Commercial Law PDF - Contractual capacity

Theme 2- Consensus and defects in consensus LO 7- 12 VOID CONTRACTS- A contract is considered void or non- existent, if any one or more of the six basic requirements for a valid contract is missing:  Contractual capacity  Agreement  Legality  Possibility of perfor...

Theme 2- Consensus and defects in consensus LO 7- 12 VOID CONTRACTS- A contract is considered void or non- existent, if any one or more of the six basic requirements for a valid contract is missing:  Contractual capacity  Agreement  Legality  Possibility of performance  Formalities  Certainty  When a contract is void, it is as if it never existed and the parties have no rights or obligations under that contract- they cannot be forced by law to carry out the terms of the contract Voidable Contract – A contract is voidable if all the requirements for a contract are satisfied, but the way in which the parties reached agreement is problematic because one of them committed misrepresentation, duress, or undue influence. A voidable contract is a valid contract and will remain in force until the innocent party decides to set it aside after providing the requirements for misrepresentation, duress or undue influence. (please read pages 85 – 86) CONTRACTS THAT ARE VOID DUE TO A LACK OF AGREEMENT: A contract is void if it fails to meet any one of the six requirements. Where a contract is void because of a lack of agreement, we refer to the problem as mistake- there are two types of mistakes:  Unilateral mistake- contract is void if the mistake is material  Common mistake- where the contracting parties see things differently The term mistake can be used in two different ways. A mistake can either be a term that you use in everyday speech to indicate that you made an error of some sort, or it can refer to grounds for a void contract ( pleased read pages 87 – 92) CONTRACTS THAT ARE VOIDABLE DUE TO MISREPRESENTATION: In cases of misrepresentation, duress and undue influence, the contracting parties reach agreement, but they reach it in an important way in that the consent of one of the parties to the contract was obtained by false statements, or consent was not freely and voluntarily given. When does misrepresentation lead to a voidable contract: A misrepresentation makes a contract voidable if all the following six conditions are met:  Misrepresentation must be untrue  Misrepresentation must be about a fact  Misrepresentation must be material  Misrepresentation must be made by one of the contracting parties  Intention must be to induce the other party to contract  Effect must be to induce the other party to contract (please read 94 - 107) DIFFERENTIATE BETWEEN THE TERMS RECTIFICATION AND RATIFICATION: Rectification means to correct a grave error on a document Ratification means giving formal consent to a contract or agreement thereby making it validly official.  RECTIFICATION: If the contracting parties agree verbally to a contract, but they make an error later, when they write down the terms of the contract? This is not a mistake that would render the contract void since there is agreement between the parties. The only problem is that the piece of paper does not reflect this agreement accurately. The parties can apply to court for an order for rectification to correct the error in the written document. The party that asks for the rectification must show that the content of the written document differs from their verbal agreement and must prove what the terms of the verbal agreement are. The court will then order the written document to be changed so that it is a correct reflection of their agreement.  RATIFICATION: Approval of agreement by the state. After approval has been granted under a state's own internal procedures, it will notify the other parties that they consent to be bound by the treaty. This is called ratification. The treaty is now officially binding on the state. CONTRACTS THAT ARE VOIDABLE DUE TO UNDUE INFLUENCE: Means that one contracting party has such an influence over the other that the second party is unable to think for themselves and is influenced to enter a contract they would not normally have agreed to. Undue influence makes the contract voidable if:  The stronger party has influence over the weaker party  The influence was such that the weaker party would do what the stronger party said  The stronger party used their influence in an unscrupulous way  The influence caused the weaker party to enter a contract  The contract was not in the weaker party’s best interest  Commercial Law THEME 2: INTRODUCTION TO THE LAW OF CONTRACT LO6 LO7 LO8 LO9 LO10  Differentiate between the contractual capacity of persons married in community of property and those married out of community of property. MARRIED IN COMMUNITY OF PROPERTY: When a couple gets married in community or property, the separate assets and liabilities of both spouses are joined together in a joint estate- basically they share what they bring into the marriage and share assets gained and liabilities incurred during the marriage. Married in community of property is the default regime in this country If a couple gets married without drawing up and registering an ante nuptial contract, they will automatically be considered to be married in community of property. Advantage is that both spouses have an equal share in other’s assets including assets that they bring into the marriage Disadvantage is that they also share each other’s liabilities In terms of the Matrimonial Property Act 88 of 1984, there are three different forms of consent that may be required: Written consent signed by both spouses and two witnesses; Written consent of both spouses; Express or implied informal consent Written consent signed by both spouses and two witness: this is the most stringent consent requirement, which is used for only the most important contracts, such as: The sale or mortgage of immovable property, like a house, an apartment or a farm; A surety agreement in which a third party guarantees that a debtor will pay a creditor; A credit agreement by which you can buy goods like furniture any pay off the purchase price over time Read page 62 - 63  DEFINITIONS ANTENUPTIAL: “before marriage”. The US the term prenuptial agreement is used to refer to this type of marriage agreement JOINT & SEVERAL LIABILITY: means that creditors can sue each spouse independently or together for the full amount of the debt WITNESSES: are people who observe the signature being made and can guarantee that it was made by the person whose name appears on he document, by signing their own signatures alongside or below. ASSETS: the property and money you own LIABILITIES: are your debts or what you owe to a creditor NOTARY PUBLIC: this term is complex in simple terms, this refers to a specialized attorney who is authorized by the High Court to witness signatures, draw and authenticate agreements and legalize certain documents ( such as marriage agreements) DEEDS OFFICE: this is a place where certain important documents are kept VALID: legally binding due to having been executed in compliance with the law. VOID: not valid or legally binding. ("the contract was void“) VOIDABLE: is a contract where one party has the ability to void the contract if they desire. UNENFORCEABLE: is a legally binding agreement between parties that can be upheld in a court of law  MARRIED OUT OF COMMUNITY OF PROPERTY When a couple gets married out of community of property they each continue to own their property separately. For a marriage to be concluded out of community of property, both parties have to sign an ante nuptial contract in front of a notary public before the conclusion of the marriage. The contract must be registered by a notary public at the deeds office within three months of the marriage. There are two types of marriage out of community of property: those without accrual and those with accrual: An antenuptial contract without accrual means that each spouse will keep their separate property (assets owned before the marriage) separate if they divorce. In a marriage with accrual, the property that the partners bring into the marriage is kept separate and while the marriage continues, the assets acquired and liabilities incurred during the marriage are also managed separately. Read page 63 - 64 CIVIL UNIONS: are marriages between two persons under the Civil Union Act 17 of 2006. SA was one of the first countries to recognize civil unions between same- sex partners. Note that civil unions are not limited to same-sex partners. Partners in civil unions have the same right and responsibilities as civil marriages. Partners in a civil union will be automatically regarded as being married in community of property, unless the partners contract otherwise, such as enter into an antenuptial agreement. AFRICAN CUSTOMARY MARRIAGES: The recognition of Customary Marriages Act 120 of 1998 regulates marriage under African Customary law. Since this Act, a monogamous customary marriage (marriage between one husband and one wife) is regarded as being in community of property, which means that the spouses will have a joint estate. However, the parties can contract out of this default regime and conclude an antenuptial contract. Read page 66 - 67 CONTRACTUAL CAPACITY OF PERSONS WHO ARE MENTALLY INCAPACITATED AT THE TIME OF THE CONTRACT: If a person does not understand the nature of the contract and does not appreciate the consequences therefore due to mental incapacity, they are not legally bound by the contract. There are various reasons that may lead to a person being incapacitated: Mentally ill persons: Generally, contract concluded by a mentally ill person are void and unenforceable against the person on the basis that they do not understand the nature and terms of the contract (lack of capacity). A court- appointed representative (curator al litem) may be appointed to manage the affairs of mentally ill person, including administering their estate and concluding contracts on their behalf. Intoxicated persons: In order for an intoxicated person to avoid liability on a contract entered into while intoxicated, the court will need to determine whether the person was so intoxicated at the time that they did not realize that they entered into a contract, did not understand the terms of the contract and could not control their actions. CONTRACTUAL CAPACITY REGARDING INSOLVENT PERSONS A person is factually insolvent if they owe more than they own. When the court declares someone insolvent, it issues a sequestration order. To sequestrate means to take legal possession of the insolvent’s property until all debts have been paid or other claims have been met. The Insolvent Act 26 of 1936 governs the insolvency of a natural person. Before final sequestration, the person is called a debtor ( a person who owes a performance, usually money). After final sequestration, they are called an insolvent A trustee is a person appointed by Master of the High Court to take care of the insolvent persons estate for the benefit of the creditors The insolvent’s limited contractual capacity has important consequences- here are key consequences: The insolvent is disqualified from holding certain offices- e.g., as a member of the provincial legislature or the director of a company The insolvent may not engage in business, directly or indirectly as a general dealer or manufacturer even if the insolvent is employed in these businesses, without the written consent of the trustee The insolvent is not allowed to conclude any contracts that seek to further impoverish the estate, such as selling a vehicle for quick cash, or buying an expensive watch that the estate would have to pay for. Read pages 66 -67 Theme 1: Forms of transfer and termination of personal rights LO1: Differentiate between the following forms of variation and transfer of personal rights Cession, differentiating between: Complete cession Cession as security (in securitatem indebiti) Variation Release (also known as discharge) Delegation Assignment Novation Compromise  THE TRANSFER OF REAL RIGHTS Most contracts create rights and duties. A right normally has a duty or obligation that goes with it- this is called “obligation agreement”. A person who has a right due to them is the creditor as far as that right is concerned while a person who owes a duty is the debtor. Cession is about the transfer of personal rights. It is not possible to deliver or posses a personal right, because the object of the right is the performance that another person owes in terms of a service or the payment of money or property. The new law has created the concept of cession, which is the legal way in which rights that belong to one person can be transferred to another person. This is an agreement that happened separately from the original agreement. An agreement to cede is called a “transfer agreement” because the creditor transfers their rights to another party  THE PARTIES INVOLVED IN CESSION A cession while usually happen because the cedent has a duty to the cessionary. That is why the cedent will transfer the right to the cessionary. This duty is known as the underlying causa or reason for the cession. The cedent will transfer their right to claim from the debtor to the cessionary and on that way discharge their own debt. As you will see, there are many different reasons for a cession TWO TYPES OF CESSIONS The rights and duties that exist between the cedent and cessionary depend on the terms of a contract that they may have concluded- there are two common types of cession: Complete cession Cession as security for a debt  COMPLETE CESSION With a complete cession, the subject matter of the cession forms part of the estate of the cessionary, who becomes the person entitled to the performance of the debtor. The result is that the cessionary is substituted as creditor in place if the cedent. The cessionary is then entitled to enforce the claims and to retain any proceeds of them for their own benefit. The cessionary is now also entitled to accept any amount they please in settlement of the claim. Remember a cessionary cannot demand more from the debtor that the debtor owed to the cedent. The cessionary only stands in for the cedent, and therefore cannot have a stronger claim against the debtor that the cedent had. The simple act of cession also cannot fix any problems that the cedent may have with the right, such as if the debtor has a good defense against the cedent’s claim. A complete cession prevents a cedent from dealing with the right as a creditor after the cession agreement. A cession agreement that intends a right to be given away to somebody else results in a complete transfer of the right to the cessionary. This means that once the right has been ceded by the cedent, such right can never be returned to the cedent. This type of cession also extends to ant advantages that go with the rights question, unless there is some agreement or indication to the contrary in the agreement  CESSION AS SECURITY When the reason for a cession is that the cedent want to use a personal right that they have against someone to secure a debt towards a third party (like a bank), this is known as a cession as security or in securitaten debitit. In terms of an agreement of transfer for security, the cessionary becomes the creditor and is then the only person entitled to enforce the right that is the subject of the cession. The cedent retains no right against the debtor, but has a personal right against the cessionary coming from their personal arrangement for the re-cession ( back to the original cedent) of the right once the main duty to the cessionary has been met. A cession in in securitatem debiti serves to secure the main obligation and its operation depends on the continued existence of that main debt. (Please read page 198)  VARIATION AND TERMINATION OF CONTRACTS BY AGREEMENT It often happens that people sign a contract that is lawful and binding but then decide that the terms are not suitable for their purposes. This section explains some ways in which the parties can subsequently reach agreement to vary or terminate the rights and or duties that they have in terms of a contract namely: Variation: changing the rights and duties of the parties Release: relieving one or both parties of their duties Delegation: transferring duties Assignment: substitution of a third party Novation: replacing an old duty with a new one Compromise: accepting new terms (Please read pages199 – 201)  Learning Unit 10- The Contract of Sale Theme 1: Essentialia and naturalia of contracts of sale LO1: Discuss both the essentialia and the naturalia of a contract of sale, and apply these to a set of facts. LO2: Explain the meaning and effect of a voetstoots clause. LO3: Identify and explain the specific clauses included in a contract of sale. LO4: Distinguish between the transfer of ownership in moveable and immovable property. LO5: Apply the rights and duties of the purchaser and seller to a set of facts LO6: Explain the passing of risk.  Essentialia:- All contracts must follow the Naturalia:- The importance of general principles of contract law, but there are classifying contracts is that, once you some contracts, called specific contracts, where we have identified a contract to be a have to include particular terms. Contracts of sale and lease are examples of specific contracts. particular specific contract, there are Essential terms of a contract, which identify that terms that the law automatically contract as a specific contract are called the reads into the contract. These terms essentialia- the essentialia are the terms that must are the Naturalia of the contract- be present in a contract in order for it to be classified as a specific type of contract. these clauses are implied by law. The parties to the contract must agree on these The Naturalia apply automatically to a essential terms for the contract to be considered a contract even if the parties have not specific contract- for a contract to be a valid contract of lease, there must be consensus about specifically agreed to them. However the following essentialia: it is possible for the contracting The object being leased parties to change certain Naturalia by The length of the lease agreement. (please read page 142) The amount of rental payable Similarly, a contract of sale must state the following essentialia: The item that is being sold 2 The price payable (read page 141) Explain the meaning and effect of a voetstoots clause The term voetstoots is a Dutch Most sale agreements of immovable term which generally describes property contain a clause in terms whereof the purchaser agrees to buy buying something “as is” and the property voetstoots. The voetstoots counters this implied right to clause is a common law principle which defect-free goods. This means stipulates that the purchaser buys the that a buyer agrees that they buy property from the seller as is and an item as it appears at the time thereby frees the seller from any liability for patent or latent defects. Patent of sale and cannot later claim defects are those defects that are visible against the seller if he finds whereas latent defects are hidden and certain defects. not easily discoverable through reasonable inspection. 3 Identify and explain the specific clauses included in a contract of sale 1. Sunset clause 8. Non-compete clause 2. Penalty clause 9. Arbitration clause 3. Exemption clause 10. Severability clause 4. Exclusion clause 11. Cancellation clause 5. Indemnity clause 12. Force majeure clause 6. Escalation clause 13. Confidentiality clause 7. Exculpatory clause 4 Distinguish between the transfer of ownership in moveable and immovable property. 'The simplest way to determine if an item is a permanent fixture would be to imagine turning the house upside down. The items that would fall down can be seen as movable and those that would remain attached can be seen as part of the immovable property; better known as fixtures in the offer to purchase. 5  Apply the rights and duties of the purchaser and seller In a contract of sale of goods, both the buyer and seller have their own respective rights and liabilities. The seller has the duty of delivering the goods to the buyer while the buyer has the duty of accepting and paying for said goods according to the terms and conditions of the contract. 6 Explain the passing of risk Goods being sold remain at the seller's risk until the property in the goods is transferred to the one who buys the goods known as the buyer. Once this property is passed, the goods are at the buyer's risk even if the delivery has not been made. This is what passing of risk means in the business world. 7 8 9 10  Learning Unit 6 Terms of the Contract LO2: Differentiate between suspensive and resolutive conditions, and suspensive and resolutive time clauses. LO3: Discuss the following clauses Chap 8 & 9  CONDITIONS- a condition is a contractual term that indicates whether a contract will start or continue to operate. The condition describes an event that may or my not happen in the future. There are two types of conditions: SUSPENSIVE CONDITION- A suspensive condition suspends or delays the operation of a contract until the condition is met or the future event occurs. RESOLUTIVE CONDITION- A contract that is subject to a resolution condition is immediately binding on the parties, but comes to an end should the future uncertain event occur (read pages 157 – 158) TIME CLAUSES: A time clause is different from a condition. A time clause is one in which the rights or duties of a contract start or end at a specific time or event, or after a specific period of time or event, which, unlike a condition is certain to occur- there are two types of time clauses: SUSPENSIVE TIME CLAUSE- A suspensive time clause indicates when the duties in a contract have to be performed. RESOLUTIVE TIME CLAUSE- A resolutive time clause indicates when the contract will come to an end.  SUPPOSITIONS A supposition is a contractual term that states the contract will only become operative if a given situation exists or a given event has occurred. Unlike a condition, a supposition relates to a possible present state of affairs, rather than a future one. CANCELLATION CLAUSE A cancellation clause enables a contracting party to cancel the contract if the other party fails to do what they agreed to do in the contract. Without the cancellation clause, it is still possible for the harmed party to cancel, but only if the breach of contract is sufficiently serious. To breach promise or agreement is to fail to keep it. This cancellation would be in terms of common law WARRANTY CLAUSE A warranty binds a contracting party to extra duties relating to the quality, quantity or other aspects of the thing being contracted to. A warranty clause does not always use the words “warranty”. Sometimes it will be referred to as a guarantee. EXCLUSION CLAUSE An exclusion clause states that a contracting party is limited or excluded from liability in stated circumstances. This clause protects one of the contracting parties against liability for certain types of legal claims by the other party and reduces the range of their contractual duties. An exclusion clause serves the opposite function to a warranty. While a warrant adds the stated extra obligations, an exclusion clause removes or excludes the liability it refers to. ( read pages 159 – 160)  MODI A modus is an extra condition as to how something must be done or used. It places a duty on a contracting party to perform some future action related to the original contract. However the creation of the contract is not dependent on the modus being performed. Note that a modus differs from a condition in that if a condition is not met, the contract does not go into operation. PENALTY CLAUSE A penalty clause allows contracting parties to agree in advance about what will happen if they fail to fulfil their duties in terms of the agreed contract. A penalty is generally related to punishment. In the context of a contract, a penalty is the compensation that one party has to pay for not doing what was agreed in a contract. ENTRENCHMENT CLAUSES An entrenchment clause creates formalities that the parties must meet if they want to change their contractual obligations. If something is entrenchment clause will provide that the only way can change or add to the contract is if you put the change in writing and both parties sign it. This means that a verbal agreement to change any obligations will have no effect. Entrenchment clauses are often non-variation clauses. To vary something is to change or adapt it. A non- variation clause makes it difficult to change or adapt the contract- the changes must be in writing (please read pages 162 – 163)  CLAUSES ABOUT HOW TO RESOLVE DISPUTES JURISDICTION CLAUSES- In chapter 1, we mentioned that different courts, given the same facts, may reach different conclusions. A jurisdiction clause serves to indicate that both parties have agreed as to which court will have the power to decide disputes, if they arise, concerning the contract. ARBITRATION CLAUSES- Parties to a contract may want to avoid going to court over a dispute relating to their contract. It is often cheaper, quicker and more private to seek alternative dispute resolution (ADR), by which we mean ways of solving legal disputes without going to a court. One form of alternative dispute resolution is Arbitration. Other forms of ADR are negations, conciliations and mediation. An arbitrator agreed to by the parties listens to what both parties have to say and then makes a decision, which both parties are bound to follow- The arbitrator must be impartial- they may not take sides or be biased in favor of either party. COST CLAUSES- Cost clauses in contracts refer to two separate issues: The cost of drawing up the agreement: A lawyer who draws up a contract will usually charge a fee for this service Legal costs: There are various scales or levels of legal costs. Party-and –party costs are legal costs that are reasonably incurred in a court case. These are the costs that are usually ordered, unless the parties have agreed otherwise. Attorney-and-client costs are higher than certain other level of costs and refer to the amount the winning party gets from the losing party to cover most of their legal costs (please read pages 164 – 165) Learning Unit 4- Theme 1- Formalities LO 1- 4 Formalities: The starting point is that most contracts have no formalities- they do not need to comply with a particular form or format. Many contracts do not require any formality, such as writing down the terms, but can be concluded verbally or even by your actions. The three types of formalities that most often apply to contracts: WRITTEN DOWN AND SIGNED: This is the most common formality. It requires that all the terms of the contract must be written down in a document and that each of the contracting parties must sign the documents. This formality is usually applied to important contracts, where the law wants to be certain of the terms and does not want to rely on verbal contract SIGNED IN FRONT OF A NOTARY PUBLIC: Certain documents, such as antenuptial contracts, which are dealt with below, have the formality that they must be signed infront of a notary public. This is known as notarial execution. This formality applies to very important documents that the law want a trusted person (the notary ) to witness. REGISTERED AT THE DEEDS OFFICE: All the major cities of SA have deeds offices, where certain important public documents are kept or lodged. The general public has a right to see any of the documents lodged at the Deeds Office. As we have already mentioned, conveyancers and notaries public are the attorneys who specialize in preparing these documents and lodging them at the Deeds Office. The conveyancer is involved with the transfer of immovable property while the notary public deals with the other documents that are lodged at the deeds office ( read page 117) Explain how formalities agreed to by the contracting parties may be required in order for a contract to be enforceable. When parties to a contract agree to put their agreement in writing, they intend to do so to serve as proof of their contract. The contract will be valid even if it is not in writing It is possible for the contracting parties to agree that their contract will be valid only if it is written down and signed. Writing and signing is a formality. Parties can agree to any formality they choose. The contract does not meet the agreed upon formality, the contract is void. Similarly, parties can agree on formalities for subsequent changes to the contract. (read page 118) Briefly explain the effect of the Electronic Communications and Transactions Act 25 of 2002 as it pertains to the formality requirement that a contract must be in writing to be valid: The Electronic Communication and Transaction Act 25 of 2002 provides that an accessible data message is generally sufficient to satisfy the formality that a contract be in writing. The Act also allows an electronic signature to replace a written signature in certain circumstances. If signature is required by the parties, a simple electronic signature will be sufficient. If the signature it requires by law ( statutory formality) an advanced electronic signature must be used. Certain contracts that are subject to statutory formalities cannot be concluded electronically, such as a contract for transfer of land They will still have to be concluded in paper form  Commercial Law THEME 2: INTRODUCTION TO THE LAW OF CONTRACT LO2: List and define the legal requirements for a valid contract. LO3: Explain contractual capacity as a requirement for a valid contract LO4: Differentiate between minors, majors and juristic persons in respect of their contractual capacity, with specific reference to the following categories minors: LO5: Explain the legal position of a person contracting with a minor in an unassisted contract in terms of common law  4.1- REQUIREMENTS OF A VALID CONTRACT: 1. Contractual capacity 2. Agreement (chap 5 & 6) 3. Legality ( chap 6) 4. Possibility of performance ( chap 7) 5. Formalities ( chap 7) 6. Certainty ( chap 7) 4.2. WHO HAS CONTRACTUAL CAPACITY? Generally natural persons are capable of entering into valid contracts unaided- they have contractual capacity, so they can contract validity. Although most persons have contractual capacity, there are some categories of natural persons who either lack contractual completely or have limited capacity to enter into a contract.  4.3. WHAT IS CONTRACTUAL CAPACITY Contractual capacity is the legal ability to enter into a contract. It is essential for a party to understand the nature and consequences of a contract before entering into one. It is one of the many competencies that the law regulates. A child has the capacity to be liable in terms of criminal law from the age of 12years. Contractual capacity differs for: Minors Married persons Natural persons who are mentally incapacitated at the time they contract Natural persons who are insolvent  Contractual Capacity regarding minors- please read this section on page 54-56 Contractual capacity of a child below seven years (infans): - A minor below seven years of age does not have contractual capacity, as the minor lacks intellect and judgement – read page 56 Contractual capacity of minors aged seven to eighteen years (pupillus) – Has limited contractual capacity, as the minor has intellect, but limited judgement and therefore their guardians must assist or consent to their contracts- read page 56 Legal position of a minor aged 7 – 18 years in an assisted contract in terms of the common law:- A minor who enters into an unassisted contract is not bound by the contract, but the law holds the other contracting party (the major) liable- read page 56-58 Legal position of a minor aged 7 – 18 years in an unassisted contract in terms of the common law-: An unassisted contract can be ratified by either the guardian or by the minor upon reaching majority- read pages 60-61 Explain the legal position of a person contracting with a minor in an unassisted contract in terms of common law Effects of an unassisted contract: Where a minor aged 7 – 18 years has contracted with another party without the assistance of their guardian, the law protects the minor and holds the other party liable. The contract is voidable (not void) at the instance of either the minor or the guardian, which means that they can decide to uphold the contract or set it aside. (A voidable contract is a valid contract, but may be affirmed or rejected at the option of one of the parties) To understand the legal effect of an unassisted contract, we have to consider the rights & duties of both the minor and the other contracting party- we have considered two situations: When the contract continues When the contract is set aside When the contract continues (ratification) The contract continues if the unassisted minor’s contract is ratified, either by their guardian or with in a reasonable time by the minor upon reaching majority. (To ratify a contract means that consent is given to the contract after the minor has entered into it.) (The length of a reasonable time in a legal context depends on the facts of the case) When the contract is set aside- read page 61 Read pages 60-61  Breach of contract LO1: Differentiate between the various forms of breach of contract LO2: Apply the various forms of breach of contract to a set of facts Chapter 10  There are two ways in which a contracting party’s performance can become impossible: 1. The debtor makes their own performance impossible without lawful justification 2. The creditor makes it impossible for the debtor to perform without lawful justification It is important to distinguish this form of breach of contract from other instances where we dealt with impossibility in the textbook, as they are often easily confused: Before the conclusion of the contract: if performance is impossible then the contract is void for impossibility After the conclusion of the contract but before performance: where the performance becomes objectively impossibility without the fault (intention or negligence) of either of the parties, such as due to a natural disaster or other act of nature, we apply the principles relating to supervening impossibility of performance. After the conclusion of the contract, but before performance Where the performance becomes either objectively or subjectively impossible, due to fault (intention or negligence) of either of the parties, we apply the principles relating to breach of contract due to impossibility Common elements that apply to the two-sub categories of breach of contract due to impossibility: These two- sub forms of breach can occur at any time before performance- either before performance becomes due and enforceable or after the performance becomes due and enforceable Performance must be objectively or subjectively impossible due to the fault of the parties Performance is impossible due to the blameworthy conduct of the party in question There is no lawful justification  BREACH DUE TO REPUDIATION When a party repudiates a contractual obligation it means that they reject, refuse or deny their obligations These are the ley elements for this type of breach: The debtor’s conduct shows that they will not honor their contractual obligations; There is no lawful justification for the debtor’s refusal to perform Where the debtor indicates that they will not perform for a legally unjustified reason, we say that the debtor repudiated the contract. For this form of breach to apply, the debtor’s conduct must show their refusal to comply with their contractual obligations – a mere delay in performance or positive malperformance is not repudiation. Repudiation can take place even before performance is due, or repudiation can take place after the performance is due, but before the debtor has performed. This means that even if the debtor’s performance is not late yet, or they have not given defective performance yet, they can already be in breach in the form of repudiation if their conduct indicates that they will not honor their contractual obligations (please read page 175)  BREACH DUE TO POSITIVE MALPERFORMANCE BY THE DEBTOR In disputes arising from breach of contract, this is the most common type. These are the elements that apply to this form of breach The debtor did actually perform when the performance became due. This is a key difference between this form of breach and other forms of breach The performance is, however, contrary to what was agreed upon in the contract There is no lawful justification ( for e.g., supervening impossibility of performance) for the positive malperformance We can classify cases of this type of breach of contract into the following two sub-categories The debtor tendered performance that was defective, incomplete or improper performance The debtor performed in a way that was not expressly or tacitly allowed in terms of the contract – (please read page 170- chap 10) BREACH DUE TO A DELAY IN PERFORMANCE BY THE DEBTOR This type of breach of contract is known as mora debitoris, which means “default by the debtor – they key elements for this type of breach of contract are outlined below: The debtor has failed to perform at the required time (delayed in their performance). The creditor does not have to prove that the debtor is at fault (intention or negligence) – a mere delay by the debtor, without legal justification, is a breach of contract There is no lawful justification for the debtor’s delay. The debtor will not be in breach of contract if there is lawful reason for the delay, such as supervening impossibility – the debtor must prove the lawful justification The performance must still be possible- if as a result of the debtor’s delay, performance is no longer possible, another form of breach may apply – impossibility by the debtor The performance must be due and enforceable. This means that the date / time for the performance must have arrived. The parties would have agreed on a date / time for performance expressly or tacitly or creditor can choose a reasonable date / time for the debtor to perform by sending a demand to the debtor. If the contract, expressly or tacitly, sets out the date and time requirements for performance and the debtor doe not perform within that deadline, the debtor I automatically in breach of the contract. In such an instance, the creditor does not need to demand performance from the debtor, as the debtor ought to know the deadline for performance. If there is no specified time for performance the debtor will not be in mora until the creditor has set the time for performance by demand and the debtor fails to perform by that time. (read page 170 – 171)  BREACH DUE TO A DELAY IN PERFORMANCE BY THE CREDITOR This type of breach of contract is known as mora creditoris, which means “default by the creditor. It may happen that the debtor’s performance is reliant on the creditor’s cooperation in either of the following ways: The creditor must perform certain positive acts to enable the debtor to act, such as allowing the debtor access to a property so that the debtor can perform or supplying information to the debtor before the debtor can perform. The creditor must accept proper performance by the debtor once it is due. (Please read page 171 - 172) Learning Unit 9 Transfer and Termination of Personal Rights  LO 2- LO 6  Chapters 12 & 13  LO2-JOINT AND SEVERAL LO3-STIPULATIO ALTERI LIABILITY  Sometimes a contract will be concluded that benefits third  If a number of co-debtors have to perform to a creditor and the parties who are not parties to the contract- this kind of performance is divisible, it is usually presumed that the liability contract is called a stipulation alteri. is a simple joint liability.  (please read page 192 -193)  This means that each of the debtors is responsible for paying only their pro-rata share of the debt.  The debtors or creditors to an agreement may agree, either expressly or by implication, that they will be liable jointly and severally instead of there being simple joint liability.  Often, this kind of arrangement applies by way of law.  This form of liability means that each of the co-debtors is liable to pay the full amount of debt and not just their pro-rata share.  In terms of the contract, the creditor can claim the full amount from ant one of the co-debtors.  This may seem unfair, but a debtor who pays the full debt will have a right to recourse against their co-debtors to recover their shares.  Where a creditor releases one of the co-debtors for a joint and several debt, the liability if the remaining co-debtors is reduced proportionately.  (please read page 192)  LO4: Differentiate between the various ways in which a contract may be terminated  Proper performance  Contracts creates rights and duties for the contracting parties- usually parties have reciprocal performance.  If both parties do what they are suppose to do in accordance with their contractual obligations, that contract will automatically come to an end upon proper performance by the parties.  The parties need to comply with all prescribed requirements in terms of time, place and manner of performance.  Performance by the parties must not be defective in any way.  Performance must be made fully and properly in accordance with what was agreed upon. This is what we mean by proper performance.  PRESCRIPTION The law provides for contractual obligations to come to an end automatically after a certain period. When that happens, we say that the obligation has prescribed- this is regulated by statute in the form of the Prescription Act 68 of 1969 (Prescription Act). Section 11 of the Prescription Act sets out the periods of prescription for various types of debt: 30 years in respect of: any debt secured by a mortgage bond judgement debt debt in respect of any tax imposed, or levied by, or under any law Debt owed to the State in respect of any share of the profits, royalties or any similar consideration payable in respect of the right to mine minerals or other substances 15 years in respect of any debt owed to the State and arising out of an advance or loan of money, or a sale or lease of land by the state to the debtor, unless a longer period applies in respect of the debt as indicated above 6 years in respect of debt arising from a bill of exchange or other negotiable instrument, or arising from a notarial contract, unless a longer period applies in respect of the debt 3 years in respect if any other debt, except where an Act of Parliament provides otherwise (PLEASE READ PAGES 206 – 208)  IMPOSSIBILITY OF PERFORMANCE  Performance must be possible at the time of the conclusion of the contract- if performance is not possible at that stage, then the contract is void.  If, after the conclusion of the valid contract, performance by one or more contracting parties becomes objectively impossible, both parties are excused by law from performing in terms if the contract.  The contract will then terminate automatically, any rights and obligations will be extinguished and the parties will not be in breach of contract.  In order for performance to be objectively impossible, it must not be something that affects only a particular contracting party and it must not be due to the fault of any party.  This means that any reasonable person in that situation would also have found performance to be impossible, such as a natural disaster or war.  Neither party must have taken the risk upon themselves.  Sometimes only a part of a contract has become impossible, or performance may become temporarily impossible- if it is possible to separate that part of the performance from the rest of the contract, the court may terminate that specific part of the contract without interfering with the rest of the contract  (please read page 208) MERGER: Merger refers to the coming together or joining of two or more things. In the law of contract, merger is when one person becomes the debtor and also the creditor in respect of the same debt. SET- OFF: Commercial law makes provision for this kind of trade- off in business contracts- the debt that two people owe each other may be set-off against each other, if they meet the following requirements:  Debts must be between two parties who are acting in the same capacity- debts cannot be set- off if one party is acting in a representative capacity, such as guardian or trustee  The debts must be of the same kind or nature- e.g., debt for money cannot be set off against a car  The debts must be due and enforceable- e.g., debts must not be enforceable at a later date  The debts must be liquidated at the time of set- off. In other words, they must both be capable of easy and speedy proof  (please read page 210)  DEATH The death of a contracting party will not automatically bring that contract to an end. It depends on whether the performance that was due by, or to, a party was specific to that party. If a contract was of a personal nature where performance can only be rendered by a particular debtor, and where the rights and duties of the deceased debtor cannot be transferred to the deceased estate, then the contract will terminate automatically. If a contract was such that performance by a debtor can only be rendered to a specific creditor, and where the rights and duties of the deceased creditor cannot be transferred to the deceased estate, then the contract will terminated automatically. It stands to reason that where the contract was such that the rights and duties were not personal in nature and therefore could be transferred to the estate, then it must be enforced by the executor of the deceased estate. (please read page 211)  INSOLVENCY  Upon sequestration of a debtor by the High Court, the court appoints a trustee to take custody and control of the insolvent estate with the aim of gathering assets and paying creditors in terms of the Insolvency Act.  Prior to insolvency, it may have happened that the debtor was party to contracts that gave rise to rights and duties.  As part if the trustee’s statutory functions, the trustee has to decide whether to uphold these contracts or terminate them.  Once the trustee makes this decision, the decision is final.  The trustee makes election based entirely on the best interests of the creditors, and not the insolvent.  If the trustee decides to abide by any of the contracts that the debtor entered into with other contracting parties before insolvency, the trustee steps into the shoes of the insolvent and takes over the contract in all respects.  This means that the trustee is obliged to perform to the other contracting parties as if they were the insolvent.  This is determined by inference with reference to all relevant facts.  continues on next slide  If the trustee does not decide whether or not to abide by or repudiate a contract within a reasonable time, the other party can safely assume that the trustee does not intend to abide by the contract.  The Insolvency Act does, however provide for certain statutory controls on the exercise of the trustee’s election- that is, the Act stipulates when and how the trustee should exercise their election in respect of certain contracts  Examples of these contracts are the purchase if immovable property (Sec35) and the lease of property (Sec37).  This means that, like in the instance of death, insolvency does not automatically terminate a contract between the insolvent and the other contracting parties.  (Please read pages 211 -212)