Facts
The two cases of Ndlovu and Bekker were heard by the court at the same time as it raised the
same legal issue. Only the Ndlovu case related to a lease. In the Ndlovu case, the lease was
terminated lawfully but the lessee refused to vacate the premises. The owner of the property
in the Ndfovu case sought to evict the lessees who were holding over, without relying on the
legislation dealing with lawful eviction.
The court's finding
The decision by the Supreme Court of Appeal made it far more complicated and a more lengthy
process to evict lessees who hold over. In that case, the occupiers had held over and the lessor
could not so easily evict them as was the situation before this decision of the court, because they
have to comply with the procedural requirements of eviction law, which is quite time-consuming
and onerous.
Activity 15.1
Discuss the following scenario with a partner: Mrs Andrews rents a room in her house to Dianne,
but Dianne has not paid rent for three months. Mrs Andrews has asked for the rent many times, and
Dianne always promises to pay ‘tomorrow’. What can Mrs Andrews do to get payment of the rent?
Chapter summary
In this chapter, you learned the following about the law = damages
of lease: ® a reduction in rental.
A contract of lease provides for a lessee to pay rent
in return for the temporary use of the lessor’s property. ‘The lessor has to give the lessee full use and enjoyment
There are four types of lease, namely: during the lease, and is responsible for the following:
™ fixed-term leases ® maintaining the property in a fit condition
® tenancy at will ® not disturbing the lessee’s occupation.
® periodic leases
= hybrid leases. The lessor’s possible remedies for inadequate maintenance
are the same as for non-compliance with the duty to
A lease agreement does not have to be in writing, but deliver. The lessee’s possible remedies for disturbance are:
a tenant may demand a written lease and must get ® an interdict
receipts for all money paid. a spoliation order (mandament van spolie)
‘The lessor has duties in terms of a lease cancellation
The lessor has a duty of delivery. The lessee’s possible damages or a rental reduction.
remedies for non-compliance are:
® a specific performance order ‘The lessor gives the lessee a warranty against eviction
= refusal of delivery or disturbance by a third party. The lessee’s possible
= cancellation remedies against disturbance by a third party are:
® repair of the fault at the lessor’s expense ® cancellation
1. Imagine that you are approached by a lessor and 6. Explain what happens to a lease if one of the
lessee of a residential house, who want you to draw parties to the contract dies, considering the
up the headings for a lease between them. List the different types of lease that exist.
headings you would include to protect each of 7. List the rules that govern how rent may be
them and to minimise later confusion and disputes specified in a lease. Then, explain why each method
between them regarding their rights and duties. of establishing the rent is considered to meet the
2. You are moving to a new town and want to buy requirement of there being agreement on rental.
a house. There is a shortage of houses in the price 8. Sibongile and James enter into a lease agreement
range you can afford, so you decide to rent a house in terms of which the lessor (Sibongile) will fix the
while you look for one to buy. What type or types leaking roof above the lounge before James moves
of lease would you choose in these circumstances? in. Three weeks after James has taken occupation,
Give reasons for your answer. rain comes through the ceiling and destroys James's
3. List the advantages, for both the lessor and the expensive hi-fi system that is in the lounge. James
lessee, of having a written lease. Also, indicate then realises that the leak was not fixed. Explain
whether the lessee may demand a written lease and, what legal remedies are open to him.
if so, on what legal basis? 9. Jasmine leases a room in Jack’s house. After three
4, Peter owns business premises, which he leases months, the room develops a leak when it rains.
to Lyn for four years. Lyn uses the premises as a Advise Jasmine of what she can do if Jack refuses to
sewing shop. After the lease has run for two years, fix the leak and if there is more than one recourse
Peter sells the premises to Vernal. Vernal wants to available to Jasmine. Discuss the advantages of
evict Lyn so that he can convert the building into choosing one remedy over another.
an arcade game centre for young people. Discuss 10. A lessee has a very inquisitive landlord who
Lyn’s rights in the above circumstances. comes in and looks around the premises every
5. Discuss the key difference(s) between a tenancy at day. Does the lessor have the right to do this? If
will and a periodic lease. not, what are the lessee’s rights if the landlord's
behaviour continues?
Further reading
Most people cannot afford to pay cash for their larger purchases, such as cars, so they use credit
agreements which enable them to buy the products over a period of time. In that many people do not
really understand the effect of interest on debt, the law seeks to regulate credit agreements. In particular,
the law tries to limit sellers’ ability to exploit credit sale buyers through excessive rates of interest or
unfair conditions of sale. This chapter discusses the main law in South Africa dealing with credit
agreements, namely the National Credit Act 34 of 2005.
‘The cash sale has the advantage of being the cheapest option at a total cost at R3 500, but obviously
requires that you have that amount of money available at one time. The first credit option (totalling
R4 400) is cheaper than the second one, but you have to have a R350 deposit up front. The final credit
option, at R4 950, is the most expensive, but has the advantage of requiring the least money to start
with. The problem with both of the credit options is that consumers often commit themselves to pay
more than they can afford, or do not properly calculate the total cost of their purchase when it is made
on credit. As a result, they may end up in debt which they cannot afford or get out of.
Later in this chapter, you will see that credit providers and receivers are given specific rights and duties
under the NCA.
16.3.1 The agreements to which the NCA applies and key definitions in
the Act
In the NCA, a credit agreement involves one person, the credit provider, providing credit (normally in
the form of money) to someone else, the consumer, in return for the payment of interest or some other
charge. In other words, the parties to a credit agreement under the NCA are the credit provider, being
the person who provides the credit, and the consumer, being the customer in the credit agreement to
whom the credit is granted.
As indicated above, the consumer has to pay these various agreed amounts to the credit provider:
@ adeposit
@ = instalments.
A deposit is the debtor's initial payment to the creditor, and is an agreed portion of the total cost of
the item being bought. The instalments are the amounts the debtor pays at regular times after paying
the deposit. Other words relating to the repayment obligations of a consumer in a credit agreement are
principal debt, interest and finance charges. The principal debt is the basic price or value of the item.
But if you are buying on credit, the principal debt is not all you pay.
Creditors do not provide credit agreements as a favour to debtors — their aim is to make money in the
process! Because they have to wait for the debtor to pay all the money owed to them, creditors charge:
= interest
™ finance charges.
Interest
‘The interest on debt is the amount that a debtor has to pay to the creditor over and above (in addition to)
the actual value received. Interest is calculated as a percentage of the value of the item received.
Here is an example ofa simple interest calculation: Mohammed lends Khush R100 at 10% interest
per year. One year later, Khush owes Mohammed R110, made up of R100 (the principal debt) plus
R10 interest.
Later in this chapter, we discuss the limitations that the NCA places on interest that may be charged
to a consumer by a credit provider.
Finance charges
Finance charges are extra expenses that the debtor may have to pay in addition to the principal debt and
interest, such as penalties for late payment. Many credit agreements include penalty clauses that indicate
what will happen to the debtor who fails to perform properly in terms of a contract. These clauses
usually set out the financial penalties for late payment or non-payment.
Here is an example of a simple penalty clause:
Payment of R500 per month must be made by the first working day of each month. Notwithstanding
the seller's other rights in terms of this agreement, a penalty fee of R25 is payable if the payment is made
after the first working date of any month. It iscommon for credit agreements to provide for payment of
both interest and penalties.
We will see later in this chapter, that, as with interest, the NCA limits the finance charges that may be
included in a credit agreement.
Thandeka has just got engaged to Mpho. Mpho wishes to impress Thandeka by buying a new
lounge suite for the flat he rents. The cash price for the lounge suite is R10 000 from Homely
Homes. However, Mpho, who earns R3 000 per month on average from casual work as a brick-layer
(the amount differs from month to month depending on how much work he gets), wishes to
buy the lounge suite on credit over a period of 18 months. Mpho also intends to pay /obola (bride
price) to Thandeka’s family for his planned marriage to her within the next year. Even in terms of
the protections for Mpho as a consumer under the NCA, making a purchase of the lounge suite
on credit under such circumstances is likely to be unwise for various reasons. Firstly, as in all credit
agreements, a consumer ends up paying far more for a purchased item than if it were bought for
cash. In these circumstances, unless he actually needs the lounge suite, it would be better for
him to save up to buy it for cash. Furthermore, as his income is not steady due to the nature
of his work, he might end up not having enough money to pay instalments owed in particular
months. Then, if he defaults in payment, penalty clauses are likely to be applicable with extra
costs incurred. Finally, in the context of Mpho's aim to pay /obola, this may be difficult to do
when his available funds are being spent on a luxury item like a lounge suite instead of saving
for this payment. Mpho, as with all consumers, should thus be wary of all the consequences of a
purchase on credit so he does not regret it at a later date.
The NCA is a long and complicated law. So instead of attempting to discuss all parts of the Act, this
chapter concentrates on only a few key parts of the NCA. The remaining discussion will be divided into
three key sections:
™ agreements covered by the NCA
® = the control of agreements by certain bodies, like the National Credit Regulator
@ =the most important new applicable rules not previously discussed.
Whilst this broad description of credit agreements under the NCA is sufficient for our purposes at this
stage, it should be noted that the Act does provide further sub-categories of credit agreements to cover
credit facilities where payment owed is delayed or a consumer is billed from time to time. In both such
instances, in return for the credit facility, a charge, fee or interest is payable by the consumer to the credit
provider. A sub-category of credit agreements in the Act is a credit transaction. Credit transactions in the
NCA include a number of different types of agreement such as a mortgage agreement, lease ofa movable
item, a pawn agreement, an instalment agreement, or any other agreement in which the payment owing
is delayed and for which some type of charge is payable.
An example ofa mortgage agreement is when someone borrows money from a bank and the bank
holds a mortgage bond as security over a house. This means that, if the borrower does not repay the loan
As with credit providers, all registered credit bureaus have a number of rules to follow in terms of the
NCA. For example, anyone who is disqualified from being a credit provider may also not register as a
credit bureau. The NCA makes it unlawful for any person or body to perform the functions of a credit
bureau or to pretend to be a credit bureau without being registered.
‘The consumer has the right to protection against unfair discrimination in the granting of credit.
For example, the NCA prohibits people from being denied credit on the grounds of their gender,
race or religion.
= ‘The consumer has the right to know the reasons for the refusal of credit. Such reasons are needed in
order for the consumer to judge whether she has been unfairly treated, and can therefore challenge
the decision before the National Credit Tribunal.
m The consumer has the right to information regarding the agreement, in an understandable official
language, and the relevant financial accounts. In relation to the information to be given to the
consumer, the credit provider must provide the consumer with a copy of the original or amended
credit agreement.
= = The consumer has the right to be told of all relevant aspects of the credit agreement by the credit
provider before the agreement is entered into, which is called pre-agreement disclosure. It is crucial
that consumers know all such information before they enter into the agreement, so as to have a
proper understanding of what they are getting themselves into. Furthermore, the NCA requires full
disclosure of any changes made to a credit agreement. An example of changes of which the consumer
must be informed by the credit provider would be a change in the interest rate payable when the
interest rate has not been fixed at a particular percentage (that is, the interest rate is variable).
® = Consumers under section 108 of the NCA have the right to regular statements of what they have
paid and still owe.
= = The consumer has the right to a five-business-day cooling-off period. This is a right to withdraw
from the credit agreement within this period when the contract was entered into away from the
registered business premises of the credit provider. For this to be applicable, the consumer must
properly notify the credit provider of their intention to cancel the contract, and must return any
goods or money received from the credit provider. By allowing for such withdrawal, the NCA is
acknowledging the undue pressure which door-to-door salespeople and telemarketers can place on
unsuspecting consumers.
= = The consumer has rights relating to the limitation of the costs a credit provider may charge to a
consumer in terms of a credit agreement.
It is worth looking at a pre-agreement disclosure in more detail because of the significant changes this
rule has made to what used to apply to credit agreements. The NCA requires that all credit providers
must take reasonable steps to ensure that the consumer has a general understanding and appreciation
of the risks of the credit agreement he is entering into, as well as all costs of the credit (for example,
insurance costs, if applicable) and the rights and duties that he has as a consumer in terms of the credit
agreement. The NCA further protects consumers by not allowing certain types of clause to be included
in a credit agreement. For example, the credit provider cannot require the consumer to leave his identity
document or bank debit card with the credit provider, nor can the credit provider require the consumer
to promise in the credit agreement not to sue the credit provider for losses that the credit provider may
cause the consumer. If such unlawful clauses are inserted into the credit agreement, the consumer may
go to court for legal protection in putting the situation right. The court in such circumstances will either
exclude only the offending sections or declare the whole credit agreement to be unlawful. The court's
decision will depend on the nature of the clause and how badly the consumer is affected.
Activity 16.1
We have seen above that, under the NCA, consumers have the right to an account of their
payments made and amounts said to be owing under a credit agreement. But, getting such
statements has virtually no value for the consumer if they are not properly checked. Assume
that you are the consumer with an account at Style Clothing store, where you buy clothes
periodically, and pay these off over a six month period. Specifically, what would you check on
each statement of account, and why would you do so?
We will see below that the NCA aims to prevent what it calls ‘reckless credit’, It is also the duty of credit
providers to have all the necessary information from consumers to make an informed decision as to
whether or not to grant the credit.
Various sections of the NCA deal with consumer duties. An example of an important one is
pre-agreement disclosure, in section 92.
The prospective consumer is obliged to answer fully and truthfully any requests for information made
by the credit provider as part of the assessment required by the Act (section 81(1)). Ifhe fails to do so,
and this materially affects the ability of the credit provider to make a proper assessment, a court or the
National Consumer Tribunal cannot make a finding that the agreement was reckless (section 81(4)).
Ifa debt counsellor finds that a credit provider has provided reckless credit, a Magistrates’ Court
is asked to declare that the agreement is reckless, and to make an order cancelling all or some of the
consumer's rights and obligations under the agreement or suspending the agreement until a later date.
Whilst a credit agreement is suspended, the consumer need not make any payments nor may she
be charged interest or any other fees in terms of the agreement. Clearly, therefore, it is in the credit
provider's best interests, as well as the consumer's, to ensure that reckless credit is not provided in any
credit agreement.
Principle
The NCA provides protection for a debtor who has entered into a credit agreement under the Act.
Facts
In terms of section 129(1), a debtor is entitled to written notice before a credit provider may
institute legal action against him. In terms of section 129(1) as read with section 130 of the
NCA, a creditor only has to prove that it duly sent the required notice, but does not have to
prove that the debtor received the notice or was even aware of it.
In this case, Mr and Mrs Sebola entered into a home loan agreement with Standard Bank,
and gave the bank a post box address. When the Sebolas were in arrears, Standard Bank sent
a notice in terms of section 129(1) to the post box address that they had provided. However,
the Sebolas denied receiving the notice. Standard Bank took default judgment against them,
and then wanted to sell their house in a sale in execution. The Sebolas applied for the rescission
(cancellation) of the judgment on the grounds that they did not receive the notice and they
argued that the creditor had a duty to ensure they were aware of the notice.
The court's finding
The Constitutional Court held (in para. 87) that proof by the bank that it had sent the notice was
sufficient, even if the notice did not reach the debtor, as there had been ‘delivery’ of the notice
as required in the Act. This case does raise a concern that those debtors living in areas with poor
postal services may be disadvantaged by this court finding.
In practice, it is important to remember that it is not much use to be owed money by someone
who has no money, job or assets that could be sold. Even if a court orders a judgment in your
favour for money owed to you, you will still have no way of getting the money back.
In a consumer society like ours, it can be very tempting to buy things on credit, especially since
marketers do their best to make each offer look like the bargain of a lifetime. However, credit
is dangerous if people do not manage it responsibly. Here are a few things that you could tell
consumers considering buying things on credit that they should do to avoid getting into debt:
e Avoid buying anything on credit wherever possible. Cash transactions are always far
cheaper than buying on credit. Rather try to do without something than get yourself into
debt, most especially when what is being bought is a luxury item rather than something
that is really needed. if you default on a credit agreement, and the creditor gets a court
order and repossesses the item you bought, then you may well lose that item, even if you
have already paid a great deal of money for it. If you do decide to buy on credit, then get
the best deal you can, and carefully work out how much you will be able to repay. You need
to take into account all your personal financial circumstances, such as how much you earn
and what you spend each month. Do not overburden yourself with repayments that you will
find hard to meet.
¢ To protect yourself, you should read the credit agreement very carefully, and take advice
from a suitably qualified person, like a financial advisor or an attorney, if something in the
contract is not absolutely clear to you. Do not be rushed or let anyone force you to enter
into the agreement. Never, under any circumstances, sign blank contracts, or sign without
knowing how the agreement will affect you. Once you sign a credit agreement, keep a copy
of the contract (you are entitled to be given one) in a safe place. Also, keep proof of all your
payments, as you will need it if there is any dispute about the contract. You are also entitled
to statements of what you have paid and still owe in terms of the agreement. Always check
that the statement is correct.
e if you are unable to make a payment, explain to the creditor why you will not be able to
make the next payment, and try to negotiate a new payment that you can afford. If you
miss a payment, more money becomes payable, due to interest and other finance charges.
These extra charges pile up quickly and significantly in addition to the original debt.
e If at all possible, avoid defaulting on payments. if you really cannot find the money, at least
make an arrangement with the creditor. However, avoid borrowing from registered micro-
lenders to meet credit agreement repayments. Such loans are likely to lead you into further
debt, from which you will find it difficult to escape.
e Seek legal advice from a lawyer if you believe that a creditor has treated you unfairly. For
example, you can lay criminal charges if a creditor has used illegal methods to repossess
goods. However, it's much better to seek legal advice before you enter into a contract that
you do not fully understand.
Chapter summary
In this chapter, you learned the following about credit bureaus have to ensure that their information on the credit
agreements: history of consumers is accurate, and that consumers
The NCA came into effect in June 2007, and it themselves are able to see details of their credit history.
supersedes previous laws on credit agreements and the All credit agreements have to be in writing in order
provision of credit. The NCA seeks to deal with the to be enforceable.
weaknesses of previous legislation and make the whole The NCA provides definitions of what constitutes a
process of providing credit more transparent and fair. In credit agreement and defines which credit agreements
terms of greater transparency, credit providers and credit are covered by the Act.
1. Under what circumstances will the granting credit agreements and how the National Credit Act
of credit be considered reckless lending under aims to remedy these.
the NCA? 5. Draw up atable in which you indicate what types of
2. It would seem as though the NCA provides a much transaction are covered by the NCA and which are
better deal for consumers than was the case before the not, giving an example of each which you either as a
NCA. However, there are situations where consumers credit provider or a consumer might encounter in the
are not protected under the NCA. Discuss these business world in the town or city where you plan
exclusions from protection under the NCA. to work after completing your studies at university.
3. What is a debt counsellor under the NCA, what 6. John, a credit provider, has loaned R10 000 to
does she do, and how? Andiswa. Andiswa defaults on her repayment.
4. Produce for yourself a summary or mind map Outline the procedure that John must follow under
indicating the shortfalls of the old laws governing the NCA in order to take Andiswa to court.
Further reading
Campbell, J. 2006. “The Cost of Credit in the Micro-finance National Credit Regulator (NCR) of South Africa, 2017. Home
Industry in South Africa’. LLM thesis, Rhodes University, page. hetp://www.ncr.org.za (accessed on 28 September 2017)
Grahamstown (This website describes the National Credit Act and provides
Papenfuss, T, 2012. ‘What are the effects of the reckless credit information about and access to the National Credit Regulator.)
sections in the NCA in the prevention of over-indebtedness?’
(This article can be found on the University of Pretoria’s website.)
Department of Trade and Industry. Making credit markets work:
Policy framework for consumer credit http://www.ner,
org.za/publications/Background_NCA_docs/Credit%20
Law20Review.pdf (accessed on 27 September 2017)
In Part 4 of the book we look at various important aspects of commercial law. We start with the
Consumer Protection Act. Millions of consumer agreements are concluded every day. Generally,
consumers and the suppliers of goods or services benefit from these agreements. For a number of reasons,
however, consumers can be exploited quite easily. In particular, the costs and time factors prevent
consumers from taking a consumer complaint to court. So in order to provide consumers with effective
protection the Consumer Protection Act 68 of 2008 was enacted. This Act, which from now on will
be referred to as the CPA, provides the consumer with a comprehensive set of rights that is aimed at
protecting the consumer. The Act also provides mechanisms for the enforcement of these rights. This
chapter considers the CPA in more detail.
Since 1994, the South African government has committed itself to consumer protection. This commitment
is part of a wider commitment to the promotion and advancement of the social and economic welfare of
all South Africans, which is reflected in the following legislation that has been passed since 1994:
@ = Electronic Communications and Transactions Act 25 of 2002
National Credit Act 34 of 2005
CPA
Protection of Personal Information Act 4 of 2013
Financial Sector Regulation Act 9 of 2017.
The need to introduce comprehensive and general consumer protection legislation was made necessary
by factors such as unfair and discriminatory market practices, the proliferation of low
quality and unsafe products, the complexity of goods, a lack of knowledge of the rights of Codification means
consumers, limited redress and weak enforcement of consumer rights. ‘to arrange laws into
The CPA provides comprehensive consumer protection legislation, but the Act is nota °N€ Body or a system’,
normally in a written form.
complete codification of all consumer legislation in one piece of legislation.
Activity 17.1
You considered the National Credit Act in the previous chapter. Write down three examples of how this
Act protects consumers, If you cannot remember, go to the previous chapter, and refresh your memory.
The CPA must be interpreted in a manner that gives effect to these stated purposes. This A purposive approach
approach is called the purposive approach to statutory interpretation. It can therefore be provides a broader view of
stated that the CPA must be interpreted so as to promote and advance the social and economic _ interpreting the law and
welfare of consumers in South Africa by, amongst other ways, achieving a consumer market aims to make sense of the
statute in the light of the
that is fair — fair to both consumers and suppliers. However, where it is reasonably possible to
purpose of the legislation.
interpret a provision of the CPA in more than one way, then the court or tribunal must choose
the interpretation that will best promote the spirit and purposes of the Act, and advance the
rights of consumers, especially vulnerable consumers. Vulnerable consumers include low-income consumers,
minors and seniors, consumers in remote areas, and consumers whose ability to read and understand written
communication, such as advertisements, agreements and notices, is limited because of low levels of literacy,
vision impairment or limited fluency in the language of the specific written communication.
transactions for the supply of goods or services to the State of anything in the ordinary
ti bare the co RE Re ith | d/ | course of business to
transactions where
- >
the consumer is a juristic person
2 . Vv
with
'
an asset-value and/or annua
-V ¢
induce ’a person to enter
é
Peter is a student. He wants to sell his old scooter. He puts a sign on it, which reads ‘For sale —
R5 000’, and he includes his phone number. He parks the scooter on the grass near the lecture
halls, Becky calls Peter, and offers to buy the scooter for R4 600, Peter and Becky conclude
a transaction.
Does the CPA apply to this transaction?
To find out whether the CPA applies to a situation or not, start by looking at the definitions
in the Act. The CPA defines a transaction as an agreement between a person, ‘acting in the
ordinary course of business’, and another person or persons for the supply of goods or services
for consideration. The question then is whether Peter is acting in the ordinary course of his
business. The answer is probably that Peter is not acting in the ordinary course of business, as
Peter is a student and that is not his usual line of activity.
In terms of the Financial Services Laws General Amendment Act 45 of 2013, the CPA does
not apply to the banking industry, the short- and long-term insurance industry, pension fund
industry, collective investment schemes industry and securities industry.
While rights are provided for in the CPA, often more detail regarding the rights, or other aspects
in the CPA, is provided for in the regulations to the CPA. Regulations are subordinate legislation.
This means the regulations are not made by Parliament as is the CPA. Parliament gives the
Minister responsible for consumer protection the power to make regulations that provide more
detail regarding an aspect or right provided for in the Act. The CPA gives the relevant Minister
the authority to make regulations for the CPA (section 120).
For example, a supplier may not charge different consumers different prices for the same goods or services when
the reason for charging the different prices is the fact that the one consumer is male and the other female.
The CPA does permit differential treatment in some cases. It will not be unfair discrimination if an
establishment reasonably makes certain facilities available for the exclusive use of minors or of people
aged 60 years or more, or offers a discounted price on the basis that the person is a minor or of the age
of 60 years or more. An establishment may also provide separate but substantially similar facilities for the
exclusive use by the different genders or may provide facilities exclusively for the use by one gender only
if it is reasonable to do so.
Anele opens a gym in Port Elizabeth for women only. John wants to join the gym as itis located
close to his home. When he finds out that only women are allowed, he complains that it is
unfair discrimination and is prohibited by the CPA. Is Anele’s conduct lawful?
From the above you can see that there is a difference in the manner in which Anele treats
men and women respectively —- women are allowed and men not. This difference in treatment is
based on gender. Anele’s conduct may constitute unfair discrimination based on gender if there
is NO justifiable reason for the differential treatment. The CPA specifically allows a supplier to
provide facilities exclusively for the use by one gender, but only if it is reasonable to do so.
Is it reasonable to provide this facility to women only? Answering this question requires that
all relevant facts be considered. One such fact may be that Port Elizabeth has a number of gyms.
It should therefore not be too difficult for John to find an alternative facility. Anele’s gym is, in all
likelihood, not contravening the CPA.
The Direct Marketing Association of South Africa (DMASA) operates a registry in which a
consumer can register if the consumer does not want to receive direct marketing from members
of the association. This means a consumer can opt-out from receiving direct marketing from
suppliers who are members of DMASA.
The CPA provides that consumers may not be contacted at home for purposes of direct marketing on the
following days and during the following hours:
= Sundays and public holidays
m Saturdays before 09h00 and after 13h00
® all other days between the hours of 20h00 and 08h00 the following day (section 12).
If consumers conclude agreements as a result of direct marketing, they are entitled to a cooling-off period
of five days (section 16). A cooling-off period is a period of time within which a consumer is allowed to
change their mind, and cancel the contract for no reason and at no cost after concluding the contract.
The consumer must inform the supplier in writing or in another recorded way, such as via email or
SMS, of the cancellation. The supplier must inform the consumer of his rights in respect of the cooling-
off period when the transaction is concluded (section 32). It is not certain what the effect will be if the
consumer is not informed of the right.
The European Commission Directive on Consumer Rights provides for a cooling-off period
of 14 days, and the supplier must inform the consumer of the right. If the consumer is not
informed of his right, then the cooling-off period extends for a year. If the supplier informs
the consumer within the year, then the cooling-off period comes into effect from the time the
consumer is informed.
Other legislation also contains cooling-off rights. For instance, if the contract was concluded
electronically, then the Electronic Communications and Transactions Act may apply to the situation.
If so, the consumer has a seven-day cooling-off period.
Activity 17.2
You have concluded a contract with a supplier as a result of direct marketing. You now want to
cancel this contract. What are the steps that you must take?
Activity 17.3
You work for ABC Hardware, a large retailer of hardware products. Product A is not selling
and this is causing ABC Hardware to lose money. The manager then suggests that in order
to get rid of product A and to make some money from it, the following marketing strategy
will be used — namely, that product A will be sold to consumers as part of a package with
product B. Product B is very popular, and it sells very fast. Therefore, in order to get product B,
a consumer will have to buy product A as well. The products are not to be sold separately as
consumers will then not buy product A. Explain to the manager whether this strategy complies
with the CPA.
Activity 17.4
Big Mac has joined Muscles, a gym, on a 24-month contract. In terms of the contract, Big Mac
pays a fee of R300 per month to Muscles. Big Mac wants to cancel the contract, because
he realises that he cannot afford the payments. What steps must Big Mac take to cance! the
contract? Say what you think would be a reasonable cancellation fee and explain why?
A fixed-term contract may also not be automatically renewed, The supplier must give the consumer
notice within a period of no more than 80 days and no less than 40 days before expiry of the contract
that the contract is abour to lapse. This notice must inform the consumer of any material changes to the
contract, such as an increase in monthly fees or premiums payable, should the contract continue. The
supplier must also advise the consumer of the following:
@ ‘The consumer may expressly choose to cancel the contract when it expires.
® ‘The consumer may expressly renew the contract on the mew terms as proposed by the supplicr.
@ = If the consumer does not expressly choose to cancel or renew the contract, the contract will
continue on a month-to-month basis, according to the new terms.
Right to a quotation
When a supplicr performs repairs or maintenance work fora consumer and has possession of the
property of the consumer to carry out the work (such asa garage taking possession of the consumer's
vehicle for a service), the supplicr must give the consumer a quotation for the cost of the work and must
get the consumer's authorisation before performing the work {section 15). If the consumer, in waiting,
declines to receive a quotation and authorises the work toa certain amount, then the supplier can
perform work to the agreed amount. The supplier may net charge an amount higher than the quotation,
unless the supplier informs the consumer of the higher costs and the consumer authorises the work. The
supplicr may not ask for a fee for preparing a quotation, unless the partics agree to it.
A quotation must contain the following details:
® a breakdown of all the charges and the total of the amount to be charged if the repairs or work is to
be done
the nature and extent of the repairs
the period of validity of the quate
the period within which the consumer must collect the goods
the consequences if the consumer fails to collect the goods.
Activity 17.6
In March, Thum books a holiday for her husband and her at the very popular Crystal Waters
Hotel in Cape Town for the period 22 Decemberto 31 December. She has to paya 50% deposit
to secure the booking, which she does. In October, Thumi has an accident, and she breaks a
leg. She ts hospitalised for three weeks and she is allowed to go home in November, but she has
to remain in bed for the rest of November and December. The couple cancels the booking at
Crystal Waters Hotel on 17 October. The hotel informs them that if they cancel, they will forfeit
their deposit as being a reasonable cancellation fee. Consider the position of the couple and the
hotel in terms of the CPA.
Goods may not be returned if, for reasons of public health, a public regulation prohibits the return of
the goods, or the goods have been disassembled, altered or installed.
Activity 17.8
Rachel bought a pair of shoes from The Shoe Box. The next day Rachel decides that she does not
like the colour of the shoes, and she wants to return the shoes and get her money back. Discuss
whether the CPA gives Rachel the right to return the shoes to the supplier.
Activity 17.9
Sally orders ten flash drives from Computer Suppliers CC. They deliver 20 flash drives to Sally
on Monday, 5 February. On what date will the incorrectly delivered goods become unsolicited?
What will be the position if Computer Suppliers CC phones Sally on 14 February and informs her
of the incorrect delivery?
@ = layout — beware of hiding the important clauses of the contract on the back page
@ cross-referencing to other parts of the document or other documents should be avoided.
Activity 17.10
Rewnte the following sentence in plain language, applying some of the considerations
mentioned above:
‘The supplier must be informed by the consumer where the consumer is domiciled."
Activity 17.11
Thandi goes shopping. She sees a dress that she likes on a rack in a shop. The price indicated on
the dress is R299. She decides to buy it. When she comes to the check-out counter where she
has to pay, the dress is scanned, and the teller informs her that the price is R499. If Thandi wants
the dress, is Thand) obliged to pay the higher price?
There are a number of other statutes requlating labelling and trade descriptions. Two important
examples are the Liquor Act 59 of 2003, and Medicines and Related Substances Control Act 101
of 1965.
Such an example would be when Zamindlela hands his car over to Auto Car Sales to sell the vchicle on
his behalf.
Intermediaries in the financial services industry are primarily governed by the Financial Advisory
and Intermediary Services Act 37 of 2002, the Long-term Insurance Act 52 of 1998 and the
Short-term Insurance Act 53 of 1998.
An intermediary must disclose certain information to the consumer {section 27). The information
required to be disclosed to the consumer is set out in regulation 9 of the CPA, Some of the information
that must be disclosed includes:
@ the full names, physical business address, postal address, phone numbers, email address and any
registration number assigned to the intermediary by a regulatory body
@ the identity number, or if the intermediary is a juristic person, its relevant registration number
@ the exact service to be provided by the intermediary
m the fee payable to the intermediary for the services provided by him or her, and the basis for
calculating such fee. if the consumer asks for this information
m the frequency with which the intermediary will in writing account to the consumer in respect of the
mandate of the intermediary
@ any commision, consideration fees, charges or brokerage payable to the intermediary by any other person
@ any information that may be relevant and which the intermediary may reasonably be expected to be
aware of.
It is also specifically required that an intermediary must disclose any potential conflict of interest to
the consumer.
Bait marketing
Bait marketing is the practice where a supplier advertises certain goods or services at a very low price in order
to attract consumers to the supplier's business (section 30). Bait marketing is not prohibited. Misleading
or deceiving consumers as to the actual availabiliry of the goods at the price advertised is prohibited.
Activity 17.12
Do you think Eagle Appliances CC complies with the CPA if the following is stated in its
advertisement?
‘There are only 10 of these speafic televisions available at this price."
‘Stocks are imited.’
The CPA allows a supplier who accepts loyalty credits as payment for goods or services to restrict the
availability of such goods or services for consumers paying with loyalty credits for a specific period of
time. The supplicr must inform the consumer in writing at least 20 business days before the start of the
specific period, and such a period may not exceed 90 ordinary days per year.
Thandi is a member of a programme that is offered by the Best Hotels Group. in terms of the
programme, a member earns points or credits for staying at any of the hotels of the group. Once
a member has 100 credits (ten credits are earned for each night of paid accommodation spent
at one of the group's hotels), that member gets one night of free accommodation at any one of
the hotels in the group, subject to availability. Thandi pays a membership fee of R500 per year.
Thandi has 1 000 points and wants to spend seven days at the Best Hote! Drakensberg.
Consider Thandi's legal position under the CPAin each of the following situations:
* When making the reservation, Thandi ts advised that members of the programme are
limited to exchanging credits for accommodation only at the Best Hotel Durban City, a
three-star hotel. The Best Hotel Drakensberg sa five-star hote!, and only guests paying
with money can book there. Best Hotels may not offer any loyalty credits or awards
with the intention of not actually providing them, or providing them in a manner other
than as offered. It appears that Best Hotels is attempting to provide the awards in a
different way to what the loyalty programme promised. We could also argue that Best
Hotels is trying to get Thandi to accept infenor quality goods or services because she ts
paying with loyalty credits.
* = Thandi is also informed that she has to pay in money for at least three of the seven nights
(that is, she cannot pay for all the accommodation with loyalty credits). A supplier of a
loyalty programme must accept loyalty credits as payment for goods or services if the
supplier has capacity to provide the goods or services. Best Hotels cannot insist that part of
the payment must be in cash if Thandi has sufficient loyalty credits.
* Thandi is charged R250 by Best Hotel Drakensberg as an administration charge for
exchanging the loyalty credits for accommodation. A supplier may not charge a consumer
an administration fee for exchanging credits for goods or services in terms of the
programme if the consumer pays a membership fee to participate in the loyalty programme.
Thandi pays R500 per year to belong to the programme. Best Hotels may not impose the
administrative charge of R250.
Promotional competitions
The CPA furthermore provides rules in respect of a promotional competition, which is any competition,
game or arrangement tor the distribution of prizes by lot or chance done in the ordinary course of
business for purposes of promoting a supplier or the sale of goods or services {section 36). A promoter
of such a competition may not require a consumer to pay any money to participate in the competition
other than the reasonable cost of posting or transmitting an entry to the competition.
Referral selling
Referral selling is the practice whereby a consumer is persuaded to buy goods or services by promises of
a rebate, commission or other benefit if the consumer provides the supplier with information, such as
the names of other potential consumers. However, if a condition for receiving the reward or benefit is
that there must first be an actual sale between the supplicr and the person whose name was supplied, the
practice will be prohibited in terms of the CPA {section 38).
Unconscionable conduct
A supplier may not subject a consumer to unconscionable conduct (section 40). Unconscionable conduct is
explained as uncthical or improper conduct to a degree that would shock the conscience of a reasonable
person. This conduct is prohibited during the whole relationship between the supplier and the consumer —
from the way in which the goods or services are marketed, to the way in which any transaction is negotiated
and concluded, the way in which the goods or services arc supplicd. and to the way in which payment is
enforced or goods recovered from the consumer. Suppliers may not use physical force, cocrcion, undue
influence, pressure, duress, harassment or unfair tactics in conducting their relationship with consumers. It is
specifically also unconscionable for suppliers to knowingly take advantage of consumers inability to protect
themselves because of disability, illiteracy or an inability to understand the language of the agreement.
Sarah has booked a shuttle to collect her from OR Tambo Intemational Amport after her vacation
overseas and to take her home to Lephalale. She made the booking before she left for overseas and
made the required payment. When she arrives at the airport on her retum, she is informed that there
is no space available on the shuttle as it is overbooked. She is forced to stay the day at a hotelat the
aimport and to make arrangements for another shuttle service to transport her the next day. The first
shuttle service will have to refund the amount that Sarah has paid them, pay the costs incurred by
Sarah a5 a result of her stay at the hotel, as well as the costs of arranging the other shuttle service.
The CPA provides that if a supplier has agreed to supply a certain service to a consumer on a
specified date, and the supplier ss then not able to do so because of overbooking or overselling,
the supplier must refund the consumer any money paid, as well as all costs directly caused by
failure to prowde the service.
17.5.7 The right to fair, just and reasonable terms and conditions
‘The CPA provides that a supplicr may not include unfair, unreasonable or unjust terms in a consumer
contract (section 48). This includes supplying goods or scrviccs at a price that is unfair, unrcasonable or
unjust. A term will be unfair if it is cxeessively in favour of the supplice or is so adverse to the consumer.
The CPA provides a black list of terms. These are terms that are prohibited and, if they are included
in a contract, the term will be void {section $1). Examples of such terms arc where the cflect of the term
is to defeat the purposes of the CPA as well as terms that exclude the liability of the supplier for damage
caused to the consumer through the gross negligence of the supplicr.
The CPA also provides for a grey list of terms (regulation 44). Terms on the grey list are presumed
to be unfair, and therefore the supplicr will have to show that including such a term in a contract is fair.
Examples of such terms are terms that exclude the liability of the supplier for death or personal injury
caused by the supplier, terms restricting a consumer's right to rely on the defence of prescription, and
terms permitting the supplier, but not the consumer, to renew or not renew a contract.
Exemption provisions
The CPA contains very specific requirements for the use of cxcmption provisions (scction 49}.
Exemption provisions are terms ofa contract that aim ta exclude the liability of the supplier for damage
or loss caused to the consumer through the fault of the supplier. It is important to remember that
exemption provisions (or disclaimers) can be contained in a written contract, but they often appear
in notices, such as a notice at the entrance to a facility or premises. Exemption provisions are not
prohibited, but when they are used, the supplier must comply with certain requirements and non-
compliance will lead to the term being excluded from the contract. In other words, if the requirements
are not met, the exemption provision will not exclude the liability of the supplier.
The requirements are that:
@ the fact, nature and effect of the exemption provision must be drawn to the attention of the
consumer in a conspicuous manner
@ = it must be drawn to the attention of the consumer before the consumer enters the facility or is
required to pay (that is, before or at the conclusion of the contract)
If the supplier fails to supply the service at the required standard, the consumer can demand that the
supplicr remedy any defect in the service performed or goods supplied, or refund the consumer a
reasonable portion of the price paid for the service when considering the extent of the failure.
In terms of the common law, the seller is liable to the buyer for latent defects in the object
sold to the buyer. This liability is often excluded by the seller by including a voetstootsor ‘as is’
clause in the agreement. The CPA now provides that goods sold must be free of defects. This
right cannot be excluded by agreement. The CPA therefore limits the use of voetstootsclauses
considerably. This does not mean that voetstootsclauses have become irrelevant. However,
the CPA does net apply to all transactions. The parties to a contract, to which the CPA does
not apply, can still include a voetstootsclause in the contract to protect the seller from liability
for latent defects. For example, the CPA does not apply to contracts between a supplier and a
consumer where the consumer is a juristic person with an asset value or annual turnover greater
than R2 million. Where this is the situation, the seller will be able to include a voetstootsclause
in the contract with the consumer. The CPA does not also apply to so-called private sales. In the
earlier case study about Peter’s scooter, Peter can include a voetstootsclause in his contract with
Becky because their transaction ts a prevate sale and therefore not subject to the prowsions of
the CPA.
Vousvoukis v Queen Ace CC t/a Ace Motors 2016 (3) SA 188 (ECG)
Principle
The right of a consumer under the CPA to cancel a contract and return a defective product
to the supplier must be exercised within six months, failing which the right will be lost
to the consumer (that is, the nght cannot be extended). After the six-month period, the
consumer can still rely on the common law aedilitian remedies for latent defects, including the
actio redhibitoria
Facts
Mr Vousvoukis bought a BMW X5 as a used car from ACE Motors for R470 000 on
13 September 2011. On 27 December 2011, the car broke down and the engine had to be
replaced. ACE Motors replaced the engine at their expense. In July 2012, some ten months after
purchasing the vehicle, the engine again became defective. Mr Vousvoukis then tendered return
of the vehicle and daimed a refund of the purchase price.
A consumer who is harmed by a defective product distributed through the supply chain can
hold any one party in the supply chain liable for all her damage or loss, or she can hold all
of the parties together in the supply chain liable for her damage. This means, for example,
that the consumer can sue the shop (the retailer) where she bought the product, or she can
choose rather to sue the producer of the product. Both the retailer and the manutacturer are
responsible separately for all the damage that the consumer suffered. Therefore, the retailer
and the producer are individually, or severally, liable for payment of the damages of the
consumer. However, the consumer can choose to sue them both. They will then both be liable to
compensate her damages. If the producer pays the whole amount, the retailer does not have to
pay, but if the producer pays 50% of the damages, then the retailer will be responsible for the
payment of the other 50%. Therefore, it is said they are jointly responsible for the damages.
Any person or business in the chain of supply (for example, a manufacturer, wholesaler or
retailer) can be held liable for damages caused by an unsafe product to the user of the product
without it being necessary to show that the supplier (person in the supply chain) was negligent.
A person in the supply chain may escape liability if it is unreasonable to expect the person
te have discovered the defect considering her role in the marketing and supply process, if the
detect is the result of complying with a public regulation, or the claim has prescnbed_
If a person has a claim against another person, the claim can become extinguished if the person wath
the claim does not pursue it within 2 stipulated penod of tme. Where a person has suffered harm or
damage as a result of the conductof another, such as if the consumer sutfers damage resulting from
the use of a defective good, the consumer must institute a daim within three years of the damage
occurring. Three years is the period of prescnption for an ordinary contractual debt. If the consumer
does not institute the daim within three years, the claim is said to have prescnbed. A court may
apportion liability among persons who are found to be jomtly and severally table for the damage.
Lay-bye agreements
Alay-bye agreement is an agreement in terms of which the supplier agrees to sell goods to a consumer,
who will pay the price in instalments to the supplicr while the supplicr retains possession of the goods
until payment in full has been madc. The goeds remain at the risk of the supplicr until the goods have
been delivered to the consumer, while the moncy (instalments) paid to the supplicr remain the property
of the consumer until delivery (scction 62).
Ifa supplier cannot deliver the specific goods contracted for when the dull price has been paid,
the supplier must provide the consumer with similar goods or repay the mancy of the consumer plus
interest, provided that the inability to provide the goods is not the fault of the supplier. The choice is
that of the consumer's. If the supplier is at fault, the consumer can choose to accept similar goods as
replacement or an amount double that which the consumer has paid to the supplier
Ifthe consumer cancels the agreement before fully paying for the goods, the supplier must refund
the consumer the moncy already paid by the consumer. The supplict may deduct a maximum of 1% of
the full purchase price of the goods as a cancellation penalty. A cancellation penalty may not be charged
unless the supplier had informed the consumer before concluding the lay-byc agreement that such a
cancellation penalty may be imposed if the contract is cancelled. No cancellation penalty may be charged
if the cancellation is due to the death or hospitalisation of the consumer.
Benni joined a squash club. The agreement between Benni and the club was that he had to
pay R4 800 upon joining, and that he would then have access to the club’s facilities for a
period af one year. Six months later, the club notified Benni of its relocation to another venue,
far from where Benni lives. It was not a reasonable option for Benni ta make use of the club's
facilities at the new venue. The club gave Benni the required notice of 40 business days.
The club is now obliged to repay Benni a pro rata share of the money belonging to Benni -
an amount of R1 600.
How is this calculated? Benni originally paid R4 800 for the year, which means Benni was
paying R400 per month to use the facilities of the club. Benni used the club for six months
before he was given notice — that is, he had to pay an amount of R2 400 for six months.
The club then gave notice of 40 business days, which in effect was a further two months
during which Benn) had access to the club — representing an amount of R800, What remains
is a period of some four months, which equates to R1 600 — a pro rata portion of the total
amount paid.
Activity 17.13
Rajesh is a student at your university. During June, Rajesh has to write his Commercial Law
examination in the Sports Arena. It is a huge venue accommodating about 800 students at one
time. Upon entering the venue, Rajesh Is instructed by the chief invigilator to place his briefcase
at the front of the venue with all the other bags of the other students. Rajesh’s briefcase is
made from expensive leather and it contains his expensme smartphone and laptop. Once Rajesh
has completed the examination, he wishes to collect his briefcase and exit the venue. Rajesh
discovers that an unidentified student had taken his briefcase. Do you think the university is
hable for Rajesh's loss? Motivate your ew
Deposits on containers
Where the Minister of Trade and Industry has determined deposits to be paid in respect of containers
or other items, the supplier must require a consumer to pay the prescribed deposit (section 66). ‘The
supplicr must return the prescribed deposit to the consumer on return of the specific item. Examples
include certain types of glass bottle used for the sale of beer or soft drinks, and liquefied petroleum
gas cylinders.
If someone docs business under a name that is not the person's full name or a business name registered
to that person, the National Consumer Commission (NCC) can issuc a notice forcing the supplicr
to comply with this requirement. The NCC is the main body responsible for the achievement
of the purpases of the CPA (section 85). The CPA cmpowers the NCC to perform a number of
functions, including:
facilitating the establishment of industry codes
® developing codes of practice (such as for the use of plain language)
= promoting legislative reform
® advising the Minister on consumer protection matters.
The NCC is also responsible for the enforcement of the CPA. The NCC can receive and investigate
consumer complaints. Where the NCC has found thar a supplier is involved in prohibited conduct. the
NCC may issuc a compliance notice that is an instruction to the supplicr to correct her actions. The
NCC can refer a matter to the National Consumer Tribunal (NCT) where the supplier fails to comply
with a compliance notice. The NCT may then impose an administrative fine of R1 million or 10% of
the supplier's annual turnover, whichever is greater.
The NCC, or the parties, may refer a complaint to the NCT for adjudication. The NCT, therefore,
acts as a court, and any decision, judgment or order of the NCT has the same binding power as that
of an order of the High Court. Its decisions are binding on the NCC, provincial consumer regulatory
authorities, consumer courts, ADR agents amd Magistrates’ Courts,
[fa supplier is doing business under someone else's name or business name, that person can apply to
court for an order preventing the supplicr from doing so.
Asupplicr may apply to register or change the name of his business. The business name may also be
registered or translated into any of the official languages. A business name may be transferred to another
person on application.
A business name may consist of words in any language, together with any letter, number or
punctuation mark. It can also include symbols such as +, &, #, @, Yo and =. A business name may not
be the same as, or confusingly similar to, the name of a registered company, a registered trade mark
belonging to another person, or a mark protected as a national symbol, such as the South African flag.
A supplicr may also not falscly imply that the business is:
® associated with another person or business
@ an organ of state ar a court
@ supported by an organ of state or a court
The CPA encourages suppliers in industries to regulate their own affairs. If industries take responsibility
to address consumer issucs effectively, it is unnecessary for outside bodies, such as the courts, to enforce the
law within that industry. Such a situation is to the benefit of everyone. Therefore, the CPA provides for
the accreditation of industry codes (section $2). An industry code is a code that regulates the interaction
between persons conducting business in a specific industry, including business conducted between the
supplices and consumers of that industry. The code will then preseribe a procedure for
. An ombud is a person
resolving disputes between consumers and suppliers. An industry code will usually provide
7 f s : ; who investigates
for an ombud for that industry to address consumer complaints. Some industry codes have complaints
and mediates
been accredited in terms of the CPA, such as the Consumer Goods and Services Ombud fair settlements between
(CGSO) and the Motor Industries Ombud of South Africa (MIOSA). the parties 10 4 dispute,
Legislation provides for the establishment and functioning of an ombud with jurisdiction
for some industries, such as the ombud for banks. Parties to a consumer-related dispute may make use of
bodics that provide conciliation, mediation and arbitration services, especially in industrics where there is
no accredited ombud or an ombud with jurisdiction. A provincial consumer court, if such a court exists in
a province, may act as an altcrnative dispute resolution (ADR) agent to resolve a consumer-rclated dispute.
Aconsumer can also file a complaint with the NCC, as explained in the previous section.
‘The ordinary courts may be approached but only if all other remedies available in terms of national
legislature have been tried.
Chapter summary
In this chapter. you learned the following about the CPA: The Act seeks to achieve this purpose by providing
The CPA aims to promote and advance the social consumers with extensive consumer rights and an
and economic welfare of consumers in South Aftica by effective system for enforcing these rights. The CPA
establishing a legal framework for achieving a consumer is not a complete codification of consumer protection
market thar is fair, accessible, etticient, sustainable and in South Africa, but it does provide consumers with
responsible. a comprehensive set of consumer rights. and it forms
Name three statutes that provide for consumer 7. Sykes enters into an agreement with Thando’s Pawn
protection measures, other than the CPA. Shop and buys a flat-screen tclevision. Sykes will
Explain in your own words what the main purpose pay off the television in instalments over six months,
of the CPA is. Indicate four ways in which the and the television will remain with Thando until the
CPA secks wo achieve this purpose. full price is paid. When Sykes comes to pay the final
Busi buys a pair of jeans on account from Chique instalment, he is informed that Thande has sold the
Stores {Pry} Lid. When she receives her account television on the previous day, Thande offers Sykes a
statement, she notices that there is a charge for standard television as an alternative. What remedics
credit insurance and a charge for membership of does Sykes have in terms of the CPA?
the Chique Club. Does the CPA apply to these 3. Sam wants to buy shampoo, Normally, the
aspects? After Busi washed her jeans for the first shampoo would cost approximately R80 per bottle.
time, she noticed that the seams of the jeans were The shop only has the shampoo as part ofa saving’s
coming apart. Can Busi rely on the CPA to help deal, where a consumer must buy the shampoo
her with this problem? together with a bottle of hair conditioner for R120
City Paints CC, a business that sells paint and {the shampoo cannot be bought separately). The
related goods to the public, buys a large quantity conditioner would normally cost approximately
of paint from its supplicr, Paint Warchouse (Pty) R80. Sam docs not want the conditioner as she still
Ltd. City Paints CC discovers that the paint they has a lot of conditionce at home. Can the shop do
bought is defective. Can City Paints CC rely on this under the CPA?
the CPA for help? Explain. 5: The local pizza restaurant charges people aged 60
Thandi takes her two-year-old son with her when or above only 50% of the normal menu prices.
she goes shopping. She goes into a shop where Atul, a student at the university, loves pizza. He
glassware is displayed on shelves. There is a notice thinks that this pensioner's discount is unfair
in the shop warning consumers that if they break discrimination. Atul complains to the manager.
any of the goods on display. they are liable to pay What advice, from the position of the CPA, can
for such breakages. Thandi places her son on the you give the manager?
floor unattended while she looks at the beautiful 10. Bambanani buys a gift youcher from Salon
glassware. Her son crawls around and then pulls Massage and Beauty im July, and she gives the
some glassware from a shelf, causing it to break. voucher to her friend, Kathy, as a birthday present.
The shep wants Thandi to pay for the goods, but When Kathy makes an appointment in December,
she refuses, claiming thar the CPA provides that the salon informs her that she cannot use the
she does not have to pay. Explain who you think voucher as it was valid only for three months.
is correct and why. Advise Kathy from the position of the CPA.
Kate makes a booking at the Mount Pleasant Ll . When and where maya supplier not contact a
Hotel for a 10-day holiday, She is required to pay a consumer at all for purposes of direct marketing?
deposit of 50% of the total amount payable for the 12. What obligations must a consumer comply with in
stay. Two weeks before the holiday is abour to starr, order to exercise his right to coaling-off
in terms of
she cancels the booking as she now has to attend to the CPA?
an urgent work meeting. She asks thar her deposit Under the CPA, a supplier has certain dutics in
be refunded. The hotel advises that the deposit respect of a consumer when a hxed-term contract
cannot be refunded as it is imposing a cancellation nears the end of its term. What are these dutics?
charge equal to the deposit. Discuss Kate's legal . Explain the concept of bundling and indicate when it
position under the CPA. would be allowed in terms of the position of the CPA?
Further reading
De Stadler, E. 2015. Costner Loew Uivdackad. Cape Towre Siber Ink. Van Eeden. E. and Barnard, J. 2017. Conswmer Protection Larne: in
Naude, To and Eiselen, 5, 2014. Cormomensary on the Coninmer South Africas, Ind eda. Durban: LexisNexis South Africa
Protection Act, Cape Lown: Juta and Co. (Pry) Ld
This chapter is about agency. If you want to conclude a contract. you do not have to do
so personally. You may authorise somebody else, an agent, to do it for you. We will look If you do something on
at how agency comes about, the dutics of the parties involved and consider the position if behalf of someone, you
certain requirements for agency are absent. Finally, we will examine how agency ends. do it for the person so ihat
he does not need te do
Before you start it hirmsetf_
Suppose, for example, that you have agreed with your neighbour that you will look after
his house while he is travelling everscas. Your neighbour also authoriscs you to make all the The principal, generally
necessary arrangements for the leasing of the property. The contract, in terms of which the speaking, refers to the
current tenant is renting the house, terminates at the end of the month. The temant wants most important person
to extend the contract for another year, You enter into a mew contract with the tenant on in an organization. An
example is the prndpal
behalf of your neighbour. Yourncighbour has authorised you to act on his behalf as his of a school, However, a
agent. The contract concluded between you, as agent of your neighbour, and the tenant is principle refers to a rule,
legally binding. a standard or a belief that
governs the way someone
18.1 What is agency? behaves. For example, it
Agency eccurs when one person, the agent. performs a juristic act for another person, is a principle of matural
the principal. A juristic act occurs between the principal and a third party. The agent, justice that both parties to
a dispute must be heard
who concludes the contract with the third party, does so on the principal's behalf.
There is a relationship between the principal and the agent, which is regulated in terms of a contract
berween the principal and the agent. The agent is authorised in terms of this contract, to perform a
juristic act on behalf of the principal. The agent may be authorised, for example, to conclude a contract
of lease with a third party on behalf
of the principal. All the rights and duties acquired by the agent
in terms of this contract of lease with the thied party are for the principal. ‘The cantract of lease exists
between the principal and the third party.
While an agent is often appointed for purposes of convenience or practical necessity (for example,
if the principal is out of town), this kind of representation is sometimes essential. For example, a minor
under the age of seven cannot act alone in law. For such a minor to become party to a contract, the
minor's guardian has to conclude the contract on behalf of the minor. Similarly, a legal entity such as a
company or a close corporation cannot conclude a contract without an agent. For example, a company
can conclude a contract to buy property. but it needs a natural person to represent it in the conclusion of
the contract. The contract to buy the property comes into existence between the company and the third
party (the seller of the property). The person who concludes the contract (the agent) merely does so on
behalf of the company (the principal), which cannot act by itself.
Even though the agent performs the juristic act, the legal relationship that is created, changed or
ended is between the principal and the third party. Any legal rights and duties that result from this
juristic act operate between the principal and the third party.
18.5.2 The agent must have authority to act on behalf of the principal
For the agent to be able to conclude juristic acts on behalf of a principal. the agent must have been
authorised by the principal to act on behalf of the principal. The authority may be given expressly
or impliedly. Where the agent does not have authority to act on behalf of the principal, agency may
still arise through the ratification of the act by the principal or where it is found that the agent had
ostensible authority. We discuss ratification and ostensible authority below.
18.5.3 The agent must make the third party aware that she is acting on
behalf of the principal, and not in a personal capacity
For the principal to be bound by the actions of the agent, the agent has to disclose that she is acting on
behalf ofa principal. But an agent does not have to reveal the identity of the principal. The principal is
then known as an unidentified principal. In this case, the third party knows that the agent is acting on
behalf ofa principal, bur the principal remains anonymous, The agent informs the third party thar the
agent is acting on behalf of a principal, but that the principal wants to remain anonymous. ‘The third
party is therefore aware that there is an anonymous principal, and the third party can decide whether
to contract on thar basis or nor. It is clear that, in this case, the agent cannot incur personal liability as
that was not the intention of cither of the partics.
|, Taki Roma, or my nominee, offer to rent Serena King’s flat from her for RS 000 per month for a
period of two years.
Activity 18.1
Can you think of a reason why a person may wish to contract for herself or a nominee?
The situation of the unidentified principal must be distinguished from the doctrine of the undisclosed
principal. An agent and a principal can agree that the agent can perform a juristic act on behalf of a
principal without disclosing the fact that the agent is representing a principal. The agreement between
the agent and the principal will provide that the principal can elect to take the place of the agent and
be bound to the contract with the third party. If the principal decides to take the place of the agent,
the third party has a choice to whom he wants to be bound — the principal or the agent. If the third
party elects to be bound to the agent, then there is actually no agency involved. The contract then exists
between the ‘agent’ and the third party. The ‘agent’ can enforce the contract, not the principal.
For the doctrine of the undisclosed principal to apply, three conditions must be met. These are:
@ = The agent must have authority.
™ = The agent must intend to conclude the contract on behalf of the principal.
m ‘The agent must not disclose to the third party that he is acting only as an agent.
‘The doctrine of the undisclosed principal has certain exceptions. The doctrine will not apply:
m if there is more than one undisclosed principal
@ if the contract excludes the doctrine
@ if the circumstances will not allow the doctrine to apply, for example, if the agent has specific skills
which the principal does not have.
Activity 18.2
In a small group, think of a reason why a principal would want to remain unidentified, or
anonymous? Also discuss reasons why a principal would want to be an undisclosed principal.
There is no specific prescribed manner by which the agent must inform the third party that she is acting
as an agent and not in her personal capacity. But it is common for an agent to use words or abbreviations
such as ‘for’, ‘on behalf of , ‘pp’ or ‘qq’ to indicate to the third party that the agent is acting on behalf of
a principal.
The letters ‘pp’ are an abbreviation for the Latin words per procurationem, which mean ‘through
the agency of’. The letters ‘qq’ are an abbreviation for the Latin words qualitate qua, which mean
‘in the capacity of,
Busi lives in East London. She wants to buy a car that she found advertised on the internet, but it
is in Tswane. So she asks her 16-year-old friend, Stephen, who lives in Tswane, to inspect the car
at WeCars (Pty) Ltd, a car dealership in Tswane. She authorises Stephen to buy the car for her
if he can negotiate a price below R150 000. Stephen negotiates a contract on behalf of Busi
to buy the car for R135 000. Identify the principal, the agent and the third party. Can Stephen
act as agent for Busi? If Busi had asked Stephen to simply inspect the car, take photos of it and
report his findings to her, explain whether it would be correct to refer to Stephen as an agent?
In certain instances the law prescribes that the agent must be expressly authorised by way of a
power of attorney. These instances are:
e when buying or selling immovable property (section 2(1) of the Alienation of Land Act 68 of 1981)
e¢ when a conveyancer transfers ownership of land from one party to another
e when a conveyancer registers a bond over immovable property
¢ when a legal practitioner lodges or opposes an appeal in the High Court on behalf of her
client (the principal).
Authorisation can also be given tacitly, or silently. In such a case, the principal does not expressly
authorise the agent, but the circumstances of the situation are such that the only reasonable conclusion
is that the principal authorised the agent to act for the principal. The conduct of the principal will bea
very important factor in determining whether the agent received tacit authority.
Activity 18.3
As stated above, the conduct of a principal can be an important factor in establishing whether
an agent received tacit authorisation to bind the principal. Give examples of conduct that may
show that the principal gave the agent tacit authorisation.
Children’s Act
Section 18 of the Children’s Act 38 of 2005 provides that a guardian has the authority in law to act on
behalf of a minor. The section provides that the guardian must administer and safeguard the minor's
property and property interest, and assist or represent the minor in administrative, contractual and other
legal matters. So, if you are still a minor, your parents do not need your permission to act on your behalf.
As your guardians, they may do so automatically and their authority does not come from you, but from
the law, namely, the Children’s Act.
A company generally has the same capacity as a natural person, except for those things
: : Memorandum
that a company by its nature cannot do, such as conclude a contract of marriage. The Es an Oke
Memorandum of Incorporation (MO]) may also restrict the capacity of the company. company the document
If, for example, the MOI prohibits the company from buying products that are not by which the company
biodegradable, then the company does not have the capacity to buy these products. Ifa is incorporated in terms
director is mandated by the BoD to buy non-biodegradable products from a bona fide of the Companies Act. It
third party, the company cannot later rely on the fact that it does not have the capacity to sets out the rights, duties
and responsibilities of
buy such products in order to escape liability: in terms of the contract. Shareholders of the
: shareholders, directors
company may have a claim for damages against anyone who fraudulently, or through gross 64 others within the
negligence, caused the company to perform an act outside its capacity. Such acts can be company and in relation
ratified by special resolution. to the company.
A company may have the capacity to do something, but that the company's MOI limits
a director's authority to perform that specific action. In terms of the normal rules of agency, A special resolution
the principal (company) will not be bound by the actions of the director, unless the third refers to a resolution
party can show that the director had authority, such as express or ostensible authority. Bur 2d0pted with the support
the Companies Act provides that the company will still be liable in terms of the juristic act of at least 75% of the
: i ig 3 g voting rights exercised
(such as a contract) even though the director acted outside the limits of his authority. If the nthe resolution. Voting
company’s MOI provides that a director can perform certain acts if there is compliance with sights refers 'n Hae hunber
certain internal procedures, the company will be bound to such acts, even where there is no _ of shares in the company
compliance with the internal procedures. The reason is that section 20(7) of the Companies _ held by shareholders.
Act provides that a bona fide third party can assume that there is compliance with internal
procedures. But, if the third party is aware of the non-compliance with the rules or reasonably should
have known about it, the company may be able to escape liability.
The Companies Act makes it clear that the doctrine of constructive notice does not apply to
companies. According to the doctrine of constructive notice, anyone dealing with a company is
considered to be aware of the contents of its public documents (such as the MOI). The effect of the
doctrine was that the law expected anyone who concluded a contract with a company to know who had
authority to act on behalf of the company. As stated, this doctrine no longer applies.
Section 20(7) of the Companies Act referred to above is similar to the so-called Turquand-rule that
has been applied in our law for some time already, based on considerations of fairness.
The name of the rule comes from the English case of Royal British Bank v Turquand (1856) 6
E&B 327, in which the rule was originally developed.
The Turquand-rule provides that a third party dealing with a company can accept that, if an
agent of the company is authorised to act on behalf of the company, provided certain internal
processes have been complied with and the act falls within the normal authority of the agent,
then the internal processes have been complied with. Thus, if the chief financial officer (CFO) of
the company is authorised to borrow money from a bank, provided that the BoD has approved
such a loan, then the third party (bank), who deals with the CFO, can assume that the BoD did
give the necessary approval. This rule will not apply if the third party knew that the required
internal processes were not followed, or the circumstances of the transaction are such that he
should have been warned to establish whether the agent did have the required authority.
Sarvesh is the managing director (MD) of Sunset Properties Ltd. The MOI of Sunset provides that
the MD of the company is authorised to represent the company in all transactions relating to
the business of the company, including the buying and selling of immovable property. The MOI
provides, however, that if the company purchases property for a price exceeding R5 million, the
Board of Directors (BoD) must first approve the purchase. Sarvesh buys immovable property to
the value of R8,5 million from Innovations CC. When the BoD finds out about the contract, it
refuses to honour the contract. Explain to Innovations CC what its legal position is.
These duties apply generally, even though the parties have not expressly included the duties in the agency
agreement. We discuss these duties in more detail below.
Activity 18.4
Nosiwe is very busy at work and cannot find the time to take her daughter, Lindiwe, shopping
for to buy a dress for her birthday. Nosiwe'’s friend, Thuli, offers to take Lindiwe to the mall to
shop for adress. Thuli uses her own car to take Lindiwe to the mall. They find a suitable dress
and Thuli pays for the dress. Is Thuli entitled to the cost of the dress and the cost of the petrol?
An example of such a situation is when the agent, in the performance of the juristic act on behalf of the
principal, has to undertake travel in his car. While travelling, the agent is robbed of his car. Is the agent
entitled to be indemnified for his loss by the principal?
To answer this question, we must consider the following:
® Do the terms of the contract between the principal and agent provide for the situation?
= = If not, then could the agent have avoided the loss?
= = If not, then one has to ask whether performing the juristic act has brought the agent significantly
closer to the danger than if he had not undertaken performing the juristic act on behalf of
the principal.
@ = If so, then the agent is entitled to be indemnified, unless the loss or damage would have occurred
even if there was no agreement for the agent to act on behalf of the principal.
Xola has agreed to act as agent for Sisiwe. Sisiwe has asked Xola to drive from East London to
Durban to conclude a contract on Sisiwe’s behalf with Olive Importers Ltd, for the purchase of
raw materials for Sisiwe’s business. It was agreed that Sisiwe would pay Xola a specified amount
as well as his expenses, including petrol, food and accommodation. On route, Xola decides to
take a short detour to stop at a small village outside Mtatha to visit his mother. While Xola is
visiting his mother in her house, his car is stolen.
Do you think Xola is entitled to claim his damage from Sisiwe? Would your answer be different
if Xola’s car had been stolen while he was buying food and filling up with petrol in Mtatha?
The obligation to act in the best interests of the principal entails several common law duties for the
agent, namely:
® to follow instructions ® toact in good faith
@ to exercise care and diligence ® toaccount properly.
‘These duties of the agent apply generally, even though the parties have not expressly included the duties
in the agency agreement. Let us discuss these duties in more detail.
An appointment ofan agent for an unlawful purpose is null and void. So, no obligation can arise between the
principal and the third party if the agent's appointment is null and void. Also, no action can arise from
such a void appointment. If such an action was performed, the principal will not be able to claim such
performance from the agent. Neither will the agent be able to claim reimbursement from the principal. So, if
Ziko authorises Zamindlela to sell a car to Fikile that Ziko had stolen, the authorisation would be void. If Fikile
paid the purchase price to Zamindlela, then Ziko would not be able to claim that money from Zamindlela.
Section 6 of the Prevention and Combating of Corrupt Activities Act 12 of 2004 provides that if
an agent accepts a bribe to abuse a position of authority, to commit a breach of trust, or violate
a legal duty, or the agent gives a bribe to persuade someone else to do so, then the agent is
guilty of the offence of corrupt activities.
Section 26 of this Act provides that a sentence of imprisonment for life can be imposed as a
penalty if convicted of this offence.
Plaaslike Boeredienste (Edms) Bpk v Chemfos Bpk 1986 (1) SA 819 (AD)
Principle
The law does not allow a third party to enforce a contract against the principal's will, if the
contract was obtained by the third party through immoral and unlawful conduct.
Facts
Plaaslike Boeredienste (Edms) Bpk bribed the agent of Chemfos Bpk in order to get contracts for
the spreading of fertiliser. When Chemfos Bpk discovered the bribery, it repudiated (cancelled)
the contracts with Plaaslike Boeredienste (Edms) Bpk.
Principle
An intention to tacitly ratify a contract can be established from the silence and inaction of
the principal.
Facts
Dreyer’s minor son was at boarding school. Without his father’s authorisation, the son bought
a school blazer on Dreyer’s account from Sonop Bpk. Dreyer was aware that his son required a
blazer for school as the son wore the blazer on numerous occasions when visiting his parents.
Sonop Bpk sent Dreyer regular accounts, but Dreyer did not pay. When Sonop Bpk threatened
legal action, Dreyer denied liability. At the subsequent court proceedings, Dreyer elected not
to testify.
Added value African Life Assurance Co Ltd v NBS Bank Ltd 2001 (1) SA 432 (W)
The court stated that, where a principal allows an agent to act in a particular manner when
conducting the business of the principal, the principal clearly shows that the agent has authority
to enter into contracts on behalf of the principal. These contracts are of the kind where the
agent usually has actual authority to conduct the principal's business.
the principal should have reasonably foreseen that the third party (or outsiders, generally) would
have been misled into believing that the agent had authority to act
the third party must have actually acted on the strength of the representation to his detriment — for
instance, entered into a prejudicial contract
the third party’s reliance on the representation that the agent had authority must have been
reasonable; this means that a reasonable person, in the position of the third party, would have
believed that the agent had authority from the principal; if there was good reason to be suspicious of
any of the circumstances, then the agent falls short of this standard
the third party must have suffered prejudice.
NBS Bank Ltd v Cape Produce Co. (Pty) Ltd and Others 2002 (1) SA 396 (SCA)
Principle
In order for a third party to hold a principal liable on the ostensible authority of the principal's
agent, all the requirements identified (and set out above) must be established.
Facts
A was a branch manager for NBS. The bank required that when a bank official received deposits
from investors, the official enter it in the computer system so that the amount and the name
of the investor are reflected on the bank's accounting system. A issued a letter signed by him
as branch manager to investors, indicating the amount to be repaid on a particular day with a
stipulated amount of interest. However, the money was not paid into an account in the name of
the investor. The money was actually paid into a general account held in the name of a firm of
attorneys, one of the attorneys being A’s accomplice in this fraudulent scheme. In this way, A
and the attorney obtained control of the money. The investors did not know this, one of them
being Cape Produce Co. (Pty) Ltd. A and his accomplice advanced the money to property
developers from which they had hoped to make sufficient money to repay investors.
High interest rates were offered so as to attract more investors. In essence, it was a pyramid
scheme and the investors lost millions. The investors sued NBS. The claim against NBS relied
thereon that A had ostensible authority to bind NBS. NBS, in denying liability for the lost
investments, argued that the investors did not act reasonably when relying on A's representations.
e Actual reliance by the third party on the representation — the court found that it is clear on
the facts that Cape Produce had relied on the representation by NBS as to who and what A
was, and what authority he had.
e Reasonableness of the reliance — the court considered that A was a bank manager of a large
branch of a reputable bank. Cape Produce had taken a number of steps to ensure that its
investment was safe, including consulting with its attorney. Perhaps, as the court stated,
an ultra-cautious person may have taken the step to contact the head office, but the very
status of A might have caused a reasonable person not to take such a step. Cape Produce
Co. (Pty) Ltd acted reasonably in relying on the representation.
e Consequent prejudice for the third party — the court stated that prejudice is clearly present.
In the end, the court found that NBS Bank was liable to Cape Produce Co. (Pty) Ltd. on the
ostensible contracts of deposit, concluded through the ostensible agency of A.
When a party wishes to rely on the ostensible authority of an agent to bind a juristic person specifically,
the following principles apply:
= = The person who made the representation that the agent did have authority must have been a person
who had actual authority to manage the business of the principal. Thus, a third party cannot rely on
the actions (representations) of a person who has no actual authority to act on behalf of the juristic
person to claim that that person's representations established ostensible authority of the agent.
= A juristic person, whose powers are imposed by statute, cannot be liable for acts of 4 Notice of a
an agent with apparent ostensible authority, if that means that the juristic person a prescribed notice that the
will be forced to do something prohibited by the empowering statute. However, if _incorporators of the company
the statute permits the performance of the act by the principal (the juristic person) —_ must file with the Companies
but only if certain internal formalities or processes have been complied with, then _ 4d Intellectual Property
the principal can be held liable on the basis of ostensible authority of an agent. Commission, informing the
Commission of the company’s
= If acompany has drawn specific attention in its Notice of Incorporation to limits
: incorporation for the purpose
placed on its representatives in the MOI of the company, then it is assumed that of ee it registered.
everyone knows about these limitations.
Peter and Andy are friends. Peter lives in Johannesburg, but has a seafront flat in Cape Town,
which he does not use. Tom is aware of the friendship and the flat. He approaches Andy about
the possibility of renting the flat from Peter as he has been transferred by his employer to Cape
Town. (At present, Tom and Andy both live in Bloemfontein.) Andy knows that Peter is looking
for a good tenant for the flat and asks Peter for authorisation to conclude a juristic act — an
agreement of lease on behalf of Peter with Tom. Peter sends the same voice message to both
Andy and Tom. Both Tom and Andy understand that the message means that Andy is authorised
to act on behalf of Peter, but Peter actually stated, and meant, the opposite. Andy, on behalf of
Peter, concludes a contract with Tom. When Peter finds out about the ‘contract’, he refuses to
ratify it. Tom sues Andy for damages on the basis that Andy had presented himself as having the
required authority. Is Andy liable because he acted without the required authority?
Andy should be able to escape personal liability as Tom entered into the ‘contract’, not
because of what Andy had represented by word or conduct, but because of the message
received from Peter. Thus, it was the message that had induced Tom to enter into the contract
and not Andy's words or conduct.
18.9.3 Misrepresentation
You might remember from Chapter 6 that a contract concluded as a result of a misrepresentation by one
of the parties can be set aside (voided) by the innocent party. For an innocent party to be entitled to the
available remedies, he must prove that the representation:
was untrue
was about a fact
was material
was made by one of the parties
was made with the intention to induce the innocent party to contract
induced the innocent party to contract.
What is the position if the misrepresentation was made by an agent representing one of the parties to the
contract? It is the same as if the party herself (the principal) had made the misrepresentation and not the
agent. If the third party bought a property from the principal and the third party was induced into the
contract by the misrepresentation, the third party may be able to have the contract set aside (declared
void), or claim a reduction in the purchase price, depending on the facts of the case. But, besides proving
the above requirements, the third party must prove one of the following two aspects, namely:
= = The principal was party to the misrepresentation as it was the principal who conveyed the incorrect
information to the third party through the agent (in other words, the agent merely conveyed the
untrue information to the third party).
@ = The agent was acting within the course and scope of his employment or the task he was authorised
to perform by the principal. Thus, if the agent makes a misrepresentation to a third party, whilst
acting in the course and scope of performing the juristic act as agent on behalf of the principal, the
third party may be entitled to the remedies shown above.
If the principal dies, becomes insane or insolvent, or loses his capacity to act, the agent's authority
ends. Similarly, if the agent dies or becomes insane, the agent's authority is also terminated. But if the
agent becomes insolvent, the authority of the agent does not end. This is because a juristic act does not
bind the agent’s estate, but the estate of the principal. Insolvent persons, for instance, cannot perform
juristic acts that bind their estates, as they no longer have control over their own estates. They cannot,
for example, buy themselves cars. But an insolvent person can act as an agent for somebody else. If he
buys a car as the agent of somebody else, the principal's estate is bound. This means that the principal
has to pay for the car and the car belongs to the principal’s estate. The agent’s estate is unaffected by
the transaction.
If the authority was granted for a specific act, then on proper performance of the act, the authority
would end, or for a specific period of time, the authority would end once the time expires. Ifa special
relationship between the agent and the principal ended, the authority would terminate if the relationship
came to an end. So, the authority of a parent to conclude juristic acts on behalf ofa minor child ends
when the child becomes a major person. Likewise, the authority of a director to act on behalf of a
company ends when the person is no longer a director of the company.
Where an agent is given authority for a specific juristic act, this authority ends once the act has been
performed. Where authority is given for a specific period, the agent's authority ends once that period
is over. For example, if I have the authority to buy a car on behalf of somebody else, my authority ends
once I have concluded the contract to buy the car.
Where a principal has authorised an agent to represent her interests, the principal can also revoke this
authority. To revoke authority means to withdraw or cancel it. If the revocation is because of breach of
contract, the agent will have the normal contractual remedies available to him.
Chapter summary
In this chapter, you learned the following about the law For an agent to perform a juristic act on behalf of the
of agency: principal, the agent must have the authority to do so.
Agency occurs when one person, the agent, performs Authority can be provided expressly or tacitly by the
a juristic act for another person, the principal. principal. Authority can be given also to an agent by
The three requirements for valid agency are that: operation of law. As a general rule, an agent may not
= the principal must exist delegate his authority.
m= the agent must have authority to act on behalf of ‘The duties of the principal include the following:
the principal = to remunerate the agent
m= the agent must make the third party aware that he = to reimburse the agent for expenses incurred
is acting on behalf of the principal and not in a
personal capacity.
1. In what ways can an agent acquire the necessary to conclude a contract for the purchase of a car,
authority to act on behalf of the principal? Discuss. he asks Ronaldo to ratify the contract. Explain
2. The agent has a duty to act in good faith. Explain whether ratification will be possible in this case.
what this duty entails. 6, Zuki is 17 years old. She is studying at university and
3. When an agent acts without authority, the lives with her parents. Without the knowledge of her
principal is generally not bound by the juristic act parents, she concludes a contract on their behalf for
performed by the agent. There are exceptions to the purchase of a scooter with which she can travel
this general rule. What are these exceptions? to and from university. Her parents see her driving
4. In order for a third party to hold a principal liable the scooter every day. When the seller of the scooter
on the basis of the ostensible authority of the agent, tries to claim payment from Zuki’s parents, they deny
the third party must prove certain requirements. liability, arguing in their defence that they did not
What are these requirements? give Zuki authority to conclude the contract. Advise
5. Ronaldo, a star soccer player, authorises Benni the seller as to the remedies available to him.
specifically to negotiate a players-contract on 7. Conn and Duma are in a partnership. The business
behalf of Ronaldo, with Ajax Soccer Club. Benni, of the partnership is the building of houses. Conn,
thinking that Ronaldo will need a car, concludes without express authority from Duma, concludes
a contract with SuperCars (Pry) Led on behalf of a contract on behalf of the partnership with Clay
Ronaldo and in Ronaldo's name, When Benni Bricks CC, to buy the 10 000 bricks needed for
realises that he did not have the necessary authority one of the houses that the partnership is building.
Further reading
Kerr, A. J. 2006. The Law of Agency, 4th edn. Durban: LexisNexis Dendy, M. ‘Agency and Representation’ in W.A. Joubert (ed_).
South Africa 2014. LAWSA, Vol. 1. Durban: LexisNexis South Africa
Sharrock, R. 2017. Business Transactions Law, 9th edn.
Cape Town: Jura and Co. (Pry) Led
So far you have encountered various types and forms of ‘physical world’ contract. But, as you all
know, we are now living in the information age, and as a result, almost everything you can do in the
physical world, you can also now do on the internet, This includes doing business and more specifically
concluding contracts over the internet. This chapter deals with e-commerce (or electronic commerce)
and, in particular, the different online contracts that you may conclude, as well as legal consequences
that will flow from the conclusion of these contracts. You will notice that, similar to the position in
the physical world, contracts generally have to be concluded in a particular way — in other words, they
have to comply with certain requirements. As you will see in this chapter, it often happens in the case of
online contracts that the buyer and the seller are located in different parts of the world. So, one of the
most difficult questions to answer is which country's law should we apply to the online contract. Will the
domestic laws of the buyer apply, or those of the seller?
®
¢
= = Types of online contract
® Formalities chat must be fulfilled for online contracts
= Legal consequences of not reading the contract
= Legal issues to consider before concluding an online contract
So far you have encountered various types and forms of ‘physical world’ contract. But, as you all
know, we are now living in the information age, and as a result, almost everything you can do in the
physical world, you can also now do on the internet. This includes doing business and more specifically
concluding contracts over the internet. This chapter deals with e-commerce (or electronic commerce)
and, in particular, the different online contracts that you may conclude, as well as legal consequences
that will flow from the conclusion of these contracts. You will notice that, similar to the position in
the physical world, contracts generally have to be concluded in a particular way — in other words, they
have to comply with certain requirements. As you will see in this chapter, it often happens in the case of
online contracts that the buyer and the seller are located in different parts of the world. So, one of the
most difficult questions to answer is which country’s law should we apply to the online contract. Will the
domestic laws of the buyer apply, or those of the seller?
Applicable law
You and Buy agree to submit to the personal jurisdiction of a state court located in San Francisco
County, San Francisco, California, or a United States District court, Northern District of California
locatedin San Francisco, California (collectively, the “San Francisco Courts’) for any actions.
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The first question we need to ask ourselves is, “What type of online contract are we dealing with?”
These three categories may further be subdivided into the following three classes of online contracts:
= = shrink-wrap agreements
@ = click-wrap agreements
= browse-wrap agreements.
The names of the contract refer to the way or manner in which these contracts are concluded.
The easiest way in which you will know you are dealing with a click-wrap agreement is by the fact that
it has at the end of the agreement ‘I accept’ and ‘I do not accept’ buttons. The purpose of these buttons
is to allow you, as the user, to decide whether or not to enter into the agreement. As soon as you click
‘accept’, it is as good as if you have placed your personal signature on the contract. This contract is now
legally binding, and it may be legally enforced against you.
Please take a moment to read the ficense agreement now. If pou accept the terms below, click "I
Agee”, then "Next", Otherwise cick "Cancel"
Danger: keep in mind that with a click-wrap agreement, as soon as you click on the ‘I accept’
button you are bound by the terms and conditions even if you did not read and/or understand
them! This is because section 11(3) of the Electronic Communications and Transactions Act says:
‘Information incorporated into an agreement and that is not in the public domain is regarded
as having been incorporated into a data message if such information is: (a) referred to in a
way in which a reasonable person would have noticed the reference thereto and incorporation
thereof; and (b) accessible in a form in which it may be read, stored and retrieved by another
party, whether electronically or as a computer printout as long as such information is
reasonably capable of being reduced to electronic form by the party incorporating it.’
Activity 19.2
1. Do you think you will now be able to identify different types of online contract?
2. Why not practise by visiting a few of your favourite retail websites (and do some shopping
while you are at it)?
Attributed
An online contract can be attributed to somebody — that is, you can say that a specific
person sent the relevant online contract if it was sent by the originator personally, or by ~means that you
Siebelieve or
a person who had authority to act on his behalf in respect of that data message, or by an say a certain person sent
information system programmed by him or on his behalf to operate automatically (unless it _ the online contract.
is proved that the information system did not properly execute such programming).
Contract received
We can presume that the online contract has been received when the complete file (data message)
enters an information system (IT system) that is used by the seller and it is capable of being retrieved or
processed by the seller.
The above legal principles will apply unless the terms and conditions contain provisions to the
contrary. Put differently, the seller can always provide for other legally binding principles to apply.
Principle
It is important to note that section 20(e) protects only the purchaser and not the online Buy or Takealot.
shopping store.
Sid finds out that Takealot.com is having a huge online sale. That evening he browses the app
and is very happy to discover that the site has, on sale, a pair of sunglasses he has been wanting
to buy for ages. The price of the sunglasses is R1 000, which is RS00 cheaper than the same
sunglasses at his local store. Sid decides to buy two pairs — one for himself and one as a gift
for his best friend. He places the order and the site displays the order and asks him to click and
accept the terms and conditions to conclude the sale. Sid is very distracted as he completes this
process as he is also watching his favourite soap opera while he is shopping online. Later that
evening Sid receives an email from the site stating that his 20 pairs of sunglasses will be shipped
to him within five working days. He is very shocked and immediately goes back to the website
to review his order. He realises that he mistakenly typed 20 instead of 2. Can Takealot.com force
Sid to pay for the 20 pairs of sunglasses?
If Sid wants to allege that he made a mistake in his order, he will have to meet the
requirements of section 20(e) of the Electronic Communications and Transactions Act. Takealot.
com did give Sid an opportunity to review his order prior to confirming the purchase. The fact
that Sid was distracted and did not review the order will not be an acceptable reason allowing
him to avoid responsibility. He will therefore be bound by his error. He will be able to escape
liability in terms of the common law only by showing that the error he made is so blatant that
it should have been noticed by the owner of the website. The court will then ask whether an
order for 20 pairs of sunglasses would be so obvious that the owner of the website would
realise it was an error. In terms of the other requirements of the Act, Sid will have had to notify
Takealot.com of this error as soon as he became aware of it. Since he has not received delivery
of the sunglasses, he will not have received any material benefit, nor will he have to return
the sunglasses.
19.6 Legal issues that you need to look out for before concluding
an online contract
Before you even think about buying anything over the internet, you need to read the terms and
conditions of the company that you are buying from (in our example, it is Buy.com).
Here are some of the things you need to pay specific attention to.
Contract formation
® Do the terms and conditions make provisions for other principles to apply other than the normal
deeming provisions?
Consumer protection
In terms of the terms and conditions, what kind of consumer protection will you receive if, for instance:
@ = the product is defective or does not work at all
@ goods are not delivered
® = goods are delivered late
@ there is a mistake with the payment?
Payment by consumer
@ When and at what stage must you pay?
= What amount must you pay?
@ Does the amount include or exclude taxes/delivery charges/customs?
Method of payment
= How must payment be made? (for example, credit card or EFT)
Performance by seller
= How long does the seller have to deliver goods and/or services to you?
= What happens if the seller does not perform in terms of the agreement?
Jurisdiction/alternative dispute
® If you and the seller ever do end up in court, which party's law will apply?
® Which court is authorised to hear a dispute between you and the seller?
Chapter summary
In this chapter, you learned the following about online you with the opportunity to read the terms and
contracts and e-commerce: conditions before you made the purchase, you really
Similar to the physical world, we can also conclude have no excuse not to do so.
contracts in cyberspace. Shrink-wrap agreements are concluded when you
As in the physical world, certain legal principles will open the shrink-wrapping of the product.
regulate the formation, performance and conclusion of Click-wrap agreements are agreements in which
online contracts. you have to click on a box to accept the terms and
All the legal principles that apply to physical world conditions of the contract.
contracts, also apply to online contracts, but we find Browse-wrap agreements are agreements that
that additional requirements are also applicable. regulate how the content of a specific website is used.
The single most important thing is that just because If you makea mistake when contracting with an
you do not read and/or understand the terms and automated system, you may be able to avoid liability if
conditions of the electronic transaction, this does not you comply with the provisions of section 20(e) of the
mean that you will not be held liable in law to those Electronic Communications and Transactions Act.
terms and conditions. If the seller (reasonably) provided
Below, you will find an extract from the website Terms of Service of Buy.com, Read it and answer the questions
that follow.
Termsof use
Effective
date: Aug 15, 2017
Please read on to learn the rules and restrictions that The Children’s Online Privacy Protection
Act
govern your use of our website(s), products, services (“COPPA”) requires that online service providers
and applications (the “Services”). If you have any obtain parental consent before they knowingly collect
questions, comments, or concerns regarding these personally identifiable information online from children
terms or the Services, please contact us at support@ who are under 13. We do not knowingly collect or
buy.com, or at One Sansome Street, 40th Fl, San solicit personally identifiable information from children
Francisco, CA 94104. under 13; if you are a child under 13, please do not
These Terms of Use (the “Terms”) are a binding atternpt to register for the Services or send any personal
contract between you and ContextLogic, Inc. (“Buy~ information about yourself to us. Parents and legal
“we" and “us”). You must agree to and accept all guardians may not agree to these Terms or register for
of the Terms, or you do not have the right to use the the Services on behalf of any children under the age of
Services. Your using the Services in any way means that 13. If we learn we have collected personal information
you agree to all of these Terms, and these Terms will from a child under 13, we will delete that information
remain in effect while you use the Services. These Terms as quickly as possible. if you believe that a child
include the provisions in this document, as well as those under 13 may have provided us personal information,
in the Privacy Policy and Copyright Dispute Policy. please contact us at privacy@contextLogic.com.
Will these terms ever change? What are the basics of using the services?
We are constantly trying to improve our Services, You may be required to sign up for an account, and
so these Terms may need to change along with the select a password and user name (“Buy User ID"). You
Services. We reserve the right to change the Terms promise to provide us with accurate, complete, and
at any time, but if we do, we will bring it to your
attention by placing a notice on the Services, by may not select as your Buy User ID a name that you
sending you an email, and/or by sore other means. do not have the right to use, or another person's name
if you do not agree with the new Terms, you are free with the intent to impersonate that person. You may
to reject them; unfortunately, that means you will not transfer your account to anyone else without our
no longer be able to use the Services. If you use the prior written permission,
Services in any way after a change to the Terms is You represent and warrant that you are an
effective, that means you agree to all of the changes. individual of legal age to form a binding contract (or
Except for changes by us as described here, no other if not, you have received your parent's or guardian's
amendment or modification of these Terms will be permission to use the Services and gotten your parent
effective unless in writing and signed by both you and us. of guardian to agree to these Terms on your behalf).
You will only use the Services for your own
What about
my privacy?
internal, personal, use, and not on behalf of or for the
Buy takes the privacy of its users very seriously. For the benefit of any third party, and only in a manner that
current Buy Privacy Policy, please visit here. complies with all laws that apply to you. If your use of
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286 Chapter 19 | Review your understanding
to enjoy them (where applicable), you grant us certain
rights in those User Submissions. Please note that all and/or otherwise in connection with Buy's business,
of the following licenses are subject to our Privacy provided that Buy will try to notify you if it uses your
Policy to the extent they relate to User Submissions Public User Submission for any reason other than
that are also your personally-identifiable information. displaying it on the Services. Also, you grant all other
For all User Submissions, you hereby grant Buy a users of the Services a license to access that Public
license to translate, modify (for technical purposes, User Submission, and to use and exercise all rights in
for exarnple making sure your content is viewable on it, as permitted by the functionality of the Services.
an iPhone as well as a computer) and reproduce and You agree that the licenses you grant are royalty-free,
otherwise act with respect to such User Submissions,
in each case to enable us to operate the Services, as Finally, you understand and agree that Buy, in
described in more detail below. This is a license only - performing the required technical steps to provide
your ownership in User Submissions is not affected. the Services to our users (including you), may need to
If you store a User Submission
in your own make changes to your User Submissions to conform
personal
Buy account, in a manner
that is not and adapt those User Submissions to the technical
viewable by any other user except you (a “Personal requirements of connection networks, devices,
User Submission”), you grant Buy the license above, services, or media, and the foregoing licenses include
as well as a license to display, perform, and distribute the rights to do so.
your Personal User Submission for the sole purpose of
What if | see something on the services that
making that Personal User Submission accessible to
infringesmy copyright?
you and providing the Services necessary to do so.
If you share a User Submission only in a manner You may have heard of the Digital Millennium Copyright
that only certain specified users can view (for example, Act (the “DMCA”), as it relates to online service providers,
& private message to one or more other users) (a like Buy, being asked to remove material that allegedly
“Limited Audience User Submission”), then you grant violates someone's copyright. We respect others’
Buy the licenses above, as well as a license to display, intellectual property rights, and we reserve the right to
delete or disable Content alleged to be infringing, and
Submission for the sole purpose of making that Limited to terminate the accounts of repeat alleged infringers;
Audience User Submission accessible to such other to review our complete Copyright Dispute Policy and
specified users, and providing the Services necessary learn how to report potentially infringing content,
to do so. Also, you grant such other specified users click here. To learn more about the DMCA, click here.
a license to access that Limited Audience User
Who is responsible
for what | see and do on
Submission, and to use and exercise all rights in it, as
the services?
permitted by the functionality of the Services.
If you share a User Submission publicly on the Any information or content publicly posted or
Services and/or in a manner that more than just you privately transmitted through the Services is the sole
or certain specified users can view, or if you provide responsibilityof the person from whom such content
us (in a direct email or otherwise) with any feedback, originated, and you access all such information and
suggestions, improvements, enhancements, and/or content at your own risk, and we are not liable for any
feature requests relating to the Services (each of the errors or omissions in that information or content or
foregoing,a “Public User Submission"), then you for any damages or loss you might suffer in connection
grant Buy the licenses above, as well as a license with it. We cannot control and have no duty to take
to display, perform, and distribute your Public User any action regarding how you may interpret and
Submission for the purpose of making that Public User use the Content or what actions you may take as 4
Submission accessible to all Buy users and providing result of having been exposed to the Content, and
the Services necessary to do so, as well as all other you hereby release us from all liability for you having
rights necessary to use and exercise all rights in that acquired
or not acquired Content through the Services.
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Chapter 19 | Review your understanding 287
We cannot guarantee the identity of any users with In the event that you have a dispute with one or more
whorn you interact in using the Services and are not other users, you release Buy, its officers, employees,
responsible for which users gain access to the Services. agents, and successors from claims, demands, and
You are responsible for all Content you contribute, damages of every kind or nature, known or unknown,
in any manner, to the Services, and you represent and suspected or unsuspected, disclosed or undisclosed,
warrant you have all rights necessary to do so, in the arising out of or in any way related to such disputes
manner in which you contribute it. You will keep all and/or our Services.
your registration information accurate and current. YOU SHALL AND HEREBY DO WAIVE CALIFORNIA
You are responsible for all your activity in connection CIVIL CODE SECTION 1542, WHICH SAYS: “A
with the Services. GENERAL RELEASE DOES NOT EXTEND TO CLAIMS
The Services may contain links or connections to WHICH THE CREDITOR DOES NOT KNOW OR
third party websites or services that are not owned SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME
or controlled by Buy. When you access third party OF EXECUTING THE RELEASE, WHICH, IF KNOWN BY
websites or use third party services, you accept HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS
that there are risks in doing so, and that Buy is not OR HER SETTLEMENT WITH THE DEBTOR.“
responsible for such risks. We encourage you to be
aware when you leave the Services and to read the Will Buy ever change the services?
terms and conditions and privacy policy of each third We are always trying to improve the Services, so they
party website or service that you visit or utilize. may change over time. We may suspend or discontinue
Buy has no control over, and assumes no any part of the Services, or we may introduce new
responsibility for, the content, accuracy, privacy policies, features or impose limits on certain features or restrict
or practices of or opinions expressed in any third party access to parts or all of the Services. We will try to give
websites or by any third party that you interact with you notice when we make a material change to the
through the Services. In addition, Buy will not and Services that would adversely affect you, but this is not
cannot monitor, verify, censor or edit the content of always practical. Similarly, we reserve the right to
any third party site or service. By using the Services, you remove any Content from the Services at any time, for
release and hold us harmless from any and all liability any reason (including, but not limited to, if someone
arising from your use of any third party website or service. alleges you contributed that Content in violation of
these Terms), in our sole discretion, and without notice.
individuals found on or through the Services, including
Do the services
cost anything?
payment and delivery of goods or services, and any
other terms, conditions, warranties or representations it is currently free to access and browse Buy.com
or any other Services. However, you may choose to
you and such organizationsand/or individuals. You purchase products through the Services, and you
should make whatever investigation you feel necessary alone will be responsible for paying the purchase
or appropriate before proceeding with any online or price of any products you buy, in addition to any
offline transaction with any of these third parties. You taxes and shipping costs. Buy may limit or cancel
agree that Buy shall not be responsible or liable for any quantities of products purchased, and it reserves the
loss or damage of any sort incurred as the result of any right to refuse any order. In the event Buy needs to
make a change to an order, it will attempt to notify
foregoing, you agree that Buy does not facilitate (and you by contacting the email address, billing address,
bears no responsibility
or liability for) any transaction and/or phone number provided at the time the order
(or payment
or refund therefore) arranged through was made. Prices are subject to change at any time.
Buy Local. Due to separate and applicable tax jurisdictions,
your
If there is 4 dispute between participants
on this purchases may be subject to specific sales, custom
site, or between users and any third party, you agree or value-addedtaxes, and the shipping time and
that Buy is under no obligation to become involved. associated
cost may increase accordingly
(continued)
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Chapter 19 | Review your understanding 289
personal, non-commercial use, subject to all the through the Services, and we will not be responsible
terms and conditions of these Terms as they are or liable for the accuracy, copyright compliance, legality,
applicableto the Services; or decency of material contained in or accessed
C. You will only use the Application in connection through the Services. We (and our licensors and
with an Apple device that you own or control; suppliers) make no representations or warranties
D. You acknowledge and agree that Apple has no regarding suggestions or recommendations of
obligation whatsoever to furnish any maintenance services or products offered or purchased through the
and support services with respect to the Application; Services. Products and services purchased or offered
E. In the event of any failure of the Application to (whether or not following such recommendations
conform to any applicable warranty, including and suggestions) through the Services are provided
those implied by law, you may notify Apple “AS IS” and without any warranty of any kind from
of such failure; upon notification,
Apple's sole Buy or others (unless, with respect to such others
warranty obligation to you will be to refund to only, provided expressly and unambiguously in writing
you the purchase price, if any, of the Application; by a designated third party for a specific product).
F You acknowledge and agree that Buy, and not THE SERVICES AND CONTENT ARE PROVIDED BY
Apple, is responsible for addressing any claims BUY (AND ITS LICENSORS AND SUPPLIERS) ON AN
you or any third party may have in relation to “AS-IS” BASIS, WITHOUT WARRANTIES OR ANY
the Application; KIND, EITHER EXPRESS OR IMPLIED, INCLUDING,
G. You acknowledge and agree that, in the event of WITHOUT LIMITATION, IMPLIED WARRANTIES OF
any third party claim that the Application or your MERCHANTABILITY, FITNESS FOR A PARTICULAR
possession and use of the Application infringes PURPOSE, NON-INFRINGEMENT, OR THAT USE OF
that third party's intellectual property rights, THE SERVICES WILL BE UNINTERRUPTED OR ERROR-
Buy, and not Apple, will be responsible for the FREE. SOME STATES DO NOT ALLOW LIMITATIONS
investigation, defense, settlement and discharge ON HOW LONG AN IMPLIED WARRANTY LASTS,
of any such infringement claim; SO THE ABOVE LIMITATIONS MAY NOT APPLY
H. You represent and warrant that you are not TO YOU.
located in a country subject to a U.S. Government Limitation of Liability. TO THE FULLEST
embargo, or that has been designated by the EXTENT ALLOWED BY APPLICABLE LAW, UNDER
U.S. Government as a “terrorist supporting” NO CIRCUMSTANCES AND UNDER NO LEGAL
country, and that you are not listed on any U.S. THEORY (INCLUDING, WITHOUT LIMITATION, TORT,
Government list of prohibited or restricted parties; CONTRACT, STRICT LIABILITY, OR OTHERWISE) SHALL
|. Both you and Buy acknowledge and agree that, BUY (OR ITS LICENSORS OR SUPPLIERS) BE LIABLE
in your use of the Application, you will comply TO YOU OR TO ANY OTHER PERSON FOR (A) ANY
with any applicable third party terms of agreement INDIRECT, SPECIAL, INCIDENTAL, OR CONSEQUENTIAL
which may affect or be affected by such use; and DAMAGES OF ANY KIND, INCLUDING DAMAGES
J. Both you and Buy acknowledge and agree that FOR LOST PROFITS, LOSS OF GOODWILL, WORK
Apple and Apple's subsidiaries are third party STOPPAGE, ACCURACY OF RESULTS, OR COMPUTER
beneficiaries of these Terms, and that upon your FAILURE OR MALFUNCTION, OR (B) ANY AMOUNT,
acceptance of these Terms, Apple will have the IN THE AGGREGATE, IN EXCESS OF THE GREATER
right (and will be deemed to have accepted the OF (1) $100 OR (i) THE AMOUNTS PAID BY YOU
right) to enforce these Terms against you as the TO BUY IN CONNECTION WITH THE SERVICES IN
THE TWELVE (12) MONTH PERIOD PRECEDING THIS
APPLICABLE CLAIM, OR (lll) ANY MATTER BEYOND
What else do | need to know?
OUR REASONABLE CONTROL. SOME STATES DO
Warranty Disclaimer.
Neither Buy nor its licensors NOT ALLOW THE EXCLUSION OR LIMITATION OF
or suppliers makes any representations
or warranties CERTAIN DAMAGES, SO THE ABOVE LIMITATION AND
concerning any content contained in or accessed EXCLUSIONS MAY NOT APPLY TO YOU.
Choice Of Law & Jurisdiction. Please read this carefully. It affects your
rights. YOU AND BUY AGREE THAT ANY
These Terms and your use of the Services will be
DISPUTE, CONTROVERSY, OR CLAIM ARISING
interpretedin accordance with the law of the State
OUT OF, OR RELATING TO YOUR USE OF BUY,
of California and the United States of America,
TO ANY PRODUCTS OR SERVICES SOLD OR
without regard to their conflict-of-law provisions. You
DISTRIBUTED BY OR THROUGH BUY, TO THIS
and Buy agree to submit to the personal jurisdiction
AGREEMENT, OR TO THE CONTENT, AND/OR
of a state court located in San Francisco County,
USER SUBMISSION (PUBLIC, PERSONAL AND/OR
San Francisco, California or a United States District
LIMITED AUDIENCE) ON BUY SHALL BE RESOLVED
court, Northern District of California located in San
ONLY BY FINAL AND BINDING, BILATERAL
Francisco, California (collectively, the “San Francisco
ARBITRATION, except that (1) you may assert
Courts”) for any actions which the parties retain the
claims in small claims court if your claims qualify;
right to seek injunctive or other equitable relief in a
and (2) this agreement to arbitrate does not
court of competent jurisdiction to prevent the actual
include your or Buy's right to seek injunctive or
or threatened infringement, misappropriation, or
violation
of a party's copyrights, trademarks, trade other equitable relief in state or federal court in
San Francisco to prevent the actual or threatened
secrets, patents, or other intellectual property rights,
a5 set forth in the Dispute Resolution provision below.
infringement, misappropriation or violation of
a party's copyrights, trademarks,trade secrets,
Miscellaneous. You will be responsible for paying,
withholding, filing, and reporting all taxes, duties, patents, or other intellectual property rights. The
Federal Arbitration Act, 9 U.S.C. § 1, et seq., and
and other governmental assessments associated with
federal arbitration law apply to this agreement
your activity in connection with the Services, provided
and govern all questions as to whether a dispute
that the Buy may, in its sole discretion, do any of the
is subject
to arbitration.
foregoing on your behalf or for itself as it sees fit.
The failure of either you or us to exercise, in any way, There is no judge or jury in arbitration,
and
any nght herein shall not be deemed a waiver of any court review of an arbitration
award is limited.
(continued)
Chapter 19 | Review your understanding 291
An arbitrator, however, can award on individual Arbitration
Process and Procedure
basis the same damages and relief as a court
Unless you and Buy agree otherwise in writing,
{including injunctive and declaratory relief or
arbitration shall (1) be administered by the Judicial
statutory damages), and must follow the terms
Arbitration and Mediation Services, Inc. (“JAMS*),
of these Terms of Use. pursuant to the JAMS Streamlined Arbitration Rules
“Disputes” shall include, but are not limited to, & Procedures then in effect (the “JAMS Rules”) and
any claims or controversies between you and Buy as modified by this agreement to arbitrate, including
against each other related in any way to or arising the rules regarding filing, administration, discovery,
out of in any way from the Service, the Content, and arbitrator fees; (2) be conducted by a single,
User Submission (Public, Personal, and/or Limited neutral arbitrator; and (3) take place in the county
Audience), including but not limited to sales, returns, where you reside. To the extent that this agreement to
refunds, cancellations, defects, policies, privacy, arbitrate conflicts with the JAMS Policy on Consumer
advertising, or any communications between you Arbitrations Pursuant to Pre-Dispute Clauses Minimum
and Buy, even if the claim arises after you or Buy has Standards for Procedural Fairness (the “Minimum
terminated Service or a user account. Disputes also Standards”), the Minimum Standards in that regard
include, but are not limited to, claims that: (a) you will apply.
bring against our employees, agents, affiliates, or We each agree that any dispute resolution
other representatives; or (b) that Buy brings against proceedings will be conducted only on an
you. Disputes also include, but are not limited to, individual basis and not in a dass or representative
{i) claims in any way related to or arising out of any action. Further, unless both you and Buy expressly
aspect of the relationship between you and Buy, agree otherwise, the arbitrator may not consolidate
whether based in contract, tort, statute, fraud, more than one person's claims. If this prohibition of
misrepresentation, advertising claims, or any other class, representative, or consolidated arbitration is
legal theory; (ii) claims that arose before these Terms found to be unenforceable, then the entirety of this
or out of a prior set of Terms with Buy; (iii) claims that arbitration provision shall be null and void.
are subject to on-going litigation where you are not a If, for any reason, a claim proceeds in court
party or a class member; and/or (iv) claims that arise rather than in arbitration, we each waive our right
after the termination of these Terms. to a jury trial.
(continued)
292 Chapter 19 | Review your understanding
Hearing Fees
If your claim does not exceed $5,000, you and Buy It is each parties’ responsibility
to pay any JAMS filing,
agree to waive an oral hearing by the arbitrator case management/administrative,
and arbitrator
and the arbitration will be conducted solely on fees as set forth in the JAMS Rules. If your daim for
the basis of documents you and Buy submit to damages does not exceed $5,000, Buy will pay all
the arbitrator, unless you request a hearing or the such fees unless the arbitrator finds that either the
arbitrator determines that a hearing is necessary. substance of your Dispute or the relief sought was
To the extent an oral hearing is requested by you frivolousor was brought for an improper purpose (as
or Buy, or deemed necessary by the arbitrator, you measured by the standards set forth in the Federal
and Buy agree that the hearing will be conducted Rule of Civil Procedure 11(b)).
telephonicallyor videographically.
Small Claims & Government
Actions
Arbitrator’s Decision
As an alternative to arbitration, you or Buy may resolve
An arbitrator's award will be a written statement of the Disputes in a small claims court that has jurisdiction over
disposition of each claim and will also provide a concise your claim. These Terms and this arbitration agreement
written statement of the essential findings and conclusions do not prevent you from bringing your Dispute to the
which form the basis of the award. The arbitrator's attention of any federal, state, or local government
decision and award is final and binding, with some limited agency. Such agencies can, if the law allows, seek
court review under the FAA, and judgment on the award relief against Buy on your behalf.
may be entered in any court of competent jurisdiction. (Source: httos-://wwwe buy.com/terms)
Can you refuse to consent to the terms and discover that the product you bought is broken?
conditions of the agreement, yet still go ahead with
your purchase?
Further reading
McFadyen, T.M. 2008. eCommerce Best Practices — How to Van Der Merwe, D. et al. 2016. Jnformation and Communications
Market, Sell, and Service Customers with Internet Technologies. Technology Law, 2nd edn. Durban: LexisNexis South Africa
USA: McFadyen Solutions (This is 2 very comprehensiveexploration of Cyber Law in
(Since 2005, a large number of e-commerce books have been South Africa.)
published on- and offline. This is 2 good onc — generously hrtps://www.eff_org/ wp/clicks-bind-ways-users-agree-online-
illustrated
and explained.) terms-service
Papadopoulos,S. and Snail, S. 2012. Cyberlaw@SA Ill, Pretoria: (This well-written online article by Ed Bayley explains what
Van Schaik Publishers you need to know about online contracts. It is published
(This book is a good introduction to Cyber Law in by the non-profit organisation The Electronic Frontier
South Africa.) Foundation: Defending Your Rights in a Digital World.)
We are all familiar with paying cash for things. But, advances in technology have allowed for the
development of other methods of paying for goods and services, such as debit cards, credit cards, electronic
funds transfer (EFT) and internet banking. This chapter looks at some of these types of payment. We
will identify the parties involved, discuss the different processes involved with each respective type of
payment, and look at how and when different parties will be able to claim payment from one another.
Bill of exchange
On Due date:
Drawer: Drawee:
20.2.2 Cheques
A cheque is defined in the BEA as a bill drawn on a bank. It is a specific kind of bill, but it Payable on demand
is only payable on demand and the person who has to make payment, called the drawee, —_ Means that a person can
is always a bank. The full definition of a cheque is therefore an unconditional written order _ immediately take a cheque
that is addressed by one person (party) to a bank and is signed by the drawer, the person Spe bee an get
giving the order. A cheque is an order to pay, on demand, a specified sum of money to the: Pen ee
= person on the bill, namely the payee
@ their order or the bearer.
J. Small
Jaco Small
+>O806/49080S 49086916840. 03
In some instances, the drawer may place a date on the cheque that is a future date, and not the
date on which the cheque is written out. This is referred to as a post-dated cheque. A person
who takes such a cheque cannot obtain payment from the bank until the date on the cheque.
This is because a cheque is payable on demand only on that future date. This also means that
such a cheque is not a cheque in terms of the definition in the BEA. The post-dated cheque is, in
fact, a valid bill of exchange that may be dated at a future date.
On the day of
residing at
the sum of
payable at
Acceptor
As soon as a drawee accepts a bill, her capacity changes to that of acceptor. In accepting the bill, she is
accepting that she undertakes to make payment of the amount. This acceptance is done by the drawee
signing their name on the bill. The drawee and the acceptor are thus the same person.
For example, Penny, indicated on a bill as payee, receives the bill, which indicates that Thuli Mjenge
will pay the amount of R1 000. Penny must take the bill to Thuli and Thuli must then sign the bill to
indicate that she is accepting her liability to make payment on the bill.
A cheque does not always have to be accepted by a bank. In the case of a cheque, there is an existing bank—
client relationship and, in the contract between the bank and its customer, the bank agrees that
it will pay all cheques drawn on it by their customer, if there are sufficient funds in the account. The BEA defines
an
indore a
indorsement
as an
An indorser is a person who signs their name on the back of a cheque or bill, with the intention of ca haan :
allowing somebody else to chim payment on the bill. In signing the bill, the person also accepts os nat an indorsement
responsibility for paying the bill himself or herself. The signature is known as an indorsement. —_actually
is. In practice,
If the payee wishes to negotiate an instrument payable to order, she must indorse and an indorsement
is the
nin a
deliver it.
As soon as the payee indorses the instrument, her capacity changes to that of signature
of the person
Note that it is not only a payee who may be an indorser — any subsequent holder who of
indorses the instrument, is also known as the indorser. (Indorser can sometimes be spelled nership
with an ‘e’ — endorser.) someone sedigas 7
Activity 20.1
1. Sipho pays Thabo for painting his house with a cheque drawn on Africa Bank. Thabo signs
and writes his daughter's name, Annie, on the back of the cheque and gives it to her so that
she can use the money to pay her university fees. Identify each of the parties to the cheque.
2. Suppose Annie, instead of paying her university fees, signs the back of the cheque and
Gives it to her boyfriend, Petrus. Identify the parties to the cheque here.
The word ‘order’ can have different meanings when used in the context of negotiable
instruments. in the first place, order refers to the command given by the drawer to the drawee.
The drawer orders, or commands, the drawee to pay an amount of money.
Secondly, order can also refer to a person. If the payee of the bill orders that the bill be paid
to somebody else and names the person, the person is called the payee's order.
Finally, order can refer to a kind of bill. An order bill is a bill that has to be paid to a specified
person. The amount cannot be paid to just any person who is in possession of the bill. The last
two meanings are dealt with below in more detail.
Must be unconditional
The order contained in a bill may not be subject to any condition. If there is a condition,
it is not a
valid bill. Conditionality creates uncertainty that weakens the assurance of payment to the holder, and it
undermines the ability of the instrument to circulate and function as an instrument of commerce.
An example of a condition would be when someone writes this instruction on a cheque: ‘Payment
on this cheque will not be made unless a receipt is signed when this cheque is collected.” This means that
if a receipt is not signed when the cheque is collected, then the drawee (bank) would not have to make
payment, as the signing of a receipt is a condition of payment.
Must be in writing
‘The order in its entirety must be in writing. This requirement is not defined, but probably includes
any mode of representing or reproducing words visibly, for example, computer-generated printing
or typewriting.
Forged signature
Where a bill or cheque has a forged signature (where the person who signed the cheque did not have any
permission to do so), section 22 of the BEA applies. The rule is simply that forged signatures are wholly
inoperative, This means that:
= = if you are in possession of a bill with a forged signature on it, you have no right to keep possession
of the bill
® you cannot enforce payment of a bill against another person if the bill contains a forged signature.
Unauthorised signature
An unauthorised signature differs from a forged signature as the person who signed the cheque does have
the authority to sign cheques on behalf of a principal, but does not have the necessary authority to do so
in the instance of that particular
cheque.
Suppose A draws a bill on 8, payable to C or order. A thief, X, steals the bill from C, forges
C's signature on the back and delivers it to D. D changes the forged ‘indorsement’ to an
indorsement in her (D's) name, signs the bill and delivers it to E.
A
B
c
C's signature
forged by X, a thief.
D
E
The forged indorsement
is wholly inoperative and no title is transferred to D, which she, in turn,
can transfer to E. Thus, E is not a holder, and she may consequently not claim payment from A
or B or from C, as C did not sign the bill. However, in certain circumstances,
E will be able to
claim payment from D. This is because D created the impression that she had the right to indorse
and deliver the bill. The law holds D bound by the impression she has created — that is, that she
could transfer a right to the bill.
In the context of negotiable instruments, the word ‘negotiation’ means something different
to its usual meaning. The general meaning of negotiation is to talk with others to reach an
agreement. In the case of negotiable instruments, the word means to transfer the bill to another
in such a way that the person to whom the bill is transferred becomes the holder of the bill,
which means that she can claim payment on the bill. Transfer is not necessarily the same as
negotiation. If | ask my brother to deposit a cheque at the bank for me and | hand it over to him
so that he can do so, | transfer the cheque to him, but | do not negotiate it to him. He does not
become the holder of the cheque; he is merelyin possession of it so that he can deposit it on my
behalf. But, if | transfer possession of the cheque to him so that he can claim payment on the
cheque for himself, | negotiate the cheque to him.
Bearer bills
A bearer bill is not made out to a specific person. An instrument is payable to the bearer if the word
‘bearer’ is on the bill. A bill made out to ‘Ron Richards or bearer’ or simply to ‘bearer’ or even to ‘cash’ is
a bearer bill. According to the Act, an instrument that is payable to the bearer is payable to anyone who
is in possession of it.
A bearer bill in favour of Ron Richards will look like the cheque in Figure 20.5. Note that Ron
Richards is the payee and the words ‘or bearer’ make this a bearer bill.
D. De Beer
DEWALD DE BEER
+: O606)'9080S% 49086916840. 03
In order to negotiate the bill, Ron Richards (or whoever is in possession of the bill) just has to deliver it
to another person. It is not necessary to sign the back of the bill before delivering it.
Order bills
How do we know if a bill is an order bill? An order bill is made out to a named payee, or to their order.
The word ‘order’ refers to the payee’s order (instruction) that the bill be paid to someone else, named by the
payee. This order is indicated by an indorsement on the back of the bill. This means that payment must be
made either to Ron Richards, or to another person, once Ron Richards has indorsed the back of the bill.
A bill made out to “Ron Richards’ or to ‘Ron Richards or order’ is an order bill. In the case of
cheques, the phrase ‘or bearer’ is pre-printed on the cheque. This phrase must be crossed out by the
drawer for it to be an order cheque. By crossing out ‘or bearer’, the cheque is now payable to a specified
person. Figure 20.6 is an example of this.
If one of these non-essential dements is missing, it will not affect the validity of the instrument.
Date
Although it is standard practice to date a bill, the fact that it does not have a date will not make the bill
invalid. It is a good idea to date a bill, because it will show how long the bill has been in circulation. For
example, after a cheque has been in circulation for six months, it will be considered stale and banks will
no longer make payment on it.
Place of payment
This lets the holder know where to get payment from. However, if the place of payment is not given, the
bill can still be valid, The holder will simply establish the business or residential address of the drawee/
acceptor and present it there.
In the case of cheques, the name and branch of the bank to which the order is given are printed on
the cheque. So, presentation for payment will take place at that branch of the bank.
Chapter 20 | Methods
of payment 303
20.5.2 Transferring order bills
An order instrument is an instrument that is transferred by signing it on the back and then giving it to
another person. This is called indorsing the bill.
For an indorsement to be valid, all the following requirements have to be met:
@ = The indorsement must be written on the instrument and signed by the indorser.
@ = ‘The indorser must have had the intention to indorse. This is known as animus indorsandi.
® ‘The indorsement must be for the whole instrument. If a bill is made out for R500 and the indorser
only indorses R200 of the amount to another person, the indorsement is invalid.
® Indorsement must be completed by delivery.
We will now look at three different ways in which a bill may be indorsed.
Indorsement in blank
An indorsement in blank is an indorsement that does not specify an indorsee. In other words, the
indorser’s signature appears on the back of the bill without the name of the person to whom the bill is
being negotiated. The effect of an indorsement in blank is that the bill is now payable to the bearer.
An indorsement in blank will look like this on the front of the cheque:
Figure 20.8 The back of the cheque showing Barney Brandt as the indorser.
NE a Iguthcer
Amount
Bedrag Four hundred
and fifty rand j
R 450,00
A special indorsement will look like this on the back of the cheque:
Restrictive indorsement
A restrictive indorsement is an indorsement that prohibits further negotiation of the instrument, Once
a bill has been negotiated with a restrictive indorsement, it is valid only between the indorser
and the
indorsee. If the signature of the indorser on the back of the bill is accompanied by the name
of the
person to whom the bill is being negotiated, followed by the word ‘only’, the indorsement is restrictive.
Chapter 20 | Methods
of payment 305
A restrictive indorsement looks like this on the front of the cheque:
Activity 20.2
Study the following cheque (front and back) and then answer the questions that follow:
Whichever type of holder you are, you have certain rights and duties. We will now look at the different
kinds of holder and their rights in more detail.
To qualify as the holder of a bill, possession of the bill does not have to be lawful. In the case of a
bearer bill, a thief who is in possession qualifies as a holder, and he is allowed to claim payment on
the bill. This will not be the case with an order bill, because the bill is made out to a specific person.
In law, when we speak of ‘title’, we do not mean Mr or Ms or Dr. A person's title in law has to
do with her relationship to an object. If | buy a jacket to wear to a party, once | have paid for it
and taken delivery of it, | become the owner of the jacket. If, however, | only borrow the jacket
to wear to the party, | am not the owner of the jacket, but merely the possessorof the jacket. If,
at the party, my friend asks to buy the jacket, whether or not he can become the owner of the
jacket depends on my title to the jacket. If | am the owner of the jacket, | can sell or give it to my
friend, and he will become the owner. If | only borrowed the jacket, my friend cannot become
the owner, but merely the possessor. The general legal rule, that people may not transfer greater
rights to someone else than they possess themselves, is known as the nemo plus iuris rule.
Let us now look in more detail at each of the requirements to be a holder in due course. The nemo plus iuris rule
= A bill is complete if it contains all the essential elements of a bill. eee
= A bill is regular on the face of it, if it appears, by looking at the bill, that nothing cna has.
improper, such as forgery, took place in previous dealings with the bill.
= A bill is overdue if it has been in circulation for an unreasonably long period of time. Forgery occurs when
A cheque will become stale, or overdue, after six months. A bank cheque will become _a person signs another
stale or overdue after three months. person's signature.
= = Ifa bill is dishonoured, it means that the person or bank to whom the order to pay was given,
refused to do so. For example, a bank will dishonour a cheque if the drawer does not have enough funds
in her account to pay the necessary sum of money. Ifa bill has been dishonoured
at some stage before it is
negotiated, the holder must not know about the dishonour if she wants to qualify as a holder in due course.
= = The requirement of good faith means that the holder must have acted honestly when she took the
bill. If she was in any way dishonest, that person acted in bad faith and will not qualify as a holder
in due course. If, for example, Kirsten takes a cheque as payment for uncut diamonds, she has
not taken the cheque in good faith. Even if the transaction is legal, for example, if Kirsten takes a
cheque as payment for her old television, but she is suspicious of an aspect of the cheque yet does
not make further enquiries, she will not have taken the cheque in good faith.
= A bill has been taken for value if some form of counter-performance has been given for it. Counter-
performance can take on various forms, such as money, goods or services.
= The law of negotiable instruments contains an exception to the nemo plus iuris rule. If the person
who negotiates the bill has a defective title, for example, if he has found or stolen a bearer bill, the
person taking the bill must have no knowledge or suspect that the bill was found or stolen and can
have title to the bill and be a holder in due course.
Ahmed is the owner of a wheelbarrow. He decides to sell it to his friend, Mark. Mark pays him R50 and
becomes the owner of the wheelbarrow. But, if Ahmed has only borrowed the wheelbarrow from his
father and sells it to Mark, Mark cannot become the owner, only the possessor. Even if he thought
that
Ahmed was the owner and could sell him the wheelbarrow, the law will not allow Mark to become the
owner of the wheelbarrow as Mark cannot receive more rights than Ahmed, his predecessor, had.
In the case of a negotiable instrument, the situation is different. If Mark paid Ahmed for
the wheelbarrow with a bearer cheque that he had stolen (Mark is not the owner of the stolen
cheque), Ahmed could become the owner of the cheque. Ahmed would have to satisfy all the
other requirements of a holder in due course and he must have had no knowledge that Mark
had stolen the cheque. If this is the case, then Ahmed becomes owner of the cheque and can
claim payment on it, even though Mark had no title to it.
Here is an example. You sell your computer to Tumi for R3 000. You draw an order bill on her (she
is named as drawee) for R3 000 as payment for the computer. You owe a third party, Sophie, R3 000
so, instead of naming yourself as payee on the bill, you name Sophie as the payee. If Tumi accepts the
bill, by signing her name on it, she is liable to make payment on it. Sophie, as the holder, can claim
the R3 000 from Tumi, the acceptor, if Tumi does not accept the bill or if she accepts the bill, but does
not pay Sophie the R3 000. Sophie can daim the R3 000 from you, the drawer. This is because, when
you draw the bill, you must sign it as drawer before you give it to Sophie. By signing it, you are then
also liable on it. If Sophie indorsed the order bill to somebody else, and neither Tumi nor you paid the
amount to the indorsee, the indorsee could claim the R3 000 from Sophie, the indorser.
20.8 Cheques
Our discussion about bills also applies to cheques. However, there are parts of the BEA that apply only
to cheques and not to other negotiable instruments. There are a number of different markings which
may be placed on cheques, each of which is a specific instruction to a party or has a particular meaning
and effect on a cheque.
We will discuss these provisions in this section after you have completed the following activity.
Activity 20.4
1. Can you remember the difference between a bill and a cheque? Go back to the start of the
chapter, and read the definitions again. Tabulate the differences.
2. Refresh your memory about the parties to a cheque by studying the example below:
L Lawson
LEANNE LAWSON
e Leanne Lawson is the drawer and gives the order to First Choice Bank (the drawee
bank) to make payment to the payee, Daven Govender.
e The collecting bank is a party that is not reflected on a cheque. The collecting bank
is the bank that collects payment on behalf of the holder from the drawee bank. It
may be the same bank but different branches or it may be different banks. If Daven
Govender had a bank account at FNB and he deposited this cheque into his account,
FNB would be the collecting bank and it would collect payment on behalf of Daven
Govenderfrom First Choice Bank.
Sometimes, cheques in particular, are stolen from the possession of true owners. But this does
not mean that a person ‘loses’ his entitlement to be a true owner. As long as you are the person
who is lawfully entitled to possession of the cheque, you will remain the true owner of that
cheque. Moreover, in terms of section 81(1) of the Act, you are entitled (as the true owner)
to claim any losses you incurred as a result of the theft of your cheque from every subsequent
possessor. Think about that for a moment. This section has far reaching implications, as it entitles
you to institute a claim against every single future person who is in possession of your cheque.
General crossing
A cheque with a general crossing may consist of two diagonal, parallel lines. If the words ‘not negotiable’
or ‘not transferable’ occur beeween the lines, the crossing is still a general crossing. A cheque with a
general crossing must be paid into a bank account, but it can be any bank. This cheque will have to be
deposited into Daven Govender'’s account.
In terms of the Act, a cheque with the words ‘not transferable’ on it is considered as being crossed
generally unless it is crossed specially. This means that if a cheque is marked ‘not transferable’ and has
not been crossed with diagonal, parallel lines, it cannot be paid over the counter. The cheque has to be
deposited into a bank account.
Below is an example of a general crossing:
+#0606/s90605 4908693640. 03
Special crossing
A cheque with a special crossing consists of either two diagonal, parallel lines on the face of a cheque,
with the name of a bank between the lines, or the name of a bank on the face of a cheque without the
diagonal, parallel lines. The words ‘not negotiable’ and ‘not transferable’ may also be included, along
with the name of the bank. The special crossing means that the money can only be paid into Daven
Govender’s account at Africa Bank, and not into another of his accounts at some other bank.
L. Lawson
LEANNE LAWSON
.O606!) 490608 1908 691840. 03
Not negotiable
A cheque may be marked ‘not negotiable’. You may be surprised to know that this does not mean that it
cannot be negotiated, but there are certain other consequences.
A ‘not negotiable’ cheque can be transferred, but this is subject to the memo plus iuris rule. The person
who receives the cheque cannot get a better title or give a better title to the cheque than the giver of the
cheque had. This means that, if the person who transferred the cheque was not the owner of the cheque,
the receiver of the cheque would not become the owner of the cheque.
For example, if the person who transfers a cheque marked ‘not negotiable’ to me does not have the
right to daim payment on the cheque, I will nor have the right to claim payment on the cheque. | also
cannot transfer the right to claim payment on the cheque to somebody else. In other words, the person
who takes the cheque can become an ordinary holder, but not a holder in due course, As an ordinary
holder, your rights are more limited than those of a holder in due course.
The other consequence of marking a cheque ‘not negotiable’ along with a crossing is that the rights
of the true owner of the cheque are protected. If a cheque is lost or stolen, the true owner of the cheque
has an action against a person who was in possession of the cheque after it was lost or stolen, even if the
possessor acted in good faith.
This principle is best explained using an example. Portia draws a cheque on Balance Bank in favour
of Precious. She crosses the cheque, marks it ‘not negotiable’ and delivers it to Precious. While Precious
is walking home from university, Xandile steals her handbag along with the cheque. Xandile buys herself
books from Best Bookshop and pays for them with the cheque, which she negotiates to them, Best
Bookshop presents the cheque for payment at Tiptop Bank. Tiptop Bank pays the money into Best
Bookshop’s account.
‘The true owner of the cheque is Precious, because she is the person who is actually entitled to be
in possession of, and claim payment on, the cheque. Since the cheque was crossed and marked ‘not
negotiable’, she will have a claim against a subsequent possessor of the cheque.
In this case, the subsequent possessor will be Best Bookshop. Even though Best Bookshop acted in
good faith, and did not know that the cheque was stolen, Precious will havea claim against them for the
value of the cheque or the actual loss suffered by her, whichever amount is smaller. Tiptop Bank, although
it was also in possession of the cheque, is protected by the Act and cannot be held liable by Precious.
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The result
of either of the markings in these two examples is that the cheque is only valid between the parties
to the cheque: the drawer, the drawee and the payee. Such a cheque cannot be transferred to another person.
If there are no diagonal parallel lines across the face of the cheque (general crossing) but the words
‘not transferable’ are written across the face, the cheque is nevertheless deemed to be crossed generally.
This means that it must be paid into a bank account. It may not be paid over the counter.
Activity 20.5
Complete the following table in your notebook:
Ee ‘Not negotiable’ cheque ‘Not transferable’ cheque
¢ The way in which the marking
is made
* The effect of the marking
* is the cheque negotiable?
In South Africa, cash is regarded as the only form of legal tender. Section 17 of the South
African Reserve Bank Act 90 of 1989 sets out what notes and/or coins may be used and the
quantity of each. Legal tender is the only means by which a debtor may extinguish a monetary
debt. A creditor is not compelled to accept any other form of payment.
Card payments
Electronic funds transfers are also made using a bank card, such as a debit or credit card, Soe
and a PIN. These cards are normally used to pay for goods or services in the shop where phcicabaieeGancic winler or
they are bought or used. These types of transfer are known as an EFTPOS. The creditor point-of-sale.
has an agreement with her bank, which provides them with the technology to effect
this transfer,
Usually, it is a card reading machine and electronic system linked to the banking network. The
customer inserts her card in the machine and enters her PIN. This triggers an electronic payment
instruction to the relevant bank to make payment to the retailer's bank. In the case ofa debit card,
the debtor must have sufficient funds available in the account or have an overdraft facility for the
transfer to be done. A credit card provides the customer with a credit facility,
and the customer can
use this facility until the pre-determined credit limit is reached. They are then charged interest on the
amount they have used.
A recent improvement to the security of debit and credit cards is the introduction of the smart card.
It is the same as the traditional
cards except that the magnetic strip, which provides the card details, has
been replaced with a microcomputer chip. This chip also works in conjunction with a PIN but the card
reader then sends a randomly-coded challenge to the card, which must be answered by the card with the
correct secret key, which has been loaded on the card. This prevents hackers from reading card details
and placing them on a fake card as can be done with a magnetic-strip card_
Banks charge for the various facilities they provide. These costs are charged to their customers
in the form of monthly bank charges. But in most instances, the retailer who makes use of the
electronic network carries the cost. The bank charges the retailer a percentage fee on each
transaction that is processed. So, you may find that some smaller retailers will not accept card
payments because of this cost, or they may charge an additional amount over and above the
price to cover the cost of this fee. As these forms of payment are not legal tender, retailers are
not compelled to accept them, and they may demand payment in cash.
Chapter summary
In this chapter, you learned the following about For a negotiable instrument to be valid, it must include
methods of payment: an unconditional, written order by the drawer to
A negotiable instrument is a document that can the drawee to pay an amount, certain in money, on
easily be transferred and that can be used to make demand, or at a fixed or determinable future date. The
payment instead of cash. This chapter has examined the order must be addressed by the drawer to the drawee.
nature of negotiable instruments in some detail. The drawer must sign the order and payment must be
There are three kinds of negotiable instruments: made to a specified person, or her order or bearer.
= bills of exchange Features on a negotiable instrument, such as the
= cheques date, place of drawing, place of payment and amount
@ promissory notes. in words and figures, are non-essential elements.
Their absence will not make a bill invalid.
1. Thabo draws a cheque on Big Bank in favour of 3. Brian draws a cheque on ABC Bank for R1 300
Alison or order. in favour of Golden Goods Jewellery store or
a) Identify the drawer, drawee and payee. order. Brian crosses the cheque and adds the words
b) Is this cheque an order or a bearer cheque? ‘account payee only’ in between the lines. Golden
c) Can Alison negotiate the cheque? Goods Jewellery receives the cheque and indorses
d) If your answer to (c) was yes, how can she it to Goolam Goldsmith to whom Golden Goods
do so? owes money for the manufacture of jewellery.
2. Explain the difference between the results ofa ‘not Goolam Goldsmith presents the cheque to ABC
negotiable’ and a ‘nor transferable’ marking on Bank for payment, but ABC Bank refuses to pay
a cheque. him, saying that valid negotiation cannot take place
with his credit card. He has a lot of parcels and be paid by the 25 January 2018. Erica only gets
does not notice when his wallet, with his credit paid on the 25th of each month, so she waits
card, falls out of his pocket. Sarah, who is behind until she gets paid on 25 January 2018, and she
him in the queue, picks up his card, and she immediately
does an electronic funds transfer
immediately uses it to pay for her groceries. She is via internet banking to pay her Woolworths
able to use it because she saw Roger's PIN when he instalment. When she tries to use her Woolworths
entered it. When Roger gets home he discovers that card on 26 January 2018, the cashier tells her that
he has lost his wallet, and he immediately phones the card has been frozen because of an outstanding
the bank to inform them of the loss. They tell him payment. Is Erica’s payment outstanding?
Further reading
Malan, ER. and Pretorius, J.T. 2015. Malan on Bill of Exchange, Van der Merwe, D.P. ct al. 2016. Information
and Communications
Cheques and Promissory Notes, Sth odin, Durban: LexisNexis Technology Law, 2nd edn. Durban: LexisNexis South Africa
South Africa
Sharrock, R. (ed). 2016. The Law of Banking and Payment in
South Africa. Cape Town: Jura and Ca. (Pry) Led
When a person or business cannot pay his, her or its debts, this is called ‘insolvency’. This chapter
provides you with an overview of the legal aspects attached to and flowing from the fact that a person
or business is insolvent. Insolvency describes the situation where a business or person owes more money
than he, she or it actually has. Put differently, insolvency occurs when you are unable to pay the debts
you owe. Insolvency is governed by the Insolvency Act 24 of 1936, The chapter focuses on the key legal
principles that apply when a person or a business cannot pay their debts, First, we will define important
legal terms and identify the parties who are involved. Next, we will outline the legal proceedings that
are applicable, consider the effects of sequestration and explore how an insolvent may recover from
insolvency. Finally, we will look at the winding-up of a company under the relevant legislation and
business rescue.
Parties who are married in community of property have a joint estate. If one spouse's business
goes insolvent, that spouse does not have a separate estate that is sequestrated. Instead, their
joint estate is sequestrated. This is the case even if the other spouse had no dealings with the
insolvent business venture or the reasons that led to insolvency. Accordingly, both spouses
will be declared insolvent in terms of the Act. Insolvency therefore has very serious and harsh
consequences for spouses who are married in community of property.
Parties who are married out of community of property, with or without accrual, have
separate estates. When one spouse's estate is sequestrated, the solvent spouse's estate is not
sequestrated. But, the solvent’s estate is not unaffected by the insolvent spouse’s sequestration.
Later, we will discuss how the Insolvency Act 24 of 1936 impacts the solvent spouse’s estate.
Activity 21.1
Draw a line down the middle of a page, creating a table. On the one side, list all your assets,
including any income that you may get in the form of an allowance or salary. On the other side,
list all your expenses and liabilities. Once this is complete, you will get a good sense of whether
you are solvent or insolvent.
In many instances, a failure by the insolvent to carry out his duties will lead to him committing a
criminal offence under the Insolvency Act 24 of 1936,
a special meeting
a general meeting.
Sally's brother, Senzo, would like to be appointed as trustee to Sally's insolvent estate, since he
was Sally's auditor for two years until just a few months ago. Therefore, he thinks that he would
be best placed for the position of trustee. If you were the Master of the High Court, would you
have any objection to Senzo being appointed as trustee to the insolvent estate?
The Insolvency Act 24 of 1936 is very clear that certain relatives are disqualified from acting
as trustee. Another ground for disqualifying Senzo from acting as trustee is that he was the
auditor during a twelve-month period before sequestration.
Sally has recently been sequestrated under the Insolvency Act 24 of 1936. The trustee
who has been appointed to administer and manage Sally's insolvent estate bought a car
that Sally advertised and sold for a very low price, as she (Sally) was desperate for cash, If
you were the Master of the High Court, would this be grounds for action to be taken against
the trustee?
This transaction poses a potential conflict of interest. Firstly, the insolvent is not allowed
to dispose of assets without permission from the trustee, as this would jeopardise the
interests of the creditors. Secondly, since the trustee seemingly approved the transaction by
his participation in it, he is acting against the interests of the creditors by trying to ‘cash in’
on a good deal for his personal benefit, knowing that this would deprive the insolvent estate
of an asset without getting the proper price for it. As the Master, | would remove the trustee
from office.
Activity 21.2
Think about the reasons that led the legislature to come up with the above lists of persons who
are disqualified from being a trustee, or when a trustee can be forced to vacate her office and
who can be removed from office by the Master. Who and what do you think the law was trying
to protect? Discuss this with a classmate and record your answers.
Using our example, Uncle Somizi has the option of personally applying to the court to have his estate
sequestrated, If he does not voluntarily surrender and if he get deeper into debt, then his creditors have
the option of compulsorily sequestrating his estate.
As well as proving the above three requirements, the debtor must also comply with certain formalities
(section 4). These formalities protect the creditors as they aim to notify them within a reasonable
time that one of their debtors intends to apply for voluntary surrender. ‘This will then give the
Once a notice of surrender has been published and these procedural steps have been complied with,
certain consequences follow:
The debtor may not sell any property in the estate, which has been attached under a court order or
other similar process.
‘The Master may appoint a curator bonis to the debtor's estate as a safety measure to stop the debtor
from selling or squandering his assets in the interim.
If the debtor fails to lodge his statement of affairs, or lodges one that is incomplete or incorrect, or
fails to apply to court on the date set out, and the notice of surrender is not properly drawn, then
the debtor commits an act of insolvency, which means that a creditor can apply for
h | 2 Pwdebror An act of insolvency
the compulsory sequestration of the debtor's estate. is ari eck conrimnibied by
If the debtor wishes to withdraw the notice of surrender, he needs to obtain written the debtor whereby he
permission from the Master. benefits one creditor
The notice of surrender and the debtor's application for voluntary surrender lapse if the _9F another. This will be
court does not accept the surrender, or if the notice was not properly drawn, or if the discussed in more detail in
the next section.
debtor fails to bring the application within 14 days after the date specified. If a curator
bonis was appointed, then the estate must be restored to the debtor once the Master is
satisfied that the costs will be paid.
The debtor may not appeal an order rejecting the surrender of an estate. But, an interested party may
appeal an order accepting the surrender of an estate.
Activity 21.3
Draw up a comparison of the three requirements for voluntary surrender and compulsory
sequestration in a table. The third requirement for each process makes reference to ‘advantage
to creditors’. But, under voluntary surrender, the debtor must prove that sequestration ‘will be’
to the advantage of creditors whereas, under compulsory sequestration, the creditor/s must
prove that there is ‘reason to believe’ that sequestration will be to the advantage of creditors.
Which requirement is the stricter one? What do you think is the reason for the different wording
for this third requirement under each process? Discuss your answers with a classmate.
One of the requirements for compulsory sequestration is that creditors must prove that the
debtor committed an act of insolvency or is insolvent. The creditors are unlikely to have access
to the debtor's financial records to prove that his liabilities exceed his assets, so it may not be
possible to prove that he is insolvent. To assist the creditors, the legislature designed a list of acts
of insolvency. If the creditors can prove that the debtor committed an act of insolvency, this will
allow them to apply for the compulsory sequestration of his estate without having to establish
that the debtor is insolvent. In terms of section 8 of the Insolvency Act 24 of 1936, these acts of
insolvency come into effect if the debtor:
e left the country with the intention of evading or delaying payment of his debts
e was ordered by a court to pay a creditor, but he was unable to do so, or he did not show
the sheriff of the court enough property that could be sold to satisfy that court order
e made or attempted to make a disposition of his property which has, or would have the
effect of prejudicing his creditors or of preferring one creditor over another
e removed or attempted to remove any of his property with the intent to prejudice his
creditors or to prefer one creditor above another creditor
e made or offered to make any arrangement with any of his creditors to release him entirely
or in part from his debts
¢ published a notice of surrender and then failed to prepare and lodge a statement of affairs,
in duplicate, at the Master's office as prescribed by the Act, or lodged a statement of affairs
that is incorrect or incomplete in a material aspect, or failed to apply for acceptance of the
surrender on the specified date
¢ gave notice in writing to any one of his creditors that he is unable to pay any of his debts
e isa trader and he gave notice in the Government Gazette.
Let us look at a case example relating to the first act of insolvency — evading or delaying payment of debts.
Principle
In order to prove this act of insolvency, the creditor must prove that the debtor's intention in
leaving was to evade or delay payment of his debts.
Facts
The debtor, a director of a company, went to another town, supposedly to visit his sick wife.
Before he left, he appointed a person to take over as co-director of the business, he got rid
of certain office equipment and he terminated his residential lease. He also did not provide
any forwarding address, and he ignored business mail. When he arrived in the other town, he
immediately resigned from the company.
The court's finding
The court held that the debtor's overall actions gave rise to the clear inference that the debtor's
true intention was to evade payment, and not visit his sick wife.
Friendly sequestrations
‘The application for compulsory sequestration may be brought by a creditor that the debtor knows,
such as a friend or a family member. This is known as a friendly sequestration and its goal is to help the
debtor. These are the advantages for the debtor:
@ = ‘The application may be brought on an urgent basis without having to comply with any of the
preliminary formalities, such as the advance notice to creditors, under voluntary surrender.
@ = The requirements that must be satisfied under a friendly sequestration are far less onerous than
under voluntary surrender.
A friendly sequestration
While friendly sequestrations are not prohibited, the courts approach these applications is a compulsory
with caution, as there is room for conspiracy and collusion between the creditor and the sequestration where the
debtor because of their relationship. For example, they may hide or suppress important sequestrating creditor:
known by the the debtor.
information, or manufacture false evidence in order to mislead the court and creditors.
The court, in Craggs v Dedekind; Baartman v Baartman and Another; Van Jaarsveld v Roebuck;
Van Aardt v Borrett 1996 (1) SA 935 (C) at 937, described friendly sequestrations as follows:
‘Friendly sequestrations seem to share certain characteristics. Although, like pornography,
they may be hard to define, they are easy to recognise. The debt which the sequestrating
creditor relies upon is almost always a loan. It is usually quite a small loan, very often made
in circumstances where it would have been apparent to the whole world that the respondent
was in serious financial difficulty. Despite this, the loan is customarily made without security
of any sort. It is seldom evidenced by a written agreement, or even subsequently recorded in
writing. The only writing that is produced to the Court is the letter stating, with appropriate
expressions of dismay, that the debt cannot be paid, and, sometimes, for good measure,
setting out details of the respondent's assets and liabilities. Very often debtor and creditor are
related: fathers commonly sequestrate sons, wives sequestrate husbands and sweethearts
sequestrate each other, without, | am sure, any damaging effect on their relationship.’
It is possible for a creditor to bring an application for compulsory sequestration with malicious
intention — perhaps to bully or intimidate the debtor. If the court has good reason to believe that
the application amounts to an abuse of the court’s procedure or is malicious or vexatious, it may
allow the debtor to prove the extent of the damages that he suffered as a result (section 15).
The debtor will also have a common law remedy for damages on the basis that the sequestrating
creditor brought the application without reasonable and probable cause.
Activity 21.4
Draw a flow chart of the two different types of sequestration process under the Insolvency
Act 24 of 1936. This will help you to remember and study the two processes. When you have
done this, compare your flow chart with that of a classmate to see if either of you missed out
any important information.
In insolvency law, ‘spouse’ includes any spouse who is married under any law, Customary practice
or tradition, and this includes civil unions. The term also includes same-sex partners, even if the
parties are not married. But, strangely, if the insolvent is separated from his legal spouse and is
living with another person who is he not married to, only the legal spouse's estate will vest in the
Master and then the trustee.
Activity 21.5
The law of insolvency has a negative impact on the spouse of the debtor, whether they are
married in or out of community of property. Compare and contrast the legal position of a spouse
who is married to the debtor in community of property to that of a spouse who is married to the
debtor out of community of property. Do you think it is fair that the law of insolvency has such a
harsh impact on the legal position of the spouse? What are the reasons for your answer? Discuss
your answers with a classmate.
If an insolvent has been provisionally sequestrated (or before), the insolvent may enter into a
written agreement with his creditors and the trustee (if a provisional trustee has been appointed)
to pay a certain amount on his debts on condition that the provisional order of sequestration is
discharged. This is a common law compromise, and it requires consent from all the creditors.
Section 119 of the Insolvency Act 24 of 1936 allows for an insolvent, whose estate has been
finally sequestrated, to avoid some of the effects of sequestration and shorten his period of
insolvency by entering into a statutory composition with his creditors. Here, if the majority of the
creditors accept the insolvent’s offer of payment, the minority of the creditors are also bound
by this acceptance. If the offer of composition is not less than 50 cents in the rand for every
concurrent claim, then the insolvent has the advantage of applying to court for early rehabilitation,
The Act comprehensively sets out the procedures and preliminary steps to be followed for an application
for rehabilitation.
‘The court must provide sound reasons for arriving at its decision to either postpone rehabilitation, grant
rehabilitation subject to a condition, or to refuse rehabilitation.
Compulsory winding-up
‘The process of compulsory winding-up is initiated by an application to court. The application is brought
by either of the following parties:
@ = by acreditor, in the case of an insolvent company
m by ashareholder in the case of a solvent company.
Voluntary winding-up
If a company chooses to close itself down in a process of voluntary winding-up, there are two options
available to the company:
= acreditors’ voluntary winding-up
= ~amembers’ voluntary winding-up.
A creditors’ voluntary winding-up may be used when the company is unable to pay its debts. A
members’ voluntary winding-up will be allowed by the court only if the company is able to pay its debts
in full. Otherwise, the members must provide the Master with security for payment of the debts of the
company. The security that could be provided here would include, for instance, life insurance policies or
immovable property, such as a house, flat or piece of land.
Let us look at these processes in more detail.
Winding-up by a court
The following people may apply to the court for the winding-up of a company:
the company
one or more of the company’s creditors
one or more of the company’s members
any of all of the above-listed parties
the Master
a provisional or final judicial manager.
‘The following people may apply for the winding-up ofa solvent company:
= the company, in the case of a special resolution
= =the company, or one or more directors, shareholders or creditors in the instance of it being just and
equitable to wind-up the company
@ =the company where there is a conversion of a voluntary winding-up into a winding-up by a court
® the business rescue practitioner, in a case where there is no reasonable prospect of rescuing
the company
= the company, or one or more directors or shareholders where there is a deadlock in the
management voting
@ any shareholder in a case where there is fraud, illegality or misuse of the company’s assets
= =the Companies and Intellectual Property Commission or Takeover Regulation Panel where there is a
failure to comply with a compliance notice in the instance of the directors, officers or other persons
controlling the business being engaged in fraudulent or illegal activity.
Note that at least two meetings of creditors must be held in the instance of a winding-up by the court
and in a creditors’ voluntary winding-up. The purpose is to:
® nominate a liquidator
= prove claims
®@ examine the company’s statement of affairs
@ interrogate any relevant person.
In carrying out these functions, the liquidator must bear in mind that he has a general Khuda ee eee
fiduciary duty towards the company, its members and the creditors, ‘The liquidator must that the liquidator is in a
consider the interests of the members as a whole, and not the individual interests of the position of trust, and has a
members. The same applies in respect of the creditor's interests. duty to act independently
and impartially at all times.
‘The specific statutory duties of the liquidator are as follows:
® to provide relevant information to the Master
® to keep proper records of all property, money, books and other relevant documents that she receives
on behalf of the company
® = to allow the creditors and the Master to inspect such records;
® to open a current bank account in the company’s name, and deposit all money received on behalf of
the company
® to examine the company’s transactions in order to determine whether any directors and officers
(former or present) have contravened the 1973 Act or committed an offence in this regard with a
view to determine whether they need to be disqualified
= = to submit a full report in this regard to the Master, which is then forwarded to the Director of
Public Prosecutions
® to report fully on the company’s affairs to the creditors within the prescribed time period
@ to prepare a liquidation and distribution account and lodge it with the Master within the prescribed
time period, which will then be made available for inspection
® to distribute the estate, collect contributions, share any remaining amounts among the members,
once the Master has confirmed the liquidation and distribution account.
liquidator may exercise the following powers with the Master's consent:
to terminate a lease agreement under which the company is the lessee, at any time before the general
meeting (section 386(2) of the 1973 Act)
to sell any property at any time before the general meeting (section 386(2A)—(2B) of the 1973 Act)
to take urgent legal proceedings for the recovery of outstanding accounts (section 386(4) (a) of the
1973 Act).
liquidator may exercise the following powers with the consent of the members and/or creditors:
to bring or defend in the name and on behalf of the company any action or other legal proceedings
for the recovery of outstanding accounts
to agree to any reasonable offer of composition made to the company by a debtor and to accept
payment of any part of a debt due to the company in settlement of a debt
to compromise or admit any claim or demand against the company, including an unliquidated claim
to make an arrangement with creditors, including creditors in respect of unliquidated claims, except
where the company being wound up is unable to pay its debts
to submit disputes to arbitration
to carry on or discontinue any part of the company’s business, if it would be necessary for winding-up
to enforce or repudiate contracts for the acquisition of property that have not been completed by
the company
to sell any movable and immovable property of the company by public auction, public tender or
private contract and to deliver the property
to perform any act or exercise any power for which she is not expressly required by the 1973 Act to
obtain the permission of the court (section 386(4) of the 1973 Act).
A court may remove a liquidator from office upon application by the Master or any other interested party if
the Master failed to do so and if it would benefit all relevant parties (section 379(2) of the 1973 Act).
Business rescue
When a company is in financial distress, business rescue serves as one of two alternatives to winding-up.
The other alternative to the company is to reach a compromise with its creditors (discussed below).
The aim of business rescue is for the business rescue practitioner to help the company out of its
financial distress by facilitating its rehabilitation through the following:
@ the drafting and implantation ofa business rescue plan
= the temporary suspension of the rights of claimants against the company
@ = the temporary supervision of the company and its affairs.
‘The business rescue practitioner will be held liable for gross negligence in the scope of his duties (section
140(3) of the 2008 Act).
Once the plan is published and approved in terms of the 2008 Act, it is binding on the company, its
creditors and shareholders.
Compromise
Compromise is the second alternative to winding-up when a company is in financial distress
(section 155 of the 2008 Act).
® A compromise may take place even if the company is under liquidation.
= When a company opts for this procedure, it enters into a payment agreement with its creditors.
@ To take effect, the compromise must be approved by a majority of creditors — majority in numbers,
representing 75% or more in value.
The compromise must be sanctioned by the court. The court will sanction the compromise if it is just
and equitable. Once the compromise is sanctioned by the court, it is binding on all creditors.
Chapter summary
In this chapter, you learned the following about the law The main aim of sequestration is to ensure that the
of insolvency: insolvent's creditors receive a fair and equitable portion
An insolvent person is someone who cannot pay of the insolvent’s estate as payment of their debts.
their debts — their liabilities are more than their assets. ‘The Insolvency Act 24 of 1936 regulates and governs
Sequestration is the process whereby the court the sequestration of a debtor's estate.
formally declares that a debtor's estate is insolvent.
1. Refer back to the example with Uncle Somizi and 4. What is a friendly sequestration?
Aunt Shelley. What legal advice would you give them? 5. Critically analyse the meaning of ‘spouse’ in
2. What are the requirements for the voluntary insolvency law.
surrender ofa debtor's estate? 6. Who qualifies as a debtor?
3. What are the requirements for the compulsory 7. Compare the powers and duties of the trustee and
sequestration of a debtor's estate? the liquidator.
Further reading
Bertelsmann, E. et al. 2008. Mars: The Law of Insolvency in Sharrock, R. et al. 2012. Hockly’ Insolvency Law, 9th edn.
South Africa, 9th edn. Cape Town: Juta and Co. (Pry) Ltd Cape Town: Juta and Co. (Pty) Ltd
When someone dies, the law specifies which people will inherit the property of the dead person. This
chapter looks at the contents of a will, who inherits the estate, both when there is a will and when there
is not. We will also examine the formal process provided for in the law to ensure that creditors and heirs
are paid out fairly.
As witnesses: 1.
Sazi Ntuli
Testator 2.
We will now discuss the contents of the will shown in Figure 22.1. Asa a cecice Waa
A person who wishes to leave a will must sign a document clearly identifying it asa Last contact, Act or will,
Will and Testament, and stating their name (clause 1).
Although not required by law, it is important to include a revocation clause (clause 2). A revocation clause
revokes, or cancels, all previous wills. If a revocation clause is not included, the law will recognise the contents
of earlier wills. This may lead to confusion or frustration in respect of the testator's wishes if the wills differ.
Wills may contain legacies (clauses 3 and 4). A legacy is a specific asset or specific amount of money that
is left to a named legatee by the testator in the will. In our example, the legacies are the laptop, motor vehicle
and the sum of R10 000, and the legatees are Thulani Ntuli and the Nelson Mandela Foundation. It is not
essential that a will contains legacies and the inclusion of any legacy will depend on the testator’s wishes.
The usual meaning of spouse is a party to a marriage or civil union in terms of the Matrimonial
Property Act 88 of 1984, the Civil Union Act 17 of 2006 and the Recognition of Customary
Marriages Act 120 of 1998, the last of which permits polygamous marriages. Same-sex partners
can enter into a civil union, which is recognised in the same manner by the law as a marriage is.
In our constitutional democracy, the meaning of the term ‘spouse’ in the Intestate Succession
Act has received much attention from the courts, with the Constitutional Court making great
strides in expanding on the meaning of spouse under our law. This issue has been a particularly
controversial one in respect of survivors of certain relationships that are not formally recognised
by the law, for example, the spouses in a religious marriage or same-sex partners. A religious
marriage takes place under the customary law of a particular religion but is not recognised
by the law because it does not meet the requirements of the civil law as there is no formally
appointed marriage officer or marriage licence as is the case with a conventional marriage or civil
union between same-sex partners.
Examples of relationships that are not formally recognised by the law but have been recognised
for the purposes of intestate succession and the meaning of ‘spouse’ include the following:
* monogamous Muslim marriages
¢ polygamous Muslim marriages
e Hindu marriages
e survivors of same-sex life partnerships who have undertaken reciprocal duties of support.
Where does this leave survivors of a heterosexual or homosexual life partnership who are not
married? As the law currently stands, heterosexual life partners will not inherit from their deceased
intestate partners, and this is problematic if one considers the equality clause in the Bill of Rights
and the right not to be discriminated against on the basis of marital status or sexual orientation.
Let us consider the example of the family tree shown in Figure 22.2 to understand this concept better.
Mpho
deceased
| ‘|
Lesedi . |
predeceased | Thato Bandile
Unathi | Faith |
In the family tree, you will see that Mpho has died. He had three sons — Lesedi, Thato and Bandile. Each
son forms a branch of the family tree. Lesedi pre-deceased Mpho, but Lesedi had two daughters, Unathi
and Faith, who are both still alive. Thato and Bandile do not have children. So, Mpho is survived by the
descendants of his pre-deceased child (Unathi and Faith) and two of his children (Thato and Bandile).
Unathi and Faith belong to one branch, so although each branch will receive one-third of Mpho’s estate,
Unathi and Faith will each receive only one-sixth of the estate, as they share equally in one branch.
It has long been part of our common law that a murderer is unworthy to receive a benefit from his
victim's estate. This principle is expressed in the law by the maxim de bloedige hand neemt geen erf,
which means ‘the bloody hand takes no inheritance’. Murder involves intention on the part of the
perpetrator. But, what about a situation where a person is responsible for the negligent death of another?
Let us look at a case example.
Principle
Where someone is responsible for the negligent death of another, they cannot inherit from
their victim,
Facts
The husband of the deceased had gone to bed with his pistol, as was his habit, and at some
point during the night he accidentally shot and killed his wife.
The court's finding
The court held that the husband of the deceased (his wife) was unworthy and could not inherit
from his victim.
Since it is a criminal offence to destroy, conceal, falsify or damage a will in terms of section 102(1)(a) of
the Administration of Estates Act 66 of 1965, you will see from the case example below that an heir who
forges a deceased's will, will be unworthy to inherit.
Principle
Someone who interferes with the will of a deceased person may not be capable of inheriting
from the deceased estate.
Facts
The son of the deceased, Nagan, forged his mother’s will, and named himself in the will as the
sole heir of her estate.
The court's finding
The court held that Nagan intended to deprive his brothers and sisters of their share of their
mother's intestate estate, and he was found to be unworthy. The court ordered that the estate
be divided between Nagan’s brothers and sisters in terms of intestate succession, and that he
should not receive a share.
The executor
‘The executor is usually nominated in a will if the deceased died testate.
If the deceased died without a will, then the heirs nominate an executor. The Misappropriate means
Administration of Estates Act requires that an executor provides security for the proper ‘to steal assets, give them
performance of her duties. Security would be in the form of a guarantee from an insurance —_ away or sell them for less
company. The insurance company provides the surety bond on the basis of the executor's than their value’.
own assets. The executor must pay an insurance premium for as long as the surety bond
lasts. If the executor misappropriates estate property, then the Master can claim the Exempted means ‘free
necessary amount from the bond to pay back the estate. from’ and an example of
An executor does not have to provide security in the following instances: ECE ne
m if the executor has been exempted from providing security in the will ee
will in section 1.2.
@ = if the executor is the parent, spouse or child of the deceased.
Once the Master has appointed an executor, the executor begins to administer the estate.
Regulation 5(1) of the Administration of Estates Act sets out in detail the format of the liquidation and
distribution account. Other charges on the estate include administration costs such as the Master's fees
Chapter summary
In this chapter, you have learned the following about ® = If the testator makes a mark or has someone else
the law of succession: sign the will on her behalf, a Commissioner of
= = The Wills Act 7 of 1953 governs the making of Oaths must attach a certificate confirming the
wills in our law. testator's identity and that it is, in fact, the will of
= Generally, all persons have freedom of testation, the testator.
but the law does place common law and legislative = All wills must be signed in the presence of two
limits on this freedom. witnesses who may not sign with a mark.
m= Anyone who is over the age of 16 years can
make a will unless they are mentally incapable of A testator has a wide choice of what is permissable in a
understanding what they are doing. will. Two things are essential:
= Avwill must be in writing, and it needs a signature ® a revocation clause
or mark of the testator, or it must be signed by = actause that states how the residue of the estate
someone on behalf of the testator. should be divided up.
1. Explain how someone who is paralysed or illiterate, If the facts were the same as in question 5 above,
and not able to sign their name, can make a will. but Mlandu was married to Rachel out of
2. Draft a will for your own estate and include a community of property, would your answer be
revocation clause, a legacy and a bequest regarding different and, if so, how?
the residue of the estate. Bob and Tumi are married. On their way home
3. Portia is 15 years old and has inherited R2 million from Cape Town, Bob is driving, but falls asleep
from her grandfather. Can she make a will for herself? and the vehicle is involved in a serious accident.
4. Explain the difference between testate and intestate Tumi dies in the accident. Tumi left a will in which
succession. she bequeathed her whole estate to Bob. Will Bob
5. Mlandu has died intestate and has left an estate be able to inherit from Tumi?
valued at R1 million. Mlandu is survived by the Compare the duties of an executor and a Master's
following persons: representative.
® his wife, Rachel, to whom he was married in Maxine dies intestate and leaves an estate
community of property valued at R500 000. Maxine is survived by the
@ his ex-wife, Nomsa following persons:
m his sons, Bradley and James, from his marriage @ her husband Thabo to whom she was married
to Rachel out of community of property
® = three grandchildren, Thembeka, Viwe and ® her daughter Prudence
Prosper, the children of his pre-deceased m two grandchildren, Trecia and Chido, the
son, Tobile children of her pre-deceased son, Tobile
@ his parents, Thabo and Tricia. = her parents, Sipho and Thembeka.
a) Who will inherit the estate? a) Who will inherit the estate?
b) What is the amount of each heir’s inheritance? b) What is the amount of each heir’s inheritance?
Further reading
Abrie, W. et al. 2015. Deceased Estates, 10th edn. For information on the administration of deceased estates, go to
Durban: LexisNexis South Africa the official website of the Master of the High Court.
De Waal, M.J. and Schoeman-Malan, M.C. 2015. Law of
Succession, Sth edn. Cape Town: Juta and Co. (Pry) Ltd
De Vos. P. “Moralistic view of marriage leaves unmarried
couples unprotected’
https://constitutionallyspeaking,co.za/moralistic-view-of-
marriage-leaves-unmarried-couples-unprotected/
Businesses and individuals often need additional money or finance before they can grow and develop.
Certain institutions and other persons may be willing to lend money to someone for these purposes, but
they will usually only agree to do so if they can be sure, or at least reasonably sure, that the money will
be repaid, usually with interest too. This chapter explains how loans are secured to make sure there will
be money to repay them.
The words ‘lend’ and ‘borrow’ can be confusing. Please lend me your textbook. Please may |
borrow your textbook? The correct use of these terms is as follows: | lend you my textbook.
You borrow the textbook from me.
It can be a bit confusing when the word ‘mortgage’ is sometimes used as another word for
real security. However, it is also just one example of real security. For example, a bank manager
might say that the bank requires a ‘mortgage or real security’ for a debt, when in fact the bank
manager would prefer the ‘mortgage’ to take the form of a pledge or lien.
The word ‘mortgage’ also has a narrower meaning as a specific type of real security. For
example, ABC Bank, which lent Andiswa money to buy her house, has real security in the form
of a mortgage bond over the house she bought.
Activity 23.1
1. Draw up a table in which you list the primary differences between real and personal
security, including the strength or value of each.
2. Write a scenario in which both real and personal security could be created to secure the
same debt. When writing your short paragraph and without being aware of what the law
is, Keep in mind the natural, logical ‘rules’ that society needs in order to operate smoothly.
But before you learn about the three forms of real security, there are some important things to remember
about real security in general. ‘The holder of real security has no right to use and enjoy the property of
the debtor. The property just serves as a guarantee that the debtor will do what she promised to do. For
example, ifa bank holds a mortgage over a debtor's house, the bank manager has absolutely no right to
live in the house.
Real security also cannot exist on its own. Real security can only exist if there is a valid and
enforceable principal debt. ‘The principal debt is the main debt to which the real security relates.
For example, you borrow money from a bank to buy a house on the condition that the house is
mortgaged. The principal debt is the money you borrowed from the bank.
In legal language, we say that real security is accessory, because an accessory is An eeassory to a cine
something that goes with something else. In law, the real security is accessory because, is someone who helped a
without the debt, there is no security. For example, a bank agrees to lend Asieff money, if he _ criminal to commit a crime.
offers his car as real security. If the bank does not actually lend Asieff the money, then there
is no mortgage over his car.
Although real security is accessory, the security may still be used to secure a debt that
An overdraft is granted
may only arise in the future. An example of such a situation is real security being used to ip youiniens bank
secure an overdraft with a bank. agrees that you can take
For example, Devdas wants to start up his own flight-training centre. He has enough more money out of the
money to start with, but knows that he may need an overdraft facility at some point. bank than you actually
Devdas can offer the bank one of his aircraft as real security for the possible future debt thar have in your account.
would arise if he used the overdraft facility.
Note that only something that can be privately owned can be subject to real security. For example,
I may not mortgage a part of the ocean as real security for a debt, as people do not own the ocean.
ba TD A Consequence of co-suretyship
Assume that six sureties equally guarantee a debt of R12 000. The creditor releases two of them.
Their proportionate, or pro rata, shares are R2 000 each. The remaining four co-sureties are then
only liable to the creditor for R8 000 in total.
Northern Cape Co-operative Livestock Agency Ltd v John Roderick and Co. Ltd
1965 (2) SA 64 (O)
Principles
The applicable principle of the case was that all the essential requirements of the suretyship
contract must be included in the written contract for it to be valid.
Facts
A dispute existed between the creditor company that wanted to claim a debt owed to it by a
debtor and another company that the creditor said was bound to pay it for this debt as the
surety. The question was whether all the requirements in the written contract amounted to a
contract of suretyship.
If the identity of the principal debtor is not stated, but can be worked out from a document :
i eA iaodk hi a cell beleatcmn Th Adocument that is referred
ncorporated into the suretyship agreement by reference, that wil be sufficient. The teins cone cto
suretyship contract stating the principal debtor's identity will be indicated in a letter be incorporated into that
attached to the contract, and must be signed by the surety. contract by reference.
One special type of suretyship contract, called an aval, has its own special ‘in writing’
rules. When someone signs a cheque, there is always a danger that the cheque will bounce —in other
words, there may not be enough money in the bank account of the person who signed the cheque.
An aval isa special type of suretyship arrangement where someone stands surety for the cheque being
honoured (that is, paid out). An aval is different from other types of suretyship in that no separate
suretyship contract is required. Instead, all the surety needs to do is sign the back of the cheque.
Riaan is paid R25 000 to build a wall for a school. Liziwe stands surety that Riaan will build the
wall, but if he does not do so then she (Liziwe) will repay the R25 000. Here, the principal debtor's
obligation is to build the wall, but the surety’s obligation is to repay the debt, if necessary.
Defences
The surety generally has the same defences that the principal debtor has against a claim by the creditor. If
a surety is asked to pay a debt by the creditor, she should tell the principal debtor about this so that the
debtor may reveal any defences that are available. A surety, who pays the creditor without first advising
Principle
A defence is available to the principal debtor but not the surety because of peculiar personal
circumstances — a personal privilege — of the debtor, which the law protects, but no such
personal circumstances exist to give the surety that defence.
Facts
The principal debtor was on military service during World War |. In terms of a particular law, people
on military service could not be sued. The surety for the principal debt tried to raise the defence that
he, too, should not be sued, because the principal debtor’s defence should also apply to him.
The court's finding
The surety did have to pay once the debt was due. The surety, in such a situation, would be
able to reclaim the money that was paid from the principal debtor once his privilege had ceased
(once the principal debtor was no longer on military service).
Excussion
This is the right of the surety to demand that a creditor first sues the principal debtor before suing the
surety. The surety can choose whether or not to claim this right. If the creditor tells the surety that the
debt is due and unpaid, and that it is planning to claim against the principal debtor, and the surety
allows the creditor to do so, then the surety is said to have chosen the right of excussion by implication.
Where the surety has chosen to make use of excussion and the creditor does not get any money from the
principal debtor, the surety will have to pay the extra costs spent by the creditor in claiming from the principal
debtor. This is called a “barren harvest’. The extra costs could, for example, be the costs of employing lawyers
to help the creditor with its claim against the principal debtor. But if the creditor sued the principal debtor
without the surety having claimed excussion, the extra costs would be payable by the creditor.
Excussion cannot be claimed in the circumstances described below.
= = If the surety has, expressly or by implication, indicated that she will not claim the right of excussion,
then excussion cannot be claimed. For example, it is possible for the surety also to be a debtor —
what is called a co-principal debtor. In this case, the surety is both liable for the debt herself and is
standing surety for another person's debt. Where the surety is also a co-principal debtor, she cannot
claim excussion because if she did so, the surety would effectively be saying, ‘Do not sue me until
you have sued me’, which clearly makes no sense. Being both a surety and a co-principal debtor
implies that the surety has formally abandoned the right to claim excussion.
= = The benefit of excussion will also not be available where neither the debtor nor her property is in the
jurisdiction of the court. This is because it would just be wasting time to force the creditor to sue
the principal debtor, as there would be no way for the creditor to get its money.
= Where the principal debtor's estate has been sequestrated, excussion cannot be claimed, because it
would also be a waste of time.
Division
We already know that co-sureties are jointly and severally liable to the creditor for the whole debt owed
by the principal debtor. Ifa co-surety does pay the debt to the creditor, that co-surety has the right to
claim from the other co-sureties his share of the debt.
The right of division means that a co-surety who wishes to avoid the trouble and expense of later
suing his co-sureties for their share of the debt may demand that the creditor sues the other sureties for
their share of the debt and that it sues him for the proportionate share only. Then, the obligation of the
surety for more than his share, falls away.
For example Jane and Anne are co-sureties for Thandi’s debt of R10 000 from ABC Bank. If Jane is
sued for the full R10 000, then, in claiming division, she will have to pay only RS 000 and ABC Bank
will have to claim the other R5 000 from Anne.
Division does not result in the debt necessarily being divided by the number of sureties. A surety who
has no money or is insolvent at the time the division is claimed is disregarded as a surety.
For example, Brad, Vikash and Thandi are co-sureties for Terry's R120 000 loan from Quality Bank.
Terry cannot pay the debt and Quality Bank sues Brad for the full R120 000. Vikash is insolvent. If Brad
claims division, then he will be sued for R60 000 only and Thandi for the remaining R60 000.
A surety who is outside the jurisdiction of the court is also not considered when it comes to division.
A co-surety will not be able to claim division:
® = if the co-surety claiming division goes beyond the given time for claiming the right
@ if the co-surety has said that he will not claim division (in other words, that he has renounced
the right).
364 Chapter 23 | The law of security
Cession of actions
It is possible for a bank to hold both real security (for example, a mortgage over the debtor's property)
and suretyship as security for the principal debtor's debt. We have already established that if a surety
pays a principal debtor's debt then the surety has the right to sue the principal debtor for what has
been paid. A claim of cession of actions means that if the surety pays the debt to the
creditor, the creditor must help the surety to get that money back from the principal Ceding something means
debtor by passing over (or ceding) any real security held (for example, a mortgage) to ‘passing rights over
the surety. This will mean that the surety then has real security for his claim against the See ere
principal debtor.
For example, Best Bank lends Simone R50 000. Simone’s debt is secured by both a mortgage over —
Simone’s 2006-model car and a suretyship agreement signed by Simone’s father, Fred. If Fred pays back
the R50 000 loan to Best Bank and claims a cession of actions, the bank must cede the mortgage over
the car to Fred to help him claim that money from Simone.
‘The surety’s right to a cession of actions is based on fairness in that the creditor should help the surety
to recover any money paid by the surety from the principal debtor.
Cession of actions must be expressly asked for and cannot be implied. Once the surety claims a
cession of actions, it must be provided by the creditor. Unlike the case with excussion, being both a
surety and co-principal debtor does not prevent a surety from claiming cession of actions.
Activity 23.2
You are the surety for your nephew’s study loan. The bank that gave the loan to your nephew
has brought a claim against you. Write out a set of valid legal defences for yourself.
Although the continuation of a suretyship contract usually depends on the continuation of the principal
debtor's obligation (as in the example above), there are some exceptions. Sometimes the principal debt
remains, but the surety does not have to pay. This happens in the following circumstances:
= = The surety has been released from her obligation by the creditor or by the terms of the suretyship
contract. An example is where the contract said that the surety would stand as surety for ten years
and now that time is up.
@ = ‘The creditor breaks an important term of the suretyship agreement or makes a major change to
the principal debt that allows the surety to withdraw from his position as surety. For example, a
surety agrees to stand surety for a loan for her nephew, provided that the money is used to pay the
nephew's university fees. The nephew asks the bank, and it agrees, to pay the loan directly to a travel
agent, to pay for an around-the-world cruise. This breach of the suretyship agreement by the bank
would allow the surety to withdraw from the contract. Whether a surety can withdraw
from a suretyship contract because of a major change to conditions of the main debt Prejudiced means
‘negatively affected’.
will depend on whether the surety will be prejudiced by the change.
® A creditor may have sued the principal debtor in time, but took too long to sue the
surety. Under the law on prescription, a creditor usually has three years in which to sue someone for
money owing, The following case study is an example.
Balindwa has a study loan from ABC Bank. Moses stands surety for the loan. The loan becomes
payable on 1 March 2017. ABC bank sues Balindwa within three years (before 1 March 2020),
but the bank is unable to get any money from her, because she is unemployed. If ABC Bank
does not sue Moses before 1 March 2020, then the claim against the surety will not succeed,
because it has prescribed.
23.4 Mortgages
A mortgage exists when someone called the mortgagee obtains a right of security over property of the
mortgagor until the mortgagor repays his debt to the mortgagee. In other words, the mortgagee is the
creditor — like a bank, for example — holding the real security and the mortgagor is the debtor whose
property is being held as security.
For example, Thandi wishes to buy her first house. She approaches Life Bank to provide her with a
loan for the amount of the purchase price. Life Bank agrees to lend Thandi the money provided that
real security in the form of a mortgage bond over the house is created. In this example, Thandi is the
mortgagor and Life Bank is the mortgagee.
Depending on the type of real security, there are different ways in which a mortgage can be created.
We will look at three types of mortgage:
1. express mortgages 2. tacit mortgages 3. judicial mortgages.
James buys a house that is mortgaged in favour of ABC Bank. James then wants to borrow
more money to build a swimming pool at the house. He borrows money from XYZ Bank for a
second mortgage over the house. An earlier mortgage will always take precedence over a later
mortgage. In other words, if the property is sold to pay off the mortgagor's debts, the holder
of the first mortgage over the property will be paid out first. The possibility that a mortgagor
may wish to obtain more than one mortgage on a property is one reason why the publicity
requirement is important. A mortgagee will want to know about other mortgages over the
property before lending any money. You have learned that express mortgages are created by
agreement and a public act.
kustingbrief
Me
covering bond
participation bond
notarial bond.
There is an important technicality to remember about the timing of the registration of a special mortgage
bond over immovable property. This has an impact on whether the mortgage will in fact give the
mortgagee a preferent claim if the mortgagor becomes insolvent. Section 88 of the Insolvency Act 24 of
It is important to distinguish between the debt itself and having security for the debt. In the example
above, Shafiek still owes Anne the money borrowed from her. But Anne has no security for the
debt. She will not be a preferent creditor. Because Shafiek is insolvent, she will probably be paid only
a portion, if anything, of the money owing to her, along with other concurrent creditors.
Similarly, if your sister lends you money without any security for the debt, you are still
required to repay the money you have borrowed.
Kustingbrief
A kustingbriefis a type of express mortgage created at the time that a buyer buys a property. The
hustingbrief relates to money lent to buy the property. Compare this to a special mortgage over
immovable property, which is created when someone who is already the owner of property borrows
money to improve the property. In our previous example, Siphokazi borrowed less than what his house
was worth, in order to build the garage.
You saw that in the case of a special mortgage, the mortgage bond had to be registered within two
months of the money being lent. But the Insolvency Act 24 does not apply to a kustingbrief, because
there can be no question of registration not happening within two months. The mortgage bond and
the change of ownership are registered at the same time. In terms of this type of express mortgage,
registration of the mortgage takes place immediately upon the transfer of ownership from the buyer to
the seller.
You know that there may be more than one mortgage over a property. You saw that an earlier
mortgage will always take precedence over a later mortgage. As a kustingbrief is always registered at the
time of transfer, it will always create a preference in favour of the mortgagee.
For example, Ted buys a house. Tops Bank provides a loan for the purchase price of the property,
subject to a mortgage bond. Three years later, Ted borrows money from Better Bank, to put ina pool
at his house, A mortgage is also created in favour of Better Bank. In this case, the mortgage in favour
of Tops Bank is a kustingbrief and it will have preference over the mortgage held by Better Bank. A
kustingbrief may be in favour of the seller of the property or someone else, such as a bank, which has
provided a loan to the mortgagor.
Covering bond
A covering bond provides real security for future debts — in other words, for debts that are not yet owed.
A covering bond is usually over immovable property, although it may also be over movable property.
Think back to the example of Devdas and his flight-training centre in the section on Real security.
A covering bond may be:
® = general, in relation to movable property
® = special, over specific movable or immovable property.
Typically, a covering bond covers a fluctuating overdraft. This type of covering bond provides
security for the bank that the debtor will repay the bank the amount of money she owes on
the overdraft. The covering bond must indicate what future debts it is covering and the limit of
the amount covered. For example, Devdas wants to start up a flight-training academy. He has
R200 000 start-up capital, so he does not need to borrow money at first. But Devdas knows
that in the business, sudden large expenses may arise. Such expenses would require an overdraft
from the bank of up to R100 000. Devdas approaches the bank for a possible future loan. The
bank agrees to provide Devdas with the overdraft facility he wants, if Devdas uses one of his
aircraft as a covering bond for the overdraft.
In terms of section 87 of the Insolvency Act 24 of 1936, the earlier a mortgage bond is A fluctuating overdraft
registered, the greater preference exists. What this means is that a creditor who has his means that the amount of
rights as mortgagee registered before another creditor will have the right to be paid before money thata client owes
the other creditor from the proceeds of the property when it is sold. the bank at any given time
For example, a bank grants Nomsa an overdraft facility that is secured by a covering Sa ea:
bond over Nomsa’s farm. The bond is registered on 8 July 2018. Another mortgage bond is
Capital is cash or other
registered over the farm on 8 August 2018. (An extra bond is created when the mortgagor
b orrows more money.) N Nomsa goes intointo overdraftoverdraft onlyonly onon 10August
ugust 2018 and and fail
fails to Seabee cnn
Sip clad by ibe Gane to
make her repayment a month later. the business.
The bank's covering bond for the overdraft will have preference over the second bond.
Participation bond
An investment where more than one person acts as the mortgagee over the property is called a
participation bond. Each one of a group of investors contributes towards the capital borrowed by the
mortgagor from the investment company to which the investors belong.
For example, Stephen, David and Carol provide the money fora loan to Roger. The mortgage created is
a participation bond as there is more than one mortgagee. The three mortgages in this example will all benefit
from the interest that Roger must pay on the loan. So the participation bond is a type of investment for them.
In addition to earning interest from his investment, each investor's investment is secured by way of
the bond over the mortgagor's property.
Notarial bonds
A notarial bond is an example of an express mortgage over movable property. A notarial bond is real
security that is registered over movable property. In other words, a notarial bond relates to movable
property of the mortgagor and creates a record of what is being mortgaged. The rules that apply to
notarial bonds are the same as for a special mortgage over immovable property. For example, the notarial
bond must be registered within two months of its creation to create preference for the mortgagee.
The notarial bond may be specific, or special, in that the bond provides real security relating only to
specific movable property. For example, the notarial bond might relate to a ship owned by the mortgagor.
Or the bond may be general, meaning that the bond does not relate to a specific piece of property, but
Activity 23.3
Assume you are a start-up company offering various IT services, but in providing these services
you want to ensure that debts owed to you for services provided are correctly secured by way of
express mortgages. List the advantages and disadvantages of each of the five types of express
mortgage and provide practical examples to show why each express mortgage type would be
appropriate or inappropriate for your business.
James has a motor car. If Ricardo issues a warrant of execution on James's motor car, James may
not sell or remove the car from where it currently is. The motor car becomes attached property.
In this way, a type of mortgage is created over the attached property through the warrant of
execution. If the judgment debtor, in this case James, pays the debt in full, the property (the
car) stops being subject to the mortgage. If the judgment debt is not paid and James does not
pay Ricardo what he owes him, the car may be sold to pay for the judgment debt. This type of
mortgage is called a judicial mortgage.
The way to remember the name of this category of mortgages is that the judiciary is another name
for the courts. Therefore, a judicial mortgage is a mortgage created by the court or judicial process.
23.5 Pledge
A pledge is the second kind of real security we will examine. In plain language, a pledge means a promise.
In law, the promise aspect is just one part of a pledge. A pledge is, in fact, a type of express mortgage.
A pledge is also created by agreement and by a public act. It is dealt with separately in this
chapter because it is a very important category of express mortgages, and because it has Incorporeal property,
some unique characteristics. such as shares in a company,
Both movable and incorporeal property may be pledged, as you will see. CEO DOSER St ESTE:
So, the parties need to agree to the pledge, and the person who gives the loan will take possession of
whatever item the borrower has pledged as security.
‘The parties to the pledge are the pledgee, who pledges their property, and the pledgor, who takes
possession of the property. Suppose, for example, that Amy wants to borrow R1 000 from Jane, a work
colleague. Before Jane will lend Amy the money, she requires some form of real security from Amy.
Amy has a gold necklace around her neck. Amy pledges her necklace to Jane by handing it to her, and
indicating that Jane may keep the necklace as security for the loan. Jane accepts the pledged necklace,
and then lends Amy the money. Although the pledgee may keep the pledged item until the pledgor
repays her, a pledge does not give the pledgee the right to use the pledged property.
Be very careful that you get your terminology correct. If you have to write an exam answer about
a pledger, and you confuse the name with a pledgee, you will probably receive no marks for
that question! Obviously, the same would apply to making sure that you correctly distinguish
between a mortgagor and a mortgagee.
‘There are cases where the pledgee already has possession of the pledgor’s property. As long as the pledgor
intends to create a pledge and clearly indicates which item is being pledged, the law regards the delivery
requirement as having been met. For example, Mohammed lends Hashim his watch worth R3 000. Ata
later date, Mohammed wants to borrow money from Hashim. Itis possible for Mohammed to pledge his
watch to Hashim as security for the debt. Both parties simply have to agree that a pledge will be created
over Mohammed's watch, which is already in Hashim’s possession.
To create a pledge, the pledgee must take possession of the pledged property. Ordinarily, the pledgee
must not give up possession of the property. So, in the example of Mohammed's watch, Hashim should
not voluntarily pass on possession of the watch to someone else, whether it is to Mohammed or someone
else. In most cases, if the pledgee does voluntarily give up possession of the pledged property, the
pledge comes to an end. If the pledgee loses possession against his will, the pledge does not end. So, if
somebody steals Mohammed's watch from Hashim, for example, the agreement between Mohammed
and Hashim is not over. If the loss of possession was involuntary, Hashim may go to court to claim the
pledged property from whoever has the property.
Interest clauses
Banks and other lenders lend money to borrowers in order to make a profit. The way that this profit is made
is through interest being charged on the loan.
While it is perfectly acceptable to charge interest, the law limits the maximum interest payable by
debtors. The law makes sure that a mortgagee does not charge an excessive amount of interest. The
government changes the maximum interest rates from time to time.
It is common for parties to a loan to agree, in an interest clause, that interest will be payable for the
whole period of the mortgage, even if the original loan by the debtor is paid off early. For example, Anne
borrows R100 000 from Pumla. Anne is supposed to pay back the loan over a ten-year period at 10%
interest per year. In terms of such an agreement, Anne would have to pay back the R100 000 interest (in
addition to the R100 000 borrowed), even if she paid back the R100 000 early.
Use clauses
Sometimes, instead of charging interest on a loan, creditors use the mortgaged property. In law, a fruit is something
Clauses that govern this kind of arrangement are called use clauses. They are allowed in our that is produced by
law, provided that the mortgagor has the right to repay the debt as fast as he is able to do so, _ property, for example, the
Otherwise, the debtor would be unduly prejudiced. If such a clause applies to a pledge, the —_‘uits of a herd of cows
pledgee in possession of the pledged property may use the pledged property or its fruits. oe eee
Nonetheless, there have been many instances when fixed properties (typically someone's house), subject
to mortgages, have indeed been sold, either in terms of a judicial mortgage or under a summary sale,
even when the amounts owed are relatively small. In 2017, these were the subject of ongoing court
challenges, and we await clarity from our courts as to what protection the courts are likely to provide to
debtors in these circumstances, without unduly prejudicing the creditors either.
But there are exceptions to the ban on summary sales. In Kwazulu-Natal, a mortgagee may ask for
permission to sell the property in a summary sale subject to conditions laid down by the court. The logic
behind summary sales being allowed in Kwazulu-Natal is that the conditions laid down by the court
ensure that the sale is fair. There are also certain statutes which authorise summary sales.
The rules on summary sale clauses for movable property are not as strict as those for the summary
sale of land. This is because sales of land tend to have bigger consequences than sales of movable things.
A summary sale of movable property is valid, as long as the property is in the possession of the mortgagee.
When you are faced with a Latin expression or some other foreign word or phrase, do not be
alarmed. A few hints may help you.
e Because English is a language that has borrowed words from many different languages,
the English word may help you guess the meaning of the foreign word. This is especially
the case with English and Latin, because the languages are closely related. For example,
the second word in parate executie is very similar to the English word ‘execute’. You will
recall that to execute a right or judgment in law means for something to be done against
a party who has not performed as it should have. So, the link should be clear between the
Latin term and the English term ‘summary sale’, which allows execution against the debtor's
property through an immediate sale.
e Mixing up foreign terms or not understanding them properly creates a bad impression. It is
far better just to use the English term than to use the wrong foreign one. Ideally, you should
know the foreign term as well as its English translation and meaning.
e The exception to this rule is that when the text is in italics, a foreign word is typed in plain
typeface to make it stand out from the rest of the italic text.
A Rolex watch is held as a pledge by a pledgee (ABC Micro-Lenders) for a short-term loan of
R15 000 made by ABC until the borrower, Mr Free Spender, pays back the loan plus the agreed
interest. The watch is stolen from the safe of ABC by a disgruntled employee of ABC, Mr Sticky
Fingers, who is unhappy that he did not receive an end-of-year bonus from the company. ABC
discovers what Fingers has done and where he is storing the watch. Here the pledgee, ABC, may
get a spoliation order from court requiring Fingers to return the watch to them.
In Chapter 15, you learned that the rights in a lease always take precedence over a sale. The implication
of this rule here (uur gaat voor koop) is that although a mortgagee has secured rights in the mortgaged
property, the rights of the lessees must still be upheld. For example, Thabo owns a house subject to a
mortgage over a house in favour or Thrifty Bank. Thabo has rented the house to Jim. Assume that Thabo
defaults with his mortgage repayments to the bank. Whilst Thrifty bank may take steps to have the
property sold to recover its money lent to Thabo, Jim's rights as lessee will continue for the duration of
the lease.
Something which is added on to immovable property also forms part of the real security held by a
mortgagee. So, if a bank has a mortgage over a piece of land and the mortgagor then builds a house on
that land, the bank also has real security over the house. Certain fruits of land and movable
The legal term for such add-
property also form part of the mortgage. The fruits that are included for the mortgagee’s ee Ld clase
purposes are both civil and natural fruits. A civil fruit is not a tangible thing, but isaright 55, example, a house built
to something provided for in law. For example, rent received from a house is a civil fruit. Gn tend ivan accession.
A natural fruit is something actually produced by the property, for example, apples on
an apple tree.
Although a pledgee does not have a right to use the pledged property, she must take proper care
of the pledged thing while it is in her possession. This is called a duty of care. If the pledged item is
damaged while the pledgee has the item, the law presumes that the pledgee was negligent in allowing
the damage to occur. It would then be up to the pledgee to prove that the damage was not her fault. The
pledgee must, upon full payment by the pledgor, return the pledged property together with any fruits
that it has produced. For example, if a pledgor pledged a cow to the pledgee and while the pledge was in
existence, the cow gave birth, on receipt of payment, both the cow and calf must be delivered back to the
pledgor. In relation to a mortgage, the mortgagee must cancel the mortgage when she receives the last
remaining payment from the mortgagor.
Ishmael borrows R500 000 from XYZ Bank to finance the building of his house in the Western
Cape. XYZ has a mortgage over the house. Ten years later, Ishmael still owes R200 000 on the
house. The state decides to expropriate (termed expropriation of property) the property on
which the house is built and by necessity, the house itself, because a new dam will be built for
the town due to the water crisis in the region. The best place for the dam is where Ishmael's
house is situated. Such expropriation of land by the state is allowed in terms of statute. Getting
back to our example, Ishmael gets paid out R750 000 by the state for the loss of his house. The
bank no longer has a mortgage over the house, but Ishmael must still pay the bank back the
R200 000 that is owing.
Note that expropriation by the state is a special situation. In other cases, a mortgage is not ended bya
mortgagor selling their property to someone else. The mortgage will remain registered and effective until
the debt is paid or the mortgagee agrees to the mortgage ending,
Rescission
The last form of termination of a mortgage is when a court orders the termination. When a court cancels
something, it is said to be rescinded. The court may do this if either party did not actually agree to the
creation of the mortgage. A court may also grant a rescission order if one of the parties has wrongfully
misrepresented something to the other. For example, ifa man who wanted to borrow money from a
bank to buy a house pretends to be employed as a company manager, when in fact he is unemployed, he
has misrepresented himself. The bank has lent money to the man subject to a mortgage over the house.
A court may cancel the contract due to the misrepresentation of the debtor. In this instance, the bank
might not have lent the debtor money if it had known that he was unemployed.
23.7 Lien
A lien, like a mortgage, is a type of real security. It is the right, in certain situations, of a creditor to hold
onto someone else's property until paid for work done on that property.
Agreement between the debtor and the creditor regarding the service to be rendered
In Mac and Georgina’s example, it was agreed that a service would be done on the car. It is important
to note that there is no agreement (or need for agreement) about the creation of the lien. For example,
Georgina did not have to say, ‘If Ido not pay you for the service on my car, you may keep possession of
it through a debtor and creditor lien’. Instead, there was (and only needs to be) simply agreement about
the work to be done on her car.
Enrichment lien
This type of lien arises when some type of work is done on an item without the owner's permission or
instruction which has ‘enriched’ the owner of the item. The question is then whether the
person who has provided the service or work may keep possession of the item. Ifthe owner _ Tbe enriched means
has been enriched by the unauthorised service, then the service provider (the person who ade
did the work) may retain possession of the item (through an enrichment lien) in certain from something.
circumstances until she has been compensated for expenses.
This enquiry is a bit more complicated than for a debtor and creditor lien. It would be
unfair for someone always to be able to keep possession of an item on which she has provided a service
without the owner's permission. So, whether or not an enrichment lien exists will depend on both the
knowledge of the possessor (what was going on in her mind) at the time she carried out the service, and
how necessary it was to provide the service carried out. These two factors will be discussed next.
Necessary expenses
These are expenses without which the owner's property would be destroyed or could not be used for its
intended purposes. For example, during a fierce storm the crew ofa ship are forced to abandon the ship.
The owner of a tugboat, without being asked by the ship's owner, goes out to the sinking ship, and tows
it into harbour. The expense involved in towing the ship is necessary because, without it, the ship would
have been lost. An enrichment lien created by a necessary expense is sub-categorised as a salvage lien.
Useful expenses
These types of expense are less needed than necessary expenses. Useful expenses increase the value of
the owner's property. For example, during the absence of livestock from his farm, his neighbour drills a
borehole on the absent farmer's farm. That expense or service is called useful in that the farm's market
value is increased, but the work was not needed for the farm to be able to continue to be able to operate.
An enrichment lien created by a useful expense is sub-categorised as an improvement lien.
The interpretation of law and its application to given facts is not always clear-cut. For example,
it could be argued, that a particular service could be termed ‘necessary’, yet the same services
could also be argued to be merely ‘useful’.
Such difficult situations are often the cause of disputes and even litigation between different
parties. In the context of liens, such potential conflict could be made moot (meaning in this
context, of no relevance) where a creditor and debtor have agreed to services being provided. In
the latter context (where the service provided has been stipulated), the question of the nature of
the work done does not matter. If it is done as per the agreement, the nature of the service need
not be considered, as the creditor may nonetheless be entitled (other requirements discussed
above being present) to an enrichment lien over that product.
Activity 23.5
Discuss, with a classmate, why the example given above is not a debtor and creditor lien.
In relation to useful expenses that have not been agreed upon, if the possessor is bona fide, an enrichment
lien is definitely created. In the earlier example of the farmer who installs the borehole on his neighbour's
farm, assume that the farmer who installed the borehole reasonably thought that the landowner would
not object to the work being done. Assume also that in drilling the borehole the neighbour used the
landowner’s tools. Since the work that was done was useful and the possessor was bona fide, the installer
of the borehole will have an enrichment lien over the landowner’s tools until the landowner pays his
neighbour for his expenses in drilling the borehole.
In relation to useful expenses when the person who does the work is mala fide, there is no clear decision
from our courts whether an enrichment lien will exist. Until there is a clear decision, each case of this type will
have to be argued as to whether an enrichment lien will exist. So, in the previous borehole example, if the
driller of the borehole was acting in bad faith in that he knew that the owner would not want the borehole
drilled, there is no clear answer in our law as to whether the possessor will have an enrichment lien.
Where luxurious expenses are concerned, no enrichment lien will ever be created against the owner of the
property, Whether the service provider is bona fide or mala fide makes no difference. So, in the example of
the house-sitter who swaps the green curtains in the house with equivalent blue ones because she prefers the
colour blue, the house-sitter will not have an enrichment lien over the removed green curtains.
Chapter summary
In this chapter, you learned the following about the law greater likelihood of ultimately getting back any debt (plus
of security: other dues in law, like interest) owed to them by a debtor
Real security is an asset, or thing, that is provided as in terms of a contract. For the debtor, they are more likely
security (but, not for use) for a debt owed by a debtor to be granted credit (for example, by way of a study loan or
to a creditor. a loan to start a business) by a creditor (such as a bank), if
Both real security and personal security (by way of the creditor is confident that it has a secured debt.
suretyship) are advantageous for both the creditor and Suretyship is personal security provided by a surety to the
debtor. For the creditor, the security provides them with creditor for the debt. An example would be where a parent
Further reading
Van der Walt, A.J. and Pienaar, G.J. 2009. Introduction to the (More detail on security law is provided in this general introduction
Law of Property. 6th edn. Cape Town: Juta and Co. (Pry) Ltd to property law as a whole, albeit in far more detail than you
require for your Commercial Law university module/course.)
Labour law
ye
The main ideas
The impact of the Constitution of the Republic of South Africa, 1996, on labour law in South Africa
Who is an employee?
The Labour Relations Act 66 of 1995
Strikes and lock-outs
Dismissals and unfair labour practices
Disputes about dismissals and unfair labour practices
Unfair discrimination
Affirmation action
Monitoring and enforcing the Employment Equity Act 55 of 1998
The Basic Conditions of Employment Act 75 of 1997
After completing their studies, most people enter the job market and apply for employment. Some
people start their own businesses or take over a family business. Employment law affects both the people
who are employed to work for someone else as well as those who need to hire staff for their business.
Employment law is also known as labour law. This chapter explains the current law governing the
employment relationship in South Africa.
We will look briefly at the relationship between the Constitution of the Republic of South Africa, 1996,
and labour law and consider the legal position of independent contractors, who work for someone else,
but who do not qualify for protection as employees in terms of our law. This chapter also looks at the
importance of collective bargaining, which is favoured by the Labour Relations Act 66 of 1995 (the
LRA). Collective bargaining allows groups of workers and employers to come together to create their
own proposal as to how people are going to work in a sector or industry. We deal also with strike law.
Because so much of labour law in legal practice is devoted to cases of unfair dismissal, a large part
of this chapter explains dismissal law. The chapter concludes by looking at some of the other important
statutes in our labour law.
There are also other sections of the Constitution that influence employment law. For example, The word person in this
Section 9 of the Constitution states that everyone is equal before the law and has the context includes juristic
right to equal protection from and benefit of the law. More importantly for labour law, persons such as companies
no person may unfairly discriminate directly or indirectly against anyone on one or more and close corporations.
Therefore, businesses
reasons, including race, gender, sex, pregnancy, marital status, ethnic or social origin,
employing workers will be
colour, sexual orientation, age, disability, religion, conscience, belief, culture, language subject to the provisions
and birth, of Section 9.
All rights contained in the Constitution's Bill of Rights may be limited. ‘The limitation,
however, must be reasonable and justifiable (in other words, be for a fair and good Reasonable and
reason) in an open and democratic society, based on human dignity, equality and freedom. justifiable means that the
For example, a person’s right to freedom of expression will be limited if that person is reason for the limitation
encouraging one group of people to kill another group of people. must be fair and good.
Acts such as the Broad-Based Black Economic Empowerment Act 53 of 2003 may, in addition,
indirectly influence employment law in the future.
The LRA and the other relevant statutes have effectively codified our labour law.
. 5 To codify means ‘to
This means that a number of the common law duties z
of employers
:
and employees, such 3 as organise or collect
the duty of an employer to take reasonable care of the worker's safety and the employee's together into a system’.
duty to maintain trust and confidence, have been specifically included in various statutes,
or given effect to by decisions of the courts.
Activity 24.1
1. Research the purposes of the LRA, the BCEA and the EEA.
2. List the Constitutional rights of employees and employers.
3. Debate with a friend what you think is the most important Act for labour law and why?
In some cases, even an ex-employee or a job seeker falls within the definition (section 9 of the EEA). But the
term ‘employee’ specifically excludes an independent contractor. Independent contractors are generally
persons working under a contract for work where they will try to produce a specified result. By contrast,
employees are generally used by the employer for whatever tasks the employer chooses.
For example, domestic workers are considered to be employees. They would normally The dominant impression
be obliged by law to obey the lawful instructions of their employers. On the other hand, Saat ic atest that conciiors
a painter, who you have hired for a period of a week to paint your house, would be an a range of factors, such
independent contractor. It would be largely up to the painter to decide how to paint the as the extent of contro!
house. The painter would not have to take note of any tips you might wish to give her shown by the employer
regarding a better painting method. It is sometimes difficult to know whether someone over the employee, the
‘ ‘ . extent to which the
is an employee or an independent contractor. For example, Uber drivers are presently Sristeven forins pan of the
considered not to be employees in South Africa, although this principle is likely to be employer's organisation,
challenged. In deciding whether people are employees or independent contractors, the as well as factors such as
court usually tests all the factors present to arrive at a conclusion. The problem with this whether tax and other
test, known as the dominant impression test, is that there is no agreement as to which statutory deductions have
factors are the most important. been made from the
employee's salary.
Principle
Workers who enjoy a great deal of independence, free from the control of the employer, are not
necessarily excluded from the definition of ‘employee’.
Facts
In this case, it was argued that district surgeons were part-time employees of the health
authority. The facts were as follows:
e The doctors could only take leave that was ‘duly authorised’.
e They received annual salary increases and reviews.
e They had Pay As You Earn (PAYE) tax (consistent with being an employee) deducted from
their salaries.
The Labour Court has claimed that somebody who may have been called a “freelance writer’ is, in fact,
an employee in the following situation: When a writer is required to spend the whole of his working
time, writing the stories requested from one employer.
Conversely, the court has stated that an insurance salesman ora sales agent is an independent contractor
rather than an employee. The court based this conclusion on the argument that the ultimate purpose of a
salesman’s job is to produce a result (sell a product), rather than to provide a personal service.
From case law, we can summarise the differences between the contract of employment and the
contract of work as shown in Table 24.1:
In cases where one of these factors is present and the worker does earn less than the amount determined
by the minister, the responsibility shifts to the employer to prove that the person in question is not an
employee. The presumption will be that the worker is an employee and should receive protection by
the Act.
When the employer brings the contract to an end in an unfair or unlawful way, all employees are
entitled to protection by the law, provided there is a contract of employment.
‘The wording in a written contract between the parties will not affect whether the presumption
applies. Labelling a worker a ‘casual worker’ does not change whether a person is an employee, even
though companies sometimes try to get out of their obligations in terms of the Act by using this term.
Following recent amendments to the LRA, people are also presumed to be employees if they earn
under the threshold, having been appointed by a labour broker and placed with a client for more than
three months, or if they have been appointed for more than three months on a fixed-term contract basis
(section 198B(3)). There are, however, various exceptions to this (section 198B(4)).
Activity 24.2
Ruud works for Pay TV, and produces a weekly sports programme, for which he is paid. Ruud
has completed three years of a five-year contract, headed Contract of Work, he has signed
with Pay TV. In terms of the contract, Ruud can work from an office at Pay TV and must
report to a manager regarding the contents of each of his programmes, Ruud tries to attend
staff meetings but does not always do so. He always ensures that he behaves in a courteous
fashion by notifying Pay TV in advance when he will miss a meeting or is unable to be present
at work. Ruud pays tax to the Receiver of Revenue as a freelancer. Is Ruud an employee or an
independent contractor? Give reasons for your answer.
A sufficiently representative trade union enjoys fewer rights than a majority representative trade union
because the union has a lesser percentage of employees as members. In terms of recent amendments to
the LRA, however, an arbitrator may grant organisational rights if a trade union, or trade unions acting
jointly, represent a significant interest or a substantial number of employees in the workplace (despite
not meeting a set threshold of representation established by a collective agreement),
Where the trade union’s members are made up of the majority of employees employed by an
employer in a workplace, the organisational rights described below will also be enjoyed.
Do not get confused between a representative trade union and a trade union representative.
A representative trade union is a registered trade union whose members represent a sizeable
percentage of the employees employed in a particular industry.
A trade union representative, on the other hand, is a member of a trade union elected to
further the interests of the employees in a workplace.
A collective agreement binds the parties who enter into the collective agreement. The agreement also
applies to employees who are not members of a trade union participating in the agreement. These points
apply if:
= = the employees are identified in the agreement
@ = the agreement expressly binds the employees
@ the trade union has a majority of employees in the workplace as its members.
Any dispute about the interpretation or application of a collective agreement must also be resolved by
way of conciliation and, if that fails, arbitration.
Both pension and provident funds try to provide benefits to employees when they stop working.
Under a pension fund, at least two-thirds of the final benefit must be paid as a pension for the
rest of the pensioner’s life. Under a provident fund the full amount of the available benefit may
be taken as a lump-sum cash payment.
No trade union or employers’ organisation is forced to be a party to a bargaining council. But once an
agreement is reached at a bargaining council, it does set a standard for that particular industry. Agreements
that are properly concluded by the representatives of all parties can be extended to everyone in that particular
industry. An example of a bargaining council is the one that has been established for the public service.
Activity 24.3
1. The Sport and Recreation Workers Union has 45% of the employees at the South African
Sports Company as members. During a dispute about wage increases, the union wants
the company to disclose information to it regarding the profit that the company is making
so that it can represent its members better. The information will help the union argue for
higher wages.
@) Is disclosure of information an organisational right?
b) Will the union succeed in its claim? Give reasons for your answer.
2. How are disputes about organisational rights resolved?
Note the difference between rights disputes and mutual interest disputes. Employees typically
do not strike over rights disputes, such as the right not to be unfairly dismissed or the right not
to be subjected to unfair labour practices. Rights disputes typically get resolved by conciliation,
arbitration and adjudication, which we will explain later.
Mutual interest disputes such as disputes about wage increases may be resolved through the
power-play of strike and lock-out.
Activity 24.4
1. Tabulate the differences between protected and unprotected strikes.
2. Explain to a friend the circumstances when a strike would be unprotected and when an
employer would not be allowed to take part in a lock-out.
The employee understands that she has no expectation that this contract will be renewed and
no renewal of this contract will take place unless the employer gives notice to the employee in
writing of the intention to renew.
This kind of clause might help the employer persuade a court or arbitrator that the employee could not
reasonably have expected a renewal of the contract. But the clause will not be the only factor considered
by the court or arbitrator.
‘There are a number of ways in which the court or an arbitrator will consider the To imply something
employer to have implied that a fixed-term contract of employment with an employee will means ‘to hint at or
be renewed. suggest something rather
For example, evidence may show that the employee concerned was going to be involved _ than stating it directly’.
in work that only began after the end of the fixed-term contract. In this case, the arbitrator
may find that the employee reasonably expected the contract to be renewed — at least until the end of the
work in which he or she was to be involved.
Also, bear in mind that following recent amendments to the LRA: an employee earning under the
prescribed threshold (currently R205 433,70) may claim to be a ‘deemed permanent’ employee if he has
been appointed on a fixed-term contract basis for in excess of three months and one of the exceptions
listed in the Act does not apply. Exceptions to this provision include seasonal workers, contract workers
who have already retired and are thereafter appointed on contract, and employees working on a special
project or a project involving external funding.
Maternity leave
In terms of the BCEA, a female employee is entitled to four consecutive months’ maternity leave. In
addition to this, the employee may be entitled to take maternity leave in terms of a collective agreement
or in terms of her contract of employment.
If the employee has taken all her maternity leave and the employer then refuses to allow her to come
back to work, this is considered to be another form of dismissal.
Selective re-employment
An employer dismisses a large number of workers because the company is losing money, but it promises
to consider re-employing workers if the situation improves. The employees were all fairly dismissed. But
if the employer later chooses to rehire only a certain number of the workers who lost their jobs, those
who have not been re-employed may claim that a dismissal has taken place. The reason for this situation
being classified as a dismissal is that the employer gives no explanation as to why certain workers have
been re-employed, while others remain unemployed.
Constructive dismissal
In this case, it is the employee who terminates the contract of employment and not the employer. This
is why this type of dismissal is referred to as constructive dismissal. Normally, when this happens, the
law considers the employee to have resigned from employment and there can be no claim for unfair
dismissal. But if the employee can prove that she resigned because the employer made continued
employment intolerable, this is constructive dismissal and the employee may succeed in a claim for
dismissal. A situation that is merely inconvenient will not be enough. The emphasis is on the effect that
the employer's conduct has on the employee continuing in employment.
The key to an employee proving constructive dismissal rests on whether the intolerable situation can be
proved. The feelings of the employee on his own will not be enough to convince a court or arbitrator that
the situation was intolerable. The employee’s feelings must also have been reasonable. The employee must
show the court or arbitrator that her resignation was a direct result of the employer's conduct. If the real
reason for the resignation was that the employee received a better job opportunity, there can be no talk
of constructive dismissal. To succeed with the claim, the employee must show that she would have carried
on working for an indefinite period if the unbearable situation had not been created by the employer.
In general, it is very difficult for employees to prove that they have been constructively dismissed.
Although the intolerable circumstances have to be more than just temporary in nature,
remember that even a single event or incident can sometimes be enough for a reasonable
employee to feel that the employment relationship cannot continue.
Cases where a claim for constructive dismissal has succeeded include:
e cases of sexual harassment by an employee's superiors
e abuse and assault
e failure to pay the employee's salary
e unfair disciplinary action taken by the employer.
But where the employer gives one unreasonable instruction, this will generally not be enough to
justify a finding of constructive dismissal, especially when the employee chooses not to follow
available company procedures before resigning.
A claim for constructive dismissal will not succeed in cases where a fellow employee has
created the intolerable circumstances without the knowledge of the employer. Also, constructive
dismissal will not apply where the circumstances were out of the employer's control.
A test of whether the situation was intolerable is to look at any options the employee may
have had before his decision to resign. If the employee had no reasonable option other than
to bring his contract to an end, then it is likely that the employee will succeed in proving a
constructive dismissal — as long as the other requirements are present.
Activity 24.5
Tasneem is a doctor employed at a private medical centre called The Health Centre (Pty) Ltd in Port
Elizabeth. Tasneem earns R10 000 a month. She is also entitled to a bonus from The Health Centre
for every patient she sees after the first ten patients every day. Tasneem is unhappy because her
contract of employment promises her two nurses to assist her. For the past year, she has had only
one nurse as the company alleges that it is in financial difficulty, Tasneem is especially upset because
she feels she is missing out on an extra R5 000 a month as she cannot see more patients without the
additional help. So Tasneem looks for another job. She applies for and succeeds in her application
for a job at Groote Schuur Hospital at a salary of R20 000 per month. She is very happy with the job
offer, especially because she has always wanted to live in Cape Town and considers this hospital to
be the best in the country. She resigns from The Health Centre and claims constructive dismissal.
Discuss with a classmate whether Tasneem is likely to succeed in her claim, giving reasons for
your answer.
There are also ways in which the contract of employment can come to an end outside of the
provisions of the LRA. For example, you will remember from Chapter 6 that there are certain
contracts that are void. Void contracts of employment may be ended at any time.
1. ‘The employee took part in or indicated that he was going to take part in a protected strike or
protest action.
2. The employee refused to do the work normally done by a worker taking part in a protected strike
(unless that work was necessary to prevent danger to health, personal safety or life).
3, The employer forced an employee to accept a demand relating to a matter that should have been
negotiated between the employer and the employee because it was of interest to both parties.
4. The employee took action against the employer by exercising a right given by the LRA or by
participating in proceedings set up in terms of the LRA.
5. The employee was pregnant or intended to fall pregnant (any other reason for dismissal that is
related to an employee's pregnancy will also be automatically unfair).
6. The employer unfairly discriminated against the employee, directly or indirectly, for any arbitrary
reason (examples of arbitrary reasons would include, but are not limited to: a person's race, gender,
sex, ethnic or social origin, sexual orientation, age, disability, religion, conscience,
‘ ni ni . . veh An arbitrary decision is
belief, political opinion, culture, language, marital status or family responsibility), oa
one based on personal
7. The business in which the employee worked was transferred as a going concern, impulse or prejudice or
8. ‘The employee revealed information that is protected in terms of the Protected for a reason not allowed
Disclosures Act 26 of 2000. by law.
We say that a business is a going concern when the business is operating successfully and is
expected to continue doing so into the future. When the business is sold to a new owner, the
business may be transferred as a going concern, complete with all the essentials for the business
to continue operating, including the staff.
Dismissals will also be automatically unfair if the employer, in dismissing the employee, breaches the
right to freedom of association; for example, the employer prevented an employee or a person seeking
employment from belonging to a trade union.
A dismissal is normally automatically unfair if the reason for the dismissal is that the employer
unfairly discriminated against an employee. But the dismissal may be fair if the employee has
reached the company’s ordinary retirement age or if the reason for the discrimination is based on an
essential requirement of the job. For example, it is fair to require pilots to have perfect eyesight.
Activity 24.6
Benny works for a religious organisation as a cleaner, After he has been employed for six months,
the religious organisation finds out that Benny is a homosexual. Even though his work is of a high
standard, the head of the organisation believes that it is bad for the organisation's image to be
employing a homosexual and dismisses Benny. She also dismisses Freddie the gardener, because
she heard that Freddie had taken some money from the organisation's donation box. In fact,
Freddie is completely innocent of this. Assume that both Benny and Freddie are employees.
Write a paragraph explaining whether either of these dismissals can be classified as
automatically unfair. Then pay a visit to your own religious or community organisation and find
out what its policies are on such issues. Decide whether its policies are in line with the law.
We will deal with each of these reasons below. But it is important to remember that in each of these
cases, the employer must prove not only one of the three fair reasons for dismissal, but also that the
dismissal followed a fair procedure. We can therefore summarise three issues that need to be addressed
when considering the fairness of a dismissal:
1. The employee must prove that she is an employee and has been dismissed in terms of one of the six
types of dismissal discussed in the previous section.
So, a dismissal will be fair only if there is a fair reason for the dismissal and the proper procedure was
followed. We will consider an example.
You should be able to see from this example that the requirements ofa fair reason and of fair procedure
for dismissals are separate from each other. This means that it is possible for dismissals to be either
procedurally and substantively unfair, or only unfair because of a lack of either a good reason or a
fair procedure.
The LRA includes a Code of Good Practice that outlines the thought process that employers,
arbitrators and judges should follow before deciding upon the fairness of a dismissal. Below isa brief
summary of the most important principles of this Code.
Various Codes of Good Practice exist, including Codes of Good Practice on Picketing and on the
handling of Sexual Harassment cases. Codes are useful to provide additional guidance to decision
makers, such as chairpersons of disciplinary tribunals and commissioners at the CCMA or Bargaining
Councils, on how the law should be interpreted.
Awise employer will always make sure that each new employee signs a contract that explains
the more important rules and procedures followed by the company. The contract will set out the
penalties in the event of the employee breaking any of the rules. The employer can also publish
certain rules on notice boards. This will prevent an employee from arguing that she was unaware
of a company rule. The law does not expect a company to put every single disciplinary rule on
paper. On the other hand, the law does expect employees to use their common sense with
regard to their own conduct. For example, the employee must realise that common-law crimes,
such as murder, rape and theft will also amount to disciplinary offences for which the employee
can be dismissed.
Disciplinary codes should provide for verbal or spoken warnings, written warnings and final
written warnings as punishments short of dismissal. The warnings should indicate to an
employee, in a progressive way, the seriousness of an offence, before she is dismissed. Warnings
generally only build upon each other, if the same or a similar offence has been committed by an
employee and if the offence was committed shortly after the previous offence. But remember
that even one incident of serious misconduct together with the employer following a fair
procedure may result in a fair termination of the employee's services. Each case must be decided
on its own strengths and weaknesses before a decision to dismiss is made.
Principle
Some rules in the workplace may be implied so that an employer is able to dismiss an employee
for misconduct on those grounds.
Facts
Mr S was the manager of a small branch of Backup Storage Facilities. The only computer in the
branch was in his office. Management intended the computer be used for email correspondence
only. There was no other policy regarding internet usage in the branch. Mr X worked for Backup
as a driver. He was allowed to sleep on the business premises. Owing to the fact that Mr X
had no television on the premises, he had access to the computer after hours. In an attempt to
cut down on telephone costs, Mr S informed Mr X that he could no longer use the company
computer for his personal purposes.
Six months after Mr X ceased to use the computer, head office launched an investigation into
the expenditure and productivity of Mr S's branch. Investigations revealed that a huge portion of
the phone bill was made up of internet usage during office hours. The internet numbers dialled
were those of pornography websites.
When Mr $ was asked about this, he denied any knowledge. Two employees testified
that they had on several occasions witnessed Mr S's pornographic interest when they had
unexpectedly entered the office.
Can Mr S be dismissed for misconduct or can he rely on the absence of a clear rule regarding
internet usage?
The court's finding
The Commissioner in Mr S's case found that Mr S could be fairly dismissed for a number of charges,
including viewing pornography, as the employer had proved all the charges against him. Dismissal
was considered to be the most appropriate penalty, considering all the circumstances of the case.
Activity 24.7
Find out whether the company you hope to work for one day has a computer usage policy and
what it is. You may be able to access this information online. You should also be able to find
your university's rules about computer usage by students, on the university home page.
Because employees are not at fault in cases of incapacity, the LRA Code treats such cases in a different
way to cases of misconduct. Remember that in all cases of dismissal, for the dismissal to be fair,
employers need to have a fair reason for dismissal and need to follow proper procedure.
In cases related to the illness or injury of employees, the difference between having a fair reason and
following a fair procedure is sometimes difficult to understand. For example, an employee may be too
sick to do the job she was doing before becoming ill. Despite this, an employer who fails to consider all
the other options (such as moving the employee to another section) before dismissing the employee, will
be acting in a procedurally unfair way.
Answering yes to each of the above questions will result in the finding that there is a fair reason for
dismissing the employee for poor work performance.
‘The effect of probation is that the employer will be able to dismiss an employee fairly, during or immediately
after the probation period, for reasons that may not be good enough once the probation period is over.
After probation, an employer should not dismiss an employee for poor work performance unless the
employer has actually given the appropriate evaluation, instruction, training, guidance and counselling.
If the employee continues to perform poorly after a reasonable period, then the employee may be fairly
dismissed for poor work performance.
Activity 24.8
Read through the facts of the case below — these facts are loosely based on the case of Titherv
Trident Steel 2004 (4) BALR 404 (MEIBC) — and answer the questions that follow.
Mrs T is employed as a telesales assistant at Trident Steel. After six months in this job, Mrs T develops
severe neck pains. Her chiropractor finds that the pain is chronic and is caused by the numerous
hours Mrs T spends working at her computer. The chiropractor recommends adjusting the brightness
on the monitor to prevent eyestrain and the need to extend her neck toward the screen. The
doctor also advises Mrs T to use a chair that supports her lower back. The employer makes the
recommended changes. However, more than a year later, there has been no improvement and MrsT
still suffers from the pain. Owing to these neck pains, Mrs T is often absent from work.
A secretarial job becomes vacant. Mrs T suggests that she be moved to this job, as it is only
an administrative job that does not involve computer usage, But management does not consider
this idea as Mrs T had not been hired for secretarial work.
Two years after the beginning of Mrs T's health problems, the company dismisses her.
It states that her permanent incapacity makes it impossible for her to perform the work for which
she was hired. It insists that it has done everything in its power to help her, but without success.
1. Do you think that there was a fair dismissal for incapacity in this case? Were reasonable
alternatives explored?
2. Ask friends or your parents who are employed to find out for you what their company
would do in a case like Mrs T’s. Compare notes with a classmate,
Remuneration means any payment, in money or in kind, made to any person, in return for that
person working for any other person, including the state. An example of a payment in kind is
where an employee receives accommodation and food in place of money for work done.
The consultation process for retrenchment is tightly regulated, as you have seen. But the decision
whether or not to reduce the number of workers is one that the courts normally allow the employer to
make. The employer still has to follow the procedure explained in the Act. Ideally, the employer and the
other parties will be able to agree on which employees will be dismissed. If this is not possible, Section
189 confirms that it is the employer that will select which workers will lose their jobs. The employer has
only to show that it chooses the unlucky workers by using a standard that is fair and objective.
How should the employer treat the other parties to the consultation?
During consultation, the employer must allow the other consulting party an opportunity to state its case
on behalf of the affected employees. The employees’ representatives must deal with all of the issues raised
above, as well as any other matter relating to the proposed dismissals.
The employer must consider and respond to the representations made by the other consulting party.
If the employer does not agree with the arguments put forward by the employees’ representatives, the
employer must state the reasons for disagreeing.
There is a major difference between section 189A large-scale retrenchments and ordinary section 189
retrenchments.
Section 189A says an employee may strike over the fairness of a dismissal for operational
requirements. Striking is not allowed in the case of ordinary retrenchments.
If section 189A applies, the employer must give employees the same type of notice as that required
by section 189. A different feature of retrenchments in terms of section 189A is that after the notice has
been given, the employer or employees may request the appointment of a facilitator who will assist the
process. A facilitator is a person who has proven knowledge, experience and expertise in helping parties
to resolve their disputes.
The employer will be able to retrench employees 60 days after giving notice of the proposed
retrenchment. The employees or the union then have the choice of either beginning a protected strike or
referring a dispute to the Labour Court. The Labour Court usually judges disputes over the fairness of a
dismissal for operational requirements.
If a facilitator is not appointed, either party may refer a dispute to the CCMA for conciliation
30 days after the issuing of the notice of proposed retrenchment. Once either a further 30 days has
passed, or a commissioner of the CCMA has certified that the dispute remains unresolved, the employer
can give notice of termination. The union or employees can either give notice of a strike or refer a
dispute to the Labour Court challenging the reason for the dismissal. They cannot do both. Their
decision either way is important, because it cannot be changed.
As we have seen, section 189A makes it more complicated to retrench large groups of people.
What stops an employer from retrenching small groups of employees at a time in order to avoid
section 189A? The LRA provides for the section to operate if the number of retrenchments over
the past twelve months is equal to or goes beyond the numbers stated above.
If none of these orders is appropriate, the court may make an award of compensation to the unfairly
dismissed employees.
Activity 24.9
Read the following factual scenario and then answer the questions that follow.
The directors of Gloria’s Plastics (Pty) Ltd launch an investigation aimed at finding ways to
increase productivity and profit in the business. The result of the investigation is a report that
recommends a change from the current three-shift system to a two-shift system. The report
also recommends the withdrawal of a transport subsidy that the employees have been getting.
During negotiations for a collective agreement with regard to these two changes, some
problems arise. The union rejects the proposal regarding the changing of the shift system.
The employer calls a meeting, after failing to reach agreement on this issue. The employer
explains to the employees that the changes are necessary for the business to be efficient and
profitable. The employer then sends out a letter setting out the proposals to all the affected
employees. The letter also states that those employees who do not accept the changes by a
certain date may be retrenched. It also says that if a worker accepts the changes after that date,
that person's job will not be guaranteed. The employer subsequently dismisses ten employees in
accordance with an appropriate and fair procedure.
1. Is this a dismissal for operational requirements, and so substantively fair?
2. Or, is this an attempt to force employees to agree to a change in their terms of
employment, as envisaged in one category of automatically unfair dismissal?
24.6.1 Conciliation
The bargaining council or the CCMA must try to resolve the dispute through conciliation. Conciliation
is a process in which the commissioner uses her knowledge of labour law to explain the legal position to
parties in order to encourage them to settle the case.
‘The proceedings are informal. The commissioner can even speak to the employee alone in order to
explain that the offer of settlement made by the employer is reasonable. The commissioner may suggest
that the employee accept the employer's offer. By speaking to both parties in this way, the commissioner
helps settle a majority of cases at this stage of conciliation. The commissioner will draft a settlement
agreement that will be signed by both parties, bringing the matter to an end.
24.6.2 Arbitration
Arbitration is a process in which an arbitrator, appointed by the CCMA or bargaining council, listens
to the evidence of both parties in a dispute. The arbitrator allows the representatives of the parties to
question or cross-examine the witnesses of the other side after these witnesses have given their evidence.
The arbitrator will then make a final decision as to which party should succeed in the case.
The council or the CCMA must arbitrate the dispute in the following instances:
m if the dispute remains unresolved after conciliation
= if 30 days have passed since the case was referred to the council or the CCMA
= = if the employee requests arbitration
= if the employee has alleged that the reason for the dismissal is related to the employee's conduct
or capacity
= if the employee has alleged that the reason for dismissal is that the employer made continued
employment intolerable
= = if the employee has alleged that, after a transfer, the employer provided the employee with less
favourable conditions or circumstances at work
® if the employee does not know the reason for dismissal
@ if the dispute relates to an allegation of an unfair labour practice.
In certain cases the arbitration proceeds immediately after the conciliation has failed.
24.6.3 Adjudication
When a judge of a High Court decides a case, we say that the matter has been adjudicated.
The Labour Court must adjudicate a labour dispute after it remains unresolved at conciliation, if the
employee has alleged that the reason for dismissal is:
® automatically unfair
@ based on the employer's operational requirements
@ = the employee's participation in a strike, which is not protected by the LRA
m = that the employee refused to join, was refused membership of or was expelled from a trade union
which is a party to a closed shop agreement.
If only one employee is retrenched, that employee may choose, instead, to refer the dispute to arbitration.
Reinstatement involves the employee being returned to the position she held prior to the dismissal on
the same terms and conditions. Reinstatement would normally include the employee receiving payment
for those months in between the unfair dismissal and the date of reinstatement.
Re-employment is a different remedy, as the employee can be employed under new conditions
of employment.
If an employee is reinstated, her period of service will be unaffected. But if an employee is
re-employed, the benefits that the employee used to have will not necessarily continue.
The Labour Court or the arbitrator must require the employer to reinstate or re-employ the
employee unless:
® the employee does not wish to be reinstated or re-employed
@ the circumstances surrounding the dismissal are such that it would be unbearable for the
employment relationship to continue
@ = it is not reasonably practical for the employer to reinstate or re-employ the employee
@ = the dismissal is unfair only because the employer did not follow a fair procedure.
‘The court has interpreted these exceptions in such a way that an employee will not be reinstated or
re-employed if any of the exceptions apply. In other words, if a dismissal is for a fair reason but the
employer followed a poor procedure, the only remedy available to an arbitrator will be compensation.
But, even though the dismissal is procedurally unfair, reinstatement or re-employment is not an option.
‘The amount of compensation is calculated at the employee's rate of remuneration on the date of dismissal.
When an employee alleges unfair discrimination, the employer will have to prove that the discrimination
was fair, in order to escape liability. In its defence, the employer can say that the discrimination was part
of its affirmative action measures, in which case it will not be unfair (section 6(2)(a)). But the employer
will have to prove this justification, not merely allege it.
Discrimination is also not unfair if the preference of one person over another took place as part of the
inherent requirements of the job (section 6(2)(b)) — that is, if the discrimination is necessary by nature of
the job. This idea is best explained by way of an example.
Where an all-girls Catholic private school chooses a Christian person over a Jewish person for a
teaching post in religious education, there might be discrimination, but it is justified by the inherent
requirements of the job —in this case, the job required someone to be able to teach the Christian faith
with conviction, something a Jewish person is unlikely to be able to do.
As a general rule, employers cannot force employees or job applicants to undergo medical or
psychological testing. The exception is where this is allowed by law or can be justified as an inherent
requirement of the job. But an employer cannot use the exception to require her employees to undergo
HIV testing. The employer must first approach the Labour Court, which will decide whether the testing
is justifiable or not.
Principle
An employer cannot justify everything under the blanket of inherent requirements of the job. The
onus is still on the employer to prove that the person concerned would actually be incapable of
performing the function for which he would be being hired. In this case, South African Airways
(SAA) clearly failed to show how being HIV-negative was essential to being a cabin assistant.
Facts
Hoffman applied for a job as a cabin assistant at SAA. Before hiring him, the airline asked him to
undergo HIV testing, to which he agreed. When Hoffman tested HIV-positive, SAA refused to
give him the job, alleging inherent requirements of the job.
SAA's position was this: As cabin assistants must have certain vaccinations before being
allowed to enter certain countries and as it was not advisable that a person with HIV have such
vaccinations, it would be impossible for Hoffman to do his job.
The Constitutional Court had to decide whether Hoffman’s rights had been violated.
The court's finding
The court held that:
e SAA had discriminated against Hoffman.
e = The discrimination had been unfair.
e SAA failed to prove how being HIV-negative was an inherent requirement of the job.
e SAA should have further investigated how Hoffman's immune system would have
responded to the travel and the vaccinations.
Affirmative action
Affirmative action is one of the most talked-about areas of our labour law. Some people Affirmative action
think that a black candidate must always enjoy preference over a candidate of a different measures are policies
race, even if the other candidate is better qualified. ‘This view is not a true reflection of such as hiring members
the law. from designated groups,
A designated employer has to put in place affirmative action measures that will benefit and promoting and
people from designated groups. training these employees.
What this means is that the employer must establish policies that are designed to
To accommodate
ensure that suitably qualified persons from designated groups have equal employment
someone means to do
opportunities and are fairly represented at all levels of the workforce. something to make them
Such measures must include the following: feel more comfortable.
® = identifying and eliminating barriers that negatively affect people from designated
groups, such as unfairly discriminatory employment policies Diversity, in this context,
= measures that promote diversity refers to the different
= =making reasonable accommodation, or adjustments, for people from racial groups, age, gender
designated groups. and disability status
that characterise South
= = measures aimed at keeping, developing and training members of designated groups
Africa's population.
(including skills development)
= preferential treatment to ensure a fair representation of different groups of people
at work. For example, where two job applicants have the same experience and qualifications, the
employer should choose a candidate from a designated group over a candidate who is not from a
designated group.
Simply being a member of a designated group does not guarantee anyone a job. A person must also
be suitably qualified. The Act says that you may be suitably qualified for a job as a result of any one of
your formal qualifications, such as a university degree, prior learning or relevant experience. You may
also be suitably qualified as a result of your capacity to gain, within a reasonable time, the ability to do
the job.
It is also important to note that, just because an employer has to take affirmative action measures, it
does not mean it is required to adopt a policy that prevents the hiring or promotion of people who are
not from designated groups.
Working time
A person who works five days or fewer in a week cannot be forced to work more than nine hours a day
and forty-five hours in a week. If he works more than five days a week, then the maximum working
time allowed is eight hours a day. This does not mean that an employee can never work more hours than
these. But, if an employee does work more, then the law considers the extra work as overtime.
Meal breaks
After five hours of work, every employee is entitled to a meal break or interval period of at least one
hour. This break period may be changed to a shorter period by written agreement. If the employee works
less than six hours a day, then the interval period can be done away with. An employer does not have to
pay the employee for the meal break, but if the employee must be available for work during the break,
then he must be paid for it.
Rest periods
A rest period of at least 12 hours must pass between ending and restarting work. In each weekly cycle, an
employee is entitled to a rest period of at least 36 hours, which must include Sunday, except if a different
arrangement is reached. By written agreement, the weekly rest period may be reduced by up to eight
hours in a particular week so long as the next week's rest period is extended by the same amount of time.
Night work
This is work done between 18:00 and 06:00. An employee may agree to perform night work under the
following conditions:
= = the employee receives compensation for night work in the form of an allowance, which may be a
shift allowance or a reduction of working hours
™ transport is available between the employees’ workplace and residences before and after their shift.
If the employee regularly works after 23:00 and before 06:00, the Act sets out other special protections
that go beyond the scope of this book.
Public holidays
If an employee is required to work on a public holiday, which would have been a normal working day, he
must get paid double pay or other extra pay as set out in the BCEA. Employees must still be paid at least
a normal day’s pay if they do not work on a public holiday.
Leave
The BCEA sets out when an employee is allowed to be absent from work on full pay, such as when
taking annual leave or sick leave. Employees are also entitled to family responsibility leave for family
illness, births and deaths.
Annual leave
Employees are entitled to at least 21 days’ fully paid annual leave after every 12-month cycle worked.
If any public holidays fall within the 21-day leave period, then the period is increased by one day for
each such holiday. The parties may also agree to another method of calculation set out in the BCEA.
The employee must take their leave at a time determined by the employer, but no later than six
months from the end of the annual cycle. The leave may not be given at the same time as any other
leave, such as sick leave. The leave may not go together with a notice to end the employment contract.
Maternity leave
Maternity leave does not have to be paid, unless there is an agreement to that effect, but Consecutive means
employees are entitled to at least four consecutive months’ maternity leave. ‘following on, one after
Unless otherwise agreed, the leave can begin at any time from four weeks before the due the other’.
date of the baby’s arrival, Alternatively, maternity leave could begin on a date certified by
a doctor ora midwife as being necessary for the health of either the expectant mother or The third trimester is the
the unborn child. The employee is not permitted to work for six weeks after birth unless a _/@st three months of a
medical practitioner or midwife certifies that she is fit to work. OU eae
If, in the third trimester, an employee miscarries or has a stillborn child, she is entitled
to maternity leave for six weeks after the miscarriage or stillbirth.
If an employee does not take any family responsibility leave during the year, the leave falls away at the
end of the annual leave cycle. A collective agreement may change the number of days and reasons for
which this leave can be given.
Termination of employment
If either of the parties wishes to end the employment relationship, for whatever reason, that party must
give notice in writing, unless the employee cannot read or write. If you have been employed for six
months or less, you must give the employer one week's notice that you are leaving. The employer must
also give you one week's notice of termination of employment.
If an employee has been in a job for longer than six months but less than one year, both parties must
give two weeks’ notice. However, if the employee is a farm worker, the Act requires four weeks’ notice on
both sides.
After the first year of employment, four weeks’ notice is required. If an employer dismisses a worker
for operational requirements, the employer must pay out the worker. The amount must be equal to at
least one week's severance pay for every year of continuous service with that employer.
It is possible for an employer to dismiss an employee summarily, that is, without notice, in cases of serious
misconduct or material breach of the employment contract. A material breach is a breach that goes to the
core of the relationship or agreement between the employer and the employee, and which is considered to
be very serious by the employer. The employee can turn to the Labour Court if he is dissatisfied.
An employer can do away with the required notice and replace the notice period with payment.
Activity 24.11
The government introduced the Expanded Public Works Programme (EPWP) a few years ago.
The aim of the EPWP programme is to try to create a large number of jobs in a short period of
time. The programme favours labour intensive methods of employment so that more jobs can
be created. Think about the contractual relationships involving the state, construction companies
and workers employed on projects such as building roads and dams. What statutory protection
do you think these workers will enjoy or not enjoy?
Now, try to do some research to investigate whether your ideas are in line with the present
legal position. As part of your research you could use websites such as http://www.saflii.org.za
to determine whether any court cases have discussed or decided these issues.
Chapter summary
In this chapter, you learned the following about labour law: The LRA creates a presumption in certain cases that
Section 23 of the Constitution of the Republic of a person is an employee. If the presumption applies, the
South Africa, 1996, gives everyone the right to fair labour onus shifts to the employer to prove that the person is
practices and gives every worker rights to form and join a not an employee. Where the presumption does not apply,
trade union, to participate in its activities and to strike. the dominant impression test is used to decide whether
The most important Act, which governs the South workers are employees or independent contractors.
African labour market, is the LRA. This Act is intended Employers and employees have a right to freedom
to help settle labour disputes effectively. The LRA of association. Employers join employers’ organisations
protects employees. and employees become members of trade unions.
The definition of an employee specifically excludes Representative trade unions enjoy special rights.
independent contractors, who are not entitled to the These are known as organisational rights and must be
protections provided by the labour legislation. granted by the employer.
1. Select the correct answer to each of the following d) termination by the employee of the
multiple-choice questions. contract after a transfer of business because
1.1. Which statement about independent of less favourable working conditions
contractors is true? 1.3. | Which statement or statements regarding
a) ‘They always have to do the work automatically unfair dismissals is/are true?
themselves. A dismissal is automatically unfair if the
b) Their contract terminates on the death reason for it is that:
of an employee. i) the employee took part in or indicated
c) The object of the contract is the that he was going to take part in a
performance of certain specified work protected strike or protest action
or producing a certain specified result. ii) the employee refused to do the work
d) They are employees. normally done by a worker taking part
1.2. Which one of the following is not a dismissal? in a protected strike (unless that work
a) selective re-employment was necessary to prevent danger to
b) non-renewal of a fixed-term contract health, personal safety or life)
where there is an unreasonable iii) a transfer, or a reason related to a
expectation of renewal transfer of a business as a going concern.
¢) termination of an employment a) All the above
contract without notice b) i) only
Further reading
Grogan, J. 2017. Dismissal, 3rd edn. Cape Town: Juta and Co.
(Pry) Led
(This is a good text to read more case studies involving the
various types of dismissal.)
Arbitration . G
Disagreements can happen in any relationship. What are the options if the parties are unable to resolve
their dispute? The legal system gives parties an opportunity to turn to a person who is not involved in
the argument to help find a fair solution. Most obviously, this can mean taking a matter to court, but
there are other choices (as discussed in Chapter 24 on Labour Law). In this chapter, we look at a method
of dispute resolution called arbitration.
25.2.1 Legislation
The Arbitration Act 2 of 1965 provides for an alternative and cheaper method of dispute resolution, which
may be used in certain situations. This method is known as arbitration. Arbitration is a process in which
arguing parties refer the disagreement to a person not involved in the dispute, the arbitrator. This neutral
third party, after investigation, makes a binding decision, the award, which the parties have to follow.
In terms of the Arbitration Act, certain matters may not go to arbitration. These include marriage
issues and any matter relating to status, such as whether a person is a minor or a major. This is because
these cases are considered to be very important to members of the public. Such cases are better resolved
by the formal court process where there is no risk of a bad arbitrator being chosen. In general, the parties
are free to arbitrate on any matter they wish.
As a general rule, a single arbitrator adjudicates arbitration matters. However, it is possible for the
parties to agree that they want a team of people to arbitrate a specific type of dispute. If this is their
intention, this should be followed.
Lufuno Mphaphuli & Associates (Pty) Ltd v Andrews and Another 2009 ZACC 6
Principle
The Constitutional Court considered the manner in which the Constitution of the Republic of
South Africa, 1996, (particularly the right to a fair and impartial hearing contained in section 34)
has an impact on private arbitrations conducted in terms of the Arbitration Act.
Facts
Mphaphuli and Associates (Pty) Ltd were electrical infrastructure contractors awarded a contract by
Eskom to electrify certain rural villages in the Limpopo Province. The sub-contracted part of this work
went to Bopanang Construction CC. A dispute arose between the two companies and the parties
agreed that the dispute would be resolved by an arbitrator. The questions to be decided by the
Constitutional Court were whether section 34 of the Constitution applied to private arbitrations and
whether the private arbitration in this case was conducted fairly.
The court's finding
The majority held that section 34 of the Constitution does not apply directly to private arbitrations,
which have always been required to be conducted fairly. What is fair, according to the court,
will depend on the context of the facts. The Constitution is relevant to arbitrations in that a
clause in an arbitration agreement which is contrary to public policy in the light of the values
of the Constitution, will render the agreement null and void to that extent. A majority of the
Constitutional Court in this case decided that, while the arbitrator may not have been perfect, the
arbitration had been conducted fairly.
Activity 25.1
Set up a debating team with two of your classmates. Research the pros and cons of various
dispute resolution processes with particular emphasis on mediation, arbitration and court
adjudication, and present your findings to one another.
If the arbitration agreement allows for the replacement of an umpire who is unable to act, then the
umpire must be replaced. Imagine that Maria and Giovanni agreed to Themba, an advocate, and Max,
an attorney, being joint arbitrators. The parties gave the arbitrators the power to appoint and replace an
umpire, if necessary. Themba and Max disagree as to how the matter should be resolved. They appoint an
umpire who subsequently leaves the country. The parties would have to allow Themba and Max to replace
the umpire in an attempt to resolve the dispute before trying anything else to resolve their disagreement.
Activity 25.2
Write a note in which you describe the situations in which umpires may be replaced, and explain
the process that should be followed before an arbitrator's or umpire’s appointment is set aside?
The Arbitration Act also states that the arbitrator must give the parties written notice of the time and
place of the arbitration. The parties have a right to be present either personally or to be represented. If a
party is absent without good cause, and has been given prior notice of the hearing, the arbitration may
go on without him.
The evidence at the arbitration hearing must be recorded, either by the arbitrator or the parties to the
dispute themselves.
The plaintiff, D’s Motors, alleges that an employee of the defendant, Transnet, had damaged
his petrol station’s roof cover in the small Eastern Province town of Burgersdorp.
At the court date, the parties agree to remove the matter from the court roll, which is the list of
cases to be heard on that day. Instead, the parties enter into an arbitration agreement. The matter is
eventually heard, by agreement, by an advocate acting as arbitrator, in Grahamstown, at a neutral
venue for the parties. The defendant loses the case at arbitration. However, as the arbitration
agreement does not include the right of appeal, the defendant is unable to do anything to have
the decision overturned. Although the arbitrator may have come to the wrong decision, he has not
committed misconduct or any gross irregularities and the award has not been obtained in an improper
manner. So, Transnet would not be able to appeal the arbitrator's decision, and would have to pay the
money claimed by the plaintiff even though they did not believe that they were liable for this.
Activity 25.3
Find an updated copy of the Arbitration Act online. Read through this document and list what
constitutes an offence under the Act.
Chapter summary
In this chapter, you learned the following about arbitration: ‘The arbitrator, or group of arbitrators in the case of
Arbitration is a process in which disputing parties refer a tribunal, investigates the circumstances of the dispute
the disagreement to a neutral third party, an arbitrator. and then makes a binding decision.
An arbitration agreement may oblige arguing parties ‘The parties must follow the conditions of the
to use arbitration for resolving certain disputes, such as arbitration award. Losing parties may not usually appeal
a dispute relating to the fair value of a business which against a decision made in favour of the other party.
has been sold.
1. Which of the following statements regarding the c) aprocess whereby disputing parties refer the
procedure at arbitration is true? dispute to a neutral third party, where the
a) ‘There is never testimony from the parties. neutral third party, after investigation, makes a
b) ‘There are no rules relating to the procedure. binding decision
c) Cross-examination never occurs. d) the same as civil litigation.
d) Evidence, which would be admissible at a trial, 3. Who may be appointed as arbitrator and how is
must be admitted. such an appointment made?
2. Choose the correct statement. Arbitration is: 4. Write a note on the procedure to be followed at
a) the only method of dispute resolution arbitration hearings.
b) where a third party mediates and makes a
recommendation
Further reading
It is a particularly challenging time to be studying business entities, as there have been a number of
business failures and challenges both internationally and in South Africa. So, there is a spotlight on
how a business should be conducted. This area of law, which is influenced by changes in the business
environment and the economy, has a huge impact on both the small everyday transactions that we
engage in, as well as on global economy. In this chapter, we will start by considering the different forms
of business entity, especially the partnership structure as a mechanism to conduct business. Then we will
explore the incorporation and registration of a company asa separate legal entity, as well as the types of
company that can be registered in terms of the Companies Act 71 of 2008. Finally, we will look at the
governance of shareholders and directors.
Every business will have different needs. For some businesses, the potential for growth will be more
important than confidentiality, and so, a company will be a better form of business to choose than a sole
proprietorship. But, let us look at these different forms of business in greater detail.
A business can be set up and operated through different structures, which have both advantages and
disadvantages for an entrepreneur. The four main business entities used to conduct business in South
Africa are:
1. asole proprietorship
2. a business trust
3. a partnership
4. a company.
‘The law of business entities is primarily concerned with understanding the common law principles and
the regulatory regime that govern the most common forms of business undertaking in South Africa.
‘These can be divided into the two broad categories of unincorporated and incorporated business
undertakings. Unincorporated business entities include sole proprietorships and partnerships which
are not subject to specific statutory regulation in terms of their formation, financing, governance and
dissolution. Business trusts are also not incorporated but they are regulated by the Trust Property
Control Act 57 of 1988. Incorporated business entities (that is, close corporations and companies) are
regulated by specific statutes.
Note that, since 1 May 2011, no new close corporations can be registered, but quite a large number
of close corporations are still registered and are still being used as business entities.
The relationship between the founder, the trustee and the beneficiary is governed by both a written trust deed,
which is the basis for the contractual relationship between the parties, and by the Trust Property Control Act 57
of 1988. Together, these sources regulate the functioning and administration of the trust, which include:
@ the powers and responsibilities of the trustees
m =the purposes for which the trust assets can be used
@ = the appointment of trustees ie the High
® the registration of the trust. scree eee
terms of the Trust Property
Trusts must be registered with the Master of the High Court in the relevant jurisdiction Control Act of 1988 and
where the trust’s assets are situated. Trustees may act only once the Master has issued letters has oversight over the
of authority allowing them to act. appointment of the trustee.
A trust may be created in the Last Will and Testament of the founder of the trust, and
it will be formed and registered when that founder dies. This is known as a Testamentary Inter vivos is a Latin
Trust. In this chapter, we are more concerned with a business trust, which is formed during ke ‘between
the lifetime of the founder. A business trust is referred to as an inter vivos trust.
Formation of a trust
A business trust is formed by a written contract known as a trust deed. The founder of the trust must
create the trust in which he hands over control of his assets to a trustee or trustees that he appoints.
There must be at least one trustee for the trust to be valid. The assets that are placed in the trust must
be clearly defined. The main purpose of trusts is to protect the assets for a beneficiary by separating the
control of the assets from the enjoyment of those assets.
The trustees must accept their appointment and are then obliged to look after the assets of the trust on
behalf of the beneficiaries. The trustees control the trust’s assets, and these assets must be held separately
from the trustee's own assets, They cannot be used to satisfy the personal creditors of the trustee.
A trustee's responsibilities include:
the duty of good faith in the management of the trust’s assets
the duty to act with reasonable care in the management of the trust’s assets
the obligation to open a bank account separate from his own for the trust's assets
the obligation to account to the beneficiaries on a regular basis
the obligation to act within the powers given to him by the trust deed.
26.1.3 A partnership
A partnership is a contractual agreement entered into by two or more people, each of whom must make
a contribution to the partnership, which has as its object to make a profit for the joint benefit of all the
partners. So, not every agreement between business associates is a partnership — the relationship may
Elements of a partnership
From the definition of partnership given above, you will see that there are four essential elements that
must be present for a legal relationship to constitute a partnership. These elements are:
@ agreement
= contribution
® = object to make a profit
@ joint benefit.
A fifth essential element, which is a requirement of all valid contracts, is that the contract must be lawful.
Agreement
The partnership contract can be entered into in writing, orally or by conduct. No formalities are
required. The contract must meet all the essential requirements of any contract. The intention of the
parties is particularly important when determining a partnership relationship. It is good business practice
for the partners to enter into a written partnership agreement to regulate their legal relationship.
Contribution
Each party to the contract must make a contribution to the partnership assets.
‘The contribution by each partner need not be of the same type, quantity or value. It must Pecuniary means
have commercial value, although it need not be capable of exact pecuniary assessment. ‘consisting of money or
Examples of possible contributions include capital, property, labour, knowledge and skill. ietaung to: money:
Joint benefit
As a general rule, all the partners participate in the management of the business, and they share in the
net profits and losses of the partnership. But, there are some limited exceptions, which will be considered
below. Every partner must share in the profits of the partnership. This does not have to be shared equally.
‘The partnership agreement may regulate the proportion in which the profits are shared. If the agreement
is silent, the court may allocate profit in accordance with the partner's contribution, or it may distribute
the profits equally. Any loss that the partnership incurs may be shared.
Read the following case study with the above four elements in mind.
Ayesha and Bongani conduct a second-hand car business, Dodgy Deals, on a piece of land that
belongs to Ayesha. Bongani had put up the original capital to purchase the first cars. Ayesha’s
sister, Carol, has a contact named Peter, who owns a Car rental business and sells the old cars to
Dodgy Deals.
Ayesha, Bongani, Carol and Peter have a meeting to discuss the terms of their relationship.
They agree that:
e Peter will supply Dodgy Deals with reasonably priced cars. He will be paid a basic amount
for the cars, and he will, in addition, be entitled to 10% of the profits of the whole business
on an annual basis. If the business does not make a profit, Peter will not be paid anything
over the basic price of the cars.
e Caro! will be employed to administer the new cars. She will be paid a monthly salary
for this.
Do you think Ayesha, Bongani, Carol and Peter are partners?
Consequences of a partnership
Certain legal consequences flow once a partnership agreement is concluded. These can be Bitarue male between
divided into the internal consequences that affect the partners inter se and the external each other’ in Latin.
consequences that affect the partnership's relations and liabilities towards outside parties.
Internal consequences
The partners are united in a joint business enterprise and, unless there is a contractual provision to the
contrary, all the partners are entitled to participate in the management of the partnership. They share
in the profit and loss, and the partnership property is jointly owned by the partners. The partners have
certain obligations and duties towards each other:
= Each partner must carry out her duties as agreed between the partners and must do so with
reasonable care.
m = The partners owe each other and the partnership a duty of good faith. This means that a partner
must put the interest of the partnership before her own. She must pass on to the partnership any
benefits and advantages she may obtain, which fall within the scope of the partnership business, and
she must not compete with the partnership,
= = The partner must disclose to her partners any information affecting the partnership.
= A partner is obliged to keep proper records and to account for all transactions.
Principle
In accordance with the principles of the mutual mandate, a partner's implied authority to bind
the partnership will be applicable, even if the partner lacks express authority, provided the third
party is unaware of the limitation in the partner's authority and the transaction is within the
partnership's scope of business.
Facts
Hall and Burn were partners who intended running a restaurant. Burn, without the express
authority of Hall, instructed the plaintiff, a firm of attorneys, to apply for a liquor licence for the
restaurant. After the partnership dissolved, the plaintiff aimed payment for services rendered
from Burn and Hall jointly and severally. Hall denied he was liable on the basis that Burn lacked
the authority for the transaction.
The court's finding
The court held that Burn had authority to give the instructions to Goodricke'’s, and that a partner
cannot hide behind a private arrangement. Accordingly, as Burn purported to act on behalf of
the partnership, he had implied authority to do so, and both partners were jointly and severally
liable for the legal fees.
Daniel and Shaheeda are the partners in a business that buys T-shirts, prints the university logo
onto the T-shirts, and sells them at the entrance to Wits University. They agree that only Daniel,
who is studying law, will be able to enter into contracts on behalf of the partnership.
One day, while walking in a shopping mall, Shaheeda sees a beautiful pair of sunglasses.
She is sure these would complement the T-shirt business, so she orders 100 pairs of sunglasses.
When they are delivered to the office of the partnership, Daniel refuses to pay for them,
stating that the business cannot afford this purchase.
Who can the retailer recover the debt from?
Types of partnership
‘The principles discussed in this chapter are applicable to ordinary partnerships that are formed to conduct
business transactions. There are other types of partnership that exist in South African law that are
different from the ordinary partnerships that provide exceptions to the principles discussed above, such as:
® = extraordinary partnerships
® universal partnerships.
Extraordinary partnerships
The main characteristic of this type of partnership is that it is an exception to the principle that partners
are liable jointly and severally to the creditors of the partnership. In extraordinary partnerships, one partner
(or more than one — although there must always be at least one ordinary partner as well) will enjoy special
protection and will not be liable to the third party. The condition for this exceptional situation is that the
extraordinary partner must not participate in any aspect of the partnership business and must not be held out to
third parties as being a partner. This extraordinary partner will therefore not accrue any liability to a third party.
An anonymous or ‘silent partner’ is an extraordinary partner, who will be liable to contribute to the
other partners for her share if the partnership makes a loss. An extraordinary partner may also be termed
an en commandite partner, which means she will not be liable to the third party, nor to her co-partners if
the partnership suffers a loss.
Universal partnerships
The partners in a universal partnership share more than just the profits from the specific partnership
business that they are engaged in. In a universal partnership of all profit, they share all the profits that each
has made from their business activities. The partners also combine all their property that may be acquired
from any source during the partnership, not only from business undertakings. This type of partnership has
successfully been relied on to determine an allocation of assets between partners who are ina relationship
that is not (exclusively) a business relationship, such as in a long-term romantic relationship.
Principle
A universal partnership may be tacitly entered into and may be relied on by parties in a relationship,
even if the relationship was not a business relationship but was one of cohabitation.
Facts
The parties lived together for almost 20 years and had children together, but were not
married. The defendant had been the major financial contributor to the joint household whilst
the plaintiff mainly cared for the children and looked after the home. All the assets in the
partnership were in the defendant's name. When the relationship ended, the defendant denied
that the plaintiff had any claims to any property and assets. The plaintiff claimed that a
partnership existed between herself and the defendant.
The court's finding
As the plaintiff was able to prove that the essential elements of a partnership existed in the
relationship between them, the parties had tacitly entered into a universal partnership, and the
plaintiff could successfully rely on the financial consequences of this partnership.
Dissolution of a partnership
It is important to note that the dissolution of the partnership does not terminate the obligations of
the partners who will still be jointly and severally liable to the creditors of the dissolved partnership.
A partnership may be terminated in one or more of the following ways.
Lapse of time
A partnership agreement may stipulate that a partnership will be dissolved after a stated number of years
or ata stipulated time in the future.
Agreement
‘The partners can agree to dissolve the partnership at any time.
Change of membership
Since a partnership is not a legal person, it lacks the advantage of perpetual succession. ‘The partnership
will be dissolved every time there is a change in its membership. The business can carry on trading.
Order of court
A partner can apply to court for the partnership to be dissolved. The applicant will have to show ‘good
cause’, An example of good cause is the prolonged absence of a partner or the incapacity of a partner.
26.1.4 A company
The incorporation of a company to conduct business is the fourth type of business entity considered in
this chapter. A number of different types of company can be registered, each with different requirements
and roles. Irrespective of whether the entity is a large multinational corporation or a small business,
understanding the fundamental principles of company law is essential.
There is a difference between the management of the company and the ‘ownership’ of the company,
and companies are highly regulated by the Companies Act which, despite the legislators’ aim to make the
Act simplified and flexible, can be complex to comply with. Here, we will examine and understand these
complexities. We will look at the common law and the Companies Act to understand key areas of companies,
including the legal nature of a company, the role of the directors, an understanding of the securities of a
company and how they enable the financing of the company. An understanding of these principles will guide
an entrepreneur who is considering whether a company is the most advantageous vehicle for his business.
The role of the company has changed in recent times. The rise of multinational corporations
that span the world have provided companies with enormous wealth and influence, which
has resulted in companies wielding enormous power. The role of the company in society is the
subject of heated debate. Is the company’s role only to make a profit for its shareholders? Or
does a company have a wider responsibility to its stakeholders, such as the community in which
it is based, its employees and the environment?
Section 7 of the Companies Act sets out the purpose of the Act. The purpose extends
beyond the traditional role of the company, which was to make a profit for its shareholders, and
now includes the following:
e compliance with the Constitution
© ameans of achieving economic and social benefits
e to provide for the creation and use of companies in a manner that enhances the economic
welfare of South Africa as a partner within the global economy
e higher standards of corporate governance
e encourage innovation and diversity
e create conditions that are conducive to international trade and investment
¢ encourage transparency and good governance
¢ to promote the development of the South African economy by encouraging
entrepreneurship, efficiency and flexibility.
‘The intention in the Companies Act is to make the Mol as flexible as possible. To this end, the Act
makes provision for ‘alterable clauses’, which are provisions of the Act that can be changed in the Mol to
suit the needs of a specific company. If a clause is ‘unalterable’, its provisions cannot be affected by the
Mol (except if it is made more difficult to comply with).
Principle
As soon as a company is incorporated, it becomes a separate legal entity from its incorporators,
shareholders or directors.
Facts
Salomon, a sole trader, carried on business as a leather and boot trader. He decided to convert his
business into a company. He was, essentially, the only shareholder (his wife and children owned
a few shares). He and his two sons were the directors. Salomon sold his business to a new
company. He financed the sale by lending money to the company. In the loan contract (known
as a ‘debenture’), he was a preferent creditor. When the company was declared insolvent,
Salomon demanded that the assets of the company be utilised to pay him before other creditors.
The liquidator argued that Salomon and his company were in fact the same person.
The court's finding
The court held that Salomon and his company were separate even though it was a one-man
company, and that Salomon was entitled to be paid before the other creditors.
Although this case was heard in 1897, its principles are still applicable and have been
confirmed in South African case law.
Principle
The company is a separate legal entity, separate from its shareholders in form and in substance.
Accordingly, assets owned by the company are not the property of its shareholders.
Facts
Due to discriminatory legislation, South Africans of Indian descent were prohibited from owning land
in the old Transvaal province (now known as Gauteng). Dadoo and another shareholder formed a
company that bought property in the Transvaal, and the company then rented the property to Dadoo.
The court's finding
That ownership of the property by the company was not ownership by Dadoo as the company
was a separate entity, and therefore no contravention of the legislation had occurred.
Section 20(9) of The Companies Act has incorporated these common law tests, and provides that if
any conduct by a company is an ‘unconscionable abuse of the juristic personality of the company as a
separate entity’, the court may declare that the company be deemed ‘not to be a juristic person’ in respect
of any rights, obligations or liabilities of the company.
Principle
Although companies in a group enjoy the same benefits of being separate legal entities as
individual shareholders enjoy, the court will disregard the separate legal identity of a company if
there has been an unconscionable abuse of this separate corporate identity of the company.
Facts
The applicants were the liquidators of a group of companies that formed the King Group. The
shareholders of all the companies in the group were the King brothers, who were also the
directors of the various companies. The brothers used the companies in the group to conduct
business, mainly in property investments. In conducting their business, they failed to distinguish
the corporate identity between the companies in the group. Funds from investors were
transferred between the companies with no regard to the individual identity of the companies
concerned. When the holding company was declared insolvent, the liquidators wished to pool
the assets of the different companies and thus pierce the corporate veil.
The court's finding
The court concluded that the separation between the different companies should be disregarded
in terms of section 20(9) of the Companies Act, and the liquidators could pay the separate
creditors from one pot of assets.
26.4 Types of company registered under the Companies Act wren the court finds the
71 of 2008 shareholders or directors
The Companies Act 71 of 2008 aims to be flexible and user-friendly to accommodate liable, this Is known as
i 2a é ‘piercing the corporate
a wide range of different types of business. So, the entrepreneur must choose the most veil’, The metaphor of a veil
appropriate type of company depending on the type of business he wishes to conduct. separating the shareholders
The two types of company that may be incorporated under the Act are: and the company is
= profit companies often used to describe
® non-profit companies. the company as separate
from its shareholder,
‘There are four types of profit company, whose main object is financial gain. These are as follows:
1. State-owned companies
@ = These are public entities that are directly or indirectly controlled by the State.
2. Private companies
m@ = These can be incorporated with one shareholder and one director.
Non-profit companies have a specific public benefit, such as a cultural, social, educational or
religious purpose.
= = The income of this type of company cannot be distributed to its shareholders or any other office
bearer of the company, nor can the assets of the company be so distributed if the company is de-
registered, but it must be handed over to a similar non-profit organisation.
= A non-profit company may have, but it does not have to have, members.
m= It must have at least three directors.
= ‘The name of a non-profit company must have the suffix ‘NPC’.
In addition to the types of company outlined above which are registered and conduct business in South
Africa, companies incorporated outside South Africa are also recognised in company law. An external
company is a company that carries on business activities within South Africa, irrespective of whether it is
for profit or for non-profit. It must register with the CIPC even if it is registered in a foreign jurisdiction.
Activity 26.1
Draw a diagram of the different types of company that are set out in the Companies Act 71 of
2008 and include the characteristics of each type.
Notice of meetings
Proper notice in the prescribed form must be given to all shareholders who, at the record
The record date js the
date, are entitled to attend the meeting. The prescribed form is as follows: date when the company
= = The notice must be in writing. first determined the
= = It must state the date, time, venue and the purpose of the meeting. identity of its shareholders.
® = For a public company or non-profit company with voting members, 15 days’ notice
must be given.
= For all other companies, ten days’ notice must be given. The notice periods may be altered
in the Mol.
= The notice of the meeting may be given electronically.
= A copy of any proposed resolution must accompany the notice and should show the eon are ae
ee : : have to be a shareholder
percentage voting rights for adopting the resolution. himself, is appointed by a
= = If relevant, a summary of the financial statement that will be tabled at the meeting shareholder to represent
should be attached. that shareholder at a
m Shareholders can appoint a proxy to vote on their behalf and this right should be meeting. The appointment
prominently displayed on the notice of the meeting. must be in writing,
A quorum
A minimum number of people must be present before the meeting can validly commence. This is
called the quorum, A meeting may not begin until there is a quorum, which is that at least 25% of all
the voting rights of the issue to be decided are present. This can be altered in the Mol. In addition, if
a company has more than two shareholders, there must be at least three shareholders present for the
meeting to commence.
Resolutions
Decisions are taken by shareholders by means of resolutions, which are passed at the meeting by the
shareholders voting in favour or not in favour of a particular submission. Two types of resolution can be
passed, depending upon the issue being dealt with. These are:
® ordinary resolutions
= = special resolutions.
Ordinary resolutions must be adopted with more than 50% of voting rights being exercised. Special
resolutions can only be adopted with the support of at least 75% of voting rights exercised in favour of
the resolution. Voting can be done by polling the shareholders present at the meeting or by a show of
hands. Special resolutions are required in the following instances:
=@ to amend the Mol
to apply for voluntary winding-up of the company
to approve the sale of majority of assets
for mergers and amalgamation
for schemes of arrangement
for the approval of directors’ remuneration
any other time when required by a company’s Mol.
The Mol may specify a different threshold level for each type of resolution, provided that there is at least
10% difference between them.
There are times when shareholders can take decisions without the formalities of a meeting.
The doctrine of unanimous assent provides that if all the shareholders are aware of what is
proposed and have agreed to it, a meeting is not necessary. This will include the case where the
resolution has been submitted to the shareholders, who respond in writing, or if there is only
one shareholder or all the shareholders are also directors.
Securities
If an entrepreneur has decided to conduct his i through a ca the company will Measiantue een e
need to be funded in order to function. ‘This can be done in a number of ways, but the core jnctrument by which the
funding will most likely come from selling the equity in the company — that is, from selling company incurs debt as a
the company’s shares and from borrowing money. Section 1 of the Companies Act71 of 2008 way of raising capital.
defines ‘securities’ as referring to ‘any share or debenture or other instrument’ that is issued
by a profit company. This chapter will focus on shares as the mechanism for a company to raise money.
Classes of shares
A class of shares is a type or category of shares in terms of which all shares categorised in that class have
the same basic characteristics. All shares are presumed to have equal rights, but the company can vary
this to suit its needs or the needs of the shareholder. The distinction between the classes of shares may be
in relation to:
® voting rights
® rights to share in profits
® participating in new issues of capital
® = distribution of residual assets after winding-up.
‘There are a number of different classes of shares that can be determined in the Mol, such as ordinary
shares and preference shares.
Ordinary shares enjoy voting rights, are entitled to receive dividends subject to the Wdividead bs ihe chars of
discretion of the directors and have a right to the residue of assets if the company is wound up. profits that the company
The holder of preference shares has a preferential right to participate first in the has made during a specific
distribution of dividends. They may be entitled to a fixed dividend, which is more year that is available to
advantageous financially than the entitlement of the ordinary sharcholder. Preference shares _D€ distributed to the —
usually do not carry the right to vote. But, shareholders will have the right to vote on any shareholders. Itis within the
aspect that affects their preference ri hts specifically, such as any proposal to amend the Sevier ci ne
pe —_ eee te any BrOP whether
a dividend will be
preferences or the rights, limitations and other terms associated with that share. available (‘declared’) and
If there are several classes of shares issued, the holders of at least one class of share must —_in what amount.
have the right to vote at a general meeting and the holders of at least one class of shares
must be entitled to receive the net assets of the company upon dissolution.
Pre-emptive rights
A pre-emptive right is an important principle that provides that if a private company intends to
issue new shares, every existing shareholder of the company has a right to be offered a percentage in
proportion to the percentage shares already held, of new shares that the company intends to issue,
before those shares are offered to outsiders. The aim is to protect the existing shareholders, who may be
concerned that new shareholders will affect their voting rights. A pre-emptive right does two things:
@ = It places a restriction on the transferability of shares that is a requirement ofa private company (see
the types of company discussed above).
@ = It guards against the dilution of the existing owner's voting power.
https://www. businesslive.co.za/bd/opinion/columnists/2017-12-11-stuart-theobald-steinhoff-catas-
trophe-biggest-yet-in-sa-and-ranks-among-notorious-global-collapses/
Directors can be removed by a shareholders’ ordinary resolution. This right of the shareholders cannot
be removed in the Mol and bestows significant power on the shareholders. But, a director usually has
a contract of employment with the company, and then his removal may amount to breach of contract,
which may entitle him to claim damages from the company.
Principle
A director has a fiduciary duty towards the company of which he is a director. This duty prohibits
the director from making any profit from the company without disclosing it to the company and
obtaining its permission. The duty will endure even after the director has resigned.
Facts
The Randfontein Estates Gold Mining Co. Ltd wished to purchase a piece of land. The owner refused
to sell it to the company. Robinson, a past director of the company, formed a new company and
bought the land. The new company then sold it at a profit.
The court's finding
The court found that Robinson had breached his fiduciary duty to the company, and it ordered
that he return all the profit to Randfontein Estates Gold Mining Co. Ltd.
The section also provides that the director can rely on the advice and opinion of employees, experts or
professionals, if reasonable.
Karabo is a director of Better Bodies (Pty) Ltd, a company that owns and manages health spas in
Johannesburg. The company wishes to expand, and requires the building adjacent to one spa for
this purpose. Unfortunately, the owners of the building refuse to sell it to the company because
of a feud dating back many years between the shareholders of Better Bodies (Pty) Ltd and the
owners of the building. Karabo, looking for a change of career, resigned from Better Bodies
(Pty) Ltd and, together with an associate, formed a new company, Venture Properties (Pty) Ltd, a
property investment company. Karabo was a shareholder and director of this company. Venture
Properties (Pty) Ltd first undertaking was to purchase the building next to that of the spa owned
by Better Bodies (Pty) Ltd. It then sold the building to Better Bodies (Pty) Ltd, realising a large
profit from the transaction.
When the directors of Better Bodies (Pty) Ltd discover that Karabo is a shareholder of Venture
Properties (Pty) Ltd, they wish to take legal action against Karabo for the profit made on the
transaction. Advise Better Bodies (Pty) Limited of their prospects of success in their action
against Karabo.
In this chapter, you learned the following about the law A company is incorporated by the registration
of business entities: of its constitutive document, the Memorandum of
An entrepreneur has a choice of business entities Incorporation (Mol).
that can be used to conduct a business. ‘There are different types of company that can be
A sole proprietorship is conducted by the owner formed. These include the following:
who manages the business. = profit companies, which include state-owned
‘The advantages of sole proprietorships are that companies, public companies, private companies
they are cost-effective and simple to start and manage. and personal liability companies
The disadvantages are that the proprietor is personally ® non-profit companies, which are incorporated for a
liable for the debts of the business and the business has public benefit purpose.
limited potential to grow.
A partnership is an agreement between two or more In terms of the Companies Act 71 of 2008, no new
people each of whom contributes to the partnership close corporations could be incorporated after 2011.
which is carried on for the joint benefit of the partners. Close corporations have members who own an
The object of the partnership is to make a profit. interest in the close corporation. The members also
A partnership is nota separate legal entity, and manage the close corporation.
therefore the partners are jointly and severally liable for The members owe fiduciary duties to the close
the debts of the business. corporation.
The mutual mandate provides that each partner is an The company functions through two organs:
agent for the partnership and the other partners. = = the shareholders meeting
Partners have certain duties towards the partnership m the board of directors.
and if these are breached, the partner will be liable to
his co-partners. The shareholders meetings and meetings of the board
There are different types of partnership recognised of directors must be properly convened and properly
in South Africa. These include an extraordinary held. There are a number of notice and procedural
partnership and a universal partnership. requirements that must be complied with.
An extraordinary partnership is distinguished from A company will issue shares to raise capital. These
an ordinary partnership because the liability of an must first be authorised in the company’s Mol.
extraordinary partner is limited. There are different classes of shares that may
In a universal partnership the partners share all their be authorised. These include ordinary shares and
property, not only that acquired by conducting a business. preference shares. Different rights will attach to the
A company is a separate legal entity which means that: different types of shares.
™ ~The shareholders and directors are not liable for the In private companies shareholders will enjoy
company’s debts. They enjoy limited liability. pre-emptive rights which enable existing shareholders
= The company owns its own property. to be offered a proportion of the new shares before an
= = It must sue and be sued in its own name. outside party is offered them.
= = It has perpetual succession. Every company is managed by a board of directors.
The directors have the responsibility to ensure that
The court may disregard the separate legal existence of a the company is run with integrity and good governance.
company if this principle is abused by the shareholders The directors have common law and statutory
or directors. duties, which if breached will result in onerous liability.
Companies are regulated by the Companies Act 71 The directors have a fiduciary duty and a duty to exercise
of 2008. proper care and skill in the management of the company.
1. Set out the advantages and disadvantages of the Explain to Cinderella and Beauty what their
different forms of business entities that were pre-emptive rights entail.
discussed in this chapter. 7. Mosiuis an architect. He is a director in a big
Discuss the requirements for a valid partnership. architectural company. He becomes aware from
Nm
3. Is it correct to state that a universal partnership can a colleague in his office that a lucrative contract
be used to regulate the financial consequences of a to build a new development is available. He
romantic relationship? thinks that he will have a better chance of being
4. What are the characteristics of a company as a awarded the contract if he tenders for it on his
separate legal entity? Under what circumstances own, as he will be able to offer a more reasonable
will a court disregard this? price than a big company. He resigns from the
5. Discuss the difference between authorised and company, tenders for the contract, and he is
issued shares. awarded it. Advise the company if they have
6. Fairyland (Pty) Ltd has two classes of shares, any remedy.
namely, ordinary shares that confer one vote per 8. Section 76(3)(c) of the Companies Act 71 of 2008
share and preference shares that do not confer a requires that directors of companies act with a
right to vote. Cinderella holds all of the issued ‘degree of care, skill and diligence’. Analyse this
ordinary shares in the company and Beauty holds duty and consider to what extent this duty, read
all of the issued preference shares. Fairyland (Pty) together with section 76(4) and (5), effectively
Ltd has recently decided to issue 100 more shares. regulates the directors’ conduct.
Further reading
Cassim, F.H.I., Cassim, R., Cassim, M.F., Jooste, R., Shev,J. and Blackman, M.S., Jooste, R.D. and Everingham, G.K. 2002.
Yeats, J. 2012. Contemporary Company Law, 2nd edn, Cape Commentary on the Companies Act, Vol. \ (as updated per
Town: Juta and Co. (Pry) Ltd revision service) Cape Town: Juta and Co. (Pry) Ltd
Davis, D., Geach, W., Mongalo, T., Buder, D., Loubser, A., Delport, P. (ed). 2011. Henochsberg on the Companies Act 71 of
Coetzee, L., and Burdette, D. 2013. Companies and Other 2008. Durban: LexisNexis South Africa
Business Structures in South Africa, 3rd edn. Cape Town:
Oxford University Press (Pry) Ltd
This chapter will focus on the contract of insurance. We will determine what insurance is and explore
different types of insurance. We will also consider how a contract of insurance is concluded and examine
the essential requirements and elements of an insurance contract. The different parties to insurance
contracts will be identified and their rights and duties discussed.
Activity 27.1
1, Explain the importance of insurance.
2. Make a list of the different kinds of risk we face in everyday life. Compare your list with the
list of the person sitting next to you. What type of insurance could you take out to protect
against these risks?
3. Have you concluded an insurance contract? Draw up a list of your existing contracts of
insurance and compare these with your classmate’ list.
On 1 March, you insure your motor vehicle, a 2013 VW Golf, with Easy Risk Insurance Company
Ltd, for R125 000, being the value of the Golf. You take out comprehensive motor vehicle
insurance cover, insuring against accidents, theft and fire. Can you identify the risk, the peril and
the object of the risk?
Lorcom Thirteen (Pty) Ltd v Zurich Insurance Company South Africa Ltd 2013 (5)
Ny Pa A fea) |
Principle
An insurable interest is required to enable an insured person to claim for a loss in terms of an
indemnity contract of insurance. It is used to determine whether the insured has suffered a loss
and also distinguishes a contract of insurance from a wager. Insurable interest, however, is not a
self-standing requirement for the contract of insurance.
Facts
A fishing vessel, the MFV Buccaneer, was lost at sea in 2008. The insurer rejected the claim
on the basis that insurable interest was lacking. The insured, Lorcom, did not directly own the
vessel. At the time of the loss, the vessel was owned by Gansbaai Fishing Wholesalers (GFW),
but Lorcom held all its shares. GFW had made the boat available to Lorcom for fishing purposes.
Lorcom had a permit authorising fishing with the vessel. There were also certain contractual
arrangements in place which created a factual expectation that Lorcom would become the
owner of the vessel in the future.
The court's finding
The court found that Lorcom’s 100% shareholding in GWF, together with its right to use of the
vessel for shipping and its expectancy of becoming owner, was sufficient to provide an insurable
interest. The court was satisfied that this was a sufficient interest to allow the insured to claim
payment of the loss of the market value of the vessel from the insurer.
Indemnity insurance
Indemnity insurance is so called because we say that the insurer indemnifies the insured against the loss
caused by the occurrence of the risk. This means that the insurer carries the risk of loss for the insured.
Indemnity insurance is based on the principle of indemnity, which does not allow the insured to
recover more than the actual loss or damage that was suffered. The aim of indemnity insurance is to put
the insured in the same position that she was in before the loss took place. Should the insured event
happen, the insurer will pay the actual amount of loss suffered by the insured.
Assume Ntombi’s car was insured for R300 000 (its value). Ntombi reverses her car into a pole. The
cost of repairing the damage is R30 000. The loss Nrombi has suffered is R30 000 and this is how much
the insurer will pay her. It will indemnify Nrombi for her loss only. So, Ntombi will not receive payment
of the full R300 000 she insured her car for.
Examples of indemnity insurance are:
= motor vehicle insurance
@ fire insurance
® public liability insurance.
Public liability insurance is insurance that businesses and private persons can take out to protect
themselves if they cause financial loss to a member of the public. If you are in a supermarket and
you slip on a wet floor, you could claim your medical expenses from the shopping centre. These
medical expenses will be covered by the shopping centre’s public liability insurance.
As you have learned, in indemnity insurance, the liability of the insurer is limited to the amount of the
loss the insured can claim when the risk against which she is insured occurs. In the case of indemnity
insurance, the insurable interest must exist at the time of the loss.
If Ntombi is involved in an accident with her car, her insurable interest must exist when the damage
occurs. Assume Nrombi had sold her car to her brother and was borrowing the car at the time of the
accident. Then, she would not have an insurable interest at the time of the loss, and she would not be
able to claim for the damage to the car from the insurance company (even if she was still paying the
insurance premiums).
Non-indemnity insurance
In the case of non-indemnity insurance, the insurer undertakes to pay a specified sum of money to
the insured, if the risk against which she is insured occurs. The amount the insurer pays to the insured
is pre-determined by the parties. The amount paid out is not related to the loss suffered. This type of
insurance is usually related to the person of the insured or a third person,
An example of non-indemnity insurance is life insurance. If the insured has life insurance for
R500 000 and she dies, the insurer will pay out R500 000 to the beneficiary of the policy. This
R500 000 is not related to the value of the insured’s life, but was agreed upon by the parties in the
insurance contract.
The purpose of non-indemnity insurance is not to indemnify the insured against the risk of loss, but
to pay out an agreed amount when the risk occurs. The actual loss suffered by the insured is not relevant.
With non-indemnity insurance, the insurer is liable for the agreed-upon sum of money. The insured can
claim this sum on the occurrence of the risk.
With indemnity insurance, the insurable interest must exist at the time of the loss, In the case of
non-indemnity insurance, the interest must exist when the contract is concluded. A person has an
interest in the life of their spouse. For this reason, a wife can insure her husband's life. ‘This interest must
exist at the time at which she concludes the contract of insurance. In other words, she must be married
to him at the time at which she concludes the contract. The insurance company will still be obliged to
pay her R500 000 when the husband dies, even if they were divorced at the time of his death — because
there was an insurable interest when the contract was concluded.
Activity 27.2
Explain how a contract of insurance differs from a contract of wager.
Sam concludes a contract with Jessica. The contract provides that if Sam bungee-jumps off the
Bloukrans Bridge, Jessica will pay Sam R1 000. Is this a contract of insurance or a contract of
wager? What are the consequences of this contract?
Katongo’s father is an aeroplane pilot. He takes out life insurance to provide for Katongo in the
event of his death. Katongo’s father insures his life for R800 000. Nceba’s father is a banker. He
insures his life for R700 000, and declares Nceba to be his beneficiary. It so happens that both
Katongo and Nceba’s father die in an aeroplane crash (Katongo’s father was the pilot and Nceba’s
father was a passenger). The insurance companies pay Katongo and Nceba the proceeds of each
policy. Are the life policies indemnity or non-indemnity insurance policies? Explain your answer.
Assume that Katongo tells Nceba that, because her father’s insurance paid out more money,
her father’s life was worth more than Nceba’s father’s life. Is this the case? Explain the situation
to Nceba, who is very upset about what Katongo has to say.
Andiswa buys a dog, a bull terrier, named Bailey. The dog is very accident-prone. Andiswa
decides to take out pet insurance against potential vet's bills. After about six months, she realises
that she is unable to care for the dog, and so she sells the dog to her best friend, Josie. Andiswa
keeps the pet insurance contract and carries on paying the premiums (She forgot that she had
concluded the contract and the premiums are debited from her bank account.). The dog then
eats a fish hook while walking on the beach. Josie is very upset and takes the dog to the vet,
who operates and saves the dog's life. The vet's bill is R10 000. Josie tells Andiswa about the
incident and Andiswa then suggests that they submit a claim for the loss in terms of the pet
insurance contract. The insurer rejects the claim and says that as Andiswa no longer owns the
dog, she does not have an insurable interest. Explain to Andiswa whether she has an insurable
interest in the dog and whether she is entitled to payment from the insurer. Explain to her the
importance of the time when the insurable interest must exist.
whom the insurance company will pay the sum insured when the insured dies. a beneficiary is the
person whom the insured
27.2.2 Requirements for insurance contracts nominates to receive
As with any contract, certain requirements have to be met for the conclusion of a valid payment of the proceeds
contract of insurance. These requirements are: of: the policy,
™ consensus or agreement between the parties to the contract
the legal ability or contractual capacity to enter into the contract
the legality of the contract
the physical possibility of carrying out the contract
formalities or compliance with the contract's formal requirements.
‘The parties achieve consensus through offer and acceptance. In the case of a contract of insurance, the
offer is made by the insured, not the insurer. The insurer merely invites the public to apply for insurance.
The insured makes the offer by completing and signing an application for insurance. The application for
insurance is called a proposal. The proposal is a printed form issued by the insurer. It contains a number
of questions which the insured must answer.
Questions are asked by the insurer to allow it to assess the possibility of the risk in question occurring.
For example, in a proposal for car insurance, questions are asked about the age and driving experience of
the nominated driver, whether the car has an alarm system and where the car will be parked at night.
The insured is asked to warrant the truth of the answers, and to declare that they will be
The policy is the written
the basis of the contract of insurance. The insured must therefore answer the questions in 5
contract of insurance,
the proposal honestly, carefully and accurately. If the insurer accepts the proposal, consensus pic, incorporates
has been reached and a contract of insurance comes into existence. The insurer then sends _ the proposal.
the insured the policy of insurance.
These days, many proposals are completed both electronically (online via the insurer's website)
and telephonically. These are perfectly legitimate business practices. Nevertheless, once a contract is
concluded, the contract is still usually recorded in writing in a policy.
Often, at the end of the insurance period, the insurer sends a renewal notice to the insured. The
renewal notice is a new offer for insurance, this time made by the insurer. With this notice, the insurer
offers to renew the insured’s insurance. The renewal notice can include changes, such as an annual increase
in the premium. Once the insured accepts the offer, a new insurance contract comes into existence.
the insurance contract comes into existence when an undertaking to pay the premium has (an uncertain future event)
is met. In other words,
been given by the insured. Sometimes, an insurance contract places a duty on the insured the contract of insurance
to pay the premium. In practice, however, the contract is usually subject to a suspensive will usually become
condition of payment. enforceable only when the
insured pays the premium.
The occurrence of an uncertain future event
It is not possible to insure against events that are certain to occur. The risk must be an uncertain event.
The insurer will be obliged to compensate only if an uncertain event causes a loss. The uncertain event
that causes the loss is the peril. The possibility of the loss occurring is called the risk. An insurance
contract is concluded to protect against possible losses.
‘The risk is therefore an important element to a contract of insurance, and it must be accurately described
in the contract. The description of the risk must include the following:
@ the property or person to be insured, for instance, household contents or a person’s life
@ = the peril against which the object is insured, for example, theft or death
® any circumstances which could affect the risk, for example, not locking the doors, or participating
in an extreme sport, such as skydiving.
‘The contract of insurance may even specifically rule out certain risks, An exclusion clause is a contractual
term that provides that the insurer is not liable if the risk occurs under certain circumstances. An
exclusion clause can therefore exclude the insurer from liability. In the case of motor vehicle insurance,
for example, a typical exclusion clause may state that the insurer will not have to pay the insured, if the
damage occurs while someone without a valid driver's licence is driving the vehicle.
On 1 July, Jacob insures his laptop against theft with Low Risk Insurance Company Ltd for
R15 000, being the value of his laptop. Identify the risk, peril, parties to the insurance contract
and state whether this is an indemnity or non-indemnity policy of insurance.
Randall acts as Luvuyo's broker, and helps Luvuyo conclude a life insurance contract with
First Life Insurance Company. Luvoyo stipulates that his daughter, Khwezi, should receive the
proceeds of the policy when he dies. Identify the parties to this contract of insurance.
Yusuf is a university student. Yusuf’s father buys a car for him to drive to and from university.
The car is registered in Yusuf's father’s name. He clearly indicated to Yusuf that he (Yusuf) is not
the owner of the car, but merely has the right to use it. Yusuf insures the car. The car is stolen.
The insurer does not want to pay Yusuf the value of the car, because it says he did not have an
insurable interest in the car, as he was not the owner of the car. Did Yusuf have an insurable
interest in the car?
Hint: you should consider whether Yusuf will be financially worse off without the car.
Kim and Khaya are notorious rhino poachers. They poach approximately 10 rhinos in the Kruger
Park, and then decide to insure the rhino horn pending its delivery to the East. Is this a valid
contract of insurance?
Activity 27.2
In the example above, Ntombi has the choice of claiming her damages from her insurance
company or from Peter. Which do you think would be the better choice for Ntombi? Why do
you think so?
Special terms and conditions must be clearly pointed out and explained to the consumer, such as:
® exclusion clauses
BH excesses
= restrictions.
What can you learn from the following two case studies regarding claims and the duties of the insurer?
Pumla’s car is insured with ABC Insurance Company Ltd. She is involved in an accident caused
by the negligent driving of Johan. Pumla claims her damages from ABC and it pays her the full
amount for which it is liable. Pumia then sues Johan for the damages to her car. Is she allowed
to do this? If not, who can hold Johan liable?
Angelina has taken out insurance for her household contents. The policy contains a forfeiture
clause. One night, somebody breaks into her house, and steals a pair of diamond earrings and a
gold necklace. Angelina claims for her loss from her insurer. She also claims for a sapphire ring,
which she has never owned, thinking that she will be able to get some extra money from her
insurer. Her insurer finds out about this and refuses to pay for her loss relating to the earrings
and necklace. She is upset and she threatens to sue them for her loss. Does she have a case
against the insurer? Motivate your answer.
The reasonable person standard is one often used in the law and is an objective enquiry. The
reasonable person is a hypothetical, or imaginary, person whose view of things is taken into account
when legal decisions are made. The question asked is: How would the reasonable person have acted
under the circumstances? The insurer would ask: Would the reasonable person have thought it was
necessary to disclose the fact to an insurer? The reasonable person discloses facts which influence
the insurer's decision to insure and the terms upon which the insurance is concluded.
Contracts of indemnity insurance are normally renewed every year. Upon renewal, the insured has a new
duty to disclose. If the insured’s position has changed since completing the proposal, she must inform
the insurer of the new position. If Nrombi has, since originally taking out insurance on her car, been
convicted of drunk driving, she must disclose this fact to Cut Costs Insurance Company.
Activity 27.3
Write down your own examples of facts that you think an insured would have a duty to disclose
in these contracts of insurance:
a) motor vehicle insurance
b) house insurance
c) life insurance.
Donald concludes a contract of life insurance with Trump Heavy Insurance Company Ltd. He
States that he is a businessman, but does not disclose that he volunteers as a diving instructor
(assume this is an inherently dangerous activity). Three years later, Donald dies in a motor
vehicle accident. When Trump Heavy Insurance Company Ltd finds out about his role as a diving
instructor, it refuses to pay out the proceeds of the policy to Donald's beneficiary, his daughter,
Tiffany. Tiffany argues that this had nothing to do with the way in which Donald died. She adds
that the insurer cannot cancel the contract and reject the claim. Is Tiffany correct? Motivate
your answer.
Hint: you must determine whether the misrepresented fact was material to the assessment of
the risk by the insurer when it concluded the policy.
Aaron wants to insure the contents of his home. In the proposal he mistakenly states that the
size of his house is 255 m’. It is actually 253 m?. He signs a warranty that all the information
in the proposal is correct. His insurer wants to cancel the contract based on this contractual
warranty. Is the insurer allowed to do so? Motivate your answer.
These principles apply only to indemnity insurance. In the case of non-indemnity insurance,
the insured can insure the interest with as many insurers as she wishes. If the risk occurs, each
insurer will have to pay out the full amount. For example, James insures his life for R500 000
with Insurer A and for R800 000 with Insurer B. When he dies, Insurer A must pay the full
R500 000 and Insurer B must pay the full R500 000 in terms of the insurance contracts.
Eric's household contents are insured for R200 000, although the actual value of his household
contents is R400 000. While he is on holiday, his house is burgled and R50 000 worth of assets are
stolen. How much is Eric's insurer liable to pay? Assume the contract contains an average clause.
Sindisiwe’s camera is valued at R100 000. She insures it for R150 000. While she is on holiday in
Thailand, the camera falls into the sea when she is on a boat trip. What amount will the insurer
pay her when she claims for the camera? Explain the principle involved.
Ben insures his valuable art collection with three different insurers for R600 000, being the value
of his collection. When his house burns down and the collection is destroyed, he claims the loss
from Insurer A, which pays him R600 000. How should Insurer A proceed in relation to the other
two insurers, namely Insurer B and Insurer C? Explain.
In this chapter, you learned the following about the law The main duty of the insurer is to compensate the
of insurance: insured for her loss (in the case of indemnity insurance)
Insurance is defined as a contract of good faith between or to pay out the agreed-upon insured amount (in the
the insurer and the insured. In a contract of insurance, case of non-indemnity insurance).
the insured undertakes to pay a premium to the insurer. The main duty of the insured is to disclose all
‘The insurer undertakes to bear a certain risk for material facts to the insurer.
the insured. In addition, if the proposal requires it, the insured
An insurance contract and a contract of wager are must warrant that the information she has given to
two different concepts. the insurer is correct. This is known as an affirmative
The two kinds of insurance are indemnity insurance warranty. Where the insured promises that she will
and non-indemnity insurance. behave in a certain way during the course of the policy,
In the case of indemnity insurance, the amount paid this is called a promissory warranty.
by the insurer is related to the actual loss suffered by the ‘The insurer is not obliged to pay for entirely
insured. The insured is indemnified for a patrimonial loss. fraudulent claims. If an inflated claim is submitted, the
In the case of non-indemnity insurance, the amount insured will forfeit the entire claim where a forfeiture
paid by the insurer bears no relation to the actual loss clause is included in the contract, Where there is no
suffered by the insured. forfeiture clause, the insurer must pay the valid portion
The insured must have an insurable interest to be able of the claim.
to claim for a loss in terms of the contract of insurance. With indemnity insurance, it is possible for the
As with any contract, there are certain requirements insured to over-insure, under-insure or double insure
that have to be met before the contract of insurance is her property.
valid. These requirements are consensus, contractual In the case of over-insurance, the amount payable by
capacity, legality, the physical possibility of carrying out the insurer is limited to the actual loss.
the contract, and formalities. In the case of under-insurance, an average clause will
‘The essentialia of a contract of insurance are the limit the amount the insured can claim.
insurer's obligation to perform by covering the insured In the case of double insurance, the principle of
for a loss, payment of a premium by the insured and the contribution applies. This principle permits the insurer
existence of uncertainty or a risk. that pays the claim to hold the other insurers liable for
Once an insurer settles an insured’s claim in full, the their rateable portion of the insured’s loss.
insurer has the right to collect the amount paid out to A contract of insurance can be terminated if it
the insured from the original wrongdoer. The principle reaches the end of its term, if either party cancels the
of subrogation allows the insurer to step into the shoes contract, or by agreement between the parties.
of the insured and sue the guilty party.
Explain the insured’s duty to disclose. of situations where the amount will be less than
an
Further reading
Davis, D.M. 2003. Gordon and Getz: The South African Law of http://www.osti.co.za
Insurance, 2nd edn. Cape Town: Juta and Co. (Pry) Led (This is the link for ombudsman for short-term insurance.)
Fouche M.A. et al. 2012. Legal Principles of Contract and http://www.ombud.co.za
Commercial Law, 7th edn. Durban: LexisNexis South Africa (This is the link for ombudsman for long-term insurance.)
Millard, D, 2013. Modern Insurance Law in South Africa. Cape https://www.faisombud.co.za
Town: Juta and Co. (Pry) Ltd (This website is for the FAIS ombud.)
Reinecke M.F.B., Van Niekerk, J.P. and Nienaber, P.M. http://www.saia.co.za
2013, South African Insurance Law, Durban: LexisNexis (This link is for the South African Insurance Association.)
South Africa
In this chapter, awe set out the most important features of the law governing contracts thac deal with the
movement of goods and people by land, sea and air. We will define carriage, the parties to a contract
of carriage and the requirements of such a contract. Liability for loss or damage to goods or human life
during carriage is also discussed, Legislation has replaced some aspects of the common law of carriage
and this is also explored.
The above extracts from newspaper articles both have to do with the wansporting of goods and
passengers and whar can go wrong. The questions this chapter secks to answer are: What are the
responsibilities of those who transport goods and passengers? What are the responsibilities of those for
whom goods and passengers are transported? More importantly, who is responsible for the loss of, or
damage to, life and property when goods or passengers are being transported? By the end of this chapter,
you should be able to recognise and apply the law that governs these situations.
Efficient carriage of goods and people and well regulated transport systems have been an important part
of economic and socictal progress. The World Bank has identifed the cthcicnt carriage of poods and
peuple as vital to the sacio-cconomic development of modenn socictics. This is cypecially important in
developing countries such as South Africa. Good transport networks can ensure that people have access
to jobs, clinics and schools. People can be connected to their familics, communitics and to
the broader global world. More than ever before, the movement of people and goods from An intemational
place to place is a charactcristic of our modern, interconnected world and it requires fair, convention, treaty or
efheient and uniform regulation. is an intemational
covenant
‘The law of carriage
Be is a complex
picx 2area of commercial law. I Various
EROS sources a of law
EO regulate aera Seen
into between different states
the law of carriage in South Africa: at.an intemational level, and
@ the law of contract (contractual agreements between the different parties), which has been ratified by
® the law of delict (liability between the parties), Parkament and incorporated
® internariona! law (international conventions, treaties or covenants). into national law through
South Aincan leqistation.
Let us use this example to explain the diffcrent partics. Rabelo is the owner of a game farm in
Mpumalanga. He sells two buffalo to the Born Free Ranch in Texas in the United States of America for
R200 000. The Born Free Ranch contracts with International Freight Incorporated to transport the
buffalo from Mpumalanga to Texas. The buffalo cravel by road from Mpumalanga to Durban, by ship
from Durban to the port in New York and by rail from New York to Texas,
Aconsignor is the party to the contract who arranges for the transportation of the goods. So, in the
example, the Born Free Ranch is the consignor.
The consignee is usually the person nominated by the consignor to take delivery of the goods. The
consignee is often an agent of the consignor. If Born Free Ranch had asked an agent to accept delivery of
the goods at the New York harbour, the agent would be the consignee.
‘The carrier transports the goods and passengers. In the example, the carriers are the truck company
that transported the buffalo overland to Durban, the shipping company that transported them to New
York, as well as the railway company that took them to the end of their journey in Texas.
‘The carrier may be classified as a public carrier or as a private carrier. A public carrier transports goods
and people as a profession. He holds himself out as willing to carry for reward for anyone who wants
to use his services. A private carricr transports goods and people en a ‘one-olf or casual basis, cither for
a fee or for free. This distinction is important as it may affect the standard of the duty of care that is
required from the carrier. Determining whether the carrier is a public or private one may also affect the
carricr's liability for injury, loss or damage.
The passenger is a person (with her hand luggage), who is transported on any of the modes of
transport that we are discussing in this chapter,
‘The contract of carriage may be concluded with different parties. It may be between the carrier and
the consignor, or between the consignot and consignes. In the latter case, the ordinary rules of contract
will be applicable.
Activity 28.1
Mosiu, who lives in Mpumalanga and has orange tree orchards, sells two tans of oranges to
Katlego, who has a store in Vereeniging in Gauteng. The oranges will be transported from
Mpumalanga to Vereeniging in a truck that is owned and operated by Fresh Carriage SA (Pty) Ltd.
It is a term of the contract that Katlego will pay a deposit into Masiu's bank account within
12 hours of the oranges being picked up. Fresh Carriage picks up the oranges and begins the
journey. Unfortunately, Katlego fails to comply with the terms and conditions as agreed as she
has not paid the required deposit. Mosiu contacts Fresh Carriage to instruct them to returm the
oranges to him. Think about the legal position of each party to this contract.
identify which party is the consignor, the consignee and the carrier?
>
If the sale of the oranges had been for cash, who is the owner of the oranges?
wn
If the oranges arrived back in Mpumalanga damaged, which party will be liable? Assume
that the contract for carriage was between the consignee and the carrier.
The consignor's duty to deliver the goods to the carrier can be changed either expressly or impliedly.
For cxample, you agree with a removal company to move the contents of your houschold from Port
Elizabeth to Johannesburg. If there is no express carriage contract, it wall be implied that the transport
company will collect the furniture from your house. You would not have to deliver your entire houschold
contents to the removal company’s local depot!
‘The parties can also change the consignor's duty to pay freight. For example, che parties may agree
that the freight will be payable by the consignee. Where there is no express agreement as to the exact
amount of freight payable, the carrier's usual rate may be implied. The carer's usual rate will obviously
be implied only where the consignor is aware that the cartier has usual rates.
28.4 Liabilty
If a passenger is injured or suffers a loss, or poods are lost or damaped, it is important to be able to
determine who is liable. The first step is co idemtify whether the carrier is a private carricr or a public
carrier. The next step is to identify the mode of carriage, and look at the specific regulation of that mode
whether by air, road and rail or by sca, which is poverned by the Practor's Edict.
We have already seen thar if the carrier is a professional carrier by sea (mauzae), the Edict applies and
the carricr will have to compensate the consignor for the damage to the goods, unless the circumstances
fall within the exceptions previously listed,
But what is the liability of a carrier which does noc fall under the Edict? The nature and extent of
liability will depend on whether the carrier is transporting passengers or goods. If the carrier is transporting
goods, then the carrier's liability will further depend on whether it is a public or private carrier.
Fora long time, our courts have recognised that the Practor’s Edict applies co professional carriers by sea. Bur,
before 1995, the courts hotly debated whether the Practor's Fdict applied (or should be extended to apply)
to the carriage of goods by public carriers by land. Fortunately, this debate was resolved by the Appellate
Division in the case of Anderson Shipping (Pry) Lid » Polysins (Pry) Erd 1995 (3) SA 42 (A).
Principle
This case considered the legal principle of the liability of the carrier for transport over land. The
consignor had based its claim on the Praetor’s Edict (that ts, that the public carrier was strictly
liable) and claimed damages based on this Edict.
Facts
Anderson Shipping (a public carrier) transported two cases of machinery parts by land from Durban
Harbour to Leeudoorn Mine for Polysius, the consignor. The camer removed the cases from Durban
Harbour but either failed to deliver them or delivered them ina damaged state to the consiqnor.
The court's finding
After considenng the history of the Praetor's Edict, the Appellate Dimsion decided that the
Edict was not applicable to public carriers by land, and nor should the Edict be extended. In
these arcumstances, the court held public carners should be subject to the same principles of
negligence as private camers by land.
) Activity 28.3
Now that you have read the above case, answer the questions that follows.
1. The machines being transported were lost or damaged as aresult of being hijacked from a
truck on which the carrier was transporting them from the harbour to the mine. Would the
camer be liable?
2. If a private carrier was transporting the machinery for a fee, who would be responsible?
Would itmake a difference if the carrier was a fnend of the consignor and did not charge
him for the carriage of the goods overland?
3. if the court had found that the Praetor's Edict should apply to the carnage by land, would
your answer be different?
Principle
This Constitutional Court case considered who is responsible for ensuring the safety of
passengers travelling on commuter trains.
Facts
The applicants had all suffered assaults of injunes while travelling on Metrorail trains, or had
relatives killed whilst travelling on the Metrorail trains. The applicants asserted that all the
respondents {Transnet Ltd t/a Metrorail, the SA Rail Commuters Corporation and the Ministers
of Transport and Safety and Security) were obliged to ensure the safety of passengers. The
respondents argued that the South African Police Services bear the primary responsibility for
ensunng the safety of passengers, not the institutions that operate the trains.
The court's finding
The court found in favour of the applicants and declared that the first and second respondents
were obliged to ensure that reasonable measures are taken to provide for the secunty of rail commuters
whilst passengers making use of rail transport services provided bythe first and second respondents.
Palesa is travelling with her family on a cruise ship between Durban harbour in South Africa and
Beira in Mozambique. An unusually heavy storm with gusts of wind causes the ship to crash
over the waves. A light fitting in the cabin comes lease during the storm. It falls on Palesa’s head
and although she recovers, she incurs substantial medical expenses. Is the cruise ship liable for
Palesa’s damages?
The camer (the crusse ship owners) would be liable even if they were not negligent on the bass of
the strict liability provisions of the Praetor's Edict. But, if it can be shown that the storm
was so severe
and was such an unusual event that it could not have been anticipated, this would constitute an act
of God and the ship owners would not be liable. So, Palesa would have to pay her own damages.
1. The carrier will be liable only if it has received notice of the loss atthe time of the loss Spe Getivered,
or within three days after the loss occurred. Then, any claim must be brought within
one year after the delivery date or the claim will be lost.
The carsicr will not incur any liability if the loss occurs as a result of the ship not being scaworthy,
th
provided the ship was in a seaworthy condition at the start of the journey, as a result of any cause
thar is not the fault of the carrier, such as acts of Gad, fire ar emergencies and if the loss accurred
due to latent defects in the goods being transported.
Another international instrument may soon affect carriage by sea in South Africa. In 2009, the
United Nations adopted the Rotterdam Rules, officially known as the United Nations Convention
on Contracts for the International Carriage of Goods Wholly or Partly by Sea. This is intended to
create modern and uniform legal requlation of international shipping. It builds on the previous
conventions that we have already discussed and facilitates modern technological advances. It has
been adopted by more than 20 companies and it is therefore effective, but it has not yet been
incorporated into South Afnca’s shipping legislation
The carrier will escape liability in these instances if it can prove char:
@ it and its agents took all the necessary measures to avoid such injury, loss or damage
Bhat it was impossible co take such measures {Article 20)
@ the injury, loss or damage was caused in whale or part by the negligence of the injured person
(Articles 20 and 21).
It is important to note that if the carriage is not ‘international’ as defined in the Act, the common law
rules apply. However, note that in most instances a fight will be covered bya standard-form contract.
The case study below raises an interesting question as to whether an applicant can pursue her
case under the domestic law of the country thar has jurisdiction, if loss or injury is nor covered by
international conventions.
In the case of Ef Al israel Airlines Limitedv Tsut Yuan Tseng 1999 525 US 155, USSC, a passenger
claimed that she had sustained psychosomatic injuries as a result of an intrusive body search. It was
accepted that there was no bodily injury within the meaning of that expressionin the Convention but
the passenger contended that she was not precluded from pursuing a separate action for damages
under domestic law. The court stated that such an action could not be taken. Therefore, for any
loss outside of the strict parameters of the Conventions, the applicant was without a remedy.
The court referred favourably to another case where the issue was whether, in relation to
injuries sustained whilst in an airport terminal in Kuwait during the Iraqi invasion of that country,
passengers could claim for damages from the canier transporting them from London to Malaysia
via Kuwait. The claimants hadi no right of action in terms of the Convention and had also been
left without a remedy.
30, if loss or injury is not covered ar is limited by the international conventions that are applicable,
can an applicant pursue his case under the domestic law of the country that has junsdiction?
We have looked at loss or injury to persons during air travel, so finally let us look at the case below
which dealt with the loss of important cargo.
Principle
The legal issue is who has locus standi to sue for the loss of or damage to cargo that is
transported by air in terms of the Warsaw Convention.
Facts
The appellant was a South African company that was the consignor of two parcels containing
platinum and palladium (precious metals) products. The legal terms qoverning the carriage
of these parcels were set out in a waybill (a contract between the carrier and consignee) and
were governed by Article 1(2) of the Warsaw Convention. The consignee was a company in
Philadelphia, United States of America (USA).
The parcels were to be transported from Johannesburg to Amsterdam (The Netherlands)
and then from Amsterdam to Minneapolis (USA) by the first respondent, Koninklijke Luchtvaart
Maatschappy (KLM). A second airline, Northwest Airline Inc. (Northwest) was to transport the
parcels onwards to Philadelphia.
Nerther parcel arrived at its destination. The consignor sued both airlines, but withdrew the
action against Northwest as it was declared insolvent during the proceedings.
The court's finding
The court considered the relevant clauses in the Warsaw Convention, the main ones being
Article 18 and Article 30.
¢ Article 18, without specifying who has title to sue, states that ‘the carrier is liable for
damage sustained in the event of the destruction or loss of, or of damage to, any regstered
luggage or any goods, if the occurrence which caused the damage so sustained took place
dunng the carriage by air."
* Article 30 of the Convention provides that when the carriage is by different carriers, each
carer who accepts passengers, luggage or goods is subject to the rules of the Convention,
and is deemed to be one of the contracting parties to the contract of carriage in so far as
the contract deals with that part of the carriage which is performed under its supervision.’
The court concduded that the correct interpretation of these clauses was that each consiqnor
must have the right to sue, even if the consignor had not suffered any direct financial loss due
to the fact that it had insured against the lass. To decide this matter in favour of the respondents
would, according to the court, disregerd the realities of modern-day international air carriage,
would make no commercial sense and would offend against the need for unormity
In this chapter, you learned the following about the law In terms of the commen law (generally rclating to
of carriage: cartiage by road or rail), the law relating to contract and
‘The parties to the contract of carriage are: delict will be applicable.
B the cansignor, who arranges the carriage @ The standard form contacts with exclusion clauses
B® the consignec, who receives the goods are common and will vary the carrier's common
@ the carrier, who transports the goods or passengers. law liability.
A public cartier transports people and goods as a profession Carriage by sea and by air is regulated by international
and a private carricr transports people Or goods ona conventions.
once-off or casual basis, and they have different stamdards The Hague—Visby Rules regulate camiage of goods by
of liability. sea and the Montreal Convention regulates carriage by air.
The duties of each party are important as they These change the common law by providing for the strict
indicate who is liable for loss or damage that may be liability of the carrier, subject to different terms. The most
sustained by passcngers or goods during the carage important legislation that is applicable to carriage by sea is
of these Passengers, their baggage and goods being the Carriage of Goods by Sea Act 1 of 1986.
transported. The most important duties of each are thar: Carriage of passengers by sea is governed by the
B the carrier must carry people and goods safely and Praetor’s Edict.
without delay to their destination The most important legislation that is applicable to
@ the consignor must make all the arrangements carnage by air is the Carriage by Air Act 17 of 1946.
for the delivery of the people or goods to their Legislation for transportation by road and rail is
destination and usually must pay the fee. largely administrative in nature and docs not change the
common law regarding liability.
Liability depends upon the carmicr, the mode of
transport and whether the common law, legislation or
international conventions are applicable.
1. Deline a contract of carriage and set out the the passenger has negligently caused her own
essential elements. injury by tripping in the plane's aisle after
Whar are the duties of the consignor? drinking too much
ha
Choose ALL the options below that are correct. In ¢) to compensate the passenger for all of her loss
too
terms of the Montreal Convention, the carrier will caused by damage ta the passenger s hand
Further reading
Hare. J. 2009. Shipping Law ana Admiralty Jurisdiccion in Soush Interesting and useful information on shipping law in South
Africa, Ind edn. Cape Town: Juta and Co. (Pry) Led Aftica can be found on the ICLG website— the Jneernarional
The World Bank website has an interesting discussion on the Comparative Legal Guide to Shepping Law, 3rd edn
importance of transport in the modern world.
Up-to-date information on aviation law in South Affica is
provided by the Global Legal Group Limited and can be
found on the ICLG website.
This chapter gives you a brief overview of intellectual property and how rights are protected in our law.
‘This branch of our law protects people's rights to their creative products. Wewill start by looking at
what intellectual property is, the different kinds of intellectual property and the different ways these are
pretected in our law. This chapter will focus on the three main types of intellectual property law, which
are copyrights, patents and trade marks.
intellectual ettort. Therefore, intellectual property results from creations of the mind and denotes objects
that are not physical or tangible things. The subject matter of intellectual property ix very wide and the
following fields of intellectual property are protected by our law:
8 copyright @ trade marks go designs
B performers rights @ patents B plant breeds.
In much the same way thar people own property in the usual sense, people can also be rhe owners of
their intellectual property. These owners will have rights to their intellectual property which is protected
by intellectual property law. As such, this branch of law protects the legal nights of those people whe
Added value Difference between property rights and intellectual property rights
It is very important to understand the difference between property nights and intellectual
property nights. Consider this textbook. You bought this book, so you are the owner of it. The
property rights to this textbook belong to you. As owner, you can do different things with it-
you can read it, study from it, use it as a doorstop, or even throw it away. But, the intellectual
property rights to this textbook are not yours — they belong to the authors. They have rights with
regard to the content of the book. These intellectual property rights limit your property rights in
respect of the book. This means that there are certain things that you may not do with the book,
such as make copies of it, and sell them to your fellow students.
Literary works
These include novels, stories and poetical works, textbooks, encyclopaedias and dictionaries, letters and
reports and lectures, speeches and sermons. Legally speaking, a literary work consists of a grouping
of letters, words and/or numbers that, asa whole, makes sense to the public, This means that, while
individual letters or words may not make sense, people must be able to have an understanding of the
work asa whole.
Musical works
As the name suggests, a musical work is one consisting only of music. This means that the words to a
song are a literary work, not a musical work The music that goes with the lyrics isprotected as musical
works, which are protected separately from the lyrics of the song.
Artistic works
These consist of paintings, sculptures, drawings, photographs and gravures. Works of A gravureis a printing
architecture, such as buildings, and works of craftsmanship, such as protatypes, madels methodin which an image is
and furniture, are also protected by copyright. applied toa sunken surface
by using a metal plate that
Communication media is mounted on a cyinder.
Works thar are protected as communication media include cinemarograph hilms, sound
recordings and broadcasts.
Cinematograph films
A cinematograph film is asequence of images stored on Alm (or other material), and thar isseen as a moving
picture when used with appropriate equipment. This includes movies, video recordings and video games.
Sound recordings
A sound recording is the storage of sound (or data representing sounds), such asa recording on a CD,
that can be copied. This is protected as a form of copyright separate from the copyright awned by the
songwriter(s), and is owned by the person or entity that is responsible for making the sound recording,
This is usually a recording company.
Broadcasts
A broadcast consists of sounds or images that are meant for the general public and are transmitted bya
telecommunication service — for example, a television programme on SABC or a radio show on 5FM.
A broadcast refers to the signal that is transmitted to a satellite responsible for getting the programme or
show vo the general public. This is also known as the up-leg ofa signal.
Programme-carrying signals
A programme-carrying signal consists of a signal containinga programme that is carried by satellite to
the general public. [Fyou watch the news on television, the propramme-carrying signal, which sends the
broadcast to you from the sarellite, enjoys copyright protection. This is also known as the down-leg of a signal.
Published editions
A published edition is the specific arrangement and design of the words and pictures that are on a
printed or digital page, for example, the layout of a book, a websire or a board game — copyright exists in
the layout of the board, the cards, as well as in the rules. Remember that while one person may own the
rights to a story contained in the book, another person can own the sights to how the story is illustrated
or displayed in the book.
Computer programs
A computer program is a set of instructions which, when used in a computer, causes the computer to perform
a particular task, Computer programs communicate with and give instructions to computers, thereby directing
them to carry out a specific task or fulfil a specific function. Developers write computer programs in a specific
form of language or computer code. This sct of stored instructions cnjoys copyright protection as a computcr
program. [tis interesting to note that although a computer program is written, it is protected as a scparate form
of copyright from literary works. However, this is only once the program is complete, and works. While the
programmer is in the process of writing the program. the work is protected as a literary work.
PVs
ls | Tees 1 More than one copyright
A single creative work can be protected by more than one copynght. A CD best illustrates this
The people responsible for writing the words to the songs are referred to as lyncists, and they
enjoy protection of their lyrics as literary works. Those who write the music to the songs are
referred to as composers, and they are able to protect their nghts to the music as musical works.
Together, lyricists and composers can be referred to as songwriters. A separate copyright also exists
in the sound recording, which is usually owned bya recording company while a completely different
copyright exists in the design of the CD cover. These can be held by different persons or by the same
person. It is important to remember that the musicians performing the songs are not copynght
owners in the usual sense, but are the beneficiaries of a separate form of intellectual property
known as performers’ rights. However, if the musicians are also the songwmiters of the music they
perform, then they will be entitled to protection in terms of both copyright and performers’ rights.
Activity 29.1
Consider each of the following creative works - there may be more than one copyright in each.
Identify and write down as many different works that are protected by copyright as you can, and
then compare your list wath that of a classmate.
1. this book
2. your favourite song
3. your favounte video game
4. your favourite movie.
Specific requirements
@ The work must have been created by a qualified person.
B The work was created by someone from a Berne Convention country.
@ ‘The work was created by someone from a non-Berne Convention country to whom protection
was extended.
Originality
A work’s originality means that it is the result of the author's own unique intellectual effort and ability.
The work may not be copied from another source. A work can, however, be inspired or influenced by
another work as long as the new work is unique or original.
Material form
While the idea is in the mind of the creator, it is not protected by copyright. The idea has to exist in some
or other material form. The idea must stand scparate frem the creator. This mcans that it cannot only be
an idea in the creator's head. [fF the idea is not written down, it will not enjoy copyright protection.
Nore that the requirement of materiality docs not apply to broadcasts and programme-carrying
signals, since these cannot exist in material form.
A qualified person
The requirement thar, in order to qualify for copyright protection, it must have been created bya
qualified person does not mean that the person must have some qualification or special skill. A qualified
person is a person who is a South African citizen or who is domiciled, os resident, in South Africa, This
person can be a natural person or a juristic person. In order for a juristic person to qualify for copyright
protection, it has to be incorporated under the laws of the country. Therefore, ifa work was created
by a qualified person, it will qualify for protection in terms of our copyright laws if the two general
requirements have also been met.
The word ‘domicile’ comes from the Latin word domus, meaning ‘house’. To be domiciled in
South Africa means that the person is legally deemed to live in South Africa for the purpose of
exercising her rights and duties in private law. A person does not have to be a citizen or evena
resident of South Africa to be domiciled here. If you are interested in the legal requirements to
be domiciled in South Africa, you can refer to the Domicile Act 3 of 1992.
the created works of foreigners who visit South Africa will be protected by our copyright the general public
laws. provided the works were created while they were in South Africa.
Principle
The copyright in a video belongs to the commissioning party, and not to the party responsible
for the creation of the video. This represents an exception to the general rule that copyright
belongs to the creator of the work in question.
Facts
The Provindal Division of the North Gauteng High Court, Pretoria, was called upon to adjudicate the
issue of a DVD that had been filmed at the infamous Kamp Staaldraad. At issue was the ownership
of the copyright of the DVD, and whether it was in the public interest that the DVD be distributed.
In preparation for the 2003 World Cup, Rudolph Straeubh, the then Springbok rugby coach, took
the team on a compulsory training camp, called Kamp Staaldraad, where they were subjected to
extremely unusual and humiliating forms of training. For example, the team was ordered to climb
inte deep, dark holes naked and sing the national anthem while ice-cold water was intermittently
poured over their heads. At the same time, recordings of England's national anthern, Gow Save
the Queen, and the New Zealand All Blacks Haka were played. It was reported at the time that
if anyone tried to get out of the hole, they were forced back in at gunpoint. Players were also
reportedly forced to leopard-crawi across gravel, kill chickens and were deliberately sleep-deorved.
The company responsible for maintaining security at the camp were asked to film these ordeals
for incentive purposes. Shortly afterwards, stills pictures from these videos were leaked and published
in the media. Following the public outcry, the secunty company announced plans to release a DVD
under the ttle Kamp Staaldraad- Die Ware Verhaal (Camp Steelvvire: The True Stary).
Wermer Greeff approached several of the other Springboks who were at the camp, and
he decided to bring an urgent application to interdict the company from releasing the DVD,
claiming that the DVD wolated their nghts to dignity and privacy, and that copyright in the DVD
did not belong to the secunty company, but to the South African Rugby Union (SARU). The
security company claimed that releasing the DVD was in the public interest, and that it was the
owner of copyright in the DVD, since it was the creator thereof.
The caurt's finding
The court found in favour of the plaintiffs, and held that releasing the DVD would not be in
the public interest. it would constitute an unjustifiable infringement of the nght to privacy and
dignity of the players. With regard to the ownership of the copynght, the court applied the
relevant sections of the Copyright Act, and held that the ownership of the copyright in the DVD
vested in SARU, as the commissioning party, and nat in the security company, despite the fact
that it was the creator of it.
someone's copyright. These defences are set out in the Copyright Act. If the Copyright Act states chat
what Deepak did does nat constitute an infringement, then he could rely on ane of the
statutory defences. [n such a case, Deepak would nor be liable to the copyright owner. secmrapdnieerte
An example ofa statutory defence is fair dealing. This means that if you reproduce a leqisiation,
part of a work (noe a substantial portion of the work or the whole work) for research or
private study, you are not guilty of copyright infringement. You can also prove that the
work in question docs not mect the requirements for copyright protection or that the person claiming
infringement lacks /ocus stand. This means that the person is not legally entitled to claim infringement,
because she is not the owner, or someone licensed by the copyright owner, to use the work.
An interesting real life example of copyright infringement occurred in 1989 when rapper Vanilla Ice
released a song called ‘Ice Ice Baby’. The song sampled the bassline popularised by Queen and David
Bowie in their 1981 hit song called “Under Pressure’. Unfortunately for Vanilla Ice, he sampled the
bassline without obtaining permission, giving credit to, or paying royalties to Queen and David Bowie.
They collectively instituted legal action against him for copyright infringement. He was found to be
liable, and he was forced to buy the publishing nghes to “Under Pressure’ in order to continuc using the
bassline in his song. More recently, Robin Thicke and Pharrell Williams were ordered by an American
court to pay the heirs of the late Marvin Gaye $7.4 million after the court found that they had copied
their father's song ‘Got To Give It Up’ to create “Blurred Lines’, the biggest hit song of 2013.
Activity 29.2
Have a listen to the mash-up of ‘Blurred Lines’ and ‘Got To Give It Up’, and decide whether you
think Thicke and Wilhams were guilty of copyright infringement. The mashup can be found
here: httpsv//www.youtube.com/watch?v=ziz9 HW2Zmm’. See if you can find two further
examples of famous artists guilty of copyright infringement.
Copyright is one of the only forms of intellectual property that also carries criminal penaltics for
infringement. This means that it is a crime or an offence to infringe someone's copyright. The Copyright
Act provides that in the case of a first conviction, the guilty party is liable to a fine of no more than R5
000 of to imprisonment of no more than three years, or both, In the event ofa second conviction, the
infringer can be liable to a fine of no more than R10 000 and/or a period of five years imprisonment.
These penalties are prescribed for each article or work that is infringed. This means that someone who
illegally downloads a television series can be liable, upon conviction, to a fine and/or imprisonment
for cach episode that she downloads. Note that this is also over and above the compensation that the
infringer can be made to pay in the event of successful civil proceedings instituted against her:
Once a trade mark is registered, the owner of the trade mark is granted sole use of the trade mark for the
goods or services for which the trade mark is registered. The owner also has the right to prevent others
from using or registcringa confusingly similar mark for the same goods or services. The trade mark
owner can also license others to use his mark.
Certain trade marks cannot be registered. Trade marks chat cannot be registered include the following:
@ marks that are coo similar to a well known unregistered mark
marks that are confusingly similar co other registered marks.
Take, for example, the Nike logo. If 1 were merely to turn the swoosh upside down, and try to register it
as a trade mark, I would not be able to do so. My upside-down swoosh would be confusingly similar to
the Nike logo.
Activity 29.3
Apple® is a well known trade mark used for computers and computer products. Suggest some
examples of each type of possible infringement of this trade mark. Then, provide an example
of where the Apple® brand name or logo can be used without infringing on the trade mark.
Discuss your examples with aclassmate.
Certain things are not considered inventions, and they cannot be patented. They include:
B adiscovery ofa natural phenomenon that already existed before it was discovered, for example, a
plant that has not been genctically modified
B® ascientihe theory, which is an explanation of why and how something that already exists works, for
example. Einstein's Theory of Relativity
@ a mathematical method, such as 2 method for solving an equation
@ a literary, dramatic, musical or artistic work, because these things are protected by copyright
B® ascheme, rule or method for performinga mental act, playing a game or doing business, for
example, the rules of Sceabble®, or a way to value a business's property
@ acomputer program
@ the presentation of information, because this can be protected by copyright.
Although a patent offcrs inventors protection by not allowing other people to take commercial advantage
of their inventions, inventors do not need a patent to carn moncy from their inventions. They can try to
make the best use of their invention without a patent by keeping it a secret. In order to do this, creators
usually try co protect their inventions as trade secrets by means of confidentiality agreements, One of the
most famously guarded trade secrets on the planet is a recipe originally created by John Stith Pemberton,
an American Civil War veteran and pharmacist with a morphinc addiction. In order to overcome his
addiction, he created Pemberton’s French Wine Coca, which consisted of coca wine and kola nut.
But, following prohibition of alcohol in America, he was forced to remove the alcohol from the
drink, resulting in what is today known as Coca-Cola. The manufacturers of Coca-Cola have to date
not patented the drink’s recipe, preferring to protect the formula as a trade secret. Should they decide
to patent the recipe, after 20 years, the recipe would fall into the public domain, and it would be freely
available for anyone to exploit. By protecting the recipe as a trade secret, the owners of the formula can
exploit it exclusively for an indefinite period of time, something the owners of Coca-Cola have been
able to do for almast 129 years. The downside of this plan is that should the secret recipe be discovered,
anyone will be able to recreate the drink, which would cause the Coca-Cola company to potentially lose
billions of rands.
patent owner has to start paying these fees three years after the date of the application, Once the 20-year
time period has passed, the invention is no longer covered by a parent, and anyone is then free to exploit
it for financial gain. Also, should a patent holder neglect to pay the annual renewal fee. the patent could
lapse, resulting in the invention also entering the public domain.
A patent granted in South Africa can only be enforced in South Africa. Owners of inventions indicate
that a patent applics to their invention by indicating the patent number on the product. Note that it is 2
criminal offence to claim that an invention is patented when it is nor.
Activity 29.4
Visit the South African patent database by clicking on:
http://patentsearch.cipc.co.za/patents/patentsearch.aspx. Click on the Advanced Search tab,
type in the following patent number. 1992/09652, and press Enter. What invention does this
patent protect? View the patent and then identify the inventor.
Chapter summary
In this chapter, you learned the following about the law The copyright, with certain exceptions, nermally,
of intellectual property: belongs to the creator of the work, and it lasts for
A copyright is the right of a legal subject in respect a certain period of time after which it falls into the
of a work. public domain.
Different categories of works are protected by But, ifa work is created within the course and
copyright, namely traditional works, communication scope of someone's employment, the copyright thercin
media and computer programs. belongs to the employer, not the creator.
For a work to enjoy copyright protection, the work Similasly, if someone commissions the creation of
must be original and written down or recorded in some certain works, the copyright therein will belong to the
way, and one af the following must apply: commissioning party, and not to the creator.
@ the creator should be a qualified person Infringement of a copyright can be either direct
@ the creator should originate from a Berne or indirect.
Convention country In the event of infringement, copyright owners are
@ the creator should originate from a non-Berne entitled co civil remedies, and they may also lay criminal
Convention country to which protection has been charges against infringers.
extended by proclamation Trade marks arc also protected in our law.
® the work must have been created in South Africa.
1, Explain what you understand by intellectual newspaper for publication without his permission.
property, inrellectual property tighes, and Mandla alleges that his copyright has been
intellectual property bw. infringed. The newspaper is claiming that, since it
Consider your favourite video game. Can you employs Mandla, the copyright in the stories thar
to
$
explain the difference berween the property rights he writes belong to the newspaper. Advise Mandla
and the intellectual property rights in the game? on whether or not this is the case.
3, Name the two ways in which intellectual property &. Distinguish between direct and indirect infringement.
is protected in our law. 9. How long docs copyright last in cach of the
Johan is copying his Commercial Law textbook, following:
-
14. Albert invents a machine that is used to make the 15. Assume that Albert has repistered a patent in
harvesting of wheat quicker and more effective. the invention. It comes to his attention that a
He does nat register a patent for this machine, but local farmer is using his invention, and starts
manufactures it himself and sells it to farmers. His manufacturing Albert's machines and selling them
friend Brian rells him that without a patent, he is withour Albert's permission. Does Albert have any
not allowed to exploit his invention commercially. remedies? Explain.
Explain Albert's legal position co him.
Further reading
This chapser briefly explains the law relating to financial institutions, such as banks, mutual banks,
pension fund organisations and insurance companies. We will pay particular attention to those laws
designed to protcct the investor. This chapter focuses particularly on the relevant provisions of the Banks
Act 94 of 1990, the Mutual Banks Act 124 of 1993 and the Securities Services Act 36 of 2004.
Registering a bank
A public company
There is an office in Pretoria called the Office for Banks that sees to the registration of that has been Sena
banks, The Registrar of Banks is the head of this office and the othce is considered to be made into a company in
part of che South African Reserve Bank, which is governed by the South African Reserve terms of the Companies
Bank Act 90 of 1989. emiae ieee oes
The Banks Act and the Mutual Banks Act 124 of 1993 sct out certain functions that the — Capital by issuing shares to
the general public.
registrar must perform. The registrar may also give banks guidclines when she feels that this
is needed, by issuing circulars on how the Banks Act is to be applied and interpreted. The
registrar has the power to instruct any bank to deliver certain information the registrar feels is needed
to enable him to do the job properly (section 7). The registrar can also call for the report of a public
accountant or any other person who is able to assist the registrar in his functions.
Generally, no person, except a public company that is registered as a bank im terms of the Banks Act,
may carry on the business ofa bank in South Africa (section | 1{1)). Any person who contravenes this
principle is guilty of an ottence (section | 1(2)). One exception to section 11(1) is that a bank from a
foreign country may conduct its business in South Africa by having a branch here.
Before the Registrar will allow a bank to be registered, the company applying for registration will
have to fill out certain forms and provide certain information as the Registrar may deem necessary
(section 12). The Registrar has the power to decide whether or not an application for such should be
granted, or whether any conditions should be imposed before the registration takes place.
Before the Registrar grants an application, the following requirements must be satished:
® the establishment of the bank will be in public interest
the business to be done is that of a bank
the proposed business will be done in the capacity of a public company that is registered under the
Companies Act
the applicant will be able to establish itself successfully as a bank
the applicant will have the financial means to mect the provisions of the Banks Act
the business will be conducted in a prudent manner
every person who is to be adircetor or executive officer of the bank is, as far as can be reasonably
ascertained, a ht and proper person to hold such a po sition
every person who is to be a director or executive officer of the bank has sufficient management
experience for this kind of business
® the campasition of the board of directors af the proposed bank will be appropriate for the nature
and scale of the business (section | 3).
Each year, a bank must, once it has paid a fec, obtain a business licence from the Registrar (section 35).
‘The Registrar has the statutory power to require any person who is not properly registered asa bank to
submit any relevant document or information.
‘The Registrar is required to submit an annual report on the year's activities to the Minister of Finance
{section 10(1)).
Let us look at a case study that deals with bank registration.
After completing her apprenticeship at Mzansi Fashion Design Institute, Nontokozo decides
to open her own business that manufactures and sells locally made African-inspired costume
jewellery. After the first month of working from the basement of her parents’ home, she makes
a profit of R2 000, She wants to keep the money in a safe place, so that she can save up to buy
new matenals for the business. She remembers seeing an advertisement
on Facebook to the
effect that a new company, Chancers Bank, is offering to waive any bank fees once customers
invest their money with the bank.
Here, it would be a good idea for Nomtokozo to contact the Registrar of Banks to verify
whether Chancers Bank has met all of these requirements and has been properly registered as
a bank. She could also ask Chancers Bank to show her its licence for the year, if she doubts its
status. Hf the Chancers Bank has met all the requirements but has not been properly registered,
then the Registrar may apply to court for an order stopping Chancers Bank from operating.
Any long-term or short-term insurer reqstered as such under the Long-term and Short-term
Insurance Acts ts included in the definition of finanaal institutions in the Securities Services Act.
Companies that sell life insurance and retirement products are examples of long-term insurers.
Companies that sell car insurance or household contents insurance are examples of short-term
insurers. Both long-term and short-term insurers also have to make sure that they are financially
sound and have a certain value of assets. Insurers face similar problems to banks if they fail to
keep a good financial situation.
A mutual bank may accept deposits, make loans or extend other credit, subject to any regulations issued
by the Registrar. Mutual banks are generally more restricted than banks when it comes to doing business.
For example, mutual banks are restricted in investing in immovable property and shares. There are also
restrictions on a mutual bank's power to issue shares.
Activity 30.1
Using the internet, find out whether there are any mutual banks in South Africa. Also, consider
what the advantages of establishing a mutual bank are, as opposed to simply making use of the
services of a bank that operates under the Banks Act 94 of 1990. Discuss your findings vath a
classmate.
Every mutual bank must obtain an annual licence from the Receiver of Revenue of the district in which
its head office is situated (section 31).
Activity 30.2
In a table, compare and contrast the similanties and differences between the function,
registration and requirements of a bank and a mutual bank.
Activity 30.3
With a classmate, discuss the effectiveness of the role and function of the Registrar of Banks in
protecting the public from losing their money.
So, a wide range af people could become insiders. Ifa person obtains inside information, and knows that
the direct or indirect source of the information is an insider, then that person becomes an insider.
Activity 30.4
Think about the following scenarios and in each instance discuss with a classmate whether the
person who obtains inside information would became an insider or not:
1. Nomsa is at a dinner party where company directors are present.
2. Shan overhears a private conversation between company directors in an airport lounge.
3. Stya has an unquarded and casual conversation with a company director on the golf course.
4. Jane finds herself in a conversation between family members that was intended to be private.
But, insider trading can he legal depending on when an insider makes the trade using the inside
information. Legal insider trading can take place when directors of the company buy or sell shares, but
they disclose their transactions legally. le is illegal when the information is still non-public.
The Securities Services Act strengthened carlier ctorts to reduce insider trading by establishing the
Directorate of Marker Abuse. This body has jurisdiction over nat only insider trading, but also price
manipulation and the issuing of false statements. Peter Redman of the JSE. makes clear in the paragraph
below, how effectively the Securities Services Act, in a short time, puta brake on market abuse.
According to Peter Redman, Senior Technical Adviser: Surveillance for the JSE, insider trading is
bad for shareholders and for international investors who will not invest in an exchange with a
reputation for abuse. Following the implementation of the Securities Services Act, insider trading
on the JSE is not nearly as bad as f used to be. Before the introduction of the Insider Trading Act
in 1999, insider trading was rife and, in fact, accepted practice on the JSE. Because the Insider
Trading Act punished insider trading as a criminal offence and because the burden of proof in
a criminal case Is more demanding than in a civil case, few prosecutions resulted from insider
trading. However, the Secunties Services Act allows for a civil remedy for insider trading. As early
as 2005, the introduction of the Secunties Services Act, had, through the Directorate of Market
Abuse, brought about the successful prosecution of 21 cases out of 164, whach resulted
in out-
of-court settlements amounting to R45 million.
Source: Email correspondence with Peter Redman, Nowember 2013
These are two important principles that arise from the Securities Services Act:
@ Insiders may be involved in buying and selling listed securities through an agent for their own
benefit or for the benefit of another person. Insiders such as these, who know that they have inside
information, gencrally commit an offence.
® = Iris also an offence to create a false impression im other people's minds thar the security being traded
is worth more than it actually is. No person is allowed to knowingly make false promises.
Activity 30.6
With a classmate, discuss the rationale behind insider trading being an offence. What are our
laws trying to quard against by making insider trading an offence? Do you think that insider
trading is morally wrong? Do you think it should be a legal offence?
Chapter summary
In this chapter, you learned the following about A mutual bank may be converted into a bank, with
financial instirutions: the approval of the Registrar of Banks.
The Banks Act 94 of 1990 governs the business of The Registrar of Banks is tasked with, among
public companics taking deposits from members of other things, cnsuring that the requirements for the
the public, establishment ofa bank and a mutual bank are met.
Abank is a public company that has been registered An insider is a director, employee or sharcholder ofa
in terms of the Banks Act. public company listed on a regulated market.
The Banks Act requires banks to have a certain Inside information is information the public is nat
minimum amount of moncy available ar all times. aware of and which makes a big difference to the price
The Mutual Banks Act 124 of 1993 governs the or value of any security listed ona regulated marker.
establishment and functioning of mutual banks. Insiders commit an offence when they deal in inside
Amutual bank is, generally, more restricted than a information.
bank is in terms of the conducting of its business. The Financial Services Board is responsible for
Like a bank, a mutual bank must also meet supervising the laws regulating fnancial services and
certain hnancial requirements in order to continue institutions, advising and reporting to the Minister of
doing business. Finance, and educating the public.
A group of commerce students consult with you. They They specifically want co know whar it will rake for
haye pooled R25 000, and they have decided that there them to start a bank. Advise them on how they should
is a lot of moncy to be made in lending this money Eo about this and what their chances of success are in
to other people and charging them interest for this. this regard.
Correia, C., Uliana, E., Flynn, D. and Wormald, M_ 2007, Porteous, D. and Harelhurse, H. 2004. Ranking on Change:
Financial Managenear, Gth edn. Cape Towm Ju and Co. Democrarising Finance in Sous Africa, £994-2004 and
(Pay) Lid beyond. Cape Towne Double Storey, a division of Juta
(Chapter 13 discusses Gnancial markets and Gnancial and Co. (Pty) Led
institutions in moredetail and provides additional (This book is interesting background reading on the
information about the different types of securities.) importance of financial systems in South Africa.)
Fier. C., Ross, S.. Westerfield, R. and Jordan, 8. 2008.
Funcdamentals of Corpora Finance, 3od South African edn
Berkshire: McGraw-Hill Education
(Chapter 8.3 provides an excclicat overview of the
Johannesburg Securities Exchange and its functioning.
Chapter 12.5 proviies further infonmation on the cifocts of
insider trading.)
This chapter gives you a brief overview of competition law in South Africa. This branch of law is aimed
at promoting competition within the market and, conversely, preventing anti-competitive behaviour. So,
competition law aims to promote fair dealing
‘The Competition Act established the Competition Commission, which is tasked with,
amongst others, regulating business activities between firms, or companies, to ensure a Firm, for the purposes
- s . w 9s il - of this Act, hasan
compcutive market. This is very much in the public s interest. Bus, piivate competition extended meaning Firms
is concerned with the legal relationship between the competitors themselves. This area of include juristic persons,
the law gives a wronged trader a remedy if the requirements of unlawful competition are such as companies and
met. So, if Trader A unlawfully infringes Trader B's goodwill by way of a competitive act, close corporations, sole
Trader B will have a legal remedy against Trader A. proprietors, partnerships
and trusts,
31.2.1 Unlawful competition
Unlawful competition refers to the legal position between traders, where one trader Goodwill 's an intangible
ee e a ae asset which represents
wrongfully infringes the compctitor s right to goodwill. Liability is based on the lex :
Aq wells which
ia. which provided pecr ided ion tw th
compensation to the owners of property damaged fby someone darnaged bs par al eee
add to a company’s value
else's fault. This action is delictual in nature, meaning that the elements of delict must be but cannot be easily
proven by the competitor, who is alleging unlawful competition. identified
or valued.
‘The elements of a delict are:
B conduct The lex Aquilia was
B wrongfulness @ Roman law which
B faule Protected Roman
oe citizens from vandalism,
destruction of property
B damages. and some forms
of theft.
In Matthews and Others » Young 1922 AD 492 at 507, the court stated that ‘unlawful
competition would constitute an injuria for which an action under the Lex Aquilia lies Injuria means a ‘wrong
if it has directly resulted in loss’, cme a :
I he infringement must be contra bonos mores. ‘The bani moves refer to the legal a
convictions of society and it changes from time-to-time. In Masstores (Pty) Ltd v Pick n Pay means ‘against the good
Retailers (Pry) Led 2017 (1) SA 613 (CC), the Constitutional Court confirmed that the beni — moraisof society’.
mores test must be applied against constitutional valucs. In Phamelela Gatenséreg aud lL cisurc
Lid v Griindlingh and Ozbers 2007 (6) SA 350 (CC) at para. [32]-[34), Langa C) said:
‘Any form of competition will pose a threat to a rival business. However, not all competition or
interference with property interests will constitute unlawful competition. It ic accordingly accepted
that itisonly when the competition is wrongful that it becomes actionable, The role of the common
law in the held of unlawful competition is therefore to determine the limits of unlawtul competition.
This determination, which takes account of many factors, necessitates a process of weighing up
interests that may in the circumstances be in conflict. Fundamental to a determination of whether
competition is unlawful is the benf mores or a reasonable criterion. This is a test for wrongfulness
which has evolved over the years...
“The question is whether, according to the legal convictions of the community, the competition or the
infringement on the goodwill is reasonable or fair when seen through the prism of the spirit, purport
and objects of the Bill of Rights. Several factors include the honesty and fairness of the conduct
involved, the morals of the trade sector involved, the protection that positive law already affords, the
importance of competition in our economic system, the question whether the parties are competitors,
conventions with other countries and the motive of the actor.’
‘The Republic of South Aftica is onc, sovercign, democratic state founded on the following values:
a) human dignity, the achievement of equality and the advancement of human rights and freedoms
b} non-racialismand non-sexism
¢) supremacy of the Constitution and the rule of law
d) universal adult suffrage, a national common yoters roll, regular elections and a multi-party
system af democratic government, to ensure accountability, responsiveness and openness.’
Competition is healthy, in particular — for the consumer — it allows for more choice and cheaper
prices. 4s such, competition is encouraged and protected, However, if the competition is
unlawful, the competitive conduct will not be protected by the courts.
An infringement on the basis of unlawful compctition may take place cithes directly or indirectly.
Direct infringements occur when one person makes use of another's goodwill without using his own
goodwill in that the person makes false or injurious statements regarding the business of a competitor.
For cxample, the owner of an electronic store puts up a notice outside his store that states that another
electronic store sells sccond-hand clectranics as new. This is not truc. However, this notice is published
with che intention of luring the competitor's customers to his store.
Indirect infringements, on the other hand, occur when a person uses his own goodwill in an
unreasonable manner. [he most common example of an indirect infringement is that of passing-off,
which occurs when one person uses another's trade mark in an unreasonable manner so as to confuse
the public.
Passing-off was defined as follows by Rabie JA in Capital Estate and General Agenctes (Pty) Led and
Others » Holiday Inns Inc. and Others \977 (2) SA 91G (A) at 929C:
“The wrong, known ay passing-off consists ina representation by enc person that his business (or
merchandise, as the case may be) is that of another, or thar iris associated with that of another, and,
in order to determine whether a representation amounts to passing-off. one enquires whether there is
a reasonable likelihood chat members of the public may be confused into believing thar the business
of the one is, or is connected with, thar of another’.
Adidas is well known for its three parallel stripes on shoes, especially on sport shoes. It is the proprictor
of four trade marks, all of which consist of three parallel stripes in a specific configuration. But, Pepkor
sold trainers and soccer boots that predominantly featured two and four parallel stripes. Not only did
Adidas consider Pepkor's conduct an infringement of its trade marks but it also considered the conduct a
passing-off of its goods as being those of Adidas. In this case, Adidas AG and Another v Pephor Retail Lid
(187/12) 2013 ZASCA 3, it was held thar ehe following must be proven in order to be successful in a
passing-off action:
The degree of distinctiveness or the extent af the reputation of the party alleging passing-off is important
as this will determine whether the public will be confused or deceived into thinking that the goods of the
second trader are those of the first trader because of the similaricy of the mark or name (para. 29). So,
the more distinctive the get-up or the greater the reputation, the more likely the public will be confused.
In Premier Trading Company (Pry) Led and Another v Sportopia (Pry) Ltd 2000 (3) SA 259 (SCA) at
267, the court held thar reputation ‘is the opinion, which the relevant section of the community holds,
of the plaintiff or his product’.
The remedies for passing-off are:
@ claiming delivery of the infringing goods
Ban interdict
B® aclaim for damages.
Another example of indirect infringement is when the perpetrator uses his competitor's trade secrets
without authorisation as we will see in the following case study.
Bong! is the owner of Haute Couture, a high-end fashion store in the Blueberry Shopping
Centre. Zanele is the owner of High Fashion, which also sells designer clothing in the Strawberry
Shopping Centre. The two shopping centres are within close proximity of each other. As such,
Bongi and Zanele compete for the same customers.
Bongi conducts an interview with Claire, a journalist at the Raspberry Times, a community
newspaper that circulates in the area where both the Blueberny Shopping Centre and the
Strawberry Shopping Centre are located. Dunng the internew, Bong) states that Haute Couture
is the only true fashion store that sells authentic desiqner cothing in the area, unlike the High
Fashion wannabe in the Strawberry Shopping Cenre. This constitutes a direct infringement.
Bongi has infringed on Zanele’s goodwill by making false statements.
if, on the other hand, Bong! sells dresses that Brenda, a dressmaker, makes, as labelled
Carolina Herrera dresses, this amounts to passing-off. So, this constitutes an indirect infringement.
Application
The Competition Act applies to all economic activities in South Africa, but excludes:
B® collective bargaining, as stated in the Constitution of the Republic of South Africa, 1996, and the
Labour Relations Act 66 of 1995 (LRA)
@ collective agreements, as stated in the LRA
@ any concerted conduct that is designed to achieve a non-commercial socio-cconomic objective or
has a similar purpose.
The Competition Tribunal acts as a court of first instance in all competition matters. In the hierarchy of
courts, the Competition Tribunal is a lower court. On the other hand, the Competition Appeal Court's
status is similar to that ofa High Court, meaning that it is a superior court. [t has jurisdiction throughout
South Africa and is 2 court of record. ‘The Competition Commission acts as an investigative and procedural
authority similar to the South African Police Services and National Prosecuting Authority in criminal cases.
These bodies are independent of cach other, impartial and are answerable only vo the Constitution.
They enforce the aims and provisions of the Competition Act and, where necessary, impose remedies.
Enforcement
Enforcement is donc by the Enforcement and Complaints Division. The two main functions of this
division are to:
B investigate complaincs
B cvaluate applications for exemption,
Remedies
The competition authorities have a wide varicty of remedics available to them, which include, the
Tribunal’s right tor
® = make any order, including the issuing of an interdict, which is appropriate
B impose administrative penalties.
A fine of up to 10% of a company's annual curnoever may be imposed ifa company has been found
having participated in a cartel.
Acompany that has participated in cartel activities potentially faces claims for damages from
customers who have suffered losses as a result of the company's participation in such activities. Such
claims for damages must be instituted in the civil courts.
All companies, regardless of whether that refers to a sole proprietor or a multi-million rand
company, are prevented from participating in any restrictive practice, whether it is horizontal or
vertical. You might remember the (maize meal) price-fixing scandal of bread and mieliemeel in
2007. Four large South African companies were accused of foing flour and maize prices.
B® collusive tendering — when competitors work together to tender in a manner that is not free and
fair tendering. For cxample, in one tender Competitor A makes the lowest bid, in the next tender
Competitor B makes the lowest bid, etc. In so doing, the competition is excluded or prevented from
making the lowest bid asa result of the agreement between Competitors A and B.
® division of markets — when parties (cither buyers or sellers) divide a territory of specific goods or
services in a specific market. For example, if two competitors fix quotas for the manufacturing and
the selling ot goods this is a division of che marker.
Purple Hearts Ltd and Bluebell Holdings Ltd are the two main suppliers of high-speed fibre
connectivity in South Africa. tf these two companies entered into an agreement, verbal or
written, in terms of which they agree on a price at which they wall sell their products, this
constitutes price fixing. As they are competitors, this agreement constitutes a horizontal
restrictive practice.
Let us look at the tribunal's finding on collusive tendering in the following case.
Principle
Cover pricing constitutes collusive tendering, which is prohibited by the Competition Act.
Facts
The executives of two rival building companies were alleged to have engaged in a telephonic
discussion regarding a proposed construction contract of a customer, which constituted an
integral component of a conspiracy to ng a tender, also called cover pricing. An agreement was
reached in terms of which Grinaker LTA(Grinaker), a subsidiary of Aveng (Africa) Ltd, supplied
Giuricich Coastal Projects (Pty) Ltd (Gmuricich) vith a price to submit as a tender. The price
was higher than that of Grinaker (the so-called cover price) to ensure that the tender was not
awarded to Guricich, and that it would be awarded to Grinaker instead.
The tribunal's finding
On the facts, the Competition Tribunal found that Grinaker and Giuricich engaged in collusive
tendenng. It was found that ‘the presence [of the spreadsheet comparing the submitted tender
prices] is evidence of a collusive outcome. Not because the price itself has any inherent collusive
quality to it.’
An administrative penalty of R900 000 was imposed against Giuniach. Grinaker was gramed
immunity from prosecution in retum for assisting the Commission te prosecute Giuricich
But, the reseller is not bound to sell ac this price. As with restrictive horizontal practices, businesses may
make agreements that may not be classified as restrictive practices if they can prove that these agreements
are beneficial to the economy.
Market power is defined as the company having the power to control prices, to exclude compctition or
to behave to an appreciable extent independendy from its competitors, supplicrs or customers. So, if a
company can act independently and fix prices im a market, it has market power.
Prohibition of dominance
A dominant company is prohibited from:
a charging excessive prices that are detrimental to consumers
B refusing access to a competitor to an essential facility when it is economically feasible to do so
@ cngaging in exclusionary acts, for cxample:
®@ = requiring or inducing a supplier of customer not to deal with a competitor
® refusing to supply scarce goods to a competitor
@ = selling goods or services to a buyer and then requiring from the buyer to purchase something
that does not relate to the initial reason for the contract
= — selling goods or services below their marginal or average cost
= buying-up a scarce supply of goods or scsources required by a comapetitor.
Principle
Anti-competitiveness based on inducement (as contemplated in section 8(d)li) of the Act) has three
requirements. First, the firm must be dommnant. Second, if its found that the firm is dominant, it must
have engaged in a practice that either requires or inducesa customer not to deal with a competitor.
Third, the effects of the conduct must be anti-competitive, out-weighing its pro-competitive effects.
Facts
In October 2000, Nationwide lodged a complaint with the Competition Commission
(Commission) alleging that South African Ainways (SAA), the largest domestic airline in South
Africa, was trying to exclude it from the market by engaging in a number of practices that are
prohibited by the Act SAA had entered into two incentive schemes with travel agents
itis standard practice in the industry for an airline to pay commission to travel agents for selling its
tickets. At some stage, airlines began introducing an overnde incentive scheme for paying commession.
The SAA ovemde incentive scheme with travel agents works as follows: a flat basic
commission is paid to travel agents in respect of sales. Once the agent reaches its target figure, it
becomes eligible for two additional types of commission: Firstly, the override commission, which
is payable not only on the amount of sales above target, but also on the total sales achieved
by the travel agent. This commission is paid over and above the basic commission. Secondly,
the incremental commission, which is an additional commission that is paid only on the sales
figures above the agent's sales target. The structure of both these additional commissions differs
from agent to agent. Also, the sales target is set on a case-by-case basis. In October 1999, SAA
reduced the basic commission payable to agents, raised the bar to achieve the override incentive
schemes and increased the override commissions payable.
SAA also rewarded individual travel agent consultants who achieved their SAA sales targets
with 2 free nternatonal air ticket in terms of its Explorer Scheme. This scheme also allocated
points to a travel agency as awhole, a bonus pool, based on all the sales of its consultants.
The Commission alleged that these schemes were exclusionary in contravention of
section 8(dxi}, alternatevely section 8ic}.
The tribunal's finding
The Competition Tribunal established the legal test for section 8{c} and 8id) and it may be
summarised as follows:
‘It was held that as a matter of law, that once the Commission has proven thai SAA’s conduct
“requires or induces a customer not to deal with a supplier” it has proven an exclusionary
act. As such, it is not necessary for the Commission to further prove that the conduct
“impedes or prevents a firm from entering into, or expanding within a market” (para. 105).
Therefore, conduct contemplated in section 8{d) is presumed to be exclusionary whereas the
complainant must prove exclusionary conduct contemplated in section &fc)’.
Once it has been established that the conduct is exclusionary, the next enquiry is whether this
conduct has an ant-competitive effect (para. 132). In this regard, the Tribunal held that:
‘This question will be answered in the affirmative if there is (I) evidence of actual harm to
consumer welfare or (ii) if the exclusionary act is substantial or significant in terms of its effect
in foreclosing the market to rivals. This latter conclusion is partly factual and partly based
on reasonable inferences drawn from proven facts. If the answer to that question ts yes, we
conclude that the conduct will have an anti-competitive effect’.
If itis found that the conduct has an anti-competitive effect, 11 must be determined whether
this effect outweighs the efficiency justification for the conduct. if the finding is in terms of
section Bic), the complainant (Commission) bears the onus and if it is in terms of section 8d)
the respondent (SAA) bears the onus. If SAA cannot prove the efficiency justification, then the
conduct will be found to be an abuse (para. 136).
The Tribunal found that the incentive schemes constituted anti-competitive inducement as
contemplated in section SidXi). It noted that it was not the existence of these schemes per se
but rather the nature of the schemes that was problematic. The basic commission was reduced
and the incentive commission was higher. Meeting the sales targets was more challenging.
Agents were therefore incentivised to direct more business to SAA. The ‘effect was to induce
agents to sell SAA tickets at the expense of those of its rivals (para. 146).
SAA was ordered to pay an adminstrative fine of R45 million.
Price discrimination
A dominant company is prohibited from acting in a manner that constitutes price discrimination.
As such, a dominant company (as seller of goods or services) is prohibited from:
@ acting ina manner that is likely to have the cffect of substantially preventing or
lessening competition
® selling goods and services, in equivalent transactions,
to different purchasers
@ discriminating between those purchases in terms of:
® the price charged for the goods or services
@ = discounts, allowances, rebates or credit given
@ the provision of services in respect of the goods or services
& payment for services provided in respect of the goods or services,
For example, Company X, a company that owns 20% of the market share but has market power, sells
goods ta both Company A and Company B. If CompanyX charges different prices for the same goods
that it sells to Companies A and B respectively, then Company X is acting in a manner that is prohibited
on the bases of price discrimination.
31.4.3 Mergers
Generally speaking. a merger is the amalgamation of two or more companies into one entity. For the
purposes of the Competition Act 89 of 1999, a merger ‘occurs when one or more companies directly or
indirectly acquire or establish direct or indirect control over the whole or part of the business of another
campany (section 12(1)(a)). Mergers are regulated by Chapter 3 of the Competition Act 89 of 1999
which aims at preventing the creation of monopolies, or creating a company thar is so big thar it can
engage in anti-competitive behaviour and in so doing, prevent or lessen competition within a market.
The Mergers and Acquisitions Division of the Competition Commission reviews any merper
contemplated in Chapter 3 of the Competition Act 89 of 1999. Small mergers generally, with some
exceptions, need not be reported to the Competition Commission. In the event of an intermediate
merger, the Competition Commission must approve the merger (with or without conditions) prior to
the merger taking place. In the cvent of a large merges, the Competition Tribunal must approve the
merger (with or without conditions) prior to the merger taking place.
Various factors are taken into account in considering an application for a merger, which include the
ability of small businesses held by historically disadvantaged persons to become competitive and the
ability of national industries to compete in international markets.
Whethera merger is small, intermediate or large is determined by using a merger threshold calculator
that is available on the Competition Commission's website.
In Main Street 1574 (Pty) Ltd v Mancosa (Pty) Ltd and Regent Business Schooi {Pty Ltd, the
Competition Tribunal approved the large merger in terms of véhich Main Street 1514 (Pty) Ltd,
which ss @ wholly owned subsidiary of the Actis Group, acquired Mancosa (Pty) Ltd and Regent
Business School (Pty) Ltd. As the Actis Groups not active m tertiary education in South Ainca,
the Competition Commission concluded that the transaction was unlikely to substantially
prevent of lessen competition in the tertiary education sector in South Africa.
Chapter summary
In this chapter, you learned the following about the law unlawéul competition. For example, when one trader
of competition: makes disparaging remarks abour the business of a
Competition law is aimed at preventing competitor or when a wader passes off the poods of a
uncompetitive behaviour, So, competition law promotes competitor as his own.
open markets. There are two parts of competition law: The Competition Act established the Competition
public Commission that is responsible for the investigation.
B private. contral and evaluation of anti-competitive conduct and
mergers; the Competition Tribunal that is responsible
Both private and public competition are regulated in for adjudicating on matters investigated and evaluated
South Africa. Private competition refers co unlawful by the Competition Commission; and the Competition
competition and is regulated by the common law. Appeal Court, as a specialist court.
Public competition, regulated by the Competition Anti-competitive conduct includes:
Act, deals with the maintenance and promotion of B restrictive horizontal practices, which ecter to
competition berween businesses. anti-competitive behaviour hetween competitors,
To ensure competition im markets, the Act deems both such as price-fixing, collusive tendering and the
horizonral (agreements between competitors) and vertical division of markets
(agreements between any twe or more companies in a B restrictive vertical practices, which refer to anti-
vertical relationship) as prohibited practices. competitive behaviour between a firm and its
Orher measures to ensure thar competition is not suppliers and/or customers, and includes the
prevented or lessened, are to prohibit companies from setting of minimum retail prices
abusing their dominant position in a market and @ abuse by a firm of its dominant position by, for
regulare mergers to ensure that the proposed merger example, excluding others from the marketplace,
docs become a threat to competition. charging cxcessive prices, cngaping in price
The remedies for unlawful competition are founded discrimination.
in the law of delice. There are various examples of
1. Whar is the difference between private and public a} = Discuss whether or not Green Start Led is
competition? a dominant firm as contemplated in the
What is the difference between direct and indirect Competition Act 89 of 1998,
ttw
Further reading
Bibliography 519
Periodicals and journals Websites
Alberts, W. “Whar is unlawful competition?’ DR, Aug 2008, Val. $7 htepofinterbrand .com/best-brands/best-piohal-hrands/20
lé/ranking/
Anderson, P. and Fiandeiro, F. “Whar constitutes ‘inducement’ hitpe//thelawreviews.co.uk/edition/the-shipping-law-review-
in terms of section §(d)(i)?’, available ar hep: www edition-3/1146103/sourh-atrica
coMmpcom.co, 2 wp-contentvuploads/ 2014/09 hetp./www.arbitration.co.za
Anderson Piandeir W hat-constitutes-inducement pat http://www. blacksash org za/files/ perscriptienact.pdf
Barratt, A. and Snyman, P.. “Researching South Affican Law’, hitpd/www.compcom.co.zar
March 2005 updated by Kapindu, BLE. Global.cx website hitp://www.comprom.co.za/merger-threshold-calculator/
of the Hauser Global Law School Program, New York hitpsliwww.compcom.co.cafwp-con tent ploads/20 | 4/09!
University School of Law (accessed on 3 October 2011) pocket-act-august-20141. pdf
hitp:'/www.nyulawglobal. org! globalcx/South Alicahim hitps/yww.comptrib.co.za/
Blackman, M.S., Jooste, R.D. and Everingham, G.K. 2002, hitp//www.comprib.co.za/assets! Uploads/CR162Dec14.pdf
Commentary
on the Companies Act, Vol 1 (as updated per herp://www com prrib.co.2za/assets!/ Uploads) Reasons
revision service). Cape Town: Juta and Co. (Pry) Lic for-Decision-Media24-Section-8-Case-Signanare-
Campbell, J. 2006. The Cost of Credit in the Micro-finance Documentfinal pdf Media 24
Industry in South Africa’. LLM thesis. Rhodes University, hup://www.icl.up.ac.cvimages/country_reporw/south_africa_
Grahamstown country_report.pdf
Dendy, M. ‘Agency and Representation’ in W.A. Joubert (od.). hitpa/yweww.omilasa.co.zal 20101 the-rotterdam-rules
2014. LAWSA, Vol. 1. Durban: LexisNexis South Africa hitp.//wwwner. ong, za
Department of Trade and Industry. Making credit markets work: http dw ombud on2a
Policy framework for consumer credit herpy/ www.ncr.org.za! hitp://www.osti.ce.za
publications/Backesound
NWCA docs/Credit%20 Law%h20 hotpelfwenw. polity.org-ga/articles the-nen-variation-chinse-ancd-
Review.pdf (accessed on 27 September 2017) its-place-in-modern-conteacts-20 14-12-07
De Vos, P.'Moralistic view of martiage leaves unmarried hitps/wawwsaia.co. ra
couples unprotected” heeps://constiturionallyspeaking.co.za/ hrtp://www-yourube.com/watch)v=G5 16H musPCe
miosralistic-view-of-martiage-lcaves-anmarried-couples- http://www! safliiorp/cgi-ban/ disp. pitilesra/cases!
unprotected/ ZACC/2009/6.heml &query-mphaphuli
Du Plessis, L.M. 2011. ‘Statute Law and Interpretation’. https: weew eff orgy
wp chicks bind-ways-usets-aprev-online-
LAWSA_ 2nd edn. Volume 25, Part 1. Durban: LexisNexis lerms-service
South Africa hitps:/ www faisombud.coza
Education & Training Unit (ETU), ‘Paralegal advice website’, hitps:/ wow. fsb coca! Departments!marketAbuse/ Documents!
February 2002, updated 2011, ETU and the Black Sash REP 20Genesis_ 2004082004,
pdf
{accessed
on 3 October 2011) httpe//wwrw_paralegaladvice. hitps://wwnw jsc.co.ra/content!
520 Bibliography
Ensries are lisced in kcrzer-by-derser alplabericad oreter, financial scrvicescxcluded from the application of questions om manors <i")
Acranyms appear ix alphaberical sequence wislin the CPA 734 questions on valid contracts 72
the index. have itin writing 204 reasonable person 463
holder of a bill 308 Regulations to the CPA 234
A how to answer multiple-choice questions 68 reliance theory 81
abuse of dominant position 514-516
how to find a case 9 reminder on how to type forcign words 205
academic textbooks and journals 10
how to prevent cessson 162 remuneration 406
acceptance
implied and imposed terms 119 representative trade unions ¥ wade
clarity and communication of 70 indemnity insurance and nen-indemnity union representatives
389
of new terms as form of compromise 168 insurance 466 restraint of trade 111
requiremenus for valid 69-71 intermedsaries im the financial services industry 242 rights disputes vy mutual interest disputes 391
acceptors 297, 303, 310, 318
is fault always a requirement? 141 tight to cooling-off in the European Union 236
accident, passing of risk in cases of 180-181
joint and several liability 249 tole of the company: Section 7 437
acknowledgement of receipt 281
keep it simple 18 Rotterdam rules 478
acting without authority 267-272 law of contractand delict 91 scales of injustice 27
actions, cessian af 364
logalisation of dagga 38 show that you kaow55
aco
legal meaningof ‘spouse’ 349-350 signing ‘pp or ‘qq 260
quae minority 188, 189
legal meaningof ‘title’ 309 some law for life lessons 228
parselisena 324
legal problem-solving steps LT specific contracts 179
redhibisoria 188, 248
legal tender 316 subjective and objective tests 79
ACLs, Meccssury Capacity of agent co lemd ¥ barrow 357 truc owner of a cheque 3)2
conclude juristic 261 long-term. and short-term insurers $00 Tusrqpnmsel-rule 263
actual delivery 183
marrage regimes and insolvency 321 Wo perspectives on one problem &9
added value:
material mistake 79 unfair dismissal? 398
acceptance requirements 71
meaning of domicile 487 verbal or written? 99
accepting a bribe 267 mistake and misrepresentation $4 reer 248
acts of insolvency 329-329 more statutes regulating labelling and mares Clause 188
advice for coodis receivers 228-229
trade descriptions 241 warnings 402
Africans Life Assunance Co Lid v MBS Bark more than one copyright 486 way to remember 370
Lod 2007 (1) SA 442 (OW) 260
Negative marking in MCQ L}4 what is a cheque? 185
all restrictive practices forbidden 512 negligence or fraud? 90 what is in the word? 353
are you ready? 147
‘Regonation 30) when is a businessa going concern? 398
be informed 401 only unlawiul competition is prohibited 509 when is a sale perferse? 181
being secure 368
opting out of receiving direct marketing 235 whwo is the ‘spouse’? $42
can they be retrenched? 408 other ways in which employment can come to without set-off or deduction 175
card changes 317
an end 397 your attorney 24
characteristics of a friendly sequestration 330 in other words 281 adjudication 410
classifying contracts | L6
pension and provident funds 390 administration ofa deceased estate 352-354
dick-wrp agreement 280 ADR ser dispute resolution reer alternative
plaintiff must make a claim ‘once and for all” 173
composition and compromise 333
pledgors and pledgees 371 advertisements 64-66
contractual variations 135
poor debtor 331 advocates 16
costs of property transfer 92 possible versus impossible performance 144 affirmative action 414
dealing with Latin tags 374 possible versus impossible performance? 145 agency
delictual damages versus contractual damages 154 post-dated cheques 296 law of 257-275
difference between property rights and intellectual power of attorney 262 nature of 257-258
property rights 484 precedent for drafting legal documents |4 requirements
for 259-26]
different meanings of order 299 prescription 249 shop agreements 390
doctrine of unanimous assent 443 prove pour claim 153, 155 agents
effect of the Securities Services Act 403 proving constructive dismissal 396 appointing of through authorisation 261-262
exclusion clauses 119
public liability insurance 455 authorityof to act 259, 26)-264
fault is not a requirement 142 puffing 245 duties of Dob 267
Index 521
making aware of third party by 259-260 ending 273 capacity
necessary capacity of to conclude juristic acts 261 ostensihle 269-271 of agent to conclude juristicacts 261
paying of 264 sources of 262-264 contractual 46-60
repaying of expenses of 265 automated teller machine (ATM) 315 express or implied consentual 56
who can be 258 wo inherit 391-352
AGMs seegeneral meetings seeder annual B card payments 316-317
agreed work that must have been properly done 378 backdating ofa law, against 42-45 care and diligence, acting with 266
agreement 432,436 bait marketing 242-243 care, duty
arbitration 423 banking te act with 447-448
between debtor and creditor regarding service to business of 498-502 care, duty of
be rendered 377 internet 417 reasonable 215
contracts that are void due nea lack of 77-84 bargaining councils 390 until goods are delivered 180-183
costs of drawing up the 146 bearer balls 301-305 carriage, law of 470-482
ro create asurecyship agreement 351 benefit, joint 433 carriage by
Berne Convention countries 487
duration ofa lease 201 air 479-480
not tacede 161-162 bills rail 477
passing, varying and ending of nghts and duties bearer 301-305 toad 477
by 158-170 af exchange 29§, 298-303 sea ays
reaching lepalé1—7$ making out of toa specific person/beareaonder 301 carriage of
agreements payable on demand og at fixed or determinable goods 478
browsc-wrap 275-280 future date 301 passengers 475
click-wrap 279 Board of Directors (Bold) 259, 262, 264, 270, 440, persons and goods 476-477
closed shop 390 544, 498, 441, 442, 444, 445-448, 449, 499 carrier, duties of the 474
credit 218-230 BoD) see Board of Direcrars cases
lay-bye 250 boos fide fair procedure in misconduct 402-405
aids to interpreting statutes, external and internal 38-45 payment 1635. when there is no ducy 187-188
possesscr 378, 379
air travel, international 479-420 where statutes Create exceptional 363
alternative bond, covering 368-469 case studies:
dispute resolutwn (ADR) 135, 252, 253, 428 branches of the law 21-31 Aaron's warranty 465
work schemes 244 breach of adverts in the shop window 68
annual contract 139-146, 151, 153-155 Andiswa's dog 456
general mectings (ACMis} 442 duties, director's lisbility for 44% Anele’s Gym 235
leave 416 breaking che law 426-427 Angelina's household insurance 462
antenuptial contracts 101 broadcasts 485 attachment of property for debt owed 370
appeals and reviews 27 browse-wrap agreements 279-280 Ayesha and Bongani's second-hand car business 433
Appellate Division 14, 142. 192, 475 see aka business Ben's art collection 467
Supreme Court of Appeal entities 429-450 Better Bodies (Pry) Lid 448
application procedure 28 names 252-253 Busi is buying a car 261
rescue and rescue practitioners 339-340, 341
appointment, ending an arbitravor’s or umpire'’s 424 can a close family member bea trustee? 324-325
arbitration 145-136. 410, 421-428 trust 430-431 car insurance-£52
Buy.corns
arbitrater's appointment, ending an 424 ceding book debts as security 166
artistic works 485 Applicable law 277 Chancers Bank 500
assets, comteibution to partnership 442 Terms of Use of 285-293 claims when a signatreis forged 300
assignment, substitution ofa third party as buyer Competition Tribunal approves merger 917
form of 167 duticsof the 192-194 conflict of interest? 325
association, freedom af 388 when risk docs mot pass ta the ER1-183 consequence of co-sutetyship 361
ATM see automated teller machine constitutional limitation 37
attorneys 1G
Cc contract to deliver ten helicoprers 140
Cabinec 3,17
attornment 184 covering bond 36%
CAC srAppeal Court nuder Competition
attribution of online contract to somebody 280 danger
of credit purchases 221
calling-up clauses 373
auctions 6) Daniel and Shaheoda’s partnership 435
Canadian Charter of Rights. and Freedoms (182) 39
authorisation defence of prescription 366
cancellation 210
appointing an agent through 261-262 difference categories of services 379
clause 130-131
concluding a contract without 271-272 direct and indirect infringement 510
results of 152
authority Donald's lite insurance 465
cancellation of
roact on behaltof the principal 254 duties of a surety and principal debtor 362
contracts 150-153
delegating 264 entering into acontract 2G
the lease 208, 212
522 Index
making aware of thind party by 259-260 ending 273 <apaaty
necemary capacity of to conchade juritic act 261 ostensible 26%—=271 of agent to conchaede
juristac acts 261
paying
of 264 sourcesof 262—=264 contractual 46-60
tepaying
of expenses of 265 automatedteller machine (ATM) 315 express or implied comentual
56
who
can be 258 to inherit 351-352
AG Ma ae geocral meetings ender antwual B cand payments 316=317
agreed work that must have been properly done 378 backdatingof a law, against 42=43
agreement 452, 436 bait marketing 242-245 care, duty
asbieration 423 banking to act with 447=448
between debsor and credisor regarding service to business
of 498=502 care, duty of
be sendesed 377 internet 317 reasonable 213
contracts that ase woid duc mo a lack of 77=84 bargaining councils $90 until goods are delivered 180-153
costs of deawing
up the 136 bearer
bills 301-303 carriage,
law of 470-482
to create a susetyship agreement 361 benefit, joint 433
Berne Convention countries 487
carriageby
duration of a lease 201 ar 470180
not to cede 161=162 bals rail 477
pamang. varving and ending of rights and dies bearer 1-303
of exchange 295, 298=303
toad 477
by 158-170 wa 478
reaching legal 61=75 making out of to a specific person/bearer/order M)! carriage of
agicemenss payable on demand or at fixed or determinable goods 478
beowserwrap 27280 furure dare 301
passengers 478
click-wrap 279 Board of Directors (Bol>) 259, 262, 264, 270, 40, persons and goods 476=477
closed shop 990 344, 438, 441, 442, 444, 445-448, 449, 499 carrier, duties of the 474
credit 218-230 Bol) se Board of Directors cases
lay-bye 250 boa fide fair procedure in misconduct 402=403
aids tw irmerpecting satuars, corral ard insernal S8—4$ payment 163 when there is no duty 187+185
air travel, international 479-480 possessor 378, 379 where statutes create exceptions!
363
alternative bond, covering 368-369 case studies:
dispuse resolution (ADR) 135, 252. 253, 428 beanches of the law 2131 Aaron's warranty 465
work schemes 245 bweach of adverts in the shop window
6
annual contract 1146, 151, 153=155 Andiswals dog 456
peneral meetings
(AG Ms) 442 duties, director's liability for 448 Anele’s Gym 235
leave 416 breaking
the law 4260427 Angelina's household inwurance 462
antenuptial contracts 101 broadcasts 485 attachment
of property for debe owed 570
appealsand reviews 27 browse-wrap agreements 279=280 Ayesha and Bonganih second-hand
car busines 453
Appellate Division 14, 142, 192, 475 se abe business Ben's art collection
467
Supreme Court of Appeal entities 429-450 Better Bodies (Pry) Led 448
application procedure 28 names 252=253 Basi is buying 2 car 261
appointment, cading an arbitratot’s or umpire’s 424 rescue and rescue practitioner:
35% 340, 341 can a dose family member be a trustee? 424-325
arbitration 135<134, 410, 421-425 trust 430-431 car insurance 452
arbitrator's appointment, ending an 424 Buy.com ceding book debes as security
166
artistic works 485 Applicable Lew 277 Chancers Bank 500
assets, contbusionto partnership 432 ‘Terms of Use of 285=293 claims when a signature
is forged 500
assignment, substitution of a thisd party as buyer Competition
Tribunal appeowes merger $17
form of 167 duties
of the 192-194 conflict
of incerest? 325
aaocianon, freedom of 383 when risk does not pass to the 181<183 consequence
of cosureryship M6!
ATM see anomated willer machine
attorneys 16 Cc contract to deliver ten helicopeers
140
Cabinet
3, 17
storneent 184 covering bond 369
attribution of online contract to somebody 280 danger of credit parchases 221
auctions 67 calling-up clauses 373
Daniel and Shaheeds’s parmership 455
sasienel Canadian Charter of Righes and Freedoms (1982) 99
defenceof prescripon 366
appounting am agent through 261-162 cancellation 210
diferent categories of services 379
clame 10-151
conchading
4 contact without 271-272 ditect and indivect infringement
$10
authority resinsof 152
Donald's
lige insurance 465
cancellation
of
to act on behalf of the principal
259 dduties of a surety and principal debeor M62
delegaring 264 contracts 1500153
entering into a contract 96
the lease 208, 212
$22 index
Eric’s insured household contents 467 causa 160, 162 Companies and Intellectual
Property Commission
expropriation
of property: mortgagee lasing their cause 76=77 (CIPC) 271, 335, 336, 340, 343, 344,
security via state expropriation
of land 376 caveat subscriptor rule 80, 81, 82 438, 441, 448, 450, 497
extended
car sale 162-163 CCMA see Commission for Conciliation, companies registered under the Companies Act 71
fees must fallt 149 Mediation and Arbitration of 2008, types of 440-441
Freddy's Florist 180-181 certainty of performance in contracts 102=104 company 436=437
gap in the retirement
plan 165 cession deregistration
of the 448
gold ring 90 im anticipando 162 incorporation
and registration of a 438
Halona destroys her laptop computer in a fir complete 164=165 organs
of the 441-448
of rage 141 consequences of 163=164 rules 438
procedure 160 as a separate
legal entity 439-440
is this a fair dismissal?
399 requirements for 161 compensation for unfair
Jacob's laprop 459 as security 165=166 dismixal 411
Joel's car 30 types of 164=166 labour practices 411=412
Joe’s ald Crox car 92 cession of
lessons from maize exports 186 actions 365 Appeal Court (CAC) 511, $12, 517
contractual rights, restrictions on the 161 Commission 508, 511, 513, 514, 515=516,
479—480 furure rights 162=163 517, 518
lost car 71 charges, finance 220 Tribunal $11, 513, 515, $16=517, 518
Marius has been sequestrated 58 cheques 295=296, 311=<314 competition, law of 507=518
mechanic ar fault 143 choice 153 completion 63
im mora 144 cinematograph films 485 of the partnership business or if the business
life insurance policies 456 CIPC see Companies and Intellectual becomes impossible
to perform 436
Luvuyo’s
life insurance 459 Property Commission compliancewith terms set out in offer 70
multiple mortgages 367 citation
of the parties 283 compromise 341
Peter's scooter 233 civil computer programs 486
pledgee using a spoliation
order 375 and criminal!
law 24=25 conciliation 410
Practor’s Edict 478 procedure 25=28 conditions
price fixing 513 clarity 64 of employment, variation of basic 418
profitingfrom insider trading 504 of acceptance
70 indicating whether a contract will start or
Pumla’s car 461 clauses continue
to operate 128=129
restaurant sale 110 foreclosure 372=373 conduct, unconscionable 245
risk of arbitration 426 summary sale 373=374 consentual capacity, express of implied 56
Sam and Jessica’s contract 455 termination 375=377 consignor, duties of the 474
Sarah's shurtle 246 about whether or when a contract will take effect Constitutional
Sarvesh buys immovable property 264 orend 128=131 Assembly7
setting off money for money 175 close corporations 437=438 Court (CC) 7, 8, 9, 11, 14, 15=16, 17, 19, 27,
Simpiwe and Thandeka 57 closed shop agreements
390 36, 37, 39, 215, 228, 349, 414, 422, 428,
Sindisiwe’s camera 467 coedebtors
and co-creditors 158=159 477.508
Sisiwe’scar 265 Code of Good Practice 399, 400, 403—404, 419 constructive dismissal 395=396
Solly's roof 91 collective agreements 389=390 consultation,
aim of the 407
squash dub 251 Commissioner of Oaths 28, 348 consultations,
how employers should treat other
Takealoc.com 282=283 parties
to 407
Terence’s jacket 80 Arbitration (CCMA) 389, 392, 399, 403, consumer
unclear message 272 common low, legal position of a minor conditions indicating start of or continuance
of
use of a modus 133 aged
7 to 18 years in an assisted contract in terms to operate 128=129
Valley
of the Waves 123=124 of 49-52 consequences
in terms of the law of 88
X-Co and Mr James 110 in an unassisted contract
in terms of $2=53 contents
of a 115=126
Xolani’s bicycle 53 communication
67 enforcing the 148=150
Yusuf’s
car 459 media 485=486 formation 283
index 523
intention 64=66, 88 rights, restrictions
on the cession of 161 deeming provisions 230=281
interpreting
2 124=125 terms, common 127=138 defect
perfects 180, 181 contribution
to partnership assets 432 latency
of 187
received 280 Convention on the Recognition
and Enforcement materialism
of 186=187
requirement
for written 100 of Foreign Arbitral Awards (1958) 427 defects, duty to warrant against latent 186<189
requirements
for a valid 46 conventions, legislation and international
476480 defences 462=363
voidable 84-88 conversion of a mutual bank into a bank 502 delay in performance
by the
contract of copyright creditor,
breach due to a 1442145
insurance, ending a 467 debtor, breach due to a 143=144
lease, definitions related to a 195202 law 484490 delict, consequences
in terms of the law of 89
sale, nature of a 179=180 lengsh
of 489 delivery
contract, requirement of protection, requirements for 486—4838 duty to accept
193
being signed in front of a notary public 100 costs of goods, duty of care prior to 180=183
registration
of ar the Deeds Office 100 clauses 136 refusal
of 208
contracting parties +4, 102 legal 136 typesof I83=184
contracts court delivery with the
agreeing
to 457 hierarchy 11=18 Jong hand 184
by agreement,
variation and termination of judgments, enforcement of 27=28 short hand 184
166=168 CourteAnnexed Mediation Rules 421 Department
of Justice 17
antenuptial 101 courts, chiefs’ and headmen’s
13 deposits
on containers 251
certainty
of performance in 102=104 court's discretion diligence, duty to act with 447-448
concluding
63, 271<272 compulsory sequestration at the 331 Directorate of Market Abuse 503
consequences
of sequestration on unexecuted 333 voluntary surrender at the 327 directors, appointment and removal of 446
effects of illegality
of 108=109 covering
bond 368=369 director's liability for breach of duties 448
electronic 102 credit Directors of Public Prosecutions (DPP) 16
agreements 218-230 disclosure and information, right to 240=245
formalities that must be fulfilled for online bureaus 223 discretion
280=<281 creditor compulsory sequestration at the court's 331
formal requirements
for 458 divisson as right of surety against 364 voluntary surrender at the court's 327
gambling 107 liens, debtor and 377=378 dismissal
insurance 456-400 making debtor's performance impossible 140=141 compensation for automatically unfair 411
legality
of performance in 105=108 creditors 322=323, 362=365, 377 as the correct punishment 401—402
non-voidable 92=93 creditor's need to keep posession
378 fair reasons for 398409
problems
with formation of 76={98 criminal
law 24=25 dismissal for
requirements
for concluding 71=72 crossing
of cheques 311=313 incapacity 40.5—404
rescission oc cancellation
of 150=153 curater bonis 326, 327 misconduct 400
for the sale of immovable property 101 customary law 4, 5, 7, 8, 13, 18, 19, 22, 349 operational reavons 406
termination
of 171-178 customer loyalty programmes 243-244 dismissals
unassisted 52=54 automatically unfale 397398
void and voidable 76=77 D and unfair labour practices 393—597
contractsof damages 153=154, 189, 210, 215 disputes
carriage, concluding 473—474 claimable
for breach of contract 1$3=154 clauses about how eo resolve 155=1 36
insurance, concluding 456-460 claiming
208, 212 about unfair dismiwals and unfair labour practices
suretyship 101 how much can be claimed in 91<95 40%—412
contracts thar date 296, 301, 303 District Magistrates’ Courts 11, 13, 19
are void due to a lack of agreement 77=84 dealing, right to fair and honest 245-246 division as right of surety against creditor 364
interfere
with justice 106 death 175-176 DPP we Directors of Public Prosecutions
contracts
that are voidable due to of one of the parties to a nenancy at will 205=204 drunken persons, contracnal capacity regarding 58
duress 93=95 or insolvency or insolvency of the partnership or duiress
misrepresenzation 84=93 any of the partners
436 consequences
of 95
undue influence 15=6 debe contracts that are voidable due to 93=95
contracts, voidable collection 227=229 Durch lawmakers 4
and rescinded 91=92 counsellors 223 duties
bur nor rescindable
92 debror delegation of 167
contractual and creditorliens 377=578 director's
liability for breach of 448
agreemencs
within leases 203—=204 makes own performance impossible 140 fiduciary 447
debtors 140=141, 321, 377 as form of variation, changing 166
capacity 46-60
obligations,
clauses about 131=134 Deeds Office $6, 100, 101, 182, 185 of a halder WS
524 index
endorsers
sre indorsers required
by law 101
passing, varying and ending of by agreement English
law 4, 18, 19, 22 that must be fulfilled for online contracts 280=281
158=170 enrichment
lien 378-380 types
of 100
duties
of the entrenchment
clauses 134-135 when required 100=102
equality in the consumer market, right to 234-235 formal requirements for contracts 458
buyer 192-194 error im fraudulent misrepresentation 89=90
carrier 474 corpore 79 freedomof association 388
consignor 474 negotio 79 functional approach to statutory interpretation 35
consumer 226 persona 79 furure rights, cession of 162=163
insolvent 322 substantia
79
lexsce 211=215 essentialia
116, 458, 459 G
lessor 206-211 estate, consequences
of sequestration for the gambling
liquidator 337 insolvent’s 332 contracts 107
ai
passenger 474 difference berween insuring and 452=453
surety 362 dealing with 191 General
Code of Conduct 461
duty warranty against 190 golden rule of statutory interpretation 39
of care until goods are delivered 180-183 exclusion clauses 132 good faith, acting in 266=267
cases when there is no 187=188 excussion 364 goods, duty
not to make false statements 189=190 executor 353 of care until delivered 180-183
dutyto exemption to make goods available 183-186
accepe delivery 193 clauses 132=133 goods, right to
act with care, skill and diligence 447-448 provisions 246=247 choose
or examine 238
make goods available 183-186 expenses disclosure of grey market 241
pay the purchase price 192193 duty to reimburse
the seller for 194 unsolicited 239
promise information correct 464-465 useful 378 goods, right with respect to delivery of 238-239
provide all relevant information 463 external aids to interpreting
starutes 38=33 Government Garette 6, 327, 329, 336, 353, 354, 488
reimburse
the seller for expenses 194
warrant against larent defects 186-189 F H
dying fair Hague
with a valid will 347-349 procedure, failure by employer to follow 408 Protocol 479
withour a will 349-351 reasons for dismisxcal 398—409 -Visby Rules 478, 481
value, right to 247=249 High Courts 6, 9, 10, 11, 13, 14, 15, 16, 17, 19,
fair procedure
in 26, 27, M0, 38, 41, 58, 135, 223, 252, 262,
e-commerce 277=278 misconduct
cases 402—403 323, 410, 488, 511, 512 see also Master of
EFT we wansfers under electronic
funds poor work performancecases 404—105 the High Court
EFTPOS (electronic
funds transfer ar point- false statements,
duty not to make 189=190 historyof and historical approach to law 4, 36
ofesale) 316 family responsibility
leave 417 holder
ciusdem generis rule 41 faulr 24, 59, 77. 89, 140, 141, 142, 143, 144, 145, in due course 308=309
ejecerment 214 146, 151, 173, 180, 181, 182, 186, 187, duties of a 308
communicationand telephonic contracts 72 188, 189, 208, 215, 246, 250, 375, 403, for value 308
contracts 102 406, 460, 474, 475, 478, 479, 508
payment,
forms of 315=317 fear thar innocent party felr because of threat must
electronic funds be reasonable4 I
transfer at point-of-sale
see EFTPOS fictitious or non-existing
payee 302=303 illegalisy
transfers (EFT) 315=317 fiduciary duties 447 common-law 105=106
employee, when a person is presumed to be an 387 final sequestrationorder 330 of contracts,
effects of 108109
employees,
nature of 385=387 finance charges 220 ill bealth or injury, cases of 403—404
3 buble dispositions for
employer oe
consulting
of 406—407 liquidators 339
failure by to follow a fair procedure
408 minimal 501=502 trustees 324
employers,
rreatment of other parties to minimum 500 impossibility
Financial Services Board 504, 505 breach
due to 140=141
employment fixed-term leases 202 of performance 173=174
equity plans 415 foreclosure clauses 372-373
termination
of 417 foreign
law 10, 22
variation of basic conditions
of 418 formalities
99
endorsees
ae indorsees agreed to by contracting
parties 102
index 525
independent contractors versus employees 385-387 and inerrnstona conventions 476=480
indorwes 297, 298, M4, 305, 307, 310, 318 joint benefir 433 lemee
indorement
im blank 304 dutiesof the 211-215
jodges 17
indorsers
297, 298, 304, 305, 307, 308, 310, 318 fexox. inobvency of the 204
inferior courts 1] l=} 4 lessees
intormanon property. holding on to the 212=215
emphoyer’s daxtomure of 407 remedies and rights 205, 207=208, 20-210
tight to dinchosane
amd 240-245 lessee’s duty
informanon, duty to not to make major changes to the leased property
Promae corent +4045 without the lemor’s perminion 214-214
prowade
all eekewant 465 to pay vent 211-215
inherit, capacity so 351~352 of reasonable care of the leased property 215
injury,
cases of 403—404 bexsor’s
insider trading 502-504 duty mot to disturb the lessee’s use and enjoyment
insolvency 176 203-210
law of 320-345 perminion 213-214
natareof 321 remedies 211-215
of the lexweflessor 204 lemoc’s duty to
of the partnenhip or any of che partners, deliver the property to the lessee 20208
death or 4M
labelling,
right to ruc 241
insolvent 522 pay the rates and taxes for the leased property 211
Labour Court 11, 14, 19, S85=386,
389, 392. 393,
dutiesof the $22 seturn the property in the same condition
406, 408, 409, 410, 411, 415, 415, 417, 419
legal positionof the 331 214-215
labour
hw 383-420
perions, contractual
capacity eegarding SS Language. right wo plain and underuandable
40
warrant against eviction of the lessee
210
insolvent’s estate, consequences
of sequestration hex Aquilia 89,90, 508
lapsed offer 67
for the $82
lapse
of time 436
liability 474-476
instructions, following lawful 266 lateness, cancellation
because of 1$0<151
jomnt 159
insurable interest 455-454 in wehdium 159
lasent defects, dury no warrant against 186=189
as an cucntialia AS9=4GO to third parties 434-435
bow, nature
of 1-2
insurance, law of 451-469 liability
of
Law for Life223
insurer's obligation to compensate
the insured directorsfor breach of duties 448
law of
for loss 458 married spouses for household necessities 57=58
agency 257=275
insuring carnage 470=482
private and public carriers 474—475
and gambling, difference berween 452-453
competition 5072518
the same irem with more than one insuser 466 defective goods 249
contract, comsequences
in terms of the 85
intellectual property, law of 483-497 liability
of the
delict, consequences
in terms of the 89
intention to induce the other party to contract, acceptor 310
iuolvency 320-45
need for 88 deawer 310
murance 451-469
inserdicts 14%=1 50, 209 indomer 310-311
intellecnaal peoperty 453—497
incerese 220 lien 577-380
lease 1920217
and use clauses 572-575 liquidator 557=358
sake 179-198
incerest, insurable 455-454 huties
of the 337
security 557-382
as an cormtielia AS%AGD who cannot be 2 338-359
succemion 546-556
ineermediarics,
right 10 disclosure by 241-242 liquidaton, impeachable dispositions for 34?
Law Society
424
international
ale cravel 479—AS0
Linsbye agreements 240 lineral approach 34
fiserary works 45%
fease, Lew of 199—217
conventioes and legislation 476=450 lock-outs and arikes 991<593
leave 416—417
lew 10, 21-22 long-term leuer, protection of a 205=206
legal
International
Court of justice 22 hows,
positions im the court hicranchy
16=18
iovernet 277 or damage, incemmnifying
the agent againu 265
subjects 25-29
banking $17 imauser's obligation
to compertate the
ST pectataon legalery 455
of performance
in comzracts 105108 ineured
for 455
applying
rules of 125
muatcrish 99
legal postion of luxuriows expensrs $79
contracting
partes in terms of the Comeames
TT spmem, sending of the online contract 10 an 280
Prosection
Act 4-55
made in South Africa 488
the inmolvent
331
legislation S=7, 422 magetranes
17
$26 index
Magistrates’ Courts 11, 12, 13=14, 16, 19, 135, 226 of mectings 442-443
dismissal for 400 Berne Convention countries to whom protection originality 487
misrepresentation 272 has been extended 487=488 outcomes, avoiding ridiculous or out-of-
consequences of 88=89 essential parties 297=298
contracts thar are voidable due ro 84=93 existing payee 302=303
fraudulent 89=0 indemnity insurance 455
innocent 91 renewal of fixed-term contracts #M=395
types
of 89=91 not
misrepresentation, need
of ro be negotiable 313
a fact 86 reading the contract: one’s legal position 281=283
made by 2 contracting
party 87 transferable 314
material 87 notarial bonds 369-370
mistake, unilateral 78-83 notary public, signing of contract in front of 100
mistakes notice
index 527
P Policy Protection
Rules 452 lexsees 205=206
pactme poor and the NCA 225 provisional sequestration order 330
commissorinon
374
Possesson public
de non cedenda 161 creditor's
need to keep 378 holidays 416
of money or property of a consumer 251 law 22
an pan delcte poner est condacte pemidentss a tube 108
Paris Convention 492
possibilityof published editions 486
Parliament
3, 4, 5, 6, 7. 16, 17, 22. 32. 33, 36, 99. carrying out the contract 458 punishment, dismissal as the correct 401-402
105, 134, 172, 24, 234, 393, 412 performance in contracts 104<105 purchase price 185=186
postal contracts 71<72 dutyto pay the 192195
partxapation
bond Kr)
partes
power purposive approach 35
citationof the 253 and duties of a trustee 323
essential 297 of che lxyaidator 538 Q
formatizies
agreed to by contracting 102
Practor’s Exlict 475, 474, 475=476, 478, 481 qualified person 487
involved
in cemion 160 prevemnprive rights 4440445 qualifying for compulsory sequestration 328
legal poatwon af contracting
$4055 prepaid quality, right 10 good 2474249
certificates
and vouchers 250 quorum 443
parties
to
services and access to facilities 250=251
arbetration 4250424
consultations 407 prescribed officers 446 R
insolvency proceedings $21<526 prescription 1720173
presumptions 41=43 ratio devidends 9
negotiable instruments 297=298
a tenancyat will, death of one of the 203—204
price discrimination 516 real security 359
parties to the contract 456<457 peices, right to have displayed
240 reasonable mistakes 8083
of carriage 472—475 prima facie 330 Receiverof Revenue 501 ser abe Revenue Service
partnerships 451436 principal sender South African
party, fear felt by Innocent4 accounting to the 267 reckless lending 226-227
passenger, duties of the 474 agent's authority ro act on behalf of 259 rectification 83=84
authority
to act on behalf of the 259 reremployment, selective 395
parent law 493—495
awareness of third party thar she is acting on referral selling 245
payee, fictitious of nonvexisting 502—303
payment
behalfof 259-260 Regional Magistrates’
Courts 11, 13, 19
debtor ax an unassisted minor 363 registered
by consumer 285
forms of electronic
31 S=317
methods
of 285, 294—519
duties
of the 264-265 trade marks, infringing 492~493
sust exise 259 registering of
of a premium by the insured 458
penaltiesand liabiliry 44 who can be a 259 a bank 499-500
penalty clauses 1 53=1 4, 1540155 privacy,right to 235-236 the name of the company
438
performance private law 25 Regaceatof
of debtor 140=141
probation, poor work performance in cases of 405 Banks 499, 501, 505
procedural law 23=24
delay
in 143=145 Deeds 336, 343, 367
impossibility
of 175=174 protic, object to make a 433 Labour Relations 390
programmescarrying signals 455-486 the cour 16, 336, 343
own 140
by seller 283 prohibited practices $12=517 registrars
or clerks of the court 16
performance
in contracts
protubstionaf dominance $1 40516 fegistration
of a company 438
promawsory notes 2%) regulations
4, 5, 6, 32, 136, 234, 238, 259, 249.
certainty
of 102=104
legality
of 105-108 promittens 199, 160 236, 523, 361, 384, 430, 446, 473, 501
promotional competicions 244 tchabdanon
periodic leases 202-203
permission, iewor's 213-214 proper performance 171 at the court's discretion
334
perona property by court within nen years 333-334
contracts for the sale of imenowable
101 after ten years, automatic 335
capacity 2596260
hokding om to the lewec’s 212-215 rei vindicatio 53, $4, 83, 380
security 360-366
leased 213-214 ejected offes 67
Personal Identification
Number (PIN) 315. 316, 317
PIN see Personal Idensification
Number lemwor’s duty in respect of property 206-215 selieving parties of their duties as form of release 167
placeof pre neta share of debe 159 remedies 148-155, 188-189, $12
$28 Index
unfair dixmials and unfair labour practices in respect of fixed-term contracts 237 seller
410—412 restrictionsan the cessionof commractual 161 duties
of the 180-191, 194
remowalof the rights and duties of the duty to reimburse for expenses 14
business rescue practitioner
from office 40 insured 462-465 separate legal entity principle, exceptions to the 440
liquidatorfrom office 339 insurer 460-462 sequestration
trustee
from office 325 parties 474 compulsory 328—3531
removing of a trustee from office 325 rights of effects
of 331=333
renewal
of leases 203 first refusal 73 friendly 330
rent a holder 308 process 326=331
claiming reduction in 208 rightto purpose
of 326
lessee’s dury to pay 211-213 cancel any adwance reservation. booking or onder 238 recovering from 333=334
rental choose 236=239 sequestration order
agreement
on 201=202 disclosure
and information 240-245 final 330
bracketed 202 equality in che consumer marker 234-235 setting aside of a 331
owing, chiming the 212 have prices displayed
240 service,
type done 378-379
reduction 210 occupy agains: third parties, lessee’s 205 seteolt 174=175
plain and undersandsble
Language 240 shareholder meetings and the board
replacing
duties as form of novation 167 privacy 235-236 of directors 441-448
reporting
the estate 352=353 a quotation 237=238 shares 444
representation sheriffs 17
false, misleading
or deceptive 245 select
a supplier 236 Short Message Service (SMS) 317
need of to be untrue
85=86 true Labelling and trade descriptions 241 short-term lessee, protection of 2 206
repudiation 152 shrink-wrap agreements 278=279
breach due to 141=142 written
sales records 241 sick lexve 417
rescission 150=153, 377 right
to fair signatures 299
resignation by employee after transfer of business 397 just and reasonable terms and conditions 246—=247 forged 2
resolutions 443 value. good quality and safety 247=249 by juristic persons 300
resolutive right
to fair and unauthorised 273-300
conditiom 129 honest dealing 245-246 sample joint lisbility and joint and several liability 159
time clauses 130 responsible marketing 242245 skill, duty to act with 447-445
responsibility,
whether harmed party has 2 14 risk 180-183, 284, 426 small claims courts 12=13
restatutre
im intregram 51.95 role, identifying
terms by their 115=116 SMS ser Short Message
Service
rest periods 416 Roman sole proprictorship 430
restraint
of trade agreements 10%=1 12 -Dutch law 4, 18, 19, 22, 205 solvent spouse's estate, consequences
for the 332
restrktive law 4, 8, 89, 321, 471, 473 sound recordings 485
horizontal practices $12=513 rules 2, 39—41, 400—401 sources of
indorsement 305<307 rules of authority 262-264
practices 512—=514 arbitration 425 offers 69
vertical business practices $13=514 interpectation, applying 125 South African
Lew 4-10
result
of voidable contracts 77 South African
retrenchments 406—409 S Nasional Defence Force 413
return of replaced
parts 251 safety. right to fair value, good quality and 247=249 Pasent Office 493, 494, 496
reversing decisions 426 sale Police Service (SAPS) 140, 393, 477, 511
im execution 195<1%6 Reserve Bank 222, 319, 426, 499, 500
revoked offer 68 lew of 179-198 Revenue Service (SARS) 3, 327, 336, 343 xe abo
rewards 66-67 nature of a contract
of 179-150 Receiver
of Revenue
right sale of Secret Services 413
with respect to delivery of goods 238-239 immowable property, contracts for the 101 South African
Law Reports 9
of surety against creditor, division as 364 lad IM-195 special
rights SAPS see Police Service under South African courts 14
cewion
of farure 162-163 SARS see Rewenuwe Service under South African crossing 312=313
changing of as form of varunon 166 im securitasem: debit 165 indocsement 505
consumer 224-225, 264-258 securities 443 mortgage over immovable property 567-368
and dusies during the morgage period 574-575 security specific
lewsce’s remedies and 207=208, 20210 comion
as 1656166 contracts of sale 1'4=196
nature of legal 30 law of 357=382 performance 148, 208
pasung, varying and ending of by agreement velective re-employment 395 specific liability of
158=170 carriageby sea 475=476
index 529
the carrier by ait, road eo call 475 employment 417 trastecs, impeachable dispouitions for $24
spoliation onder 220 2 lease without
notice 203-204 tress, formation/termination af 451
wandasd form comeracts and caclusion clauses 473 truss 431 ex trpi coma vale 108
mate teres
claimsof land 376 common contractual 127=135 U
not bound
by scarures 43 and conditions,
right to fair, jest and reasonable umpar 424
salle
of the 3 246—247
atte creation of exceptional
cases 363 expeess 117 unauthorised
contract, being party to an 267=271
scatotes, interpreting 32=45 implied 117=118 encertain fursre event. occurrence of an 458-459
statutory impoued 118=124 underevahsingan insured item 466
councils 391 st out in offer, compliance
with 70 undue influence
interpretation, thearies of 34=5% thing, use and enjoyment
of the 201 comequences
of 6
mipulans 199, 160 thind parties contracts that are voidable duc m 95=96
mipulatio
alteri \SImi awarcnces
of 29%—260 untar
strikes and lockeouts 3916593 hessee’s right so occupy against 205 contracts 107
subjects, legal 28-29 third party as form of asignment, substirution discrimination, prohibiting 41 3=414
subsiturion of a third parry as form of assignment 167 of
2 167 unfair dismixsal
succession,Law of 346-356 threat compensation
for 411
summary
sale clauses 373-374 fear thar innocent party felt because of 94 nature
of an 397
superior courts 14=16 of harm to the contracting party, his family unfair dismissals
supplicr, right wo or property
94 automatically 397=398
retum purchased goods to a 239 imminent
or of inevitable harm 94 disputes abour 409=412
selecta 236
supplier's accountability
1 consumers 250-251 enteringthe contract 4=95 compensation
for 41 1-412
suppositions 130 unbwful or against public policy 6 and dismixsals 393=397
Supreme Court of Appeal 9, 11, 14=15, 17, 19, 27, disputes abour 409=412
186, 214 sr ake Appellate Division implications
of 282 nature
of 409
surety’s tickers 120-122 United Nations
dusies 362 time Commission
on International Trade Law 427
rights when sued by the creditor 362-365 clauses 129=130 Organization
(UN) 10, 22. 478
suretyabep lapse
of 436 unjustified enrichment
and ret rimdicatio S4
agreement, agreement to create a 361 limited 377 unbwful competition 50S=5 10
COommract, requirements
to create a 361<362 timelines
of offer 70 use clauses 372-373
saretyship contracts wade
characteristics
of 101, 360-361 coupons and similar promotions
243 Ww
ending 365-366 dexcripioas.
right 10 241 warranties 131, 190, 19%
surrender, voluntary 326=327 practices
and customs 10 Warsaw Convention
(146) 479, 480
surrounding circumstances, considering the 124 made mark will
suspensive haw 490—493 basic coments
of 2 345-349
conditions 128 protection, requirements for 491492 death of ane of the parties to a tenancy at 203204
time clauses 129 registration, lengrh af 492 draftinga valid 347-348
symbolic delivery 153 wade marks, nature of 490-49! will dying
Trade Marks Office 491 with a valid M7-}49
T trading. insider $02=504 without a 49-351
tat treditio winding-up companies 5}4= 41
emanaparoa$4 revs murnw we vbort hand wader delivery with the work
mortgages 570 performance cases, fair procedure in poor
terms 118 traditional works 485 40105
Takeover Regulation Panel 555, 336, 343 transfer of schemes, alnernative 245
bearer bills 303 working time 415
72 onder balls 304-307 writing 299
tenancy
at will 202-204 personal
nights 160-166 writen
termination poscxson (cxesimcasr peurssriam) 1 S4 contract
100, 361-362
cluuses 375-377 transier of ownership 134-185 sales records,
raght no 241
with or without nocke 394 of a bil 303-307 written consent
termination
of ik: and trial procedure
25-28 of the other spouse 56
contracts
by low I71<175 wusce 325 signed by the spouse and rwo witneues 56
who cannot
be 4 524525
530 index
Index to Legislation
A Close Corporations
Act 69 of 1984 437, 450 para 146 515, 516
Administration
of Extaves Act 66 of 1965 323. 352. Clase Corporations
Act 4 of 1983 261 «5515
3289 sO S15
3553, 555
«Mw + BAK 514, 515, 516
regulation
S{1) 353-354
« 121Ma) $16
s M1)%
bejeries
and Diseases Act 130
of 1995 Constination
of the Republic of South Africa,
s 102(1Ma) 352
s1$1 325 Companion
Act 61 of 1973 335, 337 1996
4. 5, 7. 8, 10, 14, 15, 16, 18, 82, 33,
wm M5746 SM, M2 3A, 36=38, 39, 44, 105, 252, 347, SHS,
Alienation
of Land Ac 68 of 1981 194, 198,
225<226 « 40(1) 399 384-385, 427, 437. 511
« 10(1) 499
Dl=ri, M5, 456, 4357, 438, 440-441, « 28(1)h)
29
446, 448, 449, 499 Mand
# 11(1~2) 499
«1 430-431, 438, 441, 445, 4404 ST
m 12=15.499
s7 a7 «90 22
wan
= 12) 439 « Whe) 10
Basic Conditions of Employment
Act 75 of 197
(BCEA) M4, 393, 395, 406, 415-418
5 20(7) 263 « YH)
« 9) 440 « 16705) 15
oats
21299 su
BCEA ser Basic Conditions of Employment
Act 7S
5 6641) 445 Comutieution Seventerath Amendment Ac, 2012 15
ain
2767 (Comeumer Protection Act 68 of 2008 (CPA) 44-55,
BEA ore Bills of Bachange Act 34 of 1964
« TOLSKb) 446 06, 82, 92-93, 107, 123, 251, 2416254
Ball of Rights 7, 8, 16, 33, 36, 37, 99, 44, 341, S84
937,590
5 TELIMc) 447 Chapeer
2 204
7
& TH 4-5S) 447 =448 Chapeer
2. Part F 245
mm 7981 334, 342 Chapter
2. Par H 247
Bills of Exchange Act 34 of 1964 (BEA) 295, 296
s4(1) 299
1220) HO Chapter
4, Part A 252
s 22 299, 100
« 13801) 340 segulation
$ 237
s 951) 299
# 199% 1-2) 40 regulation 7(6) 241
+ 1401-2) MO segulation9 242
s 14244)0 segulation
44 246
Act $5 of 2005
585
sis « 1h) 476
Broadcasting
Act 4 of 1979 105
+ 1501) S41 s M1) 46