Part C (1.4 - 3.2) and Part D

Question 1

2 Types of illegal contracts

Other factors that render contract void or unenforceable

Answer 1

1. Statutory illegality
   - contract prohibited by statute
   - contract only void if statute so intends
2. Common law illegality
   - contract void (declared by court) because contrary to public policy

Question 2

What is statutory prohibition and its 2 general categories?

Answer 2

Statutory prohibition (eg sale of cannibis) is when statute precludes you from entering into certain contracts (specific or general permission)

1. Absolute prohibition - very thing that is prohibted is NEVER permissable
2. Relative prohibition - not permissable unless general permission to trade in certain type of contract

Question 3

When will a statutory prohibition actually render a contract void?

Answer 3

To answer this, we must discern inention of the statute.

1. Statute can expressly say that contract is void (eg contract to use place as brother, Sexual Offences Act 23 of 1957)
2. Statute can lay out offense and what follows if convicted but not address what happens to contract - (eg selling of organs is an offence, if convicted liable to pay fine or imprisonment)
3. Legislature does not express certain view (eg Long Term Insurance Act 52 of 1988, s60, long term policy shall not be void merely because a provision of law has been contravened)

Illegality does not mean contract void - analyse intention of legislature and if not clear, consider subject matter, remedies and purpose of prohibition

Question 4

What is common law illegality?

Answer 4

Under common law, general principle is that you’re free to enter into any contract.

Common law illegality driven by public policy and can be declared void if contract is “contra bono mores”

Court will decide if case deeply undermines justice or government

Question 5

Effect of contract that is void (Illegality)

Answer 5

1. Contract cannot be enforced (from illegal contract, no action may arise)
2. Restitution - if both parties are guilty then may not be able to get restitution (pari delicto rule) except:
   - If one party is deemed not guilty, may be able get restitution
3. Relaxation of pari delicto rule if:
   - consideration of justice (greater injustice in society would arise)
   - is relaxation warranted if there is pre-existing punishment (court may feel you’ve already been punished - could get restitution)

Question 6

What is a contract in restraint of trade and why would one conclude such contract?

Answer 6

A restraint of trade is a provision generally found in employment contracts which states that in the event of termination of employment, the employee is restricted in the work the employee can perform for a specific period of time and within a certain geographical area.

Purpose is to protect proprietary interests of employer from being accessed by competitors (sensitive information, client list, supplier details etc)

Question 7

Legal effect of contracts in restraint of trade?

Answer 7

Pre 1984
- prima facie void unless reasonable (onus on person who wanted it to be valid)

Post 1984
- prima facie valid and enforceable unless unreasonable (onus on party trying to leave contract)

Question 8

How does court decide of contract in restraint of trade is reasonable?

Answer 8

presumption - contract valid unless:

1. Conditions of restriction are unreasonable (eg geographical)
2. it is unduely harsh to restrict a person in that manner ( will it place unreasonable restriction on means to make an income?)
3. whether the industry as a whole has an interest in this type of trade (generally acceptable in your sector?)
4. whether enforcement of this contract would deprive public from an important goods or services

So company must show that there is some proprietary interest that needs to protected and that the measures to do so are adequate

Question 9

Contracts in restraint of trade - partial performance

Answer 9

if certain term of contract (eg geoghraphical or time restriction unreasonable) these terms can be disregarded.

Severable contracts - when terms which are merely an appendage to the contract are unreasonable/illegal, they can be removed

If term is essential to contract and becomes illegal - whole contract rendered void

Question 10

What is impossibility of performance and when does it render a contract void?

mention force majeure

Answer 10

Question of law or fact - when performance is no longer possible because of either a legal impossibility or physical impossibility

Impossibility can exist before contract concluded or arise after concluded before delivery

Contract only void if it is objectively impossible to perform (reasonable to greater society) not subjectively impossible (based on personal means)

force majeaure - what companies use to exclude being held liable if things outside of their control - render performance impossible

Question 11

What are formalities?

Answer 11

Minimum requirements to complete contract, can be verbal or tacid by conduct.
Generally no formalities required for contract, but statutes and contract can impose.

eg contract - “ no variation except in writing and signed” or that material changes should be changed in writing too
eg statute - sale of land (Alienation land act)

Question 12

Examples of formalities

Answer 12

1. Written records (nature and operations of contract, essential terms)
2. Signature of both parties
3. Agents acting on authority
4. Notarial execution
5. Registration

Question 13

Right to fair, just and reasonable terms and conditions (CPA 68 of 2008)

Answer 13

See notes in book

Question 14

Contents of the contract? What are the main contents of a contract?

Answer 14

1. Terms (Expressd or implied)
2. Imposed terms
3. Time terms
4. Conditions
5. Warranty
6. Cancellation
7. Penalty Clauses

Question 15

What are terms and what is their function?

Answer 15

Terms in a contract imposes an obligation to act or refrain from acting. They create rights to receive certain performance from other party

Terms can be explicit (express) or silent (in this case CL will be used interpet term eg risk rule, lease agreement).

Question 16

What are express terms and what do they apply to?

Answer 16

The essential and incidental terms reached through negotiation or imposed by supplier. Include standard terms (basic terms) and incorporated terms (caveat subscriptor rule).

These terms apply to:
1. Signed and unsigned contracts (eg notices)

For notices, must be in plain sight and plain language for person to be bound. Knowledge not required for you to be bound.

Question 17

What are implied terms and how do they apply?

Answer 17

3 types of implied terms:

1. By law (Naturalia/Residual)
   - stem from body of law (eg sale)
   - if implied term has no law which can fill in, look at tacit terms or trade usage (if not expressly stated)
2. Terms implied on facts (Tacit terms)
   - unspoken but agreed upon terms
   - court will not readily import term into contract, but they can (sanctity of the contract pinciple)
   - for court to import tacit term, they look at facts and express terms
   - curious bystander test used to determine if parties intended to include such a term into contract
   - even if term is needed to make contract commercially effective, court may still not readily import term
3. Terms implied by trade usage
   requirements:
   - similar to customs, must prove it has been practised for a long period of time, unwritten, certain, uniformaly observed, reasonable, legal and clear
   - knowledge is not relevant

Question 18

What are imposed terms?

Answer 18

Invariable terms of the contract - you cannot contract out of them (automatically bound) and a contract cannot exist without them.

1. Essential minimum requirements of a contract
   - names of contracting parties
   - date of contract
   - subject matter
   - consideration (payment)
2. Terms imposed by statute
   - Naturalia - variable (eg speed limit)

Question 19

How do imposed terms apply to signed and unsigned contracts?

Answer 19

For signed contracts - imposed terms are binding once contract signed (caveat subscriptor rule)

For unsigned contracts (tickets and notices) - party relying on imposed terms must prove

1. Nature of the document must be obvious that it contains imposed terms
2. Notice must be prominent - terms must be conspicuous, supplier should have taken all reasonable steps to make notice visible
3. Must be imposed before or when contract concluded

Question 20

Imposed terms (CPA)

Answer 20

• Supplier cannot contract out of gross negligence (extreme negligence)
• Attention must be drawn to all expemtion clauses
• If activity involves “unusual” risk or risk of injury or death, consumer show acknowledgement and acceptance of risk

Question 21

What are other common contractual provisions?

Answer 21

1. Time terms
2. Conditions
3. Warranty
4. Cancellation
5. Penalty Clauses

Question 22

What are time terms?

Contractual Provisions

Answer 22

• Term that states performance due on date or event that is certain to happen (future certain date)
• Obligation is certain and specific

If no time specified - silent term can be filled in by CL or test for what a reasonable person would consider a reasonable time (eg perishable goods)

Question 23

What are conditions?

Contractual Provisions

Answer 23

Term that makes performance or continued performance in a contract dependant on a uncertain future event

1. Suspensive condition
   - valid contract but contract ony comes into operation when if conditions fulfilled.
   - doctrine of fictional fulfilment - acts as if suspensive condition has been fulfilled if there has been malicious intent on the buyer’s part to frustrate fulfilment of suspensive conditon (seller has election to hold them to contract)
2. Resolutive condition
   - contract valid and operational but contract terminates if condition fulfilled

Question 24

What is warranty?

Contractual Provisions

Answer 24

Term that confirms (warrants) that a particular fact is true

Question 25

Cancellation | Contractual Provisions

Answer 25

Term that allows party to cancel for breach (serious enough)

Question 26

Penalty clauses | Contractual Provisions

Answer 26

Term in which agreed penalty is payable in event of breach of contract

Question 27

What are the types of breach of contract?

Answer 27

1. failure to perform 2. repudiation 3. incomplete/defective performance 4. prevention of performance

Question 28

Failure to perform - when does it become breach? | What to do once performance is overdue

Answer 28

First consider if time of performance was set or specific date stipulated. In absence of express/tacit deadline - issue letter of demand (unambiguous and specifies set time) This places them in mora (late performance) 1. Court must receive letter demand (crystalises terms of the contract) and explain why demand is being made 2. Summons - court order that interrupts prescription period of performance and sets out particulars of the claim.

Question 29

What is a letter of demand and what its function?

Answer 29

A letter of demand (interpellatio) puts the non perfoming party in mora by enforcing the contract when there is no specified deadline. It can be written or verbal. It must be: 1. Unambiguous - set specific time 2. Only issued after reasonable time ( reasonable depends on nature of the performance and obstacles which could be reasonably be contemplated by the parties)

Question 30

What is repudiation?

Answer 30

The debtor in words or by conduct indicates an intention not to perform, before or after due date of performance. Test: would a reasonable person conclude that the party has no intention to perform.

Question 31

What is incomplete performance?

Answer 31

Debtor renders performance on time but deviates from requirement of performance

Question 32

What is prevention of performance?

Answer 32

Debtor may, by their conduct, put it beyond their power to perform (means to provide specific performance essentially destroyed)

Question 33

What are the remedies for breach of contract?

Answer 33

1. Specific performance 2. Damages 3. Cancellation 4. Penalties

Question 34

Specific performance - innocent party's right to specific performance

Answer 34

- innocent party has prima facie right to specific performance - The right does not depend on if damages are an adequate remedy in lieu of performance - Right to specific performance is not absolute one though: 1. court may not be able to grant order (physically impossible) 2. court may not award remedy if unequitable or contrary to public opinion

Question 35

Specific performance - when will it not be granted?

Answer 35

When it is impossible for defaulter perform

Question 36

Specific performance - when may it be refused?

Answer 36

1. When performance is rendering personal services in the context of a break down in relationship 2. Where co-operation is required and there is little hope of harmony 3. Where specific performance may lead to further disputes 4. When it may cause extreme hardship for defaulter (creditor) or a 3rd party

Question 37

Specific performance - what are inadequates grounds for specific performance to be refused?

Answer 37

1. When contract is not profitable for defaulter 2. Court unable to supervise the execution of its order 3. Likelihood that defaulter may frustrate performance

Question 38

Specific performance - factors favouring specific performance

Answer 38

1. Aggravated breach 2. Damages are recognised as being an inadequate remedy (loss cant be quantified) 3. The precise extent of the plaintiffs loss will be very difficult to assess prove 4. The debtor will be unable to pay the amount of damages to which plaintiff entitled 5. It is impossible for the creditor to obtain acceptable substitute

Question 39

Specific performance & Damages

Answer 39

1. Where court refuses specific performance it may award damages to recover benefit of the bargain (eg profit from contract) 2. If not covered by specific performance not enough, damages may be used to recover additional losses 3. Where the defaulter relates to late performance - innocent party is entitled to claim interest "a temporare mora" (damages interest - interest on interest) from the moment performance was late

Question 40

Damages - general rules in breach of contract

Answer 40

Award damages - pay a sum of money for loss suffered (pecuniary) Primary rule - innocent party may claim so as to restore them to position they would be in if contract never entered into Elements for damages claim: - innocent party suffered loss - loss was caused by breach

Question 41

Damages - Loss | Breach of contract

Answer 41

1. Innocent party must show that they would have been economically better off (financial gain or avoiding fiancial loss) 2. Loss should be pecuniary 3. Innocent party bears onus of proving that they have suffered loss - show any economic benefit they received because of breach - will not be awarded if loss not established

Question 42

Causation of damages | Breach of contract

Answer 42

Factual - inquiry is whether there is a causal nexus (connection) - the link must be between the breach and loss - the test is "causa sine qua non" (if not but for test) - must show domino effect (if not for breach there would still be loss, then not connected) Legal - the inquiry here is whether the loss was sufficiently closely connected to the breach to be recoverable - The law holds that you can recover two damages - General damages - Special damages General Damages - Losses which arise naturally in the ordinary course of things from the breach and which law presumes the parties contemplated as a probable result of the breach Special Damages - Lossess which, in the specific circumstances at the conclusion of the contract , may reasonably be supposed to have been within the contemplation of the parties as a probable result of breach Rule: governing special damages (Contemplation principle) 1. The parties only need to contemplate the kind of loss - not the exact extent 2. This 'contemplation' must take place when contracting - not the exact extent of loss 3. The party claiming specific damages must allege and prove that the facts relied upon - as the basis for arguing the parties did or ought to have reasonably contemplated the loss

Question 43

Mitigation of loss | Breach of contract

Answer 43

- A party cannot recover damages for loss which they could have reasonably avoided - BUT onus is on the defaulter to prove that the innocent party failed to take steps expected of reasonable person in the circumstances

Question 44

What is cancellation and when is it competent? | Breach of contract

Answer 44

Breach does not per say cancel contract. Only when innocent party cancels contract (in absence of cancellation both parties must still perform) Competent when: 1. Where parties have incorporated cancellation clause into contract itself 2. Where breach is of sufficiently serious nature

Question 45

When can contract be cancelled because of late performance? | Breach of contract

Answer 45

test applied: - must establish if time is 'of the essence' in particular - similar to interpellatio, notice of recission issued, making time of the essence and introducing remedy of cancellation

Question 46

When can contract be cancelled because of of failure to perform | Breach of contract

Answer 46

Consider various cases ( when the innocent cannot reasonbly be expected to abide) 1. Is breach material? 2. Does breach effect vital parts of the contract? 3. Whether defaulter has substantiallly failed to perform (matter of judicial discretion)

Question 47

When can contract be cancelled because of repudiation or impossibility of performance? | Breach of contract

Answer 47

1. if defaulter repudiates the whole contract, sufficiently grave for cancellation 2. If defaulter repudiates part of contract - ask whether context is reasonable to expect the innocent party to abide the contract

Question 48

How is cancellation achieved? | Breach of contract

Answer 48

The effect of cancellation is that each party is relieved of duty to perform in future (does not always have to be restored) Waiver of right to cancellation? Witholding performance without cancellation?

Question 49

What are penalties (Sec 1 of Coventional Penalties Act)

Answer 49

Penalties are used to reduce cost and difficulty of proving claim for damages. Parties may agree to penalty clause or stipulation 1. Penalties can only arise after breach 2. Provide for over and above compensation 3. Parties must have intended it to: - enforce compliance - account for genuine specified loss

Question 50

Sec 2 of Coventional Penalties Act (Damages, Defective or Late performance)

Answer 50

1. if you are entitled to penalties, you cannot get damages in lieu of that (unless expressly stated) 2. person who is obliged to accept defective or late performance cannot recover penalties for that, unless penalty expressly stipulated for that defect or delay

Question 51

Sec 3 of Coventional Penalties Act (Reasonableness of Penalty)

Answer 51

1. Court reserves right to reduce penalty if it out of proportion to harm suffered by innocent party 2. Party who is in breach bares onus of proving that breach is out of proportion

Question 52

Law of Sale (SA context)

Answer 52

In South African law seller does not have to be the owner of an item to sell it (unless owner) Law of sale consists of all residual terms which stipulate rights and duties of buyer and seller (duty to sell and duty to pay)

Question 53

What is a contract of sale?

Answer 53

Contract in which the seller agrees to deliver [free and undisturbed possession] of a thing to the buyer in return for payment of a price

Question 54

What is a contract of lease?

Answer 54

contract - lessor agrees to give the lessee the undisturbed possesion of a thing in whole or in part for a temporary period of time, for a price

Question 55

What must parties reach agreement on for a valid contract of sale?

Answer 55

Essentialia (minimum terms): 1. Price 2. Subject matter * other terms of contract are incidental (if included in offer, both essential and incidental terms must be accepted) Essentialia can either be: 1. Ascertained (specific price and subject matter) 2. Ascertainable (eg specific subject matter but "market value" price - able to transfer as price can be ascertained using some external measure without further negotiation)

Question 56

What is the legal effect of a contract of sale?

Answer 56

1. passing of ownership - if seller not owner, sale valid - if seller is owner, seller must intend to pass ownership Seller must transfer all rights that they have to buyer Fundamental requirements for ownership to pass: - Delivery (actual or constructive) - Intention to pass ownership

Question 57

Delivery | Fundamental requirements for ownership to pass

Answer 57

- Small, movable goods - physical hand over - Larger, movable goods - arrange for transport?delivery (buyers obligation to arrange delivery) - Larger goods (eg yacht) requires constructive delivery , hand over something that symbolises subject matter (eg keys to yacht)

Question 58

Intention to transfer ownership | Fundamental requirements for ownership to pass

Answer 58

Court establishes ownership: 1. Cash sale - PP payable on delivery (simultaneous) - Ownership passed 2. Credit sale - PP whole or part payable after delivery - Ownership passes on delivery alone (unless express reservation of ownership clause) - These presumptions can be rebutted if clear evidence to the contrary - Rei vindicatio (why ownership important)

Question 59

What are the legal consequences if something happens to item (damaged/destroyed) after contract concluded but before delivery?

Answer 59

in this period, seller has duty to take proper care of item. Sellter must not negligently or intentionally fail to exercise reasonable care over subject matter 1. if due to seller's failure to take proper care of goods - breach of duty of care issue 2. if not due to seller's failure to take proper care then it is a risk issue (buyer still owes full PP)

Question 60

What is risk and benefit in law of sale?

Answer 60

Risk of accidental loss arising from damage to or destruction of the goods or any legal disadvantages that attaches to good through no fault of buyer or seller Benefit refers to the fruits and other advantages that attach to the goods

Question 61

Legal consequences before and after risk transferred from seller to buyer?

Answer 61

Before risk transferred - buyer not liable for full purchase price After risk transferred - buyer liable for full selling price

Question 62

When does risk transfer from seller to buyer?

Answer 62

Risk transfers the moment: 1. Contract concluded (eg if value of car known) 2. After value acsertained (eg if value of car unkown) So risk transfers if price and subject matter are ascertained (contract is perfecta) When is contract perfecta? -Contract is perfect one price and subject matter is ascertained. Unascertained goods must be appropriated to contract.

Question 63

Risk rule (CPA)

Answer 63

- risk passes on delivery only - if seller is in mora making delivery, risk will not pass (mora debitoris) - if buyer is in mora in taking delivery, seller damage/destruction due to GROSS negligence

Question 64

Implied warranty against latent defects - difference between CL and CPA?

Answer 64

CL - sellers have a strict duty to disclose the existence of all latent defects to buyers (before contract concluded) CPA - seller under strict duty to disclose existence of patent and latent defects

Question 65

What is a defect and what makes it latent? | defect, latent, abnormal

Answer 65

Defect - abnormal quality or attribute which destroys or impairs the utility or effectiveness of the thing for the purpose for which it was sold or for which it is commonly used Latent - A defect which is not visible/discoverable on a reasonable inspection by an ordinary purchaser Abnormal - a flaw which a reasonable person would not expect to find in articles of that type, age or price

Question 66

How can seller protect themselves from being liable because of lack of knowledge of defects?

Answer 66

Logical impossibility - cannot disclose information that you were not aware of Seller must express exclude liability of latent defects by way of a Voetstoots clauses ("as is" clauses). Voetstoots clauses only protect innocent and negligent sellers from liability for latent defects (not fraudulent)

Question 67

What remedies does buyer have for latent defects?

Answer 67

These are called idealition remedies - buyer gets reduced PP up to full PP 1. Cancel contract and restitution (full PP) - Actio redhibitoria - if defect is material 2. Reduced PP - Actio quanti minoris - defect material and non-material 3. Damages - cannot recover consequential loss Exceptions (can claim damages ) if: Common law 1. - seller is manufacturer 2. - Seller is merchant seller who claims expertise in type of good 3. - seller knew about defect (fraudulent) 4. - Express warranty that there we no defects CPA Producer, importer, distributor,retailer liable for damages unless unreasoable for them to have discovered latent defect Where material - would a reasonable person have bought item knowing defect?

Question 68

What is implied warranty against eviction?

Answer 68

A residual term that protects you against eviction (disposession by someone who has a better right to possess than you). Protects buyers from being dispossessed by 3rd party owner who have better rights (lawful dispossession)

Question 69

When does threat of eviction arise?

Answer 69

When an item or good may have come into your possession without ownership being transferred. As long as buyer does not have ownership, 3rd party owner may have better legal right to possess.

Question 69

What must buyer do when threatened with eviction?

Answer 69

1. Inform seller and ask for assistance in contesting claim - seller may have proof or evidence of if claim is true - ensures that 3rd party proves they have a better right - if no proof, buyer must wait to be sued and defend legal proceedings 2. if seller assists and buyer loses case, can claim compensation from seller 3. if seller does not assist, buyer must still defend against 3rd party's claim in court. if case lost, can claim compensation from seller - if you do not contest, may lose potential remedies - not expected to litigate if evidence from 3rd party is incontestable

Question 70

Remedies if buyer is lawfully evicted?

Answer 70

- full purchase price regardless of book value (due to depreciation etc) - buyer entitled to lesser of purchase price and cost to imporve or increased book value - if there is a natural increase in value, you can recover so much of additional value that was foreseeable between parties when contract entered into.

Question 71

Supervening impossibility of performance

Answer 71

It is a well-established principle that if performance of a contract has become impossible through no fault of the party concerned, the obligations under the contract are generally extinguished (or suspended, if the impossibility is only temporary) under the doctrine of supervening impossibility of performance.