10 Contracts of Sale
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Transcript of 10 Contracts of Sale
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Contracts of Sale
Basic Principles;
pp137 - 154
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Contracts of sale
• Definition– A reciprocal agreement: seller
transfers a thing and all his rights in that thing to purchaser, who pays money in return.
• All rights in the merx?
– Not a requirement that seller be the owner of the merx, need only transfer undisturbed possession.
– Seller must intend to transfer all his rights in the merx to the buyer.
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Essentialia
• Essentialia distinguish a particular type of contract.
• Essentialia of a contract of sale:
– Price
– Subject matter
• The other requirements for a valid contract must also be present.
• Certain contracts of sale may be subject to formalities, eg. sale of immovable property.
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Essentialia contd…
• The object (merx)– Merx must be determined/
determinable at time when sale concluded
– If merx destroyed before contract entered into: no sale possible
– If merx destroyed after contract entered into but before delivery: party bearing risk loses
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Merx contd…
• Merx must be merchantable: must belong to someone and be capable of being sold commercially.
• Merx may be movable, immovable, incorporeal.
• The sale of a non-existent merx is void.
– One may, however, sell a non-existent thing which may come into existence. Eg. sale of a fishing boat’s catch before it goes to sea.
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Price
• Price must be determined or determinable.
– Either a specific price or a method by which price can be determined without reference to parties.
• Payment must be at least partly in money, otherwise not a contract of sale:
– May be a contract of exchange instead.
• Mountbatten Investments (Pty) Ltd v Mohamed 1989 (1) SA 172 (D)
– Test: which is of greater value – goods or money. If same, presumption of sale.
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Passing of ownership
• Only the owner of a merx may transfer ownership
– Nemo plus iuris rule
• Therefore a mala fide seller misrepresents a material aspect of the contract and the contract is voidable.
• If seller is bona fide the contract can’t be set aside.
– The buyer is protected in these circumstances by the implied warranty against eviction.
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When is ownership transferred?
• Passing of ownership requires more than just conclusion of contract.
• Different requirements for movable and immovable property.
• Requirements for passing of ownership in a sale of immovable property:
– Seller must be owner of the property
– Seller must have intention of transferring ownership and buyer must have intention of receiving ownership
– Property must be registered in name of buyer in the Deeds Office
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Ownership in movable property
• Requirements for passing ownership in a sale of movable property:
– Seller must be owner of the merx
– Seller must have intention to transfer ownership and buyer intention to receive ownership
– Effect of delivery depends on whether sale is for cash or credit:
• Cash sale: payment and delivery expected at same time. Ownership passes upon payment and delivery.
• Credit sale: Delivery now, pay later. Ownership passes on delivery.
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Cash sales v credit sales
• It may be difficult to distinguish cash and credit sales:
– This is a question of fact: depends on surrounding circumstances whether parties intended cash or credit sale.
– In the absence of agreement: rebuttable presumption that every sale is for cash.
• Eriksen Motors (Welkom) v Protea Motors, Warrenton 1973 (3) SA 685 (A)
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The passing of risk
• General rule in contracts of sale: risk of destruction of merx passes to buyer once contract is perfecta.
• Any benefit which accrues to the merx passes when the risk passes.
• Parties may vary this common law position by agreement.
• Damage to merx must not be caused due to fault of either party, but due to “acts of god”.
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Passing of risk contd…
• Remember risk and benefit pass to buyer only once contract is perfecta. Contract is perfecta when 3 requirements met:
– Merx must be determined, not merely determinable
– Price must be determined, not merely determinable
– Contract not subject to a suspensive condition
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Rights and duties of parties to a contract of sale
• There are duties placed on the buyer and seller by operation of law in a contract of sale. The parties are free to vary or exclude these by agreement.
Duties of the seller
• Duty of seller to deliver merx
– Delivery may be actual or constructive
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Duties of seller contd…
• Duty of safe-keeping
– In period between conclusion of contract and delivery, seller has a duty to look after the goods.
– Seller liable for harm caused to goods in this period as a result of fault on his part.
• ie. negligence or intentional harm
– If buyer is in mora, seller only liable for gross negligence, intentional harm.
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Duty of safe-keeping contd…
• Risk of accidental damage to goods (not caused by fault of seller) lies with buyer once contract is perfecta.
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The implied warranty against eviction
• Seller of the merx not required to be its owner.
• Seller merely undertakes to transfer undisturbed use of the merx to the buyer.
• Therefore: seller warrants that buyer will not be evicted by a 3rd party with stronger title to the merx.
• This warranty is a naturale of a contract of sale (residual term). It may, however, be excluded by agreement.
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Requirements for the implied warranty against eviction
(a) Notice to the seller
• Buyer must notify seller of threatened eviction. Seller can then assist buyer in his defence against 3rd party.
(b) Buyer must conduct a proper defence
• Referred to as a “virilis defensio”
• Even if seller does not assist buyer, he must put up a proper defence to 3rd party.
– Otherwise may lose right of recourse against seller.
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Requirements contd…
• Reason for this requirement: claim of 3rd party may be refutable and could be resisted.
– If buyer proves claim is irrefutable, he may have recourse against seller without having made a proper defence.
• In the event of eviction:
– Seller must restore price and pay any damages suffered by buyer.
– If value of merx has increased between time of sale and time of eviction, buyer must be paid the difference.
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Requirements contd…
• In the event of eviction contd…
– If buyer has made improvements, may resist claim of 3rd party until 3rd party has compensated him for these.
– But: enrichment may be hard to prove, thus buyer may claim value of improvements from seller if he fails to assist in the defence.
• Lammers & Lammers v Giovannoni 1955 (3) SA 385 (A)
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Warranty against latent defects
• A latent defect in the merx is a hidden flaw which renders merx unfit for the purpose for which it was bought.
• Seller must disclose all latent defects to the buyer, otherwise he must compensate the buyer under the aedilitian remedies.
• Seller is liable for latent defects even if he acted bona fide, hence sellers often include a voetstoots clause in a contract of sale
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Warranty against latent defects contd…
• Voetstoots clauses
– A voetstoots clause excludes liability for latent defects.
– A voetstoots clause will not protect the seller if he acted fraudulently.
• If the buyer knew of the defect at the time of sale, he will have no action against the seller.
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Requirements for warranty against latent defects
(a) The defect must be latent
• Distinguish a latent and an obvious (patent) defect:
– Latent defect not discoverable by a reasonable person upon proper inspection.
– Lakier v Hager 1958 (4) SA 180 (T)
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Requirements contd…
(b) The defect must impair the utility of the merx
• A defect is an abnormal quality which impairs the effectiveness of the merx for the purpose for which it has been sold.
• Sarembock v Medical Leasing Services (Pty) Ltd 1991 (1) SA 344 (A)
• Defect must be “abnormal”
– ie. One would not expect to find such a defect in a merx of that type, age and price.
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Requirements contd…
• If the problem is not abnormal in this sense, then it’s not a defect, even though it impairs functionality of merx.
• Curtaincrafts (Pty) Ltd v Wilson 1969 (4) SA 221 (E)
(c) The defect must exist at time of conclusion of the contract
• Onus on buyer to prove this
• Seboko v Soll 1949 (3) SA 338 (T)
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Remedies for latent defects
• The aedilitian remedies are available for breach of implied warranty against latent defects.
• Action is for purchase price (actio redhibitoria) or price reduction (actio quanti minoris). Usually one can’t claim consequential losses.
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1. Actio redhibitoria
• Available where defect is so material that buyer would not have purchased had she known about it.
• Remedy aims to put parties in position they were before contract was concluded:
– Buyer may claim purchase price, seller may claim merx.
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2. Actio quanti minoris
• Where defect is not material, buyer can only claim price reduction.
– Price reduction = purchase price - true value in defective state.
• Cf. Sarembock v Medical Leasing Services
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Consequential losses?
• Usually there is no claim available for consequential losses under the aedilitian remedies, but in certain circumstances it does exist:
– Seller is aware of defect in goods and fraudulently fails to disclose it.
– Seller is the manufacturer of the goods
– Seller professes expert knowledge of the goods
• Holmdene Brickworks v Roberts Construction Co Ltd 1977 (3) SA 670 (A)
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Duties of the buyer
• Payment of the purchase price
• Accepting delivery