Specific contracts and legislation

What are the characteristics under a contract of sale?

A contract of sale is one where one party undertakes to deliver a thing to another, in return for payment. Contracts of sale are governed by the common law and by the Consumer Protection Act 2008. The Act applies to transactions between suppliers who supply, sell, lease, provide the service in the ordinary course of business and consumers who are not juristic persons with an annual turnover or net asset value above R2m.

What is the essentialia of a contract of a sale?

If a contract has the essentialia of a contract of sale (essential elements of a contract of sale) then that contract will include all the special rules that apply to a contract of sale.

What does the essentialia of a contract of sale include?

Agreement on the thing sold/ the subject matter (merx). Agreement on the purchase price (pretium), intention to transfer free and undisturbed possession (must hand over the thing being sold in a way that allows the buyer to enjoy and use it peacefully, without interference).

What principles are based on the essential requirements of a valid sale?

All the essential requirements below are based on common law principles and have not been altered by the CPA. So these principles are still applicable even in transactions that fall under CPA.

What are the essential requirements of a valid sale?

Intention to transfer free and undisturbed possession: To sell a thing, a person must do no more than undertake to transfer free and undisturbed possession to the other party - vacua possessio. There must be agreement on subject matter of the sale. There must be agreement on price. Price must be in money or have a monetary component. Price must be fixed or the parties must have agreed upon some external method or standard by reference to which the price can be ascertained (The price cant be vague or completely uncertain).

What are the legal effects of a contract of sale?

The passing of ownership. This is a common law principle and applies to sales both in common law and those which fall under Act. Sale does not necessarily transfer ownership. For ownership to be transferred the seller must himself be the owner. and delivery + intention must be met to pass ownership.

In what ways can Delivery happen?

Actual delivery: the physical handing over of the item from the seller to the buyer. Common in the sale of movable property.

Constructive delivery: Constitutum Possessorium, Traditio Brevi Manu, Attornment.

Symbolic delivery: delivery is made by giving the buyer something symbolic of the thing sold. Such as handing over the keys to a warehouse where the goods are stored. Cession: Transfer of rights between parties (via contracts). Registration: for immovable property, delivery occurs through the transfer of ownership by registration in the Deeds Office.

What does the intention to pass ownership entail?

If the sale is a cash sale of a moveable then it is presumed that intention of the parties is that ownership will pass on delivery and full purchase price must be paid. If it is a credit sale of a moveable, then it is presumed that the intention of the parties is that ownership will pass on delivery alone (before the full purchase price is paid). If it is a sale of immovable property ownership will pass on delivery alone and the purchase price need not have been paid.

What does the passing of risk and benefit entail under legal effects of contract of sale?

The risk common law rule: the risk of accidental loss passes to the buyer as soon as the sale is perfecta even if the thing has not yet been delivered to him. This is supervening impossibility (contract becomes objectively impossible after it is entered into). The passing of risk in sale is an exception to the rule that if the contract becomes objectively impossible, then the other party is also excused from performing.

How does the rule of risk of accidental loss work?

There is a loss which can be damage or total destruction of the thing or any other disadvantage. The loss must be accidental so it must result from unforeseen events over which the seller has no control. The risk passes as soon as sale is perfecta. In simple contracts, the sale is perfecta as soon as it is concluded/ entered into but this may not always be the case.

What are the requirements for a sale to be perfecta?

The price must be fixed not merely ascertainable. Subject matter must be ascertained not merely ascertainable. Any suspensive condition to which the sale is subject, must have been fulfilled.

What are situations where the risk will not pass to the buyer once the sale is perfecta?

Where there has been an express or implied agreement varying the rule. Where there is a default on the part of the seller in making delivery. In this case, it is rebuttably presumed that any damage caused to the article during the delay is due to the fault of the seller. However, the seller can rebut (disprove) this presumption by showing that the damage would have occurred even if delivery had been made on time and in this case, then the risk again passes to the buyer.

How is risk under the act treated?

In terms of the Act, it is an implied term of a contract that the risk remains with the seller until delivery.

What does Section 19 of the CPA state?

It specifies that delivery should occur at the seller’s place of business or as agreed between the parties. Transportation costs are typically borne by the seller unless otherwise agreed.

What are the duties of a seller?

The duty to take care of the item until delivery. Duty to deliver and duty to give vacua possessio and implied warranty against eviction.

What compensation can the buyer claim under the implied warranty against eviction?

Breach of implied warranty is a breach of contract by the seller. The buyer can cancel and claim the purchase price. They can also claim damages representing any natural increase in the value of the article (if foreseeable) and any further loss as a result of the eviction but subject to general rules re contractual damages. If the buyer made improvements to the article then he can claim the lesser of the amount spent on the improvements or the value by which the item has increased due to the improvements.

What are examples of situations where the warranty will not apply?

Where the parties expressly agree, but if the seller knew that a third party had a claim to the article and remained silent, then the clause would be inoperative and sale could be voidable on basis of fraudulent misrep. If the buyer is aware that a third party had a claim to the article. If the cause of eviction is due to the unlawful act of a third party for whom the seller is not responsible.

How is implied warranty against eviction treated under the Act?

The Act also creates an implied warranty against eviction.

How is implied warranty against latent defects treated under the common law?

The seller is liable for latent defects which existed at the time of the sale, whether or not the seller was aware of the defects. If the seller is aware of the defect then they must disclose it to the buyer otherwise it would be misrep by silence.

What does aedilitian remedies include and where does it apply?

If there is a latent defect then the seller is in breach of the implied warranty against latent defects and the purchaser does not have the normal remedies for breach. There are two types of aedilitian remedies: Actio redhibitoria: this is used where the defect is so serious that the reasonable purchaser would not have bought the item at all had he know of it. The defect is material. Actio quanti minoris: Here the defect is such that a reasonable buyer had he known of it would have paid less (but he still would have bought it). So it is not a material defect. The buyer is entitled to have the price reduced to the market value of the object in its defective state at the time that the defect was discovered.

What can the buyer do under actio redhibitoria?

The buyer can cancel, return the goods and claim: the return of the purchase price if paid and payment of all foreseeable and necessary sale expenses e.g. delivery costs, import duty and payment of expenses incurred in examining the object to discover the defect e.g. expert like a motor mechanic and expenses incurred in returning the object to the seller eg transport and possibly storage.

What is the voetstoets clause?

Under the common law, the aedilition remedies can be excluded by express agreement, this is known as a voetstoets clause. If there is a voetstoets clause then the buyer cannot claim anything from the seller for latent defects.

What are other possible remedies for defective goods?

Where the seller has expressly guaranteed that there are no defects, then the normal remedies for breach will be available this would allow consequential loss. Where the seller has misrepresented that the item was free of defects then the remedies for misrep will be available. This allows one to claim consequential loss as damages in delict. Where the buyer may have more than one ground on which to claim, the court will only grant him relief on the basis of one, because of the rule against double compensation. Under common law, the seller is not liable for patent defects.

How is implied warranty of quality under the Act treated?

This is implied in all contracts of sale governed by CPA. In terms of this warranty, the consumer has the right to receive goods that are free of latent and patent defects. This is different from common law as it includes liability for patent defects too. If goods have a latent or patent defect then the consumer has 6 months after delivery to return the goods and is entitled to have the item repaired or replaced or a refund of the full purchase price. This is in addition to any further rights under the implied warranty against latent defects under the common law.

Claims of implied warranty of quality under the Act?

The consumer’s claim under the Act lies against not only the supplier but also the producer, importer and distributor. The buyer cannot sue all the parties as this would be double compensation. The warranty will not apply if the consumer is expressly told and expressly agreed to accept the item with specific defects. Warranty also does not apply if the consumer has altered the item after purchase.

What does section 61 of the CPA state?

Strict liability applies to producers, distributors, retailers or suppliers when defective or unsafe goods cause harm to consumers.

What is strict liability for defective goods under the CPA?

The producer, importer, distributor or retailer is liable for any harm caused by supplying unsafe goods or defective goods or inadequate warnings or instructions provided to the consumer regarding any possible dangers. Even if the harm was not caused by any negligence or fault at all on their part. This is known as strict liability (liability without fault). The harm here would include consequential loss. But the claim would be subject to the normal common law rules re contractual damages. Only the distributor or retailer can avoid this liability and only if they could not reasonably have discovered the hazard or defect given their role in the marketing chain.