Types of terms

Question 1

Essentialia definition

Answer 1

■ Definition: distinctive terms used to identify or classify a contract as one of the specific contracts recognised by our common law; the characteristic rights and duties that distinguish them

Question 2

Naturalia definition

Answer 2

■ Definition: terms additional to the essentialia that are automatically incorporated in contract by operation of law (ex lege).

Question 3

Advantages of naturalia

Answer 3

○ These are convenient in that the parties don’t have to negotiate and agree upon them.
○ They also serve to protect one of the parties from a hazard typically associated with that type of contract.

Examples:
● One of the naturalia of a contract of sale is that the seller will be liable for latent defects, which protects the purchaser from being sold something that has defects that are not immediately apparent.
● The landlord’s tacit hypothec, which protects the landlord from a tenant who does not pay their rent by allowing them to attach the property of the tenant until the tenant pays any outstanding amount.

Question 4

Incidentalia definition

Answer 4

■ Definition: additional terms provided by the parties other than naturalia and essentialia.
● E.g. parties agreeing in a contract of sale that the purchaser pay a fee for delivery, or that the seller is exempted from liability for latent defects.

Function of incidentalia
● The parties may want naturalia excluded, qualified, or supplemented.
● In this way, the law attempts to strike a balance between protecting parties and freedom of contract.
Examples: warranty and condition and exemption clauses

Question 5

Contra proferentem

Answer 5

Has to do with exemption clauses
○ The courts have responded by interpreting such clauses narrowly, or contra proferentem (“against the proposer” of the contract), though this protection is limited in that courts only have discretion to do this in cases of ambiguity

Question 6

Onus regarding variation of the naturalia: Stocks and Stocks v TJ Daly Facts

Answer 6

○ The appellant was a construction company who instituted action against the respondent for damage caused to a mobile crane during transportation.
○ The appellant alleged that the contract was an oral one in which the respondent undertook to convey the crane for a sum of money.

Court on appeal:
○ The final analysis of the case turned on the incidence of the burden of proof.
○ Ordinarily, the general rule is that a plaintiff who sues on a contract must prove their contract.

Question 7

Outcome of stocks

Answer 7

Onus of proof:
○ There was an additional argument by the appellant that the onus rests on the respondent because the alteration amounts to a waiver of the normal rights accorded by the contract of carriage to the appellant.
■ The court rejected this argument, holding that a party who, in the course of negotiating a contract, agrees to a term which will have the effect of varying what otherwise would have been one of the normal incidents of the contract, cannot be said to waive a right.

Finding:
○ The court thus confirmed the finding that it was the appellant who had to prove that the clause was not part of the contract (which they failed to do), and that the alteration of the naturalia of a contract does not affect this onus.
○ The appeal was dismissed.

Question 8

Express terms definition

Answer 8

○ contractual terms specifically agreed upon by parties expressed in words orally or in writing

Question 9

The caveat subscriptor rule

Answer 9

Deals with signed contracts
● A party who signifies their assent by signing a written contract is ordinarily held bound by its terms whether or not they have read or understood them, protecting the reliance interest of the other party

Question 10

In what three ways can a signatory escape liability under the caveat subscriptor rule?

Answer 10

1. Iustus error (regarding the contents of the contract, the nature of the contract, or the identity of the parties)
2. Where the other party unreasonably relied on the appearance of consensus suggested by the fact that the document was signed; or
3. Where consent is tainted by misrepresentation, duress, undue influence or commercial bribery

Question 11

Express terms in standard-form contracts

Answer 11

● A party presenting a standardised contract to another for signature is expected to draw attention to any term one would not expect to find in such a contract (otherwise the signatory may not be bound).

Question 12

Tacit term definition

Answer 12

terms which the parties intended (already had in their mind), or are deemed to have intended, but which they did not express.
● These have the same legal effect as express terms and are established by having regard to the conduct of the parties, as well as considering the express terms of the contract.

Question 13

Dual basis for a tacit term

Answer 13

1. Actual unexpressed intention; or
   2.Imputed/deemed intention.

Question 14

Dual basis for tacit term: Alfred McAlpine v TPA

Answer 14

“The court implies not only terms which the parties must actually have had in mind but did not trouble to express but also terms which the parties, whether or not they actually had them in mind, would have expressed if the question, or the situation requiring the term, had been drawn to their attention.”
○ If they had been asked about it, they would have expressed that they wanted to include it.

Question 15

Test for tacit term

Answer 15

Bystander test
○ When an impartial bystander asks the parties to a contract what would happen in a particular situation (which they had thought about but not expressed an opinion on, or which they had not thought about yet), and the parties agree the answer to is self-evident, then they are taken to have included that term

Question 16

Factors when applying the bystander test

Answer 16

1. A tacit term can only be imported into a contract if it is by necessary implication (i.e. necessary for the contract they’re entering into), not when it is merely reasonable or convenient
2. It must be inferred from the express terms and surrounding circumstances, but not inferred if -
   ○ It is contrary to an express term (and the tacit term has the effect of contradicting the express term); or
   ■ Remember: a tacit term is not a new term brought in; we are just making clear a term that already exists in the contract.
   ○ The contract is detailed and comprehensive.
   ■ Courts are slow to recognise tacit terms, but particularly where the contract is detailed and the term is something the parties must have considered at the time of the contract - the fact that it is left out means its exclusion must have been intended.
3. The tacit term must be capable of clear, precise formulation.
   ○ Courts have said that the more complex a tacit term that the party alleges, the less likely it is that the parties actually considered that or, at the time of contracting, that they would have agreed.

4.It must concern the actual or supposed intention / prompt response of both parties - not just one.

Question 17

Wilkins v Voges facts

Answer 17

○ Stronghold (appellant) had purchased a piece of land and intended to develop a residential township from Voges (respondent). However, after having paid a substantial portion of the purchase price, Stronghold discovered that a plan existed for the construction of a road across the parcel of land which, if implemented, would impede the development

Question 18

Wilkins v Voges outcome

Answer 18

○ The court found that the imputed tacit term relied on has not been established and gave a number of reasons for its conclusion.

1. The tacit term pleaded is not readily reconcilable with the scheme or express terms of the agreement.
   ● The reason for this was that the tacit term purported to saddle Voges down with a lot of responsibility when he had no such obligation to or even direct interest in the development of the township.
   ● There was thus no incentive for Voges to have agreed to such a tacit term.
2. There was a fundamental inconsistency in Stronghold’s approach.
3. The warranty is not essential to give “business efficacy” to the contract because a warranty, as opposed to an ordinary term which governs the performances to be rendered by the parties, confers a benefit on one party only.
4. The defendant failed to mention the alleged warranty at the first appropriate opportunity
5. Finally, the defendant appeared to experience difficulties with the formulation of the tacit term - a number of terms were pleaded with a number of alternatives.

outcome:
■ In general, courts are slow to find that tacit terms exist and the court here found that not a single compelling reason had been advanced to read in the tacit term.

Question 19

Tacit contract definition

Answer 19

○ Contracts that are inferred from the parties’ conduct as opposed to written or spoken words.

Question 20

Subjective and objective basis of tacit contracts?

Answer 20

Subjective basis:
● Christie suggests that they are not based on reasonable reliance, but rather on actual consensus as inferred from the proven facts.
● The problem is that tacit contracts have been found to exist where it seems as if at least one party was labouring under a material mistake, which negates actual agreement between the parties.

Objective basis:
● The reliance theory has surfaced within this context, suggesting that tacit contracts are in fact a manifestation of objective approaches to contractual liability (i.e. what the intention of parties appears to be).

Question 21

Test for determining the existence of a tacit contract?

Answer 21

Buffalo City Metro Municipality v Nurcha Development Finance 2019:
● “The party alleging a tacit contract needs to prove a) unequivocal conduct, giving rise to b) an inference of consensus on a balance of probabilities.”

Question 22

Implied terms definition

Answer 22

● Terms not explicitly agreed upon by the parties, but which are nevertheless included in a contract by operation of law (ex lege), by custom or trade usage, or from the facts surrounding the agreement of the parties; naturalia.

● A term implied ex lege is one imported into a contract by law and operates unless the parties exclude it - something they are usually, but not invariably, permitted to do.

Question 23

Custom/trade usage

Answer 23

● If the parties are engaged in a particular trade and they know that there is a trade usage governing their transaction, they are taken to have tacitly incorporated it into their contract

In a situation where one of the parties knows of the trade usage, but the other does not -

The latter may still be bound if:
1. The alleged trade usage is shown to be universally and uniformly observed within the particular trade concerned;
2. It is notorious, reasonable and certain;
3. It does not conflict with positive law; or
4. It does not conflict with the clear provisions of the contract.

○ In this case, the ignorant party would not in fact have agreed to the term imported by the custom, but they are taken to have done so if they led the other party reasonably to believe that they were aware of the well-known term and meant to contract subject to it (basis in reasonable reliance).

Question 24

South African Forestry v York Timbers facts

Answer 24

■ In 1993, the government transferred all its rights and obligations under the two relevant contracts to the appellant (SAFCOL).
■ In 1999, SAFCOL instituted action in the HC for an order declaring that the two contracts had been terminated. The HC found in favour of York Timbers and the case went on appeal
■ All individual contractors complied with the agreements reached, however, between 1991 and 1993, York refused to pay the increase.
■ When SAFCOL inherited the contract, York was still paying prices from 1990 and thus had a competitive edge.
■ SAFCOL decided to employ the provisions in clause 3.2. The Minister agreed with SAFCOL that an agreement between the parties was not a real possibility, which gave rise to a review application by York. Eventually, the litigation was settled and York undertook to pay the increased prices without interest (thus, still benefitted).
■ After a series of delay tactics by York, SAFCOL attempted to cancel the contract

Question 25

Outcome of york timbers

Answer 25

● The court found that it was clear that York failed to comply with this obligation and did frustrate or delay SAFCOL’s exercise of their rights. Thus, York had breached the contract.
■ For these reasons, SAFCOL was found to have validly cancelled its contract with York Timbers

Question 26

General terms: Supposition (assumption) definition

Answer 26

● Definition: makes the operation or existence of a contract dependent on the existence of an earlier or current state of affairs.

● Example: if a person is buying a textbook and the supposition is that the textbook is the newest version thereof, the contract hinges on the correctness of this supposition.

Question 27

Supposition’s link to common mistake

Answer 27

○ A supposition or assumption must be shared by both parties in order to form the basis of the contract, i.e. it must amount to a term of the contract. In this was, it is similar to a common mistake.

Question 28

Dickinson’s Motors v Oberholzer

Answer 28

■ In this case Oberholzer had in his possession a car that his son had not fully paid off. He entered into an agreement with Dickinson’s Motors to pay off his son’s debt to keep the car. A third party, however, came along to claim that the car belonged to their company.
■ There was consensus between Oberholzer and Dickinson’s Motors but they made a common mistake because they both thought that the car belonged to the latter.
■ The agreement was based on the supposition that the object of their contract was the car which belonged to Dickinson’s Motors. The fact that this supposition was false meant that their contract was void (exception to the rule that consensus = valid contract).

Question 29

Can a supposition be used for future facts?

Answer 29

○ Van Reenen Steel v Smith 2002:
■ “Assumptions or suppositions can have many forms and have different effects depending upon the circumstances. An assumption relating to a future state of affairs relates to an agreement which is in operation and its recognition would have a direct bearing upon one of the terms of the agreement. Such a supposition is indistinguishable from a condition.”
○ Thus, a supposition relates to a present or past fact (confirming the existence of a state of affairs), while a condition relates to a future fact

Question 30

Warranty definition

Answer 30

a term where a party assumes liability beyond where they normally would // assumes “absolute” liability.
● A person who receives a warranty is in a very strong position; e.g. if there is initial or supervening impossibility, the other party is still held to performance.

Question 31

Modus (modal clause) definition

Answer 31

term that requires the creditor to do or give something to retain performance.
○ Example: if someone makes a donation of land subject to a modus that the land is to be used for a school, and the recipient builds a block of flats on the land, the recipient will have breached the modus

Question 32

Conditions definition

Answer 32

term that qualifies the operation of an obligation with regards to an uncertain future event.

Question 33

Suspensive conditions definition

Answer 33

suspends full operation of the contract until it is certain that an uncertain future event has concurred or will not occur.

Question 34

Position prior to the fulfilment of the contract or failure of the suspensive condition

Answer 34

■ The contract exists but it is not operational, thus not yet enforceable.
● Note that this may form an asset in the holder’s estate as a conditional right.

Question 35

Conditional sales

Answer 35

● Corondimas v Badat: When a contract of sale is subject to a suspensive condition, there exists no contract of sale unless and until a condition is fulfilled.

Question 36

Effect of the fulfilment of the suspensive condition

Answer 36

■ The contract becomes enforceable with retroactive effect; it is as if the contract has always been operative

Question 37

Effect of the failure of the suspensive condition

Answer 37

■ The contract is void, and the retroactive effect means that it is as if the contract had never come into being.

Question 38

Waiver of suspensive condition: Westmore v Crestanello facts

Answer 38

● In this case, the applicant, Westmore, had attempted to buy certain property and sought an interdict prohibiting the respondent from selling to anyone else.
● On 1 June 1994, the applicant and the respondents entered into an oral agreement, in terms of which the applicant purchased property for R1.96 million.
● The applicant obtained a bond for R1.66 million and advised the respondents accordingly on 14 July. Additionally, she advised them that guarantees for the full amount would be delivered by the cut-off date of 31 August.
● On 16 July the respondents sold the property to a third party for R2.7 million

Question 39

Outcome of westmore v castello

Answer 39

■ The court found that clauses of the nature in question (containing a cut-off date for fulfilment) have in the Transvaal consistently been held to be for the sole benefit of the purchaser and hence capable of being waived by the purchaser.
■ The court found no reason to deviate from these decisions - the date for fulfilment may be wholly or partially for the benefit of the respondent/seller, but the stipulation that the contract is conditional upon the obtaining of a bond remains purely for the benefit of the purchaser.
■ The bond that the applicant obtained was not for the full amount, therefore there had not been full compliance. However, when she contacted the sellers, she made it clear that guarantees would be furnished by the due date. She made it abundantly clear at all times that she intended to be bound by the contract and, by necessary implication, she waived clause 4.2.
■ Thus, she was entitled to specific performance (get the property she paid for).

Question 40

Resolutive condition definition

Answer 40

the continued existence of an obligation is dependent on the occurrence of an uncertain future event.

Question 41

Position prior to the fulfilment or failure of a resolutive condition

Answer 41

■ The contract continues to be performed in terms of

Question 42

Effect of fulfilment of resolutive condition

Answer 42

The contract will come to an end.
■ If the contract is of an ongoing nature, it is as if the contract is void ab initio

Question 43

Effect of failure of resolutive condition

Answer 43

■ The resolutive condition never materialises, thus the contract simply continues to operate.

Question 44

● Doctrine of fictional fulfilment of conditions and its requirements

Answer 44

Definition: a condition is deemed to be fulfilled when someone deliberately interferes in its fulfilment or non-fulfilment.

Requirements: Scott v Paupard
■ i) Intention to interfere
■ ii) Duty to not interfere
Basis: implied term, good faith.

Question 45

Time clauses definition

Answer 45

a term which postpones or fixes the date for performance; makes the operation of a contract dependent on an event or time which is certain to arise in the future.
○ The default position in a contract is that performance is due immediately, but often parties will set a certain date for performance.
○ Note: if there wasn’t certainty on the occurrence of this time or event, it would be a condition

Question 46

Suspensive time clause

Answer 46

○ The relevant obligation arises once a contract is concluded, but performance/fulfilment is postponed.
○ E.g. A borrows money (obligation to repay exists once contract is entered into), but only has to repay it in 6 months.

Question 47

Resolutive time clause

Answer 47

○ Some ongoing performance which will stop on a date upon the occurrence of a future event.
○ E.g. A must support B after their divorce by paying spousal maintenance for three years.