BSCI / BSST 111

STUDY UNIT 3
 Study Unit 3
Study Section 3.1 outcomes
1. Define the Contract of Purchase and Sale.
2. Explain the legal formalities applicable.
3. Name and explain the essentialia of a
Contract of Purchase and Sale.
4. Identify the parties to the contract.
5. Name and explain the duties of the parties to
the contract.
6. Practical application & applicable remedies.
 Study Section 3.1 outcomes continues
7. Describe the seller’s duty to take care of the thing
sold.
8. Explain when the risk of the thing sold will pass to
the buyer.
9. Describe the contents of the seller’s implied warranty

against eviction and describe the term eviction.

10. Describe the seller’s implied warranty against latent
defects in the thing sold and define the term latent
defect.
 Study Outcome: 1 and 2
• Revision: Essentialia of contract?
• These are the distinguishing elements whereon the parties must reach agreement in order
to be able to classify the particular contract as a: contract of purchase and sale.
• According to Kerr (Law of South Africa vol 24 at 3), a contract of sale is formed when parties
who have the requisite intention agree together or appear to agree that the one, called
the seller or the vendor, will make something, called the thing sold or the res vendita or
merx, available to the other, called the buyer or the purchaser, in return for the payment
of a price the contract is a sale.
• This definition takes its roots, and has remained virtually the same, from Treasurer-General v
Lippert (1883) 2 SC 172, where the full board of the Judicial Committee of the Privy Council
cited with approval De Villier’s J statement that:
‘A sale is a contract in which one person (the seller or the vendor) promises to deliver a
thing to another (the buyer or emptor), the latter agreeing to pay a certain price.’
Study Outcome: 2 & 3
• The parties must reach consensus on the following:
1. From the context of the contract it must be clear that
the seller had the intention to sell and the purchaser had
the intention to purchase (that is consensus on the
nature of the contract).
2. The parties must reach agreement on the thing to be
sold (that is consensus on what is to be sold and bought).
3. The parties must reach agreement on the purchase
price (consensus on the monetary performance to be
delivered by the purchaser to the seller).
The parties to the contract are identified
as the Seller and the Purchaser.

Study Outcome: 4
• The duty of the seller to take care of
and protect the object sold.
• From the date of conclusion of the
contract to the date whereon the
seller must deliver the object sold, he
must take care of the thing so that he
will be able to deliver the object in
the same condition as it was on the
date when the contract was
concluded, or, in the condition as
they have agreed.
• If the object would be damaged
during this period, due to the fault of
the seller, he will be liable to the
purchaser for damages.
NOTE:
- The thing sold is also known as the res
vendita or the merx. Generally, nearly
anything may be sold. The thing to be sold
may be movable or immovable, corporeal or
incorporeal, provided that the thing sold is
capable of being sold in commerce (ie. intra
commercium).
- An example of an incorporeal merx that can
be subject to a valid contract of sale is a
servitude or a patent.
- Theron Ltd (in liquidation) v Gross 1929 CPD
345, the liquidators of a company were able to
sell the outstanding book debts of a company.
The general requirement is that the thing sold
must be:
 definite or ascertainable and not vague at
the time of the conclusion of the contract; and
 existing at the time of the contract, or having
potential existence.
 Study Outcome: 5
Delivery of the thing (merx or res vendita) sold
Delivery usually occurs only if the following essentials
are present:
- The thing must be capable of ownership.
- The seller must have legal capacity to sell.
- Traditio must be made by the seller (or his agent),
since the owner of the thing cannot be deprived of his
ownership by the wrongful act of another, and no-
one can transfer greater rights in a thing than he
possesses.
- No one can make someone else the owner of a thing
he does not own.
- The seller must intend to pass ownership to the
buyer.
- Delivery must be made to the buyer (or his agent).
- The buyer must have legal capacity to become owner
of the thing.
- The buyer must accept delivery, intending to acquire
ownership in the thing.
NOTE:
To transfer ownership, certain formalities
are required, depending on whether the
thing is
movable or immovable. These formalities
are dealt with in terms of the law of
property.
Usually, in order to transfer ownership of
a thing, it is not only necessary that it is
physically delivered by the owner, but
also that the owner has the intention of
transferring the right of ownership to the
buyer and the buyer has the intention of
becoming the owner of the thing in
question.
 Study Outcome: 5
Delivery of the thing (merx or res vendita) sold
When the passing of ownership occurs in relation to a thing which is the subject of a contract of
sale, the following rules should be remembered:

(a) Immovable property

In the case of immovable property, delivery is not possible. Immovables are transferred by way
of registration in a Deeds Office (the position is regulated by the Deeds Registries Act 47 of
1937). In other words, registration constitutes delivery in the case of immovables, and
ownership passes whether the price has been paid or not.

(b) Incorporeals
Ownership in incorporeal (things without a physical existence; eg debts) is transferred by
means of cession, in the case of movables (Cession is a special form of contract whereby
personal rights in intangible things are transferred by means of agreement). Where the
incorporeal constitute immovable property (eg bonds or servitudes), they must be registered in
the relevant deeds office.

(c) Movable property

Ownership in movable property is transferred
(1) upon delivery of the res, coupled with
(2) either payment of the purchase price, the provision of security, or the giving of credit.
 Study Outcome: 6
The question that arises is:

Who will have to bear the loss/risk if the thing

were to be damaged during the period after
conclusion of the contract and before delivery,
but not due to the fault of the seller?
 Take the following example:

On 13 March 2000 A sold his horse

to B for R500. They agreed that A
would deliver the horse on 31
Study Outcome 6 March 2000 and that B would pay
the purchase price on the same
date. A took proper care of the
horse and kept it in a fenced
paddock on his farm. On 20 March
2000 the horse was struck by
lightning, and killed.
 Study Outcome 6 continue
In the given case study
you must be able to
reason that the contract
will be terminated by this
event.
Revision:
Supervening impossibility
of performance
What now?
Whose fault was it that the
horse was killed?
Will A still have to deliver the
horse?
Will B still have to pay the
purchase price? Caught

It should however be noted….

 Study Outcome 6 continue
• The question of who will be
responsible for accidental
damage to the thing sold is
regulated by the rules on the
passing of the risk…when we
are dealing with a specific type
of contract.
• It is said that if the contract is
perfecta, the risk of accidental
damage to the thing will pass
from the seller to the buyer.
South Africa follows the Roman-
law rule with regard to risk.
In the absence of negligence on
the part of the seller, the general
rule is that the risk passes to the
buyer when the sale is perfecta:
that is, as soon as the agreement
of sale is concluded, and before
delivery or payment of the price.
 Study Outcome 6 continue
This rule was repeated by Nugent AJA in Isando
Foods (Pty) Ltd v Fedgen Insurance Co Ltd 2001 (3)
(SCA) 1278 at paragraph 13 as follows:
‘Generally, when property is sold the risk that the property might
be damaged passes to the purchaser once the sale is perfected
even though delivery has not yet taken place, but that does not
mean that all risk passes to the purchaser irrespective of how it is
caused. The risk that passes upon sale is the risk of damage
through no fault of the seller. In other words, it is only the risk of
damage by vis major or casus fortuitus or damage caused by third
parties through no fault of the seller that passes to the purchaser.’
 Study Outcome 6 continue

For example, if A buys a cow from B and B is

struck by lightening and killed before delivery, A
must pay the agreed price.
Other examples given by Roman-Dutch writers
include losses suffered by earthquakes,
shipwrecks, mustiness, souring or leakage in, for
example, a case of wine and spoiling, going bad
and perishing of things.
 Study Outcome 6 continue
• When can one say that a contract is perfected
(‘perfecta’ in Latin)? This can be said to occur when:
– The buyer and seller have the intention of buying and selling;
– The thing to be sold is definite or determined
– in the case of emptio rei speratae the thing sold is definite
after being measured or weighed.
– in the case of emptio spei the thing sold is definite as soon as
the contract is concluded.
– in the case of a generic sale, the thing sold is determined
after individualisation.
– The purchase price is certain.
– The contract is not subject to a suspensive condition.
 Study Outcome: 8
• The seller’s duty to warrant the purchaser against
eviction
• In our law it is not an automatic consequence of a
contract of purchase and sale that the seller has to
transfer ownership of the thing sold to the purchaser.
Transfer takes place by separate arrangement. Deed
transfer.
• A purchaser also does not acquire ownership of the
thing sold by the mere conclusion of the contract.
• A thief can validly conclude a contract of purchase and
sale in respect of the stolen thing.
 Study Outcome 8 Example:
• A bought a TV set from Credit Furnishers in terms of an instalment sale agreement. The
parties agreed that the TV would be delivered to A on the date of payment of the deposit,
but ownership of the TV would not pass to A until payment of all the instalments due in
terms of their contract. A undertook to pay the purchase price in equal monthly instalments
over a period of 24 months.

• After A had paid 15 instalments, before ownership of the TV was transferred to him, he sold
the TV to X. X received delivery of the TV and paid the purchase price of R6 000 to A.

• A failed to settle his obligations towards Credit Furnishers and they instituted action for the
repossession of the TV because they were still the owners of the TV and the TV also served
as security for payment of the balance of the purchase price.

• The collection agents of Credit Furnishers found X in possession of the TV and wanted to
repossess the TV.

Only then did X become aware of the true facts. Does X have any remedy against A or Credit
Furnishers?
Study Outcome 8 Example answer:
• If X had been bona fide (unaware of the true facts) when he
bought the TV from A, he will be entitled to claim:
 Cancellation of the contract with A;
 Repayment of the purchase price which he has paid to A;
 Damages which can be proved.

(Include for example costs for any improvements which he

had made to the thing, any increase in the value of the thing,
the costs of the lawsuit in connection with the eviction).
 Study Outcome: 8

The duty of the seller to warrant the purchaser

against latent defects in the thing sold
=Contractual warranty.

This warranty can be excluded by agreement

between the parties, for example if the thing is
sold off-hand/voetstoots.
 Practical Application &
Assessment Class

• Are the following contracts valid contracts of purchase and sale?

1.
A buys ten books from S for R50 per book, plus R5 delivery charge per
book.
YES

2.
B buys medicine from pharmacy S. The medicine is to be delivered to
B’s house. No mention is made of a price.
NO

3.
S sells his house to P for R150 000. They have orally agreed in these
terms. Before the agreement could be reduced to writing and signed
by both parties, S died.
NO
 Individual
4.
S sold his house to P for R150 000. The
parties concluded a valid written contract.
Two days later, P asked S if he would not
be prepared to reduce the purchase price
to R130 000. S agreed. When P tendered
payment of R130 000 upon registration of
the house in his name, S refused to accept
R130 000 and insisted that the purchase
price was R150 000. Can S refuse the
payment of R 130 000. Argue your answer
by referring to SU 1& 2 as well.

YES - FORMALITIES
 Group
5.
On 12 February 2003 V sold his motor vehicle
to K for R30-000. They agreed that the
purchase price would be paid on 28 February
2003 and the motor vehicle would be
delivered simultaneously.
On 18 February 2003 V sold the same motor
vehicle to Q for R32 000. Q paid the purchase
price on the same day and the motor vehicle
was delivered to Q. Who was the owner of the
motor vehicle on 28 February 2003?

Q–
Essential elements. Transfer of ownership.
 Revision: Remedies
The actio redhibitoria
• The purpose of this action is to place both parties in the position
they were in before conclusion of the contract.
• Restitution has to take place.
• In terms of this action the purchaser may claim:
- return of the purchase price,
- interest on the purchase price,
- repayment of the expenses incurred regarding receipt and preservation of
the thing and
- reimbursement of improvements he/she has effectuated to the thing.
• At the same time the purchaser must tender return to the seller of
the thing he/she has purchased.
 Revision: Remedies
The actio quanti minoris

If the latent defect is not so material that the purchaser

would not have bought the thing had he/she been aware
of the defect, or if the defect does not render the thing
totally unfit for its use, but there is nevertheless a defect,
the purchaser will have to be satisfied with a claim for
reduction of the purchase price, the reduction being the
difference between the purchase price and the true value
of the thing.
What about the Consumer
Protection Act?
 Revision: Remedies
The actio empti

• The actio empti can usually be instituted in the event

of a breach of a contractual warranty.
• With the actio empti the purchaser can claim
cancellation of the contract of sale if the defect is of
such a serious nature that it cannot be expected of the
purchaser to retain the thing.
• If the purchaser can prove damages as a result of a
breach of this warranty damages can also be claimed.
The duties of the purchaser:

Payment as agreed upon.

STUDY SECTION 3.2
 Study Unit 3
Study Section 3.2 outcomes…
1. Name and describe the essentialia of a lease agreement
2. Name the obligations of the lessor and write notes on the
contents of each obligation
3. Describe the remedies of the lessee if the lessor did not fulfil his
obligations
4. List the obligations of the lessee and write brief notes on each of
these obligations
5. Briefly describe the remedies of the lessor if the lessee did not
fulfil his obligations
6. Explain the landlord’s tacit hypothec over the movable property on
the leased premises
7. Explain the “huur gaat voor koop” rule and give a detailed
explanation of the circumstances when this rule will be applicable
 Essentialia and Formalities
The leased
Consensus:-
property

(If vague - The use and Study

contract will be the enjoyment
null and void) of the property. Outcome: 1
(Temporarily –
Counter-
not abuse or
performance
consume)

(If vague -
contract will be
null and void)
 The duties of the lessor (property) and the
remedies of the lessee (pay)
COMMON LAW DUTIES :
Study Outcome: 2
Delivery of the “thing” (keys to the leased
premises)

Maintain the leased premises

Provide undisturbed use and enjoyment of

the property to the lessee

Compensation for attachments and

improvements by the lessee to the property
of the lessor
 Study Outcome: 3

REMEDIES (When the lessor is “at fault”)

Common Law. May agree on other
GENERAL
remedies= Contractual remedies.

1. → Specific performance
 Delivery of the keys to the property

2. → Rescission
 If there is a Lex Commisoria paragraph in the contract, you can rescind
from the contract within the prescribed/negotiated time. Otherwise a Letter of Demand
must be send to the Lessor, for example by an Attorney.

Apply to each
3. → Claim for damages
duty a
 Court order remedy…

4. → Deduction of rent
 Delivery of the “thing” sold

Ask for specific performance General remedy

Maintain
• General remedies:
1-4
Use and Enjoy

General remedies: 1-4

“Huur gaat voor koop”

• =Lease takes precedence over sale
(including donations and bequests)

Interdict

A spoliation order to return of

rights is ordered by court
 Compensation

Before any improvements are made, permission is

required from the Lessor. Without this permission no
compensation can be claimed.

It is wise to put these negotiations in writing and to

already agree upon what will happen if these fixtures
are removed at the termination of the contract.
 The duties of the Lessee and the remedies of the lessor
(1) PAYMENT OF RENT
The parties agree on when,
where and how the payment(s)
are to be made. If this detail is
vague in the contract, the
contract can be declared null and
void.
Study Outcome: 4 &5
1) Remedies for non-payment
– Mora debitoris (wrongful
delay in payment)
– The tacit hypothec (right
of retention over
movable property)
– Repudiation (revision)
– General remedies: 1- 4
 The duties of the Lessee and the remedies of the lessor
(2) PROPER USE OF THE LEASED
PROPERTY
- The reasonable person test Remedies
– Interdict
…meaning how will the reasonable
– General remedies:
person use his own property 1-4
- Bonus paterfamilias (In Roman law, the term bonus
pater familias ("good family father") refers to a
standard of care.
→ Use the premises / land, for the purpose it was
agreed upon in the contract of lease

→ Permission is needed to change/alter the leased

property
 The duties of the Lessee and the remedies of the lessor

(3) RETURN OF THE PROPERTY ON TERMINATION OF THE

LEASE
Remedies:
– General remedies: 1-4
– Tacit hypothec = In order to insure the payment of
rent the lessor has a tacit hypothec over the
movable assets brought onto the leases premises
– Court order for specific performance
– Interdict (to limited damages)
 Practical Application Class

Question 1
On 12 March 2002 Adam concluded a written lease
agreement with Ben, in terms whereof he leased Ben’s house
for a period of three years from 1 May 2002, at a monthly
rental of R1 000. On 1 May 2002 Adam took occupation of the
house. On 6 February 2003 Ben died, and in terms of his last
will and testament he bequeathed the house to his son, John.

1. May the new owner, John, eject Adam from the house?
2. May John increase the rent to R1 200 per month?
3. Take the same facts as above, but suppose that the lease
agreement was for a period of ten years with an option to
renew the lease for a further ten years. Would your answer
have differed from your answers to the above questions?
STUDY SECTION 3.3
 Study Unit 3
Study Section 3.3

1. Distinguish between the concepts indemnity insurance and non-

indemnity insurance;
2. Name the essentialia of an insurance contract and explain each
essential;
3. Define the concept insurable interest;
4. Define the duty of disclosure that is applicable on all insurance contracts
and explain the scope of this duty to disclose;
5. Define the concept subrogation, as well as the insurer's rights in terms of
subrogation;
6. Define the concepts under-insurance, over-insurance and double
insurance;
7. Explain an average clause in an insurance contract;
8. Explain the effect of a warranty in an insurance contract.
Essentialia of an insurance contract

Consensus on:

Insurable Interest

Risk

Premium / cover

Period of cover
 1. Insurable interest
• In relation to indemnity insurance this means that the
insured must have a pecuniary interest in preventing the
occurrence of the event insured against.
• This test will be satisfied if the insured owns the subject
matter of the insurance, or bears the risk in respect of it, as
for example where he/she has bought it but has not yet
received transfer of ownership, or if he/she will be liable to
the owner in the event of it being damaged or destroyed.
• In indemnity insurance the insurable interest must exist at
the moment the loss or damage occurs.
 1. Insurable interest continues…

In non-indemnity insurance the insurable

interest must exist at the time the contract is
concluded.
• ?..One's own life or the life of a spouse
• Insurable interest in the sense of a financial or
pecuniary interest.
 THE DUTY TO DISCLOSE

Mutual & Federal Insurance Co Ltd v

Oudtshoorn Municipality 1985
• The duty to disclose rest on the prospective
insured
• The insured must disclose all information
which could increase the risk
• The insurer must disclose all information
which could decrease/exclude the risk
• It is a pre-contractual duty
 THE DUTY TO DISCLOSE

– Why?
– Misrepresentation influences consensus
↓
Intentional, negligent, innocent
↓
Claim damages
↓
The reasonable man test
 THE DUTY TO DISCLOSE

• If the age of an insured

is not his/her true age,
the insurers can not
automatically cancel the
contract.
• What was the influence
(age-factor)

=
substantially or
materially
 THE DUTY TO DISCLOSE

• Non-compliance with the pre-contractual duty to

disclose, is misrepresentation.

• The party prejudiced by the misrepresentation can

have the contract set aside because of the
misrepresentation.

• Purpose of contracts = fulfilment of contracts

 THE DUTY TO DISCLOSE

A warranty is a contractual undertaking that a

certain statement of fact is correct. Warranties
in this sense are encountered in contracts of
insurance; e.g. a warranty that the insured is in
possession of a valid driver's license or has never
been refused insurance
 Specific aspects of indemnity insurance

The principal

• The insured can never recover more than the actual loss or damage
suffered

Calculation:
• The value of the thing insured must be determined at the time of the loss
or damage
• Value must be determined at the place where the damage or loss occurs
• Only the intrinsic value of the insurable interest must be taken into
account (not the trauma or consequential damages)
 UNDER -INSURANCE

• Insurable interest is insured

for less than is actual value
OVER-INSURANCE or • THE EXTENT OF THE
INSURER’S LIABILITY?
DUBBLE INSURANCE
• Insurable interest
AMOUNT RECOVERABLE =
is insured for more
INSURED AMOUNT X DAMAGE
than is actual value
ACTUAL VALUE 1

Average clause
UNDER- INSURANCE & THE AVERAGE CLAUSE

Under-Insurance Application of Average -Clause

• P insures his bicycle for R2500 • P is 50% U-I
• It is worth =R5000 • P is 50% responsible

• It gets stolen Pays out R1250

• P’s bicycle is damaged in an accident

• Damage = R1000
Pays out R500
DOUBLE-INSURANCE AND CONTRIBUTION

• More than one contract for the same interest

• Contribution clauses in contracts

EXAMPLE:

• A insures his car with ABC & XYZ

• A insures his car at ABC for R100000
• A insures his car at XYZ for R100000
• A’s car is worth R100000
 SUBROGATION

• Damage to the insured interest is caused by a third party.

• From whom will the insured claim?

– The insurer ito the contract
– The 3d party

• A choice from whom he wants to claim,

BUT NOT FROM BOTH!!!
• If the insured does recover from his insurer, the insurer by
operation of law obtains the right to claim from the party
the amount paid to the insured.
END