Contracts of Sale

1
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.

3
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.

4
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

5
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
  boats 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 cant 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.

10
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

13
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

• Notice to the seller
• Buyer must notify seller of threatened eviction.
  Seller can then assist buyer in his defence
  against 3rd party.
• 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

• 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 its 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 cant 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