Cls CC Contract Question Pack Sem 1 2016-1

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Contract Questions Semester 1 – 2016
CONTRACT QUESTIONS:
1. Distinguish an option from a right of pre-emption.
Description: An option may be defined as a substantive offer reinforced by

an agreement in terms of which the grantor undertakes as against the
grantee to keep open his offer, with the result that the grantee acquires
the competence to consider the offer and to accept or reject it.
A right of pre-emption is an agreement in terms of which one prospective
purchaser acquires a preferential right to contract with the seller should
the latter actually decide to sell.
The option contract obliges the grantor to maintain his substantive offer
in accordance with the terms of the option contract. A substantive
contract arises if the grantee accepts the substantive offer. The option
holder determines whether a contract in accordance with the substantive
offer arises.
A right of pre-emption does not place a duty on the grantor to sell the
subject matter of the right; the grantee merely acquires the preferential
right to buy should the grantor decide to sell. The obligation of the
grantor is negative. The grantor may not alienate the thing to a third
party except under the conditions prescribed in the agreement creating
the right. The grantor primarily determines whether the parties will
conclude a substantive agreement, usually after negotiating the
contractual terms.
Breach of an option contract and the consequences thereof are governed

by the general principles of the law of contract. Should the grantor of the
option attempt to revoke the substantive offer contrary to the option
contract, the holder of the option may enforce the contract specifically by
means of an interdict. Furthermore, damages may be claimed to place the
option holder in the position he would have been in if the option had been
exercised.
In the case of breach of a right of pre-emption the holder may apply for
an interdict to prevent the grantor from alienating the thing to a third
party. A claim for damages is also available. It seems uncertain whether
the holder may claim specific performance but in associated SA Bakeries
the court found that in the even that the grantor contrary to the right of
pre-emption concluded a sale agreement with a third party, the holder
may step into the position of the third party by way of a unilateral
declaration of intent.
2. Simon lives in Johannesburg, he sends a letter to Peter, who lives in

Bloemfontein, by private courier. In the letter, Simon offers to sell Peter
his car, a red Honda, for R200 000. In the letter, Simon states that his
offer will fall away on 1 April. Peter accepts Simon’s offer by letter, which
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he posts on 30 March. Simon receives the letter on 5 April and only reads
it the next day. Peter pays the R200 000 but Simon refuses to accept
payment. Did a valid contract arise between Simon and Peter? Advise
Peter and substantiate your answer.
The question is whether Peter has accepted Simons offer in time and thus
whether Simon and Peter have reached consensus. Simons offer lapses
after the time that he has prescribed for acceptance. Although Peter
accepted the offer in time, Simon was only informed of the acceptance
after the time set for the lapse of the offer, by reading the letter. The
general rule is that acceptance must be communicated to the offeror for
consensus to arise (R v Nel) (Cape Explosives Works) (Smeiman v Volkersz).
The principle is that actual and conscious agreement between the parties
form the primary basis for contractual liability. The parties must be aware
of their unanimity.
The offeror may, however, expressly or tacitly waive his right to
notification of acceptance. Simon did not expressly do so as the offer
contains no words to that effect, but Simon tacitly did so by making his
offer by post. He had tacitly indicated that his offer was accepted as soon
as Peter posted his letter of acceptance. Peter is not obliged to accept by
post. We can conclude that Simon and Peter did not reach agreement
before Simons offer lapsed.
3. Name and briefly discuss the requirements for a valid offer & a valid
acceptance. Discuss with reference to case law. (15)
The offer must be definite and complete

The offer must embody or contain sufficient information to enable the
person to whom it is addressed to form a clear idea of exactly what the
offeror has in mind. The offer must be so certain that it is enough for the
addressee merely to answer ‘yes’ for a contract to be constituted. The offer
must be clear and certain.
The offer must contemplate acceptance and a resultant obligation
It is not enough for the one party to make a tentative statement to the
other merely to sound him out, that is, to find out whether he would be
prepared to enter into negotiations.
Thus, the offer must be a firm offer.
An important question arises in this connection with regard to the legal
effect of advertisements.
For instance, a shop-keeper places an advertisement in the window of his
shop: ‘Jimmy Choo shoes obtainable here at R1500 per pair’.
This statement does not constitute an offer since the advertiser clearly
could not have contemplated that mere acceptance of his statement would
create a legal bond between himself and the acceptor. (Crawley v Rex)
However, a promise of reward is a form of advertisement that does
constitute an offer. (Bloom v American Swiss Watch Co)
The offer must come to the attention of the offeree (addressee)
This requirement is a natural consequence of the fact that, as has been
stated, an agreement is a conscious or stated mutuality of consent.

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The offeree must therefore have knowledge of the offer to be able to react
to it. (Bloom case)
An offer must as a rule be directed at a definite person (offeres) or

persons (offerees), although it may also be directed at undefined persons.
An offer directed at a defined person or persons: Where an offer is
addressed to unascertained persons, it may be accepted by anyone of
them, but where it is addressed to a specific person or persons, it may be
accepted by only the addressee(s). An offer directed at undefined persons:
A promise of reward, and auctions, are forms of this type of offer.
An offer lapses in the following circumstances:
o after the expiry or lapse of the prescribed time, or of a reasonable

time
o upon the death of either the offerer or the offeree
o upon being rejected
o Upon revocation.
Requirements for a valid acceptance

The acceptance must be unconditional and unequivocal
When the acceptance contains conditions or reservations, it is no
acceptance but is in fact a counter-offer which the original offeror may
accept or reject in turn.
The offer must be accepted by the person to whom it is addressed
The offer cannot be accepted by anyone but the person to whom it is
made.
The acceptance must be a reaction to the offer – a person cannot accept
an offer of which he is not aware
Bloom v American Swiss Watch case:
In casu, the company offered a reward to any person who could provide
information which would lead to the arrest of thieves who had stolen
jewellery from the company.
B furnished information while ignorant of the reward offered.
When the advertisement of the reward came to his notice, he tried to
claim the promised sum from the company.
Court held that he could not claim the reward because ‘until the plaintiff
knew of the offer he could not accept it, and until he accepted it there
could be no contract’.
Thus, if the one did not know what the other was proposing, the 2 minds
never came together.
The acceptance must comply with any formalities set by law or by the
offeror
The acceptance must comply with formalities for a valid contract to arise.
4. Briefly distinguish simple auction from auction subject to conditions. (5)
Simple auction:

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Here the most acceptable construction is that the bidder makes an offer
which the auctioneer considers & either accepts or rejects. Making of a
higher bid doesn’t mean displacement of a previous bid per se.
Auction subject to conditions:

Conditions may relate to many things: manner & time of payment, passing
of ownership, auctioneer’s remuneration, fact that articles are sold
voetstoet (as it is) & so on. These conditions relate to the contract of sale
which are envisaged. The auction can take place with or with out reserve.
Auction subject to conditions isn’t same as auction with reserve – the
latter is 1 of conditions. These conditions may be advertised in various
ways – isn’t binding on auctioneer. If auctioneer announces conditions of
auction he’s making an offer. Therefore making the offer to undefined
persons, so by bidding, the bidder accepts the conditions, therefore
conditions are now binding on both parties & now auctioneer is bound to
accept the highest bid (contract of sale arises = substantive contract).
5. Discuss whether an advertisement & a promise of reward constitutes an

offer. (10)
It’s not enough for 1 party to make a tentative statement to the other
merely to sound him out, that is, to find out whether he would be prepared
to enter into negotiations. Offer must be a firm offer; a tentative
statement with a possible agreement in mind isn’t sufficient.
An NB Question arises in this connection with regard to the legal effect of

advertisement. E.g. shopkeeper places ad in window: ‘Shoes obtainable
here for R150 per pair’ – this statement doesn’t constitute an offer since
advertiser clearly couldn’t have contemplated that mere acceptance of his
statement would create a legal bond between himself & the acceptor. If
more people accepts the statement than there is stock – this
advertisement as an offer would therefore lead to impossible situations; its
in fact no more than an invitation to do business. Advertiser’s real
intention is to elicit or invite an offer from some member of the general
public. (CRAWLEY V REX). Therefore an advertisement doesn’t generally
constitute an offer.
There is however, 1 special kind of advertisement which does constitute

an offer, namely a promise of reward. It often happens that a reward is
offered to any person who performs a certain act, for e.g. restores a lost
article to its owner. (BLOOM V AMERICAN SWISS WATCH CO). Promise of
reward is a form of advertisement that does constitute an offer.
6. Discuss ‘Cape Explosive Case’ and ‘Smeiman v Volkerz Case’ with regards
to the moment of formation of a contract (6)
Cape Explosive:
Offer & Acceptance – Where & When are contract’s concluded by post
entered into.

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Contracts concluded by written offer & written acceptance. Both offer &
acceptance were by letter sent through the post. In order to decide
whether it had jurisdiction court had to determine where contract was
concluded.
Contract concluded at place where offeree posted letter of acceptance.
Smeiman v Volkerz:
Offer & Acceptance: General rule is that no consensus until offeror knows
that his offer is accepted, offeror may stipulate a particular means of
acceptance.
Here offer was made orally & acceptance by post. Acceptance received too
late. There was no contract since the option had not been exercised on or
before 15 February. The making of a verbal offer doesn’t impliedly
authorise a postal acceptance. Expedition theory will apply where
acceptance takes place by post only if the offer has also been made by post
or offeror has otherwise indicated that offeree must use the post – in other
words not accepted here.
7. State the possible remedies for breach of a pre-emption (4 of them) (3)
Right of pre-emption may be coupled with an option granted by the

purchaser. If this happens, the prospective purchaser is compelled to keep
open his offer to buy, for the agreed period & the prospective seller is
obliged, if he decides to sell, to exercise the option granted him in so
doing to accept the offer.
The prospective seller may bind himself as against the prospective

purchaser to offer the thing for sale to the latter at the 1st acceptable price
or at the highest price which may be offered to him by a 3rd party. If the
seller receives an offer from a 3rd party he may not accept it before he has
given the holder of the right the opportunity to decide whether he wants
to buy the thing at that price. Holder of the right is not obliged to buy the
thing.
The seller may bind himself as against the prospective purchaser to offer
the thing for sale to the latter on the occurrence of a future event for e.g.,
when it is decided no longer to use the land as a race track. Holder not
obliged to buy it.
Prospective seller may bind himself as against the prospective purchaser

to sell a thing to a 3rd party only if the prospective purchaser is unwilling
to buy the thing.
8. Briefly explain the legal nature and consequences of a right to pre-emption (5)
Contract of pre-emption doesn’t place duty on grantor to sell the subject

matter of the right; grantee merely acquires the preferential right to buy

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should grantor decide to sell. Prospective seller’s capacity to alienate thing

is thus restricted.
Prospective purchaser also acquires a right therefore, but whereas the

performance to which the grantor of an option is bound is the
maintenance of an offer. The obligation in the case of the right of pre-
emption is a negative-one that is that, the thing may not be alienated to a
3rd party, except under the conditions prescribed in the agreement
creating that right. This situation differs from an option, in that it is now
the seller & not the buyer who makes the critical decision whether a
contract of sale is to be concluded or not.
9. Martin wants to sell his art collection, since he is offering the collection at a
bargain price he only wants to extend his offer to colleagues at work. Martin
advertises by way of sending electronic mail messages to his colleagues.
Monty obtains access to the computer network system at Martin’s work place
and accepts Martin’s offer by sending Martin an electronic message. Once
Martin discovers that Monty isn’t a colleague he alleges that no contract
arose because the offer wasn’t made to Monty. Monty alleges that a valid
contract did arise because the electronic mail message sent by Martin
doesn’t specifically state that the offer was only open to Martin’s work
colleagues. Discuss with reference to ‘Steyn v LSA Motors’ and other relevant
case law whether a valid contract arose between Martin and Monty. (15)
Contract denier is Martin & contract enforcer is Monty. Consensus exists

when:
1. The parties have agreed on the nature of the obligations they intend
to create, that is, have agreed on the persons between whom the
obligations are to be created & on the contents of the obligations,
that is the performances to be rendered.
2. The parties have to be bound by the contract, that is, have agreed to
create juristic consequences.
3. Are aware of their agreement.
If for some reason or other the parties are not in agreement regarding 1 or
more of the elements of consensus, actual agreement between them is
excluded & there is a material mistake.
Material Mistakes:
1. error in negotio
2. error in persona
3. error in corpora Non-Material
Mistakes:
1. error in substantia (error in qualitate)
2. error in motive
Will/Intention Theory:
This is the theory that the agreement or consensus between the parties is
the basis of the contract, it must lead to the conclusion that once it is
certain that there is no consensus, it is also certain that there is no
contract, & if no contract did in fact come into existence, either party

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should be able to rely on the fact in order to escape liability. Thus

consistent application of this theory would mean that every material
mistake would exclude contractual liability (void). (In other words, all
material mistakes are VOID & all non-material mistakes are VALID).
Reliance Theory:
A contract is based on the intention of 1 party to an agreement & the
reasonable impression or reliance on his part that the other party had the
same intention. It’s immediately clear why the reliance theory is regarded
as ONLY supplementary to the will theory:
If the 2 parties do have coinciding intentions there is consensus & no need
to enquire whether 1 of the parties had any particular impression of the
other’s intention. But, if there is a material mistake by 1 party or both, &
therefore no actual consensus, the reliance theory acknowledges a
contract IF 1 of the parties, in a reasonable manner, relied on the
impression that there was consensus.
The Direct reliance theory applies in the asking of certain questions:
1. Was there a misrep of one of the contracting party’s intention?
2. Who made the misrep? (denier)
3 (a) was the other party misled?
(b) would a reasonable person have been misled?
if the answer to these questions is 1. Yes, 2. Denier, 3. Yes and (b) yes –
then the contract will be VALID despite the material mistake, as the
enforcer of the contract relied reasonably on the deniers misrep of his
intention.
In Steyn: the facts are basically that a Golf board stated that the person
who has a hole in one at the particular hole wins a car worth R50000. X
(contract enforcer) an amateur golfer got a hole in one there & claimed the
price. LSA Motors (contract denier) intended to contract with a certain
group of people namely, professional golfers. Court held that even if X was
misled by the advertising board which didn’t state it only applies to
professionals, a Reasonable Person wouldn’t have been misled in the
circumstances since the rules of amateur golfing states that they may only
claim prices worth R600. Here, according to Steyn (X) the contract is valid
according to the reliance theory & according to LSA Motors according to
the Will theory the contract is void. Court said contract is void.
According to the given set of facts Monty was unreasonable in the
circumstances & thus due to the contract is VOID.
OR:
S wants to sell his collection of Beatles compact discs. Since he is offering

the collection at a bargain price he only wants to extend his offer to
colleagues at his work. S advertises by way of sending electronic mail
messages to his colleagues. P, a computer genius who has broken into the
computer system at S's place of employment, accepts S's offer by sending
an electronic mail message to S. Once S discovers that P is not a colleague
he alleges that no contract arose because the offer was not made to P. P
alleges that a valid contract did arise because the electronic mail message
sent by S did not specify that the offer was only open to S's work colleagues.

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Discuss whether a valid contract arose between S and P with reference to

Steyn v LSA Motors Ltd 1994 (1) SA 49 (A). (15)
This problem deals with two questions: was the offer by S open for
acceptance by P and was there consensus in the light of S’s mistake?
The facts of this problem are similar to that of the Steyn’s case.
An offer must as a rule be directed at a definite person or persons
although it may also be directed at undefined persons. Whether an
offer is addressed to certain persons or to unascertained persons
depends on the intention of the offeror. Where an offer is addressed to
unascertained persons, it may be accepted by any one of them, but
where it is addressed to a specific person or persons, it may be
accepted only by the addressee(s) (Godfrey; Bird v Sumerville).
Although S intended the offer only to be open to his colleagues at
work, the expressed offer was apparently open to the public. Mistake is
thus also relevant.
The question is whether agreement (consensus ad idem) as a
contractual basis exists between the parties, as required in terms of
the will theory. Agreement has three elements which are:
agreement as to the consequences the parties wish to create; an
intention to create legal consequences; and awareness regarding
unanimity.
In the present case the parties were not in agreement as to the
consequences they wished to create since S did not want to contract
with P but only with one of his colleagues This is a so-called error in
persona which in this case is material. This mistake thus excludes
consensus between the parties; which means that no contract can
arise on the basis of the will theory.
However, there the matter does not end because a party may be held
contractually liable on the basis of a supplementary ground for
liability, namely the reliance theory. This theory may be applied
directly as well as indirectly (iustus error approach).
According to the direct application of the reliance theory, contractual
liability is based on the reasonable reliance that consensus has been
reached which the one contractant (contract denier) creates in the
mind of the other contractant (contract enforcer). According to Sonap
Petroleum this entails a threefold enquiry:
Was there a misrepresentation regarding one party’s intention?
Who made the misrepresentation?
Was the other party actually misled and, if so, would a reasonable man
also have been misled?
Should application of this test result in the conclusion that the
contract denier misled the contract enforcer to reasonably believe that
the contract denier’s expressed intention coincided with his actual
intention, the contract denier will incur contractual liability even
though he is labouring under a material mistake. This is not the case
here. S, a party made a misrepresentation regarding his intention (that
his offer was open to everyone), but P was not misled thereby because
he knew that S did not want to contract with him.

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In the circumstances S should not be liable because P knew that S

erred and that S did not want to contract with him.
10. X and Y did business with each other for 3 years. Thereafter X inserted a
new clause in the contract that they used without Y’s knowledge. This
clause reserved ownership in X’s favour of goods that Y ordered from X.
Although reference was made to the clause in the invoice, X didn’t draw Y’s
attention to the clause. Y alleged that he was not bound by the contract in
which the new clause appeared as he wasn’t aware of it. Discuss with
reference to case law. (15)
Contract denier is Y & contract enforcer is X.
Consensus exists when:

1. The parties have agreed on the nature of the obligations they intend
to create, that is, have agreed on the persons between whom the
obligations are to be created & on the contents of the obligations,
that is the performances to be rendered.
2. The parties have to be bound by the contract, that is, have agreed to
create juristic consequences.
3. Are aware of their agreement.
If for some reason or other the parties are not in agreement regarding 1
or more of the elements of consensus, actual agreement between them is
Material Mistakes:
1. error in negotio
2. error in persona
3. error in corpore
Non-Material Mistakes:
1. error in substantia (error in qualitate)
2. error in motive
Will/Intention Theory:
This is the theory that the agreement or consensus between the parties is
the basis of the contract, it must lead to the conclusion that once it is
certain that there is no consensus, it is also certain that there is no
contract, & if no contract did in fact come into existence, either party
should be able to rely on the fact in order to escape liability. Thus
consistent application of this theory would mean that every material
mistake would exclude contractual liability (void). (In order to, all
material mistakes are VOID & all non-material mistakes are VALID).
Reliance Theory:
A contract is based on the intention of 1 party to an agreement & the
reasonable impression or reliance on his part that the other party had

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the same intention. It’s immediately clear why the reliance theory is
regarded as ONLY supplementary to the will theory:
If the 2 parties do have coinciding intentions there is consensus & no
need to enquire whether 1 of the parties had any particular impression of
the other’s intention. But, if there is a material mistake by 1 party or
both, & therefore no actual consensus, the reliance theory acknowledges
a contract IF 1 of the parties, in a reasonable manner, relied on the
impression that there was consensus.
A comparison of 2 relevant cases will bring about the answer, namely:

George v Fairmead & Du Toit v Atkinsons Motors:
1. George: appellant contended he signed a hotel registrar but he

actually signed a contract containing a term excluding respondent
from liability for certain acts. Appellant wasn’t aware of the term
because he didn’t read the document before signing it. His mistake
related to a term which he believed would not be in the contract &
was material because it related to an aspect of performance.
Respondent believed that appellant read contract. Here, according
to George according to the reliance theory the contract was valid &
according to Fairmead according to the will theory the contract
was void. The contract was therefore valid.
2. Du Toit: appellant signed an agreement containing a term

excluding the respondent from liability for misrepresentation.
Appellant didn’t read before signing & thus didn’t know of the
relevant term. Mistake related to an aspect of performance & was
thus material. Court found that Atkinsons wasn’t misled by du to it
into believing that du toit had agreed to the term through his
signing of the contract because Atkinsons had not drawn du toit’s
attention to the relevant term. Here, according to Du Toit according
to the will theory the contract is void & according to Atkinsons
according to the reliance theory the contract is valid. Thus the
contract was void.
According to the given set of facts Y was reasonable in the circumstances

& thus due to Du Toit the contract is VOID.
ADD IN 2012 AMENDMENTS AS ABOVE!
11. Discuss the indirect approach to the reliance theory. Refer to case law. (10)
In this theory contractual liability is based on the reasonable reliance that

consensus has been reached which the one contractant (contract denier)
creates in the mind of the other contractant (contract enforcer). The
contract denier’s mistake will be reasonable where no reasonable reliance
has been created in the mind of the contract enforcer. The mistake will be
reasonable in a number of instances. The first one is where the mistake of
the contract denier was induced or caused by a misrepresentation made by

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the contract enforcer. Fault is not a requirement for this

misrepresentation, but unlawfulness is. If the misrepresentation is a
positive act it is wrongful in itself. The mistake is then reasonable.
A case directly in point is the Allen case. The plaintiff’s error was caused
by the seller’s agent pointing out an erf that was different from the one in
the contract of sale. The plaintiff’s error was thus also reasonable. The
iustus error doctrine
Provides that a party will not be held bound to an agreement if that party
apparently gave his or her consent and if his or her mistake is material
and reasonable. Once the contract assertor has shown that there is an
ostensible agreement, the contract denier bears the onus of providing that
his or her mistake is both material and reasonable in order to be absolved
from liability in terms of the apparent contract. If the contract denier
succeeds, the contract is void ab initio, but if he or she fails, the contract
denier will be contractually bound on the terms originally proved by the
contract assertor. (George v Fairmead; Potato board)
The criteria for ascertaining the reasonableness of an operative mistake.

A material mistake will usually be reasonable if caused by a
misrepresentation on the part of the contract asserter. (Allen v Sixteen
Stirling Investments)
A negative misrepresentation occurs where a party has kept quiet in
circumstances where in law he ought to have spoken out. Silence can
constitute misrepresentation (misrepresentation by omission) when there
is a legal duty to speak in the circumstances. A legal duty to speak has
been found to exist in the following instances:
• Where the contract assertor knows or ought to know as a
reasonable person that the other party is mistaken, he or
she must correct the contract denier’s wrong impression
Eg: Hartog v Colin & Shields, the defendants offered the
plaintiffs 30 000 skins at prices per pound when they meant
to offer to sell at prices per piece. The plaintiffs accepted
the offer, well knowing that the defendants had made a
mistake and that the prices offered were much lower than
the prices the defendants intended to offer. When the
defendants realized their mistake, they refused to perform
in terms of the contract. The court refused the plaintiffs’
claim for breach of contract. The plaintiffs were not entitled
to ‘snatch at a bargain’ which they knew was not intended
by the defendants.
• Where, prior to the conclusion of the agreement, the
contract assertor created an impression directly conflicting
with the provisions of the agreement that he or she alleges
to be in contract, he or she must draw the contract denier’s
attention to the discrepancy. Eg: (Du Toit v Atkinson’s
Motors Bpk)

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If the contract denier is not to blame for his or her mistake, in that he or
she behaved as a reasonable person in the circumstances would have done
and acted without negligence, there is some authority to the effect that
the mistake is excusable.
If the contract denier did not cause a reasonable belief in the contract
asserter that the contract denier had assented to the agreement, an error
is iustus – in other words, the error is iustus when the contract asserter’s
reliance on the appearance of consensus is unreasonable or where there
was no real reliance at all.
12. Perren takes his bike vehicle to Dick’s Bikes for a service. On his arrival, he
is asked to sign a check card by the owner. Perren enquires why he is
required to sign the check card and the owner explains to him that by
signing he is authorising them to conduct the service on his bike which will
cost R800. He signs the check card without reading it. While servicing the
bike, the service manager finds faults on the bike (unrelated to the service)
and he proceeds to do these additional repairs for a further R1 000. Perren
refuses to pay for the additional repairs and argues that he did not
authorise such repairs. The owner of Dick’s Bikes argues that Perren is
obliged to pay for the work done as the check card contains a contractual
clause authorising Dick’s Bikes to do any repairs on the bike which they
deem necessary without asking the client’s authorisation and requiring the
client to pay for such repairs. Advise Perren on whether he is liable on the
contract to pay Dick’s Bikes R1 000 for the additional repairs. Substantiate
your answer and refer to relevant case law. Apply the direct approach of the
courts in answering this question.
(10)
The question is whether Perren and the owner of Dick’s Bikes have
reached actual consensus or ostensible consensus. Perren will not be
contractually bound to pay for the additional repairs If this requirement
for a valid contract is absent.
Step one is to determine whether agreement exists between the parties, as
required in terms of the will theory. Agreement has three elements:
• ∗ agreement between the parties as to the consequences they wish
to create;
• ∗ agreement as to the intention of the parties to create legal
consequences; and
• ∗ an awareness regarding their unanimity.
Here, the parties were not in agreement as to the consequences they

wished to create: Perren thought that he was authorising Dick’s Bikes to
only service his bike, while the owner of Dick’s Bikes knew that the
contract also allowed Dick’s Bikes to conduct repairs on the bike which
they deem necessary and which should be paid by Perren without any
further authorisation from Perren. This was a mistake as to the obligations

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the parties wished to create and was a material mistake which excludes
consensus between the parties. This means that no contract could arise on
the basis of the will theory.
In George v Fairmead, the appellant signed a hotel register without reading
it. The hotel register contained a term excluding the respondent from
liability for certain acts. The appellant was unaware of this term and his
mistake related to a term which he believed would not be in the contract
and as such was material because it related to an aspect of performance.
In Allen v Sixteen Stirling, the plaintiff believed that he was purchasing
the erf shown to him by the seller's agent, while the written contract that
he signed indicated the another erf which was a completely different
property. His mistake related to performance and was material.
The appellant signed a contract without reading it in Du Toit v Atkinson's
Motors. The contract contained a term excluding the respondent from
liability for misrepresentation Once again the mistake related to an aspect
of performance.
In Sonap Petroleum, the parties concluded a 20-year notarial lease
contract. A later addendum to the contract drafted by the appellant's
attorney incorrectly indicated that the period of the lease was 15 years.
Again the appellant signed the addendum without reading it. The appellant
erred with regard the period of the lease which was an aspect of the
performance.
However, the matter does not end here, because a party may be held
contractually liable on the basis of a supplementary ground for liability,
namely the reliance theory. In this regard you were asked to apply the
direct reliance approach of the courts. Contractual liability is then based
on the reasonable reliance that consensus has been reached which the one
contractant (contract denier) creates in the mind of the other contractant
(contract enforcer).
According to the Sonap case the direct reliance approach entails a
threefold enquiry:
• Was there a misrepresentation regarding one party’s intention? In
our question, Perren wanted his bike to be serviced only. Dick’s
Bikes wanted the power to also unilaterally conduct repairs to the
bike, which it deemed necessary. By signing the contract Perren
made a misrepresentation that his intention is the same as that
expressed in the contract. This happened in the Sonap case.
• Who made the misrepresentation? In the problem it was made by a
party to the contract, Perren.
• Was the other party actually misled by the misrepresentation and, if
so, would a reasonable man also have been misled? Dick’s Bikes in
our question could have been actually misled, but a reasonable man
would have taken steps to point out to Perren that the contract
allows Dick’s Bikes to unilaterally conduct repairs on the bike,
because Perren enquired about the purpose of the check card and the
owner of Dick’s Bikes misled him to believe that by signing the card
he is merely authorising the service to be done. In Sonap the court
found that the contract enforcer knew that the contract denier was
acting under a mistake with regard to the reduction of the term of

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the lease and consequently was not misled by the contents of the
addendum. The addendum was thus void. In our question, Perren did
not create a reasonable reliance that he wished to be bound to the
contract he signed. We can conclude that Perren is not contractually
liable to pay R1 000 for the repairs.
13. The following advertisement appears in the newspaper, the Sunday

Reporter:
“AUCTION TOMORROW MORNING”

A smallholding (portion 1 of the Farm 876, West Road, George) will be sold
on Monday, June 21 at 10 am by auction at the property, next to No 11 on
the Varkensvlei Road. 9 950 square meters of vacant land in this sought
after area must be sold! Quick sale Auctioneers”
X reads the advertisement and decides to attend the auction. The next day
the auction is held. Before the auction begins, the auctioneer announces to
those present that the smallholding being sold is 300 meters further down
the road and not at the advertised place, where they are standing.
Unfortunately, the auction is already in progress when X arrives and he
misses the announcement. The smallholding is not sold during the auction.
X visits the auctioneer the following day. The auctioneer gives X a street map
of the area and tells X that the smallholding is next to the Highlands Estate.
X does not know where the boundary of the Highlands Estate is with the
result that X never realizes that the smallholding is actually 300 meters
down the road. X concludes a contract of sale with the auctioneer acting on
behalf of the owner of the smallholding, Y. After conclusion of the contract of
sale X discovers that the size of the smallholding is only 9000 square meters
and that the smallholding is actually situated 300 meters down the road.
You may accept that the contract of sale complies with the required
formalities and that the auctioneer acted as Y’s representative at all times.
Discuss whether X is bound by the contract with reference to relevant case
law.
At the outset it must be determined whether agreement as a contractual

basis exists between the parties, as required in terms of the will theory.
Agreement has three elements which are:
Agreement as to the consequence the parties wish to create.
An intention to create legal consequences and
Awareness regarding unanimity. In the present case the parties were not in
agreement as to the consequence they wished to create since they had
different performances in mind. This is a so-called error in corpore. This is
a material mistake which excludes consensus between the parties which
means that no contract can arise on the basis of the will theory.
However, there the matter does not end because a party may be held
contractually liable on the basis of a supplementary ground for liability,
namely the reliance theory. According to the direct application of the
reliance theory, contractual liability is based on the reasonable reliance

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that consensus has been reached with the one contractant creates in the
mind of the other contractant.
According to Sonap Petrolium this entails a threefold enquiry:
Was there a misrepresentation regarding one party’s intentions?
Who made the misrepresentation?
Was the other party actually misled?
If the other party was misled, would a reasonable man also have been
misled? should application of this test result in the conclusion that the
contract denier misled the contract enforcer to reasonably believe that the
contract denier’s expressed intention coincided with his actual intention,
the contract denier will incur contractual liability even though he is
laboring under a material mistake.
The court also found that fault was not a requirement and apparently did
not regard estoppels as a suitable solution in cases of mistake.
According to the indirect application of the reliance theory (iustus error
approach) it must be determined whether a contractual party may be held
bound to an apparent contract where there is material mistake on his part.
If the contract denier’s mistake is both material and reasonable, he will
not be held bound to the apparent contract. Mistake is usually reasonable
where it is caused by the contract enforcer.
(Or where the contract enforcer was aware or reasonably should have been
aware of the contract denier’s mistake but did not point out the latter’s
mistake to him) Usually where a party has only himself to blame for his
mistake, it is not excusable.
In the circumstances X should not be liable because his mistake was
caused by the other party and reasonable steps were taken to clear up the
misunderstanding.
Similar mistake question:

John, a racehorse owner, advertises for sale the horse Fire for R1.5 million.
In the advertisement it is stated that Fire is an offspring of the legendary
July winner, Lightning. Peter is a horse breeder who specifically wishes to
introduce the bloodline of Lightning into his stud. He agrees orally with
John to buy Fire for R1.5 million. Later, in order to meet the requirements
of the horse breeders’ association, John has a written contract drawn up
which Peter signs without reading. The contract makes no mention of Fire's
ancestry, but does contain a clause exempting John from liability for any
representations made during negotiations or in the contract. Peter's
attention is not drawn to these facts. A month later Peter finds out that Fire
is in fact not an offspring of Lightning, although at the time of the
conclusion of the contract John genuinely and without any fault on his part
believed that to be the case. Advise Peter on whether the contract of sale is
valid. Substantiate your advice and refer to relevant case law. Apply the
subjective approach of the courts in answering this question. Do not apply
the Consumer Protection Act to this question. (10)
The subjective approach of the courts involves the application of the

will theory as qualified by estoppel or quasi-mutual assent . A

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successful reliance on estoppel can only give rise to a ‘fictional’ (thus

not valid) contract and will thus not be discussed.
The facts seemingly indicate that John and Peter have not reached
consensus based on the will theory. If that is the case, it is necessary
to determine if Peter may be held bound to a contract with John,
based on the reliance theory.
The subjective approach implies that we first have to determine
whether agreement between the parties exists as required in terms of
the will theory or whether a party acted under a material mistake.
Consensus has three elements - the parties must seriously intend to
contract, be of one mind as to the material aspects of the proposed
agreement (the terms and the identity of the parties to it), and be
conscious of the fact that their minds have met.
In the present case the innocent misrepresentation regarding Fire’s
lineage is irrelevant because it caused a non-material mistake: a
mistake regarding a characteristic (the lineage) of the thing sold, Fire
(an error in substantia). The parties wanted to buy and sell the same
horse, Fire.
The parties were, however, not in agreement as to the consequences
they wished to create: Peter did not know that there was a clause in
the contract he signed exempting John from liability for any
representations made during negotiations or in the contract, but John
knew that the sale included an exemption clause. Peter made a
mistake as to the obligations the parties wished to create, which
excludes consensus between the parties. No contract can thus arise on
the basis of the will theory.
The facts of our problem are very similar to that in Du Toit v
Atkinson's Motors, where the appellant signed an agreement without
reading it, which contained a term excluding the respondent’s liability
for misrepresentation. The court held that the mistake regarding the
exemption clause was material.
This type of mistake also occurred in other cases. In Allen v Sixteen
Stirling, the plaintiff believed that he was purchasing the erf shown to
him by the seller's agent, while the written contract that he signed
indicated the correct erf which was a completely different property.
His mistake related to performance and was material. In Sonap, the
appellant erred with regard the period of the lease which was an aspect
of the performance.
A valid contract could still arise in terms of the doctrine of quasi-
mutual assent or direct reliance theory. The court stated the test in
Sonap as follows:
In my view, therefore, the decisive question in a case like the present
is this: did the party whose actual intention did not conform to the
common intention expressed, lead the other party, as a reasonable
man, to believe that his declared intention represented his actual
intention? ... To answer this question, a three-fold enquiry is usually
necessary, namely, firstly, was there a misrepresentation as to one
party’s intention; secondly, who made that representation; and thirdly,
was the other party misled thereby? ... The last question postulates

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two possibilities: Was he actually misled and would a reasonable man

have been misled?
One of the parties to the contract, Peter, misrepresented his intention
to be bound by the contract by signing the contract. Although it could
be argued that John was actually misled by this misrepresentation of
Peter, it is clear that a reasonable person in the position of John would
not have been misled thereby. John knew in fact that there was no
exemption clause in the oral contract while the written contract had
such a clause. John should have realised that Peter could have thought
that the written contract was also without such a clause and he thus
had a legal duty to point out to Peter the presence of this clause in the
written contract. There was either no actual or at least reasonable
reliance on the part of John.
The written contract of sale is invalid because of the lack of actual and
apparent consensus.
14. Chantel is on her way from work and sees a white cat hiding in a doorway.
Being an animal lover, she takes the cat home with her. The next day, she
sees the following advertisement in the newspaper:
“Lost in Johannesburg City Centre on 10 May. Pedigree white cat, female,
black tip on her tail. Answers to the name of Peetree. Reward of R6 000 for
information leading to safe return. Tel 083 333 3333.”
She realises that the cat she found matches the description given. She calls
the advertiser who rushes over to be joyfully united with Peetree. In her joy,
Peetree’s owner, Helen, seems to forget about the reward and Chantel
wishes to claim it from her. Will she be successful? Substantiate your
answer. (10)
Chantel will only be successful in her claim if a valid contract arose

between Chantel and Helen and this will be the case if there was a valid
acceptance of a valid offer. Helen’s advertisement complies with the
requirements for a valid offer:
1) Helen’s offer was definite and complete. The offer in this problem
contained adequate information to enable the addressee to form a clear
idea of exactly what the offeror had in mind as it stated what was required
for the offer to be accepted (information leading to the safe return of
Peetree) and what amount the reward (R6 000) was.
2) Helen’s offer contemplated acceptance and a resultant obligation.
Although an advertisement is usually only an invitation to do business
(Crawley v Rex) a promise of reward does constitute a firm offer (Bloom).
Helen’s offer was a firm offer and not a tentative statement with a possible
agreement in mind.
3) Helen’s offer came to the attention of the addressee, Chantel. The fact
that an agreement is a conscious or stated mutuality of consent leads to
the requirement that the offeree must have knowledge of the offer to be
able to react to it (Bloom)
4) An offer such as a promise of reward can be validly directed at undefined
persons. The providing of information by Chantel was a valid acceptance of
Helen’s offer:

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1. Chantel’s acceptance was unconditional and unequivocal.

2. Chantel, as a member of the public, could accept the offer of reward
because the offer was addressed to the public in general.
Chantel was aware of the offer of reward and her acceptance was thus a
reaction to the offer (Bloom). Chantel’s giving of information was a
manifestation of her intention to accept the offer. Chantel’s acceptance
complies with the requirement set by Helen that acceptance must take the
form of the provision of certain information.
It can be concluded that a valid contract arose in this problem,
because Helen made a valid offer which Chantel validly accepted.
15. P wants to buy an agricultural smallholding from S, who owns several such
holdings situated on land a short distance from Johannesburg. During
negotiations S points out one of the holdings to P, who decides to buy that
particular holding. Unbeknown to P, the written contract of sale subsequently
entered into between him and S refers to another of S’s holding adjacent to
the one he has seen. Is S bound by the contract sale? Discuss with reference
to Allen v Sixteen Stirling and other relevant case law.
The answer to the question involves the discussion of mistake, error in

corpore, the will/intention theory, the reliance theory, Sonap, Steyn,
Potato Board, Atkinson’s Motors and Allen, the iustus error, the direct
reliance and a conclusion (see auction question above).
16. S sold his house to P for R900 000. During the negotiations P asked if the
swimming pool was sound and S replied “of course”. S did not know that the
pool was leaking at the time of the contract but should have realized that it
was leaking because big quantities of water had to be added regularly to the
pool. After P took occupation of the house he finds that the pool is leaking
and that it will cost R30 000 to repair. P does not wish to cancel the contract
because she loves the house. She, however, wishes to claim damages from S.
Discuss the manner in which damages will be calculated by the court. Refer
to Ranger v Wykerd and De Jager v Grunder.
Discuss negligent misrepresentation, define misrepresentation, discuss

dolus dans and dolus incidens, and mention the following:
In De Jager v Grunder, the buyer (D) and seller (G) entered into a
contract described as a sale but in fact it was an exchange.
The thing ‘sold’ was G’s farm with cattle and equipment and the price
‘paid’ was D’s farm X and Z, including cattle and equipment and a further
R7000. To work out the cash amount D paid, they valued all 3 farms. But
D made an intentional misrepresentation.
However, the court said that the price paid minus the actual value of the
farm was G’s damages.
In Ranger v Wykerd, R bought a house with a swimming pool for R22

000.

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R asked W if the pool was structurally sound.

W said yes even though he knew it was cracked.
R bought the house and the pool leaked.
He had to pay R1 250 in repairs.
R sued W for R1 250.
He further said that he would have paid R20 750 for the house had he
known the truth about the cracked pool.
The court said that the reasonable amount paid for pool repairs is
generally R1 000.
17. Mkhabela, a government institution, which was the owner of certain

immovable property in a township, mistakenly accepted the tender submitted
by Yello to purchase a certain erf in the township. The board of Mkhabela
actually decided to accept the tender submitted by Zorro, but the manager of
Mkhablea, who is responsible for the conclusion of contracts on behalf of
Mkhabela, by mistake sent the letter of acceptance to Yello. Yello incurred
expenses to perform in terms of the contract. However, Mkhabela later
realized its error and averred that it was not bound to perform in terms of the
contract because the manager had not been authorized to accept Yello’s
tender. Discuss Yello’s position with reference to National and Overseas v
Potato Board and other relevant case law. (10)
Start your discussion with an explanation of the primary basis of

contractual liability – the intention/will theory; explain how all material
mistakes, in terms of this theory, render the contract void.
Then discuss alternatives to the will theory and the only viable one is the
reliance theory. There are 2 legs to this theory:
Direct reliance approach:
Mkhabela misrepresented his actual intention to contract with Zorro by
accepting Yello’s tender. Yello was actually misled by Mkhabela’s
misrepresentation as to Mkhabela’s intention to contract with Yello. A
reasonable man would also have been misled by this misrepresentation of
Mkhabela
Yello’s reliance was therefore reasonable.
Mkhabela, a party to the apparent contract, made a misrepresentation

regarding his own true intention. By accepting Yello’s tender he made a
misrepresentation that he wished to contract with Yello. Yello was actually
misled by this misrepresentation and a reasonable man in Yello’s position
would also have been misled, because there is no indication that something
was amiss and that Mkhabela actually wished to contract with someone
else. Yello’s reliance is therefore reasonable and Mkhabela is bound by the
contract.
OR
Iustus error approach:
Mkhabela’s mistake is unreasonable as Yello did not know of Mkhabela’s
mistake nor could he, as a reasonable man, have known of it.
Mkhablea is the author of his own error.

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Mkhabela’s error is material, but unreasonable. Yello did not know that
Mkhablea was acting under an error. A reasonable man would also have not
known as there was no indication that Mkhabela was acting under a
mistake, nor did Yello cause Mkhabela’s mistake through a
misrepresentation. Yello is thus bound by the contract.
18. X and Y concluded a written contract of sale of immovable property in

which the description of the property was so deficient that it didn’t comply
with statutory requirements regarding the description of the property in such
deed of sale. Y Alleges that the sale is void for lack of compliance with the
statutory formalities. While X wants to uphold the contract. Discuss with
reference to ‘Magmwza v Heenan’. (10)
It often happens that parties are fully agreed on terms of their contract, but
that these terms are later, by mistake inaccurately expressed in a written
instrument. Such cases are not, of course, cases of mistake properly so
called. In these cases consensus is undoubted & real & either party may
apply for rectification of the written document to bring it in line with the
actual intention of the parties.
This flows from the generally subjective approach of our law to the basis of
contractual liability. What is rectified is not the contract itself as the
juristic act, but the document in Question, because it doesn’t reflect what
the contractants intended to be the content of their juristic act.
In general the courts require that a party claiming rectification must

establish the following:
1. that as result of an error or mistake the document doesn’t reflect the
common intention of the parties,
2. it must be established what the true intention of the parties was &
3. How the doc is to be changed to reflect that intention.
Determining the true intention of the parties is a Question of fact. Proof of

a prior agreement, which in it self need not constitute a contract, is
sufficient.
Magwaza v Heenan:
The court held that the agreement could not be rectified as it was void due
to non-compliance with Sec 1(1) of the Act (which has since been replaced
by the Formalities in respect of Contracts of Sale of Land Act).
The facts were: Contract for sale of land; Buyer alleged that the written
contract contained an incorrect description of the property in that it
described the property as being smaller than it was. He therefore sought an
order rectifying the contract so as to reflect the parties’ true intentions.
The issue was whether in the prop was so inadequately described as to
result of voidness, and whether such voidness precludes a claim for
rectification.
The judge held that the test with the compliance with the act is whether
the contract sufficiently describes the subject matter sold to enable

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identification of it. In casu, the contract doesn’t sufficiently describe the

land as to make it capable of identification. The contract is therefore VOID
unless the parties intended the determination of the unspecified borders to
be left to someone (such as the surveyor). In my opinion there is no
identification that such a person was to determine the borders. The
contract is therefore a nullity. Since the contract is a nullity there is
nothing to rectify.
X can apply for rectification but I doubt he will succeed since the written
contract of sale goes against the statutory formalities.
19. S sells his farm to P for R100000. There is a pine plantation on the farm and
P purchases the farm for the purpose of growing and selling pine wood.
During negotiations S points out the boundaries of the farm to P and includes
a piece of land 300 square meters. Which in actual fact is part of an adjoining
farm, with the purpose of persuading P to conclude the contract. S knows
that the piece of land isn’t part of his farm. The market value of the farm is
R900000. P would only have been prepared to pay R800000 if she had known
the true state of affairs. Discuss all the remedies which P possibly may have.
Refer to ‘Trotman v Edwick’ and ‘Phame v Paizes’. (10)
Misrepresentation:
It’s an untrue statement of fact made by 1 party to the other during
negotiations which induces the other party to enter into a contract he
would:
1. Never have entered into had he known the truth or
2. Would have entered into but on other terms.
A fraudulent misrepresentation is one made

• Knowingly, or
• Without belief in its truth, or
• Recklessly, careless whether it should prove to be true or false.
It is one made without an honest belief in its truth.
A negligent misrepresentation is one made honestly, but carelessly. An
innocent misrepresentation is one made without fraud or negligence.
AMENDMENTS 2012: When a statement of fact is made during the course of
pre-contractual bargaining, or is embodied in a contractual document (eg:
‘the car is a 1985 model’), it is often a nice question whether the statement
is a mere representation, or a warranty – that is a term of contract. Test for
distinguishing warranties from representations focuses on the intention of
the parties: did they intend the statement to form part of their contract; in
other words, that there should be a contractual liability in respect of it?
In determining the intention of the parties, the court is guided by objective
criteria such as: the importance of the truth of the statement; the stage of
the transaction at which it was made; and whether it was made in response
to a query by the representee. Even in the absence of a genuine animus
contrahendi, a person may be held to have given a warranty, on the basis of

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estoppels or the principle in Smith v Hughes, if he or she led the other part
reasonably to believe that he or she was warranting the truth of his or her
statement.
A warranty is a term, its breach gives rise to the usual remedies for breach
of contract (cancellation of the contract (where the breach is material) and
damages). (Positive interest)
(If misrepresentation made prior to the conclusion of the contract is
subsequently incorporated into it as a contractual term, the representee
may sue either for misrepresentation or for breach of contract.)
Mere expressions of opinion, usually amount to misrepresentations.
However, if the speaker does not in fact hold the belief or opinion which he
or she expresses, or lacks the will to give effect to his or her statement of
intention when he or she makes it, he or she misrepresents his or her own
state of mind; and for this he or she may be held liable.
A statement of law has been considered to be one of opinion, rather than
fact, and therefore not actionable. A statement as to the legal effect of a
document is one of law; but where a party induces another to enter into a
contract by representing that he or she places a particular construction
upon a clause in the document, he or she will be bound by that
construction, even if it is not the legally correct one.
A contracting party who has been misled into contracting by the
misrepresentation of the other party may in appropriate circumstances set
the contract aside and claim restitution, or raise the misrepresentation as a
defence when sued upon the contract, and is in addition entitled to recover
damages for any losses caused by the misrepresentation.
Rescission and restitution
Where a party has entered into a contract after a misrepresentation has
been made to him or her, such a party is entitled to rescission and
restitution, provided that the following four criteria are met:
1. Misrepresentation by the other party: The misrepresentation must
have been made by the other party to the contract, or by someone for
whose acts he or she is responsible.
2. Inducement: No Relief will be granted if the representee knew that the
statement was false, or if it failed to come to his or her notice. The
test for inducement is a subjective one.
Two types of fraud inducing a contract: dolus dans and dolus incidens.
If, but for the fraud, the contract would not have been concluded at
all, it is dolus dans; if there would have still been a contract, but on
different terms, it is a dolus incidens.
Incidental fraud (dolus incidens) gives a right only to damages, and
not to rescission of the contract.
3. Intention to induce: misrepresentation should be made with the
intention of inducing the other party to enter into the contract. If the
unreasonable reliance by the representee was reasonably foreseeable
to the represent or, rescission should be permitted.
4. Materiality

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Materiality, the misrepresentation must be material in order to afford

a right to rescind. The misrepresentation should be of such a nature
that is would have the natural and probable effect of inducing a
reasonable person to enter into the contract.
Fault not required. The right to rescind a contract induced by
misrepresentation exists irrespective of whether the statement was
made fraudulently, negligently or innocently.
Misrepresentation may constitute an invalidating cause no less than a
cause of action: whenever a representee may rescind a contract for
misrepresentation, he or she may also use the misrepresentation as a
defence to an action on the contract brought against him or her by the
representor.
Damages
Whether the representee chooses to cancel or to abide by the contract, he
or she may in addition be entitled to recover damages in respect of any
patrimonial loss caused by the misrepresentation.
1. Fraudulent misrepresentation. Action legis Aquiliae.
The five essential elements of the cause of action are as follows:
1.1. A representation;
1.2. Which is, to the knowledge of the representor, false;
1.3. Which the representor intended the representee to act upon;
1.4. Which induced the representee to act; and
1.5. That the representee suffered damage as a result.
The motive of the representor is irrelevant; provded only that he or she
made the assertion without an honest belief in its truth and intended it to
be acted upon, it matters not that he or she lacked an intention to cause
loss or damage to the representee; but such damage must have followed as a
result of the representee acting upon the misrepresentation.
Such intention need not always be dolus directus – that is, the representor
need not have applied his or her will to induce the representee to act upon
the representation. It is sufficient if he or she subjectively forsaw such a
result and was reckless as to whether the result followed or not.
The right to claim damages for fraud is not dependant on the materiality of
the representation; it is no defence that the representee should not, as a
reasonable person.
Since fraud is delict, the measure of damages is the usual delictual rather
than the contractual measure. (Trotman v Edwick)
The victim of fraudulent misrepresentation is thus entitled to be put in the
financial position he or she would have occupied had the representation not
been made to him or her, but he or she cannot have the representation
‘made good’ by being put in the position he or she would have occupied had
the representation been true. Whether the contract is rescinded or upheld,
damages are recoverable in respect of the consequential losses flowing from
the fraud. Where the contract is rescinded and restitution ordered, the
representee’s loss on the transaction itself is generally wiped out by the
process of restitution and his or her damages are thus usually limited to

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wasted costs and other such consequential losses. Where the contract is
upheld, the representee may suffer a loss on the transaction itself.
To be compensable, the loss in question must be casually connected with

the fraud. In a case of dolus dans, there would have been no contract at all
but for the fraud.
This entails awarding the innocent party the value of his or her
performance, less any benefits which he or she has received from the other
party under the contract. In a case of sale, for example, his or her net loss
is the price paid for the merx, lessits actual or fair value at the time of
purchase. Both losses and benefits have to be taken into account, since
both flow directly from the misrepresentation; thus if, in spite of the
misrepresentation, the representee has made an overall profit on the
transaction, he or she is not entitled to any damages – the so-called swings-
and-roundabouts principle (Ranger).
Eg: If he or she paid R800 000 for a house worth R900 000, and he or she
would not have brought at all but for a misrepresentation that the house
had recently been rewired, he or she cannot recover the R20 000 that it has
cost to rewire the house, since what he or she loses on the swings (R20 000)
is more than compensated by what he or she gains on the roundabouts
(R100 000).
In a case of dolus incidens, where the effect of fraud was merely to

influence the terms of a contract which would in any event have been
concluded, the representee’s loss cannot be measured by comparing the
values of the respective performances of the parties, since neither was fully
induced by the representation. Rather one should measure the extent to
which the representation inflated the performance that the representee was
prepared to make under the contract.
Eg 1: Bad bargainer: A offers to buy something worth R100 from B for a
price of R120; B makes a misrepresentation which, if true, would make the
thing worth R150; A then buys it for R180. The loss caused by the
misrepresentation is not R80 (price paid less actual value) but R60 (price
paid less price that would otherwise have been paid); the additional loss of
R20 (putative price less actual value) would in any event have been incurred
due to A’s bad bargaining.
Eg 2: Good bargainer: the damages awarded may exceed the difference
between the price paid and the actual value of the merx, since they include
an element of loss of profit (lucrum cessans). In the example given above, if
A’s initial offer was less than the actual value of the thing, say R90, and his
or her final, accepted offer after the misrepresentation was R135, then the
representee can recover not just R35 (price paid less actual value) but R45:
The additional R10 represents the profit that he would have made but for
the misrepresentation. This is not the same as awarding him or her
contractual damages, which would here be R50 (difference between the
represented and the actual value of the merx: R150 less R100).
In Ranger’s case, it was held that where a thing is misrepresented to be free

from defects, the damages may be measured by the cost of removing the

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defect. With respect, it is submitted that, despite the obvious practicality of

such an approach, it amounts to making the representation good; that is
the contractual measure.
The decision in Bayer SA v Frost placed the remedies for intentional and
negligent misrepresentation on an equal footing.
Since a culpable misrepresentation is a delict, the measure of the
misrepresentee’s damages is the normal delictual measure and that is that
damages are calculated according to the plaintiff’s negative interest.
That means that the misrepresentee must, by the award of a sum of money,
be placed in the hypothetical (assumed) position in which he would have
been had the delict not occurred.
He can never claim to be placed in the position in which he would have
been had the misrepresentation been true.
A rule of thumb is always to decide how much worse off the misrepresentee
is financially as a result of the misrepresentation.
Where the contract is rescinded restitution takes place and the
misrepresentee’s loss will normally take the form of wasted costs which he
may have incurred in connection with the conclusion and cancellation of
the contract. Whether such reimbursement may be regarded as damages
proper or merely part of restitution itself is not clear but this distinction
will be of little importance in most cases.
20. Samuel, a jeweller displays 2 seemingly identical rings in his shop window.
The 1 contains diamonds and the other only crystals. Pat walks into the shop,
points out the crystal ring to Samuel and offers to buy it for R10000. Nothing
is said about the material from which the ring is made. Pat thinks she is
buying a diamond ring, while Samuel believes that Pat wants to buy the
crystal ring. Samuel accepts Pat’s offer.
(a) Does a valid contract arise? Discuss (5)
For a mistake to be material it must relate to 1 or more of the following:

Consensus exists when parties:
1. The intention to be legally bound.
2. The persons between whom the obligations are to be created &
3. The performances to be delivered in terms of the contract.
If for some reason or other the parties are not in agreement regarding 1 or
more of these elements of consensus actual agreement between them is
In the given set of facts the mistake is not material since Pat’s mistake is 1
of error in substantia (error in qualitate) or mistake regarding an attribute
or characteristic of the subject matter of the contract. Thus the contract is
valid.

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(b) Does Pat have any other remedy available against Samuel besides possibly
having the contract declared void? Discuss. (7)
Misrepresentation:
It’s an untrue statement of fact made by 1 party to the other during
negotiations which induces the other party to enter into a contract he
would:
1. Never have entered into had he known the truth or
2. Would have entered into but on other terms.
Remedies:
Rescission & restitution: victim granted this.
1. Dolus dans is if there was no misrepresentation, there would be no
contract.
2. Dolus incidence is if there is a misrepresentation, there would be a
contract but under diff terms.
Damages:
Test in case of Dolus Dans:
If no misrepresentation – no contract.
Loss determined by deducting value of performance made by misrepesentor
from that made by misrepesentee & adding to the difference any
consequential loss (loss of profit) the misrepesentee may have suffered.
(Trotman v Edwick).
Test in case of Dolus Incidens:

If no misrepresentation – still enter contract but on different terms.
Loss determined by deducting value of performance that misrepesentee
would have been prepared to render had there been no misrepresentation,
from performance that misrepesentee actually rendered, & adding any
consequential loss that the misrepesentee may have incurred.
Misrepesentee must proof that contractants would have agreed to the
putative performance. Misrepresentee is free to prove any putative price
even 1 less than market value of the performance.
(De Jager v Grunder).
In the given set of facts P can rely on dolus incidence to avoid making the
contract void. (ADD INFO AS ABOVE FROM AMENDMENTS FOR 2012 FROM
Q19)
(c) Would a valid contract arise if both Samuel and Pat believe that they are
contracting for the diamond ring? Discuss with reference to ‘Dickinson Motors v
Oberholze’. (8) OCTOBER 2015 EXAM Q!!!!!
This relates to common error:

This is another type of mistake which render the contract void. This is the
case where both parties make the same mistake. The parties are in
complete agreement. Each knows the intention of the other & accepts it;
each is mistaken about some underlying & fundamental fact.

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A Common Error results in the contract being void but not for lack of
consensus. The parties are in complete agreement.
Relevant case law: Dikinson’s Motors v oberholzer:

FACTS:
O’s son X bought 2 cars on higher-purchase.
Car A was bought from D Motors & car B from a 3rd party.
X agreed with O to exchange car B for O’s car.
D Motors took judgment against X for the balance owing on car A &
attached car B (still in O’s possession) in the mistaken belief that it was car
A.
O, unaware of the error, agreed to pay outstanding amount in return for
possession of the car.
Both D Motors & O believed the car to be car A, while in fact is was car B.
Soon after O regained possession of the car, the 3rd party removed the car
after obtaining judgment for outstanding amounts owing.
O sued D Motors for the sum he had paid to D Motors.
HELD:
O paid amount under common mistake (that the car in Q was the 1 which D
Motor’s had sold to X), & had the parties been aware of the true nature the
contract would not have been concluded.
O was entitled to recover from D Motors the $ he had paid owing to
common error.
21. Discuss undue influence with reference to “Preller v Jordaan” (10)
In Preller v Jordaan (reaffirmed in Patel v Grobbelaar) it was held that where

a party to a contract requests a court to set aside the contract on the
ground of undue influence, an onus rests on that party to prove:
1. That the other party exercised influence over him.
2. That this influence weakened his powers of resistance & made his will
pliable.
3. That the other party exercised this influence in an unscrupulous
manner in order to induce him to consent to a transaction which
firstly was to his detriment & secondly, which he with normal free
will would not have concluded.
If the person who holds a position of trust in such a relationship, takes

advantage of the trust placed in him in order to influence the other party
into entering into a contract with him, & in so doing obtains a benefit
which he would not enjoy were it not for the relationship of trust existing
between them, it is accepted that he has exercised Undue Influence on the
other party. The contract may then be rescind at the insistence of the
innocent party.

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Undue Influence renders a contract voidable at the instance of the

aggrieved party. Rescission & restitution are traditionally the only remedies
available on this ground.
Should the aggrieved party decide to rescind the contract the obligations
between the parties will be terminated with retrospective effect. This means
that the parties must restore to each other what has already been
performed in terms of the contract so that they may be in the position that
they were before the contract was concluded.
Preller v Jordaan:
J an elderly farmer donated & transferred 4 farms to Dr.P. J claimed
retransfer of the farms alleging he had been influenced into transferring the
farms. J alleged that at the time that the agreement was concluded, he was
old & ill & physically & mentally exhausted. J further alleged that he would
not have given transfer to Dr.P had Dr.P not exerted Undue Influence upon
him in his exhausted state. P excepted to the allegations, averring that
Undue Influence wasn’t a ground for setting aside the transaction.
P’s exception could not succeed. J’s claim upheld.
The allegations in Plaintiff’s declaration are sufficient to base a claim for
undue enrichment.
Of the 4 farms 3 had been donated by Dr.P to his children. Since P had the
intention to pass ownership to his children, the court found that ownership
had indeed passed. J could therefore only recover 1 of the farms, because
the children had no part in the Undue Influence.
22. X wants a car just like the one his neighbor Y has. X knows that Y cheats on
his income tax since Y often boasts of this. Consequently, X tells Y that if Y
does not sell his car to him for R20 000, he will report Y to the receiver of
revenue. Y sells his car to X for the amount mentioned although it is worth
R100 000. Will Y be able to have the contract set aside? Discuss with
reference to relevant case law.
Duress occurs when a party is forced or compelled by the other party or

someone for whose acts he may be held liable to enter into a contract.
The requirements as set out in Broodryk v Smuts are:
Actual violence or reasonable fear
The fear must be caused by the threat of some considerable evil to the
contractant or his family. It must be the threat of some imminent or
inevitable evil. The threat or intimidation must be contra bonos mores. The
moral pressures used must have caused damage.
In the present case the contract was concluded pursuant to a threat of
otherwise lawful action. Generally, to report someone for not paying income
tax is not unlawful. There is diversity in the provincial divisions regarding
the possible wrongfulness of such action. In the Transvaal it has been
decided that such contracts are not necessarily contra bonos mores.
In the cape it has been held that such agreements generally are
unenforceable.
It appears that a threat of otherwise lawful action, such as prosecution, in
fact will be unlawful if it is used by a contractant to exact a performance

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which is more advantageous than that to which he is reasonable entitled.

On this basis Y will probably be able to have the contract set aside and
claim restitution.
23. X wants to conclude a lucrative contract with company Y. To ensure that

he is successful, X agrees with the agent of Y, who is responsible for
concluding contracts on behalf of Y that for a fee the agent will ensure that
the contract will be awarded to X. After the contract has been concluded
between X and Y, and both parties have performed, the financial director of
Y discovers how X secured the contract. Discuss the implication of both the
agreement between X and the agent of Y and the agreement between X and
Y. You must also discuss whether Y has a remedy in the circumstances
and how it is to be exercised. (15)
A contractant would plead any facts which support the conclusion that his
consent was obtained improperly.
Improper conduct, according to the courts, would amount to wrongful
conduct in the delictual sense.
The delictual concept of wrongfulness should be used as a guideline by
which the limits of recission should be defined.
The element of wrongfulness is flexible enough to provide the basic limits
for liability and still accommodate the extensions of delictual liability.
In Plaaslike Boeredienste v Chemfos, the Appellate Division went beyond
the existing grounds for rescission in considering a claim for rescission of a
contract. Here, the contractant had bribed the agent of the other
contractant to persuade the latter to conclude a contract. Although fraud
(intentional misrepresentation) was advanced as the ground for rescission,
the court held that the act of persuasion through bribery did not constitute
fraud as such but amounted to an improper means of obtaining consensus.
According to authors, the approach adopted by the court indicates that the
AD seems to have restarted the grounds for rescission in terms of the
underlying general principle that a contract may be rescinded by a
contractant whose consent to it was obtained by improper means. This
raises the possibility that the traditional grounds for rescission may be
called one general ground.
In Extel v Crown Mills, the SCA was confronted with a contract engineered
by the bribery of the principal’s agent by the other contracting party. The
court, approving the Chemfos decision held that in such cases of
commercial bribery the agreement between the briber and the person bribed
is void for want of legality, while the ensuing agreement between the briber
and the innocent contracting party is voidable at the instance of the
innocent party.
The court did not however find that the existing grounds for the rescission
of a contract in this context have been included under one general ground.
The court confirmed that commercial bribery is a distinct ground for
rescinding a contract and that it has the following elements:

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o A reward
o paid / promised
o by one party – the briber
o to another – the agent
o who is able to exert influence over
o a third party
o with the intention that the agent
o should induce the principal
o without the latter’s knowledge and
o for the direct or indirect benefit of the briber
o to enter into or maintain / alter a contractual relationship
o with the briber / his principal /associate / subordinate.
24. State the questions which the court formulated in “Basson Case” to
determine the reasonableness of an agreement in restraint of trade. (4)
In the Basson Case the following 4 Questions in order to determine the

reasonableness of an agreement in restraint of trade was established:
1. Is there an interest of the 1 party that deserves protection?
2. Is such an interest affected by the conduct by the other party?
3. If so, does such interest weigh up qualitatively & quantitatively
against the interest of the other party (to be economically active &
productive) to the extent that this party can’t be economically active
& productive?
4. Is there another facet of public policy having nothing to do with the
relationship between the parties but which requires that the restraint
should either be maintained or rejected?
If the interest in (3) surpasses the interest in (1), the restraint would as a
rule be unreasonable & accordingly unenforceable.
25. X concludes an apprenticeship contract with Y for a training period of 2

years. In terms of the contract X isn’t allowed to work in the village for a
period of 12 months after the termination of the contract. X wishes to start a
hairdressing business of her own at the end of her training period. She
decides to contest the restraint of trade clause. Advise X fully. Refer to
“Magna Alloys Case” and other relevant case law. (15)
2 Principles come into conflict when determining the public interest in

agreements in restraint of trade. Although public policy requires that
agreement freely entered into should be honored (Principle of Sanctity of
contract), it also requires, that everyone should be free to seek fulfillment
in the business & professional world (Principle of Freedom of Trade).
In Magna Alloys the Sanctity of contract takes precedence over Freedom of

Trade. The result of this is that a contract of restraint is regarded as valid &
enforceable unless the party wishing to escape the consequences of the

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agreement can prove that the restraint should not be enforced because it’s
contrary to public policy.
Court held in Magna Alloys that the test is whether an agreement in
restraint of trade is contrary to public policy, in which case its not invalid
(or void), but only unenforceable. Court thus gives precedence to the
principle of Sanctity of contract over Freedom of Trade.
A Restraint of trade is contrary to public policy if the restraint is
unreasonable. Reasonableness or otherwise of a restraint is judged on the
basis of the broad interests of the community & the interests of the
contracting parties themselves.
Broad interests of the community concerns the principle of the Sanctity of
contract & of Freedom of Trade. Interests of the contracting parties
involves the interest/s which the 1 party is trying to protect with the
restraint, & the interest which the other party has in freely participating in
the commercial & professional world.
Public policy, & not the reasonableness of a restraint as between the
parties, is the measure to determine whether a restraint should be enforced.
The fact that a restraint is unreasonable as between the parties is only an
indication that the restraint could be against public policy.
There may be another facet of public policy that may require that a
reasonable restraint should not be enforceable or that an unreasonable
restraint should be enforceable.
In the Basson Case the following 4 Questions in order to determine the

reasonableness of an agreement in restraint of trade was established:
1. Is there an interest of the 1 party that deserves protection?
2. Is such an interest affected by the conduct by the other party?
3. If so, does such interest weigh up qualitatively & quantitatively
against the interest of the other party (to be economically active &
productive) to the extent that this party can’t be economically active
& productive?
4. Is there another facet of public policy having nothing to do with the
relationship between the parties but which requires that the restraint
should either be maintained or rejected?
If the interest in (3) surpasses the interest in (1), the restraint would as a
rule be unreasonable & accordingly unenforceable.
Onus of proof:
Acceptance of public policy as the criterion means that the principle of
Sanctity of contract is given preference over Freedom of Trade & that when
a party alleges that he isn’t bound by a restrictive agreement to which he
has agreed, he bears the onus of proving that the enforcement of the
agreement would be contrary to the public policy (Magna Alloys).
v Here Y probably had a protectable interest (good will), & X might have
came into contact with them & formed a personal relationship. The
fact doesn’t state where X wants to open her hairdressing shop, but if
she wants to open it in the Village it might have a qualitative l &

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quantitively affect on Y’s business. It doesn’t seem that there is

another facet of public policy that may indicate that the restraint
should be maintained or rejected. It’s on X to prove that the restraint
is contrary to the public policy.
26. Discuss the rule in pari delicto potior est condition possidentis with
reference to Jajbhay v Cassim 1939 AD 537.
The illegality of a contract results in it either being void or unenforceable.

Neither party may institute an action on the basis of an illegal contract.
The possibility does exist that a party who performed in terms of an illegal
contract may claim restitution with an enrichment action.
However, the rule in pari delicto potior es conditio possidentis prevents an
action for restitution in certain circumstances. This rule has the effect that
where parties to an illegal contract are both guilty, the party who is in
possession of a performance which has been delivered is in the strongest
position. However, where a party did not act disgracefully in performing he
is not precluded from claiming restitution with an enrichment action.
Until 1939 the courts applied the par delictum rule rigorously and allowed
no exceptions. For example in Brand, which concerned the sale of a cow on
a Sunday, the court refused to allow the plaintiff any redress.
In Jajbhay the law on this point was reconsidered. In this case the parties
concluded an illegal sub-lease but the application was denied on the
grounds of the par delictum rule.
However the court did indicate that the par delictum rule could be relaxed
in appropriate circumstances in order to allow restitution. This rule rests
on considerations of public policy, namely to discourage illegal
transactions. Nevertheless, public policy also requires that justice should be
served and the par delictum rule may be relaxed where “simple justice
between man and man” so requires. Thus it will depend on the particular
circumstances of a case whether this rule will be relaxed or not.
27. State the test to decide if a restraint of trade clause is enforceable. (5)
In Magna Alloys and Research (SA)(Pty) Ltd v Ellis, the Appellate Division
overturned this approach in favour of the sanctity of contract. A contract in
restraint of trade is now valid and enforceable, unless the party wishing to
escape the consequences of the agreement can prove that the restraint is
contrary to public interest and thus unenforceable.
The restraint denier consequently bears the onus of proving that the
enforcement of the agreement is contrary to policy. The court also held
that an agreement in restraint of trade that is contrary to public policy, is
not void, but only unenforceable
28. X, Y & Z buy S’s car for R300000. The parties agree that the car must be
delivered immediately and that the price only be paid in a week’s time. S
delivers the car immediately, but the price isn’t paid after a week’s time. S

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claims R300000 from X. X’s defence is that S must claim R300000 from X, Y
and Z. Discuss X'’ defence. (5)
Joint & Several Liability:

This is normally acknowledged only if parties have contracted to be bound
as debtors, liable both jointly & severally. In this case each of the joint (or
solitary) debtors is liable for the full amount of the debt that is the creditor
can hold anyone of the debtors fully liable. If he so chooses, however, the
creditor can recover a portion of the debt from each of the debtors. If 1 of
the debtors so liable pays the full amount of the debt, the other debtors are,
of course, completely relieved of liability to the creditor.
If 1 of the debtors pays the full debt & obtains cession of the creditor’s
claim, he can then hold the other debtors liable. Even without a cession,
there is authority for the view that he has a similar right of recourse against
the other debtors. The debtor’s right of recourse will furthermore depend on
the underlying relationship & any special contractual term or term implied
by law.
29. Explain briefly what you understand by the Parol Evidence Rule. (6)
Parole Evidence Rule:

Dispute about the contents of the agreement arises often. To settle such a
dispute, the agreement must be interpreted in accordance with the rules set
out for the interpretation of contract s. But where the contract is embodied
in writing, whether writing is required by law or the parties themselves have
stipulated writing, the Question becomes even more difficult. In terms of
the parole evidence rule, the written document is the only admissible
evidence about its contents that is the terms of the written agreement. No
extrinsic evidence (this is evidence going beyond the written document
evidencing the contract) of other agreements may be adduced to indicate
that the agreement was different or to explain precisely what the parties
intended.
30. Discuss “Goldblatt v Fremantle”. (5)
F undertook (orally) to supply G lucerne at intervals. The parties agreed

that F would reduce their oral agreement to writing and that G would
confirm it in writing. F would set out the terms of their agreement in a
letter and asked G to confirm the terms in writing. When G failed to do so, F
stopped supplying G with lucerne. G claimed contractual damages from F.
The Appellate Division held that no contract existed because the parties
intended their agreement to be concluded in writing, which also signing by
both parties.
The intention of the parties with regard to what ‘in writing’ means, is of
course decisive, but in the absence of the evidence about their intention,
the conclusion of an electronic contract that complies with the

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requirements of s12 of the Electronic Communications and Transactions

Act should usually comply with the stipulated formality of writing.
31. X claims R1000 from Y. Y denies that he owes X any thing but nevertheless
sends him a cheque for R250 saying that the cheque offered is “in full
settlement and to avoid litigation”. X deposits the cheque and then institutes
action for the R750. Can X successfully institute action against Y?
If the debtor tenders anything else its not due performance & may be
refused by the creditor. On the other hand, if the creditor accepts it, the
debtor is conditionally released. This is known as in solutum datio.
In solutum mustn’t be confused by novatio (novation). The same applies to
payment in full.
In these facts the courts usually confer from such a phrase that Y is making
an offer to X, that is an offer to pay R250 in full settlement of his debt to X
& X may therefore only accept the cheque subject to the condition which Y
has made. If X should deposit the cheque in his bank account & thereafter
write to Y stating that he has accepted the cheque as partial settlement
only, he can’t enforce payment of the balance of R750.
Would the position have been any different if Y had said in his letter: “I owe you
R250 only? My cheque for this amount is enclosed”? Discuss.
Yes the situation would be different.

X can now safely accept the money & still hold Y liable for the balance,
since Y has made no offer but merely denied that he owes the sum of R750.
32. Sam has been leasing commercial property from Zeek for the past 4 years.
The lease will come to an end on 31 January 2011. On 5 November 2010 Sam
phones Zeek and offers to renew the lease for a further 4 years and then Zeek
accepts. During the call, the material terms of the renewal agreement are
agreed upon and Sam and Zeek agree also that the material terms must be
reduced to writing and signed by both parties. Then on the 5th of December,
Sam is shocked to receive a letter from Zeek, advising Sam that there will be
no renewal of the lease and that Sam should vacate the leased property on 31
January 2011. Sam and Zeek never reduced their oral agreement to writing.
Advise Sam if a binding agreement with Zeek exists, for the renewal of the
lease for a further 4 years. Refer to Goldblatt v Freemantle 1920 AD 123 in
your answer.
Formalities stipulated by the parties

Creation of the contract
The parties to an oral agreement will often agree that their agreement
should be reduced to writing, and perhaps also be signed. In doing so, they
may have either of two very different purposes in mind.

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1. The parties may wish to have a written record of the agreement

merely to facilitate proof of its terms. If so the agreement is binding
even if it is never reduced to writing.
2. Alternatively, the parties may intend that their oral agreement will
not be binding upon them until it is reduced to writing and signed by
them. In this case, the prior oral agreement lacks contractual force
and will become a contract only if or when there is compliance with
the stipulated formalities. Neither party can compel the other to sign
the agreement.
The leading case is Goldblatt v Fremantle. F undertook (orally) to supply G
lucerne at intervals. The parties agreed that F would reduce their oral
agreement to writing and that G would confirm it in writing. F would set out
the terms of their agreement in a letter and asked G to confirm the terms in
writing. When G failed to do so, F stopped supplying G with lucerne. G
claimed contractual damages from F. The Appellate Division held that no
contract existed because the parties intended their agreement to be
concluded in writing, which also signing by both parties.
The intention of the parties with regard to what ‘in writing’ means, is of
course decisive, but in the absence of the evidence about their intention,
the conclusion of an electronic contract that complies with the
requirements of s12 of the Electronic Communications and Transactions
Act should usually comply with the stipulated formality of writing.
33. Y sold a plot to X that bordered on a stream. The parties understood that X
specifically wanted the plot because there were pumping rights in respect of
the stream but a clause to that effect was not inserted into the contract. The
parties merely assumed that pumping rights did exist. Later X discovered that
there were, in fact, no pumping rights. Discuss whether X is bound by the
contract with reference to Fourie v CDMO Homes (Pty) Ltd 1982 (1) SA 21 (A)
(10)
The facts coincide to a large extent with Fourie v CDMO Homes (Pty) Ltd
which dealt with a supposition
If the parties render their agreement dependent on an uncertain event of
the past or an uncertain position in the present, one is dealing with a
supposition. In such an instance there are no obligations subject to a
condition.
Either there are no obligations altogether, or wholly unconditional
obligations, depending on the correctness of the supposition.
If the supposition is correct performance may be claimed and the contract
is completely valid. If the supposition is incorrect neither party can hold
the other contractually liable. Any motive of the parties may be made a
term of their agreement, but it must still be a term of their agreement,
whether express or implied. A motive for concluding a contract does not
qualify as a supposition: the motive must have formed the basis of their

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contract. In the case of a tacit supposition one often is dealing with a so-
called common error or mistake.
In such an instance the parties are in complete agreement which the
contract rests. In the present case the contract will be void because of an
incorrect supposition as was decided in the Fourie case.
(a) Y let premises to X. the lease contained a clause prohibiting X from

subletting the premises without the written consent of Y. A further clause
of the lease required that any variation of the terms of the lease had to be
in writing and signed by both parties. Later Y told X that he could sublet a
portion of the premises. After X had sublet a portion of the premises to a
third party, Y changed his mind and informed X that both X and the third
party must vacate the premises because X had breached the contract.
Discuss X’s position with reference to SA Sentrale Ko-operatiewe
Graanmaatskappy Bpk v Shifren 1964 (4) SA760 (A).
They correspond to a large extent with SA Sentrale Ko-operatiewe

Graanmaatskappy Bpk v Shifren. The question is whether parties may orally
deviate from a written agreement which contains a clause which determines
that the contract may only be varied or terminated in a specific manner. (A
so called non-variation clause)
In such instances the parties have actually set formalities for the
amendment or termination of their contract. The parties to a contract may
also prescribe certain formalities for any variation of their contract. In fact,
it has become an extremely common practice to insert an non-variation
clause in any written contract, the standard wording being more or less as
follows: ‘No variation of this agreement shall be of any force or effect unless
reduced to writing and signed by the parties to this agreement’.
SA Sentrale Ko-operatiwe Graanmaatskappy Bpk v Shifren. Court held non-
variation clause was not against public policy and that no oral variation of
the contract was effective if the clause entrenched both itself and all the
other terms of the contract against oral variation. The purpose of the clause
was to prevent disputes and problems of proof that might otherwise arise if
oral variations were permitted; and it operated in favour of both parties.
The application of the Shifren principle can produce results that appear to
be unjust. E.g: A landlord may orally agree that the tenant can pay the rent
late, but then later cancel the contract on this ground, relying on the non-
variation clause. This has led many courts over the years to attempt to
soften or even circumvent the Shifren principle by invoking doctrines
relating to waiver etc.
More recently, the courts (SCA) have reaffirmed its earlier decision in
Shrifren in the case of Brisley v Drotsky. A non-variation clause operated
for the benefit of both parties and does not detract from constitutional
considerations of equality.
(b) Assume that X and Y did sign a variation of the lease allowing X to sublet a
portion of the premises and thereafter Y changed his mind anyway and

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prohibited X from subletting. Discuss X’s position with reference to Tuckers

Land and Development corporation (Pty) Ltd v Hovis 1980 (1) SA 645 (A).
In this instance Y clearly acts contrary to the agreement between the

parties and commits breach of contract in the form of repudiation.
This form of breach occurs when one party conducts himself in such a
manner that the other party can conclude with reasonable certainty that
the former will not discharge his obligations in terms of the contract.
However, this does not mean that the guilty party must have the subjective
intention to put an end to the contract.
According to the Tuckers decision an objective test is applied.
The question is whether the repudiating party conducts himself in such a
manner that a reasonable person would conclude that he does not have the
intention to honour his part of the contract. In the Tuckers decision the
seller sold two stands in a proposed township. In the meantime the
purchaser paid an amount of money to the seller. Thereafter the seller
amended the plan of the township in such a way that the two stands were
omitted. The purchaser succeeded in his claim for restitution on the
grounds of the seller’s repudiation of the contract. The same will apply to
the present case.
It should also be remembered that the usual remedies for breach of contract
will be available to the injured party, namely specific performances or
cancellation and damages in either case.
c) Discuss tacit terms, tacit implied terms from the facts, with reference to the
description of tacit terms, the hypothetical bystander test and its application,
trade usage and the distinction between tacit terms, express terms and terms
implied by law. Refer to case law in your answer.
In order to create a contract the parties must make their wills clearly
known.
However, once it has been established that a contract has come into
being, a good deal of difficulty may arise in regard to the contents of the
contract. It is not necessary for the parties to make known all the
contents of the contract.
Our courts hold the view that something which the parties regard as
obvious may form part of the contract, even if they have said nothing
about it and even if they have made no other signs or gestures relating to
it.
Our courts usually use the so-called hypothetical bystander test to

determine whether a tacit term can be implied in a contract.
‘a term can only be implied if it is necessary in the business sense to give
efficacy to the contract; that is, if it is such a term that it can be
confidently said that if at the time the contract was being negotiated
someone had said to the parties, what will happen in such a case, they
would both have replied, of course, that would happen, obviously.” Note
that this test was expressly applied in the Van den Berg case but not
directly in the Scholtz case.

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Ito the Van den Berg case, A and B entered into an agreement for the sale
of a farm and shares in a brick-producing factory on the farm.
At a later date the parties decided to cancel the agreement.
Thus the cancellation agreement was therefore the second agreement.
But A had already paid R10 000 which he sough to recover. The second
agreement did not provide for the return of that which had already been
delivered.
Thus the issue in this case was whether a tacit term providing for the
return of that which had already been delivered formed part of the
contract.
It was held that such term could be read into the contract.
Our courts are slow to read such term into a contract, and will only do so
when satisfied that the term falls within the intention of the parties, as
appears from the express provisions of the contract and the surrounding
circumstances.
The court then referred to the hypothetical bystander test.
In this case, had the parties contemplated cancellation in these
circumstances, they would have provided for return of money already
paid. They are therefore deemed to have intended this term.
The facts of the Scholtz case were briefly as follows:

Buyer bought a bull from the seller for stud purposes.
However, it later became clear that the bull was infertile.
The buyer then cancelled the contract of sale and tendered return of the
bull against return of the purchase price.
Such cancellation took place a year after the sale of the bull.
The buyer further alleged that he was entitled to cancel since the seller
guaranteed him the fertility of the bull.
According to the seller, the buyer’s right to cancel had already prescribed
at the time he attempted to cancel.
The buyer’s action was based on the aedilitian remedy of actio
redhibitoria and that it had already prescribed.
The AD held that the buyer did not rely on the redhibitoria (but on the
contract) and therefore his claim had not prescribed.
Furthermore, the seller had tacitly guaranteed that the bull he sold was
fertile. The buyer therefore had brought the actio empti which had not
prescribed.
34. Write notes on:

A supposition in a contract. (5)
In the case of a suspensive condition the operation of the obligation is

rendered dependent on a future uncertain event. Parties may, however,
arrange their relationships with reference to an uncertain event of the past

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or an uncertain position in the present. This situation is referred to as a

contract subject to a supposition.
In such a case there are no obligations subject to a condition: there are
either no obligations whatsoever or there are wholly unconditional
obligations, depending on the correctness of the supposition.
If it’s possible, nothing is lacking as regards the contract, the performances

are due immediately. If it is not possible, no obligations whatsoever are
created by the contract: neither of the parties may sue the other on the
contract. Any motive of the parties may be made into a term of their
agreement, & the creation of their obligations may be rendered dependent
on the truth of the supposition which the parties incorporated in their
contract.
Note that it must always be a term of the agreement: it must be
incorporated in & form a part of the contract between them, either
expressly or tacitly. It is not enough that the parties may have had a
particular motive in mind in entering into the contract: the motive must as
it formed the basis of the contract.
35. Discuss “unfair contracts” with reference to case law. (10)
The unfairness or unreasonableness of a contract (or clause) towards one of

the parties as well as the interest that the other party seeks to protect with
the contract, are taken into account (Barkhuizen).
Notions of fairness, justice and equity, and reasonableness cannot be
separated from public policy. Public policy is informed by the concept of
ubuntu.
What is the role of principle of good faith plays in determining what is fair
and reasonable in a contract. Good faith has been recognised as a
fundamental principle that underlies the law of contract and informs its
various rules and principles, including those regarding illegality.
Although good faith may have a subjective or objective meaning,
commentators have suggested an objective test: has the one party so
unreasonably and one-sidedly promoted his or her own interest at the
expense of the other party that this infringement of the principle of good
faith outweighs the public interest in the enforcement of the contract?
The unfairness and unreasonableness of a contract is in itself insufficient
reason for declaring the contract contrary to public policy, as the courts do
not have a general equitable jurisdiction to declare unfair or unreasonable
or unconscionable contracts invalid.
In Sasfin (Pty) Ltd v Beukes, two contractual terms gave S (a financier)
immediate and effective control of B’s income as a doctor. B was
furthermore not able to end this situation; only S could. The contract gave
protection to S beyond what was reasonably necessary to protect its
interest in having security for B’s indebtedness. The Appellate Division
found that the terms placed B in the position of a virtual slave working for
the benefit of S. The court concluded:
An agreement having this effect is clearly unconscionable and incompatible
with the public interest, and therefore contrary to public policy.

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In Barkhuizen, a time limitation clause in a short-term insurance policy

released the insurer from liability of the insured failed to server summons
on the insurer within 90 days after the insurer repudiated a claim
submitted under the insurance policy. Such a clause limits the right of the
insured to seek legal redress. Court found that this right is not only a
constitutional right, but also constitutes a public interest.
The legislator granted the courts and equitable jurisdiction in the Consumer
Protection Act. Section 48(1)(a) prohibits a supplier from offering goods or
services at an unreasonable price or on terms that are unfair, unjust and
unreasonable.
Examples:
• If the contract is so excessively one-sided in favour of the party other
than the consumer;
• If the contract is so adverse to the consumer as to be inequitable;
• If a term is unfair, unreasonable or unconscionable;
• If the attention of the consumer has not been drawn to the fact,
nature or effect of certain terms of the contract.
A court may take the following factors into account to determine whether
the contract is in whole or in part unconscionable, unjust, unreasonable or
unfair:
• Circumstances of the contract that existed or were reasonably
foreseeable at the time the conduct occurred or the contract was
concluded;
• The conduct of the parties respectively;
• Whether the consumer had to do anything that was not reasonably
necessary for the legitimate interest of the supplier as a result of the
conduct of the supplier;
• The fair value of goods or services;
• The amount for which and circumstances under which the consumer
could get identical goods or services from a different supplier;
• Whether the goods were manufactured.
Unfair enforcement of a contract

The unfair enforcement of a contract could be contrary to public policy. In
Brisley v Drotsky, the Supreme Court of Appeal assumed, that the Sasfin
principle could be extended to the enforcement of contractual terms. The
parties had concluded an oral agreement contrary to a non-variation clause
in a lease agreement. The lessee was late in payments of the rent in reliance
on the oral agreement, but after accepting late payment for five months,
the lessor cancelled the lease. The court found that the lessee’s case fell far
short of the requirement of exceptional unfairness.
Court held, that the enforcement of a clause would be invalid if the
enforcement was so unfair or unreasonable in the circumstances that its
enforcement was contrary to public policy.
36. Name 5 forms of breach of contract. (5)

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(1) default by the debtor (mora debitoris) (negative malperformance)

(2) default by the creditor (mora creditoris) (negative malperformance)
(3) positive malperformance
(4) repudiation
(5) prevention of performance
37. S sells his house to P and the parties conclude a contract of sale that
complies with formal requirements. Thereafter, S receives a higher offer for
the house from Z, which he also accepts and the parties concludes a contract
of sale that also complies with the formal requirements. Z is unaware of the
contract between S and P and sells his own house and proceeds to contract a
removal company to assist him with the move at a price of R20000. Z doesn’t
work for 3 days during the move. He earns a R1000 on average per day as an
insurance broker. When Z arrives at the house of S to take occupation, he
finds that it is already occupied by P, advise Z fully. (10)
This falls under the concept of damages. Thus Z can sue for damages.
1. Breach of contract has occurred.

2. That innocent party has suffered damages
3. That there is a causal link between the breach & the damage
4. That the damages are general damages.
In case of breach of contract 1 compares the present value of innocent
party’s estate with the value it would have had, had contract been carried
out properly & on time. If present value is less than it would have been,
damage has been suffered. Debtor must place creditor in same position he
would have been if the contract was complied with. This formula for
damages is referred to as Positive Interest.
Patrimonial loss is not only the diminution of a person’s assets but also the
amount by which it might have been enlarged. Patrimonial damage is
referred to as the person’s entire interest in the contract.
Damnum emergens: That is the amount actually lost the amount by which
the person’s assets have been diminished (actual damage).
Lucrum cessans: Loss of profit or prospective damage.
These 2 doesn’t have much effect in assessing damages. What is to be

assessed it the extent of the damage, namely whether the estate of the
injured party is smaller now than it would have been if breach hasn’t
occurred.
Factual causality:
There must be a causal connection between the breach & damage. Conditio
sine qua non test (But For Test) Factual Causation:
A certain result is caused by a certain act if that result would not normally
have ensued but for such act.
Legal Causality:
May the innocent party hold the other party liable for all the consequences
of breach – public policy & Policy considerations.

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After causality has been established the Question arises whether the
innocent party may hold the other party liable for all the consequences of
the breach. For fairness for the guilty party, a line must be drawn between
damages caused by his breach & for which he’s liable, and damages which,
although caused by breach, are so remote from it that he shouldn’t be held
liable for it.
General Damages:
Are those damages which flow naturally & generally from the specific kind
of breach that has been committed, & the law presumes that the parties
contemplated them as a probable result of the breach. Party that commits
breach is held liable, without further ado, for general damages.
Difference between general & special damages was concluded in the
Holmdene Brickworks Case.
Special Damages:
Are those damages which do not flow naturally & generally from the specific
kind of breach. Party that commits breach will be liable for special damages
in certain circumstances. To ascertain the circumstances, 2 principles can
be applied, namely the contemplation principle & the convention principle.
Contemplation Principle:
In terms of this principle, the liability of the party who commits a breach of
contract is limited to those damages which can fairly be said to have
actually been contemplated by the parties, or my reasonably be supposed to
have been contemplated by them as a probable consequence of a breach of
contract. To establish what parties actually contemplated or may be
supposed to have contemplated regard may be had to the subject matter &
terms of the contract itself, or the special circumstances known to both
parties at the time they contracted.
Convention Principle:
This principle limits the liability of the party who commits a breach of
contract to those damages which the innocent party can prove as having
been agreed on between them, explicitly or presumably. The parties must
have contracted from the premise that such damages would be paid. Thus
innocent party has to prove either an express or an implied provision
concerning the damages. In terms of case law it appears that liability for
special damages is ltd by means of the convention principle – Shatz
Investment Case.
Authors are of the opinion that it should be limited by the contemplation
principle.
Duty to limit, prevent or mitigate damage or loss:
Duty of injured party to prevent or mitigate the damages. But 1 should only
do what is reasonable. Guilty party not liable for damages which injured
party could have limited or mitigated by exercising reasonable care. Onus is
on party in breach to prove that the injured party didn’t act reasonably.
Reasonable expenditure to mitigate damage or loss is recoverable.
38. Write notes on:

The exceptio non adempleti contractus. (10)
Exceptio non adimpleti contractus:

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This is a defence which occurs in the case of reciprocal contracts, that is

contract s in which the parties create obligations in terms of which the
parties must either perform simultaneously or the 1 must perform before
the other.
Where a party is sued for performance he (Defendant) may withhold

performance until the claimant has tendered proper performance or has
performed fully, provided that the claimant has to perform 1st or
simultaneously by raising the defence of the exceptio. The right to withhold
performance is referred to as the exceptio non adimpleti contractus. This is
a form of Specific Performance.
This is only available as a defence when a reciprocal contract requires both

parties to perform simultaneously or requires the Plaintiff to perform before
the Defendant. If at the time of the action the Plaintiff’s duty to perform is
not yet enforceable the Defendant can’t raise the exceptio.
Eg’s:
1. Cash sale
2. Credit sale
3. contract of lease
4. contract of mandate
5. contract of service
When this defence can be raised:

1. Where a Plaintiff has not performed at all: Defendant can raise this
defence against the Plaintiff who has not performed at all is fair &
reasonable.
2. Where the Plaintiff has performed defectively & the contract is upheld:
To allow Defendant who has accepted & is using the Plaintiff’s
performance to raise the exceptio against the Plaintiff’s claim for
counter performance might operate extremely unfairly against the
Plaintiff. The Defendant will have the benefit of the Plaintiff’s
performance while the Plaintiff will receive nothing in return.
(2) Above creates a Problem & the Solution to the problem is found in BK
Tooling Case:
Any contracting party has in principle a right to the Specific Performance

undertaken by the other party in other words he has a right to enforce the
contract strictly according to its terms. Right of party to a reciprocal
contract to withhold his own performance until other party performs in full
is a powerful weapon to enforce full performance. In principle, a Defendant
who has accepted the Plaintiff’s defective reciprocal performance is still
entitled to raise the exceptio non adimpleti contractus against Plaintiff’s
claim. Where fairness so requires, a court may, at its discretion, refuse to
allow a Defendant to raise the exceptio & order him to render a reduced
counter performance.

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Plaintiff in action based on reciprocal contract must where he upholds the

contract have his pleadings in order & he must:
1. Allege in his particulars of claim that he has rendered full performance
from his side or he must tender full performance.
If he’s unable to prove that he has indeed performed in full & wishes the
court to exercise its discretion in his favour by awarding him a reduced
counter performance, he (Plaintiff) must allege & prove:
1. That the Defendant is utilising (using) the defective performance.
2. That the circumstances exist which render it fair that the court should
exercise its discretion in his favour.
3. By how much the counter performance must be reduced. (Market value of
the thing).
Where contract is cancelled: If the breach is sufficiently serious the

innocent party may cancel the contract. Parties must restore what has been
received & innocent party then has an action for damages.
Where a contract which has created an obligation to do something e.g.,
building a house, is cancelled by innocent party restoration of what has
been received is impossible. Thus the innocent party derived some benefit
from the other’s incomplete or defective performance, but as contract has
been cancelled the guilty party is now unable to claim a reduced counter
performance, cancelled contract can’t be enforced. The Plaintiff has a
remedy for unjustified enrichment. He may recover in terms of his action
the amount by which the Defendant was actually enriched at his expense or
the amount by which he himself has been impoverished whichever is the
smaller.
39. Discuss the principle of reciprocity. (5)
Principle of Reciprocity:
Contract’s can be divided into unilateral & bilateral contract s. A contract is
unilateral (contract of donation) when 1 party only assumes a duty to
perform, whilst it is bilateral (contract of sale) when both parties assume
such a duty.
Bilateral contract s is divided into reciprocal contract s (contract of sale &

contract of lease) & contract s that are not reciprocal (contract of loan).
Reciprocal contract’s is essentially aimed at accomplishing an exchange of
performance - contract of sale for e.g. is aimed at effecting the exchange of
specific thing for specific sum of money - & the implications of this
characteristic of reciprocal contract’s is that there is no duty on 1 party to
perform unless the other party counter performs. This means that 1 party
to this contract has a right to either hold his performance until the other
party performs unless of course he has agreed to perform 1st.
The defence to which this right to withhold performance gives rise is known
as the exceptio non adimpleti contractus.

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40. Write notes on:

The court’s discretion to refuse an application for specific performance. (10)
Specific Performance:
Performance of that which the parties agreed to in the contract.
When Specific Performance will not be ordered:

Whenever Specific Performance is claimed by a party to the contract, court
has a discretion to grant or refuse the order. This discretion of the court
isn’t confined to specific types of cases, nor is it circumscribed by any rule.
Each case must be judged in the light of its own circumstances.
Specific Performance will NOT be ordered in the following circumstances:

1. When Specific Performance has become impossible. (“Peters Case”).
2. Where it is impossible for the court to control Specific Performance.
3. Undue hardship
4. Inability to fulfill obligations.
5. Where it concerns the freedom of the individual.
41. X and Y are involved in a protracted negotiation to conclude an intricate

software contract; X spends R8000 to do the required calculations. The
parties are very close to agreement when Y suddenly breaks off negotiations.
Can X institute action against Y? Discuss. (4)
Yes X can institute action against Y for damages.
Requirements for Damages:

General Damages:
contemplated them as a probable result of the breach.
Party that commits breach is held liable, without further ado, for general
damages.
42. Discuss the concept of “Reasonable Time” with regards to mora debitoris.
(10)
This is when if the debtor neglects or fails to perform timeously in other

words, when performance is due, where performance remains possible in
spite of such failure he is guilty of breach of contract.

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Reasonable time falls under Mora Ex Persona which 1 of the 2 forms of Mora
Debitoris.
Mora ex persona:
This occurs where no date for performance has been fixed.
Where no date for performance has been fixed the debtor must perform
within a reasonable period after the conclusion of the agreement. But if he
fails to do so, he’s not automatically in mora. When contract is silent about
a time for performance, & debtor fails to perform within a reasonable time
the creditor must fix a time by making a demand (interpellatio) on the
debtor to perform at a specified time. When this time arrives & debtor fails
to perform he falls in MORA EX PERSONA. Time fixed in the demand must,
however, leave debtor a reasonable period for performance, reasonable, that
is, taking into account the circumstances of which the parties were aware
when the contract was concluded or which they could reasonably have
foreseen at that time. If time in the demand isn’t reasonable, the demand is
ineffective & a fresh demand has to be made by the creditor.
What will constitute a reasonable period?

Nel v Cloete:
In casu it was decided that in determining a reasonable period for
performance, only circumstances known to the parties at the time of
contracting or reasonably foreseeable at the time can be taken into
account.
FACTS:
Contract concluded for purchase of house. Nel paid Cloete full Purchase
Price. Cloete delayed transfer because title deed was missing. He had to
apply for a new 1. At time of contract neither of the parties knew of the
situation. Nel gave Cloete a 2 month period to sort everything out. Court
held that it was a reasonable period thus Nel could cancel contract.
43. Write notes on the 2 principles, which can be applied to determine whether a
party who commits breach of contract will be liable to pay damages for special
damages. (10)
Special Damages:
kind of breach.
Party that commits breach will be liable for special damages in certain
circumstances. To ascertain the circumstances, 2 principles can be applied,
namely the contemplation principle & the convention principle.
1. Contemplation Principle:

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contract.
To establish what parties actually contemplated or may be supposed to have

contemplated regard may be had to the subject matter & terms of the
contract itself, or the special circumstances known to both parties at the
time they contracted.
2. Convention Principle:
have contracted from the premise that such damages would be paid.
Thus innocent party has to prove either an express or an implied provision

special damages is limited by means of the convention principle – Shatz
Investment Case.
Authors are of the opinion that it should be limited by the contemplation
principle.
44. Write notes on:

The difference between mora creditoris and prevention of performance. (5)
Mora Creditoris:
Creditor can also commit breach of contract by acting wrongfully. Where his
co-operation is necessary for the fulfillment of the obligation of the debtor,
the creditor is guilty of breach if he fails to co-operate timeously &
performance remains possible.
Prevention of Performance:
This takes place where performance is made impossible by a contracting
party after conclusion of the contract. It’s a form of anticipatory breach of
contract since it can take place either before, on or after the date set for
performance.
Debtor = commits this where the object which must be performed is
destroyed as a result of his fault.
Creditor = commits this where performance becomes impossible as a result
of his delay.
Absolute / Objective prevention of performance:

Where performance is prevented permanently & as regards everyone.
45. John is the owner of a vacant stand and he concludes a contract with a
builder, Peter. In terms of which Peter must build him a house on the stand
according to a plan supplied by John. In terms of the contract, Peter must

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complete the house by the 1st of July. Peter will be paid in full on the
completion of the building. Peter completes the building on the 1st of July
but it transpires that the house is 15 square meters smaller than the
specifications required by the plan. Peter claims the full contract price from
John. Advise fully. (15)
This breach of contract is a form of Positive Malperformance.
Positive Malperformance:
This is performance of something which doesn’t comply with the terms of
the contract or it is the doing of something which the contracting party
undertook not to do.
2 Forms of Positive Malperformance:

1. The debtor tenders faulty or defective performance.
2. Debtor does something he isn’t permitted to do in terms of the
agreement.
Legal Remedies:
1. Creditor may retain the defective performance & sue for damages to
compensate for the loss caused by the defect.
2. He may reject the defective performance & claim proper performance.
3. He may reject the defective performance & claim damages from the other
party as compensation.
4. He may resile from the contract if he has reserved to himself a right to
resile OR if the breach of contract is so serious that he can’t reasonably
be expected to abide by the contract & be satisfied with damages.
Here John has the remedy of the Exceptio Non Adimpleti contractus.
Exceptio non adimpleti contractus:

This is a defence which occurs in the case of reciprocal contracts, that is
contracts in which the parties create obligations in terms of which the
parties must either perform simultaneously or the 1 must perform before
the other.
Where a party is sued for performance he (Defendant) may withhold

performance until the claimant has tendered proper performance or has
performed fully, provided that the claimant has to perform 1st or
simultaneously by raising the defence of the exceptio. The right to withhold
performance is referred to as the exceptio non adimpleti contractus. This is
a form of Specific Performance.
This is only available as a defence when a reciprocal contract requires both

parties to perform simultaneously or requires the Plaintiff to perform before
the Defendant. If at the time of the action the Plaintiff’s duty to perform is
not yet enforceable the Defendant can’t raise the exceptio.

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What would the position be if John only discovered the defect in the house after
he had paid Peter in full. Advise Peter. (5)
John would be entitled to damages.
Requirements for damages:

General Damages:
damages.
46. P buys a fridge from S for R500 on 18 October. P pays the purchase price
immediately. They agree furthermore that P will fetch the fridge on 20 October
at S’s house. P fails to turn up at S’s house on 20 October. S is very glad
because he has found another buyer who is prepared to pay R1000 and he
cancels the contract immediately. Was S entitled to cancel the contract and
did S breach the contract by doing so? Discuss. (10)
Since P failed to turn up, he was late & fault lies with him, which
constitutes mora debitoris.
Mora Debitoris:
If the debtor fails to perform timeously in other words, when performance is
due, where performance remains possible in spite of such failure he is guilty
of a breach of contract called Mora Debitoris. He is then in mora. MD relates
to the time of performance alone & not to the nature of performance. For
Mora Debitoris to arise the debt must be due & enforceable.
Mora Debitoris occurs:

When there is a delay in performance when the date of performance is fixed
& that day has arrived.
2 Types:
1. Mora Ex Re: This occurs when a day for performance is fixed by the
contract & the debtor fails to perform on or before such day.
2. Mora Ex Persona: Occurs where no date for performance has been fixed.
S is now entitled to damages from P, because P was in Mora.


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General Damages:
damages. S could cancel.
47. Write notes on:

a) The difference between general damages and special damages. (5)
General Damages:
damages. Difference between general & special damages was concluded in
the Holmdene Brickworks Case.
Special Damages:
kind of breach.
b) Restitution by the party claiming rescission of a contract due to the other

party’s breach of contract. (5)
Rescission of a contract:
This is a juristic act as a result of which the consequences of a valid © are
terminated. Where an obligation is not fulfilled the obligation is
extinguished when the contract is cancelled.
Impossibility of restitution:
If Party who can resile makes restitution of what he has received impossible
he forfeited his right to rescission. But he may resile if he is not to blame
for inability to restore, provided that returns the surrogate, if any, of what
was to have been restored. Party who wishes to resile may do so in certain
circumstances where the return of the performance which he received has
become impossible through no fault on his part. This principal also applies

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if the innocent party resiles because of the other party’s breach & can’t
thereafter make restitution of what he has received under the contract.
c) Special damages for breach of contract. (5)
Special Damages:
kind of breach.
1. Contemplation Principle:
contract.
To establish what parties actually contemplated or may be supposed to have

contemplated regard may be had to the subject matter & terms of the
contract itself, or the special circumstances known to both parties at the
time they contracted.
2. Convention Principle:
have contracted from the premise that such damages would be paid.
Thus innocent party has to prove either an express or an implied provision

special damages is limited by means of the convention principle – Shatz
Investment Case. Authors are of the opinion that it should be limited by the
contemplation principle.
48. B builds a swimming pool for O. Parties agree that the pool must be
completed on 27 July 2006. Contract price is R20000 and O pays R5000
upon signing the agreement. On 27 July B and O inspected the pool, but O
isn’t satisfied. Paving around the pool is covered in cement splotches and pool
requires another layer of paint. O is of the opinion that B has committed
breach of contract. He refuses to pay B a cent further and forbids B to set foot
on the premises again.
(a) Did B commit breach of contract? Substantiate answer. (4)

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Yes, positive malperformance has been committed. This is performance of

something which doesn’t comply with the terms of the contract or it is the
doing of something which the contracting party undertook not to do.
There are two forms of Positive Malperformance:

1. The debtor tenders faulty or defective performance. (This 1 applies here)
2. Debtor does something he isn’t permitted to do in terms of the
agreement.
(b) Can O cancel the agreement? Substantiate answer. (2)
Yes.
1. Creditor may retain the defective performance & sue for damages to
compensate for the loss caused by the defect.
2. He may reject the defective performance & claim proper performance.
3. He may reject the defective performance & claim damages from the other
party as compensation.
4. He may resile from the contract if he has reserved to himself a right to
resile OR if the breach of contract is so serious that he can’t reasonably
be expected to abide by the contract & be satisfied with damages.
(c) Did O commit breach of contract if you assume that O may not validly cancel
the agreement? Substantiate your answer. (2)
What remedy/s does O have at his disposal Where B institutes action for the
balance of the purchase price and the agreement isn’t cancelled? Substantiate
answer. (6)
O has the remedy of damages to his disposal.

General Damages:
damages.
49. Discuss the concepts mora ex re and mora ex persona.
This occurs if a day for performance is fixed by the contract and the debtor
fails to perform on or before such day. He is then automatically in mora (in
default), because dies interpellat pro homine (the day makes demand

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instead of the man). The debtor is only in mora ex re if it was the intention
of the parties that he should perform on or before the specified day. The
intention of the parties may be expressed in an express or tacit contractual
term. In addition the day must be a dies certus an ac quando, that is to say,
a specific day which is bound to arrive at a certain time. In fact, the debtor
must be able to establish beforehand precisely when he is expected to
perform. An example would be where the contract stipulates that
performance will take place on the 1st of June and the debtor fails to
perform on or before the said date.
The debtor can be in mora only as regards a due debt. Thus where the
obligation is subject to a suspensive time clause or a suspensive condition
there can be no question of mora before the time agreed on arrives or the
condition is fulfilled. Nor can the debtor be liable on the ground of mora
where the obligation is merely a natural obligation, such as a wagering debt
or a debt which has become prescribed, or where the debtor has a valid
defence against the creditor's claim, such as the exceptio non adimpleti
contractus, in the case of a reciprocal agreement where performance of the
parties must be simultaneous, the creditor must, in his demand, tender
performance, otherwise his claim can always be defeated with the exceptio
non adimpleti contractus.
The delay must be due to the fault of the debtor. It must be imputable to
him, for example, because he himself was responsible for the delay or did
not take the necessary precautions against the delay. The debtor will not be
liable for breach if the delay was caused by force over which he had no
control or by the acts of people for whose conduct he cannot be held
responsible. Such circumstances provide the debtor with an excuse for his
delay in performance. Where the delay is permanent and not due to the
fault of the debtor, we are dealing with supervening impossibility of
performance, which, from the debtor's point of view, serves both to release
and to excuse him - it releases him in that it terminates the obligation and
excuses him in that the debtor cannot be in mora. Where the delay is
merely temporary and is not due to the fault of the debtor, it does not
automatically release him, but merely excuses him - there is an excusatio a
morae. Where the delay is in fact the debtor's fault, he is guilty of breach of
contract, whether in the form of mora debitoris or prevention of
performance.
Mora ex persona occurs where no day for performance has been fixed.
Where no day has been fixed for performance, the debtor must perform
within a reasonable period after the conclusion of the agreement.
However, if he fails to do so, he is not automatically in mora. When a
contract is silent about a time for performance, and a debtor fails to
perform within a reasonable period the creditor must fix a time by
making a demand (interpellatio) on the debtor to perform at a specified
time. When this time arrives and the debtor fails to perform he falls in
mora ex persona. The time fixed in the demand must, however, leave
the debtor a reasonable period for performance; reasonable, that is,
taking into account the circumstances of which the parties were aware
when the contract was concluded or which they could reasonably have
foreseen at that time. If the time in the demand is not reasonable, the

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demand is ineffective and a fresh demand has to be made by the

creditor. A court will not amend the original period to what it
considers reasonable. A demand (interpellatio) is a notice from the
creditor that he requires performance within a stipulated period, which
must be a reasonable period. (Nel v Cloete) In this case it was decided
that in determining a reasonable period for performance, only
circumstances known to the parties at the time of contracting or
reasonably foreseeable at that time can be taken into consideration.
Although there are indications in our law that an oral demand is
permissible, our practice requires a letter of . The demand may be
made judicially (intra iudicialis) by means of a summons, or in writing,
which does not constitute a summons, extra iudicialis. Because the
demand fixes a reasonable time within which performance must take
place, the debtor is in mora only if, after the lapse of the time fixed in
the demand, he has not yet performed.
In Barron, however, the view was held that where “time is of the
essence'', this means that it is obvious that performance must take
place on a certain date without that date being mentioned, and that if
a reasonable time has elapsed, no demand is necessary for the
acquisition of a right of rescission.
50. Write notes on:

The reduction of a penalty amount in a contract (5)
The penalty is not necessarily enforceable to its full extent, since Sec 3 give
the court the power to reduce the penalty amount to what it deems
“equitable”.
The person who bears the onus of proving the excessiveness or otherwise of
the penalty stipulation:
The onus is on the debtor to prove that the penalty is out of proportion to
the prejudice suffered by the creditor & that it should consequently be
reduced. Once the debtor has made out a prima facie case that the penalty
is excessive, there is an onus on the creditor to lead evidence in rebuttal of
the debtor’s prima facie case.
Reduction comes into Question only when it is apparent to the court that
the penalty is out of proportion to the prejudiced suffered by the innocent
party.
Application of the exceptio doli (5)
Definition:
The exceptio doli is a defence introduced in about 200 BC which could be
raised by a Defendant if the Plaintiff had acted contrary to the requirements
of good faith at the moment the contract was entered into, or at the
moment of enforcing the action. This made the exceptio doli the means of

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ensuring that an equitable decision was reached. The exceptio doli brought
the requirements of good faith into the law of contract.
Application:
In the Bank of Lisbon Case the Question arose whether the exceptio doli
could be raised as a defence in order to obtain an equitable decision. The
Appellant Division came to the conclusion that the exceptio doli didn’t
Security cession (4)
Cession is the transfer of a personal right by means of an agreement.
Cession may also be used as a form of security.

E.g.: A owes B a R100. B in his turn owes C R80. As security for the latter
debt B cedes to C his claim against A with this proviso that C should re-
cede to him, B, the claim against A as soon as he pays back the R80. Should
B fail to settle his debt to C, C is entitled to enforce the ceded claim against
A. The transaction between B & C is known as an out-and-out security
cession in securitatum debiti. A security cession can also be in the form of
a pledge. The dominium of the right is restrained by the pledgor (cedent)
while only the quasi-possession is transferred to the pledgee (cessionary).
The pledgee can realise (sell) the right to enforce it against the debtor when
the pledgor fails to pay the debt he owes the pledgee.
Novation (Novatio):
This is an agreement between a creditor & a debtor, to an existing
obligation whereby the old debt between them is extinguished & a new
obligation is created in the place of the old one.
E.g.: A has to deliver a horse to B. Parties reach a new agreement that A will
deliver a cow instead of a horse to B. Original agreement is extinguished by
the new agreement.
Write notes on: Set-off (5)
Set-Off (Compensatio):
This is the extinction of debts owed reciprocally by 2 parties.
EG: A owes B R100 & B owes A R80. The R80 can be set of against the R100
which means A owes B R20 after set-off.
There are 4 requirements for set-off:

1. The debt must be similar in nature: 2 monetary debts may set each other
off, 2 debts for delivery of the same kinds of goods may set each other
off.

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2. Liquidated debts: A liquidated debt is an amount which is fixed or can

readily be fixed.
3. The debts must be due: A debt which is already due can’t be extinguished
by one which is not yet due.
4. Debts between the same persons & persons in the same capacity: Debts
must be reciprocal, that is, they must exist between the same parties in
the same capacities. E.g.: set-off a debt owed to each other in their
personal capacities.
51. Discuss “Peters, Flamman & Co v Kokstad Municipality” with regards to

supervening impossibility of performance (5)
Supervening Impossibility of Performance:

If performance becomes impossible after conclusion of the contract, the
obligation is terminated. The object of the claim (personal right), that is the
performance, has been extinguished & with that the claim is terminated.
The General Principle that a debtor is released & excused where

performance becomes impossible through no fault of his own is often stated
differently, namely that the debtor is released where performance is
prevented by vis maior or casus fortuitus.
Vis maior:
This means “some force, power or agency which can’t be resisted or
controlled by the ordinary individual. This term is now used as including
not only acts of nature, vis divina or acts of God, but also the act of man.
Casus fortuitus:
This is “a species of vis maior & imports something exceptional,
extraordinary or unforeseen, & which human foresight can’t be expected to
anticipate, or if it can be foreseen, it can’t be avoided by the exercise of
reasonable care or caution”. E.g.: Legislation.
Peters, Flamman & CO Case:

Facts:
Before World War 1 P & CO contracted with K municipalities to light their
streets for a period of 20yrs. 1915 WW1 broke out & it became impossible
for P & CO to perform their obligations. 1917 their partnership was wound
up. K Municipalities sued for damages for breach of contract.
Held:
As soon as it has became impossible for P & CO to perform in terms of the
©, they were discharged from liability.

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The Judge said it became impossible for them to perform by virtue of an Act
of State (casus fortuitus) & thus their obligations under the contract were
terminated.
52. Distinguish between delegation & cession (4)
Delegation:
Here both rights & duties are transferred by agreement.
(Now the parties change).
E.g.: A and B enter into a contract, A approaches B and asks whether C may
take his place, if B agrees, C takes over all A’s rights and obligations against
B. Consent of all the parties is necessary. When C takes A’s place, the
obligations between A and B is terminated.
Cession:
Every estate consists of rights & obligations, & to a large extent a person’s
economic activities involve the transfer of his rights to others. A claim (a
personal right) is just as much an asset in one’s estate as for e.g. a right of
ownership to a car. For this reason there is a need for the passing of such
assets to other persons, for instance, on the holder’s death, insolvency, etc.
In such cases the claim goes over to the heir, trustee, etc by operation of
law. But it may be of interest to the holder to transfer his claim to
somebody else by means of a juristic act. The juristic act can effect such a
transfer of a personal right (or claim) is known as a cession. Cession is the
transfer of a personal right by means of an agreement.
53. E & O agree that E will work at 1 of O’s hotdog stalls at the FNB stadium
during the variation games of the soccer world cup at remuneration of R2000
per day. Since E who has been unemployed for 6 months is desperate for
money, O guarantees that E will be given this job. But structural defects are
discovered in the stands at the FNB stadium & as a result all the games
scheduled to be played there are cancelled. Advise E. (6)
A valid contract came into being between O & E but due to a vis maior the
obligations of both parties to the agreement was terminated. No one can sue
for breach of contract.
Supervening Impossibility of Performance:

If performance becomes impossible after conclusion of the contract, the
obligation is terminated. The object of the claim (personal right), that is the
performance, has been extinguished & with that the claim is terminated.
Vis maior:
This means “some force, power or agency which can’t be resisted or
controlled by the ordinary individual. This term is now used as including
not only acts of nature, vis divina or acts of God, but also the act of man.
Casus fortuitus:

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This is “a species of vis maior & imports something exceptional,

extraordinary or unforeseen, & which human foresight can’t be expected to
anticipate, or if it can be foreseen, it can’t be avoided by the exercise of
reasonable care or caution”. E.g.: Legislation.
54. James sells a new navigation system to Patrick for R300000 and undertakes
to install it on Patrick’s trawler. James warrants that the system complies
with a number of specifications. Month after James has installed system and
Patrick has paid James the R300000 the trawler is lost at sea during a storm.
3 years later, Patrick finds out that the system didn’t comply with most of the
specifications. Patrick cancels the contract in writing. Letter of rescission is
delivered to James who never reads the letter because the letter is lost
amongst the correspondence on his untidy desk. James refuses to pay Patrick
back the R300000.
The questions for this scenario may vary, but in essence this is breach –
positive malperformance. Discuss. Then remedies for breach and more
specifically cancellation (Swart) and damages (NB).
55. Discuss the current role of the underlying principles in the South African law
of contract
The principle of autonomy has influenced our law and THE principle of our
law of contract today. Our courts have denied that they have a general
equitable jurisdiction to refuse the enforcement of unfair contractual terms,
which are clear and not against public policy (the Bank of Lisbon case).
The courts insist that public policy requires that contracts validly
concluded should be strictly enforced. The principle of good faith currently
plays a lesser role in South African law than the principle of autonomy. The
current legal position after the Bank of Lisbon case is that good faith forms
the foundation of the substantive contractual rules and that its
supplementary operational function is to fill gaps in our law, to clarify any
uncertainty and to extend and adapt existing rules of contract law
Both the conclusion of the contract and the execution of the contract are
relevant here. Misrepresentation, undue influence and duress form a closed
category of instances where consensus has been obtained in an improper
manner, and the courts will probably not extend it to include new.
Our law does not require that the parties have to perform in good faith The
courts use a number of concealed methods to give effect to the principle of
good faith with regard to the consequences of contracts: the interpretation
of contracts, terms implied by law and tacit terms.
The courts use the rules of interpretation of contracts in particular to
ensure that a contract operates fairly and reasonably as far as both parties
to a contract are concerned. These concealed methods are unreliable,
because the principle of autonomy forms the limits within which they can
be applied. The parties can always validly conclude a contract with express

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terms, which are clear and unfair to one of the parties as long as these
terms are not against public policy. The mere fact that the terms are unfair
does not mean that they are also contrary to public policy.
56. X hands in her shocking pink sued jacket at the dry cleaner. Y hands her a
receipt. On the back of the receipt is a clause excluding Y’s liability in the
event of negligent damage to or theft of any goods handed in for dry cleaning.
The same words appear on a big notice board in the shop which is clearly
visible. When X fetches her jacket, she is dismayed to discover that the
jacket’s colour has been changed by the dry cleaning process. Is she bound
by the exemption clause? Discuss briefly. (5)
With so called ticket contracts one of the parties’ issues a ticket on which
certain contractual terms appear. The question is whether the other party
may be held bound to such terms where that party has not signed the ticket
in question. Following the English decisions out courts use a three-legged
test.
- Did the relevant person know that there was writing on the ticket?
- Did he know that the writing referred to terms of the contract?
If both questions can be answered in the affirmative, the terms form part of
the contract. If either question was answered in the negative another
question follows: did the party who issued the ticket take reasonable steps
to bring the reference to the terms to the attention of the other party? In
the present case X will probably be held bound because of the notice board
which also refers to the contractual terms.
57. “Illegal contracts in terms of Statute” - does the statute intend to nullify the
contract OR merely fine the wrongdoer?
A contract is void where the relevant statutory enactment expressly so

provides, example, sale of dangerous weapons.
The particular statute has to be interpreted and the courts take the
cumulative effect of the following factors into consideration in determining
whether the legislator impliedly intended the contract to be void:
• What is the object of the statute and what mischief (harm) is the
statute directed against? If the validity of the contract brings about
the harm the statute is directed against, it is an indication that the
legislator intended the contract to be void.
• Does the enactment impose a criminal sanction? This is usually an
indication that the legislator intended the contract to be void.
However, this is not the case where the sanction provides adequate
protection against the mischief that the statute is directed against.
• Does the enactment merely server to protect the revenue of the
state? If the answer is in the affirmative, it is an indication that the
legislator intended the contract to be valid.

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• Does the provision merely protect individuals or does it involve a

public interest that requires protection by voiding the contract? If the
provision is for the protection of the public, it would be an indication
that the legislator intended the contract to be void.
• What are the consequences of a particular interpretation of the
contract? A balance-of-convenience test is employed that questions
whether nullity of the contract would cause greater inconvenience
and injustice than allowing the legal conduct to stand.
58. On 1 April, X buys a house from Y for R500 000. It is a term of the
contract that transfer will be given within a reasonable time after the
buyer has lodged bank guarantees to secure payment of the purchase
price. X lodges the required guarantees on 1 May, but on 1 August
transfer has not yet been given. On this date X advises Y that he is
resiling form the contract with immediate effect, and is claiming R25
000 damages. Discuss with reference to case law. You may assume that
the contract of sale complies with all the formal requirements
This question is concerned with mora debitoris and repudiation as forms of

breach of contract.
X could rescind the contract on 1 August only if Y were in breach at that
date, and the only type of breach of which Y could have been guilty was
mora debitoris. The first point to be determined therefore, is whether Y was
in mora on 1 August. (NB: Mora debitoris is involved, not mora creditoris.
Two obligations arose from the contract of sale, namely the obligation in
terms of which X has a duty to pay the purchase price (with Y having the
corresponding right to receive payment) and the obligation in terms of
which Y has the duty to give transfer of the house (with X having the
corresponding right to receive transfer). In the first of these obligations, X
is debtor and Y creditor and, in the second, Y is debtor and X creditor.
Therefore, if Y fails to give timeous transfer he is failing in his duty as
debtor and not as creditor. X could, of course, be in mora debitoris if he
should fail to lend his timeous cooperation to the extent that it might be
necessary to enable Y to effect transfer.)
The question: whether Y was in mora debitoris on 1 August: the contract
did not fix a date for performance by Y, with the result that Y could not
have been in mora ex re. The clause requiring Y to give transfer within a
reasonable time after the bank guarantees had been lodged does not fix a
time for performance with the degree of certainty which is necessary for
mora to arise ex re). X had not sent a demand (interpellatio), which means
that Y could not have been in mora ex persona either. Moreover, it cannot
be argued that Y was in mora on the authority of Federal Tobacco Works v
Barron, and the decisions in which that case was followed. Apart from the
fact that some doubt has been cast on the authority of this line of
decisions, they are in any case not in point, as there is nothing in the facts

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of our problem to indicate that time was of the essence to the contract. One
must consequently conclude that Y was not in mora on 1 August and that
X, for that reason, was not entitled to cancel the contract on that date.
Even if Y had been in mora, X would still not have been entitled to cancel,
as the contract did not embody a lex commissoria and X had not given Y a
notice of recission.
The effect of X's attempted cancellation of the contract at a time when he
had no right to cancel - X's cancellation probably amounted to a repudiation
of the contract, in that it unequivocally informed Y that X no longer
intended carrying out his part of the contract. It is not necessary for
repudiation that the person who repudiates should have the subjective
intention to repudiate. It is sufficient if his conduct, objectively assessed,
informs the other party beyond reasonable doubt that the contract will not
be carried out. Mala fides is no requirement. Even if X, therefore, honestly
believed that he was entitled to cancel the contract, he could still be held
guilty of repudiation once it emerged that he had no right to cancel,
provided only that his intention not to continue the contract was clear. Y
would then have the usual remedies on the ground of X's repudiation (1). He
could, for instance, cancel the contract (by accepting the repudiation) and
claim damages, or he could uphold the contract.
59. Critically discuss one of the following cases with regard to damages caused by a
breach of contract:
1. Whitfield v. Phillips 1957 (3) SA 318 (A)
2. Shatz Investments Pty) Ltd v. Kalovyrnas 1976 (2) SA 545 (A)
3. Lavery & Co. v. Jungheinrich 1931 AD 156. (10)
Damages are awarded after a breach of contract. Because of the contract the
creditor had certain expectations which he can claim to have fulfilled. The
aim of the awarding of damages must therefore be, to put the creditor in
the financial position inwhich he would have been had the contract been
properly performed. Although damage can be suffered in different ways
there is only one formula for calculating the damages to which the creditor
is entitled. This entails calculating the financial position in which he would
have been if the contract had been properly performed and then subtracting
his present financial position from that. The creditor can only claim loss
caused by the breach. The plaintiff must establish this causal link between
the loss and the breach of contract. A difficult question which requires
attention is whether the party committing a breach of contract must be
held liable for all consequences flowing from his breach. Our courts
distinguish between general and special damages. General damages are
those which flow naturally and generally from a specific kind of breach. The
party that commits a breach of contract is held liable for general damages
as a matter of course. Special damages, on the other hand, do not flow
naturally and generally from a specific kind of breach. Liability for special
damages is limited by the implementation of either of two principles viz.
the contemplation and convention principles.

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According to the contemplation principle, liability is limited to those

damages which were actually contemplated by the parties or may
reasonably be supposed to have been contemplated by the parties as a
probable consequence of a breach of contract.
The convention principle limits liability to those damages which the
innocent party can prove as having been contracted for. The innocent party
must prove either an express or an implied provision in regard to the
payment of damages. See the comment on the different cases for a more
comprehensive explanation of the two principles.
The purpose of discussing the different cases with regard to special
damages is to ascertain which principle was applied to limit liability and
how it was applied.
Lavery & Co Ltd v Jungheinrich 1931 AD 156

The plaintiff L & Co. claimed damages from the defendant based on the
defendant's breach of contract. The defendant, a manufacturer of steel
scaling-shafts supplied the plaintiff with defective shafts. The plaintiff
resold these defective scaling-shafts and consequently his business
reputation suffered severely. The plaintiff lost its market for scaling-shafts
because many customers who had previously placed orders now refused to
have business dealings with the plaintiff.
Therefore, the question is whether the loss of trade or injury to business
reputation (clearly special damages) “can be said to have been in the actual
contemplation of the parties or may-reasonably be supposed to have been in
their contemplation as a probable consequence of a breach of the contract.”
(Curlewis JA)
From this statement by the judge it appears that the contemplation
principle is being applied in an attempt to decide whether the defendant is
liable for the damages claimed.
On the other hand, Curlewis JA: “But in most cases such special damage
would entirely depend on special circumstances which would have to be
proved before a court could possibly say that such damage can reasonably
be supposed to have been within the contemplation of the parties as the
probable consequence of a breach of the contract...”
From this statament it appears that the judge favours the convention
principle even though he still refers to the “contemplation” of the parties.
However, Curlewis JA goes further and actually indicates what must be
alleged by the plaintiff in order to prove that the special damage was
supposedly within the contemplation of the parties as the probable
consequence of a breach of their contract. He says that:
“It seems to me that to justify that claim for damages the declaration must
at least allege knowledge on the part of the defendant at the time of making
the contract that, if he supplied plaintiff with defective scaling-shafts in
breach of his warranty and if plaintiff resold those shafts, plaintiff's
business reputation would probably be injured and plaintiff would probably
suffer a loss of trade or profitable business, and that the contract was
entered into by the parties on the basis of such knowledge.”

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The plaintiff's declaration did not contain any of these allegations and
based on this reasoning the appeal court confirmed the decision of the
court a quo which had upheld the exception to the claim for damages.
Wessels JA concurred with Curlewis JA in repect to what the decision
should be, but it is nevertheless necessary to draw your attention to certain
statements made in the course of his judgement.
Wessels JA held that the contract must be entered into: “with the
knowledge and in view of these special circumstances”. However, he
qualifies this statement by stating that:
“It must be so far in the mind and contemplation of the parties as virtually
to be a term of the contract.”
“The defendant could only be held liable if he in such a case had contracted
that he would pay damage for loss of business or business reputation in case
the shafts were defective. There is no such allegation in the declaration,
and the exception therefore, was rightly upheld.”
There appears to be support for both the contemplation and convention
principles in both the judgements. However, it has also been suggested that
the weight lies on the side of the convention principle.
On the other hand, nearly all the subsequent cases in our courts that refer
to, or apply Lavery's case including Whitfield mention only the
contemplation principle as expounded by Curlewis JA.
Whitfield v. Phillips 1957 (3) SA 318 (A)

In August 1953 W sold his farm to P and X, the plaintiffs, for £40 000. P and
X informed W that they required the farm for planting and cultivating
pineapples on a large scale. P and X bought one million Cayenne pineapple
plants and commenced preparing the land for planting after the sale had
been concluded. However, W repudiated the sale in October 1953. P and X
sued for damages claiming: (a) the loss of one year's crop from the Cayenne
plants and (b) the loss of crops from Queen pineapple plants that were
already established on the farm at the date of the sale. The court a quo
awarded P and X £12 333 on claim (a) and £2 000 on claim (b). W instituted
an appeal against this award and P and X cross appealed.
The majority held that the loss which P and X had suffered in regard to the
crop from the Cayenne plants must have been in the contemplation of both
parties as a consequence of a repudiation by W; that the award in respect of
claim (a) should stand but that as P and X had not proved that the value of
the Queen pineapple crop did not form part of the consideration for the
purchase price, claim (b) had to fail.
In regard to the question of damages attention is only given to the
limitation thereof. Steyn JA at 329 states that :
“... I shall accept that the loss of the profits which the plaintiffs say they
suffered in respect of the first crop of Cayenne pineapples which they would
have produced on Thorn Park (the farm) had the defendant not repudiated
the sale, would not constitute intrinsic damages, but special or extrinsic
damages;” and would
“... according to the principles applied by this court, be recoverable if it be
shown that it may, in the circumstances attending this sale, reasonably be

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supposed to have been in the contemplation of the parties as likely to result

from its repudiation,”
Hoexter JA in his dissenting judgment at 325 states that: “The question is
not whether the parties contemplated that the plaintiffs would not be able
to buy another farm in time to plant Cayennes during the 1953-4 planting
season, but whether they contemplated that no other buyer would be able to
plant a million Cayenne plants ...”
From these excerpts it should be obvious that the entire court assumed that
a claim for special damages will succeed if the damages were in the
contemplation of the parties at the time of entering into the contract. None
of the qualifications or requirements raised in the Lavery case were
repeated in Whitfield.
Shatz Investments (Pty) Ltd v. Kalovyrnas 1976 (2) 545 (A)

Here K hired premises from S for the purpose of conducting a restaurant
and fast-food business. In terms of the contract S was prohibited from
letting any other premises in the building for a similar purpose. K spent
R14 000 on equipping the premises. Before K had even opened his business,
S let premises to another person in breach of the contractual undertaking.
When this business actually opened, K's business was immediately adversely
affected. A third party had offered to buy the business as a going concern
for R25 000 before the competing business opened but this offer had not
been accepted. K cancelled the contract and after protracted negotiations
sold the fixtures to S for R10 000. He claimed R30 000 from S for the loss
he suffered by not being able to sell the business as a going concern - R10
000 for the fixtures and fittings and R20 000 for loss of goodwill. (1 mark)
The trial court awarded R2 500. S appealed and K cross appealed as to
quantum. K's cross appeal succeeded. The court's decision was unanimous.
The court held that K's claim amounted to a claim for the loss of goodwill
and that as such it was a claim for special damages. (A claim for the net loss
of the rental value of the leased property for the unexpired term of the lease
would be a claim for natural damages which a lessee suffers as the result of
the lessor's breach of contract.) The court held that the convention
principle as stated by Lavery's case was criticisable in certain respects, but
that it could not be reconsidered in the absence of full argument. The
convention principle was therefore to be applied. The court then applied the
principles of Lavery's case to the facts of the present case. The court
inferred from the facts known to both parties at the time of contracting and
the terms of the contract that the parties must have contemplated that the
lessee would want to sell the business as a going concern and so capitalise
on the goodwill. The court then concluded that it could be inferred from the
terms of the contract itself and the other special commonly known
circumstances at the time of conclusion of the contract that the lease was
entered into “on the basis of” or “with a view” to such common knowledge.
It could therefore be reasonably supposed that the parties contemplated
when they contracted that if the lessee was precluded from disposing of the
business through the lessor's breach of contract he would probably lose the
advantage of capitalising on his goodwill and also that the lessor by
contracting on those terms virtually or tacitly assumed liability for such

65
CLS cc
damages. It is clear that the court professes to apply the convention

principle but in actual fact applies the tests of the contemplation principle.
The convention principle:
1. A party is held liable for damages on the convention principle because
the parties tacitly agreed to be liable for damages in the case of
breach of contract by one of them. The convention principle is based
on a fiction for two reasons. The first reason is that the courts usually
apply the hypothetical bystander test in order to determine if there is
a tacit term in a contract, but neither this test not any other test for
tacit terms is applied in any of the cases on remoteness of damages.
The second reason is that the parties to a contract do not usually
contemplate the possibility of a breach of contract at the time of
conclusion of the contract but contemplate performance. The breach
of contract is the real reason for liability.
2. Many writers are therefore in favour of the contemplation theory
There are, however, those who still favour the conclusion of the
contract as the determining time
3. The contemplation principle should be applied at the time of the
breach of contract

66
CLS cc

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1

1. Distinguish an option from a right of pre-emption.

Description: An option may be defined as a substantive offer reinforced by

Breach of an option contract and the consequences thereof are governed

2. Simon lives in Johannesburg, he sends a letter to Peter, who lives in

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The offer must be definite and complete

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An offer must as a rule be directed at a definite person (offeres) or

o after the expiry or lapse of the prescribed time, or of a reasonable

Requirements for a valid acceptance

4. Briefly distinguish simple auction from auction subject to conditions. (5)

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Auction subject to conditions:

5. Discuss whether an advertisement & a promise of reward constitutes an

An NB Question arises in this connection with regard to the legal effect of

There is however, 1 special kind of advertisement which does constitute

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7. State the possible remedies for breach of a pre-emption (4 of them) (3)

Right of pre-emption may be coupled with an option granted by the

The prospective seller may bind himself as against the prospective

Prospective seller may bind himself as against the prospective purchaser

Contract of pre-emption doesn’t place duty on grantor to sell the subject

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should grantor decide to sell. Prospective seller’s capacity to alienate thing

Prospective purchaser also acquires a right therefore, but whereas the

Contract denier is Martin & contract enforcer is Monty. Consensus exists

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should be able to rely on the fact in order to escape liability. Thus

S wants to sell his collection of Beatles compact discs. Since he is offering

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Discuss whether a valid contract arose between S and P with reference to

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In the circumstances S should not be liable because P knew that S

Contract denier is Y & contract enforcer is X.

Consensus exists when:

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A comparison of 2 relevant cases will bring about the answer, namely:

1. George: appellant contended he signed a hotel registrar but he

2. Du Toit: appellant signed an agreement containing a term

According to the given set of facts Y was reasonable in the circumstances

In this theory contractual liability is based on the reasonable reliance that

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the contract enforcer. Fault is not a requirement for this

The criteria for ascertaining the reasonableness of an operative mistake.

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Here, the parties were not in agreement as to the consequences they

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13. The following advertisement appears in the newspaper, the Sunday

“AUCTION TOMORROW MORNING”

At the outset it must be determined whether agreement as a contractual

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Similar mistake question:

The subjective approach of the courts involves the application of the

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successful reliance on estoppel can only give rise to a ‘fictional’ (thus

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two possibilities: Was he actually misled and would a reasonable man