Contract Law: Debtors and Creditors

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Questions and Answers

What must a creditor do to place a debtor in mora when no time for performance is stipulated in the contract?

  • Automatically place the debtor in mora
  • Issue a letter of demand (correct)
  • Offer a new contract
  • Wait for a reasonable time after the contract conclusion

A debtor automatically falls into mora when they receive a letter of demand from the creditor.

False (B)

What is perpetuation of obligation in the context of mora debitoris?

It is the continuation of the obligation due to the debtor's failure to perform on time.

A debtor falls into mora when a creditor sends a demand and the _______ period passes.

<p>demand</p> Signup and view all the answers

Match the following terms with their definitions:

<p>Mora ex re = Debtor falls into mora automatically when time is stipulated Mora ex persona = Debtor falls into mora after demand period passes Perpetuation of obligation = Continuation of the debtor's obligation due to delay Creditor = Party that demands performance from the debtor</p> Signup and view all the answers

What are implied terms in a contract?

<p>Terms not explicitly agreed upon but form part of the contract (D)</p> Signup and view all the answers

Ex lege implied terms are those that are imported into a contract by custom or trade usage.

<p>False (B)</p> Signup and view all the answers

What must be considered when determining implied terms in a contract?

<p>Fair balancing of interests, community requirements, legal certainty, coherent rules, good faith, and constitutional values.</p> Signup and view all the answers

In contracts of lease, it is not necessary for a tenant to stipulate the duties of the __________, as the law provides what their obligations are.

<p>landlord</p> Signup and view all the answers

Match the following concepts to their descriptions:

<p>Ex lege implied terms = Imported into contracts by law Standard terms = Pre-formulated by one party for repeated use Custom or trade usage = Default rules in a contract Good faith = A principle ensuring fair dealings</p> Signup and view all the answers

What happens if A delays taking delivery of a house after B has completed the building and an earthquake destroys it?

<p>A must pay B the full contract price (B)</p> Signup and view all the answers

Positive malperformance occurs only when the debtor performs without fault.

<p>False (B)</p> Signup and view all the answers

What can an innocent party do in the case of negative malperformance?

<p>Apply for an interdict</p> Signup and view all the answers

What can the holder of a right of first refusal do upon a unilateral declaration?

<p>Create a contract on the same terms as that agreed with a third party (B)</p> Signup and view all the answers

If delivery is _____ and defective, it is considered both positive malperformance and mora.

<p>late</p> Signup and view all the answers

What are naturalia in the context of a contract?

<p>The essential terms of the contract (A), Terms that can be excluded by express agreement (B), Dynamic factors that can change over time (C)</p> Signup and view all the answers

A party can claim both specific performance and cancellation as remedies at the same time.

<p>False (B)</p> Signup and view all the answers

What is one of the means of enforcing an order of specific performance in cases of non-compliance?

<p>Contempt of court proceedings</p> Signup and view all the answers

Which of the following is NOT a remedy available to the aggrieved party?

<p>Demand a refund for any expenses incurred (A)</p> Signup and view all the answers

Incidentalia refers to the essential terms of a contract.

<p>False (B)</p> Signup and view all the answers

What is the primary basis for incidentalia in a contract?

<p>Consensus or reasonable reliance on consensus</p> Signup and view all the answers

A party may claim specific performance and _____ as an alternative.

<p>damages</p> Signup and view all the answers

Fault is always required for positive malperformance.

<p>False (B)</p> Signup and view all the answers

The ____ rule states that a party who signs a written contract is bound by its terms regardless of whether they have read or understood them.

<p>caveat subscriptor</p> Signup and view all the answers

What can the aggrieved party do if the other party's performance is defective?

<p>Refuse to perform until the defect is remedied</p> Signup and view all the answers

Match the type of remedy with its description:

<p>Specific Performance = Entitles a party to demand fulfillment of a contract Cancellation = Releases a party from obligations under the contract Interdict = Prevents transfer to a third party Contempt of Court = Legal action for failing to comply with a court order</p> Signup and view all the answers

What is required if a plaintiff wishes to cancel due to non-fulfillment of specific performance?

<p>Declaratory order that they are entitled to cancel (A)</p> Signup and view all the answers

Which of the following can be true for new naturalia recognition by courts?

<p>They are justified by fairness and justice (B)</p> Signup and view all the answers

Surrogate damages are recognized in contract law according to ISEP.

<p>False (B)</p> Signup and view all the answers

Express terms can only be oral and cannot be written.

<p>False (B)</p> Signup and view all the answers

What type of damages must the aggrieved party claim if surrogate damages do not exist?

<p>Ordinary damages</p> Signup and view all the answers

What does the caveat subscriptor rule protect?

<p>The reliance interest of the other party</p> Signup and view all the answers

Which of the following must be included in section 49 requirements?

<p>Sufficient time to understand the agreement (C)</p> Signup and view all the answers

A term that excludes liability for gross negligence is always permissible in a contract.

<p>False (B)</p> Signup and view all the answers

Who bears the burden of proof to show that a contract term is fair?

<p>The business</p> Signup and view all the answers

The total contract price agreed upon by Software Deluxe and Client was _______.

<p>R700 000</p> Signup and view all the answers

What was the total estimated cost to Software Deluxe for completing the contract?

<p>R300 000 (D)</p> Signup and view all the answers

The freelance software expert intends to claim R100 000 in loss of profit from the Client.

<p>False (B)</p> Signup and view all the answers

What type of equipment was Software Deluxe supposed to supply to the Client?

<p>Computer equipment and 3D printers</p> Signup and view all the answers

Flashcards

Mora Debitoris

A situation where a debtor is legally required to perform a contractual obligation but fails to do so within a reasonable time period.

Placing a Debtor in Mora

The creditor needs to formally demand performance from the debtor, specifying a reasonable time for the debtor to fulfill the obligation.

Mora Ex Re

A debtor falls into mora automatically if the contract explicitly states a date or time for performance, and that time passes without performance.

Mora Ex Persona

A debtor becomes liable for mora when they don't perform after a reasonable period within a demand made by the creditor. Time starts after the demand is made.

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Perpetuation of Obligation

A special consequences of mora that forces the debtor to continue fulfilling the obligation even if they're in breach. It prevents the debtor from being relieved of the obligation by later fulfilling.

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Right of first refusal

A contract, where one party (the holder of right) can directly claim specific performance after a third party agrees to the same terms.

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Specific Performance

A court order compelling a party to fulfill a specific obligation under a contract.

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Direct Enforcement of Specific Performance

A direct court order preventing a party from transferring property to a third party, especially when there's a negative obligation.

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Indirect Enforcement of Specific Performance

Indirect enforcement of specific performance through a court order when a party fails to perform an obligation.

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Specific Performance vs. Cancellation

A party can choose to either demand specific performance or cancel the contract, but not both remedies simultaneously.

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Double-Barreled Procedure

A double-barreled procedure allowing the plaintiff to initially seek specific performance but request cancellation and restitution if the other party doesn't fulfill the specific performance order.

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Specific Performance and Damages

A party can claim both specific performance and damages together, or damages as an alternative to specific performance.

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Damages as a Surrogate for Performance

The argument that in specific performance cases, damages should be awarded based on the objective monetary value of the performance instead of actual performance.

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Positive Malperformance

Describes when a debtor performs their duty, but does so incorrectly or incompletely, like delivering the wrong quantity or quality of goods.

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Negative Malperformance

The scenario where the debtor performs an action they were supposed to refrain from doing.

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Defective Performance

A situation where the debtor fulfills their obligation but the performance falls short in quality or quantity compared to what was agreed upon.

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Right to Demand Proper Performance

The creditor has the right to demand proper performance from the debtor if the debtor has performed defectively. This can be done even if the defect is minor.

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Accept Defective Performance as Partial Fulfillment

The creditor can choose to accept the defective performance as partial fulfillment and claim damages to cover the difference between the proper performance and what was delivered.

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ENAC (Exception Non Adimpleti Contractus)

The creditor can refuse to perform their part of the contract until the debtor has remedied the defect in their performance.

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Remedy for Negative Malperformance

The innocent party can seek an interdict to stop the debtor from continuing to perform the contract in a way that is prohibited by the contract.

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Naturalia

Terms that are automatically included in a contract due to their inherent nature, like the right to cancel the contract if the other party doesn't perform their duties. These terms are essential to the existence of the contract.

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Incidentalia

Terms that are added to the contract by the parties themselves, going beyond the basic essentials. These terms are not implied by law, but rather agreed upon by both parties.

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Express terms

Terms that are expressly stated and agreed upon by the parties. They can be in writing or spoken words.

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Caveat subscriptor rule

A legal rule stating that if someone signs a contract, they're assumed to have read and understood its terms, even if they didn't actually do so.

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Incidentalia: Implied Ex Consensu

These terms are implied based on the consensus of the parties. Even if not explicitly stated, they are understood to exist because of the agreement or reliance on those agreements.

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Dynamic Naturalia

New naturalia can be recognized by the courts in certain situations. Courts may add new terms to the naturalia if it's necessary for fairness and justice, while balancing it with legal certainty.

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Freedom of Contract in Incidentalia

The parties can exclude, modify, or add to the naturalia through incidentalia as long as they don't violate public policy or legislation. This reflects the principle of freedom of contract.

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Evolution of Naturalia

Naturalia are not static, they can change over time based on societal shifts, legal advancements, or changes in fairness and justice. Courts may recognize new naturalia if they align with these changes.

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Implied terms

Terms that are not explicitly stated but are understood to be part of the agreement. They can be implied by law, custom, or the circumstances of the agreement.

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Ex lege implied terms

Implied terms that are added to a contract by law. These apply unless the parties specifically exclude them.

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Standard terms

These terms are pre-written by one party and used in many agreements with their clients. If a standard term is unusual, the party using it must explain it to the other party.

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Determinants of implied terms

When deciding if an implied term should be included, courts consider factors like fairness, community values, legal clarity, and predictable rules.

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Good faith in contracts

This principle emphasizes that parties should act in a way that is fair and honest in their contractual dealings.

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Section 49 - Consumer liability

The consumer will be liable to pay damages to the supplier if the supplier is sued; this usually happens in cases of breach of contract.

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Section 49 - Supplier-Consumer Agreements

A provision outlining requirements for written agreements between suppliers and consumers. It aims to protect the consumer by providing them with sufficient details and time to understand the agreement.

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Section 51 - Prohibited Terms in Contracts

A legal list outlining terms that are forbidden in contracts and will be deemed void. This protection aims to prevent unfair or unreasonable clauses from being enforced.

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Section 51 - Example: No Liability for Gross Negligence

A clause that tries to eliminate any responsibility for gross negligence is prohibited and will be considered void.

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Burden of Proof For Fairness

The burden of proof rests on the business to demonstrate the fairness of the term in a contract. This is crucial to ensure that terms impacting consumers are not overly burdensome.

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Question 2 - Software Deluxe's Expenses

Software Deluxe is obligated to pay for the 3D printers, their cost is a direct expense for fulfilling the contract

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Question 2 - Software Expert's Claim

The freelancer's loss of profit is a potential consequence of Client's breach. She might claim this cost from Client.

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Question 2 - Client's Potential Breach

Client's withdrawal from the contract is a potential breach, Software Deluxe might have to claim damages.

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Study Notes

Law of Contract

  • Notes are from textbook and class lectures
  • Flashcards are provided at the end of each section
  • Semester 2 cases are covered
  • Practice questions on damages are included

Breach of Contract

  • Mora Debitoris: A debtor's delay in performance
  • Mora Creditoris: A creditor's delay in performance
  • Positive Malperformance: Performing defectively
  • Repudiation: Clear intention not to perform the contract
  • Prevention of Performance: Preventing the other party's performance

Mora Debitoris

  • The debt must be due and enforceable
  • A fixed time for performance must be stipulated
  • Failure to perform by the agreed time without lawful excuse is required
  • The performance must still be possible
  • Parties expressly or impliedly stipulate a time for performance
  • Debtor is automatically placed in mora (ex re), without creditor intervention

Mora Ex Persona

  • No stipulated time for performance
  • Creditor must place debtor in mora
  • This is done through a letter of demand
  • Creditor does not need to allow a reasonable time period before demanding performance

Mora Creditoris

  • Creditor's obligation to cooperate is necessary
  • Creditor must take whatever action towards performance is possible without cooperation
  • Creditor must accept the performance tendered
  • No fault required unless caused by vis maior or casus fortuitus

Perpetuation of Obligation

  • A consequence that arises due to a breach of mora
  • Supervening impossibility of performance
  • BUT if the debtor was in mora, their obligation to perform is not discharged unless they demonstrate that performance would have been impossible even if made timely
  • If this is not demonstrated, the debtor is liable, as stipulated in the contract

Rescission

  • The creditor has an election to cancel or affirm the contract
  • Depending on the wording of the cancellation clause
  • Creditor may be entitled to rescind even if the breach is not material
  • In absence of a cancellation clause, creditor may cancel if breach is sufficiently serious
  • Contract will be rescinded; parties will return performance, and claim restitution

Time is of the Essence

  • Parties have specifically agreed it is (express lex commissoria)
  • Parties have tacitly agreed (tacit cancellation clause)
  • Creditor has made time of the essence by sending the debtor a notice of rescission
  • Time is almost always of the essence in mercantile contracts
  • Limited period of marketability or perishables

Notice of Rescission

  • Creditor can make time of essence with a notice to rescind
  • Notice is given to the debtor
  • Reasonable time to comply and must be clear and unambiguous

Notice of Rescission vs. Demand for Performance

  • Notice of rescission informs the debtor of the creditor's option to rescind
  • A demand for performance asks the debtor to perform
  • Notice of rescission and demand for performance can be combined

Positive Malperformance

  • Refers to the content of the performance
  • Occurs when the debtor performs incompletely or defectively
  • Can include positive (performance made wrongly) and negative (failure to refrain from doing something)
  • Fault not strictly required, but there are cases where intention was to be responsible for certain performance
  • Remedies available except for cases of negative performance, the innocent party may apply for an interdict
  • If the creditor accepts the defective performance as partial, then may claim damages that are equal to the difference in value between proper performance and the actual performance
  • Aggrieved party can refuse to perform until the other party remediates the defects

Right to Cure

  • The party in breach does not have a right to cure the performance before the aggrieved party exercises their right
  • Exception of lease agreements
  • If the premises become defective after the agreement, the lessee may not cancel it until the lessor has been given a chance to repair

Remedies for Breach of Contract

  • Self-help is not allowed, there are legally recognised remedies
  • Remedies determined by the parties
  • Cancellation clause (Lex Commissoria): Gives a party right to cancel
  • Penalty (Forfeiture) Clause: Full amount is payable to obviate proving damages
  • Acceleration Clause: Makes outstanding balance immediately due
  • Interest Clause: Regulates payable interest if debtor defaults
  • Restitution Clause: Regulates what is restored if the agreement is cancelled

Ex Lege Remedies

  • Aiming for enforcement or fulfilment
  • Specific performance
  • ENAC
  • Interdict
  • Withdrawal, cancellation, termination

Specific Performance

  • Court orders a party to perform as specified in the contract
  • Available when the debt is due and enforceable
  • Court has the equitable discretion to refuse
  • Breach is not required
  • Equitable discretion allows the court to refuse performance

Damages

  • Monetary compensation for damages resulting from breach
  • Damages may supplement a claim for specific performance or cancellation
  • Trivial damages are excluded
  • Causation is required

Burden of Proof

  • Responsibility for proving loss is usually held by the aggrieved party
  • Exception for proving mitigation falls on the party in breach
  • Party bearing the burden also carries the risk of persuasion
  • Proving damages, including reasonable costs of mitigation

Calculating Damages

  • Difference Theory: Difference between the aggrieved party's current position and what it would be if the contract had not been breached
  • Concrete Approach (Anglo-American): Includes expectation interest, reliance interest, and indemnity interest
  • Mitigation: Aggrieved party required to minimize losses (duty to mitigate)

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