© **** University of South Africa

All rights reserved

Printed and published by the

University of South Africa

Muckleneuk, Pretoria

CLA1501/1/4/2016

60158921

Indesign

CLA1501/1/4/2016 (iii)

CONTENTS

INTRODUCTION v

SECTION A: Introduction 1

Study unit 1: The South African Legal System 2

Study unit 2: Introduction to the Science of Law 13 SECTION B: General principles of the Law of Contract 23 Study unit 3: Law of Contract: Introduction 26

Study unit 4: Consensus 30

Study unit 5: Capacity to Perform Juristic Acts 56 Study unit 6: The Agreement Must be Possible 70

Study unit 7: Formalities 77

Study unit 8: Terms of the Contract 83

Study unit 9: Interpretation of the Contract 93

Study unit 10: Breach of Contract 99

Study unit 11: Remedies for Breach of Contract 111 Study unit 12: Transfer and Termination of Personal Rights 128

(iv)

CLA1501/1 (v)

1INTRODUCTION

WELCOME TO COMMERCIAL LAW 1A (CLA1501).

Commercial Law 1A (CLA1501) is a semester module. We suggest that you approach your study of this module by fi rst getting an overview of it. The overview will enable you to identify what you will need to have mastered by the end of the semester to complete the module successfully, and also how the different prescribed sections and study units (chapters) form part of the syllabus for this module. All references to “chapters” refer to the relevant chapters in Schulze, H (general editor) et al, General Principles of Commercial Law, 8th edition (2015), Juta, Cape Town

(hereinafter referred to as “the textbook”).

OVERVIEW

In section A, you are introduced to the South African legal system in study unit 1 (chapter 1) and to the science of law in study unit 2 (chapter 2 of the textbook). In section B, you are introduced to the general principles of the law of contract. These general principles form the major part of this module. The general principles of the law of contract are important as they form the basis for other chapters and modules in commercial law. Please note that a contract is a source of obligations, as are a delict and unjustifi ed enrichment, as discussed in study unit 2 (chapter 2 of the textbook). The law of contract is therefore a subdivision of the law of obligations which, in turn, is a subdivision of patrimonial law, which forms part of private law as opposed to public law.

Study unit 3 (chapter 3 of the textbook) is a brief introduction to the law of contract and includes the fi ve basic requirements for the conclusion of a valid contract. The fi ve basic requirements are discussed more fully in study unit 4 (chapter 4 of the textbook: consensus), study unit 5 (chapter 5 of the textbook: capacity to act), study unit 6 (chapter 6 of the textbook: the agreement must be possible, both legally and physically) and study unit 7 (chapter 7 of the textbook: formalities). With regard to study unit 7, it is important to note that although formalities are included as one of the basic requirements, only a limited number of contracts require formalities to render them valid.

It is also important to note what the consequences are if the basic requirements for the conclusion of a valid contract have not been met. Such a contract could nevertheless be valid, valid but unenforceable, void or voidable. In study unit 8 (chapter 8 of the textbook), you are introduced to the different terms that contracts may contain, their meanings, uses and consequences. Study unit 9 (chapter 9 of the textbook) deals with the interpretation of contracts. In study unit 10 (chapter 10 of the textbook), you are introduced to the various forms of breach of contract that may occur, and in study unit 11 (chapter 11 of the textbook) you are introduced to the remedies available for each type of breach of contract.

(vi)

INTRODUCTION

In addition to the termination of a contract as a result of breach, contracts can be terminated in various other ways. These are discussed in study unit 12 (chapter 12 of the textbook), together with cession, which is a way of transferring rights and not strictly a means of terminating rights. Then we would also like to draw your attention to the various sections under each study unit. Please note that in study unit 4, for example, there are at least three aspects regarding the meaning of consensus that should be distinguished (namely, the intention to be contractually bound, a common intention and making the intention known). Similarly, in study unit 5 there are six factors that can infl uence a legal subject’s capacity to act. Study these separately as they appear in each study unit (chapter of the textbook), but also as part of the bigger picture.

Lastly, and most importantly, in judgments delivered by, inter alia, the Constitutional Court there is a trend towards the Africanisation of South African law and the upholding of the principles of ubuntu, as well as the promotion of good faith and fairness in contracts.

The African concept of ubuntu is subtle and can be described as a set of values expressed through compassion, human dignity, group solidarity, conformity, respect, justice, good faith, fairness to others and other similar virtues. Ubuntu fi nds expression in the Zulu saying “umuntu ngumuntu ngabantu”, which means that a person is a person through other people.

This concept was given explicit application in our jurisprudence for the fi rst time in S v Makwanyane 1995 (6) BCLR 665 (CC). Madala J noted that ubuntu advocates social justice and fairness.

In AfriForum and Another v Malema and Others (20968/2010) [2011] ZAEQC 2; 2011 (6) SA 240 (EqC); [2011] 4 All SA 293 (EqC); 2011 (12) BCLR 1289 (EqC)

(12 September 2011) Lamont J remarked as follows:

Ubuntu is recognised as being an important source of law within the context of strained or broken relationships amongst individuals or communities and as an aid for providing remedies, which contribute towards more mutually acceptable remedies for the parties in such cases. Ubuntu is a concept which [inter alia] dictates a shift from (legal) confrontation to mediation and conciliation. It is important, for example, to realise that some of the concepts used in the law of contract are similar to traditional concepts of ubuntu typically found in traditional African societies. Throughout this study guide we will indicate how ubuntu fi ts in with commercial law under the heading “Africanisation and Commercial Law”. LEARNING OUTCOMES

The module has dual outcomes. The study units that deal with the South African legal system and science of law provide a general overview of the law and enable you to relate the different sections of the law to one another. The outcomes of the study units that deal with the general principles of the law of contract help you to identify, to analyse and to solve basic legal problems relating to the law of contract. You should be able to give advice on how contracts arise, the effect of a particular clause in a contract, the implications of breach of contract and how contracts are terminated.

CLA1501/1 (vii)

Introduction

PRESCRIBED STUDY MATERIAL

In conjunction with this study guide, you must use the TEXTBOOK for the module. THE STRUCTURE OF EACH STUDY UNIT

Each study unit is based on a chapter of the textbook. At the beginning of each study unit, the outcomes for that particular study unit are set out. Once you have worked through a study unit carefully and methodically, you should have mastered these outcomes. Each study unit is divided into different subheadings that correspond to the headings used in the textbook.

Under each heading you will fi nd comments on various aspects of the study material that relate to the subject discussed under that particular heading. The length of the comments varies in relation to the degree of diffi culty of the subject in question. These comments do not replace or summarise the textbook; usually they simply provide an explanation or additional notes to help you understand the material in the textbook. As such, they form part of the material for the examination. Most of the study units contain activities and feedback. The activities are based on the study material. The activities are very important and will give you an understanding of the study material. Please ensure that you do the activities on your own before you look at the feedback that has been provided. In order to complete each activity, you are expected to understand the work to which it relates. The answers provided are not necessarily complete and may simply refer you to relevant paragraphs in the textbook. Therefore, you must use the feedback to determine whether you have understood and completed the activities correctly. HOW TO USE THIS STUDY GUIDE

The aim of this study guide is to steer you through the textbook. You need to make your own summaries of the course material in both the textbook and the study guide. For this study guide to make sense to you, you must have a copy of the textbook. We suggest that you set about your studies in the following way: Begin each study unit by reading attentively through the relevant chapter of the textbook. Then you should take the headings, one by one, and both read and study the contents in the textbook, together with any comments that you might fi nd under the same heading in the study guide. Please note that, to a large extent, the comments in this study guide supplement the study material in the textbook. For this reason, this study guide and the textbook should be studied together. When you have mastered the material under a specifi c heading, you should try to do the activities, if any are included. Try to do these without looking at the answers. The activities are an important component of the study material and we want to encourage you to do them. These activities also provide practical exercises to help you to achieve the outcomes mentioned. Once you have done the activities, you should compare your answers with the answers in the study guide. Hopefully the activities will indicate any problems you might experience with the study material. By doing the activities carefully, you will be able to monitor your progress through the study material.

(viii)

INTRODUCTION

Some of the activities are similar to the questions you will encounter in the examination. Therefore, if you are able to do the activities, you will have achieved some of the outcomes set at the beginning of the study unit. Remember, however, that in the examination you will not have access to your textbook and study guide. By that stage you should be in a position to answer the questions without the assistance of these resources.

CLA1501/1 1

1SECTION A

Introduction

2

1STUDY UNIT 1

1The South African Legal System

1LEARNING OUTCOMES

After you have worked through this study unit, you should be able to

• distinguish between the origins and the sources of South African law

• identify the various courts in South Africa, as well as their functions, jurisdiction and offi cers

• explain the operation and effect of the doctrine of stare decisis

• apply the various theoretical rules and methods used to interpret statutes

• describe the contents and typical aspects of a court judgment

• differentiate between the ratio decidendi and an obiter dictum Prescribed study material: chapter 1

2OVERVIEW

In this study unit you are introduced to the history and the sources of South African law, the courts in South Africa and their offi cers, the doctrine of stare decisis, the interpretation of statutes, and court judgments. The aim of this study unit is to provide you with a broad outline of the South African legal environment in which the state, its subjects and the business world function. Please note that three legal systems contributed to the historical development and origins of the South African law and that six sources, some authoritative and others merely persuasive, can be consulted to fi nd the South African law on a particular point. You are introduced to six types of courts, their jurisdiction and offi cers. Three aspects are important regarding the doctrine of stare decisis. How statutes are interpreted is discussed in four subdivisions, and we explain four aspects relating to court judgments.

3INTRODUCTION

In section A you learn about the South African legal system. Since this section is intended as background information, the legal system is described very generally. We use diagrams to explain the relevant matters so that you can get an overview of how these various aspects relate to one another.

The following diagram forms the basis of the fi rst two study units. You will note that we add more details about a specifi c aspect as we deal with that aspect. CLA1501/1 3

STUDY UNIT 1: The South African Legal System

ACTIVITY 1.1

Now that you have studied the South African legal system, please proceed to answer the multiple-choice question below. You are required to motivate your answer and to explain why the other three options are incorrect before you can look at the feedback.

Which ONE of the following is NOT an historical source of South African law?

• customary law

• Roman law

• Roman-Dutch law

• English law

4FEEDBACK

(3) is CORRECT. Roman-Dutch law was indeed adopted by the Cape Colony when Jan van Riebeeck established a settlement there in 1652.

(1) is INCORRECT. Roman law was codifi ed in the Corpus Iuris Civilis during the reign of Emperor Justinian, but Justinian was not the author of the codifi cation.

(2) is INCORRECT. Roman law as a legal system was never in force in the Netherlands, but over many centuries, Dutch customary law was infl uenced by Roman law to such an extent that the system became known as the Roman-Dutch legal system.

(4) is INCORRECT. English law was never adopted as a system to replace Roman-Dutch law in the Cape, but after the Cape was occupied by England in 1806 and formally ceded to England in 1814, the legal system in force at the time at the Cape was infl uenced by English law. If you are still uncertain about the correct option, please study the relevant section in the textbook.

1. A BRIEF HISTORY OF THE LAW

(Textbook par 1.1)

A short historical overview is important in order to establish where South African law comes from. The history of the South African legal system goes far back to the Romans. Current South African law is a unique mixture of legal systems, fi rmly rooted in Roman law, Roman-Dutch law and English law. 4

SECTION A: INTRODUCTION

The following diagram indicates the origin of South African law: ACTIVITY 1.2

We sketched a brief history of the South African law above. In order to test your understanding and knowledge, you must complete the activity below. It is not enough to merely choose the correct option. You must motivate why you have chosen a certain option instead of the other options. By so doing you will enhance your understanding and knowledge of the history of South African law. You should only study the feedback after attempting the question on your own. Which ONE of the following statements is CORRECT?

(1) The Roman emperor Justinian was the author of the Corpus Iuris Civilis.

(2) Roman law was in force in the Netherlands before 1652.

(3) Roman-Dutch law was introduced in the Cape in 1652.

(4) The English legal system was adopted in the Cape when the Cape was ceded to England in 1814.

5FEEDBACK

(3) is CORRECT. Roman-Dutch law was indeed adopted by the Cape Colony when Jan van Riebeeck established a settlement there in 1652.

(1) is INCORRECT. Roman law was codifi ed in the Corpus Iuris Civilis during the reign of Emperor Justinian, but Justinian was not the author of the codifi cation.

(2) is INCORRECT. Roman law as a legal system was never in force in the Netherlands, but over many centuries, Dutch customary law was infl uenced by Roman law to such an extent that the system became known as the Roman-Dutch legal system.

(4) is INCORRECT. English law was never adopted as a system to replace Roman-Dutch law in the Cape, but after the Cape was occupied by England in 1806, and formally ceded to England in 1814, the legal system in force at the time at the Cape was infl uenced by English law. 2. SOURCES OF THE LAW

(Textbook par 1.2)

You must study par 1.2 of the textbook to gain a better understanding of the sources of South African law. It is important to distinguish between the origins of our law CLA1501/1 5

STUDY UNIT 1: The South African Legal System

(where our law comes from) and the sources of our law (where the law can be found). The sources where we fi nd South African law are shown in the following diagram: When you study judgments of the courts (par 1.2.3 of the textbook) as a source of law, please also refer to par 1.4 (the doctrine of stare decisis) and par 1.6 (court judgments) of the textbook.

ACTIVITY 1.3

Briefl y describe the factors that contributed to the preservation of Roman law. 6FEEDBACK

During the Middle Ages, traces of Roman law remained for two reasons, namely:

• Every person, wherever such person might be, was judged according to the law of his or her own tribe or country and, therefore, former Roman citizens were treated according to Roman law.

• The church exerted great infl uence during that period and canon law was based mainly on Roman law.

3. THE COURTS IN THE REPUBLIC

(Textbook par 1.3)

The following diagram shows the different courts in South Africa: Jurisdiction means the capacity to hear a case and to pass a valid judgment. The jurisdiction of a division of the High Court is unlimited in the sense that such a court may hear any type of criminal or civil case. It is, however, limited in the sense 6

SECTION A: INTRODUCTION

that a division of the High Court exercises its jurisdiction within a specifi ed area. A division of the High Court may hear constitutional matters, except those matters which, in terms of the Constitution, may be heard by the Constitutional Court only. For example, a division of the High Court may decide whether any fundamental right entrenched in the Constitution has been violated. Please note under par 1.3.3 of the textbook that the High Court is no longer the only court with jurisdiction to hear divorce matters. Regional courts have jurisdiction over the geographical area of several magisterial districts. In terms of the Jurisdiction of Regional Courts Amendment Act 31 of 2008, certain of these regional courts now have jurisdiction to hear divorce matters. Please also note under par 1.3.6 of the textbook that magistrates exercise their jurisdiction within certain magisterial districts. ACTIVITY 1.4

Identify and briefl y describe the most important superior courts. 7FEEDBACK

As you are aware by now, the courts in the Republic of South Africa are divided into superior and lower courts. The most important superior courts are the Constitutional Court, the Supreme Court of Appeal and the High Court. Refer to par 3 above and par 1.3 of the textbook for a brief description of the superior courts.

ACTIVITY 1.5

Identify and discuss the roles of the offi cers of the superior courts. 8FEEDBACK

Offi cers of the superior courts include

• registrars

• sheriffs

• in some divisions of the High Court, a Master’s offi ce that is presided over by a Master

• legal practitioners (advocates and attorneys)

You must peruse heading 3 above and par 1.3 of the textbook in order to familiarise yourself with the roles of the above-mentioned offi cers of the superior courts. CLA1501/1 7

STUDY UNIT 1: The South African Legal System

4. THE DOCTRINE OF STARE DECISIS

(Textbook par 1.4)

As is clear from par 1.4 of the textbook, the hierarchy of the courts determines how the stare decisis doctrine is applied. The following diagram represents the application of this doctrine.

STARE DECISIS IN ACTION:

Meaning of symbols:

bound by decisions of courts higher in hierarchy

bound by own decisions

Constitutional Court: bound by own decisions

Supreme Court of Appeal: bound by decisions of Constitutional Court bound by its own decisions

Each High Court:

Full bench: bound by decisions of Constitutional Court bound by decisions of Supreme Court of Appeal

bound by its own decisions

Bench of two judges: bound by decisions of Constitutional Court bound by decisions of Supreme Court of Appeal

bound by decisions of full bench

bound by its own decisions

Single judge: bound by decisions of Constitutional Court bound by decisions of Supreme Court of Appeal

bound by decisions of full bench

bound by decisions of bench of two judges

bound by its own decisions

Decisions of other divisions of the High Court not divisions of the High Court bound by decisions, but decisions have persuasive authority

Magistrates’ courts: bound by decisions of divisions of the High Court in their area, decisions of divisions of High Courts in other areas have persuasive authority

ACTIVITY 1.6

Below is a scenario that is designed to test whether you can apply your knowledge of the doctrine of stare decisis to a given set of facts. You are required to motivate your answer and to explain why the other three options are incorrect before you can look at the feedback.

A decision is delivered by the magistrate’s court in Bronkhorstspruit. An appeal is lodged with the division of the High Court in Pretoria and the case will be heard by 8

SECTION A: INTRODUCTION

a bench of two judges. There are confl icting judgments on the matter by several courts.

Which ONE of the following courts’ decisions will the division of the High Court in Pretoria be bound to follow?

(1) a decision by a single judge of the division of the High Court in Pretoria

(2) a decision by a full bench of the division of the High Court in Pietermaritzburg

(3) a decision by a bench of three judges of the Supreme Court of Appeal

(4) a decision by a bench of two judges of the division of the High Court in Cape Town

9FEEDBACK

(3) is CORRECT. The division of the High Court in Pretoria will be bound by the decision of the Supreme Court of Appeal, regardless of how many judges took the decision in the Supreme Court of Appeal, as this court is higher than the High Court in the hierarchy of the courts.

(1) is INCORRECT. In this case the division of the High Court in Pretoria will be bound by the decision of the Supreme Court of Appeal, as this court is higher than the High Court in the hierarchy of the courts. However, in the absence of a decision on the matter by the Supreme Court of Appeal, a bench of two judges will not be bound by an earlier decision of a single judge in its area of jurisdiction, although such earlier decision by a single judge will have persuasive power.

(2) is INCORRECT. In this case the division of the High Court in Pretoria will be bound by the decision of the Supreme Court of Appeal, as this court is higher than the High Court in the hierarchy of the courts. However, in the absence of a decision on the matter by the Supreme Court of Appeal, a High Court of one area of jurisdiction is not bound by the decisions of another High Court in another area of jurisdiction, although such earlier decision by a High Court in another area of jurisdiction will have persuasive power.

(4) is INCORRECT. In this case the division of the High Court in Pretoria will be bound by the decision of the Supreme Court of Appeal, as this court is higher than the High Court in the hierarchy of the courts. However, in the absence of a decision on the matter by the Supreme Court of Appeal, a High Court of one area of jurisdiction is not bound by the decisions of another High Court in another area of jurisdiction, although such earlier decision by another High Court will have persuasive power.

5. INTERPRETATION OF STATUTES

(Textbook par 1.5)

It sometimes becomes necessary for a court to determine what precise meaning must be given to a word or a phrase in an Act. The diagram that follows illustrates the process that a court follows to ascertain this meaning. CLA1501/1 9

STUDY UNIT 1: The South African Legal System

The court pronounces on the purpose and interpretation of the statute. 6. COURT JUDGMENTS

(Textbook par 1.6)

The contents and typical aspects of a court judgment are explained in par 1.6 of the textbook. There you will fi nd a copy of a court case, National Sorghum Breweries Ltd v Corpcapital Bank Ltd 2006 (6) SA 208 (SCA). All specifi c references in this section will be to that case. Although The South African Law Reports (abbreviated as SALR) are the offi cial law reports of South Africa, there are other law reports as well, such as The South African Criminal Law Reports (SACLR). Even if a previous decision is said to have binding authority, only certain parts of the judgment are important. The reader of a judgment must distinguish between two kinds of pronouncements by the court: those that relate to the reason for the decision (in Latin, the ratio decidendi ) and those that are merely incidental remarks

(in Latin, obiter dicta or, in the singular, an obiter dictum). The court will, however, not necessarily state expressly that a certain remark is its ratio decidendi: the reader must draw his or her own conclusion from the judgment. The ratio decidendi is the reason for the decision the court reached on the basis of the facts before it. The doctrine of stare decisis provides that only the ratio decidendi is binding on other courts in the hierarchy.

An obiter dictum is a statement made by the court, which is not part of the ratio decidendi. The court may, for example, refer to an alternative argument, or it may state what the position would have been had the facts been different. Although an obiter dictum is not binding, it may have persuasive authority, particularly if it was expressed by the Supreme Court of Appeal.

Now we want you to understand the obiter dicta and ratio decidendi. In National Sorghum Breweries Ltd v Corpcapital Bank Ltd, the ratio is that a creditor is free to cede its rights, and a non-variation clause in a contract does not restrict this power. Anything else that was said about lease or sale agreements in the judgment is obiter – those are statements that are not binding in terms of the doctrine of stare decisis. You can think of other examples of obiter dicta and ratio decidendi. 10

SECTION A: INTRODUCTION

SELF-ASSESSMENT ACTIVITIES

(1) Distinguish between authoritative sources and persuasive sources of South African law.

(2) Contrast authoritative sources and persuasive sources of South African law.

(3) A group of fi shermen normally set their lines on a beach where no boats were permanently stationed. The fi shermen did so with a view to catching a shoal of fi sh seen moving along the coast. No other fi shermen were entitled to set lines within any reasonable distance in front of the lines already set. Identify the case to which the above applies and outline the requirements that must be met before a customary rule will be recognised as a legal rule.

(4) Explain the operation and effect of the doctrine of stare decisis.

(5) Distinguish between ratio decidendi and obiter dictum. 7. EXPLANATORY NOTES

Advocate: An LLB graduate who has been admitted and enrolled as an advocate of the High Court. When an advocate practises as such, he or she is usually also a member of a Bar. There is a Bar for each of the various divisions of the High Court. In order to become a member of a Bar, a candidate must complete a pupillage and pass the Bar examination. An advocate may appear in any court, except the small claims court. In terms of section 34(2)(a)(ii) of the Legal Practice Act 28 of 2014 an advocate may now render legal services in expectation of a fee upon receipt of a request directly from a member of the public, provided that he or she is in possession of a prescribed certifi cate and a trust account.

Appeal: Taking a decision of a lower court to a higher court. The person bringing the appeal hopes to persuade the higher court to change the decision of the lower court. The person who takes the matter to a higher court is called the appellant, regardless of whether this party was the applicant or the respondent in the fi rst case, or whether this person was the plaintiff or the defendant in the fi rst case (see “Defendant” and “Plaintiff” below). Attorney: An LLB graduate who has passed the board examination of the law society, has completed articles of clerkship and has been admitted and enrolled as such by the High Court. Attorneys may appear in the lower and the superior courts. Attorneys have traditionally dealt directly with members of the public who need legal advice or representation, but they may refer their clients to advocates. Apart from litigation, attorneys also give assistance in all kinds of legal matters such as the drawing up of contracts and wills. Cede: To transfer, assign or hand over one’s right to claim something to another person.

Clerk of the court: The offi cial who receives and issues legal documents and pleadings in civil actions in the magistrate’s court (see “Registrar” below). Codifi ed: Recorded in one comprehensive piece of legislation. The Corpus Iuris Civilis is a codifi cation of the Roman law, which was compiled during the reign of Emperor Justinian in the sixth century. South African law is not codifi ed. CLA1501/1 11

STUDY UNIT 1: The South African Legal System

Common law: This term is used in both a wide and a narrow sense. In the wide sense it is used to indicate law that is not contained in legislation and in the narrow sense it is used specifi cally to refer to the works of the old authorities. Constitutional Court: The highest court in South Africa for constitutional matters. Defendant: The person who is sued by the plaintiff in a civil action. In certain types of cases, the defendant is called the respondent.

Government Gazette: The state’s offi cial newspaper in which all Acts, proclamations and other information that needs to be

Contact this candidate