Chapter 13

Question 1

What are the various ways in which contract can be terminated by law?

Answer 1

Ways in which contracts may terminate by law:
1) Proper performance
2) Prescription
3) Impossibility of performance
4) Merger
5) Set-off
6) Death
7) Insolvency

Question 2

What is meant by proper performance?

Answer 2

If both parties do what they’re supposed to do in terms of the contract, the contract will automatically come to an end upon proper performance by the parties. For this, performance must be made fully and properly in accordance with what was agreed upon.

Question 3

What is meant by prescription?

Answer 3

The law provides for contractual obligations to come to an end automatically after a certain period. When this happens, we say that the obligation has prescribed.

Question 4

What is the period of prescription for an ordinary contractual debt? When does it apply?

Answer 4

Three years.

If the creditor does not follow up on the payment and three years pass by, he cannot claim payment from the debtor.

Question 5

For which types of debt is the period of prescription 30 years?

Answer 5

• Any debt secured by a mortgage bond
• Any judgement debt
• Any debt in respect of any tax imposed, or levied by, or under any law
• Any debt owed to the state - in respect of any share of profits etc.

Question 6

What is the prescription period for a debt owed to the state?

Answer 6

15 years.

Question 7

What is the prescription period for a debt arising from a bill of exchange (cheque)?

Answer 7

6 years.

Question 8

When does a prescription begins to apply?
When does a debt become due?

Answer 8

A prescription begins to run from the day on which the debt is due.
A debt becomes due when the creditor has knowledge of the identity of the debtor and the fact that gave rise to the debt.

Question 9

What happens when prescription is interrupted?

Answer 9

The period of prescription starts all over again after interruption.

Question 10

When is prescription interrupted?

Answer 10

A prescription is interrupted by:
• Acknowledgement of liability – this is when the debtor acknowledges that he owes performance. The prescription period then starts a fresh.
• Serving summons on the debtor by the Sheriff.

Question 11

What happens when a prescription is impeded?

Answer 11

In this case, prescription does not start to run from the beginning. It stops for a period and then continues to run again after the impediment.

Question 12

When is a prescription impeded? For how long is prescription suspended?

Answer 12

Where a creditor or claimant is a minor or insane. In this case, the prescription is suspended until one year after person becomes sane or major.

Question 13

What happens if a debtor pays an old debt in good faith without realising that the contract has prescribed?

Answer 13

The payment is valid and cannot be recovered by the debtor.

Question 14

What is meant by impossibility of performance?

Answer 14

If after the conclusion of a valid contract, performance by one or more contracting parties becomes objectively impossible, both parties are excused by law from performing in terms of the contract.
* the parties will not be in breach of contract.

Question 15

Define objective impossibility.

Answer 15

Performance will become objectively impossible when events are beyond the control of the parties and not due to the fault of any party.

Question 16

Define a merger.

Answer 16

Merger is when one person becomes the debtor and the creditor in respect of the same debt.

Question 17

Define set-off.

Answer 17

This is when the debt is extinguished by the extent to which the debtor and creditor mutually owe each other.

Question 18

What are the requirements for set-off?

Answer 18

• The debt must be between two people who are acting in the same capacity.
• Debts must be of the same nature.
• Debts must be due and enforceable.
• Debts must be liquidated at the time of set-off.

Question 19

Will the death of a party automatically bring the contract to an end?

Answer 19

The death of a party will not automatically bring the contract to an end. It depends on whether the performance that was due to, or by a party was specific to the party.

Question 20

When will the contract terminate as a result of death?

Answer 20

The contract will terminate if the rights and duties of the deceased party cannot be transferred to their estate. This is where the contract is terminated due to objective impossibility.

Question 21

Does insolvency automatically terminate the contract between the insolvent and the other contracting parties?

Answer 21

No. It is the trustee who decides whether to uphold these contracts or terminate them, this decision is final. The trustee makes this election based entirely on the best interest of the creditor, and not the insolvent.

The trustee may exercise is right within a reasonable time – if not other party can assume that trustee does not intend to abide by the contract.