Contract Semester 2 Notes PDF

Kaya Borkowski Law of Contract Content - Notes from textbook and class - quizlet/flashcards at the end of each section - All semester 2 prescribed cases - Practice Question on damages that Prof did with us Breach of Contract What are the types of breach? - mora (debitoris and creditoris) - positive malperformance - repudiation - prevention of performance When the breach merits rescission, what will happen? - uphold the contract or by claiming either specific performance or, in appropriate cases, the financial equivalent of such performance or - rescind the contract, tender the return of the other party's performance and claim restitution Distribution of this document is illegal 1 Kaya Borkowski Mora Debitoris - Delay on the part of the debtor - Note: mora is continuous – one may claim damages for mora in the past, one can claim where performance has been rectified, but was rendered late. Requirements - the debt must be due and enforceable - the time for performance must have been fixed (and the debtor failed to perform by this time) - failure to perform on time must be without lawful excuse -fault? In Scoin Trading v Bernstein 2011, the SCA held that fault is not a requirement for mora -the performance must still be possible. If it is impossible, it is rather prevention of performance What is mora ex re? - Where the parties have expressly or impliedly stipulated a time for performance - they are automatically placed in mora (ex re), without the need for any intervention by the creditor. - But for this result to follow, the stipulated time must be, not only certain to arrive, but also certain as to when it will arrive What is mora ex persona? - Where no time for performance has been stipulated in the contract, expressly or by implication - debtor not automatically placed in mora - the creditor must place the debtor in mora by issuing a letter of demand (either extra-judicially, a letter, orally or judicial summons) - The creditor need not allow a reasonable period to elapse after the conclusion of the contract before demanding performance Question: does the debtor automatically fall into mora when they receive the letter of demand from the creditor? Distribution of this document is illegal 2 Kaya Borkowski - no - a creditor must stipulate a time or date that allows the debtor a reasonable period in which to perform, and it is only when that period has expired that mora ex persona arises - the onus rests on the debtor to show that it is unreasonable - one factor arising after the conclusion of the contract is taken into account – namely, the time lapse between entry into the contract and the making of the demand (Nel) Question: when will a debtor fall into mora? - will fall into mora automatically if a time/date is stipulated (mora ex re) - or when it is not stipulated and the creditor sends a demand then after the demand period passes the debtor will fall into mora Question: is fault required for mora? - The courts have been prepared to excuse the debtor only if there was some legal justification for the failure to perform on time. - Thus, if the debtor was in reasonable ignorance of the nature of the performance, there will be no mora Consequences of mora debitoris - gives rise to the usual remedies for breach as well as a consequence specific only to mora: perpetuation of obligation What is perpetuation of obligation? - a consequence that only arises due to the breach of mora - perpetuation of obligation: usually, supervening impossibility of performance (that cannot be attributed to the fault of either party) terminates the contract - BUT if debtor was in mora when performance became impossible, their obligation to perform is not discharged unless they can show that, even had he or she made timeous performance, the thing would have suffered the same fate in the hands of the creditor - if the debtor fails to show this, the debtor remains liable to make their own performance as stipulated in the contract Question: when can a party rescind when there is mora? - if time is of the essence (Nel) Distribution of this document is illegal 3 Kaya Borkowski - if there is a cancellation clause ‘Time is of the essence’ - the parties have expressly agreed (express lex commissoria) - the parties have tacitly agreed (tacit cancellation clause) - the 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, contracts for the sale of goods with a limited period of marketability (like perishables) - note: time is rarely of the essence for sales of land Question: is a creditor obliged to cancel the contract if there is a cancellation clause? - no, the creditor has an election whether to cancel, or to affirm the contract and insist on performance. - Depending on the wording of the cancellation clause, the creditor may be entitled to rescind even if the breach is not material Tacit cancellation clauses - Whether such a tacit term exists or not is a question of fact to be determined by a consideration of all the relevant and admissible evidence, the intention of the parties being decisive Notice of rescission - Where time is not of the essence the creditor may make time of the essence by sending the debtor a notice of rescission - The expression is misleading, however, for the notice does not rescind the contract; it merely informs the debtor that the creditor reserves the right to rescind if performance is not forthcoming by the date mentioned in the notice - The notice may be oral or (preferably) in writing, must give the debtor reasonable time to comply and must be clear and unambiguous Question: what is the difference between a notice of rescission vs.a demand for performance? notice of rescission: Distribution of this document is illegal 4 Kaya Borkowski - give the creditor a right of rescission when the debtor is in mora but time is not of the essence of the contract demand: - serves to fix a definite time for performance when the contract fails to do so, in order to place the debtor in mora - If no time for performance has been set in the contract, and time is not of the essence, both a demand and a notice of rescission are required to give the creditor a right to rescind -A notice of rescission may be combined with the letter of demand to place the debtor in mora (Nel) Mora Creditoris Requirements for mora creditoris - obligation to make performance - cooperation of the creditor must be necessary - the debtor must make a tender of performance (the debtor must take whatever steps towards the performance that are possible without the creditor’s cooperation, and therefore call upon him to give the proper cooperation) - delay of accepting performance on the part of the creditor - fault (If it is caused by vis maior or casus fortuitus, for example, mora creditoris is excluded) Question: what is a tender of performance when dealing with mora creditoris? - the debtor must take whatever steps towards performance that are possible without the creditor's cooperation, and thereafter call upon him or her to give the necessary cooperation Consequences of mora creditoris? - cancellation - specific performance - damages - counter performance (the debtor may sue the creditor for this) Distribution of this document is illegal 5 Kaya Borkowski -the debtor’s duty to rerform is relaxed – If the creditor is in breach, the debtor must be willing and able to perform BUT His duty is relaxed until the mora creditoris is over. - the debtors duty of care is relaxed– the debtor is liable only for dolus (intentional harm) or gross negligence. -the creditor bears the risk of supervening impossibility Question: what is counter performance when dealing with mora creditoris? - in a reciprocal contract, the debtor may sue the creditor for counter performance - where the debtor has been prevented from fully performing his or her side of the contract by the failure of the creditor’s necessary cooperation, the debtor’s right to claim counter-performance is subject to a reduction by the amount that he or she saves in not having fully to perform his or her own obligation (BK Tooling) Care of article and supervening impossibility - once mora creditoris intervenes the debtor's responsibility is limited to dolus (intent) and culpa lata (gross negligence) - if performance by the debtor becomes impossible while the creditor is in mora, the debtor's obligation is discharged, but the creditor remains liable to make counter-performance - eg. if A employs B to build a house for him but delays in taking delivery once the building is completed and an earthquake then destroys the house, A will nevertheless have to pay B the full contract price Quizlet on Mora - Test you knowledge and do this quizlet: - https://quizlet.com/za/839358674/mora-flashcards/?i=49hspq&x=1jqt - Password: Mora1 Positive Malperformance Distribution of this document is illegal 6 Kaya Borkowski - relates to the content of the performance made - occurs when the debtor duly performs but in an incomplete or defective manner. For example, a dealer delivers goods of the incorrect quality or quantity - can be positive (made performance but it was wrong) or negative (debtor does the act that they are bound to refrain from doing) - note: if performance is late AND defective, it is both positive malperformance and mora because lateness is still a basis for a remedy even where there is (defective) performance. Question: is fault required for positive malperformance? - It is unclear whether or not fault is an element of positive malperformance. - By their silence on the point, most cases and writers create the impression that fault is not required -BUT a party who agrees, expressly or by implication, to be responsible for making a certain performance, irrespective of fault, is bound by that agreement. Remedies - the regular remedies are available except in the case of negative malperformance, the innocent party may additionally apply for an interdict - if the creditor abides the contract then they can accept the defective performance as partial performance and claim damages that are the difference in value between proper performance and the performance actually rendered -ENAC: The aggrieved party may refuse to perform until the other party has performed properly. It does not matter how substantial the defect was, the aggrieved party can refuse to perform until the other party has remedied the defect. The only constraint is that the defect cannot be trivial - reject the defective performance and demand either specific performance or damages in lieu of performance - whether the creditor elects to rescind or to affirm the contract, they may in addition recover damages in respect of any consequential losses. Damages are always available, regardless of whether the breach is material Distribution of this document is illegal 7 Kaya Borkowski A right to cure? -The malperforming party does not have a right to cure the performance before the aggrieved party exercises a remedy. - eg: A large business has a delivery vehicle repaired by a mechanic BUT the work was not properly done, the business does not have to take the vehicle back to the mechanic; it can exercise the remedies available to it -exception of lease agreements: If the premises become defective after entry into the contract of lease, the lessee may not cancel the terms of the lease until the lessor has been given a chance to repair Rescission and positive malperformance - In the absence of an applicable cancellation clause, the creditor may cancel the contract only if the malperformance is sufficiently serious. - the breach must ‘go to the root of the whole contract’, or be so serious that the creditor would probably not have entered into the contract had they foreseen the breach - the right to rescind is excluded if there has been ‘substantial performance’ of the contract - since the contract itself requires the creditor a reasonable opportunity to make adjustments in such a case, there can be no question of malperformance until the debtor has been afforded such an opportunity -Note: It is not sufficient that the term breached is material, the breach itself must be material Repudiation - when the party manifests an unequivocal intention no longer to be bound by the contract or by any obligation forming part of the contract (Tuckers) - an unusual feature of repudiation is that it constitutes a continuing form of breach Distribution of this document is illegal 8 Kaya Borkowski Question: what is the test for repudiation? - The intention to repudiate is judged objectively, the test being whether the party accused of repudiation has acted in such a manner as to lead a reasonable person to believe that he or she does not intend to fulfil obligations(Datacolor) - fault is not required but wrongfulness is (an intimation of words or conduct, without lawful excuse) Rescission and repudiation - must be of a sufficiently serious nature to merit rescission - It is clear that a repudiation of the entire contract will always entitle the innocent party to rescind (Hovis) - Where the debtor repudiates a part of a divisible performance, the creditor may rescind that part only - When the innocent party has a right to rescind and elects to exercise it by accepting the repudiation, the contract comes to an end upon communication of this decision to the other part - any performance already made in terms of the contract must be restored - the rescinding party is entitled to recover damages, which in the case of an anticipatory breach are assessed in relation to the date of performance rather than the date of the repudiation - Where no date for performance is fixed by the contract, the damages are assessed in relation to the date of acceptance of the repudiation rather than the date of the repudiation itself = in advantage of the innocent party Affirmation of the contract and repudiation (rejecting the repudiation) - the innocent party is not obliged to accept the repudiation - the relationship between the parties continues exactly as if no repudiation had ever occurred Distribution of this document is illegal 9 Kaya Borkowski - the innocent party cannot reasonably be expected to perform during this time, so their duty to perform is suspended for the duration of the repudiation, provided that the innocent party makes the repudiating party aware that they are willing to perform The Repentance Principle (Where Repudiation is a Continuing Wrong) - The breaching party may be given a chance to repent the wrongdoing (ie the repudiation) BUT the contract may be cancelled if the breaching party does not repent. Prevention of performance - it is not necessary that the performance should be objectively impossible in order for the breach to arise; subjective impossibility will suffice - there is a difference between prevention of performance and repudiation – namely, that the former can be committed negligently, whereas repudiation requires an unequivocal intention to repudiate -can be positive or negative Question: is fault required for prevention of performance? - yes - it is an essential element of the breach since in its absence supervening impossibility will terminate the contract - there is only one standard of fault – namely, the care that could be expected from an ordinary, reasonable person in the circumstances - The onus apparently rests on the debtor to prove it was not their fault - the absence of fault will not be an excusing factor if the debtor has guaranteed performance Remedies for prevention of performance Distribution of this document is illegal 10 Kaya Borkowski - Remedies available to the innocent party follow the usual pattern for breach, except that specific performance is of course excluded - On the assumption that the inability to perform is total, the breach will always be sufficiently serious to merit rescission. - Thus, if the debtor is the breaching party, the creditor may either: - cancel the contract (restore their performance and claim damages) - or abide by the contract, perform their side and claim damages in lieu of performance - if the creditor is the breaching party, the debtor may: - cancel the contract (restore performance made and claim damages) - or abide by the contract, and claim counter-performance from the creditor, subject to a reduction of the claim by the amount that they save by not having to perform their side (BK Tooling) - whichever course the innocent party adopts, he or she may also recover damages in respect of any consequential loss If the prevention of performance is only partial: - If the impossibility attaches only to a minor, relatively insignificant aspect of the performance, so that substantial performance remains possible, the contract as a whole may not be rescinded, and the only relief available to the creditor is a reduction in their counter-performance - or a claim for damages in lieu of the missing part of the debtor’s performance - if the breach is material, the next issue is whether the performance in question is divisible or indivisible - if it is divisible, the creditor may only cancel only pro tanto (to an extent), in which case his or her own counter-performance will be reduced proportionately - if the performance is indivisible, the creditor may rescind the entire contract and claim damages, or accept the part-performance and perform their side, subject to a corresponding reduction, or to a claim for damages as a surrogate Distribution of this document is illegal 11 Kaya Borkowski Question: what is the test for materiality when dealing with partial impossibility and positive malperformance? -bearing in mind the nature of the contract and the importance to the creditor of complete performance, can one reasonably expect the creditor to abide by the contract and be satisfied with damages as a surrogate of the missing performance? (Singh) Steps when looking at partial impossibility (relating to prevention of performance) - is it material? (if not material, cannot rescind and creditor may only be entitled to a reduction in their counter performance) (if it is material then ask whether the performance is divisible or indivisible) - if material, is the performance divisible? (if it is divisible, the creditor can only cancel pro tanto) (if it is indivisible then may rescind entire contract and claim damages or abide contract and perform their side subject to a reduction or claim damages as a surrogate) Temporary impossibility -if time is of the essence of the contract, they may cancel the contract forthwith - where the contract is of an ongoing nature, such as a service contract, temporary impossibility of performance amounts to partial impossibility and thus falls to be dealt with in accordance with the rules of partial impossibility: - is it material? (if not material, cannot rescind and creditor may only be entitled to a reduction in their counter performance) (if it is material then ask whether the performance is divisible or indivisible) - if material, is the performance divisible? (if it is divisible, the creditor can only cancel pro tanto meaning to an extent) Distribution of this document is illegal 12 Kaya Borkowski (if it is indivisible then may rescind entire contract and claim damages or abide contract and perform their side subject to a reduction or claim damages as a surrogate) Quizlet on Positive Malperformance, Repudiation and Prevention of Performance - Test you knowledge and do this quizlet: - https://quizlet.com/za/839358674/mora-flashcards/?i=49hspq&x=1jqt - Password: Positivemalperformance2 Remedies for Breach - Self help not allowed, there are legally recongised remedies Remedies Determined by the Parties - Provisions inserted by the parties into the contract to regulate the consequences of breach: - Cancellation Clause (Lex Commissoria): Gives a party the right to cancel, even for a minor breach, provided certain procedures are followed - Penalty (Forfeiture) Clause: If a party breaches, the full amount is payable to obviate practical difficulties in proving damages - Acceleration Clause: Makes the outstanding balance of the debt immediately due and payable - Interest Clause: Regulates the amount or rate of interest payable if the debtor defaults - Restitution Clause: Regulates what must be restored if the agreement is cancelled Ex lege remedies Aimed at Enforcement or Fulfilment: -specific performance -ENAC -interdict Withdrawal, Cancellation, or Termination Distribution of this document is illegal 13 Kaya Borkowski - Where an aggrieved party is unsure whether the breaching party’s breach is serious enough to justify cancellation, it may approach the Court for a declaratory order that it is entitled to cancel and claim restitution - or if the Court finds that there is no basis for cancellation, it may claim specific performance Damages -May be claimed alone or together with other remedies (eg specific performance) Note: the once and for all rule – relief must be sought simultaneously. Cancellation, restitution, and damages must all be claimed together. Specific Performance -a court order that a party perform the contract as required by the contract. -the court may either enforce the actual performance sought in the contract or order the breaching party to pay the monetary value of the performance Question: when is specific performance available? -Specific performance is available when a debt is due and enforceable (‘due and payable’) -Specific performance is the primary remedy which parties are entitled to demand (Benson, Santos) BUT this is subject to the Court’s equitable discretion to refuse it where it would produce an unjust result or undue hardship -Breach is not a requirement. The plaintiff is not required to allege breach in its particulars, only that there is an enforceable obligation to perform. The Approach in SA - Specific performance is the primary remedy BUT courts have an equitable discretion to refuse it (Benson) -court has equitable discretion to refuse granting it: Distribution of this document is illegal 14 Kaya Borkowski -Haynes had a contract for the provision of water by the Municipality, in terms of which Haynes could draw water from the Municipality’s dam. Following a severe drought, the Municipality gave Haynes less water than was agreed to and Haynes sued for specific performance. The Court weighed the interests of the parties and of the community. The Municipality had an interest in saving water because of the drought - Haynes did not bring any evidence as to why it was so important for her to have the full allocation of water, and did not indicate that she suffered any loss so the court so the court refused the specific performance Particular instances relevant to discretion - Employment Contracts: specific performance against an employer if an employee was unfairly dismissed developed (Santos) -Marketable Commodities: South African law follows good faith (Benson). Unlike in English law, damages is the point of departure SO the creditor does not have a right to specific performance -Rights of Pre-Emption: Oryx mechanism. The holder of a right of first refusal can, by unilateral declaration, create a contract on the same terms as that agreed with the third party, so that the grantee can directly claim specific performance of the main contract Enforcing an Order of Specific Performance -Direct Enforcement: If there is a negative obligation, one is entitled to an interdict preventing transfer to a third party -Indirect Enforcement: by way of contempt of court proceedings. Where the party is obliged to do something and fails to do so, a criminal case may be brought. Specific Performance and Other Remedies Specific performance and cancellation -A party may claim either specific performance or cancellation as a remedy, not both (Custom Credit Corp) -But the double-barrelled procedure allows the plaintiff to claim specific performance as the primary remedy and ask the Court for cancellation and restitution if the other party doesn’t fulfil the order of specific performance Distribution of this document is illegal 15 Kaya Borkowski - The textbook states that one must ask for a declaratory order that the plaintiff is entitled to cancel, and if the Court holds that the plaintiff is not entitled to do so, the plaintiff may claim specific performance. Specific performance and damages - party may claim specific performance and damages together, or damages as an alternative to specific performance. Question: can you claim damages as a surrogate for performance? -Instead of claiming performance itself, the objective monetary value of the performance may be claimed -Those in favour of this argue that sometimes ordinary damages will not provide the full value of the performance, one need prove only the objective monetary value of the performance. -It is difficult to conceive of a situation in which it makes a difference whether damages or damages as a surrogate for performance is claimed. -ISEP: Surrogate damages do not exist in our law. The aggrieved party must claim ordinary damages. -Basson: ISEP considered only lease, not the general principles of contract law. Damages may be claimed as a surrogate for performance. -Mostert: obiter stated ISEP judgment should be reconsidered, and damages as a surrogate for performance should be allowed. Exceptio Non Adimpleti Contractus (ENAC) -is a defence that can be raised in the case of a reciprocal contract, where the performances due on either side are promised in exchange for one another - It is a remedy that permits a party to withhold their own performance, and to ward off a claim for such performance, until such time as the other party has either performed or tendered proper performance -its origins are in the Constitution, it is linked to dignity and good faith (Botha) -it is an extra-judicial remedy, do not need to approach court Distribution of this document is illegal 16 Kaya Borkowski -in a divisible agreement, the aggrieved party may withhold performance of an obligation only in respect of one set of reciprocal obligations. -ENAC is a temporary defence aimed at obtaining full and proper performance before being obliged to render counter-performance. The party relying on it must therefore allow the breaching party to remedy the defect (Botha) Principle of Reciprocity - plays a role in: - The Creation of Obligations (If an obligation is void, the reciprocal obligation is also void. Can be void for uncertainty, illegality, impossibility) - Termination of Obligations (If an obligation terminates, its reciprocal obligation also terminates except The risk rule in sale where a seller’s obligation is extinguished when it becomes impossible (through no fault of his own) BUT the buyer must still pay the contract price if the risk had passed the buyer -Sequence of Performances (Reciprocal obligations must be performed at the same time, unless otherwise specified. There are exceptions like a contract of employment where the employee must work first to get paid after) Requirements for ENAC -Must have reciprocal obligations -The parties must be required by the contract to perform simultaneously OR the breaching party must be required by the contract to perform first -the breaching party must perform fully before aggrieved party can raise ENAC and withhold its own performance in claiming proper performance by the breaching party (Thompson) Relaxation of ENAC -The Court sometimes has an equitable discretion to relax ENAC and order the aggrieved party who raises ENAC to rather pay a reduced contract price in accordance with the value of the defective performance (BK Tooling). Distribution of this document is illegal 17 Kaya Borkowski -there may be a problem of a deadlock. A deadlock may be reached if the aggrieved party (A) wants the breaching party (B) to repair its improper performance BUT utilises the defective performance without paying for it. Question: how can a party persuade the court to relax ENAC? -the breaching party can claim a reduced contract price BUT must persuade the Court and provide evidence that the innocent party utilised the defective performance, yet refuses to pay for it and that it is fair and equitable for the defendant to pay a reduced contract price -the court will consider: did the breaching party act in good faith or intentionally perform badly? Was the breaching party prepared to cure the breach? Was it possible to cure the breach? How serious was the breach? Does the breach persist? (BK Tooling) What If the Breach Cannot be Cured? -ENAC should not be raised, and the aggrieved should claim a reduction in the contract price. -if it is no longer possible for the breaching party to properly perform, the aggrieved party should not raise ENAC. The aggrieved party should offer to pay a reduced contract price, rather than withholding the entire contract price. Cancellation -Unlike specific performance, cancellation is an extraordinary remedy available in exceptional circumstances. It involves the drastic step of bring the transaction to an end, contrary to the parties’ original intentions. -In the absence of a provision in the contract regulating the matter, a party will be entitled to cancel for breach only if the breach is sufficiently serious or material. When is Cancellation Available? -Cancellation clause: can be express or tacit. Contained in most commercial contracts. Often the procedure is set out -Where the breach is material or sufficiently serious to justify cancellation (judged in light of the particular circumstances and the type of breach in question) Distribution of this document is illegal 18 Kaya Borkowski Election to cancel - Once breach has occurred, the aggrieved party is faced with the election to either cancel or uphold the contract. Have a choice even when there is a cancellation clause - The aggrieved party is never obliged to cancel, even to prevent ‘wasteful performance’ (Unibank Savings) -If the aggrieved party elects to cancel, he must notify the other party. The notice of cancellation must be clear and unequivocal. The cancellation takes effect only when it has been communicated to the party in breach Loss of Right to Cancel -The mere fact that one has cancelled within a reasonable time does not mean that there is cancellation, the party may not knowingly have waived their right (Mahabeer) - An election to affirm the contract necessarily entails the loss of the right to cancel (this is a waiver of election) -party may be estopped from cancelling contract Exercise of Right to Cancel -it is a unilateral juristic act, communicated to party in breach -The aggrieved party may learn of the breach through a third party (Datacolor) -needs to be clear and unambiguous. No need to give reasons for cancellation Consequences of Cancellation - At cancellation, unfulfilled obligations cannot be enforced but there are exceptions; certain terms still apply (penalty clauses, restraint of trade, arbitration clauses) The Walker Fruit Farms principle (was relevant for class test) Distribution of this document is illegal 19 Kaya Borkowski -The obligation in question will survive cancellation of the contract if it has accrued and was due and payable as a separate cause of action independent from the executory part of the contract -In continuous contracts like lease or employment, cancellation for breach only operates “prospectively”, and so only cancels the future obligations that would have become enforceable after cancellation only. -Such cancellation in these contracts does not operate retrospectively, in other words it does not extinguish the past obligations eg to pay rent, provided they were due and payable -there is no duty on the parties to make restitution of what was performed by them before cancellation for breach. The lessor keeps the rent that was due and paid before cancellation and the lessee does not have to make restitution of the occupation, use and enjoyment received. Each month’s obligation to pay the rent is an independent cause of action -Application questions on this principle will only involve continuous contracts, most probably a lease. Restitution - The parties must undo or performance received under the contract. The remedy is restitution NOT enrichment. -There is no obligation to restore performance received in respect of the part of the contract that is not cancelled. -Restitution not prerequisite when not equitable to require it: -Forfeiture Clauses: The contract provides that, on cancellation, the other party forfeits the right to claim restitution. The Court has the jurisdiction to reduce the penalty prescribed in terms of the Conventional Penalties Act -The aggrieved party may be excused from returning performance where the breach is due to supervening impossibility. Eg. in Hall-Thermotank, the equipment is lost at sea due to a storm. Held that the buyer may cancel the contract and claim restitution for his payment, it would be unfair to require the buyer to return the equipment -Impossibility Due to Inherent Defect: The aggrieved party may be excused from returning performance where it is impossible to do so because of an inherent defect Distribution of this document is illegal 20 Kaya Borkowski -Impossibility Due to Normal Use: The aggrieved party may be excused from returning performance where it is impossible to do so because of normal use (like if you use fertiliser and realise it is the wrong kind, do not need to return it because you used it) Restitution of Services Rendered - If one party rendered services for which the other paid, and the contract is subsequently cancelled, it is not possible to make restitution and return the performance. -The aggrieved party will make restitution by paying a surrogate amount to the residual value of the performance. -This would not be the case for the breaching party, who would have to pay the value of the performance. -The aggrieved party may claim restitution from the breaching party if restitution by the aggrieved party is substantially or materially possible. If there is any shortfall that the aggrieved party cannot return, the shortfall can be made good in money. - Continuous Contract: Cancellation Ex Nunc (from now on) – there is no restitution of performance already rendered. Quizlet on specific performance, ENAC, cancellation and restitution - Test you knowledge and do this quizlet: - https://quizlet.com/za/842376729/remedies-for-breach-specific-performance-enac-cancel lation-and-restitution-flash-cards/?i=49hspq&x=1jqt - Password: Remedies1 Damages -Monetary compensation for damage resulting from breach. -Damages may supplement specific performance or cancellation. -Only patrimonial damages may be claimed -Trivial damages are excluded Elements of claim: what must be pleaded -There is a valid contract - There is a breach (specify the type of breach) Distribution of this document is illegal 21 Kaya Borkowski - There is loss, including the quantum claimed - There is a causal link between the loss and the breach - The damage was not too remote The Burden of Proof -The aggrieved party bears the onus of proving loss BUT the breaching party bears the onus in respect of mitigation -Remember that the party bearing the onus also carries the risk of non-persuasion. Calculation of Damages (view end of document for example on how to calculate) Difference Theory - Damages are the difference between the (i) aggrieved party’s current patrimonial value after the breach, and (ii) the hypothetical position that would have been had no breach occurred. -The calculation encompasses a causation requirement, implying that only damages caused by the breach can be claimed The Concrete Approach (Anglo-American) -add up various interests -same answer as in difference theory -Expectation Interest: The net profit -Reliance Interest: Expenses incurred in reliance on the contract being fulfilled -Indemnity Interest: Damages payable by the aggrieved party to a third party as a result of the breach -add up these 3 interests to get the sum of the damages Distribution of this document is illegal 22 Kaya Borkowski Note: the plaintiff bears the onus of proving the actual position on a balance of probabilities. The actual position will be affected by the consequences of other remedies. If specific performance or cancellation and restitution is claimed, damages must be calculated on the basis that specific performance or restitution is awarded NB Positive and Negative Interesse -Negative Interesse: Claimed in delict. Backward-looking, restores the party to its position prior to the damage-causing event -Positive Interesse. Claimed in contract. Forward-looking, puts the party in the position it would have been in had there been no damage-causing event Approaches to Interrese Principle -subjective approach: What loss did the particular plaintiff actually suffer as a result of the breach? (ISEP). South Africa takes the subjective approach -objective approach: What loss would a typical plaintiff have suffered in a situation such as the one in which the breach occurred? The Break-Even Presumption -This is a rebuttable presumption. If there is no evidence as to whether the plaintiff would have made a profit BUT the plaintiff incurred certain expenses (in reliance on the Distribution of this document is illegal 23 Kaya Borkowski contract being fulfilled), the Court may be willing to assume that the plaintiff would have broken even if the contract had been properly fulfilled. Factual Causation -Sine Qua Non (‘But For’) Test: but for the breach, X would have made a profit BUT now that there is a breach, X makes a loss. -Where there is more than one reason why loss was suffered, it is sufficient that the breaching party’s wrongdoing was a cause of the loss (ie it need not be the dominant or main cause of the loss). Apportion of Damages Act -If the plaintiff is partially to blame, it can claim only a portion of the damages. If the defendant is liable for 70% of the damage, the plaintiff can claim only 70% of the damages -Thoroughbred Breeders: the SCA held that the Apportion of Damages does not apply to breach of contract (only to delict). Even if the aggrieved party partially contributed, the defendant is fully liable if it caused part of the loss. Limitation of Liability -It is not sufficient that the breach factually caused the loss, there must also be a genuine connection between the breach and the loss -To determine whether damages are too remote, they must first be classified as general or special damages. In Steenkamp, whether loss was too remote was a question of foreseeability NB General Damages -flow naturally and generally from the kind of breach in question. They are the sort of damages that might be expected in the ordinary course of things to result from the breach. As such, they would have been foreseeable to a reasonable person entering into the contract as a probable consequence of the breach -Loss of profit (expectation interest) and expenditure (reliance interest) would constitute general damages. Distribution of this document is illegal 24 Kaya Borkowski -can always be claimed -general damages are not too remote and hence are recoverable as a matter of course Special Damages -are presumed to be too remote unless exceptional circumstances are present -damages that would not normally be expected to flow from the type of breach in question, but which arise due to the special circumstances of the case -can be claimed through the convention principle or the contemplation principle Principles when claiming Special Damages The Convention Principle -Special damages are claimable if the parties expressly or tacitly agreed at the time that the contract was concluded that the type of loss could be claimed - Tjakie does not like this but it has not been overruled yet so remains good law The Contemplation Principle -Special damages are claimable if the type of loss was reasonably foreseeable to the breaching party at the time that the contract was concluded. This approach is more objective. -There must be foreseeability at the time of contracting, not at the time of breach -Nienaber in Thoroughbred Breeders: The test for legal causation in the law of delict should be applied to the determination of special damages. Foreseeability is the main factor, but there are other considerations: fairness, justice, reasonableness, public policy -Note: mention all 3 when discussing special damages in the exam NB Mitigation Rule Distribution of this document is illegal 25 Kaya Borkowski -The aggrieved party has a duty to take reasonable steps to limit or minimise damage or loss. If it does not, it cannot claim damages that could have been prevented by reasonable steps (Victoria Falls) -The rule does not require the innocent party to do anything more than a reasonable person would do under the same circumstances. Reasonable expenses incurred in carrying out the mitigation steps may be claimed as additional damages suffered. -the test: what would a reasonable person have done in the circumstances? -The breaching party bears the onus of proving that reasonable steps were not taken to mitigate the loss. Criteria for the Quantification of Damages General Damages recognised by courts: -Mora Interest: Courts will as a rule award mora interest for money paid late -Repair Costs: Courts will award general damages for defective services (If defective performance does not affect the market value of the merx, the aggrieved party cannot necessarily claim repair costs) -Market Value: Courts will award damages for loss amounting to the difference between the contract price and the market value Penalty Clauses - Penalty clauses provide for payment of a penalty in the event of a breach. They are intended to serve as a deterrent to breach -Penalty clauses encourage performance, prevent evidentiary problems with respect to damages -The Conventional Penalties Act gives courts an equitable discretion to reduce a penalty agreed upon in the contract, where the penalty is disproportionate to the actual harm suffered -A party may not claim both the penalty and damages. The Convention of Penalties Act 1962 Distribution of this document is illegal 26 Kaya Borkowski -look at section 1; 3; 4 and section 2(1) Section 1 -Establishes the scope of the Act, removes the English law distinction, makes penalty stipulations enforceable in principle -enforceable subject to the provisions of the Act Section 2(1) -Prohibition on cumulation -”A creditor shall not be entitled to recover in respect of an act or omission which is the subject of a penalty stipulation, both the penalty and damages, or, except where the relevant contract expressly so provides, to recover damages in lieu of the penalty.” Section 3 -Provides for reduction in the penalty, but applies only if the Court feels that the penalty is disproportionate to the prejudice suffered by the aggrieved party -The onus is on the person alleging that the penalty is excessive (Smit) Section 4 -If one party to an agreement withdraws from an agreement, they cannot demand restitution for anything they did in accordance with the agreement. They will still be responsible for carrying out any obligations under the agreement, even after the withdrawal. This is in line with the conditions set out in sections one to three, as if it were a penalty clause. Quizlet on specific performance, ENAC, cancellation and restitution - Test you knowledge and do this quizlet: - https://quizlet.com/za/842379749/damages-flash-cards/?i=49hspq&x=1jqt - Password: Damages1 Parties to Contract Distribution of this document is illegal 27 Kaya Borkowski General - South African law does not recognise a unilateral promise or declaration as a binding contract (unless same person is acting in 2 different capacities like a corporate agent and in their personal capacity - needs to be at least 2 parties - a contract is a bilateral juristic act -need capacity to contract and authority (eg. if you are a juristic person) Determining the type of joint liability - the minimum possible burden to be placed on the debtor - consider the agreement between the parties and which type of liability they intended to impose (intention) - if the intention of the parties is not clear, the presumption is that simple joint liability applies, this is least burdensome on the debtors. Sometimes the type of joint liability is prescribed by law - Partnership Agreements: Partners will be sued jointly while the partnership is still existence, or are jointly and severally liable where the partnership is terminated before the creditor chooses to sue - Joint Bank Accounts: The joint account holders are jointly and severally liable to the creditor - Delict: Delictual wrongdoers are jointly and severally liable by operation of law Simple joint liability and entitlement -where several debtors are liable to make a performance to a creditor, and the performance is divisible, there is a strong presumption that the liability was intended to be joint, rather than joint and several. Distribution of this document is illegal 28 Kaya Borkowski - where several creditors are entitled to receive a divisible performance, the co-creditors are each entitled to claim a proportionate share of the performance, and these shares are presumed to be equal - Where the creditor releases one of the co-debtors from payment, this does not automatically release the other co-debtors from their obligation - A joint debtor who has paid more than their share will probably have no right to recover the excess from the other co-debtors, unless there is an agreement to this effect -There is a presumption of simple joint liability, unless the parties make a contrary intention clear (De Pass) Question: what does simple joint liability mean? -each of the debtors is liable only for a proportionate share of the performance, and these shares are presumed to be equal. ( eg. if the debtors owe R5 000 and there are five debtors, each is liable for R1 000) Joint and several liability - each co-debtor is liable for the full amount of the debt, and the creditor can accordingly claim the full debt, or any lesser amount, from any one or more of them - Payment of the full debt by one of the co-debtors discharges the debt completely, with the result that the creditor cannot proceed against the others - part-performance discharges the debt pro tanto, and the creditor can recover the balance from any or all of the co-debtors. - Where one of the debtors has paid the full amount of the debt, or more than his or her proportionate share, they can claim against the co-debtors to recover their proportionate share of the debt (the same applies if the roles are reversed and one of the co-creditors discharges the debt from the debtor) Collective liability - In the instance that the performance owed is indivisible, and where the parties intended on having collective joint liability and entitlement Distribution of this document is illegal 29 Kaya Borkowski Contracting through an agent (not in exam) - sometimes need an agent to contract eg. when a juristic person contracts - In the typical agency situation in the contractual sphere, a principal (P) authorises another person, the agent (A), to represent him or her in negotiating a contract with a third person (3p). - the contract between P and A, this is often referred to as the contract of mandate, with P as the mandator and A as the mandatary - Mandate is a contract in terms of which one person gives another a task to perform - the agent occupies a highly fiduciary position and is thus obliged to act entirely in the interest of the principal, and not in his or her own interest - the relationship between the principal and the third party: the question whether consensus was reached will be determined with reference to the state of mind of A, rather than P, since it is A who does the negotiating for P. Moreover, P will be vicariously responsible for the acts of A - It follows that, provided A acts within the scope of his or her authority in concluding the contract with 3p, the ensuing contract will be between P and 3p, and both will be bound by it. - On the other hand, if A exceeds his or her authority, P will generally not be bound by the agreement Question: what is the the doctrine of the undisclosed principal? - where the agent (A) does have actual authority to represent the Principal (P) , but contracts in their own name (albeit secretly for P) without disclosing to the third party (3p) that they are acting in the capacity of agent for P, the doctrine of the undisclosed principal comes into play. - in terms of the doctrine, P is permitted to emerge from obscurity and demand performance from 3p (provided that 3p has not already performed to A and will not otherwise suffer prejudice) - Conversely, if 3p learns that A was in fact acting for P, 3p may elect to claim performance under the contract from either A or P Distribution of this document is illegal 30 Kaya Borkowski Question: can you represent a non-existent principal? - according to common law, no - Thus, for example, no one can, as agent, conclude a contract on behalf of an unborn child. In such cases, the contract is void ab initio and cannot subsequently be ratified when the principal comes into existence. - BUT courts construed a such a contract as a stipulatio alteri as well as pre-incorporation contracts (contract on behalf of a corporation that is not yet in existence) Stipulatio alteri - contract quite commonly contains provisions aimed at conferring benefits on persons who are not parties to the contract - contract for the benefit of the third party - eg. Pension agreements, life insurance policies and inter vivos trust deeds - Two parties, A and B, can validly contract for the benefit of a third person, C, who is not a party to the contract, and who at that stage need not even exist (eg. an unborn child) - it is not sufficient that the contract between A and B confers some incidental benefit upon C, nor even that the contract is intended to benefit C; what is required is that A and B should intend to create an enforceable obligation in favour of C, obliging B to make a performance to C and giving C a legal right to demand that performance - C acquires a legal right to the benefit only when he or she notifies B of his or her acceptance of the benefit. Before such acceptance, A and B might validly agree to vary or cancel their contract, without the need to obtain C’s consent; or A might release B from the obligation to confer the benefit upon C - Where the benefit held out to C carries with it reciprocal obligations (for example, where the benefit is the opportunity to purchase property from B), C cannot accept the benefit without simultaneously accepting the obligations that go with it - Stipulans: Stipulator - Promittens: Promisor undertakes to perform for the benefit of a specified third party Distribution of this document is illegal 31 Kaya Borkowski Constructions when considering the stipulatio alteri Two Contract Model - Van Huyyssteen - The construction that enjoys the most support in the case law and the literature is that the stipulatio alteri in reality consists of two bilateral relationships: one between A and B, and another between B and C - the promittens (B) is under a legal duty, owed to the stipulans (A), to make an offer to the third party (C) - Upon acceptance of the offer by C, the second bilateral relationship comes into being, between B and C. Whether thereafter the relationship between A and B continues to exist, or is discharged by B having made the offer to C, will depend upon the proper construction of the contract -Authors disagree about the type of conditions attaching to the right – - Resolutive Condition (De Wet): -The right becomes certain at fulfilment of the resolutive condition, ie the third party’s acceptance of his right, at which point the third party is entitled to benefit therefrom - the right can lapse if the third party waives the benefit or if the stipulans releases the promittens from his obligations under the contract BUT this can happen only prior to the third party’s acceptance of his right - Suspensive Condition (Van Huyssteen): -The third party immediately acquires the right BUT this is subject to unilateral acceptance of the right by the third party - the stipulans and promittens are bound once the third party has accepted the right One Contract Model - older construction by De Wet - the stipulatio alteri entails just one contract, between A and B, and that C’s right to the benefit springs directly and immediately from this contract, rather than from any act on C’s part. Distribution of this document is illegal 32 Kaya Borkowski - However, the right thus created for C is inchoate or conditional, in the sense that, although already in existence, it will become enforceable only upon acceptance by C. - Until such acceptance, A and B may agree to rescind their agreement, thereby extinguishing C’s inchoate right. - this approach has mostly been rejected by the courts Distinguishing stipulatio alteri - remember that stipulatio alteri is different from agency and Adjectus Solutionis Causa - Adjectus Solutionis Causa: a person nominated by a creditor to whom performance may be made (the person merely receives the performance) Quizlet on agency, parties to a contract and the stipulatio alteri - Test you knowledge and do this quizlet: - https://quizlet.com/za/840037454/parties-to-contract-flash-cards/?i=49hspq&x=1jqt - Password: Parties1 Obligations and Terms Obligations - a legal bond between two or more persons. It comprises both a right and a duty: the debtor bears a duty to make the performance agreed upon, and the creditor has a right to claim that performance. - All contractual obligations give rise to personal rights and duties - the right arising from a contractual obligation is only enforceable against the other party to that obligation. Reciprocal obligations - Most contracts give rise to reciprocal obligations. In other words, they create at least two obligations (relating to two performances) that are linked Distribution of this document is illegal 33 Kaya Borkowski Simple obligations - Most obligations are simple in that the parties, when they conclude the contract, specify the exact performance to be made. Alternative obligations - Where the parties agree that someone can choose a performance from two or more specified alternatives, then they have concluded an alternative obligation. eg. You buy a cow but does not matter if it is cow A or B so I can choose which to sell to you Terms Types of Terms - Essentialia - naturalia - incidentalia - express - tacit - implied Essentialia - distinctive terms used to identify or classify a contract as one of the specific contracts recognised by our common law. - the main or core characteristics of a specific contract distinguish it from other types of contract. - eg. like main characteristic of a sales contract vs. a lease agreement. Or the price, and the intention to transfer the rights to and undisturbed possession of the merx Naturalia Distribution of this document is illegal 34 Kaya Borkowski - The ex lege consequences of the type of contract. The terms implied by law, which flow naturally as a result of the contract. - Apply in the absence of contrary agreement by the parties. - advantage: convenience and protection - they often serve to protect one of the parties from a hazard typically associated with that type of contract. For example, one of the naturalia of a contract of sale is that the seller will be liable for latent defects. - Generally, parties may exclude naturalia by express agreement - that is, in exclusion or exemption clauses - although courts interpret these clauses narrowly - the naturalia are dynamic, and new naturalia can develop. Legal policy, justice, and fairness are not static, but change over time. Courts will not easily recognise new naturalia BUT they may do so where fairness and justice, balanced against legal certainty, justify the new recognition. Incidentalia - are the terms other than the naturalia and essentialia - They are the additional terms agreed upon by the parties that supplement or modify the rights and duties fixed in the contract -the basis for incidentalia is consensus or reasonable reliance on consensus. May be express or tacit. Incidentalia: Implied Ex Consensu -Ex consensu incidental terms agreed to by the parties themselves (based on consensus or the reasonable reliance thereon). Not implied by law. -May add to, vary, or exchange the naturalia. May exclude naturalia under the common law BUT not if the naturalia are implied by statute. -parties can exclude, qualify, or supplement the naturalia because of freedom of contract, provided these incidentalia are not contrary to public policy or prohibited by legislation. Distribution of this document is illegal 35 Kaya Borkowski Express terms - are terms specifically agreed upon by the parties and are either articulated in an oral contract or written down -proved by direct evidence – may be based on words or gestures Question: what is the caveat subsriptor rule? - a party who signifies their assent by signing a written contract is ordinarily held bound by its terms whether or not he or she has read or understood them. - this rule protects the reliance interest of the other party. To permit a party to escape from a contract on the basis that hey did not bother to find out to what they were committing to (George v Fairmead) Exceptions to the caveat subscriptor rule - Where even though the consumer signed a contract, the exemption cause is not binding at common law because there was no reasonable reliance on the clause (Du Toit v Atkinson Motors) - Even if the consumer signed the contract, if the term in the contract is surprising because it differs from the essence of the contract, the term does not bind the signatory (Mercurius Motors v Lopez) - iustus error (if it was a justified mistake) Standardised contracts - Standardised contracts (also called standard-form contracts) are commonly used by large corporations and public utilities. - A party presenting a standardised contract to another for signature is expected to draw attention to any term one would not expect to find in such a contract (Afrox) - If this is not done, the party might successfully contend that sincet they had not expected such an unusual term, it does not bind them Distribution of this document is illegal 36 Kaya Borkowski Unsigned documents - Express terms need not all appear in the document that records a contract between parties; but they may be incorporated into the contract by reference - eg. the Ts and Cs document Ticket cases - Where a ticket refers to terms that are recorded elsewhere and the person purchasing the ticket, the customer, knows or ought to have known that there is writing on it and that the writing refers to contractual terms to be found in another document. So they are bound - We ask: - Did the customer know that the ticket contained writing? - Did he or she know that the writing comprised contractual terms? - If these two questions are answered in the affirmative, the customer will be bound by those terms - If either question is answered in the negative, then a further question is asked: Did the other party take reasonable steps to bring the terms to the notice of the customer? - If the answer is 'yes', then the customer will be bound by the terms Trade usages and naturalia - Local naturalia exist in particular business sectors or geographical areas. - Requirements: - must be notorious or well-known - Clear, certain, and reasonable - Not contrary to the positive law, long-standing and universally observed Question: who carries the burden of proof (and therefore the risk of non-persuasion) in respect of the exclusion of naturalia by an agreed incidental term? - The party who alleges the contract must carry the burden of proving all the contractual terms, even if this means disproving the incidentalia alleged by the other party (Stocks & Stocks) - note that the Stocks & Stocks rule applies only to express terms, not tacit ones Distribution of this document is illegal 37 Kaya Borkowski - Whoever carries the burden of proof carries the risk of non-persuasion. The party who carries the burden of proof and fails to persuade the Court will lose Tacit terms - a term that was actually intended (actual consensus), or deemed to have been intended (imputed consensus), but which was not expressed. -Wilkens is NB test for this What are the things considered when dealing with tacit term? -must consider express terms and circumstances (McAlpine) -must not conflict with express terms (Transnet) -officious bystander test (Reigate) -business efficacy test: term must be necessary in business sense, not just reasonable or convenient to incorporate (CMC Administration) -onus rests on party alleging existence of term (Wilkens) Question: what is the officious bystander test? - After the parties concluded their agreement, the court assumed that an impartial bystander had asked what would happen in a situation they did not foresee and for which their express agreement did not provide. - If they agree that the stranger's question's answer was apparent, they are expected to include it in their contract and tacitly agree on it. - the Court assumes that the parties would answer as honest and reasonable people but will not ignore actual subjective knowledge - therefore the test is not completely objective; there are elements of subjectivity -the tacit term can only be imported into a contract if it is necessary in a business sense was decided Reigate. The implication must be necessary, and not merely reasonable or convenient Distribution of this document is illegal 38 Kaya Borkowski Test for tacit terms - the officious bystander and business efficacy test (from Reigate) NB - the test looks at true unspoken intention OR fictitious consensus - That a tacit term can only be imported into a contract if it is necessary in a business, not merely reasonable or convenient and much will depend on express terms of the agreement and surrounding circumstances at the time agreement was entered into. Considerations when dealing with tacit terms - burden of proof rests on person alleging tacit term - one must still consider the parties’ actual knowledge and circumstances (Wilkens) - Formalities requirements do not prevent reading in (Wilkens) - tacit terms will not be inferred if they conflict with express term UNLESS the tacit term is not prevented by a merger, entire agreement, or non-variation clause - Tacit terms will be inferred only by necessary implication - Tacit terms must be implied from express terms and surrounding circumstances - officious bystander and business efficacy test (Reigate) Mistaken application of the officious bystander test - the officious bystander test is when a bystander asks the parties whether they both would have agreed to the term. - in Van der Westhuizen and Sentinel Mining, the SCA made the mistake twice by saying that the officious bystander test involves asking the bystander (an objective third party) whether the term should be included in the agreement. - this is wrong because it is not wholly objective, the subjective knowledge of the parties is not ignored in the true application of this test. Implied terms Distribution of this document is illegal 39 Kaya Borkowski - Implied terms are those terms not explicitly agreed upon by the parties, but which nevertheless form part of the contract. - They may be implied by operation of law (ex lege), by custom or trade usage (default rules) or from the facts surrounding the agreement of the parties (ex consensu) - Some authors, such as Neels, argue that ad hoc ex lege terms are another type of implied term BUT the SCA in SAFCOL disagreed Ex lege implied terms - imported into a contract by law and operates unless the parties exclude it - eg. in contracts of lease, it is usually not necessary for a tenant to stipulate the duties of the landlord, for the law provides what their obligations are Determinants when considering implied terms - Fair balancing of interests - Community requirements - The need for legal certainty - Aspiration to coherent and predictable rules - Good faith - Constitutional values Standard terms - Pre-formulated by one party for general and repeated use by that party in contracts with its clients. - If the standard term is surprising, it should be pointed out to the other party by the user of the standard terms otherwise there is no reasonable reliance on the standard terms (Mercurius Motors) Quizlet on terms and obligations Distribution of this document is illegal 40 Kaya Borkowski - Test you knowledge and do this quizlet: - https://quizlet.com/za/841023515/obligations-and-terms-flash-cards/?i=49hspq&x=1jqt - Password: Terms 3 Proof and Interpretation Who must prove? - the alleging party must prove Parol evidence rule - if the parties intended a written agreement to be an integration of the document for the sole memorial (as their entire agreement) then the parties may not bring evidence about other terms (like oral terms) or other agreements to change the agreement at hand - first leg: it determines what evidence is admissible to prove the contents of the contract (integration rule) - second leg: it determines what evidence is admissible in proving the meaning of the words used (interpretation rule) Johnston v Leal -The contract was a pre-printed sale form with blank spaces for the parties to fill in. -The Court held that the parol evidence rule does not preclude evidence on why the spaces were left blank, this evidence was merely to decide whether the document was in fact an integration of all the terms agreed to. Exceptions to the Parol Evidence Rule - Evidence may be led to determine whether the document is intended to be a full integration - Rectification is permitted if the parties made a common mistake in the written document - Evidence regarding the invalidity of the contract or a term may also be brought Distribution of this document is illegal 41 Kaya Borkowski What role does extrinsic evidence have in interpreting a contract? (factors from Securefin) - The integration (parol evidence) rule remains part of our law - Interpretation is a matter of law, not of fact - The rules about admissibility of evidence for interpretation are not dependent on the nature of document - Evidence may be admissible to contextualise document, but it must be used conservatively (Delmas) - Expert witnesses are entitled to explain the meaning of technical terms in the document but are not entitled to say what they think the contract means Rules of interpretation - primary rules (ascertain the ordinary and popular meaning of words) - secondary rules (presumptions in respect of the most likely intention). - if still ambiguous: - Written words take precedence over printed words - words of a general meaning are limited when used in conjunction with words that refer to a class or species - interpretation which renders contract valid is preferred: parties can be presumed to have wanted to conclude a valid agreement - f the contract is ambiguous, one would follow the fairest interpretation so as not to confer an unreasonable one-sided benefit - tertiary rules (if the contract is still ambiguous even after preceding rules) - if a document is ambiguous, it is interpreted against the party for whom it was drafted - it is interpreted against person to whom promise has been made - interpreted such that the smallest possible burden must be placed on debtor Distribution of this document is illegal 42 Kaya Borkowski Quizlet on proof and interpretation - Test you knowledge and do this quizlet: - https://quizlet.com/za/841530389/proof-and-interpretation-of-contracts-flash-cards/?i=49 hspq&x=1jqt - Password: Proof4 Other Common Contractual Terms - Some other common contractual terms worthy of mention are suppositions, modal clauses, exemption clauses and non-variation clauses. Suppositions - A term which makes the operation or continued existence of a contract dependent on a past or present fact or state of affairs. - If the state of affairs exists, the contract is valid, if not then invalid - A unilateral mistake in motive is not sufficient to invalidate the contract. If there is a misrepresentation leading to the unilateral mistake, the contract becomes voidable - note: a supposition in terms of the future is not feasible. If the parties want to make the contract subject to a future event or state of affairs, they must rather use a condition (Van Reenen Steel) Warranty - A term under which absolute liability is accepted for a certain performance - the grantor cannot rely on the absence of fault to be liable under the warranty. - origin: warranty can be based on consensus or reasonable reliance. - note: many terms said to be warranties are not warranties in the strict sense, and limit the party’s rights under the common law (not strict liability) - Ex Lege Warranties do not necessarily mean that the seller is liable for damages (as an example) but will rather result in other remedies like a reduction price or a refund (Van Der Westhuizen) Distribution of this document is illegal 43 Kaya Borkowski Modus - term which limits a party’s retention of performance in that he has to do something in future as pre-condition for the retention of performance. - the performance is subject to a burden or obligation. - consequences are that the contract is immediately enforced BUT if the modus is not adhered to, the party is in breach - eg. if someone makes a donation of land subject to a modus that the land is to be used for a school, and the recipient builds a block of flats on the land, the recipient will have breached the modus Question: what is the difference between modus and condition? - the failure to fulfil a condition will cause a contract to lapse - while the non- fulfilment of a modus leads to remedies for breach. Time clauses (dies) - Suspensive Dies and Resolutive Dies - suspensive dies: suspends enforceability of the obligation until the occurrence of a certain future event - resolutive dies: the obligation is immediately enforceable, but will terminate at the occurrence of a certain future event Conditions - A term that makes the operation of a contract dependent on whether uncertain future event will or will not occur. - it qualifies the operation of a contract with reference to an uncertain future event. Positive Condition - Depends on the occurrence of an uncertain future event. It will be fulfilled if the event occurs Distribution of this document is illegal 44 Kaya Borkowski Negative Condition - Depends on an uncertain future event not occurring. Suspensive Conditions - Suspend the full operation of the contract until it is certain that an uncertain future event will or will not occur. - if the condition is fulfilled, the obligation is fully enforceable - it is controversial whether there actually is a contract before the condition is fulfilled. - Corondimas v Badat : A conditional sale is a mere contractual relationship, not a sale. This case has been criticised but not overruled yet Waiver of a Suspensive Condition - If the condition is exclusively to the benefit of one party, that party may waive the fulfilment of the condition - but this must be done within the 'cut-off date' stipulated in agreement and comply with formalities stipulated for the waiver Resolutive Conditions - The obligation is enforceable but its continued existence depends on the occurrence or non-occurrence of an uncertain future event. - therefore if the resolutive condition is fulfilled, the obligation lapses eg. I need to pay my roommate my rent until I graduate -a resolutive condition is one which the parties agree that the agreement should operate in full and it comes to an end upon the occurrence of some uncertain future event (Jubelius). Meaning that if the condition is fulfilled, then the obligation will retroactively be rendered void ab initio Doctrine of Fictional Fulfilment of a Condition - THE DOCTRINE OF FICTIONAL FULFILLMENT (useful link) Distribution of this document is illegal 45 Kaya Borkowski - If a party to a contract which is subject to a condition deliberately prevents fulfilment of the condition to avoid being bound by the contract, the condition may be deemed to have been fulfilled. -The doctrine reinforces the proposition that where an agreement is subject to a suspensive condition, the party in whose favour the suspensive condition is framed is obliged to take all reasonable steps to fulfil that suspensive condition. -eg. say S sells something to B for a price ‘subject to the buyer obtaining a loan from the bank to cover the price within 3 weeks. This is a suspensive condition.If B does not apply for the loan, can S hold B liable for the price? It would be unfair. If B prevented the fulfillment and had a duty not to do so then will be held liable unless B’s conduct was not a material cause of the non-fulfillment. Doctrine of Fictional Fulfilment of a Condition requirements - Intention to prevent fulfilment of the condition (does not need to be male fide) - Duty not to prevent fulfilment of the condition - A causal link between the conduct of the party and the non-fulfilment of the condition - the doctrine is based on fairness, where the defendant takes no steps towards the fulfilment of the condition, it bears the onus of showing the absence of a causal connection (Comwezi) Potestative Condition - Fulfilment depends on the will and corresponding act of one contracting party alone eg. a golfer needs to get a hole-in-one to get a price Mixed Condition - Fulfilment depends partially on the will and corresponding act of one contracting party alone Causal Condition Distribution of this document is illegal 46 Kaya Borkowski - Fulfilment on neither party's will or corresponding act - eg. I will pay you if a certain plane lands (not up to me or you if plane lands or not) Exemption Clauses - A term which excludes or limits the liability of one of the parties under the contract. - the problem is that the mechanism of standard contract terms was often abused. -if autonomy or freedom of contract is the basis for all terms, clearly standard terms are often not the product of the autonomy of both parties - The adhering party is often (for various reasons) not aware of the term - there is an inherent structural inequality caused by the use of standard contract terms caused. Therefore, there is a need to protect vulnerable parties. Question: how to escape exemption clauses? - the common law - iustus error as in Atkinson's Motors. - Also recognises one cannot exclude liability for dolus, wilful misconduct, or fraud or - the clause is contrary to the essence of the contract (Mercurius) or certain clauses should be pointed out (Mercurius) - contrary to public policy - relates to illegality. - The term is void because it is against public policy, infringes Constitutionally protected rights - cannot exclude liability for death caused negligently, it would be unconstitutional and contrary to the right to life (JHB Country Club) - CPA Distribution of this document is illegal 47 Kaya Borkowski Freddy Hirsch v Chickenland - C had to recall all products containing a spice purchased from F but the contract included an exemption clause in its standard terms - the Court found that the clause excluding liability for defects in the merx was not applicable – C did not rely on a defect in the merx because the merx was so different from what had been ordered that there was non-performance Restrictive Interpretation of exemption clauses - Where the contract has been drafted solely by one party, it must be interpreted against that party - in Drifter's Adventure, the clause was interpreted restrictively, as excluding liability only in respect of the risky activities foreseen in the contract (not ordinary driving) so the exemption clause not applicable - if negligence not specifically mentioned and there is another cause of action, liability for negligence not excluded (Lyle Shipping) - Clauses cannot be enforced if exercising a right thereunder is contrary to good faith, even where it is valid and applies, as this is contrary to public policy (Barkhuizen) - Will interpret any standard form/contract against the drafter (contra proferentem rule*) *where a promise, agreement or term is ambiguous, the preferred meaning should be the one that works against the interests of the party who provided the wording. Legislative Control on Terms - It is in the public interest for suppliers to use standard terms that are not harsh. There is a need for control to go against the structural inequality between suppliers and consumers - legislative control is also needed because legislation is more clear and specific, ensures legal certainty Distribution of this document is illegal 48 Kaya Borkowski Question: why do we need control by way of legislation? -Not sufficient protection under the Constitution and the common law -If we only gave power to courts to apply these standards, it would take a long time for clarity on what is unfair -Legislation makes it clearer from the start, legal certainty -Courts decision is reactive. We need proactive and preventative control The Provisions on Unfair Contract Terms in the Consumer Protection Act - https://www.gov.za/sites/default/files/32186_467.pdf General info on CPA - applies to most transactions concluded in the ordinary course of business between suppliers and consumers within South Africa - The CPA protects all individual persons and small businesses with assets and turnover of less than R2 million. - It protects juristic persons, such as companies, with assets and turnover of more than R2 million only in limited circumstances. - section 22 of the CPA prescribes that clauses must be written in a clear and conspicuous manner. If there is any room for ambiguity, then the validity of the clause will be brought under question. Core provisions on unfair terms Section 48: general clause (prohibition of unfair contract terms) Section 49: formal (conspicuousness) requirements for 4 types of problematic terms (double-edged sword that will work against consumers). Conspicuous: needs to be brought to the attention of the consumer Section 50: written agreements – copy; plain language Section 51: prohibited terms (red list). This red list is very short. A longer list of prohibited terms is required. The more terms prohibited outright, the more consumers Distribution of this document is illegal 49 Kaya Borkowski are protected. If a contract indemnifies one party against the death or bodily injury of another, then that clause is prima facie unlawful. Section 52: relevant factors to “unfairness” enquiry; possible court orders Reg 44: list of terms that are presumed to be unfair (orange list) – narrower scope of application than Act itself (“true B2C contracts”) ((a) to (bb)) burden is on the business to show that the terms are fair Criticism of section 49 - contravenes the caveat subscriptor rule and renders it irrelevant. The caveat subscriptor rule holds that a party who signifies their assent through signing a written contract is bound by the terms, whether or not they have read and understood the agreement (Burger) - ultimately gives consumers the opportunity to revoke their assent and may place suppliers at risk for losing valuable sales. - BUT remember other ways that the consumer is vulnerable due to structural inequality, legislation not being proactive enough and power imbalance between consumers and producers Listed Test for Unfairness – There are four indications of unfairness: - The term is excessively one-sided - The term is so adverse to the consumer so as to be inequitable. Inequitable is the same as unfair so not particularly helpful - The consumer relied on a misrepresentation. This should be regulated by s 41 (on misrepresentations) - The supplier acted contrary to s 49 (requirements of conspicuousness for certain types of terms) Section 49: Notice Required for Certain Terms and Conditions Distribution of this document is illegal 50 Kaya Borkowski - Formal requirements for types of terms that must be drawn to attention in a specified manner and form. - The types of terms are: - Exemption Clauses: Whereby the supplier’s liability is restricted or limited - Assumption of Risk Clauses: Whereby the consumer assumes a risk - Indemnity Clauses: Whereby the consumer indemnifies the supplier from any claims made against the supplier on the basis of the contract. So the consumer will pay damages to the supplier if the supplier faces any claim Requirements for section 49 - Plain language (read with section 22) - Must be alerted notice/provision before agreement - Brought attention in conspicuous manner - Give sufficient time to understand Section 51 - contains a list of terms that are always prohibited and will be void -an example is a term purporting to exclude liability for gross negligence Burden of Proof -The business bears the onus of proving that the term is fair in the circumstances. Otherwise, if the onus was not on the business, courts likely not have enough evidence to properly evaluate the fairness of the term. Quizlet on other contractual terms - Test you knowledge and do this quizlet: - https://quizlet.com/za/841348863/other-common-contractual-terms-flash-cards/?i= 49hspq&x=1jqt - Password: Other6 Distribution of this document is illegal 51 Kaya Borkowski Practice Question - Prof went through this with us to show exactly how to approach a damages question Question 2 Software and Computers Deluxe (Pty) Ltd (“Software Deluxe”) agreed with Client (Pty) Ltd (“Client”) that Software Deluxe would supply computer equipment and 3D printers to Client and also develop a complex suite of software custom-made for use in Client’s business, for a total contract price of R700 000. When agreeing on that contract price, Software Deluxe estimated that the total cost to it of the goods that needed to be supplied and other expenses necessary to perform the contract would amount to R300 000. Client paid a deposit of R200 000 immediately after conclusion of the contract as required by Software Deluxe. Thereafter, Software Deluxe bought and paid for the 3D printers to its own supplier, at a cost of R100 000, and contracted with a freelance software expert to assist Software Deluxe with the project. Shortly thereafter, Client indicates that its needs have changed and that it can also no longer afford the project and wishes to withdraw from the contract. The freelance software expert that Software Deluxe has involved, claims that if the project does not go ahead, she would suffer a loss of profit in the amount of R150 000, which she would claim from Client. Software Deluxe alleges that it is unable to get a refund for the printers from its supplier, and also not able to sell them in the market, nor use them elsewhere. Fully advise Software Deluxe on all its remedies. Motivate your answer with reference to authority. - Total = R700 000 - Expenses = R300 000 - Price of printers = R1

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