The Law of Contract in South Africa FIFTH EDITION by RH CHRISTIE QC MA LLB (Cantab) FCIArb FAArb President, Association of Arbitrators (Southern Africa) Honorary Professorial Research Associate, University of Cape Town assisted by VICTORIA MCFARLANE BA (Hons) LLB (Cape Town) LexisNexis Butterworths Durban
CONTENTS Preface to the Fifth Edition v Chapter 1 Historical Introduction 1 The Roman concept of contract 3 The Roman-Dutch concept of contract 6 The modern South African concept of contract 8 Current problems 12 Unfair contracts 12 Unfairness in the making of a contract 13 Unfair contracts and contract terms 14 Unfair enforcement of a contract 15 The way forward 16 Effect of the Constitution 18 Chapter 2 Agreement 21 Proof of agreement 21 Two or more parties 21 True agreement 22 Quasi-mutual assent 24 The technique of ascertaining agreement 28 Time and place of contracting 28 Offer 29 Animus contrahendi (intention to contract) 29 Offer unequivocal 32 Preliminary negotiations 32 (a) Invitations to treat, offers to negotiate, offers to chaffer 33 (b) Requests for an offer 33 (c) Statements of information 34 (d) Statements of intention 34 (e) Proposals for partial, incomplete or provisional agreement 35 (f) Enforceable agreements to contract (pacta de contrahendo) 37 (g) Agreements to negotiate Advertisements, circulars, catalogues, price tickets 38 39 Calling for tenders 42 Auctions Communication of offer 44 47 vii
viii The Law of Contract in South Africa Termination of offer 47 (a) Effluxion of fixed time 47 (b) Lapse of reasonable time 48 (c) Death 48 (d) Loss of contractual capacity 49 (e) Rejection 49 (f) Counter-offer 49 (g) Battle of the forms 50 (h) Withdrawal or revocation 51 (i) Irrevocable offers 52 Options and rights of pre-emption 53 Acceptance 57 Necessity for acceptance 57 Who may accept 58 Knowledge of offer 60 Acceptance unequivocal 60 Acceptance must correspond with offer 62 Method of acceptance 64 Silence as acceptance 65 Communication of acceptance 68 Contracts made by post 70 Telegrams 75 Telephone, telex, fax, e-mail etc 77 Contracts without offer and acceptance 79 Tacit contracts 81 (a) Tacit offer 81 (b) Tacit acceptance 82 (c) Tacit contracts 82 Offer and acceptance without contract 90 Lack of animus contrahendi (intention to contract) 90 Agreements which cannot in law be contracts 92 Agreements which the courts are unable to enforce 93 Initial impossibility 93 Contracts void for vagueness 95 (a) Vagueness determinable by evidence or by interpretation of the contract 96 (b) Unlimited option reserved to the promisor 99 (c) Vague and uncertain language 102 Chapter 3 Formalities 105 Formalities decided on by the parties 105 Formalities required by law 109 Alienation of land Ill (a) General object Ill (b) Alienation 112 (c) Land 112 (d) Signature 114 (e) Signature by agents 116 (f) Contents of the written contract 117
Contents ix (g) Description of the land 119 (h) Identity of the parties 121 (i) Price 122 (j) Effect of non-compliance 122 Executory donations 123 Contracts of suretyship 124 Credit agreements 128 Miscellaneous contracts 128 Notarial execution 129 Registration 129 Marriage 129 Chapter 4 Conditional Contracts 131 What is a condition 131 Promise dependent upon past or present fact 132 Modal clauses (modus) 133 Time clauses (dies) 133 Terms of the contract 134 Conditions destructive of the contract 138 Conditions precedent and resolutive conditions 139 The onus of proof 140 Pending fulfilment of the condition 141 Condition precedent 141 Resolutive condition 142 Fulfilment and non-fulfilment of conditions 142 What amounts to fulfilment 142 Time for fulfilment 144 Resolution of uncertainty by other events 144 The effects of fulfilment and non-fulfilment 145 Fictional fulfilment and non-fulfilment 147 Chapter 5 The Terms of the Contract 153 Ascertaining the terms 153 Proof 153 Distinction between terms and other statements 155 Implied and tacit terms 158 Terms implied by law 159 Terms implied by trade usage 161 Tacit terms, or terms implied from the facts 167 Written terms 174 Signed documents - caveat subscriptor 174 Unsigned documents - the "ticket cases" 179 Exemption clauses 183 (a) Permissible limits of exemption clauses 184 (b) Narrow interpretation of exemption clauses 188 (c) Legislation to control exemption clauses 191
x The Law of Contract in South Africa Interpretation 1"^ The parol evidence or integration rule 192 Extrinsic evidence in aid of interpretation 204 The technique of interpretation 205 (a) Grammatical and ordinary meaning 206 (b) The context within the contract 210 (c) The wider context, background evidence 212 (d) Extrinsic evidence of surrounding circumstances 215 Rules of interpretation 219 (a) Equitable interpretation 219 (b) Avoidance of inconvenience 219 (c) Ut res magis valeat quampereat 220 (d) Presumption against tautology or superfluity 220 (e) Change of language 221 (f) Eiusdem generis, noscitur a sodis 221 (g) Generalia specialibus non derogant 223 (h) Expressio unius est exclusio alterius 223 (i) Construction contra proferentem or contra stipulatorem 224 Chapter 6 Parties to the Contract 227 Contractual capacity 227 The State 227 Corporations 228 Married women 229 Minors 232 (a) General contractual incapacity 232 (b) Statutory exceptions 233 (c) Guardian's assistance 233 (d) Nature of minor's unassisted contract 235 (e) Entirely beneficial contract 236 (f) Liability based on enrichment 237 (g) Fraudulent representation of capacity 239 (h) Ratification after majority 243 (i) Tacit emancipation 244 Insane persons 247 Intoxicated persons 249 Insolvents 250 Prodigals 251 Plurality of parties 252 Co-debtors 253 (a) Joint liability 253 (b) Joint and several liability 255 (c) Several liability 257 Co-creditors 257 (a) Joint entitlement 257 (b) Joint and several entidement 259 (c) Several entitlement 260 Privity of contract 260
Contents xi Contracts for the benefit of a third party 261 Development of the contract for the benefit of a third party 261 Requirements for enforceability 263 Chapter 7 Misrepresentation and Fraud 271 By whom the misrepresentation is made 271 What is a misrepresentation 273 Misrepresentation by silence 276 The misrepresentation must be material 280 The intent with which the misrepresentation is made 282 The misrepresentation must induce the contract 284 The innocent party's right to rescind 286 What amounts to fraud 293 Damages for fraudulent misrepresentation 295 Damages for negligent misrepresentation 299 Chapter 8 Duress and Undue Influence 301 Duress 301 The reasonableness of the fear 302 The objects of the threat 303 The imminence of the threat 306 The threat must be unlawful or contra bonos mores 306 The threat must have caused damage 308 Duress by a third party 308 The effect of duress 309 Undue influence 309 Chapter 9 Mistake 313 Unilateral mistake 314 When no knowledge imputable to the other party 315 When knowledge imputable to the other party 318 Unilateral mistake caused by the other party 319 Mutual mistake 322 Common mistake 325 Rectification 329 Chapter 10 Illegality and Unenforceability 337 Statutory illegality and unenforceability 337 Common law illegality and unenforceability 343 Contracts injurious to the State 349 (a) Trading with the enemy 349 (b) Contracts tending to injure the public service 350
xii The Law of Contract in South Africa Contracts injurious to the administration of justice 350 (a) Ousting the jurisdiction of the courts 350 (b) Collusion 352 (c) Pacta de quota litis, champerty and maintenance 353 (d) Contracts for excessive attorney's fees 354 (e) Contracts for excessive witness expenses 355 Contracts encouraging crime, delict and other unlawful acts 356 Contracts injurious to the institution of marriage 358 Pacta successoria 359 Restraint of trade 361 (a) The basis of the doctrine 362 (b) What is a contract in restraint of trade 363 (c) The burden of proof 365 (d) The time at which reasonableness is to be tested 365 (e) Severability and restriction 366 (f) Equal and unequal bargaining strength 368 (g) The nature of the restraint 369 (h) Restraints on ex-employees 371 (i) The area and time of the restraint 376 Gambling 377 Miscellaneous contracts 381 Illegality of purpose 383 The effects of illegality 386 Severability - special applications 386 Severability in general 388 Unenforceability 391 Collateral and connected transactions 394 Recovery of money or property 396 (a) Contract void for lack of formality or merely unenforceable 396 (b) Contract illegal because prohibited 397 Chapter 11 Performance 403 Effect of performance 403 Tender of performance 403 By whom performance may be made 406 To whom performance may be made 407 Performance infoitna specifica or per aequipollens 411 Payment of money 412 Guarantee of payment 414 Payment by cheque 415 Payment by bank transfer 418 Payment by credit card 419 Payment by instalments 419 Reciprocal obligations and the exceptio non adimpleti contractus 421 Incomplete performance 424 Quantum meruit 426 Appropriation of payments 427 Time of performance 431
Contents xiii Place of performance 431 Proof of payment 432 Chapter 12 Variation and Discharge 435 By act of the parties 435 Termination by notice 435 Variation and discharge by agreement- the nature of waiver 437 The requisites of waiver 441 The consequences of discharge by agreement 446 Limitations on variation and discharge by agreement 447 Non-variation clauses 447 Novation 449 Compulsory novation 454 Compromise 455 Delegation 462 Cession 463 Combined cession and delegation 471 Variation and discharge by operation of law 472 Supervening impossibility 472 Set-off (compensatio) 475 Merger (confusio) 481 Prescription 482 Insolvency, liquidation 492 Death 493 Chapter 13 Mora and Breach 495 Mora and breach generally 495 Breach of contract and delict 497 Mora 497 The concept of mora 497 Mora ex lege 498 Mora ex re 498 Mora ex persona 503 Consequences of mora 505 (a) Where the contract contains a forfeiture clause 505 (b) Where the debtor's non-performance amounts to repudiation 506 (c) Where time is of the essence 506 (d) Where time is not of the essence 507 (e) Damages 508 (0 Interest 509 Mora creditoris 511 Breach 513 Forfeiture clauses 513 Material breach of an essential term 513 Anticipatory breach and repudiation 516 Instalment contracts 518
xiv The Law of Contract in South Africa Chapter 14 Remedies for Breach 521 Specific performance 522 Definition 522 Plaintiffs entitlement to specific performance 523 When specific performance will not be granted 524 (a) Impossibility 525 (b) Undue hardship 526 (c) Contracts for personal services 528 (d) Imprecise obligations 529 Specific performance and damages 530 Miscellaneous points on specific performance 531 Interdict 532 Interdict as a form of specific performance 532 Interdict to protect other rights 534 Declaration of rights 537 Cancellation 538 Damages 542 Causation 542 The nature of damages for breach 543 Remoteness - general damages 550 Special damages 551 Mitigation of damages 553 The collateral benefit principle 554 The once and for all rule 555 When damages to be calculated 556 Plaintiff must not be over-compensated 557 Apportionment of damages 558 Damages in particular cases 559 The Conventional Penalties Act 560 Bibliographical Abbreviations 565 Table of Cases 573 Index 663