Created by Turbolearn AI

Overview of South African Commercial Law

This study guide covers essential topics in South African commercial law, based on
the textbook "The Law of Commerce in South Africa." It includes key concepts from
various areas such as the legal system, contracts, sales, consumer credit, lease,
agency, security, insurance, labor, negotiable instruments, consumer protection,
intellectual property, insolvency, competition, domain names, data protection, and
delict.

Introduction to the South African Legal

System
Law recognizes different kinds of property.
Law facilitates and upholds business agreements.
Law is the foundation of corporate activity.
Law legitimates state regulation of commercial activity.
Law provides an authoritative mode of dispute resolution.

The Law of Contract

Offers
An offer may be made to a defined person, a group of persons, or the whole
world.
The offer must be communicated to the offeree before it can be accepted.
The offer must have been seriously intended to create legal relations between
the parties.
The acceptance of the offer must be absolute (unconditional), unambiguous,
and correspond with the terms of the offer.
The offer and the acceptance must result in certain and definite terms.
Only the person to whom the offer is made may accept it.
Acceptance must be communicated to the offeror.
Acceptance must be made in the manner prescribed by the offeror.
Silence does not amount to acceptance.
An offer comes to an end on rejection, revocation or lapse of time.

Page 1
 Created by Turbolearn AI

Rules of Interpretation
The parol evidence rule: prevents parties from introducing extrinsic evidence of
prior or contemporaneous agreements to vary, contradict, or add to the terms of
a written contract.

Presumptions of substantive law: used to interpret contracts in line with legal

principles.

Presumptions of evidence: used to guide the court in evaluating evidence.

The use of extrinsic evidence may be admissible in certain cases to clarify

ambiguities.

Conditional Contracts
Conditional contracts are agreements where the obligations are dependent on
the occurrence or non-occurrence of a specific event.

Breach of Contract
Repudiation: occurs when one party indicates an intention not to honor their
contractual obligations.

Clauses
Rouwgeld clause: A clause that allows a party to withdraw from a contract by
paying a certain sum.
Cooling-off provisions: Clauses that allow consumers to cancel certain
transactions within a specified period.

Fairness
Fairness of contract: relates to the role of the Constitution in ensuring that
contractual terms are just and reasonable.

The Law of Sale

Page 2
 Created by Turbolearn AI

Definition of Sale
A contract in which one party (the seller) agrees to transfer ownership of
a thing to another party (the buyer) in exchange for a price.

Nature of Sale
Agreement on the thing sold
Object determined or determinable
Different types of goods
Third party
Consecutive sales of the same thing

Transfer of Ownership
Cash and credit sales
Delivery of undisturbed possession of the goods
Place of delivery
Mode of delivery
Time of delivery

Agreement on Price
Certain or ascertainable price
Price based on estimates
Disproportionate values: sale or donation?

Distinguishing Sales from Other Contracts

Page 3
 Created by Turbolearn AI

Contract Type Key Differences

Sale involves transfer of ownership, while lease involves

Lease
temporary possession and use.
Contract for Work Sale is for goods, while contract for work is for services or
or Services creation of a specific item.
Sale involves transfer of ownership, while software licensing
Software
grants the right to use software under specific terms and
Licensing
conditions.

Sales Contract
Freedom of contract
Consumer protection legislation

Pre-contractual Misrepresentations
Dicta et promissa

Formalities
Sale of immovable goods
Agents
Written contract
Interpretation, parol evidence, and rectification
Sufficient description of the thing sold

Obligations of the Seller

Duty to take care of the goods
Transfer of risk and benefits
Seller's duty to take care of the goods
Consequences of damage to or destruction of the goods

Obligations of the Buyer

Page 4
 Created by Turbolearn AI

Payment of the price

Method of payment
Time and place of payment
Receipt of the goods

Warranties
Warranty against eviction
Delivery of conforming or merchantable goods
Quality of the goods determined by the parties
Residual warranty of reasonable merchantable quality
Residual warranty of fitness for purpose
Residual liability for latent defects

Remedies
Actio redhibitoria
The sales action (actio empti)
Extended liability of manufacturers and dealers
Exclusion of the aedilitian remedies
The voetstoots clause

The Law of Consumer Credit Agreements

Relevance of Credit
Outlines the importance of consumer credit in the economy.

National Credit Act

Why a new National Credit Act was needed
Objectives of the National Credit Act

Application of the National Credit Act

Page 5
 Created by Turbolearn AI

General application
Circumstances where the National Credit Act does not apply
Limited application where the consumer is a company, close corporation, trust,
or partnership

Credit Agreements
Defining a credit agreement and the type of credit agreements
Credit facility
Credit transaction
Credit guarantee
Not deemed to be credit agreements
Different categories of credit agreements

Institutions and Industry Regulation

Consumer credit institutions and credit industry regulation
Registration of industry participants
National Register of Credit Agreements

Consumer Rights
Basic consumer rights
Pre-agreement disclosure
Consumer must disclose location of goods
Obligations of pawnbrokers
Limits imposed on the costs of credit
Statements of account
Rescission from an installment agreement or a lease
Surrender of goods
Prohibition of certain credit marketing and advertising practices

Credit Agreements

Page 6
 Created by Turbolearn AI

Pre-contractual aspects: quotes and disclosure

Form and format of credit agreements
Waiving common-law rights
Unlawful credit agreements
Unlawful provisions of credit agreements
Capping of interest rates and other costs of credit
Liability for lost or stolen card
Statements of the credit agreement
Alteration of credit agreements
Rescission and termination of agreements and surrender of movable goods
Early payments and the consumer's right to settle the agreement before its time

Reckless Lending
Reckless lending and over-indebtedness
When is credit granted recklessly?
When is it deemed that a consumer is over-indebted?
Consequences of reckless lending
Effect of a suspended agreement
Prevention against abuse by consumers

Debt Resolution
Debt counsellors and debt review or restructuring
Debt intervention
Legal debt enforcement and alternative dispute resolution

Enforcement
Application of prescription to consumer credit debt
Search warrants and enforcement of the National Credit Act

Other Legislation

Page 7
 Created by Turbolearn AI

Other legislation governing consumer credit agreements

Alienation of Land Act
Consumer Protection Act

The Law of Lease

Definition
A contract where one party (lessor) agrees to give another party (lessee)
the temporary use and enjoyment of property in exchange for rent.

Essential Elements
The object of the contract
The identity of the leased property
The rent
The rent must be fixed and definite
The rent must consist in money or 'fruits'
The rent must be genuine
Receipts
Determination of rental by the Tribunal
Legislative provisions pertaining to residential leases
Additional requirements under the Consumer Protection Act

Duration
A fixed-period lease
A periodic lease
A lease at the will of the landlord or tenant
Duration and termination notices under the Consumer Protection Act

Renewal
Implied renewal
Options to renew
Terms of the renewed lease

Page 8
 Created by Turbolearn AI

Huur Gaat Voor Koop

"Hire takes precedence over sale," meaning that a lease agreement is
binding even if the property is sold.

Operation of Huur Gaat Voor Koop

Short leases
Onerous successor
Creditors of the landlord
Gratuitous successors
Long leases
Legal consequences of the operation of the huur gaat voor koop doctrine

Sub-letting, Cession and Assignment

Duties of the Landlord

The obligation to deliver the leased property
The tenant's remedies for breach
Additional legislative duties
To give quiet enjoyment of the property let
The tenant's remedies for breach
To place and keep the property in a proper condition
The tenant's remedies for breach
To guarantee the tenant against eviction
Remedies available to the tenant
Additional duties agreed to by the contracting parties
Additional duties in respect of residential leases

Duties of the Tenant

Page 9
 Created by Turbolearn AI

To pay the rent

Remedies available to the landlord
To use the property let in the proper manner
The remedies available to the landlord
To restore the property in the same condition, reasonable wear and tear
excepted
Remedies available to the landlord
Additional duties in respect of residential leases

Enforcement Mechanisms
Role of the Rental Housing Tribunal
Role of the ombud, the National Consumer Tribunal, and the courts

Termination
Insolvency
Death
Impossibility of performance
Expropriation
Breach

‍The Law of Agency

Definition
A legal relationship in which one person (the agent) is authorized to act
on behalf of another person (the principal).

Rights and Duties

Delegation of authority
Rights and duties between the parties

Duties of the Agent

Page 10
 Created by Turbolearn AI

Performance of the authority

To keep proper accounts
To show the utmost good faith (ubenima fides)

Duties of the Principal

Reimbursement and indemnification of the agent for expenses and losses
properly incurred in performing the authority
Payment of the agreed remuneration

Third Parties
Rights and liabilities of third parties
Named principal
Unnamed principal
Undisclosed principal

Agent's Rights
Agent's rights and liabilities to third parties

Termination
Termination of agency

The Law of Real and Personal Security

Relevance
The relevance of security agreements
Forms of credit security

Security

Page 11
 Created by Turbolearn AI

Basic forms of credit security

Personal security

Suretyship
Definition: a contract where one person (the surety) agrees to be liable for the
debt or obligation of another person (the principal debtor).
Accessory nature of suretyship
Valid principal debt
Prescription of the principal debt
Suretyship distinguished from other forms of intercession
Creation of suretyship contract
Types of sureties
Consequences of suretyship
Rights of surety
Termination of suretyship

Real Security
Introduction
Accessory nature
Security cession
Express (conventional) real security
Constitution
Clauses in pledge and mortgage agreements
Rights and duties of parties
Extinction of pledge

Fiduciary Security Cessions

Pledge of claims versus fiduciary security cession
Notarial bonds of claims

Mortgage

Page 12
 Created by Turbolearn AI

Notarial bonds
Special mortgage over immovable things
Covering bond
Statutory participation bond

Tacit Mortgages
Tacit hypothecs
Landlord
Credit grantor (seller on credit)

Liens
Liens (rights of retention)
Enrichment liens
Debtor-and-creditor liens

Rights
Statutory security rights
Judicial pledge

The Law of Insurance

Relevance
The relevance of insurance
The economic function of insurance

Definition
A contract whereby one party (the insurer) undertakes to compensate
another party (the insured) for loss or damage arising from an uncertain
event.

Page 13
 Created by Turbolearn AI

Sources
Sources of South African insurance law
The common law
Statutes
Subordinate legislation, soft insurance law, and alternative dispute resolution

Branches
The three branches of insurance law
Insurance contract law
The regulation of insurers
The regulation of intermediaries

Types
Different types of insurance
The interest being protected
The duration
The peril or event insured against

Essentials of a Contract
The insurer undertakes to pay or perform something
In exchange for the undertaking to pay a premium or the payment of a premium
On the happening of an uncertain event
To indemnify the insured (indemnity insurance) or otherwise make up for the
materialization of the risk (non-indemnity insurance)

Contracts
Insurance contracts distinguished from other types of contracts
Manufacturers', sellers' and extended warranties
Suretyship

Page 14
 Created by Turbolearn AI

Formation
Formation of an insurance contract
Agreement or its equivalent
Proposal forms
Conclusion of insurance policies by direct marketing
Cooling-off period
Insurance policies and policy documents
Legality

Disclosures
Materiality
Within the knowledge of the insured
Disclosures by the insurer or its intermediaries

Risk
Description of the risk insured against
Interpretation of the terms that describe the risk covered
Limitations and exceptions
Special insurance risks
Dimensions of the described risk
Causal link between the peril and the harm

Interest
Insurable interest in indemnity insurance
Insurable interest in non-indemnity insurance
Key-man (person) insurance

Claims
Manner in which claims must be brought
Notice and time-bar clauses

Page 15
 Created by Turbolearn AI

Other
Subrogation, cession, and contribution

‍Labour Law

Relevance
The relevance of labour law

Sources
Sources of labour law
The Constitution of the Republic of South Africa, 1996
Legislation
Collective agreements
The contract of employment
The common law

Employment
The employment relationship: who is an employee?
Test to determine who is an employee
Statutory definitions and presumptions

Contract
The contract of trust
Relationship of trust
Special terms
Vicarious liability
Duration
Variation

The Law of Negotiable Instruments

Page 16
 Created by Turbolearn AI

Relevance
The relevance of banking law

Relationship
The bank-client relationship
Introduction
The Ombudsman for Banking Services and the Code of Banking Practice
Opening bank accounts
General
Financial Intelligence Centre Act
Closing bank accounts

Instruments
Money, legal tender and virtual currencies
Notes
Cheques and promissory notes
Card payments
Electronic funds transfers
Introduction
Liability of the beneficiary bank
Reversal of a credit transfer

The Consumer Protection Act

Overview
Provides a framework for consumer rights and supplier obligations.
Aims to promote fair, accessible, and sustainable marketplace for consumer
products and services.

Consumer Rights
Key rights under the CPA:

Page 17
 Created by Turbolearn AI

Right to Equality: Protection against discriminatory marketing and contractual

practices.
Right to Privacy: Protection against unwanted marketing and the right to block
unwanted communications.
Right to Choose: Includes the right to select suppliers, cancel reservations,
return goods, and cancel fixed-term agreements.
Right to Disclosure of Information: Clear and understandable product labeling,
trade descriptions, and disclosure of reconditioned goods.
Right to Fair and Honest Dealing: Protection against unconscionable conduct,
false representations, and pyramid schemes.
Right to Fair, Just, and Reasonable Terms: Protection against unfair contract
terms and conditions.
Right to Good Quality and Safety: Entitlement to safe, good quality goods and
services.
Right to Supplier Accountability: Mechanisms for consumers to hold suppliers
accountable for breaches of the Act.

Specific Provisions

Page 18
 Created by Turbolearn AI

Discriminatory Marketing: Prohibits unfair or discriminatory marketing

practices.
Right to Privacy: Consumers can refuse unwanted direct marketing and require
suppliers to remove their names from marketing lists.
Right to Select Suppliers: Consumers have the right to choose their own
suppliers.
Cooling-Off Period: Consumers have the right to cancel direct marketing
agreements within a cooling-off period.
Return of Goods: Consumers can return goods if they do not meet reasonable
quality standards.
Disclosure of Information: Suppliers must provide clear and understandable
information about products and services.
Trade Descriptions: Goods must have accurate and understandable trade
descriptions.
Used or Reconditioned Goods: Must be clearly marked and disclosed as such.
Unconscionable Conduct: Prohibits suppliers from using unfair or unethical
tactics.
False Representations: Suppliers cannot make false or misleading claims about
products or services.
Pyramid Schemes: Prohibits participation in pyramid schemes.
Unfair Contract Terms: Contracts must be fair, reasonable, and just.
Plain Language: Agreements must be written in plain language.
Good Quality and Safety: Goods and services must meet reasonable quality
and safety standards.

Enforcement
Accountability: Suppliers are accountable to consumers for breaches of the
CPA.
Enforcement: The CPA is enforced through various mechanisms, including the
National Consumer Commission and the Consumer Tribunal.

Overviews
The right to fair value, good quality and safety
Consumers have the right to receive goods and services that are of good quality
and safe for their intended purpose.

Page 19
 Created by Turbolearn AI

The Law of Intellectual Property

General
A short overview of international law
An overview of South African intellectual property law
Future developments for South Africa

Copyright
The subject matter of copyright
Originality

Patents
The nil application
Specifications
The actual procedure
Revoking a patent
Infringement
Defenses

Designs

Concluding Remarks

The Law of Insolvency

Introduction

Page 20
 Created by Turbolearn AI

Insolvency law relates to debt collection by means of the sequestration of a

debtor's estate.
Debt collection prior to sequestration of a debtor's estate: individual procedure
Debt collection by sequestration of a debtor's estate: collective procedure
How is a debtor's estate sequestrated?

Sequestration
How is the estate of a debtor sequestrated?
Application for voluntary surrender
Compulsory sequestration

Consequences
What consequences result from a sequestration order?
Property
Other consequences
The effect of sequestration on the insolvent's spouse

Contracts
Consequences regarding contracts
General
Contracts regulated by statute
Cash transactions
Lease agreements
Contracts of employment
Contracts regarding immovable property

Dispositions

Page 21
 Created by Turbolearn AI

Dispositions that can be set aside

Dispositions without value
Voidable preferences
Undue preferences
Collusive dealings
Voidable transfer of business

Trustee
Introduction
Provisional trustee
Election and appointment

Creditors
Meetings of creditors and proof of claims
General
First meeting

Claims
Funeral and deathbed expenses
Costs of sequestration
Costs of execution
Salaries and wages of employees
Statutory obligations
Income tax

Property
Property subject to security or encumbered rights
Assets conferring security
Special mortgage bonds
Right of retention

Page 22
 Created by Turbolearn AI

Assets
Encumbered assets not stated in the Insolvency Act
Instalment agreement
Immovable property on instalment

Account
The trustee's account
Description of the accounts
General

Rehabilitation
General
Rehabilitation by passage of time

Competition Law

Definition
A set of laws and regulations that promote and protect competition in
markets. It aims to prevent anti-competitive practices and ensure that
businesses compete fairly, to the benefit of consumers and the economy.

Objectives
Promote economic efficiency
Ensure equitable access to markets
Prevent anti-competitive practices such as cartels and abuse of dominance

Relevant Legislation in South Africa

The Competition Act

Page 23
 Created by Turbolearn AI

Responsible Agencies

Agency Role

Competition Investigates and evaluates anti-competitive practices, conducts

Commission market inquiries, and promotes competition awareness.
Competition Adjudicates cases brought by the Commission, hears appeals, and
Tribunal makes rulings on mergers and anti-competitive conduct.
Competition
Hears appeals from the Competition Tribunal.
Appeal Court

Scope of Application
The Competition Act applies to all economic activity within or having an effect
within South Africa.

Substantive Provisions
The Act addresses three main types of anti-competitive practices:

Restrictive Horizontal Practices: Agreements between competitors (e.g., price-

fixing, market division).
Restrictive Vertical Practices: Agreements between firms at different levels of
the supply chain that harm competition (e.g., exclusive distribution agreements).
Abuse of Dominance: Conduct by dominant firms that harms competition (e.g.,
excessive pricing, exclusionary acts).

Exemption
Exemptions from Chapter 2 of the Competition Act

Merger Procedures
Notification and approval requirements for mergers that meet certain
thresholds.
Assessment of mergers to determine their likely impact on competition.

Page 24
 Created by Turbolearn AI

Complaint Procedures
Filing and investigation of complaints regarding anti-competitive practices.
Procedures for conducting hearings and making decisions.

Remedies and Enforcement

The Act provides for various remedies, including fines, cease and desist orders,
and structural remedies (e.g., divestiture).

Prohibited Practices
Prohibited Practices: Actions deemed illegal under competition law, such as
price-fixing and bid-rigging.

Personal Criminal Liability

Individuals may face criminal charges for serious violations of competition law,
such as cartel conduct.

Civil Claims
Parties harmed by anti-competitive conduct can bring civil claims for damages.

Corporate Leniency
The leniency program encourages firms involved in cartels to come forward and
cooperate with the authorities in exchange for reduced penalties.

The Law Relating to Domain Names

Terminology

Page 25
 Created by Turbolearn AI

Term Definition

A collection of related web pages, images, videos, or other

Website digital assets that are hosted on a web server and accessed
through the internet.
A unique and human-readable address used to identify a
Domain Name
website on the internet.
Second-Level The part of the domain name to the left of the top-level
Domain Names domain (e.g., "example" in example.com).
Internationalized
Domain names that include characters from non-Latin scripts.
DNs
URL The specific address of a web page or resource on the internet.
A numerical label assigned to each device connected to a
IP Address computer network that uses the Internet Protocol for
communication.
A query and response protocol used to retrieve registration
Whois
information about domain names and IP addresses.
Registration Data Access Protocol, a newer protocol that
RDAP provides improved security and standardized access to domain
registration data.

Legal Nature
The legal nature of a domain name

Resolution
Dispute resolution

Abusive Registration
Requirements for abusive registration:

Page 26
 Created by Turbolearn AI

1. A Right to a Name or Mark: The complainant must have a recognizable right

(e.g., trademark) in the name or mark.
2. Similarity: The domain name is identical or confusingly similar to the
complainant's name or mark.
3. Abusive Registration: The domain name has been registered and is being used
in bad faith.

Examples of bad faith use include:

Selling or renting the domain name to the legitimate rights holder or a

competitor for profit.
Disrupting the business of a competitor.
Preventing the rights holder from reflecting their mark in a corresponding
domain name.
Creating a likelihood of confusion among internet users.

Defenses
Grounds for rebuttal:

The domain name is being used in connection with a bona fide offering of goods
or services.
The domain name is commonly known or used.
The domain name is being used for legitimate non-commercial or fair use
purposes.

Types of Registration
Offensive registration

Remedies
Remedies and appeal

Resolution Outside SA

Page 27
 Created by Turbolearn AI

Domain name dispute resolution outside South Africa

Grounds for a dispute
Procedure

Litigation
Domain name litigation
Trade mark infringement
Unlawful competition

Keywords
Metatags and keywords

The Law Relating to Protection of Data and

Personal Information

Protection
Copyright
Database protection

Personal Information
Protection of personal information

Electronic Communications
The Electronic Communications and Transactions Act (ECT Act)
Definition of personal information
Limitations
Scope

POPIA

Page 28
 Created by Turbolearn AI

The Protection of Personal Information Act (POPIA)

Definition of personal information
Scope

Principles
Principles for processing personal information under POPIA:
Principle Description

Accountability The responsible party must ensure compliance with POPIA.

Processing Personal information must be collected directly from the data
Limitation subject and processed lawfully and reasonably.
Purpose Data must be collected for a specific, explicitly defined, and
Specification legitimate purpose.
Further Processing Further processing must be compatible with the original
Limitation purpose of collection.
Data must be complete, accurate, not misleading, and updated
Information Quality
as necessary.
Data subjects must be informed that their data is being
Openness
collected and who is collecting it.
Technical and organizational measures must be implemented
Security Safeguards
to ensure the integrity and confidentiality of personal data.
Data Subject Data subjects have the right to access, correct, or delete their
Participation personal information.

Marketing
Direct marketing

Cybercrimes
Cybercrimes related to data
Unlawful access to data
Unlawful interference with data or storage medium
Theft of data
Distribution of data messages of intimate images

Page 29
 Created by Turbolearn AI

The Law of Delict

General
Requirements for a delict:

1. Conduct: There must be voluntary human conduct, either an act or an omission.

2. Wrongfulness: The conduct must be legally wrongful, infringing on the rights
of another or violating a legal duty.
3. Fault: The wrongdoer must have acted with intent or negligence.
4. Causation: There must be a causal connection between the conduct and the
resulting harm.
5. Damage: The plaintiff must have suffered harm or loss as a result of the
conduct.

Wrongfulness
General
Grounds of justification
Private defence
Necessity
Consent to injury and consent to the risk of injury
Statutory authority
Official capacity
Provocation

Connection
Causal connection

Damage

Liability
Strict liability

Page 30
 Created by Turbolearn AI

Introduction to South African Commercial Law

This section introduces the reader to South African commercial law, its purpose, and
its sources. The goal is to provide business students with a clear, useful, interesting,
and vibrant manual that requires no previous legal knowledge.

Objectives and Approach

Applied Focus: The book emphasizes an applied and practical approach rather
than a fundamental academic one, making it accessible and relevant for
business students.
Clarity and Simplicity: Concepts are explained in clear and uncomplicated
terms with numerous examples to illustrate the application of legal rules to
practical situations.
Framework for Understanding: The book aims to provide a helpful framework
of understanding to ensure that legal theory is not too foreign or
incomprehensible to students from non-legal disciplines.
Helpful Features: The book includes helpful diagrams and features, such as
concise expositions and summaries, as well as examples of relevant questions.

Updates in the Second Edition (2014)

Legal Updates: The content has been thoroughly updated to reflect changes in
the law over the last six years.
Content Rearrangements: Minor rearrangements of the content have been
made in some instances.
Banking Law: The chapter on the law of negotiable instruments has been
totally reviewed and is now presented as banking law due to radical changes in
payment methods.
New Chapters: Four new chapters have been added to provide a
comprehensive treatise of modern South African commercial law:
Competition Law (Chapter 14)
Protection of Data and Personal Information (Chapter 15)
Law Relating to Domain Names (Chapter 16)
Law of Delict (Chapter 17)

The Role of Law

Page 31
 Created by Turbolearn AI

Law in Society
The law is a social institution that structures political, economic, social, cultural, and
religious interactions. It plays a crucial role in:

Coordination: Achieving commonly held values or beliefs.

Conflict Resolution: Addressing inevitable conflicts arising from different needs
and wants.
Expression of Ideology: Interest groups use law to express and sometimes
impose their ideology.

The law prescribes what people may and may not do, backed by the
state's authority.

It allows people to own property, regulates economic activities, recognizes certain

associations, and sets minimum standards in relationships. Violations can lead to
criminal convictions or court orders for compensation. The law also undergirds the
legitimacy of the state and structures the international legal order.

A lawless society would be marked by arbitrariness, inequality, uncertainty,

unfairness, unreasonableness, and self-help, leading to a conflict-ridden
environment. Law maintains order and justice, enabling people with different
interests to coexist. It establishes order in various relationships by specifying rights,
duties, powers, and immunities.

Law and Commercial Activity

Law is crucial to the functioning of the commercial world by:

Recognizing different types of property

Facilitating and upholding business agreements
Setting out rules for businesses to function
Providing the foundation for state regulation of business activity
Providing an authoritative mode of dispute resolution

Law Articulates Values

Page 32
 Created by Turbolearn AI

The South African state is a democracy based on a supreme Constitution, which is a

value-laden document specifying the type of transformation the nation wishes to
pursue. Key values include freedom, the rule of law, equality, and human dignity,
expressed in the Bill of Rights.

Law Recognizes Different Kinds of Property

Different forms of property are recognized by law, which is the first step towards
establishing a market in such property.

Property
Description Examples
Type

Things of a material nature

Corporeals Land, buildings, animals
that are tangible.
Shares in a company, intellectual
Property lacking in material
Incorporeals property (copyrights, patents,
form or substance.
trademarks)
Emerging Newly recognized forms of
Carbon Credits
Forms property

The law defines how these properties may be exchanged, transferred, or alienated,
and may impose restrictions on their trade.

Law Facilitates and Upholds Business Agreements

A wide range of agreements underpins commercial activity, including:

Contracts of purchase and sale

Contracts of employment
Financing contracts
Contracts of carriage
Contracts of agency
Lease, security, and insurance agreements

The law recognizes these types of agreements and specifies the conditions for them
to be legally binding. It also outlines the legal consequences of breaching a contract
and allows aggrieved parties to enforce their rights or obtain legal remedies.

Page 33
 Created by Turbolearn AI

Law is the Foundation of Corporate Activity

Human beings, as natural persons, are endowed by the law with the capacity to bear
rights and duties. The law may also grant non-human entities the capacity to bear
rights and duties once they are formally registered. These entities are known as
juristic persons or corporations.

Corporations are legal creations that allow individuals to pool assets and
resources to pursue commercial activity.

Once the legal requirements are met, a corporation acquires legal personality,
meaning it obtains a legal identity separate from its members. This enables the
corporation to bear rights and duties, including the power to acquire assets, contract,
incur debts, and employ people.

Law Legitimates State Regulation of Commercial Activity

The state regulates commercial activity through legislation (e.g., the Companies Act)
to pursue social goals. This includes ensuring businesses function effectively,
optimizing business sectors, and achieving broader social objectives like broad-based
black economic empowerment or basic conditions of employment.

Law Provides an Authoritative Mode of Dispute Resolution

The law provides mechanisms for resolving disputes that arise between individuals,
government entities, or corporate entities. This involves a judicial system with
independent judges and magistrates who have the authority to hear and decide
disputes.

Special procedures and courts exist for certain disputes, such as the Council for
Conciliation, Mediation and Arbitration, labor courts, and the Competition Tribunal.
The law also allows parties to resolve disputes outside of court through internal
disciplinary proceedings or arbitration, subject to minimum legal standards.

Fundamental Concepts

Law Defined

Page 34
 Created by Turbolearn AI

In the Western tradition, law is defined as the body of rules governing

human conduct, which are recognized as binding and enforced by the
state.

Unlike scientific laws, law is prescriptive, dictating how people ought to behave and
the consequences of deviating from legal norms.

Jurisprudence
Jurisprudence is the study of the philosophy of law, asking "What is the
law?" and "What should the law be?".

Different schools of thought include:

Natural Law: Human law reflects unchangeable moral laws of nature.

Legal Positivism: Real law is entirely separate from morality.
Normative Theory: Law is separate from morality but ought to be obeyed.
Every legal system has a basic norm (grundnorm) that tells us to obey the law.

HLA Hart viewed law as a system of rules divided into primary rules of obligation
and secondary rules. Secondary rules include rules of adjudication, rules of change,
and the rule of recognition.

The Constitution as Supreme Law

South Africa's 1996 Constitution is the supreme law of the Republic. Section 2
states:

This Constitution is the supreme law of the Republic; law or conduct

inconsistent with it is invalid, and the obligations imposed by it must be
fulfilled.

The legitimacy of the Constitution is based on its origin, content, and institutional
mechanisms that allow other laws to be tested against its provisions. Every aspect of
the legal system must comply with the values and principles set out in the
Constitution, including the Bill of Rights.

The State and the Rule of Law

Page 35
 Created by Turbolearn AI

References to "the state" in this book pertain to its function as the enforcer of the law.

Introduction to the South African Legal

System
The South African state refers to the structure, powers, and functions of the state as
set out in the Constitution. The power of the state is split into three primary
branches:

the legislature
the executive
the judiciary

The Legislature
The legislature is responsible for making laws in the form of primary legislation. In
South Africa, Parliament is the most significant lawmaker because it has the power
to make laws for the whole of South Africa.

The legislature is the law-making body of the state, responsible for

creating, amending, and repealing laws.

The Executive
The executive is responsible for implementing laws made by Parliament. The
executive comprises the President and the ministers and deputy ministers who head
the various state departments.

The executive is the branch of government responsible for enforcing laws

and governing the state.

The Judiciary
The judiciary is responsible for deciding legal disputes arising either between the
state and citizens, or between citizens themselves.

The judiciary is the branch of government responsible for interpreting

laws and resolving disputes.

Page 36
 Created by Turbolearn AI

The Rule of Law

The rule of law is the principle that no one is above the law. Governmental authority
is legitimately exercised only in accordance with written, publicly disclosed laws
adopted and enforced in accordance with established procedural steps referred to as
due process.

The rule of law is a principle that ensures that all individuals, institutions,
and government officials are subject to and accountable to the law.

Legal Relationships
The law brings people into different kinds of legal relationships, which can be
broadly categorized into those which are public and those which are private.

Public legal relationships are based on the power of the party bearing state
authority to govern certain spheres of life through law and the other party's
obligation to comply.
Private legal relationships are based on the rights and duties held by the
parties.

Types of Liability
There are several types of liability:

Criminal liability: a form of public liability that arises from a breach of the
criminal law.
Contractual liability: a form of private liability that arises from a breach of a
contractual agreement.
Delictual liability: a form of private liability that arises from a breach of a duty
not to cause harm to the person or property of another.
Liability based on unjustified enrichment: a form of private liability that arises
where a party has been enriched at the expense of another and no legal basis
exists for the transfer of the benefit.

Legal Personality
Legal personality allows one to act in the legal world, to acquire rights, to bear
duties, and to sue and be sued in one's own name.

Page 37
 Created by Turbolearn AI

Legal personality is the capacity to have rights and duties, and to be

recognized as a legal entity.

Sources of Law
The sources of law in South Africa are:

the Constitution
legislation
common law
judicial precedent
custom
customary law

Hierarchy of Sources of Law

The hierarchy of sources of law is as follows:

Source of Law Description

Constitution The supreme law of South Africa

Legislation Laws made by Parliament
Common Law Laws developed through judicial precedent
Judicial
Decisions made by courts in previous cases
Precedent
Custom Unwritten laws based on traditional practices
Laws based on the customs and traditions of a particular
Customary Law
community

The Constitution
The Constitution is the supreme law of South Africa, consisting of 243 sections
spread over 14 chapters.

The Constitution is the highest law in the land, and all other laws and
conduct must be consistent with it.

Constitutional Rights
The Constitutional rights significant to commercial activity are:

Page 38
 Created by Turbolearn AI

Right Description

Prohibits unfair discrimination on a number of

Right to equality
grounds
Right to freedom of trade, Allows citizens to choose their trade, occupation
occupation or profession or profession freely
Right to fair labour practices Protects the rights of employees and employers
Protects private property and provides criteria for
Right to property
expropriation
Ensures that administrative action is lawful,
Right to administrative justice
reasonable, and procedurally fair

Constitutional Rights and Limitations

The Constitution ensures rights can only be limited by a law of general application
that is reasonable and justifiable in an open and democratic society founded on
human dignity, equality, and freedom.

If someone believes their constitutional rights have been infringed, they can apply to
a High Court to prove the infringement. The onus then shifts to the state to justify
the infringement. The court decides if the limitation is justifiable. If not, the court
must declare the law or conduct invalid to the extent of its inconsistency with the
constitution, per section 172.

Application of the Bill of Rights

The Bill of Rights is typically invoked in public legal relationships (vertical
relationships), where one party exercises state authority. However, it can also apply
in private legal relationships (horizontally) between citizens. Section 8 states the Bill
of Rights binds natural and juristic persons if and to the extent that it's applicable,
considering the nature of the right and duty imposed. This is applied on a case-by-
case basis.

Case example: McCarthy v Constantia Property Owners'

Association

Page 39
 Created by Turbolearn AI

In McCarthy v Constantia Property Owners' Association, residents objected to

building works they believed undermined the area's beauty. The court decided the
plaintiffs had standing based on a broad right of access to the courts and the right to
environmental protection. More importantly, the court stated the Bill of Rights
introduces a culture of justification that should extend to private legal relationships
where appropriate.

The court found that the executive of the property owners' association had exceeded
its authority, setting aside the agreement with the contractor.

Juristic Persons and the Bill of Rights

Section 8(4) provides that juristic persons are entitled to the rights in the Bill of
Rights to the extent required by the nature of the rights and the nature of that juristic
person. For example, a juristic person cannot have a right to freedom and security of
the person, but may have a right to property.

Constitutional Values in Law

Section 39(2) requires that when interpreting any legislation, every court, tribunal, or
forum must promote the spirit, purport, and objects of the Bill of Rights.

Legislation

Definition of Legislation
Legislation may be defined as the setting down of binding rules of law in
a formalised way, by an authority that has the legal capacity to do so.

This authority can be:

Original: Parliament, provincial legislatures, or municipal councils enacting

statutes, provincial legislation, and municipal by-laws, respectively.
Delegated: A minister's power to make regulations.

Subordinate authorities may pass provincial ordinances, regulations, or municipal/city

council by-laws.

Page 40
 Created by Turbolearn AI

Law-Making Process
To make a law for the whole country, a Bill is submitted to Parliament. Once
approved and signed by the President, it is published as an Act in the Government
Gazette. Each Act is given a date and number. For example, the Promotion of
National Unity and Reconciliation Act is Act 34 of 1995, meaning it was the 34th Act
passed in 1995.

Legislation and regulations remain in effect until amended, repealed, or struck down
by a court. Rarely, a law may become obsolete through disuse (abrogation).

Primary vs. Secondary Legislation

Legislation can be original or subordinate.

Original legislation is made by the legislature (national, provincial, and local

spheres). It is also known as primary legislation, deriving law-making authority
directly from the Constitution. At the national level, it is called both a statute
and an Act of Parliament.
Subordinate legislation is made by members of the executive, based on a
delegation of law-making authority by the legislature. It is also known as
delegated or secondary legislation. This delegation of power is defined in a
statute, often in a "Regulations" section.

The power of members of the executive to make laws is always limited.

Example: Competition Act

Section 78 of the Competition Act may appear to give the Minister of Trade and
Industry unlimited power, but it is limited by the phrase "required to give effect to the
purposes of this Act." Regulations must fall within the Act's purposes, promoting the
economy's efficiency, adaptability, and development; providing competitive prices and
product choices; promoting employment; and advancing social and economic welfare.
Regulations must be rationally related to the purpose and necessary to achieve these
purposes.

Delegated legislation is subordinate to original legislation in two respects:

Page 41
 Created by Turbolearn AI

1. It must fall within the limits of the delegated law-making authority. Challenging
delegated legislation on the basis that it exceeds this authority is called ultra
vires the Act.
2. If there is a conflict, primary legislation prevails.

The Law-Making Process: Primary Legislation

The process for making primary legislation is partly defined in the Constitution.

1. A 'Bill' (the term for a statute before it has formally been passed as a law) may
be introduced in either house of Parliament.
2. Both houses of Parliament must pass the Bill.
3. The number of members who must be present in each house for the vote on a
Bill to be valid.
4. The level of consensus (or 'majority' vote) required before a Bill can be passed
as a law
5. Before the Bill is introduced in Parliament, work is done to determine its focus
and political impact, consulting with interested parties, and drafting its
provisions.
6. One or more drafts of the Bill are discussed by Parliamentary Portfolio
Committees before it is formally introduced.
7. Once a Bill has been passed by Parliament, it must be assented to and signed
by the President. At this point, it becomes law.

Enactment vs. Commencement

There is a distinction between a law being enacted and the law entering into effect.
When a statute commences, the powers, rights, and duties described in it can begin
to be exercised and enforced. The date of commencement may coincide with the date
of enactment or be later, determined by the President or a minister "by notice in the
Gazette".

Example: National Credit Act (NCA)

The NCA was assented to on 10 March 2006, but had three different dates of
commencement:

Page 42
 Created by Turbolearn AI

1 June 2006 (administrative provisions)

1 September 2006 (establishment of the National Consumer Tribunal)
1 July 2007 (consumer rights)

Different sections of the same statute may enter into force at different times.
Delaying commencement gives parties time to prepare.

Amending Existing Laws

When Parliament wants to amend an existing law, it follows the same process. Only
the provisions being changed are considered, and the Bill becomes an Amendment
Act once assented to.

Secondary Legislation
The Constitution does not specify how secondary legislation must be made, but the
empowering statute often specifies how delegated authorities must exercise their
law-making powers. Sometimes a consultative process is required, allowing affected
people to comment and influence the law. Other times, the authority must publish
the regulations in the Government Gazette. It is wise for businesses to regularly
check the Government Gazette.

Important National Statutes for Commercial Activity

Page 43
 Created by Turbolearn AI

Area Statutes

Business
Companies Act 71 of 2008
entities
Taxation Income Tax Act 58 of 1962, Value-Added Tax Act 89 of 1991
Long-term Insurance Act 52 of 1998, Short-term Insurance Act 53 of
Insurance
1998
Intellectual Copyright Act 98 of 1978, Patents Act 57 of 1978, Trade Marks Act
property 194 of 1993
Insolvency Insolvency Act 24 of 1936
Competition Competition Act 89 of 1998
Labour Relations Act 66 of 1995, Basic Conditions of Employment
Act 75 of 1997, Occupational Health and Safety Act 85 of 1993,
Employment
Compensation for Occupational Injuries and Diseases Act 130 of
1993, Employment Equity Act 55 of 1998
Consumer
Consumer Protection Act 68 of 2008
Protection

Many areas of law are governed mostly by common law and judicial precedent, such
as the law of contract.

Judicial Interpretation of Legislation

Judges and magistrates apply legislative provisions to the facts of a case. First, they
must ascertain the meaning of the legislative provision through statutory
interpretation.

Sources of Interpretation
The principles, assumptions, and rules of statutory interpretation come from the
legislature and the courts. Statutes often begin with definitions. The Interpretation
Act fulfills this function through various provisions:

Page 44
 Created by Turbolearn AI

Defining frequently used words like 'administrator', 'Gazette', 'law', 'month', and
'person'.
Indicating that the masculine gender includes the female and that the singular
incorporates the plural.
Indicating how days should be calculated.
Indicating when a document would have been served if sent by post.
Affirming that when one law repeals another, the repealed law remains in force
until the substituted law comes into effect.

The courts play the largest role in the interpretation of legislation. The doctrine of
judicial precedent results in their interpretations becoming woven into the matrix of
legal rules.

Approaches to Statutory Interpretation

Over the years, the courts have developed different approaches to the task of
statutory interpretation, each of which involves the application of more detailed
assumptions and rules.

Literal Approach: According to the literal approach, the words in a statute

should be given their ordinary grammatical meaning.
Purposive Approach: Since the enactment of the Constitution, section 39(2)
requires that when interpreting any legislation, every court must promote the
spirit, purport, and objects of the Bill of Rights. The courts will nowadays
interpret legislation to give effect to changing values in our society and to
ensure that justice, fairness, equity, human dignity and the freedom of the
individual are protected and maintained.

Detailed Rules of Statutory Interpretation

Page 45
 Created by Turbolearn AI

Ordinary words will be given their ordinary grammatical meaning at the time
the Act was written.
Differences between translated versions of an Act will be resolved by referring
to the original language version of the Act as signed by the President.
Words and expressions used throughout the Act should have the same
meaning.
Words and expressions that have been interpreted by the courts previously
should bear the same meaning as previously interpreted.
An Act will not bind the state unless the state is specifically mentioned as
being bound.
Any provisions that seek to restrict the jurisdiction of the superior courts will be
very strictly construed.
The provisions of an Act should not be given retrospective effect, as this would
amount to taking away the rights of legal subjects.
It will be assumed that the law was not intended to be unreasonable, create
injustice, or apply only to certain legal subjects.
Laws will be interpreted as promoting the public interest.
The purpose of the Act must be considered in interpreting it. No interpretation
will be considered that will allow fraud or any evasion of the objects of the Act.
The law must try to give effect to established principles of international law.

Judicial Precedent

What is Judicial Precedent?

Judicial precedent is the law created when a judge decides a case, and their decision
either creates a new law or extends an existing law. The power to set precedent rests
only in judges of the higher courts. Magistrates in lower courts are bound by the
decisions of the higher courts.

Judges apply existing law to the facts of the case. Only a small proportion of cases
lead to the creation of a new judicial precedent.

Judgements, Ratio Decidendi, and Obiter Dicta

Page 46
 Created by Turbolearn AI

A judgment refers to the account written by a judge in which he or she

usually outlines the facts of the case, the legal question or questions to be
decided, the various legal authorities (that is, existing law) applicable to
the question(s), his or her decision, and the reasons for his or her decision.

Not everything the judge states in the judgment will change or modify the existing
law.

The ratio decidendi (or simply ratio) of the case sets the precedent. Ratio
decidendi means "the reason for the decision", and it is the principle or rule
considered necessary by the judge to reach his or her decision.
Obiter dicta are comments upon the law that related, but tangential to the
main issue at hand. These comments do not set precedent.

Multiple Judges
Cases are often heard by more than one judge. If judges agree, one may write a
judgment. Each judge can deliver a judgment, leading to multiple judgments for a
single case. Judges may agree on the decision but for different reasons (concurring),
or they may disagree (dissenting). The ratio of the decision is the reason for the
decision found in the judgment in which the majority concurred, and this sets the
precedent.

The ratio of the dissenting or minority judgment does not create precedent, although
it may have persuasive force later.

Application of Existing Law

Existing law applied by a judge can be:

1. A provision of legislation
2. A rule of the common law
3. Previous court decisions interpreting legislation or the common law or
recognizing a new rule.

These previous court decisions are what constitute judicial precedent.

Stare Decisis

Page 47
 Created by Turbolearn AI

Their recognition as a source of law is based on the doctrine of stare decisis, which
means "to stand by previous decisions". In practice, this means that the various courts
in South Africa are bound by the decisions of courts higher in the court hierarchy as
well as by their own previous decisions. The High Courts are bound by the decisions
of the Supreme Court of Appeal, while the Supreme Court of Appeal is in turn bound
by the decisions of the Constitutional Court on constitutional matters.

The effect of the precedent system is that similar cases are decided similarly. A
sophisticated web of decisions has been formed as judges have heard and decided
thousands of cases. When a judge hears a new case, they can often find an answer
within this web. However, in some cases, the facts are novel, and the judge must
modify or extend the law, setting a new judicial precedent.

Setting New Precedent

Judges set new precedents in several circumstances:

1. When no existing law or authority supports a party's position, they may

contend that a rule applied in a comparable legal system should be recognized
as part of South African law.

Example: South African Eagle Insurance Co Ltd v KRS

Investments CC
In South African Eagle Insurance Co Ltd v KRS Investments CC, Eagle relied on an
English law principle, but the court held that the English law principle relied on by
Eagle was punitive and not part of our law.

2. When well-recognized principles and rules of law exist, but the facts disclose a
novel factor not featured in previously decided cases.

Example: Roberts v Martin

In the Roberts case, Martin agreed to sponsor Roberts' daughter's tennis activities.
The judge identified three legal principles applicable to the case from existing law.
The novel aspect was that Martin maintained upholding the contract would be
inconvenient. The judge held that mere inconvenience did not warrant refusal of a
specific performance order, creating a new precedent.

Page 48
 Created by Turbolearn AI

Other Sources of Legal Authority

Common Law
Common law functions as a backdrop upon which new legal developments
constituted by legislation and judicial precedent are continually being repainted. It
links the legal system to a particular legal tradition.

In South Africa, the common law is Roman-Dutch law, linked to the Roman system
from approximately 750 BC to 565 AD and further developed by Dutch jurists of the
seventeenth and eighteenth centuries, such as Hugo de Groot, Johannes Voet, Van
der Linden, and Van der Keessel (the "old authorities").

When the Dutch established a trading post at the Cape in 1652, they brought an
amalgam of Roman and Dutch law with them. After the British took control, they
allowed the previous laws to continue but administered them in terms of English law.
The British abolished torture, introduced court trials open to the public, and English
law was influential in the development of our laws.

Common Law
It's rare to find a case where common law is the only law applicable due to
amplification/modification by judicial precedent or legislation. Judges often start with
old authorities before moving to recent developments.

Custom and Trade Usage ‍

Custom
Courts may recognize community practices (customs) and enforce them if they're:

Long established
Certain
Reasonable
Uniformly observed

Page 49
 Created by Turbolearn AI

Custom: A practice or norm that has been followed within a community

for an extended period, recognized by the courts, and having the force of
law if certain criteria are met.

Example: Van Breda v Jacobs Fishermen sued another group for placing lines in front
of theirs. The court recognized a custom among local fishermen not to place lines
that way, as it was reasonable, certain, and observed for 45+ years.

Trade Usage
Trade Usage: A practice in a particular trade so well-known and
consistently followed that it's deemed included in every contract. It is
assumed to express the wish of the parties.

It is an unspoken or tacit term customarily implied in a contract, unless

expressly excluded.

Example: In some industries, a quoted price is expected to include transport costs or

exclude tariff charges.

African Customary Law

African Customary Law may be applied by a court with the consent of the parties. It
is the law of the indigenous peoples of South Africa, but this source is not likely to
apply to most commercial issues.

Foreign Law
Foreign law has persuasive influence only. The Constitution states that in
interpreting the Bill of Rights, a court must consider public international law and may
consider decisions of courts in other countries.

Categories of Law
Legal knowledge is categorized into:

1. International Law vs. National Law

2. Within National Law: Substantive Law, Procedural Law, and Conflicts of Law
3. Within Substantive Law: Public Law and Private Law

Page 50
 Created by Turbolearn AI

Traditional Categorization of Legal Subjects

Category Description

International
Relationship between states
Law
National Law Law applying within a state's boundaries
Substantive
Largest category; defines rights and duties
Law
Rules in civil and criminal trials, including civil procedure, criminal
Procedural Law
procedure, and law of evidence
Conflict of Specialized area where the law of more than one state may be
Laws applicable

Public vs. Private Law

Category Focus

Legal relationships where one party has state authority; governs general
Public Law
interest
Private Relationships where parties are on equal footing; governs particular
Law interests

Note: This distinction has been criticized since both areas often mix private and public
relationships.

Public Law Areas Relevant to Commerce

Administrative Law
Criminal Law
Labour Law
Law of Taxation

Private Law Areas Relevant to Commerce

Page 51
 Created by Turbolearn AI

Commercial Law
Law of Companies
Law of Insolvency
Competition Law
Banking Law
Law of Property
Intellectual Property Law
Law of Obligations
Contract
Delict
Unjustified Enrichment

Bringing Different Categories Together in

Problem Solving
Traditional categorization has its limits:

New areas of legal specialization emerge as the state regulates new areas in
response to social needs.
Examples: Environmental Law, Cyberlaw, Sports Law, Health Law, and
Education Law
Categories aren't sealed off; a situation can raise questions from different areas.

Case Example: Energy Measurements (Pty) Ltd v First

National Bank of SA Ltd
Energy sued FNB for losses due to an employee's fraudulent activity. The employee
opened an account under a non-existent company name and deposited stolen checks.

Legal issues spanned:

Law of Banking: Bank's duty of care when opening accounts.

Law of Negotiable Instruments: Bank's liability to the true owner of the
checks.
Law of Delict: Energy's responsibility for employee control.
Criminal Law: Employee committed fraud.

Page 52
 Created by Turbolearn AI

Litigation, the Court System, and Legal

Professionals ‍

Litigation
Litigation is legal processes aimed at authoritative dispute resolution.

Civil vs. Criminal Trials

The distinction between civil and criminal trials lie in their object, initiating party,
standard of proof required, and the remedy a court may ultimately grant.

Feature Civil Trial Criminal Trial

Seek retribution and protect

Object Resolve dispute between equal parties
society from transgressors
Initiating
Person who initiates the action The state
Party
Standard of
Balance of probabilities Beyond a reasonable doubt
Proof
Responding party pays money or Transgressor pays a fine or
Outcome
undertakes/refrains from action serves imprisonment

Note: Both types of trials may raise constitutional matters.

The Criminal Trial

Page 53
 Created by Turbolearn AI

1. The state is the initiating party, and the responding party is the accused.
2. The process starts when a person reports a crime to the police (the
complainant).
3. The National Directorate of Public Prosecutions (NDPP) decides whether to
institute a case.
4. The accused is charged, and the state proves the case beyond a reasonable
doubt.
5. If successful, the trial moves to sentencing.
6. Public prosecutors represent the state in lower courts, and state advocates do
so in higher courts.
7. The accused may represent themselves or be represented by an attorney or
advocate.

Different Types of Civil Trial

Type Description

No dispute; initiating party seeks a benefit or right.

Ex Parte Application
Example: attaching assets to found jurisdiction.
Dispute involves questions of fact or questions of fact and
Action Proceedings
law. Requires submission of evidence (oral evidence).
Application/Motion Dispute of law only; no oral evidence needed. Statements
Proceedings of fact set out in affidavits.

In action proceedings:

Initiating party: plaintiff

Responding party: defendant.

In application proceedings:

Initiating party: applicant

Responding party: respondent.

Appeal and Review ‍

Page 54
 Created by Turbolearn AI

Appeal: Dissatisfied party seeks a higher court's decision on the merits based
on the court record.
Review:
Non-state party challenges a state official's decision in a High Court
(administrative review).
Party challenges a magistrate or judge's decision-making process.

The Court System in South Africa

The court system is hierarchical:

1. Constitutional Court and Supreme Court of Appeal (apex)

2. High Courts
3. Regional and District Magistrates' Courts

Key: All courts must function independently and impartially.

The Court Hierarchy

Court Function

Decides constitutional matters only; the highest court in this

Constitutional Court
regard.
Supreme Court of Highest court in non-constitutional matters; can rule on both
Appeal constitutional and non-constitutional matters.
High Courts Consists of various divisions.
Regional Magistrates'
Lower courts with limited jurisdiction.
Courts
District Magistrates'
Lower courts with limited jurisdiction.
Courts

Jurisdiction
Jurisdiction is a court's capacity and authority to inquire into and decide
upon a particular matter.

It's determined by:

Page 55
 Created by Turbolearn AI

Authority to hear constitutional matters

Geographical territory
Amount of the claim in civil proceedings
Severity of sentence in criminal proceedings
Nature of the proceedings
Appeal jurisdiction

Legal Professionals ‍
Judges and Magistrates decide issues in higher and lower courts.
Officers of the Court are responsible for keeping various aspects of the court
system running.
State Attorneys and Advocates represent the state in criminal matters.
Attorneys do general legal work.
Advocates are litigation specialists.

Legal Documents and Professional Privilege

Legal Representation in Court

An advocate may be instructed by an attorney to represent a client in court.

Legal Professional Privilege

Also known as client legal privilege, this protects the confidentiality of
communications between legal practitioners and their clients. The privilege belongs
to the client, not the legal practitioner. Its purpose is to allow free communication
about legal proceedings, whether current or anticipated. Communications made for
the dominant purpose of obtaining legal advice or services in anticipated proceedings
are protected. Such communication cannot be required to be produced in court or
used as evidence.

Chapter Essence

Page 56
 Created by Turbolearn AI

1. The function of law is to maintain order and ensure a level of social justice in all
legal relationships.
2. Every aspect of the South African legal system must conform to the
Constitution of 1996, which is the supreme law.
3. The Bill of Rights in the Constitution is central to its functioning as the supreme
law and can be applied vertically (in public relationships) or horizontally (in
private relationships).
4. The state makes, implements, and adjudicates the law through the legislature,
executive, and judiciary.

Introduction to the South African Legal

System

Legal Personality
Legal personality is the capacity to have rights and duties and to sue and be sued.
Both natural persons and juristic persons have legal personality.

Primary and Secondary Sources of Law

Primary sources of law: Legislation, common law, case law, and custom.
Secondary sources of law: Modern writings and foreign law. All legislation is
subject to interpretation by the legislature and the judiciary.

Judicial Precedent
Judicial precedent is the system where higher courts' decisions bind lower courts. A
new precedent is created when a judge creates a new law or extends an existing one.

Court System
South Africa's court system includes:

Page 57
 Created by Turbolearn AI

Superior courts: Constitutional Court, Supreme Court of Appeal, High Court

divisions.
Lower courts: Regional magistrates' courts, district magistrates' courts, small
claims court.
Special courts: May be established by statute (e.g., maintenance courts).

The Law of Contract

Contracts in Daily Life

Contracts are fundamental, regulating both commercial activities and personal
relationships. Examples include purchasing groceries, buying fuel, employment, and
renting property. Enforceable contracts are essential for business.

Essential Elements of a Contract

This chapter examines the definition of a contract, its essential elements, creation,
performance, enforcement, termination, and remedies for breach.

Dimensions of Contract Law

Foundations
South African contract law is based on common law, including Roman law and
Roman-Dutch law, and is influenced by English law.

Cornerstones
1. Freedom of contract
2. Good faith
3. Sanctity of contract
4. Privity of contract

Duty to Perform

Page 58
 Created by Turbolearn AI

A valid contract creates a legally binding relationship, imposing a duty to perform.

Failure to perform may give the other party recourse.

Theories of Contractual Liability

Several theories explain the basis of contractual liability:

Promissory and Will Theories

Freedom of contract: Parties are free to contract with whomever and on
whatever basis they wish.
Contractual rights and obligations are created voluntarily and should be
enforced.
Liability arises from the voluntary assumption of duties and rights.

Promissory theory: Based on the unilateral will of a party. If a person's

conduct creates a moral obligation by making a promise, the law should
enforce it (e.g., a "gentlemen's agreement").

Will theory: Bilateral, enforcing obligations assumed through a meeting

of minds to reach consensus via offer and acceptance.

Criticisms: The state should only interfere to prevent harm and not enforce contracts
that parties did not intend. Courts may strike out terms that offend public policy or
impose implied terms, shifting focus from voluntary assumption to fairness. Courts
are often reluctant to order specific performance, and damages may be reduced by
the requirement to mitigate loss.

Reliance Theory
Protects parties from harm, stating that contractual liability arises when one party
makes a promise to another that is relied upon to secure the benefit of performance.
Contractual obligations must ensure that the person relying on the promise is not
placed in a worse position if a contractual obligation is not fulfilled.

Obligations are imposed by law based on conduct, not intention.

Contract law aims to remedy harm caused by inducing reliance.
Contract law belongs in the same category as the law of delict and the law of
unjustified enrichment and is part of the general law of obligations.

Page 59
 Created by Turbolearn AI

Criticisms: Liability arises from the undertaking, not the reliance. A party should not
be concerned about reliance if they state their intention honestly.

Relational Theory
Considers the effect of a contract on the relationship of trust between parties,
viewing it as part of a relationship rather than a single transaction.

Only the most basic terms are set out in an outline, with many implied terms
and understandings determining performance and behavior.
Focuses on the relationship, not the transaction.
Establishes an ongoing partnership instead of a distant single event, laying a
foundation of trust and transparency.
Embeds social norms such as reciprocity, autonomy, honesty, loyalty, equity, and
integrity.

The relational theory may be useful in understanding some issues in customary law
in South Africa.

Definition of a Contract
A contract is a multilateral juristic act that creates a legally binding
relationship with resulting rights and duties between the parties.

The law generally enforces contracts that are not illegal, immoral, or impossible to
perform. This is known as party autonomy. Although based on consensus ad idem (a
meeting of the minds), the law adopts an objective approach, determining agreement
based on how a reasonable outsider would perceive it.

Law of Obligations
Contract law is part of the law of obligations, which governs relations between
private parties. An obligation is a legal relationship where one party has a duty and
the other has a corresponding right to claim performance of that duty.

Creditor: Has the right to claim performance.

Debtor: Has the duty to perform.

Page 60
 Created by Turbolearn AI

Performance involves doing something, giving something, or refraining from doing

something. An obligation arises from a contract, but they are not the same thing.
Compliance with formalities is essential for valid contracts.

Essential Elements of Contract

The essential elements (essentialia) are the key terms that must be agreed upon for
the agreement to be binding. These are distinct from the natural consequences
(naturalia), which are rights and duties owed by parties. Parties may also agree to
incidentalia, which are additional terms governing their agreement.

Term Description

Essentialia Minimum terms to categorize the contract.

Naturalia Terms automatically part of the contract through law (ex lege).
Additional terms included by parties for their own convenience to
Incidentalia
regulate their agreement.

Required Elements
1. Consensus and communication
2. Serious intention to create enforceable terms
3. Reality of consent
4. Capacity to contract
5. Possibility of performance
6. Definite terms
7. Lawfulness
8. Compliance with formalities

If one or more elements are absent, the contract may be void or voidable.

Void vs. Voidable Contracts

Page 61
 Created by Turbolearn AI

Feature Void Contract Voidable Contract

Seeks to create legal Has a flaw that allows the aggrieved

Definition obligations but fails due to a party to choose whether to treat it as
fatal defect. valid or not.
Severe, so the contract
Defect Lack of free or voluntary agreement.
never comes into existence.
Unlawful contracts,
agreements reached by Misrepresentation, duress, or undue
Examples
mistake, impossible influence.
performance at inception.
Valid until set aside by the aggrieved
Legal Existence No legal existence.
party.
Cannot be enforced or set Enforceable unless and until
Enforceability
aside by a court. cancelled.
Common-law remedies for
Contractual and delictual remedies
Remedies unjustified enrichment may
may apply.
apply.
May enforce (and claim damages) or
Cannot enforce, but may
Outcome for cancel the contract (and claim
claim for unjustified
Aggrieved Party restitutio in integrum, and potentially
enrichment.
damages).

Consensus
Consensus is fundamental; parties must be aware of their intentions to contract,
communicated through words or conduct. Legally, this is a meeting of the minds
(consensus ad idem). Agreements can be reduced to an offer and an acceptance.

Offer
A unilateral expression of intent where one party (offeror) proposes to another
(offeree) to enter a contract on specific terms. Acceptance creates a contract.

Must be consistent with essential elements.

Must be communicated to the offeree.
Can be withdrawn or revoked anytime before acceptance.
Expires after a reasonable time if no time is specified.

Page 62
 Created by Turbolearn AI

An offer will terminate on rejection, the death of either party, or acceptance.

Acceptance
A unilateral expression of intent where the offeree indicates agreement with the
offeror's terms.

Must be consistent with the offer.

Must take place as prescribed by the offeror.
Silence does not amount to consent, unless the law imposes a duty to speak.
Silence will be deemed to be consent only where tacit acceptance has taken
place

Option Contracts
An option is a contract in terms of which one person (the grantor)
undertakes to keep an offer open to another (the grantee) for a
determined or determinable time.

Parties agree the offer will not be revoked during that period.

Involves two sets of offers and acceptances: the main offer and acceptance, and
the option over the main agreement.
Examples include an option to purchase or renew a lease.
Cannot be withdrawn during its specified duration, unlike an ordinary offer.
Lapses after a reasonable time if no time is specified.
The rights in terms of an option may be ceded, but ordinary offers may not.
Ends upon rejection, counteroffer, or acceptance.
The death of either party does not necessarily terminate the option.

Formalities
Where the proposed contract contemplated in the option must comply with certain
formalities, for example, be in writing or be signed, then the option must also comply
with these same formalities to be valid.

Remedies for Breach

Page 63
 Created by Turbolearn AI

The normal remedies for breach of contract are available to the option holder.

The option holder may apply to court for an order for specific performance.
Damages may be awarded if the option holder has suffered a loss because of
the breach.
The court could award damages to restore the option holder to the position he
or she would have been in had the breach never taken place.

Right of First Refusal

An option can be distinguished from a contract granting a right of first refusal.

In an option, there is already an offer to conclude a particular contract.

In a preferential right, there is no offer yet, but if one is made, it must first be
offered to the holder.
Also known as a right of pre-emption.

Revocation and Enforcement

The grantor may revoke the offer before acceptance if they do not want to enter any
agreement.

The offer cannot be revoked if the grantor intends to enter an agreement with
someone other than the holder.
If an offer is made to someone else, the holder may enforce their rights by
applying for an interdict or claim damages.

Contracts Accepted Through the Post

There are four theories as to what point an offer is accepted if acceptance takes place
through the post.

1. Declaration theory: When the offeree has expressly stated acceptance.

2. Expedition theory: When the offeree posts the letter of acceptance.
3. Reception theory: When the letter of acceptance reaches the offeror's address.
4. Information theory: When the letter of acceptance reaches the mind of the
offeror.

Page 64
 Created by Turbolearn AI

South African law follows the expedition theory for acceptance of an offer and the
information theory for the revocation of the acceptance of an offer.

Implications
An offer made by post contains an implied term that posting a letter of acceptance
constitutes acceptance, creating a binding contract. The contract is binding from the
moment of posting, even if the letter is delayed or lost, provided it is correctly
addressed and stamped.

It is always open to the offeror to stipulate that there shall be no contract

unless the letter actually reaches the offeror.
The expedition theory does not apply where postal communications have been
disrupted by strike or war.

The posting of a letter rejecting an offer does not take effect on posting. Revocation
of the offer is effective only when it reaches the mind of the offeree.

Contracts Accepted by Telephone, Facsimile, Telegram and

Electronic Messaging

Telephone
Modern position follows the information theory: acceptance takes place only if the
offeror actually hears it. Acceptance occurs at the place and time the offeror hears the
acceptance.

Telex, Fax, Email, Text

The reception theory applies: a contract comes into existence at the place where the
acceptance is received by the offeror and at the time he or she becomes capable of
reading it.

Electronic Communications and Transactions Act (ECTA)

Page 65
 Created by Turbolearn AI

Enacted in 2002 to address uncertainty regarding contracts concluded via email or

the internet.

Section 22: A contract concluded by means of data messages is regarded as

being concluded when the acceptance is received by the offeror.
Section 23: A data message is regarded as having been received by the
addressee when the complete data message enters an information system
designated or used for that purpose by the addressee and is capable of being
retrieved and processed by the addressee.
Data messages include emails, internet contracts, SMSes, and social media text
or voice messages.

Signatures in Email Contracts

In Spring Forest Trading v Wilberry (Pty) Ltd t/a Ecowash, the court held that a legal
requirement for an agreement to be in writing is satisfied if it is in the form of a data
message.

The court rejected the view that an advanced electronic signature was required.
The purpose of a signature is to authenticate the identity of the person signing.
The emails were held to clearly show the parties' intention to cancel their
agreement.

The time and place of acceptance will be the time when the acceptance is received. A
data message is regarded as having been received when it is capable of being
retrieved and processed by the addressee.

Electronic Communication and Acceptance

When a complete data message enters an information system designated by the
addressee, and can be retrieved and processed, the offer is regarded as accepted,
even if the offeror hasn't seen it.

In email contracts, acceptance occurs as soon as the email is capable of

being read in the offeror's inbox.

Special Terms in Contracts

Page 66
 Created by Turbolearn AI

Generally, the law respects the freedom of contract, assuming equal bargaining
power. However, this isn't always the case, especially with large companies.

Imposed Terms
People are often forced to accept terms in situations like:

Bank loan applications

Credit applications
Notices in parking garages

The question is: To what extent are people bound by terms on notices, signs, receipts,
and tickets?

Awareness of Special Terms

A party imposing special terms must take reasonable steps to ensure the other party
is aware of them.

If the other party:

Sees and understands the terms

Knows of their existence

Then they are bound by them.

Signs and Notices

If a notice is displayed so conspicuously that a normal person could hardly miss it, it's
assumed they saw it and are bound by its terms.

However, if the proprietor knows the person doesn't understand the notice, they can't
rely on those terms. This is especially relevant in a multilingual society.

Liability for negligence can only be excluded by specifically stating the proprietor
won't be liable for negligence.

Courts consider:

Page 67
 Created by Turbolearn AI

Conspicuousness of the notice

Prominence of the writing
Opportunity to read the notice

Examples

Page 68
 Created by Turbolearn AI

Case Facts Holding

A man claimed The court held that everything was done to

Davidson v wrongful arrest. The notify the public of the conditions, and
Johannesburg defendant relied on anyone attending a race meeting is subject
Turf Club admission conditions to those conditions, whether they
displayed at the club. personally knew of them or not.
The court held that if a patron reads and
accepts the terms, there's actual consensus
Central South The defendant relied on
and they're bound. If the patron saw the
African notice boards
notice and realized it contained terms but
Railways v containing terms
didn't read it, there's also actual consensus
James relating to a contract.
because they agreed to be bound by
whatever the terms were.
The court confirmed the Praetor's Edict in
A guest's luggage was South African law. However, the inn isn't
stolen at an inn. He liable if the loss was due to vis maior
sued, arguing strict (superior force). Entry through a door or
Davis v
liability under the window wasn't considered an act of
Lockstone
Praetor's Edict (de violence. The innkeeper can't limit
nautis, caupones et common-law duty simply by posting a
stabulants). notice without proving the plaintiff read
and agreed to it.
A hotel defended an
action by a guest who
Illey v The court held the hotel liable because the
claimed negligence in
Marlborough notice was only seen after guests checked
allowing luggage theft.
Court Ltd in.
A notice disclaimed
liability.
Guests sued after
property theft, arguing
Gabiel v
strict liability under the The court held that since the plaintiffs were
Enchanted Bed
Praetor's Edict. The unaware of the notice, they never agreed to
and Breakfast
defendant claimed a its terms.
CC
notice disclaimed
liability.

Tickets

Page 69
 Created by Turbolearn AI

Was the offeree aware, or should they have been aware, that the offer was subject to
certain terms?

Most tickets are issued after the contract exists, so the offeree can't be bound by
terms printed on them.

Examples

Case Facts Holding

The court held that a cloakroom

ticket isn't a document a person
Central South
The railway was liable for loss would reasonably believe contains
African
from a locker despite a ticket terms and conditions. The ticket
Railways v
disclaiming liability. was hard to read, and no one
McLaren
brought the terms to the person's
attention.
A man hired deck chairs. A sign
stated the hire charge. He bought
Chapelton v The court disagreed, finding the
tickets without reading them and
Barry Urban man entitled to damages. The
was injured when the chair
District ticket was simply proof of
collapsed. The council argued that
Council payment, like a receipt.
an indemnity printed on the ticket
protected them.

Receipts
Terms on receipts generally aren't part of the offer. A receipt is only proof of payment
and doesn't introduce binding terms, as the contract is already in place.

Proving Special Terms

The person alleging a special term must prove its existence and applicability.

The person seeking to hold the other bound by the special term must prove:

Page 70
 Created by Turbolearn AI

1. The term was in contractual form.

2. The term was contemporaneous with the contract.
3. The term was read and understood by the person to be bound.
4. All reasonable steps were taken to draw the other person's attention to the
term.

Examples

Case Facts Holding

The court asked if a reasonable person

Yeats v A sign at a garage stated would have been aware of the sign. As
Hoofweg vehicles were parked at the the garage took reasonable steps to
Motors owner's risk. bring the sign to customers' attention,
the terms were part of the contract.
The court decided whether the park was
The plaintiff was aware of
reasonably entitled to assume from her
notices but didn't see them
Durban's conduct that she agreed to the terms or
on the night of an incident.
Water was prepared to be bound by them
The park needed to
Wonderland v without reading them. The answer
establish she was bound by
Botha depended on whether the park had done
the disclaimer notice based
enough to make patrons aware of the
on quasi-mutual assent.
disclaimer clause.

Faxed Contracts
A party including standard terms on the back of a fax must ensure the other party is
aware of them before the contract is agreed to:

Terms must be clear and unambiguous.

Reference to terms should be where contractual terms are expected.
Reference should not be part of the letterhead.
The party relying on the terms should retain proof of transmission of both sides.
The document should have a signature provision indicating agreement to the
standard terms.

Example

Page 71
 Created by Turbolearn AI

Case Facts Holding

A quote was faxed on a The court held that the phrase

letterhead. The words 'see terms 'see terms and conditions
Cape Group
and conditions overleaf' were in overleaf' wasn't enough to alert
Construction v
small print. The provisions on the other party that standard
Government of the
the reverse weren't sent, and terms applied. If the terms
United Kingdom
they contained a wide limitation weren't sent, they couldn't be
of liability. part of the contract.

Rules of Offer and Acceptance

To Whom Can an Offer Be Made?

An offer can be made to:

A defined person
A group of persons
The whole world

Only the person to whom the offer is made can accept it. An offer to the world can be
accepted by anyone who carries out the required act, provided they know of the
offer's existence. These are usually reward offers. Reward offers are generally limited
to the first person to perform the act.

Communication of the Offer

The offer must be communicated to the offeree before it can be accepted. If the
acceptor didn't know of the offer, they can't accept it.

Example

Page 72
 Created by Turbolearn AI

Case Facts Holding

A company offered a reward for The court held that the company
Bloom v information leading to the arrest of didn't have to pay because the
American thieves. A man gave information to the man provided the information
Swiss police before hearing about the reward without knowing about the
and then claimed it. reward.

Intention to Create Legal Relations

The offer must be seriously intended to create legal relations. Jokes and social
arrangements aren't binding. There's a difference between a firm offer and a mere
invitation to do business.

Advertisements and catalogues are generally invitations to do business,

not offers.

Example

Case Facts Holding

A customer saw tobacco advertised at a The court held that the notice
reduced price and bought some. He was an invitation to do
returned to buy more, but the shopkeeper business, not an offer to sell.
Crawley
refused. He refused to leave and was The shopkeeper wasn't required
v Rex
charged with refusing to leave the to sell to someone who walked
premises. He argued that he had accepted in and tendered the advertised
the shopkeeper's offer to sell. price.

Self-Service Shops
The customer makes the offer when they take merchandise to the cashier and
tender the price.
The store isn't making an offer simply by displaying goods on shelves.
Taking an item from the shelf doesn't constitute acceptance.

Example

Page 73
 Created by Turbolearn AI

Case Facts Holding

A shop had a pharmacy

The court held that the shop
department with drugs controlled
didn't break the law because
by legislation. A customer put
Pharmaceutical the customer made an offer to
drugs in his basket and paid at the
Society v Boots buy, which was accepted at
cashier's desk. The law required
Cash Chemists the cashier's desk under the
the drugs to be sold under the
supervision of the registered
supervision of a registered
pharmacist.
pharmacist.

Request for Tenders

Generally, this is not an offer but an invitation to submit a tender. Each tenderer
makes an offer, and there's usually no need for the person calling for tenders to
accept any tender. If an invitation for tenders comes from a state body, they must use
a points system to evaluate tenders and generally award the tender to the bidder
with the highest points. Written reasons must be given for rejecting any tender. A
court may review the decision if the state body doesn't meet the requirements of the
Constitution or the Promotion of Administrative Justice Act.

Auction Sales

Type of
Description
Sale

Putting up the article constitutes an offer, and each bid is an acceptance

Without under the condition that there's no higher bid. The bidder must act in good
Reserve faith. The auctioneer must notify the public that the sale is without
reserve, or it will be one with reserve.
Putting up the article is merely an invitation to do business. The
With auctioneer requests bids, and each bid is an offer that may or may not be
Reserve accepted. An offer lapses when a higher offer is made. The auctioneer
doesn't have to accept the highest offer.

Advertisements as Offers

Page 74
 Created by Turbolearn AI

Sometimes an advertisement can be an offer. The court will examine the nature of
the advertisement, the wording, and the circumstances.

Example

Case Facts Holding

A company advertised it would pay £100 to

The court held that the
anyone who caught influenza despite using
Carlill v advertisement was more
a smoke ball device three times daily. It had
Carbolic than an invitation to do
placed £1000 in a bank account to show its
Smoke Ball business and the public
sincerity. The plaintiff bought the device
Company was justified in thinking of
based on the advertisement, used it as
it as a firm offer.
instructed, caught influenza, and sued.

An advertisement with the words 'First come, first served' can also be an offer.

Acceptance
The acceptance of the offer must be absolute (unconditional), unambiguous, and
correspond with the terms of the offer. It must also comply with the terms of the
offer relating to the method, time, and place of acceptance.

An acceptance subject to conditions isn't an acceptance; it's a counteroffer, which the

original offeror can accept or reject. The original offer, having been rejected, lapses
and isn't open for acceptance.

A mere request for information or a suggestion as to modification of terms doesn't

reject the original offer.

Example

Case Facts Holding

An offer for land sale stated a deposit

The court held that this was
Watermeyer v was due on signing. The buyer accepted
a rejection of the offer and a
Murray but stated a different date for the
counteroffer.
deposit.

Page 75
 Created by Turbolearn AI

If the offeree has a reasonable doubt that the offer was accepted, the offeror isn't
bound. The doubt must be reasonable.

Examples

Case Facts Holding

A tenant wrote to renew a lease, using

The court held that the tenant
the date of the letter instead of the
Boerne v hadn't exercised the right of
expiry date (six months later) as the
Harris renewal and the lease had
proposed date of renewal. The landlord
terminated.
didn't acknowledge the letter.
The court held that the lessee
In exercising an option to renew a lease, had made a manifest error and
Mens Fair
a lessee wrote 'from 11 November the lessor should have
v Bible
1973' instead of 'from 1 November understood that the lessee
Society
1973'. intended to renew from the
correct date.

Certain and Definite Terms

The offer and acceptance must result in certain and definite terms. If not, the
agreement will be void for vagueness. Courts will try to give meaning to the words
used. Some terms may be implied by law, circumstances, or trade usage. A valid
trade usage must be well-known, definite, reasonable, legal, and not excluded by the
contract.

Estoppel
If a person acts without authority and allows an opinion to form that certain facts
exist, causing prejudice to a second person acting on those representations, the first
person can't argue that those facts didn't exist.

This means someone can't claim a term didn't exist if their conduct led the
other party to believe it did.

Example

Page 76
 Created by Turbolearn AI

Case Facts Holding

A buyer ordered alcohol from a seller in The court held that the contract was
Rv
another place, and the liquor was sent to concluded where the liquor was
Nel
where it was ordered. ordered and sent.

Who Can Accept?

Only the person to whom the offer is made can accept it. This is true of an ordinary
revocable offer, but not always of an option, which can be ceded or transferred.

An option is an offer the offeror has undertaken to keep open for a fixed
time.

An option to buy for cash can be ceded without the debtor's consent, but an option to
purchase on credit may not because the debtor's creditworthiness is important.

Example

Case Facts Holding

A seller and buyer agreed to sell

The court held that the seller
property. The buyer signed the offer
Bird v hadn't intended to sell the
with another person unknown to the
Summerville property to anyone other than
seller when he offered to sell the
the original buyer.
property.

Communication of Acceptance
Generally, the offeree must notify the offeror of acceptance by words or conduct.
Mere mental agreement isn't enough. However, the offeror may waive the need for
communication.

Example

Page 77
 Created by Turbolearn AI

Case Facts Holding

A person offered to buy shares. The The court held that since the offer
Fern Gold directors agreed and posted a letter hadn't been accepted before being
Mining v informing him of the allocation. Before revoked, the revocation was
Tobias he received the letter, he revoked his effective and there was no
offer. contract.

If the offeror makes it difficult to communicate acceptance, a reasonable attempt to

send the acceptance is sufficient.

Method of Acceptance
If the offer specifies a method of acceptance, a binding contract results even if this
method doesn't lead to actual communication. Unless the offeror states otherwise, a
compulsory method of acceptance is merely the preferred mode. Any other method
suffices if it brings the acceptance to the offeror at least as soon as the preferred
mode would have.

Silence
Silence doesn't amount to acceptance. The offeree might be silent for many reasons.
An offeror can't say they'll regard silence as acceptance unless there's a legal duty to
speak. However, a duty to speak may arise from previous dealings.

A party receiving unordered goods on condition that they're deemed to have agreed
to buy them unless they're returned isn't bound. They can ignore the condition and
store the goods for the offeror. But if they use the goods or imply acceptance, the
contract will bind them.

Termination of an Offer
An offer ends on rejection, revocation, or lapse. It terminates on rejection, either
express or through a counteroffer.

Examples

Page 78
 Created by Turbolearn AI

Case Facts Holding

In response to an offer to sell an

The court held that no contract was
estate at a certain price, Hyde
made because the initial offer didn't
Hyde v made an offer to buy at a lower
exist when Hyde tried to accept it, as it
Wrench price. The lower offer was
had been terminated by the
refused. Later, Hyde tried to
counteroffer.
accept the initial offer.
Maxi Security offered guarding The court had to decide if the Post
services. The Post Office Office's acceptance was unconditional.
accepted, stating that Maxi's It considered two interpretations: (1)
Command
appointment was subject to the The agreement lacked intention to be
Protection v
successful finalization and bound and was conditional on further
SA Post
signing of a formal contract. The negotiations, so no contract existed.
Office
Post Office later repudiated the (2) The parties intended a binding
agreement, which Maxi Security contract but left certain terms for
accepted, suing for damages. future agreement.

Contract Law Study Guide

Outstanding Issues in Contract Law

In contract law, when parties fail to reach an agreement on certain outstanding
issues, the original contract will generally prevail.

The term "subject to" in a letter of acceptance typically introduces a condition.

A mere inquiry about the terms of an offer does not constitute a counteroffer
and leaves the original offer intact.

Revocation and Expiration of Offers

Page 79
 Created by Turbolearn AI

An offer can be revoked at any time before acceptance.

Revocation means the offeror clearly indicates they no longer wish

to enter into a contract.

To be effective, the notice of revocation must reach the offeree before

acceptance.

If the offer is accepted before the revocation reaches the mind of the offeree, a
valid contract is formed.

Example: In Yates v Dalton, a telegraphic offer to lease a café was accepted by

telegram the next day. An hour later, the offer was withdrawn. The court held
that a valid contract existed since the acceptance was sent before the
withdrawal.

If an option has been granted, the offer cannot be revoked until the option
expires.

An offer may expire:

By the passing of time, especially if a time for acceptance has been fixed.
After a reasonable time, which depends on the circumstances of each
case.

An offer also lapses upon:

The death of either party before acceptance.

The loss of contractual capacity (e.g., mental incapacity) of either party
before acceptance.
When performance of the contract becomes unlawful or impossible.

Estoppel and Quasi-Mutual Assent

Estoppel by Representation
Estoppel by representation: If a party is disadvantaged by reasonably
believing a misrepresentation made by the other party, they can prevent
the misrepresenting party from relying on the truth.

Page 80
 Created by Turbolearn AI

In simpler terms, if someone lies and causes disadvantage, they may be held to the
falsehood.

One criticism is that it creates a fictional contract where there was no actual
consensus.

It only applies to the disadvantaged contracting party, not third parties.

Quasi-Mutual Assent
Quasi-mutual assent: A real contract can be created without consensus if
one party had a reasonable belief in the existence of a consensus induced
by the other party.

Liability may be created by reliance on the appearance of an agreement created

by the other party.

The courts require two elements to be proved:

1. Inducement of the belief that there was consensus.

2. The reliance must have been reasonable in the circumstances.

The doctrine is based on the reliance theory, which focuses on correcting the
injury to the promisee.

Caveat subscriptor (let the signer beware) is based on quasi-mutual assent:

signing a document implies agreement to its terms.

Serious Intention (Animus Contrahendi)

Serious intention is the understanding between parties that their
agreement will result in serious and binding legal relations.

The offer must be firm and not a tentative statement of willingness to do

business.
Also referred to as reasonable cause (iusta causa or redelijke oorzaak).
Contracts must be based on a reasonable and serious intention to be binding.

True Agreement or Consensus ad Idem

Page 81
 Created by Turbolearn AI

The primary basis of contractual liability is true agreement or consensus ad

idem, based on the will theory.
Courts examine how intentions were displayed through conduct and actions.
Lack of animus contrahendi describes cases where it should have been clear
that the offer was not intended to be taken seriously.

Case Example: Kgopana v Matlala

K won R20 million in the National Lottery and told M that he would give all his
children R1 million each and keep R13 million. M sued for R900,000, claiming
she accepted the offer by issuing the summons.
The court held that K never intended to agree to part with a portion of his
winnings. His message was merely a statement of what he might do.
The message did not contain an offer, and there was no room for the
application of the doctrine of quasi-mutual assent.

Formalities and Negotiations

If parties expressly agree that there is no valid contract until all terms are
written in a formal, signed document, there is no enforceable contract until
those formalities are met.
This differs from agreeing only to reduce the terms to writing, which creates a
presumption that the document is merely a record of the terms.
If negotiations break down after some agreements, the parties may lack the
serious intention to be bound by the contract if material matters are not agreed
upon.
Parties can agree to leave some issues for later negotiation and still have a
valid binding agreement.

Valuable Consideration vs. Iusta Causa

Page 82
 Created by Turbolearn AI

Aspect English Law South African Law

Valuable
Key Doctrine Iusta Causa
Consideration
Agreement enforceable as long as it's made
Validity Something in return
seriously and deliberately with an intention to
Requirement required
be bound.
Main Principle Reciprocity Serious and deliberate intention

Marketing Communications
Marketing communications usually don't signify a serious intent to create
binding obligations.
Pamphlets, brochures, price lists, and catalogs are invitations to do business.
Advertisements are mere invitations to do business, though advertising a
reward can be an offer accepted by the first person to comply with the
requirements, provided they were aware of the advertisement.
Agreements of a social nature (e.g., lunch invitations) or jokes are not intended
to create contractual liability.
If there is no genuine agreement, the contract may be void or voidable.

Mistake
Mistake is a misapprehension of the existence or non-existence of a fact
or a state of facts.

If all requirements are met, the mistake is operative, and the contract will be void.

Types of Mistake:
Only mistake of fact is regarded as ever being or having been operative:

1. Mistake of law
2. Mistake in expression
3. Mistake in motive
4. Mistake of fact

Page 83
 Created by Turbolearn AI

Mistake of Law
The general rule is ignorantia iuris neminem excusat (ignorance of the law is
not an excuse).
Mistakes of law do not affect the validity of a contract.

Mistake in Expression
The general rule is caveat subscriptor (let the signer beware), except in the case
of fraud.

Signing a written contract means you are deemed to have noted its contents
and are bound by its terms, whether you have read them or not.

Example: George v Fairmead (Pty) Ltd - A hotel guest signed the hotel
register without reading an indemnity clause. He was bound by it.

If a signed document doesn't reflect the common intention due to a mistake,

either party can apply to court for rectification.

A party cannot "snap up" an offer they know or should know was made by
mistake.

Mistake in Motive
A mistake in motive does not affect the validity of a contract.

Mistake of Fact

Page 84
 Created by Turbolearn AI

This is the only type of mistake that renders a contract void.

It must be both reasonable and material.

Mistakes of fact can relate to:

Error in negotio: Mistake about the nature of the contract.

Error in corpore: Mistake about the identity of the subject matter.
Error in substantia: Mistake about the attributes of the subject matter.
Error in persona: Mistake about the identity of the parties.

Three types of mistake of fact:

Common mistake of fact: Both parties make the same mistake. The
contract is void if the mistake is material, even if it was not reasonable.
Mutual mistake of fact: Parties make different mistakes. The contract is
void only if the mistake is both material and reasonable.
Unilateral mistake of fact: Only one party is mistaken. The error must be
both material and reasonable to affect the validity of the contract.

A mistake is usually reasonable if caused by a misrepresentation made by the

other party.

If a contract is void due to an operative mistake, payments or property delivered

can be recovered through the doctrine of unjustified enrichment.

Courts have made contradictory decisions about whether a material mistake

resulting from a fraudulent misrepresentation caused by a third party can be
actionable.

Case Example: Slip Knot Investments v Du Toit

A suretyship agreement was contained within a bundle of loan documents. The
respondent claimed he didn't intend to sign it.
The court held that a party isn't required to tell the other about the terms
unless they couldn't reasonably be expected.
The documents contained nothing objectionable, and a cursory glance would
have made the respondent aware of the suretyship.
The court applied the reliance theory and held the respondent liable under the
suretyship.

Page 85
 Created by Turbolearn AI

Misrepresentation
Misrepresentation is a false statement of fact made by one person to
another before or at the time of the contract, intending to induce the
person to contract, and that actually induces him or her to do so.

During negotiations, statements may be untrue, but not all untrue statements
constitute misrepresentation.

Types of Statements:

Statement
Description Legal Effect
Type

No legal effect unless material to the

Exaggerated statements
reason for entering the contract. Can be
Puff/Sales Talk not intended to be taken
considered a representation if mixed with
seriously.
facts and details.
Statement intended to Party making it is obliged to comply.
become a term of the Breach of contract if fails to do so.
Warranty contract and to be Remedies aim to place the aggrieved
enforceable. Also called a person in the position they would have
"guarantee." been if the representation had been true.
Generally not a misrepresentation unless
Forecast or opinion that
Opinion the person doesn't believe what they are
turns out to be incorrect.
saying.
Statement made before or
Remedies aim to place the aggrieved
at the time of contracting,
person in the position in which they
Representation which induces the contract
would have been if the
but does not become a
misrepresentation had not been made.
term of the contract.

Types of Misrepresentation:
1. Fraudulent misrepresentation
2. Negligent misrepresentation
3. Innocent misrepresentation

Page 86
 Created by Turbolearn AI

Fraudulent Misrepresentation
Representation of a false fact, made willfully, believed by the representee,
and was one of the factors inducing him or her to contract.

It may be made through an express statement (not a puff or mere opinion) or by

conduct.

Active concealment refers to failing to correct a false impression or half-truth.

Example: Trotman v Edwick - Sellers didn't disclose that almost 30% of

the land was leased from the municipality.

Designed concealment refers to purposefully concealing information that one

has a duty to disclose.

Example: Dibley v Furter - Seller hid traces of a graveyard.

Disclosure may be obligatory in certain situations.

The test is whether a reasonable person, once misled and accepting the truth of
the misrepresentation, would have entered into the contract.

Case Example: Feinstein v Niggli

The seller of shares in a restaurant made exaggerated forecasts about the
financial position.
The court found that the seller didn't believe his own figures.
The buyer was entitled to cancel the contract based on the fraudulent
misrepresentation.

Case Example: Bird v Murphy

A man bought a car after the seller misrepresented its manufacturing year.
The court held that the representation hadn't induced him to enter into the
contract.

Remedies for Fraudulent Misrepresentation:

Page 87
 Created by Turbolearn AI

Defence: Refuse to perform and use the misrepresentation as a defence.

Specific performance: Enforce the contract and claim damages.

Cancellation: Cancel the contract, and restitution must take place.

Example: Hall-Thermotank Natal (Pty) Ltd v Hardman - Cancellation

allowed even though the ship sank.

Delictual damages: Claim damages based on the fact that misrepresentation is

a delict.

Negligent Misrepresentation
Representation of a false fact, made with an honest belief that it is true,
but a reasonable person would have taken more care to ensure the correct
fact was presented.

Remedies are similar to those for fraudulent misrepresentation: defence,

specific performance, cancellation, and delictual damages.

Innocent Misrepresentation
Representation of a false fact, believed by the representee, and was one
of the factors inducing him or her to contract.

Remedies: defence and cancellation.

Illegality, Possibility, and Capacity

Duress
Duress occurs when someone is forced into a contract through violence, threats, or
fear. If the force is so overwhelming that a reasonable person couldn't resist, the law
considers that there was no genuine meeting of the minds. The contract is voidable
at the plaintiff's request.

To prove duress, the aggrieved party must show:

Page 88
 Created by Turbolearn AI

A reasonable and substantial fear of imminent harm to their life, person, dignity,
or that of their family. If property is threatened, the victim must have protested
when entering the contract.
The threat was illegal or involved using legal means to achieve an illegal result.
The pressure caused the plaintiff to agree; the contract wouldn't have been
entered into without the duress.

In Broodryk v Smuts N087, a road worker claimed he enlisted in the armed forces
under the threat of imprisonment or internment. The court found the contract
voidable due to duress.

Economic Duress
The legal principle of economic duress isn't fully established in South African law.

In Medscheme Holdings (Pty) Ltd v Bhamjee, a doctor signed acknowledgements of

debt after being told direct payments to him would stop if he didn't. The court ruled
that causing economic ruin isn't necessarily unlawful or unconscionable, and hard
bargaining doesn't equal duress unless it's illegitimate or unconscionable.

Undue Influence
Undue influence is weakening a person's resistance to make their will
pliable.

The influence must be unprincipled, securing consent to a prejudicial transaction that

wouldn't have occurred with normal freedom of will. The contract is voidable if the
aggrieved person acts soon after the influence is removed.

Undue influence is easier to prove in special relationships like:

Attorney and client

Doctor and patient
Parent and child
Religious minister and member of a congregation

In Pretorius v Jordaan, a doctor taking property from an ill patient was found to have
exerted undue influence, allowing cancellation of the transfers after the patient
recovered.

Page 89
 Created by Turbolearn AI

In Gerolomou Constructions (Pty) Ltd v Van Wyk, a company pressured a financially

strained subcontractor to sign a settlement document, withholding payment until he
acknowledged contra charges. The court examined if the company used its economic
influence unconscionably.

The court considered whether the company had conducted itself in a way that was
unconscionable and looked to foreign common-law jurisdictions for guidelines,
stating that a transaction will be unconscionable if the party seeking to enforce it has
taken unfair advantage of his or her own superior bargaining power, or of the position
of disadvantage in which the other party was placed.

These principles of equity apply whenever one party to a transaction is at a special

disadvantage in dealing with the other party because illness, ignorance, inexperience,
impaired faculties, financial need or other circumstances affect his or her ability to
conserve his or her own interests, and the other party unconscientiously takes
advantage of the opportunity thus placed in its hands.

It is entirely permissible for one party to a contract to exploit the economic

vulnerabilities of another party.

The court held that the subcontractor had established the element of
unconscionability required for undue influence.

Statutory Rights to Fair Dealing

The Consumer Protection Act (CPA) offers statutory protections against
unconscionable conduct and false/misleading representations for protected contracts.
Breaching the CPA doesn't automatically void the contract, but makes it voidable at
the consumer's option. Employers may also be liable for up to 10% of fines related to
employee conduct.

Capacity to Contract
Capacity is the legal competence to:

Have rights and duties

Perform juristic acts
Incur civil or criminal liability
Be a party to litigation (sue or be sued)

Page 90
 Created by Turbolearn AI

Generally, every natural person has full contractual capacity.

Factors Affecting Capacity

Here are some factors that can affect one's capacity to contract:

Juristic Persons

A juristic person's capacity (e.g., a company) may be limited by its memorandum of

incorporation or resolutions. Juristic persons are legally separate, and their
directors/shareholders generally aren't liable for their obligations.

Companies Act

The Companies Act states that no person may rely on a lack of capacity power or
authority except in legal proceedings:

between a company and its shareholders or directors,

between the shareholders and directors of a company, or
arising as a result of an act in contravention of the Act.

If a company's memorandum of incorporation limits, restricts or qualifies the

pulposes,powers or activities of the company, the shareholders by a special
resolution may ratifiiany action that is inconsistent with the limit, restriction or
qualification.

One or more shareholders, directors or other interested persons may take legal action
to restrain the company from doing anything inconsistent with the limit, restriction or
qualification,without prejudice to any rights to damages of a third partywho obtained
those rights ingood faith and did not have actual knowledge of the limit, restriction or
qualificaiion.

Each shareholder of a company has a claim for damages against any person
whocauses the company to do anything inconsistent with a limit, restriction
orqualification, unless that action has been ratifie{bythe shareholders.

Insolvency

Page 91
 Created by Turbolearn AI

During business rescue, a temporary supervisor manages the company. Legal

proceedings against the company are generally paused without the supervisor's
consent. Guarantees may not be enforced without court leave.

Employees remain employed unless the business plan says otherwise. The
supervisor may unilaterally cancel or suspend contracts (except employment
contracts), with the aggrieved party only able to claim damages.

The board and directors of a company must continue to perform and exercise
theirfunctions and powers, subject to the authority of the supervisor. If the board or
one ormore directors of the company takes any action on behalf of the company that
requiresthe approval ofthe supervisol that action is void unless approved by the
supervisor.

During business rescue proceedings, the supervisor:

supervises and advises the management of the company,

approves or vetoes any significant management decision taken by the board or
themanagement of the company,
may authorise the company to borrow in priority of existing obligations to
fundongoing business activities,
may remove from office any person who forms part of the management or
appointa person as part of the management and
supervises and assists the management in developing a business rescue plan.

A company director must provide the supervisor with any information about
thecompany's affairs as may reasonably be required.

Creditors and other holders of voting interests who have not participated in
thebusiness rescue proceedings are not entitled to enforce any debtwhich arose
beforethose proceedings began, unless the business rescue plan is not approved or is
notimplemented.

Natural Persons

Natural persons can have full, limited, or no capacity to contract.

Page 92
 Created by Turbolearn AI

Minority:
Minors under 18 are categorized as:
Under 7 (infans): No contractual capacity; guardian must act on their
behalf.
7-17 (pupillus): Limited contractual capacity; require guardian
assistance.
Marriage: Marital power, which previously restricted married women's capacity,
has been abolished. Married women now have the same contractual capacity as
men.
Mental Illness: Those declared mentally disordered by the High Court lack
capacity. Contracts are void if they couldn't understand the contract's nature,
unless during a lucid moment.
Intoxication: A contract is void if the person was so intoxicated they didn't
understand the terms or that they were entering a contract.
Prodigality: A spendthrift may have a curator appointed to manage their
property and contracts related to it.
Insolvency: An insolvent person's estate vests in a trustee, with restrictions
placed on their contractual capacity.
Alien Enemy: Contracts with individuals in enemy territory during wartime are
prohibited.

Generally, agreements affected by these factors are void due to a lack of contractual
capacity.

Contractual Capacity of Minors

Minors under 18 are called minors. The law distinguishes between minors aged
under seven years, andminors aged between seven and 18 years.

A minor under the age of seven years is regarded by the law as having an
insufficient levelof development to enable him or her to form a sound
judgement of any contractualobligation.

A minor aged between seven years and 18 years is deemed by the law to
possess anindependent will, but lacks maturity of judgement.

Where the parents are married, both are guardians of the minor. Each parent may in
hisor her own right act as a guardian of the child. Each parbnt is able to exercise
independentlyany right or responsibility arising from his or her guardianship.

Page 93
 Created by Turbolearn AI

A parent or any other person who acts as a guardian must administer and protect
thechild's property interests, and must assist or represent the child in administrative,
contractualand legal matters.

Minority is usually terminated either on achieving the age of 18 years or on

marriage.Normally, all contracts entered into by unassisted minors are void, even if
they are to theminor's advantage.

In Edelstein v Edelstein, the court set aside an antenuptial contract that had been
concludedby a minor prior to her marriage. Even though the guardian had agreed to
the contract of marriage,he had not given permission to the minor to conclude the
antenuptial contract.

It is possible, however, under certain circumstances for minors aged between seven
yearsand 18 years to enter into valid contracts:

With the assistance of the guardian: The minor will be bound by contracts
made on hisor her behalf by his or her guardian or by contracts made by him- or
herself with theassistance of the guardian.
Married persons under 18 years of age: Though a marriage agreement is based
on theconsensus of the parties, it is no ordinary contract in the sense of an
agreementcreating obligations. Minors who marry automatically acquire firll
contractualcapacity.
Emancipation: Guardians may allow, expressly or impliedly, the minor to control
his or her owntrade, business or professional affairs. Permission may be granted
to a lesser or greaterextent.

‍Contractual Capacity of Minors

Even if a minor is emancipated regarding their employment, they might not be
emancipated regarding debts from a bank account.

If a guardian gives general authority to a minor regarding their lifestyle, the minor
will have full capacity in most circumstances. However, even with general authority,
the minor still needs the guardian's consent for contracts outside that authority, like
marriage or selling property.

Dama v Beral Case

Page 94
 Created by Turbolearn AI

In the case of Dama v Beral, a minor lived with her parents but paid for room and
board. She sued her employer for unpaid wages, but the employer argued she
couldn't sue in her own name. The court decided she was tacitly emancipated and
could sue without her guardian's help.

Grand Prix Motors WP (Pty) Ltd v Swart Case

In Grand Prix Motors WP (P$) Ltd v Swart, a minor sued a car dealer to get back the
money she paid for a car because she signed the contract without her father's help.
The dealer said she was emancipated because her parents were divorced and her
father disappeared seven years before. The court ruled that since her mother had
custody but not guardianship, her father was still the guardian, and his
disappearance didn't mean he had emancipated his daughter.

Ratification
A contract entered into by a minor without the guardian's consent can be ratified
(confirmed) by the guardian or by the minor when they become an adult. Ratification
can be express or implied, and it makes the contract valid from the original
agreement date.

Stuttaford & Co v Oberhotzer Case

In Stuttaford & Co v Oberhotzer, a minor bought a motorbike on installments without
his guardian's assistance. He kept using the bike after turning 18, but then he
stopped making payments. The seller sued him for the remaining balance. The court
held that he had ratified the contract by continuing to use the motorbike and was
therefore bound by it.

Statutory Exceptions
Various Acts of Parliament allow minors of certain ages to enter into specific
contractual or legal arrangements without a guardian's assistance.

Children's Act

Page 95
 Created by Turbolearn AI

The Children's Act states that a child over 12 can consent to their own medical
treatment if they are mature enough to understand the benefits, risks, and
implications of the treatment. Parental consent is only needed if the child is not
mature enough or can't understand the treatment's implications.

The Children's Act also states that no one can refuse to sell condoms to a child over
12 or provide them free of charge upon request. Other contraceptives may be
provided to a child who is at least 12 without parental consent, provided proper
medical advice and examination are given.

Choice on Termination of Pregnancy Act

According to the Choice on Termination of Pregnancy Act, a female minor can
terminate a pregnancy without parental consent, regardless of her age.

National Road Traffic Act

The National Road Traffic Act allows a person who is 17 or older to get or hold a
learner's driving license.

Banks Act
The Banks Act allows a child over 16 to withdraw money deposited in their account.

Assisted Contracts
If a minor is assisted by their guardian in entering a contract, the minor is bound by
the agreement's terms. The guardian isn't liable to the minor, even if the contract is
bad or prejudicial, unless there's fraud.

However, if an assisted contract is prejudicial, the minor can ask the court to set it
aside. The other party must restore the minor to their original position. This action
must be brought with the help of the guardian or within a reasonable time after the
minor turns 18. If the minor wins, the court may order them to restore to the other
person the extent of their enrichment at the time of the court action or pay the other
party for the benefit received, known as restitutio in integrum. The defendant must
return the full extent of the minor's performance.

Page 96
 Created by Turbolearn AI

Unassisted Contracts
If a minor enters a contract on their own without the guardian's consent, the contract
is void. The minor can't be held liable and is entitled to the return of any money or
property given under the contract. However, the minor may have an obligation if they
have been enriched or received a benefit at the expense of another.

Tanne v Fogsitt Case

In Tanne v Fogsitt, a minor entered an unassisted contract with a typing college. Fees
were paid in advance, and termination required one month's notice. The minor paid
for one month and attended, but then stopped without giving notice. The court held
that the contract was unassisted, and the minor wasn't liable for the fees.

Limping Contracts
If the minor wants to hold the other party to the contract, they can sue with the
guardian's help or on their own when they turn 18. The contract can be enforced or
rejected at the minor's choice. The other party doesn't have this choice and must
abide by the minor's decision. This is called a "limping contract" because of the
unequal situation.

Limping Contract: A contract where one party (typically a minor) has the
option to enforce or reject the agreement, while the other party is bound
by the minor's decision.

If sued, the other party must restore the minor to their original position. The minor
must restore to the other person the extent of their enrichment at the time of the
court action or pay the other party for the value of the benefit received.

If the minor wants to escape the contract and has lost the benefit, the law protects
the minor. The minor can reclaim their performance. If there's no benefit left, that's
the contracting party's disadvantage. Adults must be careful when contracting with
minors.

Page 97
 Created by Turbolearn AI

For example, if a minor buys a motorbike and wants to escape the contract, they get
back the money paid and must return the motorbike. If the motorbike was stolen or
destroyed, the minor doesn't have to give anything back but will still get all the
money back. If the minor received a benefit from using the motorbike, they may be
liable to the other party, but only to the extent of the benefit received.

Fraudulent Minors
If a minor pretends to have the capacity, claims to be emancipated, or says they have
the guardian's consent, and the other party believes them and contracts with them,
the contract is void because of the minor's lack of capacity. Unlike an innocent minor,
a fraudulent minor can't recover the performance delivered.

Special rules apply to the fraudulent minor. Like all minors, they are liable to the
extent of their enrichment, but because of the fraud, they have an additional liability.

Four theories of additional liability could apply:

1. The minor should be held liable on the contract: This is not valid because the
contract can never be binding.
2. The minor should be held liable based on estoppel: This means the other party
shouldn't allow the minor to claim minority as a defense.
3. The minor should be held liable only for delictual damages: This is problematic
because the damages could be less or more than the contract value.
4. The minor shouldn't be held liable on the contract but is prevented from
reclaiming performance: This is the approach followed by the law. A fraudulent
minor can never reclaim what they have already given under the contract, but
the other party can reclaim the enrichment gained by the minor. This is the
penalty for dishonesty.

Marriage and Contractual Capacity

Common Law (Prior to November 1, 1984)

Page 98
 Created by Turbolearn AI

Spouses married before November 1, 1984, were automatically married in

community of property, community of profit and loss, and with marital power vested
in the husband, unless they signed an antenuptial contract. The wife's contractual
capacity was similar to that of a minor, and she couldn't enter any contract to bind
herself or her husband without his consent. The husband could ratify her unassisted
contracts.

Abolition of Marital Power

Marital power was abolished in South Africa in 1993, with retrospective effect. The
Matrimonial Property Act now states that married women have the same contractual
capacities as married men.

Key Concepts

Concept Description

Community of Everything owned by the spouses before the marriage was pooled
Property into a joint estate, owned equally by both spouses.
All profits and losses incurred during the marriage affected the joint
Community of
estate, and were divided equally between the spouses upon
Profit and Loss
termination or dissolution of the marriage.
Previously, the husband was automatically the administrator of the
joint estate and had the sole capacity to bind the joint estate. The
Marital Power
wife needed her husband's consent to contracts binding the joint
estate.
A wife could contract freely for household necessities according to
Exceptions to
their standard of living, contract as a public trader binding the joint
Marital Power
estate, or enter contracts enriching the joint estate.

Matrimonial Property Act (Post November 1, 1984)

Marital power is automatically excluded, and women have the same contractual
capacity as men. Marriages are automatically deemed to be in community of property
and community of profit and loss. The wife is a joint administrator of the joint estate,
with equal rights and duties.

Page 99
 Created by Turbolearn AI

Community of Property and Administration of the Joint

Estate
All assets and liabilities of each party are combined into a single joint estate upon
marriage.

Action Consent Required

Alienating/Mortgaging real right to immovable property Formal consent

Purchasing residential land in installments Formal consent
Entering a credit agreement as a consumer Formal consent
Binding oneself as a surety Formal consent
Alienating/Ceding/Pledging stocks, fixed deposits Written consent
Alienating movable assets (investments, jewellery) Written consent
Withdrawing money from an account Written consent
Alienating/Pledging furniture or household items Informal consent
Receiving money due from remuneration, inheritance, etc. Informal consent

Generally, actions without the necessary consent are void unless the other party was
unaware of the lack of consent and couldn't reasonably have known.

Community of Profit and Loss

All property obtained and debts incurred after marriage fall into the joint estate and
are owned equally.

Marriages Out of Community of Property

Spouses can sign an antenuptial agreement to be married out of community of
property, giving both full contractual capacity and preventing liability for each other's
debts. However, they remain jointly and severally liable for debts incurred for the
joint household.

Accrual System

Page 100
 Created by Turbolearn AI

Under the accrual system, a commencement value for each spouse's estate is agreed
upon at the start of the marriage. Upon dissolution, the difference in growth between
the estates is divided equally. This system applies only to the spouses themselves,
not to their creditors.

Excluded assets from the accrual include:

Inheritance
Legacies
Donations

Antenuptial Contract
The antenuptial contract must be signed in duplicate by both parties and two
witnesses, attested by a notary, and registered in the Deeds Office within three
months of signing.

Dissolution of Marriage
If the accrual system is excluded, each party retains their property without any claim
against the other's estate. Spouses retain control over their own estates and can
perform legal acts without the other's consent.

Divorce Act and Forfeiture of Benefits

The Divorce Act allows the court to order the forfeiture of patrimonial benefits by one
party in favor of the other if, upon divorce, one party would be unduly benefited
relative to the other, considering the duration of the marriage, circumstances of the
breakdown, and any misconduct.

Civil Union Act

The Civil Union Act allows same-sex couples to enter into civil partnerships with the
same legal consequences as marriages between opposite-sex couples. A person can
only be a spouse or partner in one marriage or civil partnership at a time. This
legislation aligns with constitutional rights against discrimination based on sexual
orientation.

Page 101
 Created by Turbolearn AI

Certain and Definite Terms

Contracts must not be so vague that the court can't determine their meaning or the
parties' intentions. Courts aim to ascertain the parties' intentions at the time of the
contract, even if the written contract is open to multiple interpretations.

Generally, a court won't enforce a contract to enter into a contract, an agreement to

negotiate, or an agreement to agree because these lack certainty. However, an
agreement negotiated in good faith may be enforceable if it includes a deadlock-
breaking mechanism.

Categories of Uncertainty

Page 102
 Created by Turbolearn AI

Category Description Example

A term such as "regular

Vague and
The court must be able to determine payments of installments"
Indefinite
the obligations of the parties. without specifying amounts,
Language
frequency, or start date.
The court must be able to determine
Failure to A contract lacking clarity on
the intention of the parties with
Agree on key terms, where the court
reasonable certainty, considering the
Material can't determine the parties'
context, relationship, conduct, and
Provisions intentions.
customs.
Payment of a purchase price in
Unlimited monthly installments free of
Granting a party unlimited choice on
Choice to interest, where the buyer
whether to perform or not.
Perform alone decides the amount to
be paid each month.
A contract to enter into another An agreement to enter into
contract may not be valid unless the good faith negotiations
Agreement to
original contract provides sufficient without an arbitration clause
Agree
clarity on the terms of the subsequent for final determination of
one. disputes.
Courts generally give effect to open-
ended contracts, looking to see if the A contract that doesn't specify
Indefinite
contract remains in force for a a duration but remains in force
Duration
reasonable period and can be for a reasonable period.
terminated on reasonable notice.
An external mechanism, such as an
A lease agreement that
escalation clause or a third party, is
External increases rent annually by CPI
used to create certainty, provided that
Mechanism for + 1%, or a third party decides
the third party is identifiable and the
Certainty the extent of one party's
discretion is exercised objectively and
performance.
reasonably.

Shepherd Real Estate Investments (Pty) Ltd v Roux Le

Roux Motors CC Case

Page 103
 Created by Turbolearn AI

In Shepherd Real Estate Investments (Pty) Ltd v Roux Le Roux Motors CC, the parties
had a lease agreement with an option for renewal. After renewing for a second
period, they couldn't agree on the rental. The court held that rectification wouldn't be
allowed as it would create a new contract for the parties.

Lawfulness
The law balances the freedom to contract with the interests of society. The principle
of pacta sunt servanda (sanctity of contract) means agreements should be
recognized as binding and enforced by courts. However, agreements contrary to law,
morality, or social values shouldn't be enforced based on public policy.

Pacta sunt servanda: Agreements reached between people should be

recognized as binding and enforced by the courts.

Courts weigh sanctity of contract against legislation, common law, morality, and
public interest to determine public policy.

Factors Determining Public Policy

Contracts entered freely should be enforced.
Parties should have equal bargaining power.
Contracts shouldn't interfere with the administration of justice.
Public service should run properly.
Legal rights shouldn't be interfered with.

Public policy is a developing standard that changes over time. Courts will only hold a
contract against public policy when the public harm of enforcing it is clear. A contract
isn't automatically contrary to public policy simply because a court thinks its terms
are unfair. Legal precedents and the Constitution guide courts on public policy.

Courts try to balance competing interests or principles, generally giving preference to

sanctity of contract above other public interests. As a rule, all agreements are lawful
unless proven otherwise.

Illegality
An agreement is illegal if prohibited by statute or common law. An unlawful
agreement is void.

Page 104
 Created by Turbolearn AI

Common Law Illegality

An agreement is prohibited by common law if it is against:

Public policy
Good morals (contra bonos mores)

Statutory Illegality
Statutory prohibition does not automatically render a contract void. The court
examines the legislature's intention by considering:

The language, scope, and object of the Act

The justice of each side of the case
Adequacy of criminal penalties
Whether recognizing the transaction sanctions the activity the legislature
wishes to prevent
Whether greater hardship will result from voiding the agreement or allowing it

The courts generally void an agreement if enforcing it defeats the purpose of the
legislation. However, courts try to uphold agreements if voiding them causes more
harm than enforcing them.

Example: S v Lawrence
Employees of Seven Eleven were convicted of violating the Liquor Act for
selling alcohol after hours and on Sundays.
They claimed the prohibition infringed on their right to freely engage in
economic activity under the interim Constitution.
Solberg also argued that the prohibition on alcohol sales on closed days
violated freedom of religion.
The Constitutional Court held that the Liquor Act did not violate the right to
freedom of economic activity. While they were divided on the right to freedom
of religion, the majority held that the Act didn't violate it.

Section 26 of the Constitution provides the right to freely engage in economic activity
but allows measures to protect or improve quality of life, economic growth, human
development, basic conditions of employment, and equal opportunity.

Page 105
 Created by Turbolearn AI

The state can regulate economic conduct as long as it does not do so arbitrarily.
Constraints on economic activity are allowed if they protect or improve quality of life,
human development, or economic growth.

The court concluded that restricting hours of sale had a rational basis to protect or
improve the quality of life and therefore did not infringe on the right to freely engage
in economic activity. The restrictions on Sunday sales also did not infringe on the
right to engage freely in economic activity.

Common Law: Agreements Against Public Policy or Good

Morals
If a court believes enforcing a contract goes against public policy or good morals
(contra bonos mores), it won't enforce the contract. An agreement is only deemed
against public policy if it's openly and obviously harmful to the community's interests.

Examples of contracts contra bonos mores that courts won't enforce:

Supporting an enemy of the state

Undermining order, administration of justice, or the functioning of courts (e.g.,
committing a crime, bribing a witness)

Example: Bafana Finance, Mabopane v Maluval<wa

A money lending contract stipulated that the debtor could not apply for an
administration order under the Magistrates' Courts Act. The court held this clause
contrary to public policy because it deprived the debtor of their right to seek redress
in court, undermining constitutional values like human dignity, equality, and human
rights.

Additional examples of agreements that are contra bonos mores include:

Unreasonably restraining the freedom to marry or divorce

Defrauding the public, or a public official using their influence corruptly
For an immoral purpose, such as selling a human being

Page 106
 Created by Turbolearn AI

In exceptional cases, an agreement can be void against public policy if it is

unconscionable. It's not enough for terms to be harsh or unfair; they must be so
unfair, harsh, or oppressive that the agreement is undeniably contrary to public
policy.

For example, an agreement to cede all one's remuneration to a creditor for an

unlimited period was considered unconscionable because it deprived the debtor of
income and means to support their family, potentially forever.

The Constitution
Section 39(2) of the Constitution requires courts to promote the spirit, purport, and
objects of the Bill of Rights when interpreting legislation and developing common
law. This ensures the common law complies with the Constitution.

Examination of concepts like:

Certainty of contract
Freedom to contract
Sanctity of contract
Legality of contract
Good faith
Reasonableness and fairness
Role of public policy

Provides pathways for courts to ensure compliance with the Constitution.

However, courts have been reluctant to develop the common law in this way, leading
to a divide between the Supreme Court of Appeal and the Constitutional Court.

Parliament has enacted legislation regarding unfairness in certain commercial

contracts, but has not yet enacted legislation governing unfair contract terms
generally.

Academics are also divided on how courts should address unfair contracts, which
generally involve:

Unfairness in concluding a contract (inequality of bargaining power)

Unfair contract terms (harsh or unfair bargains)
Unfair enforcement of a contract

Page 107
 Created by Turbolearn AI

The following debates have emerged:

Certainty of Contract
The traditional view is that bargains struck by parties should be observed to create
certainty, which is foundational to contract law. Exceptions exist where public policy
deems the bargain unconscionable.

Once a court is satisfied that a contract was freely entered into with the intention to
create binding obligations, it should uphold and enforce it based on the principle of
pactasuntservanda (agreements must be kept).

Freedom of Contract
Law assumes that parties generally have freedom of choice and similar bargaining
powers when entering contracts. Parties are regarded as being able to negotiate the
terms of their contracts and are therefore free to accept or reject any terms.

Sanctity of Contract
The traditional view aims to achieve certainty in contract law. Courts rarely interfere
with contractual provisions agreed upon between the parties.

The role of a judge is similar to that of an umpire, ensuring the game is played by the
rules. Judges have little discretion; their role is to recognize and give effect to the
agreement.

Example: Bredenkamp v Standard Bank of South Africa Ltd

The appellant sought to restrain the bank from closing their accounts on reasonable
notice, arguing it was unfair because they would likely be unable to obtain other
banking facilities.

The court held that the exercise of a contractual right that doesn't involve public
policy or constitutional values doesn't have to be 'fair'. However, an innocent term
will not be enforced if it unjustifiably affects a constitutional value.

Page 108
 Created by Turbolearn AI

The court also stated that the Constitution does not confer judges with general
jurisdiction to declare contracts invalid based on what they perceive as unjust or the
power to decide that terms cannot be enforced based on imprecise notions of good
faith.

Legality of Contract
Parties can agree to negotiate further terms, which could replace or supplement the
original terms. However, the original contract will be enforced in the absence of
further agreement.

Good Faith in Contract

An agreement contrary to public policy is considered illegal and unenforceable.
However, extending this principle to grossly unreasonable contracts is relatively new.

Example: Brisley v Drotsky

The Supreme Court of Appeal considered the role of 'good faith', 'reasonableness',
and 'fairness'. It held that although these abstract values are fundamental to contract
law, they do not constitute independent rules that courts can apply to intervene in
contractual relationships. Judges cannot refuse to enforce a contractual provision
merely because it offends their personal sense of fairness. This would give rise to
intolerable legal and commercial uncertainty.

The Constitutional Court has held that specific performance will not be ordered if
enforcing a contract would be contrary to public policy.

Fairness and the Role of Public Policy in Contract

A contract provision cannot be declared invalid merely because it offends the sense
of fairness of an individual judge. Public policy can only be invoked where the
contract is so unreasonable that the harm to the public is substantially incontestable.

The terms of a contract should not necessarily be viewed as against public policy
simply because they are open to oppressive abuse by a creditor.

Principles applied by courts when enforcing contracts:

Page 109
 Created by Turbolearn AI

Public policy demands that contracts freely and consciously entered into must
be honoured.
A court will invalidate a contract that is prima facie inimical to a constitutional
value or public policy.
Where a contract is not prima facie contrary to public policy, but its
enforcement in particular circumstances is, a court will not enforce it.
The party attacking the contract or its enforcement bears the onus of
establishing the facts.
A court will use its power to invalidate or not enforce a contract sparingly and
only in the clearest cases where harm to the public is substantially
incontestable.
A court will decline to use this power where a party relies directly on abstract
values of fairness and reasonableness to escape the consequences of a
contract.

Possibility of Performance
A contract must be physically and legally capable of being performed. A contract is
void if it was impossible to perform when entered into and may be voidable if
performance becomes impossible after conclusion.

Four elements must be proven to escape liability due to impossibility:

Element Description

Must be due to vis major (acts of nature/God) or casus fortuitus

Cause of
(inevitable acts of an irresistible force, like acts of state,
Impossibility
government, death, or disease).
No way the contract could possibly be performed by anyone
Absolute
else. If anyone could have performed it, the court won't
Impossibility
recognize impossibility.
Responsibility for
The person claiming impossibility must not be responsible for it.
Impossibility
The impossibility of performance must not have been
Foreseeability of
foreseeable. Speculative contracts, like farming contracts,
Impossibility
foresee the possibility of failure.

South African law recognizes physical and legal impossibility.

Page 110
 Created by Turbolearn AI

Physical Impossibility
No contract exists if it's not physically possible when made. Contracts are void if
performance is objectively impossible at inception or may be rendered void if
performance becomes impossible after the contract has been concluded.

Objective Impossibility
If the contract is impossible for anyone in the world to perform, it is void (objectively
impossible). If only the contracting party cannot perform it, it is subjectively
impossible. Subjective impossibility does not render the contract void, even if the
impossibility was within the contemplation of the parties.

Supervening Impossibility
This occurs due to vis major (act of God) or casus fortuitus (an act of the state or
irresistible force beyond either party's control). Contracts remain binding if the
impossibility arises from a party's deliberate or negligent acts.

Example: Peters, Flamman & Company v Kokstad Municipality

A partnership contracted to supply gas light to the town. The partners were then
interned as enemy subjects, and the gas supply was cut off. The court held that the
contract had become impossible to perform after being entered into. When an
individual is prevented from performing by an act of the State, they are discharged
from all liability.

Example: Orda AG v Nuclear Fuels Corporation of South Africa (Pty)

Limited

The court held that it was an implied term that the sale of uranium was subject to
ministerial consent under the Nuclear Energy Act. Performance became impossible
because consent had not been obtained, but the court held that this did not
necessarily relieve the defendant of its obligations, as they had assumed the
obligation to obtain ministerial consent and therefore the risk of supervening
impossibility.

Page 111
 Created by Turbolearn AI

The rule that obligations are extinguished when impossibility supervenes does not
apply where the causes of impossibility have been contemplated by the parties.

Example: World Leisure Holidays (Pty) Ltd v Georges

A tour operator sold package tours to Mauritius. Georges booked a holiday and paid
in full. A cyclone hit the island, and SAA cancelled flights for a day. An alternative
flight was arranged for two days later, but Georges cancelled his trip and demanded
a refund based on breach of contract or impossibility.

The court held that no breach of contract had occurred and that the tour group's
obligation was suspended during the impossibility. Temporary supervening
impossibility alone does not terminate the contract. Only if the foundation of the
contract was destroyed, or all performance was already or would inevitably become
impossible, would Georges be entitled to treat the contract as terminated.

Under the contract, Georges would forfeit the total tour price if he cancelled within
two weeks of departure. The court held that this was the consequence of his
premature cancellation.

Legal Impossibility
A valid, enforceable contract must not be illegal, immoral, or contrary to public policy.
Contravening a statute doesn't necessarily invalidate a contract; the court must
ascertain Parliament's intention when passing the law. Simply because a contract
isn't void doesn't mean courts will enforce it.

Types of Legal Impossibility

Agreements to commit crimes or delicts or break the law are void under common law.
Agreements to injure the state, obstruct justice, or defraud the public are also invalid.

Example: Lion Match Co Ltd v Wessels

The parties contracted to sell wood without obtaining the necessary government
permit. The contract was held to be void.

Page 112
 Created by Turbolearn AI

Agreements contrary to public policy (against good morals) include wagering

contracts and agreements to sell the inheritances of people who are still alive. These
contracts are valid but won't be enforced by the courts.

A wager or a bet is a contract by A to pay money to B on the happening of

a given event, in consideration of B paying money to A if the event does
not happen.

Even though gambling may be legal in South Africa under certain circumstances, the
courts still view wagering contracts as unenforceable because they are regarded as
contrary to public morality. There can generally be no court action by a winner for his
or her winnings and the loser cannot be taken to court for what he or she has lost.
Under the common law, even a subsequent written contract to pay a lost bet is
unenforceable in court.

Agreements in restraint of trade refer to contracts by which a person agrees to the

implementation of some future limitation on his or her trade or work.

There are two conflicting principles:

Should a person be allowed to trade when and how he or she likes (freedom of
trade)?
Should a person be bound to a contract he or she signed (sanctity of contract)?

Previously, public policy required that every person be free to carry on his or her
trade and earn a living as he or she pleases. All interferences with individual liberty
of action in trading and all restraints of trade in themselves (if they were nothing
more) were accordingly contrary to public policy and therefore void.

South African law has changed and now recognizes that restraints of trade may be
justified and therefore valid. However, the courts may refuse to enforce them unless
they are reasonable under the particular circumstances.

In determining whether restraints of trade are prima facie valid until proven
unreasonable, the courts consider two conflicting questions of policy:

Whether the law wishes to protect freedom of trade, and

Whether the law wishes to protect the sanctity of contract.

Page 113
 Created by Turbolearn AI

As a general rule, the courts will find restraints of trade to be valid and enforceable
until they are proven otherwise. When a person alleges that he or she is not bound
to a restraint to which he or she agreed in a contract, that person bears the onus of
proving that enforcement of the restraint will be against public policy and the public
interest. The court should consider the circumstances at the time of the request to
enforce the restraint.

The court may find part of the restraint to be enforceable or unenforceable. It is not
limited to finding the whole restraint unenforceable.

The courts can disregard the separate corporate personality of a close corporation or
company where a natural person who is subject to a restraint of trade uses a
corporate identity as a front to violate the restraint.

Restraints of trade are very common and fall into three categories:

Page 114
 Created by Turbolearn AI

Between persons on an equal footing

For example, between the buyer and the seller of the goodwill of a
business or practice, restraining the seller from competing with the buyer.
A buyer of goodwill is entitled to protection from the seller's competition,
otherwise he or she would not get what was paid for. This type of
restraint will be valid if it is reasonable, that is, no wider in scope, time,
and geographical area than is reasonably required. This, of course,
depends on the circumstances. Since the parties are on an equal footing
when bargaining the courts regard them as the best judges of their
requirements. The mere existence of an agreement is strong evidence that
its terms are reasonable between the parties (inter partes).
Between persons on an unequal footing
For example, between an employer restraining a former employee from
competing with the employer by working for a rival or opening a similar
business in competition after leaving the employer's employment.
These contracts are very common if the employee is highly skilled.
Previously, the courts accepted the view that the employee is generally in
an inferior bargaining position to the employer. Because a restraint may
deprive a person of his or her ability to earn a living, the courts were very
strict in these cases.
In more recent cases, however, judges have said that whether or not an
employee is in an inferior bargaining position is a matter of fact to be
determined in each case. In many situations, where the employee is highly
trained or skilled, he or she may have the superior bargaining position.
The courts distinguish between two types of knowledge:
Subjective knowledge: The employee's mental and manual skill and
dexterity are his or her own property, even though acquired in the
course of employment. He or she cannot be restrained from using
them.
Objective knowledge: Knowledge of trade secrets and influence over
customers are regarded as the employer's property and the
employee can be restrained from using this knowledge for his or her
own purposes.
In deciding whether or not to uphold a restraint, the court will consider
whether the employment was of a kind in which the employee was likely
to acquire objective knowledge, and whether the restraint was no wider
than reasonably required to protect the employer from an illegitimate use
of this knowledge. If this is the case, the restraint will be enforced.
Trade regulation agreements

Page 115
 Created by Turbolearn AI

The courts generally uphold these agreements unless they create

monopolies.

Where there is a valid agreement in restraint of trade, the courts will interdict a party
from breaking it. Damages may also be claimed if that party has already broken the
agreement.

Where an agreement in restraint of trade is unenforceable because it covers too wide

a scope, time, or geographical area, the courts will generally not cut it down to a
reasonable scope, time, or area because this would amount to making an agreement
for the parties. This is not the court's function. The court will generally make the
whole unreasonable restraint unenforceable. However, if the unreasonable
component of the restraint can be removed, the court has the discretion to order that
the remainder is enforced.

Similarly, the court may change the wording of the restraint to make its application
reasonable.

Where the restraint clause forms part of a wider agreement (for the sale of a
business), an unreasonable restraint will not cause the whole agreement to fall away
if the unreasonable restraint can be severed or altered in such a way that the wider
agreement can be made reasonable. The excision or alteration of the unlawful part
must leave the essential nature of the contract unaffected. If severance or alteration
is impossible, the whole contract is void. The court will normally sever an invalid or
illegal term from

Restraints of Trade and Constitutional Rights

Enforceability of Restraints
A restraint of trade agreement is enforceable only if the parties would have
entered into the contract even without the restraint, albeit on different terms.
Courts may grant a partial enforcement of a restraint, but will not enforce a
part of it if it has an unduly oppressive effect on the person being restrained.

Constitutional Considerations

Page 116
 Created by Turbolearn AI

Section 22 of the Constitution grants every citizen the right to choose their
trade, occupation, or profession freely, subject to regulation by law.
Section 36(1) allows for limitations on this right only if such limitations are
reasonable and justifiable in an open and democratic society based on human
dignity, equality, and freedom.

Conflicting Judicial Opinions

Some courts maintain the sanctity of contract principle, while others suggest a
re-evaluation may be necessary in light of Section 22 of the Constitution.

Case Examples
Knox D'Arcy Ltd v Shaw: A management consultant's restraint was deemed
reasonable to prevent the use of confidential information for a competitor's
benefit. The court held that the Constitution protects individuals from their own
rash decisions, and the onus was on the employee to prove infringement of
constitutional rights.
Ko-Ae en Genis (Edms) Bpk v Potgieter: The court held that the Constitution
protects individuals against legislative inroads, not common law, and that
freedom to trade does not imply a change of approach to contractual
obligations.
Coetzee v Comitis: Rules of the National Soccer League (NSL) requiring a
clearance certificate for player transfers were found to violate the freedom of
trade, and the employer had the onus to justify the compensation regime as a
reasonable limitation.
Fidelity Guards Holdings (Pty) Ltd t/a Fidelity Guards v Pearmain: The court
noted that the onus of proof may now be on the party seeking to enforce a
restraint to show compliance with the Constitution.

Public Policy and the Constitution

Public policy is now rooted in the Constitution and its fundamental values.

Canon Kwazulu-Natal (Pty) Ltd t/a Canon Office

Automation v Booth

Page 117
 Created by Turbolearn AI

Considered the impact of the Constitution on enforcing a restraint against an

employee who acquired trade secrets.
A strict application of Section 22 would mean no restraint would be
enforceable, but this must be balanced against Section 36.
A restraint is contrary to public policy if its enforcement is against the public
interest, particularly if it is unreasonable.
Unreasonableness depends on protecting a legitimate interest of one party
without unduly burdening the other party.
For information to be protected, it must be confidential, capable of application in
trade or industry, not public knowledge, and have economic value.
Even though the employer had some interest worthy of protection, the
employee's interest in earning a living was greater.

Shifting the Onus of Proof ‍

Some academics argue that the onus should be on the party seeking to enforce
a restraint to prove its reasonableness and justification in a democratic society.
The enforcing party should prove the restraint doesn't exceed necessary limits,
is reasonable between parties, and doesn't violate public policy. Then, the
defendant must prove unreasonableness.

Illegal Contracts: Consequences and Remedies

General Rule
The court will examine the positions of the parties to decide if any remedy
should be allowed, however, typically, illegal agreements are unenforceable,
and no recovery of performance is granted.

Rules for Determining Remedies

Page 118
 Created by Turbolearn AI

Ex turpi causa non oritur actio: "From an illegal cause, no action arises."

An illegal contract can never be enforced, irrespective of the

plaintiff's knowledge of the illegality. The agreement is void.

In pari delicto potior est conditio possidentis: "In equal fault, the position of
the possessor is stronger."

When both parties are equally at fault, the performing party cannot
reclaim what they have given to the other party. Possession is nine
points of the law.

Relaxing the Par Delictum Rule

The Supreme Court of Appeal has disapproved of strict enforcement and will
relax the rule where necessary to do simple justice.
The court will consider if the remedy would have been granted if the contract
were legal and whether one party would be unjustifiably enriched if the remedy
was not allowed.

Case Examples
Jaibhay v Cassim: The par delictum rule was not relaxed as no injustice or
public policy rationale applied when a landlord sought ejectment based on the
illegality of the tenancy.
Petersen v Jaibhay: The court relaxed the par delictum rule and granted an
order of ejectment when a tenant illegally sublet a property in a racially
reserved area.

Contract Formalities

General Rule
No formalities are required. Valid contracts can be made orally, in written form,
or even by conduct.

Advantages of Written Contracts

Page 119
 Created by Turbolearn AI

Terms in a written document are easier to prove in court.

Types of Formalities
Formalities imposed by law (statute)
Self-imposed formalities

Formalities Imposed by Statute

Requirements
Reducing the contract to written form
Signed by the parties
Notarial execution
Registration

Reducing the contract to written form

All material terms must be written in sufficient detail.
If the written document does not reflect the parties' intentions, rectification can
be applied to correct the document, unless it adversely affects a third party.
Rectification cannot validate a contract that is void.

Rectification: A process to correct a written contract by removing a term

mistakenly inserted or inserting a term mistakenly omitted.

Terms can be incorporated by reference to another document.

Variations of material terms must also be in writing; non-material terms may be
oral.
ECTA (Electronic Communications and Transactions Act) states that accessible
data messages (excluding sales of land and long leases of 20+ years) meet the
writing requirement.

Signed by the parties

Page 120
 Created by Turbolearn AI

The written contract must be signed by the true parties or their authorized
representatives.
Witnesses may be required for the signatures.
Any mark intended as a signature is valid.
ECTA allows advanced electronic signatures for legal requirements not
specifying the type of signature.

Notarial execution
The contract must be signed in front of a notary public, who signs, seals, and
keeps a copy. This is required for antenuptial contracts.

Registration
Copies of the contract must be lodged with a government department, such as
for sales of land, long leases, and the formation of companies.

Consequences of Non-Compliance
Failure to comply with statutory formalities generally results in the agreement
being void, and performance can only be recovered under unjustifiable
enrichment.
Some statutes may render the agreement valid but unenforceable against third
parties, or may lead to criminal liability.

Examples of Formalities Imposed by Statute

Page 121
 Created by Turbolearn AI

Consequences of Non-
Contract Type Statute Requirements
Compliance

Must be in writing, signed

by parties or agents with Renders the contract
Alienation of
Sale of land written authority, and void and incapable of
Land Act
adequately describe the rectification.
property.
Sale or lease for >3 years
Renders the contract
Time-share Property Time- must be in writing and
void unless both
property sharing Control signed by parties or
parties have already
sale/lease Act agents with written
performed.
authority.
Does not affect the
validity of the
Housing Must be in writing, signed
agreement but
Sale/construction Consumers by the parties, and
prevents the home
of a home Protection comply with the Act's
builder from obtaining
Measures Act provisions.
a deposit for the
construction.
Must be attested by a Cannot be enforced
Long leases (10+ Deeds
notary public before against third parties
years) Registries Act
registration. unless registered.
Must be recorded on Does not affect validity
paper or electronically, but may lead to fines
National Credit
Credit agreements comply with prescribed or cancellation of
Act (NCA)
forms, and contain registration for the
prescribed information. credit provider.
Must be in writing, signed
by or on behalf of the
surety, and clearly state
General Law
Suretyship the identity of the
Amendment Are void.
contracts creditor, surety, principal
Act
debtor, and the
nature/amount of the
principal debt.
Antenuptial Deeds Must be signed in front of Invalid against third
contract Registries Act a notary and registered parties if not notarized
and registered.

Page 122
 Created by Turbolearn AI

within three months to be

valid against third parties.
Donations,
Other contracts learnership
requiring written contracts,
formalities leases of
mineral rights

Self-Imposed Formalities

Categories
Creation of contract
Variation of contract
Cancellation of contract

Creation of Contract
Parties may agree to reduce their oral agreement to writing merely as a written
record, in which case the oral agreement is binding even without the written
document.
Alternatively, parties may intend that the oral agreement is not binding until it
is written and signed.

Case Example
Goldblatt v Fremantle: The court held that no contract existed because the
parties agreed the contract would not be binding until reduced to writing.

Variation of Contract
Parties may agree to a non-variation clause, requiring any changes to be in
writing and signed by both parties.

Non-Variation Clause

Page 123
 Created by Turbolearn AI

A clause in a contract that stipulates that no changes to the contract are

legally effective unless they are in writing and signed by all parties
involved.

Such clauses have been validated in the case of SA Sentrale Ko-operatiewe

Graanmaatskappy Bpk v Shifren.
Shifrin principle: Contracting parties can limit their future contractual freedom
by requiring variations to be in a specific form.

Arguments For and Against Enforceability

Freedom of contract: Absolute freedom to amend the contract despite a non-
variation clause.
Certainty of contract: Being bound by agreed terms.

Court's Stance
Courts favor arguments of certainty and formality.
Strict application can result in harsh outcomes, and public policy considerations
may be used to invalidate non-variation clauses when relied upon illegitimately
or against good faith.

Exceptions
A legal act that is not a variation is not prevented by a non-variation clause
(e.g., cancellation or unilateral waiver).
A non-variation clause will not be enforced if it is relied on fraudulently or if
enforcement would be against public policy.

Amendment of Contract
Generally, no formalities are required unless prescribed by statute for the
original contract or by a non-variation clause.

Cancellation of Contract

Page 124
 Created by Turbolearn AI

Parties may agree to a cancellation clause that requires mutual termination to

be in writing and signed by both parties.
This does not prevent a party from applying to court to cancel a contract if it
has been breached.

Interpretation of Contracts

Objective
To give effect to the true intention of the parties at the time the contract was
concluded.

Challenges
Determining the parties' intentions when they dispute the meaning of words in
the agreement.

Aids
Courts rely on presumptions and rules to decide what the terms mean and
whether the parties intended them to apply.

Express, Tacit, and Implied Terms

Types of Terms
Express terms
Unexpressed terms:
Tacit
Implied

Express Terms
Explicitly stated, either in writing or verbally, or incorporated by reference.
Based on the express intentions of the parties.

Page 125
 Created by Turbolearn AI

Considerations
Not every word in a written contract sets out terms.
Express terms can be set out separately in different documents that must be
read together.
Terms in other documents can be included by reference, known as
incorporation by reference.

The effect of incorporating terms by reference is that the contract

must be read as if the incorporated terms are reproduced in full.

Unexpressed Terms
There are three kinds of unexpressed terms that may be implied in a contract:

1. Implied terms: Terms the parties probably had in mind but did not express.
2. Consensual tacit terms: Terms the parties would probably have expressed if
the issue had been brought to their attention, whether or not they actually had
them in mind.
3. Imputed tacit terms: Terms implied by the court for reasons of fairness, policy,
or rules of law, whether or not the parties had them in mind or would have
expressed them if they had foreseen the difficulty.

Implied Terms
In some cases, terms can be implied by law in a contract, or ex lege. Implied terms
are the duties imposed on the parties by law, precedent, custom or trade usage. They
are independent of the actual or presumed intention of the parties. Terms can be
implied even if the parties did not reach agreement, or would not have reached
agreement if they had been discussed.

They are therefore different to tacit terms, which form part of a contract
because the parties actually agreed or would have agreed to them.

Common-law rules and trade usages may also be implied into the contract. For a
trade usage to be valid, it must be generally well known, definite, reasonable, legal,
and not specifically excluded by the terms of the contract.

Page 126
 Created by Turbolearn AI

Consensual Tacit Terms

Consensual tacit terms relate to matters on which the parties had actually reached
agreement, or had a common expectation but failed to express in writing or speech.
The parties may have intended to add certain terms into their agreement but simply
omitted to do so. These terms will then be read into the contract as if they were
originally part of the contract and are also known as terms inferred ex consensu.

These terms may be inferred by the surrounding circumstances at the time the
contract was entered into; therefore, they would form part of the agreement. Also,
the parties may regard some terms as being so obvious that they were not expressly
stated. A tacit term will be inferred into a contract only if it is necessary in the
business sense to give efficacy to the contract. The test to determine whether a
consensual tacit term can be read into a contract is subjective. It is a question of fact
decided by analyzing the conduct of the parties and other indicators of their actual
states of mind.

Imputed Tacit Terms

These are terms concerning matters the parties had not considered, but they would
have agreed to the term if their attention had been drawn to it at the time they
entered into the contract. Imputed tacit terms are based on the assumed intention of
the parties.

The officious bystander test may be applied to determine whether or not

such a term should be implied into a contract.

In Consol Ltd t/a Consol Glass v Twee Jonge Gezellen (Pty) Ltd, the court held that
the test for establishing the imputation of a tacit term into a contract is the officious
bystander test. In terms of this test, the term will be imported if the bystander's
question: "What will happen in such a case?" will be answered by both contracting
parties saying, "Yes, of course, this will happen. We just did not bother to say that. It
is obvious!"

Page 127
 Created by Turbolearn AI

The inference of an imputed tacit term can be justified only if the bystander's
question would have resulted in a prompt and unanimous assertion of the suggested
term by both contracting parties. If one of the parties seeks clarification or requests
some time to consider before giving an answer, the term would not pass the officious
bystander test. The effect of the officious bystander test is that only relatively simple
tacit terms can be inferred because the parties may have slightly different views on
complex or imprecise terms.

In deciding whether a tacit term has to be read into a contract, a court has to
ascertain the intention of the parties by considering the language used by the parties
in their contract. It is not possible to infer into the contract a term that conflicts with
the express agreement. The courts will not infer terms into a contract if they are not
clear, or where either of the parties would wish to negotiate further on the outcome
of the implied term. Similarly, the courts will not infer a term into a contract simply
because one of the parties thinks it would be reasonable to do so. The proposed term
must be necessary to make the contract effective or performance possible.

In Plaaskem (Pty) Limited v Nippon Africa Chemicals (Pty) Limited, the parties
entered into a written agreement involving the distribution of imported chemicals.
The contract had no express provision for termination. P issued a notice of
termination to N, which was rejected. The court held that the law regarding a
contract of unspecified duration is a matter of construction and that the ordinary
principles of interpretation and construction of contract would apply. In this case,
there was no indication that the parties intended to be bound by the contract forever.
In examining the relationship between the parties, the court held that the contract
required them to form a working relationship with regular contact regarding existing
and new products. This assumed that the relationship would change over time.
Accordingly, it was necessary for a tacit term to be imported into the contract, with
the result being that the contract could be terminated by either party, on providing
reasonable written notice.

The Parol Evidence Rule

The parol evidence rule may be applied by the court to ascertain the intention of the
parties.

This rule means that where the court is interpreting a written contract, no
oral (or other) evidence may be received by the court that tends to
contradict, alter, add to, or vary the written terms.

Page 128
 Created by Turbolearn AI

Similarly, where the terms of a written contract are clear and unambiguous, no
evidence may be given to vary their plain meaning. The exception is that in cases
where ambiguous words are used, or where words are used in a technical or special
sense, extrinsic evidence is admissible to explain the broad context in which the
words requiring interpretation were used in the document.

The parol evidence rule in fact entails two rules:

1. The integration rule: Determines that where a contract has been reduced to
writing, the written document is the only evidence of the terms of the
agreement. Extrinsic or oral evidence may not be led to prove the terms of the
contract. Where the parties intended to reduce only a portion of their contract
to writing, the integration rule will apply to that portion, and generally, no
extrinsic or oral evidence may be led to prove the terms of the part that has
been reduced to writing.
2. The interpretation rule: Used to decide what kind of extrinsic evidence may be
used to explain the meanings of words used in the contract. Generally, if the
court can work out the meaning of a contract from the words within a
document, then the court should not be allowed to consider other evidence as
to what those words could mean.

However, there are practical difficulties to be faced when excluding extrinsic

evidence. It may sometimes be necessary for a court to consider other evidence of
background circumstances and to consider both sides before deciding whether the
meaning of certain words in the contract was in fact quite clear. For example, on the
face of a contract, the meaning of a word appears entirely clear; however, after
evidence of the background circumstances of the parties has been presented, it
would be clear that the parties intended the word to mean something quite different.
Since the relevance of extrinsic evidence can be determined only after such evidence
is heard, this tends to defeat the purpose of the parol evidence rule.

Rules of Interpretation
In the interpretation of a written contract, the courts first look at the language used,
then the circumstances in which the contract was made, and finally, they apply
particular rules of interpretation to help them understand the meaning intended by
the parties. The court will not contract for the parties. Where the meaning cannot be
determined, the contract will be void for vagueness.

Page 129
 Created by Turbolearn AI

Presumptions of Substantive Law

The following presumptions of substantive law will apply when interpreting
contracts, unless the contrary is proved:

The parties have contractual capacity to enter into the contract.

Each party acts as a principal in his or her own name. If the words are
ambiguous as to whether a party contracted for him- or herself, or for a third
party or as an agent, it is presumed that the party acted for him- or herself.
Parties wrote what they intended and expressed themselves truthfully in the
document.
Where a contract comprises more than one document or contains extra
information, it is presumed that the parties intended the extra words or
information to be contractual terms.
The object of the contract is lawful, and performance will be made in
accordance with the law. This means that all necessary formalities have been
complied with, and where a contract is capable of conflicting interpretations as
to lawfulness, it is presumed that the parties intended the lawful interpretation
to be applied.
The parties did not intend for any provisions to be unnecessary or meaningless
but intended an effective contract.
The contractual arrangement is equitable between the parties. Since contracts
are based on good faith, it is presumed that neither party intended an unfair or
inequitable advantage over the other.
The contract should have no retrospective effect, unless this is expressly
stated.
Where reciprocal obligations are imposed on the parties, it is presumed that
these are to be performed simultaneously. This is the basis for the exceptio non
adimpleti contractus, a defense available to a party in circumstances where the
other party is suing for performance but has not yet performed his or her
obligations under the contract.
The contract is presumed to be unconditional, and a party who alleges the
existence of any condition must prove this. Where it is uncertain whether a
condition is suspensive or resolutive, it is presumed to be resolutive.
Where a money debt is payable at a future date, the debt may be paid in
advance by the debtor, but the creditor cannot claim payment until it is due.
Where written words conflict with printed words, the written words will
prevail.

Page 130
 Created by Turbolearn AI

Presumptions of Interpretation
The first step in determining the common intention of the parties is to consider the
grammatical and ordinary meaning of the words used, unless this results in some
absurdity, repugnancy, or inconsistency with the rest of the document. Words should
be given their ordinary meanings, unless they are technical, in which case an
authoritative dictionary may be consulted to understand the technical meaning. If the
contract relates to a particular profession or trade, the meaning that those within the
trade would ascribe to it should be given to it.

Disclaimers, indemnities and exemption clauses must be interpreted by applying the

ordinary rules of construction. Courts will give effect to them, even if the outcomes
are harsh, unless they are so oppressive that public policy cannot tolerate them.

The Use of Extrinsic Evidence

Our courts have traditionally been reluctant to allow extrinsic evidence to be
presented to explain or contradict the plain meanings of words. Initially, the courts
held that extrinsic evidence would be allowed only if there was uncertainty as to the
meaning of a word, and then only to the extent necessary to apply the words to the
facts of the case, or to identify properly the parties or things involved in the contract.
Only if the extrinsic evidence did not clear the uncertainty could evidence be
presented to the court of negotiations between the parties.

Our courts have since adopted a less formalistic approach to the admissibility of
extrinsic evidence for the interpretation of contracts. Now, even where the wording of
a provision is such that its meaning seems apparent to a court, evidence of
background circumstances may be admissible for the purposes of understanding its
meaning.

In KPMG Chartered Accountants (SA) v Securefin Ltd the court held that the
admissibility of extrinsic evidence is limited only by the ordinary rules of the law of
evidence.

There are now four categories of admissible evidence with regard to the
interpretation of contracts:

Page 131
 Created by Turbolearn AI

1. Evidence about what the parties should have observed around them when the
contract was being negotiated and eventually concluded. These circumstances
are viewed from the subjective perspectives of the parties themselves.
2. Evidence about what one of the parties would have observed when the
contract was being negotiated and eventually concluded, although such
information was not reasonably available to the other party at the time.
3. Evidence of circumstances that give a direct indication of the parties'
collective intention when the contract was being negotiated and eventually
concluded.
4. Evidence of circumstances that give a direct indication of each party's
individual intention when the contract was being negotiated and eventually
concluded. This could include statements made by either party during the
negotiations.

Conditional Contracts
A legal consequence or the performance of a contract may be made dependent on
the occurrence or non-occurrence of a future uncertain event. The event must be
physically and legally possible. The fulfillment of the condition must not depend
entirely on the will of the promissor.

South African law recognizes two types of conditions that may apply to contracts:

Page 132
 Created by Turbolearn AI

1. Suspensive conditions: The performance of a contract is suspended until the

occurrence of the uncertain future event specified. Once the condition is
fulfilled, the effect is retroactive to the time when the contract was entered into,
and the parties must now perform the contract. If the condition is not fulfilled,
the law deems that there never was a binding contract. If no time is specified
for the uncertain future event to occur, then the condition will lapse if the event
does not happen within a reasonable time.
For example, the purchase of a motor vehicle is made subject to the
suspensive condition that a loan will be approved by a bank. No one can
enforce the contract for the sale of the vehicle until the bank grants or
declines the loan. If the loan is refused, there is no contract. If no time is
set for the bank to decide, then the condition will fail if the bank does not
decide within a reasonable time.
2. Resolutive conditions: The performance of a contract must be carried out and is
enforceable until the condition is fulfilled. If the condition is fulfilled, the
contract becomes void retrospectively, and the parties must be restored to their
original positions to the greatest extent possible.
For example, the sale of a motor vehicle is made subject to the resolutive
condition that the offer to purchase will lapse if the seller receives a
higher offer. Both parties must perform immediately under the contract,
but if a higher offer is received, the contract is terminated.

Both suspensive and resolutive conditions may be described as:

Casual: The possibility of the future event happening depends on something

outside of the parties' control, for example, they agree that the price will be
increased if the fuel price increases.
Potestative: The potential creditor may do something or not do something that
is entirely within his or her power to do or not to do, for example, a company
may agree to donate a prize to a soccer player who scored a goal in a match.
Mixed: A combination of both casual and potestative features.

Where it is possible for a party to prevent a condition from being satisfied and
deliberately does so in bad faith, the law provides that the condition will be deemed
to have been met. This is known as the doctrine of fictional fulfillment of a condition.

Special Clauses in Contracts

Typical clauses in a contract may include the following:

Page 133
 Created by Turbolearn AI

Indemnity clause: The parties can agree that the party preparing the contract is
exempted from certain kinds of liability that might apply.
Non-variation clause: The parties can agree that the terms of the contract
cannot be varied unless both parties comply with specified formalities.
Cancellation clause: The parties can agree that either one of them may cancel
the contract for any failure by the other to comply with the terms of the
agreement.
Acceleration clause: On default of payment, this clause allows the creditor to
demand from the debtor the immediate payment of the full balance of the
purchase price. This type of clause is common in mortgage agreements.
Domicilium citandi et executandi: The parties can agree on specified addresses
for the service of notices and court documents to each other.
Notice: The parties can agree that notices will be deemed to have been
received if they are issued in specified ways.
Jurisdiction: To help reduce costs, the parties can agree that court action may
be instituted in a magistrates' court rather than the High Court.
Arbitration: To help reduce complexity and make litigation quicker, the parties
can agree that legal action must be taken through arbitration rather than going
to court.
Costs: The parties can agree that the loser of any legal action will pay the
winner's entire legal costs, rather than only the limited costs that may be
awarded by the court.

Rectification
A minor detail in a written contract can be corrected by agreement between the
parties if it does not accurately reflect the intentions of the parties. This form of
correction is known as rectification. Typically, rectification is used to add words or
numbers that were omitted, delete words or numbers that are superficial, replace
words or numbers that were wrongly stated or expressed, correct an obvious error, or
reposition a part of the contract, such as the place where a signature is to be made.

Rectification of an agreement does not alter the rights and obligations of

the parties in terms of the agreement to be rectified: their rights and
obligations are no different after rectification.

Page 134
 Created by Turbolearn AI

Rectification therefore does not create a new contract but merely corrects the written
document setting out the terms of the true agreement. It sets out what the parties
actually agreed to. If sued, a defendant who states that a document does not
correctly reflect the agreement between the parties may raise this as a defense to the
claim, without the need to counterclaim for rectification of the agreement.

Only a valid contract may be rectified. Parties may not rectify a contract to add or
remove terms, or amend terms that would otherwise have resulted in the contract
being void. Similarly, a contract may not be rectified to correct a mistake, whether it is
unilateral, mutual or common, or where third parties may be prejudiced as a result.

Third Parties to Contract

The general rule is that when persons contract, they can bind only themselves,
unless they act in a representative capacity. In that case, they are not considered to
be parties to the contract. A third party can acquire rights under a contract only
where the contract is entered into for the benefit of that third party. A third party may
also acquire rights, or be subject to duties, or both, where assignment, cession, or
delegation of the contract takes place.

In a contract, one party has a right to have the other party perform the duty
promised. The person who must perform is referred to as the debtor. The person
who may expect the other to perform is the creditor. In legal terms, a creditor is a
contracting party who can enforce a right, whereas a debtor is a contracting party
who must comply with an obligation.

Most commercial agreements are reciprocal agreements, meaning that both parties
are debtors and creditors. There are, however, also a few examples of unilateral
agreements, meaning that one of the parties is a debtor and the other is a creditor.

Reciprocal Contracts Unilateral Contracts

Both parties have duties in terms of Only one party has duties in terms of
Duties
the contract the contract

Page 135
 Created by Turbolearn AI

In the event that there is more than one debtor to an agreement, the question of the
extent of liability arises. Generally speaking, the co-debtors are either liable pro rata
for their portion debt, or they are each jointly and severally liable for the entire debt
(in solidum). Where parties are liable jointly and severally, the creditor may claim the
full amount of the debt owing from one of the co-debtors. Upon settlement of the
debt by one of the co-debtors, the creditor's rights of recovery against the remaining
debtors are automatically ceded to the co-debtor who has performed. The debtor
who paid the creditor may then claim the pro rata payment from the other co-
debtors.

Through the operation of law, some parties are always liable in solidum. For
example, the partners in a partnership are always liable in solidum for the debts of a
partnership when the partnership dissolves. Sureties are also liable jointly and
severally. It should be noted that unless either the law or the parties agree
otherwise, it is generally assumed that the co-debtors are deemed to be held liable
pro rata.

Two or more debtors may be called co-debtors. Where co-debtors jointly share
responsibility for performance, the creditor may demand that each perform his or her
proportionate share of the duty provided that the duty can be split this way. If not,
then the creditor may get a court order to force both co-debtors to perform the entire
obligation. Where co-debtors are jointly and severally responsible, the creditor may
hold any one of the debtors fully liable for the complete performance, or the creditor
may require each co-debtor to perform only his or her respective share.

The general rule is that co-debtors share joint liability and are not jointly and
severally liable. There may also be more than one creditor in a contract.

Contracts for the Benefit of Third Parties (stipulatio alteri)

Two parties, the promissor and the promissee (stipulans), may agree to keep an offer
open for a third party to accept. Although the third party was not a party to the
original contract, he or she may accept the offer by notifying the promissor, after
which the promissee drops out of the picture. The contract is then between the
promissor and the third party.

The third party does not have to accept the offer. Once the offer is
accepted, the third party may sue on the contract. If the third party rejects
the offer, the contract falls away.

Page 136
 Created by Turbolearn AI

All three parties are principals, and the third party accepts both the duties and
obligation of the contract. It is not necessary for the third party to be in existence at
the time when the promissor and the promissee conclude the contract but they must
have intended the contract to benefit the third party.

Until acceptance takes place, the agreement continues to be one solely between the
two parties and is capable of modification by a subsequent agreement between
them. The promissor may not withdraw from the contract with the promissee
unilaterally, or do anything that has the effect of preventing performance under the
contact. The promissee can obtain a court interdict to prevent the promissor from
frustrating the contract. If the promissor breaches the contract, the promissee can
claim damages for any loss suffered.

The third party must accept the contract within a reasonable time, failing which the
offer will lapse. If the offer is refused by the third party, it lapses immediately. Once
the third party has accepted the offer, it is irrevocable even by agreement between
the promissory and the promissee. Once the third party has accepted the contract,
the creditor cannot require the debtor to perform. Only the third party can do that.

An example of a contract for the benefit of a third party is a life insurance agreement,
in terms of which the insured enters into an agreement with an insurance company to
pay a beneficiary a sum of money on the death of the insured. In this example, the
insurance company is the promissor, the insured is the promissee, and the third party
is the beneficiary. On the death of the promisee, the third party has the choice
whether or not to accept the terms of the contract with the promissor.

Agency Stipulatio Alteri

Principal, agent, and

Parties Stipulans, promissor, and third party
third party
Contractual Principal and third Stipulans, promissor, and third party
Relationship party (once the third party accepts)
Role of Agent acting on behalf Stipulans concludes contract in own
Intermediary of principal name

Assignment
Each party to a reciprocal contract is at the same time a debtor and a creditor.

Page 137
 Created by Turbolearn AI

Assignment has the effect of substituting a third party for one of the
parties to a contract in the capacity of both debtor and creditor.

The consent of all three parties is required before assignment can take place. In
effect, there is an agreement to end the existing contract and substitute a new one
for it (novation).

Cession
The traditional definition of cession refers to the process by means of
which one party (the cedent) transfers personal rights to another party
(the cessionary).

Cession is regularly undertaken to secure debts (in securitatim indebiti). No new

obligation is created; existing rights are transferred from one person to another by
agreement. For example, a company may cede its book debts so that the cessionary
can recover debts from debtors.

Our courts have been critical of limiting the definition of cession to the transfer of
personal rights only.

In Hoge Automation (Pty) Ltd v Profusa Properties CC t/a Homenet 1RTambo a

supplier of office equipment entered into a five-year contract to rent equipment to a
property company. The second and third defendants acted as sureties and co-
principal debtors for the obligations of the property company. On defaulting payment
the property company ceded its right, title and interest to the rental agreement to the
plaintiff. When sued by the plaintiff, the defendants argued that ownership was a
real right that cannot be ceded.

The court held that commercial realities required a more streamlined form of delivery
and that the law of cession should be developed accordingly. The court held that the
rights that had been ceded included ownership of the equipment concerned and that
delivery and transfer had taken place on cession. Cession, in the same way as
delivery, effects a shifting of assets from one estate to another. Upon a valid cession,
the cedent generally loses his

Cession of Rights

Page 138
 Created by Turbolearn AI

Cession involves transferring rights against a debtor to a cessionary. Here's a

breakdown:

General Rules
Cession typically doesn't require the debtor's consent or even notification.
A future right can be ceded, but its validity depends on the cedent obtaining
that right.

Requirements for a Valid Cession

The cedent must hold the right being transferred.
The right must be capable of being transferred.
The parties must intend to transfer the right.
The object of the cession must be properly described.
The cession must be lawful.

Legality
The legality of a cession and the underlying reason (causa) are separate issues. An
invalid causa allows the cedent to reclaim the right, especially if the debtor has
already performed for the cessionary. In that case, the cedent can sue the cessionary.

Formalities
Generally, no specific formalities are needed. A simple agreement between the
cedent and cessionary is sufficient, even an oral one.

Notice to Debtor
The debtor doesn't need to know or agree to the cession.
However, notifying the debtor is advisable.
If notified, the debtor cannot discharge the debt by paying the cedent.
Without notice, payment in good faith (bona fide) to the cedent is valid.

Page 139
 Created by Turbolearn AI

Debtor's Defenses
The debtor can raise any defense against the cessionary that they could have used
against the cedent, including:

Fraud
Duress
Prescription
Payment
Set-off

Limitations on Cession Rights

A person's right to cede rights can be limited by:

Common law
Agreement
Statute

Common-Law Restrictions
If the right is of a personal nature where the debtor has a substantial interest in
performing for a specific person (e.g., employment contracts), cession requires
the debtor's consent.
An actio iniuriarum (action for harm to personality, like defamation) cannot be
ceded before litigation starts.
Cession of part of a debt is invalid without the debtor's consent.
The cession must not deprive the debtor of their right to set-off.

Restrictions by Agreement (Pactum de non cedendo)

These restrictions become relevant in on-ceding scenarios, where the cessionary
further cedes the rights. The original cedent's agreement to a non-cession clause can
limit the security provided to the on-cessionary.

Nemo plus iurus principle: A cedent cannot grant more rights to the cessionary than
they possess against the debtor.

Page 140
 Created by Turbolearn AI

Example: Sechold Financial Services v Gazankulu Development

Corporation

A borrowed money from B and ceded insurance policy rights as security (in
securitatem debiti). B then borrowed from C, ceding its rights as cessionary to C with
A's knowledge. C lent B R19 million, but B only lent R5 million to A. When B
defaulted, C claimed R19 million from the policies. The court held that with the
original creditor's consent, an on-cession in securitatem debiti is valid. Without
consent, the on-cessionary's security is limited to the rights the cessionary has
against the cedent.

Statutory Restrictions
Compensation under the Compensation for Occupational Injuries and Diseases
Act.
Pensions awarded under various acts (Statutory Pensions Protection Act,
Pension Funds Act, Public Service Act).
An insolvent's right to earnings under the Insolvency Act.

Delegation
Delegation involves substituting a third party as the debtor.

All three parties (creditor, original debtor, proposed debtor) must consent. This is
essentially a novation.

Breach of Contract
Breach occurs when a party fails to perform as agreed.

Creditor: Party to whom performance is owed.

Debtor: Party who must perform.

A contract can be breached in five ways:

Page 141
 Created by Turbolearn AI

Form of
Description
Breach

One party refuses to fulfill their obligations, either explicitly or

Repudiation implicitly. The other party can accept the repudiation (terminate the
contract and claim damages) or insist on performance.

Repudiation
Repudiation is when one party, through words or actions, indicates they
will not fulfill their contractual obligations.

Repudiation itself is a breach. Acceptance by the innocent party is merely exercising

their right to terminate the agreement. The test for repudiation is objective, focusing
on how a reasonable person would perceive the repudiating party's intentions, not
their subjective state of mind.

An election to cancel needs to be unambiguous but doesn't have to be communicated

directly by the innocent party to the guilty party.

Anticipatory Breach
Occurs when a party repudiates before the performance due date.

The creditor doesn't have to wait until the due date and can act as if the breach has
already occurred. It's essentially a repudiation in advance.

Example: Sandown Travel (Pty) Limited v Cricket South Africa

A travel company had a contract with a sports group that automatically renewed
unless notice was given six months before termination. The defendant gave late
notice of termination after the renewal. The plaintiff rejected the late notice.

Page 142