Contract Notes 2008

TERMS Recall Schematic Position

Puff (pre-contractual statement) Representation (pre-contractual statement) Terms are things that form part of the contract. They are not puffs misrepresentations or

representations etc. o A term is something that is incorporated into the contract and will usually form one

of the requirements for performance.

Classification

There are 3 ways in which contractual terms can be classified TMK Traditional classification

Modern classification used by courts today

Kerr’s classification

The terms of a contract are not confined to what has expressly been agreed upon, either orally or on a piece of paper. There are terms that will attach to your contract that will exist outside of what you have expressed in your written document.

The terms that bind in some instances go beyond the written document.

TRADITIONAL

They distinguished between 3 terms i.e essentialia, naturalia, and incidentalia/ accidentalia. ENI

Essentialia= terms that are essential to classify the contract as a particular kind of contract eg cash and commodities make contracts of sale. Essentialia are things which are of the essence of the contract without which such a contract cannot subsist and for want of which there is either no contract or a contract of a different kind.

Naturalia= terms that are attached to a contract by operation of law (ex lege) o In other words, the common law imposes these terms upon your contract. It is

however possible to expressly exclude these terms from your contract. o Naturalia are based on what is fair & reasonable between contracting parties over

contracts of that kind. o E.g a sale contract= the seller is not allowed to sell something with a defect. Eg

guarantee against evisction in van der westhuizen case

Incidentalia / accidentalia = express terms that the parties have agreed upon by themselves that are in excess of the other two categories.

Modern Approach Nowadays the approach is to draw a distinction between express and implied terms (tacit

terms).

Express terms = things expressly agreed upon by the parties whether orally or written on the document. (Incidentalia)

Implied terms have been divided into two types of implied terms which are; terms implied by law and unexpressed terms implied between the parties

Alfred McAlpine v Transvaal Provincial Administration 1974 (3) SA 506 (A) (terms implied by law)

Corbett JA said that in legal parlance ‘implied’ is ambiguous. In the first place it is imposed by the law from without (effectively talking about naturalia). These tend to be legal duties.

They can be varied or excluded by the partied eg a contract of sale voetstoots.

These terms derive from the common law, trace usage/ customs or from statute.

Most terms implied by law come from the common law. This is however not a closed list as the law of contract is not static.

Alfred McAlpine v Transvaal Provincial Administration 1974 (3) SA 506 (A) (terms implied by law)

Case: A contract to do a specified work for an agreed price can from its very beginning be so altered by the owner and carried out by the contractor that it can be said that for the original contract there was tacitly substituted a new agreement in terms whereof the contractor was entitled to reasonable remuneration for the work. It will depend on the facts whether that has occurred.

Also during the execution of a contract to do work for an an agreed price the contractor can receive, and also accept, instructions to do work which cannot really be regarded as part of the original contract, and the contractor is entitled to reasonable remuneration for that work on the ground of a separate tacit agreement. It will also in this case depend on the facts whether such a separate agreement came into existence.

Appellant was the plaintiff and respondent the defendant in the Court a quo . The parties entered into a contract in terms whereof plaintiff had undertaken to build a portion of a national road. Certain declaratory orders were applied for on the plaintiff's behalf. During the execution of the contract the contractor had received instructions to introduce an exceptionally large number of alterations which in certain cases had caused disruption. On plaintiff's behalf it was alleged that, although each alteration had fallen within the scope of the contract, the cumulative effect of all the alterations was of such a nature that the original contract had lapsed and a new contract had arisen impliedly through the conduct of the parties, in terms whereof the plaintiff was entitled to reasonable remuneration for all the work done, i.e. from the commencement of the execution of the contract. The Court a quo had held that the variations had been envisaged in the original contract. In an appeal, the decision in the Transvaal Provincial Division in Alfred McAlpine & Son (Pty.) Ltd . v Transvaal Provincial Administration , confirmed.

CUSTOM

A custom is a particular rule which has existed either actually or presumptively from time immemorial in a particular locality and has obtained the force of law in that locality although technically being contrary to the general law of the land.

TRADE USAGE

Trade usages do not apply to a particular space but develop in a particular profession/ trade.

In the case of Golden Cape Fruits v footplate Corbett JA established the requirements with regard to trade usage

it must be uniformly and universally observed it must be long established it must be reasonable that you would expect people in the trade to be aware of it it must be notorious it must be certain it must not be in conflict with positive law it must not conflict with an express term of the contract

Golden Cape Fruits v footplate Golden Cape Fruits had sent a document to Fotoplate for some special printing. When they got their copies back, there had been a number of errors in printing and thus they sued for breach. Fotoplate’s defence was that of trade usage i.e If copy was first given to the customer and he didn’t identify the errors then it meant that he/she was aware of them and was fine with them. Court said no such trade usage and the errors were such that they required a pro to see them.

Coutts v Jacobs 1927 EDL 120 Jacobs consigned a lot of goods to Coutts. Coutts sold them and charged commission. Jacobs refused to pay the commission. Court held that there was actually a trade a usage where wool sales agents could charge commission.

Terms Implied between the parties: Tacit terms

These are terms which the parties must have had in mind but were so obvious they never articulated them expressly.

It is derived from the common intention of the parties (express terms plus surrounding circumstances)

This is an exception to the parol evidence rule

Tests

Reigate v Union manufacturing Co 1918 1 KB 592 @ 605

Shirlaw & Southern foundries 1839 2kb 206 @ 227

The test is that of the officious by stander. What would happen if the officious bystander asked them about a term? The parties would say such a term goes without saying/ is obvious.

The party claiming the existence of a tacit term must formulate it clearly and precisely.

Coutts v Jacobs 1927 EDL 120

Plaintiff sent wool to defendants, brokers of East London, for sale, with the request that they should "do the best for me." Defendant sold odd bales, but eventually plaintiff caused the remainder of the wool to be removed from defendants and handed to other brokers for sale, paying a sum claimed by defendants as brokerage on the unsold portion subject to plaintiff's right to recover same. Defendants claimed the brokerage in virtue of a custom or trade usage, whereby if wool is removed from one broker to another by the owner the first broker is entitled to a charge on the transfer equal to the amount of commission which would be earned on the price offered or reserved. It was shown that the custom had been observed in East London and other ports for many years, but that recently one broker had not made the charge for eighteen months, but it was not shown that plaintiff knew of the custom.

Held, on appeal, that the law of South Africa is not less favourable to a person relying upon a trade usage than the law of England, there being no difference between the two systems of law on this point.

Held, further, that the custom or trade usage in question was certain and reasonable.

Held, further, that in the circumstances plaintiff, in sending his wool to be disposed of by defendant, must be taken to have bound himself to have entrusted the wool to be dealt with by defendant in accordance with the usage of brokers at East London. Held, further, that the fact that one broker had not observed the custom did not destroy the validity of the custom.

Kerr’s Classification

Invariable terms = these cannot be altered. No contract can exist without them. There are two types of invariable terms

i. Essentials ii. Terms imposed by statute

Express terms = the terms expressed by the parties

Implied terms = they r implied between the parties. They are terms imposed on the contract by implication.

Residual terms (ex lege) = these are terms implied by law. They will apply to a contract in the absence of invariable, express / implied terms. They exist outside of the agreement.

INTERPRETATION OF A CONTRACT AND RECTIFICATION

THE PAROLE EVIDENCE/ INTERGRATION RULE

Description: Union Government v Ferro-Concrete Pipes: Where reduced to writing, document is exclusive memorial of transaction; generally no evidence may be given to prove other than the document. Contents of document may not be varied by extrinsic evidence.

It is one rule which by its very nature applies only to written contracts. Because it places strict limits on the evidence that may be adduced in aid of interpretation, it forms a background to all interpretation.

It however often operates to prevent the leading of valuable evidence that litigants and even practitioners may be pardoned for doubting whether the rule exists at all.

Despite its difficulties it serves the purpose of ensuring that where the parties have decided that a contract should be recorded in writing, their decision will be respected and the resulting document will be respected and accepted as the sole evidence of the terms of the contract.

When a contract has been reduced to writing the written document is regarded as the exclusive memorial of the transaction between the parties. No extrinsic evidence may be brought to prove its terms nor to contradict, alter or amend the document

Union Government v Ferro-Concrete Pipes

Concrete pipes case: Where a contract has been reduced to writing the contract is the

exclusive memorial of the agreement and the contents there of should not be

contradicted by outside evidence

at pg 47: Now this Court has accepted the rule that when a contract has been reduced to writing, the writing is, in general, regarded as the exclusive memorial of the transaction and in a suit between the parties no evidence to prove its terms may be given save the document or secondary evidence of its contents, nor may the contents of such document be contradicted, altered, added to or varied by parol evidence

This rule, or perhaps it would be more correct to say these rules, have always, so far as I am aware, been regarded in South African Courts as rules of evidence; but several writers upon the law of evidence such as Wigmore and others, quoted by Phipson in Chapter 45 of his book, hold the view that they are not strictly rules of evidence. These writers suggest that the exclusionary rule is merely consequential upon a substantive rule of law which makes the writing conclusive as to the terms contained in it and consequently regards as of no legal force and effect prior negotiations or promises relating to a matter expressly or impliedly settled and determined by the written terms. Whatever may be the correct view as to the precise nature of the rules, it is clear that they do not prevent a party from setting up the case that the contract is not a presently enforceable contract inasmuch as it is conditional upon the happening of some event which has not occurred. In the first alternative plea the defendant purports to set up such a condition, and if what be pleads were a true condition it could validly be pleaded as a defence. But when the plea is examined

it appears that defendant is not pleading a true condition: he is really challenging the construction placed upon the contract in the earlier case, which decided that the defendant was bound to purchase the requirements of the departments concerned in the contract from the plaintiff. This plea in effect sets up the case that there was an agreement between the parties (apparently contemporaneous with or prior to the written agreement) which modified the defendant's obligation to purchase all its requirements from the plaintiff and left the defendant free to purchase its requirements from time to time from plaintiff or from certain other firms according as one or other proved to be the most economical source of supply. Such an agreement is not a suspensive condition and cannot be set up as a defence if the defendant admits, as he does for the purposes of this plea, that the written contract is the whole contract between the parties. The exception to the alternative plea was therefore rightly upheld.

Contents of document may not be varied by extrinsic evidence.

Purpose: Johnston v Leal: actually two independent rules, or sets thereof: 1. integration rule:

a. aim: to prevent a party to the completion of the written contract from contradicting, adding to etc. the writing by referral to extrinsic evidence, thus changing terms of the contract.

2. interpretation rule: a. when contract as written is lacking or incomplete, Corbett JA sees no

problem with then referring to extrinsic evidence. This does not contradict the integration rule.

b. Rule determines when, to what extent, extrinsic evidence may be referred to, to explain the meaning of words in a written contract.

Though necessary the rule can lead to injustice if rigorously applied by excluding evidence of what the parties really agreed. Thus the courts try to prevent the rule being used as an engine of fraud by a party who knows full well that the written contract does not represent the full agreement.

It however gives way to the rules governing misrepresentation, fraud, duress, undue influence, illegality or failure to comply with the terms of a statute and rules concerning rectification.

Where the rule is not applicable

When the contract was designed by the parties to be partly written and partly oral which is the same as saying the document was not intended to be the whole body of the contract.

When a written proposal, instead of being accepted simpliciter (which would bring the rule into operation) is orally modified before its acceptance.

When a written contract is varied by a subsequent oral or written agreement between the parties so that it is no longer intended by them to embody their whole contract.

Johnston v Leal1980 (3) SA 927 (A) as per Corbett JA @ 943 B Dealing first with the integration rule, it is clear to me that the aim and effect of this rule is to prevent a party to a contract which has been integrated into a single and complete written memorial from seeking to contradict, add to or modify the writing by reference to extrinsic evidence and in that way to redefine the terms of the contract. The object C of the party seeking to adduce such extrinsic evidence is usually to enforce the contract as redefined or, at any rate, to rely upon the contractual force of the additional or varied terms, as established by the extrinsic evidence. On the other hand, in a case such as the present, where ex facie the document itself the contract appears to be incomplete, the

object of leading extrinsic evidence is not to contradict, add to or D modify the written document or to complete what is incomplete so that the contract may be enforced thus completed, but merely to explain the lack of completeness, to decide why the parties left blanks in a particular clause and what the integration actually comprises, and in this way to determine whether or not the document constitutes a valid and enforceable contract and is in conformity with s 1 (1) of the Act. Consequently, it does not E seem to me that the admission of such extrinsic evidence for this purpose in a case of the kind presently under consideration would be either contrary to the substance of the integration rule or likely to defeat its objects. To sum up, therefore, the integration rule prevents a party from altering, by the production of extrinsic evidence, the recorded terms of F an integrated contract in order to rely upon the contract as altered; the evidence which it is suggested could be adduced in this case would be to explain an overt lack of completeness in the document and at the same time to determine what has been integrated with a view to deciding upon the validity of the document as it stands.

Interpretation

General Principles of Interpretation Rules for interpretation of contracts. Almost exclusively in use for written documents. Ideal Theory Joubert v Enslin: Ascertain the intention of the parties – If the contract or admissible evidence gives definite indication of the meaning of the parties, then Court should effect that meaning. Thus initially the approach to interpretation appears to be subjective but in reality it is objective: Hansen Schrader & Co v De Gasperi: Not for the Court to speculate on parties’ intentions when they enter into contracts. This intention must be gathered from the ordinary grammatical meaning of the text used, and this conclusion reached put into effect. Thus meaning is gathered from the language used – don’t really look subjectively, it’s a textual exercise.

The technique constantly adopted by SA courts was summarised by Joubert JA in the case of Coopers & Lybrand v Bryant 1995 (3) SA 761 (A) 767E-768E:

Coopers & Lybrand v Bryant 1995 (3) SA 761 (A) 767E-768E: In Coopers & Bryant the ordinary grammatical meaning of 'book debt' was a debt owed to a

tradesman as recorded in his account books, but that a particular word or phrase should never

be interpreted in isolation

The issue in the present matter is whether the terms of the cession are broad enough to encompass the claim of Mr Bryant against the appellants.

B Mr Loxton on behalf of the appellants contended that the plain, ordinary and popular meaning of the words 'and other debts and claims of whatsoever nature' were not capable of being restricted to book debts. These words were unambiguous and were intended to give wider security than mere book debts. The clear intention of the parties was to cover all debts of whatsoever nature, including book debts. Such literal construction of the C cession would not lead to any absurdity, nor would it be contrary to the expressed intention of the parties.

Mr Wise on behalf of Mr Bryant argued that, on a proper interpretation of the cession, it did not in its terms include the claim of Mr Bryant against the appellants. The intention of the parties was that the words 'and other debts and claims of whatsoever nature', like the book debts, D should relate to the trading business of Mr Bryant, whereas the claim against the appellants did not.

The matter is essentially one of interpretation. I proceed to ascertain the common intention of the parties from the language used in the instrument. Various canons of construction are available to ascertain

their common intention at the time of concluding the cession. According to the 'golden rule' of interpretation the language in the document is to be given its grammatical and ordinary meaning, unless this would result in some absurdity, or some repugnancy or inconsistency with the rest of the instrument. As regards the ordinary grammatical meaning of the word 'book debt', see The Oxford English Dictionary 2nd ed vol 2 sv 'book, 19. Special combinations: book-debt, an amount debited to a person's account, a debt owing to a tradesman as recorded in his account-books. In England it has been held judicially that, while book debts are connected with the trade of a tradesman, it is not necessary for them to be entered in the account-books of the business.

The mode of construction should never be to interpret the particular word or phrase in isolation ( in vacuo ) by itself. The correct approach to the application of the 'golden rule' of interpretation after having ascertained the literal meaning of the word or phrase in question is, broadly speaking, to have regard:

(1) to the context in which the word or phrase is used with its interrelation to the contract as a whole, including the nature and B purpose of the contract, as stated by Rumpff CJ supra ;

(2) to the background circumstances which explain the genesis and purpose of the contract, ie to matters probably present to the minds of the parties when they contracted

(3) to apply extrinsic evidence regarding the surrounding circumstances when the language of the document is on the face of D it ambiguous, by considering previous negotiations and correspondence between the parties, subsequent conduct of the parties showing the sense in which they acted on the document, save direct evidence of their own intentions.

parties entered into the deed of cession in securitatem debiti to provide the Bank with continuing security for allowing Mr Bryant banking facilities. For purposes of background F circumstances it is common cause that Mr Bryant had two separate banking accounts at the Bank, viz a personal or private account for his personal affairs as well as a business account for his trading business, which was a one-man business. It was also common cause as background circumstances that Mr Bryant on 4 April 1985 requested the Bank for an increase of his G business account's overdraft facilities in an amount of R60 000.

In the deed of cession the expression 'book debts' unquestionably referred to his trading debts. Expressions such as 'trading', 'records', 'accounts', 'books' and 'in the name of the firm in which may be trading' in the context of the operative part of the deed of cession were obviously intended by the parties to refer to the trading business. There is nothing in the said deed to indicate that the parties intended to provide security to the Bank for Mr Bryant's personal affairs, ie for his private account. This may be illustrated by means of a few examples such as personal claims of Mr Bryant based on a marriage settlement, a claim to recover a legacy under a will, a vindicatory action to recover his private assets etc. Personal claims of Mr Bryant were never intended by the parties to be included under the phrase 'and other debts and claims of whatsoever nature' in the said deed. This was correctly conceded by Mr Loxton . To what debts did the said phrase refer? From the nature and purpose of the said cession, including its context as a whole, the intention of the parties was that it was intended to relate to business

A debts including claims other than book debts. The present claim of Mr Bryant against the appellants is clearly a personal claim which is unrelated to his trading debts. I accordingly find the argument of Mr Loxton that the phrase in question was intended by the parties to include B Mr Bryant's claim against the appellants untenable. In my judgment, on a proper construction of the deed of cession, its terms are not wide enough to include the private claim of Mr Bryant against the appellants. The cession accordingly did not divest Mr Bryant of his private claim against the appellants.

In view of the conclusion at which I have arrived in regard to the construction of the deed of cession, it is not necessary to deal with the C conduct of the parties subsequent to 16 April 1985 or other extrinsic evidence relating to surrounding circumstances. In the result the appeal is dismissed with costs which include the costs of two counsel.

The decision in the East London Circuit Court in Bryant v Coopers & E Lybrand and Others reversed.

“According to the golden rule of interpretation, the language in the document is to be given its grammatical and ordinary meaning unless it would result in some absurdity or some repugnancy or inconsistency with the rest of the instrument…the mode of construction should never be to interpret the particular word or phrase in isolation (in vacuo) by itself…The correct approach to the application of the golden rule of interpretation after having ascertained the literal meaning of the word or question in phrase is to have regard to:

The context within which the word or the phrase is used with its interrelation to the contract as a whole including the nature and purpose of the contract…

To the background circumstances which explain the genesis and purpose of the contract, i.e to matters probably present to the minds of the parties when they contracted…..

To apply extrinsic evidence regarding the surrounding circumstances when the language of the document is on the face of it ambiguous, by considering previous negotiations and correspondence between the parties and subsequent conduct of the parties showing the sense in which they acted on the document, save direct evidence of their own intentions.

Delmas Milling v Du Plessis Facts: contract of sale of bags of beans

It is apparently an abiding problem to determine where the line is to be drawn between difficulties in the interpretation of a written contract that can and must be solved by linguistic construction only and difficulties which it is permissible to clear away by consideration of surrounding circumstances, as distinguished from facts merely required to identify persons and things mentioned in the contract .

How hard the problem is can be seen from two passages in the judgments of SOLOMON, C.J., reported in the same volume of the reports. 'I cannot therefore agree with the construction placed upon the agreement by the learned Judge in the Court below, but if his construction is also a possible one, then it follows that the document is an ambiguous one, and that consequently extrinsic evidence is admissible to explain what the parties really meant.'

The other passage is in Compressed Yeast Ltd v Yeast Distributing Agency Ltd. , 1928 AD 301 at p. 308. It reads:

'Now it does not follow that because a contract is capable of two meanings that it is therefore ambiguous within the meaning of the rule C which allows extrinsic evidence to be given. If that were so, there are not very many contracts which would pass that test.'

This proposition was restated, as being nothing new, by STRATFORD, C.J., in Standard Building Society v Cartoulis , 1939 AD 510 at p. 516. On the other hand in Cliffside Flats (Pty.) Ltd v Bantry Rocks (Pty.) D Ltd. , 1944 AD 106 at p. 117, the fact that a condition in a title deed was susceptible of two meanings was treated as a ground for using extrinsic evidence in aid of the interpretation. In his dissenting judgment in Rand Rietfontein Estates Ltd v Cohn , 1937 AD 317, DE WET, J.A., at p. 329, after referring to the passage in the Compressed Yeast case said

'From the context I think it is clear that the learned CHIEF JUSTICE E intended by extrinsic evidence to refer to evidence explaining the meaning of the agreement, i.e. evidence, e.g. as to the statements of intentions by the parties and not to evidence as to surrounding circumstances at the time when the agreement was made.'

There appear to be three broad classes of evidence that are usable in F different kinds of cases. Where although there is difficulty, perhaps serious difficulty, in interpretation but it can nevertheless be cleared up by linguistic treatment this must be done. The only permissible additional evidence in such cases is of an identificatory nature; such evidence is really not used for interpretation but only to apply the contract to the facts. Such application may, of course, be itself the cause of the difficulty, giving rise to what is sometimes called a G latent ambiguity. If the difficulty cannot be cleared up with sufficient certainty by studying the language, recourse may be had to 'surrounding circumstances' i.e. matters that were probably present to the minds of the parties when they contracted (but not actual negotiations and similar statements). It is commonly said that the Court is entitled to be informed of all such circumstances in all cases (cf. H Richter's case supra at page 69; Garlick v Smartt and Another , 1928 AD 82 at p. 87; Cairns (Pty.) Ltd v Playdon & Co. Ltd., supra at p. 125). But this does not mean that if sufficient certainty as to the meaning can be gathered from the language alone it is nevertheless permissible to reach a different result by drawing inferences from the surrounding circumstances. Whether there is sufficient certainty in the language of even very badly drafted contracts to make it unnecessary and therefore wrong to draw inferences from the surrounding circumstances is a matter of individual judicial opinion on each case.

The rules described in these two cases are not very clear

There exists a set of hierarchical rules which must be followed

Thus:There are four steps to the interpretation technique:

1. Golden rule: language must be given its grammatical and ordinary meaning, unless this leads to inconsistency with the rest of the document. So after the literal meaning is obtained, look at:

2. the context in which the word or phrase is used with relation to the contract as a whole (narrow context) List v Jungers: While grammatical meaning is the starting point of interpretation, words depend by necessity for their meaning on the contract as a whole. Thus individual words cannot be looked at for their meaning, but rather an understanding of their meaning must be gained from the wording of the contract as a whole.

3. the background circumstances which explain the genesis and purpose of the contract, ie to matters present to the minds of the parties when they contracted…these matters are those of an uncontentious nature which may help to explain the context of the contract.

4. extrinsic evidence when the language is ambiguous, considering previous negotiations, correspondence and subsequent conduct of the parties etc. (surrounding circumstances).

Evidence to identify the subject matter and evidence to describe it, the former is admissible but the latter is not, it usurps the function of the contract – Holmedene Brickworks

Because the contract fails the linguistic test does not mean the parties subjective motives and intentions become important, rather any evidence of any agreement allegedly reached is unimportant because the object of the inquiry is to interpret the contract and not replace it.

Objective inquiry.

In La Riche v Hamman: Case where property was transferred from one party to the other. Transferee took contract to mean that additional property was transferred, it was argued that was not transferror’s intention, and moreover that the transferror’s true intention was reflected in the words of the contract ,when taken in the proper context of the contract as a whole.

The admissibility of surrounding circumstances: Cinema City v Morgenstern Family Estates: Courts should be restricted to factual background, including evidence as to aim and genesis of the transaction. However the use of surrounding circumstances in ascertaining the meaning of contract is limited to cases of uncertainty.

If there is still uncertainty as to what the contract means? Can have recourse to “surrounding circumstances”… = matters prominent in the minds of the parties when contracting, but not evidence of actual negotiations between the parties. If surrounding circumstances do not help, then can refer to “what passed between the parties on the subject of the contract” = negotiations, the way in which the parties acted in carrying the contract out…

But: still not allowed to hear evidence as to what the parties subjectively thought the term meant. Schreiner JA: subjective views of parties irrelevant.

The case of Van der West uizen v Arnold is also important in this regard: Van der Westhuizen v Arnold 2002 (6) SA 453 (SCA) Decision in the Cape Provincial Division in Arnold v Van der Westhuizen confirmed

The interpretative approach used by the various judges were the following: Heher AJA:

Grammatical, ordinary meaning: no warranty

Background circumstances: Van der Westhuizen unaware of the history of the car. Thus a clause like this is meant to be widely as possibly interpreted. A ‘blind sale’. Must include everything, this includes warranties against eviction being exempt.

So Heher AJA held that the warranty against eviction was explicitly excluded from inclusion in this contract, so the applicant has no claim for money from the respondent.

Lewis JA: Takes a more contextual meaning…key is to look at background circumstances, this includes what passed between the parties. Whole focus prior to koopbrief was the condition of the car. Ambiguity in the grammatical meaning, thus she looks at the surrounding circumstances. Her view: parties negotiations, conduct etc. did not mean to exclude all warranties, including the most fundamental part of the sale, that of undisturbed possession. Exemption clauses should not go too far…

Van Der Westhuizen v Arnold Facts Swart agent, Respondent sold the car and Van der Westhuizen stood surety for it.. After the sale, the bank reclaimed the car, because Swart was an unrehabilitated insolvent. Warranty against eviction. Do not have to be owner of something you don’t own by agency agreement, etc. Does not affect validity of contract of sale. Was the case here, Arnold sold car on to Van der Westhuizen, even though he did not own it, technically the bank did.

1. Law does require that purchaser have undisturbed, peaceful possession of property. If someone with a better title to property sold arrives, then warranty against eviction arises. This ex lege implied term holds that undisturbed possession is guaranteed to the purchaser of the property, should the person still wish to claim, they must do so from the person who sold the property to you. In this case Van der Westhuizen paid the bank off, to prevent himself being evicted, and now wishes to claim this back from the person he purchased the car from.

2. Arnold the prior owner says he is not responsible, as there existed an exclusion of the warranty against eviction in the contract.

The relevant clause in the contract was the following: “I acknowledge that I have purchased the vehicle voetstoots (as is), and that no warranties whatsoever have been given to me”

Marais JA: Literalist approach interprets “given to me” as express or tacit warranties Warranties imposed by common law are not given, thus not excluded Warranties imposed as opposed to warranties given Words in literal, ordinary meaning give answer straight away Held that claim for money was valid, as the warranty against eviction was not

excluded from the contract. THUS

Where meaning is clear from grammatical wording, extrinsic evidence as a rule inadmissible.

But Coopers & Lybrand v Bryant says background circumstances admissible for construing meaning of words all the time…

So what is the difference? Between background and surrounding circumstances…

“Perhaps it is a distinction without a difference” – Lewis AJA

In this case unclear from wording and background circumstances what the intentions of the parties wre in forming the contracts…

Thus ‘surrounding circumstances’ are looked at, which unsurprisingly also failed to shed light on the matter…

Problems

A literal approach has many pitfalls if only literal, runs counter to more inclusive form of interpretation. Emphasis on precision of language is flawed.

Hierarchical – too rigid and structure, interpretation will often depend on individual Court’s views.

Terminological confusion: “background circumstances” part of golden rule. Only if ambiguity exists can one refer to surrounding circumstances. But…where is the difference between background circumstances, part of the original interpretation where there is no ambiguity, and surrounding circumstances, only referred to if there is ambiguity?

Generally chaotic section of law.

Critics: Kerr, Lewis 1990 SALJ 26, Jansen JA in the Appellate Division – Cinema City.

Get rid of Delmas? But no court has yet been prepared to do so…

Common Law Rules of Construction

1. Equitable interpretation: unambiguous wording of a contract must not be departed from on equitable grounds – the court won’t give one of the parties an unfair or unreasonable advantage over the other.

2. Avoidance of inconvenience: Favours construction which will lead to less inconvenience. Takes into account normally the dictates of business efficacy…

3. Ut Res Magis Valeat Quam Pereat: Where a stipulation has two meanings, adopt rather the one which can have some operation than that which has none – adopt the workable contract.

4. Presumption against tautology / superfluity: when examining a contract, every single word should be seen to have relevance.

5. change of language: a deliberate change in expression is prima facie taken to import a change of intention.

6. Eiusdem generis, noscitur a sociis: reading of words in their context, and not in isolation. Oranges etc. could be all fruit, while oranges, lemons, grapefruit etc. will mean that it is limited to citrus fruit…S v Kola (poultry, peacock)

7. Generalia specialibus non derogant: Greater weight must be given to special provisions rather than general provisions.

8. Expressio unius est exclusio alterius: Prevents implication of a term when an express term already covers the ground. Express mention of one item indicates an intention to treat differently items of a similar nature which have not been mentioned, and such an argument may or may not be correct. Thus a lease telling the tenant not to fish in the dam means he can fish in the river, but a lease telling him he may not cut down the gums near the house does not entitle him to cut the oaks near the gate… here the gum trees were mentioned ex abundanti cautela.

The contra proferentum or contra stipulatorem rule

Rule there not to ascertain the intentions of the parties but rather to be used as a last resort, when all other methods of ascertaining the common intentions of the parties have failed.

Proferens is the party to the contract who is responsible either himself or through an agent, for the wording of the ambiguous contract, and the reasoning is simply that if the wording is ambiguous, its author should be the one to suffer because he had it in his power to make his meaning plain.

If after all of this there is still no way of giving the term a meaningful interpretation, it must be declared void for vagueness.

Rectification Process allowing one to rectify the contents of the original document under certain conditions:

In order to reflect the original common intention One may bring in extrinsic evidence including negotiations in order to convince the court to

order the rectification of the document

This normally happens where the document is a memorandum of understanding In cases where the contract must be written in order to exist

Parol evidence rule applies, thus no reliance on extrinsic evidence

This suggests that the document cannot be rectified by order of a court but this is not true

In Meyer v Merchants Trust Rectification was allowed

Meyer v Merchants Trust “I do hereby bind myself as surety…for the payment of all monies which maybe owing by Gabbe & Meyer to their creditors…provided that the total amount recoverable from me not withstanding the amount that may be owing by Gabbe & Meyer shall not exceed 250 pounds.”

The typist missed out the words homoeoteleuton There was thus an attempt to claim rectification on the basis of the mis-recording. Bank said

it wasn’t possible because suretuy agreements could not be rectified. The AD held that it was possible so long as there was evidence that intention behind the

contract was not that which was contained in the contract.

THE OPERATION OF A CONTRACT

Common Types of Contractual Term

Modus clauses

A modus is a term where one party qualifies the other party’s rights to performance in some way.

Usually they involve use / refrain from using performance in a particular way

Failure to comply = breach of contract

E.g contracts of donation have modal clauses attached to them ie I will donate R100 000 bursary to Rhodes for a catholic male student. Property contracts, restrictive covenants, negative servitudes that have to be registered etc are examples of modus. These are very commonly attached to the contract

Dies / Time clauses

They qualify the time of performance by reference to a certain moment or event in the future.

Such clauses can be suspensive or resolutive.

Suspensive = eg take car now but pay in 3 weeks. The agreement suspends the date of payment till a certain date in the future.

Resolutive = the contract comes into existence and is performed right away. It stipulates the time length of the contract after which it will come to an end. The contract will thus essentially be resolved and the obligation terminated. Eg Lease contracts and fixed period contracts of employment.

Conditions

They qualify the operation of a contract with reference to an uncertain future event. Eg I will pay u R3000 if u climb Mount Everest

There is however a distinction between conditions in SA law and in English law. In English law, terms and conditions are synonymous. They are thus used interchangeably in English law.

In Sa law a distinction is made. A condition is a very special type of contractual and operates in a specific way. Eg qualifying performance with ref to an uncertain future event. Only such clauses are conditions in SA law.

However, the word condition is still very loosely used in the drafting of contracts. eg I agree to donate R50 000 on condition…is this a condition?? This is not a condition but a modus or moda clause.

Classification of Conditions

i. The effect of the fulfillment of the condition on the obligation ii. The nature of the event attached to the condition iii. Who has the power to fulfill the condition

category number 1 is the most important

There are two ways ie suspensive and resolute. A condition can either be both

It is the most common form of classification

Suspensive conditions

It will suspend the contract / an obligation until the occurrence of an uncertain future event

The contract comes into being when agreement is entered into but requirement of performance kicks in if condition is satisfied.

Eg I will buy a car for you if you pass your exams or I will buy that horse if it places in the top 3 in its first 2 races .

With regard to a particular obligation, the seller will reserve the rights of ownership until such time that full purchase price has been paid (suspending 1 key obligation)

Usually a suspensive condition must be fulfilled within a reasonable period of time.

Sometimes parties to a contract will attach a period of time to the condition.

ABSA v Sweet @ 322 F-C As per Tebbut J

F 'The contract (in the modern sense, now that all contracts are consensual) is binding immediately upon its conclusion; what may be suspended by a condition is the resultant obligation or its exigible content.' The nature of the contract may affect the rights of the parties to a contract in which there is a suspensive condition. It has, for example, G been held that, where an agreement of purchase and sale has been entered into subject to a suspensive condition, no contract of sale is then and there established. It only develops into one of sale on fulfilment of the condition (see Corondimas v Badat (supra) ; Palm Fifteen (Pty) Ltd v Cotton Tail Homes (Pty) Ltd 1978 (2) SA 872 (A) ; Soja (Pty) Ltd v Tuckers Land and Development Corporation (Pty) Ltd 1981 (3) SA 314 (A) ; Tuckers Land H and Development Corporation (Pty) Ltd v Strydom 1984 (1) SA 1 (A) . This statement of the law, or what has been described as the Corondimas principle, has been much criticised although it has been consistently applied in subsequent cases. Because of this constant application by the Courts it was again applied by the Appellate Division in Tuckers Land and I Development Corporation v Strydom ( supra ) on that ground but its correctness was questioned and criticised obiter by Van Heerden JA and directly by Joubert JA who, after reviewing the old authorities, showed that the principle was not in accordance with Roman and Roman-Dutch law, a criticism to which several writers on contract have also subscribed (for example, P J J Olivier 'Opskortende Voorwaarde en Koopkontrak' (1980) 13 J De Jure 238; Ellison Kahn Contract and Mercantile Law 2nd ed vol 1 at A 542). It would seem, however, that in a contract of lease no such considerations apply and a contractual relationship comes into existence between the lessor and the lessee on the signing of the lease although the resultant obligations arising from the lease may be suspended. It is also now, it appears, accepted that when a suspensive condition is B fulfilled the contract and the mutual rights of the parties relate back to, and are deemed to have been in force from, the date of the agreement and not from the date of the fulfilment of the condition, ie ex tunc (see Pothier Obligations at 220; Wessels Law of Contract in South Africa 2nd ed vol 1 para 1352; Kerr ( op cit at 340); De Wet and Yeats ( op cit at 137); Joubert ( op cit at 177); Lee and Honoré ( op cit para 99 at 34); Christie C (op cit at 168); Marnitz v Stark 1952 (2) SA 144 (N) at 148B; Peri-Urban Areas Health Board v Tomaselli and Another 1962 (3) SA 346 (A) .

Resolutive conditions

They are the opposite of suspensive

On the happening of an uncertain future event the contract comes to an end.

The continued existence of the contract depends on the event not happening.

Eg I will buy and give u a car on the condition that if u fail the car will be taken back. Another example could be a contract of sale where one sells the car on condition that if the buyer fails to pay the amount by a certain date it will be repossessed.

According to the Nature of the event

The condition can either be positive or negative

A positive condition will be fulfilled if the event does occur. It is fair to say that the large number of suspensive conditions are positive.

Negative conditions => these usually relate to the non-occurrence of a future event. When it becomes clear that an event can no longer take place then the condition will be satisfied and the agreement will work on that basis

Negative conditions are generally resolutive According to who has the power to fulfill

conditions can either be causal, potestative or mixed.

Causal => depends for its fulfillment on some 3rd party or outside agency / event eg a contract of insurance. “we will pay out in the event of a flood etc”

Potestative => depends for the purposes of fulfilling it on one of the contracting parties

Mixed depends for its fulfillment on both or 1 of the parties and a third party or chance event. It is a mixture of potestative and causal. Eg making an obligation under a contract subject to the condition that u marry x. This is quite common in wills.

The condition attached to the obligation must be possible to perform.

Fictional Fulfillment

A contracting party is under a duty not to obstruct the fulfillment of a condition.

If the party deliberately prevents the condition from being fulfilled then the condition will be deemed to have been fulfilled- a legal fiction comes into effect.

Macduff v JCI 1924 AD 573 There were 2 companies in this case. JCI was a minority shareholder in Macduff. JCI entered into a contract with M where M would undergo voluntary liquidation. M agreed to transfer all its assets to JCI once liquidated into a newly founded company under the auspices and supervision of JCI. In the agreement there was a suspensive condition which only allowed liquidation if shareholders in M agreed to the liquidation. At the time of contracting this was a good agreement 4 JCI. Market conditions changed and JCI later discovered that the deal was of no economic benefit to them. Thus they went around and bought up all the shares in M until they were the majority. They then voted against liquidation. Effectively they deliberately obstructed the possibility of the occurrence of the suspensive condition. Thus the AD said fictional fulfillment could kick in and JCI were liable for breach of contract.

Assumptions & Suppositions

They make the contract / obligation depend upon the truth of an assumption the parties have made about a past or present fact

Eg A & B are negotiating a contract to buy and sell a painting. A is only going to buy if the painting is an original Rembrandt. B doesn’t know but contracts on the supposition that this is in fact an original. All they need is an expert. If it is an original then the contract proceeds but if it is not then the contract falls away.

Warranties The contracting party assumes absolute or strict liability for performance

These can be:

Express: parties expressly agree

Implied: As per Officious Bystander Test

Residual: Imposed by the Common Law e.g. Cannot sell defective goods

Schmidt v Dwyer A written deed of sale of a farm, after describing the property and its approximate extent, added 'the property includes approximately 120,000 vines planted thereon'. Another clause provided 'the property is sold as it stands and the seller shall not be held responsible for any there were only 67,000 vines E planted on the farm. The purchaser claimed damages (a) for breach of warranty or alternatively (b) by reason of the misrepresentation. In an exception to the declaration, Held , that ex facie the deed of sale the statement therein regarding the number of vines on the property amounted to a warranty. Held , further, as the voetstoots clause had no bearing on this F statement, that such clause did not debar the plaintiff from relying upon the representation.

There can be express warranties which are put which are put in the contract or implied warranties. There are also certain warranties that apply to contracts because of the operation of law eg Van der Westhuizen warranty against eviction.

Fourie v CDMO Homes Sale of land by CDMO to Fourie. The land was next to a river. “offer was subject to the following condition” that there are pump rights to the stream. Parties weren’t sure whether there were pump rights but concluded agreement on the supposition that they had pump rights.

Exemption Clauses

They are the opposite of warranties.

These exempt persons from liability that would ordinarily apply to them under the Common Law

The fact that they are used on such a large scale means that they are viewed with suspicion.

Important feature of contracts, exempt the person from forms of liability that would ordinarily apply to them under the common law.

But are the objects of suspicion by courts, which tend to take them very seriously and look at them closely.

Commonly used by big business for planning, protection from liabilities, and control variables that are uncontrolled.

Brings into question issues of equity between big business and common man

Afrox Healthcare v Strydom

The appellant was the owner of a private hospital. The respondent had been admitted to the hospital for an operation and H post-operative medical treatment. Upon admission, an agreement was concluded between the parties. According to the respondent, it was a tacit term of this agreement that the appellant's nursing staff would treat him in a professional manner and with reasonable care. After the operation, certain negligent conduct by a nurse led to complications setting in, which caused the respondent to suffer I damages. The respondent argued that the negligent conduct of the nurse had constituted a breach of contract by the appellant and instituted an action holding appellant responsible for the damages suffered. The admission document signed by the respondent during his admission to the hospital contained an exemption clause, providing that the respondent 'absolved the hospital and/or its employees and/or agents from all liability and indemnified them from any claim instituted by any person (including a dependant of the patient) for A damages or loss of whatever nature (including consequential damages or special damages of any nature) flowing directly or indirectly from any injury (including fatal injury) suffered by or damage caused to the patient or any illness (including terminal illness) contracted by the patient whatever the cause/causes are, except only with the exclusion of intentional omission by the hospital, its employees or agents'. Held , that, as far as exclusionary and indemnity clauses were concerned, the common legal approach was that such clauses should be interpreted restrictively. The fact that exclusionary clauses were I generally held to be operative did not mean that a specific exclusionary clause could not be declared contrary to public policy and as such unenforceable. The standard to be applied in respect of exclusionary clauses was no different to that applicable to other contractual terms, which were invalid as a result of considerations of public policy. The question was whether upholding the relevant exclusionary clause or other contractual term would conflict with the interests of the public as a result of extreme unfairness or other policy issues

Will an exemption clause be enforced if it is contrary to public policy?

As already indicated, a party cannot seek to exempt himself from liability for loss or damage to the property of another caused by his own dolus or that of his servants. To permit of such a situation would be contra bonos mores

A party cannot exempt himself from liability for the wilful misconduct or criminal or dishonest activity of himself or his employees or agents; nor, perhaps, from loss or damage resulting from gross negligence on his or their part. ( Wells V SA Alumenite) Aggrieved had been induced into buying a lighting company based on a misrepresentation but there was a clause exempting seller from any misrepresentation.

Will an exemption clause be invoked if there is gross negligence??

Government of the Republic of South Africa v Fibrespinners & Weavers

* Appellant had instituted action in a Local Division against respondent for damages for the loss of certain grainbags which had been stored by respondent for reward in terms of a contract of deposit. In terms of a letter written by appellant, replacing the terms of the original contract, the respondent was, in consideration for the respondent arranging and E maintaining, inter alia , an all risks insurance policy covering the grainbags, "absolved from all responsibility for loss of or damage howsoever arising in respect of..." the grainbags "whilst in the care of your company and in or upon any premises owned or used by your company..." Over a period of time a quantity of the grainbags had been stolen by three persons, one of whom was the respondent's chief security officer. Appellant averred that respondent was liable to it on the following F grounds: (a) by reason of its breach of contract in failing, upon demand, to deliver to appellant the grainbags in question; alternatively, (b) by reason of respondent's gross negligence; alternatively (c) by reason of respondent's negligence; alternatively, (d) by reason of defendant's vicarious responsibility for the theft committed by its servant. Respondent successfully excepted to appellant's claim on the grounds that the averments in the particulars of claim were insufficient to sustain the G cause of action. In an appeal, appellant contended (1) that the exemption clause in the letter, which did not in terms refer to negligence, had to be construed in accordance with the contra proferentem rule as not relating to liability for loss or damage caused by negligence, but only to liability which arose from some other cause, such as breach of contract, and that the exemption clause applied only where compensation was claimed on a contractual basis and not a delictual basis, and (2) that the exemption clause ought to be so construed as not to apply to H responsibility for loss or damage caused by the bailee's gross negligence. Held , that the intention of the parties in regard to the exemption clause was to substitute in appellant's favour a right of recourse against the insurance company in the place of such rights of recourse as appellant had against respondent as bailee; the insurance policy in question covered appellant for loss of the grainbags as a result of theft or respondent's negligence or that of its employees. Held , further, that in law respondent was liable to compensate appellant (i) if the loss or damage was caused by its (respondent's) own wilful wrongdoing or negligent conduct, or (ii) possibly by the wilful wrongdoing (eg theft) or negligent conduct on the part of its servants, acting in the scope, and within the course, of their employment as such.

In Sum:

Exemption clauses are important feature of contracts, exempt the person from forms of liability that would ordinarily apply to them under the common law. But are the object of suspicion by courts, which tend to take them very seriously. Planning, protection from liabilities, variables that are uncontrolled.

Courts keep a tight leash on them:

1. by testing them against the dictates of public policy Afrox, Barkhuizen 2. by interpreting such clauses strictly, particularly if they are unclear.

What can you exempt yourself from? General: Afrox

Fraud (no): Wells v SA Alumnite Company

Gross negligence (yes): can exempt yourself Govt of RSA v Fiberspinners: AD gave effect to a clause exempting an employer from liability for theft by its employee. + FNB v Rosenblum state that it is acceptable.

Negligence (yes): Afrox of course you can.

Theft (yes): same cases as gross negligence

Wilful default (Christies yes, Glover no): no case contrary to basis of contractual fundamentals

Also rule of Constitution in public policy – plays more of a background role in interpreting exemption clauses.

Wells v SA Alumnite Company

A defendant in a magistrate's court when sued for the purchase price of a lighting plant purchased by him from plaintiff raised the defence that he had been induced to enter into the contract by certain misrepresentations made by the salesman, who, acting on behalf of the plaintiff, negotiated the sale. In reconvention he claimed & rescission of the sale on the ground of the alleged misrepresentations. It appeared that an order form signed by the defendant contained the following condition: "I hereby acknowledge that I have signed this order irrespective of any representoons made to me by any of your representatives and same is not subject to cancellation by me." On exception taken by plaintiff.

Held, that in the absence of any allegation that the representations made were fraudulent, defendant was bound by the condition in the order, and that his plea, therefore, disclosed no defence.

The decision of the Eastern Districts Local Division in South African Alumenite Company v Wells, confirmed.

Should a person not manage to evade an exemption clause on an unseen ticket, and this exemption clause is not contrary to public policy, they may have recourse to the defence of “that one could not reasonably expect to find such a clause in such a document” Consider Barkhuizen ito Constitution and PP

the clause creates a contract which prevents parties from claiming in delict if they

suffer an injury

court found it an acceptable clause because it covered negligence, an acceptable

ground to exempt from

Ticket case: when going in, buy tickets. Notice next to tickets:

management will undertake no responsibility for injury, visible sign. Amounts to a

disclaimer / exception.

Thus Interpretation is made in light of:

o Public Policy

o Strict

o Narrow

Public Policy

Q: will an exemption clause be enforced if its contrary to PP?

As already indicated a party can not seek to exempt himself from liability for loss or

damage to the property of another caused by his dolus or that of his servants (to

permit this would be contra bones mores)

A person can not exempt himself from liability for the wilful misconduct or

criminal/dishonest activity of his employees or agents

Nor perhaps from loss or damage resulting from gross negligence on his or their part

o Wells v SA Alumenite: fraudulently misconduct

Exemption clause can however be invoked to cover gross negligence but NEVER

fraud

Gov of SA v Fibrespinners & Weavers

Strict Interpretation (NB! Examinable)

If an exemption is clear and concise then there is very little room to maneuver. The courts are bound by the dolus rule.

The problem is that most exemption clauses are vague and ambiguous and therefore the courts’ attitude is to interpret them strictly eg the Wells case.

What grounds of liability would exist under the common law? The party will be exempt from the minimum degree of liability only.

Look at the nature of the contract and its context and the nature of the dealings between the parties.

Correct approach: 1. if the clause is clear and unambiguous in its meaning, give it that meaning Durban’s

Water Wonderland v Botha 2. if ambiguous, interpret it narrowly, and contra proferens

Narrow interpretation

1. the interpretation must be one to which the language is fairly susceptible, must not be fanciful or remote.

2. look at the nature of type of the contract / its content / the nature of the dealings between the parties.

Eg: “cars garaged at owner’s risk” Wenberg v Oliver (Owner’s risk)

Negligent driving of car by employee of garage. The garage in this instance was found to be liable because the exemption clause was found not to cover accidents away from the premises of the garage.

Weinberg v Olivier

The plaintiff under an arrangement with the defendant left his car at the latter's garage each day at a monthly charge. The defendant undertook to dust the car each day and polish it once a month. Inside the garage was a notice "Cars garaged at owner's risk", of which plaintiff was aware. The car having been removed from the garage by a person employed by the defendant to look after the cars in the garage and having been severely damaged in a collision with a building, the plaintiff claimed damages from the defendant for breach of his obligation to keep the car safe in the garage. A Provincial Division on appeal from a magistrate's court having awarded damages, and the defendant having appealed, the point was taken for the first time that the plaintiff was not the owner of the car and that he had therefore failed to prove he had suffered damage.

Durban’s water wonderland v Botha Mother and 2 and a half year old daughter were on a ride at an amusement park when something malfunctioned with the hydraulics throwing them off the ride. They sued for damages and Durban’s water wonderland found its defence in contract by claiming that there was an exemption clause which was attached to the ticket. This was also on the window of the ticket office. There was no ambiguity in this regard and thus the exemption clause applied. (There was exemption from negligence and any other cause) And thus clause applied because accident had been cause by seat which was not properly fastened

Held, that under the circumstances the defendant was under a contractual obligation to keep the car under his control in the garage and that having delegated the performance of that obligation to his servant, who had not performed such obligation, was liable in damages unless the condition as to owner's risk modified the position.

Held, further, that the only risks which the plaintiff undertook to bear were risks attendant on the garaging of the car in the garage and not risks to which the car might be exposed if, in breach of the contract between the parties, it was taken out of the garage into the public streets.

Held, further, that inasmuch as the plaintiff's locus standi had not been challenged in either of the courts below, the defendant himself in his plea referring to the car as the plaintiff's car, it was too late for the defendant to raise such issue.

The decision of the Cape Provincial Division in Oliver v Weinberg, confirmed.

o Basic bailment contract in the above – something handed to someone else for safekeeping – they undertake to take the care for it that a reasonable person would. Anything contrary would be a breach of contract.

o Restrictive approach of interpretation would mean that “cars garaged at owner’s risk” would exempt negligence or anything beyond the owner’s control, but nothing purposeful would be exempted by this clause.

o A normal bailment contract would cover anything that is outside the owner’s control. A vague, broadly interpreted bailment contract would cover negligence and factors outside the owner’s control. Gross negligence and intention would still confer liability.

Drifter’s Adventure Tours CC v Hircock 2007 (2) SA 83 (SCA)

This case is on appeal. The facts were that Hircock signed on for a tour with Drifters and while en route in Namibia via normal roads from the airport to the start of the tour proper, negligence of the driver of the Drifters bus caused an accident in which Hircock was injured. She sued. When signing on for the tour, Hircock signed an exemption clause which included among other things the following stipulation: Due to the nature of hiking, camping, touring, driving and the general Third World conditions on our tours/ventures, Drifters, their employees, guides and affiliates, do not accept responsibility for any client or dependant thereof in respect of any loss, injury, illness, damage, accident, fatality, delay or inconvenience experienced from time of departure to time of return, or subsequent to date of return, such loss, injury etc arising out of any such tour/venture organised by Drifters. In general exemption clauses should be construed restrictively. The question in this case clearly comes down to whether or not this exemption clause covered the negligent liability of driving on a public road. In cases of doubt as laid down in Durban’s Water Wonderland, where an exemption clause is capable of bearing more than one meaning, preference must be given to the interpretation against the proforens. When a reasonable person signs a document with the word driving in the context of the above clause as a whole, they do not mean to agree to exempt themselves from claiming for damage suffered as a result of negligent behaviour on a public road. 'The correct approach is well established. If the language of a disclaimer or exemption clause is such that it exempts the F proferens from liability in express and unambiguous terms, effect must be given to that meaning. If there is ambiguity the language must be construed against the proferens .

(See Government of the Republic of South Africa v Fibre Spinners & Weavers (Pty) Ltd 1978 (2) SA 794 (A) at 804C.) But the alternative meaning upon which reliance is placed to demonstrate the G ambiguity must be one to which the language is fairly susceptible; it must not be ''fanciful'' or ''remote'' (cf Canada Steamship Lines Ltd v Regem [1952] 1 All ER 305 (PC) (1952 AC 192) at 310C - D).' This was not made clear by Drifters in their exemption clause, and thus it must reasonably be interpreted to mean that they did not mean to exempt themselves from liability suffered as a result of driving on a public road. Thus the appeal fails and Hircock wins.

FNB v Rosenblum

The respondents sued the appellant bank in a Local Division for damages arising out of the theft of the contents of a safe deposit box D provided at a small annual fee by the bank for the first respondent's use. The appellant sought to avoid liability on the ground that a term of the contract for the provision of the box expressly excluded liability. The Local Division had concluded that the appellant was not entitled to rely upon the specific term in its defence of the action. The appellant appealed against this finding. The relevant term (clause 2) provided that while the bank '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'. The stated case prepared in the matter F placed it beyond doubt that one or more of the appellant's staff had stolen the safe deposit box or allowed one or more third parties to steal such box. In doing so, the appellant's staff had acted with gross negligence or negligently regarding the control of the keys safeguarding the place where the safe deposit box was kept, rendering it possible for the theft to take place. Although loss caused by theft or negligence had specifically been enumerated in the relevant clause excluding the appellant's liability, the respondents contended that not all the possible manifestations of theft were covered by the clause and theft by the bank's employees acting within the course and scope of their employment was not covered. The respondents contended further that gross negligence and negligent acts or omissions committed by the bank's employees had not H been excluded. The respondents argued that the clause was silent as to by whom the theft had to be committed before the bank would be immune from a claim and it could not have been intended to mean that the bank would not be liable even if it was the bank itself that stole in the sense that those who were the 'controlling minds' of the bank had committed the theft. This was so, they argued, because no one could I contract out of liability for deliberately committed dishonest acts. Relying on the eiusdem generis rule, the respondents further argued that the clause dealt only with causes of loss beyond the control of the bank. As theft by employees acting in the course and within the scope of their employment was something over which the bank did have control, theft by such persons was not within the protection against liability provided by the clause. The respondents contended that the additional phrase 'or as a result of any cause whatsoever' A did not serve to expand the protection offered by the clause to encompass any other cause, whatever its nature as the phrase should be interpreted restrictively to read 'or as a result of any cause whatsoever over which the bank has no control'. In an appeal, Held , that in matters of contract, the parties were taken to have intended their legal rights and obligations to be governed by the common law unless they have plainly and unambiguously indicated the B contrary. Therefore, even where an exclusionary clause is couched in language sufficiently wide to be capable of excluding liability for a negligent failure to fulfil a contractual obligation or for a negligent act or omission, it would not be regarded as doing so if there was another realistic and not fanciful basis of potential liability to which the

clause could apply and so have a field of meaningful C application. In the end, the answer had, however, to be found in the language of the clause read in the context of the agreement as a whole in its commercial setting and against the background of the common law with due regard to any constitutional implication. (Paragraphs [6] and [7] at 195G/H - H, 195I - 196A and 196B - B/C.) Held , further, that the assemblage of causes of loss or damage contained in the relevant clause consisted of an unrelated D collection of phenomena, some which were natural and the occurrence of which were beyond human control and some which emanated from human conduct. While the occurrence of the natural phenomena was not preventable, the damaging consequences of their occurrence could be prevented by taking adequate measures. If there was negligence in averting the damaging consequences contrary to a duty in law to do so, E the bank would be liable at common law for the ensuing loss even though it had no control over the occurrence of those phenomena. Similarly, the breadth of the phrase 'or as a result of any cause whatsoever' could not be narrowed so as to only exclude liability for causes beyond the control of the bank. (Paragraphs [12] and [13] at 197B/C - F and H. F Held , further, that, although there was no direct reference to the bank's employees in the relevant clause, it seemed obvious that they were included in it. If the exemption from liability accorded by the clause were to be construed as being confined to cases in which only the acts and omissions of those who were identified as the 'controlling or directing minds' of the bank were involved, the potential field of operation of the exemption would be so slight that it would not have been worth the bank's while to insist on it. This G would have left it entirely unprotected against liability stemming from the potential negligence or dishonesty of many thousands of employees. The bank, as an artificial non-human entity, was obviously incapable of being negligent itself in fact. The negligence of the human beings acting as the bank's controlling minds was attributed to the bank and it could also be held vicariously liable for negligence of ordinary H employees acting in the course and within the scope of their employment. When the bank said that it was not liable 'whether the loss or damage was due to the bank's negligence or not' it included loss or damage due to the negligence of its employees. (Paragraphs [17] and [18] at 199A/B - F.) Held , further, that the clause provided quite plainly that, even if the loss or damage was due to the bank's I negligence, attributed to it as a result of the negligence of its controlling minds or its employees, it was immune from liability. (Paragraph [23] at 201A/B, read with para [18] at 199E - F.) Held , further, that there was nothing in clause 2 suggesting that only culpa levis was to enjoy immunity but not culpa lata : the immunity extended to gross negligence. (Paragraph [26] at 201G.) J 2001 (4) SA p192 Held , accordingly, that the relevant clause exempted the bank from liability for theft committed by its own employees within the A course and scope of their employment; for failing to exercise reasonable care and so negligently rendering it possible for the theft to take place; and for the negligence or gross negligence of its staff, acting in the course of and within the scope of their employment, regarding control of the keys to the place where the safe deposit box was kept, thus rendering it possible for the theft to take place. The B claims of the respondents ought accordingly to have been dismissed. (Paragraphs [27] and [28] at 201H/I - 202A.) Appeal allowed. The decision in the Witwatersrand Local Division in Rosenblum and Another v First National Bank of SA Ltd reversed.

Where you exempt yourself from negligence, do so explicitly. In cases of ambiguity the clause will be interpreted not to exclude liability for negligence

TERMINATION OF CONTRACTUAL OBLIGATIONS

There are certain ways in which particular obligations can be altered or terminated.

Variation

Parties agree to vary one of the terms of their contract

Here the old contract is not terminated but is simply altered in some way

Release / Waiver

A creditor waives rights under the contract and releases the debtor from his duties.

It can be partial or complete.

Release usually entails the release of a debtor from an entire contract. Waiver is only concerned with one particular obligation or term of the contract.

The nature of waiver / release? Debate Rages

Kerr: a unilateral act. Power to release person from obligation entirely a decision in the hands of the creditor. “I do not wish to avail myself of this right” Waive right to rescind contract.

Van der Merwe: A debt extinguishing agreement, that is a bilateral juristic act but which is not a contract.

Christie: Distinguish circumstances: i. Contract (of donation) if a right conferred by the contract; ii. Unilateral if a right conferred by law (residual)

Glover: Apples and pears: i. Release = an agreement between the parties to ‘release’ the debtor

from having to perform. ii. Waiver = a unilateral choice by the creditor to ‘waive’ a right.

Core features of waiver (Glover – especially unilateral waiver)

o Presumption against waiver – assumed that one does not easily waive rights / remedies / powers

o Onus of proof is on he who alleges o Determining:

Q1: was there an intention to waive? Should have full knowledge of the right you are letting go of.

Q2: Would the reasonable person believe the right to have been waived in the circumstances? (express or implied)

The intention to waiver is determined by the outward manifestations of the ations of the parties. The outward manifestations of intention must be adjudged from the perspective of a reasonable person in the position of the other party.

Novation

In genera this means the replacing of an entire contract with a new one. The old contract thus ceases to exist

There are 4 things under novation o Novatio voluntaria o Novatio necessaria o Compromise o Delegation

The case of Swadif v Dyke (1978 (1) SA 928 (A) @ 940) sets out the features of a novated contract.

Swadif v Dyke Whatever the grounds may be upon which the rescission of a judgment may be sought at common law, it is abundantly clear that at common law any cause of action, which is relied on as a ground for setting aside a final judgment, must have existed at the date of the final judgment. There must be some causal connection between the circumstances which give rise to the claim for rescission and the judgment. If a judgment is obtained in G respect of a disposition not for value, no ground exists for setting aside such judgment merely because the disposition was not made for value and it is proved that, immediately after such disposition, the judgment debtor's liabilities exceeded his assets. It is only if insolvency or liquidation supervenes that such a disposition acquires legal significance by reason of the provisions of section 26 of the Insolvency Act, 24 of 1936 (read with, in the case of a company, section 181 of the Companies Act, 46 of 1926). But it does not follow that a judgment in respect of such a H disposition can on that account be set aside under common law, for, when the judgment was granted, no grounds existed for setting it aside. The Court was fully entitled to grant the judgment on all the facts, and the causa which existed at the date of the judgment. A judgment, as such, is not a disposition "made by an insolvent" as contemplated by section 26 of the Insolvency Act, 24 of 1936. In a case where the only purpose of taking judgment was to enable the judgment creditor to enforce his right to payment of the debt under a mortgage bond, by means of execution, if need be, it seems realistic, and in accordance with the views of the Roman-Dutch writers, to regard the judgment not as novating the 1978 (1) SA p930 obligation under the bond, but rather as strengthening or reinforcing it. A trustee or liquidator is not privy to the insolvent or the company in liquidation. He is not bound by any judgment against the insolvent or the A company to which he was not a party, and a plea of res judicata cannot be raised against him in respect of such a judgment because he does not derive his authority from the insolvent or the company; he has an independent right of action under the Insolvency Act. Accordingly, where the liquidator of a company claimed an order setting aside a mortgage bond and an order for the cancellation of the bond on the ground that the bond constituted a disposition without value in terms of section 26 of Act 24 of 1936, read with section 181 of Act 46 of 1926, the Court held that a B plea of res judicata , founded on the fact that the creditor had obtained a final judgment against the company based on the mortgage bond, could not be successful if raised against the liquidator. C The decision in the South West Africa Division in Dyke, N.O . v Swadif (Pty.) Ltd ., confirmed in part and reversed in part.

Novatio Voluntaria

In its strict and most common sense parties agree to novate and discharge the old contract with a new one

The first contract ceases to exist

Prescription ends when novation occurs

The first contract can revive if the novated contract is void for illegality

There is a presumption against novation

Eg short term insurance agreements

Novatio Necessaria

AKA compulsory novation

It takes place by operation of law

However not all judicial proceedings are novations. Most civil judgments in contract cases are not novations

A cancellation of a contract by the court however is a novation

Compromise (transactio) The settlement, by agreement, of a disputed obligation. Allegations of breach etc. threats of litigation etc, eventually parties decide to get

over court fees and settle the matter between themselves. Settle contractual dispute by compromise of some kind.

Classically: out of court settlements. General rule: old relationship falls away, new relationship governed by settlement

agreement.

Delegation: A form of novation. By agreement of all concerned, a 3rd party is introduced as a debtor in place of the

original debtor. The original debtor is discharged of his / her obligations. Usually full delegation of debt – full substitution. Whole new contract with new

debtor. Common intention of all parties that a delegation should take place may be express

or it may be implied from the circumstances, including the conduct of the parties. Delegation must be distinguished from similar situations eg

debtor asks someone for the payment of their debt – NOT delegation merely agreement of mandate. Creditor does not know, not a new contract.

Debtor will request creditor to ask the 3rd party to pay – no agreement between all concerned parties – assignation of debt. 3rd party steps in of his own initiative – ex promiso. Not novation.

Cession The transfer of Incorporial Claim Rights from one person to another by means of a contract i.e. the substitution of one creditor for another. It is the opposite of delegatoin

Terminology Cedent: Original creditor ceding the rights Cessionary: New creditor receiving the rights Cession Agreement: Agreement by whose conditions the cession transaction is made One can cede one’s contractual right as well as one’s delictual right

Cession of Contractual Right 1. Primary right between cedent creditor and debtor e.g. Contract of Lease 2. Obligationary agreement between cedent creditor and cessionary e.g. Contract of

Sale Transfer or Cession agreement between cedent and cessionary Cession of Rights

3. New right between cessionary creditor and debtor

Cession of Delictual Right 1. Primary legal relationship between cedent creditor and debtor Delictual Obligation 2. Obligationary agreement between cedent creditor and cessionary Contract of

Donation Transfer or Cession agreement between cedent and cessionary Cession of Rights

3. New right between cessionary creditor and debtor

1 Cedent Debtor 2 3 Cessionary

Requirements for Cession of Rights 1. Cedent must have a primary claim against the Debtor 2. An obligatory agreement must exist between cedent and cessionary, giving the

cessionary causa for the ceded claim a. Contract b. Sale c. delict

3. Both parties must have contractual capacity 4. The object must be capable of session

Prima Facie, all claims are capable of cession EXCEPT a. Claims of a personal nature

i. Delictus Personae rule ii. Test: Sasfin v Beukes par37

“Would the Dr be indebted in a substantially different obligation as a result of the cession “If so, it cannot be accepted” e.g. employment agreement or partnership agreement

b. Pacta de Non Cedendo c. Where it is prohibeted by law

e.g. cession of patent rights Note: Future rights may be ceded FNB v Lin

FNB v Lynn (Olivier JA)

“The position, in my view, then is that it has been accepted in commerce and by the Courts of our country for more than a century that future rights can be ceded and transferred in anticipando . The decisions of our Courts have thus been regarded for a very long period of time as being correct. Clearly these decisions have been acted upon and served as the basis for the general and well-known practice of taking security in the form of the cession of book debts (including future debts), cession of existing and future rights in securitatem debiti and factoring of existing and future rights. In these circumstances I am not inclined to hold that these decisions are wrong. Although there may be considerations of public policy militating against upholding the cedability of future rights (as to which see Lubbe ( op cit at 131-40)), they have not been canvassed in the present case. If it is considered that the present position needs review, that is a task that should be undertaken by the Legislature.”

5. Cession must be lawful and comply with the dictates of Public policy Sasfin v Beukes 6. Cession must not prejudice the Debtor

a. Process cannot split a claim against the debtor b. Cannot split the claim so that the debtor faces multiple actions c. The claim must be ceded in toto Blaikie v Lancestershire

i. The only time a claim can be split is with the debtor’s consent

Formalities d. None in the absence of clear statutory requirement e. Can be either a verbal or written agreement

Note: What happens to the document effecting the cession? Jacobson’s Trustee v Standard Bank If the document is merely evidence of a right, NO If the document is the right e.g. Negotiable Documents, YES Finding confirmed in Botha v Fick

“A right of action which has been embodied in a document and which cannot exist independently of the document, such as a negotiable instrument, should be distinguished from a right of action which is evidenced in a document but which exists independently of the document, such as a share in a company in respect of which a share certificate has been issued. Where the latter kind of right of action is ceded, neither delivery of the writing to the cessionary nor compliance by the cedent with the so-called doctrine of 'all effort' is a requirement for the validity of the cession (At 778G-I.)”

Notice It is not necessary to give notice, but it is advisable.

If the debtor doesn’t know he can discharge his obligation to the cedent and the cessionary will lose his claim

It is therefore in the cessionaries interest to serve the debtor with notice

Cessionary could however have an action for unjust enrichment against the cedent if he accepts the debtors payment as his.

Effect of the Cession

cedent is divested of his / her rights and falls out of the picture (the cedent cant claim from the debtor anymore).

The claim now vests in the cessionary’s estate and it does not matter whether he is liquid or insolvent.

But….the debtor can raise any defence available to him that he would have had against the cedent, against the cessionary.

This is because the causa of this original obligation does not change.

Cession In Securitatem Debiti

This is different from out and out cession

It is designed to secure a debt often loan or overdraft facilities.

In this instance the cedent does not fall out of the picture completely but retains what is known as a reversionary interest. In other words, once the loan is paid off, the rights revert to the cedent (1)

This is the same as a form of security ( a pledge)

It is a contingent right, if one defaults whilst the out and out cession comes into force immediately.... (2)

Its is a personal claim (3)

This is what Dr Beukes was trying to do in Sasfin v Beukes

Performance The effect of proper performance or payment is to release the party concerned from his

contractual obligation

Payment is the delivery of what is owed by a person competent to deliver to a person competent to receive. And when made it operates to discharge the obligation of the debtor.

Proper performance of a party’s obligation discharges not only that obligation but also any obligations accessory to it such as contracts of suretyship and pledge.

By whom must performance be made

The contract will determine it, usually the person upon whom it is imposed, especially if

delectus personae (in situation where only one person can perform the set task, in that

situation it is mandatory that the specific person perform )

Situations where another can perform on debtors behalf:

o Agent: mandated by the debtor to perform on their behalf

o Surety

o Some 3rd party can step in with or without the debtors knowledge e.g. Delegation

Performance of any obligation will be by the party upon whom that obligation is imposed. So it follows that performance may validly be made by him.

Contracts sometimes also provide for performance to be tendered by third parties. The 3rd party as a stranger to the contract is not bound to perform and if he does not the party who promised that he would is liable.

The creditor is entitled to reject performance by a third party if it is not in the name of the debtor.

A third party who performs in the name of the debtor is entitled to payment by the creditor of any security deposited or pledged by the debtor with the creditor unless the third party pays as the debtor’s agent. Creditor is however not entitled to proceed against the third party as there is no privity of contract between them.

To Whom Performance may be made a) To the creditor

b) To the creditors agent if they are permitted to receive performance

c) Creditor can specify who money should go to

Eg: A owed B, but B owes C, so B can ask A to pay C instead so as to discharge his debt this is usually for ongoing debts eg: paying ones monthly rent into the landlord’s bond this forms a subsidiary contract: adiectus solutionis causa

Place

Some obligations can only take place in a certain place eg. Transfer of property can only take place at the Deeds Registry

First port of call is to examine the contract and see whether the contract stipulates a particular place for performance

Eg: a branch specific bank payment

It is important to first look at the stipulation in the contract, only if the contract is silent

on a particular issue then look to customs/rules that apply to those types of contracts

In law of sale, it is your obligation to fetch the item from the seller.

Contract might stipulate time frame for performance

Each contract must be performed within a reasonable time

Time

Look at the contract

o Does the contract stipulate a specific time when the payment/performance must

be made

Rent payed on or before the 30th of every month

o If there is no time stipulation, look at what is reasonable time at which the

debtor can be expected to perform

Concrete Products Co. (Pty.), Ltd., v Natal Leather Industries

Plaintiff agreed to sell defendant a large number of steel corners for suitcases in different sizes, the agreement providing that several thousand of each size were to be delivered every week, and that the order for small corners was to be regarded as urgent. No time for the commencement of delivery was fixed. Plaintiff failed to deliver small corners despite defendant's insistence that the contract be carried out. He did, however, despatch medium corners which were accepted by defendant in terms of the contract. As a result of the non-delivery of the small corners defendant, about three weeks after the date of the contract, notified plaintiff of its cancellation.

What constitutes performance

Strict compliance – perform 100% (Creditor can refuse any vaguely inappropriate performance )

No instalments unless the parties have agreed to do so o Grotius: perform in a lump o National Credit Act: allows parties to change instalments and accelerate

performance

No election to pay damages in lieu of performance

No substitution (unless creditor accepts – datio in solution) o Can not substitute money payment for a commodity (bartering chickens in lieu of

doctors fees )

BK Tooling v Scope Precision Engineering

Court said that in reciprocal contracts a contractant has the right to receive full and complete performance. Part performance is not performance and therefore the strict legal position is that if builder tenders part performance and sues for money, one is entitled to use the exceptio and say part performance isn’t performance and therefore no payment at all. Courts reserve for themselves a discretion to award reduced counter-performance to the plaintiff. Strict exceptio is unfair but will only be imposed if certain requirements are met. Has the creditor utilised the incomplete performance? Mere acceding to land in the case of buildings doesn’t amount to utilisation. One has to move into the buildings for them to be considered as utilised. Are there special equitable circumstances that exist? (discretionary element) Debtor must prove what the reduced fee should be (usual test is full fee minus cost of rectifying the problem) In the case of BK Tooling v Scope Precision Engineering the AD reviewed in some detail, the principle of reciprocity and the exceptio non adimpleti contractus. The principle of reciprocity recognizes that in many contracts the common intention of the parties expressed or unexpressed is that there should be an exchange of performances. The exception gives effect to the recognition of this fact by serving as a defence for the defendant who is sued o the contract by a plaintiff who has not yet performed or tendered to perform. A defendant can only succeed with the exceptio if the plaintiff’s performance fell due prior to or simultaneously with the performance claimed from the defendant

Requirements:

There must be strict compliance

Unless specifically agreed upon, performance may not be tendered in instalments

The defaulting debtor may not elect to pay damages in lieu of performance. This is only at the prerogative of the Creditor

Performance must be in forma specifica

There may be no substitution of performance unless the creditor accepts o Datio in Solutum a substitution of performance in lieu of specific

performance

Payment:

S 14, 15, 17 OF sa Reserve Bank Act 90 of 1989

Obligations in money are regulated by this Act

If money is to be paid it must be done in legal tender (notes, coins and even gold coins are permissible in SA)

Rules about people paying particular amounts of debt in coins o Provided it is a reasonable amount one can pay in coins, but can not pay huge

sums such as school fees in coins

o Creditor allowed to not accept that as viable tender

Principle of nominalism: pay money specified in contract and if contract does not factor in inflation, one can pay the specified amount catered for

No Difference Principle: foreign exchange

One is required to pay the amount specified in the contract

The court will not calculate the amount for you

Payment by cheque is allowed but only once bank has honoured it, if the cheque bounces it is regarded as non payment

Special topic: Requirement of full and proper performance

Payments in Full Settlement

Eg. Debtor owes you R100, pays you R80, says won’t pay the erst. This is a regular occurrence. Debtors often dispute as to amount – “here is R80 in full and final settlement of my account”. Very often by cheque. What is effect on R100 debt if the creditor accepts the R80?

The debtor is still liable for the missing R20 and the creditor is entitled to request for the remaining amount

Depends on interpretation of parties’ relations

Two possible scenarios: Admission of liability, but believes he owes less, and pays that much only.

Unconditional tender or payment animo solvendi ie he asserts his view of the extent of his liability

Conditional payment: intention to create a compromise whereby that will be the end of the claim. Tender or payment animo contrahendi.

What is the effect of attaching the words “ IN FULL AND FINAL SETTLEMENT “ to a

part payment

Harris v Pieters: traditional approach

P bought good son account from H

Two accounts outstanding

P accepts the one and disputes the other

P accepted the partial payment and sued for the balance

Andy’s Electrical v Laurie Sykes

A did work 4 S

S drew up his own account and said that it was paid in full

A accepted S’s partial performance and sued for the balance

Legal position: Harris v Pieters: traditional approach

It depends on how the nature of the payment and the facts between the parties are

interpreted.

This approach commonly used in dealing with cheques

The action in Harris could mean one of two things:

1. Admitting liability but disputing amount. Unconditional tender or payment animo solvendi (intention of clearing of what is unsettled between the parties).Simply asserts his view of the extent of the liability

2. Could settle the undisputed amount and litigate on the amount still owing.

Conditional payment. Intention is to create a settlement/compromise. The payment is made with the intention of settling the entire debt and making the whole arrangement go away. In this instance, the remainder of what is claimed is discharged.

Modern approach:

Apply the principles of offer and acceptance rather than language of

tender and conditions

Paterson Exhibitions v Knights advertising & marketing

ABSA Bank Ltd v Van Der Vyver

If court interprets payment of lesser amount as an offer, then it gets late for creditor if he accepts it. A very factual situation.

With direct banking its different and therefore do not accept partial payment.

Termination of contract on notice

Usually for long standing contracts

a) Expressly: esp in leases

Eg: on due notice one is allowed to terminate their lease on due notice of usually a month

Hybrid contracts: have a fixed time as well as termination option

b) Impliedly: situation where the contract is silent as to when it terminates

Then use reasonable time test: where reasonable time has passed, person can terminate the contract on reasonable notice (reasonable tested as to what is reasonable in those types of contracts)

If decided that the contract can be terminated by reasonable notice, then Smalberger JA

in Putco:

Either party entitled to give notice for any valid commercial reason

Reasonable is a relative term – what reasonable is depends on circumstances of case

Notice of termination must be clear and unequivocal

Termination of contracts by law:

Ideal: contract will be performed properly

Supervening impossibility of performance o Where an event beyond control of the parties supervenes making fulfilment

impossible o Peters Flamman & Co v Kokstad Municipality

The Germans who were kicked out of their company and sent to jail by Smuts

Insolvency (individuals), Liquidation (companies) o Does not terminate contract immediately o A trustee/judicial manager of somekind will take over the persons affairs and it is

up to them to sort out matters of pre-existing contarcts o Trustee will elect whether to terminate or settle it or keeping it going if its in the

best interests/benefit of the estate o Governed by the insolvency Act

Death: executor of estate will wind up contracts

Merger (confusio): the concurrence of two qualities/capacities in the same person which mutually destroys the separate obligation

o Eg: tenent in terms of lease buys the house. The lease contract will terminate as a result of the merger of creditor and debtor in one person

Set off: compensatio o Where two parties are reciprocally indebted to one another by reasons of

distinct obligations, one debt can be set off against the other. o Applies to liquidated claims only (ie money only and not for pending debts)

X owes Y R1000 for a couch (sale)

Y owes X R1000 for rent (lease) o By process of set off debts settled

Usually: X owes Y R1000 and Y owes X R500. Y’s obligation is discharged and X’s debt is reduced to R500.

Prescription (VIP for practice)

Because of the passing of time a person can acquire/lose rights

The enforceability of obligations is limited by time

2 types

Acquisitive prescription: acquiring of property (rights of ownership)

Extinctive prescription: certain rights disappear by effluxion of time (relevant to the law of contract).

o Chapter 7 of the Prescription Act 58 of 1969 o Refers to prescription of debts (any claim to performance ito an obligation) o Enforceability of certain obligations is limited by time. This ensures finality in

business affairs and provides an incentive for people to claim their rights when

they become due.

s 10 stipulates: general run of debt, looking at the nature of debt and look at the rules of prescription in that context

s11 stipulates: residual period. Usually have 3 yrs to make ones claim otherwise it falls away

s 12: from when prescription runs, from the time the debt becomes due eg: three years after a delict is committed against you.

S 12 (3): qualification of rule of prescription Can be affected by creditors ignorance of their rights S12 (3): a debt shall not be deemed to be due until the creditor has

a. Knowledge of the identity of the debtor & b. Facts from which the debt arises c. Provided that the creditor shall be deemed to have such knowledge, if

he could have acquired it by exercising reasonable care. Prescription will be back dated accordingly if necessary.

Gericke v Sack Delict case where G was injured when Sack’s motorboat crashed into her. On 14/2/1974

summons served against Sack. Had the claim prescribed? G said technically under s 11 (d) it

had prescribed. He however used s 12 (3) because she only acquired identity if motorboat

driver after a while. Court didn’t agree and found on the evidence that she could have

simply asked who the person was.

Jacobs v Adams J was a passenger in Adams’ vehicle in August 1988. A huge crash occurred and Jacobs

became a paraplegic and suffered memory loss. Adams told J that a hit by a car from behind

had caused the accident. It had been a hit and run so there was no one to sue. J sued Road

Accident Fund for compensation. It was later discovered that Adams had caused the

accident and Jacobs then sued him. Clearly in this case Jacobs had no knowledge of the

debtor or of the true facts of the accident. The claim was well within the three year period.

Interruption:

S 15 (1): the running of prescription shall be interrupted by the service on the debtor of any process whereby the creditor claims payment of the debt.

As soon as one serves the summons, prescription is interrupted.

BREACH

Forms of contractual breach

1. Ordinary breach/positive malperformance 2. Mora or negative malperformance 3. Repudiation and anticipatory breach 4. Prevention of performance (v.rare)

Ordinary Breach/Positive Malperformance

Kerr 601: if without lawful excuse a party fails to do what he has contracted to do or does what he has contracted not to do, an ordinary breach of contract is said to have occurred.

All terms are susceptible to breach (so both +ve and –ve obligations can be breached)

Requirements

1. Debtor must have performed 2. The performance is not good enough/ is defective

Holmedene Brickworks v Roberts construction

Respondent, which carried on business as building and H engineering contractors, had contracted to purchase bricks from the appellant, which carried on business as the manufacturers and sellers of bricks in certain walls of a building being built by the respondent with bricks supplied by the appellant, respondent contended that a substantial portion of the bricks used were found to be defective, necessitating the demolition of such walls. Respondent had purchased other bricks from another brick company. The appellant was sued for consequential damages arising from the breach of contract. On 2 July 1975 judgment was granted in the respondent's favour. No interest had been claimed and naturally none was awarded in an appeal by the appellant the respondent applied, by way of an amendment, for (1) interest at six per cent from 2 July 1975 and (2) interest at 11 per cent from date of judgment in the Appeal Court in terms of Act 55 of 1975. Only the first application was opposed. Held , on the evidence, that appellant had sold respondent bricks containing a latent defect. Held , further, that the demolition of the walls was a natural A and foreseeable consequence of the seller's default. Held , further, that the respondent had acted reasonably in demolishing the brickwork.

3. Fault is irrelevant ( assumed)

Enquiry is strictly based on contract

Mora or Negative Malperformance Delay = all about failing to perform on time. It is also known as negative

malperformance

In the law of contract mora means delay without lawful excuse of the performance of a contractual duty or a wrongful failure to perform timorously.

Types:

Mora debitoris (delay on part of debtor)

Mora creditoris (delay on part of creditor)

Mora Creditoris

When the person who is due to receive the performance is unavailable/ inaccessible for the performance to be delivered/ delays the performance

the debt must have been capable of being fulfilled

the debtor must have tendered proper performance

the creditor must have wrongfully failed to receive the performance

The delay must be the fault of the creditor

eg lease contract where I am a tenant. Term in contract requires me to pay rent on last day of the month at landlord’s house in cash. I go to pay and there is no one. I can’t pay on time and therefore there is mora creditoris.

It is rare that a creditor will be the stumbling block in performance of a contract. The reality is that most cases it is mora debitoris

Mora Debitoris

The debt must be due, enforceable and possible to perform

The performance must not have occurred

The delay must be wrongful

Delay must be the fault of the debtor

The time of breach depends on whether it is a case of mora ex re or mora ex persona

Mora Ex Re

Delay out of the thing o Determined from the contract o Look to contract to tell you when performance was due

3 situations:

1. Time is expressly fixed on the contract

a. Eg: performance on a specific date or within ten days

b. As soon as this time lapses you are in mora

2. Time is expressly fixed by necessary implication

a. eg: if you have a ticket for the opening ceremony of the World Cup, the ticket

needs to be provided to you before the ceremony starts

3. Where it can be implied that performance must occur immediately – creditor need

make no demand.

a. Eg: if your geyser bursts its implied that the plumber must come immediately

b. Broderick Properties Ltd v Rood

“If no time for performance was expressly stipulated in the contract but by

necessary implication it can be shown that performance by some specific time

was intended, and was essential.” –Colman J-

Mora ex persona Where there is no express time for performance, there will be no mora until the creditor has

demanded that performance must occur at a specific time

Requires interpellatioto (a demand for performance at a specified time) in order to fix

the date of performance

Eg: property developer seeks an agent to find him a golf course designer. The

property developer does not give a specific time (open agreement). Only when the

property developer (creditor) has given a specific date for performance can the

agent be in mora for not performing at that time

The interpellatioto can be written or verbal

Time within which performance must occur must be reasonable

Willwdene Landowners v St. Martin’s Trust 1971

Willowdene Land Owners v St Martins trust In this case the court addressed how it is ascertained whether the creditor’s demand

allowed the debtor a reasonable time period to perform or not, through the asking of three

questions (note that the reasonableness of the demand depends very much on the facts of

each individual case):

What was the intention of the parties?

What was the nature of performance due?

The debtor should have performed with due diligence

Factors to consider

o Nature of contract

o Nature of performance due

o How difficult or easy is the performance to do

o What difficulties can be foreseen to getting performance

o Commercial interests of parties

o Performance tendered with due diligence

o Consider time that has lapsed since contract was concluded (how much longer

can one be legitimately be expected to wait)

Alfred McAlpine & Son (Pty) Ltd v Transvaal Provincial Administration

Consequences of mora and other forms of breach:

o Remedies: specific performance, cancellation, damages (financial compensation)

o For mora: can ask for specific performance and damages but cancellation is

different

o Damages ito of mora: can claim interest if payment owing (% interest calculated

at the prescribed interest rate which is currently 15%)

Eg: claim money owed and interest one would have earned had the

money been in their hands

o Allowed to claim arrear interest in terms of mora

o Acceleration clauses: if one defaults ito time any payments that are owing down

the line, the creditor is allowed to demand all these payments immediately

o Look at acceleration clauses ito National Credit Act: these are still allowed but

slightly different than common law understanding

o Increasing interest rate: it is possible to have the payment made subject to own

interest rate, but this is subject to the test of reasonableness

They can be claimed in a couple of ways.

The parties themselves come to an agreement, settlement / compromise either by lawyers or personally eg arbitration.

Seeking a court order to enforce your remedy. In particulars of claim you make ‘prayers’ and stipulate to the court what remedies u want.

Remedies are aimed at performance or cancellation plus damages in either case.

Repudiation and anticipatory breach

Repudiation

Repudiation consists in words or positive conduct indicating an unequivocal intention on the part of either party not to be bound by the terms of the contract

A deliberate breach of a single provision in a contract where that provision is essential to

the contract amounts to a repudiation of the whole bargain.

Repudiation entitles innocent party to cancel and also relieves him of the obligations arising out of the contract. Theoretical basis:

English law origins Theoretical justification: Roman Dutch Law Underpinned by requirement of good faith (Tuckers)

Types: all treated as one type of breach

1. Repudiation (ordinary repudiation): occurs when obligation is already owing

Eg 1: An illegitimate claim (malifide) or a statement that they can not perform

Eg 2: Denial that the contract is binding to them/denial of the existence of an obligation (an attempt to walk away from the contract without legal grounds)

2. Anticipatory Breach: repudiation b4 time that the obligation is due/in anticipation of obligation to come

Requirements for repudiation:

Intention not to be bound must be communicated

When obligation is owing (ordinary repudiation)

Prior to obligation coming into force

Communicated by words or conduct or both

Eg: breach of engagement promise

Test is objective

i. Not whether person thinks they have repudiated in the subjective sense ii. Ask how would the reasonable person assess the actions of the alleged

repudiating party (a matter of perception) iii. The test that must be applied is whether they acted in such a way as to lead a

reasonable person to the conclusion that they did not intend to fulfill their part

of the contract.

iv. Must be a major breach v. It must be a serious denial of a material obligation that goes to the heart of the

agreement

Examples:

Tucker’s Land and Development Corporation v Hovis

Stewart Wrightson (Pty) Ltd v Thorpe

Culverwell v Brown

Remedies:

These can be claimed as soon as the breach occurs

Ability to institute proceedings immediately useful in cases of anticipatory breach

Do not have to wait for the date when person was supposed to perform

Specific performance

o This is the basic remedy

o When u enter into a contract u expect performance

o It upholds what is known as your „expectation interest‟

o This is contrary to English law

Damages preferred in English law

Specific performance was seen as a special discretionary remedy that

could only be sought in special circumstances

o Specific performance is however not absolute. An aggrieved party‟s right is limited.

There are circumstances where the court will not grant specific performance.

1. Relative impossibility

Where the specific person can not perform

Eg: can not force an injured pop star to play a gig because it would be

impossible

2. Insolvency

If you have no money it is impossible to pay because you have no

power over your estate

3. Where the court exercises a discretion not to order specific performance on

grounds of public policy

Marriage

Haynes v King William’s Town Municipality (1950)

Where the cost to the defendant in being compelled to perform is out of G all

proportion to the corresponding benefit to the plaintiff and the latter can equally well

be compensated by an award of damages, the hardship of the contract at the time it

was concluded is not decisive of the matter; the matter may also be judged of at the

time performance is claimed.

Santos Professional Football Club v Igesund (2003)

The instant appeal concerned the right of the Court to order specific performance of a

contract for personal services. The first respondent, a football coach, had entered into

a coaching contract with the appellant club. The contract provided that a breach by

either E of the parties entitled the other either to cancel the contract and claim

damages or to claim specific performance. Before the expiry of his contract, the first

respondent was made a more lucrative offer by the second respondent, and proceeded

to give the appellant notice of termination. The appellant elected to enforce the

contract and sought: (1) a declarator that the contract was binding on the parties; (2)

an order compelling the first respondent to F continue serving as head coach of the

appellant's football team; and (3) an order restraining the second respondent from

taking any action designed to induce the first respondent to breach the contract.

Held, further, that the English common law regarded specific performance as

supplementary to the remedy of damages. It was never granted where damages

provided adequate relief. The rule was based on public policy and the feeling that it

was improper to make a person serve another against his will. South African law, in

contrast, regarded specific performance as a primary, not supplementary, remedy. A

(At 84E - I/J.)

Benson v SA Mutual Life Assurance Society 1986

The granting of an order of specific performance is entirely a matter of the discretion

of the Court in which the claim is made and, apart from the rule that such discretion is

to be exercised judicially upon all the relevant facts, no rules should be prescribed to

regulate such discretion - such rules would inevitably curtail the Court's discretion

and would negate or erode the plaintiff's right to select his remedy. The English rules

regulating their Courts' discretion to order specific performance are predicated upon

that remedy being available by way of equitable relief only; they are inappropriate in

our law and the indiscriminate following of English cases in this regard is to be

decried.

These cases set out guidelines to be taken into consideration where the court is asked

to grant specific performance.

Where performance is personal (Santos)

Where it is difficult for the court to enforce its decree since it would have to supervise

it

Where performance would severely prejudice 3rd

parties

Court will not award specific performance where damages will adequately compensate

the plaintiff

Reciprocity (VIP!!) In reciprocal (synallagmatic contracts)

One party agrees to perform in exchange for counter performance by the other

So in the principle of reciprocity, Y cannot demand specific performance from X until

Y has tendered his part of the performance

The exceptio non adimpleti contractus principle: X‟s defense to a claim for specific

performance by Y, refuting special performance claim if Y has not himself performed

RD remedy

o Eg: contracts of sale and lease, contracts of mandate, contracts of insurance,

building service contracts

o Eg: X sells a car to Y, if Y doesn‟t have the money X can refuse to give him

the car

o Eg: contracts of mandate: real estate agent claiming commission before sale of

house, one can use exception non adimpleti contractus to refute claim for

specific performance

How do the parties proceed

The defaulting will have to go back and arrange for proper performance

Y must do what he promised to do (pay for the car) before he can be entitled to what

he is reciprocally owed (the car)

The contract could possibly be cancelled in which case restitution of the part

performance would have to occur

o X orders 500 from Ycabinets to be delivered on a specific date

o 400 delivered= improper performance

o Y invoices X for 500 cabinets

o X refuses to pay= exception non adimpleti contractus

o Y could deliver the outstanding 100 and claim the money owed

o X wont accept the late tender of the 100 cabinets and wants to cancel the

contract (restitution)

Relaxing the rule:

o Cases of incomplete performance

o Q: debtors rights if the incomplete performance can not be returned

o Eg: X builds 70% of a house

o Y wants it complete before he pays

o X can not complete house because doesn‟t have money to complete the job

o X sues Y for payment of the 70% of the job

o Y cant give back the performance tendered by X

Bpk Tooling case: defences to exception

Jansen Jas

Discretion of the court to reduce counter performance (3 principles to consider)

Confirmed reciprocity principle: an incomplete performance can not be equated to due

performance

But that would be strict application of exceptio and too harsh on the debtor

Thus in this circumstance court will accept partial performance

3 principles to consider

Has the creditor utilised the incomplete performance?

Do special equitable circumstances exist (mitigating factors that garner the courts sympathy)

Debtor must prove what the reduced fee would be (usual test: full fee- const of rectifying the

problem)

Thomson v Scholtz

Couldn‟t use test in Bpk Tooling because here the performance could not be repaired

So how do you fix it: used analogy of lease

Remission of rental to award Thompson 75% of his original claim

Cancellation

Consequence of a valid contract

Cannot be claimed in all circumstances

It is an extraordinary remedy and can only be claimed in specific circumstances of breach

Nash v Golden Dumps 1985

Cancellation is at the election of the aggrieved party

It is not an automatic consequence

If the breach is minor u can rely on specific performance and claim for damages

Basic Principles Cancelation will be awarded when:

1. There is a cancellation/forfeiture clause Lex Commissione

a. If there is a cancellation clause, it doesn‟t matter whether the breach is major

or minor

Oatorian Properties v Maroun 1973

Lease for parking space ONLY

Maroun cancelled the lease because the space was used for storage during building and not

parking as originally agreed

Court held that it does not matter how minor the breach is, if there has been as set agreement

parties can not do what ever they like

Where the breach is a major breach

The breach goes to the heart of the agreement

Common law: ito equity it is kinder

Looks at merits of the case and whether it would constitute a major or minor breach

2. The breach is a major one

a. The Court will take into consideration:

i. The nature of the breach [Common Law]

ii.

Swartz & Son v Wolmaransstad Town council 1960

The court looked at the nature of the breach and how severe it was in order to ascertain

whether it was indeed a major one.

There is thus a need to interpret how important a clause is to the contract.

Courts take the value judgment approach to show that there has been a breach.

Hiemstra J

“A major breach goes to the hear/ root of the contract or affects a vital part of the

obligationsThere is no substantial performance, it must amount to a breach so serious that

the other party can not reasonably be expected to continue with the contract

Test of severity and degree: a common sense value judgement

Based on case facts”

Thus, the court will consider the breach a major one when:

1. There is no substantial performance

2. Cannot reasonable be expected to continue with the contract”

Eg digs lease contract…u give your landlord rent money 2 days late (mora debitoris)

but is it a major breach? NO!

Aucamp v Morton 1949

In May, 1947, respondent purchased a forest and agreed to be bound by a contract between

the then owner and appellant whereby appellant had acquired the right, upon certain

conditions, to fell and remove timber therefrom. In July, 1947, respondent directed

respondent's agent G., who was in charge of felling operations, to discontinue them and

subsequently, after a discussion of the terms of the contract with appellant, had cancelled the

contract and refused to allow appellant access to the forest. Appellant had thereupon

instituted an action claiming an order restraining respondent from interfering with appellant's

rights under the contract and for damages. In his plea respondent had set up the defence that

appellant had broken the contract and that he had therefore been justified in denying appellant

access to the forest, and in his claim in reconvention respondent had asked for an order

cancelling the contract and for damages. A Local Division found in favour of respondent and

granted an order cancelling the contract - relying on a breach by the appellant in that, of the

timber felled by him, he had failed to remove all sound and merchantable timber complying

with the measurements mentioned in a clause of the contract. In the appeal to the Appellate

Division,

Held , on the facts, inter alia , that the amount of timber which had been left to rot did not

amount to a large quantity, that it did no harm to the forest, that the contract specified no time

limit within which felled timber had to be removed, that respondent himself had attached

little importance to this breach, that it was not due to any deliberate act on the part of the

appellant but to neglect on the part of one of his servants and that it was very easily

remediable.

Thus in this instance the court did concede the fact that there was indeed a breach but such

breach was not major as it did not go to the root of the contract.

Strachan v Prinsloo 1925

An agreement between plaintiff and defendant imposed on plaintiff the duty of managing

defendant's farm so as to relieve defendant of all duties of supervision. Plaintiff in spite of

warnings persistently and continuously failed to attend early in the morning and late in the

evening when important duties of supervising had to be done, with the result that such duties

had to be performed by the defendant. Finally plaintiff on three successive days did not

appear on the farm at all, whereupon defendant cancelled the agreement.

Held, that in order to determine if the cancellation was justified, the test to apply was whether

the plaintiff had failed to perform a vital term, express or implied, of the agreement; that an

important factor in deciding whether such term was vital was the question whether defendant

would have entered into the agreement in the absence of such term; that plaintiff had in fact

failed to perform a vital term, and that defendant was therefore justified in terminating the

agreement.

A serious violation of duty by one partner justifies the other in terminating the partnership.

The election : Segal v Mazzur

1. Made by the aggrieved party:

it is a unilateral juristic act

do not need court order to cancel

court merely confirms the appropriateness of the election

2. within reasonable time

3. once the decision is made it is final

4. must expressly be communicated to the other party

conduct is also indicative of cancellation, but ideal is to expressly

communicate cancellation

5. election: a question of fact

either cancelled or the other party has a reasonable defence (waiver or

estoppel)

waiver or estoppels can be based on past conduct/ previously

spoken/written waiver of right to cancel

When does cancellation take effect o When the other party is informed of the cancellation (ex nunc= from that point

onwards)

o It is not recission which applies to voidable contracts (= ex tunc= from the

beginning of contract)

Consequences of Cancellation Unexecuted obligations disappear

Accrued rights continue to be enforceable

If performance has occurred, restitution will have to flow, if it is relevant. If relevant

it must be reciprocal

o Eg: leasee cancelled because 3 months rent owing

o land lord can still ask for the outstanding rent despite cancellation

Where reciprocal restitution will not be required:

o Thing is destroyed by vis maior , casus fortuitous

o

Hall-Thermotank v Hardman

o Destroyed because of the breach

Marks v Laughton

o Fair ware and tear

Feinstein v Niggli

Cancellation in cases of Mora 1. Where the contract contains a forfeiture clause

2. Where time is of the essence: delay constitutes a major breach

3. Where time is not of the essence:

A breach of time won‟t necessarily constitute a breach that allows one to cancel.

The creditor, once mora, has occurred is allowed to make time of the essence

(notice of the right to rescind) after which he or she can cancel. The creditor

reserves for him self the right to cancel. (this is however not an interpellatio

because the latter determines when mora will occur)

There is thus a difference between the actual breach and the power to cancel.

Damages

A claim to compensate for financial loss suffered as a result of the breach

In addition to the other remedies, one can also claim for damages where it is appropriate

Basic Requirements:

Breach of contract a. Requirements set out above for breach

Actual Loss/damage must have been suffered b. Some additional consequential loss

Victoria Falls and Transvaal Power Co Ltd v Consolidated Langlaagte Mines Ltd

Innes CJ

Must apply the general rules that govern breach

“The sufferer, by a breach of contract to supply a commodity not procurable elsewhere

should be placed in the position he would have occupied had the contract been performed so

far as that can be done by the payment of money and without undue hardship to the

defaulting party, but the defaulting party is not liable for special consequences which could

not have been in his contemplation when he entered into the contract.”

Patrimonial loss only: damnum energens (losses actually incurred because of the breach)and

lacrum cessans (prospective damages / loss of profits which would have been made in the

future)

TRADITIONAL TEST: the difference test or theory.

One takes the difference between the hypothetical position (position you would have

been in if the contract had been properly performed) and the actual position (the

actual value of your patrimony)

Positive interesse (contractual) v negative interesse (delict)

Trotman v Edwick

“The litigant who sues on delict sues to recover the loss which he has sustained because of

the wrongful conduct of another, in other words that the amount by which his patrimony has

been diminished by such conduct should be restored to him.”

Financial interest you have lost on (not % interest but simply financial loss)

CONTRACTUAL TEST

Had contract been done properly (+ve interesse) vs position you would have been in

had the delict not occured (-ve interesse)

Scholtz

Traditional test: you claim your expectation interest

But sometimes that doesn’t work

So the courts do allow you to claim your reliance interest (to allow you to claim the loss

caused by your reliance on the contract being properly performed)

Different measures in expectation and reliance interests

Eg: X wants to go see Seether in concert in Durban

- X pays to get there (transport, accommodation etc)

- X entitled to restitution for ticket BUT what of money spent on getting there etc

- Expectation: had concert happened, that money X spent would have been spent

- BUT money still spent BUT no concert, so technically there is no loss because money

would have been spent anyway, but in this case money spent in vain

- therefore courts flexible in this regard to loss and X is able to claim the excess amount he

spent getting there etc (reliance interest calculation)

Factual causal connection between the breach and loss Factual Causa “SINE QUA NON” or “BUT FOR” TEST

The Court will ask “Did the loss arise out of breach as a matter of breach?”

But this opens up the possibility of an infinite regress since almost anything following the

breach can be connected to the breach

Thus:

Legal causation This limits the extent of the claim

Was the damage reasonably foreseeable and not too remote?

But what is “Reasonably Foreseeable”?

Holmdene (Sets the guidelines for remoteness or foreseeability)

Corbert J

“To ensure that undue hardship is not imposed to the defaulting debtor, it is limited to 2

categories”

General damages:

Those that flow naturally and generally from the breach as could be construed to have been

agreed upon by both parties

Special damages:

Damages caused by breach but usually too remote to be recoverable unless the parties

actually or presumptively contemplated them

The difference between general and special damages however rests on the nature of the

contract.

Calculation 1. Factual causation: did the breach cause the loss

a. The BUT FOR test, was the breach the sine qua non /absolute cause of the

loss

2. There must be damage or loss

a. Can have breach but no loss

b. eg lease: can swop tenants

3. legal causation

a. limitation on claim

b. must be able to connect the damage to the breach

Holmdene Brickworks case: damages suffered by person who commissioned the work

(general damages)

Problems with builders and cstck market crashes (remote and unforeseeable special

damages)

Damages must be those which flow naturally from that type of breach (parties would have

contemplates the possibilities): usually granted and easier to prove

Remote or special damages could be specially factored into the contract, but these are

generally harder to prove

Could include loss of business reputation

Lavery v Jungheinrich

Lavery sells Jungheinrich defective construction steel poles

Jungheinrich loses money and business because of Lavery‟s defective stuff which includes

loss of reputation

How far do special damages go?

3 things to be proved with special damages Lavery v Jungheinrich

CONTEMPLATION PRINCIPLE

1. The damages were in the contemplation of the parties at the time they contracted, the

damages were foreseeable

CONVENTION PRINCIPLE

2. Contract entered into on the basis of or in view of these special circumstances

3. Defendant must be shown to have contracted (impliedly) to pay such special damages

if breach occurred

o Therefore must demonstrate the contemplation principle and convention principle to

prove special claim for damages

o Look at the contract and whether it was made subject to such damage consequences (this

is an artificial situation= idealistic because most people do not contemplate remote forms

of breach that‟s why they are called remote damages)

o There is, however, universal doubt of this test

o It implies a requirement on the part of the contractants to envision their

relationship as doomed from the start in order to protect themselves

The reality of the matter is that the contractants are hopeful in their

expectations upon one another and do not/are not contemplating these

remote damages

Scott J “The test has logical deficiency”

Thus:

This test‟s extremely artificial conditions make it impossible to claim

special damages

As Such:

Element one [The Contemplation Principle] should be the only elemnt to

prove for the test

But:

In Shatz, The Appellate Division was able to find all three of the elements

established in Lavery which poses the question: is the test as logically

deficient as Scott J held?

Shatz Investments (Pty)Ltd v Kalovrynas (VIP in showing problems of this test)

Court could fulfil all requirements but agreed that it was still a crappy test.

Thus chose to not disturb precedent and the Lavery test still holds

Time when calculated Calculated at time when breach occurred

VIP for fluctuation economy

Claims for future profits: you would have to look at when performance was due

There should be no undue hardship on the party:

Only one action is allowed, the creditor may not sue the debtor repeatedly for residual

problems over and over for the same issue

o The creditor can wait until the full extent of the damages has manifested itself

[subject to 3-year prescription rule]

o The creditor may sue for damages straight away, proving: past, present and future

damages

Mitigation of Loss

o Creditor cannot allow the loss/damage to mount up on the principle that the

reasonable person will and must minimise the damage

o This was argued by Holmdene as they said that instead of demolishing the

building a sealant could have been used. Court did not agree.

Note: The Courts will take a fairly robust approach to ensure that these two principles do

not conflict, Thus the test will be two-fold:

o Was there an attempt at mitigating the loss? > Can we proceed with the

action

Apportionment of Damages

Concurrent causes leading to the damage o X fails to perform adequately: structural problems

o Y fails to perform adequately: messed up building

o Therefore X and Y both caused the loss

o Traditional approach: simply X must prove Y is a cause, not necessarily the

dominant cause, but if X can prove Y is partly responsible

o RULE: the defendant will be 100% responsible for loss if they were in breach

(complete liability of defendant)

Apportionment of Damages Act 34 of 1956 Act a means of combating concurrent damages problem in law of delict and reduce

impact of defendant‟s complete liability

Act allows for the apportionment of damages based on contributory damages

o Eg: X injurs Y whilest driving negligently (80% cause)

o Y wasn‟t wearing a safety belt and sustained greater injuries (20 % contributory

damages)

o Court will take Y‟s negligence into account when calculating damages awarded to

Y.

o Damages awarded to Y will thus be reduced by 20% based on their responsibility

in the situation

Thoroughbred Breeders’ Association v PriceWaterhouse (See Kerr 776)

Wanted to apply the apportionment of damages test to contracts as well

Court a quo stated that apportionment appropriate in this case

SCA: the Act is meant for delict and not for contractual damages

In breach of contract you do not have to prove intention/fault therefore its not

applicable

Kerr: use causation because it is an element of breach (contributory causation)

This case led to new legislation for auditors: Auditing Profession Act 26 of 2005

Allows for contributory apportionment on cases where auditors are involved in breach of

contract

Interdict o Appropriate remedy to prevent breach or threatened breach of contract

o Eg:restraint of trade clauses

o Can get an interdict to stop person from continuing to violate the restraint of

trade

o Court will order defendant from doing whatever is specified in the order

o Disobedience punishable as contempt of court

o Interdicts as enforcement of order of specific performance or for the protection of

other rights.

Penalty stipulations Conventional Penalties Act 15 of 1962

o Establishing the quantum of damages

It is possible to predetermine damages in your contract

o eg: should any one breach the damages will be R100 000.

History of Penalty clauses

o Roman Law: stipulatio poenae: agreeing before hand to damages

o English law: unenforceable and considered to be contrary to PP

o SA: initially we followed RDL, but till 1950 the Privy Council in English was our

highest court of appeal and the Pearl Assurance Co v Union Government 1934

kicked this rule out of our law

Baines Motors v Piek: Van den Heefer JA discussed Pearl Assurance case decision

Led to the passing of the:

o Conventional Penalties Act: which brought us back to the RDL stance

Advantages:

Act acts an incentive for people not to breach and encourages

people to perform properly

It also makes it easier to determine damages in cases of breach

Easier to enforce for creditors

Easier for the defendant because liability is certain and they know

where they stand

Very common to find stipulatio poenae in building/architectural contracts

especially with regards to mora

Object of the Act: penalty stipulations enforceable at law, and to ensure

that unfair or excessive penalties are not exacted.

KEY ISSUES

s1: Formal Introduction into SA Law

“any person shall in respect of an act or omission in conflict with

a contractual obligation” be liable to pay a sum of money or to

deliver or perform anything for the benefit of the other

person...either by way of penalty or as liquidated damages

o Not a roukoop/roukoop clause: a clause that requires you

to pay some penalty if you withdraw from the contract

o Eg: withdrawing from your lease (no breach) but the lease

requires you to forfeit your deposit if you push off

o decide whether or not the term is a penalty stipulation –

and thus application and execution controlled by Act rather

than common law

s2(1): penalty clause is an alternative to damages

o prohibits recovery of penalty and damages for the same

breach and the recovery of damages in lieu of the penalty

unless the contract so expressly provides.

s3: reduction of penalty on grounds of prejudice

o if damages suffered are less than amount envisioned in

clause, court can reduce the amount in certain

circumstances

o try make it proportional to damage/loss suffered

o but courts CAN NOT increase the amount from what was

envisioned in contract

o can factor in emotional distress etc.as damages in set

penalty which is usually not allowed in calculating

damages for contract

o this section is hardly applied

o “the court may reduce the penalty to such extent as it may

consider equitable in the circumstances” Everything must

be taken into account or brought to the notice of the Court

(that hurt the creditor) in deciding whether the penalty is

out of proportion to the prejudice suffered by the creditor

as a result of the act or omission of the debtor. Test:

subjective one of prejudice Van Staden v Central SA

Lands and Mines.

o Can include inflation increases