Summary
Summary Contracts Semester 2 notes
- Course
- Contract law 371
- Institution
- Stellenbosch University (SUN)
Class notes created in 2018 for semester 2. Best used in conjunction with the case summaries also available on my page.
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Law of Contract Test 3 ClassNotes
1 Content and operation of a contract
Example 1: A and C conclude a contract of sale for a car with B being the purchaser. A and C fail to deliver the car in
terms of the agreement, and two weeks pass. B wants to force A and C to perform (specific performance). But, would
B be entitled to sue only A or only C, or must he sue A and C together?
B would have to sue both A and C together, if he were to sue them separately, then B would be entitled to the full
performance from both (the delivery of the car). But this is impossible, A cannot deliver half of the car with C
delivering the other half. The nature of the performance therefore determines who B has to claim from.
Example 2: X and Y conclude a contract of sale for a car with Z being the purchaser. X and Y deliver the car, but it
breaks down two days later with the cost of repair being R40 000. If Z wants to claim this cost from the sellers, ought
he claim from both X and Y together, or from each separately? The nature of the performance in this instance is the
payment of money – a monetary amount can be split into component parts with each being a meaningful
performance. This is different from the delivery of the car because for each to perform the car would have to be split
in half, meaning that the performance would be meaningless because the car would no longer work. A car is an
indivisible unit, but money is always divisible.
Example 3: P concludes a contract of sale for a car with R being the purchaser. The car breaks down shortly thereafter,
with the cost of repair being R40 000. R was intending to use the car to make deliveries to his customers, but now that
the car has broken down he is losing business (cannot make deliveries, etc.) and therefore more money
(consequential loss). This consequential loss is claimed in addition to the costs of repair.
The general rule when dealing with the law of sale, is that where dealing with an innocent sale, liability for
compensation is limited. Therefore if P was innocent, then R would only be able to claim the R40 000.
There are exceptions to this rule, one being where a warranty is included in the contract. If contract includes a
contractual warranty, then, failing performance the seller would become strictly liable for all loss arising from the
defect.
1.1 General
Factors influencing content and operation
- (1) Number of parties to the contract
Can have multiple creditors and debtors
Who must perform to whom? Who is entitled to that performance?
E.g. Where an agent concludes a contract on behalf of their principle
- (2) Differences in the nature of certain types of obligations and terms
E.g. Warranty
E.g. Supposition – where the parties themselves determine the consequences and content of a
contract
- (3) Other factors not dealing with party autonomy?
Instances where the court will step in and impose content on a contract
To what extent does legal policy and notions of reasonableness, fairness and good faith and an
impact on the content of a contract
Brisley v Drotsky: good faith is only an underlying value and not a free-floating principle.
It is not an independent mechanism to set aside a contract, but merely a tool used by
the courts.
Can be used to read terms into contracts that the parties never expressed
Also important in interpreting a contract
1.2 Parties to the contract
General:
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, - Contracts are bilateral juristic acts, this means that at the very least there must be two parties involved
in the creation of obligations (creditor and debtor)
- The creditor has the right to claim performance whilst the debtor has a duty to perform
Both parties will be creditors and debtors in a contract, one party will not always be the debtor,
whilst the other party is always the creditor, each has duties to perform and the right to claim
performance
E.g. in a contract of sale (delivery of the purchased object and payment of the purchase price)
Delivery of object: creditor is purchaser, seller is debtor
Payment of purchase price: creditor is seller, purchaser is debtor
1.2.1 Multiplicity of Parties
A multiplicity of parties will occur where there are multiple creditors or debtors [but we will be focusing on
situations where there are multiple debtors, but the same rules will apply with multiple creditors]
Joint or co-indebtedness – multiplicity of debtors
- Types:
(1) Simple joint relationship
In the absence of evidence to the contrary, and where the performance is divisible, the
law presumes that the multiple debtors are in a simple joint relationship with the
creditor the point of departure
Simple joint liability means that each of the debtors is liable only for a proportionate
share of the performance, and these shares are presumed to be equal
E.g. A lends R4 000 to B, C, D and E – because the performance is divisible and there is
no evidence to the contrary we assume that all are liable for R1 000 – in a simple joint
relationship, each party is responsible for their pro-rata share of the debt relationship
When dealing with a situation of simple joint liability, separate obligations are created
between the creditor on the one hand and each separate debtor on the other hand
But, this is not a true situation of co-debtorship, why? Because a defining feature of a
true joint relationship, is that the same performance is owed by more than one party
(2) True co-debtorship
(a) A common or collective joint relationship
- Only dealing with one obligation, and not multiple as in the case of a simple
joint relationship – the performance of the debtors must thus occur jointly
- Procedurally speaking, this means that all co-debtors must be sued jointly
- The nature of the performance is important
- When a party is dealing with an indivisible performance, one is no longer
dealing with the presumption of a simple joint relationship, but a presumption
of true co-debtorship
Where the performance cannot be meaningfully divided into separate
performances (such as in the example of the sale of the car), the
performance will be indivisible
But, it could be possible that a performance which is physically divisible,
may be treated by the parties to be an indivisible performance
E.g. A is selling a collection of rare paintings to B and C,
physically the performance is divisible, but where the parties
intended that it be sold as a collection (a unit), then it is their
intention that the performance be treated as indivisible
Therefore, whether a performance is divisible or not depends not only
on the nature of the performance but also on the intentions of the
parties
(b) Joint and several liability or solidary liability
- This is the most beneficial relationship for a creditor
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,- Where debtors are jointly and severally liable, the creditor can choose how he
wants to claim performance – he can decide whom out of the co-debtors he
will claim the full amount (or a part thereof) from it will be up to the co-
debtors to determine how the amount will be settled amongst them afterwards
It could also be that the creditor chooses to claim performance from
one of them, some of them, or all of them
- This is a common form of personal security
This is where parties are either liable together, or where a party steps in
and undertakes to be liable if the debtor does not pay and commits a
breach of contract (e.g. surety for a loan)
- Where one of the jointly and severally liable debtors performs fully, that co-
debtor’s performance extinguishes the debt to the creditor
Partial performance will only partly reduce the debt owed to the
creditor
- What about the debtor who pays the full amount? Does he have a right of
recourse? Can he claim a pro-rata share from the other co-debtors? Or, how
much can he claim from each of the other co-debtors?
POD: in the absence of any evidence to the contrary, a paying co-debtor
who is jointly and severally liable has an automatic right of recourse
against the other co-debtors – and, in the absence of evidence to the
contrary, such a paying co-debtor must claim a pro-rata share from each
of the other co-debtors
And each claim is capped to each debtor’s pro-rata share
What is evidence to the contrary?
(1) Cession
- Where the paying co-debtor obtains a cession of the
creditor’s rights against the other co-debtors
- The effect of the cession is that the person to whom the
rights have been transferred now steps into the shoes
of the original creditor, and that party acquires the
same rights and benefits that the original creditor had
- [NB] The mere fact that a co-debtor cedes his rights
does not stop him from being jointly and severally liable
– i.e. that he undertook to be liable for at least a share
of the debt, this is not changed simply because he has
obtained cession
- The effect being that the co-debtor who obtains cession
cannot claim the full amount from the other co-debtors,
but the full amount minus his pro-rata share
(2) Agreements between the co-debtors
- Where the co-debtors will agree amongst themselves as
to how much each will be liable for, and how they may
claim from each other
- i.e. determine their own right of recourse
(3) Combinations of cession and agreement
- Cession could enable more of claim for some co-debtors
than the agreement did
- Which would take precedence? The agreement will
always weigh more heavily
- The fact that the co-debtors are jointly and severally
liable to the creditor, does not mean that they are
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, jointly and severally liable in terms of their own
relationship with the other co-debtors (i.e. To the
paying co-debtor)
- An agreement to cede will not disrupt the internal
relationship
- Where there is an agreement between the co-debtors
regulating their right of recourse, the fact that there has
been a cession of the creditor’s rights is irrelevant, the
agreement between the parties trumps all, because
someone who intends to disrupt that agreement, by
relying on a cession, is actually committing breach of
contract (and acting in bad faith)
Bellingan v Clive Ferreira & Associates 1998 (W)
Certain provisions of the Income Tax Act of 1962 provided for
substantial tax benefits to be available to taxpayers who
involved themselves in farming ventures – with these benefits in
mind a group of people got together to set up a written
partnership agreement which they sought to use to reap the
benefits of these tax provisions
To finance the establishment of their farming venture (a timber
plantation) the partnership borrowed a sum of R320 000 from
Prima Bank for 20 years
“… the partnership's indebtedness would be ‘evidenced by a
promissory note made by the borrower … which note … shall in
aggregate be equivalent to the capital of the loan together with
the interest thereon for the entire period of the loan, and to be
payable on the final maturity date’”
- The final amount to be paid out was thus R10 332 459
- A bill of exchange was made out to the bank for this
amount in 1991, when the loan was taken out, and
could only be cashed in by the bank in 2011 (unless the
bank exercised the put option in the loan agreement)
The applicant in this case is the executor of the deceased estate
of one of the partners – he died in 1992, following which the
executor in 1996 concluded an agreement with Prima Bank in
terms of which the estate purchased and took cession of Prima
Bank's claim against the partnership arising out of the loan
agreement against payment of R789 760,27
The executor then proceeded to claim the amount of
R720 292.67 from each of the partners, which together with the
share of the deceased estate (R847 403.14) amounted to
slightly less than the original sum payable
- NB this was in 1996 – i.e. 15 years before the loan
would have been repayable
There were two issues in this case:
- (1) whether she could claim against the partners jointly
and severally, or, only each co-partners’ proportionate
share of the debt (calculated by each’s share in the
partnership)
- (2) whether, having bought the claim from the Bank for
an amount smaller than the claim itself, and by taking
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