Theme 3 Pt 4 Flashcards
POSSIBILITY
GR: Is that impossibility of performance
prevents the creation of obligations.
The following contracts are void ab initio due to impossibility of performance:
1)Contracting on an object that ceased to exist (Destroyed).
2) Sale of an object that never existed.
3) Sale of an object that cannot be disposed commercially (Retail license, drivers license etc.).
However not all types of impossibility prevent the creation of contractual obligations
DIFFERENT TYPES OF IMPOSSIBILITY
1) SUBJECTIVE IMPOSSIBILITY
2) OBJECTIVE IMPOSSIBILITY
SUBJECTIVE/RELATIVE IMPOSSIBILITY:
1) Impossibility insufficient to render performance impossible.
2) Example: Where X agrees to make payment but does not have money at the time of contracting OR the goods are not available in store but Y undertakes to deliver despite this fact).
3) Contract is valid
OBJECTIVE/ABSOLUTE IMPOSSIBILITY:
1) The impossibility is so severe that nobody
could render performance.
2) E.g. Where the subject matter of the contract is destroyed)
Performance is extremely:
1) Difficult
2) Dangerous OR
3) Costly (Economic impossibility)
4) TEST: Commercial reasonableness.
EXAMPLE:
A load of imported cars fell into the ocean while being transported, they might conceivably be retrieved by extensive
underwater searching.However, this would be so costly and difficult as to make it practically impossible. Performance will
therefore be deemed objectively impossible.
1) FACTUALLY: POSSIBLE
PRACTICAL/ECONOMICALLY: IMPOSSIBLE.
CONNECTION: Factual and practical; and objective.
DIFFERENT TYPES OF IMPOSSIBILITY
1) LEGAL IMPOSSIBILITY
2) SUPERVENING
3) INITIAL IMPOSSIBILITY
LEGAL IMPOSSIBILITY
1) Performance should be lawful or legal for a contract to be valid.
2) Legal impossibility: Contract is void
(Objectively impossible: See Wilson v Smith.
3) Contract void for illegality or for
impossibility?
4) Because the impossibility flows from the
illegality, then legality.
INITIAL IMPOSSIBILITY
1) Initial – Impossible before conclusion of
contract: Renders contract.
2) Initial objective (Void)/ Subjective
impossibility (Valid).
Supervening
1) Impossibility after conclusion, obligations
created, but may be terminated due to impossibility.
2) A and B enter is to a lease agreement but later the subject of the lease becomes destroyed, then obligations terminate due to impossibility.
Fault:
Where A deliberately destroyed the
property – breach of contract.
Objective impossibility:
1) Entire contract is void, unless it is
divisible
Warranties:
1) A term in a contract which extends the liability of a party further than is ordinary.
2) Therefore warranty could impose obligations even if such obligations are impossible to perform.
3) Action instituted on basis of breach of warranty.
Think about a situation of factual and practical impossibility:
1) Assumption of risk.
CONSEQUENCES OF IMPOSSIBILITY
1) No obligation arises if performance is
objectively impossible. There cannot be a
claim for performance or contractual
damages.
2) Prior part performance must be returned.
Partial impossibility is possible?
1) If yes, the remaining possible performance can still be enforced.
CERTAINTY
1) GR: Uncertainty about what has to be performed prevents the creation of
obligations
2) Certainty includes the ability to be rendered certain (ascertainable), generally through an appropriate mechanism described in the contract itself
A CONTRACT TO CREAT ANOTHER
CONTRACT: Can be invalid, unless the parties have agreed to the terms of the
contract to be made?
1) Options & preference contracts.
2) Agreement to negotiate later in good faith is not void for uncertainty
3) Requires a deadlock-breaking mechanism in order to be valid.
4) Memorandum of Understanding (MOU).
Makate v Vodacom Ltd
1) Call Me case – CEO left as the final
decision maker as to a fair price.
Southernport Development (Pty) Ltd v Transnet Ltd
1) Arbitration for final determination if negotiations fail.
VAGUE LANGUAGE
1) Whilst courts will generally try to give effect to a contract rather than strike it down, vague language can render a contract void
CONTRACTS OF AN INDEFINATE PERIOD
1) Parties may sometimes enter into contracts for an indefinite period.
2) Courts generally give effect to these
contracts despite the uncertainty they
create.
3) Courts will seek guidance from the actual
or presumed intention of the parties in
giving effect to the contract
CONTRACTS OF AN INDEFINATE PERIOD
1) Such contracts are valid and enforceable,
and not automatically void for uncertainty.
2) Contract in force until termination by
reasonable notice.
3) Contract force until a reasonable
period lapses.
4) Contract will endure forever, if
possible.
CONTRACTS CONTAINING A MECHANISM
1) SA Adopted a Roman law maxim “Something is certain if it can be rendered certain”
CONTRACTS CONTAINING A MECHANISM
1) Reasonable price is generally, but not always deemed uncertain.
2) By a third party: 3P may determine performance, as long as they are identifiable and they determine the performance objectively and
reasonably.
3) By determination of one of the parties: Not valid if determining one’s own performance.
The mechanism must function independently from the intention of the parties, although a party can be involved in the mechanism:
1) Mechanism in the contract. E.g.: Escalation clause: Increase in rental amount 10% after every 6 months.
2) External mechanism or standard. E.g.: Inflation.
CONSEQUENCES OF LACK OF CERTAINTY
1) An obligation which is uncertain is invalid.
2) If this is the sole or main obligation, then the contract is void.
3) If the obligation can be separated then the remaining obligations can be enforced
(Severability of obligations)
