Private Law 411 (Specific Contracts) - comprehensive notes
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Course
Private Law 411 (411)
Institution
Stellenbosch University (SUN)
These notes are very thorough and contain the content from all lectures, all prescribed cases summarised, and personal explanatory notes of difficult concepts.
Introduction
Why rules for specific contracts?
o General contractual principles and rules are insufficient
Sometimes there is reason to deviate from them
Sometimes the rules of general contract law are silent on specific
problems unique to a specific type of contract
Specific legislation can have far-reaching impacts on the rules of
general contract law, e.g. Consumer Protection Act
Methodology for classification of specific contract types 1
2 broad approaches:
o A) essentialia-naturalia model
Recap: Essentialia are those characteristic rights and duties that
distinguish one contract type from another, e.g. Essentialia of a
contract of sale are that parties agree on the merx + there is an
agreement that there will be a permanent transfer of the seller’s
rights in that merx. Benefit of this approach: once parties have
agreed on the essentialia, the law reads in certain terms
automatically. These ex lege terms are the naturalia, which are
aimed at balancing the interests of the parties.
This model is:
Easy to apply
Leads to certainty and efficiency
Certainty leads to fairness
Shortcomings:
It is an all-or-nothing approach. If you cannot conclude
that the parties agreed on the essentialia (merx, purchase
price, intention to transfer for contract of sale, then it cannot
be a contract of sale). can result in a formalistic approach.
1
It is not an either/or. The approaches are applied in conjunction with each other. We just separate
them into two approaches here for learning purposes.
, 2
It does not lend itself to a nuanced approach – hides the
need to differentiate between sub-types or mixed types of
contracts.2
Sometimes the essentialia of two types of contracts are the
same: contract of employment v contract with an
independent contractor essentialia for both are provision
of a service for remuneration but there is a very real
difference in the way the law treats employment contracts
versus independent contractor contracts.
o Degree of supervision, do they use their own tools,
how are they paid using factors like this to
distinguish contract types = working with a
typological approach. This typological approach is
inherited from German law.
o B) Typological approach:
This approach holds that an analysis in terms of “concepts” is
valuable but insufficient.3
By contrast, the typological approach is more fluid: it sees a
contract of sale as a type and not a concept.
Therefore, the typological approach looks at several factors, not all
of which have to be present in order to determine whether the
dominant impression is that the parties concluded a contract of
employment v a contract with an independent contractor, for
instance.
Santos v Igesund: although the relationship between the parties
would have, strictly speaking, been classified as an employment
contract, because Igesund was able to determine his own working
conditions court concluded that although strictly speaking there
is an employment contract, Igesund’s work is more along the lines
2
For example: a trade-in transaction (I’m going to trade in my old car plus a sum of money for a
new car) – is this a contract of sale or is it a contract of exchange? this essentialia-naturalia model
does not help us to classify the contract.
3
Concept = a closed notion or idea. Essentialia-naturalia approach thinks of the contract of sale as
a concept, i.e. there must be agreement on the merx and price for you to comply with the requirements
of the concept.
, 3
of an independent contractor therefore there is nothing preventing
the granting of an award of specific performance.
Benefits of this approach:
Takes contextual factors to the contract into account, e.g. of
case where the court (incorrectly) dealt with a doctor-patient
relationship as an ordinary contract with an independent
contractor without taking into account that the nature of the
contract is the provision of professional medical services (to
the patient’s detriment allowed hospital to use an
exemption clause to escape liability for negligent staff.
Sources of law for specific contracts
Common law rules that come from Roman Law, as interpreted by Roman Dutch
authorities and have remained virtually unchanged in our law since the 1700’s.
o Are they not outdated? Although we still largely use these rules, they have
been tweaked in certain instances to cater for modern commerce.
Legislation:
o Alienation of Land Act
o Rental Housing Act 50 of 1999.
o Formalities in respect of Leases of Land Act 18 of 1969.
o Consumer Protection Act 68 of 2008.
Constitution
o Has impacted the rules of specific contracts, e.g. there used to be a general
rule in lease contracts that if the leased premises was in a defective state the
lessee has to inform the lessor and if the lessor does not do anything, the
lessee himself has to repair the defective premises and claim compensation
from the landlord – this presupposes that lessees have the money to fix the
premises, where they very often don’t (prescribed case on this to come)
court developed the law so that you can claim specific performance in the
context of a lease contract.
, 4
Contract of sale
Nature and conclusion
Prescr:
Janse van Rensburg v Grieve Trust CC 2000 1 SA 315 (C)
Definition: an agreement between the parties that the seller will deliver an object
(i.e. merx) and transfer all his rights therein in return for payment of the
purchase price by the buyer.
Essentialia:4
o Agreement on the merx
o Agreement on the purchase price
The essentialia must be present in order for the contract to qualify as a contract of
sale.
NB: It is not a validity requirement or an essentialia of a contract of sale that the
seller transfer ownership to the buyer.
o A contract of sale will not be void or invalid if the seller does not make the
buyer the owner.
o See later: when we come to the sale of other people’s things
Distinction between sale and other similar contracts
Lease
Superficially: payment of sum of money for a res in both a lease contract and a
contract of sale.
Distinguishing factor: in the case of a sale, the intention of the parties is that the
seller will transfer his rights in the merx (whatever those rights might be)
permanently. With a lease the intention is that the lessor is only going to transfer
his rights to the leased object temporarily.
Contract of exchange
With a contract of exchange, there is usually an object given in exchange for
another object.
Textbook refers to a 3rd essentialia: that the parties must have the intention to sell and to buy.
4
Mybhurg does not list this because it is redundant – if you’ve already agreed on what to buy and for
how much, the intention to buy and sell is implicit already in those 2 essentialia.
, 5
In the case of a contract of sale, a merx is usually given in exchange for the
payment of sum of money, but we do also get a mixed type of contract: object
given in exchange for object + a sum of money (car trade-ins).
o This type of contract can either be a contract of sale or a contract of
exchange.
o How do we determine which? Wastie v Security Motors 1972 (C) – not
prescr
POD: the parties’ intention is decisive. If the court concludes that
the parties intended to conclude a contract of sale, it is a contract of
sale.
If, however, the intention is not clear: then the court will look at
which aspect of the traded in performance has the largest value.
E.g. which aspect of the performance has the greater value?
the vehicle or the sum of money? if the vehicle has the
greater value, then we are dealing with a contract of
exchange. If the sum of money has greater value than the car
= contract of sale.5n
Practical relevance of the classification between trade and sale
o Right of pre-emption and what constitutes a trigger event that would
make that right enforceable.6
Trigger event: indication that the grantor of the right wants to sell
(e.g. by making an offer) the merx subject to a right of preference.
It is possible for the grantor to circumvent the trigger event
giving rise to the right of pre-emption by rather trading the
merx to someone.
o Transfer of ownership (where relevant): price payment rule
If the seller is owner of the merx and sells the merx then the seller’s
rights of ownership will transfer to the buyer. In a contract of sale,
ownership is transferred at delivery. We need to draw a distinction
here between a cash sale v a credit sale.
5
Trade-in transactions, especially of vehicles, are presumed to be contracts of sale.
6
Right of pre-emption recap: where someone has a preference to acquire an object. It is generally
formulated as: “should the grantor of the right ever wish to sell the object the holder of the right will
have first choice to purchase the object”.
, 6
In the event of a cash sale, ownership is transferred when there has
been delivery of the merx + payment of the purchase price.
In the event of a credit sale, ownership is transferred upon delivery
only.
o Aedilitian actions – available in both contracts of sale and exchange
Recap of Aedilitian remedies: they are available when dealing with
a merx that is defective or where the seller has made certain
misrepresentations about the characteristics or attributes of the
merx. The available remedies to a party in the event that the object
is defective (or not what it was promised to be) is either to terminate
the contract and to reclaim the purchase price, or alternatively to
claim a reduced purchase price.
These Roman Law Aedilitian remedies were initially developed for
contracts of sale and were then extended also to be applicable to
contracts of exchange. The question then arose whether they were
also available when dealing with trade-in/mixed transactions
Janse van Rensburg.
Janse van Rensburg v Grieve Trust 2000 (C)
Firstly: Aedilitian actions are available in both contracts of sale and exchange
(Mountbatten Investments). In this case, court concluded the contract was a contract of sale.
Trade-in transaction: if intention of parties is to conclude a contract of sale, it is a contract
of sale. In such a contract of sale, the price consists of the merx (car) + the price. Even though
in a contract of sale traditionally a purchaser only warrants to give the seller ownership of the
price whereas the seller undertakes to give undisturbed possession, parties in a contract of
sale where a portion of the price consists of a thing other than money, the parties are in the
same position as barterers and therefore the purchaser also tacitly warrants against latent
defects in the non-money portion of the purchase price.
The court extended the aedilitian actions to be available to a seller in such a situation
(where the seller is also buying a merx).
Facts:
o Trade-in transaction of vehicles. The buyer traded in his old car + sum of
money for a new car.
, 7
o The buyer misrepresented the year model of the car that he traded in
(however, appellant and respondent were in agreement that any
representation by the buyer regarding the model of the vehicle was in good
faith). The question was whether the seller could institute an Aedilitian
action against the buyer.7
Legal question:
o Whether the aedilitian remedies are available to the seller (not just the
buyer) in the event that the non-monetary component of the price is
defective or where the buyer has made certain misrepresentations about the
attributes of that non-monetary portion of the price.
Two opposing views:
o View in favour of the extension of the Aedilitian remedies to the seller:
Wastie v Security Motors,8 the judgment supported the extension of the
Aedilitian remedies (the actio quanti minoris in this case) to the seller with
this type of contract because
a) this type of trade-in transaction is very similar to a contract of
exchange where the objects being exchanged are treated as both
merx and price (so if it is available to parties in a contract of
exchange even though one of the exchanged objects serves as a
price, why not also extend that rule to a seller in a contract of sale
when the issue is with the price?).
b) in the absence of such an extension, the buyer would be able to
act with impunity. It creates the possibility that the buyer can claim
he did not know that the non-monetary part of the price was
7
Clarification: We are dealing with a trade-in transaction with a vehicle. Those transactions are
presumed to be contracts of sale. Generally, when looking at the Aedilitian remedies, these are
remedies available to the buyer against the seller when there are defects in the merx or
misrepresentations about the attributes of the merx – only available in a contract of sale.
In this situation: question is a) whether the seller can institute the Aedilitian actions against the
buyer, and b) whether the Aedilitian remedies are available in relation to the performance that
constitutes the price more specifically, when the defects or misrepresentations relate to the non-
monetary component of the price (the car).
8
Established that: Also a trade-in transaction of a car where there was a defect in car (cracked
cylinder block. The court concluded that a contract of sale was concluded because that is what the
parties intended and that the car was a part of the purchase price. However, the court held that where
portion of the purchase price consists of something other than money, the actio quanti minoris is
applicable to the thing sold (merx) and the purchase price. Rationale: in a contract of exchange,
the actio quanti minoris is applicable equally to exchanged or bartered things and therefore it would
be unfair not to extend the same protection to a seller in respect of the price.
, 8
defective and unless the seller can prove fraud (which is difficult),
the buyer cannot be held liable.
o Opposing view: Mountbatten Investments (Pty) Ltd v Mahomed 1989 and
Bloemfontein Market Garage (Edms) Bpk v Pieterse 1991 (also a trade-in
of a vehicle where the model was represented to be newer and the seller
instituted the actio quanti minoris)
1) The actio quanti minoris was designed only to be available in the
event of a latent defect or a misrepresentation in relation to the
merx specifically. Court stated that goods traded in are neither
sold nor bartered. They are part of the price. There is therefore
no warranty against latent defects of the non-money portion of
the purchase price.
Therefore the court held that it will not extend this
automatic protection to the seller because the parties can
contractually regulate the protection of the seller if they
think it is necessary. The seller can always protect
himself by requiring an express warranty against latent
defects.
Mybhurg: this is not a persuasive argument. This
presupposes that the seller is always in a stronger position
than the buyer, which is not true. It is equally possible for a
buyer to regulate his or her own protection, but the law
nevertheless automatically protects the buyer – why should
that not be the case for the seller?
2) in other contracts like lease or contracts of mandate, one of the
parties does not get a similar kind of protection (e.g. in a lease
contract, the lessee does not have the aedilitian remedies where the
landlord has misrepresented the quality of the leased premises).
If not available in those situations (which are roughly
similar) then why should they be afforded to the seller?
The court in Janse v Rensburg’s response: the aedilitian
remedies have never been available in a lease contract or ito
a contract of mandate – those types of contracts have very
unique remedies to deal with e.g. a defective premises.
, 9
The court in JvR:
o Supported the view adopted in Wastie for the same reasons raised in
Wastie, but over and above that, based on the fact that it is the inherent
power of a south African court to develop the common law (s39(2)).
o The constitutional power of courts to develop the common law + Roman-
Dutch principles of fairness and reasonableness which also require the
development of the law to keep up with modern times.
o The position where a seller in a contract of exchange is liable for latent
defects and misrepresentations but the purchaser (who pays in part with an
object) is not also liable for latent defects in relation to the object, is
contrary to the principle of good faith and public policy.
o When the aedilitian actions were created in Roman Law, they were a very
specific solution to a very specific problem and they were inspired by
principles of fairness, justice, and reasonableness – the same motivations
justify their development - would promote equality between the parties.
Held:
o The seller could claim a reduced contract price with the actio quanti
minoris.
o Confirms Wastie and rejects Mountbatten.
(Court distinguishes trade-in transactions from in solutium datio)
o The court makes this distinction after considering academic argument that a
purchaser in a trade-in contract should not be held liable for latent defects
because the nature of the performance is actually that of in solutium datio
and therefore if the non-money component is defective, the seller should
just claim a money equivalent of the defective non-money portion of the
price.
o The court held that in solutium datio means performance of something
other than the agreed or due debt is made to the creditor (the whole debt,
and not just a part thereof, is substituted by an alternative debt).
o This is different to a trade-in-agreements, where the vehicle traded in is not
a substituted or alternative debt – it is part of the original debt.
, 10
Contract of mandate with an independent contractor
Independent contractor: someone who renders a service for remuneration
Roman law: example of having someone make a gold ring. If the customer
provides the gold and the jewellery-maker fashioned the ring, this is a contract
with an independent contractor (the sole purpose is the rendering of a service).
Alternatively, where one party provides both the material and the service, we
are dealing with a contract of sale.
More difficult is the distinction between a contract with a building contractor v
a contract of sale:
o A building contractor supplies both the material and the services, but we
nevertheless classify this contract as one with an independent contractor,
and not a contract of sale.
o The best solution to explain this deviation comes from international trade
law two-fold test:
A) who provides the material?
B) if one of the parties provides both the material and the service
then we must ask whether the preponderant part (the dominant
part) of the duties on that party relates to the provision of material
or services (if provision of material is dominant = sale; if provision
of service dominant = contractor).
Practical relevance of the distinction:
o Historically, two reasons:
1) this reason was based on a misunderstanding that the exceptio
non adimpleti contractus and its relaxation was only applicable to
contracts with independent contractors (this was based on a
misunderstanding of BK Tooling, which never limited the
availability of the exceptio or its relaxation to contracts with
independent contractors) confirmed in Thompson v Scholtz that
the exceptio is available to all reciprocal contracts.
2) If you are dealing with a contract with an independent
contractor, the parties can validly agree that the services will be
rendered for reasonable remuneration. It is not possible at this
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