cco slides 2015 const leases1 - ettienne barnard … slides 2015 const leases1.pdf · – george v...

2015/10/14

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CONTRACTS

2015/10/14

Constitution

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3

Contracts

“The Bank hereby notifies all its customers that while

it will exercise every reasonable care, it is not liable

for any loss or damage caused to any article lodged

with it for safe custody whether by theft, rain, flow of

storm water, wind, hail, lightning, fire, explosion,

action of the elements or as a result of any cause

whatsoever, including war or riot damage, and

whether the loss or damage is due to the Bank’s

negligence or not.”

4

Contracts

• Before the Constitution

– George v Fairmead 1958 (2) 465

– “Where a man is asked to put his signature to a

document he cannot fail to realise that he called upon to

signify, by doing so, his assent to whatever words

appear above his signature”

Pre Constitution

• Freedom of contract

• Sanctity of Contract

• Public Policy

– Contracts must be enforced

– Public mores

• Beware who signs

• Fairness?

5

Pre Constitution

• Exemption of liability for Fraud

– Void (against public policy)

• …for Negligence

– Valid & not against Public Policy

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Post Constitution

• Courts have been reluctant to apply the provisions

of the Bill of Rights to contracts

• Napier v Barkhuizen (4) SA 1 (SCA) 2006 (4) SA p1

• “if we reject liability for any claim made under this

policy we will be released from liability unless

summons is served….within 90 days of repudiation”

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Post Constitution

• A contractual term that is contrary to public policy is

unenforceable and that public policy now derives from the

Constitution

• The Appeal Court accepted that the constitutional values of

equality and dignity may, however, prove to be decisive

when the issue of the parties’ relative bargaining positions

is an issue.

• All law, including the common law of contract, is now

subject to constitutional control.

• Facts before the court “extremely slim”

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Post Constitution

• Constitutional Court confirmed Appeal Court about public policy

• Barkhuizen v Napier 2007 (5) SA 323 (CC) 2007 (5) SA p323

• Time –limitation clauses in contracts are permissible as a general rule

• Sec 34 could be limited

• Must look at the facts of a case

• In this case no evidence that parties not in equal bargaining position 10

Contracts

• Consumer Protection Act

• Sec 50(1) – any limitation clause of no force and

effect unless:

– Fact, nature and effect drawn to attention before

signature;

– Plain language

– Signed at the provision

• Sec 58 – whether term of contract is unfair or

unreasonable

POST CPA

• Preamble:…protects the interests of all consumers…..

• S3(1)(a)…fair consumer market

• S40 Unconcionable Conduct

– “unfair tactics”

– “Knowingly take advantage of …illiteracy”

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UNFAIR UNJUST UNREASONABLE

CONTRACT TERMS

S48

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Sec 48(1)

� (1) A supplier must not-

� (a) offer goods or services-

� (i) at a price that is unfair, unreasonable or unjust; or

� (ii) on terms that are unfair, unreasonable or unjust;

� (b) market any goods or services, in a manner that is unfair, unreasonable or unjust; or

� (c) require a consumer, -

� (i) to waive any rights;

� (ii) assume any obligation; or

� (iii) waive any liability of the supplier,

� on terms that are unfair, unreasonable or unjust, or impose any such terms as a condition of entering into a transaction.

Unfair Unjust Unreasonable

if E

X

C

E

S

S

I

VE

L

Y

ONE-SIDED

S48(2)(a) it is

excessively one-sided in favour of any person other than the consumer or other person to whom goods or services are to be supplied;


if

ADVERSE

CONTRACT

TERMS SO AS TO

BE INEQUITABLE

CONSUMER

S48(2)(b)

REPRESENTATION


if consumer

STATEMENT OF

OPINION

S48(2)(c)


if

S48(2)(d)(ii)

Draw

attention

to term

POST CPA(2)

• S49(1) Waiver must be drawn to consumer

attention

• S49(3) in plain language (as set out in s22)

• S51(1) Cannot contract out of CPA

• S52 Powers of court

– Restoration, compensation, declare void the clause, or the whole agreement (depending on

severability),make a just and reasonable order.

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2015/10/14

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1 Hotel staff steal the jewellery of a client while they

are residing at the hotel for a conference. An

Exemption clause reads as follows:

2 ”Management will in no circumstances be liable for

any loss of or damage to the property of any person

who enters these premises.“

3 Prepare Heads re the constitutionality of this clause

in the conditions of stay at the hotel on behalf of the

3.1Client

3.2Hotel

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CLIENT HEADS

• Contracts are enforced unless they violate public policy

• the bill of rights is a very clear expression of public policy

• the exemption clause violates the public policy stated in

– section 34 - access to court;

– 25 -property deprived

– 9 - equality

– 10 - human dignity of the bill of rights

• this violation is not reasonable and justifiable in our open and democratic society for the following reasons:

– people do not have the same bargaining power when concluding a contract and therefore it impugns their right to dignity and equality

• Therefore the court should not enforce it

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HOTEL HEADS

• Contracts are enforced unless they violate public policy

• the bill of rights is a very clear expression of public policy

• the exemption clause does not violate the constitution in any way because major persons of competent understanding shall have the utmost liberty of contracting and that their agreements shall be held sacred and shall be enforced by the courts.

• If it does violate the constitution it is justifiable and reasonable as there is a need in the open and democratic society for people to be able to contract freely and of their own will - their right to freedom and dignity demand respect for the autonomy of consenting adults.

• The clause must therefore be enforced22

Contracts

• Jordan v Faber – 15/12/2009 Northern Cape High Court

• Attorney and own client enter into lease agreement

• Contra bones mores – recognised that the Bill of Rights represents a reliable statement of public policy

• Attorney in trust position

• No equal bargaining position

• Contract void ab initio

Contracts

• EVERFRESH MARKET VIRGINIA (PTY) LTD v

SHOPRITE CHECKERS (PTY) LTD 2012 (1) SA

256 (CC)

• Lease Agreement

• the applicability of principles of good faith in

contract law and ubuntu might have persuaded the

court to entertain the appeal

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Contracts

• Uniting Reformed Church, De Doorns v President of

The Republic Of South Africa And Others 2013 (5)

SA 205 (WCC) 2013 (5) SA

• the church had established facts objectively

demonstrating that when the lease was concluded it

was in a weak bargaining position compared to the

state. The state had dictated the terms of an

agreement which the church had little option but to

accept, and the result was inimical to the public

interest and s 25 of the Constitution. 24

2015/10/14

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LEASE AGREEMENTS

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residential

commercial

Ettienne Barnard Attorneys

LEASE

• House may be let for Business Purposes

• Why differentiate(Residential v.Comm)?

– Use of property may be restricted by:

• Owners wishes eg. to restrict wear and tear.

• Local authority zoning restrictions

• Rules of a Sectional Title scheme

• Neighbour law eg. To avoid nuisance charges

• Economic dictates

– Rental Housing Act 50/1999 Applies

– No VAT on residential2015/10/14 27

…PIE

• PREVENTION OF ILLEGAL EVICTION AND UNLAWFUL OCCUPATION OF LAND ACT 19, 1998

• Applies only to residential property

– Ndlovu v Ngcobo; Bekker…v Jika 2003 (1)

SA 113 (SCA)

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• Questionnaire

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Can Pie be waived?

• Kroese and Kroese (NWM) case 145/13 18/4/2013

• Hatting and Hatting (NWM) case 144/13 18/4/2013

• Not possible to waive a right to basic necessities.

• Not possible to waive a statutory right

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2015/10/14

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Ettienne Barnard Attorneys

LEASE

• Remember applicable legislation: eg

– Stamp Duties Act

• Repealed

• Any other tax?who will pay?

– Extension of Security Tenure Act 62/1997

– Prevention of Illegal Eviction from Unlawful

Occupation of Land Act 19/1998

– Rental Housing Act 50/1999(NB Chapter 3)

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…RENTAL HOUSING ACT 50, 1999

• Applies only to residential property

• s4 General provisions protecting constitutional rights re

– No discrimination s4(1) and

– Privacy s4(2)

• s5: contains clauses deemed to be

included in all lease agreements

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…RENTAL HOUSING ACT 50, 1999THE CONTRACT CONTENT

• s5(1) Need not be in writing

• s5(2) BUT Tenant entitled to written terms

• s5(3) contains clauses deemed to be included in all lease agreements

• s5(4): Tenant may not waive deemed clauses

• s5(8): List of House Rules compulsory2015/10/14 33

…RENTAL HOUSING ACT 50, 1999s5(3): clauses deemed to be included

• Written receipts for payments

• The Inspections

– s5(3)(e) Before occupation

• s5(7): Inspection list (defects) compulsory

– s5(3)(e) After Lease expired

– Effect of non compl [reason NB see (k)]

• Deposits [amount (c),investment (d), refund plus interest (g), deductions (l &m)]

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…LAND LEASE AGREEMENTS AND THE NCA

• Excluded by s8(2)(b)?

• Definition of Lease differs from landlord and tenant type of lease

• Interest on arrear rental

– (Incidental credit agreement?)

2015/10/14 35

...Land Lease Agreements and the CPA definitions

• Consumer: iro goods and services = Person in transaction with supplier in ordinary course of business unless transaction is exempt ito s5(2) & (3)

• Service includes (But not limited to)

– provision of accommodation or sustenance

– provision of right of access to any premises

– provision of access or use ito rental

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...Land Lease Agreements and the CPA definitions

• S5(2)(d) Act does not apply to any transaction that is a Credit Agreement ito NCA

• BUT: goods & services are not excluded

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…LAND LEASE AGREEMENTS AND THE NCA

• Pareto Ltd & Others v Sigaban t/a Flowers & More A3016/09 [2010] ZAGPJHC 21 (15/4/2010)

• Lease agreement is an agreement covered by the CPA

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• CPA s14 Fixed Term Agreements

– s14 Does NOT apply to transactions

between juristic persons (regardless of

annual turnover)

– Maximum period 24 Months reg 5 (1)

– UNLESS longer period expressly agreed &

supplier can show financial benefit to

consumer OR

– Unless DIFFERENTLY REGULATED FOR

SPECIFIC type of Agreem, Consumer,

Sector or Industry

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CONSUMER PROTECTION CPA Early Cancellation of Fixed Term s14

• Consumer may cancel

– Without Penalty at end of term

– With reasonable penalty before end of

term provided

• 20 Business Days notice

– Consumer then remains liable for account

charges before cancellation

– Supplier may levy a reasonable penalty

– Supplier must credit consumer with

amount that belongs to consumer2015/10/14 40

Criteria to determine reasonable penalty reg 5 (2)

• Amount consumer still owes until termination

• Value of transaction up to termination

• Value of goods returned to supplier

• Duration initially agreed

• Losses/benefits of consumer as result of the

contract

• Nature of the goods or services

• Reasonable potential for provider to find

alternative tenant between notice and

termination

• Gnl Practice of the industry2015/10/14 41

Criteria to determine reasonable penalty reg 5 (3)

• NBNBNB reg 5(3)

–The penalty may not have the

effect of negating the consumers

right to terminate the fixed term

2015/10/14 42

2015/10/14

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LESSORS (OWNERS) RIGHTS CEEDED to 3rd

• Effects of cession as part of mortgage bond can be drastic

– Picardi Hotels Ltd v ThekweniProperties (Pty) Ltd 2009 (1) SA 493 (SCA)

»Right to collect rental

»Right to evict

– Pangbourne Prop v Your Life (2013) All SA 719 (GSJ)

2015/10/14 43 Ettienne Barnard Attorneys

LEASE

• Is lease LONG term or SHORT term?

– If long term (10 years+) must be

registered in deeds office.

– What about 9 years and 11 months with an

option to renew?

– If long term, who pays registration costs?

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2015/10/14 45

CONTRACTS

2015/10/14

Ettienne Barnard Attorneys 47Ettienne Barnard Attorneys

SURETYSHIP

• FOR A VALID CONTRACT

– ID CREDITOR

– ID SURETY

– ID PRINCIPAL DEBTOR

– NATURE OF PRINCIPAL DEBT

(SURETY=ACCESSORY CONTRACT)

– EXTENT OF SURETY’S LIABILITY

– PERIOD OF SURETY’S LIABILITY

2015/10/14 47 Ettienne Barnard Attorneys 48Ettienne Barnard Attorneys

SURETYSHIP (2)

• FOR A VALID CONTRACT

– SIGNED BY OR O.B.O. SURETY

– MUST BE WRITTEN (GNL LAW AMENDMENT ACT

50/1956)

• ESSENTIAL ELEMENT BLANK=AGREEMENT INVALID

• BLANK SPACE IN CLAUSE= CLAUSE UNENFORCEABLE

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2015/10/14

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SURETYSHIP (3)

Nedbank Ltd v Wizard Holdings (Pty) Ltd and Others 2010 (5) SA 523 (GSJ)

• Defense raised:

– blank space in each deed relating to the limit of the undertaking, but which blank

spaces were subsequently completedwhen the applicant inserted the word ‘unlimited’

– Argument - in each case, the contracts did not comply with s 6 of the Act and were accordingly invalid.


SURETYSHIP (4)

Nedbank Ltd v Wizard Holdings (Pty) Ltd and Others 2010 (5) SA 523 (GSJ)

• Court Held:

– The limit to the surety’ s liability was not one of the essential terms

– could obviously be a significant and material term

– Blank space pertaining to a non-essential but material term did not necessarily render agreement void (for non-compliance with

the statutory formalities.)

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SURETYSHIP (5)

• FOR A VALID CONTRACT• IF INTENTION IS JOINT SURETYSHIP AND

ONLY ONE SURETY SIGNS=AGREEMENT UNENFORCEABLE

• MARRIAGE IN COMMUNITY OF PROPERTY

– SPOUSE CONSENT ABSENT=INVALID

– UNLESS

» CONSENT OR

» USUAL COURSE OF BUSINESS/PRACTICE/OCCUPATION


SURETYSHIP (6)

• BENEFITS RENONUNCED

– EXCUSSION,DIVISION & CESSION OF ACTIONS etc.

– NBNB comply with plain language requirement of s64 NCA (if NCA applies)

– S22 CPA “or any other law” requires writing

• All suretyships must be in plain language

– (GNL LAW AMENDMENT ACT 50/1956 requires writing)

2015/10/14 52


SURETYSHIP (7)

BENEFITS RENONUNCED

• EXCUSSION

– Defence that creditor must first excussanother party

• DIVISION

– When one of co-surety is sued alone, he/she has the right to have the whole

debt apportioned so that he/she may only be held liable for a pro-rata share of the total debt


SURETYSHIP (8)

BENEFITS RENONUNCED

• CESSION OF ACTIONS

– the right of a surety to demand that creditor cedes its rights & securities to a

surety who has paid. If the creditor will not be able to do so, the surety is released from liability

• DE DUOBUS VEL PLURIBUS REIS DEBENDI

– When renounced, multiple sureties are jointly & severally liable

2015/10/14 54

2015/10/14

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SURETYSHIP (9)

BENEFITS RENONUNCED

• EXCEPTIO NON NUMERATAE PECUNIAE

– Defence that money was never received despite signing the acknowledgement

(renouncing it shifts the onus)

• EXCEPTIO NON CAUSA DEBITI

– That the principal debt (usually from

something other than a loan) does not exist

– (renouncing shifts the onus)2015/10/14 55 Ettienne Barnard Attorneys 56Ettienne Barnard Attorneys

SURETYSHIP (10)

• Prescription

– As it is an accessory contract

• If judgement has been taken against the principal debtor,

• Claim against a surety prescribes only 30 years after such judgment

– Eley (Formerly Memmel) v Lynn & Main Inc 2008(2) SA 151 (SCA)

2015/10/14 56


SURETYSHIP (11)

• Disinterested surety, eg.

– Director that has resigned or

– Member that has sold shares

May terminate liability by notice• Barnard v Carl Greaves Brokers (Pty) Ltd & anors

2008(3) SOUTH AFRICA 663 (C)


SURETYSHIP (12)

• Errors in Suretyships may be rectified but the wrong suretyship must be a valid contract

– Inventive Labour Structuring (Pty) Ltd v Cofre 2006 (3) SOUTH AFRICA 107 (SCA)

• Court conducts a 2 stage enquiry

– 1 Is there a valid suretyship ito Gnl Law Amendment Act 50, 1956

– 2 Have the requirements for rectification been met?

2015/10/14 58


SURETYSHIP (13)

• Use of words:

– “exhaust remedies “ versus “excuss”

– Fedbond Nominees (Pty) Ltd v Meier 2008(1) SA 458 (CC)

• “exhaust ” is wider than “excuss”

• Creditor was to exhaust remedies against Principal debtor & other sureties first

2015/10/14 59 2015/10/14

CESSIONS

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2015/10/14

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04/20/06 Ettienne Barnard Attorneys

Cession• Transfer of rights

• 2 forms NB:

– Out-and-Out Cession

– As security for debt

• NB remember if contract requires notice to debtor, notice must be given.

• lack of such notice does not render cession invalid, but ineffective until notice given. (Lynn & Main v Brits Community Sandworks

CC 2009 (1) SA 308 (SCA)

2015/10/14 61 04/20/06 Ettienne Barnard Attorneys

Cession (2)

• Notice to debtor also NB on practical level

– Where debtor without knowing about

cession pays cedent, Cessionary has

no claim

– Van staden NO and anor v Firstrand Ltd and anor 2010 (2) SA 135 (SCA)

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Cession (3)

• Effects of cession as part of mortgage bond

can be drastic

– Cf Picardi Hotels Ltd v Thekweni Properties (Pty)

Ltd 2009 (1) SA 493 (SCA)

– However facts must be analyzed

– Voltex v Ras (7436/2009)ZAGPPHC [12/3/2010]

• Re-ceding does not always solve the problem.

– Homes For South Africa (Pty) Ltd

v Rand Building Contractors (Pty) Ltd 2004 (6) SA 373 (W)

2015/10/14 63 04/20/06 Ettienne Barnard Attorneys

Cession (4) Out & Out

• Essentials

– Describe the rights

– Transfer by the cedent

– Acceptance by the cessionary

– Underlying reason for the cession

– The remuneration of the cedent

• Delivery of docs evidencing cession

• Notice to the relevant debtor

• Warranty by cedent re title to & validity of rights

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Cession (5) Out & Out

• No reversionary right

• Liability of cedent for

– Costs incurred by cessionary in enforcing

rights

– Damages cedent might suffer if rights

unenforceable

• If rights re future claims are ceded, undertaking that docs and details will be supplied.2015/10/14 65 04/20/06 Ettienne Barnard Attorneys

Cession (6) As security

• Often referred to as Cession in securitatem debiti

• Essentials

– Describe rights

– Describe the obligation to be secured

– Transfer of rights by cedent to serve

as security for that obligation

– Acceptance by cessionary

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• Duration of cession

• Grobler v Oosthuizen 2009 (5) SA 500 (SCA)

– Automatically reverts

– Re-cession not required

– Pledge construction

2015/10/14 67

Cession (6) As

security



• Delivery of docs evidencing the rights

– Eg. a lease agreement showing right to

rental payments

• Duty to provide updated info and docs from time to time

• Notice to the relevant debtor

• Warranty by cedent re

– title to rights &

– validity of rights2015/10/14 68



• Deal with the reversionary right

– ie. What is to happen when debt paid or

– Where debt secured is smaller than value

of rights ceded

– Cession of reversionary right?

• Liability of cedent for

– Costs incurred by cessionary in enforcing

rights

– Damages cedent suffers if rights unenforceable2015/10/14 69 04/20/06 Ettienne Barnard Attorneys


• Creditors right to provide a Certificate of Indebtedness

• Pledge v Cession of rights in security

– On insolvency of receiver,

• Pledged rights remains part of cedent’s estate

• Ceded rights are part of cessionaries estate

– Discussed in Alexander & Anor NNO v Standard Merchant

Bank Ltd 1978 (4) SA 730 (W)

2015/10/14 70



• Cedent’s powers on cessionary’s default

– Eg. Parate Executie

– (Execution without recourse to a court)

See SA Bank of Athens Limited v May van Zyl [2006] 1 SA 118 (SCA)

summary execution is not contra sec 34 of the Constitution.

• But maybe contra NCA S90

2015/10/14 7172

Exam question

Draft the following clauses to comply with CPA:

1. Indicates the parties appreciate the scope of the

common law guarantee (3);

2. Indicate that they appreciate that it can not be

amended (2)

3. Extend the guarantee in terms of the sale

agreement, thereby granting the buyer a better

guarantee than the Act prescribes (4)

2015/10/14

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Exam question

• You act for an entrepreneur who wants to expand his

business and needs R100’000.00 for this purpose. He goes

to his bank which asks him for security and agrees to a

cession of all and continuous book debts for this purpose.

The bank is Absa and your client is Raj Rajgopal, trading as

Rajgopal Bakery.

• Draft the clause in the contract relating to the information

and documentation about the book debts and the debtors

that Raj must supply to the bank and at what periods during

the cause of the cession. (10)

73

Exam question

• Draft a valid (in terms of the CPA) voetstoots clause

in a motor vehicle agreement where the vehicle is in

bad condition and not in working order. (5)

74

•www.barnards.co.za

2015/10/14 75

cco slides 2015 const leases1 - ettienne barnard … slides 2015 const leases1.pdf · – george v...

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