Content and Operation of Contracts

Who must perform and to whom? What must be performed?

Parties to the Contract

A contract creates obligations between a creditor(s) and a debtor (s). NB: Depending on the contract type, role of debtor and creditor may be swapped, e.g. in a contract of sale, where the seller is creditor regarding right to receive payment and debtor regarding duty to deliver goods to the buyer.

Multiplicity of Parties

Where there are several parties to an agreement, there are different kinds of relationships that determine manner of performance. These are

A Simple Joint Relationship

Here parties agree on one performance, but there are separate obligations. It’s not a true co-debtorship because the same performance in its entirety must be owed by each debtor.
Consequences:

• Breach by 1 debtor: not pushed onto others; they’re only responsible for their share only.

• Release: only absolves the released debtor. The others are still responsible for their share.

• If one debtor pays more than his fair share, there is no right of recourse against the other debtors. Must look to unjustified enrichment.

Common/Collective Joint Relationship:

1 obligation and the debtors must perform jointly because separation would not make economic sense/performance is indivisible.

Joint and several liability (singuli in solidum): —> Most favourable to creditors and most onerous to debtors

Creditor can choose how to claim; either full performance from 1 or divided among some or all of the debtors.

Consequences:

• If 1 debtor performs fully, the obligation is extinguished for everyone

• If 1 debtor fulfills the performance partially, the outstanding balance must be claimed from the other debtors

• If 1 debtor is released by the ceditor, the others are not released but the outstanding balance will be reduced proportionally.

• The paying debtor doesn’t have an automatic right of recourse to claim from the other creditors.
  
  

Bellingan v Clive Ferreira

There was a partnership that got a loan from a bank.
The court found that if the co-debtors have agreed amongst themselves how much each is liable for in the event that 1 debtor pays the full amount, this decision overrides everything, including a cession.

Factors determining joint relationship:

PoD: Simple joint relationship.

Divisible performance: simple joint or joint and severally liabe.

Individible performance: either common joint or joint and severally liable (if evidence is very clear).

(Partnerships: always common joint relationship, but changes to joint and several liability upon termination.)

Privity of Contract:

A contract can only bind the party who concluded it and only creates rights and duties for the parties that concluded it.

This notion is not relaxed at all regarding imposing duties on third parties who have not consented to the contract, but it’s strict application has been relaxed over time when conferring benefits to third parties.

1st Instance of 3p Involvement: Representation (Agency)

When someones is appointed to conclude a juristic act on behalf of someone else.

Requirements:

1. Intention: obligations are intended to bind the P and the 3p, not the representative. \

2. Authorisation: the P must confer power to the R that he can act on his behalf. Such authority can be granted by operation of law (parents representing children) or by agreement (power of attorney or contracts of mandate).

3. Insufficient authority? No obligation between P and 3p, however it is possible to ratify the contract after the fact.
   
   

4. Ostensible authority: P can be bound despite the lack of actual authority where A had apparent authority to represent P (when P by words or conduct created the impression that A had the power to act on P’s behalf) Makate v Vodacom.

2nd Instance: Contract for the Benefit of a Third Party (stipulatio ulteri)

Stipulatio Alter = a stipulans contracts with a promittens in terms of which the promittens undertakes to perform for the benefit of a third party. E.g. Life Insurance contract where I am the Stipulans, the Insurance Company is the Promittens, and my Spouse is the 3p.

Construction:

1. Direct right model: contract between S and P creates an immediate unstable right for the 3p.

   1. Unstable right because it must first be accepted by the third party to be enforceable.

   2. True contract in favour of the 3p.

   3. Drawback: Does not confer duties on the 3p.

   4. Advantage: 3p has a right even before he accepts\

2. Acceptance (two contract) model: 3p must first accept an offer of the benefit from the P to have a right. Prior to that acceptance, the 3p has nothing.

   1. The contract between S and P doesn’t automatically create a right for the 3p.

   2. Two contracts: contract between S and P and then contract between P and 3p, making it a normal transaction.

3. Aanname model: just one comntract between S and P from which the 3p’s right to benefit directly springs.

   1. The 3p’s right is conditional and will only become enforceable once accepted by the 3p. Until acceptance, S and P may agree to rescind their agreement, which would extinguish 3p’s right.

   2. 3ps acceptance is not for an offer, but the right to the benefit.

Types of Obligations:

Types of obligations:

Reciprocal obligations: obligations that link to each other where one performance must be done in exchange for another performance. (most common type, giving rise to a powerful breach of contract defense).
Simple, alternative, facultative or generic obligations:

• Simple: performance is certain.

• Alternative: ascertainable performance that occurs between 1 or several alternatives. Becomes simple once the performance is certain.

• Facultative: performance is specified, but the debtor can choose to deliver another performance.

• Generic: performance that is ascertainable until the particular performance has been individualised and appropriated through the contract.

Divisible vs Indivisible obligations

Divisible: performance can be subdivided into meaningful discrete aspects.

Indivisible: cannot be subdivided, must be performed as a whole to be meaningful.

Bob’s Shoe Centre v Heneways Freight Services.

Bob’s Shoe Centre v Heneway’s Freight Services

BSC imported shoes from Portugal and appointed Heneway’s to arrange the logistics for the shoes to arrive to SA and compile the necessary docs to get the shoes out of customs. H made a mistake, which delayed the delivery of the docs by 2-3 days. Eventually customs released the shoes, but they had been stolen a few days before.

Theft is a supervening impossibility of performance, so the unperformed part of performance (delivering the shoes to the warehouse) was extinguished, as well as the obligation to pay for it.

LQ: Did BSC still have to pay for the parts of the obligation already performed? Was the obligation divisible?

Court found: Court found that the way the duties were set out and the fact that each performance had to be performed in a different capacity indicated that the parties regarded the performance as divisible/

Also, the fact that the counter-performance is divisible creates a presumption that the performance is divisible, provided that every distinct aspect of the performance can be related to distinct aspects of the counter-performance. Here, BSC had to pay a specific amount corresposnding to every duty.

Types of Terms

Essentialia: Characteristic right and duties which distinguish different types of contracts and are based on the parties’ subjective intentions when contracting. e.g what makes a contract of sale: payment of a purchase price and a specific subject of sale.

Naturalia: terms additional to the essentialia that are read into the contract automatically by operation of law. These are meant to promote an equitable balance between the interests of the parties. They are based on the idea of public policy, fairness and efficiency.

Incidentalia: additional terms agreed upon by the parties with the effect of excluding, qualifying or supplement the naturalia. e.g voetstoots clause excluding a warranty or terms that govern time and place.

Stocks and Stocks v TJ Daly

SS and TJD concluded a contract of bailment of a crane, which got damaged in transit while in the possession of TJ Daly. TJ alleged that there was an owner’s risk clause which absolved them of the liability they would normally be subject to in terms of a contract of bailment. (case of incidentalia allegedly excluding a naturalia of a contract of bailment).

Court Found: SS because they were the plaintiff, bore the onus of proving the absence of the owner’s risk clause and TJ Daly had the burden of rebuttal.

Express Terms, Tacit Terms and Implied Terms

Express Terms:

Terms expressed in words based on the parties expressed consensus. They are proved by means of direct circumstantial evidence i.e. the contract itself.

Tacit Terms

Unspoken terms based on the parties’ deemed intentions (what the court thinks they intended), based on the written agreement.

Def in Alfred McAlpine & Son v TPA: the court alludes to not only terms which the parties had in mind but didn’t trouble to express, but also terms which the parties never considered but would have expressed if the situation requiring the term was drawn to their attention.

Test used to determine the existence of a tacit term: The Bystander Test + The Business Efficacy Test.

Business efficacy test: Inherited from an English case (Reigate v Union Manufacturing): must only imply a term if it’s necessary to give the contract practical effect.

Bystander test: whether an impartial bystander, knowing all of the facts, would believe that both parties to the contract would have agreed to the term if it had been proposed during negotiations.

Dual basis for a tacit term:

Situation 1: the parties contemplated the potential situation, but didn’t expressly include it because they thought it was self-evident.

Situation 2: the parties didn’t forsee/contemplate the situation at all.

Factors when applying the test: Wilkins v Voges

Factors to Consider when Applying the Business Efficacy/Bystander Test

Wilkins v Voges:

1. Only by necessary implication: if the term gives business efficacy to the contract or in other words, is necessary for the contract to function properly.

2. Circumstantial evidence: inferred from the express terms of the contract together with the surrounding circumstances about the conclusion of the contract.

3. Cannot read in a tacit term if its contract to the express terms of the contract as there cannot be two contradicting intentions in a contract.

4. Cannot be read in when the contract is detailed and comprehensive as that makes it less likely that the parties would’ve left something out.

5. Tacit Term must be formulated clearly and precisely

6. Concern the actual or deemed intention of BOTH parties.

7. The court is allowed to assume, in the absence of anything contrary, that the parties fit the standard of a reasonable business person.

Wilkins v Voges

Stronghold wanted to build a township on a piece of land bought from V. It was later discovered that there was a provincial road to be built across the land, which would stop the development of the township. S stopped paying the purchase price and alleged they validly cancelled the contract, seeking a refund on the basis that V had breached a tacit warranty in the contract.

Court found:

In application of the factors, that the contract was quit detailed and comprehensive, which left little room for the reading in of a tacit term.

Also found that S’s arguments of fraudulent concealment of information do not support the reading in of a tacit warranty because it imposes an obligation on V that the written contract makes no allusion to. The warranty would in effect have too far-fetched obligation imposed on V if it was deemed to exist.

Basically, this tacit warranty is not sufficient to give business efficacy to the contract because it is in favour of only one party. The fact that it was also very difficult for S to formulate the exact content of the tacit warrantee also suggests that no such term is self evident or can be deemed from thei subjective consensus. ssssss

Implied Terms

Implied (ex lege) terms: terms automatically read into a contract by operation of law.

They are not sourced from the parties’ agreement, and are different from naturalia because all naturalia are implied but not all implied terms are naturalia.

Sources of implied terms:

• Where consumers are in a weaker contractual position an need protection. e.g National Credit Act, Consumer Protection Act, Rental Housing Act.

• Customs or trade usage: A practice which develops in a particular business sector or area. Must be:

  • Long established

  • Notorious

  • Reasonable

  • Certain

  • Not in conflict with positive law.

SA Forestry Company v York Timbers

SAF Co concluded long term contracts with York Timbers. The parties made provision for where they couldn’t agree on a new price: they would refer the matter to the Minister and then to arbitration for a ruling on a new price.
YT frustrated this process on numerous occasions, causing SAF Co to allege breach of implied contractual term to act in accordance with the dictates of good faith, fairness and reasonableness.

Court found:
SAF was confusing the use of values of good fait as the basis for recognizing a new term with the content of that implied term
If the court recognises such an implied term, it will need to be read into every contract, which would be contrary to established practice.

However, the clauses relating to referring the matter to the Minister and arbitration create contractual rights for SAFC. Where there is a contractual right, there must be a related contractual duty, even if unspoken. The court concluded there was an unexpressed duty on York not to frustrate SAFCo in exercising the right. G

General Terms

Appear very often in practice and have their own sets of rules e.g. warrantees, time clauses, exemption clauses.

Supposition/Assumption

A term making the operation/existence of a contract dependent on the existence of a past or present state of affairs. They are generally found where the parties are uncertain whether a situation exists/is true or not.
e.g. A wants to buy a painting from B only if it’s an original Picasso, but B is uncertain, so he’s not gonna warrant. Instead, A and B can include a supposition in the contract of sale to the effect that the painting is by Picasso. If the parties confirm later that the painting is by Picasso, the contract is valid. If not, the contract is void.
NB: A common mistake creates a supposition and that supposition makes the contract void.
Also, if the term deals with a future fact or event, it is a condition, not a supposition.

Warranty

Term where a party assumes absolute liability for performance.

2 kinds of warranty exist in the common law:
Consensual warranty: If a seller gave a contractual warranty and breaches it, the buyer has the full spectrum of remedies for breach of contract, including a claim for contractual damages.
Ex Lege Warranty: remedies for breach are usually more limited than a consensual warranty.

Modus

Term found in donations that qualifies the creditor’s rights to retain the performance in the sense that the creditor must do something in the future to keep that donative performance. Non-compliance with modus = breach, not termination (like suspensive condition).

Conditions

Qualify the operation of an obligation or a contract with regard to an uncertain future event.

Suspensive vs Resolutive Conditions
Suspensive condition suspend the full operation of the contract until the relevant uncertain future event has occurred or fails to occur.

• When the event occurs, the condition is fulfilled and the contract become fully enforceable.

• When the event is certainly not going to be fulfilled, the contract terminates retrospectively.

• When uncertain if the event will occur or not, there is a valid and binding contract, but the it’s not enforceable.
  
  

Resolutive conditions are those in which the continued existence of the obligation is dependent on the occurrence of uncertain future events.

• Once the uncertain future event is not going to occur, the contract continues in terms of its full enforceability and validity.

• If the uncertain future event does occur, the contract lapses.

Westmore v Crestanello

W wanted to purchase land from C, but the contract of sale had a clause stipulating that the sale is subject to the purchaser acquiring a loan from a bank in exchange for which a mortgage bond must be registered as security before 15 July 1994.

W fails to meet the suspensive condition by the agreed on date, so C sells the land to someone else.

W argued he had validly waived the subject to bond clause and that the contract remained intact despite the non fulfilment of the condition.

Q: Relevance of the cut-off date for fulfilment of a valid waiver? Can you still validly waive a right after the cut-off date?

Court found:
Requirements for a valid waiver:
1. The right created by that term must be solely in favour of the party who waived it. (The part relevant to the acquisition of the loan is exclusively in favour of the purchaser, while the cut-off date is in favour of the seller)

2. That right must be waived before the cut-off date set out in the clause. After the cut off date, the contract would’ve lapsed.

Time Clauses

A term making the operation depend on an event certain to happen in the future. e.g. the cut off date in Westmore v Crestanello.

Suspensive time clause: suspends the validity and enforceability of the contract until the certain future event materialises.

Resolutive time clause: fully valid and enforceable contract ab initio, but the contract will lapse upon the materialisation of the resolutive time clause.

Proof and Interpretation of Contractual Provisions

Proof of terms is a preliminary step, followed by interpretation of the terms once they are proven to exist.

Parol evidence rule: a written agreement that appears to be the complete record of the parties’ agreement and constitutes an integration cannot be added to, changed or contradicted by extrinsic evidence.

Johnston v Leal: Court says that the rule consists of 2 facests:
1. Integration leg: to what extent can the court consider extrinsic evidence to prove the content of the parties’ agreement?

2. Interpretation leg: to what extent can the court consider extrinsic evidence to prove the meaning of the terms proven to exist.

Current Position on Interpretation: UJ v Auckland Park Theological Seminary, citing Natal Joint Municipality Pension Fund:

The approach is a holistic one, there’s no hierarchy in the factors considered = simultaneous consideration to determine the meaning

Why? Words derive meaning from the context they are used, and so the meaning of a particular term cannot be interpreted in isolation without looking at the context.

Interpretation thus requires the simultaneous interpretation of the language of the text, the context (as a whole), the purpose (of the contract as a whole and the term in question) and the material known to those responsible for production of the contract.

UJ v Auckland Park Theological Seminary

ATS tried to cede their contractual right as a lessee to UJ without UJ’s consent. UJ argued that was breach of contract as the right to occupy is delectus personae and therefore incapable of being ceded without UJ’s consent (the determination of which was a matter of interpretation).

SCA: followed the traditional approach of the parol evidence rule, held the right was not delectus personae and that the evidence that UJ wanted to present was at variance with the written terms of the contract.

CC: points out that the traditional approach by the SCA is no longer followed. Now courts must follow the unitary approach, which simultaneously considers text, context and purpose.

The CC directly contrasted the SCA in every way, abandoning the interpretation leg of the parol evidence rule completely. The right was indeed a delectus personae and ATS was deemed guilty of breach of contract for not obtaining consent.

The final interpretation process: use the integration leg to prove the content of the contract first, then consider the meaning and interpretation by weighing up all the evidence.

Further Rules/Guidelines of Interpretation:

When the court’s primary approach doesn’t clarify the meaning, these are the general rules referred to:

1. Interpret in context: eiusdem generis rule

   1. Where words which have a general meaning are used in association with words that indicate a particular class/family of things (genus), then the general words should be interpreted narrowly

   2. E.g. a fruit farmer, A, undertakes to deliver lemons, oranges, natjies etc to B. i. Et cetera = broad words. ii. But the genus = citrus fruits, so A would not be obliged to deliver other fruits like grapes or melons.

2. Interpret in context: expressio unius rule

   1. When reference is made with a specific subject, all other subjects are excluded even though they may be related to the specified subject.

   2. E.g. a lease contract of a farm s pulates that the lessee may not fish in the dam. i. Reference to the dam specifically = the lessee is not prohibited to fish in any other water body, such as a river on the farm.

3. Interpret against one presenting term: contra proferentum

   1. When a term is ambiguous and everything else has failed, the meaning of the term will be interpreted against the party who drafted/presented the term.

4. Interpretation towards fair result if ambiguous:

   1. When a term has more than one meaning, the court would interpret it toward good faith of good parties. (SAF Co v York Timbers)

5. Interpretation of exemption clauses: excludes liability for a party when they cause harm

   1. Must interpret with caution and restrictively: unless the clause is really clearly worded, the court will resort to the contra proferentem rule.

   2. E.g. an exemp on clause is worded very generally, and appears to exempt a creditor from any harm caused to the debtor. i. ii. Clause is ambiguous: the creditor never specified what ground of liability the clause exempts: strict or fault-based liability? 1. Strict (no-fault) liability: liability without the need to prove fault, party is held liable for certain ac ons or outcomes regardless of inten onal or negligent ac ons. 2. Fault-based (negligent-based) liability: party is only held liable if fault, typically negligence, is proven.  i.e. didn’t act with the required level of care and resulted in harm or damage. The court will interpret restric vely so that it limits the grounds of exempted liability. 24 iii. Then, the clause would only exempt the creditor from the broadest ground of liability  strict (no-fault) liability. iv. Consequence: if harm is caused by negligence of the creditor, the exemp on clause will not protect the creditor.

Interpretation and the CPA

s4(4) CPA:

Any standard term

• Must be interpreted contra proferentem where ambiguous and

• So that any limitation or exclusion of consumer’s rights is limited to the extent that reasonable person would expect, taking into account the content of the document, manner and form of the doc and the circumstances of the transaction.

Academic argument: second part should be scrapped, because the same result can be achieved for better justification in terms of S48 & S49, or by applica on of CL principles of iustus error.  S48: allows court to sever a term if it’s unfair and unreasonable.  S49: requires mandatory disclosure of certain terms and condi ons in a contract + duty on suppliers to ensure that any clause that might limit the consumer’s rights or risks must be explicitly brought to the consumer’s a en on.  Iustus error: relevant clause is void if a party made a reasonable mistake